Published Papers

Why Don't We Agree? Evidence from a Social Network of Investors

with Anthony Cookson

Forthcoming at the Journal of Finance

We study the sources of investor disagreement using sentiment expressed by investors on a social media investing platform, combined with information on the users’ investment approaches (e.g., technical, fundamental). We examine how much of overall disagreement is driven by different information sets versus differential interpretation of the same information, by studying disagreement within and across investment approaches. We find that differences of opinion across investment approaches account for 47.7% of the overall disagreement at the firm-day level. Moreover, changes in our measures of disagreement robustly forecast abnormal trading volume, suggesting that our measures proxy well for disagreement in the wider market. Our findings suggest that improvements to informational efficiency of financial markets by regulators will not completely erode high trading volume and stock market volatility.

Is Investor Attention for Sale? The Role of Advertising in Financial Markets

with Joshua Madsen

Forthcoming at Journal of Accounting Research

Prior research documents capital market benefits of increased investor attention to accounting disclosures and media coverage, however little is known about how investors and markets respond to attention-grabbing events that reveal little nonpublic information. We use daily firm advertising data to test how advertisements, which are designed to attract consumers’ attention, influence investors’ attention and financial markets (i.e., spillover effects). Exploiting the fact that firms often advertise at weekly intervals (i.e., every 7 days), we use an instrumental variables approach to provide evidence that print ads, especially in business publications, trigger temporary spikes in investor attention. We further find that ads in business publications result in in- creased quoted dollar depths (i.e., improved liquidity for large trades), at the expense of marginally higher effective spreads. We contribute to research on how management choices influence firms’ information environments, the determinants and consequences of investor attention, as well as consequences of advertising for financial markets.

Working Papers:

Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales

with Sabrina Howell and David Yermack

Forthcoming at Review of Financial Studies

Initial coin offerings (ICOs) are sales of blockchain-based digital tokens associated with specific platforms or assets. Since 2014 ICOs have emerged as a new financing instrument, with some parallels to IPOs, venture capital, and pre-sale crowdfunding. We examine the relationship between issuer characteristics and measures of success, with a focus on liquidity, using 453 ICOs that collectively raise $5.7 billion. We also employ propriety transaction data in a case study of Filecoin, one of the most successful ICOs. We find that liquidity and trading volume are higher when issuers offer voluntary disclosure, credibly commit to the project, and signal quality.

Fake News: Evidence from Financial Markets

with Shimon Kogan and Tobias J. Moskowitz

Under review

While social media platforms, blogs, and other unmonitored media outlets are becoming a main source of news for many, they also offer scope for providing misleading or false information. We use two unique datasets and a linguistic algorithm developed to detect deception in expression, to examine the impact of fake news in financial markets. The first dataset is a set of paid-for articles obtained from an SEC investigation that are known to be false, that allow us to validate the linguistic algorithm. The second dataset applies the linguistic algorithm to quantify the probability of an article being fake on a much larger set of articles. We find a strong temporary price impact and subsequent reversals from the fake news articles for small firms, permanent negative price impact for mid-size firms, and no impact for large firms. In addition, for small and mid-size firms we find that around the release of fake articles, managers are more likely to issue press releases, file 8-K forms with the SEC, and buy stock in their own firm, hinting that such firms are possibly engaging in stock price manipulation. No such patterns are found for large firms.

Strategic Disclosure Timing and Insider Trading

Revision requested at Management Science

I provide evidence that managers strategically manipulate their company’s information environment to extract private benefits. Exploiting an SEC requirement that managers disclose certain material corporate events within five business days, I show that managers systematically disclose negative events when investors are more distracted, causing returns to under-react for approximately three weeks. Strategic disclosure tim- ing is concentrated among smaller firms with high retail-investor ownership and low analyst coverage. Furthermore, I use the fact that most insider sales are scheduled in advance to demonstrate that top managers are more than twice as likely to strategically time disclosures if the return under-reaction benefits their insider sales. Finally, I find that firms that systematically disclose negative news on Fridays have higher levels of earnings management.

Bad News Bearers: The Negative Tilt of Financial Press

with Eric C. So

Under review

We show the financial press is more likely to cover firms with deteriorating performance. Specifically, we find the media is more likely to cover firms’ earnings announcements if they convey poor operating performance, suggesting the media tilts its selection process toward negative news. We estimate the size of the tilt in media coverage and find that, controlling for the content of news, a news story is approximately 15-to-22 percent more likely to be covered if it is negative. Similarly, we show greater media coverage during the quarter foreshadows declines in firms’ profitability and negative earnings surprises reported at the end of the quarter. Greater media coverage also negatively forecasts both firm- and industry-level future returns, suggesting that media coverage conveys novel negative information. Given the important role financial media plays in capital markets, a central contribution of this paper is in showing that the media tilts its selection process toward negative news.

© 2018 by Marina Niessner