Forex Market Sentiment Indicators

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We build a model that helps to explain why increases in liquidity—such as lower bid—ask spreads, a lower price impact of trade, or higher turnover—predict lower subsequent returns in both firm-level and aggregate data. The model features a class of irrational investors, who underreact to the information contained in order flow, thereby boosting liquidity. In the presence of short-sales constraints, high liquidity is a symptom of the fact that the market is dominated by these irrational investors, and hence is overvalued.

This theory can also explain how managers might successfully time the market for seasoned equity offerings, by simply following a rule of thumb that involves issuing when the SEO market is market liquidity as a sentiment indicator liquid.

Empirically, we find that: Journal Articles Save to my academic information. Selected option view options. Abstract open button References open button Cited Articles open button. Abstract We build a model that helps to explain why increases in liquidity—such as lower bid—ask spreads, a lower price impact of trade, or higher turnover—predict lower subsequent returns in both firm-level and aggregate data.

A theory of intraday patterns: Review of Financial Studies. Finance cited 0 times. Why constrain your mutual fund manager. Journal of Financial Economics, forthcoming. Illiquidity and stock returns. Journal market liquidity as a sentiment indicator Financial Markets. Journal of Financial Economics.

Asset pricing and the bid—ask spread. Return Volatility and Trading Volume: Andersen The Journal of Finance. Finance cited times. NBER working paper The equity share in new issues and aggregate stock returns. The maturity of debt issues and predictable variation in bond returns.

A model of market liquidity as a sentiment indicator sentiment. Articles referencing this article Loading. Save to my academic information. Performance matched discretionary accrual measures Kothari S. The relationship between return and market value of common stocks Banz Rolf W Bid, ask and transaction prices in a specialist market with heterogeneously informed traders Glosten Lawrence R et al.

Illiquidity and stock returns: Barberis Nicholas et al. Expected stock returns and volatility French Kenneth R et al. The theory and practice of corporate finance: Do Investors Trade Too Much? The effect of international institutional factors on properties of accounting earnings Ball Ray et al. Measuring security price performance Brown Stephen J et al. The market pricing of accruals quality Francis Market liquidity as a sentiment indicator et al.

Detecting long-run abnormal stock returns: The empirical power and specification of test statistics Barber Brad M et al. A critique of the asset pricing theory's tests Part I:

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TrimTabs Investment Research, Inc. The bread and butter of TrimTabs Investment Research [1] is their innovative and long-standing focus on equity market liquidity. The essential premise of their approach is that stock prices are a function of liquidity—the number of shares available to buy and the amount of money available to buy them—rather than fundamental value. Like the prices of any tradable good, the prices of stocks are driven by the supply and demand of shares and money.

When the supply of shares increases, all else being equal, this translates to lower stock prices. Conversely, decreasing supply is bullish. When there are fewer available shares, this translates to higher stock prices more money available to chase fewer shares. Although TrimTabs compiles data sets and offers analyses, it primarily uses supply and demand indicators to create trading strategies listed below that generate alpha. In addition to comprehensive daily liquidity updates, TrimTabs publishes four reports that each come out on a weekly basis: In addition it offers two daily reports: The Weekly Liquidity Review is a publication that offers the broadest overview of the supply and demand dynamics of the U.

It focuses on in-depth investment flows demand and corporate liquidity flows supply as well as macroeconomic trends. The investment flows include weekly updates that give investors short- and long-term trading signals based on the current and longer-term trends that TrimTabs observes in the U.

It also includes information on several financial model portfolios and the calls associated with each of the portfolios. The Weekly Liquidity Review is an excellent introduction to TrimTabs research for new clients and is ideal for macro managers and equity fund managers.

The Weekly Flow Report can include a quantitative focus, fund flows and sentiment indicators, analysis of short interest and commitments of traders, and hedge fund manager sentiment. Also in this report are weekly updates of China margin debt and new account openings as well as fund flow and performance of international mutual funds and exchange-traded funds.

The Weekly Asset Allocation Report offers five tactical asset allocation portfolios with varying levels of risk, from conservative to aggressive. This report is most appropriate for financial advisors, retail brokers, and individual investors.

The Daily Liquidity Report is a quantitative report which provides a convenient summary of the most important TrimTabs liquidity data. It includes daily, monthly, and annual data on corporate actions, including insider trading; fund flows, including the flows of mutual funds and ETFs broken down by asset class, style, industry, and Morningstar category; and the TrimTabs Demand Index, a proprietary market timing indicator based on fund flow and sentiment variables.

This report is most appropriate for quantitative analysts and more active traders. In addition, TrimTabs offers eight model trading portfolios: The supply of shares is tracked on a daily basis from the announced actions of companies in the stock market, who are the biggest players in the stock market because they actively control the number of shares available for investors to buy.

Supply can shrink by the amount of corporate buying that takes place cash takeovers and new stock buybacks , and can grow as companies either sell new shares IPOs or introduce new shares to the market in the form of follow-ons, secondaries, and convertibles. Another way of describing the supply of shares in the market is to call it the U.

The change in supply is a change in the float. TrimTabs developed a formula for estimating the change in float by this equation: From December to December , there was little overall change in the market's float. Supply is not just limited to the U. TrimTabs collects daily ticker-level data on corporate actions and insider trading in selected non-U. The coverage and history vary by country. Demand indicators can be leading or contrary: The main vehicle by which TrimTabs analyzes demand is through its comprehensive coverage of the flows money that comes either in and out of funds and returns of 4, U.

The index has had an outstanding track record since its launch in September The TTDI is one of the ways the firm provides institutional and retail investors with trading strategies and investment insights.

In addition, TrimTabs also provides a comprehensive assessment of the overall health of the U. Treasury, credit indicators, unemployment claims, surveys of manufacturers and purchasing managers, and housing indicators. The overall health of the domestic economy is update each week through their TrimTabs Macroeconomic Index TTMI , a correlation weighted index of 16 leading economic indicators. It has done an excellent job identifying major economic inflection points.

Proprietary analysis of withheld income and employment tax collections enables TrimTabs to estimate wage and salary growth in real time. TrimTabs analyzes withholdings on a year-over-year basis without any seasonal adjustments or other statistical manipulation. TrimTabs also uses withholdings to estimate changes in payroll employment on a monthly basis. TrimTabs originally focused on providing stock trading ideas to hedge funds. Biderman eventually noticed that no one was tracking money flows into and out of the U.

He began searching for real-time data on money flows of all sorts, including corporate buying and selling, mutual fund flows, and changes in margin debt.

Biderman would develop TrimTabs into the only independent research firm that would provide people with detailed daily coverage of U. Corporate America became a heavy net buyer of stock in late , and inflows into stock mutual funds from individuals began to accelerate in In August , he began to analyze U.

Biderman's insight and expertise have been widely noted and lauded by the media and institutions alike. TrimTabs pioneering research is widely cited in the media. TrimTabs takes its name from the trim tab that lies deep within an ocean-going ship. The trim tab is a minuscule rudder that runs the length of the main rudder.

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