Christina Zhu

• Stefan Huber, Edward Watts, Christina Zhu (Working), Information Flows in Trading Networks. Abstract

  We study the informational value of trading networks in over-the-counter (OTC) markets. Using detailed transaction-level data from the corporate bond market, we show that investors with larger dealer trading networks make superior trading decisions before changes in credit fundamentals and yield better risk-adjusted performance. Our evidence indicates that an important mechanism for this result is that dealers reward their trading clients with private information. Consistent with this mechanism, we show that investors make superior trading decisions when they have trading relationships with dealers likely to have novel information. In addition, investors with trading relationships with deal-affiliated dealers transact more profitably before important merger and acquisition (M&A) deals are publicly announced. Collectively, our evidence highlights the importance of trading relationships for investors’ private information acquisition.

• Suzie Noh, Eric So, Christina Zhu (Forthcoming), Financial Reporting and Consumer Behavior, The Accounting Review. 10.2308/TAR-2023-0293 Abstract

  We show that financial reporting influences consumer behavior by drawing consumer attention to announcing firms. Analyzing GPS data, we document upticks in foot-traffic to firms’ commercial locations immediately following their earnings announcements. This increase is more pronounced for announcements with substantial media attention, fewer concurrent announcements, heightened internet search volume, and extreme stock price jumps and earnings surprises—indicating that announcement coverage impacts consumer behavior by capturing attention. Furthermore, foot-traffic increases with positive earnings for firms offering durable goods, suggesting consumers respond to news about firms’ financial prospects. Consumer attention patterns increase revenues and advertising effectiveness, ultimately suggesting that financial reporting serves a marketing function.

• James Li, Olivia S. Mitchell, Christina Zhu (Forthcoming), Suboptimal Investment and Information-Processing Frictions: Evidence from 529 College Savings Plans, Journal of Financial Literacy and Wellbeing. Abstract

  We use the 529 college savings plan setting to investigate whether and why households make suboptimal choices to invest in local assets. We estimate that 67% of open accounts between 2010 and 2020 were located suboptimally, due to the plans’ tax inefficiencies and high expenses. Over the accounts’ projected lifetimes, such investments yielded expected losses of 8% on average, or $15.6 billion in 2020 alone. We then investigate why suboptimal investment is so prevalent. Consistent with households’ lack of understanding of state-level tax benefits, we find that a meaningful proportion of households does not account for the potential tax benefits and costs of local versus nonlocal 529 investment. Household financial literacy and plan disclosure complexity appear to explain suboptimal investment patterns, which further supports the role of information-processing frictions. Our study presents novel evidence on individuals’ preferences for local assets and how information-processing frictions shape their investment decisions, reducing their financial well-being.

  Related
  Links

  NBER Working Paper 30848
• Qianqian Li, Edward Watts, Christina Zhu (2024), Retail Investors and ESG News, Journal of Accounting and Economics, 78 (2-3). 10.1016/j.jacceco.2024.101719 Abstract

  An important debate exists around the extent to which retail investors make sustainable investments and, if they do, why. We contribute to this debate by investigating the aggregate trading patterns of retail investors around a comprehensive sample of key environmental, social, and governance (ESG) news events for U.S. firms. We show that ESG news events appear to be an important factor in retail investors’ portfolio allocation decisions. Yet, inconsistent with arguments about retail investors’ nonpecuniary preferences, our evidence shows that retail investors mainly trade on this information when they deem it financially material to a company’s stock performance. We also find their net trading demand predicts abnormal returns in the subsample of financially material events, consistent with retail traders benefiting from incorporating ESG-related information into their decision-making when it influences firm value. Overall we conclude that the average U.S. retail investor cares about firms’ ESG activities but primarily to the extent these activities matter for company financial performance.

• Paul Fischer, Mirko S. Heinle, Jung Min Kim, Christina Zhu (Working), Rational Information Acquisition Screens. Abstract

  We develop a model of information acquisition in capital markets and test its predictions in the data. In the model, investors are uncertain about the returns to acquiring private information before they acquire it. As a result, investors use prior prices and public information as a screen to estimate the value of private information acquisition and efficiently allocate their limited information-processing capacity across firms. The model predicts that larger unexplained price movements lead to more private information acquisition, higher future price volatility, and higher future trading volumes. Using fine-grained data measuring information acquisition on Edgar and Bloomberg, we provide empirical evidence in support of the model’s predictions.

