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Prior research has examined how companies exploit Twitter in communicating with investors, and whether Twitter activity predicts the stock market as a whole. We test whether opinions of individuals tweeted just prior to a firm's earnings announcement predict its earnings and announcement returns. Using a broad sample from 2009 to 2012, we find that the aggregate opinion from individual tweets successfully predicts a firm's forthcoming quarterly earnings and announcement returns. These results hold for tweets that convey original information, as well as tweets that disseminate existing information, and are stronger for tweets providing information directly related to firm fundamentals and stock trading. Importantly, our results hold even after controlling for concurrent information or opinion from traditional media sources, and are stronger for firms in weaker information environments. Our findings highlight the importance of considering the aggregate opinion from individual tweets when assessing a stock's future prospects and value.

We analyze time series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. The evidence is not consistent with rational expectations representative investor models of returns.

PurposeThis paper investigates the impact of a change in economic policy uncertainty (ΔEPUt) and the absolute value of a change in geopolitical risk (|ΔGPRt|) on the returns of stocks, bonds and gold in the Chinese market.Design/methodology/approachThe paper uses Engle's (2009) dynamic conditional correlation (DCC) model and Chiang's (1988) rolling correlation model to generate correlations of asset returns over time and analyzes their responses to (ΔEPUt) and  |ΔGPRt|.FindingsEvidence shows that stock-bond return correlations are negatively correlated to ΔEPUt, whereas stock-gold return correlations are positively related to the |ΔGPRt|, but negatively correlated with ΔEPUt. This study finds evidence that stock returns are adversely related to the risk/uncertainty measured by downside risk,  ΔEPUt and  |ΔGPRt|, whereas the bond return is positively related to a rise in ΔEPUt; the gold return is positively correlated with a heightened |ΔGPRt|.Research limitations/implicationsThe findings are based entirely on the data for China's asset markets; further research may expand this analysis to other emerging markets, depending on the availability of GPR indices.Practical implicationsEvidence suggests that the performance of the Chinese market differs from advanced markets. This study shows that gold is a safe haven and can be viewed as an asset to hedge against policy uncertainty and geopolitical risk in Chinese financial markets.Social implicationsThis study identify the special role for the gold prices in response to the economic policy uncertainty and the geopolitical risk. Evidence shows that stock and bond return correlation is negatively related to the ΔEPU and support the flight-to-quality hypothesis. However, the stock-gold return correlation is positively related to |ΔGPR|, resulting from the income or wealth effect.Originality/valueThe presence of a dynamic correlations between stock-bond and stock-gold relations in response to  ΔEPUt and  |ΔGPRt| has not previously been tested in the literature. Moreover, this study finds evidence that bond-gold correlations are negatively correlated to both ΔEPUt and  |ΔGPRt|.

Although previous studies have established a direct link between customer-based metrics and stock returns, research is unclear on the mediated nature of their association. The authors examine the association of customer satisfaction and abnormal stock returns, as mediated by the trading behavior of short sellers. Using quarterly data from 273 firms over 2007–2017, the authors find that short interest—a measure of short seller activity—mediates the impact of customer satisfaction and dissatisfaction on abnormal stock returns. Customer dissatisfaction has a more pronounced effect on short selling compared with customer satisfaction. In addition, customer satisfaction and dissatisfaction are more relevant for firms with low capital intensity and firms that face lower competitive intensity. The results show that a one-unit increase in customer satisfaction is associated with a .56 percentage point increase in abnormal returns, while a one-unit increase in customer dissatisfaction is associated with a 1.34 percentage point decrease in abnormal returns.

This paper presents evidence for a significantly positive link between the dynamic conditional beta and the cross section of daily stock returns. An investment strategy that takes a long position in stocks in the highest conditional beta decile and a short position in stocks in the lowest conditional beta decile produces average returns and alphas in the range of 0.60%–0.80% per month. We provide an investor attention-based explanation of this finding. We show that stocks with high conditional beta have strong attention-grabbing characteristics, leading to a higher fraction of buyer-initiated trades for these stocks. We also find that stocks recently bought perform significantly better than stocks recently sold. Hence, the high beta stocks that investors are more likely to buy have higher expected returns than the low beta stocks that investors are more likely to sell. This paper was accepted by Lauren Cohen, finance .

We investigate whether individual experiences of macroeconomic shocks affect financial risk taking, as often suggested for the generation that experienced the Great Depression. Using data from the Survey of Consumer Finances from 1960 to 2007, we find that individuals who have experienced low stock market returns throughout their lives so far report lower willingness to take financial risk, are less likely to participate in the stock market, invest a lower fraction of their liquid assets in stocks if they participate, and are more pessimistic about future stock returns. Those who have experienced low bond returns are less likely to own bonds. Results are estimated controlling for age, year effects, and household characteristics. More recent return experiences have stronger effects, particularly on younger people.

We show that recent prominent equity factor models are to a large degree compatible with the Intertemporal CAPM (ICAPM) framework. Factors associated with alternative profitability measures forecast the equity premium in a way that is consistent with the ICAPM. Several factors based on firms’ asset growth predict a significant decline in stock market volatility, thus being consistent with their positive prices of risk. The investment-based factors are also strong predictors of an improvement in future economic activity. The time-series predictive ability of most equity state variables is not subsumed by traditional ICAPM state variables. Importantly, factors that earn larger risk prices tend to be associated with state variables that are more correlated with future investment opportunities or economic activity. Moreover, these risk price estimates can be reconciled with plausible risk-aversion parameter estimates. Overall, the ICAPM can be used as a common theoretical background for recent multifactor models. This paper was accepted by Karl Diether, finance.

We examine the association between changes in companies’ textual risk disclosures in 10-K filings and changes in stock market and analyst activity around the filings. We find that annual increases in risk disclosures are associated with increased stock return volatility and trading volume around and after the filings. Increases in risk disclosures are also associated with more dispersed forecast revisions around the filings. In contrast to prior literature documenting resolved uncertainties in response to various types of company disclosures, our findings suggest that textual risk disclosures increase investors’ risk perceptions. However, the results are less pronounced for firm-level disclosures that deviate from those of other companies in the same industry and year. These results lend support for critics’ arguments that firm-level risk disclosures are more likely to be boilerplate.

Through the interaction between financial constraints and R&D, I study two asset-pricing puzzles: mixed evidence on the financial constraints—return relation and the positive R&D-return relation. Unlike capital investment, R&D is more inflexible. A financially constrained R&D-intensive firm is more likely to suspend/discontinue R&D projects. Therefore, R&D-intensive firms' risk increases with their financial constraints. Conversely, constrained firms' risk increases with their R&D intensity. I find a robust empirical relation between financial constraints and stock returns, primarily among R&D-intensive firms. Moreover, R&D predicts returns only among financially constrained firms. This evidence suggests that financial constraints potentially drive the positive R&D-return relation.

We explore the joint effect of expected government support to banks and changes in sovereign credit ratings on bank stock returns using data for banks in 37 countries between 1995 and 2011. We find that sovereign credit rating downgrades have a large negative effect on bank stock returns for those banks that are expected to receive stronger support from their governments. This result is stronger for banks in advanced economies where governments are better positioned to provide that support. Our results suggest that stock market investors perceive sovereigns and domestic banks as markedly interconnected, partly through government guarantees.