Pub Date : 2023-06-30DOI: 10.3905/joi.2023.32.4.001
Brian R. Bruce
{"title":"Editor’s Letter","authors":"Brian R. Bruce","doi":"10.3905/joi.2023.32.4.001","DOIUrl":"https://doi.org/10.3905/joi.2023.32.4.001","url":null,"abstract":"","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"1"},"PeriodicalIF":0.6,"publicationDate":"2023-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45643307","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Edward N. W. Aw, Gregory Y. Sivin, Konstantin Tcherepachenets
Earnings calls increase the amount of public information available to analysts, improving their ability to forecast future earnings with more precision. Hence, participation in an earnings call is pivotal to analysts’ ongoing research process. Prior research has examined how corporate managers disseminate up-to-date information via earnings calls and press releases, often focusing on subsequent investor reactions to the newly announced information. In this study, we are interested in answering how and why corporate managers share up-to-date information. Indeed, we argue that an analyst who is aware of a corporate manager’s motivation during an earnings call is more prepared to assess the newly announced information.
{"title":"How Do Corporate Managers Explain Quarterly Earnings?","authors":"Edward N. W. Aw, Gregory Y. Sivin, Konstantin Tcherepachenets","doi":"10.3905/joi.2023.1.276","DOIUrl":"https://doi.org/10.3905/joi.2023.1.276","url":null,"abstract":"Earnings calls increase the amount of public information available to analysts, improving their ability to forecast future earnings with more precision. Hence, participation in an earnings call is pivotal to analysts’ ongoing research process. Prior research has examined how corporate managers disseminate up-to-date information via earnings calls and press releases, often focusing on subsequent investor reactions to the newly announced information. In this study, we are interested in answering how and why corporate managers share up-to-date information. Indeed, we argue that an analyst who is aware of a corporate manager’s motivation during an earnings call is more prepared to assess the newly announced information.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"30 - 38"},"PeriodicalIF":0.6,"publicationDate":"2023-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44178708","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article addresses the questions of when are outstanding price targets and recommendations most useful for investors, and how should investors interpret inconsistent price targets and recommendations? There are four key conclusions. First, recommendations pertain more to the quality of a stock, while price targets pertain more to the valuation of a stock. Second, price targets are more useful than recommendations for forecasting returns. Third, high price targets are most predictive of returns when they are accompanied by unfavorable recommendations. And fourth, investors who use price targets and recommendations in their investment process may benefit from also incorporating individual analyst data.
{"title":"When and How Are Analysts’ Price Targets and Recommendations Useful?","authors":"Haim A. Mozes","doi":"10.3905/joi.2023.1.275","DOIUrl":"https://doi.org/10.3905/joi.2023.1.275","url":null,"abstract":"This article addresses the questions of when are outstanding price targets and recommendations most useful for investors, and how should investors interpret inconsistent price targets and recommendations? There are four key conclusions. First, recommendations pertain more to the quality of a stock, while price targets pertain more to the valuation of a stock. Second, price targets are more useful than recommendations for forecasting returns. Third, high price targets are most predictive of returns when they are accompanied by unfavorable recommendations. And fourth, investors who use price targets and recommendations in their investment process may benefit from also incorporating individual analyst data.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"9 - 29"},"PeriodicalIF":0.6,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46681616","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
For decades pension actuaries and accountants have calculated the funding necessary to secure pension obligations—and have done so in a manner that systematically underestimates the funding required to make such obligations secure. This mismeasurement is a significant contributing factor to today’s funding crises among state, municipal, and Taft-Hartley pension funds. Economists have long known of this problem, and have attempted to increase awareness and encourage action to address the problem. But they mostly have been ignored, and sometimes demonized, by those who control how these calculations are done. Using the lens of organizational psychology, this article strives to understand how this could be.
