Are candlestick technical trading strategies profitable in the Japanese equity market?

We show that candlestick charting, the oldest known form of technical analysis, is not profitable in the Japanese equity market over the 1975–2004 period. Candlestick technical analysis, which was developed in Japan in the 1600s, is deeply intertwined with Japanese culture and is very popular in Japan. However, there is no evidence candlestick technical trading strategies add value in either the entire 30 year period, in three 10 year sub-periods or in bull or bear markets.

Does information drive trading in option strategies?

We study trading in option strategies in the FTSE-100 index market. Trades in option strategies represent around 37% of the total number of trades and over 75% of the total trading volume in our sample. We find some evidence that order flow in volatility–sensitive option strategies contains information about future realized volatility. We do not find evidence that order flow in directionally–sensitive option strategies contains information about future returns. Overall, our evidence suggests that option strategies are used both by traders who possess non-public information about future volatility and by uninformed speculators who appear to follow unprofitable trend chasing strategies.     

Are intraday reversal and momentum trading strategies feasible? An analysis for German blue chip stocks

The success of trading strategies that lead to abnormal excess returns based on annual/monthly investment periods has recently declined significantly. We adopt the original frameworks of De Bondt and Thaler (J Finance 40(3):793–808, 1985) and Jegadeesh and Titman (J Finance 48(1):65–91, 1993) to an intraday reversal as well as momentum strategy scheme based on 5-min stock returns. We analyze 16 reversal and momentum strategies each with ranking and holding periods of 60, 120, 180 or 300 min (reversal strategies) and 15, 30, 45 or 60 min (momentum strategies) from a retail investor’s perspective. We find no indications for momentum in stock prices but strong indications for reversals. Our results are furtherly robust regarding to market adjustment, portfolio sizes and skipping periods between ranking and holding periods. Our results show that the returns of the reversal strategies are statistically significant, however, yet too small to be economically significant. Our results also confirm the efficiency on the stock markets.

     

What drives individual investors in the bear market?

This study uses a unique dataset from a large anonymous brokerage firm to examine the net investment of individual investors during a bear market. The study's empirical evidence reveals that individual investors provide liquidity by acting as net buyers. Particularly, male and younger investors tend to have a higher buying intensity than the others during the market downturn. Besides, better performances when the market crashed encourage investors to be overconfident, thus exhibiting self-attribution bias since we do not find similar results in the bull-market subsample. Results from the stock-level analysis imply that investors tend to buy stocks with worse short-term past performance, higher liquidity, and larger market capitalization. Our findings on the individual investor trading behaviour cannot be explained by either a superior stock-picking ability or a higher tendency to gamble during the market downswing.     

How do individual investors trade?

This paper examines how high-frequency trading decisions of individual investors are influenced by past price changes. Specifically, we address the question as to whether decisions to open or close a position are different when investors already hold a position compared with when they do not. Based on a unique data set from an electronic foreign exchange trading platform, OANDA FXTrade, we find that investors’ future order flow is (significantly) driven by past price movements and that these predictive patterns last up to several hours. This observation clearly shows that for high-frequency trading, investors rely on previous price movements in making future investment decisions. We provide clear evidence that market and limit orders flows are much more predictable if those orders are submitted to close an existing position than if they are used to open one. We interpret this finding as evidence for the existence of a monitoring effect, which has implications for theoretical market microstructure models and behavioral finance phenomena, such as the endowment effect.     

Are health insurers in multiple lines of business less profitable? An examination of scope economies in health insurance

In markets where companies can offer multiple products or services, production costs may decline, and profitability may increase as business scope expands. Using a sample of health insurers from 2015 to 2018 with data reported in the annual NAIC Supplemental Health Care Exhibit, we test whether scope economies exist among health insurers. We evaluate the relationship between scope and four profitability metrics—the medical loss ratio, the expense ratio, the underwriting profit ratio, and a profit efficiency measure obtained using a data envelopment analysis technique. We test two competing hypotheses from prior literature on scope economies in insurance. The strategic focus hypothesis states performance is higher for insurers that specialize in one line of business. The conglomeration hypothesis states performance is higher for insurers that operate in multiple lines of business. Our results provide evidence in support of the strategic focus hypothesis among US health insurers.     

