Who Underreacts to Cash-Flow News? Evidence from Trading between Individuals and Institutions

A large body of literature suggests that firm-level stock prices 'underreact' to news about future cash flows, i.e., shocks to a firm's expected cash flows are positively correlated with shocks to expected returns on its stock. We estimate a vector autoregession to examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Our main finding is that institutions buy shares from individuals in response to good cash-flow news, thus exploiting the underreaction phenomenon. Institutions are not simply following price momentum strategies: When price goes up in the absence of positive cash-flow news, institutions sell shares to individuals. Although institutions are trading in the 'right' direction, institutions as a group outperform individuals by only 1.44 percent per annum before transaction and other costs, because they are extremely conservative in deviating from the value-weight market index.

Correspondence

Presents letters to the editor referencing articles and topics discussed in previous issues. "Let Them Eat Stocks," which suggested that laid-off workers be given stock options in lieu of severance pay in the U.S.; "Huddled Excesses," which argued that immigration restriction laid the groundwork for labor's gains in 1920 to 1960 in the U.S.; "Econ 2," which offered views on the issue of minimum wage increase

Time perception and its neuropsychological correlates in patients with schizophrenia and in healthy volunteers

Disordered time perception has been reported in schizophrenia. We investigated time perception dysfunction and its neuropsychological correlates in patients with schizophrenia. Participants comprised 38 patients and 38 age- and sex-matched healthy volunteers who were compared in an auditory temporal bisection paradigm using two interval ranges (a 400/800 ins condition and a 1000/2000 ms condition). In the temporal bisection, subjects were required to categorise a probe duration as short or long, based upon the similarity with two reference durations. All subjects also completed a battery of neuropsychological tests measuring sustained attention, short- and long-term memory and executive function. In the 400/800 ins condition, patients judged durations significantly shorter than did control subjects. Patients also exhibited decreased temporal sensitivity in both conditions. We found in both groups a negative association between temporal sensitivity and sustained attention for the 400/800 ms condition, and between temporal sensitivity and long-term memory for the 1000/200 ms condition. In patients, short-term memory performance was negatively associated with duration judgement in both conditions, while executive dysfunction was correlated to a general performance deficit in the 400/800 ms condition. These findings suggest the possibility that time perception abnormalities in schizophrenia are part of neuropsychological dysfunction and are likely to adversely impact upon activity of daily living. (c) 2008 Elsevier Ireland Ltd. All rights reserved