{"title":"Making Sense of Pension Liability Measurement Using Organizational Psychology","authors":"John R. Minahan","doi":"10.3905/joi.2023.1.273","DOIUrl":"https://doi.org/10.3905/joi.2023.1.273","url":null,"abstract":"For decades pension actuaries and accountants have calculated the funding necessary to secure pension obligations—and have done so in a manner that systematically underestimates the funding required to make such obligations secure. This mismeasurement is a significant contributing factor to today’s funding crises among state, municipal, and Taft-Hartley pension funds. Economists have long known of this problem, and have attempted to increase awareness and encourage action to address the problem. But they mostly have been ignored, and sometimes demonized, by those who control how these calculations are done. Using the lens of organizational psychology, this article strives to understand how this could be.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"92 - 103"},"PeriodicalIF":0.6,"publicationDate":"2023-05-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44383350","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"An Open Letter to Investment Consultants","authors":"Richard M. Ennis","doi":"10.3905/joi.2023.1.274","DOIUrl":"https://doi.org/10.3905/joi.2023.1.274","url":null,"abstract":"","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"6 - 8"},"PeriodicalIF":0.6,"publicationDate":"2023-05-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42325779","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Waman Virgaonkar, Abhishek Gupta, Ashish Lodh, M. Alighanbari
An equity analyst’s opinion of stocks summarizes how a variety of different forces (such as geopolitical, macroeconomic, country, industry, and company-specific) and their interaction may affect the future performance of a company. In this article, we constructed an analyst-sentiment factor that tracks changes in analyst expectations, and then examined its relationship with global equity performance. We also sought to define the analyst-sentiment factor and learn about its stability and performance. Our analysis revealed that analyst sentiment has been a robust and differentiated investment factor with strong associated risk premiums. It exhibited unique characteristics and information relative to traditional equity style factors such as value, quality, and momentum.
{"title":"Analyst Sentiment as a Factor Consideration","authors":"Waman Virgaonkar, Abhishek Gupta, Ashish Lodh, M. Alighanbari","doi":"10.3905/joi.2023.1.272","DOIUrl":"https://doi.org/10.3905/joi.2023.1.272","url":null,"abstract":"An equity analyst’s opinion of stocks summarizes how a variety of different forces (such as geopolitical, macroeconomic, country, industry, and company-specific) and their interaction may affect the future performance of a company. In this article, we constructed an analyst-sentiment factor that tracks changes in analyst expectations, and then examined its relationship with global equity performance. We also sought to define the analyst-sentiment factor and learn about its stability and performance. Our analysis revealed that analyst sentiment has been a robust and differentiated investment factor with strong associated risk premiums. It exhibited unique characteristics and information relative to traditional equity style factors such as value, quality, and momentum.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"59 - 73"},"PeriodicalIF":0.6,"publicationDate":"2023-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41784957","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Identifying equity funds that are likely to outperform remains a daunting task for capital allocators. Traditional portfolio analyses provide useful insights into how a fund is being managed, but offer little clarity on the potential for ongoing success. Active share and position count were introduced as metrics that identify funds that will generate excess returns via skilled management. But this article argues that these metrics provide no information regarding future fund performance or manager skill. We further propose that active share and position count do more to relieve unconscious anxiety provoked during the allocation process than to enhance rigorous judgment.
{"title":"When Unconscious Desires Motivate Fund Selection: Active Share and Position Count May Do More to Relieve Angst Than Identify Skill","authors":"Michael A. Ervolini, Andrew R. Tuttle","doi":"10.3905/joi.2023.1.271","DOIUrl":"https://doi.org/10.3905/joi.2023.1.271","url":null,"abstract":"Identifying equity funds that are likely to outperform remains a daunting task for capital allocators. Traditional portfolio analyses provide useful insights into how a fund is being managed, but offer little clarity on the potential for ongoing success. Active share and position count were introduced as metrics that identify funds that will generate excess returns via skilled management. But this article argues that these metrics provide no information regarding future fund performance or manager skill. We further propose that active share and position count do more to relieve unconscious anxiety provoked during the allocation process than to enhance rigorous judgment.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"48 - 58"},"PeriodicalIF":0.6,"publicationDate":"2023-05-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43782572","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The hallmark of a big market delusion is when the stock prices of all the firms in an evolving industry rise together, even though they are in direct competition with one another and with established firms in the industry. Investors become so enthusiastic about the market that they price each firm as if it will be a major success story. As a result, the aggregate value of the industry exhibits a fallacy of composition in which the sum of the parts (the market values of the individual firms) exceeds any reasonable estimate of the value of the business. The result is that prices become unsustainable. Over time, as data on actual sales and earnings become available, stock prices of the vast majority, if not all, of the companies in the “big market” decline. The case of the market for light duty electric vehicles provides a perfect illustration of the rise and fall of a big market delusion.
