Individual stock crowded trades,individual stock investor sentiment and excess returns

Recent behavioral asset pricing models and the popular press suggest that investors may follow similar strategies resulting in crowded equity positions to push prices further away from fundamentals. This paper develops a new approach to measure individual stock crowded trades, and further investigates the joint effects of individual stock crowded trades and individual stock investor sentiment on excess returns. Specifically, our results show that the combined effect of individual stock crowded trades and individual stock investor sentiment on excess returns is positive and significant, which reveals the importance of “anomaly factors” in asset pricing. Furthermore, our results suggest that increasing individual stock buyer-initiated crowded trades will increase excess returns simultaneously; however, increasing individual stock seller-initiated crowded trades will decrease excess returns simultaneously. Collectively, our results highlight the importance of individual stock crowded trades and individual stock investor sentiment on the formation of stock prices.     

Economic policy uncertainty and stock market returns: New evidence

This paper investigates the predictive performance of the Chinese economic policy uncertainty (EPU) index constructed by Davis, Liu, and Sheng (2019) in forecasting the returns of China’s stock market. Using the univariate and bivariate predictive regression model, we confirm that the monthly EPU index can significantly and negatively impact the next month’s stock returns, and has better out-of-sample predictability than the existing EPU index and several macroeconomic variables. By comparing the forecasting effect of the EPU index before and during special events with sharply increased uncertainty, we find that the EPU’s forecasting power decline rapidly when an event of sharply increased uncertainty occurs. Finally, our conclusions are consistent through a batch of robustness tests.     

Private benefits from control block trades in the Spanish stock exchange

A control block trade can be explained by the expectation of financial gains, shared by all shareholders, or by the expectation of private benefits, exclusive to the buyer and possibly at the expense of other shareholders’ rents. The market for corporate control contributes to social welfare when it improves the efficiency of the allocation of resources. When the objective of a block transaction is private benefits, social welfare may be negatively impacted as minority shareholders could withdraw from the market. Therefore the estimation of private benefits would allow the efficiency of the market for corporate control to be assessed. Specifically, the aim of this paper is to calculate private benefits in the Spanish market for partial control. Using a sample of partial control transactions over the period 1990–2016, we find that the median of private benefits is negative, therefore it appears that there is no inefficient use of resources in the Spanish partial control market as a whole, however private costs are detected. The variability of private benefits is explained in a significant way by variables related to the control structure of the target firm, such as the controlling position of the buyer after the transaction, the contestability of control and the cross-shareholdings between the buyer and large shareholders. Performance and the size of the firm are significant as well.     

Positive IVOL-MAX effect: A study on the Singapore Stock Market

This paper demonstrates a positive and significant IVOL effect in the Singapore Stock Market meaning that the highly volatile stocks are showing better returns in the subsequent month. More explicitly, there is a strong positive relationship between stock’s idiosyncratic volatility (IVOL) and its subsequent month’s return in the Singapore equity market. This positive IVOL effect is stronger only for small market-statistic firms. But for the Large capital firms, the positive IVOL effect is insignificant. In addition, this paper shows that the relationship between maximum daily return over a month (MAX) and the subsequent month’s return is positive and significant in this market. However, IVOL is the true effect of this market rather than MAX.     

Evolution of price effects after one-day abnormal returns in the US stock market

This paper provides a comprehensive analysis of price effects after one-day abnormal returns and their evolution in the US stock market, using Dow Jones Index over the period 1890–2018. We utilise several statistical tests and econometric methods (the modified cumulative abnormal return approach, regression analysis with dummy variables, R/S analysis (Hurst, 1951), and the trading simulation approach). The results suggest that a strong momentum effect between 1940 and 1980 after a day of positive abnormal returns was present in the US stock market, and it was exploitable for profit. However, after the 1980s this has since disappeared. Overall, price effects after one-day abnormal returns during the analysed period tend to be unstable in terms of their strength and direction (momentum or contrarian effect). Nowadays, the evidence for the price effects after one-day abnormal returns in the US stock market is weak. Our results, therefore, are consistent with the Adaptive Market Hypothesis (Lo, 2004).     

