Yuk Ying Chang

What Explains Cross-Country Industry Growth Patterns? Trade, Development and the Equity Financing Channel

We test theories that examine how economic and financial development affect cross-country industry growth patterns. Finance theory suggests that financial development affects growth by lowering the cost of external finance. This has the implication that industries in more finance-hungry sectors will grow faster in countries where financial markets are more developed. In addition, if financing constraints are lessened when stock market performance is high, firms in sectors more dependent on external finance should grow more rapidly following periods of good stock market performance. Trade and development theories, on the other hand, imply that a countrys product-mix and the pattern of industrial growth reflect which stage of development it is in and its factor endowments. Thus, one implication of trade/development theories is that countries that are close to each other in terms of GDP per capita should have similar patterns of industrial growth. Our tests find support for each of these theories.

Testing seasonality in the liquidity-return relation : Japanese evidence

We study liquidity (share turnover) effects of stock returns and their seasonality using Japanese data. We find a significant and negative turnover/return relation. Moreover, we find that the liquidity effect is not impacted by either January or June seasonality. There is weak evidence that stocks with higher liquidity risk have on average higher rates of return for non-June months.

Local and Global Sentiment Effects, and the Role of Legal, Information and Trading Environments

Using domestic consumer confidence indicators to proxy investor sentiment and data from 23 different equity markets, we document a pervasive overall sentiment effect. We further document a significant effect of global sentiment across these markets. More accessible markets have stronger global sentiment effects, suggesting that capital flows help the spread of sentiment across borders. For locally sourced sentiment, the core finding is of a stronger sentiment effect in a poorer environment. On the other hand, for globally sourced sentiment the opposite result is strongly evidenced, namely, that a stronger sentiment effect tends to be linked to a stronger environment. Broadly speaking, a better domestic legal and information environment is associated with weaker local and stronger global sentiment effects. Our findings suggest that, the effect of a good environment on facilitating arbitrage activity is stronger than its effect on attracting local behavioral investors but weaker than its effect in attracting foreign behavioral investors. Our results also suggest that a good legal environment rather than low transaction costs is the primary concern when behavioral investors seek foreign investment opportunities.

The Best of Times, the Worst of Times: Testing which Behavioral Biases Affect Analyst Forecasts: The Best of Times, the Worst of Times

Mood‐induced optimism, cognitive inaccuracy, and distraction can affect analyst forecasts. This study compares and contrasts these influences. The novelty of our approach is that we first show that these behavioral biases have different implications for analysts’ forecast errors conditioned on the errors being positive and negative. We then use proxies for positive and negative moods to empirically test the support for each of these biases. Consistent with cognitive precision, we find that analysts make less (more) accurate forecasts when they are in positive (negative) moods. We further show that these results are driven neither by sentiment associated with contemporaneous economic or market conditions nor by under‐ or overreaction to more bad news released on days immediately before weekends or holidays.

China and International Housing Price Growth

We document Chinese effects on international residential property price growth. We show that faster growth of the housing prices is associated with larger declines in recent past growth of China’s GDP, larger increases in China’s savings rate, or stronger rise in China’s risks. These results are consistent with the notion of Chinese investing in overseas property markets when faced with less promising investment opportunities at home and when they have the means to invest offshore. These effects are stronger for countries where English is the primary spoken language, with better tertiary education quality, and that exhibit lower correlations between local property market price growth and China’s interest rate.

Brand Firm Performance and Tough Economic Times

Negative income shocks may cause lower consumption and a switch in consumption from brand to non‐brand products as consumers economize on price (Larkin [Larkin, Y., 2013]). This switch can also be the result of the vigorous promotion of private label products (Lamey et al. [Lamey, L., 2012]). However, dedicated customers and conspicuous consumption (Veblen [Veblen, T., 1899]; Berger and Ward [Berger, J., 2010]) can mitigate or even neutralize these effects on brand firms. Consistent with the notion that enduring consumption by brand customers has a stronger effect, we find that compared with non‐brand firms, brand firms performed better in and recovered quicker from the difficult economic times of the late 2000s.

Dissipative Competition: Evidence from a Quasi‐Natural Experiment

We document that contrary to the conventional view, the costs of domestic firms in terms of selling, general and administrative expenses and cost of goods sold increase significantly following exogenous shocks that increase competition, namely material import tariff cuts affecting US manufacturing industries over the period 1974–2005. Incompatible with an agency explanation, the cost increase is more pronounced among firms with higher CEO/insider/board ownership. We further find that the cost increase is more evident among firms with smaller market share and among focused firms. Generally, our results are consistent with the notion of ‘dissipative competition’ discussed in the seminal papers by Tullock.