{"title":"Big Market Delusion: The Case of Electric Vehicle Stocks","authors":"Bradford Cornell, S. Cornell, A. Cornell","doi":"10.3905/joi.2023.1.270","DOIUrl":"https://doi.org/10.3905/joi.2023.1.270","url":null,"abstract":"The hallmark of a big market delusion is when the stock prices of all the firms in an evolving industry rise together, even though they are in direct competition with one another and with established firms in the industry. Investors become so enthusiastic about the market that they price each firm as if it will be a major success story. As a result, the aggregate value of the industry exhibits a fallacy of composition in which the sum of the parts (the market values of the individual firms) exceeds any reasonable estimate of the value of the business. The result is that prices become unsustainable. Over time, as data on actual sales and earnings become available, stock prices of the vast majority, if not all, of the companies in the “big market” decline. The case of the market for light duty electric vehicles provides a perfect illustration of the rise and fall of a big market delusion.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"39 - 47"},"PeriodicalIF":0.6,"publicationDate":"2023-05-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45182419","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
With significant changes in environmental policies across the globe, battery metals will likely play an important role in the transition to a “carbon neutral” global economy. Given that the automobile industry has been pushed towards reducing the carbon footprint of its products, and electric vehicles are becoming more mainstream, both investment professionals and academic researchers must understand how battery metals may impact enterprise performance and financial asset prices in the automobile industry. This article both provides an overview of the EV/Battery Metals landscape and reports on initial empirical research into the asset pricing/returns implications. This research sheds light on how prices of battery metals may impact automobile manufacturer’s equity prices, and thus can aid investment professionals in formulated strategies related to the megatrend of electrification. Although the results of the battery metal regression modeling fail to provide robust support for either a “production-cost effect” or an “EV-demand effect”, this research does provide a stepping stone for both academics and practitioners. Battery metals supply, geographic distribution of reserves, environmental concerns, and proper hedging mechanisms are all fertile ground for additional research.
{"title":"Sustainability and Electrification of the Automobile Industry: Battery Metals and Equity Returns","authors":"R. Burney, Robert N. Killins","doi":"10.3905/joi.2023.1.269","DOIUrl":"https://doi.org/10.3905/joi.2023.1.269","url":null,"abstract":"With significant changes in environmental policies across the globe, battery metals will likely play an important role in the transition to a “carbon neutral” global economy. Given that the automobile industry has been pushed towards reducing the carbon footprint of its products, and electric vehicles are becoming more mainstream, both investment professionals and academic researchers must understand how battery metals may impact enterprise performance and financial asset prices in the automobile industry. This article both provides an overview of the EV/Battery Metals landscape and reports on initial empirical research into the asset pricing/returns implications. This research sheds light on how prices of battery metals may impact automobile manufacturer’s equity prices, and thus can aid investment professionals in formulated strategies related to the megatrend of electrification. Although the results of the battery metal regression modeling fail to provide robust support for either a “production-cost effect” or an “EV-demand effect”, this research does provide a stepping stone for both academics and practitioners. Battery metals supply, geographic distribution of reserves, environmental concerns, and proper hedging mechanisms are all fertile ground for additional research.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"63 - 78"},"PeriodicalIF":0.6,"publicationDate":"2023-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49384344","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article empirically demonstrates the continued forecasting effectiveness of a simple theory modeling expected stock returns as the sum of the earnings yield on the S&P 500 (measured as the highest past annual earnings on the index divided by the current index value) and a market-based forecast of the inflation rate. Besides having retained its significant one-to-one relationship with subsequent excess annual stock returns, this model’s estimate of the equity premium is discovered to have a correlation of 0.85 with S&P 500 excess returns over subsequent five-year intervals ever since market data for the estimator became available in 1997.
{"title":"The Continued Forecasting Effectiveness of a Real Earnings Model of the Equity Premium","authors":"A. Murphy, Zeina Alsalman","doi":"10.3905/joi.2023.1.268","DOIUrl":"https://doi.org/10.3905/joi.2023.1.268","url":null,"abstract":"This article empirically demonstrates the continued forecasting effectiveness of a simple theory modeling expected stock returns as the sum of the earnings yield on the S&P 500 (measured as the highest past annual earnings on the index divided by the current index value) and a market-based forecast of the inflation rate. Besides having retained its significant one-to-one relationship with subsequent excess annual stock returns, this model’s estimate of the equity premium is discovered to have a correlation of 0.85 with S&P 500 excess returns over subsequent five-year intervals ever since market data for the estimator became available in 1997.","PeriodicalId":45504,"journal":{"name":"Journal of Investing","volume":"32 1","pages":"112 - 119"},"PeriodicalIF":0.6,"publicationDate":"2023-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48364950","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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