Associate Professor of Finance

Leeds School of Business

University of Colorado at Boulder

(tony [dot] lastname [at] colorado.edu)

Curriculum Vita

Data and Programs

Working Papers

Does disagreement facilitate informed trading? [latest version: 28 September] (with Slava Fos and Marina Niessner). SSRN. SocArXiv. Slides.

Abstract. Using high-frequency disagreement data from the investor social network StockTwits, we find that greater investor disagreement facilitates informed trading by activists and short sellers. These findings are unexplained by sentiment, news and retail order flow, and they remain when we measure disagreement overnight, which alleviates concern that disagreement and informed trading respond to a common shock. When short selling is costly, the facilitating effect of disagreement on trading is dampened for informed buyers but is amplified for sellers. These findings suggest that informed traders respond meaningfully to valuation changes induced by disagreement.

Speculative and informative: Lessons from market reactions to speculation cues (with S. Katie Moon and Joonki Noh). SSRN. SocArXiv.

Abstract. Speculative language in corporate disclosures can convey valuable information on firms’ fundamentals. We evaluate this idea by developing a measure for speculative statements based on sentences marked with the “weasel tag” on Wikipedia. In the 10 weeks after filing, greater use of speculative statements in 10-Ks predicts positive and non-reverting abnormal returns, improvements to stock liquidity, more insider and informed buying, and more positive news sentiment. These findings are driven by disclosures that are more forward-looking and use more R\&D terms. Together, our results imply that speculative statements in 10-Ks contain new information on positive but yet immature prospects of future cash flows.

Can social media inform corporate decisions? Evidence from merger withdrawals [updated 28 August 2022] (with Marina Niessner and Christoph Schiller). SSRN. SocArXiv. Slides.

Abstract. This paper examines how social media informs corporate decisions by studying the decision of firm management to withdraw an announced merger. A standard deviation decline in abnormal social media sentiment following a merger announcement predicts a 0.64 percentage point increase in the likelihood of merger withdrawal (16.6% of the baseline rate). The informativeness of social media for merger withdrawals is not explained by abnormal price reactions or news sentiment. Consistent with learning from external information, we find that the social media signal is more informative after a firm adopts a corporate Twitter account, which offers a conduit for listening to investor feedback. In addition, most of the informativeness is driven by investors who reference fundamental information, not price trends, and is driven by longer tweets that likely contain investment analysis. The social media signal is also more informative for complex mergers in which analyst conference calls take a negative tone, driven by the Q&A portion of the call. Overall, these findings imply that social media is not a sideshow, but an important aspect of firm information environment.

Do I really want to hear the news? Public information arrival and investor beliefs (with Azi Ben Rephael and Yud Izhakian). [latest version: 3 August 2022] SSRN. SocArXiv. Slides. Conference Slides.

Abstract. This paper shows that public information arrival affects investor beliefs and disagreement through a new channel: the uncertainty of beliefs (UOB). Based on novel daily measurement of belief uncertainty and disagreement, disagreement and trading are lower when UOB is higher.Higher UOB also dampens the relationship between disagreement and trading volume. The pa-per also highlights novel patterns of disagreement and trading around public news. For clarifying news like earnings announcements, information arrival reduces UOB, which naturally amplifies disagreement and trading. Consistent with learning, UOB decreases more for events with more attentive investors and for firms with a better information environment. By contrast, unscheduled events with opaque information information increase UOB while decreasing disagreement and trading.

Trading, ambiguity and information in the options market (with Azi Ben Rephael and Yud Izhakian). [latest version: 3 August 2022] SSRN. SocArXiv.

Abstract. We study how firm ambiguity—Knightian uncertainty—affects investor trading behavior using the options market as a laboratory. Greater ambiguity in the underlying asset negatively relates to both options open interest and options trading volume. The reduction in options trading activity is stronger for options with shorter maturities and out-of-the-money options that are hard-to-value. Greater ambiguity is also associated with a reduction in the informativeness of options trading for future stock prices, and it is associated with lower delta-hedged options returns for both puts and calls. The effect of ambiguity is distinct from and contrasts with the well-documented effect of risk, and shares a similar economic significance. These findings illustrate that even sophisticated market participants, like options traders, are influenced by ambiguity to limit their market participation and trade less.

