Odhrain McCarthy

Welcome to my webpage!

My name is Odhrain McCarthy (pronounced: Oran McCarthy).

I am an Assistant Professor of Finance at NYU Stern School of Business at NYU Abu Dhabi. I hold a PhD in Economics from New York University. Prior to obtaining my PhD, I received an MSc in Economics from the London School of Economics and a BA in Mathematics and Economics from Trinity College Dublin, Ireland.

I am normally based between Abu Dhabi, New York and Dublin; it's best to reach me via email: otm210@nyu.edu

Research Areas: Asset Pricing and Behavioral Finance

Curriculum Vitae: Link

RESEARCH

Prior-Biased Inference in Asset Prices: The Conditional Post-Earnings Announcement Drift

Revise and Resubmit, Journal of Finance

Media coverage: Barron's, 23 March 2026

Abstract: I show that the post-earnings-announcement drift (PEAD) is concentrated where the earnings surprise goes against analysts' recommendations. A recommendation-inconsistent strategy, long Sell-rated firms with positive surprises and short Buy-rated firms with negative surprises, earns a 9.4% abnormal return per annum. The recommendation-consistent counterpart is indistinguishable from zero. The PEAD has not disappeared: it survives in recommendation-inconsistent states, especially after bad news to optimistically-rated firms. A model combining overconfidence--which generates biased priors and leaves the largest mispricing when news contradicts them--with an asymmetrically muted response to bad news under optimistic priors rationalizes these patterns.

The Hidden Trend in Stock-Market Cash Flows with Sebastian Hillenbrand
Media coverage: Barron's, 3 August 2026

Abstract: We identify a persistent growth component in stock-market cash flows. A present-value state-space model of dividends and the price-dividend ratio over 1871–2022 decomposes valuations into a persistent cash flow trend, a cash flow cycle, and an expected return. Trend growth rises from 2% in the early 1900s to 6% by the 2000s and explains 80% of price-dividend variation. Stripped of the trend, expected returns forecast returns out of sample, at an R2 of 9% and 22% over one and five years. The trend unifies four facts: valuations’ secular increase, near-unit-root persistence, weak in-sample predictability, and out-of-sample failure. The results suggest a reframing of the excess-volatility puzzle.

The Subjective Excess Volatility Puzzle with Sebastian Hillenbrand
Street Earnings and Subjective Expectations Data
Presented at the EFA 50th Annual Meeting

Abstract: Do stock prices move too much to be justified by professional beliefs? They do. We show that when cash flows contain transitory cycles, the Campbell-Shiller framework speaks to excess volatility only when prices are scaled by the cash-flow trend. We proxy it with smoothed Street earnings. Analysts’ term structure of earnings forecasts and discount rates explain a quarter of US valuation movements and half in the UK and Germany. A model where analysts infer growth news from transitory shocks to the cash-flow level reproduces their belief dynamics and explanatory power for prices. Shiller’s puzzle survives direct measurement of professional beliefs.

Heterogeneous Beliefs and Stock Market Fluctuations with Sebastian Hillenbrand
Presented at the NBER Behavioral Finance and WFA Macro-Finance Meetings
Received the WFA Brattle Group Ph.D. Award for Outstanding Research

Abstract: We show that the return expectations of individual investors and investment professionals are sharply opposed (−47% correlation), yet together their survey beliefs account for about 80% of stock-market fluctuations. This disagreement predicts aggregate trading and reflects a divide in valuation logic. We develop a survey-disciplined model where professionals apply present-value logic but overreact to fundamentals, moving prices. Individuals—attending to price signals—subsequently extrapolate, leading to further price overshooting. Recognizing the mispricing, professionals forecast opposing returns to individuals. The mechanism generates the observed disagreement and trading activity, while capturing many patterns of actual stock prices and returns.

The Effect of the Prior Teacher on Value-Added with Michael Gilraine
The Review of Economics and Statistics (2026) 108 (3): 645-662

Abstract: We show that teachers’ value-added (‘VA’) depend on the quality of the teachers that preceded them. To do so, we use administrative data from North Carolina and find that a one-standard deviation increase in last grade’s mean teacher VA causes a 0.08σ decrease in teacher VA. Controlling for prior teacher assignment eliminates this bias. Under a benchmark policy that releases teachers in the bottom five percent of the VA distribution, thirty-two percent of teachers are incorrectly released using traditional techniques. Our results highlight the importance of incorporating dynamic features of education production into the estimation of teacher quality.