The long-run performance of initial public offerings: Stochastic dominance criteria

We examine the long-run performance of initial public offerings (IPOs) using the idea of stochastic dominance. The analysis is a first attempt using a non-event study methodology to evaluate long-horizon performance. We find that there is no first-order stochastic dominance relation between the IPO portfolio and the benchmark of a broad index or a portfolio including either small size or low book-to-market stocks. However, those benchmarks second-order stochastically dominate the IPO portfolio. When using a portfolio including both small size and low book-to-market stocks as benchmark, there is a clear dominance of the IPO portfolio over the benchmark for both orders. Our findings generally imply that the question of assessing portfolio performance between IPO firms and benchmark portfolios depends critically on the specific construction or the cumulative distribution function of the benchmark portfolios. The empirical results also potentially explain the extent of sample dependent results in the literature.     

Cross-Country Listing and Trading Volume: Evidence from the Toronto and Vancouver Stock Exchanges

This study investigates the effects of listing on the U.S. exchanges on trading volume for stocks listed on the two Canadian stock exchanges: the Toronto Stock Exchange (TSE) and the Vancouver Stock Exchange (VSE). The results show substantial differences between the two samples. When a TSE security is cross-listed, both trading volume and stock turnover, the number of shares traded as a percentage of number outstanding, almost double their pre-listing levels. In contrast, when a VSE stock is cross-listed, there is only a slight increase in trading volume and a sharp decline in turnover. The TSE is also able to maintain its pre-listing levels of trading volume in cross-listed securities, whereas the VSE loses about half the trading volume in these stocks to the U.S. exchanges. Even after controlling for the firm-specific factors, the Canadian exchange-specific factors remain the dominant factors in explaining the cross-sectional variation in liquidity effects. Neither the differences in trading costs nor in listing and disclosure requirements between the two exchanges explain these results.     

Stock prices and the location of trade: Evidence from China-backed ADRs

This study examines whether the trading location affects equity returns of China-backed American Depository Receipts (ADRs) traded in the US. If International Financial Markets are integrated, stock prices should be affected only by their fundamentals; otherwise, stock prices may also be affected by their trading locations/investor sentiment. We find that China ADRs’ returns are affected more by the US market fluctuations than by Chinese market returns. We interpret the results as suggesting that International Financial Markets are at least partially segmented and country-specific investor sentiment affects stock prices.     

Positional momentum and liquidity management; a bivariate rank approach

This paper introduces a new positional momentum management strategy based on the expected future ranks of asset returns and trade volume changes predicted by a bivariate Vector Autoregressive (VAR) model. The new method is applied to a dataset of 1330 stocks traded on the NASDAQ between 2008 and 2016. It is shown that return ranks are correlated with their own past values and the current and past ranks of trade volume changes. This results leads to a new expected positional momentum strategy providing portfolios of predicted winners, conditional on past ranks of returns and volume changes. This approach further extends to positional liquidity management. The expected liquid positional strategy selects portfolios of stocks with the strongest realized or predicted increase in trading volume. These new positional management strategies outperform the standard momentum strategies and the equally weighted portfolio in terms of average returns and Sharpe ratio.     

Cross-sectional tests of asset pricing models with full-rank mimicking portfolios

In the standard tests of asset pricing models, factor risk premia are estimated on a test asset span so that models are tested with degrees of freedom reduced by the number of factors. Risk premia of traded factors can be further restricted to be equal to their expected returns, but such restrictions cannot be imposed on models with nontraded factors, which may create a problem of testing without full restrictions or on unequal asset spans across models. We propose a full-rank mimicking portfolio approach by projecting nontraded factors onto a combined span of test assets and benchmark traded factors. Under the Hansen-Jagannathan distance framework, we demonstrate that full-rank mimicking portfolios can provide improved power and fair performance comparison against a benchmark model in both specification and model comparison tests.     

A Conditional Single Index model with Local Covariates for detecting and evaluating active portfolio management

The intercept of standard Single Index and Conditional Single Index models, the so-called alpha, is often used to evaluate the long-run performance of managed portfolios. However, this measure is not always appropriate for detecting the presence and impact of active management strategies. Based on the conditional factor models literature, we introduce a Conditional Single Index model where the time-varying alpha and beta parameters depend only on the past history of the underlying portfolio returns and of the benchmark returns. The dynamics of the parameters have two components: the first describes the long-term behaviour of the alpha and beta, whereas the second is associated with the short-term performance of the underlying portfolio. The interpretation of parameters allows the identification of portfolio managers who implement active management strategies. An application on a set of 1300 U.S. mutual funds shows how widespread active management is on the U.S. market.     

