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Loews Philadelphia, Lescaze
Association of Financial Economists & American Economic Association
Friday, Jan. 5, 2018 2:30 PM - 4:30 PM
- Chair: Michaela Pagel, Columbia University
Financial Advisors and Risk-taking
AbstractWe show that financial advisors increase stock market participation and risk-taking. We first exploit a regulatory change in Canada that restricted the supply of financial advisors in all provinces except Quebec. Our estimates suggest that having a financial advisor increases stock market participation and reduces investments in cash accounts. We also use micro-level data on financial advisory accounts to document that the length of the advisor-client relationship - a measure of trust - increases clients' willingness to take financial risk. Using exogenous shocks to advisor-client pairings as an instrument for the relationship length, we find that clients who started with a new advisor before the 2007-2009 financial crisis were less likely to remain invested in the stock market throughout the crisis.
Analysts and Anomalies
AbstractAnalysts’ price targets and recommendations contradict stock return anomaly variables. Analysts’ one-year return forecasts are 31% for anomaly-longs and 44% for anomaly-shorts. Similarly, analysts issue more favorable recommendations for anomaly-shorts than anomaly-longs. We find similar results among all-star analysts. Our findings imply that investors who follow actionable, analyst information contribute to mispricing.
One Brief Shining Moment(um): Past Momentum Performance and Momentum Reversals
AbstractMotivated by behavioral theories, we test whether recent past performance of the momentum strategy (Past Momentum Performance--PMP) negatively predicts the performance of stale momentum portfolios. Following periods of top-quintile PMP, momentum portfolios exhibit strong reversals 2-5 years after formation, whereas, following periods of bottom-quintile PMP, stale momentum portfolios earn positive returns. The difference in cumulative five-year Fama-French alphas for momentum portfolios formed in high- and low-PMP months is 40%. A value-weighted trading strategy based on this effect generates an alpha of 0.40% per month (t = 3.74). These patterns are confirmed in international data. These findings present a puzzle for existing theories of momentum.
Harvard Business School
Massachusetts Institute of Technology
Tobias J. Moskowitz,
- G2 - Financial Institutions and Services
- Y9 - Other