The momentum effect on Chinese real estate stocks: Evidence from firm performance levels

This paper investigates the momentum effects under different firm performance levels for Chinese real estate stocks using quantile regression with a dummy variable estimator. This paper finds that regardless of the momentum horizon, the momentum effects are positive under high-performing individual stocks, but they are negative under low-performing individual stocks. While prior literature only finds that this asymmetric phenomenon appears under different market states, and the findings on different horizons are inconsistent. Furthermore, this paper finds that the positive (negative) momentum effect under high (low) firm performance levels is stronger than that under bullish (bearish) markets. This implies that superior (inferior) fundamental business performance and bullish (bearish) markets can cause the stock prices to go up (down); however, the effect of the former is stronger than that of the latter. Moreover, this paper finds that the relation between future returns and past turnover ratios is positively correlated under high-performing stocks, but negatively correlated under low-performing stocks. Based on the above findings, this paper regards past turnover ratios as a leading indicator of stock returns and suggests two profitable investment portfolios which are superior to the average returns of real estate stocks.     

Liquidity and equity returns in Borsa Istanbul

We investigate the relationship between expected returns and liquidity measures in Borsa Istanbul. To do so, we gather a wide range of illiquidity measures that can be applied to the market. Firm-level cross-sectional regressions indicate that there is a positive relationship between various illiquidity measures and one- to six-month ahead stock returns. Findings of the article are robust after using different sample periods and controlling for well-known priced factors, such as market beta, size, book-to-market ratio and momentum. The portfolio analysis reveals that stocks that are in the highest illiquidity quintile earn 7.2%–19.2% higher risk-adjusted annual returns than those in the lowest illiquidity quintile. The illiquidity premium is stronger for small stocks and stocks with higher return volatility and it increases (decreases) during periods of extremely low (high) market returns.     

An analysis of the spillover effects of exchange-traded funds

This article used the Generalized Autoregressive Conditional Heteroscedasticity-Autoregressive Moving Average (GARCH-ARMA) and the exponentially Generalized Autoregressive Conditional Heteroscedasticity-Autoregressive Moving Average (EGARCH-ARMA) models to study the impact of the spillover and the leverage effects on returns and volatilities of stock index and Exchange Trade Fund (ETF) for developed and emerging markets. Previous unexpected returns for developed and emerging markets which have an opposite influence pattern on ETFs’ returns were identified. The spillover effects from returns are excellent for Hong Kong, followed by Singapore. Meanwhile, Taiwan's stock index return was recorded to have a strong negative impact on ETF return. Notably, this article shows that the spillover effects on stock index and ETF volatilities existed with bilateral influences. Despite a strong positive asymmetric volatility effect in Korea's ETF market, the leverage effect appears to play important roles in the explanation of both stock index and ETF returns.     

Herding on lottery-type stocks: evidence from the Chinese stock market

Previous studies have provided evidence that investors have gambling propensity in the stock market and exhibit a preference for lottery-type stocks. In this study, we use high total skewness and high maximum daily return (MAX) to measure lottery-type stocks and examine whether investors do exhibit distinct herding pattern in these stock types. Empirical results show that investors display stronger herding among lottery-type stocks, thereby indicating that such stocks induce correlated behaviour with the investors. In addition, we find that stocks with the highest skewness exhibit stronger herding under upmarkets, whereas stocks with the lowest skewness display stronger herding under downmarkets. Regarding the highest MAX portfolio, no significant herding asymmetry is seen between upmarket and downmarket. The results reported in this article demonstrate that comovement in stock returns may be partly attributed to the nonstandard preferences of investors in the stock market.     

Combining value and momentum: evidence from the Nordic equity market

This is the first article that explores the recently proposed average ranking approach for the value and momentum strategy in the Nordic equity market offering an exceptional experimental environment. Our results indicate that in the Nordic stock markets, the value anomaly offered excess returns in the 1993–2017 sample period only when small stocks were a part of the portfolio, whereas the momentum effect is strong and significant, irrespective of size. Interestingly, our findings also indicate that the negative correlation between value and momentum seems to be driven by growth stocks: Winner stocks that are value stocks generated 1.66% per month on average, whereas winner stocks that are growth stocks exhibit virtually the same average payoff. On the other hand, the spread between value and growth stocks that are loser stocks is on average 0.97% per month.     

