MICERs chase volatility instead of cheese

MICERs are on the prowl again. And by following them an investor, with a good aim and on her or his lucky day, might even find out some interesting information about undervalued (overvalued) stocks to add (subtract) to his portfolio and reap a refreshing excess return. An update on S&P 500 implied returns (MICERs) after a hard week (for your ‘favorite’ market correspondent) doesn’t show any particular change in market expectations though one can notice – in the charts below – some minor variations across sectors (compare with previous story about MICERs).

MICERs have come down since the beginning of March (March 4, 2014), signalling stock market implies lower risk premia across the spectrum of stocks in the bellwether US index.

As opposed to conventional wisdom market participants like to ‘buy’ when expected returns (i.e. MICERs in the present case and for our current evaluation model) are low and ‘sell’ when they are high. Hopefully, when rational behavior is to offset emotional reaction, one can expect MICERs to shed some light on well researched cognitive biases: as smart as can be next time I feel like following my gut feeling, I should tell myself to follow the MICERs instead.