Maximizing an equity portfolio excess growth rate: a new form of smart beta strategy?

It has been claimed that, for dynamic investment strategies, the simple act of rebalancing a portfolio can be a source of additional performance, sometimes referred to as the volatility pumping effect or the diversification bonus because volatility and diversification turn out to be key drivers of the portfolio performance. Stochastic portfolio theory suggests that the portfolio excess growth rate, defined as the difference between the portfolio expected growth rate and the weighted-average expected growth rate of the assets in the portfolio, is an important component of this additional performance (see Fernholz [Stochastic Portfolio Theory, 2002 (Springer)]). In this context, one might wonder whether maximizing a portfolio excess growth rate would lead to an improvement in the portfolio performance or risk-adjusted performance. This paper provides a thorough empirical analysis of the maximization of an equity portfolio excess growth rate in a portfolio construction context for individual stocks. In out-of-sample empirical tests conducted on individual stocks from 4 different regions (US, UK, Eurozone and Japan), we find that portfolios that maximize the excess growth rate are characterized by a strong negative exposure to the low volatility factor and a higher than 1 exposure to the market factor, implying that such portfolios are attractive alternatives to competing smart portfolios in markets where the low volatility anomaly does not hold (e.g. in the UK, or in rising interest rate scenarios) or in bull market environments.     

Seven Fallacies Concerning Milton Friedman's “The Role of Monetary Policy”

This paper analyzes Milton Friedman's (1968a) article “The Role of Monetary Policy,” via a discussion of seven fallacies concerning the article. These fallacies are as follows: (i) “The Role of Monetary Policy” was Friedman's first public statement of the natural rate hypothesis. (ii) The Friedman–Phelps Phillips curve was already present in Samuelson and Solow's (1960) analysis. (iii) Friedman's specification of the Phillips curve was based on perfect competition and no nominal rigidities. (iv) Friedman's (1968a) account of monetary policy in the Great Depression contradicted the Monetary History’s version. (v) Friedman (1968a) stated that a monetary expansion will keep the unemployment rate and the real interest rate below their natural rates for two decades. (vi) The zero lower bound on nominal interest rates invalidates the natural rate hypothesis. (vii) Friedman's (1968a) treatment of an interest-rate peg was refuted by the rational expectations revolution. The discussion lays out the reasons why each of these seven items is a fallacy and infers key aspects of the framework underlying Friedman's (1968a) analysis.     

Death spiral PIPEs: a reconsideration of the evidence

We challenge the view that PIPEs lead to unfavourable outcomes for issuing firms. We show that structured PIPEs do not have significant negative CARs when a matched firm benchmark is used for computing CARs and when sample selection bias is taken into account. Indeed, structured PIPEs have significantly higher positive skewness, indicating superior optionality, consistent with the real option argument. We also show that the 2002 intervention by the Securities and Exchange Corporation (SEC) has led to unintended consequences, with the substitution of ‘mom and pop’ investors for hedge fund investors in the structured PIPE market.     

中国木质家具出口贸易与汇率波动关系研究

木质家具是我国最重要的出口林产品之一。人民币汇率改革后,人民币总体呈升值趋势,这一趋势提高了国产木质家具的出口价格,会产生阻碍出口的作用;与此同时其也会使进口原材料价格相对降低、促进原材料的进口,二者相互作用会共同影响木质家具出口额。通过建立回归模型,研究人民币汇率波动对中国木质家具出口贸易额的影响,结果表明人民币汇率与中国木质家具出口额呈负相关,但是通过人民币贬值来促进出口的策略并不明智。     

Estimating the duration of different seasons and their impact on hotel room prices

The purpose of the study is to accurately measure the span of different seasons and its effect on the fluctuation of the occupancy rate and the average room rates in the hospitality sector. While prior studies have concentrated on measuring seasonality using calendar months, this study takes a different approach by measuring seasons in terms of the date count so that the exact starting and ending date of a season can be identified. This step involves adopting a non-parametric methodology that split the time scale into several small parts to obtain a better fit of the relationship and that can detect the starting and end of the season when given specific dates.     

Informing timeshare exchange services on the drivers of customer-driven co-production

Given the continued growth of the timeshare segment and its unique characteristics as an owned leisure lodging product, adopting a service-dominant logic and developing opportunities for co-creation is highly relevant for companies that provide services to this industry. Specifically, the purpose of this study is to explore the drivers that lead to customer-driven co-production in timeshare exchange services, due to the popularity of this option among consumers owning timeshare. Our results indicate that interaction between timeshare owners as customers of the exchange company is a significant driver of customer-driven co-production. To the authors’ knowledge, this is the first study to explore customer-driven co-production in the timeshare industry. Moreover, our findings are highly significant for timeshare exchange companies and point them to potential areas of improvement in their service processes that could lead to higher customer-driven co-production and, consequently, more valuable experiences.     

Share trading activity and the rise of the rentier in the UK before 1920*

Abstract

Using a hand-collected dataset, we examine share trading activity over the period 1882–1920 for the North British and Mercantile Insurance Company, one of the largest UK companies of the time. Our main finding is that the steady flow of rentiers into the shareholding constituency of this company stymied share trading activity. Another important finding is that share trading still occurred during the closure of the stock exchange in 1914, but on a much-reduced scale. We also find that there was a substantial boom in share trading and in insurance stock prices after World War I.     

The effect of oil price shocks on asset markets: Evidence from oil inventory news

We quantify the reaction of U.S. equity, bond futures, and exchange rate returns to oil price shocks driven by oil inventory news. Across most sectors, equity prices decrease in response to higher oil prices before the 2007/2008 crisis but increase after it. Positive oil price shocks cause a depreciation of the U.S. dollar against a broad range of currencies but have only a modest effect on bond futures returns. The evidence suggests that changes in risk premia help to explain the time-varying effect of oil price shocks on U.S. equity returns.     

Consumption and exchange rate uncertainty: Evidence from selected Asian countries

We set out to assess the effects of exchange rate uncertainty on real consumption in selected Asian countries. Consumption influences business cycles, which in turn shape short-run monetary policy decisions. Hence, understanding factors driving consumption is appealing to policymakers. To date, few studies have analysed the effects of uncertainty on consumption. The available ones generally focus on the long-run effects, in spite of the fact that the short-run persistence and adjustments to equilibrium are equally relevant. Our study takes these limitations seriously by distinguishing the short- and long-run effects of exchange rate uncertainty on consumption. Using a flexible dynamic panel data technique that allows long-run effects to be homogeneous and the short-run effects to be heterogeneous, we find that uncertainty impedes consumption in the long run. In the short run, however, the effects are immaterial. This evidence remains robust to the measure of uncertainty, asymmetric uncertainty, inflation and the global financial crisis of 2008. By decomposing uncertainty into its temporary and permanent components, we find that the latter have a stronger effect on consumption in the long run than the former. Although both components demand policy attention, the evidence suggests that policymakers should be more concerned with permanent uncertainty.