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Investing Research Articles

Expert Overconfidence?

In media interviews and in their own columns, expert investors often project high levels of confidence regarding their opinion of market direction and their stock recommendations. Are they overconfident with respect to their private information and/or abilities? In their paper “Overconfidence of Professionals and Lay Men: Individual Differences Within and Between Tasks?”, Markus Glaser, Thomas Langer and Martin Weber analyze whether professional traders and investment bankers are overconfident in their judgments to the same degree as non-professionals. Based on testing of 33 professional traders and 90 investment bankers, and of control groups of advanced students specializing in finance and banking, they conclude that: Keep Reading

The 5-Star Kiss of Death

In his paper “The Kiss Of Death: A 5-Star Morningstar Mutual Fund Rating?”, appearing in the second quarter 2005 issue of the Journal Of Investment Management, Matthew Morey examines the performance of mutual funds immediately after first achieving a Morningstar 5-star rating. Focusing on diversified domestic stock funds from July 1993 to July 2001 (273 funds), he concludes that: Keep Reading

Stock Market Forecasting

If your crystal ball has not been working so well… Keep Reading

Do Stocks Ever Hit Analyst Target Prices?

In their March 2005 paper entitled “Do Sell-Side Analysts Exhibit Differential Target Price Forecasting Ability?”, Mark Bradshaw and Lawrence Brown test the accuracy of 12-month stock price targets both for individual analysts and for analysts overall. Using a filtered sample of about 100,000 individual 12-month stock price targets from Thomson Financial over the period 1997-2002, the authors conclude that: Keep Reading

What Makes Shorts Throw in the Towel?

In their February 2005 paper entitled “Holding on to Your Shorts: When do Short Sellers Retreat?”, Pavel Savor and Mario Gamboa-Cavazos examine NASDAQ trades during the period June 1988 through August 2001 to determine the circumstances in which short sellers choose to increase their common stock positions and those in which they choose to cover. They focus on stocks unlikely to have unusual short sale constraints.The authors find that: Keep Reading

The Animal Spirits of Day-Trading

In the March 2005 update of their paper entitled “Fear and Greed in Financial Markets: A Clinical Study of Day-Traders”, Andrew Lo, Dmitry Repin and Brett Steenbarger examine possible links between psychological factors and trading performance in a sample of 80 day-traders recruited from a five-week on-line training program offered by Linda Bradford Raschke. Interaction with study participants occurred via anonymous email and online questionnaires. The authors find that: Keep Reading

The Best Benchmarkers, Ever!

In their April 2005 draft of “History and the Equity Risk Premium”, two pioneers in the definition and measurement of the equity risk premium, William Goetzmann and Roger Ibbotson, recount the history of this essential benchmark for stock investment returns. Then, they update their estimate of its value for U.S. equities over the past two centuries. Their conclusions are: Keep Reading

What It Takes to Drive the Big (Hedge Fund) Rigs

Hedge funds now haul about $1 trillion in capital from opportunity to opportunity around world markets. Hedge fund managers have latitude to operate in ways that mutual fund managers do not in terms of leverage, shorting and types of assets traded (such as derivatives). What makes the best hedge fund managers successful? In their March 2005 paper entitled “Hedge Fund Performance and Manager Characteristics Education and Age Matter…”, Haitao Li, Rui Zhao and Xiaoyan Zhang correlate the background characteristics of hedge fund managers with the performances of their funds. Using a dataset encompassing 1,000+ hedge funds over the period 1994 to 2003, they conclude that: Keep Reading

Technical Trading Thoroughly Tested

In their March 2005 paper entitled “Re-Examining the Profitability of Technical Analysis with White’s Reality Check and Hansen’s SPA Test”, Po-Hsuan Hsu and Chung-Ming Kuan examine the profitability of a very large universe of technical trading rules and strategies against the Dow Jones Industrial Average (DJIA), S&P 500, NASDAQ Composite and Russell 2000 stock indexes. Their approach and findings, using data from 1989-2002, are as follows: Keep Reading

Easy Trader

It is very easy to: (1) set up an account with an online, discount broker; (2) get margin and option-trading privileges; (3) read about hot stocks and funds on the web; and, (4) start trading. Is this process too easy for the average investor? Keep Reading

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