On Characteristics Momentum

This article investigates whether investors can benefit from information about equity style evolution. The study shows that portfolios formed by firm characteristics such as size, book-to-market, and/or dividend yield can be used to determine investment style dominance. Characteristics momentum, buying stocks with persistent in-favor characteristics and selling stocks with persistent out-of-favor characteristics, conveys valuable information about future stock returns. It is distinct and has longer-lasting effects than price or industry momentum in predicting future returns. In explaining the existence of characteristics momentum profits, this study highlights the importance of slow evolution of changes in firm characteristics. The lifecycle of investment styles can thus have predictive power for trend-chasing investors, who can potentially push up the price of stocks with an in-favor style, and depress the price of stocks with an out-of-favor style.     

流动性与资产定价:基于我国股市资产换手率与预期收益的实证研究

流动性与资产定价是目前金融研究的热点之一 (O’Hara,2 0 0 3 )。本文通过检验交易频率零假设和交易成本备择假设 ,深入分析我国股市流动性与资产定价的理论与经验关系 ,发现 :我国股市存在显著的流动性溢价 ,换手率低、交易成本高且流动性小的资产具有较高的预期收益 ;产生流动性溢价的原因是交易成本而不是交易频率 ;与国外股市相似 ,小企业收益率高于大企业 ,价值股收益率高于成长股。因此 ,我国股市并非令人无法捉摸 ,流动性、规模和价值效应都是资产定价的因素     

T+1 trading mechanism causes negative overnight return

The T+1 trading mechanism is unique in the Chinese stock market, thus providing a natural experimental field to study the trading mechanism and price behaviors. This paper proposes and proves that T+1 trading mechanism causes negative overnight return, the overnight return can serve as a proxy of the T+1 trading mechanism. The paper finds that the overnight return of the Chinese stock market is significantly negative, whereas those under the T+0 trading mechanism, such as China’s stock index futures, Hong Kong stocks, and major international indices, all have around 0 or positive overnight returns. T+1 trading mechanism has greater impacts on stocks with more divergent investor opinions, higher risk, more individual investor percentages, higher arbitrage restrictions, and less liquidity. The T+1 trading mechanism distorts the price generation mechanism of stocks. The paper contributes to the understanding of impact of trading mechanism on stock prices.     

A reliable performance measure to differentiate China’s actively managed open-end equity mutual funds

We compare different fund performance measures to examine which performance measures can generate risk-adjusted returns between high ranked and low ranked China’s actively managed open-end equity mutual funds. Our results show that only the six-factor (five factors (market, size, b/m, profitability & Investment facotrs) plus a momentum factor) alpha as the performance measure meets the criteria. Separated by the six-factor alpha, better performing funds have a larger asset under management, a better past 6-month cumulative return, a better stock picking ability, and a higher percentage of hybrid funds. Through our sample period from July 2004 to December 2015, the highest ranked quintile funds generate a monthly risk-adjusted return of 0.24% more than the lowest ranked quintile funds and the six-factor alpha reliably selects a better fund portfolio in both bear and bull markets on the basis of both fund return and holding data. Furthermore, our results from fund trading data show that funds with the highest six-factor alpha rank demonstrate a better trading skill in bear markets, suggesting that those better performing funds exhibit their market timing and stock picking abilities when investors need them most.     

Return patterns of South Korean stocks following large price shocks

This study tests the market efficiency of the South Korean stock market by examining returns on stocks of the constituents of the KOSPI 50 from 2000 to 2014 following large 1-month price decreases and increases. An exponential GARCH (EGARCH) event study framework is used to analyse the stock returns. The results show that large price shocks, positive and negative, are likely to be followed by positive market returns. Moreover, the results show an increase in the beta of stocks in the years following a large price shock. The overall results therefore support the Uncertain Information Hypothesis. However, beginning in 2008, return patterns more closely reflect those hypothesised by the Efficient Market Hypothesis, possibly due to increased participation by international investors. The observed returns following large price increases and decreases can be partially explained by changes in the Korean won to US dollar exchange rate and the trading behaviour of foreign investors.     

How time horizons and arbitrage cost influence the turnover premium?

