Analysis of Earnings, Stock Prices and Bond Yields: The Fed Model Approach

Prediction of the stock market valuation is a common interest to all market participants. Theoretically sound market valuation can be achieved by discounting future earnings of equities to present. Competing valuation models seek to find variables that affect the equity market valuation in a way that the market valuation can be explained and also variables that could be used to predict market valuation. In this paper we test the contemporaneous relationship between stock prices, forward looking earnings and long-term government bond yields. We test this so-called Fed model in a long- and short-term time series analysis. In order to test the dynamics of the relationship, we use the cointegration framework. The data used in this study spans over four decades of various market conditions between 1964-2007, using data from United States. The empirical results of our analysis do not give support for the Fed model. We are able to show that the long-term government bonds do not play statistically significant role in this relationship. The effect of forward earnings yield on the stock market prices is significant and thus we suggest the use of standard valuation ratios when trying to predict the future paths of equity prices. Also, changes in the long-term government bond yields do not have significant short-term impact on stock prices.

The Fed Model: International Analysis

The Fed model is a widely used market valuation model. It is often used only on market analysis of the S&P 500 index as a shorthand measure for the attractiveness of equity, and as a timing device for allocating funds between equity and bonds. The Fed model assumes a fixed relationship between bond yield and earnings yield. This relationship is often assumed to be true in market valuation. In this paper we test the Fed model from historical perspective on the European markets. The markets of the United States are also includedfor comparison. The purpose of the tests is to determine if the Fed model and the underlying assumptions come true on different markets. The various tests are made on time-series data ranging from the year 1973 to the end of the year 2008. The statistical methods used are regressions analysis, cointegration analysis and Granger causality. The empirical results do not give strong support for the Fed model. The underlying relationships assumed by the Fed model are statistically not valid in most of the markets examined and therefore the model is not valid in valuation purposes generally. The results vary between the different markets which gives reason to suspect the general use of the Fed model in different market conditions and in different markets.

Eficiência da magic formula de value investing no mercado brasileiro

O objetivo deste trabalho é realizar procedimento de back-test da Magic Formula na Bovespa, reunindo evidências sobre violações da Hipótese do Mercado Eficiente no mercado brasileiro. Desenvolvida por Joel Greenblatt, a Magic Formula é uma metodologia de formação de carteiras que consiste em escolher ações com altos ROICs e Earnings Yields, seguindo a filosofia de Value Investing. Diversas carteiras foram montadas no período de dezembro de 2002 a maio de 2014 utilizando diferentes combinações de número de ativos por carteira e períodos de permanência. Todas as carteiras, independentemente do número de ativos ou período de permanência, apresentaram retornos superiores ao Ibovespa. As diferenças entre os CAGRs das carteiras e o do Ibovespa foram significativas, sendo que a carteira com pior desempenho apresentou CAGR de 27,7% contra 14,1% do Ibovespa. As carteiras também obtiveram resultados positivos após serem ajustadas pelo risco. A pior razão retorno-volatilidade foi de 1,2, comparado a 0,6 do Ibovespa. As carteiras com pior pontuação também apresentaram bons resultados na maioria dos cenários, contrariando as expectativas iniciais e os resultados observados em outros trabalhos. Adicionalmente foram realizadas simulações para diversos períodos de 5 anos com objetivo de analisar a robustez dos resultados. Todas as carteiras apresentaram CAGR maior que o do Ibovespa em todos os períodos simulados, independentemente do número de ativos incluídos ou dos períodos de permanência. Estes resultados indicam ser possível alcançar retornos acima do mercado no Brasil utilizando apenas dados públicos históricos. Esta é uma violação da forma fraca da Hipótese do Mercado Eficiente.

Teste de eficiência da magic formula de value investing para o mercado brasileiro de ações

