Geographic distance and the impact of investor sentiment on stock prices

Based on China’s stock market, this study investigates how firms’ geographic distance from a financial center affects the sensitivity of stock prices to investor sentiment. I find that firms located closer to a financial center are more affected by investor sentiment than firms located far from a financial center. This distance effect holds for different geographic cutting boundaries and after excluding firms located in financial centers. Besides, using China’s High Speed Railway (HSR) as an exogenous shock, I find that HSR connection significantly decreases the effect of geographic distance on the sentiment-driven stock price relationship. In addition, firms with shorter travel times to financial centers are more affected by investor sentiment than firms with longer travel times. Moreover, firms located in provinces with a high stock market participation rate are more affected by investor sentiment than other firms. And Analysts increase the frequency of favorable recommendations for firms that are located closer to financial centers when investor sentiment is high. Furthermore, firms located closer to a financial center do not have higher institutional ownership than other firms. Last but not least, firms located in more economically developed provinces are not more affected by investor sentiment than firms located in less developed provinces. Overall, my findings highlight the importance of geographic distance in explaining the effects of investor sentiment on stock prices

Two Essays on Investment

This dissertation consists of two essays: one looks at the time-varying relationship between earnings and price momentum, and the other looks at how liquidity and transparency affect the pricing differential between Chinese A-and Hong Kong H-share. The first essay presented in Chapter I investigates the time varying relationship between earnings momentum and price momentum. Using a Markov-switching framework, allowing for variation between high volatility and low volatility states, I find that price momentum is significantly more influenced by earnings momentum in the high volatility state. Further for price momentum I find that loser firms display a higher degree of differential response to earnings momentum across the low and high volatility states than winner firms. Limited financing and investor’s sensitivity to future investment opportunities might explain these two results. A further analysis indeed indicates that loser firms tend to be more financially constrained. Additionally, I investigate the relationship between investor sentiment and the two momentums and find that sentiment only has predictive power for price momentum profits in the low volatility state. Finally, the results are robust regardless of instrument variables. The second essay presented in Chapter 2 examines the impact of liquidity and transparency on the discount attached to H-shares from 2003 to 2011. The higher the relative illiquidity of an H-share, the more the H-share is discounted relative to the underlying A-share price. In addition, more actively traded A-shares and infrequently traded H-shares are associated with a higher H-share discount. Further, increases in the number of analysts following a firm, both in the A-and H- market, are accompanied by a lower H-share discount. Also, a firm with a higher percentage of A-share holdings by mutual funds is associated with a smaller H-share discount. Overall, the results provide support for the notion that liquidity and transparency affect the relative pricing of A- and H-shares

Two Essays on Investment

This dissertation consists of two essays: one looks at the time-varying relationship between earnings and price momentum, and the other looks at how liquidity and transparency affect the pricing differential between Chinese A-and Hong Kong H-share. The first essay presented in Chapter I investigates the time varying relationship between earnings momentum and price momentum. Using a Markov-switching framework, allowing for variation between high volatility and low volatility states, I find that price momentum is significantly more influenced by earnings momentum in the high volatility state. Further for price momentum I find that loser firms display a higher degree of differential response to earnings momentum across the low and high volatility states than winner firms. Limited financing and investor’s sensitivity to future investment opportunities might explain these two results. A further analysis indeed indicates that loser firms tend to be more financially constrained. Additionally, I investigate the relationship between investor sentiment and the two momentums and find that sentiment only has predictive power for price momentum profits in the low volatility state. Finally, the results are robust regardless of instrument variables. The second essay presented in Chapter 2 examines the impact of liquidity and transparency on the discount attached to H-shares from 2003 to 2011. The higher the relative illiquidity of an H-share, the more the H-share is discounted relative to the underlying A-share price. In addition, more actively traded A-shares and infrequently traded H-shares are associated with a higher H-share discount. Further, increases in the number of analysts following a firm, both in the A-and H- market, are accompanied by a lower H-share discount. Also, a firm with a higher percentage of A-share holdings by mutual funds is associated with a smaller H-share discount. Overall, the results provide support for the notion that liquidity and transparency affect the relative pricing of A- and H-shares

Corporate Governance and the Shareholder: Asymmetry, Confidence, and Decision-Making

In the decade following the ten-plus percent stockmarket collapse of 2000, regulators enacted a myriad of regulations in response to increasing angst experienced by U.S. capital market retail investors. Systemic asymmetric disclosures have fractured investor confidence prompting many commentators to characterize the relationship between Wall Street and the investment community on main street as dire. Though copious works exist on the phenomenon of corporate behaviors, especially matters of shareholder welfare, weak boards, pervious governance mechanisms, and managerial excess, current literature has revealed a dearth in corporate governance praxis specific to the question and effects of asymmetric disseminations and its principal impact on the retail/noninstitutional accredited investor\u27s (NIAI) confidence and decision-making propensities. This phenomenological study is purposed to bridging the gap between the effects of governance disclosure and the confidence and decision-making inclinations of NIAIs. Conceptual frameworks of Akerlof\u27s information theory and Verstegen Ryan and Buchholtz\u27s trust/risk decision making model undergirded the study. A nonrandom purposive sampling method was used to select 21 NIAI informants. Analysis of interview data revealed epistemological patterns/themes confirming the deleterious effects of asymmetrical disseminations on participants\u27 investment decision-making and trust behaviors. Findings may help academicians, investors, policy makers, and practitioners better comprehend the phenomenon and possibly contribute to operating efficiencies in the capital markets. Proaction and greater assertiveness in the investor/activist community may provide an impetus for continued regulatory reforms, improved transparency, and a revitalization of public trust as positive social change outcomes