• Allison Nicoletti and Christina Zhu (2023), Economic Consequences of Transparency Regulation: Evidence from Bank Mortgage Lending, Journal of Accounting Research, 61 (5), pp. 1827-1871. 10.1111/1475-679X.12498 Abstract

  We examine the economic consequences of a rule designed to improve consumers’ understanding of mortgage information. The 2015 TILA-RESPA Integrated Disclosures rule (TRID) simplifies the mortgage disclosures provided to consumers. As a consequence, TRID-affected mortgages become a less attractive investment opportunity to banks. Our main results document that mortgage applications affected by TRID are less likely to be approved following the rule’s effective date. We find evidence consistent with both a decrease in consumers’ information processing costs and an increase in banks’ secondary market frictions, providing insight into the potential channels through which this reduction in mortgage credit operates. We also find that banks partially compensate for reduced mortgage lending by increasing small business lending, and that fintechs absorb mortgage demand in areas with reduced mortgage lending by banks. Our study documents real actions that firms take in response to disclosure transparency regulation and contributes to the literature on the economic consequences of such regulation.

• Brian Bushee, Daniel Taylor, Christina Zhu (2023), The Dark Side of Investor Conferences: Evidence of Managerial Opportunism, The Accounting Review, 98 (4), pp. 1-22. 10.2308/TAR-2020-0624 Abstract

  Although the shareholder benefits of investor conferences are well-documented, evidence on whether these conferences facilitate managerial opportunism is scarce. We examine whether managers opportunistically exploit heightened attention around the conference to “hype” the stock. We find that (1) managers increase the quantity of voluntary disclosure leading up to the conference, (2) these disclosures are more positive in tone and increase prices to a greater extent than post-conference disclosures, and (3) these disclosures are more pronounced when insiders sell their shares immediately prior to the conference. In circumstances where pre-conference disclosures coincide with pre-conference insider net selling, we find evidence of a significant return reversal––large positive returns before the conference and large negative returns after the conference––and that the firm is more likely to be named in a securities class action lawsuit. Collectively, our findings are consistent with some managers hyping the stock prior to the conference.

• Robert E. Verrecchia and Christina Zhu (Working), Liquidity, Trade, and Investor-Identity Disclosure. Abstract

  This study tests whether disclosing a trader’s identity dampens or stimulates subsequent trading volume based on the trader’s reputation for being informed. Reputation signals the quality of private information that exists in the market. While a reputation for being informed makes markets less liquid, thus inhibiting subsequent trade (“illiquidity effect”), the information others glean from informed trade might motivate subsequent trade (“information effect”). To study which of these countervailing forces dominates, we use a setting where mandated short-position disclosures in Europe reveal the trader’s identity at the time of trade. Changes in bid-ask spreads, price adjustments, and changes in subsequent trading volume are positively associated with several proxies for the short seller’s reputation: the short seller is local, has higher returns from previous short sales, and is a hedge fund or investment adviser. Despite the positive association between reputation and illiquidity, we show that reputation motivates more subsequent trade from other investors learning from the disclosure. The informational efficiency of prices also increases with trader reputation. Thus, our results support the notion that the “information effect” dominates the “illiquidity effect.” Our study contributes to the literature by investigating the interaction among investor identification, adverse selection, and trade.

• Charles Lee and Christina Zhu (2022), Active Funds and Bundled News, The Accounting Review, 97 (1), pp. 315-339. 10.2308/TAR-2018-0380 Abstract

  We use trade-level data to examine the role of actively managed funds (AMFs) in earnings news dissemination. We find AMFs are drawn to, and participate disproportionately more in, earnings announcements (EAs) that include bundled managerial guidance. When the two pieces of news are directionally inconsistent, AMFs trade in the direction of future guidance rather than current earnings. AMFs exhibit an ability to discern, and adapt their trading to, the bias in bundled guidance. While AMF trades at EAs are generally more profitable than their non-EA trades, this result reverses when guidance bias is extreme. Overall, we find increased AMF trading during EAs leads to faster price adjustment. Collectively, these findings suggest AMFs are sophisticated processors of bundled earnings news, and their trading generally improves market price discovery.

