History of gold

December 30, 2024September 15, 2024 by Nithisha CHALLA

History of gold

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) covers the role of gold in ancient economies, the impact of gold inflows, the establishment and decline of the gold standard, and gold’s modern function as a haven and investment asset.

Introduction

Gold has been used since prehistoric times for ornaments, jewelry, and religious artifacts. Its lustrous appeal and malleability made it a symbol of wealth and power in ancient civilizations such as Egypt, Mesopotamia, and the Indus Valley. The Egyptians were among the first to extract gold and used it extensively for jewelry, burial masks, and other artifacts. Ancient Greece and Rome civilizations used gold coins for trade, symbolizing wealth and stability. During the Middle Ages, gold became central in European economies. And further exploration began all over the world in the quest for trade, standards, and currencies.

Ancient beginnings and the economic role of gold

As we know its lustrous appeal and malleability made it a symbol of wealth and power in ancient civilizations, gold was used as a currency in ancient civilizations.

Gold as a currency in ancient civilizations

Gold’s role as a medium of exchange dates back to the Lydians in the 6th century BC called “Lydian Coinage”, who is credited with minting the first gold coins. These coins became a standardized form of currency, facilitating trade and economic stability across the Mediterranean.

Ancient golden coins

Source: Gold RSSP

Later, ancient Egypt accumulated vast amounts of gold, which played a crucial role in their economy. Gold was used as a form of tribute, tax, and savings, solidifying its status as a store of value. The discovery of extensive gold mines in Nubia (modern-day Sudan) significantly contributed to Egypt’s wealth and power.

Economic power in classical and medieval times

Gold was central to the Greek and Roman economies. The Romans established a gold standard with the aureus, a widely circulated gold coin. This coinage system underpinned the economic stability of the Roman empire, and its collapse led to economic fragmentation in medieval Europe.

The Byzantine Empire’s solidus, a gold coin, maintained its value for centuries, reflecting the empire’s economic strength. Its stability and acceptance across Europe and the Middle East reinforced gold’s status as a reliable currency.

The Age of Exploration and Economic Expansion

Gold influx from the Spanish empire

The Spanish conquest of the Americas in the 16th century led to an unprecedented influx of gold into Europe. The capture of Aztec and Inca treasures, along with extensive mining operations in Mexico and Peru, flooded Spain with gold, significantly influencing the European economy.

This massive influx of gold contributed to the “Price Revolution” in Europe, where prices of goods and services increased substantially. This inflationary period marked a significant shift in the European economy, redistributing wealth and leading to economic and social disturbances.

African gold and trans-Saharan trade

Mansa Musa’s pilgrimage to Mecca in 1324, during which he distributed enormous quantities of gold, highlights the economic power of the Mali Empire. His lavish spending caused temporary inflation in regions he visited, underscoring gold’s influence on local economies.

Gold from West Africa was pivotal in the trans-Saharan trade, linking African economies with those of the Mediterranean and the Middle East. This trade network also facilitated the exchange of slaves, further intertwining gold with the global economy.

Modern era: Gold’s financial evolution

The Gold Standard

The gold standard emerged in the 19th century, linking national currencies to a specific amount of gold. Britain adopted it in 1821, followed by other major economies. The gold standard facilitated international trade by providing a stable exchange rate system.

According to the World Gold Council, the U.S. formally adopted the gold standard in 1900 with the Gold Standard Act, pegging the dollar to gold at $20.67 per ounce. And it explicitly states “An act to define and fix the standard of value, to maintain the parity of all forms of money issued or coined by the United States, to refund the public debt, and for other purposes”. This provided economic stability but also tied monetary policy to gold reserves, limiting the ability to respond to economic crises.

According to Lennard and Paker (2024) who published in CEPR, the rigid adherence to the gold standard during the Great Depression of the 1930s exacerbated the economic downturn. Countries like the U.K. abandoned the gold standard in 1931, allowing them to devalue their currencies and stimulate economic recovery. The U.S. followed suit in 1933 under President Franklin D. Roosevelt, who devalued the dollar and increased the price of gold to $35 per ounce.

Then comes the Bretton Woods agreement, Post-World War II, the Bretton Woods system established a modified gold standard, with the U.S. dollar convertible to gold and other currencies pegged to the dollar. This system stabilized global trade and finance until its collapse in 1971, when President Richard Nixon ended the dollar’s convertibility to gold, leading to floating exchange rates.

Gold as a Safe Haven Investment

Throughout modern history, gold has served as a “Safe Haven” during financial crises. For instance, during the 2008 Global Financial Crisis, gold prices surged as investors sought security amidst the collapse of financial markets. The price of gold reached an all-time high of over $1,900 per ounce in 2011, reflecting widespread economic uncertainty.

Gold pricing in the last 20 years (2004-2024)

Source: Market.us scoop

Central banks worldwide continue to hold significant gold reserves as a hedge against inflation and currency devaluation. Countries like the United States, Germany, and Italy have some of the largest gold reserves, underscoring its enduring role in global finance.

Gold in the 21st Century

Digital Gold and Financial Innovation: In the 21st century, gold has evolved beyond physical ownership, with financial instruments like exchange-traded funds (ETFs) allowing investors to gain exposure to gold without holding the metal. The SPDR Gold Shares (GLD) ETF, launched in 2004, became one of the largest and most liquid gold ETFs, reflecting modern investment trends.

Gold and cryptocurrencies: The emergence of cryptocurrencies has led to comparisons with gold, particularly Bitcoin, which is often referred to as “digital gold.” Both assets are seen as alternatives to traditional fiat currencies and are valued for their scarcity and independence from government control.

Conclusion

This article emphasizes the financial and economic significance of gold throughout history, supported by detailed case studies and examples. It covers its role in ancient economies, the impact of gold inflows during the Age of Exploration, the establishment and decline of the gold standard, and gold’s modern function as a haven and investment asset.

Why should I be interested in this post?

Gold has been a key financial asset for centuries, acting as a store of value, a hedge against inflation, and a safe-haven asset during economic crises. Understanding its history helps students grasp fundamental market dynamics and investor behavior, especially during periods of economic uncertainty.

Useful resources

Wikipedia gold

World gold council The Heyday of the Gold Standard, 1820-1930

Lennard J. and M. Parker (2024) The end of the gold standard and the beginning of the recovery from the Great Depression

Only gold A Brief History of Gold

Focus economics Gold: The Most Precious of Metals

About the author

The article was written in September 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Top financial innovations in the 21st century

September 15, 2024 by Nithisha CHALLA

Top financial innovations in the 21st century

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents top financial innovations of 21^st century that have brought significant changes in people’s life.

Introduction

The 21^st century has seen remarkable financial innovations that have transformed the way people interact with financial services. Innovations like blockchain, quantum computing, artificial neural networks, digital transactions, crowdfunding, and Apple Pay have not only increased convenience and accessibility but also enhanced security and efficiency in financial markets. Understanding these innovations’ history, impact, and statistics highlights their significance in shaping the future of finance. The 20^th and 21^st centuries, in particular, have seen rapid advancements due to technology, leading to groundbreaking changes in financial services.

Top Financial Innovations that Changed People’s Life in the 21^st century

Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries around the world).

Mobile Banking: Services like Apple Pay and Google Wallet have allowed consumers to make payments using their smartphones, enhancing convenience and security.
Blockchain Technology: Beyond cryptocurrencies, blockchain offers secure, transparent record-keeping for various financial transactions and contracts.
Quantum computing: Quantum computing leverages the principles of quantum mechanics to perform complex computations at unprecedented speeds, promising to revolutionize fields such as cryptography, financial modeling, and optimization.
Artificial Neural Networks: Artificial neural networks, inspired by the human brain, are a subset of machine learning that excel in pattern recognition, data classification, and predictive analytics.
Digital Transactions: Digital transactions refer to the electronic transfer of money or assets between parties, facilitated by technologies such as online banking, mobile payments, and digital wallets.
Crowdfunding: Platforms like Kickstarter and GoFundMe allow individuals to raise funds for projects, businesses, or personal causes from a large number of people.
Apple Pay: Apple Pay, introduced by Apple Inc. in 2014, is a mobile payment and digital wallet service that allows users to make secure, contactless payments using their Apple devices.

We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.

Mobile Banking

The first mobile banking services were introduced in Europe and Asia in the early 2000s. Banks like Wells Fargo and Bank of America first introduced it. And M-Pesa, a mobile phone-based money transfer and micro-financing service was launched by Vodafone in Kenya in 2007. Later on, PayPal expanded into mobile banking with its app in the early 2010s.

This innovation has allowed customers to conduct banking transactions anytime, anywhere using their mobile devices. This significantly increased financial inclusion, especially in developing countries where traditional banking infrastructure is lacking. Mobile banking enables real-time transactions and instant access to financial services.

According to an article posted on Business Wire, the global mobile banking market was valued at $715.3 million in 2018 and is expected to reach $1,824.7 million by 2026, registering a CAGR of 12.2% from 2019-2026. As of 2020, over 1.75 billion people worldwide were using mobile banking services. In 2020, mobile banking transactions accounted for 42% of all online banking transactions.

Blockchain Technology

In 2008, Satoshi Nakamoto (pseudonym) introduced blockchain technology with the creation of Bitcoin. IBM implemented blockchain solutions for supply chain management for the first time and Ripple used blockchain for cross-border payments and remittances.

Blockchain Technology provided consumers with increased transparency and security in financial transactions. It allowed for the development of reduced costs and time for cross-border payments. Which also helped customers with enhanced privacy and control over personal financial data.

To speak on how much these innovations affected people, the source cited is Yahoo Finance, as of 2021, the global blockchain market was valued at $4.93 billion and is projected to reach $227.99 billion by 2028. And over 46 million Americans owned Bitcoin as of 2021.

Block Chain technology ecosystem

Source: Analytics Vidhya

Evolution of number of Block Chain wallet users

Source: Demand Stage

Quantum Computing

Various contributors, including IBM, Google, and D-Wave Systems, have significantly advanced quantum computing. Its first development idea commenced in the early 2000s (concept development), with significant advancements in the 2010s. JP Morgan Chase initially explored quantum computing for financial modeling and risk analysis. Later on, Goldman Sachs researched quantum algorithms for trading and portfolio optimization.

This technology, developed by companies like IBM and Google, offers potential breakthroughs in solving problems that are currently intractable for classical computers.
Quantum computing provided customers with enhanced computational power that led to more accurate financial predictions and better investment strategies. It showed the potential to revolutionize financial modeling, risk assessment, and encryption.

To speak on how much these innovations affected people, Quantum computing could potentially break current encryption methods, necessitating new security protocols. According to NASDAQ, the global quantum computing market size was valued at $472 million in 2021 and is projected to reach $1.76 billion by 2026.

Global Quantum computing market revenue

Source: Market.us scoop

Artificial Neural Networks

Initially conceptualized by Warren McCulloch and Walter Pitts, modern advancements were made by researchers and companies like Google and IBM. The approximate date of innovation was in the early 1940s (initial concept), with significant advancements in the 21st century. Blackrock uses neural networks for asset management and financial forecasting. Whereas JPMorgan Chase employs neural networks for fraud detection and algorithmic trading.

These networks, utilized by companies such as Google and BlackRock, have significantly advanced capabilities in areas like fraud detection, financial forecasting, and personalized financial services. This innovation enhanced fraud detection and prevention, leading to greater financial security. Provided personalized financial services and products based on user behavior analysis.

To speak on how much these innovations affected people, neural networks have significantly improved fraud detection rates, reducing financial losses for institutions and customers. According to Allied Market Research, The global neural network market was valued at $14.35 billion in 2020 and is projected to reach $152.61 billion by 2030

Digital Transactions

PayPal (founded by Elon Musk, Peter Thiel, and Max Levchin) popularized digital transactions in the early 2000s. PayPal with digital transactions revolutionized online payments and money transfers. Square, another company provided digital payment solutions for small businesses and individuals in the early 2000s.

This innovation has provided enhanced accessibility to financial services for unbanked populations. It reduced the dependency on physical cash and increased the convenience and speed of financial transactions.

To speak on how much these innovations affected people, according to Forbes, 53% Of Americans Use Digital Wallets More Than Traditional Payment Methods. The global digital payment market size was valued at $58.30 billion in 2020 and is projected to reach $180.23 billion by 2026.

How does Digital transaction work?
Digital transaction example
Source: Forbes

Crowdfunding

In the mid-2000s, platforms like Indiegogo (2008) and Kickstarter (2009) popularized crowdfunding. Kickstarter facilitated funding for creative projects and startups. Indiegogo enabled a wide range of campaigns from personal causes to tech innovations.

This innovation has provided entrepreneurs and creators with access to capital without traditional funding sources especially in developing countries where traditional banking infrastructure is lacking. Enabled community participation and support for innovative projects, lowering entry barriers for new businesses and ideas.

To speak on how much these innovations affected people, over $5.7 billion has been pledged to Kickstarter projects since its launch. According to Aimlon CPA, the global crowdfunding market was valued at $12.27 billion in 2020 and is expected to reach $25.80 billion by 2027.

Apple Pay

Apple Inc., led by CEO Tim Cook, introduced Apple Pay in 2014. Initially, ApplePay integrated with Visa and Mastercard for contactless payments. Later retailers like Walmart and Target adapted to accept Apple Pay for customer convenience.

This innovation has transformed the payment landscape, offering enhanced convenience and security for consumers and businesses alike. This significantly promoted the adoption of contactless payment methods and reduced the need to carry physical wallets.

To speak on how much these innovations affected people, mobile payments use Apple Pay and similar services accounted for 25% of global point-of-sale transactions in 2020. According to Apple, as of 2021, Apple Pay had over 507 million users worldwide.

Conclusion

Financial innovations have profoundly transformed the way individuals and businesses interact with money. From the widespread adoption of crowdfunding to digital transactions and Apple Pay, these innovations have made financial services more accessible, efficient, and secure. As technology continues to advance, the financial landscape will undoubtedly see further changes, continuing to shape and improve people’s lives worldwide.

Why should I be interested in this post?

Management students, as future leaders and decision-makers, should understand financial innovations for several compelling reasons. These innovations not only influence the financial landscape but also have significant implications for strategic decision-making, operational efficiency, and competitive advantage.

Useful resources

Wikipedia Financial Innovations

McCulloch, W. S., Pitts, W., A Logical Calculus of the Ideas Immanent in Nervous Activity, Bulletin of Mathematical Biophysics, (5) 115-133, 1943.

Retail technology innovation hub How Apple Pay has revolutionised payment processing

Allied market research Mobile Payment Market Expected to Reach $12.06 Trillion by 2027

GoFundMe What is Crowdfunding?The Clear and Simple Answer

Go Cardless Digital transactions: what are they?

Aspire Systems Financial Applications of Neural Networks

IBM What is quantum computing

About the author

The article was written in September 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Top financial innovations in the 20th century

August 23, 2024August 23, 2024 by Nithisha CHALLA

Top financial innovations in the 20th century

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents top financial innovations of the 20th century that have brought significant changes in people’s life.

Introduction

Financial innovations have significantly transformed how people make transactions and manage money like saving and investing. These innovations have increased accessibility, convenience, and security in financial activities, benefiting individuals and companies alike. From the introduction of paper money in ancient China to modern-day digital banking, each era has brought new ways to manage finances. The 20^th century has seen rapid advancements due to technology, leading to groundbreaking changes in financial services.

Top Financial Innovations that Changed People’s Life in the 20^th century

Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries worldwide).

Credit Cards and Debit Cards: Introduced in the 1950s, credit and debit cards provided a convenient way for consumers to make purchases without cash, leading to a shift towards a cashless society.
Automated Teller Machines (ATMs): ATMs revolutionized banking by allowing customers to perform transactions anytime, anywhere, without needing to visit a bank branch.
Telephone Banking: The rise of the internet in the 1980s enabled banks to allow customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone.
Online Banking: The rise of the internet in the 1990s enabled banks to offer online services, making it easier for customers to manage accounts, pay bills, and transfer money.

We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.

Credit Cards and Debit Cards

The Diners Club card, introduced by Frank McNamara card in 1950, is considered the first credit. Later, Bank of America launched the BankAmericard (now Visa) in 1958. Later, Visa became one of the largest credit card issuers globally. MasterCard, originally Interbank Card Association, formed in 1966, is another major player in the credit card industry. The concept of a debit card was first introduced by the First National Bank of Seattle in 1966. The first debit card was issued by Barclays in the UK in 1966.

These Credit and Debit cards provided consumers a convenient and secure way to purchase without carrying cash. It allowed for the development of the credit industry, enabling consumers to borrow funds for purchases and pay them back over time. Which also helped customers make larger purchases thus improving purchasing power.

To speak on how much these innovations affected people, by the end of the 20th century, there were over 1 billion credit cards in use globally. And in 2019, Visa and MasterCard together processed over 171 billion transactions worldwide. In terms of debit card transactions, it recorded over 100 billion debit card transactions globally in 2020.

First ever credit card picture

Source: Time news letter

Figure 1 below presents the evolution of the size of the credit card industry in the United States from 2013 to 2023.

