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9. Oil price shocks and stock market anomalies

Author

Zhu, Zhaobo, Sun, Licheng, Tu, Jun, and Ji, Qiang

Subjects
Financial research, Supply shocks -- Research -- Economic aspects, Stock markets -- Economic aspects -- Research, Petroleum -- Supply and demand -- Prices and rates -- Research, Stock market, Company pricing policy, Banking, finance and accounting industries, Business
Abstract

This paper provides a novel perspective to the nexus of oil prices and stock markets by examining the impact of oil price shocks on stock market anomalies. After decomposing oil price shocks into three types , we find that aggregate demand shocks have the strongest influence on stock market anomalies. In contrast, oil supply shocks and oil-specific demand shocks have little impact. Similar results are also found in the industry analysis. Interestingly, the link between aggregate demand shocks and anomalies is the strongest among firms with either small size or high idiosyncratic risks. The documented effects are robust after controlling for investor sentiment as well as several well-known macroeconomic or market factors. Our findings are consistent with but also extend the sentiment-based explanation in that we show that uncertainty also plays a role in explaining stock market anomalies. KEYWORDS aggregate demand shocks, investor sentiment, oil-specific shocks, oil supply shocks, stock market anomalies JEL CLASSIFICATION G11, G12, Q40, 1 | INTRODUCTION In this article, we study the implications of oil price shocks on investor behavior, limits to arbitrage, and stock market anomalies. The extant literature in finance documents [...]

Published
2022
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16. Price anchors and short-term reversals

Author

Zhu, Zhaobo, Sun, Licheng, and Stivers, Chris

Subjects
Liquidity (Finance) -- Analysis, Investments -- Management, Banking, finance and accounting industries, Business
Abstract

We find that price anchors have a role in understanding short-run reversals in 1-month (1 M) stock returns in conjunction with the well-known liquidity provision channel. Specifically, we determine that 1 M reversal strategies perform much better for stocks that have (a) a low price relative to their 52-week high (George and Hwang) and (b) a low capital gains overhang (Grinblatt and Han). 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. KEYWORDS Short-term reversals, 52-week high, capital gains overhang, disposition effect, liquidity provision, 1 | INTRODUCTION We study the tendency for monthly stock returns to reverse, where last month's relative winners tend to underperform last month's relative losers. This well-known empirical phenomenon has [...]

Published
2021
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26. Corrigendum to: Disclosure policies in all-pay auctions with bid caps and stochastic entry

Author

Chen, Bo, Ma, Lijun, Zhu, Zhaobo, Zhou, Yu, Chen, Bo, Ma, Lijun, Zhu, Zhaobo, and Zhou, Yu

Abstract

After the publication of this work, the first author did not take financial support from the original affiliation for this work and no longer subjects to the conditions for its support and thus corrects the funding sources and the affiliations below. The acknowledgement for the funding sources should be as follows: “The authors acknowledge the financial support from the National Natural Science Foundation of China [No. 71973040 and No. 11701432 (Chen); No. 71471118 and No. 71871145 (Ma)]”. The affiliations of the first author should be as follows: Shenzhen MSU-BIT University, China Southern Methodist University, United States Hubei University of Economics, China The authors apologise for any inconvenience caused.

Published
2021

34. Earnings momentum meets short‐term return reversal.

Author

Zhu, Zhaobo, Sun, Licheng, and Tu, Jun

Subjects
CORPORATE profits, MOTIVATION (Psychology)
Abstract

This paper evaluates the effectiveness of a joint strategy that exploits fundamental‐based momentum and return‐based reversal anomalies. This joint strategy is motivated by two considerations. First, reversal can serve as a natural hedge to momentum. Second, both fundamental and price‐related information can contribute to stock return predictability. Consequently, we propose a new joint strategy that synthesises both earnings momentum and short‐term reversal. We find that this joint strategy generates considerable economic gains and outperforms the sum of profits from two individual anomalies. Moreover, the proposed strategy appears to be quite robust, generating stable and persistent profits across different market conditions. [ABSTRACT FROM AUTHOR]

Published
2021
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36. Two Essays on Short Selling

Author

Zhu, Zhaobo

Abstract

This dissertation provides some new evidence that the information contained in short selling is informative about future returns, confirming the role of short sellers in the price discovery process. The first essay examines the cross-sectional relation between the change in short interest and expected stock returns. NYSE/AMEX stocks with large decreases (increases) in short interest over past medium-term horizon experience significant and positive (negative) abnormal returns. Moreover, the positive abnormal returns are larger in absolute value and are more persistent than negative abnormal returns. The return spread between bottom and top deciles is economically and statistically significant and persistent. The return predictability of the change in short interest is not subsumed by the level of short interest and other well-known determinants of stock returns, and is robust in different calendar months and investor sentiment. These results imply that public information contained in the change in short interest is so slowly incorporated into prices. Moreover, the asymmetry in the speed of price adjustment casts doubts on the implication of short-sale constraints and the limits to arbitrage. The second essay provides new evidence that momentum and long-term reversals would be separate phenomena. We can identify ex ante momentum stocks that exhibit persistent momentum and those that exhibit weak momentum but persistent reversals, using information in short selling. Underreaction and overreaction theories apply to different sets of momentum stocks. The consistent momentum strategy based on short interest succeeds during periods in which the standard momentum strategy fails. The success of the consistent momentum strategy is mainly due to the robust return predictability of short interest in these periods. These evidence confirms that short sellers contribute to price discovery. The information in short selling provides a great hedge or complement to anomaly-based strategies.

Published
2016
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