research topics in equity market

Reading Lists +

The review +, 46 possible stock market strategies from academics get a retest.

9 March 2022

Research by

• Athanasse Zafirov
• Corporate Investment
• Stock Market
• Corporate Finance
• Stock Returns

We won’t call it debunking, but not all investing tips hold up

For nearly 3,000 years, bloodletting was an accepted medical practice for all types of maladies. It was only in the early 1800s when some doctors carefully reviewed data on the practice that they realized bloodletting didn’t improve patients’ health, and may sometimes be harmful.

Such review of accepted theories is currently a growing field among social and natural scientists. Peer-reviewed research is increasingly being thrown back into the review process to see if stands up.

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A working paper by the University of Lausanne’s Amit Goyal, UCLA Anderson’s Ivo Welch and Athanasse Zafirov, a Ph.D. student, seeks to prevent the financial equivalent of bloodletting. Their meta-research — the term given for research on research — on papers published in top academic journals finds that many investing factors don’t hold up. To be precise, the 46 variables aren’t full-blown market strategies, but rather observed correlations that could form the basis for a strategy.

Past Performance May Not Be Indicative of Future Results

Building on Goyal and Welch’s 2008 paper that studied the predictive success of 17 variables, the researchers survey 26 papers identifying 29 variables considered useful in predicting the equity premium — the total rate of return on the stock market minus the prevailing short-term interest rate. The 17 variables from the 2008 paper are also reexamined. The researchers’ findings suggest that most of the variables have lost their predictive ability when tested on datasets extended to the end of 2020. A few variables do show flickers of promise but not overwhelming success across the researchers’ evaluation metrics.

The researchers’ first goal was to replicate the original findings of the papers’ authors. This involved recreating the variables and recalculating the reported statistics on the variables’ ability to predict the equity premium. Goyal, Welch and Zafirov were able to confirm the papers’ original findings, using the original dataset, on all but two of the papers. (The two remaining papers had data issues.)

The datasets to create the variables were then extended through December 2020, and the predictions for each of the 29 variables from the papers and the original 17 variables from the 2008 paper were retested.

The datasets in the papers ended between 2000 and 2017 and began as early as 1926. When building a predictive model, a researcher will typically split a dataset into at least two samples —one sample to train the model and another sample, typically the data from the latest years, to test the model. By extending the original datasets with data to the end of 2020 and starting the test sample 20 years after the start of the training sample, the components of these samples were slightly different than the samples used in the papers. It’s worth noting that the new data only made up a small percentage of the overall datasets.

“Because our paper reuses the data that the authors themselves had originally used to discover and validate their variables and theories, all that the predictors had to do in the few added years was not to ‘screw up’ badly.”

Nonetheless, of the 46 variables, only five managed to predict at a statistically significant level on the samples in the extended dataset.

But statistics are one thing, and investment performance is another. As a second test, Goyal, Welch and Zafirov devised simple investment strategies using the variables’ predictions to time investments by determining whether to go long or short the market and weighting the investments. The results of the investment strategies were compared with a buy-and-hold strategy. None of the five variables was able to significantly outperform the buy-and-hold approach in any of the investment strategies. Across all of the variable predictors, half lost money in the simplest investment strategy that used the variable to determine whether to go long or short.

Why Does the Performance Degrade?

The researchers suggest that the deterioration in predictive performance is at least partly explained by the fact that the market has shown greater variety in regimes over the last 20 years with many steep downturns. Campbell R. Harvey of Duke University and Yan Liu of Purdue University have performed similar meta-research and suggest that over-adapting the model to a particular data set may also be a factor due to authors running numerous backtests (simulations over historical data); they further suggest increasing necessary performance thresholds (raising the bar) as the number of backtests increase. Finally, a more generous explanation may be that as the predictive variables become well known by market practitioners, they lose their edge, just like a stock tip — when those tipped off start buying, the stock price rises and the tip loses its value.

Looking at the table below, the variables that were found to remain statistically significant on the extended dataset were those with the fewest citations and likely less well known among market participants.

The Five Best Variables on a Statistical Basis

Fourth-Quarter Growth Rate in Personal Consumption Expenditures ( gpce) : This macroeconomic variable from researchers Møller and Rangvid posits that high personal consumption growth rates at the end of the year predicts poor stock-market gains in the following year. The researchers found it to be the best, and most consistent, variable in the investment strategies. It outperformed a buy-and-hold approach with three of the four strategies tested. However, the outperformance was only marginal.

Aggregate Accruals (accru) : This is a sentiment-based variable introduced by Hirshleifer, Hou and Teoh and uses aggressive corporate accounting to predict future stock returns — more aggressive accruals lead to lower future returns. The variable also marginally beat buy-and-hold returns in three out of four approaches. Most of its performance came from its prediction of the post-tech market crash in 2000-2002.

Credit Standards (crdstd) : This is another macroeconomic variable and was introduced by Chava, Gallmeyer and Park. It finds that optimistic (loose) credit standards predict poor market returns and comes from survey data by the Fed. This variable did well in the researchers’ investment strategies and had good performance on test sample data, but statistical measures of the variable on the training sample data were not as convincing and much of its performance comes from the first four years in that sample.

The Investment Capital Ratio (i/k) : This a financial ratio introduced by Cochrane all the way back in 1991 and was also included in the 2008 paper from Goyal and Welch. It posits that high capital investment in the current quarter predicts poor stock-market returns in the next quarter. While it was a poor predictor from 1975 to 1998, it has since improved performance yet was not able to outperform a buy-and-hold strategy in three of four of the researchers’ timing strategies.

Treasury-bill Rates (tbl ): This is another variable examined in the 2008 paper. It does well statistically but had poor performance in the investment strategies.

Oft-Cited Papers With Poor-Performing Variables

Variance Risk Premium (vrp) : This variable was introduced by Bollerslev, Tauchen and Zhou and has the most citations. The variable had poor statistical performance, as well as poor performance in all four of the investment strategies.

Share of Housing Consumption (house) : This macroeconomic variable introduced by Piazzesi, Schneider and Tuzel has the second-highest number of citations. It uses housing share of consumer spending to forecast the excess return of stocks. (The higher the spending on housing, the higher the excess returns in the stock market.) The variable had poor statistical performance on the extended dataset and poor performance in the investment strategies.

The Price of West-Texas Intermediate Crude Oil (wtexas) : This was the only commodity-based variable and was introduced by Driesprong, Jacobsen and Maat. The paper posits that changes in the price of oil predict stock returns — higher oil prices lead to lower stock returns — with lags. The variable had poor statistical performance for the extended dataset and inconsistent performance in the investment strategies.

The First Principal Component of 14 Technical Indicators ( tchi ): This variable was introduced by Neely, Rapach, Tu and Zhou and is a linear combination of technical indicators including moving price averages, momentum and volume. It only had marginal statistical performance and inconsistent performance in the trading strategies.

Featured Faculty

Distinguished Professor of Finance; J. Fred Weston Chair in Finance

About the Research

Goyal, A., Welch, I., & Zafirov, A. (2021). A Comprehensive Look at the Empirical Performance of Equity Premium Prediction II . http://dx.doi.org/10.2139/ssrn.3929119

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Research Topics & Ideas: Finance

120+ Finance Research Topic Ideas To Fast-Track Your Project

If you’re just starting out exploring potential research topics for your finance-related dissertation, thesis or research project, you’ve come to the right place. In this post, we’ll help kickstart your research topic ideation process by providing a hearty list of finance-centric research topics and ideas.

PS – This is just the start…

We know it’s exciting to run through a list of research topics, but please keep in mind that this list is just a starting point . To develop a suitable education-related research topic, you’ll need to identify a clear and convincing research gap , and a viable plan of action to fill that gap.

If this sounds foreign to you, check out our free research topic webinar that explores how to find and refine a high-quality research topic, from scratch. Alternatively, if you’d like hands-on help, consider our 1-on-1 coaching service .

Overview: Finance Research Topics

• Corporate finance topics
• Investment banking topics
• Private equity & VC
• Asset management
• Hedge funds
• Financial planning & advisory
• Quantitative finance
• Treasury management
• Financial technology (FinTech)
• Commercial banking
• International finance

Corporate Finance

These research topic ideas explore a breadth of issues ranging from the examination of capital structure to the exploration of financial strategies in mergers and acquisitions.

• Evaluating the impact of capital structure on firm performance across different industries
• Assessing the effectiveness of financial management practices in emerging markets
• A comparative analysis of the cost of capital and financial structure in multinational corporations across different regulatory environments
• Examining how integrating sustainability and CSR initiatives affect a corporation’s financial performance and brand reputation
• Analysing how rigorous financial analysis informs strategic decisions and contributes to corporate growth
• Examining the relationship between corporate governance structures and financial performance
• A comparative analysis of financing strategies among mergers and acquisitions
• Evaluating the importance of financial transparency and its impact on investor relations and trust
• Investigating the role of financial flexibility in strategic investment decisions during economic downturns
• Investigating how different dividend policies affect shareholder value and the firm’s financial performance

Investment Banking

The list below presents a series of research topics exploring the multifaceted dimensions of investment banking, with a particular focus on its evolution following the 2008 financial crisis.

• Analysing the evolution and impact of regulatory frameworks in investment banking post-2008 financial crisis
• Investigating the challenges and opportunities associated with cross-border M&As facilitated by investment banks.
• Evaluating the role of investment banks in facilitating mergers and acquisitions in emerging markets
• Analysing the transformation brought about by digital technologies in the delivery of investment banking services and its effects on efficiency and client satisfaction.
• Evaluating the role of investment banks in promoting sustainable finance and the integration of Environmental, Social, and Governance (ESG) criteria in investment decisions.
• Assessing the impact of technology on the efficiency and effectiveness of investment banking services
• Examining the effectiveness of investment banks in pricing and marketing IPOs, and the subsequent performance of these IPOs in the stock market.
• A comparative analysis of different risk management strategies employed by investment banks
• Examining the relationship between investment banking fees and corporate performance
• A comparative analysis of competitive strategies employed by leading investment banks and their impact on market share and profitability

Private Equity & Venture Capital (VC)

These research topic ideas are centred on venture capital and private equity investments, with a focus on their impact on technological startups, emerging technologies, and broader economic ecosystems.

• Investigating the determinants of successful venture capital investments in tech startups
• Analysing the trends and outcomes of venture capital funding in emerging technologies such as artificial intelligence, blockchain, or clean energy
• Assessing the performance and return on investment of different exit strategies employed by venture capital firms
• Assessing the impact of private equity investments on the financial performance of SMEs
• Analysing the role of venture capital in fostering innovation and entrepreneurship
• Evaluating the exit strategies of private equity firms: A comparative analysis
• Exploring the ethical considerations in private equity and venture capital financing
• Investigating how private equity ownership influences operational efficiency and overall business performance
• Evaluating the effectiveness of corporate governance structures in companies backed by private equity investments
• Examining how the regulatory environment in different regions affects the operations, investments and performance of private equity and venture capital firms

Asset Management

This list includes a range of research topic ideas focused on asset management, probing into the effectiveness of various strategies, the integration of technology, and the alignment with ethical principles among other key dimensions.

• Analysing the effectiveness of different asset allocation strategies in diverse economic environments
• Analysing the methodologies and effectiveness of performance attribution in asset management firms
• Assessing the impact of environmental, social, and governance (ESG) criteria on fund performance
• Examining the role of robo-advisors in modern asset management
• Evaluating how advancements in technology are reshaping portfolio management strategies within asset management firms
• Evaluating the performance persistence of mutual funds and hedge funds
• Investigating the long-term performance of portfolios managed with ethical or socially responsible investing principles
• Investigating the behavioural biases in individual and institutional investment decisions
• Examining the asset allocation strategies employed by pension funds and their impact on long-term fund performance
• Assessing the operational efficiency of asset management firms and its correlation with fund performance

Hedge Funds

Here we explore research topics related to hedge fund operations and strategies, including their implications on corporate governance, financial market stability, and regulatory compliance among other critical facets.

• Assessing the impact of hedge fund activism on corporate governance and financial performance
• Analysing the effectiveness and implications of market-neutral strategies employed by hedge funds
• Investigating how different fee structures impact the performance and investor attraction to hedge funds
• Evaluating the contribution of hedge funds to financial market liquidity and the implications for market stability
• Analysing the risk-return profile of hedge fund strategies during financial crises
• Evaluating the influence of regulatory changes on hedge fund operations and performance
• Examining the level of transparency and disclosure practices in the hedge fund industry and its impact on investor trust and regulatory compliance
• Assessing the contribution of hedge funds to systemic risk in financial markets, and the effectiveness of regulatory measures in mitigating such risks
• Examining the role of hedge funds in financial market stability
• Investigating the determinants of hedge fund success: A comparative analysis

Financial Planning and Advisory

This list explores various research topic ideas related to financial planning, focusing on the effects of financial literacy, the adoption of digital tools, taxation policies, and the role of financial advisors.

• Evaluating the impact of financial literacy on individual financial planning effectiveness
• Analysing how different taxation policies influence financial planning strategies among individuals and businesses
• Evaluating the effectiveness and user adoption of digital tools in modern financial planning practices
• Investigating the adequacy of long-term financial planning strategies in ensuring retirement security
• Assessing the role of financial education in shaping financial planning behaviour among different demographic groups
• Examining the impact of psychological biases on financial planning and decision-making, and strategies to mitigate these biases
• Assessing the behavioural factors influencing financial planning decisions
• Examining the role of financial advisors in managing retirement savings
• A comparative analysis of traditional versus robo-advisory in financial planning
• Investigating the ethics of financial advisory practices

The following list delves into research topics within the insurance sector, touching on the technological transformations, regulatory shifts, and evolving consumer behaviours among other pivotal aspects.

• Analysing the impact of technology adoption on insurance pricing and risk management
• Analysing the influence of Insurtech innovations on the competitive dynamics and consumer choices in insurance markets
• Investigating the factors affecting consumer behaviour in insurance product selection and the role of digital channels in influencing decisions
• Assessing the effect of regulatory changes on insurance product offerings
• Examining the determinants of insurance penetration in emerging markets
• Evaluating the operational efficiency of claims management processes in insurance companies and its impact on customer satisfaction
• Examining the evolution and effectiveness of risk assessment models used in insurance underwriting and their impact on pricing and coverage
• Evaluating the role of insurance in financial stability and economic development
• Investigating the impact of climate change on insurance models and products
• Exploring the challenges and opportunities in underwriting cyber insurance in the face of evolving cyber threats and regulations

Quantitative Finance

These topic ideas span the development of asset pricing models, evaluation of machine learning algorithms, and the exploration of ethical implications among other pivotal areas.

