Notesale: Turn your study into money

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Table of contents

Aims and objectives
...
6
Reality and markets
...
9
The world of finance
...
12
Fundamentalists and technical analysts
...
15
The fate of falsificationism
...
17
Competition, markets and FTSE 250
...
22
Algebraic relations
...
23
The translation effect of the month
...
25
Other effects
...
28
Fundamental Analysis
...
29
FTSE Companies analysis
...
34
Results and analysis
...
37

Trading Activity and Securities Lending
...
42
Discussion
...
55
Price / Book
...
62

Chapter I: Introduction

The FTSE 250 is a price index and represents 17 percent of the market capitalization
of the London Stock Exchange (LSE)
...
Corporate actions such as
stock splits do not have a (distorting) effect on the index
...


The investment universe includes all companies with headquarters in the UK, which
are listed on the London Stock Exchange
...
The composition of the FTSE 250 is reviewed quarterly
in March, June, September and December
...
60 points
...
In recent
decades, they adhere to the notion that the predictability of returns on financial assets
is not necessarily inconsistent with the theory of efficient markets
...
Even the theoretical models of asset pricing such as
CAPM (Capital Asset Pricing Model) and the CCAPM (Consumptionbased Capital
Asset Pricing Model) imply that variability in expected returns
...
Campbell and Shiller (1988), for example,
have shown the existence of a relationship that binds the log dividendprice ratio to
expected excess returns
...
Empirical studies made on the issue of predictability yield results
confirming or refuting its existence
...
An interesting
fact is that, in general, there is an inverse Ushaped distribution of the coefficient of
determination (R2) of the model visàvis the horizon of predictability
...

In this work, we address the existence of predictability and the power of the
dividendprice ratio to explain future returns on financial assets
...
To account for the problem of bias due to finite sample and serial correlation in
returns aggregate, in the formulation of statistical tests on regression coefficients, we
used three methods for calculating standard deviations: Hansen and Hodrick ( 1980),
Newey and West (1987) and Hodrick (1992)
...
For cons, the coefficient of determination we obtained a wide variation in results
with the sample
...
By runs the contribution of our work:

We hypothesized that this variation in results may be thinking of some changes in
diet
...
In applying these data to two other models, we
obtained the largest R2 for all samples and all walks of life
...
06 from the first model, a value of 0
...
27 from the last
...


The statistical quality of least squares estimators (OLS) is bad because there is a
socalled feedback (see Mankiw and Shapiro, 1985): Innovation yield is correlated
with innovationdividend ratios price
...
However, in finite sample, it results in
greater or lesser means
...
Following the traditional practice in econometrics to deal with
endogenously problems, we tried methods of instrumental variables estimation using
instruments such as variabledividend ratio of robust prices
...
The plan of the report has three sections: the first
presents the motivations for the subject work, the second is devoted to a brief review
of the literature, and the third describes our models with the empirical results
...
The literature on
the ability to predict returns on financial assets is already very large
...
In other words, it allows agents to choose the asset allocation of
their portfolios in a more efficient rather than taking the unconditional expected
returns
...
Variability in expected returns is related to
the remuneration of risk assets
...


Chapter II: Literature review

In recent years, from environment for experts, financial markets have become the
daily bread of millions and tens of millions of people
...


Before long, fast growth of the stock exchanges in developed countries and emerging
markets, with the collapse of the '97'98 now seen as a brief, enriched whole
populations
...


In this paper I do not care to go into the psychological factors behind these episodes
of rapid growth and, so far, even more rapid collapse
...


I am interested in addressing methodological issues but, in the sense of the term, the
development of financial markets, discussing some of the most classic and popular
themes of philosophy of science in the light of Internet trading, trying to see if any
age of human thought, as a very well known indeed philosophical questions, can help
you better understand firsts, truth unexplored, as the Nasdaq, and price / earnings ratio
to three digits
...
What epistemologist, even those that are lowered to discuss economy,
would be to compare Plato with Wall Street, Popper with ecommerce? On the other
hand, traders who would want to investigate issues such as Hume's problem, the
existence of synthetic judgments a priori? Smelling right away that it is difficult to
extract from the Kantian categories indication as to which title to sell short and give
up
...
Not surprisingly, the works that deal

with philosophical aspects of financial markets at least partially out typically during a
crash (see Soros, '98), as saying the financial interest in philosophy is strongly
anticyclical
...


Reality and markets

Let us begin from the most classical problems of philosophy tout court, and
philosophy of science in particular
...


On this front, the position of everyone associated with the financial market would
seem obvious: you can not work on something that does not exist outside of us and
the presence of many subjects to reveal the existence of the market outside the
subject's mind (if a traders do not went to bargain, for sure will not disappear for this
action, the fences of trading, computers etc
...


But the matter becomes more complicated if we discuss the status of scientific laws
...
Anyone who wants to build that bridge or the road will
only consider those same objective factors
...
Not so in economics
...
Models that
take no account of the process of formation of expectations, as the jargon, would not

even browsed by a referee
...
But if the
opinions that agents have on the economy in any way modify the operation of the
laws themselves, which is their epistemological status? Are subsumed by social
psychology? Really disappear when agents do not think? It is far more thorny
problem of the existence of the physical world, which, pace of some eccentric
philosopher, nobody can argue
...
The development of giants who control large shares of each
economic sector is endangering the existence of laws 'impersonal'
...


The rate of interest, such as return on money capital, is a centuriesold phenomenon,
not to be confused with the operation of monetary policy that have some weight from
a few decades
...
The fact that
even without the Fed or the ECB rates would have a certain pattern (typically
procyclical) is now almost forgotten
...


The line between objective and subjective is thus increasingly thorny and impalpable
...
This brings back the
law, objective because it definitely makes it anonymous or subjective because it
resulted in a psychological game between governors and investors?

An economist might observe that, ultimately, the whole economy is not controlled by
anyone
...
Otherwise,
it would, as often heard, punished by the markets, which today embodies the role of

bloodthirsty gods, all with a side of human sacrifices, and priestly castes acts to
strengthen their domain
...
Every man has some
degree of knowledge and belief on the work of the economy and some undoubtedly
seek to take advantage of this knowledge
...
And if you have a very confident design, and limited human mind, that is if
you are an orthodox economist, will take every man a computer that processes
perfectly rational adjustment in the input and output certain extracts
...


