Скачать презентацию 4 th LECTUR E SERIES Profiting from Скачать презентацию 4 th LECTUR E SERIES Profiting from

775e5bc259911f417aac7f10749bbf36.ppt

  • Количество слайдов: 51

4 th LECTUR E SERIES ? Profiting from Irrationality Behavioral Finance in the Philippines 4 th LECTUR E SERIES ? Profiting from Irrationality Behavioral Finance in the Philippines Francisco L. Roman Jr. , DBA 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 1 LECTUR E SERIES Table of Contents /45 I. “Is Behavioral Finance 4 th 1 LECTUR E SERIES Table of Contents /45 I. “Is Behavioral Finance a Growth Industry? ” • What is Behavioral Finance? • Behavioral AND Traditional Finance • Examples of Terms II. Behavioral Finance in the Philippines • FINEX Survey Findings • Analysis and Preliminary Conclusions III. Wrap-Up • Usefulness for Corporate Finance • Words of Caution 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES Part I: Behavioral Finance 26 September 2002 KEEPING THE 4 th LECTUR E SERIES Part I: Behavioral Finance 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 Behavioral AND Traditional 1/2 th 2 LECTUR E SERIES BEHAVIORAL FINANCE The idea 4 Behavioral AND Traditional 1/2 th 2 LECTUR E SERIES BEHAVIORAL FINANCE The idea is simple: Investors are not as rational as traditional theory has assumed, and so biases in their decision-making can have a cumulative effect on asset prices. TRADITIONAL FINANCE In efficient market theory, assets are correctly priced because supply and demand reflect aggregate public knowledge about those assets, and that the movement of stock prices can not be reliably predicted based on past results. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 Traditional AND Behavioral 2/2 th 3 LECTUR E SERIES Efficient Market Hypothesis Behavioral 4 Traditional AND Behavioral 2/2 th 3 LECTUR E SERIES Efficient Market Hypothesis Behavioral Finance Rational Markets Irrational Markets Fundamental (& Technical) Analyses Heuristic Beliefs (Biases) 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 4 LECTUR E SERIES Two Points of View Behavioral Finance models will 4 th 4 LECTUR E SERIES Two Points of View Behavioral Finance models will NOT replace theory of Efficient Markets. The idea that investors and managers are NOT uniformly rational makes intuitive sense. Basic Market “Psychology”: Buy out of Greed. Sell out of Fear. Behavioral Finance goes Beyond Greed and Fear. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 The “Traditionalists” Critique th 5 LECTUR E SERIES • Overemphasis • On (Unrepresentative) 4 The “Traditionalists” Critique th 5 LECTUR E SERIES • Overemphasis • On (Unrepresentative) Anomalies • On (“Before & After”) Events • Ambiguity: Over/Under Reaction • Not Scholarly Enough • An excuse to evade economic theory • Behavioral Finance has NOT shown that the tendencies of individuals, when aggregated, have an impact on world prices. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 Behaviorial Finance Response th 6 LECTUR E SERIES In finance, you are playing 4 Behaviorial Finance Response th 6 LECTUR E SERIES In finance, you are playing against people, who value assets on the basis of their expectations about the future. These expectations are ephemeral, or at best unstable. • Valuing shares is an ART (not a science): • Globalization creates info. lags. • Many critical assets are intangible. • Brands & patents, learning organizations • Trust is still critical (Enron et al. ). • And ephemeral 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 7 “RECONCILIATION 1/3” Efficient market models of rational behavior 4 th LECTUR E SERIES 7 “RECONCILIATION 1/3” Efficient market models of rational behavior are not BAD descriptions of reality. They’re just NOT going to capture everything. Since bubbles and other anomalies have real economic effects, and occur often enough, it is worth devoting time and effort trying to understand what drives them and whether their impact can be contained. