As the bull market for US stocks approaches its fifth anniversary, we are starting to see signs typically associated with the latter stages of a multi-year advance in equities. Bearish sentiment, widely seen as a contrarian indicator, has dropped to levels not seen in a generation, retail investors are returning to stocks, and the IPO market has been surging. As further evidence, in the name of innovation, Wall Street is once again rolling out risky products that are almost certain to disappoint the unwitting buyer.
Lies, damned lies, and earnings management. If 20% of firms misrepresent economic reality through earnings management, analysts and portfolio managers must protect themselves by knowing how, why, and when individuals lie. Quantitative methods with forensic formulas, such as the Beneish model, offer part of the necessary skills to distinguish earnings manipulation from earnings management.
As most global stock markets have been on a tear of late, we thought it would be timely to ask readers what posed the greatest threat to equity markets. Over 37% of the 974 respondents to this poll believe that a global economic slowdown is the greatest risk to stocks.
A recent study designed to decipher the “black box” of sell-side analyst decision making sheds new light on the driving forces behind two important outputs of their work: earnings estimates and stock recommendations.
Rodney N. Sullivan, CFA, editor of the Financial Analysts Journal, cautions investors against trying to time the market against presidential cycles.
Based on a review of the aggregate filings for the second quarter of 2012, institutional investors added to their holdings in consumer staples and health care stocks while reducing their exposure to the technology and energy sectors.
Due to a phenomenon known as counterfactual thinking, silver medalists are often less happy than Olympians who capture the bronze. Studies show that counterfactual thinking can also influence how finance professionals pick stocks.
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