Investment Strategies

How Macroeconomic Conditions Affect Stock Prices

John Cochrane of Stanford has written an excellent review of recent advances and future research directions in macro-finance. Macro finance studies the relationships between asset prices (e.g. the level of the stock market) and economic conditions (e.g. whether we’re in a recession or a boom). These relationships are important. For example, if investors are more …

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Translating the New USS Pension Rules Into Plain English

Andy Haldane, the Chief Economist of the Bank of England, said that pensions are so complex that even someone “moderately financially literate” like he can’t understand them. This complexity certainly applies to pension tax rules when combined with changes to the Universities Superannuation Scheme (for employees of UK universities): despite being a finance professor, it’s taken …

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Predicting Mutual Fund Performance Using (Legal) Inside Information

How does an investor choose which mutual fund to invest in? She’ll want a measure of the fund manager’s skill, and the most natural measure is his past performance. But, a ton of research has systematically found that past performance doesn’t predict future performance – it’s irrelevant in choosing a mutual fund. How can this …

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Underperformance of Companies Holding Meetings in Remote Locations

If a company has bad news that it wishes to hide, where will it hold its shareholder meeting? As far away as possible! That’s the hypothesis of an ingenious paper entitled “Evasive Shareholder Meetings”, by Yuanzhi Li (Temple) and David Yermack (NYU Stern) that I saw at the Rotterdam Workshop on Executive Compensation and Corporate Governance yesterday. …

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Profiting from momentum strategies – Part 2

The previous post concerned momentum – a strategy of buying past winners and selling past losers. It discussed how this strategy does well on average, but on rare occasions (recent market downturns and high market volatility) does very poorly. Another reason why momentum may perform poorly is because other investors are chasing the same strategy. One of …

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