 Jinfei Sheng Research Interests: Empirical Asset Pricing, Investments, Behavioral Finance, Financial Intermediation, Machine Learning, Textual Analysis I will be joining the University of California Irvine as an Assistant Professor of Finance in July 2018. Working Papers Asset Pricing in the Information Age: Employee Expectations and Stock Returns, 2018 [Job Market Paper] - 2018 FIRS, 2018 AFA Poster Session This paper studies the investment value of employees' information in financial markets, using a unique dataset of nearly one million employee reviews. Employee beliefs about their employers' business prospects predict future returns at one- to five-month horizons, delivering an annualized abnormal return of 7% to 9%. The abnormal returns do not reverse during a 12-month holding period. Employee reviews are related to firms' fundamentals because they predict cash flow news. In addition, the reviews predict future trading activity by hedge funds, suggesting some sophisticated investors exploit this information or its underlying sources. There are information hierarchies within firms in the sense that relatively high-level employees' expectations are better in predicting future stock returns. Overall, this paper highlights the importance of online information about firms' fundamentals, which is beyond traditional information sources such as analyst forecasts. - 2017 EFA, 2017 Yale Whitebox Advisors Conference, 2017 AFA Poster Session, 2016 NFA, 2016 LBS TADC I investigate interactions between macro-announcements and the processing of earnings news. Existing theories suggest that macro-news should crowd out attention to firm-level news, implying less efficient pricing. However, I find the opposite: on macro-news days price reactions to earnings news are 17% stronger and the post-earnings announcement drift is 71% weaker. To explain these results, I show that institutional investor attention is higher on macro-news days. Hence, macro-news appears not to be a distraction from firm-level news, but instead serves to enhance overall attention to financial markets. I suggest extensions of existing theories that could be consistent with these findings. - 2017 FIRS, 2016 ASU Sonoran Winter Finance Conference, 2016 NFA, 2016 CICF - Media coverage: Canadian Investment Review We construct indices of media attention to macroeconomic risks including employment, growth, and monetary policy. Attention rises around macroeconomic announcements and following changes in fundamentals over quarterly, annual, and business cycle horizons. The effect is asymmetric, with bad news raising attention more than good news. Attention relates to the stock market in two ways. First, increases in aggregate trade volume and volatility coincide with rising attention, controlling for announcements. Second, changes in attention before unemployment and FOMC announcements predict announcement surprises, stock returns, and implied volatility changes on the announcement day. We conclude that media attention to macroeconomic fundamentals provides market-relevant information beyond the contents and dates of macroeconomic announcements. (with Mikhail Simutin and Terry Zhang)
- 2018 AFA Poster Session, 2017 EFA, 2017 NFA, 2017 CICF, 2017 Finance Down Under Conference - Media coverage: Citywire, Canadian Investment Review, Reddit The well-established negative relation between expense ratios and future net-of-fees performance of actively managed equity mutual funds guides portfolio decisions of institutional and retail investors. We show that this relation is an artifact of the failure to adjust performance for exposure to the profitability and investment factors. High-fee funds exhibit a strong preference for stocks with low operating profitability and high investment rates, characteristics recently found to associate with low expected returns. We show that after controlling for exposures to profitability and investment factors, high-fee funds significantly outperform low-fee funds before expenses, and perform equally well net of fees. Our results have important implications for asset allocation decisions and support the theoretical prediction that skilled managers extract rents by charging high fees. - 2015 AAA, 2015 CAAA, 2015 LBS TADC Using a randomized experiment (Regulation SHO), in which the SEC exempted one-third of the Russell 3000 Index firms from short-selling price tests, we examine the impact of short selling pressure on analyst forecast quality for these pilot firms. We find that increased ease of short selling improves analyst earnings forecast quality. In examining underlying mechanisms, we find evidence consistent with both a “discipline effect ”(i.e., the heightened potential for short selling increases the incentive for analysts to uncover bad news, resulting in higher quality earnings forecasts) and an “information effect” (i.e., short sellers improve price efficiency, which in turn improves analyst forecast quality). In additional analysis, we show that the improvement in analyst forecast quality increases with forecast horizon. Further, the remaining two-thirds of the Russell 3000 firms also experienced an increase in analyst forecast quality upon the permanent removal of price tests for all firms. Our paper provides new evidence on the effect of sophisticated investors — short sellers — on analyst behaviors. (with Jack Favilukis) - 2018 MFA Interest rates have declined dramatically over the past 30 years. At the same time, the birth rate has declined, and life expectancy has increased. Demographic changes leading to an older population have been proposed as an explanation for the decline in rates. However, this conjecture is difficult to test because demographics change slowly over time, and are correlated with other characteristics. We show that in a cross-section of U.S. MSAs, the relationship between interest rates and demographics is only partially consistent with the above conjecture, and with existing models, which predict a negative association between age and interest rates. This association is, indeed, negative for lending rates, but positive for deposit rates. We rationalize this pattern by solving an OLG model where the banking sector is not perfectly competitive, and there is heterogeneity in the intertemporal elasticity of substitution across households. - 2014 Econometric Society Summer Meeting, 2014 NFA This paper investigates the real and financial effects of the largest government intervention in US history, the Troubled Asset Relief Program (TARP), on individual firms. Firms borrowing from banks that participate in TARP increase long-term debt and have more cash holdings and working capital after the Program compared to firms borrowing from banks that do not participate in TARP. But, there is no significant impact of TARP on corporate investment, employment, or R&D. We conclude that TARP exerts significant influence on firms’ liquidity and financial decisions, yet its impact on firms’ real activities is limited. Teaching Instructor, University of British Columbia, 2015. - Corporate Finance (Undergraduate, Syllabus), Evaluation: 4.6/5, Paul Chwelos Teaching Excellence Award. |