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Introduction to financial forecasting in investment analysis
\"Forecasting--the art and science of predicting future outcomes--has become a crucial skill in business and economic analysis. This volume introduces the reader to the tools, methods, and techniques of forecasting, specifically as they apply to financial and investing decisions.
Book
Systemic risk from investment similarities
Network theory proved recently to be useful in the quantification of many properties of financial systems. The analysis of the structure of investment portfolios is a major application since their eventual correlation and overlap impact the actual risk by individual investors. We investigate the bipartite network of US mutual fund portfolios and their assets. We follow its evolution during the Global Financial Crisis and study the diversification, as understood in modern portfolio theory, and the similarity of the investments of different funds. We show that, on average, portfolios have become more diversified and less similar during the crisis. However, we also find that large overlap is far more likely than expected from benchmark models of random allocation of investments. This indicates the existence of strong correlations between fund investment strategies. We exploit a deliberately simplified model of shock propagation to identify a systemic risk component stemming from the similarity of portfolios. The network is still partially vulnerable after the crisis because of this effect, despite the increase in the diversification of multi asset portfolios. Diversification and similarity should be taken into account jointly to properly assess systemic risk.
Journal Article
Founder smiles increase investor trust and funding
Entrepreneurs seeking funding increasingly present themselves to investors for the first time online. In these digital first impressions, some entrepreneurs smile while others do not. We posit that smiling increases investors’ perceptions of trustworthiness and willingness to invest. Through five studies, we investigate this effect. Two pilot studies provide initial evidence: one based on interviews with 10 early-stage investors and another on a randomized experiment involving 210 entrepreneurs and prospective entrepreneurs, both showing that smiling boosts perceived trustworthiness and investor interest. Building on these findings, an analysis of 20,316 ventures on Crunchbase demonstrates that smiling in profile pictures is significantly associated with both higher likelihood of securing funding and higher amount raised. A study of 1,091 Shark Tank pitches further reveals that smiling is associated with higher funding odds, with trustworthiness serving as a key mediator. Finally, in a randomized experiment with 51 venture capitalists, founders were assessed as having a 16.6% higher probability of a successful exit and were valued $2.1 million more than non-smiling founders, with trustworthiness mediating 36% and 27% of the overall treatment effect for venture valuation and exit probability, respectively.
Journal Article
Behavioral finance and wealth management
\"The book that applies behavioral finance to the real worldUnderstanding how to use behavioral finance theory in investing is a hot topic these days. Nobel laureate Daniel Kahneman has described financial advising as a prescriptive activity whose main objective should be to guide investors to make decisions that serve their best interests. The reality? That's easier said than done. In the Second Edition of Behavioral Finance and Wealth Management, Michael Pompian takes a practical approach to the growing science of behavioral finance, and puts it to use for real investors. He applies knowledge of 20 of the most prominent individual investor biases into \"behaviorally-modified\" asset allocation decisions. Offering investors and financial advisors a \"self-help\" book, Pompian shows how to create investment strategies that leverage the latest cutting edge research into behavioral biases of individual investors. This book: Shows investors and financial advisors how to either moderate or adapt to behavioral biases, in order to improve investment results and identifies \"the best practical allocation\" for investment portfolios. Using these two sound approaches for guiding investment decision-making, behavioral biases are incorporated into the portfolio management process Uses updated cases studies to show investors and financial advisors how an investor's behavior can be modified to improve investment decision-making Provides useable methods for creating behaviorally modified investment portfolios, which may help investors to reach their long term financial goals Heightens awareness of biases so that financial decisions and resulting economic outcomes are improved Offers advice on managing the effects of each bias in order to improve investment results This Second Edition illustrates investors' behavioral biases in detail and offers financial advisors and their clients practical advice about how to apply the science of behavioral finance to improve overall investment decision making\"--
eBook
Stock Market Math
Stock Market Math shows you how to calculate return, leverage, risk, fundamental and technical analysis problems, price, volume, momentum and moving averages, including over 125 formulas and Excel programs for each, enabling readers to simply plug formulas into a spread sheet.
This book is the definitive reference for all investors and traders. It introduces the many formulas and legends every investor needs, and explains their application through examples and narrative discussions providing the Excel spreadsheet programs for each. Readers can find instant answers to every calculation required to pick the best trades for your portfolio, quantify risk, evaluate leverage, and utilize the best technical indicators.
Michael C. Thomsett is a market expert, author, speaker and coach. His many books include Mathematics of Options, Real Estate Investor's Pocket Calculator, and A Technical Approach to Trend Analysis. In Stock Market Math, the author advances the science of risk management and stock evaluation with more than 50 endnotes, 50 figures and tables, and a practical but thoughtful exploration of how investors and traders may best quantify their portfolio decisions.
eBook
The pillars of finance : the misalignment of finance theory and investment practice
\"In The Pillars of Finance, author and finance expert Guy Fraser-Sampson challenges the fundamental conventions of modern finance. He asserts that, at its core, finance is not the highly scientific, modern discipline that most would claim, but has in fact stood still for the past 50 years. Central to the book are the main pillars of the financial markets - risk, return, and value - pillars of financial practice that are not properly understood by the industry, as began to become clear in 2007. Instead, the industry is blinded by a quantitative maze, obsessed with mathematical solutions, stochastic models, and normal distributions, which, although they have a place, should not provide the bedrock of the global marketplace. The author also looks at the industry's overreliance on past performance. Historical data is the foundation of financial forecasting and derivatives pricing, and while much can be gleaned from the past, it cannot and should not be seen as a mirror of the future. Finally, the author provides solutions to these issues, which include the need for the industry to undergo a transformation similar to that which occurred in the Modernist movement in other fields. He argues for a return to more qualitative and informed approaches to finance, bringing back intuition, skill, responsibility, and competency. Drawing from many fields of knowledge, including philosophy, psychology, and history, he encourages readers to question everything, rather than tamely accepting conventional wisdom. The Pillars of Finance is a lively and provocative read, challenging some of the core beliefs of modern finance. It will spark fierce debate and prove a popular read for anyone interested in modern finance. \"-- Provided by publisher.
Book
Investmentless Growth
We analyze private fixed investment in the United States during the past 30 years. We show that investment is weak relative to measures of profitability and valuation—particularly Tobin’sQ—and that this weakness starts in the early 2000s. There are two broad categories of explanations: theories that predict low investmentalong witha lowQ, and theories that predict low investmentdespitea highQ. We argue that the data do not support the first category, so we focus on the second one. We use industry-level and firm-level data to test whether underinvestment relative toQis driven by (i) financial frictions; (ii) changes in the nature or localization of investment, due to the rise of intangibles, globalization, and the like; (iii) decreased competition, due to technology, regulation, or common ownership; or (iv) tightened corporate governance or increased short-termism. We do not find support for theories based on financial frictions. We find some support for globalization and regulation; and we find strong support for the intangibles, competition, and short-termism or corporate governance hypotheses. We estimate that the rise of intangibles explains about one-third of the drop in investment, while concentration and corporate governance explain the rest. Industries with more concentration and more common ownership invest less, even after controlling for current market conditions and intangibles. Within each industry-year, the investment gap is driven by firms owned by quasi-indexers and located in industries with more concentration and common ownership. These firms return a disproportionate amount of free cash flows to shareholders. Finally, we show that slow-moving changes in competition are difficult to detect in macroeconomic series; standard growth-accounting decompositions confound market power and other medium-run trends, such as falling total factor productivity and labor participation.
Journal Article