Two Essays on Investor Preference

This dissertation explores two different kinds of investor preferences for stocks: geographicpreference and skewness preference. In the first essay titled "Faster than Flying: High-Speed Rail, Investors, and Firms", we study the effects of a direct high-speed rail (HSR) service between two cities on investors and firms in China. We find that, after the HSR introduction, investors make more crosscity searches and block purchases of firms in connected cities. The HSR introduction also leads to less comovement among local stocks and more comovement between stocks in connected cities. Firms located in more central cities in the HSR network enjoy higher firm valuation, lower cost of equity, and better liquidity, in part through the channel of increased investor recognition. The HSR effects on valuation, cost of equity, and liquidity are more pronounced among small firms and when the connected city pair distance is below 1,500 km, for which HSR is faster than flying. In the second essay titled, "Can skewness preference cause misreactions to SEO announcements?", we report that the degree of skewness in a firm's stock returns can influence the stock price reaction to its SEO announcement. We find that high skewness issuers are associated with higher reactions to their SEO announcements. Our results add to the literature that studies the impact of skewness preference on asset prices. Our analysis can help explain why some SEOs are received favorably by investors, despite the fact that theory suggests SEO announcements signal overvaluation and empirical studies report negative stock price reactions.