Stock picking

How Olympic Games Impact Stocks?

5.August 2021

Summer Olympics are a major event that attracts attention from the moment the host country is announced. However, that’s not shocking. The Olympics require a lot of planning, infrastructure building and investments. Still, countries battle for the opportunity to host these events. Undoubtedly, hosting the Olympics is prestigious, helps tourism, and many even argue that it also helps the domestic economy despite the costs of hosting. Therefore, it is natural to expect that the Tokyo Olympics should impact the domestic stock market.

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Do SPACs Generate Abnormal Returns?

23.July 2021

Special Purpose Acquisition Companies (SPACs) raise capital through IPO under special conditions intending to acquire an existing company (private equity). On the one hand, it looks like an attractive opportunity for investors – SPACs bring a lot of excitement and prospects of large profits since the management can find a valuable opportunity. If no acquisition is made, then investors simply get their money back. For firms that are being acquired, it is a much easier and faster way how to get publicly traded – without investment banks and IPOs. On the other hand, SPACs are very speculative and even frequently overpriced, which attracts many critiques. While SPACs are nothing new, recently they have got quite popular, which raises several questions: are they worth attention or do they bring abnormal profits? A fascinating insight into SPACs provides a novel research paper of Chong et al. (2021). The study explains the fundamental principles of SPACs, but most importantly, it shows us the risks and returns of such investments. Despite the popularity and the seemingly attractive opportunity of SPACs, results show us that the invested capital could be instead used elsewhere. Although the success depends on the sector in which is the SPAC interested or whether the acquisition was successful, overall, it is hard to find abnormal returns in these investments.

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ESG Incidents and Shareholder Value

14.May 2021

ESG scores are the modern trend in the financial markets, and while this sustainable investing has its critics, it seems to become a regular part of the markets. Frequently, and probably rightfully, ESG is criticized for the lack of commonality across various “scorers”, and as a result, there might be a large dispersion among the score of one firm. The reason is that the score usually consists of different metrics and aggregation methodology. Apart from this “long-term” score, investors can easily recognize the “short-term” score, which can be proxied by negative incidents such as pollution, poor social aspects, social or governance scandals and so on. Moreover, these incidents could be more informative about (un)sustainable practice compared to ESG scores. These ESG incidents are studied by the novel research of Simon Glossner (2021). Using incidents news, the author provides interesting results that mainly support proponents of sustainable investing. Poor ESG performance proxied by incidents predicts more incidents in the future, lower profitability which should subsequently spill to negative performance in future. For example, portfolios consisting of negative incidents stocks significantly underperform the market for both US and European stocks. Therefore, this research paper is a compelling addition to the literature that, apart from social aspects, connects ESG also with performance.

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An Investigation of R&D Risk Premium Strategies

19.March 2021

The R&D investments represent a company’s unique expenditure, which is responsible for creating an information asymmetry about the firm’s growth potential and future prospects. In a case when market value reflects only the firm’s financial statements without taking the long-term benefits of R&D investments into consideration, the company’s stocks may be underpriced. On the other hand, the firm’s stock prices may also face overpricing. This might happen in a case when the investors judge the possible future outcomes of current R&D investment based on the past firm’s R&D success, which is not a guarantee by any means.

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Senators vs Santa’s Reindeer

29.December 2020

During the festive season, everything is more relaxed, and this week’s blog is no exception. The stock-picking abilities of animals are not the main research topic for most academics, yet the stock-picking skills, for example, of monkeys, were previously documented. To our best knowledge, the paper of Belmont et al. (2020) is the first that examines the stock-picking abilities of reindeer. Moreover, the performance of reindeer is compared to the US senators during 2020. Trading of US senators or congresspeople is particularly interesting since there are concerns about informed stock trading. Especially during the COVID pandemic, where the governments have a significant influence on the economies. The finding of the paper is that the performance of the senate is behind reindeer. However, the reindeer exhibit herding behaviour and momentum preferences. Perhaps, their abilities should be examined more deeply during a more extended period.

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Large Cap Analysis

23.December 2020

Every week, through these posts, we point to interesting academic research papers. This week´s blog is slightly different, yet no less engaging. This blog includes numerous interesting charts from more than hundred charts in the CUSTOM REPORT: U.S. LARGE INDEX by the PHILOSOPHICAL ECONOMICS using OSAM Research Database. The report consists of the visually presented analysis of the U.S. Large index. The analysis includes the composition, returns, individual stocks, sector and factor allocations, and six fundamentals. The report contains comprehensive information about the large caps in the U.S. market from 1963 to 2020 and is worthy of a look.

We wish you all Merry Christmas …

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