All this does not affect per se the existence of objective processes
...
It would be the
suggestion that a rational being so irrational use knowledge in his possession
...
The
rational agents will use the real economic theory (which by happy coincidence is
accepted by the proponents of this theory, namely the hypothesis of rational
expectations)
...
In any case, everybody will do the best with the information
he has
...
If,
for example, a person knows that its competitor decides how much and what to
produce based on the advice of a soothsayer, will be optimal for him to try to know
these tips, you believe it or not
...


However, it remains a problem in the competition standard textbooks, what a
competitor is completely indifferent to others; many supposed competitors (maybe
only the potential, if the markets are 'contestable')
...
The state of the art today is that the central bank, corporations, unions, or
any other agent of any economic model, which are not players in some form of
prisoner's dilemma
...
In fact, the objective value that
has the view that a player makes on others? Perhaps that is comparable to a law of
universal gravitationfaith belief that the other player confess to keep the name of the
original game, or rather not confess? Or it follows from the rationality of the agents
their behavior, instead of the game and then you can put the equation that sums up
how things work (typically a few AS with the Phillips curve attached), or discussing
the likelihood of types of staff members, or simply the theory reduces to the opinions
of the players that determine the outcome of the whole process
...
The large number of players seems so
affect the nature of economic laws: the less people the less significant the law
...
Which highlight the epistemological status somewhat uncertain and varied,
comparing it with the construction of rockclassical mechanics or relativity? In part
this depends on the changing role and content of the two branches of human
knowledge, but partly the fault of epistemology itself, which, as we shall briefly
confused more often than it clarifies
...
It seems rather that in the vast majority of cases the
school epistemological choice is ex post, on the basis of current fashion, the circle of
friends that the student finds himself in the department of philosophy or something
...
The competition has long since given way to some
form of explicit coordination between the producers (oligopoly, government) central
banks and other authorities will ensure, sometimes with success, the orderly
development of money circulation, credit flows capital
...
Not
surprisingly, the study of strategic interaction is based on an analysis of oligopoly
(Cournot), while the laws of competition, as impersonal and not 'strategic', have
always been shaped by analogy with the laws of natural science
...
Macroeconomics, which speaks of production as we were back in the
days of steam and coal, smells strongly of old
...
For example, no person can eat a ton of bread a day
...


But what about money? Is there an inherent limit to 'demand' money? Ultimately,
when the money is converted into commodities, yes, but it is still a boundary elastic
and vague, compared to our quintal of bread
...
In capitalism, there
is an obvious tendency to deal only with money
...
The financial promises, and
seems to maintain the compression of discomfort until his removal by means of a

virtual world, detached from residues of barbarism such factories, unions, warehouses
full of goods, taxes
...
of the animal spirits
...
Both these factors help to replace the laws
with that of the actions and expectations of the protagonists
...
Not only is that, but the structure of theories
increasingly derived from the characteristics of finance
...
The world of
finance, for its part, has no principled position on economic theory
...


The privatization of state enterprises has been an excellent source of profit, but so
were government bonds years ago
...
A central bank 'independent' lowers inflation, but has
never been an independent central bank from the world of finance? The central bank
is 'independent' only to the voters and, in part, of political power, but never by the
financial system which is the parent loving and obedient servant along, then the huge
body of literature on the independence of the central bank does not affect particularly
on financial life
...


In addition, the total lack of realism on which the modern science of economics is
built (improbable hypothesis, borrowed from mathematical technicalities most
advanced and abstruse, weak and inconclusive findings)
...
This makes
them impervious to all that is clear and unambiguous [ 1 ]
...


On the other hand, economists can not even more influential, at least not directly, to
end the recession in one country or halve unemployment in another
...
The market can launch a title assault (and even a country), can inject a
huge amount of liquidity in an area causing a boom
...
First, because the more sober operators reflect on
inflation, unemployment standards of macroeconomists, but mainly because, over
time, the financial analysis has developed their own theories, in some cases, are
strictly objectivist
...
) Precisely
defined fundamentalists and analysts are based on the shape of the graph a title,
deriving operational guidelines
...
Use a particular configuration graphical
and numerical (the presence of four waves to predict the fifth, the proportion of the
Fibonacci numbers, etc
...

Technical analysts do not discuss any hidden variables behind the movement of
prices, so that would seem logical to assume that all their science is reduced to
predictions that selffulfilling
...
According to many current economic, philosophical and, in
this coordination, however, expectations can not reverse the underlying trend of the

markets
...


Technical analysis is based on the study of a chart, adds a lot of theories that motivate
it (the waves of Gann, Elliot cycles etc
...
And here the
epistemologist should intervene to settle the whole, if only he had clear ideas
...
The last school
that claimed to distinguish between science and metaphysics based on a simple
criterion, unique and immediate perception, was the falsification
...
In this sense, the analysis technique is a boon for a
falsifications epistemologist, because it provides simple and practical operational
guidance: the title will still fall, so the title will go up
...

There is a theory of technical analysis that is not falsified hundreds and thousands of
times every year
...
And yet
...
No denial, as uncontroversial, appears to reduce the rise
...


On the other hand, the falsification, as we say, is shipwrecked in the first place in
science 'hard', physics, chemistry, and why the theory of finance should go under the
gauntlet of a school abandoned by all? And, on the other hand, there are perhaps

alternative criteria to falsification? Popper has demolished his previous ones (the
'verifications', analytic philosophy, etc
...
So, what help can come from the
philosophy of science who wants to attack the scientific status of cycles, waves, etc
...
? Basically, you comment macroeconomist a desolate old school;
there are millions of people who read horoscopes? This does not make them less hot
air
...
To get
out before the fall will begin to sell
...
There were no first, there are now
...
At this point, the
technical analyst could boast of another correct prediction
...
But still the basic
philosophical aspect: the ability of special finance, but also in other sectors of the
economy, to make predictions selfrealizing
...
If Greenspan announced tomorrow to be sure that the U
...
stock
market will collapse by the end of the year, which would happen on Wall Street?
Economists call 'announcement effect' the role of these statements, which are so
palpable that the process has been described previously institutionalized action of
economic laws
...
In the middle
Ages the alchemists believed in the existence of a stone that can transmute base metal
into gold
...
Ricardo would have argued for different reasons and a neoclassical
economist
...


