To Guide or Not to Guide

An investigation shows that investors suffer when firms stop giving quarterly earnings guidance.

The Conscientious Investor

Socially responsible investing is neither as profitable nor as responsible as advertised. But if you insist, here’s how to do it right.

The Hedge Fund as Activist

Do hedge funds improve management of the companies they invest in? A new study by Harvard Business School professor Robin Greenwood and coauthor Michael Schor argues that, in fact, hedge funds create shareholder value through anticipation of change, not necessarily delivering it.

The Bright Side of Bubbles

Despite their cost, speculative bubbles may have an enormous upside, a new book argues.

Long-Term Consumption: A Microeconomic Approach to Studying Asset Pricing

A fundamental economic question is the tradeoff between investment and consumption and how it determines asset prices in the macroeconomy. New research studies the relationship between consumption and asset prices using microeconomic data.

Measuring Stock Market Performance

Total Returns to Shareholders (TRS or TSR) doesn’t reflect a company’s performance or health. What does?

Training the portfolio

Interest is rising in the Treynor-Black model for portfolio selection, which can provide a new application to enterprise-wide portfolio optimisation, says Ross Miller.

M.P.T. – Modern Portfolio Theory

Modern portfolio theory is the philosophical opposite of traditional stock picking. It is the creation of economists, who try to understand the market as a whole, rather than business analysts, who look for what makes each investment opportunity unique. Investments are described statistically, in terms of their expected long-term return rate and their expected short-term volatility. The volatility is equated with “risk”, measuring how much … [ Read more ]

Love Your “Dogs”

Conventional wisdom dictates that businesses invest in their best performing units, and sell, shutter, or siphon off resources from their worst performers. But what if the conventional thinking is wrong? Leading behavioral economists now believe that investing in your “dogs,” or poor performing units, could bring far better returns than investing in your “stars,” or best performing units. It’s a counterintuitive strategy that could lead … [ Read more ]

Is growth good for shareholders?

Jay Ritter finds that shareholder returns are negatively correlated with economic growth.

Hedging Strategies for Uncertain Times

This article describes the concept of hedge funds/alternative investments, many of the different strategies they employ, and their relationship to Modern Portfolio Theory.

Irrational Optimism

No doubt many of you (myself included) will dutifully report to our students that the historical average return for large stocks is about 12% which corresponds to a risk premium of around 8%. (keeping math simple 😉 (see virtually any investment text for these numbers)) However, Dimson, Marsh, and Staunton report that this is probably an overly optimistic number. Not because the expected … [ Read more ]

Full Disclosure

The SEC’s Regulation FD, which required companies to share all important data with all investors – rather than with analysts – has proved controversial. Critics said it would impair analysts’ ability to forecast earnings and create havoc in the markets. Supporters argued that it would merely level the informational playing field. Who was right? One of the first efforts to measure the quantitative effects of … [ Read more ]

The Effects of Dual-class Ownership on Ordinary Shareholders

When Google announced in April that it would go public this year, some investors’ eyebrows rose over the plan to issue a class of super shares to ensure that the founders keep control. Each of the Class B shares reserved for insiders will carry 10 votes; ordinary Class A shares sold to the public will have one vote. Yet shareholders-rights groups have long complained that … [ Read more ]

Socially Responsible Investing: The Eco-Efficiency Premium Puzzle

Does socially responsible investing (SRI) hurt (or help) returns on a risk adjusted basis? Of course theoretically it seemingly should lower pecuniary returns, but empirically it seems that every researcher has a different answer. Now Derwall, Guenster, Bauer, and Koedijk present their views on the argument. The authors form portfolios based on Innovest eco-efficiency scores. The finding? “After controlling for … [ Read more ]

Interpersonal Effects in Consumption: Evidence from the Automobile Purchases of Neighbors

Much research has been devoted to what is often called herding behavior. This is the idea that investors trade just because others are trading. This is often cited as evidence of irrationality by finance behavorialists. (Is that a word? It should be!) Grinblatt, Keloharju, and Ikaheimo examine this type of behavior by looking at car purchases. No, really. … [ Read more ]

Numbers Investors Can Trust

What counts isn’t the bottom line but rather how it is calculated.

The Hard Numbers on Social Investments

The field of social-purpose investing is growing and becoming more sophisticated. Should investors expect lower returns to benefit society? A new Harvard Business School study examines the question.

The Illusory Nature of Momentum Profits

Market efficiency is a tough thing to beat. Go ahead, find an anomaly and then have it torn to bits in future papers. Lesmond, Schill, and Zhou come to the defense of market efficiency and find that the reported profits from momentum investing are minimally overstated and possibly non-existent because of the higher than normal transactions costs involved with the necessary trading. … [ Read more ]

Seeking a Smooth Ride (.pdf)

Four ways to scan for volatility in the mutual fund universe.

Editor’s Note: this is one article in the entire August issue of Fidelity Outlook, which is a .pdf document. So, you will have to scroll down to page 8 (page 6 of the magazine) to read it.