• Developing and testing new quantitative models for asset pricing
• Analysing the effectiveness and limitations of machine learning algorithms in predicting financial market movements
• Assessing the effectiveness of various risk management techniques in quantitative finance
• Evaluating the advancements in portfolio optimisation techniques and their impact on risk-adjusted returns
• Evaluating the impact of high-frequency trading on market efficiency and stability
• Investigating the influence of algorithmic trading strategies on market efficiency and liquidity
• Examining the risk parity approach in asset allocation and its effectiveness in different market conditions
• Examining the application of machine learning and artificial intelligence in quantitative financial analysis
• Investigating the ethical implications of quantitative financial innovations
• Assessing the profitability and market impact of statistical arbitrage strategies considering different market microstructures

Treasury Management

The following topic ideas explore treasury management, focusing on modernisation through technological advancements, the impact on firm liquidity, and the intertwined relationship with corporate governance among other crucial areas.

• Analysing the impact of treasury management practices on firm liquidity and profitability
• Analysing the role of automation in enhancing operational efficiency and strategic decision-making in treasury management
• Evaluating the effectiveness of various cash management strategies in multinational corporations
• Investigating the potential of blockchain technology in streamlining treasury operations and enhancing transparency
• Examining the role of treasury management in mitigating financial risks
• Evaluating the accuracy and effectiveness of various cash flow forecasting techniques employed in treasury management
• Assessing the impact of technological advancements on treasury management operations
• Examining the effectiveness of different foreign exchange risk management strategies employed by treasury managers in multinational corporations
• Assessing the impact of regulatory compliance requirements on the operational and strategic aspects of treasury management
• Investigating the relationship between treasury management and corporate governance

Financial Technology (FinTech)

The following research topic ideas explore the transformative potential of blockchain, the rise of open banking, and the burgeoning landscape of peer-to-peer lending among other focal areas.

• Evaluating the impact of blockchain technology on financial services
• Investigating the implications of open banking on consumer data privacy and financial services competition
• Assessing the role of FinTech in financial inclusion in emerging markets
• Analysing the role of peer-to-peer lending platforms in promoting financial inclusion and their impact on traditional banking systems
• Examining the cybersecurity challenges faced by FinTech firms and the regulatory measures to ensure data protection and financial stability
• Examining the regulatory challenges and opportunities in the FinTech ecosystem
• Assessing the impact of artificial intelligence on the delivery of financial services, customer experience, and operational efficiency within FinTech firms
• Analysing the adoption and impact of cryptocurrencies on traditional financial systems
• Investigating the determinants of success for FinTech startups

Commercial Banking

These topic ideas span commercial banking, encompassing digital transformation, support for small and medium-sized enterprises (SMEs), and the evolving regulatory and competitive landscape among other key themes.

• Assessing the impact of digital transformation on commercial banking services and competitiveness
• Analysing the impact of digital transformation on customer experience and operational efficiency in commercial banking
• Evaluating the role of commercial banks in supporting small and medium-sized enterprises (SMEs)
• Investigating the effectiveness of credit risk management practices and their impact on bank profitability and financial stability
• Examining the relationship between commercial banking practices and financial stability
• Evaluating the implications of open banking frameworks on the competitive landscape and service innovation in commercial banking
• Assessing how regulatory changes affect lending practices and risk appetite of commercial banks
• Examining how commercial banks are adapting their strategies in response to competition from FinTech firms and changing consumer preferences
• Analysing the impact of regulatory compliance on commercial banking operations
• Investigating the determinants of customer satisfaction and loyalty in commercial banking

International Finance

The folowing research topic ideas are centred around international finance and global economic dynamics, delving into aspects like exchange rate fluctuations, international financial regulations, and the role of international financial institutions among other pivotal areas.

• Analysing the determinants of exchange rate fluctuations and their impact on international trade
• Analysing the influence of global trade agreements on international financial flows and foreign direct investments
• Evaluating the effectiveness of international portfolio diversification strategies in mitigating risks and enhancing returns
• Evaluating the role of international financial institutions in global financial stability
• Investigating the role and implications of offshore financial centres on international financial stability and regulatory harmonisation
• Examining the impact of global financial crises on emerging market economies
• Examining the challenges and regulatory frameworks associated with cross-border banking operations
• Assessing the effectiveness of international financial regulations
• Investigating the challenges and opportunities of cross-border mergers and acquisitions

Choosing A Research Topic

These finance-related research topic ideas are starting points to guide your thinking. They are intentionally very broad and open-ended. By engaging with the currently literature in your field of interest, you’ll be able to narrow down your focus to a specific research gap .

When choosing a topic , you’ll need to take into account its originality, relevance, feasibility, and the resources you have at your disposal. Make sure to align your interest and expertise in the subject with your university program’s specific requirements. Always consult your academic advisor to ensure that your chosen topic not only meets the academic criteria but also provides a valuable contribution to the field. 

If you need a helping hand, feel free to check out our private coaching service here.

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thank you for suggest those topic, I want to ask you about the subjects related to the fintech, can i measure it and how?

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Economic Equity: Inequality and Stock Market Participation

This 19-minute podcast was released Nov. 4, 2020, as a part of the Timely Topics: Economic Equity miniseries.

YiLi Chien, economist and research officer

“High-income people, they save more, and then the return of their wealth is also higher because of high correlation with the biggest stock market participation rate,” says YiLi Chien, economist and research officer at the Federal Reserve Bank of St. Louis. He talks with RC Balaban, digital communications manager, about the role stock market participation plays in wealth inequality.

RC Balaban: Welcome to Timely Topics , a podcast series from the St. Louis Fed. I’m your host, RC Balaban, and today we’re continuing our miniseries on equity and equality. We’ll focus on some research discussing the role that investing, specifically investing in the stock market, can play in wealth inequality. We’re joined today by YiLi Chien , a research officer and an economist here at the St. Louis Fed. YiLi, thanks so much for joining us today.

YiLi Chien: Thanks for having me.

Balaban: Absolutely. So we’ll get into a bit of your research and what it’s found in a minute. But I did want to set the stage first; just if you can talk a little bit about how participating in the stock market specifically, how that relates to wealth inequality.

Chien: Yes. Excellent question. It is a very important question regarding to the wealth inequality. So let me set up the affects of the state a little bit here. So in making a household accumulative wealth, there are two way. One is they save more. The other way is if they have a high return on their wealth, then their wealth will be accumulated faster.

So the wealth inequality going to relate to the first with the income inequality. If income inequality is high, the poor people cannot afford to save, and rich people able to consume more, and they also able to save more. So the first channel is coming from the income inequality.

The second one is coming from the different return for their wealth. So if you look at the data, you’re going to see that the household portfolio choice is very different between poor and the rich. For the rich household, mostly they hold a much larger percentage in their portfolio into the equity, which is historically they have a higher return.

So in particular you kind of see that this function of operating the data. The first one is the rich people, the high-income people tend to save more. But not only that, but also the high-income people, they save more, and then the return of their wealth is also higher because of high correlation with the biggest stock market participation rate.

Balaban: Okay, that’s fascinating. I think a lot of people of course naturally assume that the wealthier, the more income somebody has; then the more you’re able to invest. So you could see the returns really working from that angle. But it is interesting to hear that even when you have people with less income or less wealth and people with more, there’s going to be differences in just how they invest, with wealthier people or higher income people being able to go after investments that generate even more returns.

Chien: Yeah, totally.

Balaban: Okay. So what are some of the factors that seem to influence, like, people’s participating in the stock market, both from actually just getting in and investing, plus the different things that they choose to invest in?

Chien: Yeah. So this is another very important question. So let me give you a little bit of background information about how this stock market participation rate has been changed over time in the United States.

So in probably get back to several decades ago in the ‘80s, the participation rate is around 20 to 30% in United States. In ‘90s, in the middle of ’90, it start to increase. By the end of ’90, it approached to 50%, okay? And since then, the stock market participation rate is around 50%.

So the first thing is that the increase in ‘90s is highly correlated with the increasement of the retirement cut. So in ‘90s, the United States have a mutual fund, and a lot of companies start to offer the 401(k). So this is the main driving force for increasing participation rate in ‘90s.

One thing is very related to who has the retirement account. So, many companies offer the retirement account. And by default, when you join the retirement account, they have the portfolio choice into, like, lifecycle fund, which is the example of some mixed investment between equity and stock. So naturally even you do not know anything about the stock market, you still participate. So that is one channel there.

But this kind of participation is not exactly what we’ve seen of the stock market participation in general sense because of those people who participate the equity market is through the retirement funding, we see they do not adjust their portfolio rate often. Sometimes they do not adjust their portfolio for 10 years, or they only put very little money in the equity markets. So in general, the stock market participation rate did not increase that much in this sense.

Then for the empirical study, the equity market participation rate is also highly correlated with the income and the education. So this is going to tell you that despite a lot of financial innovation in the past 10 or 20 years, the online trading didn’t get or very popular all this stuff, that all this tend to lower the transaction cost for the people to participate in stock market. But you don’t see much effect of where.

So you know that it’s probably why the now participation rate still remain quite high in United States. A lot of financial go to the not monitoring transaction cost. So where you want to invest in stock, you need to spend a lot of time to understand the nature of the stock, how much, which portfolio you should buy, and all this stuff. So this in terms of the time and a connected cost in your mind, then it could be quite costly for a lot of U.S. household.

Balaban: Okay. So one thing I wanted to circle back on here, it sounds like a lot of people, when it comes to participating in the stock market, it’s more the decision’s getting made for them in a lot of cases and them not necessarily taking their own initiative.

So you mentioned investing in 401(k)s, for instance. It sounds like that might be more being prompted or even automatically enrolled in 401(k) savings vehicles. And then even within 401(k), a lot of times people are participating, but they’re doing so in whatever investment vehicle was initially set up for them, which could be something that naturally has lower expected returns. Is that fair?

Chien: Yeah.

Balaban: Okay. And then something else I was wanting to see if you can expand on a little bit was you talked about, I believe, investing being correlated with income and education. And we’ve covered a little bit on income, but when regarding education, what I’m curious about here is, is the correlation more the effect that education has on a person’s income, where generally the more education a person has, the higher income they end up earning, or is it more the higher education somebody has, the more knowledgeable they are about the stock market and the more comfort they have in investing and making their own decisions?

Chien: I would say it’s both. So all of these are highly correlated. So in empirical study had very difficult to distinguish all of them. So we do see that stock market participation rate, education, income, and wealth, as a result, all of them are highly correlated.

So it’s very difficult for us to know which influence which. So the only way to say in this is that we do see that people tend to be rich, and the rich people tend to participate in the equity market. But it does not necessarily mean that for anyone who participate equity market, they are going to be rich.

Balaban: Diving a little bit more into investing in the stock market, you’ve also looked at trading strategies. And you touched on this a little bit before, where the investment vehicles the people pick certainly can have an impact on their expected returns and thus likely translating into the level of wealth that they’re able to achieve. I was wondering if you could talk a little bit more about, like, how trading strategies have a big impact on the wealth that a person can expect to earn by investing, which of course then feeds into inequality and gaps or growing gaps that some people may be experiencing?

Chien: Right. Thanks for the question; it is very nice question. So we talked about the equity market participation because of the equity market return has been in total quite high compared to some other financial asset. So it’s kind of a little bit puzzling that why some of household willing to forego this high return of the wealth vehicle compared to some other, like, lower return stuff.

Of course the equity market has a risk because of the price fluctuates overtime. But in theory, very difficult to recognize that why some people wouldn’t participate in the stock market and forego high return.

But this could make sense because we do see that even though most people who do participate equity market, they could potentially make some important serious mistakes, such that their return of their wealth is going to drop significantly. So we do see that some of them participate, but they do not participate enough, or they do participate but they do not have a diversified portfolio such that their return, they could suffer unnecessary volatility, or they do adjust, but sometime they adjust in the incorrect way.

So a very popular mistake is that we do see that people have the kind of return-chasing behavior, meaning that when they see the stock market return is high, they tend to buy more. And when it suffers some loss or that some market returns is low, they tend to sell. If this is the case, the study have shown that this is going to reduce your average return quite a lot.

So to experience why some people do not willingly participate in equity market, it might be because of some people understand their limitation of participation, which meaning is that they understand that when they participate in equity market, they might make some mistake, or as a result, they just say, “Okay, I don’t want to participate in the equity market because I will make some mistake.”  Then they choose not to participate. So there is some other study I have in the past.

Balaban: And I was going to ask a little bit about whether you’ve done studies, like, specifically looking at risk aversion because it sounds like people could be fearful of making mistakes when it comes to investing. But there’s also I’m wondering if there are some people who know that they could end up making mistakes, but because of the income or wealth that they’ve already accumulated, that they’re willing to take on those risks in search of higher returns, because you would think that somebody who already has a pretty substantial amount of wealth, obviously they don’t have much of a need to take on additional risks, but they have at least an ability to take on that type of risk because even if they make some mistakes, they have the assets available to try to gain that back and to take on the risk of trying to gain all that back.

Chien: Right. Correct. So your question is exactly the point. So to explain why the wealth inequality is so high is we do see that the relative low-income people, either they cannot afford to save or even they’re willing to save, they cannot suffer—If they suffer some significant loss, they going to lose everything. And that’s exactly why you see that in the middle of the wealthy distribution, most people do not hold equity. So the majority of their asset is the housing.

Only it’s the very top, on the very top, especially the top 1% of people, they hold a lot of equity. And not only do they hold a lot of equities, a lot of their equity is their private equity and not publicly traded equity. So this is going to indicate that for really rich people, they are able to sustain, or they’re able to suffer the loss in the short time. In the return, they can gain much higher return in the long run. So as a result, their wealth is going to accumulate much faster compared to the middle- or low-income people. So this is one of the reasons why the wealth inequality gets high in the United States.

Balaban: OK. We’ve talked a little bit just about some of the other general characteristics. So we’ve mentioned income and prior wealth being something that can affect people and how much they’re willing to participate in the stock market. Are there any other characteristics that we haven’t discussed already that play a significant role in people participating in the stock market and ultimately end up impacting them from an inequality standpoint?

Chien: Yeah. So there is one thing I wrote, a very short article. I used a tax return data, across the United States. So the tax return data going to have to have the information about who has this dividend income. I used percentage of the household have different income as an approximation of the stock market participation rate.

I find that of course the income and the education level is highly correlated with the stock market participation rate. But even you control for these two factors, we also see that across the United States, different states have different stock market participation rate, even in controlling for the income. For example, for Connecticut the stock market participation rate is higher than in Mississippi not only because of Connecticut it is richer state compared to Mississippi, but also if you control for the level income in Mississippi and in Connecticut, you compare these two group, say, both of them earn $150,000 annual income, and they should see the significant amount of the differences in the stock market participation rate.

So this is difficult to explain by, you know, Connecticut cause or some transaction cost because it is difficult to argue that those people in Mississippi, their ability in investing is worse than those people in Connecticut, especially the conditioning of the income level. So I think one possible explanation is in some states, the awareness of the financial planning is less compared to the other states.

