Large sample studies of buy-side investment recommendations have been virtually impossible to execute due to a lack of data. But a new research paper relies on a novel data set compiled by the private social networking website SumZero to show that buy-side stock picks influence asset prices by bringing new information to the marketplace. The authors also find evidence of “wealth transfers” flowing from the broader institutional marketplace to the investment firms represented on SumZero.
Risk on! This has been the investor battle cry since stocks bottomed out in the fall of 2011, and global equities have been on a tear ever since, with many major indices rallying 20% or more. Investors seem to be discounting signs of a resurgent U.S. economy, indications that the crisis in Europe may be contained, and a soft landing in China. Or maybe they are just fed up with the paltry yields offered by bonds.
To say that last year was annus horribilis for the Indian economy is an understatement. With inflation above 9%, the Reserve Bank of India raised key interest rates several times only to see GDP growth projections drop to the 6%–7% range. Nonetheless, a panel of financial executives felt sure that with a few policy tweaks the year 2012 will be better than 2011.
Ten years ago investment community luminaries met to discuss the equity risk premium. Now in a new Research Foundation of CFA Institute monograph state of the art thinking about the equity risk premium is presented for the benefit of investors worldwide.
Clifford D. Mpare, CFA, discusses which African nations have the most improved macro environments and how these factors can support equity investments. Mr. Mpare also explores valuation of African equities including long-term trends, sectors of interest, and company case studies, as well as the importance of diversification.
At the beginning of each year, most leading brokerage houses and many prominent investors issue market forecasts. As we approach the saturation point, it is worth pondering whether these forecasts merit the attention of professional investors.
Robert Jenkins, FSIP, cites the flaws in the traditional return on equity (ROE) measure in measuring bank financial performance and proposes some much needed alternatives.
The recent public debuts of companies that have shown great revenue growth but little to no earnings, such as Groupon and LinkedIn, were reminiscent of the dot-com bubble of the late 1990s, and there is a natural temptation to get caught up in the hype. For this reason, it is as important as ever for analysts to rely on the fundamental principles of investing and valuation. And the discounted cash flow (DCF) model is a great place to start.
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