Near-term Stock Research Articles

Investor sentiment by relative strength index and stock return: Empirical evidence on Vietnam's stock market

This article examines how investor sentiment affects stock returns on Vietnam's stock market. Investor sentiment index is measured by a relative strength index (RSI) of 57 companies listed on the Ho Chi Minh Stock Exchange from January 1, 2015 to July 31, 2020. Control variables include investors' stock trading behavior, firm size, and cash flow per share. Using Fama-MacBeth regression estimation and general least square estimation (GSL) on a daily basis, both methods find the sentiment of high investors producing higher stock returns, on the contrary, the sentiment of low investors erodes stock returns. Different from the results of Brown and Cliff (2004) [Brown, G. W., & Cliff, M. T. (2004). Investor sentiment and the near-term stock market. Journal of empirical finance, 11(1), 1-27], the article found that the investor sentiment factor plays the most important role in explaining the return of the stock market compared to the rest of the factors.

Three Pillars of Modern Responsible Investment

Modern responsible investment encompasses three distinct activities: alignment of portfolios with client values, using exclusions; integration of environmental, social, and governance (ESG) factors into the investment process, often with a focus on financial materiality; and impact, which in public markets is usually sought through engagement with corporate management. All three fields are progressing rapidly, and each has a distinctive set of professional practices and supporting empirical literature: The performance effects of typical exclusion policies apparently remain benign, but recent research suggests that information about ESG performance may have important implications for portfolio risk. The emerging evidence on engagement is potentially disruptive, with a small but strong group of papers suggesting that it can positively affect financial and stock market performance, as well as the investment behavior of corporate managers. With new practices and findings emerging in each of these areas, investment professionals will be challenged to keep up with the pace of innovation and, in an increasingly competitive marketplace, to implement these policies at a high standard. TOPICS:Portfolio theory, portfolio construction, ESG investing Key Findings • The field of responsible investment is complex, and modern practice requires that practitioners develop facility in three distinct but related areas, each with its own goals, practices, and empirical literature. This article addresses recent research in these areas, and finds strong empirical support for some practices. • The field of EGS integration is becoming more standardized with the advent of disclosure such as those published by the Sustainability Accounting Standards Board. Many studies document an association between ESG performance and traditional ideas of firm quality, and a few good papers have documented instances where ESG factors were associated with strong investment performance. But many studies have significant methodological shortcomings. With ESG practices becoming more widespread it is not realistic to expect significant performance benefits from typical ESG integration practices. • The UNPRI active ownership mandate has led to a significant increase in corporate engagement efforts. A small but strong group of papers suggests that, when successful, these initiatives have positive impacts on near-term stock price performance of targeted companies, as well as subsequent corporate investment behavior.

COVID-19 and the Power of Discounting in Stock Markets

Using an extended version of the Gordon dividend discount model, the large falls in the U.S. and European stock market assets at the beginning of the COVID-19 pandemic are found to be the result of pricing expected future falls in real economic activity caused by the global shock. The subsequent boom in asset markets and reductions in volatility immediately following this initial fall in stock prices are caused by a strong connection of the central banks' balance sheet extension to the near-term stock market uncertainty. This connection of unconventional monetary policy actions is strongly priced in the U.S. and European markets.

Institutional Trading and Near-Term Stock Returns

Les investisseurs et les commentateurs font fréquemment le lien entre la rentabilité d’un titre financier et le niveau de demande des investisseurs institutionnels pour ce même titre. Il existe désormais un nombre conséquent de publications académiques faisant le lien entre détention par des institutions (ou les variations en ce domaine) et rentabilité ultérieure. Toutefois, la plupart des éléments d’analyse proviennent des États-Unis où les déclarations des investisseurs institutionnels sont publiées à une faible fréquence (au mieux chaque trimestre) et de manière tardive. À l’inverse, notre étude se fonde sur des données exhaustives relatives aux détentions des investisseurs institutionnels anglais, lesquelles sont publiées mensuellement et dans des délais plus brefs. Cela nous permet de procéder à une analyse plus précise et de mieux appréhender les liens à court terme entre les opérations réalisées par des institutions et le rendement des titres. Contrairement aux conclusions américaines, nous ne trouvons aucune indication permettant d’affirmer que ces opérations impactent les cours de manière significative durant le mois, ni qu’elles prédisent la rentabilité d’un titre à court terme. De fait, les portefeuilles qui détiennent des positions longues sur des titres peu négociés par les institutions présentent un rendement mensuel 1 % supérieur à ceux dont les titres sont activement négociés.

Analyst Forecast Momentum

A great number of academic papers evaluate the potential for incentive-driven bias in sell-side analysts' earnings forecasts. Yet bias does not necessarily invalidate a forecast, nor does it impinge on its relative quality. We find that analysts' forecasts are optimistic relative to recently introduced fundamental alternatives. However, analysts' forecasts have lower absolute deviation and the information in their earnings forecasts has predictive value for near-term stock returns. We propose the latter result as a previously unidentified form of earnings momentum. We find that this form of earnings momentum is even stronger for quarterly forecasts than annual forecasts, suggesting that analysts' have particularly strong incentives directed to forecasting quarterly earnings. Investing with optimistic analysts is a rational investment strategy, rather than a misguided one, when the investment horizon is less than one year.