So we know that Connecticut, some of the households is very close to the New York City, which is the—A lot of people are in the investment industries. But in Mississippi, the industry is shift toward to other stuff. So probably that is one explanation.

But this finding is that other than your income level and the education, there’s some other factor which you do not understand quite well but could affect the stock market participation rate.

Balaban: I see. So it sounds like that based on the research that you’ve done, we may not know exactly all of the factors that go into it, but it does look like there are factors beyond simply how much income a person has that could influence people participating in the stock market and getting these returns. Who knows what it is. It could be cultural. It could be stuff that’s geographically based, any number of different items that there could be but certainly something beyond just the simple people who have more money are able to invest more in the stock market and then making inequality grow. There may be some other factors at play here.

Chien: Right. Exactly. Thanks for the nice comment.

Balaban: So YiLi, we’ve talked quite a bit about participating in the stock market, but it’s been more from just an aggregate perspective, like the idea of large groups of people and whether they should be participating. But obviously participating in the stock market is an individual or a household decision, and it’s not probably fair to say that people, just everybody should go out to try and invest in the stock market and get whatever returns they possibly can, try and get the most. There may be some other factors at play for whether people, not only whether they should take the right levels of risk, but should they even participate in the stock markets? What are some of your research or some of the thoughts that you’ve uncovered while doing your research related to just people’s individual decisions on participating in the stock market?

Chien: Yeah. This is excellent question. Thanks for asking this. So the stock return is high. But the stock is not necessarily a good investment vehicle for everyone because everyone, everybody, every household have different preferences. They have different financial goals. The financial situation is different. And some people cannot take more risk because of their level of income has already fractured quite a lot.

So here, the personal financial decision is personal in the sense that there is no universal portfolio choice or investment strategy for everyone. And on top of that, if you think about household financial problem, it’s a really difficult problem to solve. The first thing is normally they have some illiquid asset, like housing. They have some non-tradable asset, like their own human capital. They face volume constraints.

Also according to different age, you might have a different goal to achieve. So investing in stock is just one of the options. It might not be the necessary option for everyone. For sure, I don’t think it’s an ideal option for everyone, especially if you are the high-aversion people. And sometimes the fear or the time and energy you need to process all this information about stock market could be really time consuming. This is a difficult problem, and everybody should manage it in their own way and try their best to invest.

Balaban: Well, YiLi, thank you very much for your time today. It’s been a very fascinating look at some of the factors that go into the stock market and how it relates to inequality and growing inequality, for that matter. Really appreciate your time on this.

Chien: Yeah. Thanks so much for having me, and it’s such a great opportunity to say something about my own research.

Balaban: Absolutely. So to follow along with our miniseries on economic equity or to listen to more Timely Topics episodes, visit us at stlouisfed.org/timely-topics . You can also subscribe to our Timely Topics Podcast Series on Apple Podcast, Stitcher, and Spotify. Thank you for listening.

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What’s in an Equity Research Report?

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Even though you can easily find real equity research reports via the magical tool known as “Google,” we’ve continued to get questions on this topic.

Whenever I see the same question over and over again, you know what I do: I bash my head in repeatedly and contemplate jumping off a building…

…and then I write an article to answer the question.

To understand an equity research report, you must understand what goes into a  stock pitch first.

The idea is similar, but an ER report is a “watered-down” version of a stock pitch.

But banks have some very solid reasons for publishing equity research reports:

Why Do Equity Research Reports Matter?

You might remember from previous articles that equity research teams do not spend that much time writing these reports .

Most of their time is spent speaking with management teams and institutional investors and sharing their views on sectors and companies.

However, equity research reports are still important because:

• You do still spend some time doing the required modeling work (~15%) and writing the reports (~20%).
• You might have to write a research report as part of the interview process.

For example, if you apply to an equity research role or an equity research internship , especially in an off-cycle process, you might be asked to draft a short report on a company.

And then in roles outside of ER, you need to know how to interpret reports quickly and extract the key information.

Equity Research Reports: Myth vs. Reality

If you want to understand equity research reports, you have to understand first why banks publish them: to earn higher commissions from trading activity.

A bank wants to encourage institutional investors to buy more shares of the companies it covers.

Doing so generates more trading volume and higher commissions for the bank.

This is why you rarely, if ever, see “Sell” ratings, and why “Hold” ratings are far less common than “Buy” ratings.

Different Types of Equity Research Reports

One last point before getting into the tutorial: There are many different types of research reports.

“Initiating Coverage” reports tend to be long – 50-100 pages or more – and have tons of industry research and data.

“Sector Reports” on entire industries are also very long. And there are other types, which you can read about here .

In this tutorial, we’re focusing on the “Company Update” or “Company Note”-type reports, which are the most common ones.

The Full Tutorial, Video, and Sample Equity Research Reports

For our full walk-through of equity research reports, please see the video below:

Table of Contents:

• 1:43: Part 1: Stock Pitches vs. Equity Research Reports
• 6:00: Part 2: The 4 Main Differences in Research Reports
• 12:46: Part 3: Sample Reports and the Typical Sections
• 20:53: Recap and Summary

You can get the reports and documents referenced in the video here:

• Equity Research Report – Jazz Pharmaceuticals [JAZZ] – OUTPERFORM [BUY] Recommendation [PDF]
• Equity Research Report – Shawbrook [SHAW] – NEUTRAL [HOLD] Recommendation [PDF]
• Equity Research Reports vs. Stock Pitches – Slides [PDF]

If you want the text version instead, keep reading:

Watered-Down Stock Pitches

You should think of equity research reports as “watered-down stock pitches.”

If you’ve forgotten, a hedge fund or asset management stock pitch ( sample stock pitch here ) has the following components:

• Part 1: Recommendation
• Part 2: Company Background
• Part 3: Investment Thesis
• Part 4: Catalysts
• Part 5: Valuation
• Part 6: Investment Risks and How to Mitigate Them
• Part 7: The Worst-Case Scenario and How to Avoid It

In a stock pitch, you’ll spend most of your time and energy on the Catalysts, Valuation, and Investment Risks because you want to express a VERY different view of the company .

For example, the company’s stock price is $100, but you believe it’s worth only $50 because it’s about to report earnings 80% lower than expectations.

Therefore, you recommend shorting the stock. You also recommend purchasing call options at an exercise price of $125 to limit your losses to 25% if the stock moves in the opposite direction.

In an equity research report, you’ll still express a view of the company that’s different from the consensus, but your view won’t be dramatically different.

You’ll spend more time on the Company Background and Valuation sections, and far less time and space on the Catalysts and Risk Factors. And you won’t even write a Worst-Case Scenario section.

If a company seems overvalued by 50%, a research analyst would probably write a “Hold” recommendation, say that there’s “uncertainty around several customers,” and claim that the company’s current market value is appropriate.

Oh, and by the way, one risk factor is that the company might report lower-than-expected earnings.

The Four Main Differences in Equity Research Reports

The main differences are as follows:

1) There’s More Emphasis on Recent Results and Announcements

For example, how does a recent product announcement, clinical trial result, or earnings report impact the company?

You’ll almost always see recent news and updates on the first page of a research report:

These factors may play a role in hedge fund stock pitches as well, but more so in short recommendations since timing is more important there.

2) Far-Outside-the-Mainstream Views Are Less Common

One comical example of this trend is how all 15 equity research analysts covering Enron rated it a “buy” right before it collapsed :

Sell-side analysts are far less likely to point out that the emperor has no clothes than buy-side analysts.

3) Research Reports Give “Target Prices” Rather Than Target Price Ranges

For example, the company is trading at $50.00 right now, but we expect its price to increase to exactly $75.00 in the next twelve months.

This idea is completely ridiculous because valuation is always about the range of possible outcomes, not a specific outcome.

Despite horrendously low accuracy , this practice continues.

To be fair, many analysts do give target prices in different cases, which is an improvement:

4) The Investment Thesis, Catalysts, and Risk Factors Are “Looser”

These sections tend to be “afterthoughts” in most reports.

For example, the bank might give a few reasons why it expects the company’s share price to rise: the company will capture more market share than expected, it will be able to increase its product prices more rapidly than expected, and a competitor is about to go bankrupt.

However, the sell-side analyst will not tie these factors to specific share-price impacts as a buy-side analyst would.

Similarly, the report might mention catalysts and investment risks, but there won’t be a link to a specific valuation impact from each factor.

So the typical stock pitch logic (“We think there’s a 50% chance of gaining 80% and a 50% chance of losing 20%”) won’t be spelled out explicitly:

Your Sample Equity Research Reports

To illustrate these concepts, I’m sharing two equity research reports from our financial modeling courses :

The first one is from the valuation case study in our Advanced Financial Modeling course , and the second one is from the main case study in our Bank Modeling course .

These are comprehensive examples, backed by industry data and outside research, but if you want a shorter/simpler example you can recreate in a few hours, the Core Financial Modeling course has just that.

In each case, we started by creating traditional HF/AM stock pitches and valuations and then made our views weaker in the research reports.

The Typical Sections of an Equity Research Report

So let’s briefly go through the main sections of these reports, using the two examples above:

Page 1: Update, Rating, Price Target, and Recent Results

The first page of an “Update” report states the bank’s recommendation (Buy, Hold, or Sell, sometimes with slightly different terminology), and gives recent updates on the company.

For example, in both these reports we reference recent earnings results from the companies and expectations for the next fiscal year:

We also give a “target price,” explain where it comes from, and give our estimates for the company’s key financial metrics.

We mention catalysts in both reports, but we don’t link anything to a specific valuation impact.

One problem with providing a specific “target price” is that it must be based on specific multiples and specific assumptions in a DCF or DDM.

So with Jazz, we explain that the $170.00 target is based on 20.7x and 15.3x EV/EBITDA multiples for the comps, and a discount rate of 8.07% and Terminal FCF growth rate of 0.3% in the DCF.

Next: Operations and Financial Summary

Next, you’ll see a section with lots of graphs and charts detailing the company’s financial performance, market share, and important metrics and ratios.

For a pharmaceutical company like Jazz, you might see revenue by product, pricing and # of patients per product per year, and EBITDA margins.

For a commercial bank like Shawbrook, you might see loan growth, interest rates, interest income and net income, and regulatory capital figures such as the Common Equity Tier 1 (CET 1) and Tangible Common Equity (TCE) ratios:

This section of the report explains how the analyst or equity research associate forecast the company’s performance and came up with the numbers used in the valuation.

The valuation section is the one that’s most similar in a research report and a stock pitch.

In both fields, you explain how you arrived at the company’s implied value, which usually involves pasting in a DCF or DDM analysis and comparable companies and transactions.

The methodologies are the same, but the assumptions might differ substantially.

In research, you’re also more likely to point to specific multiples, such as the 75 th percentile EV/EBITDA multiple, and explain why they are the most meaningful ones.

For example, you might argue that since the company’s growth rates and margins exceed the medians of the set, it deserves to be valued at the 75 th percentile multiples rather than the median multiples:

Investment Thesis, Catalysts, and Risks

This section is short, and it is more of an afterthought than anything else.

We do give reasons for why these companies might be mis-priced, but the reasoning isn’t that detailed.

For example, in the Shawbrook report we state that the U.K. mortgage market might slow down and that regulatory changes might reduce the market size and the company’s market share:

Those are legitimate catalysts, but the report doesn’t explain their share-price impact in the same way that a stock pitch would.

Finally, banks present Investment Risks mostly so they can say, “Well, we warned you there were risks and that our recommendation might be wrong.”

By contrast, buy-side analysts present Investment Risks so they can say, “There is a legitimate chance we could lose 50% – let’s hedge against that risk with options or other investments so that our fund does not collapse .”

How These Reports Both Differ from the Corresponding Stock Pitches

The Jazz equity research report corresponds to a “Long” pitch that’s much stronger:

• We estimate its intrinsic value as $180 – $220 / share , up from $170 in the report.
• We estimate the per-share impact of each catalyst: price increases add 15% to the share price, more patients from marketing efforts add 10%, and later-than-expected generics competition adds 15%.
• We also estimate the per-share impact from the risk factors and conclude that in the worst case , the company’s share price might decline from $130 to $75-$80. But in all likelihood, even if we’re wrong, the company is simply valued appropriately at $130.
• And then we explain how to hedge against these risks with put options.

The same differences apply to the Shawbrook research report vs. the stock pitch, but the stock pitch there is a “Short” recommendation where we claim that the company is overvalued by 30-50%.

And that sums up the differences perfectly: A Short recommendation with 30-50% downside in a stock pitch turns into a “Hold” recommendation with roughly equal upside and downside in a sell-side research report.

I’ve been harsh on equity research here, but I don’t want to disparage it too much.

There are many positives: You do get more creativity than in IB, it might be better for hedge fund or asset management exits, and it’s more fun to follow companies than to grind through grunt work on deals.

But no matter how you slice it, most equity research reports are watered-down stock pitches.

So, make sure you understand the “strong stuff” first before you downgrade – even if your long-term goal is equity research.

You might be interested in:

• The Equity Research Analyst Career Path: The Best Escape from a Ph.D. Program, or a Pathway into the Abyss?
• Private Equity Regulation : 2023 Changes and Impact on Finance Careers
• Stock Pitch Guide: How to Pitch a Stock in Interviews and Win Offers

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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Read below or Add a comment

15 thoughts on “ What’s in an Equity Research Report? ”

Hi Brian, what softwares are available to publish Research Reports?

We use Word templates. Some large banks have specialized/custom programs, but not sure how common they are.

Is it possible if you can send me a template in word of an equity report? It will help the graduate stock management fund a lot at Umass Boston.

We only have PDF versions for these, but Word should be able to open any PDF reasonably well.

Do you also provide a pre constructed version of an ER in word?

We have editable examples of equity research reports in Word, but we generally only share PDF versions on this site.

Hey Brian Can you please help me with coverage initiated reports on oil companies. I could not find them on the net. I need to them to get equity research experience, after which only I will be able to get into the field. I searched but reports could not be found even for a price. Thanks

We have an example of an oil & gas stock pitch on this site… do a search…

https://mergersandinquisitions.com/oil-gas-stock-pitch/

Beyond that, sorry, we cannot look for reports and then share them with you or we’d be inundated with requests to do that every day.

No worries. Thanks!

Hi! Brian! Do u know how investment bankers design and layout an equity research? the software they use. like MS Word, Adobe Indesign or something…? And how to create and layout one? Thanks

where can I get free equity research report? I am a Chinese student and now study in Australia. Is the Morning Star a good resource for research report?

Get a TD Ameritrade to access free reports there for certain companies.

How do you view the ER industry since the trading commission has been down 50% since 2007. And there are new in coming regulation governing the ER reports have to explicitly priced and funds need to pay for the report explicity rather than as a service comes free with brokerage?

