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Security analysis and portfolio management

1990; Euromoney Institutional Investor; Volume: 16; Issue: 3 Linguagem: Inglês

10.3905/jpm.1990.409271

2168-8656

Richard B. Carter, Howard E. Van Auken,

Housing Market and Economics

T his research has two objectives. The first is to present the findings of a survey of investment managers concerning their current practices in the areas of securities analysis and portfolio management. The second is to identify changes in these practices that may have occurred as a result of the October 1987 stock market crash. In the first case, we use our findings to identify relationships between the use of particular investment techniques and the size of the investment firm. Veit and Reiff [1983] argue that larger banks enjoy economies of scale in the area of trading operations and can afford greater specialization of investment personnel. If this analysis is generalizable, it suggests that larger investment firms are more likely to employ a wider variety of investment techniques and strategies. There are a limited number of surveys of investment professionals. Bing [1971] surveyed 34 investment firms and found that analysts use a number of techniques in appraising equity, with price/earnings analysis the most popular. More recently, in a Block and Gallagher [1988] survey of 230 bank trust departments (BTDs), only 6% of the respondents were found to use stock index futures and options. A related study (Block and Gallagher [1990]) found that 41% of non-trust money managers use index futures and options strategies. Anecdotal evidence appears to indicate that the crash has made individual investors apprehensive about the stock market and altered their security preferences (Siconolfi [1988]). Moreover, there is evidence to suggest that institutional investors have remained cautious, allocating a larger portion of their portfolios to liquid assets (Alcorn [1988] and Dorfman [1988]). While these observations are interesting, a more formal assessment of changes in investmentrelated behavior is necessary in order to evaluate the total impact of the crash. Block and Gallagher [1988], for example, find that the reluctance of BTD money managers to use derivative strategies has increased since the crash.