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 8 LECTUR E SERIES “RECONCILIATION 2/3” From the Traditionalists: There’s a big 4 th 8 LECTUR E SERIES “RECONCILIATION 2/3” From the Traditionalists: There’s a big demand for behavioral finance among the practitioners because nobody wants to believe the markets are efficient, but if there’s so much money on the table, how is it that professional managers can’t do any better than index funds? 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 9 LECTUR E SERIES “RECONCILIATION 3/3” From the Behaviorists: BF doesn’t say 4 th 9 LECTUR E SERIES “RECONCILIATION 3/3” From the Behaviorists: BF doesn’t say “There’s easy money. Go after it. ” It says that psychology causes market prices and fundamental values to part company for a long time. Potential profit opportunities come packaged together with additional risk, and “smart money” can’t or won’t take a large enough bet to eradicate the anomalies, and won’t be able to arbitrage away the anomalies and return the market to equilibrium. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 10 LECTUR E SERIES Examples of Terms 1/3 HEURISTIC BELIEFS = “Rules 4 th 10 LECTUR E SERIES Examples of Terms 1/3 HEURISTIC BELIEFS = “Rules of Thumb” = “Biases” * Disposition Effect * Herd Mentality * Overconfidence * Regret Minimization * Representativeness 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 11 LECTUR E SERIES Examples of Terms 2/3 HERD MENTALITY • Start: 4 th 11 LECTUR E SERIES Examples of Terms 2/3 HERD MENTALITY • Start: Investors depend on “buzz”/rumors. • The Herd: Other investors join the “crowd”. • Reversal: Initial “pull-outs” accelerate • REPRESENTATIVENESS • “Recall”– of past performance. • “Persistence”– winners are winners & v. v. • Tendency to use media-based info. • OVERCONFIDENCE: “Analysts are 80% confident but only 60% accurate. ” 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 12 LECTUR E SERIES Examples of Terms 3/3 REGRET MINIMIZATION • Dependence 4 th 12 LECTUR E SERIES Examples of Terms 3/3 REGRET MINIMIZATION • Dependence of the analyst • Share the credit for good performance. • Blame the analyst for poor performance. DISPOSITION EFFECT • “Loss Averse”: hold losers too long. • Ego-driven • Uneven expectation (of recovery & breaking-even) • “Risk Averse”: sell winners too early. • Fear of price reversal. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 13 LECTUR E SERIES Findings From DC Markets 1/4 • Professional traders 4 th 13 LECTUR E SERIES Findings From DC Markets 1/4 • Professional traders can be loss averse. • Herd mentality will raise stock prices (Irrational Exuberance). • “The Greenspan Put”: Just as an investor can set a floor for the price of a security by buying a put option, so Mr. Greenspan will provide a floor for the stock market by cutting interest rates when it gets too low for his liking. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 14 LECTUR E SERIES Findings From DC Markets 2/4 • Bubbles/Anomalies exist 4 th 14 LECTUR E SERIES Findings From DC Markets 2/4 • Bubbles/Anomalies exist & persist. One weakness of the efficient market theory is the assumption that arbitrage by the informed (rational investor) against the uninformed (e. g. , biased) is riskless and costless. LTCM Assume a relatively small volume of shares in circulation that can not meet the demand by would-be shorters. Peoples with imperfect valuations can set prices that are out of line. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 15 LECTUR E SERIES Findings From DC Markets 3/4 • Computer models 4 th 15 LECTUR E SERIES Findings From DC Markets 3/4 • Computer models imply that price patterns are created by the collective actions of market traders themselves– e. g. , a trend in rising prices can be interpreted as a buy or a sell signal. • The more orderly a market appears (e. g. , regularly rising P & Q), the less stable it is– • The Domino Effect 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 16 LECTUR E SERIES Findings From DC Markets 4/4 • Economists have 4 th 16 LECTUR E SERIES Findings From DC Markets 4/4 • Economists have a problem with