The social signal (with Runjing Lu, Marina Niessner and William Mullins). SSRN. Slides.

Best Paper Award in Honor of Jack Brick, 11th Michigan State FCU Conference.

Abstract. We examine social media attention and sentiment from three major platforms: Twitter, StockTwits, and Seeking Alpha. We find that attention is highly correlated across platforms, but sentiment is not: its first principal component explains only 6 percentage points more variation than purely idiosyncratic sentiment. We attribute differences across platforms to differences in users (e.g., professionals vs. novices) and differences in platform design (e.g., character limits in posts). We also find that sentiment and attention are both positively related to retail trading imbalance, but contain different return-relevant information. Sentiment-induced retail trading imbalance predicts positive next-day returns, in contrast to attention-induced retail trading imbalance, which predicts strongly negative next-day returns. These results highlight the practical importance of distinguishing between social media sentiment and atten tion, and suggest caution when studying the social signal through the lens of a single platform.

Publications

Echo chambers (with Joey Engelberg and Will Mullins).

Review of Financial Studies. Forthcoming. SSRN. SocArXiv. RFS.

Alternative formats: Video. Leeds Power Breakfast. Slides.

NASDAQ Award for Best Paper in Asset Pricing at the 2021 Western Finance Association Conference.

Best Paper in Markets and Trading at the 2021 Midwest Finance Association Conference.

First Prize 2021 CQA Academic Competition.

Abstract. We find evidence of selective exposure to confirmatory information among 400,000 users on the investor social network StockTwits. Self-described bulls are 5 times more likely to follow a user with a bullish view of the same stock than self-described bears. Consequently, bulls see 62 more bullish messages and 24 fewer bearish messages than bears over the same 50-day period. These “echo chambers” exist even among professional investors and are strongest for investors who trade on their beliefs. Finally, beliefs formed in echo chambers are associated with lower ex-post returns, more siloing of information and more trading volume.

Shale shocked: Cash windfalls and household debt repayment (with Erik P. Gilje and Rawley Z. Heimer).

Journal of Financial Economics. Vol 146, No 3 (December 2022), pp. 905-931. SSRN. JFE.

Abstract. Using individual credit bureau data matched with cash windfalls from fracking, we estimate that windfall recipients reduce debt-to-income by 2.4 percentage points relative to no-windfall controls. Debt repayment effects are 3 times stronger for subprime individuals than for prime individuals. Based on the timing of upfront versus continuing cash payments, debt repayment coincides with the timing of payments but not with news about future payments. These findings present a challenge for purely forward-looking models of debt. Indeed, when we incorporate a windfall shock into a forward-looking model, the model predicts an increase in debt that runs counter to our evidence of debt repayment.

Personal wealth, self-employment, and business ownership (with Aymeric Bellon, Erik P. Gilje and Rawley Z. Heimer).

Review of Financial Studies. Vol 34, No 8 (August 2021), pp. 3935-3975. SSRN. NBER. RFS.

Abstract. We study the effect of personal wealth on entrepreneurial decisions using data on mineral payments from Texas shale drilling to individuals throughout the United States. Large cash windfalls increase business formation by 0.8 to 2.1 percentage points, but do not affect transitions to self-employment. By contrast, cash windfalls significantly extend self-employment spells, but do not affect the duration of business ownership. Our findings help reconcile contrasting findings in prior work: liquidity constraints have different effects on entrepreneurial activity that may depend on the entrepreneur’s motivations.

A text-based analysis of corporate innovation (with Gustaf Bellstam and Sanjai Bhagat).

Management Science. Vol 67, No 7 (July 2021), pp. 4004-4031. SSRN. MS.

Outstanding Paper in Corporate Finance at the 2017 Midwest Finance Association Conference.

Featured Article in July 2021 Issue. Management Science Review.

