Sexy or Safe: Why do Predicted Stock Issuers Earn Low Returns?

 
 
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Predicted stock issuers (PSIs) are firms with expected “high-investment and low-profit” (HILP) profiles that earn unusually low returns. We carefully document important features of PSI firms to provide new insights on the economic mechanism behind the HILP anomaly. Our results show top-PSI firms are cash-strapped and dependent on external financing, have lottery-like payoffs, high volatility, high Beta, and high shorting costs. Over the next two years, top-PSIs earn return-on-assets of -30% per year, report disappointing earnings, and experience strongly-negative analyst forecast revisions. They earn especially low returns in down markets and are nine times more likely to delist for performance reasons. We conclude that HILP firms earn low returns not because they are safer, but because they are more salient (i.e. sexier) to investors and are thus overpriced.

25
May
2017
Thursday
 
12:15pm
12:30pm
Academic Luncheon Keynote

By: Professor Charles Lee
Moghadam Family Professor of Management and Professor of Accounting, Stanford University
Co-Founder, Nipun Capital
Senior Fellow, Asian Bureau of Finance and Economic Research (ABFER)
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Moderator: Professor Bernard Yeung
Dean and Stephen Riady Distinguished Professor in Finance and Strategic Management, National University of Singapore
President, Asian Bureau of Finance and Economic Research (ABFER)

2:00pm

Speaker

  • Professor Charles Lee

    Professor Charles Lee

     

    Moghadam Family Professor of Management and Professor of Accounting, Stanford University
    Co-Founder, Nipun Capital
    Senior Fellow, Asian Bureau of Finance and Economic Research (ABFER)

    Charles M. C. Lee is the Moghadam Family Professor of Management and Professor of Accounting at the Graduate School of Business (GSB), Stanford University. He is also Co-Founder of Nipun Capital, a San Francisco based asset management firm focused on Asian equities. Professor Lee studies the effect of human cognitive constraints on market participants and factors that impact market pricing efficiency. He has published extensively on topics that span behavioral finance, financial analysis, market microstructure, equity valuation, quantitative investing, and security market regulation. From 2004 to July 2008, he was Managing Director at Barclays Global Investors (BGI; now Blackrock), where he served as Global Head of Equity Research and Co-Head of North America Active Equities.

    Professor Lee has received numerous honors and awards for his research and teaching. He has also served as either Editor or Associate Editor of a number of academic journals, including: the Journal of Finance, The Accounting Review, the Journal of Accounting Research, the Journal of Accounting and Economics, the Review of Accounting Studies, Management Science (Finance), and the Financial Analysts Journal.

    Professor Lee received his BMath from the University of Waterloo (1981), and his MBA (1989) and PhD (1990) from Cornell University. He has been a faculty member at the Michigan Business School (1990-95) and the Johnson Graduate School of Management, Cornell University (1996-2004). From 1995-96 he was Visiting Economist at the New York Stock Exchange. At Cornell he held the Henrietta Johnson Louis Professorship in Management and was Director of the Parker Center for Investment Research. He also served as Co-chair of the Accounting Department at Guanghua School of Management, Peking University (2003-2015).

    Prior to entering academic life, he spent five years in public accounting, the last three in the National Research Department of KPMG, Toronto, Canada. He holds a Certificate in Biblical Studies from Ontario Theological Seminary, and is fluent in Mandarin Chinese.

  • Professor Bernard Yeung

    Professor Bernard Yeung

     

    Dean and Stephen Riady Distinguished Professor in Finance and Strategic Management, National University of Singapore
    President, Asian Bureau of Finance and Economic Research (ABFER)

    Bernard Yeung is the Dean and Stephen Riady Distinguished Professor in Finance and Strategic Management and President of the Asia Bureau of Finance and Economic Research at National University of Singapore (NUS) Business School. Before joining NUS in June 2008, he was the Abraham Krasnoff Professor in Global Business, Economics, and Management at New York University (NYU) Stern School of Business. He has also served as the Director of the NYU China House, the honorary co-chair of the Strategy Department of the Peking University Guanghua School of Management. From 1988 to 1999, he taught at the University of Michigan and at the University of Alberta from 1983 to 1988.

    Professor Yeung has published widely in academic journals covering topics in Finance, Economics, and Strategy; his writing also appears in top-tier media publications such as The Financial Times and The Wall Street Journal.

    He has also won several scholarly honours and awards for academic excellence, including the Irwin Outstanding Educator Award (2013) from the Business Policy and Strategy (BPS) division of the Academy of Management and Teaching Excellence Awards in NYU’s Stern School of Business and University of Michigan’s Ross School of Business. He is an election Fellow of the Academy of International Business.

    Professor Yeung is a member of the Social Science Research Council (SSRC) in Singapore. He was a member of the Economic Strategies Committee in Singapore (2009) and also a member of the Financial Research Council of the Monetary Authority of Singapore (2010 -2013).

    Professor Yeung sits on the 3rd Advisory Board of the Antai College of Economics and Management at Shanghai Jiao Tong University, the Research Advisory Council of the Centre for Advanced Financial Research and Learning (CAFRAL), Reserve Bank of India, the Advisory Council of the Economics and Management School of Wuhan University, and an independent Non-executive Director of the Bank of China (BOC) Aviation Limited.

    Professor Yeung received his Bachelor of Arts in Economics and Mathematics from the University of Western Ontario and his MBA and PhD degrees from the Graduate School of Business at the University of Chicago.

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