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Three essays on disagreement-based speculation

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TitleInfo
Title
Three essays on disagreement-based speculation
Name (type = personal)
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Xu
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Zhiwei
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1988
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Zhiwei Xu
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author
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Dimitrov
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Valentin
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Valentin Dimitrov
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Advisory Committee
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chair
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Palia
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Darius
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Darius Palia
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internal member
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Sarath
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Bharat
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Bharat Sarath
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Advisory Committee
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internal member
Name (type = personal)
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Dou
NamePart (type = given)
Yiwei
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Yiwei Dou
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Advisory Committee
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outside member
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Rutgers University
Role
RoleTerm (authority = RULIB)
degree grantor
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Graduate School - Newark
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school
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Text
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theses
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ETD doctoral
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2020
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2020-10
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English
Abstract
This dissertation consists of three chapters that examine the association between speculative trading and future returns, managerial disclosure policy and market response to earnings news, respectively.

In the first chapter, I construct a novel measure for speculative trading and examine its asset pricing implications. This measure is motivated by a stream of analytical research linking disagreement to speculative trading. I find that the measure for speculative trading is negatively and significantly associated with future excess returns. I also find that the negative relationship is more pronounced for firms with more binding-short sales constraints, higher idiosyncratic volatility, lower market capitalization and lower analyst coverage. The negative relationship is also more pronounced when market sentiment is higher. I further find that my measure performs better in explaining the cross-section of stock returns than several proxies for speculative trading.

In the second chapter, I examine the properties of management forecasts in the presence of speculative trading. Using the measure of speculative trading from the first chapter of the dissertation and the exogenous variation in speculative trading due to the reconstitution of the Russell 1000/2000 indices, I find that speculative trading reduces the frequency, likelihood, and precision of management forecasts. Consistent with theory, this relationship is significantly stronger when short sale constraints are more binding, and when managers have strong equity-based incentives. I also find that managers sell equity to benefit from the speculative premium. In summary, the results suggest that managers issue forecasts opportunistically in response to speculative trading: they either keep silent, or issue fewer and more ambiguous forecasts to prolong speculative trading and the resulting speculative premium in equity prices.

In the third chapter, I examine the relationship between speculative trading and market response to earnings news. Intuitively, disagreement and the resulting speculative trading should not persist in an environment with a wealth of public information since public information plays a role in aligning the beliefs of investors. Nevertheless, prior literature finds pervasive speculative trading in stock markets with large public information flow. I argue that speculators’ underreaction to public information can explain the prevalence of speculative trading. Because of overconfidence, speculators rely too much on their own beliefs compared to rational investors and thus underreact to public news that is inconsistent with their priors. Consistent with my argument, I find that greater speculative trading is associated with lower earnings response coefficient (ERC) and stronger post-earning announcement drift. I also find that greater speculative trading is associated with stronger post analyst-revision drift. Additional evidence suggests that speculators’ underreaction to earnings news alleviates managerial myopia.
Subject (authority = RUETD)
Topic
Management
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Rutgers University Electronic Theses and Dissertations
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ETD_11059
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application/pdf
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text/xml
Extent
1 online resource (iv, 171 pages)
Note (type = degree)
Ph.D.
Note (type = bibliography)
Includes bibliographical references
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Graduate School - Newark Electronic Theses and Dissertations
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rucore10002600001
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Identifier (type = doi)
doi:10.7282/t3-j21t-kg57
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Rights

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The author owns the copyright to this work.
RightsHolder (type = personal)
Name
FamilyName
Xu
GivenName
Zhiwei
Role
Copyright Holder
RightsEvent
Type
Permission or license
DateTime (encoding = w3cdtf); (qualifier = exact); (point = start)
2020-07-26 22:48:06
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Name
Zhiwei Xu
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Copyright holder
Affiliation
Rutgers University. Graduate School - Newark
AssociatedObject
Type
License
Name
Author Agreement License
Detail
I hereby grant to the Rutgers University Libraries and to my school the non-exclusive right to archive, reproduce and distribute my thesis or dissertation, in whole or in part, and/or my abstract, in whole or in part, in and from an electronic format, subject to the release date subsequently stipulated in this submittal form and approved by my school. I represent and stipulate that the thesis or dissertation and its abstract are my original work, that they do not infringe or violate any rights of others, and that I make these grants as the sole owner of the rights to my thesis or dissertation and its abstract. I represent that I have obtained written permissions, when necessary, from the owner(s) of each third party copyrighted matter to be included in my thesis or dissertation and will supply copies of such upon request by my school. I acknowledge that RU ETD and my school will not distribute my thesis or dissertation or its abstract if, in their reasonable judgment, they believe all such rights have not been secured. I acknowledge that I retain ownership rights to the copyright of my work. I also retain the right to use all or part of this thesis or dissertation in future works, such as articles or books.
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Type
Embargo
DateTime (encoding = w3cdtf); (qualifier = exact); (point = start)
2020-10-31
DateTime (encoding = w3cdtf); (qualifier = exact); (point = end)
2021-10-31
Detail
Access to this PDF has been restricted at the author's request. It will be publicly available after October 31st, 2021.
Copyright
Status
Copyright protected
Availability
Status
Open
Reason
Permission or license
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