Assistant Professor of Finance, Singapore Management University

Frank Weikai Li is an Assistant Professor of Finance at the Lee Kong Chian School of Business, Singapore Management University. He received his Ph.D. in finance from the Hong Kong University of Science and Technology in 2017 and B.A. in economics from Zhejiang University in 2012. His research areas are empirical asset pricing, behavioral finance and insider trading.

  • Security Analysts and Capital Market Anomalies

    Weikai Li    Li Guo, K.C. John Wei,
    09 Oct 2018

    This article qualifies for 0.75 CE under the guidelines of the CFA Institute Continuing Education Program. 
    We encourage CFA Institute members to login to the CE tracking tool to self-document these credits. 

    We examine whether analysts utilize information in well-known stock return anomalies when making recommendations. We find results contrary to common intuition that analysts are sophisticated information intermediaries that help improve market efficiency. Specifically, analysts tend to make more favorable recommendations to stocks classified as overvalued, which have particularly negative abnormal returns ex-post. Moreover, analyst whose recommendations are more aligned with anomaly signals are more skilled and elicit greater recommendation announcement returns. Our results suggest that analysts’ biased recommendations could be a source of market frictions that impede the efficient correction of mispricing.
  • Climate Risks and Market Efficiency

    Weikai Li    Harrison Hong, Jiangmin Xu
    11 Aug 2018

    Climate science finds that the trend towards higher global temperatures exacerbates the risks of droughts. We investigate whether the prices of food stocks efficiently discount these risks. Using data from thirty-one countries with publicly-traded food companies, we rank these countries each year based on their long-term trends toward droughts using the Palmer Drought Severity Index. A poor trend ranking for a country forecasts relatively poor profit growth for food companies in that country. It also forecasts relatively poor food stock returns in that country. This return predictability is consistent with food stock prices underreacting to climate change risks.
  • Acquiring Organizational Capital

    Weikai Li    Peixin Li, Baolian Wang, Zilong Zhang
    11 Aug 2018

    Organizational capital is the accumulation and use of private information to enhance economic
    efficiency for a firm. Theory has argued that organizational capital is typically embodied in
    employees and the organizational structure, and is hard to transfer across organizations. In this
    paper, we study whether organizational capital is transferable across firms via mergers. The
    evidence shows that acquirers gain more from acquiring firms with higher organizational capital
    and acquirers are also willing to pay a higher premium for higher organizational capital targets.
    The evidence suggests that acquiring higher organizational capital targets creates synergies
    which are shared between acquirers and targets.
  • Macro Disagreement and the Cross-Section of Stock Returns

    11 Aug 2018

    This paper examines the effects of macro-level disagreement on the cross-section of stock
    returns. Using forecast dispersion measures from the Survey of Professional Forecasters
    database as proxies formacro disagreement, I find that high macro beta stocks earn lower
    future returns relative to lowmacro beta stocks following high macro disagreement states.
    This negative relation between returns for macro factors andmacro disagreement is robust
    and exists for a large set ofmacroeconomic factors, suggesting that highmacro beta stocks
    are overvalued compared with low macro beta stocks due to their greater sensitivity to
    aggregate disagreement.
  • The Information Content of Sudden Insider Silence

    Weikai Li    Claire Yurong Hong,
    11 Aug 2018

    We present evidence of investors underreacting to the absence of events in financial markets. Routine-based insiders strategically choose to be silent when they possess private information not yet reflected in stock prices. Consistent with our hypothesis, insider silence following routine sell (buy) predict positive (negative) future return as well as fundamentals. The return predictability of insider silence is stronger among firms with poor information environment and facing higher arbitrage costs, and a large fraction of abnormal returns concentrates on future earnings announcements. A long-short strategy that exploits insiders' strategic silence behavior generates abnormal returns of 6% to 10% annually.
  • Information Acquisition and Expected Returns: Evidence from EDGAR Search Traffic

    Weikai Li    Chengzhu Sun,
    11 Aug 2018

    This paper examines expected return information embedded in investors' information acquisition activity. Using a novel dataset containing investors' access of company filings through the SEC's EDGAR system, we reverse engineer investors' expectations of future payoffs and show that the abnormal number of IPs searching for firms' financial statements strongly predicts future returns. The return predictability stems from investors allocating more effort to firms with improving fundamentals and following exogenous shock to underpricing. A long-short portfolio based on our measure of information acquisition activity generates a monthly abnormal return of 80 basis points that is not reversed in the long-run. The return predictability is stronger for firms with larger and lengthier financial filings that are more costly to process, and concentrates on future earnings announcements. Firm announcements, investor recognition, price pressure, and omitted risk factors do not seem to explain our results.
  • Momentum Life Cycle around the World and Beyond

    Weikai Li    K.C. John Wei
    15 Nov 2016

    Buying low turnover winner stocks and shorting high turnover loser stocks (early-stage momentum) improves significantly over simple momentum strategies in 36 countries.
  • AFBC-Days to Cover and Stock Returns

    Weikai Li    Harrison Hong, Frank Weikai Li, Sophie Ni, Jose Scheinkman, Philip Yan
    10 Nov 2016

    Days to cover, short interest ratio divided by average daily share turnover, and not short interest ratio measures the rewards to entering crowded trades.
  • AFBC-Synthetic Shorting with ETFs

    Weikai Li    Frank Weikai Li, Qifei Zhu
    10 Nov 2016

    We provide novel evidence that arbitrageurs use exchange-traded funds (ETFs) as an avenue to circumvent short-sale constraints at the stock level. Using a large sample of U.S. equity ETF holdings, we document that shorting activity on ETFs rises with the difficulty of shorting the underlying stocks. Stocks that are heavily shorted via their holding ETFs underperform those lightly shorted by 94 basis points per month. The return predictability of ETF short selling on individual stocks is distinct from stock-level shorting measures, and is concentrated among stocks that face the most severe arbitrage constraints. Across a broad set of capital market anomalies, we find that anomaly returns are signi ficantly attenuated when ETF ownership is high. Our evidence suggests that ETFs contribute to a more informationally efficient market by allowing arbitrageurs to target overpriced stocks that are otherwise difficult to short.