window dressing

  • 06 Dec 2012 at 4:28 PM

Soon Window-Dressing Won’t Work

Will it? I don’t know. The Wall Street Journal has a good article today about creepy stuff going on around window-dressing, where investment managers bid up the illiquid stocks they own on the last day of a quarter to make their quarterly numbers look good and increase their fee income and stuff. Sadly the Journal leads with its own study, which is kind of like statistics for people who don’t like statistics:

The Journal’s analysis compared the performance of those 10,000 stocks to the one-day return of the Standard & Poor’s 500-stock index. On days that didn’t end the quarter, an average of 217 stocks beat that index by at least 5 percentage points then trailed it by at least three the next day. But on the final trading days of quarters, an average of 280 stocks did.

Umm! There’s a chart of that, too, but … umm! Would you trade on that?1 Who cares, though; the Journal also cites forthcoming statistics from the Journal of Finance, which is like by, for and about people who love statistics:

[Let’s talk about] Rabih Moussawi, a finance researcher at the Wharton School at the University of Pennsylvania who has studied window dressing. In a study slated for publication next year in the Journal of Finance, he and his colleagues found that the stocks most heavily owned by hedge funds outperformed the market by an average of 0.3 percentage points on the final day of the quarter — and underperformed by 0.25 points on the following trading day.

You could trade on that! Here’s what you do. Read more »