WORKING PAPERS

It's a Small World: Social Ties, Comovements, and Predictable Returns

with Lin Peng, Sheridan Titman and Dexin Zhou

Abstract:  We identify a new dimension of cross-firm linkages by exploring the social connectedness between firms' geographical locations. Industry peers located in regions with strong social ties tend to adopt similar strategies and exhibit strong co-movements in both fundamentals and returns. However, this information is not immediately reflected in stock prices and can be exploited using information contained in social peer returns (SPFRET). The predictability of SPFRET lasts for up to a year and forecasts future earnings surprises, analysts' forecast errors, and returns around earnings announcements. The effect is particularly strong for low-visibility firms and those located outside of industry clusters.

Climate Change in the Local Lens: The Role of News Media in Shaping Economic and Environmental Outcomes

with Leonard Kostovetsky, Lin Peng and Christopher Rauh

Abstract: We use newspaper coverage of climate change to examine the factors that shape local attention to this issue and how such attention influences economic and environmental outcomes. We construct a comprehensive dataset of climate change newspaper coverage from 2000 through 2022, with over 5000 newspapers, including 510 major broadsheets, from across the United States. Local newspaper attention to climate change is correlated with national attention, but is also influenced by local education attainment levels, Democratic politics, and occurrences of extreme weather events. In contrast, local coverage does not show a significant association with greenhouse gas emissions or toxic chemical releases from local production facilities. Exploring exogenous variation in local newspapers’ coverage of climate change, we find that climate coverage is associated with more local investment in ESG-focused exchange-traded funds and improved environmental scores of locally-headquartered firms. Finally, we show that local climate coverage propagates to other areas of the country through social networks. Our findings suggest that news coverage plays a vital role in shaping climate-related sentiment, investment decisions and corporate policies.

Moody and Dissatisfied: A Possible Resolution of Asset Pricing Puzzles

Abstract: Recent microeconomic evidence suggests that risk aversion is largely determined by the changes in the state of the economy and mostly insensitive to the fluctuations in idiosyncratic wealth.  I propose a consumption-based asset pricing model that is consistent with this evidence and capable of explaining various stylized facts about the U.S. stock market.  In the model, agents have a power-utility type instantaneous utility function whose curvature explicitly depends on a stationary macroeconomic state variable.  The model can produce a high equity risk premium with a low, stable and wealth-insensitive relative risk aversion if the utility curvature is mildly countercyclical (i.e., if the agents are mildly "moody") and consumption is sufficiently smaller than a predetermined benchmark (i.e., if the agents are sufficiently "dissatisfied") at the steady state. It also gives a low and stable risk-free rate, procyclical price-dividend ratio, countercylical risk premium and price of risk, return predictability, an upward sloping real yield curve and a downward sloping equity term structure.

OTHER WORK IN PROGRESS

Perspective Matters: Revisiting Industry Momentum with Image Recognition

Return Comovement and Inter-Firm Linkages: A Machine Learning Approach with Extreme Regularization

Ambiguity and The Term Structure of Risky Assets