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Jack Schannep on Market Timing and Current Market Conditions

Our Guru Grades section ranks a group of 29 stock market experts according to our assessments of the accuracy of their stock market forecasts. Since Jack Schannep has been in the upper tier of the list since inception, we asked him to encapsulate his thinking on market timing as a guest entry for this blog. He graciously agreed. Here is Jack Schannep on market timing: Keep Reading

Global Pricing of Large-capitalization Stocks?

As worldwide economic participation broadens and deepens, are large companies (more than small companies) becoming internationally owned and therefore priced? In other words, are large companies subject to a worldwide equity risk premium while small companies remain moored to local risk premiums? In his paper entitled “Financial Integration and the Price of World Covariance Risk: Large vs. Small-cap Stocks” (forthcoming in the Journal of International Money and Finance), Wei Huang investigates whether global pricing is peculiar to large-capitalization stocks. Using three size-based stock portfolios for nine developed countries (Australia, Netherlands, Canada, France, Germany, Italy, Japan, U.K. and U.S.) over the period 1980-2004, he concludes that: Keep Reading

VIX as an Indicator for Different Kinds of Portfolios

Implied volatility, represented by the CBOE Volatility Index (VIX), incorporates the bets of speculators on future stock market behavior. In the April 2006 revision of their paper entitled “Implied Volatility and Future Portfolio Returns”, Prithviraj Banerjee, James Doran and David Peterson examine whether the predictive power of VIX applies to specific portfolio characteristics (value versus growth, small versus large and beta) and whether variations in VIX with respect to its short-term mean are predictive. Using data from June 1986 through June 2005 and future return periods of 22 and 44 trading days, they find that: Keep Reading

Predicting Stock Returns Not with Volatility, But Volatilities

Conventional wisdom holds that high (low) overall stock market volatility forecasts high (low) stock returns, as a fundamental reward-for-risk phenomenon. In their March 2006 paper entitled “Understanding Stock Return Predictability”, Hui Guo and Robert Savickas investigate a refinement to volatility-based prediction of stock market returns by combining the effects of realized overall market volatility and the average realized idiosyncratic volatility of individual stocks. They theorize that: (1) overall stock market volatility reflects the volatilities of both cash flow shocks and discount rate shocks; (2) overall stock market volatility overstates discount rate shock volatility; and, (3) average idiosyncratic volatility, which reflects the volatility of discount rate shocks only, corrects this overstatement. Using quarterly overall and idiosyncratic volatilities from 1927 through 2005, they conclude that: Keep Reading

Classic Article: Seer-Suckers, or the Efficient Everything Hypothesis

In his article entitled “The Seer-Sucker Theory: The Value of Experts in Forecasting” from the June/July 1980 issue of Technology Review, Scott Armstrong investigates the general supply of and demand for expertise across several disciplines. Based upon his survey of decades of research in multiple fields (including financial markets, psychology, health care, politics, sports), he concludes that: Keep Reading

Expert Political Judgment: How Good Is It? How Can We Know? (Chapter-by-Chapter Review)

In his 2005 book Expert Political Judgment: How Good is It? How Can We Know?, Philip Tetlock describes the results of his long-term systematic measurement of the forecasting abilities of political experts. These results include insights into the critical success factors of forecasting. Making the very small leap that these insights apply also to experts in economics and financial markets, we offer here a chapter-by-chapter review of the insights in this book: Keep Reading

Ken Fisher on Market Analysis

Guru Grades ranks a group of 29 stock market experts according to our assessments of the accuracy of their stock market forecasts. Since Ken Fisher, CEO of Fisher Investments, has been at or near the top of the list since inception, we asked him to encapsulate his thinking on anticipating financial markets. He graciously agreed. Here is Ken Fisher on market analysis: Keep Reading

An Analysis of NFI FTDs: Regulation SHO Fails to Deliver

An investor recently obtained from the Securities and Exchange Commission (SEC) via the Freedom of Information Act a daily record over an extended period of aggregate Fails-to-Deliver (FTDs) known to the agency for NovaStar Financial Inc. (NFI). FTDs occur when brokers do not match short sales with shares to borrow within a specified number of business days. NFI investor Millerd1 suggested that there should be relationships between the FTDs for NFI and its total short interest, stock trading volume and stock price. Here are three hypotheses to test: Keep Reading

Who Reads Yahoo! Message Boards?

We get a varying flow of traffic from Yahoo! message boards, usually from boards of “Cramerized” stocks to either our review of Jim Cramer’s market timing record or our evaluation of his stock picking ability. Who reads these stock boards? Using a sample of 212 unique Internet Protocol (IP) addresses for readers recently visiting from five different Yahoo! message boards, we find that: Keep Reading

The Secret Ingredients of Top Analysts?

What makes a guru, or analyst, good? The research on this question is predominantly “technical” rather than “fundamental,” focusing on performance and performance persistence rather than process (hence, the frequent use of the word guru, implying mystical insight). In their preliminary and incomplete paper of November 2004 entitled “Determinants of Superior Stock Picking Ability”, Michael Mikhail, Beverly Walther, Xin Wang and Richard Willis seek to identify the determinants of consistent analyst stock picking outperformance. Using a sample encompassing 268,170 recommendations issued by 4,923 analysts for 7,845 firms during 1985-1999 from Zacks Investment Research, they tentatively find that the best analysts tend to: Keep Reading

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