Misvaluation comovement,market efficiency and the cross-section of stock returns: Evidence from China

In this study, we examine the relation between stock misvaluation and expected returns in China's A-share market. We measure individual stocks’ misvaluation based on their pricing deviation from fundamental values, following Rhodes-Kropf et al. (2005. J. Finan. Econ. 77 (3), 561) and Chang et al. (2013. J. Bank. Finance, forthcoming), and find that the measure has strong and robust return predictive power in the Chinese market. We further form a misvaluation factor and find that misvaluation comovement and systematic misvaluation exist in the Chinese market. A comparison of our results with those of Chang et al. (2013. J. Bank. Finance, forthcoming) reveals that the misvaluation effect is much stronger in the Chinese market than in the U.S market. This evidence is consistent with the notion that the Chinese market is much less efficient than the U.S. market. Finally, we show that the return predictive power of misvaluation has weakened since China launched its split-share structure reform in 2005, which could result from the fact that the reform helps to promote market efficiency.     

On the predictability of the distribution of excess returns in currency markets

This paper investigates the predictability of foreign exchange (FX) volatility and liquidity risk factors on returns to the carry trade, an investment strategy that borrows in currencies with low interest rates and invests in currencies with high interest rates. Previous studies have suggested that this predictability could have been spuriously accounted for due to the persistence of the predictors. The analysis uses a predictive quantile regression model developed by Lee (2016) that allows for persistent predictors. We find that predictability changes remarkably across the entire distribution of currency excess returns. Predictability weakens substantially in the left tail once persistence is accounted for, implying a moderate negative predictive relation between FX volatility risk and carry trade returns. By contrast, it becomes stronger in the right tail. Furthermore, we provide evidence that FX volatility risk still dominates liquidity risk after controlling for persistence. These findings suggest that the persistence of the predictors needs to be taken into account when one measures predictability in currency markets. Finally, out-of-sample forecast performance is also presented.     

Short sale and stock returns: Evidence from the Taiwan Stock Exchange

Using short sale data of the Taiwan Stock Exchange from January 1991 to September 2004, we examine the informational role played by short interest in stock price formation. Consistent with previous findings based on the US and Australian stock markets, our results show that heavily shorted stocks generate significant and negative risk-adjusted abnormal returns. Moreover, the negative abnormal returns decrease in magnitude and also become statistically insignificant as the holding period extends from 1 month to 1 year. In addition, we test the effect on stock price overvaluation of the interaction of a short sale constraint and a dispersion of opinion. When using turnover ratio as a proxy for a dispersion of opinion, we find that even when the holding period is 6 months, the overvaluation is still significant. Moreover, when a high degree of a dispersion of opinion is captured by a high relative short interest and a high relative margin trade level, the overvaluation remains statistically significant even for a 1-year holding period.     

Dynamic relationships between industry returns and stock market returns

Different from prior studies which concentrate on the unidirectional impact of industry leading, this study examines the bi-directional dynamical causal relation between industry returns and stock market returns by considering multiple structural breaks for ten major eastern and southern Asia countries. Our results show that finance and consumer service industry returns have significant power in explaining the movements of market returns. Further, we apply logit regressions to explore the determinants of the leading hypotheses and find exchange rate and interest rate are important in explaining the industry–market nexus. In a developed market the industry and the market have feedback relations, but in a highly controlled economy the influence from the stock market dominates.     