Figure 1. The market size of the US credit card industry
US market evolution of Credit cards industry
Source: Time news letter

Automated Teller Machines (ATMs)

John Shepherd-Barron is credited with inventing the first ATM, which was installed by Barclays Bank in London in 1967. Later, Diebold Nixdorf and NCR Corporation became the major manufacturers of ATMs in the 1980s.

These ATMs provided 24/7 access to banking services, allowing customers to withdraw cash, check balances, and perform other transactions without needing to visit a bank branch. Hence, it enhanced convenience and reduced the need for in-person banking services. Helping reduce queues at banks and improve transaction speed. Overall, this innovation has increased accessibility, convenience, and efficiency both for banks and consumers.

To speak on how much these innovations affected people, by 1990, there were around 100,000 ATMs worldwide. As of 2020, there are approximately 3.2 million ATMs globally. The global ATM market was valued at around $18.4 billion in 2019.

First ever ATM picture

Source: Time news letter

Figure 2 below presents the evolution of the globally installed ATM bases in the period of 2009 to 2020.

Figure 2. ATM global evolution

Source: Time news letter

Telephone Banking

Midland Bank (now part of HSBC) launched the first telephone banking service in the UK in 1989. HSBC pioneered telephone banking services and Citibank also offered telephone banking as part of its service portfolio being one of the early adopters of telephone banking. This is considered the innovation of the 1980-1990 decade.

This innovation has allowed customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone. Provided a convenient alternative to visiting a bank branch, especially for those without internet access, and reduced risks associated with carrying cash or checks.

To speak on how much these innovations affected people, by the late 1990s, telephone banking was widely adopted, with millions of users globally. Despite the rise of online and mobile banking in the 21^st century, telephone banking remains a valuable service for many customers, particularly the elderly and those in rural areas. In 2019, an estimated 5% of U.S. adults still used telephone banking. And by 2000, more than 50% of U.S. banks offered telephone banking services.

Figure 1 shows what the first-ever telephone banking machine looked like in 1973.

First ever touch-tone telephone banking machine in 1973.
First ever telephone banking machine picture
Source: ZB Media

Online Banking

The concept of online baking was developed by banks like Stanford Federal Credit Union, which offered the first online banking services in 1994. Bank of America was one of the early adopters of online banking and Wells Fargo Launched its first Internet banking service in 1995.

This innovation has provided customers with the ability to manage their accounts, pay bills, transfer funds, and perform other banking activities from the comfort of their homes. It reduced the need for physical bank branches and made banking services more accessible.

To speak on how much these innovations affected people, by 2019, 76% of U.S. adults used online banking. The global online banking market was valued at $9.2 billion US dollars in 2019. And global online banking users are expected to reach 2.5 billion by 2024.

First ever Online banking machine in 1980.

Source: Fintech Magazine

Figure 1 shows what the first-ever Online banking machine looked like in 1980.

Conclusion

Financial innovations have profoundly transformed the way individuals and businesses interact with money. From the widespread adoption of credit cards to mobile payments these innovations have made financial services more accessible, efficient, and secure. As technology continues to advance, the financial landscape will undoubtedly see further changes, continuing to shape and improve people’s lives worldwide.

Why should I be interested in this post?

Useful resources

Wikipedia Financial Innovation

Fintech Magazine Online Banking 1973 – History of Computers

ZB Media Technology in Fintech and the story of Online Banking

Research gate The emergence of financial innovation and its governance – a historical literature review

Axis bank Credit card: A cashless surge

Cambridge University Press Banking and Finance in the Twentieth Century

About the author

The article was written in August 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Top financial innovations in the 20th century

July 25, 2024 by Nithisha CHALLA

Top financial innovations in the 20th century

Introduction

Financial innovations have significantly transformed how people make transactions and manage money like saving and investing. These innovations have increased accessibility, convenience, and security in financial activities, benefiting individuals and companies alike. From the introduction of paper money in ancient China to modern-day digital banking, each era has brought new ways to manage finances. The 20^th and 21^st centuries, in particular, have seen rapid advancements due to technology, leading to groundbreaking changes in financial services.

Top Financial Innovations that Changed People’s Life in the 20^th century

Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries worldwide).

Credit Cards and Debit Cards: Introduced in the 1950s, credit and debit cards provided a convenient way for consumers to make purchases without cash, leading to a shift towards a cashless society.
Automated Teller Machines (ATMs): ATMs revolutionized banking by allowing customers to perform transactions anytime, anywhere, without needing to visit a bank branch.
Telephone Banking: The rise of the internet in the 1980s enabled banks to allow customers to perform basic banking transactions, such as checking account balances and transferring funds, via phone.
Online Banking: The rise of the internet in the 1990s enabled banks to offer online services, making it easier for customers to manage accounts, pay bills, and transfer money.

We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.

Credit Cards and Debit Cards

First ever credit card picture

Source: Time news letter

Figure 1 below presents the evolution of the size of the credit card industry in the United States from 2013 to 2023.

Figure 1. The market size of the US credit card industry
US market evolution of Credit cards industry
Source: Time news letter

Automated Teller Machines (ATMs)

These ATMs provided 24/7 access to banking services, allowing customers to withdraw cash, check balances, and perform other transactions without needing to visit a bank branch. Hence enhanced convenience and reduced the need for in-person banking services. Helping in reducing queues at banks and improving transaction speed. Overall, this innovation has increased accessibility, convenience, and efficiency both for banks and for the consumers.

First ever ATM picture

Source: Time news letter

Figure 2 below presents the evolution of the globally installed of ATM bases in the period of 2009 to 2020.

Figure 2. ATM global evolution

Source: Time news letter

Telephone Banking

First ever touch-tone telephone banking machine in 1973.
First ever telephone banking machine picture
Source: ZB Media

Figure 1 shows what the first ever telephone banking machine looked like in 1973.

Online Banking

First ever Online banking machine in 1980.

Source: Fintech Magazine

Figure 1 shows what the first-ever Online banking machine looked like in 1980.

Conclusion

Why should I be interested in this post?

Useful resources

Wikipedia Financial Innovations

Fintech Magazine Online Banking 1973 – History of Computers

ZB Media Technology in Fintech and the story of Online Banking

Research gate The emergence of financial innovation and its governance – a historical literature review

Axis bank Credit card: A cashless surge

Allied market research Mobile Payment Market Expected to Reach $12.06 Trillion by 2027

Cambridge University Press Banking and Finance in the Twentieth Century

About the author

The article was written in July 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Activists in financial markets and the corporate world

July 10, 2024June 23, 2024 by Nithisha CHALLA

Activists in financial markets and the corporate world

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents information how individuals and groups (financial activists) use their influence as shareholders to drive strategic, operational, and governance changes within companies to improve performance, enhance shareholder value, and promote ethical practices.

Introduction

Activism in financial markets and the corporate world refers to the efforts of individuals or institutions (like hedge funds) to influence a company’s behavior. Their objectives can include changes in management, strategy, financial structure, or operational practices. Activists aim to improve company performance, enhance shareholder value, or promote social, environmental, or governance (ESG) objectives.

History

The concept of shareholder activism dates back to the early 20th century, but it gained significant momentum in the 1980s. During this period, activist investors began buying substantial shares in underperforming companies to gain control and enforce changes. For example, Paul Singer and AT&T, where Paul Singer’s Elliott Management took a $3.2 billion stake in AT&T in 2019. Over the decades, activism has evolved, with various methods and strategies being adopted to exert influence on corporate boards and top management.

Types of Activism

There are different types of activism: shareholder activism, Environmental, Social, and Governance (ESG) activism, operational activism, and proxy fights.

Shareholder Activism

Shareholder activism focuses on improving company performance and shareholder returns through changes in governance, strategy, or financial practices.

For example, in the case of Apple in 2015, Carl Icahn’s activism led to increased share buybacks and dividend payments, enhancing shareholder returns.

Environmental, Social, and Governance (ESG) Activism

Environmental, Social, and Governance (ESG) activism aims to promote sustainable and ethical practices within companies, addressing issues like climate change, labor practices, and board diversity.

The most common ESG-related litigation is based on alleged false disclosures in securities filings. Statements in proxy materials about companies’ commitment to diversity could be false and misleading because there is a lack of diversity and/or the companies fail to follow through on promises to increase diversity.

For example, the SEC reached a US$35 million settlement with a gaming company in February 2023 after the company failed to maintain disclosure controls related to workplace misconduct. This settlement came after a wave of shareholders advocated for leadership changes within the company and its board.

Operational Activism

Operational activism involves pushing for changes in the company’s operations, such as cost-cutting measures, divestitures, or restructuring.

For example, in the case of Procter & Gamble (P&G) in 2017, Nelson Peltz’s Trian Partners waged a successful campaign for board representation, leading to significant cost-cutting and strategic refocus.

Proxy Fights

Proxy fights occur when activists seek to gain seats on the company’s board to directly influence decisions.

For example, in the case of Yahoo in 2017, activist pressures from several hedge funds, including Third Point led by Dan Loeb, resulted in major leadership changes and a shift in strategic direction.

Methods and Strategies

To achieve their goals, activists have different methods and strategies: engagement and dialogue with companies, public campaigns, proxy battles, litigation, and shareholder proposals.

Engagement and Dialogue with Companies

Activists may initiate discussions with the top management and the board of companies to induce changes.

Public Campaigns

Activists may use media and public statements to rally support from other shareholders and put pressure on the company.

Proxy Battles

Through proxy battles, activists may gain enough shareholder votes during general meetings to win board seats and implement changes directly.

Litigation

Activists may take legal action to force companies to comply with certain demands.

Shareholder Proposals

Activists may submit proposals to be voted on at the companies’ annual meetings.

Short Selling

Activists may sell borrowed shares of a company with the expectation that the stock price will decline. Activists may release reports highlighting issues such as accounting irregularities or poor governance to justify their short positions.

Notable Activists

Carl Icahn: Known for his aggressive tactics, Icahn has targeted companies like Apple, eBay, and Xerox, pushing for strategic changes to enhance shareholder value.
Bill Ackman: Founder of Pershing Square Capital Management, Ackman has influenced companies like Target and Valeant Pharmaceuticals through high-profile campaigns.
Elliott Management: Led by Paul Singer, Elliott Management has been involved in numerous activism campaigns, including those at AT&T, Twitter, and SAP.
Jim Chanos: Famous for short selling, Chanos is known for his early identification of problems at companies like Enron. His approach often involves detailed research and public reports that bring issues to light.

Impact on Companies

Activist interventions can have significant impact on companies, both positive and negative.

Positive Impact

Activism can lead to improved governance, better financial performance, and enhanced shareholder value.

For instance, the activist campaign by Trian Partners at Procter & Gamble resulted in cost-cutting measures and strategic shifts that boosted profitability.

Negative Impact

On the downside, activism can create instability, distract management, and lead to short-termism.

For example, the intense activist pressure on Yahoo! led to management upheavals and strategic uncertainty.

Impact of Short Selling

Short selling activism can expose weaknesses and unethical practices within companies, leading to regulatory investigations and changes in management. However, it can also lead to significant volatility and negative sentiment in the stock market.

For instance, Jim Chanos’s short selling and public exposure of Enron’s accounting fraud played a crucial role in revealing one of the largest corporate scandals in history

Conclusion

Activists in financial markets and the corporate world play a crucial role in shaping the future of companies. While their methods can be controversial, the influence of activists has led to significant changes in corporate governance and performance. By pushing for accountability, transparency, and strategic improvements, activists continue to be a powerful force in the corporate landscape.

Why should I be interested in this post?

This article provides a comprehensive overview of activism in the corporate world, with clear examples and explanations of key concepts. For management students, understanding and analyzing the corporate world is equally important as being a part of it and making changes in it.

Useful resources

The hedgefund journal Shareholder Activism

Hogan lovells Recent developments in ESG shareholder activism around the world and suggestions for risk mitigation

Fordham law school Yahoo! and Hedge Fund Activism

Harvard Business Review Types of Activist Investors and How to Spot Them

Wikipedia Shareholder activism

About the author

The article was written in June 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Datastream

June 21, 2024 by Nithisha CHALLA

Datastream

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents information referring to a global financial dataset, which plays a vital role in today’s financial markets for making informed investment decisions.

Introduction

Datastream is a global financial dataset that contains current and historical time series data on stocks, indices, bonds, funds, futures, options, interest rates, commodities, currencies, and economic indicators for 175 countries and 60 markets. It is accessible via two platforms: WRDS and LSEG Workspace.

It is an industry-leading analytical data source that enables detailed exploration of relationships between data series: perform correlation and relationship analysis, test investment and trading ideas, and research countries, regions and industries with time series sometime available from the 1900s onwards.

History

Datastream was developed by Thomson Reuters, now part of Refinitiv, and has been a vital tool for financial professionals for several decades. It has continually evolved to incorporate more data and improve its user interface, reflecting advancements in technology and the increasing demand for comprehensive financial information.

With over 35 million individual instruments or indicators across all major asset classes, including 8.5 million active economic indicators and over 14 million economic time series every day. It features 120 years of data, across 175 countries – the information and tools you need to interpret market trends, economic cycles and the impact of world events.

Its history extends as far back as the 1900s for G7 countries, the 1970s for other major markets and the 1980s for smaller countries.

Uses of Datastream

There are different uses of Datastream such as for investment research, economic analysis, portfolio management, academic research and financial reporting.

Investment Research

Investors and analysts use Datastream to research and evaluate potential investments by analyzing historical performance and financial health. Refinitiv offers in-depth coverage of more than 12,500 global companies across 74 countries, with over 630 metrics and history dating back to 2002.

For example, Refinitiv MarketPsych ESG Analytics (a part of Datastream) are real-time data series which can easily be incorporated into your investment and analysis process, whether quantitative or qualitative. Refinitiv MarketPsych ESG data is available on 100,000+ public and private companies and 252 countries and regions, covering more than 250 strategic ESG data measures, structured into 10 categories underlying the four areas of corporate performance.

Economic Analysis

Economists and policy makers use the database to monitor economic trends, make forecasts, and formulate economic policies.

Economists uses Datastream to access historical GDP data, inflation rates, employment figures, and other relevant economic indicators.

Portfolio Management

Portfolio managers use Datastream to track the performance of assets, optimize asset allocation, and manage risks of their portfolios or funds.

The risk manager uses Datastream to analyze historical price volatility, correlations between assets, and economic indicators that impact market risk. Datastream has had a number of marked firsts within the industry and was a pioneer when it came to calculating indices’ relative data on a daily basis. Thanks to their vast coverage of constituents across the major asset classes, users can construct benchmarks tailored to their respective strategies. This means a fund’s relative performance can be tracked more accurately.

Datastream also offers extensive global coverage of historical end-of-day fund data, with over 30 years of history and a range of measures including net asset value, dividends and performance metrics, plus supporting and operating data such as classifications, identifiers and legal entity all sourced directly from Refinitiv Lipper.

Academic Research

Scholars and students in finance and economics use the extensive data for empirical research, thesis work, and academic publications.

Financial Reporting

Financial institutions use the data for internal reporting, regulatory compliance, and strategic planning.

Finance teams use Datastream to pull data on the company’s stock performance, compare it with industry benchmarks, and include relevant economic indicators.

Advantages of Datastream

To achieve their goals, Datastream is used by various entities and individuals for various reasons: comprehensive coverage, historical depth, user-friendly interface, reliable and timely data, and customization.

Comprehensive Coverage: One of the most extensive databases available, covering a wide range of financial instruments and global markets.
Historical Depth: Offers deep historical data, essential for long-term analyses and trend identification.
User-Friendly Interface: Intuitive tools and interfaces for data extraction, charting, and analysis.
Reliable and Timely Data: Provides accurate and up-to-date information, crucial for making informed financial decisions.
Customization: Users can customize data queries and reports to meet specific research and analysis needs.

Challenges of using Datastream

Given that Datastream deals with real-time or near-real-time data, there are several challenges in processing the streaming data:

Data Overload: The vast amount of financial data available can be overwhelming, making it difficult to filter relevant information.
Data Quality: Ensuring the accuracy and reliability of financial data is crucial, as incorrect data can lead to poor investment decisions.
Cybersecurity: Protecting financial data from cyber threats and unauthorized access is a significant concern for financial institutions and data providers.
Cost: Access to premium financial data services can be expensive, posing a challenge for individual investors and smaller firms.

Conclusion

Datastream plays a critical role in the modern financial ecosystem. By providing real-time access to a wide array of financial data, it empowers investors, analysts, and institutions to make informed decisions, enhance market transparency, and drive economic growth. As technology continues to evolve, the accessibility and quality of financial data will only improve, further transforming the landscape of financial markets.

Why should I be interested in this post?

This article provides a comprehensive overview of Datastream, with clear examples and explanations of key concepts. For management students, understanding and analyzing the corporate world is equally important as being a part of it and making changes in it.

Useful resources

LSEG Refinitiv datastream

Princeton University Library Datastream

Thomson Reuters Thomson Reuters Datastream Economics

NYU libraries Datastream Guide

European University Institute (EUI) Datastream description

About the author

The article was written in June 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

S&P Global Market Intelligence

May 30, 2024 by Nithisha CHALLA

S&P Global Market Intelligence

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents S&P Global Market Intelligence, which provides financial data, news and analytics for the financial community.

