Presidential Cycles in PEAD , joint with Zhi Da and Liyao Wang
Post-earnings announcement drift (PEAD) displays presidential cycles: it earns 5.1% per year during Democratic presidencies but its profitability increases significantly to 16.8% during Republican presidencies. Survey-based evidence also indicates substantial underreaction to earnings news when the US president is Republican. The stronger underreaction likely arises from exposure to tax policy uncertainty. Consistently, we find that investor reactions to earnings announcements are much weaker for firms with greater exposure to tax policy uncertainty, particularly during Republican presidencies. This explanation accounts for the observed presidential cycles in PEAD, whereas existing explanations for PEAD cannot. The cycles are more pronounced among non-microcap firms.
Presentation: University of Gothenburg, Stockholm Business School, Xiamen University, CICF 2025, Annual Conference of the Asia-Pacific Association of Derivatives 2025, RAPS/RCFS Europe Conference in Cambridge 2025 (scheduled), EUROFIDAI-ESSEC Paris December Finance Meeting 2025 (scheduled)
Analysts Are Good at Ranking Stocks , joint with Adam Farago and Erik Hjalmarsson, submitted
Sell-side analysts' forecasts of stock returns are biased and the consensus forecast is a poor cross-sectional predictor. In sharp contrast, the implicit ranking of stocks by each analyst is highly informative of subsequent returns. Long-short portfolios sorted on these rankings result in large and highly significant excess returns that cannot be explained by previous anomaly characteristics. The strong performance is most easily understood by noting the similarity between rankings and within-analyst demeaned forecasts. The latter are equivalent to removing each analyst's fixed effect and thus controlling for unobservable analyst-specific biases. We document analogous results using analysts' recommendations and earnings forecasts.
Presentation: 4th Frontiers of Factor Investing, Aalto, QRFE Workshop on Asset Pricing and Machine Learning, the Second Swedish National Pension Fund, Örebro University, EFA 2024, MFA 2025, CICF 2025
Expectation-Driven Term Structure of Equity and Bond Yields, joint with Guihai Zhao, R&R at Journal of Monetary Economics
Recent findings on the term structure of equity and bond yields pose serious challenges to existing equilibrium asset pricing models. This paper presents a new equilibrium model to explain the joint historical dynamics of equity and bond yields (and their yield spreads). Equity/bond yields movements are mainly driven by subjective dividend/GDP growth expectation. Yields on short-term dividend claims are more volatile because short-term dividend growth expectation mean-reverts to its less volatile long-run counterpart. Procyclical slope of equity yields are due to counter-cyclical slope of dividend growth expectations. The correlation between equity returns/yields and nominal bond returns/yields switched from positive to negative after the late 1990s, owing to (1) procyclical inflation and (2) higher correlation between expectations of real GDP and of real dividend growth post-2000. Equity returns are predictable but the strength of predictability decreases from short-term to long-term claims due to biased subjective cash-flow forecasts. The model is also consistent with the data in generating persistent and volatile price-dividend ratios, and excess return volatility.
Presentation: University of Gothenburg, Nordic Finance Network Young Scholars Finance Webinar , Singapore Management University, 2021 North American Summer Meeting of the Econometric Society , Stanford SITE 2021, WFA 2022, 18th Annual Conference of the Asia-Pacific Association of Derivatives, Stockholm Business School, Paris December Finance Meeting 2022 , EFA 2023 , FIRS 2025
Inflation premia among individual stocks are moderate on average, yet their magnitude rises by 1.6% to 3.2% per month when ambiguity is high. This finding aligns with an equilibrium model where investor concerns about model misspecification and uses the worst-case inflation model to price stocks. Stocks with higher inflation risk display stronger negative co-movement with ambiguity, leading to a large ambiguity premium. Meanwhile, higher inflation-ambiguity correlation makes stocks with higher inflation betas better hedges for ambiguity. The monthly inflation premium is 0.20% under negative correlation but drops to -1.94% under positive correlation. These results, robust at the industry level, suggest that the time-varying inflation premium in the stock market is largely driven by the ambiguity premium. This interpretation differs from explanations based on inflation cyclicality, macroeconomic disagreement, or investor sentiment. A calibrated model successfully replicates the observed pattern of inflation ambiguity premium.
Presentation: AMES, SMU, CMES, Gothenburg
Currency Carry, Momentum, and Global Interest Rate Uncertainty, Journal of Financial and Quantitative Analysis, forthcoming
On the Driving Forces of Real Exchange Rates: Is the Japanese Yen Different?, joint with Paulo Maio, Journal of Empirical Finance, 2023
Political sentiment and MAX effect, joint with Shuyang Huang, The North American Journal of Economics and Finance, 2022
The Term Structure of Sovereign CDS and the Cross-section of Exchange Rate Predictability, joint with Giovanni Calice, International Journal of Finance and Economics, 2019
Understanding US Firm Efficiency and its Asset Pricing Implications, joint with Giovanni Calice and Levent Kutlu, Empirical Economics, 2019