We construct a monthly Presidential Economic Approval Rating (PEAR) index from 1981 to 2019, by averaging ratings on president’s handling of the economy across various national polls. In the cross-section, stocks with high betas to changes in the PEAR index significantly under-perform those...

Time series momentum (TSM) refers to the predictability of the past 12-month return on the next one-month return and is the focus of several recent influential studies. This paper shows that asset-by-asset time series regressions reveal little evidence of TSM, both in- and out-of-sample. While...

Disagreement measures are known to predict cross-sectional stock returns but fail to predict market returns. This paper proposes a partial least squares disagreement index by aggregating information across individual disagreement measures and shows that this index significantly predicts market...

We construct a monthly Presidential Economic Approval Rating (PEAR) index from 1981 to 2019, by averaging ratings on president’s handling of the economy across various national polls. In the cross-section, stocks with high betas to changes in the PEAR index significantly under-perform those...

Media news may cover multiple firms in one article, which establishes a media connection across firms. We propose a media connection strength (MCS) measure, which defined as the number of news articles co-mentioning two firms. We find that the MCS measure can capture soft information about the...

We provide a comprehensive study on the cross-sectional predictability of corporate bond returns using big data and machine learning. We examine whether a large set of equity and bond characteristics drive the expected returns on corporate bonds. Using either set of characteristics, we find that...

This paper examines the economic implications of new factor models and shows that the Hou, Xue, and Zhang (HXZ, 2015a) four-factor model outperforms the Fama and French (FF5, 2015a) five-factor model for investing in anomalies in- and out-of-sample. The difference in certainty-equivalent returns...

We propose a novel modification to the popular principal component analysis (PCA) by scaling each predictor with its predictive slope on the target to be forecasted. Unlike the PCA that maximizes the common variation of predictors, our scaled PCA, sPCA, puts more weights on those predictors that...

We apply a reduced-rank approach to reduce a large number of observable factors to a few parsimonious ones. Out of 70 factor proxies, we find that the best five combinations seem adequate and outperform the Fama-French (2015) five factors for pricing industry portfolios as expected. However,...

We find that expected return is related to trading volume positively among underpriced stocks but negatively among overpriced stocks. As such, trading volume amplifies mispricing. Our results are robust to alternative mispricing and trading volume measures, alternative portfolio formation...