In addition the whole S&T environment is becoming highly automated.

People have been predicting the death of equity research for over a decade, but it’s still here. It may not be around in 100 years, but it will still be around in another 10 years, though it will be smaller and less relevant.

Yes, things are becoming more automated, but the actual job of an equity research analyst or associate hasn’t changed dramatically. A machine can’t speak with investors to assess their sentiment on a company – only humans can do that.

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How to Ace Your Equity Research Interview: Answers to the 30 Most Common Questions

Crushing your equity research interview: master the 30 most common questions with these expert answers.

Are you gearing up for an equity research interview and feeling overwhelmed by the thought of the questions you may be asked? Don't worry, we've got you covered! In this article, we will equip you with expert answers to the 30 most common questions you're likely to encounter during an equity research interview.

From market analysis and valuation techniques to industry trends and financial modeling, we will provide you with comprehensive insights and actionable tips that will help you ace your interview.

Our team of experienced professionals has curated this guide to ensure that you not only have a solid foundation of knowledge but also the ability to confidently articulate your thoughts and stand out from other candidates.

By mastering the 30 most common questions, you'll be well-prepared to showcase your understanding of the industry and prove your value as a potential equity research analyst.

Don't let the fear of the unknown hold you back. It's time to crush your equity research interview with confidence and come out victorious. Read on to discover the expert answers that will set you apart from the competition.

Importance of Preparing for Equity Research Interviews

Preparing for an equity research interview is crucial if you want to stand out from the crowd and secure your dream job. The competition in the finance industry is fierce, and employers are looking for candidates who not only possess the necessary technical skills but also have a deep understanding of the industry and can think critically.

By dedicating time to prepare for the interview, you demonstrate your commitment and enthusiasm for the role. It shows that you are willing to go the extra mile to succeed and that you have a genuine interest in the field of equity research.

Research the company you are interviewing with, understand their investment philosophy, and familiarize yourself with the latest industry news and trends. This will not only help you answer questions more effectively but also enable you to ask intelligent questions during the interview, showcasing your genuine interest and enthusiasm.

Lets Explore Technical, Fit and Behavioral Interview Questions

Q1- tell me the difference between cyclical and growth industries and how they are affected by external factors.

Suggested Answer: Cyclical industries are industries that experience regular ups and downs in business activity, often in line with the overall business cycle. Examples of cyclical industries include automotive, construction, and retail. These industries tend to do well when the economy is growing, but suffer during recessions.

Growth industries, on the other hand, are industries that are experiencing consistent and sustained growth. Examples of growth industries include technology, healthcare, and renewable energy. These industries tend to be less affected by the overall business cycle and continue to grow even during recessions.

External factors that can affect cyclical and growth industries include changes in government policies, technological advancements, shifts in consumer preferences, and economic conditions such as interest rates and inflation. For example, changes in tax policies or regulations can affect the construction and automotive industries, while advancements in technology can disrupt or benefit the growth of technology companies.

Q2- Where do you see the market in 5-10 years and why do you believe so?

Suggested Answer: It is difficult to predict with certainty what the stock market will look like in 5-10 years, however, based on current demographic trends, government finances, and GDP growth projections, it is likely that the S&P 500 will remain relatively stable and may even experience modest growth over this time period. Factors such as inflation, consumer spending, and the Federal Reserve's quantitative easing policies will also play a role in determining the market's performance. Additionally, the development of new technologies and the emergence of innovative new companies could also have a positive impact on the market in the long-term.

Q3- Tell me about what is the P/E ratio and how would you use it to compare companies?

Suggested Answer: The P/E ratio , or price-to-earnings ratio, is a financial ratio that compares a company's stock price to its earnings per share. It is calculated by dividing a company's current stock price by its earnings per share (EPS) . The P/E ratio is often used to measure a company's valuation and to compare the valuations of different companies.

A high P/E ratio may indicate that a company's stock is overvalued, while a low P/E ratio may indicate that a company's stock is undervalued. However, it is important to note that a high P/E ratio for one company does not necessarily mean that the company is overvalued, as different industries and sectors have different average P/E ratios.

When comparing companies, it is important to compare P/E ratios within the same industry or sector, as different industries and sectors have different average P/E ratios. For example, technology companies tend to have higher P/E ratios than utilities companies.

It's also important to consider the company's growth prospects, as companies with higher growth prospects tend to have higher P/E ratios. A company with a high P/E ratio but high growth prospects may be more attractive than a company with a lower P/E ratio but lower growth prospects.

Additionally, other factors such as debt levels, profitability, and cash flow should also be considered when evaluating a company. The P/E ratio alone should not be the only metric used to compare companies, it is one of the many metrics used to evaluate a company's performance and its future growth.

Q4- Tell me about some top Indexes in NSE and BSE?

Suggested Answer: The NIFTY 50 Index is one of the most popular and widely-followed indices in the Indian stock market. It consists of the 50 largest and most liquid stocks listed on the National Stock Exchange (NSE). Other popular indices in the NSE include the Nifty Auto, Bank, Financial Services, FMCG, IT, Media, Pharma, Private Bank, and PSU indices. On the Bombay Stock Exchange (BSE), popular indices include the SENSEX, BSE MIDCAP, BSE SMALLCAP, BSE 100, BSE 200, BSE 500, BSE Auto, BSE BankEx, BSE Consumer Durables, BSE Capital Goods, BSE FMCG, BSE HealthCare, BSE IT, BSE Metal, BSE Oil & Gas, BSE PSU, BSE TECk, BSE Realty, BSE SME IPO, S&P BSE CARBONEX, S&P BSE GREENEX, S&P BSE Shariah 50, BSE IPO, BSE POWER, and S&P BSE SmallCap indices.

Q5- Tell me about the market capitalization?

Suggested Answer: Market capitalization, often referred to as "market cap," is a measure of the value of a company. It is calculated by multiplying the current stock price of a company by the number of shares outstanding.

For example, if a company has 10 million shares outstanding and its stock price is $50 per share, its market capitalization would be $500 million.

Market capitalization is used to classify a company as small-cap, mid-cap, or large-cap. Small-cap companies have a market capitalization of less than $2 billion, mid-cap companies have a market capitalization of between $2 billion and $10 billion, and large-cap companies have a market capitalization of more than $10 billion.

The market capitalization of a company can be used as a measure of its size and can be used to compare it to other companies in the same industry or sector. For instance, a company with a large market capitalization may have more resources and be more financially stable than a company with a smaller market capitalization. However, It is important to note that market capitalization alone doesn't indicate the company's overall financial health, it should be considered along with other financial metrics such as revenue, earnings, and debt levels.

Additionally, the market capitalization can change with the stock price, it means that if a company's stock price increases, the market capitalization will increase as well, and if the stock price decreases, the market capitalization will decrease as well.

Q6- Where is the dollar vs the INR?

Suggested Answer: The current exchange rate for US Dollar (USD) to Indian Rupee (INR) is 81.41. This rate is up from 81.32 the previous market day and up from 74.41 one year ago.

Q7- What is the 10-year T-Note rate?

Suggested Answer: The 10-year T-Note rate is currently 3.482%, with an open yield of 3.398%, a day high of 3.501%, a day low of 3.389%, and a previous close of 3.399%. The current price of the 10-year T-Note is 105.2969, with a price change of -0.7188 and a price change percentage of -0.6797%. The coupon rate is 4.125% and the maturity date is November 15, 2032.

Q8- What is the price of gold 1 ounce?

Suggested Answer: The spot price for 1 ounce of gold is currently $1,934.69.

Q9- How to evaluate P/E ratio to determine if a stock is cheap If you don't have comparable companies data ?

Suggested Answer: If you don't have comparable companies data, there are a few ways to evaluate a P/E ratio to determine if a stock is cheap:

Compare the P/E ratio to historical levels: Look at the company's P/E ratio over the past few years to see if it is currently high or low compared to its historical levels. If the current P/E ratio is lower than its historical levels, it may be considered cheap.

Compare the P/E ratio to the industry average: Look at the average P/E ratio for the industry the company operates in. If the company's P/E ratio is lower than the industry average, it may be considered cheap.

Compare the P/E ratio to the broader market: Look at the P/E ratio of a broad-market index, such as the S&P 500, to see how the company's P/E ratio compares to the broader market. If the company's P/E ratio is lower than the broader market, it may be considered cheap.

Compare the P/E ratio with other valuation metrics: P/E ratio should be used in conjunction with other valuation metrics such as Price to Sales ratio(P/S) , Price to Book value (P/B) , Price to cash flow (P/CF) etc.

Q10-How to analyze different sectors of companies?

There are several ways to analyze different sectors of companies:

Research the industry: Understand the key trends, drivers and challenges that are shaping the industry. Look at the size and growth prospects of the industry, and identify any major players or new entrants.

Analyze the financials: Look at the financial statements of companies within the sector to identify key metrics such as revenue, profit margins, and return on equity. Compare these metrics across companies to identify any outliers or trends.

Evaluate the management team: Look at the leadership and management team of the companies within the sector. Assess their experience, track record, and strategic vision.

Look at the products and services: Analyze the products and services offered by the companies within the sector. Look at the quality of the products, their pricing, and the company's distribution channels.

Analyze the competition: Look at the competitive landscape of the sector, identify the key players and understand their strengths and weaknesses.

Evaluate external factors: Consider external factors such as government policies, technological advancements, shifts in consumer preferences and economic conditions that may affect the sector.

Consider valuation: Analyze the valuation of companies within the sector, including metrics such as the P/E ratio , Price to Sales ratio(P/S) , Price to Book value (P/B) , Price to cash flow (P/CF) etc.

Look at the risks: Identify and evaluate any significant risks associated with investing in the sector, such as regulatory changes, industry consolidation, or changes in consumer preferences.

It's important to note that the analysis process may vary depending on the sector, and the above-mentioned points are general guidelines. It's important to have a good understanding of the sector and the companies within it, and to use a variety of metrics and analysis techniques to build a comprehensive picture of the sector's performance and potential.

Q11- What does the cost structure like for the Manufacturing industry, How will you evaluate and what are their biggest cost components?

The cost structure for the manufacturing industry can vary depending on the type of products being produced and the manufacturing process used. However, there are some common cost components that are typically found in the manufacturing industry:

Raw materials: This includes the cost of the materials used to produce the final product, such as metals, plastics, and chemicals.

Labor: This includes the cost of wages and benefits for the employees involved in the manufacturing process, as well as any contract labor costs.

Manufacturing overhead: This includes costs such as utilities, rent, insurance, and property taxes for the manufacturing facility. It also includes costs for equipment maintenance, tooling, and supplies.

Distribution and logistics: This includes the cost of transporting the finished products from the factory to the customer, including shipping, warehousing, and inventory carrying costs.

Research and Development: This includes the costs of researching, developing, and testing new products or processes.

Selling, general and administrative expenses: This includes costs such as marketing, advertising, and administrative expenses.

To evaluate the cost structure of a manufacturing company, you can use a number of financial metrics such as cost of goods sold (COGS) as a percentage of revenue, and gross margin, which is calculated as gross profit divided by revenue. These metrics can be used to compare the company to its competitors and to industry averages.

It's important to note that the cost structure of a manufacturing company can change over time, for example, with changes in raw material prices, labor costs, or technological advancements. It's important to keep track of these changes and how they affect the company's financial performance.

Another important factor to consider is the company's production processes and whether it's able to achieve economies of scale, which could help to lower costs and improve margins. Also, the company's pricing strategies and how it responds to the market conditions and competition should also be taken into account.

Q12-Let’s say that you run a French fries franchisee You have two options The first is to increase the price of each of your existing products by 10% (imagining that there is price inelasticity) And the second option would be to increase the total volume by 10% as a result of a new product Which one should you do and why?

Suggested Answer: It depends on the specifics of your French fries franchise and the market conditions. Both options have the potential to increase revenue, but they have different implications for your business.

Increasing the price of each existing product by 10% may result in a short-term increase in revenue, but it could also lead to a decline in demand if customers are price sensitive. If the demand for your products is inelastic, meaning that changes in price do not significantly affect the quantity demanded, then this option may be a viable one. However, if the demand is elastic, meaning that changes in price do significantly affect the quantity demanded, then this option may lead to a decrease in overall revenue.

Adding a new product to your menu, on the other hand, has the potential to increase the total volume of sales without affecting the price of your existing products. This option may appeal to customers looking for something new and different, and it could lead to a 10% increase in total volume without having to risk losing customers due to a price increase. However, launching a new product also comes with its own set of costs such as R&D, marketing, and testing.

In summary, if you can increase the price of existing products without losing too much customers then the first option will be preferable. But if you think that a price increase could lead to a significant decline in demand, it would be safer to launch a new product to increase the volume. Additionally, you can also consider other options such as creating bundle deals, or offering discounts for large orders. It's important to have a good understanding of your customer base and the market conditions, and to use a variety of strategies and analysis techniques to build a comprehensive picture of the best way to increase your revenue.

Q13- What do you think the income statement would look like for a Pharma company like Sun pharma, abbott and cipla? What would their COGS be? How about their operating margin?

Suggested Answer: The income statement  for a pharmaceutical company like Sun Pharma, Abbott, and Cipla would likely include the following key elements:

Revenues: This would include revenues from the sale of pharmaceutical products, such as prescription drugs and over-the-counter medications.

Cost of goods sold (COGS): This would include the cost of raw materials, labor, and manufacturing overhead associated with producing the pharmaceutical products. For a pharmaceutical company, the cost of goods sold would include the cost of the active pharmaceutical ingredients (API) and other raw materials, as well as the cost of manufacturing and packaging.

Gross profit: This is calculated by subtracting COGS from revenues. Gross profit represents the amount of revenue that a company has left over after accounting for the direct costs of producing its products.

Operating expenses: This includes expenses such as research and development, sales and marketing, general and administrative expenses.

Operating income: This is calculated by subtracting operating expenses from gross profit. Operating income represents the amount of money a company has left over after accounting for its direct costs of production and its operating expenses.

Other income/expenses: This includes items such as interest income, foreign exchange gains/losses, and other income or expenses that are not directly related to the company's main operations.

Net income: This is calculated by subtracting other income/expenses from the operating income. Net income represents the company's overall profit or loss.

The COGS and operating margin of a pharmaceutical company can vary depending on a number of factors, such as the type of products they produce, the complexity of their manufacturing process, and the level of competition in the market. However, on average, the operating margin of a pharmaceutical company is around 20-30%.

It's important to note that the above-mentioned details are not specific to Sun Pharma, Abbott, and Cipla, and it's important to check their financial statements for more accurate information. Additionally, the income statement of a pharma company is affected by many factors such as patent expiration, regulatory environment, competition, and the global economy. Therefore, it's important to keep track of these factors and how they affect the company's financial performance.

Q14- I see that you have no market experience and what should make me believe that this is something you are seriously interested in?