How can investors build a better portfolio in small open economies? Evidence from Asia’s Four Little Dragons

This study investigates the role of hedging and portfolio design among stocks, exchange rates, and gold in small open economies (SOEs) from 4 January 2000 to 31 March 2020. We adopt the trivariate dynamic conditional correlation-fractionally integrated asymmetric power ARCH model and unconditional quantile regression model, and our findings show that the hedging role of the U.S. dollar (USD) and gold against stocks differs under regular and extreme market conditions. The USD can act as a powerful hedge asset for stocks in regular market periods. Moreover, during the global financial crisis and COVID-19 outbreak, the safe-haven effect of gold becomes stronger for almost all stocks, whereas the USD can serve as a strong safe haven against stock markets of Korea, Taiwan, and Singapore when stock returns are extremely low. In terms of portfolio designing, we find that adding the USD and gold to portfolios improves their hedging effectiveness, and the optimally weighted stock-USD-gold portfolio is the best portfolio strategy, irrespective of referring to return or risk.     

Assessing and valuing the nonlinear structure of hedge fund returns

Several studies have put forward that hedge fund returns exhibit a nonlinear relationship with equity market returns, captured either through constructed portfolios of traded options or piece‐wise linear regressions. This paper provides a statistical methodology to unveil such nonlinear features with respect to returns on benchmark risk portfolios. We estimate a portfolio of options that best approximates the returns of a given hedge fund, account for this search in the statistical testing of the nonlinearity, and provide a reliable test for a positive valuation of the fund. We find that not all fund categories exhibit significant nonlinearities, and that only a few strategies provide significant value to investors. Our methodology helps identify individual funds that provide value in an otherwise poorly performing category. Copyright © 2010 John Wiley & Sons, Ltd.     

Lessons from naïve diversification about the risk-reward trade-off

Studies of naïve diversification show that average total portfolio risk declines asymptotically as number of stocks increases. Recent work shows that a significant amount of idiosyncratic risk remains, even for portfolios with large numbers of stocks. The corresponding shocks are non-trivial. For example, more than half of all equal-weighted portfolios with 100 stocks have better than a 16 percent chance of an annual shock at least as large as about half of the annualized mean excess return on the U.S. total stock market index over July 1963–June 2018. I perform a simulation analysis of portfolio reward-to-risk as well as the components of total portfolio risk. On average, investors do not appear to be rewarded for exposure to non-systematic risk. The cross-sectional distribution of the true Sharpe ratio rises and its dispersion shrinks significantly as the number of stocks in the portfolio increases, whereas the cross-sectional distribution of the true non-systematic risk falls and its dispersion shrinks significantly as the number of stocks in the portfolio increases. This pattern appears regardless of the true asset pricing model for generating security returns, the portfolio weighting method, or specification of security alphas.     

International Differences in GAAP and the Pricing of Earnings

This study investigates the information content of two alternative accounting earnings measures constructed under U.K. and U.S. GAAP. The analysis is based on the 20-F SEC filings by U.K. domiciled companies having ADRs listed in the U.S. The research design involves testing the association between U.K. stock returns and alternative accounting numbers. The evidence suggests that, for the sample examined, U.K. GAAP earnings changes have incremental information content after controlling for U.S. GAAP earnings changes, but that earnings levels measured under U.S. GAAP have some independent incremental information content after controlling for U.K. GAAP earnings. The results are consistent with GAAP adjustments having a significant transitory component. The empirical results display explanatory power which is broadly consistent with previous work and the GAAP earnings adjustments add marginally to the ability of earnings to explain returns.     

The Stock market impact of social pressure: The South African divestment case

Using the South African divestment case, this study tests the hypothesis that social pressure affects stock returns. Both short-run (3-, 11-, and 77-day periods) and long-run (13-month periods) tests of stock returns surrounding U.S. corporate announcements of decisions to staf or leave, South Africa were performed. Tests of the impact of institutional portfolio managers to divest stocks of U.S. firms staying in South Africa were also performed. Results indicate there was a negative wealth impact of social pressure: stock prices of firms announcing plans to stay in South Africa fared better relative to stock prices affirms announcing plans to leave.     

An empirical investigation of U.S. bank risk and the Mexican peso crisis

This paper examines two pairs of hypotheses about the effect of the Mexican Peso crisis on U.S. bank stock returns. We use a three-index market model as our empirical methodology because bank stocks are influenced more by both interest rate risk and foreign exchange risk than other non-banking stocks. The results show that the market reacted to each event promptly, supporting semi-strong market efficiency. To find out whether these effects created a domino effect in the U.S. banking system, a set of cross-sectional regressions were run. In general, the empirical results support the investor-contagion hypothesis, which indicates that the market penalized or rewarded banks without regard to their ecposure to the market for Mexican loans.     

