Cross-Sectional and Intertemporal Forecast Dispersions, Risk, and Stock Returns

Dongcheol Kim,Haejung Na 한국재무학회 2014 한국재무학회 학술대회 Vol.2014 No.05

Previous researches focus on examining only the relation between cross-sectional earnings forecast dispersion and stock returns and on providing explanations for the negative dispersionreturn relation. This paper attempts to examine not only the relation between time-series forecast dispersion and stock returns, but also whether time-series and cross-sectional forecast dispersions contain systematic risk components, and whether such risk is priced in stock returns. We find that there is a strong positive relation between time-series forecast dispersion and stock returns. We also find that time-series forecast dispersion apparently contains systematic risk components and that such risk is priced in stock returns, while cross-sectional dispersion does not. In other words, dispersion in analysts' forecasts is informative intertemporally in terms of pricing ability but not cross-sectionally.

The Forecast Dispersion Anomaly Revisited : Time-Series Mean Forecast Dispersion and the Cross-Section of Stock Returns

Dongcheol Kim,Haejung Na 한국재무학회 2014 한국재무학회 학술대회 Vol.2014 No.11

Previous researches focus on examining only the relation between cross-sectional earnings forecast dispersion and stock returns and on providing explanations for the negative dispersionreturn relation. This paper attempts to examine how time-series mean forecast dispersion is distinct in the relation to stock returns from the cross-sectional forecast dispersion effect. We find that contrary to the standard analyst dispersion effect, there is a strong positive relation between time-series mean forecast dispersion and stock returns. We also find that time-series mean forecast dispersion apparently contains systematic risk components and that such risk is priced in stock returns.

Investor Sentiment from Internet Message Postings and Predictability of Stock Returns

Dongcheol Kim,Soon-Ho Kim 한국재무학회 2012 한국재무학회 학술대회 Vol.2012 No.09

There has been interest in the literature on whether investor sentiment as expressed in messages posted on Internet message boards has predictive power for stock returns. To study this issue, we use more than 32 million messages on 91 firms posted on the Yahoo! Finance message board in the period January 2005 to December 2010. What distinguishes our study is the use of sentiment information explicitly revealed by retail investors for individual firms and a longer sample period relative to other studies that use similar sentiment information source. As a proxy for investor sentiment, we use investor sentiment indexes constructed from sentiment explicitly revealed by retail investors and as classified by a machine learning classification algorithm. In intertemporal and cross-sectional regression analyses, we find no evidence that investor sentiment forecasts future stock returns at either the aggregate or individual firm level. Rather, we find evidence that investor sentiment is positively affected by prior stock price performance. We also find no evidence that investor sentiment from Internet postings has predictability for volatility and trading volume. We find no significant predictive ability for retail investor sentiment for the direction of the next period’s stock price movement across demographic characteristics such as gender, age, and professionality.

Asset Pricing Models in the Korean Stock Markets : A Review for the Period of 1980~2009

Dongcheol Kim 한국재무학회 2011 財務硏究 Vol.24 No.1

Investor Sentiment, Anomalies, and the Macroeconomy

Dongcheol Kim,Haejung Na 한국재무학회 2015 한국재무학회 학술대회 Vol.2015 No.05

This paper examines whether the results supporting a recent story that sentiment-related overpricing is the source of a variety of asset pricing anomalies are still maintained after separating out the effect of macroeconomic conditions. We find that after adjusting for the effect of several macroeconomic variables in the proxy for investor sentiment, the results are no longer consistent with the sentimentrelated overpricing story. These results indicate that the anomalies are not necessarily attributed to sentiment-related overpricing but rather to macroeconomic conditions.

Investor Sentiment from Internet Message Postings and Predictability of Stock Returns

Dongcheol Kim,Soon-Ho Kim 한국재무학회 2012 한국재무학회 학술대회 Vol.2012 No.05

There has been interest in the literature on whether investor sentiment as expressed in messages posted on Internet message boards has predictive power for stock returns. To study this issue, we use more than 32 million messages on 91 firms posted on the Yahoo! Finance message board in the period January 2005 to December 2010. What distinguishes our study is the use of sentiment information explicitly revealed by retail investors for individual firms and a longer sample period relative to other studies that use similar sentiment information source. As a proxy for investor sentiment, we use investor sentiment indexes constructed from sentiment explicitly revealed by retail investors and as classified by a machine learning classification algorithm. In intertemporal and cross-sectional regression analyses, we find no evidence that investor sentiment forecasts future stock returns at either the aggregate or individual firm level. Rather, we find evidence that investor sentiment is positively affected by prior stock price performance. We also find no evidence that investor sentiment from Internet postings has predictability for volatility and trading volume. We find no significant predictive ability for retail investor sentiment for the direction of the next period’s stock price movement across demographic characteristics such as gender, age, and professionality.

