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What Drives Buybacks and Insider Trading?

In their recent paper entitled “Stock Market Anomalies: What Can We Learn from Repurchases and Insider Trading?”, John Core, Wayne Guay, Scott Richardson and Rodrigo Verdi investigate whether the operating accrual anomaly (investor overreaction to the volatile accrual component of earnings) and the post-earnings announcement drift anomaly (investor underreaction to surprising earnings announcements) drive corporate buyback and personal trading decisions of company officers. These insiders are best positioned to detect the emergence of such anomalies. Using data for the NYSE and AMEX over the period 1989-2001, they find that: Keep Reading

Are Individuals Big Picture or Little Picture Traders?

In the April 2005 version of their paper entitled “One Trade at a Time: Narrow Framing and Stock Investment Decisions of Individual Investors”, Alok Kumar and Sonya Lim investigate whether individual traders take an optimizing big picture (How’s my portfolio doing?) or a suboptimizing little picture (How’s this stock doing?) approach to trading. Using a data on the portfolio holdings and trades of a sample of 41,039 individual investors (with demographics) at a large U.S. discount brokerage house during 1991-1996, they conclude that: Keep Reading

Earnings Guidance Lags the Market?

In the June 2005 update of their paper entitled “Is Guidance a Macro Factor? The Nature and Information Content of Aggregate Earnings Guidance”, Carol Anilowski, Mei Feng and Douglas Skinner investigate whether aggregate management earnings guidance predicts future aggregate earnings news and overall stock market returns. Using a sample of 31,320 annual and quarterly management earnings forecasts for 1994-2003 from Thomson First Call, they find that: Keep Reading

What Happens to Stocks Going on the Regulation SHO Threshold List?

What happens to stocks going on the NASDAQ Regulation SHO threshold list during. Does going on the list inhibit further short sales because (more than) all available shares have already been borrowed, allowing price to drift upward? Does it indicate that shorting has been overdone? Or, does appearance on the list scare off potential buyers, driving price lower? Using the  daily NASDAQ threshold lists for June 2005 and contemporaneous daily stock price data from Yahoo! Financewe find that: Keep Reading

Could Failures Point to Success?

The Regulation SHO threshold security lists for the NASDAQ and NYSE flag those stocks for which a significant percentage of short sales are not balanced by borrowed shares. What happens to returns when stocks come off the threshold list? Does coming off the list release pent-up shorting demand, driving price down? Or, does it indicate that shorting has been overdone, with prices subsequently drifting up? Using the  daily NASDAQ threshold lists for June 2005 and contemporaneous daily stock price data from Yahoo! Financewe find that: Keep Reading

Short Sellers: Contrarian or Momentum Traders?

In the July 2005 update of their paper entitled “Can Short-sellers Predict Returns? Daily Evidence”, Karl Diether, Kuan-Hui Lee and Ingrid Werner examine recently available daily short sales data to test whether short-sellers trade with or against the trend and whether they can predict future returns. Using the SEC-mandated tick-by-tick short-sale data for 2,815 Nasdaq-listed stocks from the first quarter of 2005, they find that: Keep Reading

The Disposition Effect as a Driver of Momentum

In the February 2005 update to his paper entitled “The Disposition Effect and Under-reaction to News”, Andrea Frazzini tests whether the “disposition effect” (the tendency of investors to sell stocks that have gone up, not down, in value since purchase) causes stock prices to under-react to bad news when most current holders face a capital loss and under-react to good news when most current holders face a capital gain. Using a database of the holdings of a large class of investors (mutual funds) to estimate reference prices for individual stocks, he ranks stocks according to unrealized capital gains/losses and correlates this ranking with response to corporate news and subsequent return. Based on data spanning 1980-2002, he finds that: Keep Reading

Damodaran Online: Some Serious Education

Professor Aswath Damodaran of the Leonard Stern School of Business at New York University offers on his web site a broad and deep set of financial education materials covering: corporate finance, investment (portfolio) management and valuation. He presents considerable information from his books, such as Investment Philosophies and Investment Fables, including supporting data. For example… Keep Reading

Momentum Investing: Surfing Waves in the Economy?

In their June 2005 paper entitled “Momentum Profits and Macroeconomic Risk”, Laura Liu, Jerold Warner and Lu Zhang examine the connection between momentum returns and the overall economy, using the growth rate of industrial production as a proxy for the economic trend. They use monthly data for a large selection of common stocks listed on the NYSE, AMEX, and NASDAQ from January 1960 to December 2001 to construct ten equally weighted momentum portfolios, ranking on past six-month returns and holding for six subsequent months. They find that: Keep Reading

Uncertainty and Analyst Underreaction

In his recent paper entitled “Information Uncertainty and Analyst Forecast Behavior”, Frank Zhang explores the effects of an increase in information uncertainty (from either volatility of underlying fundamentals or poor information) on the behavior of sell-side stock analysts. He hypothesizes that if behavioral biases cause analysts to underreact to new information when revising their forecasts, they underreact even more as information uncertainty increases. Using dispersion in analysts’ earnings forecasts as a proxy for information uncertainty over the period 1983-2001, he determines that: Keep Reading

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