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"Block, Stanley B"
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Fundamentals of investment management
\"Many changes have taken place in the financial markets since the first edition of Fundamentals of Investment Management was published in the early 1980s. However, the one constant has been a sincere commitment within this text to capture the excitement and enthusiasm that we feel for the topic of investment management. Throughout the book, we attempt to present applied theory alongside real-world examples that illustrate the theory. Our goal is that by the time conscientious students complete an investment class using this textbook, they will be able to manage investments in the real world. We approach financial analysis the way it is done by many Wall Street firms. Geoff Hirt directed the CFA program for the Investment Analysts Society of Chicago (now the CFA Institute of Chicago) for 15 years and sat on the board of directors from 2002 to 2005. Stan Block has been a practicing CFA for over 20 years. Both of us have taught and advised student-managed investment funds at our universities and we bring this wealth of learning experience to the students who study from this text. Both of us manage diversified portfolios. We are close to the markets on a daily basis and keep abreast of major developments in the economy, market structure, and globalization of the markets. Above all else, we have written a text that is user-friendly, but make no concessions to the importance of covering the latest and most important material for the student of investments\"-- Provided by publisher.
Book
A Study of Financial Analysts: Practice and Theory
The study reported here focused on determining what analytical techniques financial analysts who are members of AIMR actually use. The study achieved a response rate of 33.75 percent. Questions covered 16 areas, including the use of present value analysis, the importance of quarterly earnings' announcements in decision making, belief in efficient markets, acceptance or rejection of market anomalies, and belief in the importance of international diversification for risk reduction.
Journal Article
The effect of portfolio weighting on investment performance evaluation: The case of actively managed mutual funds
Among the factors influencing investment performance measurement is the weight dedicated to each security. This paper develops metrics for measuring the extent of equal weighting and value weighting of a portfolio. A sample of 506 actively managed mutual funds shows that funds tend to be equally weighted to a greater degree than they are value weighted, implying that investment performance based solely on a single value-weighted benchmark may not adequately identify excess performance. A two-factor model utilizing both a value-weighted and an equally weighted index is proposed and it is shown that the model provides a better fit than the single-index model.
Journal Article
Methods of Valuation: Myths vs. Reality
The author takes the position that too many entering the profession of finance are incorrectly trained in valuation methods. The price/earnings multiple dominates the investments material, while EV/EBITDA goes largely ignored. In this survey of 1,209 financial analysts, 41.7% use the price-to-earnings ratio as their primary metric, while 36.2% prefer EV/EBITDA. More importantly, the survey participants predict the latter metric will be the primary measuring tool for the future. All of this is going on in spite of the fact that of the 10 leading investment texts, only one has EV/EBITDA in the index or glossary. The survey also shows a resounding negative attitude toward new measures of income proposed by the International Accounting Standards Board (which would be used in valuation models in the future). [PUBLICATION ABSTRACT]
Journal Article
The EPS Myopia Hypothesis and Postmerger Market Performance of Acquiring Firms
This study examines the effect of EPS myopia on the abnormal returns of acquiring firms in mergers. Earnings per share myopia may be defined as a disproportionate emphasis or obsession with the \"immediate\" postmerger impact of a merger on earnings per share as opposed to consideration of longer term consequences. The near-term emphasis is on avoiding dilution at a minimum, and more optimally, creating earnings accretion. These outcomes are often accomplished through the use of P/E ratio differentials between the participating firms and the use of pooling of interest accounting. The results of this study indicate a statistically significant negative relationship between mergers that have a high immediate impact on EPS and the stock market performance of the acquiring firm 24 to 36 months after the merger.
Journal Article
The Changing Nature of Dividend Policy and Its Implications for the Investor
Dividend yields are at an all-time low in the current decade, and the dividend payout ratio is down to 30%. This article examines the reasons why these changes have taken place, whether they are likely to continue in the future, and the implications for the investor. Empirical investigation of high-yield stock performance after the passage of the 2003 Tax Act indicates, at best, a neutral performance. The author's survey of 1,207 practicing financial analysts portends a continuation of less emphasis on dividend payout and a great emphasis on stock buybacks and internal reinvestment of profits. The total return concept will continue to take on greater meaning for the investor. [PUBLICATION ABSTRACT]
Journal Article
The Use of Interest Rate Futures and Options by Corporate Financial Managers
The authors examine the influence that interest rate futures and options have on the performance of the finance function. The survey study of Fortune 500 companies, with 193 respondents, indicates that approximately one out of five firms is using interest rate futures and options. Larger firms and firms in traditionally commodity-oriented industries show a greater tendency to use these hedging devices. The two most popular instruments are Treasury bill futures and Eurodollar futures, and the number one risk that is hedged is exposure to interest rate changes in the commercial paper market. Because of the absence of an adequate instrument in this market, a cross hedge is necessary. The primary reasons cited for not utilizing interest rate futures and options are top management resistance, lack of knowledge, restriction of upside potential, the expense involved, and legal and accounting obstacles.
Journal Article
NYSE execution costs: A case study of a leading bank
Using trade data obtained from a major bank and a measure of indirect execution costs based on the stock price when orders are placed, indirect costs and their relation to brokerage commissions are investigated. For all trades, the mean brokerage commission is 6.5 cents per share, and the mean indirect execution cost is about 3.6 cents per share, or 0.1084% of the transactions amount. Contrary to the prediction of the price pressure hypothesis, indirect execution costs are lower for larger size trades. Further, higher indirect execution costs are not associated with lower brokerage commission.
Journal Article
The Latest Movement to Going Private: An Empirical Study
The number of firms going private is increasing at an unprecedented rate in the current decade. The ratio of companies going private to IPOs is in the 20%-30% range. My survey includes 110 of the 236 that went private between January 2001 and July 2003 (a 46.6% response rate). The cost of being public is the number one reason for going private by smaller firms. This relates directly to the passage of the Sarbanes-Oxley Act in 2002. A null hypothesis of no relationship between market capitalization and going private because of cost could be rejected at an alpha level of 0.01. Of significance is that a number of smaller firms actually went private under a Form 15 deregistration by reducing their number of shareholders to under 3000, but without buying in the other shares outstanding. We now have a number of private companies with public shareholders holding the majority of the shares. [PUBLICATION ABSTRACT]
Journal Article
