by Larry Swing - Jun 19, 2005

Education

A recent paper published in the Journal of Finance presents strong evidence that managers are not able to time equity markets with issuances of stock.  The paper "Can Managers Forecast Aggregate Market Returns?" presents evidence that aggregate equity issuances do not have predictive power on the market.

The authors also find that managers do not effectively switch between debt and equity issuances to minimize their future cost of capital.

This paper's results are important since they are in contrast the majority of outstanding literature on the subject.  The authors highlight two reasons that prior studies may have reached incorrect conclusions: 

1. A focus on in-sample regression values rather than out-of-sample predictive power.
2. The elimination of only two major unpredictable economic shocks drastically changes the results to lower the explanatory power of a regression of new equity capital on future market performance.

Reference:

"Can Managers Forecast Aggregate Market Returns?" Alexander W Butler, Gustavo Grullon, and James P. Weston, Journal of Finance, April 2005, Volume 60, Issue 2, Pages 963-986

Analyses of HOLDRs & ETFs

BBH:  Bearish.  (Biotechnology)

SwingTracker
MrSwings Real-Time Stock Charts RISK-FREE TRIAL featuring one-click access to Larry Swing's profit-generating indicators - Force Index, EquiVolume, True Strength Index

BDH:  Neutral.  (Broadband)

BHH:  Neutral.  (Business to Business)

EKH:  Neutral.  (European Stocks)

HHH:  Bearish.  (Internet)

IAH:  Neutral.  (Internet Architecture)

IIH:   Neutral.  (Internet Infrastructure)

OIH:  Neutral.  (Oil Services)

PPH:  Neutral.  (Pharmaceuticals)

RKH:  Neutral.  (Regional Banks)

RTH:  Neutral.  (Retail)

SMH:  Neutral.  (Semiconductors)

SWH:  Neutral.  (Software)

TTH:  Neutral.  (Telecommunications)

UTH:  Neutral.  (Utilities)

WMH:  Neutral.  (Wireless)

QQQQ:  Neutral.  (NASDAQ 100)

SPY:  Bearish.  (S&P 500)

SwingTracker
MrSwings Real-Time Stock Charts RISK-FREE TRIAL featuring one-click access to Larry Swing's profit-generating indicators - Force Index, EquiVolume, True Strength Index

DIA:  Neutral.  (DJIA)