Active Managers are Subject to the Same Biases as Individual Investors
Are active managers victims of the same bias as individual investors? That is the question we’ll explore in this paper.
Pulling the curtain back: what do millionaires invest in?
In this article, we examine the academic research about what millionaires invest in.
Does Gender Affect Reactions to Market Sentiment Shifts?
Does gender matter in institutional investing?
Individual Investor Behavior: What Does the Research Say?
Many market commentators, financial advisors, and professionals are quick to point that that individuals are terrible investors. Of course, it's not exactly clear that professionals are much better than individuals, but it is certainly true that most investors should simply buy low-cost index funds (or factor funds!) and gets their hands out of the cook jar. What's nice about this paper is that the assertions that individuals are poor investors -- and exactly why they fail to do well -- are backed by peer-reviewed research. One can leverage these insights to help investors find solutions that will solve their problems and put them in a better position to be successful.
Short Sellers Are Informed Investors
Using multiple short sale measures, we examine the predictive power of short sales for future stock returns in 38 countries from July 2006 to December 2014. We find that the days-to-cover ratio and the utilization ratio measures have the most robust predictive power for future stock returns in the global capital market. Our results display significant cross-country and cross-firm differences in the predictive power of alternative short sale measures. The predictive power of shorts is stronger in countries with non-prohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency.
Which Articles Should You Read on SeekingAlpha.com?
The authors hypothesize that impression management consideration can also significantly determine investors’ conversations. This, in turn, can cause investors to inadvertently propagate noise with wide-ranging implications for the quality of investors’ investment decisions and asset prices.
Can Investment Flows Affect Prices? Yep.
Traditional finance theory suggests that stocks prices always reflect their fair market values based on publicly available information. Or in academic parlance, the "semi-strong" form efficient markets hypothesis serves as the null. What are the implications of this hypothesis? Well, the hypothesis suggests that the only reason a stock price will move is due to a shift in fundamentals (either through a change in expected cash flows or via the discount rate). But what about supply and demand shifts?
Employee Satisfaction and Stock Returns
“Employees are our greatest asset” is a phrase often heard from companies. However, due to accounting rules requiring that most expenditures related to employees be treated as costs and expensed as incurred, the value of employees is an intangible asset that does not appear on any balance sheet. That leaves the interesting question of whether employee satisfaction provides information on future returns.
Behavioral Finance: Does Culture Affect Equity Analysts?
The literature shows that where we come from affects both how we perceive other people as well as how we are perceived by others. These perceptions can also affect economic behavior. In this study, the author analyzes the role of cultural biases in analysts’ stock recommendations in Europe.
Empowering Investors Through Education Actually Works!
Empowering investors through education is a foundational tenet of our firm and a big reason why we write these posts. The article we cover here is a meta-analysis 76 randomized studies on the impacts and design of financial education, a topic we've hit on before. It' almost cliche now to hear parents and educators demand schools take the initiative to make financial education a high priority. However, it's reasonable to ask, does financial education even work?
What Do Mutual Fund Investors Really Care About?
Are individuals just naïve performance chasers, unaware of the financial literature, or are they sophisticated investors? Pretty much.
Do Mutual Funds Increase Disclosure Complexity to Hide Fees?
Do mutual funds create unnecessarily complex disclosures and fee structures to obfuscate weak net performance? Yes.
Value and Momentum Factors? Naw, Focus on the Music Factor!
Can market sentiment be derived from the tunes that your fellow countrymen are listening to? According to the research summarized here you'll find that there is important market information buried in the listening habits of Spotify users.
Can Prospect Theory Explain the Value and Momentum Factors?
Today we summarize an investigation into the usefulness of Prospect Theory and Narrow Framing to evaluate whether a new model can help explain 22 prominent market anomalies.
Should We Never Invest in Individual Stocks?
Due to the surprising headline that treasury bills seemingly outperform stocks, practitioners are starting to ask: Should I invest in individual stocks?
How Crazy is the Current Market? Not that Crazy.
Eric Balchunas had a recent tweet that I found fascinating. Eric's tweet merely captures the tip of the iceberg with respect to the current market environment, which certainly feels "bubbly."[ref]But who knows. If my allocations [...]
The Momentum Factor is Driven by Behavioral Bias, Not Risk
Momentum, Reversals, and Investor Clientele Andy Chui, Avanidhar Subrahmanyam, and Sheridan TitmanReview of Financial Studies, 2021A version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research [...]
Fee Disclosures Can Improve Investor Decision-Making
Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations Kronlund, Pool, Sialm and StefanescuJournal of Financial Economics, 2021A version of this paper can be found hereWant to read our summaries of [...]
A History of Wealth Creation in the U.S. Equity Markets
Hendrik Bessembinder contributes to the literature on the returns to public equity investment diversification benefits with his study “Wealth Creation in the US Public Stock Markets 1926-2019,” published in the April 2021 issue of The [...]
Studying Financial Idea “Infection Rates”
The rate of communication Huang, Hwang and LouJournal of Financial Economics, 2021A version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category What are the [...]