There are multiple theories for the causal relation between stock turnover and expected return. The risk theory argues that stocks with high turnover generally have high information uncertainty, and thus high subsequent returns are required to compensate for the increased risk. By contrast, the theory of heterogeneous beliefs considers that high-turnover stocks have high speculative values and tend to be overpriced. We find that the information contained in stock turnover is multidimensional and controlling time horizons and arbitrage cost contributes to the reconciliation of the theories of risk compensation and heterogeneous beliefs. Our result shows that expected return is positively correlated with short-term turnover, and negatively correlated with long-term one. The premium on short-term turnover is consistent with the explanations based on transaction cost and liquidity risk. The premium on long-term turnover is much more pronounced among stocks with high arbitrage cost and can be largely explained by the mispricing theory and heterogeneous beliefs.     

The impact of interest rate and exchange rate volatility on banks' stock returns and volatility: Evidence from Turkey

This paper investigates the effects of interest rate and foreign exchange rate changes on Turkish banks' stock returns using the OLS and GARCH estimation models. The results suggest that interest rate and exchange rate changes have a negative and significant impact on the conditional bank stock return. Also, bank stock return sensitivities are found to be stronger for market return than interest rates and exchange rates, implying that market return plays an important role in determining the dynamics of conditional return of bank stocks. The results further indicate that interest rate and exchange rate volatility are the major determinants of the conditional bank stock return volatility.     

From Returns to Tweets and Back: An Investigation of the Stocks in the Dow Jones Industrial Average

A sizeable percentage of investors are using social media to obtain information about companies (Cogent Research [2008]). As a consequence, social media content about firms may have an impact on stock prices (Hachman [2011]). Various studies utilize social media content to forecast stock market-related factors such as returns, volatility, or trading volume. The objective of this article is to investigate whether a bidirectional intraday relationship between stock returns and volatility and tweets exists. The study analyzed 150,180 minute-by-minute stock price and tweet data for the 30 stocks in the Dow Jones Industrial Average over a random 13-day interval from June 2 to June 18, 2014 using a BEKK-MVGARCH methodology. Findings indicate that 87% of stock returns are influenced by lagged innovations of the tweets data, but there is little evidence to support that the direction is reciprocal, with only 7% of tweets being influenced by lagged innovations of the stock returns. Results further show that the lagged innovations from 40 percent of stock returns affect the current conditional volatility of the tweets, while 73 percent of tweets affect the current conditional volatility of stock returns. Moreover, there is strong evidence to suggest that the volatility originating from the returns to the tweets persists for 33 percent of stocks; the volatility originating from the tweets to the returns persists for 73 percent of stocks. Last, 53 percent of stocks exhibit both immediate and persistent impacts from returns to tweets, while 90 percent of stocks exhibit both immediate and persistent impacts from tweets to returns. These results may help traders achieve superior returns by buying and selling individual stocks or options. Also, asset and mutual fund managers may benefit by developing a social media strategy.     

Time-varying relationship of news sentiment,implied volatility and stock returns

I examine the relationship between aggregate news sentiment, S&P 500 index (SPX) returns, and changes in the implied volatility index (VIX). I find a significant negative contemporaneous relationship between changes in VIX and both news sentiment and stock returns. This relationship is asymmetric whereby changes in VIX are larger following negative news and/or stock market declines. Vector autoregression (VAR) analysis of the dynamics and cross-dependencies between variables reveals a strong positive relationship between previous and current period changes in implied volatility and stock returns, while current period and lagged news sentiment has a significant positive (negative) relationship with stock returns (changes in VIX). I develop a simple trading strategy whereby high (low) levels of implied volatility signal attractive opportunities to take short (long) positions in the underlying index, while extremely negative (positive) news sentiment signals opportunities to enter short (long) index positions. The investor fear gauge (VIX) appears to perform better than news sentiment measures in forecasting future returns.     

Germany's New Insider Law: The Empirical Evidence after the First Year

Abstract. This paper investigates insider trading activities in German stocks during the first year following implementation of the new Insider Law on 1 July 2002. It can be observed that insiders act as contrarian investors. They buy stocks after prices have fallen and sell stocks after prices have risen. In general, insider trades are very profitable. A typical stock purchased by an insider yields an abnormal return of almost 3 per cent during the 25 days following the transaction. In contrast, a typical stock that has been sold by insiders achieves an abnormal return of nearly −3 per cent over the same time period. Outsiders who copy the transactions of insiders can achieve nearly the same abnormal returns. Abnormal returns remain substantial even after transaction costs. The results suggest that prices of stocks in which insiders trade do not seem to be semi-strong efficient.     

