Annual Conference

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Investment Finance, Senior Fellows/Fellows

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May 2016

Why Do Option Prices Predict Stock Returns? The Role of Price Pressure in the Stock Market

Luis GONCALVES-PINTO, Allaudeen HAMEED, Thijs VAN DER HEIJDEN, Yichao ZHU, Bruce GRUNDY
The distance between option-implied and traded stock prices (DOTS) predicts future stock returns. A trading strategy based on DOTS yields an alpha of 85 basis points on the day after portfolio formation. We show that DOTS is strongly related to return reversals, order imbalances, and transaction cos...
Keywords: Price Pressure, Put-Call Parity, return predictability, Informed Trading
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Annual Conference

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Investment Finance

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May 2019

Who Benefits from Robo-advising? Evidence from Machine Learning

Alberto G. ROSSI, Stephen UTKUS
We study the effects of a large U.S. hybrid robo-adviser on the portfolios of previously self- directed investors. Across all investors, robo-advising reduces investors’ holdings in money market mutual funds and increases bond holdings. It also reduces idiosyncratic risk by lowering the holdings o...
Keywords: FinTech, portfolio choice, Behavioral finance, Individual Investors, Financial Literacy, Technology Adoption, machine learning
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Annual Conference

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Investment Finance, Senior Fellows/Fellows

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May 2014

Who are the Sentiment Traders? Evidence from the Cross-section of Stock Returns and Demand

Laura STARKS, Luke DEVAULT, Richard SIAS
Recent work suggests that sentiment traders shift from safer to more speculative stocks when sentiment increases. Given that the market clearing condition requires a buyer for every seller, we exploit these cross-sectional patterns and changes in share ownership to test whether investor sentiment me...
Keywords: Stock Returns, sentiment, demand shocks, mispricing
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Annual Conference

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Investment Finance, Senior Fellows/Fellows

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May 2014

When Real Estate is the Only Game in Town

Harrison HONG, Jeffrey P. THOMPSON, Hyun-Soo CHOI, Jeffrey D. KUBIK
Using data on household portfolios and mortgage originations, we find that households residing in a city with few publicly traded firms headquartered there are more likely to own an investment home nearby. Households in these areas are also less likely to own stocks. This only-game-in-town effect is...
Keywords: Real estate, homeownership, household portfolios, mortgage originations
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Annual Conference

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Investment Finance

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May 2023

What's in Investors' Information Sets?

Alberto G. ROSSI, Hagit LEVY, Ron SHALEV, Emanuel ZUR
We exploit a unique dataset to study how the information sets of retail and institutional investors evolve over time and how changes in investors’ information sets relate to stock price dynamics. Changes in stock following are positively related to future stock returns at horizons shorter than one...
Keywords: Investments , attention, information set, news
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