Funny new paper out look at stock-trading habits of finance professors. Of those trading stocks at least monthly, most are using fundamental factors like P/E and market cap, as well as technical factors like momentum, to rate stocks, not the high-falutin’ stuff they teach MBAs. Maybe that’s because, as the paper points out, they don’t have much, you know … experience actually buying and selling stocks, beyond the basics.
… we surveyed all finance professors at accredited, four-year universities and colleges in the US to assess our profession’s collective opinion on the matter. Our sample of 642 useable responses indicates that over two-thirds of the sample are passive investors, and not because they don’t have the time to invest. The responses for all investors indicates that the traditional valuation techniques (specifically, the dividend-based valuation models) and the traditional asset-pricing models (namely the CAPM, APT, and Fama and French and Carhart models) are all unimportant in the decision of whether to buy or sell a specific stock.
Instead, finance professors, particularly finance professors who trade stocks at least monthly and who admit they are trying to â€œbeat the marketâ€ with their investment dollars, believe that firm characteristics (especially, a firm’s PE ratio and market capitalization), along with momentum related information (a firm’s returns over the past six months and year and a firms’ 52-week low and high) are most important when considering a stock sale and purchase.
We also show that finance professors have less investing experience than one might expect, especially in the areas of margin trading, short selling, and derivatives.