Bubbles in the stock market can have dramatic consequences on the real economy, especially when an increasing number of assets, including real estate, gold... are quoted on the stock market. Short of adequate tools to identify such bubbles, investors and monetary authorities are often unable to identify, until it is too late, stock market bubbles having a potential systemic risk. The situation is directly affecting the whole asset management industry: pension funds, for example, invested 47% of their assets (26,5 trillions US dollars worldwide) in equities in 2010. When a bubble explodes, trillions of dollars can evaporate within days. A major reason of the shortcomings in the prevention of bubbles is that there is no central measure of the stock market which can be compared to a central measure of the economy. For instance, one cannot compare a major US index like the S&P 500, to the employment rate or the inflation rate or the GDP... of the US. Wherefrom the need to have two comparable metrics for the economy and the stock market in order to measure the economic relevance of a stock market and, by extrapolation, to determine highly speculative periods based on economic grounds rather than pure sentiment.
Our venture designed a new stock market metric (a "national nominal GDP weighted" index) that facilitates direct comparisons between a country's nominal GDP, which measures the growth rate of a country, and its stock market. Our index represents a value to investors (our end-users) for two reasons: first, since inception it offers better long term returns (in terms of price return and total return, i.e. with reinvestment of dividends) than existing indexes. Secondly, it can help determine stock market bubbles.
Our team plans to calculate similar indexes for other countries/regions. Indexes will be licensed to fund managers (our customers) following either a passive "buy and hold" investment strategy (of simply following the index) as well as active investment strategies (for example: buy at some market falls/sell after some market up moves). Because the management of the assets and all the operational aspect it involves will be left to the fund managers, the team will be kept to a minimum size to concentrate on research, publications, editorial work and public relations.
Visible Hand Research offers fund managers investment strategies that can improve their performance and can help the economy by providing a better visibility of stock market bubbles.
Product information available on Google Doc: here
Product information available on Google Doc: here
Contact: visiblehandresearch@telenet.be
Copyright © 2012 . All rights reserved.
Copyright © 2012 . All rights reserved.
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