Market Timing Ability and Volatility Implied in Investment Newletters' Asset Allocation Recommendations

We analyze the advice contained in a sample of 237 investment letters over the 1980-1992 period. Each newsletter recommends a mix of equity and cash. We construct portfolios based on these recommendations and find that only a small number of the newsletters appear to have higher average returns than a buy-and-hold portfolio constructed to have the same variance. Knowledge of the asset allocation weights also implies knowledge of the exact conditional betas. As a result, we present direct tests of market timing ability that bypass beta estimation problems. Assuming that different letters cater to investors with different risk aversions, we are able to imply the newsletters' forecasted market returns. The dispersion of the newsletters' forecasts provides a natural measure of disagreement in the market. We find that the degree of disagreement contains information about both market volatility and trading activity.

MCFM for the Tevatron and the LHC

A summary is given of the current status of the next-to-leading order (NLO) parton-level integrator MCFM. Some details are given about the Higgs + 2-jet process and the production and decay of $t \bar{t}$, both of which have recently been added to the code. Using MCFM, comparisons between the Tevatron running at $\sqrt{s}=2$~TeV and the LHC running at $\sqrt{s}=7$~TeV are made for standard model process including the production of Higgs bosons. The case for running the Tevatron until 16fb$^{-1}$ are accumulated by both detectors is sketched.Comment: Talk presented by R.K Ellis at Loops and Legs in Quantum Field Theory 2010, Woerlitz, Germany, April 25-30, 2010, (6 pages and 4 figures

Expectations of Equity Risk Premia, Volatility and Asymmetry from a Corporate Finance Perspective

We present new evidence on the distribution of the ex ante risk premium based on a multi-year survey of Chief Financial Officers (CFOs) of U.S. corporations. Currently, we have responses from surveys conducted from the second quarter of 2000 through the third quarter of 2001. The results in this paper will be augmented as future surveys become available. We find direct evidence that the one-year risk premium is highly variable through time and 10-year expected risk premium is stable. In particular, after periods of negative returns, CFOs significantly reduce their one-year market forecasts, disagreement (volatility) increases and returns distributions are more skewed to the left. We also examine the relation between ex ante returns and ex ante volatility. The relation between the one-year expected risk premium and expected risk is negative. However, our research points to the importance of horizon. We find a significantly positive relation between expected return and expected risk at the 10-year horizon.

Hadronic production of a Higgs boson and two jets at next-to-leading order

We perform an update of the next-to-leading order calculation of the rate for Higgs boson production in association with two jets. Our new calculation incorporates the full analytic result for the one-loop virtual amplitude. This new theoretical information allows us to construct a code including the decay of the Higgs boson without incurring a prohibitive penalty in computer running time. Results are presented for the Tevatron, where implications for the Higgs search are sketched, and also for a range of scenarios at the LHC.Comment: 16 pages, 4 figure

QCD corrections to the hadronic production of a heavy quark pair and a W-boson including decay correlations

We perform an analytic calculation of the one-loop amplitude for the W-boson mediated process 0 \to d u-bar Q Q-bar l-bar l, retaining the mass for the quark Q. The momentum of each of the massive quarks is expressed as the sum of two massless momenta and the corresponding heavy quark spinor is expressed as a sum of two massless spinors. Using a special choice for the heavy quark spinors we obtain analytic expressions for the one-loop amplitudes which are amenable to fast numerical evaluation. The full next-to-leading order (NLO) calculation of hadron+hadron \to W(\to e nu) b b-bar with massive b-quarks is included in the program MCFM. A comparison is performed with previous published work.Comment: 45 pages, 17 figure

The Economic Implications of Corporate Financial Reporting

We survey 401 financial executives, and conduct in-depth interviews with an additional 20, to determine the key factors that drive decisions related to reported earnings and voluntary disclosure. The majority of firms view earnings, especially EPS, as the key metric for outsiders, even more so than cash flows. Because of the severe market reaction to missing an earnings target, we find that firms are willing to sacrifice economic value in order to meet a short-run earnings target. The preference for smooth earnings is so strong that 78% of the surveyed executives would give up economic value in exchange for smooth earnings. We find that 55% of managers would avoid initiating a very positive NPV project if it meant falling short of the current quarter's consensus earnings. Missing an earnings target or reporting volatile earnings is thought to reduce the predictability of earnings, which in turn reduces stock price because investors and analysts hate uncertainty. We also find that managers make voluntary disclosures to reduce information risk associated with their stock but try to avoid setting a disclosure precedent that will be difficult to maintain. In general, management's views provide support for stock price motivations for earnings management and voluntary disclosure, but provide only modest evidence in support of other theories of these phenomena (such as debt, political cost and bonus plan based hypotheses).

Investor Competence, Trading Frequency, and Home Bias

People are more willing to bet on their own judgments when they feel skillful or knowledgeable (Heath and Tversky (1991)). We investigate whether this "competence effect" influences trading frequency and home bias. We find that investors who feel competent trade more often and have a more internationally diversified portfolio. We also find that male investors, and investors with higher income or more education, are more likely to perceive themselves as competent investors than are female investors, and investors with lower income or less education. Our results are unlikely to be explained by other hypotheses, such as overconfidence or information advantage. Finally, we separately establish a link between optimism towards the home market and international portfolio diversification.

Single top production and decay at next-to-leading order

We present the results of a next-to-leading order analysis of single top production including the decay of the top quark. Radiative effects are included both in the production and decay stages, using a general subtraction method. This calculation gives a good treatment of the jet activity associated with single top production. We perform an analysis of the single top search at the Tevatron, including a consideration of the main backgrounds, many of which are also calculated at next-to-leading order.Comment: 35 pages + 15 figures, revtex

Managerial Overconfidence and Corporate Policies

Miscalibration is a standard measure of overconfidence in both psychology and economics. Although it is often used in lab experiments, there is scarcity of evidence about its effects in practice. We test whether top corporate executives are miscalibrated, and whether their miscalibration impacts investment behavior. Over six years, we collect a unique panel of nearly 7,000 observations of probability distributions provided by top financial executives regarding the stock market. Financial executives are miscalibrated: realized market returns are within the executives' 80% confidence intervals only 38% of the time. We show that companies with overconfident CFOs use lower discount rates to value cash flows, and that they invest more, use more debt, are less likely to pay dividends, are more likely to repurchase shares, and they use proportionally more long-term, as opposed to short-term, debt. The pervasive effect of this miscalibration suggests that the effect of overconfidence should be explicitly modeled when analyzing corporate decision-making.