The 2016 U.S. presidential election and the Stock,FX and VIX markets

The U.S. presidential election is one of the global political events that have the profound effects on the Global Financial Markets (GFMs). The aim of the study is to examine Stock, FX and VIX markets under the U.S. presidential election 2016. The findings strongly suggest that ‘U.S. presidential election effects’ hold in equity and FX markets across the GFMs. The empirical outcome signifies that markets are inefficient in the short-run (election year) and allows the opportunity to make abnormal gains from the market. The ‘Republican president elect’ has shown negative effects on the Nifty50, S&PASX200, and IPC equity markets while FTSE100, DJIA, Top40, EuroStoxx50 and Nikkei225 have reported positive returns. The Trumps’ proposal on international trade has caused major loss in the global currency market against the U.S. dollar. The investors’ sentiment to be measured extremely low on the poll announcement day but VXJ and AXVI based market participants have shown very high degree of concern. The Bearish-run election effects to be observed during the election period while post election period has shown Bull-run effects (Asia-pacific markets).     

基于EVA的中国纺织业上市公司股价泡沫分析

本文使用基于EVA的企业价值评估方法,对2006年年末以及2007年第三季末中国纺织业上市公司的股价泡沫状况进行了实证研究。通过对沪深两地纺织业上市公司的绝对泡沫以及泡沫度的计算发现,2006年年末中国纺织业上市公司的股票价格两极分化严重：大部分股票价格偏离价值形成泡沫,还有部份股票价格低于价值而被低估。而2007年第三季度末股价泡沫则非常明显,绝大部份公司股价存在泡沫。     

Stock price reactions to stock dividend announcements: A case from a sluggish economic period

The 2007 financial crisis and the Great Recession that followed resulted in a loss of confidence among investors, and regaining their full trust and confidence has been a challenge for companies. Although economic growth has been volatile throughout the postwar World War II period, recent growth (2008–2015) has been remarkably weaker than in the previous low-growth period (1974–1995). The 2006–2015 period is often characterized by sluggish economic growth. This study investigates stock price reactions to stock dividend announcements, 30 days before and after the announcement dates, of publicly traded companies in the period 2006–2012. We use an event study methodology for 460 events and daily stock price data for companies in the CRSP historical data set. The study shows a significant reaction in stock prices around the event date. On average, stock prices reacted positively to stock dividend announcements. However, compared to previous findings of abnormal returns (5.9%), results from this study show small abnormal returns (about 1.81%) attributable to stock dividend announcements that are cumulative of the announcement day and up to 3-day post-announcement days. Our estimates are even lower than the 2.01% stock price reaction obtained in the 1987–1996 period.     

Price effects of steel commodities on worldwide stock market returns

We analyze the price effects of steel commodities on stock market returns in emerging and developed economies. These commodities have recently attained increased media exposure due to the rise in the U.S. steel import tariffs, which pose the threat of reducing global demand for steel products and, consequently, lowering prices abroad. However, little has been investigated on the impact of steel commodity prices on worldwide stock market returns. By performing structural VAR and GARCH techniques on a weekly-frequency time series from 2002 to 2015, we find positive and statistically significant effects of linear and non-linear steel commodity price shocks on real stock returns in the commodity markets. In the highly diversified financial markets such as U.S. and Germany, real stock returns do not significantly respond to steel commodity price shocks, although we find highly significant positive responses from developed economies such as Australia, Japan and South Korea. Results are robust to different model specifications. Our evidence suggests that higher tariffs on steel imports represent a larger disadvantage to commodity markets which are more largely impacted by steel commodity prices. We provide economic policy implications based on recent literature.     

上海A股市场股价波动相互影响能力实证研究

股票市场中股票价格的波动是相互影响的,但不同的股票其价格波动时对其他股票价格行为的影响能力是不同的。本文通过对我国上海A股市场的实证分析表明,有少数股票其价格波动时对其他股票价格行为有很强的影响能力,而大多数股票的这种影响能力很小。此外,单个股票价格波动时引起其他股票价格涨、跌的能力一般都有显著差异。     

Abnormal research and development investments and stock returns

We investigate the relation between abnormal research and development (R&D) investments change and expected stock returns. We provide evidence that firms that abnormally increase their R&D investments (RDI) earn higher returns in comparison to the market portfolio. Specifically, our findings document an economically significant annual positive abnormal RDI returns that ranges from 3.2% to 11.5%. These findings are robust to well-established risk factors in the literature and suggest that the abnormal increases in RDI impacts stock returns.     

