The Democratization of Investment Research and the Informativeness of Retail Investor Trading (with T. Clifton Green, Russell Jame, and Stanimir Markov) Journal of Financial Economics, forthcoming.
We study the effects of social media on the informativeness of retail investor trading. Our identification strategy exploits the editorial delay between report submission and publication on Seeking Alpha, a popular crowdsourced investment research platform. We find the ability of retail order imbalances to predict stock returns and cash-flow news increases sharply in the intraday post-publication window relative to the pre-publication window. The findings are robust to controlling for report tone and stronger for reports authored by more capable contributors. The evidence suggests that technology-enabled innovations in how individuals share information can play a positive role in retail-investor decision making.
The Price Effect of Stock Repurchases: Evidence from Dual Class Firms (with Leonce Bargeron) Management Science, forthcoming.
We use a sample of dual class firms to isolate the magnitude and duration of the demand driven price effect from stock repurchases. In this novel setting, the non-repurchased class serves as a near perfect counter factual to the repurchased class and controls for private information about firm value contained in the repurchases. The average repurchase in our sample, 0.30% of outstanding shares within a month, increases the stock price by 43 to 68 bps relative to the non-repurchased class of stock. This demand driven price effect dissipates completely over the subsequent month unless extended by continued repurchases.
Working Papers
The Cross-Section of Non-Professional Analyst Skill (with Russell Jame and Tian Qiu) SSRN Link
We examine the cross-section of skill among non-professional analysts (NPAs) on Seeking Alpha, a prominent crowdsourced investment research platform. We estimate that 60% of NPAs are skilled, and we document substantial dispersion in skill. Even after accounting for bid-ask spreads and allowing for a three-day investment delay, following NPAs in the top quintile of past skill earns annualized abnormal returns of 10%. In contrast, an unconditional strategy that follows all NPAs earns insignificant returns. An examination of retail and institutional order imbalances following NPA recommendations suggests that neither group recognizes the sizeable differences in ability across NPAs.
Read Between the Filings: Daily Mutual Fund Holdings and Liquidity ProvisionSSRN Link
Many questions about mutual fund trading require daily holdings, yet mutual funds are only required to report quarterly holdings. I model intraquarter trading and use the genetic algorithm to estimate the trade pattern that is most consistent with the fund's daily reported returns. I validate the model empirically on a sample of institutional trades from Ancerno and I confirm that the method more accurately predicts daily holdings when compared to existing naive assumptions. Further, my method is substantially more accurate in classifying a fund’s tendency to supply liquidity, and this increased precision has important implications for identifying superior performing funds. Specifically, a long-short strategy based on the model’s liquidity provision measures earns significant abnormal returns, while a similar strategy that relies on quarterly holdings does not exhibit any outperformance.
Works in Progress
ETF Holdings and the Mispricing of Treasuries (with Marc Lipson and Davide Tomio)