Today, I made the following updates to my research page:
1) Uploaded my new paper, Passive Ownership and the Stock Market. This paper shows that rising passive ownership has reduced the firm-specific earnings information in stock prices.
2) Added slides for What Triggers National Stock Market Jumps?, presented at SITE in August, 2018. The biggest new finding is that volatility and trading volume are lower after jumps with high clarity. We define clarity as the first principal component of (1) agreement across newspapers describing the same jump (2) how confidently the journalist advanced their explanation (3) how easy it was to categorize the article (4) the share of newspapers that give an explanation for the jump (i.e. the share of newspapers that did not have ‘unknown & no explanation’ coding).
3) Added an abstract for a new paper Trade Policy Uncertainty and Stock Market Performance, joint with Marcelo Bianconi and Federico Esposito. The paper is still in preparation but a draft should be uploaded soon. We use the U.S. government granting China Permanent Normal Trade Relations (PNTR) in 2000 as a resolution of tariff uncertainty. The main result is that stocks exposed to more tariff uncertainty before the shock have relatively low returns after uncertainty was resolved.
Our theory model shows three main ways the resolution of tariff uncertainty could affect stock returns. The first is a competition effect: higher tariffs for Chinese goods imply higher prices, which makes US goods relatively cheaper for US consumers, increasing profits for US firms. The second is the direct input effect: higher tariffs on Chinese goods imply a higher cost of intermediate inputs for US firms, and thus lower profits. The third is an indirect input effect: because expensive Chinese intermediate inputs make US goods more expensive, US goods sold in China will be more expensive relative to Chinese goods, and thus US firms will lose market shares and have lower profits. Our goal is to isolate and measure the effect of these different mechanisms on the realized stock returns.