Investing Expertise

Are the stocks recommended by columnists in major business magazines good short-term and/or long-term picks? Can one trade these stocks around the publication event? In their 2006 working paper entitled “The Value of Columnists’ Stock Recommendations”, Dan Palmon, Ephraim Sudit and Ari Yezegel assess the short-term and long-term performance of buy recommendations made by columnists in Business Week (BW), Forbes and Fortune. Sensitive to the fact that magazine availability dates differ from nominal publication dates, they use a range of benchmarks and risk adjustments to measure the abnormal returns of these picks. Using 2,503 buy recommendations from the three magazines made during 2000-2003 along with associated price, fundamentals and benchmarking data, they conclude that: Keep Reading

Why does high short interest indicate future underperformance of stocks? Does the reason suggest a way to refine the short interest signal? In their October 2007 paper entitled “Why Do Short Interest Levels Predict Stock Returns?”, Ekkehart Boehmer, Bilal Erturk and Sorin Sorescu employ two distinct methods to determine which of two hypotheses drives the underperformance of heavily shorted stocks: (1) constraints on short selling, or (2) superior private information of short sellers. These methods combine the level of short interest with the level of institutional holdings (supply of shares available for lending) and with earnings surprises. Using return, short interest, institutional ownership, earnings and related fundamental data for a broad sample of stocks over the period 1988-2005, they find that: Keep Reading

What evidence is there that economically significant financial expertise exists? How can research best discover where such expertise comes from and how it works? In the September 2005 draft of their paper entitled “The Enigma of Financial Expertise: Superior and Reproducible Investment Performance in Efficient Markets”, Anders Ericsson, Patric Andersson and Edward Cokely tackle these questions. Based on review of prior research in the context of a broad perspective on expertise across many fields, they conclude that: Keep Reading

Do the experts who arguably should have the most informed opinions, finance professors, believe that the U.S. stock market is efficient? Do they invest in accordance with their beliefs? In their August 2007 paper entitled “Market Efficiency and Its Importance to Individual Investors – Surveying the Experts”, James Doran, David Peterson and Colby Wright seek to answer these questions via an email-initiated electronic survey of over 4,000 finance professors at accredited U.S. universities and colleges. Using data provided by 642 qualified respondents, they conclude that: Keep Reading

But the market is just unsafe at any speed… Keep Reading

But other people were forecasting even higher… Keep Reading

Predicting Risk analyzing stormy weather… Keep Reading

Taking a break… Keep Reading

Via the semiannual Livingston Survey, the Federal Reserve Bank of Philadelphia solicits forecasts for the S&P 500 index (and many other U.S. economic measures) from economists in industry, government, banking and academia. How good are their forecasts? In his June 2007 paper entitled “Predicting Stock Price Movements: Regressions versus Economists”, Paul Soderlind examines the aggregate stock return forecasting ability of surveyed experts. Using median forecasts for stock market gains during the interval 6-12 months after survey dates and associated actual data for 1952-2005, he concludes that: Keep Reading

In their 2005 paper entitled “A Great Company Can Be a Great Investment”, Jeff Anderson and Gary Smith evaluate the stock returns of companies rated highest in Fortune magazine’s annual surveys of “America’s Most Admired Companies.” Survey respondents are senior executives, directors and securities analysts, and the questions asked seemingly relate indirectly or directly to the investment value of the companies named. Using lists for 1983 (survey inception) through 2004 (a total of 22 years) and associated stock return data for the publicly held companies on the lists, they conclude that: Keep Reading