Essays on credit expansion, analyst forecasts, and expected stock returns

Abstract

This dissertation includes three essays on the examination of the U.S. stock market. The first study provides empirical evidence that credit expansions have a strong negative predictive for aggregate stock returns and suggests possible explanations behinds the predictability of credit expansions. The second study shows that stock prices initially react corresponding to target prices, but then drift in the opposite direction for a long period resulting in negative cross-sectional predictability, using a robust measure that captures the market’s reaction to analysts’ target price releases, and suggests a possible explanation. The last study examines the effect of earnings, in conjunction with past returns, on the investor recognition and price of neglected firms, and shows that a new implementable momentum strategy that exploits earnings information in financial statement of neglected firms does not show a long-term reversal and momentum crash.