Jing Zhao  ( 赵 静 )

Work in Progress

The Motherhood Penalty: Fertility Policy and Analysts Forecasts, with Weixing Cai, Yuqi Pu and Cheng Zeng.

Abstract: We examine how a fertility-relaxation policy impacts female financial analysts’ productivity and performance. We find that female analysts experience a 7.45% decrease in forecast accuracy compared to males following the fertility relaxation policy, potentially due to increased distractions related to family planning. To alleviate the effect of contemporaneous economic changes, we take advantage of the cross-sectional variations in the vulnerability to the fertility policy shock using the pre-shock local fertility culture. We find that the effect of the fertility policy is stronger among provinces with a multi-kid culture (i.e. citizens in these provinces are more willing to have kids but were restricted by a very stringent one-child policy before the fertility relaxation). Further, this accuracy reduction is stronger for analysts in regions with extended maternity leave and those covering complex firms. However, it weakens among analysts in supportive brokerage firms with higher salaries, better family support, and improved access to childcaring services. Following the policy reform, treated female analysts are less likely to become “Star Analysts” and more likely to exit the sell-side analyst profession. Overall, our paper makes important implications for fertility policy makers and for working females. Our results suggest that child-care resources enhancing family-career compatibility can alleviate the motherhood penalty, while policies solely extending maternity leave may worsen it.

Timing is Money: Limit Order Cancellation and Investment Performance, with Wei-Yu Kuo and Tse-Chun Lin.

Abstract: A limit order executes only if the price moves against the order. To mitigate this limit order pick-off risk, investors can monitor the execution process and cancel their unexecuted stale orders in time. We propose an investor-level indicator for the susceptibility to the stale limit order risk using the average time interval from limit order submission and cancellation. The time-to-cancellation is related to cognitive ability, trading experience, and other behavioral biases, such as the disposition effect. Investor-level time-to-cancellation is negatively associated with limit order performance. Individual investors may earn higher returns if they cancel the stalest limit orders early and if their canceled orders were successfully executed at the market price prevailing at either the time of submission or cancellation. 

Selected Publications

Do Women Receive Worse Financial Advice?, with Bhattacharya, Utpal, Amit Kumar, Sujata Visaria, Forthcoming at Journal of Finance, 2024.

Coverage: Bloomberg, Asian Development Bank

Abstract: We arranged for trained undercover men and women to pose as potential clients and visit all 65 local financial advisory firms in Hong Kong. At financial planning firms, but not at securities firms, women were more likely than men to receive advice to buy only individual or only local securities. Women clients who signaled that they were highly confident, highly risk tolerant or had a domestic outlook, were especially likely to receive this suboptimal advice. Our theoretical model explains these patterns as the result of statistical discrimination interacting with advisors’ incentives. Taste-based discrimination is unlikely to explain the results. 

The Correlated Trading and Investment Performance of Individual Investors, with Kuo, Wei-Yu, Tse-Chun Lin, Forthcoming at Journal of Empirical Finance, 2024.

Abstract: We find that individual investors tend to trade in the same direction as other individual investors in the same broker branch. The more pronounced an individual investor’s herding behavior, the worse she performs in her investments. One explanation that herding investors underperform is the poor market timing of their trades. We find that limit orders from those who herd more have a longer time-to-execution and time-to-cancellation, indicating that these orders face a fierce competition to execute and tend to become stale after submissions. Finally, we find that individual investors learn from their past experience and herd less in the future. 

The Effect of Shareholder Activism on Earnings Management: Evidence from Shareholder Proposals, with Ng, Jeffery, Hong Wu, Weihuan Zhai, Journal of Corporate Finance, 2021, 69, 102014.

Abstract: We find that in general, both accrual-based and real earnings management decrease after the passage of shareholder-sponsored governance proposals. However, when accounting for the type of proposal, we observe significant heterogeneity in the effects on earnings management. Specifically, proposals focused on changing the governance structure (e.g., board independence) lead to reductions in both types of earnings management, whereas proposals specifically targeted at improving financial reporting quality lead to decreased accrual-based earnings management but increased real earnings management. The results suggest that constraints on accrual-based earnings management induce a shift toward real earnings management. Our paper indicates that the nature of the shareholder proposal has a significant impact on shareholder intervention.

Do Superstitious Traders Lose Money?, with Bhattacharya, Utpal, Wei-Yu Kuo, Tse-Chun Lin, Management Science, 2018, 64(8), 3772—3791.

Coverage: The Economist

Abstract: Do superstitious traders lose money? We answer this question in the context of trading in the Taiwan Futures Exchange, where we exploit the Chinese superstition that the number “8” is lucky and the number “4” is unlucky. We find that individual investors, but not institutional investors, submit disproportionately more limit orders at “8” than at “4.” This imbalance, defined as “superstition index” for each investor, is positively correlated with trading losses. Superstitious investors lose money mainly because of their bad market timing and stale orders. Nevertheless, the reliance on number superstition for limit order submissions does decrease with trading experience.

Cognitive Limitation and Investment Performance: Evidence from Limit Order Clustering, with Kuo, Wei-Yu, Tse-Chun Lin, Review of Financial Studies, 2015,  28(3), 838—875. 

Abstract: We hypothesize that cognitive limitation may be manifested in a disproportionately large volume of limit orders submitted at round-number prices if investors use these numbers as cognitive shortcuts. Using detailed limit order data in the Taiwan Futures Exchange, we find that investors with lower cognitive abilities, defined as higher limit order submission ratios at round numbers, suffer greater losses in their round-numbered and non-round-numbered limit orders, market orders, and round-trip trades. The positive correlation between cognitive ability and investment performance is monotonic and robust across futures and options markets. In addition, past trading experience helps to mitigate the cognitive limitation.