Momentum, size and value factors versus systematic co-moments in stock returns

The paper investigates the effects of firm-specific and country-specific characteristics, and the 1997Asian financial crisis on the debt maturity structure of firms in the Asia Pacific region. Given that theeconomies of the sample countries were at different stages of development and were affected by the1997 Asian financial crisis by different degrees, the paper explores the effects of the crisis on debtmaturity structure by grouping the sample countries according to the severity of the crisis. The resultsindicate that firms adjust their debt maturity structure to target level very quickly; the maturitystructure decision of a firm is the product of both its own characteristics and the economic andinstitutional environment in which it operates. They also reveal that the crisis had significant effectson firm’s debt maturity structure and their determinants

Flight to Lottery Ahead of FOMC Announcements: Institutional Investors or Retail Investors?

This paper studies the pre-Federal Open Market Committee (FOMC) announcement drift at the stock level. We hypothesize that investors have a higher propensity to speculate before the monetary policy announcements by the FOMC, due to the resolution of uncertainty and associated reduction in investors' fear. Indeed, we find evidence that there exists a drift of lottery-like stocks in the pre-FOMC window, when investors' fear gauge is lower, together with higher demand for lottery-like stocks and higher realized skewness. Moreover, we show that the demand for lottery-like stocks ahead of FOMC announcements is more prominent among institutional investors than retail investors. Our findings also identify the key role of transient and quasi-index institutional investors in our documented flight-to-lottery effect. Our findings advance the ongoing debates about the role of firms' investor heterogeneity in determining how monetary policy affects corporate managers' decisions. Our paper has important implications for central banks and managers by showing that investors' preference for lottery-like stocks increases before FOMC announcements

Corporate bond prices and idiosyncratic risk: evidence from Australia

In this paper we investigate the bond price effect upon the information arrival of firm-specific idiosyncratic risk. We consider idiosyncratic dispersion and idiosyncratic volatility that capture, respectively, the direction of information and the magnitude of idiosyncratic risk. We find that idiosyncratic volatility does not affect bond prices, while the direction of idiosyncratic risk which reflects the favorable or unfavorable information exhibits impacts on bond prices. Idiosyncratic dispersion in the stock return of a firm in the preceding week, in general, is positively associated with bond price changes in the current week. This effect is most pronounced for firms exhibiting characteristics associated with lower default risk

Predicting stock market returns and volatility with investor sentiment: Evidence from eight developed countries

We test the predictive ability of investor sentiment on the return and volatility at the aggregate market level in the U.S., four largest European countries and three Asia-Pacific countries. We find that in the U.S., France and Italy periods of high consumer confidence levels are followed by low market returns. In Japan both the level and the change in consumer confidence boost the market return in the next month. Further, shifts in sentiment significantly move conditional volatility in most of the countries, and in Italy such impacts lead to an increase in returns by 4.7% in the next month

Sentiment sensitivity, limits of arbitrage, and pricing anomalies

We investigate whether an investor sentiment factor explains the cross-section of stock returns. The average return differential is 1.48% (0.75%) per month between the decile portfolios with the highest positive sentiment beta and that with negative sentiment beta. The sentiment factor, LMS, has statistically significant average returns of 1.71% per month, and shows a positive and statistically significant market price. The sentiment-augmented asset-pricing models explain the size effect, and conditional models often capture the size, value and momentum effects

Investor sentiment risk factor and asset pricing anomalies

We investigate the role of investor sentiment as a risk factor in stock returns. The average return differential is 1.48% (0.75%) per month between the decile portfolis with the highest positive (most negative) sentiment beta and that with zero sentiment beta. The sentiment factor, SMN, has statistically significant average returns ranging from 1.36% to 0.67% per month, and commands a positive and statistically significant risk premium. Consistent with the theory that sentiment creates a risk in addition to fundamental risk, the sentiment-augmented asset-pricing models always explain the size effect, and conditional models often capture the size, value and momentum effects

Sentiment sensitivity, limits of arbitrage, and pricing anomalies

We investigate whether an investor sentiment factor explains the cross-section of stock returns. \ud \ud The average return differential is 1.48% (0.75%) per month between the decile portfolios with the highest positive sentiment beta and that with negative sentiment beta. The sentiment factor, LMS, has statistically significant average returns of 1.71% per month, and shows a positive and statistically significant market price. The sentiment-augmented asset-pricing models explain the size effect, and conditional models often capture the size, value and momentum effects