O objetivo desse trabalho é realizar um procedimento de back-test da Magic Formula no IBX-100, a fim de reunir evidencias sobre a eficiência de tal metodologia no processo de seleção das melhores ações e formação de carteiras que superem o desempenho do IBX-100 no longo prazo. Desenvolvida por Joel Greenblatt, a Magic Formula é uma metodologia de formação de carteiras que consiste em escolher ações com altos ROICs e Earnings Yields, seguindo a filosofia de Value Investing. Diversas carteiras foram montadas no período de janeiro de 2000 a junho de 2015 utilizando diferentes combinações de número de ativos por carteira e períodos de permanência. Nem todas as carteiras apresentaram retornos superiores ao índice de mercado. Aparentemente, as carteiras com mais ações e períodos de permanência mais longos apresentam desempenho superior às carteiras menores e com rotatividade maior (períodos de permanência mais curtos). A carteira de 10 ações, com período de permanência de 1 ano, apresentou o maior CAGR dentre todas as outras (17,77%), superando o CAGR de 13,17% do IBX-100 no mesmo período. Esse resultado foi superior mesmo quando ajustado ao risco. Independentemente do período de permanência e número de ações, todas as carteiras apresentaram riscos sistemáticos menores do que o índice IBX-100 (todos os betas foram significativos e menores do que 1). Por outro lado, os alfas das carteiras foram muito baixos e, raramente, significativos, sugerindo que a gestão ativa de acordo com os critérios da Magic Formula não adiciona retornos substancialmente maiores do que o retorno relacionado à variações de mercado.

Earnings Management and Measurement Error

In this paper I consider the impact of a noisy indicator regarding a manager’s manipulative behavior on optimal effort incentives and the extent of earnings management. The analysis in this paper extends a twotask, single performance measure LEN model by including a binary random variable. I show that contracting on the noisy indicator variable is not always useful. More specifically, the principal uses the indicator variable to prevent earnings management only under conditions where manipulative behavior is not excessive. Thus, under conditions of excessive earnings management, accounting adjustments that yield a more congruent overall performance measure can be more effective than an appraisal of the existence of earnings management to mitigate the earnings management problem.

INFLUENCE OF ALTITUDE, AGE AND DIAMETER ON YIELD AND ALPHA-BISABOLOL CONTENT OF CANDEIA TREES (Eremanthus erythropappus)

The heartwood of candeia tree is a source of essential oil rich in alpha-bisabolol, a substance widely used in the cosmetic and pharmaceutical industry. Bearing in mind the economic importance of alpha-bisabolol, this work aimed to evaluate the influence of tree age on the yield and content of alpha-bisabolol present in essential oil from candeia, considering two distinct reliefs and three diameter classes, in Aiuruoca region, south Minas Gerais state. The two distinct reliefs correspond respectively to one section of the stand growing at 1,000m of altitude (Area 1) and another section growing at 1,100m of altitude (Area 2). In each section, 15 trees were felled from among 3 different diameter classes. Discs were removed from the base of each tree to estimate their age by doing growth ring count. Soil samples were taken and Subjected to physical and chemical analysis. The logs were reduced into chips and random samples were taken for distillation to extract essential oil. The method used was steam distillation at a pressure of 2 kgf/cm(2)/2.5 h. The chemical analysis was performed in a gas chromatograph (GC) based on the alpha-bisabolol standard reference. The yield of essential oil from trees in Area I was higher than that from trees in Area 2, with the same pattern of influence for older trees. In Area 2, the alpha-bisabolol content was higher in younger trees. No differences were found between the relevant parameters in relation to diameter classes.

QTL mapping for yield components in a tropical maize population using microsatellite markers

QTL mapping provides usefull information for breeding programs since it allows the estimation of genomic locations and genetic effects of chromossomal regions related to the expression of quantitative traits. The objective of this study was to map QTL related to several agronomic important traits associated with grain yield: ear weight (EW), prolificacy (PROL), ear number (NE), ear length (EL) and diameter (ED), number of rows on the ear (NRE) and number of kernels per row on the ear (NKPR). Four hundred F-2:3 tropical maize progenies were evaluated in five environments in Piracicaba, Sao Paulo, Brazil. The genetic map was previously estimated and had 117 microssatelite loci with average distance of 14 cM. Data was analysed using Composite Interval Mapping for each trait. Thirty six QTL were mapped and related to the expression of EW (2), PROL (3), NE (2), EL (5), ED (5), NRE (10), NKPR (5). Few QTL were mapped since there was high GxE interaction. Traits EW, PROL and EN showed high genetic correlation with grain yield and several QTL mapped to similar genomic regions, which could cause the observed correlation. However, further analysis using apropriate statistical models are required to separate linked versus pleiotropic QTL. Five QTL (named Ew1, Ne1, Ed3, Nre3 and Nre10) had high genetic effects, explaining from 10.8% (Nre3) to 16.9% (Nre10) of the phenotypic variance, and could be considered in further studies.