Introduction

S&P company believes that to keep pace with today’s constantly evolving markets, data must be smarter, deeper, and instantly accessible. Their new Market Intelligence platform puts a world of information at the fingertips of market participants, allowing them to make strategic business decisions with conviction, speed, and laser-focused insight.

Logo of S&P Market Intelligence
Logo of S&P Global
Source: S&P Global

History

Standard & Poor’s (S&P) was established in 1860 by Henry Varnum Poor, initially focusing on providing financial data and analysis to investors. The company gained prominence for its pioneering efforts in financial transparency and market insights.

In 1923, Standard & Poor’s introduced the S&P Composite Index, a benchmark index that would later evolve into the iconic S&P 500. This index became a cornerstone of the financial industry, representing the performance of leading U.S. companies.

Throughout the 20th century, Standard & Poor’s expanded its offerings beyond indices, incorporating market intelligence services to provide comprehensive financial data and analytics to institutional investors, analysts, and businesses. In the early 2000s, Standard & Poor’s enhanced its global reach and capabilities through strategic acquisitions and partnerships. This period marked the integration of diverse datasets, analytics, and research services into a unified platform.

In 2016, Standard & Poor’s Financial Services LLC merged with McGraw Hill Financial, forming S&P Global Inc. This merger brought together a diverse portfolio of financial information services under the S&P Global brand. In 2018 they acquired Kensho, whose leading AI and machine learning capabilities drive actionable insights from very complex data.

In 2022, S&P Global and IHS Markit merge, leveraging complementary products to increase customer value and power the markets of the future. Today, S&P Global Market Intelligence remains committed to simplifying financial insights, offering a wide range of products and services that enable users to navigate complex markets with confidence. From earnings estimates to comprehensive coverage of asset classes, S&P Global’s history of innovation and dedication to excellence continues to shape the future of financial technology.

Key Components of S&P Global Market Intelligence

Earnings Estimates

S&P Global Market Intelligence aggregates consensus estimates from financial analysts covering a wide range of industries. Users could easily navigate through the most recent consensus and detailed estimates, revisions, guidance, multiples, surprises, trends, growth rates, and charts for fast and effective estimate tracking.

As of their platform, users seamlessly receive comprehensive global estimates straight into their systems, portals, and business applications through the company’s flexible Data Feed, Cloud, and API Solutions. With S&P Capital IQ Estimates, users can take advantage of historical and real-time consensus estimates, company guidance, analyst coverage, estimate revisions, and more to power their analysis and models.

Direct access and query S&P Capital IQ Estimates via Snowflake eliminates the data ingestion process and improves your productivity and efficiency.

Revenue Projections

S&P Global Market Intelligence delivers revenue projections on both a quarterly and annual basis. This allows investors to track short-term performance and long-term growth trends, offering a complete picture of a company’s revenue trajectory. We can rely on the latest information when we need it. Estimated revisions are updated intraday. Forecasted numbers are presented with point-in-time data.

Revenue projections are available across various sectors and industries, enabling users to conduct sector-specific analyses and comparisons. This helps investors understand industry trends and identify high-growth areas within the market. S&P Global Market Intelligence incorporates macroeconomic indicators into its revenue projections, such as GDP growth, inflation rates, and consumer spending patterns. This holistic approach ensures that revenue forecasts are grounded in broader economic realities.

Forecasts for Key Financial Metrics

Currently S&P Global is working on expanding its industry specific, segment and product level estimates. But its metrics already include general metrics (44), industry specific metrics for oil and gas, banks, insurances and REITs (Real Estate Investment Trust) and Commodity price targets.

Coverage

The S&P Market intelligence platform has a data coverage of over 15,000 banks, 13,257+ global insurance companies, properties across 101 countries with property data going back to 1995, Trucost’s deep environmental performance data on 15,000+ companies around the globe.

S&P Capital IQ Estimates are collected from broker research reports or from estimates feeds provided by the brokers directly. Their estimates data set does not include automated or computer generated estimates. The brokers in their network tend to be institutions and the estimates displayed on S&P Capital IQ Pro are collected from sell-side analyst estimates.

S&P Capital IQ Estimates capture “per share” estimates on the ticker/trading item level. If a user is not seeing all the contributors he/she expect for a company with multiple listings, the company recommends to check under the other listing(s). For example, Sony trades on TSE under 6758 and NYSE under SONY. They reflect the different estimates from analysts for the two trading items respectively. There is more estimates coverage for TSE:6758 compared to NYSE:SONY. The user may be looking at NYSE:SONY but expecting TSE:6758 coverage.

Period

The S&P Market intelligence historical data dates back to 1997 internationally and 1999 specifically for North American companies. The length of history varies based on metric.

Frequency

Their Data Feed Solution, Xpressfeed, paired with their proprietary loader technology, automates the download and management of data packages and enables delivery at any frequency.

The typical turnaround time is 2 hours for estimates (earnings, revenues, etc.), 1 hour for headlines, and 3 hours for guidance. For other vendors, the typical turnaround time is 24 hours, 12 hours and 12 hours (resepectively). This is one of the main qualities that differentiate S&P from other vendors.

Firms and Financial analysts

In a complicated world where one event triggers challenges for seemingly unrelated industries, S&P Global experts can provide market participants in-depth insights into the intersection of topics such as economics, shipping, automotive, commodities trading, oil and gas, financials, sustainability and more. S&P Global Market Intelligence provides high-quality industry data, financial data, news, analysis, and research to its client investors based on the client’s portfolio. Its clients include universities, corporations, government agencies, and investment professionals.

Pricing

Pricing depends on the scope of the usage regarding the following input factors:

Departments to be licensed (accessing the data)

Regions/locations that will have access to the data

Number of users that will have access to the data

Also for API / Datafeed solutions there are separate pricing guidelines, which depend on the amount of data items to be retrieved. This would need to be discussed with the business unit itself.

Use of S&P Global Market Intelligence by the Financial Community

Benchmark for Analysis

S&P Global Market Intelligence provides a vast array of financial metrics, including revenue, earnings, profit margins, and other key financial indicators. The platform offers tailored data for specific industries, enabling precise comparisons within sectors. This helps in understanding industry norms and identifying outliers. For instance, companies can benchmark their financial performance against the top players in their industry to identify strengths and weaknesses.

Market Expectations

S&P Global Market Intelligence plays a pivotal role in shaping and understanding market expectations. By aggregating analysts’ forecasts and market data, the platform helps users gauge investor sentiment and market trends. Key applications include Consensus Estimates, Market Sentiment Analysis and Trend Identification.

Earnings Season Preparation

During earnings season, S&P Global Market Intelligence is indispensable for preparation and analysis. Financial professionals use the platform to access earnings forecasts, historical performance data, and company reports, enabling them to anticipate results, post-earnings analysis and investor communications.

S&P Global Market Intelligence and Tests of Market Efficiency

Academic works

S&P fosters experiential learning with sustainability data and research that offer comprehensive data coverage, robust data linking, and flexible data delivery in the finance lab, student investment fund, research competition, and more. The platform also aids in identifying and analyzing market anomalies, contributing to the academic discourse on market efficiency. Researchers perform event studies to analyze how markets react to new information, such as earnings announcements or economic data releases.

Information Dissemination

S&P Global Market Intelligence excels in the rapid dissemination of financial information, ensuring that market participants have access to timely and accurate data. Real-time data, Custom Alerts and Comprehensive Coverage provided by the platform make it much easier to disseminate the information.

Pros and Cons

S&P Global Market Intelligence platform analysis helps investors evaluate the effectiveness of investment strategies and identify sources of outperformance or underperformance. It provides powerful analytical tools, real-time updates and comprehensive data.

On the other side, S&P Global Market Intelligence platform subscription costs can be high, potentially limiting access for smaller firms or individual investors. And the depth of information and tools available may require a learning curve for new users.

Conclusion

S&P Global Market Intelligence is a vital resource for the financial community, providing essential data, insights, and tools that support a wide range of financial activities. From benchmarking and market analysis to earnings season preparation and academic research, the platform empowers financial professionals to make informed decisions and stay ahead in a dynamic market environment.

Why should I be interested in this post?

Understanding how financial professionals use platforms like S&P Global Market Intelligence can contribute to your professional development, especially if you’re pursuing a career in finance, investment management, or financial advising. It demonstrates your interest in industry trends and best practices.

Useful resources

S&P Global The Market Intelligence Platform

Wikipedia S&P Global

S&P Global Estimates

S&P Global Data into insights

S&P Global Coverage and analytics

About the author

The article was written in May 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Zacks Investment Research

May 30, 2024May 30, 2024 by Nithisha CHALLA

Zacks Investment Research

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents Zacks Investment Research, which provides financial data, news and analytics for the financial community.

Introduction

Zacks Investment Research (ZIR) is a prominent financial services company known for its stock research, analysis, and investment tools. Zacks is best known for its proprietary Zacks Rank stock-rating system, which uses earnings estimate revisions to identify stocks that are assured to outperform the market. This system, along with a wide array of financial tools and resources, has made Zacks a trusted name among individual investors, financial advisors, and institutional investors alike.

Logo of Zacks Investment Research

Source: Zacks Investment Research

History

Zacks Investment Research has a rich history that began in 1978 when it was founded by Len Zacks, a Ph.D. in mathematics from MIT. Len Zacks was driven by a pioneering idea that earnings estimate revisions are the most powerful force impacting stock prices. His vision was to develop a research methodology and tools that leverage this insight to help investors make better investment decisions.

In 1978, Len Zacks founded Zacks Investment Research with a focus on earnings revisions. His research suggested that changes in analysts’ earnings estimates had a significant impact on stock prices, and he aimed to harness this insight to create a predictive stock-rating system.

In 1981, Zacks developed the Zacks Rank, a proprietary quantitative model that ranks stocks based on changes in analysts’ earnings estimates. It became the cornerstone of the company’s product offerings, known for its ability to identify stocks likely to outperform the market. In 1986, The Zacks Rank system was made available to institutional investors. It gained credibility and popularity due to its consistent performance in predicting stock price movements.

In 1992, Zacks Investment Research expanded its offerings to individual investors. In 1996, The company launched its website, Zacks.com, making its research and stock ratings accessible to a broader audience.

In 2002, Zacks introduced its mutual fund ranking system, applying its earnings revision methodology to mutual funds. This allowed investors to identify funds with strong earnings potential. In 2004, The company expanded its research offerings to include ETF (Exchange-Traded Fund) ratings and analysis, catering to the growing interest in ETF investing.

In 2015, Zacks Investment Research expanded its institutional services, offering advanced analytics, data feeds, and customized research solutions for hedge funds, asset managers, and financial institutions.

In 2023, Zacks Investment Research still remains a leading provider of financial research, known for its robust stock ranking system, comprehensive research reports, and a wide range of tools that help investors make informed decisions.

Key Components of Zacks Investment Research

Earnings Estimates

Zacks’ early contribution to investment analysis was the discovery that Earnings Per Share (EPS) estimate revisions are the most powerful force affecting stock prices. This discovery gave birth to the Zacks Indicator which, along with being the first to calculate consensus EPS estimates of quarterly earnings and to create the concept of EPS surprises, as well as the first to analyze price response to EPS surprises placed Zacks among the top innovating pioneers in the investment industry.

Zacks gathers earnings estimates from a wide range of sources like Wall Street Analysts, Company Reports, and Economic Indicators. Earnings estimates play a crucial role in the proprietary Zacks Rank system, which ranks stocks from top 5 strong buys to strong sells. The Zacks Rank system leverages these revisions to identify stocks that are likely to outperform or underperform the market.

Earnings estimates are a foundational element of the Zacks Rank system. The Zacks Rank is a proprietary stock rating model that uses changes in earnings estimates to rank stocks.

Model portfolio

The Zacks Investment Committee has maintained a model portfolio since 1996. This portfolio called the Zacks Focus List, is designed for long-term investors and reflects the opinions of Zacks Director of Research Mr. Sheraz Mian. It is published weekly and will list any additions or deletions to the portfolio from the previous week.

Zacks Chief Equity Strategist, John Blank PhD., publishes this monthly report that provides the Zacks forecasts for all major asset classes and the details of Zacks outlook. This report is derived from several resources to come up with individual asset class forecasts.

Forecasts for Key Financial Metrics

In the early 1990s, Zacks developed consensus estimates of other key investment metrics such as brokerage analyst stock ratings, forecasts of future sales, and target prices. More recently, Zacks have expanded again the set of items for which they calculate consensus estimates to include many of the line items and ratios that can be determined from income statements such as ROE, Margins, Net Income, etc.

The Zacks Fundamental database includes 260 operational metric items covering over 900 companies in 32 different industries. The history of the metrics items goes back to 2003. For more details on the operational metrics, download the overview document below.

Coverage

In 1981, Zacks began processing, organizing, and evaluating research produced by US brokerage firms. Today Zacks receives daily electronic data feeds and printed research reports on over 8,500 North American publicly traded companies from over 185 brokerage firms, produced by more than 3,200 analysts amounting to over 500,000 pages of brokerage research. Zacks’s extensive data sets give you access to over 25 years of data history on over 16,000 active and inactive US and Canadian equities.

In addition, ZIR records 25,000 earnings estimate revisions and changes in broker recommendations weekly. This information is made available through institutional and non-institutional product lines and websites such as MSN MoneyCentral, Quicken.com, Bloomberg.com, and FoxBusiness.com, as well as our websites.

On the whole it covers 6,000 US companies, plus 550 non-US companies traded as ADRs on US exchanges from 35 foreign countries, plus 200 Canadian companies trading on US exchanges.

Period

Zacks began in 1978 collecting the individual EPS estimates for over 4,400 US and Canadian companies made by 3,000 analysts employed by 180 US brokerage firms.

Frequency

Zacks maintains a history of annual EPS estimates going back to 1979 and quarterly estimates going back to 1982. Zacks consensus ratings history goes back to 1985. Consensus Sales estimates and Price Targets are maintained back to 2000.

Sales Estimates – 2000 to Present – Monthly, Weekly, Daily Frequency.

Price Targets – 2000 to Present – Monthly, Weekly, Daily Frequency

Zacks data is accessible through raw data feeds for both history files and updates, as hosted web pages that can be framed into finance-oriented websites, as APIs in XML or JSON format, and through partners providing on-demand data-as-a-service (DaaS) platforms.

Firms and Financial analysts

For the 3,800 largest companies Zacks provides over 500 fields of annual standardized data from 2001 forward, and 87 fields from 1979 to 2001. For the 2,800 smaller companies and ADRs, ZIR provide 87 fields of annual standardized data from 1979 to the present.

Zacks employs a rigorous quality control process to make sure all data points are recorded accurately. For each company, a trained analyst enters the data from SEC filings, which is then double-checked by a senior analyst. Once the data is entered, a senior analyst signs off on final completion after reviewing all the data. In addition, the data is subjected to a battery of automated checks to verify balancing relationships and correct errors. All data items are reviewed by multiple sets of trained eyes as well as automated computer checks.

Pricing

There are several types of pricing offered by Zacks Investment Research namely Zacks premium, Zacks Investor Collection, Zacks Ultimate.

Zacks Premium features daily updates of the Zacks Rank, full access to the Zacks #1 Rank List, Equity Research Reports, Focus List portfolio of 50 longer-term stocks, Premium screens and much more. The subscription fee for this per year is $249.

Zacks Investor Collection is a bundle of top subscription services for long-term investors. Customers can access to all of the real-time buy and sell signals from all of Zacks long-term investor portfolios, including the exclusive stocks under the $10 strategy which isn’t available to the general public. Customers can also get full access to all the premium research tools and reports for finding winning stocks, ETFs, and mutual funds. For this program they give access to all the data for $1 in the first 30 days and later prices at $59 per month and $495 per year.

Zacks Ultimate program gives customers access to Zacks’ market insights and the most private picks from Zacks portfolio recommendation services for only $1 in the first 30 days and later they price at $299 per month or $2,995 per year.

Use of Zacks Investment Research by the Financial Community

Benchmark for Analysis

Financial professionals often use Zacks Investment Research as a benchmark for analyzing stocks and making investment decisions. The company’s data and analytical tools provide a reliable foundation for comparative analysis. Investors use the Zacks Rank system to screen for stocks that are expected to outperform the market based on earnings estimate revisions.

According to the company website, it states that “The Zacks Mutual Fund Rank is a rating system that will help you find the best mutual funds to outperform the market. Use the Zacks Mutual Fund Rank to evaluate your current funds, find better funds, and track your funds. In addition, you can follow top-ranked funds featured in daily articles from Zacks’ team of analysts.” which shows how an investor can use their analyses as a benchmark.

Market Expectations

Zacks aggregates earnings estimates from multiple analysts to form a consensus estimate. By monitoring changes in earnings estimates, investors can understand shifts in market sentiment and expectations. Upward revisions typically indicate positive market sentiment, while downward revisions may signal potential concerns.

Zacks tracks earnings surprises, which occur when actual earnings differ significantly from consensus estimates. These surprises can lead to significant market movements and are closely watched by investors.