On the other hand, even economists who do not start from the costs of production but
by the scarcity to determine the value of the goods would reach the same conclusion:
the relative scarcity same for iron and gold, then the same price
...


The analogy with a theory that draws its power from being believed is evident
...
The
sense of technical analysis: gain of others, we would lose and revert to a situation we
say the full efficiency of the markets in which no one can expect, on average, do
better than his neighbour
...


The fact remains that the central hypothesis of all modern macroeconomics, the
efficiency and optimality of markets, which results in the rational use of information
(rational expectations), collides headon with any technique which would take
evidence to anticipate the market
...
It is easy to
conclude that because there are those who make financial advice and the market
anticipates a profit every day, the macroeconomy will be ruined and the operational
theory is the theory of finance to follow, based on this hasty epistemological criterion
of demarcation
...


The fate of falsificationism

He said the inability of falsification in directing the development of science, at least in
the battle between technical analysis and economics true
...
Although after the war, at
least for a few years, most scientists have made a profession of faith falsificationist
(especially in the social sciences, as always the most provincial), the falsification has
never governed the fate of any discipline
...


We are not even agree with the idea borrowed from the sociology of knowledge and
theory of anarchism that Feyerabend's methodological theory is successful only on the
basis of political considerations, the advertising prowess of its members, etc
...
The total rejection of this idea, following the
decline of old and new falsification (Popper, Lakatos) did not lead to a better
criterion, but a fragment of the philosophy of science in the sociopolitical analysis is
often very poor, in linguistic studies or simple, yet fundamental, true description of
the history of science (Kuhn)
...
The fact remains that
the great positivist and neopositivist project to demarcate in an objective, irrefutable,
science by talk has failed
...
For example, the incredible waste that Popper's role (reaching to
claim that knowledge is only deductive) has crippled the ability of modern
epistemology to understand the real development of science
...

Facts and theories

The relationship between information, especially if unexpected, and movements of the
markets once again binds to the methodological reflection 'classic' of the relationship
between facts and theories
...
) Within a population of agents who all have the same idea on the same
link
...


Behind this idea is the hypothesis, derived as stated by the New Classical
Macroeconomics, that rational agents make choices based on the 'true model' (and
only) the economic system corresponding precisely to the model proposed by the
NMC itself
...


However, there are several theories that contend the economic agents with mixed
success and changing
...
There are thus two aspects:

a) outside of a theory, an event can not be understood
...
This is again the reflexivity, Soros
...


The history of philosophy of science, briefly outlined above, has taught us that there is
no irrefutable method of choosing between rival theories
...


Establish the existence of different theories is not enough
...
It has been said that many schools have
come to the epistemological denial of the existence of facts per se, outside of a theory
...
The
relationship between facts and theories is very complex, but you can find a way to
make them 'live'
...

Ultimately, the theories will come from a generalization of those facts in the light of
some general principle
...
But the history of science shows that a Darwinian view is not suitable to
explain the success of a theory, not even in the long run
...


On the one hand, nor can any information be interpreted by itself, outside of a context
that permits its assimilation, or outside of a theory
...
But this is typically a long and difficult process
...
According to orthodox macroeconomics,
for example, voluntary unemployment is at odds with the rationality of agents and
therefore should be rejected by hypothesis
...


So during the crisis of 200405 then the monetarists (Lord Robbins, etc
...
Decades later, the crisis passed, their heirs (Friedman and others) have
been able to say that monetarism explained well the crisis of '2004
...
In the social sciences

settle theoretical disputes, while remaining within their logical validity, is not only
difficult, it is completely useless
...


This is further complicated by the fact that it acts in the financial markets, as
mentioned, the reflexivity, which simply means that, often for a long period, agents'
beliefs can strongly influence the markets
...
In the end, the opinion of Kalecki,
that the economy consists of theoretical laws that no one has verified and empirical
laws that nobody can explain, it is even too optimistic
...
This revolution was staged with metaphors, as the war of all against
all, blood circulation, the laws of motion that recall similarities with a physical law or
with the evolution of species because it worked so impersonal
...


In finance, the process is more developed and, much to the dismay of romantics who
mythologized the Internet, online trading is a help for the elephants, not for the ants
(excluding one ant in a thousand that precisely become an elephant)
...
In its most abstract and idealized, microeconomics has continued to repeat
the old litany of no business, achieving results for a topology or an algebra, stripping
for a trader
...
Competition denied the
medieval guilds monarchical absolutism
...
The
monopolies retain the basic structure of capitalism, but reproduce the problems at a
higher level, just as Einstein’s physics and also keep denying the fundamental

principles of classical mechanics leading to a higher level of scientific understanding
of the universe
...
So, boom, boom, we are moving towards a bright future without recessions
and without worries
...
As mentioned, despite three thousand years of debate and research,
philosophy can not prove either logically or empirically the existence of a giant
bubble over the skies of New York
...
To argue about what is not, therefore, that return to the archaic and prehistoric
fundamental laws of functioning of capitalism
...


Chapter III: Methodology

Algebraic relations

Some of the literature on financial economics seeks to derive the relationship between
expected returns and financial variables and / or macro
...
2
...
If we rewrite
the right side of this equation as a nonlinear function of the log dividendprice ratios

δt −1  d t −1 − pt −1 et δt  d t − pt

(Lowercase letters signify the respective capitals of log) and log dividend growth rate

∆d t  d t − dt −1 and then we make a Taylor expansion around the first order
point δt −1  δt  δ =constant; ∆d t  ∆d =constant (see appendix 1’annexe I), we get
approximation :
(1
...
2)

rt ≈ k  δt −1 − ρδt  ∆dt

δt ≈ rt 1
 ρδt

1

− ∆d

t 1

−k

≈ rt 1
(1
...
3) δ t

 ρrt 2  ρ2δ t  2 − ∆ d t 1 − ρ∆d t 2 − k − ρk

δt ≈ r

t 1


...
− ρi ∆d t  i 1 − k −
...
2
...
2
...