• Ed deHaan, Yang Song, Chloe Xie, Christina Zhu (2021), Obfuscation in Mutual Funds, Journal of Accounting and Economics, 72 (2-3). 10.1016/j.jacceco.2021.101429 Abstract

  Mutual funds hold 32% of the U.S. equity market and comprise 58% of retirement savings, yet retail investors consistently make poor choices when selecting funds. Theory suggests poor choices are partially due to fund managers creating unnecessarily complex disclosures and fee structures to keep investors uninformed and obfuscate poor performance. An empirical challenge in investigating this “strategic obfuscation” theory is isolating manipulated complexity from complexity arising from inherent differences across funds. We examine obfuscation among S&P 500 index funds, which have largely the same regulations, risks, and gross returns but charge widely different fees. Using bespoke measures of complexity designed for mutual funds, we find evidence consistent with funds attempting to obfuscate high fees. This study improves our understanding of why investors make poor mutual fund choices and how price dispersion persists among homogeneous index funds. We also discuss insights for mutual fund regulation and academic literature on corporate disclosures.

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Past Courses

• ACCT1010 - Acct & Financial Report

  This course is an introduction to the basic concepts and standards underlying financial accounting systems. Several important concepts will be studied in detail, including: revenue recognition, inventory, long-lived assets, present value, and long term liabilities. The course emphasizes the construction of the basic financial accounting statements - the income statement, balance sheet, and cash flow statement - as well as their interpretation.

• ACCT9400 - Research in Acct I

  This is Part I of a theoretical and empirical literature survey course covering topics that include corporate disclosure, cost of capital, incentives, compensation, governance, financial intermediation, financial reporting, tax, agency theory, cost accounting, capital structure, international financial reporting, analysts, and market efficiency.

• ACCT9430 - Research in Acct Iv

  This is Part IV of a theoretical and empirical literature survey sequence covering topics that include corporate disclosure, cost of capital, incentives, compensation, governance, financial intermediation, financial reporting, tax, agency theory, cost accounting, capital structure, international financial reporting, analysts, and market efficiency. Please contact the accounting doctoral coordinator for information on the specific upcoming modules/topics that will be taught.

Knowledge @ Wharton

• Building Stronger Family Offices by Sharing Knowledge and Securing the Future, Knowledge @ Wharton - 11/21/2024
• State of the NBA with Seth Partnow, Knowledge @ Wharton - 11/20/2024
• How Are Companies Really Using AI? A New Report Has Answers, Knowledge @ Wharton - 11/19/2024
• Impact vs. Time: A Leader’s Guide to Slow Productivity, Knowledge @ Wharton - 11/19/2024
• Kevin O’Leary Illustrates the Benefits of Tariffs for U.S. Businesses, Knowledge @ Wharton - 11/19/2024
• Boosting Donations Through Self-expressive Choices | Jonah Berger, Knowledge @ Wharton - 11/19/2024
• Why Are Hospitals So Expensive?, Knowledge @ Wharton - 11/18/2024
• New Phenomena in Behavioral and Social Investing, Knowledge @ Wharton - 11/18/2024
• Bigger Hospitals, Better Care? Wharton Research Finds Benefits Are Only at the Operational Level, Knowledge @ Wharton - 11/14/2024
• Linda Dow Cash, CEO, Two Chicks Cocktails, Knowledge @ Wharton - 11/14/2024

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Retail trade: Retail trading volume is implemented in Blankespoor, deHaan, Wertz, and Zhu (2019), based on Boehmer, Jones, Zhang, and Zhang (2021) and Holden and Jacobsen (2014). The code also signs retail trades as buys or sells, based on the (sub)penny price improvement following Boehmer, Jones, Zhang, and Zhang (2021). The code can be adapted to sign retail trades based on the Lee-Ready algorithm (Lee and Ready 1991), as suggested by Barber, Huang, Jorion, Odean, and Schwarz (2024).

Please see Github repository: https://github.com/czhuuu/retail-trade.git.

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Adjusted Intraperiod Timeliness (Adjusted IPT): a measure of speed of price discovery that penalizes for inefficient overreaction.

Please see Github repository: https://github.com/czhuuu/Adjusted-IPT.git.

The simpler Adjusted IPT file contains a SAS macro to calculate the simpler Adjusted IPT measure, as implemented in Blankespoor, deHaan, and Zhu (2018), assumes that the daily return accumulation is immediately at open, while the more complex Adjusted IPT measure assumes even return accumulation over a given day. The Adjusted IPT file contains a SAS macro to calculate standard IPT (without the adjustment) and (the more complex) Adjusted IPT. The Simpler Adjusted IPT file contains a SAS macro to calculate alternate standard IPT (without the adjustment, assuming daily return accumulation is immediately at open) and (the simpler) Adjusted IPT. For more details on the two different assumptions, please see the Internet Appendix.