That's Interesting
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Noise in Expectations: Evidence from Analyst Forecasts
03rd May, 2024Analyst forecasts outperform econometric forecasts in the short run but underperform in the long run. This article decomposes these differences in forecasting accuracy into analysts’ information advantage, forecast bias, and forecast noise. It finds that noise and bias strongly increase with forecast horizon, while analysts’ information advantage decays rapidly.
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Fundamental Analysis via Machine Learning
01st May, 2024This article examines the efficacy of machine learning in a central task of fundamental analysis: forecasting corporate earnings. We find that machine learning models not only generate significantly more accurate and informative out-of-sample forecasts than the state-of-the-art models in the literature but also perform better compared to analysts’ consensus forecasts.
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Quadrophobia: Strategic Rounding of EPS Data
15th February, 2024Managers’ incentives to round up reported earnings per share (EPS) cause an underrepresentation of the number 4 in the first post-decimal digit of EPS, or “quadrophobia.” This article has developed a novel measure of aggressive financial reporting practices based on a firm’s history of quadrophobia. Quadrophobia is pervasive, persistent, and successfully predicts future restatements, Securities and Exchange Commission enforcement actions, and class action litigation.
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The Moderating Effect of CEO Power on the Board Composition–Firm Performance Relationship
12th February, 2024Prior studies of the relationship between the composition of boards of directors and firm performance offer equivocal results. Drawing on agency and power circulation theories, this article attempts to reduce this equivocality by asserting that CEO power moderates the relationship. Specifically, an outside director dominated board is needed to check a powerful CEO, but monitoring by other executives provides sufficient constraints on CEOs with low power.
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Drawing Up the Bill: Is ESG Related to Stock Returns Around the World?
09th February, 2024This article aims to provide the most comprehensive analysis to date of the relation between ESG ratings and stock returns, using 16,000+ stocks in 48 countries and seven different ESG rating providers. The article finds very little evidence that ESG ratings are related to global stock returns over 2001-2020.
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OECD Corporate Governance Factbook 2021
27th November, 2023Between 2005 and 2020, according to the OECD, almost 30,000 companies delisted from global markets via conventional takeovers, share buybacks and leverage buyouts. Over most of that period delistings were not matched by new issues so there was a net loss of listed companies, mainly in the US and Europe.
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From Transcripts to Insights: Uncovering Corporate Risks Using Generative AI
19th November, 2023This article explores the value of generative AI tools, such as ChatGPT, in helping investors uncover dimensions of corporate risk by developing and validating firm-level measures of risk exposure to political, climate, and AI-related risks. Using the GPT 3.5 model to generate risk summaries and assessments from the context provided by earnings call transcripts, it shows that GPT-based measures possess significant information content and outperform the existing risk measures in predicting (abnormal) firm-level volatility and firms’ choices such as investment and innovation.
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Mental Models of the Stock Market
15th November, 2023Investors’ return expectations are pivotal in stock markets, but the reasoning behind these expectations remains a black box for economists. This paper sheds light on economic agents’ mental models – their subjective understanding – of the stock market, drawing on surveys with the US general population, US retail investors, US financial professionals, and academic experts.
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