Cash Flows, Earnings Quality, & Stock Returns
July 6, 2008
The Unknown Professor submits:
One of my original purposes in starting my blog was to create a place to keep track of things I came across on the Web that might be useful in my classes. I just found another one: "Cash Flow Is King: Cognitive Errors by Investors" by Todd Houge of U of Iowa and Tim Loughran of Notre Dame. Here’s the abstract:
When investors fixate on current earnings, they commit a cognitive error and fail to fully value the information contained in accruals and cash flows. Extending the accrual anomaly documented by Sloan [1996], we identify significant excess returns from a cash flow-based trading strategy. The market consistently underestimates the transitory nature of accruals and the long-term persistence of cash flows. We find that the accrual anomaly derives from the poor performance of high accrual firms, which are more likely to manage earnings. Combining the accrual and cash flow information also reveals that investors misvalue the quality of earnings. Contrary to Fama [1998], these anomalies are robust to the three-factor model with equally or value-weighted portfolio returns.
Cash Flows, Earnings Quality, & Stock Returns
Dow Jones Returns Ranked by President Since 1929
July 6, 2008
Paul Kedrosky submits:
People seem to be in a historical frame of market mind this weekend, so here is a chart of Dow Jones index returns by U.S. president since Herbert Hoover obtained office in 1929. Note that I have given this result in compound annual terms to compensate for the differing lengths of presidential terms over the period.
As an aside, while President Bush is currently running neck-and-neck with Jimmy Carter for the third-worst presidential market returns in history, President Bush is the leader of the pack as far as worst market returns go for two-term U.S. presidents.
Dow Jones Returns Ranked by President Since 1929
It’s Contraction - Not Stagflation
July 6, 2008
Stockerati submits:
Let’s first define what stagflation means:
Stagflation is the state of an economy where inflation combined with stagnation locks a society into slow-to-negative economic growth and rising unemployment, invariably including recession.
It’s Contraction - Not Stagflation
The Perils of Market Timing
July 6, 2008
Tim Price submits:
“Let Wall Street have a nightmare and the whole country has to help get them back in bed again.” – Will Rogers.
Congratulations to Goldman Sachs for a particularly (un)timely call on Marks & Spencer. The brightest firm on Wall Street (this construction is known in English as an oxymoron), having had the stock as a "Buy" recommendation all the way down from 745p, finally pulled the plug last week at 235p. All things being equal, we can now expect a counter-analytical bounce.
Mid-Year Report: Is a Summer Turn-around Still Possible?
July 6, 2008
Phil Davis submits:
I did an Index Round-Up way back on December 31st, last year where I said the following:
Mid-Year Report: Is a Summer Turn-around Still Possible?
Global Market Performance: Nowhere to Hide
July 6, 2008
Prieur du Plessis submits:
White knuckles and shaky knees abound as the bear’s growl grows louder.
While on the road in Switzerland (where even the gnomes are gloomy), I have put together a table of global stock markets’ performance – over various measurement periods and in both local currency and U.S. dollar terms. The numbers speak for themselves and can best be summarized in a single sentence: “Nowhere to hide.” The Wall Street “leash effect” remained paramount, and decoupling nothing more than a theoretical myth.
Global Market Performance: Nowhere to Hide
US Dollar Gets an Independence Day Boost from Europe
July 6, 2008
Grace Cheng submits:
Two weeks ago, the Euro had rallied strongly against the US dollar in the currency markets on the expectation that the ECB would embark on a series of interest rate increases, but all that changed last Thursday on July 3rd. That day, the ECB raised the main refinancing rate by a quarter-percentage point to 4.25%, a move widely expected by the market.
But when Trichet said during the press conference that he has “no bias” toward more rate hikes in the future, the Euro came tumbling down - really hard - against the US dollar. He maintained that the ECB will keep an eye on second round inflation effects, but smartly chose to publicly shift to a neutral stance for the sake of balancing economic and inflation risks in the Eurozone.
US Dollar Gets an Independence Day Boost from Europe
Fear, But No Panic, at the Market Disco
July 6, 2008
Brett Steenbarger submits:
The Dow has been moving to bear market lows and the number of NYSE common stocks making fresh 52-week lows has taken out its March peak, but so far investors seem to be seeing this as more credit-related sin than tragedy. I’ve mentioned in the past that there have been spikes in traffic on my blog at recent intermediate-term lows (August, November, January, March). No such spike has yet occurred during the market drop.
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