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We provide a psychological explanation for the delayed price response to news about economically linked firms. We show that the return predictability of economically linked firms depends on the nearness to the 52-week high stock price. The interaction between news about economically linked firms and the nearness to the 52-week high can partially explain the underreaction to news about customers, geographic neighbors, industry peers, or foreign industries. We also find that analysts react to news about economically linked firms but the 52-week high effect reduces such reactions, providing direct evidence that the 52-week high affects the belief-updating process.

We study the transmission of financial news and opinions through social interactions among retail investors in the United States. We identify a series of plausibly exogenous shocks, which cause “treated investors” to trade abnormally. We then trace the “contagion” of abnormal trading activity from the treated investors to their neighbors and their neighbors’ neighbors. Coupled with methodology drawn from epidemiology, our setting allows us to estimate the rate of communication and how it varies with the characteristics of the underlying investor population.

While some criticises that traditional ETFs are too passive in reflecting market signals, research from Dr. Shiyang Huang, Associate Professor in Finance, HKU Business School and his team shows that Industry ETFs are able to hedge the industry and play a great role in improving market efficiency in the US market. The Industry ETF was proven as a positive financial innovation for both investors and the market and therefore should be encouraged by regulators.

香港大學金融學副教授黃詩楊聯同多名教授發表研究報告，建議監管機構應鼓勵金融機構發行更多行業ETF(交易所買賣基金)，藉以為金融市場和投資者帶來更多金融創新。

We investigate the effect of pre-IPO investments by public market institutional investors (institutions) on the exit of venture capitalists (VCs). Results indicate that institutions’ pre-IPO investments reduce IPO underpricing by mitigating VCs’ reliance on all-star analysts to boost market liquidity. We conclude that institutions facilitate VC exits in the secondary market. Supporting this view, our analysis reveals that the presence of institutions allows VCs to exit with a reduced price impact in the secondary market. Consistent with the ease of exit, VCs offer fewer shares at the IPO and are more likely to invest in institutionally backed startups.

What could be the result if some compelling opportunities, like lottery jackpots, were potentially lucrative enough to distract the investors' attention from monitoring the stock market?

We empirically examine the impact of industry exchange-traded funds (IETFs) on informed trading and market efficiency. We find that IETF short interest spikes simultaneously with hedge fund holdings on the member stock before positive earnings surprises, reflecting long-the-stock/short-the-ETF activity. This pattern is stronger among stocks with high industry risk exposure. A difference-in-difference analysis on the ETF inception event shows that IETFs reduce post-earnings-announcement drift more among stocks with high industry risk exposure, suggesting that IETFs improve market efficiency. We also find that the short interest ratio of IETFs positively predicts IETF returns, consistent with the hedging role of IETFs.

The concept of smart beta has a lot of data to draw on. Many so-called factors such as value, size, low volatility and momentum appear to have delivered decades of positive risk-adjusted returns, on average, for investors.