Earnings Season Preparation

Before earnings announcements, Zacks offers previews that include analysts’ expectations, historical earnings performance, and key factors to watch. After earnings reports are released, Zacks provides detailed analyses comparing actual results to estimates, offering insights into the implications for the company’s stock price and future performance.

Zacks Investment Research and Tests of Market Efficiency

Academic works

Zacks Investment Research is a valuable resource for academic researchers studying market efficiency and other financial theories. Researchers analyze how markets react to earnings announcements and other significant events, using Zacks’ data to test hypotheses about market efficiency.

Information Dissemination

Zacks Investment Research excels in providing up-to-date data and insights to its users. Zacks provides real-time updates on earnings estimates, stock ratings, and market news. Users can set up custom alerts for specific stocks or market events.

Zacks research and data are accessible through various platforms, including its website, mobile apps, and third-party financial services, making it easy for users to stay informed.

Pros and Cons

The Zacks Rank system and earnings estimates are known for their accuracy in predicting stock performance. Zacks offers extensive and detailed financial data, covering a wide range of companies and metrics.

On the other side, Zacks’ premium services can be expensive, potentially limiting access for smaller firms or individual investors. And the depth of information and tools available may require a learning curve for new users.

Conclusion

Zacks offers a wealth of data and analysis that helps in making informed investment decisions. By focusing on earnings estimates and revisions, Zacks helps investors predict stock performance more accurately. The user-friendly tools and real-time updates make it accessible for both beginners and experienced investors.

Why should I be interested in this post?

For management students, understanding and utilizing tools like Zacks Investment Research can provide a significant edge in the financial world. Learning to use such resources effectively can enhance our analytical skills and prepare us for a successful career in finance and investment management.

Useful resources

Zacks Investment Research Zacks Fundamental Data – Company Profile and Financial Statement Data

Zacks Investment Research Our Research. Your Success.

Fidelity Research Firm: Zacks Investment Research

Zacks Investment Research Find the Service That’s Right For You

Zacks Investment Research Zacks Mutual Fund Rank

About the author

The article was written in May 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Morningstar

May 3, 2024 by Nithisha CHALLA

Morningstar

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents Morningstar, which provides financial data, news and analytics for the financial community.

Introduction

Morningstar is a leading provider of independent investment research, data, and analysis, dedicated to helping investors make informed decisions and achieve financial success. Their mission is to provide investors with unbiased insights, trusted research, and actionable data to navigate the complexities of the financial markets. Whether it is for a novice investor seeking guidance or a seasoned professional managing portfolios, Morningstar’s platform offers valuable resources to support their investment journey.

Logo of Morningstar

Source: Morningstar

History

Morningstar, Inc. is an American financial services firm headquartered in Chicago, Illinois, and was founded by Joe Mansueto in 1984. Its initial investment was of US$80,000. In July 1999, Morningstar accepted an investment of US$91 million from SoftBank in return for a 20 percent stake in the company. The two companies had formed a joint venture in Japan the previous year.

Morningstar’s initial public offering occurred on May 3, 2005, with 7,612,500 shares at $18.50 each. The manner in which Morningstar went public is notable. They elected to follow Google’s footsteps and use the OpenIPO method rather than the traditional method. This allowed individual investors to bid on the price of the stock, and allowed all investors equal access.

In 2006, Morningstar acquired Ibbotson Associates, Inc., an investment research firm. In 2007, Morningstar acquired the mutual fund data business of S&P Global. In 2010, Morningstar acquired credit rating agency Realpoint for $52 million and begins offering structured credit ratings and research to institutional investors.

In the same year, Morningstar acquired Old Broad Street Research Ltd. (OBSR), a UK-based provider of fund research, ratings and investment advisory services, for $18.3 million. After the acquisition, renamed as Morningstar OBSR. In 2014, Morningstar acquired ByAllAccounts, Inc., a provider of innovative data aggregation technology for financial applications. In 2016, Morningstar acquires remaining ownership of PitchBook Data for approximately $225 million.

In 2019, Morningstar acquired the world’s fourth largest credit rating agency DBRS for $669 million. After the acquisition, DBRS merged with Morningstar’s credit rating business. In 2020, Morningstar entered into an agreement to acquire Sustainalytics, a research and ratings firm specializing in environmental, social and governance (ESG) insights. In 2021, Morningstar announced it would acquire the UK and international operations of the Australian wealth management platform Praemium.

In 2022, Morningstar announced that it will acquire the S&P Global-owned Leveraged Commentary & Data (LCD), a company specializing in leveraged loan market data, for $600 million up to $650 million. Today, from retirement planning to ESG (Environmental, Social, Governance) investing, Morningstar remains committed to helping individuals and institutions navigate the complexities of the financial markets and achieve their financial goals with confidence.

Key Components of Morningstar

Earnings Estimates

Price/projected earnings for a stock is the ratio of the company’s most recent month-end share price to the company’s estimated earnings per share (EPS) for the current fiscal year. According to Morningstar’s website, if a third-party estimate for the current year EPS is not available, the company will calculate an internal estimate based on the most recently reported EPS and average historical earnings growth rates.

Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

The P/E ratio relates the price of the stock to the per-share earnings of the company. A high P/E generally indicates that the market will pay more to obtain the company because it has confidence in the company’s ability to increase its earnings. Conversely, a low P/E indicates that the market has less confidence that the company’s earnings will increase, and therefore will not pay as much for its stock. In most cases high average P/E ratio indicates a manager has paid a premium for stocks that have a high potential for increased earnings. If the average P/E ratio is low, the manager may believe that the stocks have an overlooked or undervalued potential for appreciation.

Revenue Projections

Morningstar aggregates earnings estimates and consensus revenue forecasts from analysts, providing insights into market expectations for future revenue levels. This data helps investors gauge sentiment and anticipate potential revenue surprises. Morningstar presents revenue projections and growth rates based on proprietary models and industry analysis.

For example, on Feb 22, 2024, Morningstar’s chief executive officer, Kunal Kapoor said that “We finished 2023 on a strong note, crossing $2 billion in revenue for the fiscal year and delivering meaningful increases in organic revenue, margins, and cash flow for the quarter”. This not only implements that the company has been successful but also shows how reliable the company data is for the investors.

Forecasts for Key Financial Metrics

Morningstar calculates and forecasts key profitability ratios such as return on equity (ROE), return on assets (ROA), and operating margins. These metrics indicate a company’s efficiency and financial health, aiding investors in evaluating investment opportunities. It provides cash flow projections, including operating cash flow, free cash flow, and cash flow from investing and financing activities. Investors can analyze cash flow trends and liquidity positions to assess a company’s ability to generate and manage cash.

In the company website, investors can access historical data and perform comparisons of key financial metrics over time, across companies, or within industries. This helps identify trends, benchmark performance, and identify investment opportunities.

Coverage

Morningstar offers investment management services through its investment advisory subsidiaries, with approximately $286 billion in assets under advisement and management as of Dec. 31, 2023. The Company operates through wholly- or majority-owned subsidiaries in 32 countries.

According to Morningstar, the company website maintains coverage oMorningstar.com offers coverage of 950 stocks, 1,150 mutual funds, and 300 ETFs, plus market news, economic analysis, portfolio-planning insights, and investment commentary.

Period

Morningstar offers several periods of windows to access and analyse the data, such as Single Period(certain definite time), Trailing Periods(end date is fixed), Rolling Window(typically used to measure consistency of data), Forward Extending Window (fixes the start date for each time period), Regular Periods from start and Regular Periods from end. These various options give the investors detailed and customised analysis of what they are looking for.

Frequency

The period and frequency of forecasts on Morningstar vary based on user needs and market dynamics. Morningstar Quantitative Rating has the unique advantage of maintaining a monthly update cycle.

Firms and Financial analysts

Morningstar, Inc. is a leading provider of independent investment insights in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar has the one of the largest independent manager research teams in the world with more than 100 analysts covering more than 4000 unique funds.

Pricing

The business model of Morningstar is a three tier based pricing namely License-based, Asset-based and Transaction-based.

License-based: The majority of the research, data, and proprietary platforms are accessed via subscriptions or contract-based licensing arrangements that grant access on either a per user or enterprise-basis for a specified period of time. Licensed-based revenue includes Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, Morningstar Office, PitchBook Data, Premium Memberships on Morningstar.com, and other similar products.

Asset-based: They charge basis points and other fees for assets under management or advisement. Morningstar Investment Management, Workplace Solutions, and Morningstar Indexes products all fall under asset-based revenue.

Transaction-based: Ad sales on Morningstar.com and their Credit Ratings products comprise the majority of the products that are transactional, or one-time, in nature, versus the recurring revenue streams represented by their licensed and asset-based products.

Use of Morningstar by the Financial Community

Benchmark for Analysis

Company is known as a benchmark for analysis in the financial market. Over the years their strategy has delivered excellent diversification and risk-adjusted returns. Since the September 2000 start of its longest-tenured manager, Rolley, the fund’s 7.7% annualized gain through the end of March 2024 beat the average global allocation Morningstar Category fund by more than 3 percentage points with better Sharpe and Sortino ratios, measures of risk-adjusted results.

Market Expectations

Morningstar provides access to economic data and forecasts that shape market expectations. Users can track indicators such as GDP growth, inflation rates, unemployment figures, and interest rate projections to anticipate broader economic trends.

Earnings Season Preparation

During earnings season, Morningstar offers detailed analysis of company earnings reports relative to consensus estimates. Investors can assess whether companies meet, exceed, or fall short of market expectations, influencing stock prices and investor sentiment.

For a deeper understanding, this is an example of how they would state seasons preparation – “I think third-quarter earnings in and of themselves will generally be very strong. Management guidance last quarter probably shouldn’t be all that difficult to beat. And also the U.S. has just remained defiant in the face of tight monetary policy. So, economic growth has been much stronger than we had originally expected. In fact, if you look at our numbers here, we just recently updated our GDP forecast for the third quarter to 3.9%.”

Morningstar and Tests of Market Efficiency

Academic works

Morningstar conducts and publishes academic research on market efficiency, analyzing factors that contribute to market anomalies and deviations from efficient market hypotheses. This research informs investment strategies and challenges conventional market theories. The efficient-market hypothesis, or EMH, implies that the market quickly and accurately incorporates all information regarding a stock’s actual value into its price. They believe that Investors can’t gain an informational advantage and shouldn’t try to beat the market. Instead, they should simply track the market through a broad market index fund.

Information Dissemination

Morningstar facilitates information dissemination and transparency, providing investors with access to comprehensive data and research reports. By empowering investors with timely and accurate information, Morningstar contributes to market efficiency by reducing information asymmetry.

Pros and Cons

Morningstar compares fund performance against relevant benchmarks and market indices, offering insights into fund managers’ ability to generate alpha (excess returns). By evaluating relative performance, Morningstar assesses market efficiency and the value of active management.

Morningstar’s performance attribution analysis helps investors evaluate the effectiveness of investment strategies and identify sources of outperformance or underperformance.

On the other side, Morningstar is primarily a research and analysis platform, and it may not offer direct trading capabilities or execution of investment transactions. Like any investment service, Morningstar’s ratings and recommendations are based on historical data and assumptions, and they may not fully anticipate future market fluctuations or uncertainties.

Conclusion

Morningstar offers valuable resources for investors seeking to research, analyze, and manage their investments effectively. Understanding the pros and cons can help investors leverage Morningstar’s strengths while being mindful of potential limitations or considerations.

Why should I be interested in this post?

Understanding how financial professionals use platforms like Morningstar can contribute to your professional development, especially if you’re pursuing a career in finance, investment management, or financial advising. It demonstrates your interest in industry trends and best practices.

Useful resources

Morningstar Morningstar, Inc. Reports Fourth-Quarter, Full-Year 2023 Financial Results

Wikipedia Morningstar

Morningstar Articles, products and services for professional investors

Morningstar Performance Reporting – Time Periods

Morningstar Earnings Season: What to Expect

About the author

The article was written in May 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Bloomberg

May 20, 2024May 3, 2024 by Nithisha CHALLA

Bloomberg

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents Bloomberg, which provides financial data, news and analytics for the financial community.

Bloomberg

Bloomberg is a company that provides financial data, news, and analytics to people in finance and other industries. The company was created to address the need for better financial data and analytics access in the business world. Bloomberg’s flagship product is the Bloomberg Terminal, a computer software system that provides real-time data on financial markets, economic indicators, and news.

Logo of Bloomberg

Source: Bloomberg

History

Bloomberg LP was founded in 1981 by Michael Bloomberg, a former investment banker who recognized the growing demand for reliable financial information and analytics. The company initially focused on developing and selling computer terminals that provided real-time data on stocks, bonds, and other financial instruments.

Bloomberg’s key innovation, Bloomberg Terminal, was introduced in the early 1980s. This groundbreaking platform revolutionized the way financial professionals accessed market data and news, offering a comprehensive toolset for trading, analysis, and research.

Over the years, Bloomberg expanded its offerings beyond terminals to include data analytics, financial software, and media services. Bloomberg News, launched in 1990, became a prominent source of business and financial journalism, providing timely news coverage and insightful analysis to subscribers worldwide.

In the 21st century, Bloomberg continued to innovate and diversify its business, introducing new products and services tailored to the evolving needs of the financial industry. The company expanded its global presence with offices in major financial centers across North America, Europe, Asia, and beyond.

Today, the company’s commitment to innovation, integrity, and excellence has solidified its position as a trusted partner for businesses, governments, and institutions seeking reliable financial information and insights.

Bloomberg has evolved since its introduction in 1981 and has grown the company from a single location to 176 locations and with 20000 employees. Bloomberg with over 40 years of history, facilitates bottom-up and top-down analysis to better assess potential growth and risk as well as future value across industry, sector, index, country, and region.

Bloomberg covers a wide range of firms across different industries, sectors, and regions. According to Chen (2023), Bloomberg grew to a leading financial company with over 325,000 subscriptions to its professional services, almost 1 million global circulations of Bloomberg Businessweek, and over 150 news bureaus internationally. To support this massive network of financial information, data encryption, messaging, and trading, Bloomberg employs over 4,000 computer engineers around the globe.

Key Components of Bloomberg

Earnings Estimates

Bloomberg provides estimates and forecasts about how companies will perform financially. It collects data from many sources and use it to predict things like earnings and revenue for different businesses.

According to Guttmann from Statista (2022), Bloomberg LP, which operates within the business of information services, news services, broadcasting, streaming, and print, generated an estimated 12.2 billion U.S. dollars. A year earlier, the company’s revenue results stood at 10 billion dollars.

Revenue Projections

Alongside earnings estimates, Bloomberg provides forecasts on how much revenue companies are expected to generate. This helps stakeholders analyze and project the growth and performance of businesses over specific periods.

For example, on June 01, 2023, Bloomberg Intelligence released an expected revenue projection on the AI industry for the next ten years stating “Rising demand for generative AI products could add about $280 billion of new software revenue and the Emerging Industry Could Grow at a CAGR of 42% Over the Next 10 Years”. This helps stakeholders of the respective industry to analyze, project, and invest accordingly.

Forecasts for Key Financial Metrics

Bloomberg’s platform includes forecasts for various important financial metrics beyond earnings and revenue, such as cash flow, profit margins, and growth rates. These forecasts assist in assessing the overall financial health and prospects of companies.

In April 2024, Bloomberg launched a point-in-time data solution that gives quants a competitive edge. By pre-ingesting, mapping, and linking many different data sources together, Bloomberg allows customers to significantly reduce the time needed to generate signals or insights. With this launch, Bloomberg is responding to customers’ need for differentiated, value-adding data with standardized company-level fundamentals, estimates, and deep industry-specific metrics, alongside macro information.

Coverage

Bloomberg covers a wide range of companies across different industries, from large corporations to smaller businesses. This extensive coverage ensures that users have access to comprehensive financial data and insights.

Bloomberg Markets maintains coverage of stocks, bonds, commodities, emerging markets, and forex markets from more than 160 countries. Bloomberg Politics holds the largest news agency in the world in US politics and major global events with more than 1000 reporters and staff. Bloomberg News publishes around 5000 stories daily.

Period

Bloomberg usually provides data with the longest available time period. For example, for Bitcoin data starts in 2010.

Frequency

The period and frequency of forecasts on Bloomberg vary based on user needs and market dynamics. Users can access real-time updates and forecasts as frequently as necessary to stay informed about market changes and company performance.

Bloomberg offers the only cloud-native real-time data delivery option suitable for capital markets use. It delivers B-PIPE through an intra-cloud connection to a managed virtual private cloud on Amazon Web Services (AWS) via AWS Private Link. This low-latency option provides speed, reliability, and security via connectivity that remains solely in AWS.

Pricing

The specific pricing for accessing Bloomberg data is mentioned on the Bloomberg website and it states to have categories like all-in access, limited access, and also has special student access for limited data. The cost likely varies based on the package and offerings selected, which can include different data sets, yearly or monthly subscriptions, and access methods. For detailed pricing information, it is recommended to directly go through the Bloomberg website as it includes very precise information that pretty much caters to all the needs based on the functionality.

