Implied cost of capital investment strategies - evidence from international stock markets

Investors can generate excess returns by implementing trading strategies based on publicly available equity analyst forecasts. This paper captures the information provided by analysts by the implied cost of capital (ICC), the internal rate of return that equates a firm's share price to the present value of analysts' earnings forecasts. We find that U.S. stocks with a high ICC outperform low ICC stocks on average by 6.0% per year. This spread is significant when controlling the investment returns for their risk exposure as proxied by standard pricing models. Further analysis across the world's largest equity markets validates these results

A study of data-driven momentum and disposition effects in the Chinese stock market by functional data analysis

We apply a functional data analysis approach to decompose the cross-sectional Fama–French three-factor model residuals in the Chinese stock market. Our results indicate that other than Fama–French three factors, there are two orthonormal asset pricing factors describing the behavioral biases in their historical performances: between winner and loser stocks, and extreme and mediocre-performing stocks, respectively. We explain these two factors through investors’ overreaction, overconfidence and the lead-lag effect. These findings empirically show the existence of momentum and disposition effects in the Chinese stock market. A buy-and-hold mean-variance optimized portfolio incorporating these two market anomalies boosts the Sharpe ratio to 1.27

Earnings quality and stock returns

An exclusive focus on bottom-line income misses important information contained in accruals ( the difference between accounting earnings and cash flow) about the quality of earnings. Earnings increases that are accompanied by high accruals, suggesting low-quality earnings, are associated with poor future returns. We explore various hypotheses earnings manipulation, extrapolative biases about future growth, and under-reaction to changes in business conditions-to explain accruals' predictive power. Checks for robustness using withinindustry comparisons and data on U. K. stocks are also provided

Functional magnetic resonance imaging evaluation of bilateral brain activation in Chinese speech

Objective: To investigate the cerebral hemispheric representation of Chinese subjects employing functional magnetic resonance imaging during verbal fluency tasks. Patients and Methods: Healthy subjects were presented stimuli of the word categories animals, fruit, occupations. Each had to respond by saying aloud in Chinese any item which belonged to the category. Subjects' speech responses were recorded during functional magnetic resonance imaging. The blood oxygen level-dependent response was averaged and data analysed using statistical parametric mapping. Results: Verbal fluency tasks spoken in Chinese were associated with bilateral fronto-temporal lobe activation. Conclusion: These results provide preliminary support for bilateral cerebral hemispheric representation of Chinese speech. © 2005 Hong Kong College of Psychiatrists.link_to_subscribed_fulltex