Browsing by Author "Hosseini Golafshani, Seyed Amir Farhang"

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    Essays on Textual Information in Finance: Intangible Value, Abnormal Temperature Premium, and Corporate Uncertainty
    (2024-08-28) Hosseini Golafshani, Seyed Amir Farhang; David, Alexander; Srivastava, Anup; Koskinen, Yrjo Juhani; Palacios, Miguel
    This thesis includes three studies that utilize textual information in their methodology. The first chapter explores a textual measure of intangible intensity—intangibles talk—based on discussions in firms’ 10-K filings. This measure reflects managers’ views on the successful outcomes of intangible investments, which often differ from initial expectations. We find that our measure is correlated with, but orthogonal to, prior measures of intangibles. By constructing a long-short portfolio based on high and low values of our measure, we demonstrate that it outperforms portfolios formed on book-to-market ratio and its intangible–augmented versions, generating an average annual alpha of 3.37% from 1995 to 2020. Positive alphas are concentrated among stocks with higher arbitrage risk, suggesting intangible–intensive stocks are often mispriced by investors. The second chapter investigates the premium for exposure to abnormal temperatures among firms with a presence across U.S. states. Firm-level abnormal temperature exposure is estimated by extracting state names from firms’ Form 10-K filings and averaging the reported abnormal temperatures across those states. Higher exposure to abnormal temperatures predicts lower earnings in five industries, with a stronger effect among firms with low geographic dispersion. A long-short portfolio based on abnormal temperature exposure shows that stocks with the highest exposure outperform those with the lowest, particularly post-Paris Agreement. The abnormal temperature premium averages 62 bps per month in this period and is concentrated in industries sensitive to abnormal temperatures and firms with low geographic dispersion. This premium responds positively to monthly shocks in a news-based index of climate concerns, indicating that investor climate concerns drive the premium. The third chapter develops a textual measure of uncertainty within context–SECUX–using SEC filings and identifies the six most common sources of uncertainty: monetary policy, tax, financial market, exchange markets, financial intermediation, and oil & gas markets. I find that the predicted delaying effect of uncertainty on firm-level investment discussed in the literature only holds uncertainty related to monetary policy and oil & gas categories. No conclusive evidence supports delaying effects from tax, financial market, and exchange market categories, suggesting that investment response to uncertainty depends on the source of uncertainty.