Use this URL to cite or link to this record in EThOS: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.720434
Title: Sentiment, financial agents and decision-making
Author: Maligkris, Anastasio
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 2016
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Abstract:
This thesis examines whether strong exogenous shocks to the sentiment of sophisticated financial agents can influence their decision-making. To capture any sentiment changes, we use extreme negative events such as terrorist attacks and mass shootings. Specifically, we conjecture that financial agents that are local to these events during the period of the attacks should experience strong negative feelings related to fear and anxiety, which in turn would affect their decisions. In the first chapter, we examine whether terrorist attacks and mass shootings tend to affect the earnings forecasts of sell-side equity analysts. Our findings suggest that analysts located near these events are more likely to issue pessimistic forecasts. This effect becomes stronger when the distance between the analyst and the event decreases, when fewer days separate the event and the forecast, and when the analyst resides in a region with low murder rate. Interestingly, pessimistic analyst forecasts are more accurate since the negative sentiment induced by terrorist events partially mitigates the well-documented optimism bias among equity analysts. In the second chapter, we focus on corporate managers and examine whether they apply different firm policies when they are exposed to such negative events. Our results show that local firms around attack periods increase cash holdings, and reduce R&D expenditure and long-term leverage. These effects are temporary, and become weaker as the firm-event distance increases. Further, we show that these effects are mainly concentrated in firms managed by younger CEOs, and tend to be larger for events with greater media coverage. In the third chapter, we show that institutional investors located near these terrorist events tend to increase their selling propensity around that time period. Similar to previous chapters, we find that this effect becomes stronger as the geographical proximity of investors to the location of the attacks increases, and when investors trade near the date of the attacks. However, these effects are less pronounced for firms which entail higher transaction costs such as small-sized firms, illiquid firms, and firms with volatile and skewed stock returns. Such trading behavior has a negative impact on the quarterly trading performance of institutional investors and on stock returns. Overall, our findings are consistent with the view that strong negative shocks to sentiment, induced by extreme negative events, can significantly affect the decision-making of sophisticated financial agents such as sell-side analysts, corporate managers and institutional investors.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID: uk.bl.ethos.720434  DOI: Not available
Keywords: HG Finance
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