Abstract: In January 2025, CRSP discontinued the existing stock tape used in many published papers. This transition rewrites 9.62% of monthly returns by more than 1 basis point, primarily due to a change in the dividend reinvestment assumption. Analyzing the impact for a comprehensive set of premia in several thousand sorting specifications reveals that, on average, 11.43% of all monthly long-short returns differ by more than 10 basis points — especially in early periods, NBER recessions, and return-based sorts. Reassuringly, average premia and their significance remain largely unaffected, suggesting CRSP changes mainly introduce unsystematic variation without altering key asset pricing conclusions.
Abstract: We propose a novel continuous measure of corporate ”sinfulness” using textual analysis. This measure captures nicely both the cross-sectional and time-series variation in firms’ exposure to sin activities. Our textual approach reveals numerous false positive and false negatives under the conventional industry classification code-based method. We further validate our identification strategy using a state-of-the-art large language model. While equal- and value-weighted sin portfolios do not earn abnormal returns, a sinfulness-weighted portfolio yields an annualized alpha of 5%. We find no evidence of mispricing in sin stocks; instead, they exhibit significantly lower crash risk but higher litigation risk.
Abstract: We propose a novel approach to synthesize presumably information-driven insider trading signals for the cross-section of stocks. We find that the resulting straightforward composite strategy can often forecast returns in a global sample. This predictability is mostly concentrated in equal-weighted portfolios, short holding periods and insider buying signals, and it benefits from worldwide diversification. Cross-country analysis reveals that varying insider trading restrictions between countries have limited explanatory power for the performance of the composite strategy. Overall, the results are consistent with a short-term informational advantage of insiders, which might be due to the skillful interpretation of non-private news.
Journal of Empirical Finance 80, (2025), 101560.
[ABS: 3, ABDC: 4, VHB: B]
Abstract: I study the performance of nine (downside) volatility-managed equity factors before and after considering transaction costs in 45 international equity markets. My results suggest that volatility management is most promising for market, value, profitability, and especially momentum portfolios. The performance of volatility-managed market and value portfolios can be further enhanced by applying downside volatility as a scaling factor. Nevertheless, only the managed market and momentum strategies are partially robust to transaction cost suggesting that the persistence of abnormal returns can largely be explained by the associated transaction costs. Cross-country analysis suggests that the slow trading hypothesis is partially able to explain cross-country performance differences of volatility-managed value and momentum portfolios. Finally, performance decomposition analysis reveals additional suggestive evidence in support of the slow trading hypothesis.