Investors, economists and the media spend an enormous amount of time and energy trying to forecast the economy. The idea is that forecasting economic growth will give us an idea of where the stock market is headed. Surprisingly, no predictive relationship exists between current economic conditions and the current stock market.
Examining investment strategy can be useful when evaluating mutual funds, but what information is contained in fund holdings? Do they reveal stock-picking skill?
Research and data-driven behavioral insights to guide client conversations
Rather surprisingly, the equity strategy framework can provide an estimate of current expected stock market returns. This is accomplished by measuring the recent investor response to each strategy, which, it turns out, captures the deep behavioral currents driving market returns. The resulting information is useful when managing equity market exposure.
With the recent market decline, increased volatility and the deafening media noise, it can be easy to lose track of the basics. Remember, recent activity doesn’t tell us much about market returns.
Practical application of behavioral finance to portfolio construction, management and analysis