Abstract. We develop a new measure of innovation using the text of analyst reports of S&P 500 firms. Our text-based measure gives a useful description of innovation by firms with and without patenting and R&D (research and development). For nonpatenting firms, the measure identifies innovative firms that adopt novel technologies and innovative business practices (e.g., Walmart’s cross-geography logistics). For patenting firms, the text-based measure strongly correlates with valuable patents, which likely capture true innovation. The text-based measure robustly forecasts greater firm performance and growth opportunities for up to four years, and these value implications hold just as strongly for innovative nonpatenting firms.

Assortative matching and reputation in the market for first issues (with Oktay Akkus and Ali Hortacsu)

Management Science. Vol 67, No 4 (April 2021), pp. 2049-2074. SSRN. MS.

Abstract. Using a tractable structural model of the matching equilibrium between underwriters and equity-issuing firms, we study the determinants of value in underwriter–firm relationships. Our estimates imply that high underwriter prestige is associated with 5.3%–14.1% greater equilibrium surplus. According to the structural model, high prestige exhibits a significant certification effect throughout the sample (1985–2010), but there is also a countervailing effect of underwriter prestige that reflects subscriber preferences for more underpricing. Consistent with trading off profits from issuers and subscribers, high-prestige underwriters underprice more in hot markets when rents to catering to subscribers are greatest.

Does partisanship shape investor beliefs? Evidence from the COVID-19 pandemic (with Joey Engelberg and Will Mullins). SSRN. SocArXiv. RAPS

Review of Asset Pricing Studies. Vol 10, No 4 (December 2020), pp. 863-893

Mentions: Marginal Revolution, CU Boulder Today, Daily Camera / BizWest, 630 KHOW Interview.

Abstract. We use party-identifying language—like “liberal media” and “MAGA”—to identify Republican users on the investor social platform StockTwits. Using a difference-in-difference design, we find that partisan Republicans remain relatively unfazed in their beliefs about equities during the COVID-19 pandemic, while other users become considerably more pessimistic. In cross-sectional tests, we find Republicans become relatively more optimistic about stocks that suffered the most during the COVID-19 crisis, but more pessimistic about Chinese stocks. Finally, stocks with the greatest partisan disagreement on StockTwits have significantly more trading in the broader market, explaining 28% of the increase in stock turnover during the pandemic.

Why don't we agree? Evidence from a social network of investors (with Marina Niessner).

Journal of Finance. Vol 75, No 1 (February 2020), pp. 173-228. SSRN. JF.

Best Paper at the 2017 Front Range Finance Seminar.

Abstract. We study sources of investor disagreement using sentiment of investors from a social media investing platform, combined with information on the users' investment approaches (e.g., technical, fundamental). We examine how much of overall disagreement is driven by different information sets versus differential interpretation of information by studying disagreement within and across investment approaches. Overall disagreement is evenly split between both sources of disagreement, but within-group disagreement is more tightly related to trading volume than cross-group disagreement. Although both sources of disagreement are important, our findings suggest that information differences are more important for trading than differences across market approaches.

Growing up without finance (with James R. Brown and Rawley Z. Heimer)

Journal of Financial Economics. Vol 134, No 3 (December 2019), pp. 591-616. SSRN.JFE.

One of Top 100 Papers in the Financial Times List of Business School Research with Social Impact.

Finalist for 2021 TIAA Paul A. Samuelson Award.

Mentions: PBS Newshour - Making Sense, CU Boulder Today, Science Daily, The Conversation, NPR, 1190 Radio

Abstract. Early life exposure to local financial institutions increases household financial inclusion and leads to long-term improvements in consumer credit outcomes. We identify the effect of local financial markets using Congressional legislation that led to unintended differences in financial market development across Native American reservations. Individuals from financially underdeveloped reservations enter consumer credit markets later, and upon reaching adulthood, have ten point lower credit scores and four percentage point more delinquent accounts. These effects are long-lived and depreciate slowly after individuals move to more developed areas. Formative exposures to local banking improve consumer credit behavior by increasing financial literacy and financial trust.

Does contract enforcement mitigate hold up?