self-control. • We think it is not a problem. • Homo Economicus is always rational. • But “time-inconsistent” behavior persists. • The Doughnut Dilemma (& the Borrower) Other Heuristics • Instant Amnesia • Arbitrary Obsessions • Fatal Optimism • Compulsive Monitoring 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 17 LECTUR E SERIES Findings From LDC Markets 1/2 • In general 4 th 17 LECTUR E SERIES Findings From LDC Markets 1/2 • In general Ro. E works better than P/E Multiples. • DCF projections are “guesses”. • The past becomes a good predictor • In South Korea, the prices of the worst firms in the last 6 months did better in the next 6. • Government bail-outs = “implied put” • In Taiwan, it is the ratio of R&D to Sales. • In China & RP, it is debt– CA/CL, etc. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 18 LECTUR E SERIES Findings From LDC Markets 1/2 • Dividends are 4 th 18 LECTUR E SERIES Findings From LDC Markets 1/2 • Dividends are the GOOD NEWS: • In HK, China, Singapore & Malaysia • 50% give > bank deposit interest rates • In USA, only 7% • Since 1991, two-thirds of investment returns came from dividends (not capital gains). • A “wasteful” use of scarce capital? 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES Part II: The FINEX Survey 26 September 2002 KEEPING 4 th LECTUR E SERIES Part II: The FINEX Survey 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 19 LECTUR E SERIES Survey Items HEURISTIC BELIEFS > “Rules of Thumb” 4 th 19 LECTUR E SERIES Survey Items HEURISTIC BELIEFS > “Rules of Thumb” = “Biases” > Disposition Effect > Herd Mentality > Overconfidence > Regret Minimization > Representativeness 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 20 LECTUR E SERIES Case Examples 1/2 DISPOSITION EFFECT Sell winners early 4 th 20 LECTUR E SERIES Case Examples 1/2 DISPOSITION EFFECT Sell winners early HERD MENTALITY Hold losers 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 21 Case Examples 2/2 OVERCONFIDENCE REPRESENTATITIVENESS REGRET MINIMIZATION 26 4 th LECTUR E SERIES 21 Case Examples 2/2 OVERCONFIDENCE REPRESENTATITIVENESS REGRET MINIMIZATION 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 22 SERIES LECTUR E Survey Sample 1/3 Methodology • Two “Runs”: July 4 th 22 SERIES LECTUR E Survey Sample 1/3 Methodology • Two “Runs”: July 4 & Aug 28 • Phone & E-mail Follow Up • All Finex Members • Excluding errors in addresses • 75 Responses as of September 19 • 6 Point Rating Scale (most of the time) 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 23 Survey Sample 2/3 Others 13% Commercial Mfg. 19% 4 th LECTUR E SERIES 23 Survey Sample 2/3 Others 13% Commercial Mfg. 19% 26 September 2002 Banks 25% Other Fin. 30% KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 24 Survey Sample 3/3 Senior Mgt. 27% CEO 25% 4 th LECTUR E SERIES 24 Survey Sample 3/3 Senior Mgt. 27% CEO 25% 26 September 2002 CFO 37% Others 11% KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 25 The Framework Overconfidence Greed Fear Factor Disposition Represent. 4 th LECTUR E SERIES 25 The Framework Overconfidence Greed Fear Factor Disposition Represent. Herd Mentality Regret 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 26 LECTUR E SERIES On the Two Paradigms 1/2 • Ranking Factors 4 th 26 LECTUR E SERIES On the Two Paradigms 1/2 • Ranking Factors in Investing • Fundamental Analysis (25/27 respondents) • Technical, Risk-Return, Earning’s Report (11) • Time-Based Investing • Short Term 60 -90% • Medium 15 -30 • Long 0 -100 • Use of Charts As CFO Often (6/14) 26 September 2002 As Individual Once in a While & Sometimes (7&8/22) KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 27 LECTUR E SERIES On the Two Paradigms 2/2 • Use of 4 th 27 LECTUR E SERIES On the Two Paradigms 2/2 • Use of “Rules-of-Thumb” from Experience • Significant & More Significant (20/25) • Ranking Reasons for Losses • Market & Stock Price (15/21) • Interest Rate (6), Time(8), Luck (11) Investors combine both paradigms. