dr. R. (Rex) Wang-Renjie

This thesis consists of four empirical essays on sell-side equity analysts and boards of directors, who play important roles in stock markets. The first two studies shed light on how sophisticated financial agents such as equity analysts form expectations and examine how their beliefs affect trading activities and stock prices. We show that analysts overgeneralize bad news in other coverage industries and become overpessimistic about the focal firms. The resulting disagreement among analysts leads to higher trading volumes and larger return volatilities, and the resulting overpessimism exerts downward pressure and induces temporary underpricing. The third study highlights the impact of limited director attention on the effectiveness of corporate governance. We find that exogenous director distraction affects board monitoring intensity and leads to a higher level of inactivity by management. The final essay helps explain why analysts at reputable brokerage houses produce more accurate earnings forecasts. This follows both from the direct influence of better resources provided by the firms and from the sorting in the labor market, which leads reputable firms to hire more talented candidates. We estimate a two-sided matching model to disentangle these two effects and quantify their relative importance.