Banks’ equity-research operations are in decline

The equity-research industry was already in trouble. Trading profits at banks have declined since the financial crisis, so they have had to cut costs. Estimates from Frost Consulting show that research budgets at major investment banks have fallen from a peak of $8.2bn in 2008 to $4bn in 2016 (see chart). Headcount seems to be falling, too. Coalition, a research firm, estimates that research jobs at banks have fallen by about 10% since 2012, roughly in line with the decline of front-office jobs as a whole. Moreover, the trend in the industry is towards increased use of “passive” investment funds that simply track a market index. So the demand for research services is in secular decline.

Equity research will not disappear entirely, in part because the industry performs other functions. Surveys have shown that investors are less interested in researchers’ exact forecasts or analysis than in their general industry knowledge. Moreover, much of equity research is actually about “corporate access”, ie, connecting investors with company managers. Fielding phone calls and acting as chaperones may not be as glamorous as publishing market-moving reports. But they are at least labour-intensive activities. Top analysts will still be valued, as will those specialising in niche fields. Independent research firms will benefit. But fund managers will have to do more of their own analysis. And persuading investors to pay for mediocre research will be harder.

The free dividend fallacy could be costing you

  • The free dividend fallacy could be costing you

We show that many individual investors, mutual funds and institutions trade as if dividends and capital gains are separate disconnected attributes, not fully appreciating that dividends come at the expense of price decreases. Behavioral trading patterns (e.g. the disposition eect) are driven by price changes excluding dividends. Investors treat dividends as a separate stable income stream, holding high dividend-yield stocks longer and displaying less sensitivity to their price changes. Demand for dividends is systematically higher in periods of low interest rates and poor market performance, leading to high valuations and lower future returns for dividend-paying stocks. Investors rarely reinvest dividends into the stocks from which they came, instead purchasing other stocks. This creates predictable marketwide price increases on days of large aggregate dividend payouts, concentrated in stocks not paying dividends.


Marc Bellemare writes:



via himaginary氏

Leidos, Inc. v. Indiana Public Retirement System

Kevin LaCroix:

The U.S. Supreme Court has agreed to take up a case that will address a recurring issue that has arisen in the securities class action litigation arena – that is, whether or not the alleged failure to make a disclosure required by Item 303 of Reg. S-K is an actionable omission under Section 10(b) and Rule 10b-5.

Thomas O. Gorman:

The Supreme Court agreed to hear another securities case this week. Leidos, Inc. v. Indiana Public Retirement System, No. 16-581. … Leido , a securities class action based on Exchange Act Section 10(b) and Rule 10b-5 thereunder, presents the following question, according to the Petition for a Writ of Certiorari: “Whether the Second Circuit erred in holding – in direct conflict with the decisions of the Third and Ninth Circuits – that Item 303 of SEC Regulation S-K creates a duty to disclose that is actionable under the Section 10(b) . . .” of the Exchange Act.



フォックスが引用したテキサス大学のダニエル・ハマーメッシュ*1の2013年のJournal of Economic Literature論文によると、主要誌に掲載された理論系論文の割合は、1983年のピーク時には6割程度に達していたが、2011年には3割を切ったとのことである。低下のかなりの割合は1993年までに起きているが、その明らかな理由の一つはパソコンの普及である、とフォックスは述べている。その後のインターネット時代の到来と資料のデジタル化によって、公表データをそのまま使うのではなく独自にデータを加工した研究が増え、それが1993年以降の実証系研究の増加の殆どであった、とフォックスは言う。またフォックスは、実験経済学の研究が増えていることも指摘している。

via himaginary氏

N. Gregory Mankiw, What the President Could Learn From Professional Economists, New York Times, March 10, 2017

A second cause of slower economic growth is the decline in productivity growth, which has occurred not just in the United States but in most advanced economies. The reason for this slowdown is not fully understood, but I recently heard one explanation at a seminar given by the Stanford University economist Charles I. Jones.

According to a recent paper by Mr. Jones and three co-authors, the number of Americans engaged in research has increased more than twentyfold since the 1930s, yet there has been no similar explosion in productivity growth. Their interpretation is that big ideas are just getting harder to find. Unfortunately, there is no sign that this is about to change.



Podcast with Vice Chancellor Laster

In a recent podcast, the Columbia Law School BlueSky Blog features Delaware Vice Chancellor Laster – whose appraisal decisions we have covered repeatedly – discussing the appraisal remedy. While the entire podcast is certainly worth a listen, some important topics include the history of appraisal (~1:30); when markets may depart from fair value (~5:50); how appraisal may act as a reserve price (~9:30); the discovery burden in appraisal (~14:20); interest rates and the relevance of interest (~21:30); how to determine fair value (~23:30); and the future of appraisal (~29:00).

via Columbia