Bloomberg charges a fee for its services, usually on a subscription basis. The cost can be high, but many financial professionals find it worth it for the valuable information they receive.

Use of Bloomberg by the Financial Community

Benchmark for Analysis

Professionals rely on Bloomberg’s extensive database of financial data, economic indicators, and market news to conduct in-depth analyses of companies, industries, and markets. The platform provides powerful tools and customizable features that enable users to create detailed financial models, perform comparative analysis, and track key performance metrics.

Market Expectations

Financial professionals use Bloomberg to stay informed about market expectations and sentiment. The platform aggregates market forecasts, including earnings estimates, revenue projections, and economic indicators, allowing users to assess consensus expectations and potential market trends. Bloomberg’s real-time updates and customizable alerts enable users to monitor shifts in market sentiment and adjust investment strategies accordingly.

Earnings Season Preparation

During earnings seasons, Bloomberg becomes an essential tool for financial professionals preparing for corporate earnings releases. The platform’s earnings analysis tools help users interpret financial results, identify underlying trends, and make informed decisions based on earnings reports.

Bloomberg and Tests of Market Efficiency

Academic works

Researchers and scholars leverage Bloomberg’s vast dataset and analytics tools to conduct empirical studies on market behavior, information dissemination, and the efficiency of asset pricing models. By analyzing historical market data and real-time information flow, academics assess the degree to which markets reflect all available information and efficiently incorporate new information into asset prices.

Information Dissemination

One key aspect of market efficiency is the speed and accuracy of information dissemination. Bloomberg facilitates the rapid dissemination of market news, economic data, and corporate announcements to a global audience of financial professionals. Researchers use Bloomberg to study how quickly information is incorporated into asset prices and whether markets efficiently reflect public and private information.

Pros and Cons

Given its history and operations in widely known industries and markets, we certainly need to know the pros and cons of Bloomberg.

Bloomberg provides users with access to extensive financial data and analytics, enabling rigorous empirical studies on market efficiency. Bloomberg’s customizable tools and advanced features facilitate complex analyses and modeling for testing various market efficiency hypotheses. The platform offers real-time updates and historical data, allowing researchers to analyze market behavior over different periods and market conditions.

On the other side, Bloomberg’s subscription costs may limit access to users with limited budgets or academic institutions with constrained resources. The complexity of Bloomberg’s interface and data structure may also present a learning curve for users new to the platform.

Conclusion

Bloomberg’s impact extends across the financial community, serving as a trusted resource for investors, traders, analysts, and corporate professionals worldwide.

Why should I be interested in this post?

According to me, mastering Bloomberg can equip management students with valuable skills and knowledge that are directly applicable to careers in finance, business analysis, and strategic management. It offers a practical way to enhance analytical capabilities, stay updated with industry trends, and build a strong foundation for future professional success.

Useful resources

Bloomberg

Wikipedia Bloomberg L.P.

Statista Estimated revenue generated by Bloomberg LP worldwide from 2015 to 2022

Bloomberg Generative AI to Become a $1.3 Trillion Market by 2032, Research Finds

Bloomberg Bloomberg Launches Point-in-Time Data Solution that Gives Quants a Competitive Edge

About the author

The article was written in May 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

FactSet

May 20, 2024May 3, 2024 by Nithisha CHALLA

FactSet

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents FactSet, which provides financial data, news and analytics for the financial community.

Introduction

FactSet also known as FactSet Research Systems Inc. is a leading provider of financial data and analytics solutions, catering to professionals in the investment industry. Whether you are a financial analyst, portfolio manager, or student of finance, FactSet offers powerful tools and resources to analyze markets, evaluate companies, and make informed investment decisions.

Logo of Factset

Source: Factset

History

Founded in 1978 by Howard Wille and Charles Snyder, FactSet began as a startup aiming to revolutionize financial data analysis. The company initially focused on providing financial analysis software for investment professionals, aiming to streamline data processing and analysis in the rapidly evolving financial industry.

Throughout the 1980s and 1990s, FactSet expanded its product offerings and market presence, catering to a growing demand for sophisticated financial data and analytics solutions. In its journey of growth and expansion, FactSet has made several strategic acquisitions to enhance its product portfolio and expand its market reach.

In 2007, FactSet acquired Market Metrics, a provider of market research and consulting services for asset managers. In 2015, FactSet acquired Portware LLC, a leading provider of multi-asset trade automation solutions for asset managers and institutional traders. In 2020, FactSet acquired Truvalue Labs, a pioneer in AI-driven environmental, social, and governance (ESG) data and analytics.

From its humble beginnings in the late 1970s to its current status as a global leader in financial data and analytics, FactSet has continually evolved to meet the evolving needs of the investment community.

Key Components of FactSet Research Systems

Earnings Estimates

Earnings estimates refer to predictions made by financial analysts and experts regarding how much profit a company is expected to generate in the future.FactSet gathers and provides these estimates, which are crucial for investors and analysts to assess a company’s potential performance.

According to Factset, 2024, the company’s consensus estimates are aggregated from a wide base of contributors and cover 19,000+ active companies across 90+ countries.

Revenue Projections

Revenue projections indicate how much revenue a company is expected to generate over a specific period. FactSet’s revenue projections are based on industry trends, market conditions, and company-specific factors, providing users with valuable insights into sales performance and revenue drivers.

For example, in June 2024, Factset released an expected revenue projection for S&P 500 companies stating “The blended (companies that reported and the estimation of the companies yet to report)earnings growth rate for the S&P 500 for Q4 2023 is 3.2%. It should be noted that analysts are currently projecting (year-over-year) revenue growth for all four quarters of 2024. For Q1 2024 through Q4 2024, the current estimates for revenue growth are 3.5%, 4.6%, 5.0%, and 5.7%, respectively.”. This helps stakeholders of the respective industry to analyze, project, and invest accordingly.

Forecasts for Key Financial Metrics

In addition to earnings estimates, FactSet offers forecasts for key financial metrics such as revenue growth rates, cash flow projections, and profit margins. These forecasts provide insights into overall financial health and performance metrics, helping users assess business strategies, identify growth opportunities, and make informed investment decisions. By analyzing financial forecasts, users can anticipate market trends and evaluate the potential impact on investment portfolios.

Coverage

FactSet covers a wide range of companies across different industries, from large corporations to smaller businesses. This extensive coverage ensures that users have access to comprehensive financial data and insights.

FactSet provides access to 200+ data items, including 100+ metrics across 18 industries encompassing airlines, banking, insurance, oil/gas, and retail. It leverages estimates that are collected directly from the research reports and flat file feeds of 800+ contributors across 55 countries.

Period

Factset has evolved since its introduction in 1978 and in 2023, Factset has expanded its client base to over 7,900 and increased its user base by 6%, surpassing 189,000 users. Factset with over 45 years of history, facilitates top-down analysis to better assess potential growth and risk as well as future value across industry, sector, index, country, and region.

Frequency

The period and frequency of forecasts on Factset vary based on user needs and market dynamics. FactSet incorporates quarterly and annual financial reports from companies, including earnings releases, revenue figures, balance sheets, and cash flow statements. Users can access real-time updates and forecasts based on two categories that are data frequency and update frequency, where they provide quarterly data frequency and an intraday update frequency.

FactSet also includes on a timely basis event-driven updates such as corporate actions (e.g., mergers, acquisitions, dividends) and regulatory filings (e.g., SEC filings), providing comprehensive coverage of market events impacting investment decisions.

Firms and Financial analysts

According to James Chen (2023à, FactSet is broken down into three business units: one in the United States, one in Europe, and one in Asia-Pacific. The business unit located in the United States provides financial solutions to financial professionals as well as domestic financial institutions. The European and Asia-Pacific business units only service financial professionals in the regions in which each unit operates.

As of 2023, FactSet services over 200,000 users in more than 8,000 companies and organizations. FactSet has 37 offices in 20 countries. The company reports it has had a client retention rate of 95% with 43 years of revenue growth.

Pricing

FactSet’s pricing model varies based on subscription plans and user requirements. Students can explore different pricing tiers to access specific data sets, analytical tools, and premium features tailored to their academic or research needs. Understanding FactSet’s pricing structure is essential for management students evaluating the cost-benefit of utilizing its services for financial analysis and research purposes.

FactSet provides its services for a lower price than some of its competitors because the company uses multiple sources to provide its data, which creates pricing competition between suppliers.

Use of FactSet by the Financial Community

Benchmark for Analysis

FactSet serves as a benchmark for financial analysis, offering a comprehensive suite of tools for analyzing companies, industries, and markets. Management students can use FactSet to perform detailed financial modeling, comparative analysis, and valuation assessments, gaining practical experience in fundamental analysis techniques.

Market Expectations

FactSet provides access to economic data and forecasts that shape market expectations. Users can track indicators such as GDP growth, inflation rates, unemployment figures, and interest rate projections to anticipate broader economic trends.

Earnings Season Preparation

During earnings seasons, by leveraging FactSet’s capabilities, users can navigate earnings announcements with confidence, interpret financial results effectively, and make well-informed investment decisions based on fundamental analysis and market intelligence.

FactSet and Tests of Market Efficiency

Academic works

Academic researchers use FactSet’s extensive database and analytical tools to conduct empirical studies on various topics in finance, economics, and investment management. FactSet’s rich dataset allows researchers to analyze market behavior, asset pricing models, and the impact of economic indicators on financial markets. Researchers use FactSet to assess whether asset prices reflect all available information, conducting event studies and anomaly detection to identify market inefficiencies.

Information Dissemination

Information dissemination refers to the process of distributing financial data, market insights, and analytical reports to users within the investment community using FactSet’s platform. FactSet provides real-time market data on stock prices, indices, commodities, currencies, and other financial instruments. Users can access live updates and monitor market movements as they occur, enabling timely decision-making and risk management.

FactSet disseminates earnings releases, corporate news, and press releases from companies within its coverage universe. Users receive alerts and notifications about important announcements, enabling them to stay informed about company developments and assess potential market impacts.

Pros and Cons

Given its history and operations in so many industries and markets, we certainly need to know the pros and cons of the FactSet.

FactSet provides researchers with access to extensive financial data and analytics, and comprehensive financial data coverage across global markets. FactSet provides a user-friendly interface and intuitive features. It has very well-known powerful tools for financial analysis and investment research.

On the other side, FactSet subscription costs may limit access to users with limited budgets or in academic institutions with constrained resources. The complexity of mastering advanced functionalities may also present a learning curve for users new to the platform.

Conclusion

FactSet impact extends across the financial community, serving as a trusted resource for investors, traders, analysts, and corporate professionals worldwide.

Why should I be interested in this post?

As a management master’s student focusing on finance or strategic analysis, understanding and utilizing financial data platforms like FactSet can greatly enhance your skills and career prospects.

Useful resources

FactSet

Truvalue Labs

Wikipedia FactSet

FactSet FactSet Estimates – Consensus

FactSet FactSet Annual Report 2023

FactSet Earnings Insight

About the author

The article was written in May 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Types of Market Consensus

April 15, 2024April 9, 2024 by Nithisha CHALLA

Types of Market Consensus

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) explains what are the market consensus and different forms of into financial sentiments.

Introduction

Market consensus often talked about in financial circles, goes beyond just a collective opinion; it reflects how investors feel and what’s happening in the financial world. This article looks into different types of market consensus: the agreement on prices between buyers and sellers, the insights provided by financial analysts who study companies’ basics and economic indicators, and the views of technical analysts who analyze stock prices. Several things affect market consensus, like how people generally feel about the market, expectations for market changes, and the actions of important players like central banks.

Understanding the various forms of market consensus is essential for investors and traders navigating the complex world of finance. These collective opinions shape market trends and impact investment decisions.

Price Consensus

One of the most visible forms of market consensus is reflected in asset prices. The principle of supply and demand drives prices, with consensus emerging as traders and investors assess the value of an asset based on various factors such as economic indicators, company performance, and geopolitical events. As these factors change and influence perceptions, they contribute to the evolving consensus reflected in asset prices.

Example: In 2020, Tesla’s stock experienced a tremendous surge as market consensus shifted positively around electric vehicles and renewable energy. Investors believed in the company’s potential for growth, leading to a significant increase in Tesla’s stock price.

Market consensus by financial analysts

Consensus on revenues and earnings

Earnings consensus revolves around the expected future earnings of a company. Analysts and financial experts often provide earnings estimates, and market consensus forms around these forecasts. Deviations from these expectations can lead to significant price movements as investors reassess the company’s performance and prospects. This dynamic interaction between earnings forecasts and market reactions underscores the importance of consensus expectations in shaping investor sentiment and market behavior.

Example: Apple’s quarterly earnings announcements are highly anticipated by the market. If Apple reports earnings that exceed analysts’ consensus estimates, it can lead to a surge in its stock price, reflecting the positive earnings consensus.

Consensus on economic indicators

Economic indicators, such as GDP growth, inflation rates, and unemployment figures, shape the macroeconomic consensus. Governments, central banks, and international organizations routinely release data that analysts and investors leverage to assess the broader economic landscape. Market responses frequently track deviations from consensus forecasts related to these indicators. When actual economic data diverges from expectations, it can trigger significant market movements as investors adjust their outlook on economic conditions and potential policy responses.

Example: During the global financial crisis of 2008, there was a consensus among economists that the world economy was entering a recession. This consensus influenced investor behavior, leading to widespread selling in equity markets and a shift towards safer assets.

Market consensus by technical analysts

Market consensus by technical analysts revolves around interpreting stock price movements and patterns to forecast future market trends. Technical analysts use charts and indicators to identify potential buying or selling opportunities based on historical price data. By analyzing patterns such as support and resistance levels, moving averages, and trading volumes, technical analysts contribute insights into market sentiment and potential price directions. This approach to market consensus complements fundamental analysis and provides a different perspective on investor behavior and sentiment. Breaking through a significant resistance level might lead to a bullish consensus; similarly, breaking through a significant support level might lead to a bearish consensus.

Factors influencing the market consensus

Size of the company and coverage by financial analysts

The size of a company and how many analysts are covering it also influence the stock market consensus. If only a handful of analysts are assigned to the stock, the market consensus estimates are more likely to vary from actual results.

Market sentiment

The sentiment of market participants plays a crucial role in shaping market consensus. Investor sentiment can be bullish or bearish, influenced by factors like news, social media, and market events. Contrarian investors often excel by taking positions opposite to prevailing sentiment, capitalizing on opportunities arising from market overreactions and sentiment shifts. Understanding and analyzing market sentiment is essential for gauging potential market directions and identifying contrarian investment opportunities.

Example: The GameStop saga in early 2021 is a notable example of sentiment consensus. Retail investors on social media forums collectively drove up the stock price of GameStop, challenging traditional market dynamics and catching institutional investors off guard.

Volatility expectations

Volatility expectations, measured by metrics like the VIX (Volatility Index), represent a form of consensus about future market stability. Traders and investors use volatility as an indicator of market risk, and consensus around heightened volatility can lead to defensive strategies, such as increased hedging or reduced risk exposure. Understanding and interpreting volatility consensus is essential for adapting investment strategies to prevailing market conditions and risk perceptions.

Example: The COVID-19 pandemic in 2020 led to a consensus on increased market volatility. The VIX (Volatility Index) surged as investors anticipated heightened uncertainty, prompting shifts in investment strategies to account for the expected market fluctuations.

Policy Consensus

Central bank policies, government regulations, and fiscal measures contribute to policy consensus. Market participants closely monitor statements and decisions made by central banks and governments, forming expectations about interest rates, monetary policy, and regulatory changes. Any surprises in these areas can lead to market volatility.

Example: The announcement of the U.S. Federal Reserve’s quantitative easing policies during the 2008 financial crisis influenced market consensus. The expectation of increased liquidity and lower interest rates contributed to a rally in stock markets.

Technological Consensus

Technological consensus refers to the collective agreement or perception within the technology sector regarding emerging trends, innovations, or the adoption of specific technologies. Industry experts, analysts, and stakeholders contribute to this consensus through assessments of technology developments, market dynamics, and consumer behavior. Consensus within technology influences investment decisions, product development strategies, and market forecasts. Understanding technological consensus is crucial for businesses and investors seeking to navigate the rapidly evolving landscape of technology-driven industries.

Example: The rise of FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) in the last decade reflects a technological consensus. Investors collectively believed in the transformative power of these technology giants, contributing to their substantial market capitalizations.

Conclusion

Market consensus, when explored through the lens of data and statistics, transforms from a theoretical concept to a tangible and actionable tool. Whether you’re an investor, a business leader, or an analyst, integrating statistical insights into your understanding of market consensus adds a layer of precision to decision-making. In the dynamic world of finance, where every percentage point matters, harnessing the power of market consensus with a data-driven approach ensures a more informed and strategic navigation of financial waters.

Why should I be interested in this post?

In essence, this article provides a holistic and data-driven perspective on market consensus, catering to the interests of investors, business professionals, and anyone seeking a nuanced understanding of how collective sentiments shape the financial landscape. Whether you’re actively involved in financial decision-making or simply intrigued by the dynamics of the market, this article offers valuable insights that bridge theory and real-world applications.

Useful resources

CNN Fear & Greed Index: What emotion is driving the market now?

