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Working Paper
Do measures of investor sentiment predict returns?
It has long been market folklore that the best time to buy stocks is when individual investors are bearish. We examine the forecast power of three popular measures of individual investor sentiment: the level of discounts on closed-end funds, the ratio of odd-lot sales to purchases, and net mutual fund redemptions. Using data from 1933 to 1993, we find evidence that fund discounts and net redemptions predict the size premiums, the difference between small and large firm returns, but little evidence that the odd-lot ratio predicts returns.
Working Paper
How reliable are adverse selection models of the bid-ask spread?
Theoretical models of the adverse selection component of bid-asked spreads predict the component arises from asymmetric information about a firm's fundamental value. We test this prediction using two well known models [Glosten and Harris (1988) and George, Kaul, and Nimalendran (1991)] to estimate the adverse selection component for closed-end funds. Closed-end funds hold diversified portfolios and report their net asset values on a weekly basis. Thus, there should be little uncertainty about their fundamental values and their adverse selection components should be minimal. Estimates of the ...