The Halloween indicator

The custom Sell in May and go away, also known as the Halloween indicator, seems
to have very deep roots in time, especially in Europe, where it has been known since
1694 [75]
...

Bouman and Jacobsen (2000) we find evidence in 36 of the 37 markets studied in the
United Kingdom and even if such evidence is stronger, we can say that the European
continent in general, the summer holidays seem to bring a strong seasonality of
returns
...
In particular it is
possible to examine whether the market is closed when you change the speed of the
processes that generate the price trend
...
French (1980) analyzing the performance of the
shares in the period 19531977, showed that the returns tend to be negative on
Monday, while on other days of the week tend to be positive
...


Recent literature, however, seem to point out that the effect of the weekend is no
longer detectable in recent years: Kamara (1997) shows that the S & P 500 has no
significant effect Monday after 'April 1982, and Steeley (2001) that' UK weekend
effect has disappeared in the 90s
...
Lakonishok and Smidt (1988) showed
an increase in the profitability of the shares in exchange for the month, intended as the
last working day of the month and three days later
...
Evidence in the
Japanese market, this phenomenon was provided by Ziemba (1991): in this case the
turn of the month is given by the last five days and the first two months
...


Baron himself, in the study of calendar anomalies [77], notes that the Italian market
exhibits a welldifferentiated performance in the first and second part of the calendar
month, in fact, stock prices decreased in the first part of the calendar month and then
increased in second part, concurrently with the closing and the opening of two stock
market cycles
...
Among the
possible explanations for this phenomenon are, on the one hand the fact that the
payment of wages at the end of the month can affect the demand for securities, the use
by other institutional investors to concentrate their purchases at the end of month,
Findings from the correspondence of the press
...
A study by Jacobs and Levy (1988) shows that 35% of the
growth of share prices in the period 196382 has been scored in the eight days before
holidays each year
...


Other effects

In addition to those examined so far (the socalled calendar anomalies), are presented
in the literature also other types of financial market imperfections, related to different
aspects
...


The fact that the sun tends to accompany a positive business days, in fact, seems
attributable to the argument in the second part of this work, where we analyzed the
components of emotional and irrational investors, which mean the market has a
somewhat mood
...

The effect of S & P 500 has been documented by Harris and instead Gürel (1986) and
Shleifer (1986)
...
This type of
abnormality contributes to shoulder the EMH, since the announcement of a listing
within a directory, it is an information, but without any new content, and therefore
this evidence constitutes an important exception efficiency assumption of the theory
regarding the incorporation of information into prices
...
Among the first to speak was to
Reinganum (1981), who explains that the riskadjusted performance of smallcap
companies is on average higher by 20 percent
...
Fama (1965) gives the first definition of market efficiency A financial
market is said efficient if and only if all available information for each financial asset
traded on this market is immediately incorporated into the price of this asset
...


Thus, Fama (1970) distinguish three forms of efficiency: efficiency in the weak sense
(weak hypothesis) efficiency under semistrong (semistrong hypothesis) and finally the
efficiency in the strong sense (strong hypothesis)
...
The definition given by the
informational efficiency is based on Fama several assumptions rarely verified in
practice
...
This definition
focuses on the fact that economic agents present in the financial market can not

engage in arbitrage, ie profits without risk
...


The null hypothesis is a hypothesis and attached including the efficiency and validity
of the model training courses
...

We are interested in the weak form of efficiency in which all Informational includes
past values of the variable of interest
...


For understand this hypothesis, various tests are available, such as walking tests
random courses, autocorrelation of returns or predictability from other variables
...
S
...


However, few of these studies use data intraday
...
Our
study focuses on the series intraday returns of securities listed on the Paris stock
exchange (CAC40 and MIDCAC) the period January 1999 to December 2000
...
We present the first section tests used in
the empirical analysis of the return series
...


A brief presentation of the tests In accordance with the definition of efficiency in the
weak sense, it is impossible to predict future returns from past returns
...


Chapter IV: Results and analysis

Fundamental Analysis

In the currency market fundamental analysis is based on the macroeconomic situation
observed in both a country and globally and in the analysis of how changes in the
economy affecting supply and demand for a particular currency, also influence your
interest rate
...


The publication of macroeconomic data is undoubtedly one of the factors, observed
more closely by the fundamentalists
...
If the published data is not substantially
different from the previous forecast, probably nothing will happen particular
...


The speed of reaction to the publication of data and the emergence of the phenomenon
known as discounting future information is made evident in the stock market
...
The publication of data expected
by all will not have a priori great influence on the market, as insurance that has
already been priced into the exchange rate
...


From the standpoint of fundamental analysis, decisions on monetary policy conducted
by the monetary authorities, also gives them a high
...


In the currency market also influence the most tragic events such as wars, terrorist
attacks or disasters of different kinds
...
S
...


Also, comments or statements from members of the teams in the government, heads
of central banks or those with influence on monetary policy
...
A worsening of the
political situation may lead to a violent withdrawal of invested capital and an increase
in currency prices
...
It was introduced by
Welles Wilder and also has been used since the beginning of technical analysis as a
component of many technical indicators trading systems as well
...
This indicator is typically maintained at low levels in market
situations where tunnels defined can be seen also common after a soaring when the
underlying is consolidating
...
The first to draw
conclusions by observing the average true range is as follows: The higher the level of
the indicator the more likely that the shift occurs and the lower the level of this lowers
the probability that there is a change trend
...


In studies using data ex post forecasts of the two types of analysts (the leaders and
followers) have the same level of accuracy and quality are equal
...
Butler and
Lang (1991) refines the analysis leading to O'Brien the same finding of no significant
differences in differential prediction However, making it clear that some analysts have
a greater propensity to be optimistic, while others suffer from a bias opposite
...


FTSE Companies analysis

The first criterion to assess the competence of an analyst is of course the quality of its
flow forecasts in other words what is its ability to forecast the most accurate as
possible at a given time? It is possible to measure the average precision of its
forecasts when corporate profits are known by calculating the error average forecast
for the year
...