Time-Varying Expected Momentum Profits

Dongcheol Kim,Tai-Yong Roh,Suk-Joon Byun,Byoung-Kyu Min 한국재무학회 2012 한국재무학회 학술대회 Vol.2012 No.05

We examine time variations of the expected momentum profits using a two-state Markov switching model with time-varying transition probabilities to evaluate the empirical relevance of recent rational theories of the momentum profits. We find that in the expansion state the expected returns of winner stocks are more affected by aggregate economic conditions than those of loser stocks, while in the recession state the expected returns of loser stocks are more affected than those of winner stocks. Consequently, the expected momentum profits display strong procyclical variations. We argue that the observed momentum profits are realizations of such expected returns and can be interpreted as the procyclicality premium. We also find the economic significance of out-of-sample predictability of the momentum profits particularly for loser stocks and during the recession states.

Evaluating Asset Pricing Models in the Korean Stock Market

Dongcheol Kim,Soon-Ho Kim,Hyun-Soo Shin 한국재무학회 2011 한국재무학회 학술대회 Vol.2011 No.05

This paper evaluates and compares asset pricing models in the Korean stock market. The asset pricing models considered are the CAPM, APT-motivated models, the Consumptionbased CAPM, Intertemporal CAPM-motivated models, and the Jagannathan and Wang conditional CAPM model. By using various test portfolios as well as individual stocks, we conduct time-series tests and cross-sectional regression tests based on individual t-tests, the joint F-tests, the Hansen and Jagannathan (1997) distance, and R-squares. Overall, the Fama and French (1993) five-factor model performs most satisfactorily among the asset pricing models considered in explaining the intertemporal and cross-sectional behavior of stock returns in Korea. The Fama and French (1993) three-factor model, the Chen, Novy-Marx, and Zhang (2010) three-factor model, and the Campbell (1996) model are the next. The results indicate that the two bond portfolios, term spread and default spread, play an important role in explaining stock returns in Korea.

Financial distress, short sale constraints, and mispricing

Kim, Dongcheol,Lee, Inro,Na, Haejung Elsevier 2019 Pacific-Basin finance journal Vol.53 No.-

<P><B>Abstract</B></P> <P>This paper specifically examine how the extent of the distress puzzle differs according to the degree of mispricing and short sale constraints. We find that the distress puzzle observed for overpriced stocks, not for underpriced stocks, becomes insignificant after adjustment for short sale constraints due to an asymmetric pricing effect of short sale constraints only on the short-leg side of distress. However, after adjustment for arbitrage risk, the distress puzzle remains unchanged. These results indicate that the distress puzzle is mainly attributable to short sale constraints, rather than other limits-to-arbitrages such as arbitrage risk, which has a bi-lateral pricing effect on both short-leg and long-leg sides of distress. To mitigate a possible endogeneity problem relation among financial distress, mispricing, and short sale constraints, we measure these variables with different timing.</P> <P><B>Highlights</B></P> <P> <UL> <LI> The effect of short sale constraints on the distress puzzle is examined with mispricing. </LI> <LI> Financial distress, short sale constraints, and mispricing are measured in a different timing. </LI> <LI> A possible endogeneity problem among the three key variables is considered. </LI> <LI> The asymmetric pricing effect of short sale constraints on the puzzle is specifically measured. </LI> </UL> </P>

Shorting Costs and Profitability of Long–Short Strategies

Dongcheol Kim,Byeung-Joo Lee 한국재무학회 2019 한국재무학회 학술대회 Vol.2019 No.05

We examine how profitability of long–short arbitrage strategies based on anomalies is affected after adjustment for two shorting costs: implicit cost due to unavailability of stocks in the short-leg to sell short and loan fee actually paid to stock lenders. The combined shorting cost amounts to almost 40 percent of gross long–short arbitrage raw returns over the sample period from January 2006 to December 2017. After adjustment for these shorting costs, long–short arbitrage profits are thus reduced by almost 40 percent. Even after adjustment for risk, the proportion of shorting costs is also substantial. If other trade-related transaction costs are considered, long–short arbitrage profits would be reduced further. Our results cast doubt on the profitability of long-short arbitrage strategies based on anomalies.