Investor Psychology and Return Seasonalities in the Cross Section

This dissertation studies return seasonalities in the cross section and highlights the link between investor psychology and cross-sectional seasonalities. We document four main categories of return seasonalities in the stock market where predictable return persistence or reve...

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Other Authors: DiGiovanni, Yuting Meng (authoraut)
Format: Others
Language:English
English
Published: Florida State University
Subjects:
Online Access:http://purl.flvc.org/fsu/fd/FSU_2016SP_DiGiovanni_fsu_0071E_13144
id ndltd-fsu.edu-oai-fsu.digital.flvc.org-fsu_360342
record_format oai_dc
collection NDLTD
language English
English
format Others
sources NDLTD
topic Finance
spellingShingle Finance
Investor Psychology and Return Seasonalities in the Cross Section
description This dissertation studies return seasonalities in the cross section and highlights the link between investor psychology and cross-sectional seasonalities. We document four main categories of return seasonalities in the stock market where predictable return persistence or reversal occurs across different calendar months, weekdays, holidays and firms' earnings announcement days. First, relative performance across stocks during months with high (low) market returns tends to persist during months when aggregate returns are predicted to be high (low), but reverse during months when aggregate returns are predicted to be low (high). Second, relative performance across stocks on weekdays with high (low) market returns tends to persist on weekdays when aggregate returns are predicted to be high (low), but reverse on weekdays when aggregate returns are predicted to be low (high). These two types of seasonalities are robust to placebo tests and don't diminish when controlling for risk and characteristics. Using such months or weekdays, we construct a mood beta with strong predictive power for monthly or daily returns. Third, we document a strong pre-holiday seasonality where stocks with above-average return during the two to three days immediately preceding or on a holiday tend to earn above-average return during the same pre-holiday window for at least 10 years. This pre-holiday seasonality is long-lasting, cannot be explained by a host of firm attributes, is present in foreign equity markets and only among firms with a retail clientele, and tends to reverse in the immediate, post-holiday period. A long-short strategy based on pre-holiday seasonality earns abnormal returns with high Sharpe ratios. Last, we document a strong seasonality during firms' earnings announcement days. We show that a firm's cumulative abnormal return (CAR) in a given fiscal quarter in a given fiscal year exhibits strong persistent patterns at fiscal annual intervals, while SUE doesn't. Such persistence exists regardless of the content of SUE. We also show a strong persistence of firm's earnings response (ER) at fiscal annual intervals. Collectively, we document a broad set of strong and puzzling return seasonalities in the cross section that cannot be explained by risk or characteristics. A model is provided to support our hypothesis that investors' mood, attention and expectation swings are important sources of such seasonalities in the cross section. === A Dissertation submitted to the Department of Finance in partial fulfillment of the Doctor of Philosophy. === Spring Semester 2016. === April 8, 2016. === investor psychology, Return seasonalities === Includes bibliographical references. === Danling Jiang, Professor Directing Dissertation; Bruce Billings, University Representative; David Peterson, Committee Member; Donald Autore, Committee Member; Rick Morton, Committee Member.
author2 DiGiovanni, Yuting Meng (authoraut)
author_facet DiGiovanni, Yuting Meng (authoraut)
title Investor Psychology and Return Seasonalities in the Cross Section
title_short Investor Psychology and Return Seasonalities in the Cross Section
title_full Investor Psychology and Return Seasonalities in the Cross Section
title_fullStr Investor Psychology and Return Seasonalities in the Cross Section
title_full_unstemmed Investor Psychology and Return Seasonalities in the Cross Section
title_sort investor psychology and return seasonalities in the cross section
publisher Florida State University
url http://purl.flvc.org/fsu/fd/FSU_2016SP_DiGiovanni_fsu_0071E_13144
_version_ 1719323142602620928
spelling ndltd-fsu.edu-oai-fsu.digital.flvc.org-fsu_3603422020-06-24T03:06:41Z Investor Psychology and Return Seasonalities in the Cross Section DiGiovanni, Yuting Meng (authoraut) Jiang, Danling (professor directing dissertation) Billings, Bruce K. (university representative) Peterson, David R. (David Robert) (committee member) Autore, Donald M. (committee member) Morton, Richard M. (committee member) Florida State University (degree granting institution) College of Business (degree granting college) Department of Finance (degree granting department) Text text Florida State University Florida State University English eng 1 online resource (95 pages) computer application/pdf This dissertation studies return seasonalities in the cross section and highlights the link between investor psychology and cross-sectional seasonalities. We document four main categories of return seasonalities in the stock market where predictable return persistence or reversal occurs across different calendar months, weekdays, holidays and firms' earnings announcement days. First, relative performance across stocks during months with high (low) market returns tends to persist during months when aggregate returns are predicted to be high (low), but reverse during months when aggregate returns are predicted to be low (high). Second, relative performance across stocks on weekdays with high (low) market returns tends to persist on weekdays when aggregate returns are predicted to be high (low), but reverse on weekdays when aggregate returns are predicted to be low (high). These two types of seasonalities are robust to placebo tests and don't diminish when controlling for risk and characteristics. Using such months or weekdays, we construct a mood beta with strong predictive power for monthly or daily returns. Third, we document a strong pre-holiday seasonality where stocks with above-average return during the two to three days immediately preceding or on a holiday tend to earn above-average return during the same pre-holiday window for at least 10 years. This pre-holiday seasonality is long-lasting, cannot be explained by a host of firm attributes, is present in foreign equity markets and only among firms with a retail clientele, and tends to reverse in the immediate, post-holiday period. A long-short strategy based on pre-holiday seasonality earns abnormal returns with high Sharpe ratios. Last, we document a strong seasonality during firms' earnings announcement days. We show that a firm's cumulative abnormal return (CAR) in a given fiscal quarter in a given fiscal year exhibits strong persistent patterns at fiscal annual intervals, while SUE doesn't. Such persistence exists regardless of the content of SUE. We also show a strong persistence of firm's earnings response (ER) at fiscal annual intervals. Collectively, we document a broad set of strong and puzzling return seasonalities in the cross section that cannot be explained by risk or characteristics. A model is provided to support our hypothesis that investors' mood, attention and expectation swings are important sources of such seasonalities in the cross section. A Dissertation submitted to the Department of Finance in partial fulfillment of the Doctor of Philosophy. Spring Semester 2016. April 8, 2016. investor psychology, Return seasonalities Includes bibliographical references. Danling Jiang, Professor Directing Dissertation; Bruce Billings, University Representative; David Peterson, Committee Member; Donald Autore, Committee Member; Rick Morton, Committee Member. Finance FSU_2016SP_DiGiovanni_fsu_0071E_13144 http://purl.flvc.org/fsu/fd/FSU_2016SP_DiGiovanni_fsu_0071E_13144 This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s). The copyright in theses and dissertations completed at Florida State University is held by the students who author them. http://diginole.lib.fsu.edu/islandora/object/fsu%3A360342/datastream/TN/view/Investor%20Psychology%20and%20Return%20Seasonalities%20in%20the%20Cross%20Section.jpg