Review of Corporate Finance Studies, Vol 7, No 2 (September 2018), pp. 245-275. SSRN. RCFS.

Abstract. This paper provides novel evidence that stronger contract enforcement mitigates holdup in business investment decisions using stark, externally imposed variation in contract enforcement across Native American reservations. My tests focus on the golf course industry. A high degree of sunk costs and long investment horizons in this industry make it naturally subject to the classical holdup problem. I find that state courts, which provide stronger contract enforcement than do tribal courts, lead to at least 27% more golf courses, with greater effects in areas with greater natural amenities. These findings suggest that courts play an important role in facilitating the oft-discussed contractual solutions to the holdup problem.

When saving is gambling.

Journal of Financial Economics. Vol 129, No 1 (July 2018), pp. 24-45. SSRN. JFE.

Talk of the Town Award at the 2015 Finance Down Under Conference

Media Mentions: The Daily Northwestern, The Conversation, Longmont Times Call

Abstract. Prize-linked savings (PLS) accounts, which allocate interest using lottery payments rather than fixed interest, encourage savings by appealing to households’ gambling preferences. I introduce new data on casino cash withdrawals to measure gambling, and examine how individual gambling expenditures respond to the introduction of PLS in Nebraska using a difference-in-differences design. After PLS is introduced, individuals who live in counties that offer PLS reduce gambling by at least 3% more than unaffected individuals. The substitution effect is stronger in low-frills gambling environments, which most resemble PLS, indicating that these accounts fulfill the desire to gamble.

Anticipated entry and entry deterrence: Evidence from the American casino industry.

Management Science. Vol 64, No 5 (May 2018), pp. 2325-2344. SSRN. MS.

Abstract. Using new data on entry plans into the American casino industry, I find that incumbent firms invest in physical capacity when threatened with a nearby entry plan, and these strategic investments deter eventual entry. Consistent with an entry-deterrence motive, incumbents respond to the threat of entry when entry is uncertain, but not when entry is assured. The average capacity expansion of 2,300 square feet is associated with a 6.8-percentage-point greater likelihood that the entry plan fails. These findings show that investments in deterrence are viable, especially when new entrants face other significant barriers to entry.

Law and finance matter: Lessons from externally-imposed courts (with James R. Brown and Rawley Z. Heimer).

Review of Financial Studies Vol 30, No. 3 (March 2017), pp. 1019-1051. SSRN. RFS.

Best Paper in Financial Markets and Institutions at the 2015 FMA Conference.

Abstract. This paper provides novel evidence on the real and financial market effects of legal institutions. Our analysis exploits persistent and externally imposed differences in court enforcement that arose when the U.S. Congress assigned state courts to adjudicate contracts on a subset of Native American reservations. Using area-specific data on small business lending, we find that reservations assigned to state courts, which enforce contracts more predictably than tribal courts, have stronger credit markets. Moreover, the law-driven component of credit market development is associated with significantly higher per capita income, with stronger effects in sectors that depend more on external financing.

Courting economic development (with James R. Brown and Rawley Z. Heimer).

World Bank Economic Review. Vol 30, No Supp 1 (March 2017). WBER.

Abstract. We show that court enforcement uncertainty hinders economic development using sharp variation in judiciaries across Native American reservations in the United States. Congressional legislation passed in 1953 assigned state courts the authority to resolve civil disputes on a subset of reservations, while tribal courts retained authority on unaffected reservations. Although affected and unaffected reservations had similar economic conditions when the law passed, reservations under state courts experienced significantly greater long-run growth. When we examine the distribution of incomes across reservations, the average difference in development is due to the lower incomes of the most impoverished reservations with tribal courts. We show that the relative under-development of reservations with tribal courts is driven by reservations with the most uncertainty in court enforcement.

Leverage and strategic preemption: Lessons from entry plans and incumbent investments.

Journal of Financial Economics Vol 123, No 2 (February 2017), pp. 292-312. SSRN. JFE.