This test has the advantage of being objective and easily measured by researchers
...


The idea here is to consider an analyst revises his information new
...
This test meets the first since in this case, if the forecast is not systematically
biased, its predictions should appear ex post more accurate
...


For example, sellside analysts are advised to frequently review generate brokerage
and revisions are based not on information consistently reliable
...
For these reasons particular, this criterion should be used
sparingly
...


The best analyst is one who has more power over the market in the sense that its
opinion would have systematic and important lessons securities on which it gives its
opinion
...
The
latter joined the first criterion of New since the authority of an analyst is essentially
the quality of recommendations it issued in the past and his work as an analyst
...
This is a review professional as the Wall Street
Journal, Euromoney or AGEFI made in France publish annually a list of the top
analysts in a sector
...


The problem with this type of record is they are like beauty contests with strategic
behavior analysts can remember the good memories of managers before they disclose
their opinion
...
Stickel's approach is to

compare the performance analysts Institutional Investors (the AllAmericans, rated
AA), in terms of accuracy of forecasting, frequency and impact on prices, with the
performance of analysts that are not this group (Not AllAmericans, denoted NAA),
over the period 20072008
...


The test results show that AA analysts are more accurate than analysts NAA
...
In addition, upward revisions affect AA
Price more important than the upward revisions to the NAA
...


Leone and Wu (2002) were also interested in the performance of analysts listed in this
list
...
The
results show that analysts AA emit more accurate predictions and are less optimistic
than analysts NAA, and the abnormal returns around their recommendations are
higher than those of NAA
...
Analysts tend AA also away from the consensus and do not
adopt mimetic behavior
...


Analysts leaders make more profitable recommendations Desai, Liang and Singh
(2000) are interested in another aspect of the business analysts Financial considered
the best, ie making recommendations purchase and sale
...


Each year before the publication of results contest, the three elected analysts are
interviewed by the Wall Street Journal and past investment recommendations are
published
...

D’Avolio (2002) examines supply lending charges and displays that ‘growth’ and
‘lowmomentum’ supplies are somewhat more probable to be ‘special’ (i
...
have
higher than mean lending fees), premier to functional adversities and charges in
conceiving the long/ short component portfolios discovered in the investment
literature
...
(2002) investigate a personal database of US securities lending
...
The authors find that the expectedreturn distinction
between unconstrained component portfolios discovered in the publications and
portfolios that investors could really contain is considerably lesser than the
unconstrained component portfolios’ documented profitability
...


The publications therefore disclose a growing body of clues that shortsellers are well
acquainted, and that highlyshorted supplies subsequently present poorly
...
However, an perception of the scrounging charges, constraints and
dangers of shorting are furthermore emphasised, and these weaken any dealing
possibilities that might arise
...
However, some components assist to dwindle the connection between portions
on lend and portions traded short
...
A visual examination of the convention of portions on lend over time discloses
that for some businesses, there is a clear cyclical convention of expanding portions on
lend round the time of the bonus record date
...


This pattern shows bonus levy arbitrage, and is especially speaking for portions with
high bonus yields
...
We are adept to decrease the influence of bonus levy arbitrage by omitting
time span round the bonus record for each company
...

For the time span advised, 35 of the FTSE 350 businesses paid no dividends
...
To the span that the counterparties to these deals hedge their places by
shortsales, the securities on lend database will contemplate this activity
...

While this is likely, it is illicit and we suppose that in an evolved and wellregulated
market for example the United Kingdom, the consequences is negligible, isolated and
after the scope of substantial leverage on this study
...
For demonstration, a comprehending of scrounging for
dividendarbitrage and for the arrest of voting privileges is only disclosed through
investigation of supply lending data
...
2 and 4
...


Results and analysis

We consider the frequency and circulation of supply lending amidst UK FTSE 100
and FTSE 250 companies
...
Table 1 presents the mean
number of portions on lend at any time:

Constituent Companies, September 1st 2003 to September 27th 2004

Statistic

Max
...


Mean

Value

A
...
08

9
...
10

4
...
24

2
...
51

1
...
76

3
...
61

6
...
71

2
...
73

1
...
63

0
...
14

2
...
43

1
...
68

3
...
Distribution excluding periods around dividend record dates
FTSE 100

15
...
94

6
...
69

3
...
08

Table 1 displays a smaller grade of supply lending for FTSE 250 catalogue
constituent businesses than for FTSE 100 businesses at all points of the distribution
...


Asquith and Moelbroek (1996) report that most companies have less than 0
...
Two causes for the larger grades of portions
on lend shown overhead are that shortinterest will, to all intents and reasons, be a
subset of portions on lend figures; and that there has been considerable development
in hedge finance assets since Asquith and Moelbroek’s study
...

Assets accessible for use in long/ short equity schemes have outgrown equity market
capitalisation throughout this period
...
Weighting identically each business in the FTSE 350,
we assess the signify percentage of portions on lend for each day, as shown in Figure
1
...
04
0
...
03
0
...
02
0
...
01
0
...
5% at the start of
the time span to over 3
...
This might contemplate the
market situation current throughout the time of the study: share charges were usually
increasing as markets proceeded to retrieve from the ‘bear market’ of 20002002, and
these higher share charges might have captivated more shortsellers
...
(2001)
...
By rather than weighting by market
capitalization, the every day signify percentage of portions on lend becomes usually
higher, mirroring the larger percentage of portions on lend amidst the bigger, FTSE
100 companies
...
We
furthermore desire to check if the span of bonus arrest schemes rises with the
dimensions of the bonus and if it is associated to the cost and alleviate of securities
borrowing
...
We can furthermore observe
from the database that the worth of scrounging in those businesses with the utmost
market capitalization is large in cash periods, therefore helping largescale bonus
capture
...


DivYldi is bonus yield for business i, calculated as signify of the annualized bonus
yield described on Data stream for each day in the experiment period
...