Changes in Investors’ Market Attention and Near-Term Stock Market Returns

Changes in Investors’ Market Attention and Near-Term Stock Market Returns

Changes in Investors' Market Attention and Near-Term Stock Market Returns

abstractWe use Google Search volume to track changes investors' positive and negative market attention. Our results support the hypothesis that this information reflects investors' optimistic and pessimistic anticipation and can be used to predict near-term future returns. We find that changes in negative search term volume of “market crash” and “bear market” and changes in positive search term volume “market rally” explain near-term stock returns. Changes in investors' attention are partly related to past stock market returns, implying that investors are prone to pay attention to possible price reversals. These measures of market attention are potential gauges of investor sentiment.

Myths about Shareholder Value

: The concept of unitary “shareholder value” and its reflection in near-term stock prices formed the centrepiece of contemporary corporate governance up to the 2008 financial crisis. The crisis has elicited both more critical and clearer, book-length accounts of the relationship of law, corporate governance and finance. The concepts analysed in Lynn Stout’s The Shareholder Value Myth are considered herein, as part of a commentary on the continuing evolution of academic corporate law and governance.

Published stock recommendations as investor sentiment in the near-term stock market

This paper investigates the role of published stock recommendations in print and online media as investor sentiment in the near-term German stock market. In line with extant literature on other sentiment measures, vector autoregressions reveal that past stock returns drive today’s sentiment, but not the other way around, and that sentiment is a powerful predictor of itself. In particular, sentiment based on printed analyst recommendations follows reversals, that is, when analysts face a stock market downturn, they see a buying opportunity and become optimistic.

Published Stock Recommendations as Institutional Investor Sentiment in the Near-Term Stock Market

This paper investigates the role of published stock recommendations as institutional investor sentiment in the near-term German stock market using stock recommendations published in both print and online media. In line with extant literature for other countries, vector autoregressive analysis reveals that past stock returns drive today's sentiment, but not the other way around. We further document substantial empirical evidence that sentiment based on stock recommendations published online drives its print media counterpart, which is due to the delay financial news are printed and distributed in newspapers.

Revisiting the risk-taking effect of executive stock options on firm performance

While the relation between equity-based compensation and firm performance has been widely discussed, the findings on how executive stock options (ESOs) affect firm value are still inconclusive. This research examines the risk-taking effect of ESOs on firm performance by taking into consideration managers' personal risk aversion. A three-stage-least-squares approach is adopted to examine a simultaneous system of equations describing option compensation, risk-taking, and firm performance. Evidence confirms that ESOs increase managerial risk-taking, but such risk-taking is constrained by managers' personal risk aversion. In addition, evidence indicates that managerial risk-taking induced by ESOs would increase both long-term and near-term stock returns. The negative impact on near-term and the positive impact on long-term returns on investment imply that it takes time for accounting performance to reflect the risk-taking effect of ESOs. These results further indicate that managers focus their concerns more on stock risk and return rather than near-term accounting results.

Corrigendum to “Investor sentiment and the near-term stock market” [J. Empirical Finance 11 (2004) 1–27

Corrigendum to “Investor sentiment and the near-term stock market” [J. Empirical Finance 11 (2004) 1–27

Corrigendum to ?Investor sentiment and the near-term stock market? 6J. Empirical Finance 11 (2004) 1?279

Corrigendum to ?Investor sentiment and the near-term stock market? 6J. Empirical Finance 11 (2004) 1?279

Investor sentiment and the near-term stock market

We investigate investor sentiment and its relation to near-term stock market returns. We find that many commonly cited indirect measures of sentiment are related to direct measures (surveys) of investor sentiment. However, past market returns are also an important determinant of sentiment. Although sentiment levels and changes are strongly correlated with contemporaneous market returns, our tests show that sentiment has little predictive power for near-term future stock returns. Finally, our evidence does not support the conventional wisdom that sentiment primarily affects individual investors and small stocks.

Investor Sentiment And The Near-Term Stock Market

We investigate investor sentiment and its relation to near-term stock market returns. We find that many commonly-cited indirect measures of sentiment are related to direct measures (surveys) of investor sentiment. However, past market returns are also an important determinant of sentiment. Although sentiment changes are strongly correlated with contemporaneous market returns, our tests show that sentiment has little predictive power for near- term future stock returns. Finally, our evidence does not support the conventional wisdom that sentiment primarily affects individual investors and small stocks.

Stock-based incentive compensation and investment behavior

This paper examines how excessive concern over current stock price can motivate managers to use observable investment decisions to manipulate the market's inferences about the firm. The result can be overinvestment or underinvestment. Shareholders can induce optimal investment choices by structuring managerial compensation to balance both future and present stock-price performance. Our analysis suggests that firms with high/persistent informational asymmetries between managers and shareholders will tend to favor contracts that focus on long-run stock returns (both current and future) over contracts that focus on near-term stock returns alone. Our empirical results, as well as other results in the literature, are generally consistent with this hypothesis.