Heart-stopping markets and lying CEOs – 10 more stock market peculiarities
From donating money to politicians to appearing on magazine covers there are many odd indicators of stock market performance
In the pits: traders signal offers at the Chicago Board Options Exchange recently.
Last week, we looked at 10 of the more unlikely findings into stock market behaviour. The list of market anomalies is a long one, however, with equity returns linked to dodgy politicians, football results and even Super Bowl adverts. Here are 10 more such examples.
Paying the politicos
Paying politicians pays off, countless studies show.
One US study examined more than 800,000 contributions to political parties from almost 2,000 companies over a 25-year period. The results were “quite startling”, the most generous companies beating the market by 2.5 per cent annually.
The best strategy was to donate modest amounts of money to as many politicians as possible, with annual returns boosted by 6 per cent a year. “Much like a venture capital portfolio of many start-ups, a few of the supported candidates will ‘pay off big’,” the study said.
A 2006 paper found the market capitalisation of a company increases by an average of 2 per cent when a large shareholder enters politics, the study examining 157 such announcements in 35 countries. A separate study found share prices fall by 2 per cent when a legislator “connected” to a firm – someone living in, or born in, the same city in which a company operates – dies.
Market timing isn’t easy – unless you’re a US senator. A 2004 study examining senators’ trading over a six-year period found they beat the market by 12 per cent annually. This was twice as good as company insiders, while money managers could not even match market returns during those years.
Stocks bought by senators “tended to stagnate prior to purchase, soar after purchase, and then stagnate again after sale”, the study found – “robust evidence” of insider trading.
Think analysts are a studious, objective bunch? Think again. Only 35 per cent say the profitability of their recommendations is crucial to their pay packet, a recent survey found. Nearly 40 per cent say they might lose access to management or be frozen out of conference calls if their earnings forecast was well below average. However, one in four has been pressured to lower earnings forecasts as it makes forecasts easier for companies to beat. “Most of the sell-side is worried more about what management thinks of them than they are about whether they’re doing a good job for investors,” one respondent admitted.
It’s reminiscent of a UBS analyst email that went viral last year. He described his notes as “mostly meaningless blurbs” that should be treated as “entertainment”, adding: “It’s easy to satisfy the handful of brain cells which occupy the sell-side banks.”
Chief executives are more likely to be lying if they use overly enthusiastic words as well as impersonal pronouns like “they” and “the team” rather than “I”, according to a Stanford study which examined almost 30,000 conference calls with analysts.
CEOs of companies that later restated earnings tended to use words like “fantastic” and “great” instead of “good”, and avoided negative words. They evaded direct answers and used general knowledge references such as “as you know” and “shareholders know”. Swear words were more common, while there were fewer “hesitation words” like “um” and “er”, probably due to “having more prepared answers or answering planted questions”.
Super Bowl ads
A company’s stock price rises if television viewers like their Super Bowl commercial, according to a study which examined 529 commercials aired from 1989 to 2005.