Three Essays on Behavioral Bias in the Financial Market

Abstract

This thesis consists of three chapters. The first chapter is titled Information Dissemination and Behavioral Bias in Financial Media, which examines how behavioral bias affects the information dissemination role of financial media. By utilizing information from Gallup Survey and immigration records, we construct a measure of journalist surname favorability. We find that journalists with more favorable surnames have stronger impact on the stock price. This effect is more pronounced for stocks with smaller firm size, lower institutional ownership, and lower analyst coverage. We further use the U.S.-China trade war as an exogenous shock to the measure of journalist surname favorability and show that news articles released by journalists with Chinese-origin surnames elicit weaker market reactions during the trade war period. Finally, we find that the stock price shows return reversal patterns after controlling for well-known risk factors.

The second chapter, Behavioral Bias in Patent Applications, examines whether behavioral bias affects the patent grant outcomes in the U.S. patent system. We demonstrate that inventors with more favorable surnames are more likely to have patent granted. In addition, conditional on successful applications, the examination processing time is shorter for inventors with more favorable surnames, while conditional on unsuccessful applications, the examination processing time is shorter for inventors with unfavorable surnames. Finally, we introduce three events, the 9/11 terrorist attack, the German-French opposition to the Iraq War, and the U.S.-China trade war, as exogenous shocks to inventor surname favorability, and show that the patent grant probability significantly decreases after these events happened. We show evidence that our findings are not driven by the differential quality of underlying inventions.

The third chapter, Strategic Disclosure and Behavioral Bias, examines how firms strategically disclose information of foreign countries in the 10-K filings based on investors' perceptions of foreign countries. We find that firms mention foreign countries more when investors show more favorable perceptions of those countries, conditional on firms having subsidiaries in those countries. Moreover, this effect significantly decreases when the exogenous shocks happen. Finally, both firms' idiosyncratic volatility and political risk increase when firms mention more on foreign countries affected by the exogenous shocks. Show more