Cross-section Of Stock Returns Research Articles

Climate policy uncertainty and the cross-section of stock returns

We show that climate policy uncertainty (CPU) is priced cross-sectionally in individual stocks. On average, the risk-adjusted annual future returns of stocks with low exposure to CPU are 5.5%–6.3% higher than those of stocks with high CPU exposure. This finding is consistent with Merton's (1973) intertemporal CAPM where uncertainty-averse investors are willing to pay higher prices and accept lower future returns for CPU-sensitive stocks. Low CPU-beta firms are primarily value stocks with low crash risk, and they have higher exposure under Democratic presidencies. Finally, we develop a novel CPU factor, and show that it outperforms the size and value factors.

CEO overconfidence, lottery preference and the cross-section of stock returns

Unlike existing studies that mostly focus on investors’ biased behavior in explaining the lottery-related anomaly, our study highlights the importance of CEO overconfidence for the anomaly. We propose that CEO overconfidence could enhance investors’ confidence in the stock's price even if the stock exhibits lottery-like payoffs. As a result, lottery stocks with overconfident CEOs are less prone to subsequent underperformance. Based on portfolio-based analyses and cross-sectional regressions, we provide robust evidence to confirm this hypothesis. Our study has important implications to the literature on both lottery-related anomaly and CEO overconfidence.

Pension funding and the cross section of stock returns - The case of Germany

We re-examine the relation between the funding of corporate pension plans and a cross-section of stock returns. In Germany, we observe an increasing funding of historically unfunded pension plans. Firms may freely choose to underfund or not even fund pension plans at all. We find that lower funding levels are related to higher unexpected future earnings and higher stock returns. In Germany, firms with lower pension funding levels perform better than expected by the capital market in contrast to the United States and the United Kingdom. The capital market's underreaction to the earnings announcements of firms with highly underfunded pension plans compared to firms with well-funded plans is higher for short- and long-time horizons. The underreaction is substantially lower for firms with more investor attention and less pension plan and firm opacity.

Unemployment beta and the cross-section of stock returns: Evidence from Australia

This study provides evidence of the significant impacts of unemployment indicators, including the projected unemployment rate and actual unemployment gap, on the cross-sectional stock returns in the Australian market. Utilising the extensive dataset of all listed stocks and unemployment data from 1992 to 2021, we construct an unemployment beta to measure the monthly-varying sensitivity of returns to the actual and forecasted unemployment levels. The findings confirm that stocks in the lowest unemployment beta decile can generate higher excess and risk-adjusted returns compared to the higher unemployment beta deciles. The predictive powers of unemployment remain significant within the horizon of 36 months for the aggregate returns and 24 months for cross-sectional returns. Further, the unemployment premiums are positively correlated with firms' operating leverage and economic, financial, and political uncertainties. After considering a battery of sensitivity analyses accounting for alternative approaches, risk, and macroeconomic indicators, our results remain robust.

Misery on Main Street, victory on Wall Street: Economic discomfort and the cross-section of global stock returns

We hypothesize that local economic discomfort influences investors’ risk aversion, leading to cross-sectional variation in risk premia in segmented equity markets. To test this assertion, we employ the misery index (MI)—which aggregates both unemployment and inflation rates—as a gauge of macroeconomic welfare. Using six decades of data from 69 markets, we demonstrate that economic discomfort reliably predicts cross-sectional stock returns. A quartile of countries with the highest MI outperforms those with the lowest by 0.74% per month. The effect prevails in markets where prices are set locally and gradually declines over time as markets become more integrated.

Product Market Competition, Labor Mobility, and the Cross-Section of Stock Returns

Abstract This paper explores the impact of product market competition on the positive relation between labor mobility (LM) and future returns. We develop a production-based model and formalize the intuition that low exposure to systematic risk in a concentrated industry limits LM’s amplifying effect on operating leverage. Therefore, the model predicts a stronger positive relation between LM and expected returns for firms in competitive industries. Consistent with the model’s prediction, we empirically find that LM predicts returns only among firms in competitive industries. This evidence suggests that the intensity of competition in firms’ product market potentially drives the positive LM-return relation. (JEL G12, G14, J69) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Relationship between investor sentiment and stock returns: a bibliometric analysis using SCOPUS database

This paper provides a comprehensive bibliometric analysis of the literature on the relationship between investor sentiment and stock returns. It identifies the key authors, publications, journals, publication countries, and reoccurring keywords using VOSviewer. It analyses 983 publications (procured through the SCOPUS database) using four bibliometric techniques: co-citation analysis, citation analysis, co-occurrence analysis, and bibliographic coupling. The results of the co-citation analysis of references and author reveal that 'Investor sentiment and the cross-section of stock returns' by Baker and Wurgler (2006) is the most cited article, and M. Baker is the top-cited author. The bibliographic coupling of sources suggests that Finance Research Letters leads in publications, co-occurrence analysis of author keywords reveals that behavioural finance, asset pricing, and volatility are the most occurring keywords. Further, the citation analysis of countries shows that the USA leads in terms of the number of publications, substantially growing globally since 2000.

Measuring and Testing Systemic Risk from the Cross Section of Stock Returns

Measuring and Testing Systemic Risk from the Cross Section of Stock Returns

Organizational Capital, Tobin's Q, and the Cross Section of Stock Returns

Organizational Capital, Tobin's Q, and the Cross Section of Stock Returns

Interest Rate Risk, Inflation, and the Cross Section of Stock Returns

Interest Rate Risk, Inflation, and the Cross Section of Stock Returns

Ambiguity and the Cross Section of Stock Returns

Ambiguity and the Cross Section of Stock Returns

News-based Investor Disagreement and Cross Section of Stock Returns

News-based Investor Disagreement and Cross Section of Stock Returns

Quantile Machine Learning and the Cross-Section of Stock Returns

Quantile Machine Learning and the Cross-Section of Stock Returns

Changepoint Detection in the Cross-Section of Stock Returns

Changepoint Detection in the Cross-Section of Stock Returns

Inflation Risk, Ambiguity, and the Cross-Section of Stock Returns

Inflation Risk, Ambiguity, and the Cross-Section of Stock Returns

Cyber risk and the cross-section of stock returns

Cyber risk and the cross-section of stock returns

Profitability Context and the Cross-Section of Stock Returns

Profitability Context and the Cross-Section of Stock Returns

The Sword of Damocles: Sparse Macroeconomic Risks and the Cross-section of Stock Returns

The Sword of Damocles: Sparse Macroeconomic Risks and the Cross-section of Stock Returns

Jump Tail Risk Exposure and the Cross-Section of Stock Returns

Jump Tail Risk Exposure and the Cross-Section of Stock Returns

Lottery Demand, Weather and the Cross-Section of Stock Returns

Lottery Demand, Weather and the Cross-Section of Stock Returns