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Hedge Fund Stock Picking and Trade Timing

Are hedge fund managers the best and brightest when it comes to stock picking and market timing? In their March 2007 paper entitled “How Smart are the Smart Guys? A Unique View from Hedge Fund Stock Holdings”, John Griffin and Jin Xu investigate whether hedge fund managers are better at picking stocks and investing styles than mutual fund managers. Using the stock holdings of 306 hedge fund companies from 1980 to 2004 as reported in quarterly SEC Form 13F equity filings, they conclude that: Keep Reading

The Buyback Indicator Still Going Strong?

Are stock buybacks still good indicators of future strong returns, or have investors driven this anomaly from the market? If they still work, why? In their January 2007 paper entitled “The Nature and Persistence of Buyback Anomalies”, Urs Peyer and Theo Vermaelen investigate whether market recognition has eliminated or attenuated the stock repurchase anomaly. Using a sample of 3,481 repurchase announcements spanning 1991-2001, they find that: Keep Reading

Whose Sentiment Matters, and for What Horizon?

Is sentiment a useful trading indicator? In their December 2006 paper entitled “On the Predictive Power of Sentiment: Why Institutional Investors Are Worth Their Pay”, Bernhard Zwergel and Christian Klein measure the forecasting abilities of institutional and private investors and test out of sample a related trading strategy. Their source data comes from the sentix weekly sentiment survey, asking as many as 700 investors (25% institutional and 75% private investors) about the future one-month (short term) and six-month (medium term) directions of ten stock markets. Using this data for six of these markets over the period 2/23/01-2/2/06, they conclude that: Keep Reading

Enhancing the Value Premium Via P/E Analysis

Reader Richard Beddard, editor of Interactive Investor, flagged a series of three studies by Keith Anderson and Chris Brooks on approaches to enhancing the value premium via empirical analysis of the price-earnings ratio (P/E) calculated with lagged earnings. One study seeks to optimize value indication based on the extent and weighting of historical earnings used in the P/E calculation. The second study seeks to concentrate the value premium by decomposing P/E into components related to market, firm size, industry and company-specific factors. The third study combines the findings of the first two and examines the returns for the extreme tails of the enhanced P/E distribution. All three studies use earnings and stock return data for a broad range of UK companies (excluding the smallest) for the period 1975-2004. Summaries of the three studies follow. Keep Reading

The Stock Supply Cycle

Does the business cycle beget a stock supply cycle? In their January 2007 paper entitled “Corporate Event Waves”, Raghavendra Rau and Aris Stouraitis examine the relationships among five different kinds of stock supply additions and subtractions: initial public offerings (IPO); seasoned equity offerings (SEO); stock-financed acquisitions; cash-financed acquisitions; and, stock repurchases. Using data for 151,000 U.S. corporate stock supply transactions during the period 1980-2004, they conclude that: Keep Reading

Herb Greenberg: The Short Circuit?

Original Historical Analysis –   Update: Out-of-Sample Test


ORIGINAL HISTORICAL ANALYSIS

In this entry, we calibrate Herb Greenberg’s stock commentary on MarketWatch. In general, Herb Greenberg provides negative/skeptical comments on specific stocks. His sources are often anonymous and may already have shorted stocks he mentions. In his own words, his “…column does not make recommendations; it points out risks or situations that are otherwise overlooked. It’s then up to readers to decide whether to sell the stock (if they own it), avoid it (if they’re considering owning it), ignore what I’ve written or, if they’re so inclined, make a negative bet on a company.” For this analysis, we catalog 318 distinct negative mentions involving 99 different stocks over the period 4/12/04 (when he joined MarketWatch) through 6/15/05. Here’s what we find… Keep Reading

Institutional Herding and the Value Premium

What causes the value premium, a rational risk factor or an irrational overreaction? If the latter, who overreacts and to what? In his February 2007 paper entitled “Institutional Investors, Intangible Information and the Book-to-Market Effect”, Hao Jiang investigates a connection between the value premium and the trading behavior of institutional investors. Specifically, he tests whether institutions overreact to intangible information (that not derived directly from firm accounting measures). Using data on returns, accounting fundamentals and institutional ownership encompassing 49,164 firm-years over the period 1981-2004, he concludes that: Keep Reading

Loss of Momentum?

Has the focus of investors/traders (especially hedge funds) on stock return momentum, the persistence of outperformance and underperformance, killed the effect? In their March 2007 paper entitled “The Disappearance of Momentum”, Soosung Hwang and Alexandre Rubesam investigate trends in the momentum effect over a long period. Their baseline analysis examines sets of ten momentum-ranked portfolios formed on past five-month returns and held for six months, with an intervening month skipped. Using monthly return data for a large number of individual NYSE, AMEX and Nasdaq stocks over the period July 1926 through December 2005, they conclude that: Keep Reading

Recent Evidence on Individual Investor Performance

What is the recent evidence on the performance of individual investors? Do some persistently outperform and, if so, why? In the February 2007 draft of their paper entitled “The Performance and Persistence of Individual Investors: Rational Agents or Tulip Maniacs?”, Rob Bauer, Mathijs Cosemans and Piet Eichholtz examine the performance and persistence of individual investors trading at a Dutch online broker. Using a database consisting of more than 68,000 accounts and eight million trades in stocks, bonds and derivatives during January 2000 to March 2006, they find that: Keep Reading

Net Flow of Cash from Company to Investors as a Return Indicator

Are company stock buybacks equivalent to cash dividends for stockholders? Conversely, are company sales of stock “undividends” for stockholders? A forthcoming article in the April 2007 Journal of Finance addresses these questions. In the underlying September 2005 paper entitled “On the Importance of Measuring Payout Yield: Implications for Empirical Asset Pricing”, Jacob Boudoukh, Roni Michaely, Matthew Richardson and Michael Roberts compare the predictive powers of several alternative measures of company payout encompassing dividends, stock repurchases and stock issuances. Using a maximum sample period of 1926-2003 (with stock repurchase data available only since 1971), they find that: Keep Reading

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