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 28 SERIES LECTUR E Disposition Effect 1/4 • To What Extent Does 4 th 28 SERIES LECTUR E Disposition Effect 1/4 • To What Extent Does a “Paper Loss” • Affect your future investments • Significant 15/24 • Your evaluation as a CFO • Significant & More & Extremely (14/23) • Less Significant & Insignificant (9/23) • Holding on to LOSING Stocks • 23/23 • Up to what point? • 11 -20% Decline (18/23) 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 29 LECTUR E SERIES Disposition Effect 2/4 • Compensating for the Loss 4 th 29 LECTUR E SERIES Disposition Effect 2/4 • Compensating for the Loss • Sometimes & Often (15/24) • Once in a while & Hardly • (9/24) • And how often did the losing stock return to its original price? • Sometimes & Often (16/23) • And Your Response (multiple answers)? • Buy Other Equity (15) • Buy Non-Equity (14) 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 30 LECTUR E SERIES Disposition Effect 3/4 • Selling WINNING Stocks • 4 th 30 LECTUR E SERIES Disposition Effect 3/4 • Selling WINNING Stocks • Not based on time but % rise Meantime, do • Between 11 -20% (12/23) you make other • Between 21 -40% (10//23 investments? Legend: Never Hardly Once in a while Sometimes Often Always 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 31 LECTUR E SERIES Disposition Effect 4/4 Investors “respond” to paper losses/gains. 4 th 31 LECTUR E SERIES Disposition Effect 4/4 Investors “respond” to paper losses/gains. Floor: Hold losers up to a 20% decline. Ceiling: Sell winners after a 20% rise. While waiting, will NOT buy the same stock. Instead, buy OTHER stock or asset. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 Analysts’ Rate Themselves 1/2 th 32 LECTUR E SERIES Overconfidence? • In predicting 4 Analysts’ Rate Themselves 1/2 th 32 LECTUR E SERIES Overconfidence? • In predicting turning points (28 responses): • Fair 6 • Satisfactory 17 • More than 5 • 6 -point scale (Poor, Very Good, Excellent) • Investment Gains Before 1997 41%& > (21/24) 26 September 2002 Post-1997 11 -30% (14/24) <10% (5/24) KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 Analysts’ Rate Themselves 2/2 th 33 LECTUR E SERIES • Performance Over Time/Administrations 4 Analysts’ Rate Themselves 2/2 th 33 LECTUR E SERIES • Performance Over Time/Administrations Aquino Poor 0 Fair 3 Satisfactory 2 Very Good 9 Excellent 0 Ramos 0 1 6 12 1 Estrada 6 7 5 0 0 Arroyo 4 4 11 0 0 Let the Viewer decide. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 34 LECTUR E SERIES Non-CFOs Rate Analysts • 17/46 Firms use investment 4 th 34 LECTUR E SERIES Non-CFOs Rate Analysts • 17/46 Firms use investment analyst or team • Often (6) & Always (9) follow the advise. • But get contrary results Once in a While (6) & Sometimes (10) • But when accurate, the rise in price is: • 21 -30% 4/16 • 31 -40% 2 • 41 -50% 3 • >50% 7 When they’re right, they deliver. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES Herd Mentality, Representativeness & Regret Minimization 1/6 26 September 4 th LECTUR E SERIES Herd Mentality, Representativeness & Regret Minimization 1/6 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 35 Herd Mentality, Regret Minimization & Representativeness 1/6 • 4 th LECTUR E SERIES 35 Herd Mentality, Regret Minimization & Representativeness 1/6 • Pick 1 & 2 “best” & 1 “worst” stocks in 4 sectors: • PSE listed companies • Telecoms, Food, Banking, Real Estate • Criteria: Company Image, Fundamentals, Management • Answers were tested against actual stock performance, over a 12 -month period. • Returns include appreciation (or not) + any dividends. KEEPING THE FAITH IN THE FINANCIAL SYSTEMS 26 September 2002

