Work

Why Do Investors Like Short-leg Securities? Evidence from a Textual Analysis of Buy Recommendations

Year: 2025

Type: article

Abstract: Our paper examines analyst reports and online stock opinion articles which recommend buying stocks that, based on the literature, trade at high prices and earn low future returns (“short-leg securities”). Using a textual analysis, we test whether the justifications primarily (1) emphasize safe-haven qualities, (2) indicate exuberance, or (3) highlight lottery-like features. Our results strongly point to (3). We subsequently validate our text-based inferences through a survey of institutional and retail investors with long positions in short-leg securities. Overall, perceived upside potential appears to play a material role in driving investor demand for stocks in the short legs of anomalies.

Source: Review of Financial Studies

DOI: 10.1093/rfs/hhaf068

Authors: Hailiang Chen, Byoung-Hyoun Hwang, Zhuozhen Peng

Institutions: University of Hong Kong, Nanyang Technological University, Central University of Finance and Economics

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $4,028

OpenAlex ID: W4413928880