Do Insiders Trade on Innovation?

We find that pure insider share purchases—which we define as insider purchases over two successive years without any corresponding sales—are a strong predictor of a firm’s patent applications. The predictability increases with the quality of the patent: Applications for the highest-quality, breakthrough patents increase by 21% in the year following pure insider purchases in our sample. These purchases are associated with large abnormal stock returns of 1.1% per month (14% annualized) over the subsequent three-year period. We also document that stock price responds less to the subsequent announcement of the grant of patent if the application for the patent has been preceded by pure insider purchases, consistent with the idea that insider purchases reveal information about future firm innovation. Our evidence has implications for understanding insider trading within technology companies that have become a dominant feature of US stock markets in recent decades

Inventor CEOs and Firm Innovation

Using a novel, manually-collected dataset, we find that firms whose chief executive officer (CEO) is an inventor experience significantly better innovation outcomes, as measured by patents and future citations. We obtain these results in models with firm fixed effects, in difference-in-difference analysis of transitioning CEOs that controls for the CEO fixed effects, and among firms with founder CEOs. Firms led by an inventor CEO also exhibit greater tolerance for failure as indicated by a greater number of both highly cited and uncited patents, and engage more in explorative search strategies that exploit new technological trajectories. Stock market, however, seems unable to fully capture the positive impact of inventor CEOs on future innovation: firms whose CEO transitions to be an inventor experience positive abnormal stock returns, especially during the early years following the transition

Investor sentiment and mutual fund stock picking

The active share of mutual funds drops significantly when investor sentiment is high, indicating that fund managers reduce their active stock selection and stay closer to their benchmarks during such periods. Our evidence is consistent with fund managers being sentiment-prone – challenging the conventional view that it is only the preponderance of retail investors during high sentiment periods that allows sentiment to influence asset prices

The Quality of Analysts\u27 Earnings Forecasts During the Asian Crisis: Evidence from Singapore

We bring together three disparate strands of literature to develop a comprehensive empirical framework to examine the efficiency of security analysts\u27 earnings forecasts in Singapore. We focus specifically on how the increased uncertainty and the negative market sentiment during the period of the Asian crisis affected the quality of earnings forecasts. While we find no evidence of inefficiencies in the pre-crisis period, our results suggest that after the onset of the crisis, analysts (1) issued forecasts that were systematically upward biased; (2) did not fully incorporate the (negative) earnings-related news; and (3) predicted earnings changes which proved too extreme

Stock Market Listing, Investor Myopia and Innovation: The Role of Nominal Share Prices

Lower nominal stock prices tend to attract more speculative trading, causing higher price volatility, which may force managers of publically listed firms to excessively focus on short-term earnings at the expense of R&D. We hypothesize that firms investing more in R&D prefer to set higher share prices to mitigate investor short-termism and foster innovation. Consistent with this hypothesis, we find that firms with high R&D capital (1) choose higher share prices at their initial listing, and (2) are subsequently less likely to engage in stock splits to bring down their share prices. Justifying these price management actions, we find that high share prices are negatively associated with proxies of investor myopia. We also show that high share prices are positively associated with future productivity of innovation, after controlling for a host of other factors. Our results suggest that managers of publicly listed firms use nominal share price as a tool to enhance innovation

Do accurate earnings forecasts facilitate superior investment recommendations?

10.1016/j.jfineco.2005.03.009Journal of Financial Economics802455-483JFEC

Aggregate investor sentiment and stock return synchronicity

© 2019 Elsevier B.V. We show that the returns of individual stocks become more synchronous with the aggregate market during periods of high investor sentiment. We also document that the effect of sentiment on stock return synchronicity is especially pronounced for small, young, volatile, non-dividend-paying and low-priced stocks. This ‘difference in difference’ suggests that stocks with these characteristics are affected more by sentiment—consistent with previous studies. Our results support the hypothesis that greater constraints on arbitrage and the prevalence of sentiment-driven demand during periods of high sentiment lead to increased comovement among stocks

Do Managers Disclose or Withhold Bad News? Evidence from Short Interest

ABSTRACT Prior studies provide conflicting evidence as to whether managers have a general tendency to disclose or withhold bad news. A key challenge for this literature is that researchers cannot observe the negative private information that managers possess. We tackle this challenge by constructing a proxy for managers\u27 private bad news (residual short interest) and then perform a series of tests to validate this proxy. Using management earnings guidance and 8-K filings as measures of voluntary disclosure, we find a negative relation between bad-news disclosure and residual short interest, suggesting that managers withhold bad news in general. This tendency is tempered when firms are exposed to higher litigation risk, and it is strengthened when managers have greater incentives to support the stock price. Based on a novel approach to identifying the presence of bad news, our study adds to the debate on whether managers tend to withhold or release bad news. Data Availability: Data used in this study are available from public sources identified in the study

Empirical Examination for Operational and Credit Risk Perspective – A Case of Commercial Banks of Pakistan

The objective of this study is to evaluate the factors that influence credit and operational risk in commercial banks. Financial data was collected from 11 commercial banks of Pakistan listed in Karachi Stock Exchange (KSE) over the period of 2009-2014. Different statistical tools and techniques are applied to find the cause and effect relationship for the underconsideration issue.The banking sector have faced the rivalry with other financial institutions to grab the attention of the customers and having a considerable competition with other banks. The result has shown that operational risk had significant but negative relation with NPL and operating efficiency but positive and highly significant relationship with bank size. Credit risk had significant and positive regression values with gearing ratio. NPL, operating efficiency and bank size had negative and insignificant relation with credit risk. There was no relationship between gearing ratio and operational risk. However the bottomline of this research suggests that banks play an important role in providing the finance for many of the businesses. Moreover these institutions need more managerial grip and vigilant attitude towards the risk management

Exchange Rate, Market Size and Human Capital Nexus Foreign Direct Investment – A Bound Testing Approach for Pakistan

This study investigates the role of exchange rate, market size and human capital for attracting foreign direct investment (FDI). In this regard, time series data on annual basis has been collected for the period 1985–2010 and an Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests are utilized to determine the stationarity of the variables. An autoregressive distributed lag (ARDL) bounds testing approach to co-integration was applied as all the variables in the model are first level stationary,e.g. I(1). The empirical findings of this study confirm the long run relationship among the variables. However, market size and human capital have strong positive and significant impact – in short- and long-run – for attracting FDI but exchange rate shows negative impact in this regard. The coefficient ECM is negative and significant, which means that it converges towards equilibrium. CUSUM and CUSUMSQ tests were utilized to test the model’s stability and the plots of each test did not cross the lines of critical value, which indicates the stability of the estimated parameters and this model can be used by Pakistan in policy and decision making. For achieving higher economic growth and economies of scale, the country should concentrate on the ingredients of this study so that it could attract more FDI as compared to the other countries