UC Davis Graduate School of Management Prof Offers Tips to Retail Investors
Anna Scherbina, Associate Professor of Management at University of California Davis Graduate School of Management recently published an article on how small investors can benefit from breaking news on companies.
Using the example of recent negative news on McDonald’s, Scherbina described how a string of the retail giant’s chain stores in Russia was recently shut down as a result of health and safety code violations.
Many viewed the act as an effort by the Russian government, which was responsible for the closings, to retaliate against sanctions by the US and other Western countries following Russia’s backing of Ukrainian rebels and its invasion of Crimea. McDonald’s profits greatly from the Russian market, so the closings and subsequent increase in strict regulations had a large impact on the company’s bottom line. According to Scherbina, McDonald’s shares have “flatlined” since the Russian investigation. She writes, “The pain apparently wasn’t felt exclusively by the burger chain. Other companies that earn sizable revenues in the Russian market have also suffered. Shares of Ford, which sells a large number of vehicles to Russians, have lost 5.9% in the period. ExxonMobil, which is deeply invested in several Russian oil fields, has dropped 10%. Shares of US banks Citigroup and JP Morgan Chase, both with significant exposure to Russian assets, have barely budged.”
Scherbina and her co-authors describe companies such as McDonald’s, whose negative news affected the price of its stock as “leaders” while those that have subsequent drops in share price (such as Ford and ExxonMobil in the above example) as “followers.”
She advises retail investors as follows: “The best way to earn a profit from trading on news is to trade the stocks of the firm’s followers.”
About the Author
Maggie Boccella
Maggie Boccella, a lifelong resident of Philadelphia, is a freelance writer, artist and photographer. She has consulted on various film and multimedia projects, and she also serves as a juror for the city's annual LGBTQIA Film Festival.