Transition in Yield and Azimuthal Shape Modification in Dihadron Correlations in Relativistic Heavy Ion Collisions

Hard-scattered parton probes produced in collisions of large nuclei indicate large partonic energy loss, possibly with collective produced-medium response to the lost energy. We present measurements of pi(0) trigger particles at transverse momenta p(T)(t) = 4-12 GeV/c and associated charged hadrons (p(T)(a) = 0.5-7 GeV/c) vs relative azimuthal angle Delta phi in Au + Au and p + p collisions at root s(NN) = 200 GeV. The Au + Au distribution at low p(T)(a), whose shape has been interpreted as a medium effect, is modified for p(T)(t) < 7 GeV/c. At higher p(T)(t), the data are consistent with unmodified or very weakly modified shapes, even for the lowest measured p(T)(a), which quantitatively challenges some medium response models. The associated yield of hadrons opposing the trigger particle in Au + Au relative to p + p (I(AA)) is suppressed at high p(T) (I(AA) approximate to 0.35-0.5), but less than for inclusive suppression (R(AA) approximate to 0.2).

Quantum yield excitation spectrum (UV-visible) of CdSe/ZnS core-shell quantum dots by thermal lens spectrometry

A recently developed thermal lens spectrometry configuration has been used to study CdSe/ZnS core-shell quantum dots (QDs) suspended in toluene and tetrahydrofuran (THF) solvents. The special features of this configuration make it very attractive to measure fluorescence quantum yield (eta) excitation spectrum since it simplifies the measurement procedure and consequently improve the accuracy. Furthermore, the precision reached is much higher than in conventional photoluminescence (PL) technique. Two methods, called reference sample and multiwavelength have been applied to determine eta, varying excitation wavelength in the UV-visible region (between 335-543 nm). The eta and PL spectra are practically independent of the excitation wavelength. For CdSe/ZnS QDs suspended in toluene we have obtained eta=76 +/- 2%. In addition, the aging effect on eta and PL has been studied over a 200 h period for QDs suspended in THF. (C) 2010 American Institute of Physics. [doi:10.1063/1.3343517]

High-yield kraft pulping of Eucalyptus grandis Hill ex Maiden biotreated by Ceriporiopsis subvermispora under two different culture conditions

In the present study, it was evaluated how two different culture conditions for the biotreatment of Eucalyptus grandis by Ceriporiopsis subvermispora affect a subsequent high-yield kraft pulping process. Under the varied culture conditions investigated, different extracellular enzyme activities were observed. Manganese-peroxidase (MnP) secretion was 3.7 times higher in cultures supplemented with glucose plus corn-steep liquor (glucose/CSL) as compared to non-supplemented (NS) cultures. The biotreated samples underwent diverse levels of wood component degradation as losses of weight and lignin were increased in glucose/CSL cultures. Mass balances for lignin removal during kraft pulping showed that delignification was facilitated when both biotreated wood samples were cooked. Delignification efficiency did not correlate positively with MnP levels in the cultures. On the other hand, biopulps from NS and glucose/CSL cultures saved 27% and 38% beating time to achieve 288 Schopper-Riegler freeness during refining, respectively. Biopulps disposed of decreased tensile and tear resistances, thus easier refining of the biokraft pulps seems to be a consequence of less resistant fiber walls. Improved beatability of biopulps was tentatively related to short fibers and fines formation during refining. We suggest that to some extent polysaccharide depolymerization occurred during the biotreatment, which also resulted in diminished pulp yields in the case of glucose/CSL cultures.

A novel continuous time representation for the scheduling of pipeline systems with pumping yield rate constraints

Pipeline systems play a key role in the petroleum business. These operational systems provide connection between ports and/or oil fields and refineries (upstream), as well as between these and consumer markets (downstream). The purpose of this work is to propose a novel MINLP formulation based on a continuous time representation for the scheduling of multiproduct pipeline systems that must supply multiple consumer markets. Moreover, it also considers that the pipeline operates intermittently and that the pumping costs depend on the booster stations yield rates, which in turn may generate different flow rates. The proposed continuous time representation is compared with a previously developed discrete time representation [Rejowski, R., Jr., & Pinto, J. M. (2004). Efficient MILP formulations and valid cuts for multiproduct pipeline scheduling. Computers and Chemical Engineering, 28, 1511] in terms of solution quality and computational performance. The influence of the number of time intervals that represents the transfer operation is studied and several configurations for the booster stations are tested. Finally, the proposed formulation is applied to a larger case, in which several booster configurations with different numbers of stages are tested. (C) 2007 Elsevier Ltd. All rights reserved.

