Earnings Manipulation Detection with Beneish M-Score

The earnings quarterly reporting of publicly-listed companies puts enormous pressure on them to deliver continuously better results. Investors and analysts look at these figures very closely in expectation of continued growth. This pressure may lead to creative accounting practices called “earnings management”. As we know, these practices can escalate into earnings manipulation, as in the infamous Enron and Bernie Madoff accounting scandals. In this article, I will look at a metric that assesses the likelihood of a company manipulating its earnings and apply it to the Russell 3000 Index.

April 21, 2023

Bankruptcy Prediction with Altman Z-Score

“Recession” seems to be one of the most debated topics since mid-2022. As the economic slowdown concerns were gradually easing at the start of the year, last month’s global banking crisis helped refuel those fears again. While the recession doesn’t come, it might be prudent to get ready for it. And what happens when we enter a recession? Bankruptcies… In this article, I will look at a measure that assesses the probability that a firm will file for bankruptcy and apply it to the Russell 3000 Index.

April 13, 2023

Don't Fight the Fed

There is a mantra in the investment community that goes by “Don’t Fight the Fed”. It suggests that investors should align their decisions with those taken by the Fed, and more specifically the Federal Open Market Committee (FOMC), regarding reference rates. At the moment we are experiencing the fastest Fed Rate Hiking Cycle ever, as described in the previous article, and the S&P 500 Index is close to 15% below its early 2022 all-time high it seems prudent to live by this mantra.

March 21, 2023

Fed Reference Rate and US Inflation

Happy Fed Week! After the tumultuous last two weeks, which saw the most severe bank failures since the Global Financial Crisis, this week we will have a highly anticipated FOMC meeting with an anxiously expected Fed Interest rate decision due on Wednesday. Considering the current Fed rate hike path and inflation dynamics, I decided to write this article to look through the previous Fed rate hike cycles. The Highest Inflation Rate in the Last 40 Years Let’s start with analyzing the historical values for the Fed reference rate and inflation.

March 5, 2023

Stock Market Returns Seasonality

After over two years away, Vasconomics is finally back! Following an incredible January in the financial markets that reminded me of the January effect, I started wondering about stock market seasonality. From the January effect to the “Sell in May and Go Away” adage, monthly return seasonality is something that comes to investors’ mind from time to time. In this article we will look at the S&P 500 Index and the S&P 500 Sector Indices historical monthly returns in search of seasonality patterns.