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Three Essays in Financial Economics

Tong, Qing (2010)
Dissertation (118 pages)
Committee Chair / Thesis Advisers: Chordia, Tarun; Shanken, Jay
Committee Members: Busse, Jeffrey ; Green, Clifton
Research Fields: Business Administration, General; Economics, Finance
Keywords: information risk
Program: Laney Graduate School, Business
Permanent url:



Three Essays in Financial Economics
By Qing Tong
In the first essay, ("Abnormal Volume in Large Trades and the Cross-Section of Expected Stock
Returns"), I employ a new variable, abnormal volume in large trades, to study information risk. I
provide new evidence to support the asymmetric information hypothesis that stocks with greater
information risk are expected to have higher returns. In the second essay, ("Retail Investor
Industry Herding", joint work with Russell Jame), we examine the industry wide investment
decisions of individuals (retail investors). We find that retail investor herd into industries, and that
industry herding can forecast industry returns. The industries most heavily bought by retail
investors significantly underperform the industries most heavily sold by retail investors over the
subsequent 3 to 12 months. In the third essay, ("Mutual Fund Industry Selection and Persistence",
joint work with Jeff Busse), we analyze mutual fund industry selectivity-the performance of a
fund's industry allocation relative to the market. We find that industry selection accounts for a
quarter of fund performance based on two-digit SIC codes, with the remaining attributable to the
performance of individual stocks relative to their own industries. We find that industry-selection
skill drives persistence in relative performance, particularly over longer investment horizons.
Unlike individual-stock-selection ability, industry selectivity is not eroded by increasing fund

Three Essays in Financial Economics
Qing Tong
M.Sc., Virginia Tech, 2003
Advisor: Tarun Chordia, Ph.D., UCLA, 1993
Co-advisor: Jay A. Shanken, Ph.D., Carnegie Mellon University, 1983
A dissertation submitted to the Faculty of the
James T. Laney School of Graduate Studies of Emory University
in partial fulfillment of the requirements for the degree of
Doctor of Philosophy
in Business

Table of Contents

Table of Contents

Introduction 1

First Essay: Abnormal Volume in Large Trades and the Cross-Section of Expected Stock Returns

1. Introduction 3

2. Methodology 8
3. Data 12
4. Main Results 14
5. ALT and PIN 17
6. Corporate Events 19
7. Conclusion 23
Second Essay: Retail Investor Industry Herding
1. Introduction 24
2. Data and Descriptive Statistics 28
3. Tests for Industry Herding 31
4. Industry Herding and Industry Returns 37
5. Industry Sentiment vs. Firm Sentiment 42
6. Conclusion 44
Third Essay: Mutual Fund Industry Selection and Persistence Introduction
1. Introduction 46
2. Data 49
3. Performance Decomposition 54
4. Empirical Analysis 57
5. Conclusion 69


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