Kuan-Cheng Ko

Momentum Strategies and Investor Sentiment in the REIT Market

Comparing across three momentum measures, we empirically find that the 52‐week high strategy plays a dominant role in generating momentum profits in the Real Estate Investment Trust (REIT) market. The profitability of the 52‐week high strategy, however, varies with the state of investor sentiment. Specifically, we find that the 52‐week high momentum earns significantly positive returns following optimistic periods and significantly negative returns following pessimistic periods. Further evidence indicates that investor sentiment serves as a better predictive variable in explaining the REIT momentum than market states, business cycles, legislation changes, and monetary policy changes. Overall, our findings are in line with behavioral theories in explaining the REIT momentum.

Boom Baby, Career Experience and Risk Taking

We investigate whether CEOs’ experiences of macroeconomic boom affect risk taking. We use the unique setting of economic conditions changed from Central Planning to Market Economy in China, which is an exogenous shock to early-life experience, as a natural experiment to test the impact on CEOs’ risk preference. To establish causality, we identify two extraordinary events of China that are likely to be early-life experiences and career experiences of CEOs: Growth-up in the reform and open-up era, Original-and-persistent in business circles. Through these experiences, CEOs’ risk tolerance can be formed and lead to attitude changes in risk taking. First, we document that RO-CEOs, who experienced the Reform and Open-up in early adulthood tend to have higher likelihood of risk taking and more risk preference than CP-CEOs, who were grow-up in central planning era experienced economic recessions. Second, we examine whether growth experiences affect achievement of risk taking are dependent on the career experience over the course of profession. We find that RO-CEOs achieve greater risk-related performance only in OP-CEOs, who are original and persistent in business circle. Furthermore, our findings imply that there are significant career experience fixed effects in performance and these effects are significantly through the channel of risk taking in various ways.

Factors, Characteristics and Endogenous Structural Breaks: Evidence from Japan

Using an updated Japanese sample covering the 1975-2006 period, we reexamine whether it is Fama and Frenchs (1993) three-factor model or Daniel and Titmans (1997) characteristic model that better explains stock returns in the Japanese market. In contrast to Daniel, Titman, and Wei (2001), we find that the three-factor model works well for this updated sample. Further analysis identifies a structural break date in October 1997, which coincides with the publication date of Daniel and Titmans article. In particular, the characteristic model is supported before 1997, but not after; the Japanese evidence is similar to the U.S. evidence, as documented by Davis, Fama, and French (2000).

Career Experiences, Managerial Overconfidence and Investment Efficiency: A Natural Experiment from Chinese CEO Growth Path

We show that managerial career experiences have significant explanatory power for corporate investment decisions. We use the setting of economic conditions changed from Central Planning to Market Economy, which is an exogenous shock to managerial characteristic, as a natural experiment to test the impact on corporate investment. To establish causality, we use a unique dataset from China and identify two extraordinary events of China that are likely to be formative experiences of CEOs early in life: growth after the Reform and Open-up era and original-and-persistent in business circles. Through these experiences, managerial characteristics can be formed and lead to attitude changes in investment activity. Chinese Reform and Open-up policy initiate a unique experiment environment in which corporatization and entrepreneur growth are synchronous from a new beginning. First, we document that RO-CEOs who experienced the Reform and Open-up in early adulthood tend to have higher likelihood of overinvestment and more confidence than CP-CEOs who were grow-up in central planning era experienced economic shocks and recessions. Second, OP-CEOs who are original and persistent in business circle choose more aggressive capital investments and more confidence than PB-CEOs who have long-term public administration experience before acting as executive. Furthermore, OP-CEOs and RO-CEOs are overconfident relative to PB-CEOs and CP-CEOs, respectively, and have more likelihood of underinvestment in financial constraint firms.

What Drives the Liquidity Premium: Factors or Characteristics?

We investigate whether the liquidity premium is better explained by the risk-based model or the characteristic-based model. Based on three widely-used liquidity measures that are supposed to reflect different aspects of liquidity, we find that liquidity as a characteristic carries a significant liquidity premium that is beyond the size and book-to-market effects. In addition, liquidity as a factor does not yield a significant risk premium beyond that provided by Fama and French’s (1993) three factors. Finally, in direct comparisons under a liquidity-augmented two-factor capital asset-pricing model, the liquidity premium is better characterized by a characteristic-based model rather than a risk-based model, especially for the Amihud (2002) liquidity measure and for the post-1964 period.