εi is an mistake term
The anticipated indications of the coefficients α and β are both positive
...
Table 2 summarises the results
...
Regression Results for Dividend Capture Ratio

Number of Observations

96

Adjusted R2

0
...
98

Significance of F

1
...
0007

1
...
12

Significance of tstatistic

2
...
0005

1
...
12

0
...
265

We find very highly statistically important clues of an affirmative connection between
bonus yield and levy arbitrage undertaking, but manage not find statistically important
clues of a connection between market capitalization and bonus levy arbitrage
...
Shortsellers are worried with the cost of dealing, and
more fluid supplies are probable to have smaller dealing costs
...
Forced
buying can have significant market influence, and this can be exploited by ‘predatory
traders’ (see Brunermeier and Pederson, 2004)
...
Miller (1977) theorises that when shortselling is
guarded and investors’ anticipations are heterogeneous, the most hopeful investors
will own all the portions in a business, and their approximates of the fairvalue of a
supply will be overhead that of the mean investor
...


Trading undertaking can be a proxy for dissimilarities in attitude amidst market
participants, and therefore very powerfully swapped supplies might be most
overvalued in the market when shortselling is constrained
...


In their study of the connection between liquidity and shorting, Angel et al
...
However, there is a risk that assess of liquidity is more a proxy for
market capitalisation
...
For
each business we reproduce end of day share cost by the number of portions swapped
throughout the day, and split up by end of day market capitalisation
...


We grade the FTSE 100 businesses into quintiles of liquidity
...
Results are shown in Table 3 below
...
Percentage of Shares on Loan for FTSE 100 Companies by
Quintile founded on Trading Activity

Statistic

20 Most

Stocks

Stocks

Actively Traded

ranked 2140

ranked 4160

Stocks
ranked 6180

Stocks
ranked 81102

A
...
81

3
...
47

3
...
67

Median

4
...
45

3
...
22

2
...
Excluding time span round bonus record dates

Mean

5
...
72

3
...
53

2
...
39

3
...
04

2
...
84

Unlike Angel et al
...
Nevertheless, the
percentage of portions on lend for the smallest dynamically swapped class is less than
half that for the most dynamically swapped class in each case
...
This presents support for the
outlook that securities borrowers (and shortsellers) are more involved in highly fluid
stocks
...


Table 4
...
25

2
...
96

1
...
12

Median

3
...
55

1
...
28

0
...
Table 5 compares liquidity for FTSE 100
businesses to that for FTSE 250 companies
...


Table 5
...


95%

90%

75%

Value

50%

25%

10%

5%

(Median)

Min
...
49

1
...
00

0
...
65

0
...
40

0
...
22

0
...
75

1
...
87

0
...
41

0
...
15

0
...
03

0
...


Volatility and Securities Lending

McDonald and Baron (1973) propose that the larger the variability of comes back of
the security to be traded short, the larger are the benefits for hedging
...
They furthermore propose that speculators, wagering on a general down turn
in the supply market, are probable to favour short places in supplies with larger
instability and variability, as these would make larger comes back in a falling market
...

This carries their hypothesis that riskier supplies have somewhat higher short
positions
...


Their regression investigation discovered a statistically important connection between
risk in a supply and variability in its short positions
...
(2003) find a
powerful suggestion that shortselling undertaking is largest for the most volatile
equities, and that it turns down monotonically with declining volatility
...
We then grade the securities
into quintiles founded on benchmark deviation of every day comes back, and contrast
to the signify percentage of portions on lend throughout the period
...
Table 6 summarises the outcomes for the FTSE 100
businesses and Table 7 summarises the outcomes for FTSE 250 companies
...
Percentage of Shares on Loan for FTSE 100 Companies by Quintile
based on Volatility

Statistic

20 Least

Shares

Shares

Shares

20 Most

Volatile

ranked 2140

ranked 4160

ranked 6180

Volatile

A
...
66

3
...
88

4
...
49

Median

4
...
33

2
...
89

3
...
D
...
31

1
...
37

3
...
99

B
...
34

3
...
73

3
...
38

Median

4
...
97

2
...
49

3
...
D
...
36

1
...
37

3
...
01

Table 7
...
41

2
...
22

1
...
78

Median

2
...
93

1
...
44

1
...
However, for FTSE 100 businesses, the fifth quintile (lowest
volatility) displays a amazingly powerful (in detail the highest) percentage of
securities on loan
...


Closer written check discloses that certain commerce parts (especially utilities, banks
and brewers) override the register of securities with reduced instability but a high
percentage of securities on loan
...
UK shortterm concern
rates were increasing, and the yield bend was flattening, round the time span of the
study
...


Discussion

Chen and Singal (2003) contend that numerous shortsellers close their places on
Fridays, before the weekend dealing stop, and reestablish their short places on
Mondays, assisting to the socalled Weekend Effect (or convention of better comes
back on Fridays relation to Mondays)
...

However, Angel et al
...
We enquire our database for patterns that might
permit moneymaking dealing strategies
...
Also, securities can be scrounged in

anticipation of short selling
...


We assess the signify number of portions on lend for each day of the week for the full
dataset
...
Three of these 35 supplies were presented to the dataset part way through the
experiment time span we eradicate these and assess the every day entails for the 32
residual stocks
...
Further, we take the
largest quintile from these 35 nondividend giving stocks
...
Results are
shown in Table 8 below:

Table 8
...
78

2
...
80

2
...
85

7
...
90

3
...
27

3
...
Full Dataset (352 companies)
Mean

2
...
Top Decile by Proportion of Shares on Loan (32 companies)
Mean

7
...
86

C
...
28

3
...
Top Quintile by Proportion of Shares on Loan amongst NonDividend Paying Stocks (5 companies)
Mean

7
...
55

7
...
53

7
...
Based on Chen and
Singal (2003), and our comprehending of how bonus levy arbitrage might leverage
scrounging for bonus giving supplies, we would anticipate Panel D to be most
probable to display any Weekend Effect
...
This
require not suggest that no such convention lives amidst shortsellers
...


Abnormal Returns Associated with High and/or Rising Levels of Short Interest

Aitken et al
...

In assessing the later presentation of portions with distinct grades of short concern,
Asquith and Muelbroek (1996) aim on portions with high grades of short interest
...