Suggested Answer: I understand that a lack of market experience can be a concern when considering me for a role in Equity Research. However, I have done extensive research into the industry and have a strong understanding of the key concepts and processes. My dedication to improving my knowledge and skills in this field is evidenced by my willingness to learn and grow within this profession. I have developed a strong analytical mindset and excellent problem-solving skills that I believe will make me a valuable asset to any Equity Research team. Furthermore, I am passionate about the industry and have a keen interest in the financial markets, which I believe will make me a great fit for this role.

Q15- Why are you looking for an equity research job?

Suggested Answer: I am looking for an equity research job because I believe that I have the skills necessary to perform the job duties. I have a strong understanding of accounts and financial fundamentals and have the ability to analyze the specifics of individual companies to determine if the security is appropriately priced. Additionally, I have the ability to create financial models to calculate the future value of equity shares, and I am familiar with the financial statements of the companies I research.

Q16- Which stock do you pitch for me and why?

Suggested Answer: The stock I would pitch depends on which company you are interviewing for. Generally, when pitching a stock for an equity research interview, you should focus on a company that is relevant to the firm and sector you are interviewing for. You should also make sure to research the company thoroughly, identify the key drivers that are affecting the stock, and consider the valuation metrics and catalysts for the company. Additionally, you should also consider any potential risks and how you can mitigate them.

Q17- Can you tell me what valuation techniques you use if I ask you to value a company?

Suggested Answer: There are several valuation techniques that can be used to value a company, some of the most common ones include:

Discounted Cash Flow (DCF) analysis: This is a method of valuing a company based on the present value of its future cash flows. It involves forecasting the company's future cash flows, and then discounting them back to their present value using a discount rate. This method is considered to be one of the most accurate ways of valuing a company as it takes into account both the company's current and future performance.

Price to Earnings (P/E) ratio : This is a method of valuing a company based on the ratio of its stock price to its earnings per share (EPS). It is used to compare a company's valuation to that of its peers and to the overall market.

Price to Sales (P/S) ratio : This is a method of valuing a company based on the ratio of its stock price to its revenue. It is used to evaluate a company's valuation by comparing its stock price to its revenue.

Price to Book (P/B) ratio : This is a method of valuing a company based on the ratio of its stock price to its book value (the value of its assets minus its liabilities). It is used to evaluate a company's valuation by comparing its stock price to its book value.

Dividend Discount Model (DDM) : This is a method of valuing a company based on the present value of its future dividends. It involves forecasting the company's future dividends, and then discounting them back to their present using a discount rate.

Comparable Company Analysis: This method involves analyzing the financials of similar companies within the same industry and using those companies' valuations as a benchmark for the company being valued.

It's important to note that no single method is perfect, and a combination of these methods should be used to get the best estimate of a company's value. Additionally, it's important to keep track of the company's financial performance, its growth prospects, the industry trends, and the overall economic conditions.

Q18- To your best ability What do you think is the main reason stocks fell by 20%?

Suggested Answer: It is difficult to determine the main reason for a stock market decline without more specific information about the timing and circumstances of the decline. However, some possible reasons for a 20% decline in stock prices include:

Economic downturn: A recession or other economic downturn can lead to a decline in corporate profits and consumer spending, which in turn can lead to a decline in stock prices.

Interest rate changes:  A sudden increase in interest rates can affect the ability of companies to borrow money and invest in growth, and this can lead to a decline in stock prices.

Political instability: Political instability, such as a war or a change in government policies, can create uncertainty and lead to a decline in stock prices.

Natural disasters: Natural disasters can disrupt production and supply chains, and this can lead to a decline in stock prices.

Geopolitical risks: Geopolitical risks such as trade tensions, sanctions, or other global events can affect the global economy and lead to a decline in stock prices.

Company-specific events: A company-specific event such as a financial scandal, a product recall, or a change in management can lead to a decline in stock prices.

It's important to note that a decline of 20% in stock prices could be a result of a combination of these reasons. Additionally, it's important to keep in mind that stock market fluctuations are normal and are to be expected. It is also important to note that past performance does not indicate future performance, and it is important to conduct thorough research and analysis before making any investment decisions.

Q19- Tell me about what PE ratio is a popular valuation metric and what the PE ratio number tries to tell us?

Suggested Answer: The Price-to-Earnings (P/E) ratio is a popular valuation metric that compares a company's current stock price to its earnings per share (EPS) . It is calculated by dividing the current stock price by the EPS. The P/E ratio is used to measure the relative value of a company's stock and to compare it to the value of other companies in the same industry or to the overall market.

A high P/E ratio indicates that investors are willing to pay a premium for the company's earnings, while a low P/E ratio indicates that the stock is relatively cheap compared to the company's earnings. However, it's important to note that a high P/E ratio does not necessarily mean that a stock is overpriced, and a low P/E ratio does not necessarily mean that a stock is underpriced.

The P/E ratio tries to tell us how much investors are willing to pay for a company's earnings. A high P/E ratio may indicate that investors have high expectations for the company's future earnings growth, while a low P/E ratio may indicate that investors have lower expectations for the company's future earnings growth. However, it's important to keep in mind that the P/E ratio is only one metric and should be used in conjunction with other financial metrics such as revenue, earnings, and debt levels, to get a more comprehensive picture of the company's performance.

Additionally, it's important to note that different sectors have different P/E ratio averages, a company in a sector with higher growth prospects may have a higher P/E ratio, while a company in a sector with lower growth prospects may have a lower P/E ratio. Therefore, it's important to compare the P/E ratio of a company to the average P/E ratio of the industry or sector it operates in.

Q20- Tell me something about yourself that is not on your resume?

Suggested Answer: When it comes to equity research, I'm highly knowledgeable and passionate. I'm constantly reading and researching the stock market, and I'm always looking for new and creative ways to analyze information. Additionally, I'm a great communicator and have a great ability to explain complex financial concepts in a simple and concise way. I'm also able to build strong relationships with clients and colleagues, which is essential in the equity research field.

Q21- Explain to me the type of financial modelling?

Suggested Answer: Financial modeling is the process of creating a numerical representation of a financial situation, typically using spreadsheet software, in order to make informed decisions. There are several types of financial models, each with their own specific purpose and structure.

Financial forecasting models: These models are used to predict future financial performance based on historical data and other relevant information. They can be used to forecast revenue, expenses, cash flow, and other financial metrics.

Valuation models: These models are used to estimate the intrinsic value of a company or asset. The most common valuation models include discounted cash flow (DCF) analysis, price-to-earnings (P/E) ratio, and comparable company analysis.

Budget and planning models: These models are used to create a financial plan for a company, such as a budget or a strategic plan. They can be used to forecast revenue, expenses, and cash flow, and to identify potential risks and opportunities.

Risk and sensitivity models: These models are used to analyze the potential risks and uncertainties that a company may face. They can be used to simulate various scenarios and to estimate the potential impact of different risks on the company's financial performance.

Monte Carlo simulation models: These models are used to analyze the potential outcomes of a decision under uncertainty. They use probability distributions and random sampling to simulate different scenarios and to estimate the potential range of outcomes.

Real-options models: These models are used to evaluate investment opportunities by considering the flexibility of a company. They include the ability to make investment decisions based on future developments in the market or industry.

It's important to note that financial modeling is an iterative process, and the model should be updated and refined as new information becomes available. Additionally, the choice of the financial model should be based on the specific purpose and the type of decision that needs to be made, and it's important to have a good understanding of the assumptions and limitations of the model.

Q22- Do you understand the DCF model and Walk me through the process?

Suggested Answer: Yes, I understand the Discounted Cash Flow (DCF) model. It is a method of valuing a company based on the present value of its future cash flows. The process of creating a DCF model typically includes the following steps:

Forecasting future cash flows: The first step in creating a DCF model is to forecast the company's future cash flows. This typically involves forecasting revenue, costs, and expenses for a period of time, usually 5 to 10 years.

Determine the discount rate: The next step is to determine the discount rate, which is used to discount the future cash flows back to their present value. The discount rate is typically based on the company's cost of capital and reflects the risk associated with the cash flows.

Calculate the present value of future cash flows: Once the future cash flows and discount rate have been determined, the present value of the cash flows can be calculated by dividing each year's cash flow by (1 + discount rate) to the power of the number of years in the future.

Sum the present value of future cash flows: The final step is to sum the present value of all the future cash flows to arrive at the total present value of the company.

Terminal Value calculation: Terminal value is the value of a company beyond the projection period and it is calculated by estimating the perpetuity growth rate and multiplying it by the last year's projected free cash flow(FCF) and then discounting it back to the present value.

Sum the present value of terminal value: The final step is to add the present value of the terminal value to the present value of the future cash flows.

It's important to note that the DCF model is sensitive to the assumptions used in forecasting future cash flows and determining the discount rate, so it's important to consider a range of scenarios and to be aware of the limitations of the model. Additionally, the DCF model

Q23- Can you tell me about any previous research work you have done?

Suggested Answer: I have done extensive research in the field of equity research. My research has focused on the evaluation of companies and their stocks, which includes analyzing their financials and market trends. I have also done analysis on valuation techniques such as Discounted Cash Flow Analysis, Comparable Companies Analysis, and Sensitivity Analysis. In addition, I have done research into the capital markets and the function they serve. Finally, I have done research on the most important factors to consider when analyzing a company, how to determine if a company is undervalued or overvalued, and the most common ratios and metrics used for company analysis.

Q24- Can you tell me which industry has a future?

Suggested Answer: The five industries with a promising future are Analytics and Big Data, Cybersecurity, Health Care for the Aging, Renewable Energy and Drones. These industries are expected to experience rapid growth in the coming years due to their relevance to the current technological landscape.

Q25- What type of valuation work have you done in the previous company?

Suggested Answer: I have worked on a variety of valuation techniques including Discounted Cash Flows, Comparable Companies Analysis, Free Cash Flows , Free Cash Flow to Equity , and Sensitivity Analysis. I have also worked on Equity Research Reports, where I have been responsible for writing and analyzing the industry overview, company financials and ratios, valuations and projections, management overview and recommendation.

Q26- Tell me about which industry you like to analyze and why?

Suggested Answer: One popular industry for analysis is technology. The technology industry is constantly evolving and is often at the forefront of innovation. Companies in this industry can have high growth potential and can be a source of disruptive technologies. Analyzing technology companies can be interesting because of the potential for significant returns on investment, the potential for new products and services, and the potential for market disruption.

Another popular industry for analysis is healthcare. The healthcare industry is a large and growing sector that is essential to the well-being of society. Companies in this industry can have a significant impact on people's lives, and they can be a source of innovative medical treatments and technologies. Analyzing healthcare companies can be interesting because of the potential for long-term growth, the potential for new products and services, and the potential for positive social impact.

Retail industry is also interesting to analyze, as it is a consumer-facing industry that reflects the broader economy and consumer sentiment. Companies in this industry can provide insight into consumer spending patterns, trends in e-commerce, and the health of brick-and-mortar retail.

Furthermore, the financial industry is also a popular one for analysis, as it provides insight into the broader economy and the performance of different sectors. Companies in this industry can provide insight into the performance of different asset classes, the health of the banking sector, and the overall performance of the global economy.

Ultimately, the choice of industry to analyze depends on an individual's interest, expertise and the decision they want to make. It's important to conduct a thorough research and analysis of the industry and the company before making any investment decisions.

Q27- Suppose I am given a task to make a report for an automobile company. How will you gather data and information?

Suggested Answer: Gathering data and information for a report on an automobile company can involve several steps and sources. Some possible methods to gather data and information include:

Financial statements: One of the most important sources of information is the company's financial statements, such as the income statement, balance sheet, and cash flow statement. These statements provide a detailed overview of the company's financial performance and can be used to analyze trends, profitability, and liquidity.

Industry reports and publications: Another important source of information is industry reports and publications. These can provide information on the overall performance of the automobile industry, trends, and market conditions.

Company press releases and annual reports:  Company press releases and annual reports can provide information on the company's strategy, performance, and plans for future growth.

Government data: Government data can provide information on the market size, growth rate, import/export data, and other macroeconomic data of the automobile industry.

Online research: Online research can be used to gather information on the company's competitors, the company's market position, and the company's reputation.

Surveys and customer feedback: Surveys and customer feedback can be used to gather information on customer satisfaction, brand perception, and customer loyalty.

Consultation with experts: Consultation with experts in the field of automobile industry, such as industry analysts, consultants, or professors can provide valuable insight and information.

It's important to note that the data and information gathered should be reliable, accurate, and up-to-date. Additionally, it's important to ensure that the data and information gathered is relevant to the report and the decision that needs to be made.

Q28- Being a successful analyst what skills do you have ?

Suggested Answer: To be a successful analyst in Equity Research, I have strong numerical skills, good knowledge of finance and investments, and excellent communication skills. I am also detail-oriented, analytical, and have excellent writing skills. Furthermore, I have the ability to analyze data and financial statements, understand investments and markets, and have a deep understanding of the industry. Additionally, I have the ability to think critically and come up with innovative solutions.

Q29- What is the main reason that stocks go up or down?

Suggested Answer: Stocks go up or down based on a variety of factors, some of the most important ones include:

Company-specific news and events: This includes factors such as earnings reports, product launches, management changes, and mergers and acquisitions. Positive news and events can cause a stock to go up, while negative news and events can cause a stock to go down.

Economic conditions: Economic conditions such as interest rates, GDP growth, and inflation can affect the overall performance of the stock market and individual stocks. Strong economic conditions can cause stocks to go up, while weak economic conditions can cause stocks to go down.

Industry trends: Industry trends such as technological advancements, changing consumer preferences, and regulatory changes can affect the performance of individual stocks and sectors. Positive industry trends can cause stocks to go up, while negative industry trends can cause stocks to go down.

Political and geopolitical events:  Political and geopolitical events such as elections, war, and trade tensions can affect the stock market and individual stocks. Uncertainty caused by these events can cause stocks to go down, while positive developments can cause stocks to go up.

Market sentiment: Market sentiment refers to the overall mood of investors and traders. Positive market sentiment can cause stocks to go up, while negative market sentiment can cause stocks to go down.

It's important to note that the stock market is complex and influenced by multiple factors, therefore, it's hard to predict the performance of the stock market or a specific stock. Additionally, it's important to conduct thorough research and analysis before making any investment decisions.

Q30- Give me your overview on the economy and the stock market?

Suggested Answer: The economy and the stock market are closely related and can affect each other in a number of ways. A strong economy can lead to higher corporate profits and consumer spending, which can in turn lead to higher stock prices. Conversely, a weak economy can lead to lower corporate profits and consumer spending, which can lead to lower stock prices.

Economic indicators such as GDP, inflation, and interest rates can also affect the stock market. For example, a low unemployment rate and a high GDP growth rate are usually considered to be positive indicators for the stock market, as they suggest a strong economy. On the other hand, high inflation and interest rates can be negative for the stock market, as they can lead to a decrease in consumer spending and corporate profits.