4 th 36 LECTUR E SERIES Herd et al. 2/6: Reasons for Company’s Profile/Image 4 th 36 LECTUR E SERIES Herd et al. 2/6: Reasons for Company’s Profile/Image BEST • Stable • Conservative • Strong Franchise • Blur Chip • Dominant • Diversified 26 September 2002 WORST * Political in Nature * Bad Reputation * Too Speculative * No New Developments * Unclear Business Model * Unclear Plans KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 Herd et al. 3/6: Reasons for th 37 LECTUR E SERIES Fundamentals (Ratios) 4 Herd et al. 3/6: Reasons for th 37 LECTUR E SERIES Fundamentals (Ratios) BEST • Liquid • Low Debt • Strong P&L & BS • Good/High Ro. E • Large Share Base • Cash-Rich 26 September 2002 WORST * Not Liquid * Shareholders’ Reputation * Speculative * No New Developments * Poor transparency * Weak Cash Flows KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 38 LECTUR E SERIES Herd et al. 4/6: Reasons for Management BEST 4 th 38 LECTUR E SERIES Herd et al. 4/6: Reasons for Management BEST • Transparent/Prof’l • Market Leader • Foreign Backing • Prudent • Clear Focus • Good Track Record 26 September 2002 WORST * Past “Baggage” (Old Mgt. ) * Poor Credibility/Governance * Speculative * Secretive * No Long Terms Strategy * Heavy Debts KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 39 LECTUR E SERIES Herd et al. 5/6: Reasons for Returns of 4 th 39 LECTUR E SERIES Herd et al. 5/6: Reasons for Returns of the Best Choices • with other comparisons * • if data available PROPERTY ALI BANKS BPI RCBC 26 September 2002 RETURN % +45. 4 RETURN % (17. 9) (52. 9) *EBC *MFC +1. 2 +11. 8 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 40 LECTUR E SERIES Herd et al. 6/6: Reasons for TELECOMS Globe 4 th 40 LECTUR E SERIES Herd et al. 6/6: Reasons for TELECOMS Globe PLDT RETURN % + 5. 2 (28. 9) *Digital 100 FOOD SMC Jolllibee RETURN % +16. 4 + 4. 9 *RFM +95. 1 26 September 2002 Some Herd et al. Some Bad Calls KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES Part III: Wrap-Up 26 September 2002 KEEPING THE FAITH 4 th LECTUR E SERIES Part III: Wrap-Up 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 41 SERIES LECTUR E Wrap-Up 1/5 For the Retail Investors Research does 4 th 41 SERIES LECTUR E Wrap-Up 1/5 For the Retail Investors Research does show that these people tend to hold on to a losing investment and to sell a winning investment too quickly relative to their opportunity costs. Retail investors who think they’re clever enough to beat the market probably don’t even understand traditional finance ideas and should simply follow a passive long-term strategy. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 42 Wrap-Up 2/5 For the Field of Corporate Finance: 4 th LECTUR E SERIES 42 Wrap-Up 2/5 For the Field of Corporate Finance: • Decision biases can have a significant impact on how the firm fares. (The + & - of Enron) • IBM altered its menu of pension funds offered to its employees because alternative program can overcome biases and enable investors to make more rational decisions. 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 43 Wrap-Up 3/5 Assuming “Imperfectly Rational” Managers, Issues for 4 th LECTUR E SERIES 43 Wrap-Up 3/5 Assuming “Imperfectly Rational” Managers, Issues for Future Research: • Why do “bad” capital structure decisions occur? • What about discrepancies between market & CFO valuation of a firm? • How do imperfectly rational CFOs decide? 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES 44 Wrap-Up 4/5 • Rating Investors in the Philippines 4 th LECTUR E SERIES 44 Wrap-Up 4/5 • Rating Investors in the Philippines (54) Still at Basics Moving Up Improved Excellent 26 September 2002 Aquino Ramos Estrada Arroyo 16 3 7 4 13 14 20 11 4 14 11 26 1 4 1 1 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th 45 LECTUR E SERIES Wrap-Up 5/5 • Profiting from Irrationality? ? ? 4 th 45 LECTUR E SERIES Wrap-Up 5/5 • Profiting from Irrationality? ? ? • Not for the retail investor • Inevitable • Low trading volume (even pre-1997) • Easy to be a “big” player • Information lags (even legally) • “Pre-buying” IPOs • Order lags (both buying & selling) • Some are more equal than others • Improving processes (internally) 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS

4 th LECTUR E SERIES To get a copy of the presentation, please visit 4 th LECTUR E SERIES To get a copy of the presentation, please visit … www. jbf. aim. edu. ph 26 September 2002 KEEPING THE FAITH IN THE FINANCIAL SYSTEMS