Eugene F. Soltes

Winners in the spotlight: Media coverage of fund holdings as a driver of flows

We show that media coverage of mutual fund holdings affects how investors allocate money across funds. Fund holdings with high past returns attract extra flows, but only if these stocks were recently featured in the media. In contrast, holdings that were not covered in major newspapers do not affect flows. We present evidence that media coverage tends to contribute to investors’ chasing of past returns rather than facilitate the processing of useful information in fund portfolios. Our evidence suggests that media coverage can exacerbate investor biases and that it is the primary mechanism that makes fund window dressing effective.

What Are We Meeting For? The Consequences of Private Meetings with Investors

Regulation Fair Disclosure was passed in 2000 in response to the concern that certain investors were gaining selective access to privileged firm information. In spite of the passage of this regulation, some investors continue to meet privately with executives. Using a unique set of proprietary records of all one-on-one meetings between senior management and investors for a New York Stock Exchange-traded firm, we investigate the impact of private meetings on investor decisions. We find that when investors meet privately with management they make more informed trading decisions. This improvement in trading is concentrated in hedge funds, but is not present for investment advisors or pension funds. Overall, our results suggest that private meetings help a select group of investors make more informed trading decisions.

Gathering Data for Archival, Field, Survey and Experimental Accounting Research

In the published proceedings of the first Journal of Accounting Research Conference, Vatter [1966] lamented that “Gathering direct and original facts is a tedious and difficult task, and it is not surprising that such work is avoided.” For the fiftieth JAR Conference, we introduce a framework to help researchers understand the complementary value of seven empirical methods that gather data in different ways: prestructured archives, unstructured (“hand-collected”) archives, field studies, field experiments, surveys, laboratory studies, and laboratory experiments. The framework spells out five goals of an empirical literature and defines the seven methods according to researchers’ choices with respect to five data gathering tasks. We use the framework and examples of successful research studies to clarify how data gathering choices affect a study’s ability to achieve its goals, and conclude by showing how the complementary nature of different methods allows researchers to build a literature more effectively than they could with less diverse approaches to gathering data.

Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns

We present evidence consistent with markets failing to properly price information in seasonal earnings patterns. Firms with historically larger earnings in one quarter of the year (“positive seasonality quarters”) have higher returns when those earnings are usually announced. Analysts have more positive forecast errors in positive seasonality quarters, consistent with the returns being driven by mistaken earnings estimates. We show that investors appear to overweight recent lower earnings following positive seasonality quarters, leading to pessimistic forecasts in the subsequent positive seasonality quarter. The returns are not explained by risk-based explanations, firm-specific information, increased volume, or idiosyncratic volatility.Received June 19, 2014; accepted April 25, 2016, by Editor David Hirshleifer.

Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation

Manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called “pump-and-dump” schemes are well known, little is known about the investors in these frauds. By examining 421 “pump-and-dump” schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6% of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.

Teaching versus Living: Managerial Decision Making in the Gray.

Preparing students for the consequential ethical decisions that they will face in their careers is among the most difficult tasks of management education. I describe some of these challenges based on my book Why They Do It: Inside the Mind of the White-Collar Criminal and recent work in behavioral ethics. I explore why some decisions are much more easily resolved in the classroom than in practice and offer three ways to more effectively prepare students: integrating ethical decision making with core-discipline teaching, cultivating moral humility rather than moral confidence, and creating opportunities for norm reinforcement.