When Do Opening Stock Returns Tend to be Higher?

Abstract

In this study, I make an effort to formulate a trading rule that would make use of some systematic interday patterns in individual stocks’ opening returns. I analyze intraday price data on all the stocks that were S&P 500 Index constituents during the period from 1993 to 2012. I document that if the general market direction of the previous day's opening session is controlled for, then a stock's opening return tends to be higher if, on the previous trading day, its opening return was relatively high (either positive, or higher than the same day's opening market return) and its open-to-close return was relatively low (either non-positive, or lower than or equal to the same day's open-to-close market return). Finally, for the sampling period, I construct two different investment portfolios involving a long position in the stocks on the days when, according to the findings, their opening returns are expected to be high and a short position in the stocks on the days when, according to the findings, their opening returns are expected to be low. Both portfolios are found to yield significantly positive returns, providing evidence for the practical applicability of the documented patterns in opening stock prices.     

Does Probability Weighting Drive Lottery Preferences?

Abstract

We propose a test of the theory of skewness preferences. The probability weighting feature that is the basis of their theory relies on investors overweighting the probability of extreme, positive returns. The resulting investor preferences for positive skewness in return distributions will lead to excess demand, contemporaneous price premiums, and negative expected returns. We use the well-documented 52-week high bias as a method to truncate investors’ weighted probability of expected right-tail events. We find evidence supporting the theoretical framework of Barberis and Huang as the negative return premiums associated with positive skewness is driven almost entirely by stocks that are farther away from the their 52-week high. No negative premiums related to skewness are detected when stock prices are close to the 52-week high.     

An analysis of commercial bank common stock returns: 1802–97

This study creates analyses for the first time a continous index of returns on commercial bank common stocks listed in a specific market. The index is constructed from a unique set of historical data and is calculated on both a weighted and unweighted basis, first including and then excluding dividends. A measure of volatility is calculated annually.

The results indicate that the dividend component of holding period returns is very important. Including dividends, average returns were 6.0% for the century; excluding dividends, average returns were 0.1%. Excess returns were calculated using two different measures of a riskless rate of return. Cumulative excess returns for the first half of the nineteenth century were negative. Real returns were calculated, and found to be generally positive over the century. The volatility of returns was quite high during certain periods.

Examining the effects of significant economic and political events on bank common stock returns, we find that the War of 1812, the Civil War, and the National Banking System had a significant impact on bank stock returns. Several economic panics, several depressions, the First and Second Banks of the United States, the Embargo of 1807, and the Suffolk Bank had no measureable impact.     

Investor Reaction to Inter-corporate Business Contracting: Evidence and Explanation

We examine the stock market reaction to 1227 inter-corporate ordinary business contract announcements reported by Dow Jones between January 1, 1990 and December 31, 2001. Around contract announcement dates, we find statistically significant positive average abnormal returns and abnormal trading volume for contractors, but insignificant positive abnormal returns and negative abnormal volume for contractees. Cross-sectionally, contract announcement period returns are higher for contractors who are small relative to the contract size, have higher return volatility, larger market-to-book ratios and higher profitability. The announcement period returns of contract-awarding firms are not significant and are only marginally related to cross-sectional explanatory factors. The results are consistent with two explanatory stories: contractor quasi-rents induced by the winner's curse and information signalling about contractor production costs. The results are not consistent with perfect competition, with contracts having positive net present values for both parties, and with a version of incomplete contracting theory.     

Global idiosyncratic risk moments

We investigate a global cross-sectional relation between idiosyncratic risk moments and expected stock returns by suggesting three global idiosyncratic volatility, skewness, and kurtosis risk factors. We also suggest two global small minus big and high minus low risk proxies for estimating return residuals of the test assets from a global asset pricing model. To perform robustness checks, we suggest other four global risk factors of momentum, leverage, bid-ask spread, and liquidity. We find a significant negative relation between stock portfolio returns and the global moments, and the cross section of stock returns reflects a significant negative price of risk for global idiosyncratic skewness (?0.13%) and idiosyncratic volatility (?1.85%) and a positive and significant price of risk for global idiosyncratic kurtosis. We find that our suggested risk factors are key drivers of risk premia in stock market and are robust to various checks. These factors also can forecast the gross domestic product growth over the sample period.