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UBC Theses and Dissertations

Essays on information and stock returns Sheng, Jinfei


The relationship between information and stock returns is one of the most fundamental questions in finance and economics. This thesis aims to enhance our understanding of this relationship by using novel datasets and methods. In particular, I present a collection of three essays on the impacts of information on stock returns. I study both traditional sources of information, such as earnings announcements, macroeconomic news, and media coverage, as well as non-traditional sources of information, such as online employee reviews. The first essay “Asset Pricing in the Information Age: Employee Expectations and Stock Returns” studies the investment value of employees' information in financial markets, using a novel dataset of nearly one million employee reviews. This essay shows that employee expectations of their employers' business prospects predict future returns. I find that employee reviews are related to firms' fundamentals because they predict cash flow news. This essay highlights the importance of online information about firms' fundamentals, which is beyond traditional information sources such as analyst forecasts. Investors often face multiple types of news at the same time. Thus, the interaction between different types of news is crucial for understanding how information is incorporated into stock prices. My second essay “Macro News, Micro News, and Stock Prices” investigates interactions between macro-announcements and the processing of earnings news. Existing theories suggest that macro-news should crowd out attention to firm-level news, implying less efficient pricing. However, I find the opposite: on macro-news days price efficiency of earnings announcements is better when macroeconomic announcements are released on the same day. The news text is a new source of data which allows us to measure intangible but important variable, such as investor attention. In my third essay, “Media Attention, Macroeconomic Fundamentals, and the Stock Markets” (co-authored with Adlai Fisher and Charles Martineau), we construct indices of media attention to macroeconomic risks including employment, growth, and monetary policy. We study the properties of these attention indices and link them to stock markets. We conclude that media attention to macroeconomic fundamentals provides market-relevant information beyond the contents and dates of macroeconomic announcements.

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Attribution-NonCommercial-NoDerivatives 4.0 International