I've heard the term window dressing, how is this done? What is the purpose of window dressing? What is done to make window dressing happen? Is it stock price manipulation which is window dressing? How can one determine window dressing is occuring? Is it just mutual funds playing this game for their own benifits or who else? When does window dressing most frequently happen? Are there downsides later from window dressing? If you can shed light on this subject which is rarely discussed, thx.
Window dressing is when funds pile into some of the more popular winning stocks just prior to the quarter ending so the investors will think they are smart.
I asked chatGPT and this is his answer: In trading, "window dressing" refers to the practice of making a portfolio or financial statement appear more attractive than it actually is, usually at the end of a reporting period. This is done by buying or selling assets in order to improve the appearance of the portfolio's performance, liquidity, or risk profile. For example, a fund manager might sell poorly-performing assets and buy high-performing ones, or they might make trades that temporarily reduce the portfolio's risk exposure. The purpose of window dressing is to make the portfolio look better to investors, potentially attracting more investments and improving the fund manager's reputation. However, it can also be seen as misleading or deceptive, as it doesn't accurately reflect the true state of the portfolio.
Window dressing therefore has nothing to do then with making the market indexs/sectors look more attractive, (bullish or bearish)? Correct? It's purely individual funds window dressing their own books? Correct?
%% Exactly; its not really possible to window dress 500 stocks in SPY 500. In accounting its also used for deception, recording expenses , in the next period to reduce appearance of liabilities. Buyers of DIA/DOW looks a lot like window dressing, past 3 days\ but really some are just buying what they consider ''value'' LOL= free country buying an dividend underperformer , end of quarter
This is common. They will buy stocks that are performing well and dump losers. However, they will keep losers that they think will bounce back. Example, xyz stock had a bad quarter but the hedge fund thinks its a temporary blip. Another example, poor performing sectors like oil will get dumped and repositioned later. A great example of buying would be the semi’s.