Abstract. This paper empirically investigates the effect of leverage on strategic preemption. Using new data on entry plans and incumbent investments from the American casino industry, I find that high leverage prevents incumbents from responding to entry threats. Facing the same set of entry plans, low-leverage incumbents expand physical capacity (by 30%), whereas high-leverage incumbents do not. This difference in investment matters because capacity installations preempt eventual entry. Stock market reactions to withdrawn plans imply that effective preemption increases incumbent firm value by 5%. My findings suggest that leverage matters for industry composition, not just firm-level investment.

Determinants of bank mergers: A revealed preference analysis (with Oktay Akkus and Ali Hortacsu).

Management Science. Vol. 62, No. 8 (August 2016), pp. 2241-2258. SSRN. MS.

Abstract. We provide new estimates of merger value creation by exploiting revealed preferences of merging banks within a matching market framework. We find that merger value arises from cost efficiencies in overlapping markets, relaxing of regulation, and network effects exhibited by the acquirer-target matching. Beyond our findings, the revealed preference method has notable advantages that warrant its application beyond the bank merger market. Notably, we show that the method outperforms reduced form alternatives out of sample, enables sensible counterfactual experiments, and can be used to evaluate private-to-private mergers, which have been understudied because of lack of stock market data.

Institutions and casinos: An empirical analysis of the location of Indian casinos.

Journal of Law and Economics. Vol 53, No. 4 (November 2010), pp. 651-687. Jstor.

Abstract. This paper empirically investigates the institutional determinants of whether a tribal government invests in a casino. I find that the presence of Indian casinos is strongly related to plausibly exogenous variation in reservations’ legal and political institutions. Tribal governments that can negotiate gaming compacts with multiple state governments, because tribal lands span state borders, had more than twice the estimated probability (.77 versus .32) of operating an Indian casino in 1999. Tribal governments of reservations where contracts are adjudicated in state courts, rather than tribal courts, have more than twice the estimated probability (.76 versus .34) of investing in an Indian casino, ceteris paribus. These findings suggest that states’ political pressures and predictable judiciaries affect incentives to invest in casinos. This study contributes, more generally, to the empirical literature on the effects of institutions by providing new evidence that low-cost contracting is important for taking advantage of substantial investment opportunities.

Teaching

At Leeds School of Business (2013 - present)

Quantitative Methods (MSBC 5030 -- a master's statistics and programming course). Summers 2015--2017, Fall 2018--Fall 2022

Investments (MBAX 6200 -- a MS finance course). Fall 2018, Fall 2019, Fall 2021.

Foundations of Financial Analysis (FNCE 2010 -- a calculus and statistics course). Spring 2018 Term (2 Sections).

Empirical Methods in Finance (FNCE 7200 -- a doctoral research seminar). Spring 2016, Spring 2018.

Investments (FNCE 3030 -- an undergraduate finance course). Spring 2014, Spring 2015, Spring 2016.

Managerial Economics (MSBC 5015 -- a master's of finance core course). Summer 2015.

I taught extensively at UChicago while pursuing my Ph.D. I self-published a textbook from notes I developed while teaching at Montana State University. I did the same with some econometrics notes I developed while teaching Honors Econometrics at Chicago. Here's a free link to my honors metrics notes. In addition, you might find my YouTube channel interesting or useful.

Other Academic Activities

Co-director of Consumer Financial Decision Making Center (since Fall 2018, with Phil Fernbach).

Co-organizer of the Boulder Summer Conference.

Organizer of Finance in the Cloud, a series of virtual conferences.

Co-founder of the Colorado Finance Summit.

Director of the MS in Finance program at CU Boulder (since Fall 2018).

Miscellaneous and Personal

Favorites:

Economist: Tie between Ronald Coase and Gary Becker.

Band: Matchbox 20.

Movie: Forrest Gump.

Book: Einstein's Dreams.

Textbook: Mostly Harmless Econometrics.

Country (outside of US): Switzerland

City: London

Special Administrative Region: Hong Kong

US State: Montana

YouTube Channel: Relaxing Piano Music.

Spotify: Infinite Acoustic.

Sport: The Sport of Fitness.

NFA disc.