Professional Documents
Culture Documents
Chap 11
Chap 11
direction.
January effect: Stock market returns tend to by high in January because people tend
to sell securities
towards the end of the year to establish losses for income taxes, thus, the bounce
back period is in
January.
Hot news response: news takes awhile to become integrated, so stocks undereact
It is hard to capitalize on these patterns because the more people who know about it
the more it will be
arbitraged away, and they become unpredictable.
Closer?
Short term momentum: Bandwagon effect and feedback mechanisms can cause
slight inefficiencies,
although it is hard to exploit with transaction costs.
The dividend jackpot approach: Dividends that are high will produce above average
yields. This doesn’t
contradict efficiency, it’s not consistent and is consistent with interest rates and just
reflects the general
economic conditions. Similar to the P/E indicator
Back we go again is like the dogs of the dow, but is the most believable and
beneficial. Fads and fashions
play a role in stock pricing and when these bubbles burst people tend to shun
favorable stocks and
the “ugly ducklings” tend to emerge under the cloud.
Smaller is better approach: Small companies have higher rates of returns, however
most are risky and
deserve to give higher rates of return (survivorship bias).
Value will win: Look for low price earnings multiples and low prices compared to
book values.
Real money doesn’t produce the results academics say they should.