Revisiting the Cross-Section of Expected Stock Returns: Evidence from a Textual Analysis of Buy Recommendations

56 Pages Posted: 23 Jan 2023 Last revised: 5 Jun 2023

See all articles by Hailiang Chen

Hailiang Chen

HKU Business School, The University of Hong Kong

Byoung-Hyoun Hwang

Nanyang Business School, Nanyang Technological University

Zhuozhen Peng

Nanyang Business School, Nanyang Technological University

Date Written: June 5, 2023

Abstract

Our paper examines sell-side analyst reports and online stock opinion articles, which recommend that investors buy stocks that, based on prior literature, trade at comparatively high prices and earn low future returns. We conduct textual analysis and test whether the justifications provided in these buy recommendations mostly (1) emphasize a stock’s safe-haven quality, (2) indicate general investor exuberance, or (3) point to a specific preference for stocks with high upside potential. We find that the buy recommendations mostly emphasize stocks’ upside potential. Our results suggest that non-traditional investor preferences play a material role in explaining the cross-section of expected stock returns.

Keywords: Cross-Section of Expected Stock Returns, Anomalies, Risk, Behavioral Finance, Textual Analysis

JEL Classification: G11, G12, G14, G40

Suggested Citation

Chen, Hailiang and Hwang, Byoung-Hyoun and Peng, Zhuozhen, Revisiting the Cross-Section of Expected Stock Returns: Evidence from a Textual Analysis of Buy Recommendations (June 5, 2023). Nanyang Business School Research Paper No. 23-02, Available at SSRN: https://ssrn.com/abstract=4328446 or http://dx.doi.org/10.2139/ssrn.4328446

Hailiang Chen

HKU Business School, The University of Hong Kong ( email )

Hong Kong
China

HOME PAGE: http://https://www.hkubs.hku.hk/people/hailiang-chen

Byoung-Hyoun Hwang (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Zhuozhen Peng

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

HOME PAGE: http://www.zhuozhen-peng.com/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
396
Abstract Views
1,702
Rank
144,766
PlumX Metrics