Investment Analysts Journal - Volume 2014, Issue 79, 2014
Volumes & issues
Volume 2014, Issue 79, 2014
Investment Analysts Society Award for the best article published annually in the Investment Analysts JournalSource: Investment Analysts Journal 2014 (2014)More Less
Author R. SteinSource: Investment Analysts Journal 2014, pp 1 –16 (2014)More Less
The biggest challenge in testing mutual funds for manager skill is the lack of a probability distribution of returns under the null hypothesis of no skill. A methodology based on randomly trading portfolios and non parametric statistical tests is explored, and a test of skill is proposed. Empirical tests performed on a sample of US equity mutual funds find evidence of skill in a reduced number of managers, but that the value added by this skill is charged away from the investors in the form of fund fees and expenses. Overall, random portfolio based measures are found to be more powerful and easier to interpret than tests based on traditional and bootstrapped factor model alphas.
Author N.L. SamouilhanSource: Investment Analysts Journal 2014, pp 17 –28 (2014)More Less
This paper examines the behaviour of active managers during periods of changing market opportunities, defined in terms of a market's cross-correlation and cross-sectional volatility structure. Examining active managers of UK, European and US equities over twenty years, the paper finds that both of these aspects of active management are at least partly determined by the available opportunity set. Overall, top quartile managers do much better, and bottom quartile managers much worse, when the opportunities are higher, and vice-versa when they are lower. Tracking errors are less responsive to opportunities than are active returns, leading to improvements in the information ratios as the opportunity set expands.
Source: Investment Analysts Journal 2014, pp 29 –40 (2014)More Less
We investigate whether changes in the implied volatility index (VKOSPI) of the Korean market have predictive power for daily market returns. We find that future returns on large stocks are higher than those on small stocks on days that follow an increase in the VKOSPI. Additionally, we find that future returns on growth stocks are larger than those on value stocks on days following an increase in the VKOSPI. We also provide empirical evidence that a potential trading rule based on changes in the VKOSPI might be profitable. Our findings indicate that the VKOSPI can be used in predicting the performance of large/small and value/growth stocks in practice.
Source: Investment Analysts Journal 2014, pp 41 –50 (2014)More Less
IPOs underperform on average. Nevertheless, the skewed distribution of returns offers the chance to gain extremely high rewards (e.g., identifying the "next Microsoft", as discussed by Loughran and Ritter, 1995). Hinging on this argument, this paper proposes a new method to help investors screen IPOs for the high-performing tail of the returns distribution. Using a straightforward definition of "winner IPOs" based on buy-and-hold abnormal returns, this study employs logistic regression to forecast whether a firm is still a top performer 1, 2 or 3 years after listing, relying only on publicly available information. Investors using our forecasting model would always have an adjusted rate of successful predictions higher compared to a naïvely classification that consider all IPOs as "winners".
The effect of the accrual component of earnings volatility on security analysts' target price forecast performanceAuthor Joong-Seok ChoSource: Investment Analysts Journal 2014, pp 51 –56 (2014)More Less
Using a sample of U.S. security analysts' target price forecasts issued over the period 2000-2010, we examine the relation between the accrual component of earnings volatility and security analysts' target price forecast performance. Our study shows that when earnings are smoother or more volatile than cash flows, analysts' target price forecasts are less accurate and have lower possibilities of being met or beaten at some time during or at the end of the forecast horizon. These results are consistent with the fact that the accrual component of earnings volatility has a significant negative impact on analysts' target price performance and suggest that the analysts fail to correctly incorporate the implications of this information into their target price forecasts.
Author D.R. TaylorSource: Investment Analysts Journal 2014, pp 57 –66 (2014)More Less
The process of producing an implied volatility surface in the absence of reliable and frequent trade data is difficult. Bakshi, Kapadia and Madan (2003) detail a methodology for relating an index option smile structure with that of one of its constituents. Here we exploit this work to derive the single-stock option smile as a function of the index smile and a regressed relationship between the two underlying assets. Our non-parametric approach allows the market to estimate where implied volatilities should trade for illiquid derivative contracts away from at-the-money. The derived smile does not admit spread arbitrage.
Source: Investment Analysts Journal 2014, pp 67 –78 (2014)More Less
This study is the first to document the existence of a lunar cycle effect in the REIT market. This effect is observed only when REITs became more difficult to value following the structural break in the early 1990s. The pattern indicates that the valuation uncertainty explanation of Dichev and Janes (2003) dominates the investor constituent explanation of Yuan, Zheng and Zhu (2006) in terms of the observed REIT lunar effect. This study also serves as the first calendar seasonality evidence that supports the recent hypothesis within behavioural finance that behavioural biases are stronger when assets are more difficult to value (Daniel, Hirshleifer and Subrahmanyam, 1998; Daniel, Hirshleifer and Subrahmanyam, 2001).