nep-fmk New Economics Papers
on Financial Markets
Issue of 2016‒07‒02
two papers chosen by

  1. Sticky Expectations and Stock Market Anomalies By Thesmar , David; Bouchaud, Jean-Philippe; Krueger , Philipp; Landier , Augustin
  2. Activist Hedge Funds: Evidence from the Recent Financial Crisis By Khan, Zazy

  1. By: Thesmar , David; Bouchaud, Jean-Philippe; Krueger , Philipp; Landier , Augustin
    Abstract: We propose a simple model in which investors price a stock using a persistent signal and sticky belief dynamics à la Coibion and Gorodnichenko (2012). In this model, returns can be forecasted using (1) past profits, (2) past change in profits, and (3) past returns. The model thus provides a joint theory of two of the most economically significant anomalies, i.e. quality and momentum. According to the model, these anomalies should be correlated, and be stronger when signal persistence is higher, or when earnings expectations are stickier. Using I/B/E/S data, we measure expectation stickiness at the analyst level. We find that analysts are on average sticky and, consistent with a limited attention hypothesis, more so when they cover more industries. We then find strong support for the model's prediction in the data: both the momentum and the quality anomaly are stronger for stocks with more persistent profits, and for stocks which are followed by stickier analysts. Consistently with the model, both strategies also comove significantly.
    Keywords: Stock market anomalies; Sticky expectations
    JEL: G14 G17
    Date: 2016–03–05
  2. By: Khan, Zazy
    Abstract: This study extends the empirical evidence of hedge fund activism impact on target firm performance. We investigate whether activism strategies as well as their effects have changed following the recent financial crisis of 2007-2008. The analysis is based on the U.S. data covering 112 hedge funds, 551 target firms, from 2000 to 2013. We find that returns to activism accrue to approximately 5% during the (-20, +5) event window. Activism-related categories that generate significant and positive abnormal returns include capital structure, business strategy, and general undervaluation. Since the financial crisis, business-related activism generates the highest returns, followed by activism in financially depressed firms. We also find significant cross-sectional abnormal returns, both before and during the crisis, for hedge funds who do not pre-specify an objective. One year post-activism performance suggests that target firms experience substantial improvement in value, profit margin, and investment.
    Keywords: Hedge funds, event studies, crisis, corporate governance
    JEL: G30 G32 G34
    Date: 2015–03–15

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.