Investors overvalue firms that align with presidential policies, leaving money on the table
Republican politicians typically favor low taxes and less regulation, which seems like a recipe for corporate profits and stock market success. In reality, however, this is not what happens. Stock markets deliver higher returns during Democratic presidencies than Republican ones, and that has held true for many decades. It’s a counterintuitive finding known as the Presidential Puzzle, but the observation applies to the market as a whole. Zhi Da wanted to understand more about how presidential politics affects the performance of individual stocks, especially those that could benefit from a president’s policies – or be hurt by them.
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To influence corporate governance, institutional investors should state the reasons for their voting choices
Every vote counts — even in matters of organizational governance. Institutional investors — firms that invest money on behalf of others, which include pension fund managers and investment banks — control a very large number of the shares in publicly traded corporations, and that means they have sway in shareholder votes. But the extent to which they use that influence to shape corporate governance has been a matter of some debate. Research by Irene Yi, an assistant professor at the Rotman School of Management, shows that institutional investors do use their voice to effect change — and that it yields results.
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Mutual funds deliver better returns on long horizons, but patient capital is in short supply
Investors demand returns – and many want them to materialize overnight. But not every investment opportunity has that kind of potential. Some take years to pay off, but yield big results when they do.
Mutual fund managers often choose not to add stocks like this to their portfolios, even when they know they exist. This is because fund managers are incentivized to plan for the short term by the structure of their compensation packages and the day-to-day obligations of managing a mutual fund. Rafael Zambrana. Read the full story here |
Greater executive pay transparency leads to more disclosure
Imagine you’re the CEO of a publicly traded company, and you have some information about next period’s earnings. You can share this information with your investors by releasing an earnings forecast—also known as earnings guidance—or you can wait until the official deadline to reveal your actual earnings. What’s the smart move?
Executives in the U.S. face this dilemma all the time, and the solution isn’t always clear-cut. Companies are not required to share these expectations about their future performance, but many choose to do so voluntarily. Read the full story here |
In OTC bond markets, liquidity improves at earnings time
Corporate bond markets are “over-the-counter” (OTC) markets, meaning a buyer or seller needs to find a counterparty to trade with. This involves getting quotes from and negotiating with potential counterparties. This is an inherent friction in bond trading that results in much higher costs of trading in the form of wider bid-ask spreads.
Earnings announcements prompt many investors to trade. And on OTC markets, potential buyers and sellers become easier to find and negotiate with. Read the full story here |
Activist investors expect executives to conform to gender stereotypes
Activist investors are more likely to target female CEOs with campaigns for change, and female CEOs are more likely than men to co-operate with them. But why?
Research by Blake Steenhoven, an assistant professor of accounting at Smith School of Business, finds that the response of female CEOs to shareholder activism is perceived differently than the response of male CEOs. Women are viewed more favourably when they co-operate with activist demands and more negatively when they do not. For men, the opposite is true. Read the full story here |