Dissertation Defense Announcement
The Fogelman College of Business and Economics announces the Final Dissertation Defense of
for the Degree of Doctor of Philosophy
March 30, 2018 at 8:30 AM in Room 123, Fogelman College of Business and Economics
Advisor: Pankaj Jain
Essays in Finance
ABSTRACT: This dissertation comprises of three essays on the interaction between institutional investing, information and asset prices. The first essay studies dynamic institutional trading constraints related to capital, diversification, and short- selling asymmetrically affect the incorporation of new information as reflected in the permanent price impact of their trades. The sign of the permanent price impact asymmetry between institutional buys versus sells is positive at the initial stage of a price run-up and reverses due to changing constraints with a prolonged price run-up in a stock. Idiosyncratic volatility, analyst forecast dispersion, trading intensity, price dispersion, and bullish market conditions further sharpen the initial asymmetry, as well as its reversal after a price run-up. The second chapter, we provide a new explanation for the post-earnings announcement drift (PEAD), one of the oldest market anomalies. We hypothesize that the PEAD results from information production and the drift observed in prices is a movement towards the changes in expectations and not an under-reaction or delayed response to the earnings announcement. We create a new measure that captures the changes in expectations over and above the earnings surprise. Our proxy is based on annual EPS forecasts by equity research analysts and takes into consideration both the responsiveness and the magnitude of the net changes in EPS forecasts. A long-short trading strategy based on portfolios formed using our new measure generates higher returns compared to portfolios formed based on the earnings surprise measure. Most importantly, the earnings surprise based portfolio rankings lose its significance in explaining the PEAD when considered together with our new measure based portfolio ranking. Our results are robust to alternative risk adjustments, return computations, and controlling for factors known to be correlated with PEAD. The third chapter studies how institutional clients trade around delayed disclosures. We show that connected clients trade profitably and that their trades predict the information of the disclosure.