by Larry Swing - August 25 2005

Education

A recent paper by Dan Bernhardt and Ryan J. Davies presents evidence that end-of-quarter and, especially, end-of-year buying by mutual fund managers leads to abnormally high market returns.  They postulate that this is due to price manipulation by mutual fund managers who wish to make the performance of their funds look impressive; to do so, the managers buy the stocks that they already hold with market orders to create a positive market impact.

The authors measure the return on the last day of the quarter and subtract the return on the subsequent day, then compare this with the value of mutual fund holdings of corporate equity divided by the market value of domestic equity.  A strong positive linear relationship was found.

Reference:

Dan Bernhardt and Ryan J. Davies, "Painting the Tape:  Aggregate Evidence," April 2005.

• Dan Bernhardt of the University of Illinois
• Ryan J. Davies of the Babson College

Analyses of HOLDRs

BBH:  Neutral.  (Biotechnology)

BDH:  Bearish below support.  (Broadband)

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

BHH:  Neutral.  (Business to Business)

EKH:  Neutral.  (European Stocks)

HHH:  Neutral.  (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:  Bullish above resistance.  (Wireless)