Miao "Ben" Zhang

Financial media frequently report the predictions of institutional investors. Using texts of all Wall Street Journal articles from 1979-2020, we measure the intensity of institutional investors’ participation in news production (InstPred) for each industry. We show that InstPred (i) predicts more information production about firm fundamentals, (ii) boosts institutional trading on mispricing, and (iii) accelerates the correction of longer-term mispricing by up to 34% to 62%. Our results are reinforced by quasi-exogenous variation in industries' investor-WSJ connections. Overall, our study shows that crowd-sourcing institutional investor participation in news production improves the quality of the information environment in the long term

Using data over the last century, we show that the cross-sectional relation between investment and profitability among U.S. public firms is positive in the first half-century but negative in the recent four decades. The negative fundamental relation explains the high level and the positive correlation of investment and profitability premiums after 1980. In out-of-sample environments including the pre-1980 U.S. stock market where investment and profitability premiums are low and insignificant, the fundamental relation is positive. Given the time-varying investment-profitability correlation, both the in and out-of-sample behaviors of investment and profitability premiums are consistent with the neoclassical investment framework.

Do investment tax incentives improve job prospects for workers? We explore states’ adoption of a major federal tax incentive that accelerates the depreciation of equipment investments for eligible firms but not for ineligible ones. Analyzing massive establishment-level datasets on occupational employment and computer investment, we find that when states expand investment incentives, eligible firms immediately increase their equipment and skilled employees; however, they reduce their routine-task employees after a delay of up to two years. These opposing effects constitute an overall insignificant effect on the firms’ total employment and shed light on the nuances of job creation through investment incentives.

This paper studies the asset pricing implications of a firm's opportunities to replace routine-task labor with automation. I develop a model in which firms optimally undertake this replacement when their productivity is low. Hence, firms with routine-task labor maintain a replacement option that hedges their value against unfavorable macroeconomic shocks and lowers their expected returns. Using establishment-level occupational data, I construct a measure of firms' share of routine-task labor. Compared to their industry peers, firms with a higher share of routine-task labor (i) invest more in machines and reduce more routine-task labor during economic downturns, and (ii) have lower expected returns.

Firm location affects firm risk through local factor prices. We find more procyclical factor prices such as wages and real estate prices in areas with more cyclical economies, namely, high “local beta” areas. While procyclical wages provide a natural hedge against aggregate shocks and reduce firm risk, procyclical prices of real estate, which are part of firm assets, increase firm risk. We confirm that firms located in higher local beta areas have lower industry-adjusted returns and conditional betas, and show that the effect is stronger among firms with low real estate holdings. A production-based equilibrium model explains these empirical findings.

The suitability of complex financial products for household investors is an important issue in light of consumer financial protection. The U.S. Dodd–Frank Act, for instance, mandates that distributors check suitability when selling structured products to retail investors. How-ever, little empirical evidence exists on such transactions. Using data from Hong Kong, we find that investors purchase 8% more structured products, on average, when the suitability is not checked. The effect of suitability checks is more pronounced for less financially literate investors. Moreover, investors tend to buy products with lower risk-adjusted returns when product suitability is not checked.