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This paper provides strong and novel evidence of the preference among investors for lottery-like payoffs by documenting a strong intra-industry MAX effect in REITs. Specifically, REITs with high maximum daily returns (high MAX) over the past 1-month significantly underperform REITs with low maximum daily returns (low MAX) over the same period. Such underperformance is persistent in subsequent months, although the underperformance is significant only in several months. In general, high MAX REITs are smaller and exhibit lower prices and higher idiosyncratic volatility than other REITs. However, firm characteristics cannot explain the MAX effect among REITs. In contrast, the MAX effect could significantly explain the idiosyncratic volatility puzzle among REITs. Moreover, the MAX effect is more pronounced among REITs with low institutional ownerships, while investor sentiment has no significant effect on the MAX effect among REITs.

We show that price anchors have a role in understanding short-run reversals in one-month stock returns, in conjunction with the well-known liquidity-provision channel. Specifically, we find that one-month reversal strategies perform much better for stocks that have: (1) a low price, relative to their 52-week high (George and Hwang (2004)); and (2) a low capital-gains-overhang (Grinblatt and Han (2005)). Further, we uncover striking asymmetries in the reversal behavior between past winners and past losers, depending upon the stock's price relative to the price reference points. These reversal asymmetries fit with the hypothesized price-anchoring biases.

This paper documents the systematic and negative effects of heightened macro uncertainty on financial analyst performance and the potential for managerial ability to moderate such negative effects. Specifically, we find that macro uncertainty measures are significantly and negatively correlated with the accuracy and informativeness of analysts’ earnings forecasts and positively correlated with the dispersion of earnings forecasts. Furthermore, we find that the negative effects of macro uncertainty on analyst performance are significantly mitigated in firms with high managerial ability. Our results provide a broad overview regarding the negative effects of macro uncertainty on analyst performance and indicate that managerial ability could be a potential moderator to mitigate the negative impacts of macro uncertainty on analyst performance, which is based on the upper-echelons theory.

This paper investigates the relation between short selling and momentum. We document that a consistent momentum strategy that buys lightly shorted winners and sells heavily shorted losers exhibits strong short-term momentum and no long-term reversal. In contrast, an inconsistent momentum strategy that buys heavily shorted winners and sells lightly shorted losers experiences weak short-term momentum and persistent long-term reversal. Our results are robust after controlling for firm characteristics, proxy for short-sale constraints, and investor sentiment, as well as an exogenous shock (the Taxpayer Relief Act of 1997). These findings present a new challenge to existing theories of momentum that rely solely on investor underreaction and overreaction.

This article investigates the interaction between short-term reversal and momentum strategies. The authors find that the magnitude of price reversals of short-term winners and losers is significantly related to past medium-term performance. Both past medium-term winners and losers with the best short-term performance experience the strongest price continuation. Short-term reversal strategies perform best in the momentum-loser quintile, and momentum strategies perform best in the short-term-winner quintile. The authors’ results imply that investors could achieve higher momentum profits by also considering short-term performance and vice versa. The results also suggest that investors adhere to prior dominant beliefs in the face of new contradictory information. Short squeezes and fire sales (self-attribution bias) may explain the continued underperformance (outperformance) of momentum losers (winners) with good short-term performance.

This paper evaluates the return predictability of fundamental strength in a two-dimensional framework that considers both investor sentiment and limits to arbitrage simultaneously. Sentiment and limits to arbitrage have independent and overlapping explanatory power on the return predictability of fundamental strength. The return predictability of fundamental strength is more pronounced among stocks with high arbitrage costs following high sentiment. Among stocks with low arbitrage costs, the fundamental strength strategy is profitable only following high sentiment. However, among stocks with high arbitrage costs, the same strategy can earn economically and statistically significant profits even following low sentiment. Consistent with Miller (1977), we emphasize the interaction of sentiment and limits to arbitrage on stock valuation.

This paper examines the effects of disclosing the actual number of bidders in contests with stochastic entry and with resource constraint. We study an all-pay auction with complete information. The auction entails one prize and n potential bidders. Each potential bidder has an exogenous probability of participation and faces an exogenous bid cap. It is shown that the contest organizer prefers fully concealing the information about the number of participating bidders. We extend the result to a case with endogenous entry.