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.

Measuring Local Climate Change Attention: Does it Affect Investors and Firms?

with Leonard Kostovetsky, Lin Peng and Christopher Rauh

Revise and Resubmit at Journal of Financial and Quantitative Analysis

Abstract: We develop a novel, high-frequency measure of local climate change attention using a comprehensive news dataset from over 5,000 newspapers covering all major U.S. population centers. We document growing polarization in climate attention across the U.S., with significant variation linked to local demographics, social media attention, acute environmental events, local protests, and the implementation of state-level clean energy standards. Leveraging exogenous variations, we show that higher local climate attention increases household investment in ESG-focused ETFs, encourages flood insurance purchases, and drives more frequent discussions of climate risk in local firms' earnings calls, as well as  improvements in their environmental performance.

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