Rational Expectations, Irrational Exuberance: Linkage between U.S. Investors and Pacific-Basin Stock Returns

International Journal of Banking and Finance - Vol. 15, Number 2, 2020 ◽

10.32890/ijbf2009.6.1.8383 ◽

2009 ◽

Author(s):

Rahul Verma

Keyword(s):

Hong Kong ◽

Stock Returns ◽

Institutional Investors ◽

Rational Expectations ◽

Pacific Basin ◽

Individual Investors ◽

Investor Sentiments ◽

Irrational Exuberance ◽

The U.S

We shed new light on the relevance of rational expectations and irrational exuberance of U.S. individual and institutional investors on Pacific-Basin stock returns. We find insignificant effects of irrational exuberance and significant effect of rational expectations on Asian markets with varying degrees of intensity. There are greater responses of Hong Kong, Malaysia, Philippines, and Singapore while weaker linkages with Taiwan, Thailand, and Korea. Overall evidence suggests that rational expectations of institutional investors are transmitted to a greater extent than those of individual investors. These results are consistent with the view that international effects of the U.S. market can be attributed to rational investor sentiments.

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Are smart beta funds really smart? Evidence from rational and quasi-rational investor sentiment data

Review of Behavioral Finance ◽

10.1108/rbf-08-2018-0084 ◽

2019 ◽

Vol 12 (2) ◽

pp. 97-118

Author(s):

Rahul Verma ◽

Gökçe Soydemir ◽

Tzu-Man Huang

Keyword(s):

Institutional Investors ◽

Institutional Investor ◽

Individual Investors ◽

Leading Indicators ◽

Individual Investor ◽

Short Term ◽

Content Type ◽

Economic Fundamentals ◽

Investor Sentiments ◽

Smart Beta

Purpose The purpose of this paper is to examine the relative effects of rational and quasi-rational sentiments of individual and institutional investors on a set of smart beta fund returns. The magnitudes of the impacts of institutional investor sentiments are greater than those of individual investor sentiments. In addition, both rational and quasi-rational sentiments of individual and institutional investors have significant impacts on smart beta fund returns. The magnitudes of the impacts of quasi-rational sentiments are greater than those of the rational sentiments for both types of investors (quasi-rational sentiments of institutional investors have the maximum impact). These results are consistent with the arguments that professional investors consider the sentiments of individual investors as contrarian leading indicators which are mainly driven by noise while conform the sentiments of institutional investors which are driven by more rational factors. A majority of smart beta funds in the sample outperform the S&P500 returns in the short term but fail to consistently beat the market. The authors find evidence that smart beta funds with consistently high returns are relatively less (more) driven by individual (institutional) investor sentiments. Overall, the authors argue that smart beta funds appear to follow quasi-rational sentiments of both individual and institutional investors that are not rooted in economic fundamentals. Design/methodology/approach The results of the impulse functions generated from a multivariate model suggest that the smart beta fund returns are negatively (positively) impacted by individual (institutional) investor sentiments. Findings The magnitudes of the impacts of institutional investor sentiments are greater than those of individual investor sentiments. In addition, both rational and quasi-rational sentiments of individual and institutional investors have significant impacts on smart beta fund returns. The magnitudes of the impacts of quasi-rational sentiments are greater than those of the rational sentiments for both types of investors (quasi-rational sentiments of institutional investors have the maximum impact). Originality/value These results are consistent with the arguments that professional investors consider the sentiments of individual investors as contrarian leading indicators which are mainly driven by noise while conform the sentiments of institutional investors which are driven by more rational factors. A majority of smart beta funds in the sample outperform the S&P500 returns in the short term but fail to consistently beat the market. The authors find evidence that smart beta funds with consistently high returns are relatively less (more) driven by individual (institutional) investor sentiments. Overall, the authors argue that smart beta funds appear to follow quasi-rational sentiments of both individual and institutional investors that are not rooted in economic fundamentals.

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Restrictions on Allocation Discretion: Evidence from Clawbacks in Hong Kong IPOs

Quarterly Journal of Finance ◽

10.1142/s2010139213500183 ◽

2013 ◽

Vol 03 (03n04) ◽

pp. 1350018 ◽

Cited By ~ 1

Author(s):

Emmanuel Morales-Camargo

Keyword(s):

Hong Kong ◽

Institutional Investors ◽

Price Discovery ◽

Distribution Functions ◽

Investment Banks ◽

Individual Investors ◽

Investment Bankers ◽

Retail Investors ◽

Just Price ◽

Public Offer

The presence of both restricted and unrestricted, US-style, bookbuilt initial public offer (IPOs) in Hong Kong provides an ideal environment to test numerous underpricing models by simultaneously measuring the effects of allocation restrictions on the investment bankers' price discovery, underwriting, and distribution functions. While clawbacks, a set of allocation restrictions favoring retail investors not participating in the roadshow result in diminished and more expensive price discovery, they also reduce the investment bankers' dependence on institutional investors to dispose off IPO shares, resulting in lower underpricing. This favors models that highlight the importance of the underwriting function on underpricing, and shows that allocation restrictions can impact more than just price discovery. In addition, this study shows that individual investors can partially offset the loss of roadshow information caused by clawbacks, countering the idea that investment banks are unable to extract any pricing information from investors outside their list of roadshow regulars.

