TESTING THE PREDICTIVE POWER OF EX-POST EFFICIENT PORTFOLIOS

Tested here is the hypothesis that portfolios selected from among ex-post efficient assets will attain better results ex-ante than by following the naive strategy of holding an equally weighted portfolio of all the assets. The tests are conducted using the returns of the one hundred mutual funds that were continuously in operation from 1959 to 1980. Ex-post efficient funds are identified using nine investment decision rules (Stochastic Dominance and Mean-Variance rules with and without riskless asset and the Geometric Mean rule). Ex-ante performance is assessed in terms of terminal wealth and expected utility. Results indicate that over the twenty-two years tested, significantly better performance could be attained ex-ante by investing in mutual funds selected by ex-post efficiency analysis using the distribution-free Second- and Third-Degree Stochastic Dominance tests with Riskless Asset as well as by the more traditional Mean-Variance test with Riskless Asset. Excess returns from using ex-post information exceed the substantial transaction costs incorporated in the analysis.     

OPTIMAL PORTFOLIOS: MARKOWITZ FULL COVARIANCE VERSUS SIMPLE SELECTION RULES

Two major problems faced by portfolio managers are estimating the risk and return characteristics of individual securities and combining individual security risk and return estimates into optimal portfolios. The second problem is investigated in this paper by using the simple ranking criteria suggested by Elton, Gruber, and Padberg (EGP). The empirical results indicate that the EGP procedure is effective in estimating Markowitz efficient portfolios and can be an effective screening procedure for large numbers of securities.     

BUSINESS CYCLES AND STOCK MARKET RETURNS: EVIDENCE USING INDUSTRY-BASED PORTFOLIOS

Much evidence has emerged recently that suggests stock returns are predictable. In representative agent consumption-based asset pricing models, asset returns are related to aggregate output and consumption through changes in the intertemporal marginal rate of substitution. An alternative view is that the amount of variation required in the intertemporal marginal rate of substitution is too large to be rationally explained. We shed further light on this debate by investigating whether the stock returns of certain sectors of the economy can predict future market returns even after controlling for the information contained in the aggregate market index. In the consumption-based models, aggregate output and consumption affect the discount rates of all assets synchronously; no particular sectoral return should have any more predictive ability than the others. We find evidence that the stock returns of five industry-based portfolios have significant information about future market returns that is not in the market index. This stylized empirical result is not consonant with existing models relating output to stock returns.     

INTEREST RATE RISK,MARKET VALUE,AND HEDGING FINANCIAL PORTFOLIOS

This paper derives theoretical hedge ratios for the financial portfolio that preserve its present value in the presence of interest rate risk. From a practical point of view and for any given portfolio, the existence of the financial futures market allows the investor to employ any of a number of different hedges, each of which approximately satisfies the theoretical condition. The theory indicates that wealth-preserving hedges depend on the interest elasticities (durations) of the spot assets and liabilities contained in the portfolio, portfolio leverage, and the interest elasticity (duration) of the financial instrument underlying the futures contract that is employed in constructing the hedge. Also, hedges designed to maintain net interest margin or net cash flow do not minimize exposure to interest rate risk.     

STOCK MARKET REACTION TO ANTICIPATED VERSUS SURPRISE RATING CHANGES

I examine whether bond rating changes can be anticipated by investors and test whether the stock price reaction to the eventual change varies as a result. All else equal, the market reaction to changes that could have been easily predicted should be significantly smaller than the reaction to changes that are largely a surprise. Although rating upgrades prove difficult to predict, approximately 20% of downgrades can be correctly predicted using a relatively small number of publicly available variables. There is no significant difference between the stock price reaction to anticipated versus unanticipated rating changes.     

IS THE TOKYO SPOT FOREIGN EXCHANGE MARKET CONSISTENT WITH THE EFFICIENT MARKET HYPOTHESIS?

Recent Studies in the area of foreign exchange market efficiency have employed time series analysis to test for the absence of long-run equilibrium or cointegration relationships among the exchange rates for the major currencies. Cointegration directly violates the weak form of the Efficient Market Hypothesis in a speculative efficient market (Granger, 1986). In this study, we address the efficiency of the Tokyo spot foreign exchange market while updating the test procedures developed by Phillips and Ouliaris (1990), Johansen and Juselius (1990) and Johansen (1991). Cointegration is found to be absent, showing that the Tokyo spot market is consistent with the efficient market hypothesis.     

WHY THE EFFICIENT MARKET OFFERS HOPE TO ACTIVE MANAGEMENT*

This article provides an interesting resolution of the paradox at the heart of efficient markets theory: namely, in financial markets that appear to be becoming ever more efficient, with fewer and fewer fund managers able to beat the S&P 500, why do investors engage in active trading? Why not index? The key to the author's defense of active management lies in its critique of economists' concept of “equilibrium prices.”     

市场有效理论及我国股票市场有效性的实证检验

我国股票市场近年来出现的一系列事件引发了人们的深刻思考,而传统的资本市场理论已无法圆满地解释我国股票市场现有的发展程度、发展阶段及有效性等问题.为此,本文提出了市场有效性理论.利用该理论,作者通过抽样统计,对我国股票市场的有效性进行了实证分析.本文的重点在于研究我国股票市场的发展层次即其有效性层次.首先通过随机游程和股价自回归检验方法得出了我国股票市场处于弱型有效的结论,然后针对目前关于有效性层次方面的争论,用事件研究法阐述了如下观点:我国股票市场目前正处于弱型有效市场层次,但并不具有半强型有效市场的特点.     

A NOTE ON THE EFFECTS OF EFFICIENCY CRITERIA AND PORTFOLIO SIZE ON CHARACTERISTICS OF EFFICIENT PORTFOLIOS*

Comparisons of the results of using alternative efficiency criteria for portfolio selection, while plentiful overseas, are seemingly scarce in Australia. Here, mean-variance efficient sets are compared with and found to be not too different from sets efficient according to second and third degree stochastic dominance. In examining the effect of increasing the number of securities allowed in each portfolio, it is found that the size of efficient sets of portfolios diminishes, as does the mean return and, most significantly, the variance of return for efficient portfolios.