Market consensus What is market consensus?

Faster Capital Navigating Markets: The Power of Market Analysis and Consensus Estimates

About the author

The article was written in April 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole – Master in Management (MiM), 2021-2024).

Job description – Financial analysts

April 9, 2024 by Nithisha CHALLA

Job description – Financial analysts

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) explains the job of financial analysts and their contributions to the investment community.

Introduction

Financial analysts serve as the backbone of the finance industry, providing critical insights and analysis to support investment decisions. Did you know that the Bureau of Labor Statistics in the US projected a 6% growth in employment of financial analysts from 2020 to 2030, faster than the average for all occupations? According to a survey by the CFA Institute (November 2021), most financial analysts believe that their role is becoming increasingly important in today’s complex financial landscape.

This article explores the multifaceted role of financial analysts, with a particular focus on their responsibilities and contributions within both the buy-side and sell-side sectors of the financial industry. Buy-side analysts work for entities that have money to invest, such as mutual funds, hedge funds, pension funds, and high-net-worth individuals. Sell-side analysts work for brokerage firms, investment banks, and other entities that sell investment services. These analysts conduct research and analysis on companies and industries to publish investment recommendations for the firm’s clients and the general investing public.

What Does a Financial Analyst Do?

Financial analysts analyze a firm’s past financial data to spot trends and assess risks, which helps them predict outcomes for business decisions, identify sale or purchase opportunities, and make investment recommendations. To that end, a financial analyst may need to work with different types of data such as company financial statements, the performance of investments such as stocks and bonds, industry research, macroeconomic data, and more, depending upon the specific role they play within the organization.

Buy-Side Financial Analysts: Crafting Investment Strategies

Buy-side analysts work for entities that have money to invest, such as mutual funds, hedge funds, pension funds, and high-net-worth individuals. The job of a financial analyst is important as these financial institutions manage a lot of money. For example, the global assets under management (AUM) of hedge funds amounted to approximately $3.6 trillion in 2020 (Gitnux, December 16, 2023). These analysts perform research and analysis to make direct investment decisions on behalf of their firm’s money. Their primary objective is to identify and capitalize on lucrative investment opportunities that align with their client’s objectives and risk profiles.

Role and responsibilities

Buy-side financial analysts are instrumental in evaluating and recommending alternative investment opportunities to their clients. More and more, they take into consideration the environmental, social, and governance (ESG) factors that are important in their investment decision-making process.

Examples of companies employing Buy-Side Financial Analysts

An investment manager at BlackRock specializes in infrastructure investments and identifies Brookfield Infrastructure Partners L.P. (NYSE: BIP) as a promising opportunity for long-term growth and income generation. BlackRock’s investment in Brookfield Infrastructure Partners helps diversify its clients’ portfolios and provides stable returns over time.

Sell-Side Financial Analysts: Providing Market Insights and Advisory Services

Did you know that the global investment banking revenue reached $124.5 billion in 2020, driven by strong performance in equity underwriting and mergers and acquisitions (M&A) advisory? Sell-side financial analysts work for brokerage firms, investment banks, and financial advisory companies. Their role revolves around providing research and advisory services to institutional and retail investors, as well as corporate clients.

Role and responsibilities

A survey by the Brunswick group found that institutional investors believe that the quality of sell-side research reports has improved over the past five years. Sell-side financial analysts play a crucial role in providing timely and insightful research reports to help clients make informed investment decisions.

Examples of companies employing Sell-Side Financial Analysts:

A sell-side analyst at Goldman Sachs publishes a research report on Amazon.com Inc. (NASDAQ: AMZN), recommending a “buy” rating based on its dominant position in e-commerce and cloud computing, as well as its consistent revenue growth. This recommendation attracts significant investor interest and contributes to a surge in Amazon’s stock price.
An equity research analyst at J.P. Morgan advises Alphabet Inc. (NASDAQ: GOOGL) on strategic options for expanding its autonomous driving technology division, conducting industry analysis and financial modeling to support the recommendations. Alphabet Inc. leverages J.P. Morgan’s expertise to develop a comprehensive growth strategy for its autonomous driving business.
A sell-side analyst at Vanguard conducts extensive research on emerging technology companies and recommends investing in Tesla Inc. (NASDAQ: TSLA), recognizing its leadership in electric vehicles and sustainable energy solutions. This recommendation leads to a significant increase in Tesla’s stock price, generating substantial returns for Vanguard’s clients.

Financial analysts play a pivotal role in shaping investment strategies, providing market insights, and facilitating financial transactions. Whether operating on the buy-side or sell-side, these professionals leverage their analytical expertise and industry knowledge to navigate the complexities of the financial markets. By offering investment recommendations, conducting research, and providing advisory services, financial analysts contribute significantly to the pursuit of financial prosperity and wealth creation.

Skills and Qualifications

Now given the job and the daily environment they have to deal with there are certain skills a financial analyst would need to have. Soft skills such as Analytical Thinking, Communication Skills, Attention to Detail, and Time Management hard skills such as Technology Skills, Quantitative Skills, Financial Analysis, and Industry Knowledge are demanded.

When it comes to the career path of an analyst, requires them to stay updated on industry developments, regulations, and best practices. From various analyses and surveys, we could say that many financial analysts hold a bachelor’s degree in finance, accounting, economics, or a related field. Pursuing a master’s degree in finance, business administration (MBA), or a specialized finance program can provide additional knowledge and credentials.

Obtaining certifications such as the Chartered Financial Analyst (CFA) designation is common in the financial industry. The CFA program covers a broad range of topics including investment analysis, portfolio management, and ethics, and is highly regarded in the field. Apart from the theoretical knowledge gaining practical experience through internships or entry-level positions at financial institutions, investment firms, or corporate finance departments is essential for building foundational skills and industry knowledge.

The Chartered Financial Analyst (CFA) designation is highly valued in the buy-side industry. Buy-side financial analysts need to possess strong data analysis skills to extract actionable insights from large datasets and alternative data sources. They play a crucial role in developing and implementing these customized investment strategies.
Sell-side financial analysts need to possess strong academic credentials and technical skills to excel in their roles. They believe that soft skills such as communication and relationship-building are essential for success in their roles. Sell-side financial analysts need to effectively communicate their research findings and build rapport with clients to gain their trust and confidence.

Remuneration

According to a report by Bloomberg, the average compensation for equity research analysts at investment banks in the United States ranged from $200,000 to $600,000 in 2020, depending on their level of experience and performance. Sell-side financial analysts are well-compensated for their expertise in analyzing and recommending investment opportunities to clients.

Why should I be interested in this post?

In essence, this article provides a perspective on the job of financial analysts. For a student who would like to work in finance, it is important to know about the job of a financial analyst as it relates to both the corporate world and financial markets.

Useful resources

Forbes Financial Analyst Job Description

Gitnux Must-Know Hedge Fund Statistics

CFA Survey of CFA Institute members on latest ESG matters

Brunswickgroup About the Brunswick Digital Investor Survey

Market consensus What is market consensus?

Faster Capital Navigating Markets: The Power of Market Analysis and Consensus Estimates

About the author

The article was written in April 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Institutional Brokers’ Estimate System (IBES)

April 9, 2024 by Nithisha CHALLA

Institutional Brokers’ Estimate System (IBES)

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents Institutional Brokers’ Estimate System (IBES), which provides market consensus for the financial community.

Introduction

In the fast-paced world of finance, the Institutional Brokers’ Estimate System, commonly known as IBES (often written as “I/B/E/S.”), stands as a linchpin in providing investors, analysts, and financial professionals with reliable forecasts and estimates.

IBES, with its roots in comprehensive data aggregation, takes center stage in providing a panoramic view of financial analysts’ estimates and forecasts. IBES acts as a centralized repository of earnings estimates, revenue projections, and other key financial metrics, serving as a vital resource for investors seeking actionable insights.

History

IBES was created in 1976 by the investment research firm, Lynch, Jones & Ryan (LJR). It was developed to address the need for a centralized system to collect and distribute earnings estimates from brokerage analysts. The database offers historical data from its inception and extends internationally from 1987. Over the years, IBES went through several ownership changes. In 1988, LJR was acquired by Primark Corporation. Primark Corporation later merged with Thomson Financial Services in 1990, and IBES became part of Thomson Financial. Thomson Financial subsequently merged with Reuters Group in 2008 to form Thomson Reuters. Thus, IBES became a part of Thomson Reuters. Then Thomson Reuters was acquired by private equity firm Blackstone Group and rebranded as Refinitiv in 2018. Refinitiv was later acquired by the London Stock Exchange Group (LSEG) in 2020. Therefore, IBES is currently owned by the London Stock Exchange Group (LSEG) through its subsidiary, Refinitiv.

Key Components of IBES

Earnings Estimates

IBES compiles earnings estimates from a multitude of financial analysts, providing a consensus view on the expected earnings of a company. As of the latest data, it aggregates forecasts from over 16,000 analysts worldwide, providing a robust consensus on expected earnings for companies across the globe.

Revenue Projections

Beyond earnings, IBES includes revenue projections, offering a comprehensive view of a company’s expected top-line growth. Analysts’ forecasts are aggregated to provide a consensus estimate, aiding investors in gauging revenue expectations.

Forecasts for Key Financial Metrics

IBES extends beyond earnings and revenue, encompassing a spectrum of financial metrics. This includes estimates for operating margins, cash flows, and other key indicators, providing a holistic view of analysts’ expectations. The sheer volume of data—covering over 18,000 companies—ensures a comprehensive snapshot of financial expectations.

Coverage

There are certain types of coverage when we are talking about data coverage such as the Number of Companies Covered, geographic Coverage, Market Capitalization Coverage, Industry Coverage, Depth of Coverage, and Historical Coverage.

According to LSEG data analytics, I/B/E/S Estimates data is displayed at the company level, screened with rigorous quality control methods across more than 23,400 active companies in more than 90 countries, and sourced from over 19,000 analysts.

Estimates Data from over 950 firms contribute data to I/B/E/S, from the largest global houses to regional and local brokers, with U.S. data back to 1976 and international data back to 1987.

Period

IBES has evolved since its introduction in 1976 and includes international data from 1987. I/B/E/S Global Aggregates, with over 30 years of history, facilitates top-down analysis to better assess potential growth and risk as well as future value across industry, sector, index, country, and region.

Frequency

Initially focusing on annual earnings estimates, the database subsequently broadened to encompass quarterly earnings forecasts.

Firms and Financial analysts

IBES covers a wide range of firms across different industries, sectors, and regions. This includes companies listed on major stock exchanges in numerous countries and markets around the world. 950+ contributors, across 90+ in developed and emerging markets, totaling over 19,000 individual analysts – the most in the industry. Unmatchable history across more than 60,000 companies back to 1976 for North America, 1987 for other markets.

Pricing

The specific pricing for accessing I/B/E/S data is not explicitly mentioned on the IBES website and you have to make a request through the LSEG website which manages IBES. The cost likely varies based on the package and offerings selected, which can include different data sets, access methods, and service frequencies. For detailed pricing information, it’s recommended to directly contact LSEG or the respective service providers you’re interested in, as they can provide more precise details based on your specific requirements and the scale of your intended use.

For academic and non-commercial research purposes, access might be available through institutional subscriptions with specific terms of use, as seen with Aalto University’s subscription financed by the Aalto University Data Hub for its users. This indicates that the availability and cost of I/B/E/S data may vary significantly based on the type of use and the access platform. For precise pricing and package options, directly contacting the service providers is the best approach.

Use of IBES by the Financial Community

Benchmark for Analysis

IBES serves as a benchmark for investors and analysts, quantifying market reactions, it dives into the numbers behind market reactions. According to Faster Capital, studies reveal that stocks experiencing positive earnings surprises, surpassing IBES estimates, tend to outperform the market. These numerical insights underscore the practical implications of aligning investment decisions with IBES consensus.

Market Expectations

Analysts and fund managers utilize IBES to gauge market expectations for specific companies. Understanding consensus estimates aids in forming investment strategies aligned with prevailing market sentiments.

Earnings Season Preparation

During earnings seasons, IBES becomes a critical tool for investors preparing for companies’ financial releases. It provides a consolidated view of analysts’ forecasts, helping investors assess potential surprises or disappointments.

IBES and Tests of Market Efficiency

Academic works

The data was subsequently used as the basis for articles in academic finance journals attempting to demonstrate that changes in consensus earnings estimates could identify opportunities to capture excess returns in subsequent periods.

Information Dissemination

IBES plays a pivotal role in disseminating timely information. As estimates are constantly updated based on new information, IBES ensures that market participants have access to the latest insights, contributing to market efficiency.

Pros and Cons

Given its history and operations in huge industries and markets, we certainly need to know the pros and cons of the IBES estimates. In terms of accuracy metrics, IBES relies on the accuracy of analysts’ forecasts. Statistical metrics, such as the mean absolute error (MAE), offer a quantitative evaluation of the system’s precision.

Conclusion

IBES, when viewed through a data-driven lens, transforms into more than a system and becomes a useful tool for decision-makers navigating the intricacies of financial markets.

Why should I be interested in this post?

In essence, this article discovers how the global data powerhouse, backed by impactful statistics, empowers investors, providing a data-driven lens into market expectations and offering actionable insights for informed decision-making in the dynamic world of finance.

Useful resources

London Stock Exchange Group (LSEG) I/B/E/S Estimates

Wikipedia Institutional Brokers’ Estimate System

Market consensus What is market consensus?

Faster Capital Navigating Markets: The Power of Market Analysis and Consensus Estimates

About the author

The article was written in March 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Unifying Forces: Cross-Border AML Collaboration in Safeguarding Global Finances

March 20, 2024March 17, 2024 by Nithisha CHALLA

Unifying Forces: Cross-Border AML Collaboration in Safeguarding Global Finances

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents the cross-border collaboration of national entities to prevent money laundering.

Introduction

In an era marked by unprecedented global connectivity, the fight against financial crimes, particularly money laundering, has transcended national boundaries. The escalating sophistication of financial crimes, coupled with the interconnectedness of the global economy, has underscored the need for collaborative approaches to tackle money laundering.

Cross-border anti-money laundering (AML) collaboration involves the sharing of intelligence, resources, and best practices among nations, regulatory authorities, and financial institutions to effectively thwart illicit financial activities that transcend borders.

Money laundering rarely respects national borders. Criminal organizations exploit gaps in regulatory frameworks, leveraging multiple jurisdictions to obscure the origins of illicit funds. Cross-border collaboration is essential to address this globalized nature of financial crimes.

According to UNODC (United Nations Office on Drugs and Crime), the estimated amount of money laundered globally in one year is between 2 to 5% of global GDP, or between $800 billion to $2 trillion in current US dollars. Due to the clandestine nature of money-laundering, it is however difficult to estimate the total amount of money that goes through the laundering cycle.

Key Elements of Cross-Border AML Collaboration

Information Sharing

Collaborative platforms used by national entities enable countries to share vital information about suspicious transactions, emerging trends, and high-risk entities. Timely information exchange enhances the ability to detect and prevent money laundering activities.

Standardization of AML Practices

Establishing common standards for AML practices ensures consistency across borders. Harmonizing regulations and procedures facilitates smoother collaboration, reduces regulatory arbitrage, and creates a united front against money laundering.

For example, in cryptocurrency, the Travel Rule mandates global sharing of customer information during transactions, aligning with guidelines of the Financial Action Task Force on Money Laundering (FATF) for standardized anti-money laundering practices. This ensures consistency and strengthens defenses against illicit financial activities.

Mutual Legal Assistance Treaties

A Mutual Legal Assistance Treaty (MLAT) provides a legal framework for countries to request and provide assistance in legal matters, including the investigation and prosecution of money laundering. Strengthening and expanding these treaties contribute to more effective cross-border collaboration.

For instance, if Country A is investigating financial crimes and requires bank records from Country B, both nations, bound by an MLAT, can exchange information, and collaborate on the investigation, enhancing the effectiveness of their legal systems in combating transnational crimes.

Technological Integration

Leveraging technology, such as advanced analytics and artificial intelligence, facilitates the identification of patterns indicative of money laundering. Shared technological solutions enhance the efficiency of AML efforts across borders.

Joint Investigations

Cross-border collaboration allows for joint investigations involving law enforcement agencies from multiple countries. This coordinated approach increases the chances of uncovering complex money laundering schemes and holding perpetrators accountable.

Role of FATF in Cross-Border AML Collaboration?

Established in 1989, the Financial Action Task Force on Money Laundering (FATF) is a professional association comprising member countries and jurisdictions committed to combating money laundering and terrorist financing. This intergovernmental organization sets international standards, develops policies, and conducts assessments to promote effective Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) measures worldwide.

Key Contributions of FATF in Cross-Border AML:

Setting International Standards: FATF establishes and updates a set of AML and CTF standards, commonly known as the FATF Recommendations. These standards provide a unified foundation for countries to strengthen their legal, regulatory, and operational frameworks against money laundering and terrorist financing.
Mutual Evaluations: FATF conducts regular mutual evaluations, wherein member countries assess each other’s compliance with FATF Recommendations. This process fosters transparency and accountability, encouraging nations to enhance their AML and CTF efforts.
Issuing Public Statements: When a country is identified as having deficiencies in its AML/CTF framework, FATF issues public statements, creating international awareness. This mechanism encourages corrective actions and bolsters cross-border cooperation to address vulnerabilities.
International Cooperation and Information Sharing: This collective effort strengthens the ability to identify and combat transnational financial crimes.