Do momentum-based trading strategies work in emerging currency markets?

We appear to be the first to present correctly calculated results for the profitability of emerging currency momentum strategies using a long time series and a good cross-sectional sample. Using a 1985–2009 sample period and six emerging currencies, we find that long-short momentum strategies gained about 1–3% per annum after actual transaction costs. These profits declined through time (both economically and statistically), however, with most of our strategies losing money after transaction costs during the last five years of our sample. These results are similar to, though slightly more volatile in the cross section, than those published for major currencies.     

Is faster or slower trading better? An examination of order type execution speed and costs

We examine order type execution speed and costs for US equity traders. Marketable orders that execute slower exhibit lower execution costs. Those who remove liquidity faster and pay higher trading costs transact in smaller size, spread trading across more venues, take more liquidity, and are better informed. Nonmarketable limit orders that execute slower exhibit greater adverse selection; and larger, uninformed traders who concentrate their trading in fewer venues submit them. Our findings suggest that slowing down the trading process, when faster options exist, can benefit certain market participants who seek to cross the bid–ask spread.     

Should individual investors avoid the stock market outside of January?

Recent studies suggest that there is no reward for bearing risk outside of January, implying that individuals should invest in common stocks only in January. The purpose of this study is to demonstrate that this conclusion is far too strong given existing empirical evidence. Our results suggest that inferences drawn from the evidence can be altered greatly through small changes in the way the empirical question is addressed. There is sufficient evidence to doubt the conclusion that individuals are not compensated for the risk of participating in the stock market outside of January.     

Are individual investors liquidity providers around earnings announcements? Evidence from an emerging market

We first document that both buying and selling by individual investors before earnings announcements are negatively correlated with post-event abnormal returns using a unique dataset that allows us to precisely identify individual investor trading. Next, we show that both buying and selling by individual investors before earnings announcements not only are positively associated with contemporaneous returns, but also respond positively to past returns. This is consistent with the idea that individual investors act as liquidity providers (demanders) when they sell (buy) before earnings announcements. Individual investor buying and individual investor selling after earnings announcements confirm this point.     

Idiosyncratic volatility: An indicator of noise trading?

We investigate the market efficiency implications of firm-specific return variation measured by absolute idiosyncratic volatility. We find that the absolute idiosyncratic volatility (the variance of the residual from an asset-pricing model) displays a positive and robust relationship to mispricing, which reflects an increasing role of noise traders. Previous literature has produced similar – or opposing – results. We deepen our understanding of the previous conflicting results by showing that (1) market volatility by itself is associated with mispricing, (2) absolute idiosyncratic volatility is associated with mispricing even when controlling for market volatility, (3) the strength of the association between absolute idiosyncratic volatility and mispricing depends on the level of market volatility, and (4) absolute and relative measures of idiosyncratic volatility have opposing associations with mispricing. Our findings contribute to the existing literature by reconciling the mixed results for the relationship between idiosyncratic volatility and mispricing displayed in the previous literature.     

Are investors compensated for their sophistication and informedness for company takeovers – An Australian study

I determine the sophistication and information level in takeovers for four investor classes which are individuals, nominees (fund managers), superannuation (pension) funds and incorporated companies. I also calculate their takeover returns. I find that the superannuation funds are informed and sophisticated; individuals are informed but unsophisticated; nominees are uninformed but sophisticated; and incorporated companies are uninformed and unsophisticated traders, and that the investors realise a return which is commensurate with their information and sophistication. This study improves on existing takeover return research which assumes, as a group, institutions are synonymously informed and sophisticated, and individuals are synonymously unsophisticated and uninformed.     

Are scientific indicators of patent quality useful to investors?

Together with the number of patents and the value of R&D expenditures, scientific measures of patent quality give investors a useful basis upon which to judge the economic merit of the firm's inventive and innovative activity. Especially in the case of small cap and relatively low P/E high tech companies, we find a favorable stock-price influence when both the number of patents, the scientific merit of those patents, and R&D spending is high. Patent quality information also appears germane in the case of large cap high-tech companies with relatively high P/E ratios. In short, patent citation information may indeed help investors judge the future profit-earning potential of a firm's scientific discoveries.     

Are financial constraints of corporate activist investors perceived negatively?

