IDEAS home Printed from https://ideas.repec.org/p/ecl/stabus/repececlstabus3505.html
   My bibliography  Save this paper

Salient or Safe: Why Do Predicted Stock Issuers (PSIs) Earn Low Returns?

Author

Listed:
  • Lee, Charles M. C.

    (Stanford University)

  • Li, Ken

    (Stanford University)

Abstract

Predicted stock issuers (PSIs) are firms with expected "high-investment and low-profit" (HILP) profiles that earn unusually low returns. We carefully document important features of PSI firms to provide new insights on the economic mechanism behind the HILP phenomenon. Our results show top-PSI firms are cash-strapped and dependent on external financing, and have lottery-like payoffs, high volatility, high Beta, and high shorting costs. Over the next two years, top-PSIs earn return-on-assets of -30% per year, report disappointing earnings, and experience strongly-negative analyst forecast revisions. They earn especially low returns in down markets and are nine times more likely to delist for performance reasons. We conclude that HILP firms earn low returns not because they safe, but because they are more salient to investors and are thus overpriced.

Suggested Citation

  • Lee, Charles M. C. & Li, Ken, 2017. "Salient or Safe: Why Do Predicted Stock Issuers (PSIs) Earn Low Returns?," Research Papers repec:ecl:stabus:3505, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:repec:ecl:stabus:3505
    as

    Download full text from publisher

    File URL: https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/430591
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:repec:ecl:stabus:3505. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/gsstaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.