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.

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.

Inter-pregnancy weight change impacts placental weight and is associated with the risk of adverse pregnancy outcomes in the second pregnancy

Peer reviewedPublisher PD

A 50 year old with a rapid neuropsychiatric deterioration and choreaform movements

A 50-year-old man presented acutely to the hospital with behavioural disturbance, choreiform movements and profound nihilistic delusions. He reported recent drug and alcohol abuse, and also apparent involvement in several recent criminal activities, for which he felt he should be punished. He arrived alone at the hospital after a concerned neighbour had called an ambulance. His initial level of agitation prevented formal cognitive testing. However, he was alert, verbally responsive and could obey commands. He was afebrile with normal observations and normal plasma glucose. Although his examination was challenging, the only abnormal neurological findings were bilateral choreiform upper limb movements

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.

DNA methyltransferase candidate polymorphisms, imprinting methylation, and birth outcome

Peer reviewedPublisher PD

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.

Using areas of known occupancy to identify sources of variation in detection probability of raptors: taking time lowers replication effort for surveys

Species occurring at low density can be difficult to detect and if not properly accounted for, imperfect detection will lead to inaccurate estimates of occupancy. Understanding sources of variation in detection probability and how they can be managed is a key part of monitoring. We used sightings data of a low-density and elusive raptor (white-headed vulture Trigonoceps occipitalis) in areas of known occupancy (breeding territories) in a likelihood-based modelling approach to calculate detection probability and the factors affecting it. Because occupancy was known a priori to be 100%, we fixed the model occupancy parameter to 1.0 and focused on identifying sources of variation in detection probability. Using detection histories from 359 territory visits, we assessed nine covariates in 29 candidate models. The model with the highest support indicated that observer speed during a survey, combined with temporal covariates such as time of year and length of time within a territory, had the highest influence on the detection probability. Averaged detection probability was 0.207 (s.e. 0.033) and based on this the mean number of visits required to determine within 95% confidence that white-headed vultures are absent from a breeding area is 13 (95% CI: 9–20). Topographical and habitat covariates contributed little to the best models and had little effect on detection probability. We highlight that low detection probabilities of some species means that emphasizing habitat covariates could lead to spurious results in occupancy models that do not also incorporate temporal components. While variation in detection probability is complex and influenced by effects at both temporal and spatial scales, temporal covariates can and should be controlled as part of robust survey method