Finance and Growth: Evidence from Some Arab Countries

Abstract

Some analysts contend that the ‘size effect’ -the higher returns associated with small-capitalization companies over those with large-capitalization, are a myth. Most empirical studies to date relate to U.S. stock exchanges. Since the Tel-Aviv Stock Exchange is considered an ‘emerging market,’ it is valuable to explore this phenomenon in this market.

This empirical study considers the performance of individual stocks and two alternative portfolios. The results show that the ‘size effect’ does not exist on the TASE, and that the large-capitalization stocks and portfolios generated higher returns versus their small-capitalization counterparts. Thus, the ‘size effect’ may only be a myth.     

双重上市股票更有投资价值吗？——基于H+A股与A股的对比分析…朱宏泉，应潇潇

通过对比先在H股上市、后回到A股上市的股票（简记为H+A股）与仅在A股上市的股票上市首日收益率、上市后短期和长期收益的差异,探讨两类股票的投资价值。结果显示：相较于A股股票,H+A股上市首日收益更高,但上市后的短期收益和长期收益更低。究其原因,H+A股更高的上市首日收益与其发行定价低相关,短期和长期市场收益低既与公司的业绩不好相关,也与投资者的不认可相关,表明相较于仅在A股上市的股票,H+A股更不具备投资价值。     

Performance evaluation with portfolio holdings information

This paper surveys recent academic research that uses portfolio holdings to evaluate the performance of an asset manager. These approaches mitigate the benchmark-choice problem of Roll (1978), as well as providing a much more precise attribution of the sources of manager returns. Although originally developed with U.S. data, recent papers have applied these approaches to European, Asian, and Australian equity managers. All surveyed approaches can be integrated into the Brinson, Hood, and Beebower (1986) attribution method, if we allow the composition of the benchmark portfolio to evolve through time according to the observed portfolio holdings of an asset manager.     

Large changes in stock prices: Market,liquidity, and momentum effect

This article investigates the determinants of large changes in stock prices. Empirical evidences suggest that the asymmetry phenomenon in determinants of large changes in stock prices is found in three stock exchanges. In the New York Stock Exchange (NYSE), momentum effect accounts for most of the likelihood of big gains in stock prices, while liquidity characteristics account for sharp declines of stock prices. An interesting finding is that the opposite is true for stocks traded in Amex and NASDAQ. The possible explanations of the different results in different stock exchanges may attribute to the characteristics of firms listed in these stock exchanges are different.     

Corporate Lobbying of the International Accounting Standards Committee

The paper investigates corporate lobbyists of the International Accounting Standards Committee (IASC). This exploratory study was done in order to better understand the characteristics of corporations that lobby the IASC and to empirically test the applicability of U.S.-based lobbying theories in this international context. Corporations that submitted comment letters about 17 Exposure Drafts and three Draft Statements of Position from 1989 to 1994 were analyzed. Overall, the 100 lobbying corporations were quite large. In the U.S. and in 10 of the 12 other countries examined, lobbying corporations were larger than nonlobbying firms in terms of revenue, income, and assets. Eighty-four percent of all lobbying corporations were listed on at least one foreign stock exchange, and 78% of non-U.S. lobbying corporations had equity securities traded in the U.S. Finally, in 10 of the 12 non-U.S. countries, a higher percentage of lobbying firms than nonlobbying firms had their stock traded in the U.S. Overall, corporations lobbying the IASC tend to be very large both globally and in terms of their country of domicile, listed on at least one foreign exchange, and traded in the U.S. Support is found in this international context for ideas originating in the U.S.-based lobbying literature.     

The day-of-the-week effect revisited: international evidence

The aim of this study is to determine whether the DOW effect still exists, and to evaluate empirically the explanations of the DOW effect for international equity markets. Evaluating 51 markets in 33 countries for the period between January 2000 and December 2007, reveals that the DOW effect persists for a significant proportion of equity markets. Evaluating open-to-close returns, liquidity, size effect and possible spill-over effects, the DOW effect can be explained for almost of all the exchanges. Individual stock analysis, covering 37,631 stocks traded in 51 equity markets shows that a DOW effect in returns exists for a statistically significant proportion of individual stocks in almost all of the markets in the study. Even markets without a market-level DOW effect contain a surprisingly large proportion of stocks with individual-level DOW effects. Interestingly, this proportion is only marginally lower than that which is found in markets with a market-level DOW effect.     

Machine over Mind? Stock price clustering in the era of algorithmic trading

Given the rise of automated trading in the post-decimalization era, we examine time trends in price clustering for exchange traded funds (ETFs) and individual stocks during the post decimalization era. There is limited prior evidence on price clustering for portfolio securities such as ETFs. A striking feature of the evidence is the substantial reduction in clustering over the sample period for ETFs as well as for individual stocks. This decline occurs for trades of all sizes. We attribute the decline in clustering to the increasing prominence of algorithmic trading, which is immune to psychological biases.