Investment Analysts Journal - Volume 44, Issue 1, 2015
Volumes & issues
Volume 44, Issue 1, 2015
Source: Investment Analysts Journal 44, pp 1 –19 (2015) http://dx.doi.org/10.1080/10293523.2014.994437More Less
This paper compares out-of-sample, ex-ante risk and returns of arbitrage pricing theory (APT) risk-factor based, zero-cost portfolios with characteristic-based, zero-cost portfolios. In particular the Haugen and Baker characteristic-based model framework is used in a comparison with the capital asset pricing model (CAPM) (Haugen, R. A., & Baker, L. N. (1996). Commonality in the determinants of expected stocks returns. Journal of Financial Economics, 41, 401-439), and three-factor Fama and French APT model portfolios to analyse returns of stocks listed on the Johannesburg Stock Exchange (Fama, E., & French, K. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33, 3-56). The finding that cross-sectional characteristic-based models have yielded portfolios with higher excess monthly returns but lower risk than their arbitrage pricing theory counterparts is discussed. Under the assumption of general no arbitrage conditions, it is argued that evidence in favour of characteristic-based pricing provides insight into the non-linear nature in which information is assimilated into pricing kernels for the market considered.
Source: Investment Analysts Journal 44, pp 20 –42 (2015) http://dx.doi.org/10.1080/10293523.2015.994442More Less
This study examines how the US subprime mortgage crisis affects the behaviour of the Korean stock and futures market and how the futures traders react to the shocks related to the crisis. Analysing a unique and high-quality daily data set on the ABX subprime index of the United States, Korea's implied volatility index (VKOSPI), and the KOSPI200 index and futures, we find a significant linkage and contagion effect between the US subprime market and the Korean market during the crisis period. However, the explanatory power of the ABX index return dissipates during the period of the recovery (after 2010). Our analysis, based on unique information about the types of futures traders, indicates that foreign investors are quite sensitive to the subprime shocks, whereas domestic investors are not. Furthermore, the empirical findings indicate that domestic individual investors invest their money in the opposite direction of the ABX index's movement during the subprime crisis period.
Author I-Chun TsaiSource: Investment Analysts Journal 44, pp 43 –56 (2015) http://dx.doi.org/10.1080/10293523.2015.994443More Less
The paper uses open interest as the proxy variable of market depth to estimate its effects on volatility, return, volume and deviations of contract prices from the fundamental level. It adopts open interest from three types of investors, namely, dealers, trusts and foreign investors, to analyse the information content of trading demand from these investors. The results show that the trading activity of foreign investors influences the succeeding deviations of futures prices and that the open interest of dealers contains more information, which reveals information of volatility and trading volume and influences the open interest of trusts, thus affecting the open interest of foreign investors.
Source: Investment Analysts Journal 44, pp 57 –70 (2015) http://dx.doi.org/10.1080/10293523.2015.994445More Less
This study examines the relationship between returns and contemporaneous and lagged-order imbalances by regression analysis. Conditional on contemporaneous imbalances, a significantly negative relationship is found between lagged-one imbalances and returns, except for a 10-minute time interval. This suggests that seasoned equity offering (SEO) markets converge to efficiency within 10 minutes. In addition, a GARCH model is used to examine the dynamic relationship between volatility and order imbalances. The empirical results demonstrate that market-makers effectively mitigate volatility in SEO announcements, demonstrating a price stabilisation capability in secondary market-making.
Source: Investment Analysts Journal 44, pp 71 –83 (2015) http://dx.doi.org/10.1080/10293523.2015.994448More Less
This paper investigates empirically the effects of the market factor on the degree of portfolio diversification extracted from Markowitz's mean-variance (MV) model to explore an alternative method for improving the practical usefulness of the model. It controls for various properties included in a correlation matrix of stocks in a portfolio. According to the results based on correlation matrices with and without the property of the market factor, the strength of the market factor has a negative effect on the degree of portfolio diversification in the MV model. This finding is stronger for periods of market crashes. These results suggest that the method for controlling for properties included in the correlation matrix might be a possible solution for enhancing the usefulness of the MV model from a practical perspective.
Source: Investment Analysts Journal 44, pp 84 –101 (2015) http://dx.doi.org/10.1080/10293523.2015.994450More Less
A company's entry into (or exit from) a major share index provides a special opportunity to examine price discovery. In an efficient market, we expect the demand curve to remain horizontal and to be unaffected by external events that do not communicate new information to the public, even if demand is affected. However, there is evidence that changes to index composition do impact the value of affected shares. This may be due to the price pressure generated by passively managed investment funds that simultaneously reconstitute their portfolios in order to remain aligned to the index they are tracking. This study investigates downward sloping demand curves, price pressure and other hypotheses which are related to changes in index composition on the Johannesburg Stock Exchange (JSE). We calculate abnormal returns using a control portfolio model for shares entering/exiting four major FTSE/JSE indices between 2002 and 2011. In the pre-event window, a long-term increasing trend was observed in the share prices of companies that are added to market cap weighted indices, beginning 70 trading days before the effective date. The opposite behaviour was true for index deletions, with some variation in the timing. In the post-event window the results show, to some extent, an asymmetric response to share returns; shares entering the index underperform thereafter, whereas those leaving the index outperform. Although these findings were not significant for all of the indices examined, they do support the Price Pressure Hypothesis of Harris and Gurel.
Source: Investment Analysts Journal 44, pp 102 –116 (2015) http://dx.doi.org/10.1080/10293523.2015.994453More Less
This study establishes a multitier framework to evaluate how fund manager characteristics systematically affect mutual fund performance. The framework includes three tiers of performance elements: comprehensive performance; return and risk; and timing skill and picking ability. Using performance decomposition, our evidence indicates that various characteristics take distinct channels to influence return, risk and fund manager abilities, which in turn affect comprehensive performance. In particular, having a degree of Master of Business Administration or a Chartered Financial Analyst qualification is significantly associated with a fund manager's better stock-picking ability, higher excess returns and better comprehensive performance.