Doctor of Philosophy (PhD)


Finance (Business Administration)

Document Type



This dissertation consists of two essays. The first essay, “Stock market liquidity, aggregate analyst forecast errors, and the economy,” is motivated by Næs, Skjeltorp, and Ødegaard (2011), who suggest that stock market liquidity is a good leading indicator of the economy. To further understand the mechanism in the economic forecastability of stock market liquidity, we hypothesize that analyst earnings forecast errors have a systematic component, which is predictable and related to changes in the economy, and that smart investors exploit analyst forecast errors, which leads to the economic forecastability of stock market liquidity. Consistent with our hypothesis, we find that there is a strong correlation between detrended aggregate analyst forecast errors and concurrent GDP growth and that a large part of the forecast errors can be predicted using lagged macro variables. Once we control for the predictable forecast errors, the economic forecastability of stock market liquidity disappears. Thus, our study reveals that aggregate analyst forecast errors are very informative about business cycle and contain all the relevant information for stock market liquidity as a leading economic indicator. The second essay, “Stock price delay and business cycle,” is motivated by Hou and Moskowitz (2005), who use common stock price delay in reflecting market-wide information to measure market frictions each individual firm faces. To better understand how the price formation process is affected by business cycle, we examine the relation between the aggregate stock price delay and changes in the economy. Surprisingly, while the stock market liquidity declines and market frictions increase before economic downturns, we find that the aggregate price delay decreases before recessions; and it increases before economic expansions when the stock market liquidity increases and market frictions decrease. Aggregate institutional holdings and aggregate analyst coverage as proxies for information production cannot account for the behavior of aggregate price delay. Instead, we find that the flight-to-quality behavior of investors is most responsible for changes in aggregate price delay.



Document Availability at the Time of Submission

Release the entire work immediately for access worldwide.

Committee Chair

Lin, Ji-Chai