It's important to note that the stock market is complex and influenced by multiple factors, including global events, political and geopolitical developments, and company-specific events. Additionally, it's important to conduct thorough research and analysis before making any investment decisions.

Q31- What are the current interest rates and what do you think about in future?

Suggested Answer: The current average interest rate for a 30-year fixed mortgage is 6.33%. Bankrate's forecast shows rates continuing to break records, with the average credit card rate rising to 20.5 percent by the end of 2023. Long-term interest rates are likely to stay below 4% this year, trending down as the economy slows and the inflation rate comes down. The Federal Reserve has forecast the Federal Funds Rate to be 2.6% by 2023, before levelling off. If the historically high inflation of 2022 continues to dissipate and the economy falls into a recession, it's likely mortgage rates will decrease in 2023. Kiplinger's Economic Outlooks project the Fed-Funds Rate and 10-year Treasury yield to be 1.75% and 2.75%, respectively, in 2026.

Q32- If interest rates were to go up then which sectors do you think would benefitted and which would stand to disadvantage?

Suggested Answer: Interest rate changes can have a significant impact on different sectors of the economy. Generally speaking, when interest rates go up, it becomes more expensive for companies and consumers to borrow money, which can have a negative impact on certain sectors.

Sectors that may be negatively impacted by a rise in interest rates include:

Real estate: Higher interest rates can make it more expensive for individuals and companies to borrow money to buy or refinance properties. This can lead to a decrease in demand for real estate and a decline in property prices.

Consumer discretionary: Higher interest rates can make it more expensive for consumers to borrow money to buy cars, appliances, and other consumer goods. This can lead to a decrease in consumer spending and a decline in demand for consumer discretionary goods.

Financials: Higher interest rates can make it more expensive for banks to borrow money, which can lead to a decline in their profits. Additionally, when interest rates rise, the spread between short-term and long-term interest rates narrows, which can negatively impact the profitability of the banks.

Sectors that may be positively impacted by a rise in interest rates include:

Utilities: Utility companies often have long-term debt and a stable cash flow, which means they can afford to pay higher interest rates on their debt.

Consumer staples: Companies that produce consumer staples such as food, beverages, and household goods are less affected by changes in interest rates as they tend to be necessities and have a stable demand.

Technology: Companies in the technology sector, such as semiconductors, software, and internet-based companies, are less impacted by interest rate changes as they are driven by innovation and advancements in technology rather than interest rate changes

It's important to note that interest rate changes can have both positive and negative impacts on different sectors and that interest rate changes are only one of the many factors that can influence the stock market. Additionally, it's important to conduct thorough research and analysis before making any investment decisions.

Q33- If you were to get a job here then which sector or industry would you select and why?

Suggested Answer: In general, the selection of a sector or industry to focus on would depend on an individual's interests, expertise, and career goals. Some factors that can be considered when selecting a sector or industry include:

Growth prospects: Some sectors and industries have higher growth prospects than others, which can provide opportunities for companies to increase their revenue and profits.

Competitive landscape: Some sectors and industries are more competitive than others, which can affect the profitability of companies operating in those sectors.

Regulatory environment: Some sectors and industries are more heavily regulated than others, which can affect the profitability of companies operating in those sectors.

Industry trends: Some sectors and industries are at the forefront of innovation and technology, which can provide opportunities for companies to develop new products and services.

Personal interest: It's important to choose an industry or sector that you have an interest in, as it will help you to stay motivated and engaged in the research process.

Ultimately, the choice of a sector or industry to focus on would depend on an individual's specific interests, expertise, and career goals. It's important to conduct thorough research and analysis of the sector or industry and the companies operating in that sector before making a decision.

Q34- How would you compare Consumer Durable firms ?

When comparing consumer durable firms, there are several factors that can be considered, including:

Financial performance: This includes factors such as revenue, profits, earnings per share (EPS) , return on equity (ROE) , and other financial metrics. Comparing these metrics across firms can provide insight into the financial performance of each firm.

Market share:  Market share is an important factor to consider when comparing firms in the consumer durable industry. Firms with a larger market share are likely to have more pricing power and be more stable than firms with a smaller market share.

Product and brand portfolio: Firms with a diversified product and brand portfolio are likely to be more stable than firms that rely on a single product or brand.

Distribution network: Distribution network is an important factor to consider when comparing firms in the consumer durable industry. Firms with a strong distribution network are likely to be able to reach more customers and generate more sales than firms with a weaker distribution network.

Competitive Landscape: Consumer durable firms compete with each other based on product quality, price, and services offered. Evaluating the strengths and weaknesses of the firms in terms of these factors can provide an insight into their competitiveness.

Management and leadership: The management team and leadership of a company can have a significant impact on the performance of the company. Compare the management teams and leadership of the firms to assess their experience, track record, and stability.

Valuation Metrics: Valuation metrics such as Price to Earnings ratio , Price to Sales ratio , Price to Book ratio , and enterprise value to EBITDA  can be used to compare the relative valuations of the firms.

It's important to note that these are just a few of the many factors that can be considered when comparing consumer durable firms, and that the choice of factors to consider will depend on the specific decision that needs to be made. Additionally, it's important to conduct thorough research and analysis before making any investment decisions.

Q35- Suppose you write a research report BUY recommendation for any IT stock for long term and you know 2 days later the stock price falls by 7%. What would be your recommendation?

Suggested Answer: If the stock price falls by 7% two days after I've made a BUY recommendation, I would consider the current market sentiment and analyze the potential risk factors that may have caused the stock to fall. I would also analyze the current market conditions and the outlook for the industry. If I still find potential for growth and the risks are manageable, I would likely maintain my recommendation. However, if the risks are significant and the outlook for the industry is poor, I would likely change my recommendation to HOLD or SELL.

Q36- How many companies are listed in BSE and NSE?

Suggested Answer: There were around 5,500 companies listed on the Bombay Stock Exchange (BSE) and around 1,800 companies listed on the National Stock Exchange (NSE) in India.

Q37- Tell me about the Analyst to Associate ratio?

Suggested Answer: The analyst to associate ratio refers to the ratio of junior-level analysts to more senior-level associates in an investment banking or financial services firm. In general, the ratio is used as an indicator of the firm's overall staffing levels and can provide insight into the firm's level of efficiency and productivity.

The ratio can vary widely depending on the firm and the specific area of the business. For example, in a research department, the ratio of analysts to associates may be higher than in an investment banking department, where the ratio may be lower. In general, a lower ratio indicates that the firm may be more focused on cost-cutting and efficiency, while a higher ratio may indicate that the firm is more focused on growth and expansion.

It's also worth noting that a lower ratio would generally imply a higher workload for each individual analyst and therefore a higher turnover rate.

Q38-Suppose you are concall in quarterly earnings and you have to ask a question to the CEO about the future earnings then what would you ask first?

Suggested Answer: What are the key drivers of the company's projected earnings growth for the next quarter and beyond? Are there any specific initiatives or plans in place that the company believes will drive increased revenue and profitability?

Q39-How do you rank buy-side clients?

Suggested Answer: Buy-side clients, such as mutual funds, hedge funds, and pension funds, can be ranked based on a variety of factors, including assets under management (AUM), performance, and trading activity. Here are a few examples of how buy-side clients might be ranked:

Assets under management (AUM): Clients with larger AUM tend to be more attractive to sell-side firms, as they may have more capital to invest and can generate more trading volume. Clients can be ranked by AUM, with the largest clients at the top of the list.

Performance: Clients that have a history of strong investment performance may be more attractive to sell-side firms, as they may be more likely to generate returns for their investors. Clients can be ranked by their past performance, with the best-performing clients at the top of the list.

Trading activity: Clients that trade more frequently can generate more revenue for sell-side firms. Clients can be ranked by the amount of trading activity they generate, with the most active clients at the top of the list.

Service needs: Clients that have specific service needs such as research, execution, or customization might be ranked higher based on the firm's capabilities to fulfill those needs.

It's worth noting that these are not the only ways to rank buy-side clients, and different firms may use different criteria based on their own priorities and business models. However, these examples can be a good starting point to evaluate and rank buy-side clients.

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What Segments Equity Markets?

We propose a new, valuation-based measure of world equity market segmentation. While we observe decreased levels of segmentation in many developing countries, the level of segmentation is still significant. In contrast to previous research, we characterize the factors that account for variation in market segmentation both through time as well as across countries. While a country's regulation with respect to foreign capital flows is important in determining its level of segmentation, we find that non-regulatory factors are also related to the cross-sectional and time-series variation in the level of segmentation. We identify a country's political risk profile and its stock market development as two additional local segmentation factors as well as the U.S. corporate credit spread as a global segmentation factor.

This paper has benefited from discussions with and comments from Peter Bossaerts, John Campbell, Ines Chaieb, Anusha Chari, Yu-Chin Chen, Josh Coval, John Driffill, Gunter Franke, John Heaton, Andrew Karolyi, Aline Muller, Ruy Ribeiro, Ed Rice, Mark Spiegel, Mehmet Deniz Yavuz, and participants at the 2007 American Economic Association Meetings, 2007 Washington University Asset Pricing Conference, New York University, Harvard University, Cass Business School, McGill University, Queen's University, Rutgers University, University of Kansas, University of Leuven, University of Michigan, University of Minnesota, University of North Carolina at Chapel Hill, 2007 University of Amsterdam Asset Pricing Retreat, 2007 Brazilian Finance Association Meeting, University of Washington, 2007 International Research Conference on Corporate Governance in Emerging Markets, 2007 European Finance Association Meetings, 2007 German Finance Association Meetings, the 2008 Darden Emerging Markets Conference, the 2008 Global Investment Conference, the 9th ECB-CFS Research Network Meeting, NBER's Universities Research Conference "Micro and Macroeconomic Effects of Financial Globalization", and the 2009 American Finance Association Meetings. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

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Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad & Stephan Siegel, 2011. " What Segments Equity Markets?, " Review of Financial Studies, vol 24(12), pages 3841-3890.

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• Research in Bull & Bear Markets

How Equity Research Is Changing

• Who Pays for Research?
• The Role of Fee-Based Research

The Bottom Line

The changing role of equity research.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

The role of equity research is to provide information to the market. A lack of information creates inefficiencies that result in stocks being misrepresented (whether over or undervalued). Analysts use their expertise and spend a lot of time analyzing a stock, its industry, and its peer group to provide earnings and valuation estimates. Research is valuable because it fills information gaps so that each individual investor does not need to analyze every stock. This division of labor makes the market more efficient.

The title of this article is perhaps a bit misleading, because the role of equity research really hasn't changed since the first U.S. stock trade occurred under the buttonwood tree on Manhattan Island. What has changed is the economic and trading environments (e.g. the character of bull and bear markets) that influence research.

Key Takeaways

• Equity research is a key piece of Wall Street analysis, used by investors large and small to make better-informed investment decisions in the stock market.
• Often research is funded by institutional investors on a fee-basis or using soft dollars.
• Depending on whether the market is in a bull or bear mode, equity research has begun to shift its lens of analysis and the types of reports issued.

Research in Bull and Bear Markets

In every bull market, some excesses become apparent only in the bear market that follows. Whether it is dotcoms or organic foods, each age has its mania that distorts the normal functioning of the market. In a rush to make money, rationality is the first casualty. Investors rush to jump on the bandwagon and the market over-allocates capital to the "hot" sector(s). This herd mentality is the reason why bull markets have funded so many "me-too" ideas throughout history.

Research is a function of the market and is influenced by these swings. In a bull market, investment bankers , the media and investors pressure analysts to focus on the hot sectors. Some analysts morph into promoters as they ride the market. Those analysts that remain, rational practitioners, are ignored, and their research reports go unread.

Seeking to blame someone for investment losses is a normal event in bear markets. It happened in the 1930s, 1970s, during the dot com crash and the financial crisis of 2008, too. Some of the criticisms are deserved, but generally, the need to provide information about companies has not changed.

To discuss the role of research in today's market , we need to differentiate between Wall Street research and other research. The major brokerages provide Wall Street research—typically sell-side firms—both on and off Wall Street. Other research is produced by independent research firms and small boutique brokerage firms.

This differentiation is important. First, Wall Street research has become focused on large-cap , very liquid stocks, and ignores the majority of publicly traded stocks. To remain profitable, Wall Street firms have focused on big-cap stocks to generate highly lucrative investment banking deals and trade profits, but also face the daunting task of cutting costs.

Those companies that are likely to provide the research firms with sizable investment banking deals are the stocks that are determined worthy of being followed by the market. The stock's long-term investment potential is often secondary.

Other research is filling the information gap created by Wall Street. Independent research firms and boutique brokerage firms are providing research on the stocks that have been orphaned by Wall Street. This means that independent research firms are becoming a primary source of information on the majority of stocks, but investors are reluctant to pay for research because they don't know what they are paying for until well after the purchase. Unfortunately, not all research is worth buying, as the information can be inaccurate and misleading.

These days there is a great deal of research that is provided for free to clients via email. Even at essentially zero cost to the investor, a large majority of the research goes unread.

Who Pays for Research? Big Investors Do!

The ironic thing is that while research has proven to be valuable, individual investors do not seem to want to pay for it. This may be because, under the traditional system, brokerage houses provided research to gain and keep clients. Investors just had to ask their brokers for a report and received it at no charge. What seems to have gone unnoticed is that the investor commissions paid for that research.

A good indicator of the value of research is the amount institutional investors are willing to pay for it. Institutional investors typically hire their own analysts to gain a competitive edge over other investors. Although spending on equity research analysts has significantly declined in recent years, institutions may also pay for the sell-side research they receive (either with dollars or by giving the supplying brokerage firm trades to execute).

European regulations that went into effect in 2018, known as  MiFID II , require asset managers to fund external research from their own profit and loss account (P&L) or through research payments that are tracked with clear audit trails. This will lead to billing clients for research and trading separately.

The Role of Fee-Based Research

Fee-based research increases market efficiency and bridges the gap between investors who want research (without paying) and companies who realize that Wall Street is not likely to provide research on their stock. This research provides information to the widest possible audience at no charge to the reader because the subject company has funded the research.

It is important to differentiate between objective fee-based research and research that is promotional. Objective fee-based research is similar to the role of your doctor. You pay a doctor not to tell you that you feel good, but to give you their professional and truthful opinion of your condition.

Legitimate fee-based research is a professional and objective analysis and opinion of a company's investment potential. Promotional research is short on analysis and full of hype. One example of this is the email reports and misleading social media posts about the penny stocks that will supposedly triple in a short time.

Legitimate fee-based research firms have the following characteristics:

• They provide analytical, not promotional services.
• They are paid a set annual fee in cash; they do not accept any form of equity, which may cause conflicts of interest .
• They provide full and clear disclosure of the relationship between the company and the research firm so investors can evaluate objectivity.

