Traders have to make their final installment of advance tax on the 15th of March every year. A lot of speculative ink has been spilt over its effect on liquidity and the stock markets.
With the recent tumble in momentum names, some of the blame is being directed at “traders booking profits to pay advance tax”.
Nice story. But it just ain’t so.
If the profit-booking narrative is indeed true, then there should be a negative correlation between the financial year returns of momentum indices vs. their performance in the first two weeks of March. This should be especially true for those years when momentum indices have given large returns.
If the rationale is indeed true, then you’d expect to see a lot more points below the horizontal red line - especially when returns have been strong (farther right of the vertical red line).
Here’s a plot of the first two weeks of returns by month:
Looking at the distribution of returns, I’d be more scared of May & June than March.
Most market moves are random and self-reinforcing. The story comes after the market has already moved. It is something that we convince ourselves of to make the randomness more palatable.
The market doesn’t have to make sense for you to profit from it!
Markets this Week
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Never a dull moment in crypto…
Links
Research
Volatility Managed Multi-Factor Portfolios (SSRN)
Portfolio performance can be substantially enhanced by simultaneously utilizing the volatilities of historical factor returns and option-derived market volatilities to determine factor exposures.
Intraday Residual Reversal in the U.S. Stock Market (SSRN)
We focus on the unexplained price movements from the factor-based intraday model. We document an economically large and statistically significant return reversal based on the previous period’s residual return.
Return Predictability: Accounting versus Market Information (SSRN)
Existing research emphasizes the dominance of market-based predictors, such as price trends and liquidity measures, in the context of stock return prediction. However, we find that accounting-based predictors consistently outperform market-based predictors at forecast horizons beyond one month.
Economics & Investing
India
The government is set to introduce new quality control orders (QCOs) for various textile products to curb the influx of cheap Chinese goods (livemint)
At first, they capped funds investing in overseas stocks directly. Then, they took away indexation of capital gains for overseas funds. And now, SEBI asks fund managers to stop investing in overseas ETFs (reuters). Want to transfer funds to an overseas brokerage account instead? That will be a TCS of 20%. Financial repression much?
How to make ₹250 SIP viable, asks SEBI (cnbctv18)
India's richest 1% has highest concentration of wealth in decades (reuters)
India stares at summer water crisis as reservoir levels slide (reuters)
RoW
‘Trickle-down economics’ is a scam that ignores decades of evidence (washingtonpost)
A quarter of Korea’s car repair shops close as EV boom takes toll (koreajoongangdaily)
US solar factories need more government support to succeed. Existing federal subsidies and trade policies are not enough to help U.S. producers succeed in the face of a global glut of solar equipment. (reuters)
Japan ends the world’s greatest monetary-policy experiment (economist)
Brazil launches China anti-dumping probes after imports soar (ft)
EU chamber warns of ‘slow-motion train accident’ with China, says something needs to change. (scmp)
Renault calls for European war chest to tackle Chinese EV competition (ft)
value in a world of comparative advantage is realized only in the exchange of goods, and not in the production of goods. In that world, in other words, the purpose of exports is to acquire imports. It is not to pay for the mercantilist acquisition of foreign assets.
The US Congressional Budget Office (CBO) calculated that immigration will generate a $7 trillion boost to gross domestic product over the next decade. (bloomberg)
Evergrande’s Alleged $78 Billion Fraud Is Among Biggest Ever (bloomberg)
Bentley CEO says sales are down because the rich are experiencing ‘emotional sensitivity’ due to the cost of living and don’t want to flaunt their wealth with a new luxury car (fortune). Meanwhile, we had this.
A.I.
God Chatbots Offer Spiritual Insights on Demand (scientificamerican)
Scientists trained an AI system to think before speaking. AI girlfriends are finally about to pose a real threat. (livescience)
There's a new boss at a storied 47-year-old Williams Formula 1 team, and he's eager to shake things up. He's been saying that the team is far behind its competition in technology and coordination. And Excel is a big part of it. (arstechnica)
Meme of the Week