by ilene - January 13th, 2011 12:47 am
Courtesy of Jesse’s Americain Cafe
See Charles Ferguson’s documentary Inside Job when you have the opportunity. I understand that the DVD may be released sometime around March 2011.
Ferguson starts his presentation at about 7 minutes in.
I was glad to hear him admit that he was wrong, honestly wrong, about his assessment of Japan Inc. and the Japan asset bubble. He also goes on to make a rather pointed observation about economics which needs to be heard dispassionately by related institutions in particular, whose own credibility and integrity is at risk.
"It is one thing to be honestly correct or not correct about something; it’s another thing for an academic discipline to have a systemic corruption problem. And that’s what I will be talking about in part later, because the economics discipline in my view does have that problem."
In Charles’ defense he is only saying publicly what is being said privately amongst academic scientists and mathematicians about the inordinate effect of power and money on the integrity of economic opinions and research.
As you may recall Alan Greenspan was caught up in the Keating Five S&L scandal. The point of this is that the ‘empirical objectivity’ of the Federal Reserve in setting policy is a myth as egregious as the trickle down theory and the efficient markets hypothesis.
At the heart of the current financial crisis is the weakening and even corruption of a number of institutions, both public and private. And their reform and restoration to a fully functional state remains to be accomplished. Reforms risks disclosure, and coverups protect the status quoagainst such the effects of such a disclosure. This is why reform from within is problematic.
Yes, there is always the need for some discretion and privacy in executive decisions. But it must be limited and exceptional, subject to overview by a more relatively impartial third party, always.
The Fed, and particularly the New York Fed, is a largely private institution making decisions not only about its own industry, but is taking actions with public funds that approach and sometimes become de facto public policy decisions with far reaching effects, and is doing so largely in secret. It is therefore highly vulnerable to insider dealing and conflicts of interest. Excessive secrecy is inimical to a free society, for wherever secrecy and power exist, corruption quickly follows. …
Tags: Charles Ferguson, conflicts of interest, Economy, Inside Job, Money
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by ilene - August 13th, 2009 1:24 pm
Courtesy of Eric J. Fox at Stock Market Prognosticator
An article entitled "Behavioural Bias and Conflicts of Interest in Analyst Stock Recommendations" published in the Journal of Business Finance & Accounting examines these issues:
"Whether sell-side analysts are prone to behavioural errors when making stock recommendations as well as the impact of investment banking relationships on their judgments. In particular, we analyse their report narratives for evidence of cognitive bias."
The conclusions:
"New buy recommendations on average have no investment value."
I think everyone already knew that, although I would add that in the short term they can drive the price of a stock up.
"Whereas new sell recommendations do, and take time to be assimilated by the market."
Again, fairly logical since sell side sell recommendations are fairly rare, they are likely to be more noticed.
"We also show that new buy recommendations are distinguished from new sells both by the level of analyst optimism and representativeness bias as well as with increased conflicts of interest."
Just as a review, representativeness bias refers to "A cognitive strategy for quickly estimating the probability that a given instance is a member of a particular category. We use it to judge the likelihood that something or someone belongs to a specific category."
"Successful new buy recommendations are characterised by lower prior returns, value stock status, smaller firms and weaker investment banking relationships."
Small Cap Value stocks with little or no analyst coverage rule.
So what does this all prove? That sell side analysts are humans just like the rest of us and suffer from deviant investment behavior despite what is arguably a higher formal education.
[Source: Mokoaleli-Mokoteli, Thabang, Taffler, Richard J. and Agarwal, Vineet, Behavioural Bias and Conflicts of Interest in Analyst Stock Recommendations. Journal of Business Finance & Accounting, Vol. 36, Nos. 3-4, pp. 384-418, April/May 2009.]
Tags: analyst, behavioral bias, conflicts of interest, sell side
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.