Market for information: evidence from finance directors, analysts and fund managers (Barker, 1998) Flashcards

1
Q

Explain analysts vs fund managers

A

Analysts:
1. Analysts do not engage in the market directly.
2. Primarily aim to generate commission income => for their brokerage firm => their income tied to the success of the trading activity.
3. Good preparation of report => marketing tool => for communication with fund managers.
# Campbell et al (2008) - narrative reporting was not immediately useful for their forecasting models and written reports.

Fund Managers
1. Use the research and recommendations analysts provide => to make investment decisions.
2. Aim to => maximise returns => relative to a given benchmark.
# Pension funds have greater benchmarks than life assurance’s benchmark.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Analysts service to fund managers.

A
  1. Analysts focus on => informed analysis of specific companies, informed analysis of specific industry => value-added research.
  2. Analysts believe that => fund managers seek advice that informs decisions making => rather than specific recommendations or forecasts.
  3. Source of information used by analysts:
    #1 Direct contact with company => ranked highest.
    #2 Other brokers’ report: Lowest ranked.
    #3 Annual reports and accounts => not the most preferred
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Why direct contact with companies ranked the highest?

A
  1. Timeliness
  2. Allows analysts to ask direct questions
  3. Gain a competitive advantage
  4. Focus on forward looking issues affecting the market value
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Services provided by fund managers?

A
  1. Portfolio management
    => Analyse investment options => select appropriate securities => and construct portfolios => that aligns with clients’ objectives and risk tolerances.
  2. Risk management
    => Diversifying investments across different asset classes => industries and regions => to mitigate risks and optimise returns.
  3. Client communication and education
    => Education clients on investment strategies => market trends => Portfolio performance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Sources of information used by the fund managers

A
  1. Formal meeting with senior company management => most vital source
    # Allows fund managers to understand => company strategy => and assess management’s ability to execute said strategy
  2. Annual report and accounts => ranked second
    # Raw data is more important than processed information
  3. AGM has no practical importance
  4. Source of information direct from company ranking:
    # Personal contact with company => highest ranked
How well did you know this?
1
Not at all
2
3
4
5
Perfectly