| The first chapter investigates the empirical implications of style investing. Using CRSP stock and mutual fund data, we find significant excess and risk-adjusted returns for stocks in styles (e.g. large value, small growth, etc) with the worst past returns and net inflows. Cross-sectional regression results adjusted for size, book-to-market equity, dividend yield, and past stock returns corroborate these findings. This is consistent with overreaction at the style level and with Barberis and Shleifer's (2002) style investing story. We find ancillary evidence that supports the latter. Overall, this paper suggests that the effects of style investing are evident in the data, and that style-level contrarian strategies may be profitable.; The second chapter takes a fresh look at mutual fund return persistence. This literature took a hit with the finding that one-year stock momentum and expense ratios account for most of the persistence in mutual fund returns. However, since equity mutual funds are grouped into styles (e.g., large value, mid-cap growth, etc.) and are often confined to trading stocks within their style, one should measure fund performance relative to style when investigating managerial ability. Using CRSP mutual fund data and a methodology similar to Carhart (1997), we find that differences in style-adjusted fund returns persist for up to six years. Neither one-year momentum nor expense ratios explain our results. Our results are also robust to controlling for size, book-to-market equity, load, and total net assets. Since manager tenure is about four years, our results suggest that managerial ability may not be as dead as it seems.; The third chapter proposes a game-theoretic model for analysts' forecasting decisions. Firms reward sell-side analysts covering them with both management access and investment banking business. Analysts reward firms with positive biases in their forecasts. This paper incorporates these incentives and develops an infinite-horizon, repeated game with analysts and firms as players. In doing so, it explains many of the stylized facts in the literature on analysts and reconciles the conflicting results of Lim (2001) and Ackert and Athanassakos (2001). |
