Why Do Investors Like Short-leg Securities? Evidence from a Textual Analysis of Buy Recommendations

Hailiang Chen, Byoung-Hyoun Hwang and Zhuozhen Peng

The Review of Financial Studies, 2025, vol. 38, issue 12, 3729-3767

Abstract: Our paper examines analyst reports and online stock opinion articles which recommend buying stocks that, based on the literature, trade at high prices and earn low future returns (“short-leg securities”). Using a textual analysis, we test whether the justifications primarily (1) emphasize safe-haven qualities, (2) indicate exuberance, or (3) highlight lottery-like features. Our results strongly point to (3). We subsequently validate our text-based inferences through a survey of institutional and retail investors with long positions in short-leg securities. Overall, perceived upside potential appears to play a material role in driving investor demand for stocks in the short legs of anomalies.

Keywords: G11; G12; G14; G40; G50 (search for similar items in EconPapers)
Date: 2025
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