We enquire the securities lending facts and numbers to recognise businesses with a
high percentage of portions on lend, and furthermore those displaying unforeseen
rises in portions on loan
...

We recognise all days on which 5% or more of a company’s portions are on lend, and
assess abnormal comes back round those days
...


Dechow et al
...
However, we select rather than to
make a riskadjustment, as we accept as factual that an perception of risk is significant
for leveraged investors for example hedge funds
...
Abreu and
Brunnermeier (2004) display how timing is significant to arbitrageurs
...
Accordingly, we assess the abnormal come

back for each supply on each day by utilising the Market Model to assess anticipated
come back, and subtracting this from the genuine return
...

We study identical day presentation, one day presentation and 5 day presentation –
this last cited to take account of the 5 day lag in describing the supply lending data
...
Table 9 underneath summarises the results
...
Abnormal Returns of FTSE 100 Stocks, by Decile of Proportion of
Shares on Loan

Decile

Lowest

2

3

4

5

6

7

8

9

Highest

A
...
26

4
...
02

1
...
59

0
...
41

0
...
55

0
...
56

1
...
07

1
...
51

0
...
22

0
...
41

0
...
D
...
44

20
...
31

8
...
58

6
...
35

6
...
92

5
...
Cumulative Abnormal Returns 5 Day Before the Observation Date (7263 observations)
Mean

0
...
09

0
...
38

0
...
20

0
...
23

0
...
16

Median

0
...
04

0
...
07

0
...
21

0
...
25

0
...
09

S
...


2
...
26

2
...
90

3
...
14

2
...
91

10
...
83

C
...
02

0
...
00

0
...
08

0
...
05

0
...
04

0
...
00

0
...
02

0
...
11

0
...
01

0
...
03

0
...
D
...
34

1
...
48

5
...
34

1
...
25

1
...
18

1
...
Abnormal Returns On Day of Observation (7357 observations)
Mean

0
...
05

0
...
20

0
...
04

0
...
11

0
...
03

Median

0
...
04

0
...
02

0
...
01

0
...
15

0
...
08

S
...


1
...
21

1
...
47

1
...
37

1
...
32

1
...
25

E
...
00

0
...
04

0
...
05

0
...
00

0
...
03

0
...
01

0
...
05

0
...
11

0
...
02

0
...
00

0
...
D
...
18

1
...
47

5
...
26

1
...
31

1
...
12

1
...
Abnormal Returns 5 Days After the Observation Date
Mean

0
...
05

0
...
02

0
...
02

0
...
09

0
...
00

Median

0
...
04

0
...
04

0
...
07

0
...
10

0
...
06

S
...


1
...
16

1
...
27

5
...
42

1
...
28

1
...
22

G
...
34

0
...
28

2
...
77

0
...
00

0
...
94

0
...
07

0
...
20

0
...
07

0
...
17

0
...
74

0
...
D
...
54

5
...
42

17
...
01

4
...
63

4
...
16

5
...
Cumulative Abnormal Returns One month After the Observation Date
Mean

0
...
51

0
...
59

0
...
25

0
...
56

1
...
24

Median

0
...
32

0
...
04

0
...
29

0
...
35

0
...
50

S
...


5
...
01

5
...
49

12
...
99

4
...
42

4
...
06

These outcomes display a proposal of affirmative abnormal comes back in the month
former to each fact designated day, showing that the largest grades of scrounging are
discovered in supplies that have presented well former to borrowing
...


Angel et al
...
The postborrowing outcomes display no clearcut pattern
...
g
...
, 2003,
Ackert and Athaanassakos, 2004) that find clues of contradictory abnormal comes
back next from high grades of shortselling
...
As a
robustness ascertain, we replicate the overhead investigation utilising market relation
presentation, and then nominal comes back, and afresh find an nonattendance of
reliable patterns or statistically important clues of contradictory abnormal comes back
either before or after high grades of scrounging (the outcomes are not showed but are
accessible from the authors on request)
...


To simplify, the multiple of profits that a company is valued
...


For information, the total profit of CAC 40 companies in 2006 was 97 billion euros
and is expected at 109
...


In general, it is advisable to buy a stock with a PER of less than 15 so as not to
overpay the action in question
...


In calculating the PER, take the example of Total, the 2007 PER was 9
...
05 / 5
...
4
...
9, you will in this case a 2008 PER of 10
...


Some companies have characteristics of regularity in the earnings growth, returns on
equity and high earnings visibility
...
5), L'OREAL (24), Colgate (23), EDF (22)

Attention to technology companies that display very high PER sometimes based on
unrealistic growth assumptions
...


Equity ratios: PEG (Price Earnings Growth)

Here's an interesting indicator:

PEG = PER / EPS Growth Rate

This ratio can cross the PER with the rate of EPS growth and thus to validate that you
do not buy too much earnings growth
...
7 left to assume that the company is overvalued
...
com who developed this ratio provides the following table:

PEG

Recommendation

<0
...
65 and 1

buy on the downside of the title

between 1 and 1
...
3

sell

Build on the average results of past exercises to calculate it
...


Economic efficiency measures the effectiveness of a company
...


In general, companies with a net margin have a high turnover rate of economic assets
low, as their products offer a significant margin, they can be stored longer (sector:
luxury, jewelry)
...


The ROA is interesting but it does not take into account the leverage of corporate
debt
...


Return on equity measures the wealth created by the company from funds provided by
shareholders
...
From 20% ROE, the investment becomes
very interesting to study
...
They must therefore have a higher ROE than the
average (over 12%) to form a potential investment
...


ROE above 40% is usually artificial: it comes from an abnormality of the financial
structure of the company (or its own funds have fallen, or it is a spin off or a company
acquired a important part of its own shares)
...
5% / 27%), Essilor (17% / 17
...
2% / 20
...
5%)

ROIC

ROIC (return on invested capital) is called in French the return on capital employed
...


Why? Well because the ROIC neutralizes this aspect in the debt and ROE measures
the return on capital regardless of their origin (debt or equity)
...


