"Distinguishing Between Recurring and Nonrecurring Components of Earnings Using Unobserved Components Modelling" with Jesse Gardner and Richard Sloan

Distinguishing between recurring and nonrecurring components of earnings is a critical task in financial analysis and valuation. Academics and quantitative investors often rely on measures of recurring and nonrecurring components derived from standardized financial databases. We use unobserved components modelling and the Kalman smoother to obtain efficient ex-post estimates of the recurring and nonrecurring components of annual earnings. We then show that popular measures are significantly misspecified and that investors appear to anticipate a significant portion of the misspecification. Finally, we identify certain misclassified items that drive misspecification and provide algorithms to improve their ex-ante classification.

Working Papers:

"Social Movements and Access to Credit" (Dissertation)

I investigate whether social movements, such as #BlackLivesMatter, affect local loan officers’ mood and consequently, credit approvals at local banks. Motivated by research in psychology, I hypothesize that protests will lead to increased stress levels, inducing negative moods in loan officers and ultimately result in a decrease in banks’ credit approvals. Because both loan officers’ sentiment and their credit decisions are unobservable, to test this prediction I rely on the substitution between P2P lending and traditional banking and expect that borrowers who are unable to secure credit from banks migrate to P2P lending. Utilizing the staggered occurrences of BLM protests, I show that P2P lending significantly increases in areas that experience BLM protests. Additionally, consistent with P2P lending serving borrowers rejected by banks, I find that the increase in P2P lending is driven by low quality borrowers. These effects are stronger for areas that have more single bank branches, are Republican leaning, and have less banking competition. Moreover, my findings suggest that the increase in P2P lending is less likely to be driven by potential alternative explanations, such as an increased demand for credit. Overall, my results suggest that social movements and the related protests may have an adverse effect on the ability of weaker borrowers to access bank credit.

"Streaks and Bubbles" (with Paul Fischer, Jared Jennings, and Mark Soliman)

Preparing for submission

Prior literature has documented earnings-based streak-related stock price premia related to meeting or beating analyst forecasts. We empirically test whether the streak-related pricing premia is rational or irrational. We explore changes in fundamental value, irrational pricing bubbles, or rational pricing bubbles. Overall, our evidence suggests that the third category, rational pricing bubbles, is the most descriptive of the streak-related pricing premia. We also provide evidence that any performance measure exhibiting a streak of good news can create a pricing premium when investors fixate on the statistic. The only requirement is that the statistic is sufficiently focal given the industry in which the firm operates or the firm’s life cycle. Accordingly, we also test and find that revenue meet or beat streaks are also associated with pricing premia and that revenue streak pricing premia are more pronounced among STEM firms, which are industries where revenues are more relevant to investors.

Work in Progress:

"From Micro to Macro: Intra-temporal Analysis of Digital Monitoring" (with Xiaoyan Jiang, Jung Koo Kang, James Omartian, and Regina Wittenberg-Moerman)

Data analysis stage