Tag: investment returns

Music Sentiment and Stock Returns Around the World

Mary Pat Campbell

Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3776071

Graphic:

Excerpt:

This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a direct measure of mood that does not pre-specify certain mood-affecting events nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors, weather conditions, and COVID-related restrictions. We find that music sentiment is positively correlated with same-week equity market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when trading restrictions limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility. It is negatively associated with government bond returns, consistent with a flight to safety.

Author(s):

Alex Edmans
London Business School – Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Adrian Fernandez-Perez
Auckland University of Technology

Alexandre Garel
Audencia Business School

Ivan Indriawan
Auckland University of Technology – Department of Finance

Publication Date: 14 Aug 2021

Publication Site: SSRN, Journal of Financial Economics (forthcoming)

Chicago Police Pension Forensic Audit Ends With Disturbing Findings

Mary Pat Campbell

Link: https://www.forbes.com/sites/edwardsiedle/2021/09/03/chicago-police-pension-forensic-audit-ends-with-disturbing-findings/?sh=18a0d9717c0c

Excerpt:

This week, the Chicago Police Department Pension Board Accountability Group—comprised of retired and active Chicago police officers and their dependents— released the scathing findings of a forensic audit of the Chicago Policemen’s Annuity and Benefit Fund. The Group hired an outside expert to conduct the forensic audit after the pension refused their request to do so on its own.

…..

According to a lawsuit filed this week by Tobe, the pension denied most of his requests for records under the Illinois Freedom of Information Act. It’s no secret that state and local government pensions—which are supposed to be the most transparent of all pensions—are regularly criticized for opposing public record requests, particularly related to alternative investment documents.

The report accuses the pension of failing to monitor and fully disclose investment fees and expenses.  It is estimated that fees and expenses could be 10 times greater than the $7.4 million disclosed in the pension’s most recent financial audit.  Tobe believes the fees related to dozens of investment managers are not properly disclosed. Using assumptions from an Oxford study, Tobe estimated that undisclosed fees could be as high as $70 million a year. Also, $2 million to $3 million a year in investment fees may have been paid to Wall Street for doing nothing, i.e., fees on committed, uninvested capital. 

Author(s): Edward Siedle

Publication Date: 3 Sept 2021

Publication Site: Forbes

The State Pension Funding Gap: Plans Have Stabilized in Wake of Pandemic

Mary Pat Campbell

Link: https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2021/09/the-state-pension-funding-gap-plans-have-stabilized-in-wake-of-pandemic

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Excerpt:

Most analysts attribute the strong market performance to historically low interest rates and an unprecedented $5 trillion in federal stimulus in response to the pandemic. In addition, the economy is now recovering at a rapid pace, with recent projections by the Congressional Budget Office, Moody’s, and the Federal Reserve forecasting a return to pre-pandemic levels of gross domestic product by calendar year 2022 or before.3

However, the path to recovery remains uncertain, and the long-term forecast for economic growth and pension investment returns is less rosy. The Congressional Budget Office expects average real economic growth of 1.6% between 2026 and 2031 and nominal growth of 3.7% over the same time frame—significantly lower than the historical average.4 As such, market experts now estimate equity returns, which are related to economic growth and current market value of stocks, to be 6.4% over the long term, compared with 6.7% before the pandemic.5 And with interest rates currently lower than pre-pandemic levels, they also project bonds to yield just 2% over the next decade before returning to the pre-pandemic expected yield of about 4%.6

Author(s): Greg Mennis, David Draine

Publication Date: 14 Sept 2021

Publication Site: Pew Trusts

CalPERS Comes Dead Last of 34 Public Pension Returns Despite Having Biggest, Best Paid Investment Office

Mary Pat Campbell
CalPERS Comes Dead Last of 34 Public Pension Returns Despite Having Biggest, Best Paid Investment Office

Excerpt:

Despite having the most heavily staffed and luxuriously paid investment office of any public pension fund, CalPERS scored the worst investment returns of any of 34 funds tracked by Pensions & Investments.

As you can see at the Pensions & Investments site, CalPERS return for fiscal year 2020-2021 was 21.3%. The next lowest was tiny Kern County, more than two and a half points higher, at 23.9%. CalPERS’ Sacramento sister CalSTRS delivered 27.8%. The stars were Texas County, at 33.7&. New York Common, at 33.6%. San Bernardino County, at 33.3%, Oklahoma Teachers, at 33%, and Oklahoma Firefighters at 31.8%. Mississippi PERS came it at 32.7%, but that was gross of fees. Nevertheless, five funds earned a full 10% in investment returns more than CalPERS, and the pension fund arguably the most similar to CalPERS in terms of scale did more that 6% better.

That extreme laggard result also fell short of CalPERS benchmark of 21.7%. Recall that investment expert Richard Ennis explained at length that public pension funds and their consultants devise their own benchmarks, and they not surprisingly wind up being unduly forgiving

An earlier paper by Ennis found that even though nearly all public pension funds generated negative alpha, as in they actively destroyed value, CalPERS was one of the worst, coming in at number 43 out of 46, with a stunning negative alpha of 2.4%.

Author(s): Yves Smith

Publication Date: 19 August 2021

Publication Site: naked capitalism