AgPa #51: Short Sellers vs. Firms

Go Down Fighting: Short Sellers vs. Firms (2012)
Owen A. Lamont
The Review of Asset Pricing Studies 2(1), URL

I like controversial and (in my opinion) misunderstood topics and this week’s AGNOSTIC Paper examines the next big one: short selling. The paper is unfortunately already more than 10 years old, but it is still a go-to reference for short selling. Apart from that, the fights between firms and short sellers are also quite entertaining – at least from an outsider’s perspective…

  • Short-seller-fighting firms tend to massively underperform
  • The results are robust after controlling for the major factors

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AgPa #32: Agnostic Fundamental Analysis (3/3)

Boosting agnostic fundamental analysis: Using machine learning to identify mispricing in European stock markets (2022)
Matthias X.Hanauer, Marina Kononova, Marc Steffen Rapp
Finance Research Letters 48, URL/SSRN

The third and final post about agnostic fundamental analysis. This week’s AGNOSTIC Paper challenges the simple linear methodology and introduces vastly improved valuation models…

  • More sophisticated valuation models yielded better performance
  • Different models emphasize different fundamental variables

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AgPa #31: Agnostic Fundamental Analysis (2/3)

Global market inefficiencies (2021)
Söhnke M. Bartram, Mark Grinblatt
Journal of Financial Economics 139(1), 234-259, URL/SSRN

The second AGNOSTIC Paper on agnostic fundamental analysis. This one is the international out-of-sample test where the authors apply their methodology to stock markets around the world. The results point in the same direction and suggest robust out-of-sample evidence…

  • Undervalued stocks outperformed overvalued stocks – also globally
  • Agnostic fundamental analysis yielded significant alpha – globally and against up to 80 factors
  • Agnostic fundamental analysis remains profitable after transaction costs
  • The degree of market efficiency differs around the world

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AgPa #30: Agnostic Fundamental Analysis (1/3)

Agnostic fundamental analysis works (2018)
Söhnke M. Bartram, Mark Grinblatt
Journal of Financial Economics 128(1), 125-147, URL/SSRN

This week’s AGNOSTIC Paper tackles a very basic question: Does fundamental analysis work? For that purpose, the authors introduce an agnostic valuation model that explains the market capitalization of companies by their most recent fundamentals. A strategy that bets on the convergence of prices and estimated “fair” values generated strong profits between 1987 and 2012…

  • Undervalued stocks outperformed overvalued stocks by about 0.5% per month
  • Agnostic fundamental analysis yielded significant alpha

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SA #1: MSCI – Even Quality Can Become Too Expensive

MSCI: Even Quality Can Become Too Expensive
November 9, 2022


  • On October 25, MSCI reported quite strong 9M numbers and, for the moment, defended its high multiples (LTM P/E about 44).
  • In this article, I focus on a high-level valuation of MSCI to decide if it’s worth analyzing the stock in more detail.
  • Using a standard DCF-WACC model, market data for interest rates, and reasonable estimates for future fundamentals suggests massive overvaluation (theoretical downside of 54%).
  • The result is very similar when comparing MSCI to common valuation multiples of a peer group. Depending on the multiple, the company trades at a premium of up to 60%.
  • MSCI is undeniably a very high-quality company. But at the current levels, the company just appears way too expensive. So I am not yet interested.

Read the Full Article on Seeking Alpha

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AgPa #9: The Age of Intangible Assets

Equity Investing in the Age of Intangibles (2021)
Amitabh Dugar & Jacob Pozharny
Financial Analysts Journal, 77(2), 21-42, URL

Given the exceptional decade for technology companies, I am late to the party with this one. This week’s AGNOSTIC Paper examines the role of intangible assets for equity investors.

The issue is at the heart of fundamental analysis and also relevant for systematic investors. The authors present several interesting results for a global sample of thousands of companies between 1994 and 2018.

  • A measure for intangible-intensity of industries
  • Book values became less relevant for intangible-intense industries but still remain important

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AgPa #6: Predicting Returns with (Alternative) Consumer Data

Predicting Performance Using Consumer Big Data (2022)
Kenneth Froot, Namho Kang, Gideon Ozik, Ronnie Sadka
The Journal of Portfolio Management 48(3), 47-61, URL

This week’s AGNOSTIC Paper is again more related to my other content. The authors use proxies for in-store activity, brand awareness, and web traffic to predict fundamentals and returns of consumer-oriented companies.

I like the paper because it examines alternative data and is published in a peer-reviewed journal. Other studies on the topic are often just white papers of data providers. So it is nice to have a more scientific analysis.

  • Alternative consumer-data predicts firm fundamentals
  • Trading on alternative consumer-data generated monthly alphas of up to 1.9%

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AgPa #1: Index Whales

Index Providers: Whales Behind the Scenes of ETFs (2021)
Yu An, Matteo Benetton, Yang Song
Invited for submission to the Review of Financial Studies, URL

The first research paper examines a specific area of the asset management industry: Exchange Traded Funds (ETFs) and index providers, the companies selling market indices like the S&P 500.

In a remarkable combination of empirical analysis and theoretical modeling, the authors present several interesting results:

  • Index providers are an oligopoly
  • ETF investors care about the index
  • Index providers capture 1/3 of ETF fees
  • Index providers are extremely profitable

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