Annual Conference

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Investment Finance, Senior Fellows/Fellows

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May 2016

A Dynamic Model of Characteristic-Based Return Predictability

Sheridan TITMAN, Aydogan ALTI
We present a dynamic model that links characteristic-based return predictability to systematic factors that determine the evolution of firm fundamentals. In the model, an economy-wide disruption process reallocates profits from existing businesses to new projects and thus generates a source of syste...
Keywords: characteristic-based return predictability, systematic risk, mispricing
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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 2016

Efficiently Inefficient Markets for Assets and Asset Management

Nicolae GÂRLEANU, Lasse HEJE PEDERSEN
We consider a model where investors can invest directly or search for an asset manager, information about assets is costly, and managers charge an endogenous fee. The efficiency of asset prices is linked to the efficiency of the asset management market: if investors can find managers more easily, mo...
Keywords: Asset Pricing, market efficiency, Asset Management, search, Information
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Annual Conference

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Investment Finance, Senior Fellows/Fellows

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May 2016

Rent Seeking by Low-Latency Traders: Evidence from Trading on Macroeconomic Announcements

Tarun CHORDIA, T. Clifton GREEN, Badrinath KOTTIMUKKALUR
Prices of the highly liquid S&P500 exchange traded fund (SPY) and the E-mini future (ES) respond to macroeconomic announcement surprises within five milliseconds, with trading intensity increasing over a hundred-fold following the news release. However, profits from trading quickly are relativel...
Keywords: HFT
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Annual Conference

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Investment Finance, Senior Fellows/Fellows

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May 2016

Cost of Bereavement: How Does Parental Loss Affect Mutual Fund Managers?

Shu TAO, Johan SULAEMAN, P. Eric YEUNG
This study examines whether bereavement, a common life experience, affect the performance and behaviors of mutual fund managers. We find that mutual fund return declines by around 3 percentage points around the parental deaths of fund managers. This underperformance persists for about one year, sugg...
Keywords: Life Experience, Bereavement, Emotions, Mutual fund, Fund Performance, Risk Taking
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