Companies that engage a legitimate fee-based research firm to analyze their stock are trying to get information to investors and improve market efficiency.

Such a company is making the following important statements:

• It believes its shares are undervalued because investors are not aware of the company.
• It is aware that Wall Street is no longer an option.
• It believes that its investment potential can withstand objective analysis.

The National Investor Relations Institute (NIRI) was probably the first group to recognize the need for fee-based research. In January 2020, NIRI issued a letter emphasizing the need for small-cap companies to find alternatives to Wall Street research to get their information to investors.

The reputation and credibility of a company and research firm depends on the efforts they make to inform investors. A company does not want to be tarnished by being associated with unreliable or misleading research. Similarly, a research firm will only want to analyze companies that have strong fundamentals and long-term investment potential. Fee-based research continues to provide a professional and objective analysis of a company's investment potential, although the market for its services remains challenged in the current business environment.

CFA Institute. " MiFID II Equity Research Costs Survey ."

National Investor Relations Institute (NIRI). " NIRI Proposes Guidance on Company-sponsored Research ."

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Three macroeconomic factors to watch in equity markets

May 14, 2019

Machine learning has helped make music playlist recommendations, facilitated self-driving cars and even interpreted patients’ medical test results. Not surprisingly, it also can detect macroeconomic factors underlying U.S. corporate equity returns.

Principal component analysis (PCA) is one of the primary tools in machine learning used to extract key patterns in large datasets. The tool finds the major distinct directions of variation—called components or factors—in a dataset and can be a great way to ascertain its general characteristics.

This method is particularly apparent in image compression. When you load a webpage and the images appear in steps of ever-increasing detail, it is normally because of PCA—the data are being sent one component at a time. When all of the components arrive, the image is perfectly reconstituted. Sending only a handful of the pieces may provide enough of the variation across the image’s pixels to make it recognizable; thus, to save data, a website may choose to send only a subset of the image’s components.

Our recent research applies PCA to the daily equity returns of 524 U.S. firms from 1990 to 2017 to understand the broad drivers at play, without including additional information beyond the co-movement of these equities’ returns. The analysis identifies three significant tendencies—or factors—that together explain just under 30 percent of the changes in the firms’ returns.

These three factors mirror the behavior of (in order of importance) economic growth, inflation and commodity prices. The factors may be viewed like the web image loading, each successively adding greater detail about the firms’ returns.

Factor 1: Economic growth

The first factor extracted from the equity returns relates to economic growth in the aggregate U.S. economy, with booms and busts corresponding to higher and lower average equity returns. This common variation is typically associated with Eugene F. Fama and Kenneth R. French’s work on portfolio theory and the role of risk in the broad stock market.

Specifically, the market risk factor —the overall market’s influence on an individual stock price and whether the share price is more or less volatile than the overall market—is known as its market beta. A beta equal to 1 indicates a stock is as volatile as the broad stock market, below 1 indicates less volatility than the market, and greater than 1 suggests more volatility than the market.

Chart 1 shows annual changes in the first factor (blue line) relative to year-over-year industrial production growth (red line). Similar to the findings of Fama and French , risky stock assets rely on economic expansion to generate strong returns, and compress when the global economy is weak.

Downloadable chart Chart data -->

The firms most heavily influenced by the first factor are predominantly from the technology, consumer cyclical and financial sectors. Those with the lowest weights are royalty trusts, consumer noncyclicals and utility firms. This finding makes intuitive sense, as the former are procyclical sectors, while the latter are generally considered passive, dividend generating, acyclical investment sectors.

Factor 2: Inflation

The second factor extracted from equity returns is highly correlated with different inflation measures, such as the Producer Price Index (PPI), the Consumer Price Index and breakeven inflation (expected future inflation calculated based on the yield of Treasury Index-Protected Securities). The factor is also positively related to the price level as measured by the value of the dollar against other currencies.

Chart 2 compares year-over-year changes in the second equity return factor (blue line) with PPI inflation (red line). Increases in producer prices are positively correlated with equity prices for firms in the energy, financial, basic materials and utilities sectors. However, technology stocks tend to decline with higher PPI inflation.

Factor 3: Commodities

Year-over-year changes in the third factor extracted from equity returns (blue line, Chart 3A ) closely align with annual changes in a commodity price index (red line). This relationship is particularly strong for petroleum-based commodities, such as Brent crude oil (red line, Chart 3B ).

Downloadable chart 3a Downloadable chart 3b

The economic rationale of the relationship follows from higher raw material and energy prices translating into higher production and transportation costs. Firms are not always able to directly pass increases in input costs on to consumers, narrowing profit margins. Conversely, higher commodity prices benefit certain companies, such as those in the energy and base materials sectors.

Much ‘idiosyncratic’ movement unexplained

The proportion of variance in equity returns accounted for by these three common factors increased from around 12 percent in the early 1990s to more than 35 percent in the mid-2010s. The variance share for the first factor, or market beta, in particular increased from 8.6 percent over the 1989–98 period to 31.2 percent in 2008–17, with the greatest increase occurring just after 2008.

These findings suggest a significant change in the importance of the broad market beta following the global financial crisis beginning in 2008, with potentially meaningful implications for understanding risk exposures. Greater individual firm equity exposure to common sources of risk—such as economic growth, inflation or commodity price movements—reduces the ability to diversify portfolios .

Around 2009, commodities went from the third- to the second-most-important common factor in subsample analyses—possibly due to a lower-inflation environment. At the same time, the economic growth and inflation tendencies became even more influential for firms within the financial sector, consistent with evidence on the centrality of U.S. financial firms in the global firm network.

While the top three equity return factors explain 27 percent of the common variation across firms in our full sample, more than 70 percent of equity return movements remain unexplained. This idiosyncratic or unexplained variation leaves plenty of scope for further analysis of other influences affecting publicly traded firms.

About the Authors

Everett Grant

Grant is a research economist in the Research Department at the Federal Reserve Bank of Dallas.

Julieta Yung

Yung is an assistant professor of economics at Bates College.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

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Equity Market Structure and the Persistence of Unsolved Problems: A Microstructure Perspective

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Research output : Contribution to journal › Article › peer-review

This article presents a brief historical perspective on the evolution of equity market structure and considers implications microstructure analysis has had for improving market structure. Since the 1975 Securities Acts Amendments mandated the development of a National Market System, the robust growth of institutional investing and the impact of striking technological change have been transformative. Yet, market impact costs and price discovery noise continue to accentuate short-period returns variance, and the article presents empirical evidence of how sizable that accentuation is. In dealing with this problem, the authors focus on the rules that govern how orders are integrated together and turned into trades and transaction prices.

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• Microstructure Business & Economics 100%
• Equity Markets Business & Economics 78%
• Persistence Business & Economics 75%
• Market Structure Business & Economics 74%
• Transaction Price Business & Economics 50%
• Market Impact Business & Economics 49%
• Price Discovery Business & Economics 46%
• Amendments Business & Economics 45%

T1 - Equity Market Structure and the Persistence of Unsolved Problems

T2 - A Microstructure Perspective

AU - Schwartz, Robert A.

AU - Ross, James

AU - Ozenbas, Deniz

N1 - Publisher Copyright: © 2022 Portfolio Management Research. All Rights Reserved.

PY - 2022/7

Y1 - 2022/7

N2 - This article presents a brief historical perspective on the evolution of equity market structure and considers implications microstructure analysis has had for improving market structure. Since the 1975 Securities Acts Amendments mandated the development of a National Market System, the robust growth of institutional investing and the impact of striking technological change have been transformative. Yet, market impact costs and price discovery noise continue to accentuate short-period returns variance, and the article presents empirical evidence of how sizable that accentuation is. In dealing with this problem, the authors focus on the rules that govern how orders are integrated together and turned into trades and transaction prices.

AB - This article presents a brief historical perspective on the evolution of equity market structure and considers implications microstructure analysis has had for improving market structure. Since the 1975 Securities Acts Amendments mandated the development of a National Market System, the robust growth of institutional investing and the impact of striking technological change have been transformative. Yet, market impact costs and price discovery noise continue to accentuate short-period returns variance, and the article presents empirical evidence of how sizable that accentuation is. In dealing with this problem, the authors focus on the rules that govern how orders are integrated together and turned into trades and transaction prices.

UR - http://www.scopus.com/inward/record.url?scp=85134762815&partnerID=8YFLogxK

U2 - 10.3905/jpm.2022.1.384

DO - 10.3905/jpm.2022.1.384

M3 - Article

AN - SCOPUS:85134762815

SN - 0095-4918

JO - Journal of Portfolio Management

JF - Journal of Portfolio Management

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The Value of Equity Research

Equity research is an invaluable asset for anyone looking to stay up-to-date on market and industry trends. In this guide, you will learn about the type of information contained in equity research, the value it offers to corporate professionals, and how the most advanced teams are already leveraging the expertise of Wall Street’s top analysts to inform critical business decisions.

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Introduction.

Equity research, which forms a multi-billion dollar industry for investment banks, is produced by thousands of analysts worldwide to provide the market with valuable information on companies, industries, and market trends. Today, over 90% of equity research is consumed by fund managers, who have the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For corporate strategy professionals who lack this access, however, equity research has historically been challenging to obtain and navigate.

To help corporations circumvent these challenges, AlphaSense has introduced Wall Street Insights, the first and only equity research collection purpose-built for the corporate user. Through the AlphaSense platform, any business making strategic plans or product decisions, conducting competitive analysis, evaluating M&A, or engaging in investor relations can now tap into the deep industry expertise of Wall Street’s top analysts.

What is Equity Research?

Equity research is developed by sell-side firms to help investors and hedge fund managers discover market opportunities and make informed investment decisions. Increasingly, this expert analysis has also been identified by forward-looking corporations as a highly valuable tool to inform strategic decision-making.

There are thousands of sell-side firms that employ expert analysts around the globe to write equity research for the market. The majority of firms producing equity research are hyper-focused and only have one or two analysts developing reports on a specific industry. However, larger firms, such as Morgan Stanley and Bank of America, collectively employ thousands of analysts to write reports on thousands of public companies–covering everything from TMT giants to niche products.

Equity research analysts are deep subject matter experts who are often former executives, industry veterans, or academics. These analysts conduct in-depth research and publish reports on corporations, industries, and macro trends, offering an expert lens into a subject.

Historically, over 90% of equity research was consumed by buy-side fund managers, who had the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For buy-side professionals, equity research is a critical tool to inform sound investment decisions backed by expert insights.

Today, equity research is increasingly relied upon by corporate teams as a high-value source of information. These teams leverage equity research to make strategic business plans, conduct competitive analysis, evaluate mergers and acquisitions, and make product and marketing decisions. For corporations, the value of equity research lies in the detailed coverage of their company, their competitors, and how they are performing related to the marketplace they are within.

What is an Equity Research Report?

An equity research report is a document prepared by an equity research analyst that often provides insight on whether investors should buy, hold, or sell shares of a public company. In an equity research report, an analyst lays out their recommendation, target price, investment thesis, valuation, and risks.

There are multiple forms of equity research, including (but not limited to):

An update report that highlights the latest news, company announcements, earnings reports, Buy Sell Hold ratings, M&A activity, anything that impacts the value of the company.

A comprehensive company report that is compiled when an analyst or firm initiates their coverage of a stock. Initiation reports cover all of the divisions and products of a company in-depth to provide a baseline of what the company is and how it is performing. Initiation reports can be tens to hundreds of pages long, depending on the complexity of a company.

General industry updates that cover a group of similar companies within a sector. Industry-specific reports typically dive into additional factors such as loan growth, interest rates, interest income, net income, and regulatory capital.

A report compiled by research firms either daily or weekly. These reports can often be a great place to get more in-depth insight on commodities and also get market opinions from commodity analysts or traders who write the reports.

A quick 1-2 page report that comments on a news release from a company or other quick information

What is Included in a Typical Equity Research Report?

Research reports don’t need to follow a specific formula. Analysts at different investment banks have some latitude in determining the look and feel of their reports. But more often than not, research reports follow a certain protocol of what investors expect them to look like.

A typical equity research report includes in-depth industry research, management analysis, financial histories, trends, forecasting, valuations, and recommendations for investors. Sometimes called broker research reports or investment research reports, equity research reports are designed to provide a comprehensive snapshot that investors or corporate leaders can leverage to make informed decisions.

Here’s a quick overview of what a standard equity research report covers:

This section covers events, such as quarterly results, guidance, and general company updates.

Upgrades/Downgrades are positive or negative changes in an analyst’s outlook of a particular stock valuation. These updates are usually triggered by qualitative and quantitative analysis that contributes to an increase or decrease in the financial valuation of that security.

Estimates are detailed projections of what a company will earn over the next several years. Valuations of those earnings estimates form price targets. The price target is based on assumptions about the asset’s future supply & demand and fundamentals.

Management Overview and Commentary helps potential investors understand the quality and makeup of a company’s management team. This section can also include a history of leadership within the company and their record with capital allocation, ESG, compensation, incentives, stock ownership. Plus, an overview of the company’s board of directors.

This section covers competitors, industry trends, and a company’s standing among its sector. Industry research includes everything from politics to economics, social trends, technological innovation, and more.

Historical Financial Results typically cover the history of a company’s stock, plus expectations based on the current market and events surrounding it. To determine if a company is at or above market expectations, Analysts must deeply understand the history of a specific industry and find patterns or trends to support their recommendations.

Based on the market analysis, historical financial results, etc., an analyst will run equity valuation models. In some cases, analysts will run more than one valuation model to determine the worth of company stock or asset.

Absolute valuation models : calculates a company’s or asset’s inherent value.

Relative equity valuation models : calculates a company’s or asset’s value relative to another company or asset. Relative valuations base their numbers on price/sales, price/earnings, price/cash flow.

An equity research analyst’s recommendation to buy, hold, or sell. The analyst also will have a target price that tells investors where they expect the stock to be in a year’s time.

What Does an Equity Research Analyst Do?

Equity research analysts exist on both the buy-side and the sell-side of the financial services market. Although these roles differ, both buy-side and sell-side analysts produce reports, projections, and recommendations for specific companies and stocks.

An equity research analyst specializes in a group of companies in a particular industry or country to develop high-level expertise and produce accurate projects and recommendations. Since ER analysts generally focus on a small set of stocks (5-20), they become specialists in those specific companies and industries that they evaluate or follow. These analysts monitor market data and news reports and speak to contacts within the companies/industries they study to update their research daily.

Analysts need to comprehend everything about their ‘coverage’ to give investment endorsements. Equity research analysts must be conversant with the business regulations and regime policies within the country to decide how it will affect the market environment and business in general. The more you understand the industries in detail, the easier it will be for you to decipher market dynamics.

