Accounting and Finance Seminar-Dr. Guannan Wang
When: Friday,
April 5, 2019
1:00 PM
-
2:15 PM
Where: Charlton College of Business Room 306 306
Description: This study investigates the mispricing of market-wide investor sentiment by exploring the relation between sentiment and investor expectations of future earnings.
Prior research argues that sentiment-driven mispricing should be most pronounced for hard-to-value firms, such as those reporting losses (Baker and Wurgler 2006); however, empirical evidence for such firms is inconclusive. Results using investor expectations of future earnings supports these conjectures.
In particular, consistent with behavioral finance theory, we predict and find that investors perceive losses to be more (less) persistent during periods of low (high) sentiment. We find similar (albeit
weaker) evidence that investor perception of profit persistence is attenuated (enhanced) during periods of low (high) sentiment. In addition, we document predictable cross-sectional variation in
the mispricing of loss firms, with the mispricing mitigated for losses associated with activities expected to generate future benefits: R&D, growth, and curtailments. Overall, our results add to prior literature by documenting a new and important channel "investor expectations of future earnings” to explain sentiment-driven mispricing.
Prior research argues that sentiment-driven mispricing should be most pronounced for hard-to-value firms, such as those reporting losses (Baker and Wurgler 2006); however, empirical evidence for such firms is inconclusive. Results using investor expectations of future earnings supports these conjectures.
In particular, consistent with behavioral finance theory, we predict and find that investors perceive losses to be more (less) persistent during periods of low (high) sentiment. We find similar (albeit
weaker) evidence that investor perception of profit persistence is attenuated (enhanced) during periods of low (high) sentiment. In addition, we document predictable cross-sectional variation in
the mispricing of loss firms, with the mispricing mitigated for losses associated with activities expected to generate future benefits: R&D, growth, and curtailments. Overall, our results add to prior literature by documenting a new and important channel "investor expectations of future earnings” to explain sentiment-driven mispricing.
Contact: > See Description for contact information
Topical Areas: Faculty, Students, Students, Graduate, Academic Affairs, Accounting and Finance, _Charlton College of Business