Benefits and Challenges

As technology continues to advance, collaborative efforts are poised to become more sophisticated, providing an even greater advantage in the ongoing battle against money laundering. Cross-border AML collaboration offers numerous benefits, including enhanced detection capabilities, stronger deterrence against financial crimes, and the establishment of a more resilient global financial system.

Though there are several benefits for the cross-border AML collaboration, it is also quite challenging to find good solutions.

Differing Legal Frameworks

Varied legal frameworks across countries pose challenges. Establishing common principles and encouraging mutual recognition of legal systems can help address disparities.

Cultural and Language Barriers

Cultural and language differences can impede effective collaboration. Training programs and cultural awareness initiatives foster better communication and understanding among collaborating entities.

Data Privacy Concerns

Data privacy regulations can hinder information sharing. Implementing robust data protection measures and ensuring compliance with privacy laws are crucial for overcoming this challenge.

Why should I be interested in this post?

If you decide to work in the realms of finance, international law, or even within a multinational corporation, understanding the intricacies of cross-border collaboration in Anti-Money Laundering (AML) becomes a must. This knowledge not only ensures regulatory compliance for businesses operating across borders but also provides professionals with insights into legal frameworks, treaties, and diplomatic efforts that underpin a secure and stable global financial landscape.

Useful resources

United Kingdom government Action plan for anti-money laundering and counter-terrorist finance

IMF Combating the finance of terrorism

Financial crimes enforcement network (US agency) History of anti-money laundering laws

Financial Action Task Force on Money Laundering (FATF)

Mutual Legal Assistance Treaties (with the US)

About the author

The article was written in March 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Market Consensus Based on Financial Analysts’ Forecasts

January 15, 2025March 17, 2024 by Nithisha CHALLA

Market Consensus Based on Financial Analysts’ Forecasts

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) explains what is the market consensus based on financial analysts’ forecasts.

Introduction

Market consensus represents the average derived from the individual predictions made by financial analysts who closely monitor and analyze corporate and market conditions. In the context of financial analysts’ forecasts, the consensus refers to the collective expectation or average prediction of a group of analysts regarding the future performance of a firm measured by sales and profits, of a financial asset such as a stock, commodity, or currency. Few examples of market consensus based on financial analysts forecast would be: Forecasts for economic indicators such as GDP growth, inflation rates, or unemployment levels. It is derived from the aggregated predictions of various analysts, providing a consensus viewpoint on the expected direction or magnitude of economic changes. Forecasts of the future exchange rates between currencies such as the euro/dollar rate. If multiple analysts predict the exchange rates for the Euro to U.S. Dollar, the market consensus would be an average or median of these forecasts, indicating the collective expectation for the currency pair. Forecasts of price targets for stocks based on the projections of future performance. If a market stock is covered by multiple analysts, the market consensus price target would be the average of those figures, giving investors a benchmark for assessing the stock’s anticipated value. Forecasts of the company’s earnings per share (EPS). The market consensus, in this case, would be the average or median of these individual EPS predictions, representing the collective expectation of analysts regarding Company’s earnings. Forecasts of commodity prices such as oil, gold, or agricultural products. The market consensus for a commodity’s future price is determined by averaging or considering the median of these individual forecasts, reflecting the consensus view on the commodity’s likely trajectory.

Key participants

Financial analysts

Talk about financial analysts: who are they?where do they work? To determine the market consensus for Apple Inc. (AAPL), one would typically aggregate and analyze the forecasts and estimates provided by sell-side financial analysts who cover the company. These analysts regularly publish their projections for key financial metrics such as revenue, earnings per share (EPS), and other performance indicators.

Market consensus firms

Market consensus firms specialize in producing market consensus based on financial analysts’ forecasts and opinions. These firms aggregate and analyze data from multiple analysts to provide a consensus view on various financial metrics such as earnings estimates, revenue projections, and target prices for individual stocks and broader market indices. Some prominent firms that offer market consensus based on financial analysts’ input include: FactSet: FactSet aggregates and standardizes data from various sources, including sell-side analysts, to provide consensus estimates for earnings, revenue, and other financial metrics. Their platform offers detailed consensus estimates for individual companies, sectors, and industries. Refinitiv (formerly Thomson Reuters): Refinitiv offers consensus estimates and forecasts compiled from sell-side analysts’ research reports. Their platform provides consensus data on earnings, revenue, and other key financial metrics for equities, fixed income, and commodities. IBES by Refinitiv: IBES (Institutional Brokers’ Estimate System) is a leading database of consensus estimates and analyst recommendations. It offers comprehensive coverage of earnings estimates, revenue projections, and other financial metrics for thousands of companies globally.

Data providers

Companies that provide financial data and analytics services play a crucial role. They compile and disseminate information about analysts’ forecasts, making it accessible to various participants in the financial ecosystem. Bloomberg is a prominent example here, its terminal, a widely used platform in the financial industry, aggregates and delivers a vast array of financial data, including analysts’ predictions and consensus estimates. It also exemplifies how data providers contribute to the transparency and accessibility of financial analysts’ forecasts.

Investors

Investors rely on the forecasts and predictions made by financial analysts to make informed investment decisions. The market consensus provides investors with a collective viewpoint, helping them assess potential risks and returns. Their role is pivotal in the financial markets, and they interact with market consensus in several ways like decision making, portfolio construction, risk assessment, performance evaluation, communication with shareholders, etc.

Traders

Traders are individuals or entities that actively buy and sell financial instruments, such as stocks, bonds, currencies, or commodities, with the aim of making short-term profits. Traders can be categorized into various types, including day traders, swing traders, and algorithmic traders, each with a different time horizon and approach to the market. There are various types of traders, each with different strategies, time horizons, and goals. Few examples of them would be day trader, swing trader, Algo trader, position trader, scalper, options trader, forex trader and commodity trader.

Process for building a market consensus

Building a market consensus involves aggregating the predictions and expectations of various financial analysts, experts, and stakeholders regarding the future performance of a financial instrument, economic indicator, or asset.

There are certain steps we typically follow in this process:

Data collection of forecasts: Financial analysts, often employed by brokerage firms, investment banks, or independent research firms, conduct in-depth analyses of specific assets, companies, or economic indicators. They generate individual forecasts based on factors such as earnings projections, economic data, and market trends.
Analyst Ratings and Recommendations: Analysts may assign ratings (e.g., buy, hold, sell) and provide recommendations for investors. These ratings and recommendations reflect their views on the expected performance of a particular asset. These assessments contribute to the overall market consensus.
Normalization: Before computing the consensus, the data may undergo normalization to ensure consistency across different analysts’ estimates. This step involves adjusting for any variations in reporting standards, accounting methods, or other factors that could affect the comparability of estimates.
Weighting: Some consensus providers may apply weighting to analysts’ estimates based on factors such as historical accuracy, reputation, or coverage universe. Weighting ensures that more accurate or influential analysts have a greater impact on the consensus.
Calculation: The market consensus is calculated by averaging the aggregated forecasts and estimates from all contributing analysts. This average represents the consensus view of analysts regarding the expected performance of the company or market index for the specified period.
Dissemination: The computed consensus estimates are then disseminated to clients through various channels, such as financial data platforms, research reports, and market data terminals. Clients use this information to assess market expectations, benchmark against their own forecasts, and make investment decisions.
Tracking and Updates: Market consensus providers continuously track and update the consensus estimates as new information becomes available. This includes incorporating revisions to analysts’ forecasts, earnings announcements, and other relevant developments that may impact the consensus view.

It’s important to note that while market consensus based on financial analysts’ estimates provides valuable insights into market expectations, it is not a guarantee of future performance. Investors should consider various factors, conduct their own analysis, and exercise judgment when making investment decisions. Additionally, consensus estimates are subject to revisions over time as new information emerges and analysts update their forecasts. The market consensus is key to understand how financial markets work, how stock market prices react to the announcements of profits by firms or economic indicators.

Quality of the market consensus

Behavioral Influences

Beyond numbers and charts, market consensus is deeply influenced by human behavior. Emotions, biases, and psychological factors play a significant role in shaping consensus views. Behavioral finance studies, backed by statistical evidence, highlight how psychological biases such as herding, overreaction, and anchoring contribute to the formation and evolution of consensus views.

Talk about Dot bubble of the 2000s

The late 1990s saw the widespread adoption of the internet for both commercial and personal use. In 2000, the stock market experienced a significant downturn. Dot-com stocks, in particular, faced sharp declines, wiping out substantial market capitalization. The Dot-Com Bubble refers to the rapid rise, speculative frenzy, and subsequent collapse of stock prices of many internet-based companies in the late 1990s and early 2000s.

Example: market consensus for Apple

The prevailing market sentiment toward Apple Inc. (AAPL) is generally optimistic, according to analyst assessments. As reported by Stock Analysis, the consensus among 32 analysts places the average price target for Apple’s stock at $203.25. The range spans from a low estimate of $120 to a high estimate of $250. Based on this average target, a potential increase of approximately 11.48% is anticipated from the current stock price of $182.32. Notably, analysts collectively advocate a “Buy” rating for Apple.

source: Yahoo website – https://finance.yahoo.com/quote/AAPL/analysis/

Yahoo Finance offers in-depth projections for Apple’s financial performance, encompassing estimates for earnings and revenue across upcoming quarters and years. For the ongoing quarter concluding in March 2024, analysts predict an average earnings per share (EPS) of $1.51, accompanied by revenue estimates averaging $91.02 billion. These forecasts align with a broader outlook suggesting a growth trajectory for Apple, with both EPS and revenue anticipated to expand in the subsequent years. For those seeking more comprehensive analyses and real-time updates on Apple’s stock performance, as well as expert opinions from analysts, a direct visit to Yahoo Finance and Stock Analysis is recommended.

Why should I be interested in this post?

In essence, this article provides a perspective on market consensus based on financial analysts. For a student who would like to work in finance (either in the corporate world or the financial sector), it is important to know about the market consensus as it relates to both the corporate world and financial markets.

Useful resources

Market consensus What is market consensus?

Faster Capital Navigating Markets: The Power of Market Analysis and Consensus Estimates

About the author

The article was written in March 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

AML Policies: Safeguarding Financial Integrity

February 19, 2024February 19, 2024 by Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole – Master in Management (MiM), 2021-2024) explains the significance of Anti-Money Laundering (AML) policies.

Introduction

Firstly, what is AML? AML stands for Anti-Money Laundering. It refers to a set of national laws, regulations, and procedures designed to prevent the illegal generation of income through illicit activities and the subsequent integration of these funds into the legitimate financial system.

Primary components of Anti-Money Laundering

Primary components of anti-money laundering include customer due diligence, transaction monitoring, reporting and record-keeping, training, Know Your Customer policy and risk assessment.

Customer Due Diligence (CDD)

Financial institutions are required to perform due diligence on their customers to understand their identity, assess the nature of their financial activities, and identify any potential risks associated with money laundering.

Transaction Monitoring

Regular monitoring of financial transactions is crucial to identify patterns that may indicate suspicious activities. Unusual or large transactions may trigger alerts for further investigation.

Reporting and Record-Keeping

Financial institutions are obligated to maintain records of transactions and report any suspicious activities to relevant authorities. These reports contribute to the overall efforts to combat money laundering.

Training

AML training helps in creating a vigilant workforce capable of identifying and reporting suspicious activities.

Know Your Customer (KYC)

KYC procedures involve verifying the identity of customers to ensure they are who they claim to be. This is a fundamental aspect of preventing money laundering and other financial crimes.

Risk Assessment

Financial institutions conduct risk assessments to evaluate the potential risk of money laundering associated with certain customers, transactions, or business relationships.

Significance of money laundering

Money laundering poses a significant threat to the stability and integrity of the global financial system, making it imperative for financial institutions to prioritize AML training and awareness. This article delves into the importance of AML training, strategies for building a culture of compliance, and the pivotal role technology plays in these efforts. Money laundering, the process of making illegally gained proceeds appear legitimate, is a global concern that affects economies, financial institutions, and societies at large. Anti-Money Laundering efforts are the first line of defense against such illicit activities. One key aspect of these efforts is AML training, a proactive measure aimed at equipping financial professionals with the knowledge and skills needed to detect and prevent money laundering. AML training programs are designed to empower employees at all levels, from frontline staff to senior executives, with the tools to recognize and report suspicious activities. Now that we know the components of AML, what would be the components of an effective AML training program? Without delving into more details here are a few things we could do to make it much more effective.

Building a Culture of Compliance
Leveraging Technology for AML Training
Integration with Onboarding Processes
Encouraging Reporting and Whistleblowing
Ongoing Awareness and Leadership Involvement

Common Examples of Money Laundering Techniques

 Now that we know the significance of money laundering, we delve deeper into a few examples of money laundering in our day-to-day lives.

Smurfing (Structuring)

Smurfing, also known as structuring, is a money laundering technique whereby illegal funds are divided into smaller amounts and deposited into multiple bank accounts or financial institutions. This is done to circumvent financial regulations that require banks to report large transactions, typically exceeding a certain threshold.

Cash-Intensive Businesses

These are often exploited as a money laundering method, as they provide a convenient way to mix illicit funds with legitimate income. Criminals can use these businesses to deposit and process their illegal cash, making it difficult for authorities to trace the source. These businesses typically handle large volumes of cash through everyday operations, such as pubs, car washes, or retail shops.

Bulk Cash Smuggling

This is a prominent example of money laundering that involves the physical transportation of large quantities of illicit cash across borders. Criminals exploit this method to avoid the scrutiny of financial institutions and regulatory authorities, thereby circumventing anti-money laundering measures in place.

Shell Companies and Trusts

Shell companies and trusts are effective tools used in money laundering schemes, as they offer an intricate façade to disguise illicit funds. By establishing these entities, often in offshore jurisdictions, criminals can cleverly obscure the true origin of their wealth. Both shell companies and trusts exploit gaps in the financial system and international regulations to perpetuate money laundering activities.

Cyber Laundering

Cyber laundering, a burgeoning method of money laundering, takes advantage of the digital world to hide the origin of illegal funds. As technology progresses at breakneck speed, criminals discover new ways to cover their tracks, making it harder for traditional detection methods to catch them.

Statistics

Notable statistics (Napier) on money laundering dated February 2022 are:

Global financial crime fines handed out in 2021 totaled $9.95bn, down from 2020’s record-breaking figure of $22.86bn, according to a report by AML Intelligence
Serious and organized crime costs the UK an estimated $50.4 billion a year
The median amount of money laundered in the US in 2020 was $301,606
Corruption, bribery, and fraud accounted for a whopping 69.6% of FinCrime fines handed out in 2021

Despite its association with the Silk Road and the dark net, only 1.1% of all cryptocurrency transactions are known to be illicit.

Why should I be interested in this post?

Understanding anti-money laundering principles is not only a regulatory imperative but a strategic necessity in navigating the complex legal environment. This post offers insights into risk management, ethical conduct, and the collaborative efforts required across organizational functions to deal with anti-money laundering. This is especially important for students who would like to work in the financial sector (asset management and wealth management).

Useful resources

SAS software History of Anti-Money Laundering

IBM What is anti-money laundering?

Financial crimes enforcement network (US agency) History of anti-money laundering laws

Lexis Nexis Examples of Money Laundering Techniques

Napier 11 FinCrime facts for 2022

About the author

The article was written in February 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole – Master in Management (MiM), 2021-2024).

Business models of exchanges

February 19, 2024February 19, 2024 by Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole – Master in Management (MiM), 2021-2024) explains the business models of exchanges.

Introduction

Firstly, what is a business model? A business model refers to the framework that outlines how an exchange creates, delivers, and captures value from its various activities and operations. It essentially describes the way in which the exchange generates revenue, interacts with market participants, and sustains its competitive advantage within the financial ecosystem. The business model of exchanges revolves around creating a platform that facilitates the trading of financial instruments for buyers and sellers. Exchanges act as intermediaries, bringing together buyers and sellers in a regulated and transparent environment. The primary components of the business model for exchanges include marketplace facilitation, market data and technology services leading to revenues.

Delving a bit more into revenue generations and understanding the blend of volume and non-volume revenues is crucial for exchanges to ensure a diversified income stream and sustainable business growth. The primary difference between volume and non-volume revenues in the context of exchanges lies in their dependence on trading activity. Volume revenues (transaction fees for example) are directly linked to the volume of trading activity on the exchange whereas non-volume revenues are not (directly) tied to the volume of trading activity but derived from other sources (listing fees for companies). Successful exchanges strategically balance these revenue sources to adapt to changing market dynamics and evolving industry trends.

Volume revenues

Charging transaction fees

One of the primary sources of volume-based revenue for exchanges is charging transaction fees for each trade executed on their platform. Exchanges typically charge fees to both buyers and sellers for facilitating the trading of financial instruments such as stocks, bonds, or derivatives. For example, the New York Stock Exchange (NYSE) charges transaction fees based on the number of shares traded.