Penetration of hydrolysed soy protein-added brine and its effect on yield and pH of beef steaks from the biceps femoris muscle

This study was aimed to evaluate the penetration behaviour of different brines with tumbled beef steaks from the biceps femoris muscle, specifically their interactions with pH and effects on yield. Six muscles from different animals, divided into origin (OP) and insertion (IP) portions, were cut into 60 steaks of 2.5 cm thickness and tumbled for 30 or 60 min. The steaks were tumbled with two brines, with (WTB/HSP) or without (WTB) hydrolysed soy protein (HSP), and steaks that were not tumbled with brine or water were used as controls. Brine penetration was verified by measuring the amount of dye-containing brine (absorbance at 627 nm) recovered from homogenates of four thin (2 mm) slices from the surface of the beef steaks after tumbling. The WTB/HSP steaks exhibited greater (P < 0.05) brine penetration when tumbled for 60 min than for 30 min. The OP steaks showed greater yield and lower pH (P < 0.05) than IP steaks. HSP-added brine increased the water absorption and retention in the first slices of the steaks, and its efficiency was increased with a longer tumbling time. The portion of the biceps femoris muscle used influenced brine absorption and retention, impacting meat yield. (C) 2010 Elsevier Ltd. All rights reserved.

The impact of El Nino Southern Oscillation phases on off-season maize yield for a subtropical region of Brazil

In recent years, maize has become one of the main alternative crops for the autumn winter growing season in the central-western and southeastern regions of Brazil. However, water deficits, sub-optimal temperatures and low solar radiation levels are common problems that are experienced during this growing season by local farmers. One methodology to assess the impact of variable weather conditions on crop production is the use of crop simulation models. The goal of this study was to evaluate the effect of climate variability on maize yield for a subtropical region of Brazil. Specific objectives for this study were (1) to analyse the effect of El Nino Southern Oscillation (ENSO) on precipitation and air temperature for four locations in the state of Sao Paulo and (2) to analyse the impact of ENSO on maize grown off-season for the same four locations using a crop simulation model. For each site, historical weather data were categorised as belonging to one of three phases of ENSO: El Nino (warm sea surface temperature anomalies in the Pacific), La Nina (cool sea surface temperature anomalies) or neutral, based on an index derived from observed sea surface temperature anomalies. During El Nino, there is a tendency for an increase in the rainfall amount during May for the four selected locations, and also during April, mainly in three of the locations, resulting in an increase in simulated maize yield planted between February 15 and March 15. In general, there was a decrease in the simulated yield for maize grown off-season during neutral years. This study showed how a crop model can be used to assess the impact of climate variability on the yield of maize grown off-season in a subtropical region of Brazil. The outcomes of this study can be very useful for both policy makers and local farmers for agricultural planning and decision making. Copyright (C) 2009 Royal Meteorological Society

Spatio-temporal modeling of agricultural yield data with an application to pricing crop insurance contracts

This article presents a statistical model of agricultural yield data based on a set of hierarchical Bayesian models that allows joint modeling of temporal and spatial autocorrelation. This method captures a comprehensive range of the various uncertainties involved in predicting crop insurance premium rates as opposed to the more traditional ad hoc, two-stage methods that are typically based on independent estimation and prediction. A panel data set of county-average yield data was analyzed for 290 counties in the State of Parana (Brazil) for the period of 1990 through 2002. Posterior predictive criteria are used to evaluate different model specifications. This article provides substantial improvements in the statistical and actuarial methods often applied to the calculation of insurance premium rates. These improvements are especially relevant to situations where data are limited.

Parametric and nonparametric statistical modelling of crop yield: implications for pricing crop insurance contracts

This article considers alternative methods to calculate the fair premium rate of crop insurance contracts based on county yields. The premium rate was calculated using parametric and nonparametric approaches to estimate the conditional agricultural yield density. These methods were applied to a data set of county yield provided by the Statistical and Geography Brazilian Institute (IBGE), for the period of 1990 through 2002, for soybean, corn and wheat, in the State of Paran. In this article, we propose methodological alternatives to pricing crop insurance contracts resulting in more accurate premium rates in a situation of limited data.