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Differential Effect Of The Sarbanes-Oxley Act On Individual And Institutional Investors

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v32i2.9593 ◽

2016 ◽

Vol 32 (2) ◽

pp. 517

Author(s):

Sorah Park

Keyword(s):

Stock Returns ◽

Institutional Investors ◽

Differential Effect ◽

Empirical Test ◽

Individual Investors ◽

Earnings Announcement ◽

Quarterly Earnings ◽

Sarbanes Oxley ◽

The Impact ◽

Investor Reaction

This study investigates the differential effect of the Sarbanes-Oxley Act of 2002 (“SOX”) on unsophisticated individual investors and sophisticated institutional investors. I examine the relationship between abnormal stock returns around quarterly earnings announcements before and after SOX and investor sophistication. Empirical test results show that SOX positively affected stock returns reaction around the quarterly earnings announcement, consistent with prior literature. However, the increased stock returns reaction in the post-SOX period appears to be unrelated to individual investors. I find that the impact of SOX on institutional investor reaction to earnings announcement is statistically significant, whereas individual investor reaction to earnings announcement is not affected by SOX. This suggests that institutional investors have improved on the extent to which earnings information is efficiently priced after SOX, but not individual investors. These findings are important because the differential effect of the accounting disclosure regulation on investors has received little attention in the literature.

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Institutional Investors and Hedge Fund Activism

The Review of Corporate Finance Studies ◽

10.1093/rcfs/cfaa027 ◽

2020 ◽

Author(s):

Simi Kedia ◽

Laura Starks ◽

Xianjue Wang

Keyword(s):

Stock Returns ◽

Institutional Investors ◽

Operating Performance ◽

Hedge Fund ◽

Target Firms ◽

Hedge Fund Activism ◽

Institutional Shareholders

Abstract Hedge fund activists have ambiguous relationships with the institutional shareholders in their target firms. While some support their activities, others counter their actions. Due to their relatively small holdings in target firms, activists typically need the cooperation of other institutional shareholders that are willing to influence the activists’ campaign success. We find the presence of “activism-friendly” institutions as owners is associated with an increased probability of being a target, higher long-term stock returns, and higher operating performance. Overall, we provide evidence suggesting the composition of a firm’s ownership has significant effects on hedge fund activists’ decisions and outcomes.

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Do Indian stock market sentiments impact contemporaneous returns?

South Asian Journal of Business Studies ◽

10.1108/sajbs-06-2018-0064 ◽

2018 ◽

Vol 7 (3) ◽

pp. 332-346

Author(s):

Divya Aggarwal ◽

Pitabas Mohanty

Keyword(s):

Stock Market ◽

Stock Returns ◽

Temporal Dynamics ◽

Stock Exchange ◽

Principal Component ◽

Stock Index ◽

Content Type ◽

Investor Sentiments ◽

Indian Stock Market ◽

The Impact

Purpose The purpose of this paper is to analyse the impact of Indian investor sentiments on contemporaneous stock returns of Bombay Stock Exchange, National Stock Exchange and various sectoral indices in India by developing a sentiment index. Design/methodology/approach The study uses principal component analysis to develop a sentiment index as a proxy for Indian stock market sentiments over a time frame from April 1996 to January 2017. It uses an exploratory approach to identify relevant proxies in building a sentiment index using indirect market measures and macro variables of Indian and US markets. Findings The study finds that there is a significant positive correlation between the sentiment index and stock index returns. Sectors which are more dependent on institutional fund flows show a significant impact of the change in sentiments on their respective sectoral indices. Research limitations/implications The study has used data at a monthly frequency. Analysing higher frequency data can explain short-term temporal dynamics between sentiments and returns better. Further studies can be done to explore whether sentiments can be used to predict stock returns. Practical implications The results imply that one can develop profitable trading strategies by investing in sectors like metals and capital goods, which are more susceptible to generate positive returns when the sentiment index is high. Originality/value The study supplements the existing literature on the impact of investor sentiments on contemporaneous stock returns in the context of a developing market. It identifies relevant proxies of investor sentiments for the Indian stock market.

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The Impact of Single-Family Rental REITs on Regional Housing Markets: A Case Study of Nashville, TN

Societies ◽

10.3390/soc8040093 ◽

2018 ◽

Vol 8 (4) ◽

pp. 93 ◽

Cited By ~ 7

Author(s):

Ken Chilton ◽

Robert Silverman ◽

Rabia Chaudhrey ◽

Chihaungji Wang

Keyword(s):

Real Estate ◽

Census Data ◽

Housing Markets ◽

Future Research ◽

Individual Investors ◽

Single Family ◽

Real Estate Investment ◽

Wealth Concentration ◽

The Impact ◽

The U.S

The U.S. Congress authorized the creation of real estate investment trusts (REITs) in 1960 so companies could develop publically traded real estate investment portfolios. REITs focus on commercial property, retail property, and rental property. During the last decade, REITs became more active in regional housing markets across the U.S. Single-family rental (SFR) REITs have grown tremendously, buying up residential properties across the country. In some regional housing markets, SFR REITs own noticeable shares of single-family homes. In those settings, SFR REITs take large numbers of housing units off of real estate markets where homeownership transactions occur and manage these properties as part of commercial rental inventories. This has resulted in a new category of multiple property owners, composed of institutional investors as opposed to individual investors, which further exacerbates property wealth concentration and polarization. This study examines the socio–spatial distribution of properties in SFR REIT portfolios to determine if SFR REIT properties tend to cluster in distinct areas. This study will focus on the regional housing market in Nashville, TN. Nashville has one of the most active SFR REIT sectors in the country. County tax assessor records were used to identify SFR REIT properties. These data were joined with U.S. Census data to create a profile of communities. The data were analyzed using SPSS statistical software and GIS software. Our analysis suggests that neighborhoods with clusters of SFR REITs fit the SFR REIT business model. Clusters occur in communities with newer homes, residents with higher levels of educational attainment, and middle to upper-middle incomes. The paper concludes with several recommendations for future research on SFR REITs.

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