Complicated firms

Cohen, Lauren; Lou, Dong

doi:10.1016/j.jfineco.2011.08.006

Cited by 422 publications

(224 citation statements)

References 39 publications

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“…This finding is in line with previous studies exploring return predictability (e.g. Cohen and Lou (2012)). Furthermore, the higher the illiquidity of a stock, the slower and more costly it is traded on the market.…”

Section: Difficult-to-arbitrage Firmssupporting

confidence: 93%

“…Shleifer and Vishny, 1997;Stein, 1999, 2007), a growing literature illustrates different empirical patterns of return predictability and provides explanations as to how information translates into asset prices. Economic links between customers and suppliers (Cohen and Frazzini, 2008;Menzly and Ozbas, 2010), complicated industry information for conglomerates (Cohen and Lou, 2012), predictable innovation ability (Cohen, Diether, and Malloy, 2013;Hirshleifer, Hsu, and Li, 2013) and exposure to foreign countries (Li, Richardson, and Tuna, 2012;Huang, 2012;Nguyen, 2012) are just few examples of how publicly available information may predict the cross-section of individual stock returns. A very recent study by Addoum, Kumar, and Law (2013) exploits geographically distributed information on firm performance and finds that a firm's earnings and cash flows are predictable based on the performance of other firms located in regions that are economically relevant for the firm.…”

Section: Introductionmentioning

confidence: 99%

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Regional Economic Activity and Stock Returns

Smajlbegovic

2013

SSRN Journal

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This study analyzes the impact of regional economic conditions on stock returns. I identify all U.S. states that are economically relevant for a firm through textual analysis of annual reports and construct a novel proxy for regional economic activity. Using this proxy, I find that economic conditions of firm-relevant U.S. regions positively influence stock returns on a monthly basis. This finding is robust to short-term reversal, individual stock momentum, industry momentum, geographic dispersion and a list of standard controls. Additionally, these results indicate that information arising from all relevant states matters over and above the information content of the mere headquarter state. Furthermore, I show that forecasts on regional economic activity predict stock returns. A zero-cost trading strategy based on this new predictive variable generates a risk-adjusted return of 6.3 (8.3) percent per year using an equal-weighted (value-weighted) portfolio. Evidence indicates that forecasts of regional activity also predict firms' real operations, suggesting that economic conditions of U.S. regions capture an important cash flow component of stock returns. Finally, this study shows that information on regional economic activity is gradually incorporated into stock prices and that the return predictability is stronger among difficult-to-arbitrage firms.

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Section: Difficult-to-arbitrage Firmssupporting

confidence: 93%

Section: Introductionmentioning

confidence: 99%

Regional Economic Activity and Stock Returns

Smajlbegovic

2013

SSRN Journal

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“…The results are also in line with Cohen and Lou (2012) and Drerup (2012) who show that the price reaction to news about company fundamentals is not immediate, but depends on firm complexity and analyst uncertainty. The existence of the ICC effect hence might not imply investor irrationality.…”

Section: Risk Correctionsupporting

confidence: 89%

“…Instead, market participants require some time to process new information. For example, Cohen and Lou (2012) show that the price adjustment takes more time for complicated firms than for simple firms. Second, although Elton et al (1981) demonstrate the usefulness of analyst forecasts as surrogate for market expectations, these forecasts might be erroneous and systematically biased due to conflicts of interests of equity analysts (Chan et al, 2007;Becchetti et al, 2007).…”

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confidence: 99%

Implied cost of capital investment strategies: evidence from international stock markets

Esterer¹,

Schröder

2013

Ann Finance

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Investors can generate excess returns by implementing trading strategies based on publicly available equity analyst forecasts. This paper captures the information provided by analysts by the implied cost of capital (ICC), the internal rate of return that equates a firm's share price to the present value of analysts' earnings forecasts. We find that U.S. stocks with a high ICC outperform low ICC stocks on average by 6.0% per year. This spread is significant when controlling the investment returns for their risk exposure as proxied by standard pricing models. Further analysis across the world's largest equity markets validates these results.JEL Classification: G11, G14, G15, M41

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“…The economic link for these pairs will arguably be more visible, which makes it comparatively less likely that shocks in limited attention will cause prices to diverge. We follow Berger and Ofek (1995) and Cohen and Lou (2011) (2001)). Therefore, press coverage could help to keep relative prices in line, especially in turbulent moments.…”

Section: Please Insert Tablementioning

confidence: 99%

Losing sight of the trees for the forest? Attention allocation and anomalies

Jacobs

Weber

2016

Quantitative Finance

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Internet appendix attachedThis paper tests asset pricing implications of the investor attention shift hypothesis proposed in recent theoretical work. We create a novel proxy for the dynamics of inattention towards firm-specific information and explore its impact on prominent return anomalies. As hypothesized and with all else equal, the proxy positively predicts the postearnings-announcement drift and negatively predicts the success of momentum strategies.Moreover, it has explanatory power for the profitability of pairs trading, a promising yet widely neglected setting concerned with the relative pricing efficiency of economically linked stocks. Taken together, our findings highlight the importance of time-varying investor attention allocation.

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Complicated firms

Cited by 422 publications

References 39 publications

Regional Economic Activity and Stock Returns

Regional Economic Activity and Stock Returns

Implied cost of capital investment strategies: evidence from international stock markets

Losing sight of the trees for the forest? Attention allocation and anomalies

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