One prevalent aspect of an equity research analyst’s job is building and maintaining valuable relationships with corporate leaders, clients, and peers. Equity research is largely about an analyst’s ability to service clients and provide insightful ideas that positively influence their investing strategy.

EQUITY RESEARCH ANALYSTS:

• Analyze stocks to help portfolio managers make better-informed investment decisions.
• Analyze a stock against market activity to predict a stock’s outlook.
• Develop investment models and provide trading strategies.
• Provide expertise on markets and industries based on their competitive analysis, business analysis, and market research.
• Use data to model and measure the financial risk associated with particular investment decisions.
• Understand the details of various markets to compare a company’s and sector’s stock

Buy-Side vs. Sell-Side Analysts

Although the roles of buy-side and sell-side analysts do overlap in some respects, the purpose of their research differs.

How Do Corporates Currently Access Equity Research?

If you were to Google “equity research reports,” you would not get access to equity research, earnings call transcripts or trade journals. You would, however, discover an unmanageable amount of noise to sift through.

Accessing equity research reports is highly dependent on relationships and entitlements, particularly for corporate teams. Unlike financial firms and investor relations teams, who can access equity research by procuring the right entitlements, corporate teams have a much harder time finding and purchasing high-quality equity research.

If you were to search online for equity research, for example, you would be presented with sub-par options such as:

Some websites allow you to search for research reports on companies or by firms. Some of the reports are free, but you must pay for most of them. Prices range from just $15 to thousands of dollars.

If you want just the bottom-line recommendations from analysts, many sites summarize the data. Nearly all the websites that provide stock quotes also compile analyst recommendations, however, you will only get the big picture and not any of the detailed analysis.

Some independent research providers sell their reports directly to investors. These reports typically include an overview of what a stock’s price could be, plus an analysis of the company’s earnings. These reports often cost less than $100 but can be more.

The majority of equity research is completely unsearchable, which is why AlphaSense’s Wall Street Insights is changing the game for corporations globally. Now, with WSI, corporations can leverage this high-quality research to augment their understanding of specific companies and industries; plus, AlphaSense’s corporate clients can now conduct more meaningful analysis and make more data-driven decisions.

Real-Time Research : Real-Time research is available to eligible users (based on an entitlement) immediately upon publication by the broker. Financial Services users with entitlements are the primary consumers of real-time research, while some Corporate professionals are also eligible. Payment for real-time research is made directly from clients to brokers through trading commissions or hard dollar agreements.

Aftermarket Research : Aftermarket research is a collection of many of the same documents as the real-time collection, but it is available after a zero to fifteen-day delay. Investment bankers, consultants, and corporate users are the primary consumers of Aftermarket research.

What is Wall Street Insights?

Wall Street Insights is the first and only equity research collection purpose-built for the corporate market, providing corporations unprecedented access to a deep pool of equity research reports from thousands of expert analysts.

Through partnerships with Morgan Stanley, Bank of America, Barclays, Bernstein, Bernstein Autonomous, Cowen, Deutsche Bank, Evercore ISI, HSBC, and others, corporate professionals can now access the world’s most revered equity research, indexed and searchable in the AlphaSense platform.

From macro market trends and industry analyses to company deep-dives, the Wall Street Insights content collection provides corporate professionals with a 360-degree view of every market. With the valuable expertise of thousands of analysts on your side, corporate teams can quickly compare insights, validate internal assumptions, and generate new ideas to guide critical business decisions and strategies.

In terms of search and accessibility, Wall Street Insights is the first of its kind. Not only does AlphaSense offer hard-to-find equity research reports, but we also provide a robust and seamless search experience.

What Research Do You Get Access to with WSI?

Get access to the world’s leading equity research with Wall Street Insights. Download the e-book to learn more about equity research from Morgan Stanley, Barclays, Bernstein, Deutsche Bank, and more.

“We are delighted to partner with AlphaSense to expand access to Morgan Stanley’s global research platform,” says Simon Bound, Global Head of Research at Morgan Stanley. We have over 600 publishing analysts covering companies, industries, commodities, and macroeconomic developments across more than 50 countries. Morgan Stanley will bring corporates a unique perspective from our best in class analysts, a global platform, and a collaborative culture that enables us to unravel the most complex market and industry trends.”

How Can Companies Leverage Equity Research?

Discover how the world’s most innovative companies leverage Wall Street Insights to make critical business decisions every day. Download the e-book to read real case studies from a Corporate Development team and a Corporate Strategy team.

“AlphaSense’s corporate users are typically Corporate Strategy, Corporate Development, and Investor Relations professionals. Today, thousands of enterprises rely on equity research to power data-driven decision making. These teams leverage equity research reports to:”

• Create investment ideas
• Monitor peers in real-time (and discover what equity research is being produced about them)
• Model and evaluate companies (for M&A or general benchmarking)
• Dive deep into customers, partners, and prospects
• Get up-to-speed quickly on specific industry trends
• Prepare for earnings season

Ready to explore the world’s leading equity research

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Reinventing equity research as a profit-making business

The traditional business of providing equity research to asset managers has been under pressure in recent years, as managers, challenged to deliver alpha to their clients, seek new forms of research and asset owners turn increasingly to passive strategies. Now, new regulation—specifically, the advent of MiFID II in Europe in 2018—is about to escalate these pressures.

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The result will be an increase in both the magnitude and the pace of change in equity research, reducing the scale of the research business and reshaping its economics. Nonetheless, equity research still offers an attractive business opportunity for banks and broker-dealers that can adapt to deliver the types of research the buy side values and also successfully transform their operating models.

The trigger for accelerated change in the equity research business is the January 2018 go-live of European MiFID II regulations, which call for the explicit unbundling of charges for execution services and investment research by banks and broker-dealers. While the new MiFID regulations may strictly apply only to European asset managers, the impact is likely to be broader, as asset managers extend the MiFID II model of separate payments beyond Europe to their global operations. The result could be a sharp decline in the demand for equity research: the consensus view of banks we surveyed calls for an industry-wide drop in equity-research revenues of 30 percent or more over the next three years, although other scenarios could well play out (exhibit).

For the first time, bank and broker-dealer equity research will operate as a free-standing profit center, forcing a transformation of the business. The buy side will pay broker-dealers for actionable research that adds investment value, but the demand will fall far short of the mountains of research that banks currently supply “for free.” For asset managers, as research becomes an itemized cost, profits could be sharply reduced—by as much as 15 to 20 percent for firms in Europe. The resulting change to research operations could be enormous.

To succeed in this transformed environment and meet asset managers’ more exacting standards, banks and broker-dealers will need to focus on the changing nature of the types of research the buy side finds useful and overhaul their offerings. Long-only active managers and hedge funds focused on equities are demanding less in the way of traditional products (that is, single-stock research reports) and more in services, such as access to analysts and corporate management. Moreover, investors are seeking new forms of information and analytics, through big data and artificial intelligence (AI), which can complement conventional fundamental research in portfolio decision making.

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Beyond producing quality, differentiated research, banks will also need to adopt new operating models for their equity research businesses. This calls for focusing on four strategic priorities:

• Establishing a research footprint that capitalizes on strengths of coverage in sectors and regions, and extending reach through joint ventures.
• Understanding the scarcity and perishability of ideas, and what value clients place on research in different forms—reports, analyst and corporate-management access, conferences, and other forms of information and analytics.
• Translating client preferences and demands into informed pricing structures. Explicit prices must be assigned to research, whether item-by-item for individual products and services or through packages or broad subscriptions.
• Adopting new technologies to generate novel investment ideas and lower costs. The sell side can leverage AI to interpret high-frequency market data in real time, patterns in both supply and demand chains, and social media. They can reduce costs by automating basic financial analysis and maintenance research. For client coverage, analytical tools can discern clients’ preferred means of research delivery and service.

Analytics in banking: Time to realize the value

Five business models may evolve for the provision of equity research and execution services in the future:

• A few global banks will lead the industry with both global execution services and high-quality, broad-based research coverage.
• Another cadre of two to three firms, likely market makers that are not banks, will be global leaders in execution but offer no research or only a limited, specialized array.
• A second group of universal banks will attempt to maintain their current broad research efforts, combined with global execution at a smaller scale than the leaders. In view of dwindling research revenues and the competition for low-cost execution, however, this model is not likely sustainable, although some firms could make up the shortfall in client revenue internally from banking and wealth-management units. Accordingly, many firms currently large in both research and execution will have to make significant cuts in one direction or the other.
• The majority of banks will rationalize their research and execution capabilities by focusing on their “home-field advantage” in local sectors and regional markets. Demand from local and global clients will likely support one to three such banks per region.
• Independent research firms offering little or no execution should see significant growth in the new landscape, as they reverse the past trend among many research boutiques of offering execution as a means for the buy side to pay for research.

These strategic shifts are likely to take time, however, given several barriers to exit. Research is an entrenched part of capital-markets operations and provides value to banks’ investment-banking, wealth-management, and equities units, as well the intangible benefits of burnishing the corporate brand. Some firms will want to keep a hand in research as an option to scaling back up. Evolution will come fastest to European banks, followed quickly by the United States, while the Asian market may be slower to change.

Daniele Chiarella  and Matthieu Lemerle  are senior partners in McKinsey’s London office . Jonathan Klein is a partner in the New York office , where Roger Rudisuli  is a senior partner.

The authors wish to thank Ben Margolis, Jeff Penney, and Gabriela Skouloudi for their contributions to this article.

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Release: Trends in Mutual Fund Investing

Trends in mutual fund investing march 2024.

Washington, DC; April 29, 2024 —The combined assets of the nation’s mutual funds increased by $432.10 billion, or 1.6 percent, to $26.81 trillion in March, according to the Investment Company Institute’s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.

Total Net Assets of Mutual Funds* Billions of dollars

* Data for exchange-traded funds and funds that invest primarily in other mutual funds were excluded from the series.

Note: Components may not add to the total because of rounding.

Net New Cash Flow of Mutual Funds* Millions of dollars

Highlights: Long-term funds—equity, hybrid, and bond funds—had a net outflow of $25.67 billion in March, versus an outflow of $3.22 billion in February.

Equity funds posted an outflow of $43.99 billion in March, compared with an outflow of $31.92 billion in February. Among equity funds, world equity funds (U.S. funds that invest primarily overseas) posted an outflow of $12.01 billion in March, versus an outflow of $2.62 billion in February. Funds that invest primarily in the United States had an outflow of $31.99 billion in March, versus an outflow of $29.30 billion in February. The liquidity ratio of equity funds (the percentage of liquid assets over total net assets) was 1.8 percent in March, unchanged from February.

Hybrid funds posted an outflow of $8.31 billion in March, compared with an outflow of $8.84 billion in February.

Bond funds had an inflow of $26.63 billion in March, compared with an inflow of $37.53 billion in February. Taxable bond funds had an inflow of $24.12 billion in March, versus an inflow of $34.61 billion in February. Municipal bond funds had an inflow of $2.51 billion in March, compared with an inflow of $2.92 billion in February.

Money market funds had an outflow of $89.33 billion in March, compared with an inflow of $38.16 billion in February. In March funds offered primarily to institutions had an outflow of $114.10 billion and funds offered primarily to individuals had an inflow of $24.77 billion.

Number of Mutual Funds

About ICI’s Data

Data for prior dates reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. For more information about ICI data and classifications, please visit our FAQs .

If you have any questions or would like to request additional comments on this or data on another topic, please contact a member of ICI’s Media Relations team at 202-371-5413 or [email protected] .”

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• Published: 30 April 2024

Developing more useful equity measurements for flood-risk management

• Adam B. Pollack   ORCID: orcid.org/0000-0001-6642-0591 1 ,
• Casey Helgeson   ORCID: orcid.org/0000-0001-5333-9954 2 , 3 ,
• Carolyn Kousky 4 &
• Klaus Keller   ORCID: orcid.org/0000-0002-5451-8687 1  

Nature Sustainability ( 2024 ) Cite this article

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• Climate-change policy
• Natural hazards

Decision-makers increasingly invoke equity to motivate, design, implement and evaluate strategies for managing flood risks. Unfortunately, there is little guidance on how analysts can develop measurements that support these tasks. Here we analyse how equity can be defined and measured by surveying 167 peer-reviewed publications that explicitly state an interest in equity in the context of flood-risk management. Our main result is a taxonomy that systematizes how equity has been, and can be, defined and measured in flood-risk research. The taxonomy embodies how equity is a pluralistic and unavoidably ethical concept. Despite this, we find that most quantitative studies fail to motivate or defend critical value judgements on which their findings depend. We also find that studies often include only a single equity measurement. This practice can overlook important trade-offs between competing perspectives on equity. For example, the few studies that employ distinct principles show that conclusions about equity depend on which principle underlies a specific measurement and how that principle is operationalized. We draw on our analysis to suggest practices for developing more useful equity indicators and performing more comprehensive quantitative equity assessments in the broader context of environmental risks.

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Data availability.

All data and materials used in the analysis are freely and permanently available via Zenodo 115 . This analysis was tested and confirmed for reproducibility by S. Baboolal on 11 July 2023. If you have any issues reproducing the results, please contact the corresponding author on the GitHub repository.

Code availability

All code used in the analysis are freely and permanently available via Zenodo 115 . This analysis was tested and confirmed for reproducibility by S. Baboolal on 11 July 2023. If you have any issues reproducing the results, please contact the corresponding author on the GitHub repository.

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Acknowledgements

We thank D. Spiegelman for an annotated bibliography of several key references; C. Bacon, M. Budolfson, C. Cooper, J. Doss-Gollin, A. Giang, B. Kopp, J. Kwakkel, C. Little, R. Nicholas, C. Nolte, Y. Romitti, V. Srikrishnan and N. Tuana for reading an earlier version of the manuscript and offering helpful feedback; A. Alipour, S. Baboolal, P. Hegde, X. Huang, M. May, S. Roth, S. Sreenivasan, N. Tebyanian and H. Ye for conversations and support. We also thank S. Baboolal for confirming code reproducibility and S. Wishbone for invaluable inputs. All authors acknowledge funding from the Megalopolitan Coastal Transformation Hub (MACH) under NSF award ICER-2103754. A.B.P. and K.K. acknowledge funding from Dartmouth College.

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A.B.P., C.H., C.K. and K.K. conceptualized the project, developed the methodology, and reviewed and edited the manuscript. A.B.P. conducted investigations, performed formal analysis and administered the project. A.B.P. and C.H. performed visualization. C.K. and K.K. acquired funding and supervised the project. A.B.P. wrote the original draft of the manuscript.

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Pollack, A.B., Helgeson, C., Kousky, C. et al. Developing more useful equity measurements for flood-risk management. Nat Sustain (2024). https://doi.org/10.1038/s41893-024-01345-3

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Received : 15 September 2023

Accepted : 10 April 2024

Published : 30 April 2024

DOI : https://doi.org/10.1038/s41893-024-01345-3

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