“Behavioral Finance, a quantitative approach to the secondary market”

The below abstract belongs to “Behavioral Finance, a quantitative approach to the secondary market” thesis.

Abstract

The influence of investor sentiment on asset prices is known to deviate them from their equilibrium level determined by underlying fundamentals. Understanding and analyzing sentiment, even though it cannot be directly measured or observed, holds significant importance as it enables the identification of appropriate substitutes or proxies that can effectively represent and gauge sentiment's influence on asset prices. By finding reliable indicators or measures that are indicative of prevailing sentiment, analysts and investors can gain valuable insights into market dynamics and make informed decisions. When asset prices fail to accurately reflect their fundamental values, it can lead to an inefficient allocation of capital, affecting portfolio allocation decisions and the cost of capital.

In the current study, we adopt a quantitative behavioral approach to model the impact of investor behavior in the stock market. We test two hypotheses based on different time periods: one using actual values and the other based on the difference between the current period (t) and the previous period (t-1). By employing various sentiment proxies and examining data from 2000 to 2022, we establish a weak relationship between investor sentiment and stock returns, which aligns with theoretical explanations of sentiment.

The methodology focuses on the behavior of the retail stock market participants, considering both the current return and the change of the S&P 500. To validate our findings, we compare our model with other well-known indexes such as VIX, UMICH, and AAII. This comparison aims to ascertain the effectiveness of the model proposed in this paper in accurately reflecting investor sentiment in market returns, closely mirroring real-world conditions.

Keywords: Behavioral Economics, Investor sentiment, Financial markets, Stock markets

IMPP profit

In June 2023, IMPP stock surged over 344% in a month. This was due to a number of factors, including rising oil prices and the company's acquisition of a new oil field.

The future of IMPP stock is uncertain. However, the company has a number of factors in its favor, including rising oil prices and its acquisition of a new oil field. If these factors continue to support the company, IMPP stock could continue to rise in the future.

However, there are also some risks to consider. The global economy is facing a number of challenges, and these could impact the demand for oil. If demand for oil falls, it could hurt IMPP's bottom line and could lead to a decline in the stock price. My personal approach was to dump the stock and instead Invest to the Ai hype.

IMPP IMPERIAL PETROLEUM INC

IMPERIAL PETROLEUM INC had a great day on the market, as its shares rose by 12% to close at $45.67. The company reported strong earnings for the first quarter of 2023, beating analysts' expectations. 

The oil and gas producer also announced plans to expand its operations in the Middle East and Africa, where it sees high demand and low costs. Investors were impressed by the company's performance and outlook, and rewarded it with a higher valuation.

Buying big banks bonanza

Today's result after big banks discount. Did the collapse of SVB had a contribution to the overall downfall of the banking sector or it was only the CPI and PMI strong numbers that played a major role?

Silicon Valley Bank, reason behind the default

Silicon Valley Bank is the largest bank to fail since the 2008 financial crisis. The primary reason for the failure of SVB was their choice to invest their customers' deposits in treasury bonds, which are highly impacted by shifts in interest rates. 

It bought government bonds with fixed interest rates and as the Fed raised rates, those bonds lost value. Silicon Valley Bank had $80 billion in bonds with an average yield of 1.5%. No one wants bonds yielding 1.5% when the current market is selling bonds with yields over 5%.

Big Banks earning show in one graph.

Graph and numbers of top Big Banks earnings and % price for the first quarter of 2023,

C:

in USD	Actual	Estimate	Beat/Miss
Revenue	18.0B	18.0B	+0.2%
EBIT	5.02B	5.07B	-1.0%
EPS	1.16	1.20	-3.5%

JPM:

in USD	Actual	Estimate	Beat/Miss
Revenue	34.5B	34.2B	+0.9%
EBIT	15.5B	14.2B	+9.0%
EPS	3.57	3.10	+15.0%

WFC:

in USD	Actual	Estimate	Beat/Miss
Revenue	19.7B	20.0B	-1.9%
EBIT	3.46B	5.04B	-31.4%
EPS	1.45	1.10	+32.6%

BAC:

in USD	Actual	Estimate	Beat/Miss
Revenue	24.5B	24.2B	+1.5%
EBIT	8.99B	8.77B	+2.5%
EPS	0.85	0.77	+10.9%

GS: Short-dated equity puts have started to be attractive again

Following a year when equity options were too expensive, short-dated equity puts have started to be attractive again with the VIX close to 20. Current implied vols look low compared with average performance during S&P 500 sell-offs in particular for European indices, where risk premia have reset the most. While FX vol has not reset as much as risky assets we think puts on selective non-USD 'risk off' crosses screen attractive, such as CAD/CHF and GBP/CHF

10 soft landing indicators.

1. The US labor market is rebalancing.

2. Fed is approaching terminal rate and will be pausing soon.

3. Overheating and wage-price acceleration is off the table.

4. US recession probability is lower than people think.

5. Corporate earnings collapse is less likely than people think.

6. US consumer and corporate balance sheets remain strong.

7. Global inflation pressure has peaked, and sentiment will bottom.

8. Soft (sentiment) data could be overstating economic weakness due to the nature of diffusion indexes and the way they can overshoot when cycles are extremely fast.

9. High nominal inflation is bad for sentiment but good for nominal growth. This is part of the reason for the massive wedge between soft and hard data.

10. The US is in a much better position than most countries because so much froth and leverage was released in 2008. Froth and leverage remain abundant and interest sensitivity remains high in places like Canada, the UK, etc.