Academic Articles Summary

With having a major in finance, I looked at three big journals in the finance sector. The Financial Review, Journal of Financial & Quantitative Analysis, and The Journal of Finance. Even though all three had to do with the finance sector, the articles had to deal with mainly different topics, with a few similarities running through them. In the Journal of Financial & Quantitative Analysis (JFQA), had to deal a little more on the math portion behind finance, the big equations to finding out different gains, the impact outside forces had upon the market and so forth. This in itself was slightly different then the other two journals mainly because it’s focus wasn’t just on text, but also showed the different equations used to solve and prove different theories. The Financial Review though was different in the other two based upon how it was written. The articles in the review were a bit more wordy, as you could tell that it was meant to be read by other peers in the academia section of finance, and quite possibly major fund managers, and those who are heavily involved in the market. The Journal of Finance was the largest journal published of the three with many different articles spanning different horizons of finance, from the stock market to separate sectors to even a little psychoanalytical insights on your typical investor. All three were excellent reads, and have now even subscribed to the Journal of Finance myself.

In the Journal of Finance article “Who gambles in the stock market?” by Kumar, I picked up on a few keywords. Some of these keywords included: underperformance, sectors, gambling and investments, and preference. In the article, it was talked about why most of your typical investors tend to gravitate towards the stocks and bonds that are considered by analysts as a “lottery-type stock.” It combines on how deeply rooted gambling is to many people in their personalities, and just the human way of life in itself. Gambling has been around for many years, everyone searching for the thrill of winning it big. That’s why our normal lottery does so well, and has not faded out. An example of this that we can relate to in the state of Michigan is the Big Game, where over the past few months the jackpots have been over the $100 million range, and once breaking the $300 million mark. I myself went out to buy a few tickets, in search of by chance winning the jackpot, or even a portion of it. Your typical investor views the market as the same way, especially after the tech boom in the early 2000’s. Because of this, we see a lot of investment in stocks that may show a small amount of promise, or those who are making unsubstantiated gains without having a strong balance sheet of the company to prove that the rise in value is actually worth it. Everyone wants to have that eBay stock, that goes for $17 a share to over $120 a share in only a few short weeks. People often tend to chase gains as well based upon the same principle, when in all actuality a more conservative approaches in blue chip companies can yield a higher profit for the investor.

The JFQA article was actually also written by Alok Kumar, who is a professor at the University of Texas. His second article used a bit of the same psychoanalytical approach, but also included sectors in this article a lot. Titled “Dynamic Style Preferences of Individual Investors and Stock Returns”, he again writes more of a simpler piece, not incredibly heavy in jargon, but easily readable for those that are interested. A more do it yourself investor with an interest in the topic could read the article and take much away from it, as opposed to just being confused as in many other articles in this journal. Kumar takes a look at how the investment strategy of individual investors changes based upon a certain sector has performed in the short term, and some of the investment strategies (or follies) investors take around them. With the emergence of the oil crisis a few years back, people were buying up oil stocks like they were going out of style. As opposed to sticking to their game plan, they moved money over to the sector in hopes that the reliance upon oil in the long term, and the ever raising prices for gas were going up so sharply in the short term would help fuel their portfolios with quickly increasing oil price stocks. It was shown though that the price increase was not due to an increased demand on oil, but a increase demand to own a share of the stock. He also looked at why this happened, which was tied in a bit to his article on gambling and chasing stock gains, and that analytically he said this has happened many times historically in the past.

The third article, “The Halloween Effect in US Sectors” by Jacobsen and Visaltanachoti, focused on why between the months of September to May, certain sectors seen an increase in their price. This was called the Halloween Effect, mainly because it marks the start of consumers increasing their spending in certain sectors of the market. If we take a look at the store Target for example, they cater to every holiday that falls in those months, where gift giving is a bit more prevalent. At Halloween, the food sector starts to increase by selling more candy in that period than it normally does, and continues as turkeys and hams are in more of an demand with Christmas and Thanksgiving coming quickly. Target also sells costumes and toys, all of which go up as well coming closer and closer to Christmas. Consumer spending on goods and services increases exponentially in this period. After the new year, there still is Valentine’s day, when restaraunts see a major increase in revenue, and even Easter is always able to sell a few more items. Of course, the alcohol sector always does better then as well, due to the many number of parties that are going on in this period, and that St Patrick’s day also falls in this time period. The article though in my opinion was written very scholarly, and at times hard to read. The intended readers were definitely finance professors and fund managers. Though the main takeaway I got from the article was buy in September, and sell in May.