Market Reactions to Tangible and Intangible Information Revisited

December 22, 2013 Leave a comment

Market Reactions to Tangible and Intangible Information Revisited

Joseph Gerakos University of Chicago – Booth School of Business

Juhani T. Linnainmaa University of Chicago – Booth School of Business; National Bureau of Economic Research (NBER)

December 3, 2013
Chicago Booth Research Paper No. 13-82

Abstract: 
Daniel and Titman (2006) propose that the value premium is due to investors overreacting to intangible information. They therefore decompose changes in firms’ book-to-market ratios into stock returns and a proxy for tangible information based on accounting performance (“book returns”). Consistent with investors overreacting to intangible information, they find that only stock returns unrelated to “book returns” reverse. We show that their decomposition creates a “book return” polluted by past book-to-market ratios, stock returns, net issuances, and dividends. One-third of the variation in “book returns” is due to these factors. The Daniel and Titman (2006) result is fragile — a plausible alternative definition of tangible information reverses their conclusions.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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