Earnings per share calculated the gain for each action:
Profit = Profit of the company / no action
Example: a company makes a profit in the year of 500 million dollars
...
Calculate Earnings per Share
Profit = profit / no shares = 500,000,000 / 1,000,000 = $ 500 / share

The price of a share depends largely on the behavior of this ratio: if it has good
growth, its price tends to rise, and vice versa
...
Why? because the benefit of the company
can grow much, but if it turns out that the number of shares has also increased (there
have been increases in capital), the evolution of the ratio may not have been so
positive
...
In fiscal 2009The number of shares has not changed (remains of 1,000,000
shares)
...
In 2009 has made a capital increase so the number of shares has
increased from 1,000,000 (31/12/08) 1,800,000 (31/12/09)
...
What company has a
better performance for shareholders?

Company A:
Growth in profit: 1
...
/ Action
Ratio 2009: 1
...
/ Action
Growth of Earnings per Share: 20%

Company B:
Growth in profit: 1
...
/ Action
BPA 2009: 1
...
8 million = $ 1,000
...
In fact, when you make a
capital increase may negatively affect the ratio of earnings per share (as it increases
the number of shares), which often translates into a fall in the price
...
The yield could be considered as a fixed
annuity you get the investors, as companies usually maintain a dividend policy more
or less stable from one year to another
...


According to the shareholder profile of you will want to invest in securities with
varying yield: The conservative investor should select stocks with high yield,
although the appreciation of the contribution expected is not very high
...


In theory there is an inverse relationship between yield and presentation of the title
(though with some qualifications): A high yield means that the company delivers a
high percentage of their profits as a dividend, so it holds little benefit to invest and
grow
...


PER

Stock ratio is the most widely used, its calculation is: PER = Share price / EPS
...
It
can also be interpreted as the number of years required for the accumulated benefits
equals the share price
...
Therefore, the
investor should buy when the PER is low and sell when the PER is high
...
But when we can consider that the PER is low and when

high?
...
However,
some references can be used to assess the level of PER:

a) Compare the historical PER of action: if a stock has historically been a PER around
10 and its actual PER is 20, meaning that the stock is expensive
...

b) Compare with the sector average PER: if, for example, construction companies
have an average of 15 PER, one of which trades at a PER of 25 means that this action
is comparatively expensive
...
Example: a PER of 20 is equivalent to an implied yield of 5% (= 1 / 20)
...


Equities, implying a higher risk than fixed income, should offer, in principle, a higher
interest rate
...
Example: Suppose the interest rate on public debt
currently stands at 4%
...
5% (= 1 / 40)

To assess whether these levels are logical implied yield on the type of public debt, the
investor could analyze what has historically been the outperformance has been
offering the action against the interest rate on public debt at any time
...
PER under: shareholders paid little action because no expect corporate
profits to grow too
...
This PER is high, but earnings per share
estimate for next year is 40 pts
...


In short, buying a high PER, anticipating strong growth in benefits that lower the
future investment PER
...
But substantially higher
...


Example: There is a company listed on WallStreet, Best Buy, which experienced a
sharp rise, reaching trading with a PER of 50, the highest in the market
...
It turns out that the PER was very
high because the market expected a strong earnings growth
...


Price / Book

Is another indicator that is used and is calculated by dividing the share price by its
book value? The book value, as we saw in the previous lesson, is calculated by
dividing the net assets of the company between the numbers of shares
...
The
number of shares is 1,000,000
...
Now, compare his contribution
with this book value
...
Price / Book Value
= 1,200 / 600 = 2
...
The higher
this ratio more expensive is the value of the action
...
Do different ratios are always consistent in indicating whether the action is
expensive or cheap
...


Chapter V: Conclusion

Financial analysts share with the portfolio managers the privilege of be abundant
academic work
...
They seek to always new information to develop
management strategies to maximize the profitability of portfolios and thus contribute
to ensuring that information is incorporated into prices
...
If asset prices fully reflect information
owned by different operators at a given date, an investor has not private information
and have committed no cost to obtain it can know Looking at the evolution of what
information is being held by the other, that is to say those who have incurred the
costs
...
The logical extension of this
reasoning is that no one's interest to undergo costs of acquiring and processing
information and then the market may well obviously not be informational efficient
...
Thus, an investor who is content to watch the share price can not know
whether their evolution in one way or the other comes from a new information
operated by an operator or when the transactions are carried out by operators occur for
reasons such as socalled noninformational sell assets to pay taxes or the pursuit of
strategies based on technical analysis
...
The question of the usefulness of forecasts financial analysts to portfolio
management is crucial from the point of view practice but also from a theoretical
point of view
...
The first work for
financial institutions, mainly brokerage firms and banks business (before the recent
dramatic loss of the largest of them) Specialized on one or more industries or when
certain types of values, actions such as small cap, their role is to collect information

on companies and sectors to make a financial analysis and diagnosis which is then
used recommend the value to the purchase or sale to various customers of their
employers
...
Analysts 'buy side' employees are the ones mainly by asset
management companies such as investment funds, pension funds, pension funds,
insurance companies
...
Analysts Sell side are the
most visible and are also subject to regular reviews virulent for inciting their
recommendations for investors to buy securities phase before rollover market
...


To these recommendations, analysts are required to set target levels over the values
they follow, but little work focuses on this type of information because it is redundant
with the a priori recommendations
...
However the issue of evaluation model used by analysts to be the link
between the forecasts and recommendations arises, like that of the opportunity to refer
to both forecasts and recommendations
...
(2006) and Barniv et al
...


The second aspect, it should be regarded as proposed Malmandier and Shanthikumar
(2008) that financial analysts have not a single audience, but are heard by at least two
main families of investors, individual investors fairly unsophisticated (the famous
noise traders so useful to many models financial!) especially attentive to the
recommendations of simple buying and selling, and more sophisticated investors,
more responsive to earnings forecasts and their evolution
...
She compared
the errors of analysts' forecasts over the period 19751981 in nine industries
...


The author explains this by the fact that empirical work concerned with the subject,
use the data to compare expost the performance of financial analysts, while the rapid
incorporation of new information in financial analysts' forecasts is the most important
from the perspective of investors
...


References

1
...
M
...
(2001)
...
European Journal of Finance 7
'(1), 121
...
Bali, T
...
(2003)
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