Psychopaths, speeding tickets and skyscrapers – 10 things you never knew about stock markets
Studies have uncovered all kinds of peculiar findings that could make people think twice about where to invest
The relationship between high-rise properties, expensive homes and speed cameras among other things, and the performance of companies on the stock market has been the subject of several studies. Photograph: Lucas Jackson/Reuters
What does a chief executive’s house tell you about future company prospects? What can speeding tickets reveal about the motivations for financial trading? Is there a link between a company’s ticker symbol and its stock performance?
Stock market studies have uncovered all kinds of peculiar and revealing findings. Let’s look at some such examples – and why you should be wary of so-called brothel indicators.
Mansions and CEOs
A study which examined the houses of nearly every S&P 500 chief executive found returns suffer when CEOs buy luxurious houses (929sq m/10,000sq ft or more). The authors created a portfolio whereby they bet against companies where the CEO bought a mansion, and took a long position when modest houses were purchased. Their portfolio outperformed the market by 29 per cent after one year and 46 per cent after three years.
Grandiose purchases indicate the CEO’s “power and prestige” and that he feels “entrenched” in the company, the authors suggest.
Crimes and misdemeanours
Chief executives who have a legal record – even for minor offences such as speeding tickets – are much more likely to commit accounting fraud than “clean” CEOs, a recent study found.
The paper examined every S&P 1500 company involved in fraud over a 15-year period – 109 companies in all. Prior to the fraud, 21 per cent of chief executives had already broken the law, compared to just 5 per cent of bosses at companies where no fraud was committed.
The study also looked at 94 companies forced to restate results but not accused of fraud, and compared them to 70 random companies. None of the CEOs involved in either group had serious legal infractions, although the former group was much worse when it came to minor traffic violations.
The same paper found that CEOs who buy big homes, cars or yachts are much more likely to head firms where fraud occurs.
Off-the-job behaviour is indicative of on-the-job behaviour, the study says.
Lords on boards
The more board members with honorary titles, the worse the company’s performance, according to trader and Practical Speculation author Victor Niederhoffer. Niederhoffer examined the 50 largest FTSE companies over a five-year period, and even devised an earnings to lords ratio, where he divided earnings per share by the number of lords on the board.
The reason remains unclear, Niederhoffer asking: “Was it the lords who caused the lacklustre performance or the lacklustre performance that prompted the companies to use lords as window-dressing?”