“Noon Sunshine-Young Scholars Seminar” is a regular academic exchange platform held by School of Finance. It aims to offer valuable occasions of communications among scholars in our college, between teachers and students, the domestic and the oversea. In this semester, we keep our original intention, set off for a new voyage. We will devote ourselves to fostering the academic atmosphere in the college, and promoting the academic level for both teachers and students.

The fourth session of “Noon Sunshine-Young Scholars Seminar” for the Autumn Semester in 2023 is arranged as follows:

Lecture topic

Do Peer Characteristics Explain Returns: An Aggregation Approach

Keynote Speaker: Ge Shuyi

Commentator: Xiang Hong

Date

Thursday, October 12th, 2023

Time

12:00-13:00

Lecture Venue  

Room 116, School of Finance

Abstract

Characteristics of one firm may contain value-relevant information for a set of economically related peer firms. This paper employs a flexible machine-learning approach to aggregate information from a large number of peer characteristics, as well as deviations of firms' own characteristics from the peer averages, into two aggregate peer-based indices: the Peer Index (PI) and the Peer Deviation Index (PDI). The two indices reliably predict future returns, even after controlling for a comprehensive list of other anomaly variables, as well as adjusting for data-snooping bias and microcaps. Individually, long-short value-weighted portfolios based on PI and PDI each generate monthly excess returns of 1.5% and 2.2%, respectively, with Sharpe ratios of 1.15 and 2.28. Combining the two signals, a long-short double-sorted portfolio generates monthly excess returns of 3.48% (with a Sharpe ratio of 2.52). We present evidence that the predictability of PI and PDI arises from the gradual diffusion of information and anchoring to peer fundamentals, respectively.