Objective research to aid investing decisions
Menu
Value Allocations for November 2019 (Final)
Cash TLT LQD SPY
Momentum Allocations for November 2019 (Final)
1st ETF 2nd ETF 3rd ETF

Investing Research Articles

T-note Yield Shocks and Stock Returns

A reader notes that many experts are focused on the recent sharp rise in the 10-year Treasury note (T-note) yield, often asserting that such large positive yield shocks are bad for stocks. He asks what the historical data say about the relationship between short-term shocks in T-note yield and future stock returns. Using daily closing T-note yields and daily closing prices for the S&P 500 index since the beginning of 1990, we find that: Keep Reading

Chumming with Sharks?

When hedge funds publicly demand that management of firms in which the funds hold large stakes take steps to improve stock prices, should other investors take notice? Do such demands distract or focus management regarding shareholder interests? In the November 2006 draft of their paper entitled “Hedge Fund Activism, Corporate Governance, and Firm Performance”, Alon Brav, Wei Jiang, Frank Partnoy and Randall Thomas investigate the relationship between hedge fund activism and stock returns. They identify instances of fund activism by (1) searching 2001-2005 news databases for stories mentioning both “activism” and “hedge fund” and (2) analyzing associated SEC Schedule 13D filings, with special attention to the reasons for the transactions as stated in the filings. Using the resulting set of 888 events involving 131 funds and 775 companies, they conclude that: Keep Reading

How Well Do Experts Time Trades of Individual Stocks?

How well do experts perform in timing individual stock trades? In their May 2007 paper entitled “Individual Security Timing Ability and Fund Manager Performance”, David Gallagher, Andrew Ross and Peter Swan define individual security timing ability as the proportion of potential returns obtained by a trader over the holding period and measure this ability for a set of active Australian equity fund managers. Using a unique database of daily trades and monthly portfolio holdings for 30 fund managers from January 1996 through December 2001, they conclude that: Keep Reading

Value Versus Growth Among Large European Firms

Does value beat growth among the stocks of large European firms? In their May 2007 paper entitled “Style Migration in the European Markets”, Antti Pirjetä and Vesa Puttonen compare the performances of simple value and growth styles against MSCI Europe as a benchmark index. They employ a market value-book value ratio (P/BV) to define four style portfolios formed at the end of 2001 and held for five years: (1) median value, consisting of companies with P/BV below the median; (2) median growth, consisting of companies with P/BV above the median; (3) 30-70 value, consisting of companies with P/BV in the bottom 30%; and, (4) 30-70 growth, consisting of companies with P/BV in the top 30%. Using stock return and accounting data for more than 500 of the largest European firms over the period 2001-2006, they conclude that: Keep Reading

The Long and Short of Beta

Beta measures the volatility of a stock with respect to the broad market. However, after accounting for the value premium and size effect, the generally accepted beta has no predictive power for future stock returns. Is that all there is to beta? In their May 2007 paper entitled “Long-Term and Short-Term Market Betas in Securities Prices”, Gerard Hoberg and Ivo Welch decompose beta into short-term (the last 12 months) and long-term (one to ten years ago) components and investigate whether these components can separately forecast stock returns. Using daily stock prices and financial data for a large sample of companies (an average of over 3,300 firms per month) over the period 1962-2005, they find that: Keep Reading

The 52-Week High as a Momentum Indicator for Individual Stocks

A reader notes and asks: “It is frequently said that stocks at 52-week highs are the most likely to outperform in the future. Is there any academic evidence to support this assertion?” In their October 2004 Journal of Finance article entitled “The 52-Week High and Momentum Investing”, Thomas George and Chuan-Yang Hwang examine the explanatory power of the 52-week high in the context of momentum investing. They compare the 52-week high as a momentum indicator to benchmark momentum strategies that employ six months of past returns to forecast six months of future returns. Using price data for a broad range of stocks over the period 1963-2001, they find that: Keep Reading

Inflation, Monetary Policy and the Stock Market

What conditions lead to stock market booms and busts, and how does monetary policy relate to boom-bust transitions? In the May 2007 version of their paper entitled “Monetary Policy and Stock Market Booms and Busts in the 20th Century”, Michael Bordo, Michael Dueker and David Wheelock examine the relationship between monetary policy and stock market booms/busts in the U.S., U.K. and Germany during the 20th century. They define booms (busts) as periods of at least 36 (24) months from trough to peak (peak to trough) with at least 10% (20%) average annual increase (decrease) in real stock prices. Using monthly inflation-adjusted stock price indexes, they conclude that: Keep Reading

Does Customer Satisfaction Translate to Excess Stock Returns?

Do companies with high marks for customer satisfaction outperform as investments? Or, instead, does making customers happy crimp profit margins and stock returns? In their January 2006 Journal of Marketing article entitled “Customer Satisfaction and Stock Prices: High Returns, Low Risk”, Claes Fornell, Sunil Mithas, Forrest Morgeson III and M.S. Krishnan investigate the relationship between customer satisfaction as measured by the American Customer Satisfaction Index (ACSI) and stock returns. ACSI measurements are updated annually for each company rated. Using ACSI ratings for publicly traded companies during 1994-2004 and associated firm accounting and stock price data, they find that: Keep Reading

Increased Reliability for Buyback Announcements?

Since the mid-1980s, stock repurchases have increasingly displaced dividends as a means for companies to return cash to the equity market. Buybacks affect stock prices by reducing the the denominator in the earnings per share calculation, thereby elevating the value of shares still outstanding. However, firms that announce buybacks may not actually execute them, or may execute them only partially. Are stock buybacks, due to increased information transparency, more reliable now than they used to be? In his recent paper entitled “The Effect of Enhanced Disclosure on Open Market Stock Repurchases”, Michael Simkovic examines whether the SEC requirement that companies disclose repurchase activity on a quarterly basis as of 2004 has increased the likelihood that firms will follow through on buyback announcements. Using repurchase activity data over the 20 months after each of 365 buybacks announced during 2004 for comparison with data from two pre-disclosure studies, he concludes that: Keep Reading

The Trading Wire at ChangeWave

As suggested by a reader, we evaluate here the Trading Wire archives at Tobin Smith’s ChangeWave, which extend back to November 2004. Tobin Smith, according to ChangeWave.com, is “among an esteemed new breed of investment advisors, with a fresh profit strategy for the post 2000-2002 bear-market investing world. He’s an energetic straight shooter with a simple goal: exceptionally large profits from sweeping, transformational changes taking place within industries or individual companies.” As complement to analysis of “sweeping, transformational changes,” the Weekly Forecast section of ChangeWave’s Trading Wire offers commentary on stock market direction. The principal author of this weekly forecast is ChangeWave’s Chief Technical Analyst Sam Collins. The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that: Keep Reading

Daily Email Updates
Login
Research Categories
Recent Research
Popular Posts