Selling market data

Exchanges generate revenue by selling real-time market data feeds to financial institutions, traders, and data vendors. These fees are often based on the volume of data consumed. Nasdaq, for instance, charges fees for access to its proprietary market data, including bid-ask quotes and trade information.

Clearing and Settlement Fees

Exchanges may derive revenue from clearing and settlement services, especially in derivatives markets. Clearinghouses associated with exchanges ensure the fulfilment of trades by acting as intermediaries between buyers and sellers. They charge fees based on the volume of contracts cleared. The Chicago Mercantile Exchange (CME) is an example where clearing fees contribute to its revenue.

Non-volume revenues

Listing Fees

Exchanges often charge companies fees for listing their shares on the exchange. These fees are not directly tied to trading volumes but are based on factors like market capitalization or the number of listed securities. The London Stock Exchange (LSE), for instance, generates revenue through listing fees paid by companies listed on its markets.

Subscription and Software Services

Some exchanges offer subscription-based services and software solutions, catering to market participants’ needs for advanced analytics, trading tools, and connectivity. These services, which may include premium data feeds, trading platforms, or risk management tools, contribute non-volume-based revenue.

Technology and Licensing

Exchanges often license their technology to other financial institutions or exchanges globally. Licensing agreements for trading platforms, surveillance systems, or other proprietary technologies contribute to non-volume revenues. Euronext, for example, has a technology solutions business that provides services to other exchanges and financial institutions.

Educational Programs and Events

Some exchanges generate revenue by organizing educational programs, conferences, and events. These events may attract participants willing to pay fees for networking opportunities, industry insights, and educational sessions. Singapore Exchange (SGX) hosts events and training programs as part of its non-volume revenue initiatives.

Example: Euronext

You will find below a screenshot of Euronext revenue which was generated in years 2021 and 2022 with the different components (listing, trading revenue, investor services, data services, post-trade, and technology solutions).

For Euronext, the main revenues come from trading revenue (36.2%), post-trade (25.7%), listing (15.4%) and data services (14.9%).

Revenue generation of Euronext in the years 2021 and 2022.

Source: Euronext

Now that we spoke about revenues we generate through the business model of exchanges, the next natural question that comes to us is what kind of costs occur in managing it, right?

Various types of costs involved in the model of exchanges:

The costs involved in the business model of exchanges encompass various expenses necessary for their operations, technology infrastructure, regulatory compliance, and strategic development. A few elements of the costs involved are:

Technology Infrastructure

Exchanges invest heavily in developing and maintaining robust technology infrastructure. This includes trading platforms, data centers, and systems for order matching and execution.

Personnel Costs

Employee salaries and benefits constitute a significant portion of the costs. This includes staff involved in technology development, regulatory compliance, customer support, and other operational functions.

Regulatory Compliance

Compliance costs are essential for implementing systems that ensure adherence to regulatory requirements, supporting surveillance, risk management, and reporting.

Operational Expenses

General operational expenses cover day-to-day costs such as rent, utilities, maintenance, and administrative infrastructure.

Security and Risk Management

Investments are made in security measures and risk management systems to protect against cyber threats, fraud, and operational risks, ensuring the stability and security of the exchange.

Example: Euronext

You will find below a screenshot of Euronext expenditure in years 2021 and 2022 with the different costs involved in purchasing property, plant, equipment, and intangible assets.

Capital Expenditure of Euronext in years 2020,2021 and 2022.

Source: Eeuronext

Why should I be interested in this post?

Learning about exchange business models equips management students with insights into strategic decision-making. They can analyze how exchanges diversify revenue streams, expand globally, and adapt to market trends. The diversification of offerings by exchanges and their role in risk management showcase practical applications of management principles. Understanding how exchanges manage risks associated with different financial instruments is relevant for students interested in risk management and strategic planning.

Useful resources

Euronext

Euronext Euronext business (revenue charts)

New York Stock Exchange (NYSE) The NYSE market model

London Stock Exchange (LSE) An overview of the London Stock Exchange

About the author

The article was written in February 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole – Master in Management (MiM), 2021-2024).

Gautam Adani and Hedge fund Hindenburg

June 21, 2024February 19, 2024 by Nithisha CHALLA

Gautam Adani and Hedge fund Hindenburg

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents Gautam Adani’s journey of entrepreneurial success and controversies.

Introduction

Gautam Adani, a name that has become synonymous with entrepreneurial success and controversy, is one of India’s most prominent and influential business magnates. From his humble beginnings to his meteoric rise in various industries, Adani’s story is a testament to the power of determination, innovation, and risk-taking. Born on June 24, 1962, in a small town in Gujarat, India, Gautam Adani came from modest beginnings. His journey began with his family’s trading business of agricultural commodities. In the late 1970s, he moved to Mumbai to explore opportunities beyond his hometown. Adani’s first significant achievement came when he recognized the potential in the power and energy sector. He established Adani Exports Limited in 1988, which focused on the export of agricultural commodities. This marked the initial step in his entrepreneurial journey.

Early Ventures and Foundation of Adani Group

Adani Exports Limited initially focused on trading agricultural commodities, but Adani’s ambitions were much higher. He sensed the burgeoning demand for infrastructure development as India aimed to modernize and grow its economy. In 1998, Adani’s visionary move led to the creation of the Adani Ports and Special Economic Zone (APSEZ) in Mundra, Gujarat. This port became the cornerstone of his conglomerate, offering a gateway for imports and exports. The strategic location and world-class facilities propelled Adani Group to prominence in logistics and infrastructure.

Logo of Adani Group of Industries.

Source: the company.

Recognizing the importance of energy, Adani Group expanded into power generation. The acquisition of power plants, coal mines, and renewable energy projects further diversified the company’s portfolio. This diversification was crucial as Adani anticipated the global shift toward renewable energy sources and committed to substantial solar and wind energy investments.

By looking at the Adani group of industries, we observe that these companies mainly belong to the energy sector.

Evolution of Adani Group by its net worth from 2013 to 2023

The figure below shows the evolution of net worth of Adani Group of Industries for the period 2013-2023.

Networth evolution of Adani Group of Industries

Source: Statista.

Stock chart

The figure below represents the evolution of the stock price of Adani Enterprises Limited from 2022 to 2023.

Evolution of the stock price of Adani Enterprises Limited
Stock chart of Adani Group of Industries from 2002 to 2023 consolidated
Source: Yahoo! Finance

Global Recognition and Investments

Gautam Adani’s leadership and Adani Group’s success have gained global recognition. The Group’s investments in Australia’s Carmichael coal mine project and its expansion into international markets have positioned Adani as a significant player on the global stage. These international ventures, however, have also exposed him to heightened scrutiny and controversy. In recent years, Adani’s wealth has surged, making him one of the richest individuals in the world. His conglomerate’s stock prices have seen significant growth, fueled by India’s infrastructure push and economic ambitions. This growth has not only enhanced his personal wealth but also contributed to job creation and economic development in various regions. Adani Green Energy Limited, a subsidiary of Adani Group, is one of India’s largest renewable energy companies. This move aligns with global sustainability trends and showcases Adani’s adaptability to changing market dynamics.

What is Hindenburg Research and its Controversies?

Hindenburg Research, a well-known financial analysis firm, has made a name for itself by conducting in-depth investigations into various companies and industries, often revealing hidden or controversial information. The firm is named after the famous Hindenburg disaster, which symbolizes its mission to uncover potential corporate misconduct and issues that could lead to significant losses for investors. Hindenburg Research was founded by Nathan Anderson in 2017. The firm operates as a short-selling research entity, meaning it identifies companies it believes are overvalued or engaging in questionable practices and then takes a short position in their stock, betting that the stock price will decrease. Hindenburg’s reports are comprehensive and detailed, often highlighting issues such as fraud, governance concerns, and misleading business practices.

In recent years, Hindenburg Research gained significant attention for its investigations into various aspects of the Adani Group. The firm’s reports raised concerns about transparency, corporate governance, and environmental impacts associated with Adani’s businesses. Hindenburg’s reports have also had a notable impact on stock prices, causing steep declines in some cases as investors react to the information presented. By conducting thorough investigations and publishing detailed reports, Hindenburg has brought attention to potential risks and problems that could affect both investors and the broader public.

Conclusion

Gautam Adani’s journey epitomizes the entrepreneurial spirit that propels individuals from humble origins to extraordinary heights. His ventures across diverse sectors have reshaped India’s economic landscape, but they’ve also sparked debates about responsible business practices. Amid controversies and investigations by entities like Hindenburg Research, Adani’s legacy will stand as a complex tapestry of triumphs, challenges, and the ever-evolving dynamics of modern business.

Why should I be interested in this post?

Adani’s trajectory from humble beginnings to becoming a business magnate showcases the essence of entrepreneurship, offering inspiration for those aspiring to innovate and lead. His strategic diversification across industries exemplifies the power of adapting to changing market dynamics, a concept central to management education. Furthermore, Adani’s experience underscores the importance of sustainable business practices, corporate governance, and transparency – all critical topics for future business leaders. His global ventures illuminate the complexities of international business relationships. By studying his journey, master’s in management students can bridge theory with real-world application, preparing themselves to navigate the dynamic landscape of modern business with adaptability and resilience.

Useful resources

Adani Group of Industries Businesses of Adani group of industries

Yahoo financials Income statement of Adani group of industries

Statista Evolution of net worth of Adani group of industries

About the author

The article was written in February 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).

Index fund manager: Unveiling the Dynamics of Passive Investing

February 19, 2024February 19, 2024 by Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole – Master in management (MiM), 2021-2024) presents the job of index fund manager and their responsibilities in shaping the future of finance.

Introduction

Index funds have become a pillar of contemporary investment strategies in the dynamic world of finance. The function of an index fund manager, a specialist in charge of coordinating the smooth running of these funds, is essential to their success. A financial expert tasked with directing the management and administration of an index fund is known as an index fund manager. The performance of a particular market index, such as the S&P 500 or the FTSE 100, is replicated by index funds, commonly referred to as passive funds. Index funds strive to replicate the performance of the index they monitor, in contrast to actively managed funds, which try to beat the market (measured by the index performance). The index fund manager’s role involves closely mirroring the index’s composition and managing the fund’s investments accordingly. Index funds can take the forms of a mutual fund an exchange-traded fund (ETF) or a tacker quoted continuously.

Responsibilities of an Index Fund Manager

The index fund manager’s responsibilities encompass a range of critical tasks that contribute to the fund’s overall performance and alignment with its benchmark index.

These responsibilities include: replicating the index, rebalancing the portfolio, minimizing tracking errors, and managing dividends.

Replicating the Index

The index fund manager’s primary task is to ensure that the fund’s holdings mirror the index’s constituents and weightings accurately.

Rebalancing the portfolio

As market values fluctuate, the index fund manager must periodically rebalance the fund’s portfolio to maintain alignment with the index. This involves buying or selling securities to match the index’s changes.

Minimizing Tracking Error

The index fund manager aims to minimize tracking error, which measures the deviation of the fund’s performance from the index. Effective management ensures that the fund closely follows the index’s movements.

Managing dividends

Managing dividends and distributions in a manner consistent with the index is another crucial aspect of the index fund manager’s role.

Significance of Passive Investing

Index funds, which represent passive investment, have become very popular due to their cheap cost structure, benefits from diversification, and ease of use of ETFs. Index funds give investors exposure to a wide range of market segments, making them a desirable option for investors looking for reliable long-term returns without the hassles and expenses of active management. By following the index’s methodology and skillfully managing the fund’s portfolio, index fund managers play a crucial role in ensuring that these advantages are achieved.

Impact on the Financial Ecosystem

Index fund managers have a big impact on market dynamics and investor behavior, which helps to shape the financial ecosystem. Since they don’t engage in the regular buying and selling typical of active managers, their strategy of passive investment has a stabilizing influence on markets. This lessens market volatility and helps to create a more stable environment for making investments. As a result of these funds’ significant holdings in various businesses, the development of index funds has also boosted scrutiny of corporate governance and responsible investment (see the book “The Problem of 12” by John Coates).

Challenges and Opportunities

Despite the appeal of passive investing, index fund managers encounter several difficulties. It can be challenging to strike a compromise between tight index replication and performance optimization of the fund. Concerns regarding potential market distortions and ownership concentration in specific companies have also arisen because of the expansion of index funds. However, these difficulties also offer index fund managers chances to innovate, improve transparency, and respond to investor worries.

What do asset management firms do?

There are several functions of asset management firms but to brief about it, these firms are entrusted with the task of optimizing returns while managing risks, offering a diverse range of investment products and services. Functions of Asset Management Firms:

Wealth Management: Asset management firms specialize in managing and growing the wealth of their clients.
Investment Advisory: Offering investment advisory services, these firms provide insights, analysis, and recommendations on various asset classes, helping clients make informed investment decisions.
Portfolio Construction: Asset managers construct diversified portfolios tailored to meet specific financial goals and risk tolerance. They allocate assets across various classes such as stocks, bonds, real estate, and alternative investments.
Risk Management: Asset managers employ sophisticated risk management techniques to protect portfolios from market volatility and unforeseen events.
Research and Analysis: Firms conduct in-depth market research, economic analysis, and company evaluations to inform their investment decisions.

There are few notable asset management firms, to whose analysis a lot of index fund managers look up for various above-mentioned functionalities. A few examples of these Asset Management Firms are:

BlackRock: As one of the world’s largest asset managers, BlackRock manages trillions of dollars in assets. Known for its expertise in exchange-traded funds (ETFs), BlackRock offers a wide range of investment solutions for institutional and individual investors
JP Morgan Asset Management: JP Morgan Asset Management is a prominent player in the asset management industry, offering a spectrum of investment solutions, including mutual funds, institutional mandates, and alternative investments.
Fidelity Investments: Fidelity is a global asset manager providing a comprehensive suite of investment options, including mutual funds, retirement planning, and brokerage services. It is recognized for its research capabilities and investor education.
Vanguard Group: Vanguard is renowned for its low-cost index funds and a client-owned structure that aligns its interests with those of its investors. It pioneered index investing for the masses, emphasizing simplicity and cost-effectiveness.

Conclusion

An index fund manager is like a guide for passive investors, helping them navigate the financial landscape. Their job involves carefully mirroring the market, managing things effectively, and making sure the fund’s performance aligns with market indices. In a world where people want diverse investments, low costs, and steady returns, these managers look out for investors’ interests. For management students, understanding the role of an index fund manager holds valuable lessons in strategic investing and financial management. Studying the index fund manager’s role can enhance a management student’s grasp of investment strategies, financial markets, and the importance of aligning business practices with market trends.

Why should I be interested in this post?

For Master in Management students, exploring the activities of index fund managers offers practical insights into modern investment strategies relying more and more on index funds like ETFs. By understanding the role of index fund managers in passive investing, students bridge theory and practice, grasp the significance of low-cost diversification, and comprehend market trends. This knowledge enhances career prospects in finance.

Useful resources

Forbes, What Are Index Funds? How Do They Work?

Vanguard Index funds vs. actively managed funds

Oxford Law blogs Giant Asset Managers, the Big Three, and Index Investing

John Coates (2023) The problem of 12 Columbia Global Reports.

About the author

The article was written in February 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole – Master in Management (MiM), 2021-2024).

History of gold

Introduction

Ancient beginnings and the economic role of gold

Gold as a currency in ancient civilizations

Economic power in classical and medieval times

The Age of Exploration and Economic Expansion

Gold influx from the Spanish empire

African gold and trans-Saharan trade

Modern era: Gold’s financial evolution

The Gold Standard

Gold as a Safe Haven Investment

Gold in the 21st Century

Conclusion

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Top financial innovations in the 21st century

Introduction

Top Financial Innovations that Changed People’s Life in the 21st century

Mobile Banking

Blockchain Technology

Quantum Computing

Artificial Neural Networks

Digital Transactions

Crowdfunding

Apple Pay

Conclusion

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Top financial innovations in the 20th century

Introduction

Top Financial Innovations that Changed People’s Life in the 20th century

Credit Cards and Debit Cards

Automated Teller Machines (ATMs)

Telephone Banking

Online Banking

Conclusion

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Top financial innovations in the 20th century

Introduction

Top Financial Innovations that Changed People’s Life in the 20th century

Credit Cards and Debit Cards

Automated Teller Machines (ATMs)

Telephone Banking

Online Banking

Conclusion

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Activists in financial markets and the corporate world

Introduction

History

Types of Activism

Shareholder Activism

Environmental, Social, and Governance (ESG) Activism

Operational Activism

Proxy Fights

Methods and Strategies

Engagement and Dialogue with Companies

Public Campaigns

Proxy Battles

Litigation

Shareholder Proposals

Short Selling

Notable Activists

Impact on Companies

Positive Impact

Negative Impact

Impact of Short Selling

Conclusion

Why should I be interested in this post?

Related posts on the SimTrade blog

Useful resources

Top Financial Innovations that Changed People’s Life in the 21^st century

Top Financial Innovations that Changed People’s Life in the 20^th century

Top Financial Innovations that Changed People’s Life in the 20^th century