Fundamental Investment Analysis

Earnings management involves actions by managers to influence reported financial results, often to present a more favorable view of company performance. In this chapter, we discuss the tools available to managers for earnings management. We first consider manipulation of net income through accruals and real earnings management. Then, we disaggregate earnings management along the income statement, comparing manipulation of revenue, expenses, and gains and losses.

Under standard assumptions, individuals and the government are indifferent between traditional tax-deferred retirement accounts and “front-loaded” (Roth) accounts. Adding investment fees to this benchmark, individuals are still indifferent but the government is not. We show that under weak conditions firms charge equal percent fees under both systems, yielding higher dollar fees under Traditional. We estimate that tax deferral increases demand for asset management services by $3.8 trillion, costing the government $23.4 billion in annual fees.

Private equity was a bright spot in institutional investors’ portfolios last year. The asset class held up much better than public stocks, which were whipsawed by rising rates. Read the full article at the Financial Times.

After the global financial crisis, the yields of U.S. Treasury bills frequently exceed other risk-free rate benchmarks, thereby pointing to a diminishing convenience premium. Constructing a new measure of dealers’ balance sheet constraints for providing intermediation in U.S. Treasury markets, we trace these diminishing convenience premiums to primary dealers’ ability to act as intermediaries.

This article analyzes the hedging potential of real estate and especially looks at the impact of lease contracts in various countries around the world on the inflation hedge capability for both expected and unexpected inflation. The dataset consists of direct real estate rent and capital value data for 59 cities/MSAs in 25 countries between 1991 and 2020 to make international comparison over a long time period possible. The results indicate that real estate is a good hedge against inflation, and especially against unexpected inflation.

A climate catastrophe can be avoided, but only with a rapid and sustained investment in companies and projects that reduce greenhouse gas emissions. To the surprise of many, this has already begun. Investors are abandoning fossil-fuel companies and other polluting industries and financing businesses offering climate solutions. Rising risks, evolving social norms, government policies, and technological innovation are all accelerating this movement of capital.

The crash of some of the flagbearers of the equity bubble in recent years has been painful for investors. We have seen “pandemic winner” Netflix dive 75 per cent from 2021 peaks, crypto exchange operator Coinbase plunge 86 per cent and the one-time meme stock and cinema chain AMC lose 80 per cent.