This paper shows that financial constraints of corporate activist investors are negatively perceived by the market. By conducting an event study on a sample of 561 Schedule 13(D) filings disclosed by US corporations in the years 1996–2016, abnormal share price reactions in the [?10, \(+\)3] event window are about 10.8% lower for targets of financially constrained corporate investors. The average abnormal return for all targets is equal to 13.4%. This positive market response suggests that activism results in actual value improvement for the target. Yet, our analyses show that value improvements crucially depend on the investor’s access to external financing.     

Does high frequency algorithmic trading matter for non-AT investors?

The extant literature has typically measured the impact of high frequency algorithmic trading (HFT) on short term outcomes, in seconds or minutes. We focus on outcomes of concern for longer term non-algorithm investors. We find in some cases HFT increases volatility arising from news relating to fundamentals. Furthermore HFT is associated with the transmission of that volatility across industries, and that transmission is based on short term correlations. Finally, we find that the period since the introduction of algorithmic trading (AT) has seen increases in both the variances and covariances of return volatility in most industries. However increases in the variances has not been uniform in that it has fallen sharply in a few industries. The magnitudes are such that, overall, AT has coincided with reduced return volatility variance.     

Do individual investors’ stock recommendations in online communities contain investment value?

This paper investigates the investment value of individual investors’ stock recommendations within online communities. We find that aggregated recommendations contain no explicit investment value and that following these recommendations may have a negative impact on investment performance. Our results suggest that recommendations are mostly based on simple heuristics and concentrate on a small number of stocks. When restricting the set of recommendations to those made by the most experienced or successful recommenders, results marginally improve but still preclude profitable investment strategies. Experienced and successful recommenders seem more likely to avoid the most expensive pitfalls rather than actually exhibit superior investment performance.     

How does law affect finance? An examination of equity tunneling in Bulgaria

We model and test the mechanisms through which law affects tunneling and tunneling affects firm valuation. In 2002, Bulgaria adopted legal changes which limit equity tunneling through dilutive equity offerings and freezeouts. Following the changes, minority shareholders participate equally in equity offerings, where before they suffered severe dilution; freezeout offer price ratios quadruple; and Tobin's q rises sharply for firms at high risk of tunneling. The paper shows the importance of legal rules in limiting equity tunneling, the role of equity tunneling risk as a factor in determining equity prices, and substitution by controlling shareholders between different forms of tunneling.     

In whose interest? An examination of public sector governance in Brunei Darussalam

This paper uses institutional and elite theories to interpret research interviews concerned with public sector governance in the Sultanate of Brunei Darussalam over the period 1998–2005. Despite the suggestion from international agencies (such as the WTO and the IMF) to improve governance in the public sector, the recent governance reform in the post-royal dynasty crisis period in Brunei is overtly displayed and covertly ignored by the main actors. The results show that public governance is not well developed. Using elite and institutional theories it is understood that the royal family played a dominant role in legitimizing their absolute power (using elites) over governance in public sector organizations.     

Should investors include commodities in their portfolios after all? New evidence

This paper investigates whether an investor is made better off by including commodities in a portfolio that consists of traditional asset classes. First, we revisit the posed question within an in-sample setting by employing mean-variance and non-mean-variance spanning tests. Then, we form optimal portfolios by taking into account the higher order moments of the portfolio returns distribution and evaluate their out-of-sample performance. Under the in-sample setting, we find that commodities are beneficial only to non-mean-variance investors. However, these benefits are not preserved out-of-sample. Our findings challenge the alleged diversification benefits of commodities and are robust across a number of performance evaluation measures, utility functions and datasets. The results hold even when transaction costs are considered and across various sub-periods. Not surprisingly, the only exception appears over the 2005-2008 unprecedented commodity boom period.     

Are there common factors in individual commodity futures returns?

We explore whether there are common factors in the cross-section of individual commodity futures returns. We test various asset pricing models which have been employed for the equities market as well as models motivated by commodity pricing theories. The use of these families of models allows us also to test whether the commodities and equities market are integrated. In addition, we employ principal components factor models which do not require à priori specification of factors. We find that none of the models is successful. Our results imply that commodity markets are segmented from the equities market and they are considerably heterogeneous per se.