NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Qiang Kang

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Working Papers

May 2009The Limitations of Stock Market Efficiency: Price Informativeness and CEO Turnover
with Gary B. Gorton, Lixin Huang: w14944
Stock prices are more informative when the information has less social value. Speculators with limited resources making costly (private) information production decisions must decide to produce information about some firms and not others. We show that producing and trading on private information is most profitable in the stocks of firms with poor corporate governance -- precisely because it will not be acted upon -- and less profitable at firms with better corporate governance. To the extent that the information in the stock price is used for disciplining the CEO by the board of directors, the informed trader has a reduced incentive to produce the information in the first place. We test our model using the probability of informed trading (PIN) and the probability of forced CEO turnover in a...
July 2002On the Relationship Between the Conditional Mean and Volatility of Stock Returns: A Latent VAR Approach
with Michael W. Brandt: w9056
We model the conditional mean and volatility of stock returns as a latent vector autoregressive (VAR) process to study the contemporaneous and intertemporal relationship between expected returns and risk in a flexible statistical framework and without relying on exogenous predictors. We find a strong and robust negative correlation between the innovations to the conditional moments that leads to pronounced counter-cyclical variation in the Sharpe ratio. We document significant lead-lag correlations between the conditional moments that also appear related to business cycles. Finally, we show that although the conditional correlation between the mean and volatility is negative, the unconditional correlation is positive due to the lead-lag correlations.

Published: Brandt, Michael W. and Qiang Kang. "On The Relationship Between Conditional Mean And Volatility Of Stock Returns: A Latent VAR Approach," Journal of Financial Economics, 2004, v72(2,May), 217-257.

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