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Courant report: Investor biases lead to significant opportunities for value driven systematic investors

Tuesday, July 09, 2013

Benedicte Gravrand, Opalesque Geneva:

In a new report, Dr. Mel Mullin, CIO of New York-based Courant Capital Management, and his team observe the dynamics of U.S. large-cap equity mispricings that often result from investor behavioral biases. These behaviors often create significant opportunities for value-driven systematic investors.

In the report, entitled "Opportunities From Behavioral Rotations and Dispersion in U.S. Large-Cap Equities," the authors remark that investor biases lead to opportunities for value oriented investors, and that "disciplined participants constructing market neutral portfolios can often take advantage of both sides of mispricing biases, over exuberance and undue pessimism, to accumulate attractive positions ahead of their fundamentally oriented, value-seeking peers."

They found that:

  • Large cap stock investors have rotating lists of favorites and outsiders, which move according to recent news;
  • In most market environments, inefficient pricings from behavioural overreactions tend to correct within three months, as more value-seekers partake and company information is updated;
  • Biased investor behaviors "provide value and profit opportunities for long-only, long/short and market neutral investors;"
  • Systematic market neutral investors focused on U.S. large-cap universe can profit from pricing inefficiencies;
  • Long-only investors usually help restor......................

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