Do Mutual Fund Flows Really Say What We Think They Say?
For decades, mutual fund flows have been a workhorse variable for understanding investor behavior, market sentiment, and price impact. But what if the way we measure them distorts the story?
Buy and “Hold On for Dear Life”? Think Again!
Today, phrases like “HODL” and “buy the dip” have become rallying cries for equity investors. But is this mindset always correct? Could there come a time when buying dips or holding at all costs turns out to be a mistake? To dig deeper, let’s look at insights from Michael Mauboussin and Dan Callahan’s recent paper, Drawdowns & Recoveries: Base Rates for Bottoms and Bounces, and consider what the evidence tells us about the nature of drawdowns and recoveries.
The Wealth-Insurance Puzzle: Rethinking Risk Coverage and Affluence
A longstanding belief in household finance is that wealthier people should buy less insurance because they can afford to self-insure. But this new research turns that idea on its head. This analysis shows that wealthier U.S. households actually purchase more life and property insurance - not less.
Simplicity May Lead to Too Much Risk Taking
Simpler structures—like low-dimensional lotteries or intuitive cash flows—can actually encourage investors to take on more risk.
Reaching for Yield: What Retail Investors Do When Rates Drop
Younger and less-wealthy individuals are more prone to increasing their exposure to riskier assets in low-interest environments. Investors experiencing losses are more likely to seek higher yields.
The Hidden Effort Problem: Work more and get better results?
Increased executive effort correlates with positive earnings surprises, higher cumulative abnormal returns post-earnings announcements, and narrower credit default swap spreads. Moreover, portfolios constructed based on changes in executive effort demonstrate significant risk-adjusted returns, underscoring the tangible value of diligent leadership.
Raising Capital from Investor Syndicates with Strategic Communication
The structure of investor syndicates—hierarchical or flat—significantly impacts the flow of information and investment decisions. In hierarchical structures, differentiated incentives can lead to persuasive cascades, while flat structures promote truthful information sharing.
Working More to Pay the Mortgage
The study examines how households adjust their labor supply in response to changes in mortgage payments due to fluctuating interest rates.
A Good Sketch is Better than a Long Speech
In the evolving landscape of financial technology, innovative methods are emerging to assess creditworthiness. One such approach involves analyzing borrowers' facial expressions during loan applications to predict delinquency risk. This study explores this novel intersection of psychology, machine learning, and finance.
How Tiny Price Differences Help Track Small Investors’ Trades
This article explains how researchers studied small investors' trading habits by looking at tiny price differences, called subpennies, in stock trades. They found that the current method to identify these trades isn't very accurate. By using a new approach, they improved the accuracy, helping to better understand how small investors buy and sell stocks.
How Trust in Financial Advisors Affects Investment Choices
A study found that when investors trust their advisors more, they are more likely to invest in riskier assets, even if the advisor charges higher fees.
Understanding Financial Inclusion in the United States
This article explores how many American households have retirement and bank accounts, focusing on those with lower incomes.
What is Trend Following? A Painful Journey to Smarter Investing
Trend following, at its core, is a strategy where investors buy an asset when it's going up and sell when it’s going down. But unlike panic-driven investors who sell at the worst possible moment, trend followers adhere to a rules-based approach in an attempt to remove emotion from the equation.
Local IPOs and Household Stock Market Participation
This paper seeks to address three pivotal questions that explore the broader economic and social impacts of IPO activity, particularly its role in influencing stock market participation through localized attention and wealth effects.
Time-Varying Drivers of Stock Prices
This paper examines the time-varying roles of subjective expectations in driving stock price and return variations.
Financial Knowledge in Europe: Women Lag Men in their financial Literacy
This paper examines the level of financial literacy across the 27 EU member states, using data from the 2023 Flash Eurobarometer 525 survey.
Academic Anomalies Formed After Information Events
The hurdles to adding alpha for active managers are getting higher—investment practitioners make use of it as soon as or shortly after it is available.
Reading the WSJ May Make You a Better Economist
How can textual analysis of business news, specifically The Wall Street Journal (WSJ), be used to measure the state of the economy?
Analysts set price targets using trailing P/E ratios
Trailing twelve-month P/E ratios account for 91% of the variation in analysts’ price targets. We construct a new kind of asset-pricing model around this fact and show that it explains the market response to earnings surprises.
Investors trade Cryptos and Trad-Fi Differently
Retail traders are contrarian in stocks and gold, yet the same traders follow a momentum-like strategy in cryptocurrencies. The differences are not explained by individual characteristics, investor composition, inattention, differences in fees, or preference for lottery-like assets. We conjecture that retail investors have a model where cryptocurrency price changes affect the likelihood of future widespread adoption, which leads them to further update their price expectations in the same direction.