Economic policy uncertainty,oil price volatility and stock market returns: Evidence from a nonlinear model

This paper investigates the nonlinear relationship between economic policy uncertainty, oil price volatility and stock market returns for 25 countries by applying the panel smooth transition regression model. We find that oil price volatility has a negative effect on stock returns, and this effect increases with economic policy uncertainty. Furthermore, there is pronounced heterogeneity in responses. First, oil-exporting countries whose economies depend more on oil prices respond more strongly to oil price volatility than oil-importing countries. Second, stock returns of developing countries are more susceptible to oil price volatility than that of developed countries. Third, crisis plays a crucial role in the relation between oil price volatility and stock returns.     

Risk spillover from crude oil prices to GCC stock market returns: New evidence during the COVID-19 outbreak

In this study, we examine oil price extreme tail risk spillover to individual Gulf Cooperation Council (GCC) stock markets and quantify this spillover’s shift before and during the COVID-19 pandemic. A dynamic conditional correlation generalized autoregressive heteroscedastic (DCC- GARCH) model is employed to estimate three important measures of tail dependence risk: conditional value at risk (CoVaR), delta CoVaR (ΔCoVaR), and marginal expected shortfall (MES). Using daily data from January 2017 until May 2020, results point to significant systemic oil risk spillover in all GCC stock markets. In particular, the effect of oil price systemic risk on GCC stock market returns was significantly larger during COVID-19 than before the pandemic. Upon splitting COVID-19 into two phases based on severity, we identify Saudi Arabia as the only GCC market to have experienced significantly higher exposure to oil risk in Phase 1. Although all GCC stock markets received greater oil systemic risk spillover in Phase 2 of COVID-19, Saudi Arabia and the United Arab Emirates appeared more vulnerable to oil extreme risk than other countries. Our empirical findings reveal that investors should carefully consider the extreme oil risk effects on GCC stock markets when designing optimal portfolio strategies, minimizing portfolio risk, and adopting dynamic diversification process. Policymakers and regulators should also enact awareness, oversight, and action plans to minimize adverse oil risk effects.     

Overnight stock returns,intraday returns,and firm-specific investor sentiment

In this study, we propose a new index for measuring firm-specific investor sentiment using overnight and intraday stock returns. We use actual equity data to construct the firm-level investor sentiment index and find that the new index has characteristics expected of a sentiment measure. In addition, we propose a novel sentiment-weighted trading strategy and apply it to momentum and short-term reversal strategies. We find that the sentiment-weighted trading strategy generates better performance in momentum and short-term reversal strategies. The sentiment-weighted trading strategy’s superior performance is evidence that our firm-level investor sentiment index possesses predictive powers with regard to future returns.     

Has the November Effect Replaced the January Effect in Stock Markets?

Results of previous studies support the November effect of the 1986 Tax Reform Act (TRA) on certain stock portfolios. The rapid growth of mutual funds driven by the fundamental changes in the retirement benefit system in past decades may expand the seasonality from portfolios to stock markets and lead to a replacement of the January effect with the November effect in stock markets. Results of this study support the January effect in the large‐cap and small‐cap stock markets in the pre‐TRA period, although the January effect may share a large portion of co‐variation with the size effect. However, the November effect is independent of the size effect. Furthermore, a major shifting process of the January effect to the November effect occurs in both the large‐cap and small‐cap stock markets. The significant result of the November effect in the post‐TRA period questions the claim that fund managers are capable in mitigating potential price pressures. Copyright © 2011 John Wiley & Sons, Ltd.