The turn-of-the-year effect and tax-loss-selling by institutional investors

Prior studies attribute the turn-of-the-year effect whereby small capitalization stocks earn unusually high returns in early January to tax-loss-selling by individual investors and window-dressing by institutional investors. My results suggest that a significant portion of the effect on turn-of-the-year returns that prior studies attribute to window-dressing is actually attributable to tax-loss-selling by institutional investors. Among small capitalization stocks, I find that institutional investors with strong tax incentives and weak window-dressing incentives realize significantly more losses in the fourth quarter than in the first three quarters of the calendar year, and that their fourth quarter realized losses have a significant impact on turn-of-the-year returns. A one percentage point change in these institutional investors' fourth quarter realized losses scaled by a firm's market capitalization results in an increase of 47 basis points in the firm's average daily return over the first three trading days of January, which represents a 46 percent change for the mean firm.     

New evidence on the turn-of-the-year effect from closed-end fund IPOs

One of the most persistent securities anomalies is the january effect, whereby significant positive abnormal returns occur during the first few days of the calendar year, especially among small capitalization stocks. I detect a statistically significant January seasonal among a sample of closed-end stock funds that went public during the immediately preceding calendar year. However, contrary to prior research, the results indicate that the abnormal January returns are associated with year-end tax-loss-selling, but do not exhibit a small firm effect.     

Volume and turn-of-the-year behavior

This paper studies the trading characteristics of listed companies by size, and year-end behavior. There were no transactions on nearly 25% of the days for the smallest decile even at the turn of year which is an active trading period for small companies. As a result of low levels of trading and the regulations governing exchange specialists, transaction prices and quotations of small listed companies may require several days to fully reflect equilibrium price changes. The data confirm the existence of a year-end seasonal pattern in rates of return for small companies and suggest that there may be a seasonal pattern for large companies as well.     

Investing in the size factor

This paper investigates the role of the size factor for constructing investment portfolios and proposes a dynamic extension that accommodates the risk-free asset and time-varying weights. These weights are determined by a set of state variables given by the term structure of sovereign interest rates, variables describing market risk aversion such as the VIX index and the CRB Industrial return, and indexes reflecting investor sentiment towards the economic outlook. The empirical section explores the suitability of these state variables and analyses the out-of-sample performance of size factors idiosyncratic to the US, the UK and European financial markets that are compared against the dynamic version that optimizes the weights in each period. The results provide support to the different size factors except for periods of economic distress in which the optimal dynamic strategies are clearly superior.     

投奔西北 投奔西南

贸工大臣拜尔斯2000年9月5日宣布:贸工部向"地区选择扶持"(RSA)部门提供570万英镑的投资资助,旨在把北美的一家光电生产商JDS Uniphase的3.32亿英镑的新投资引向普利茅斯地区.预计该项投资有双重意义:其一是可为当地新创1,000个就业机会;其二是使英国西南部地区扩大知名度,表明该地区将成为经济发展的重要地区.     

Investing in Bankrupt Firms

We examine the investment characteristics of firms electing to enter bankruptcy, between 1973 and 1982. Comparisons are made before and after the Bankruptcy Reform Act of 1978. Our results indicate that the 1978 Act had no significant impact on bankruptcy decisions or resolutions for actively traded firms. Trading in bankrupt firms' securities is becoming more common, but no abnormal returns appear to be available. Systematic risk does not change significantly with the filing of bankruptcy, but there is a significant increase in return variance. The financial markets also react to various announcements of stages in the reorganization process.     

Investing in a relationship

A principal can make an investment anticipating a repeated relationship with an agent, but the agent may appropriate the returns through ex post bargaining. I study how this holdup problem and efficiency depend on the contracting environment. When investment returns are observable, informal contracts ex post can be more efficient than formal contracts, as they induce higher investment ex ante: the principal invests not only to generate direct returns, but also to improve relational incentives. Unobservability of returns increases the principal's ability to appropriate the returns but reduces her ability to improve incentives. The optimal information structure depends on bargaining power.     

投资到南非

中国企业家的又一投资机会 南非今天经济的发展,得益于大量的外资投入.在受到国际社会的严厉制裁之前,由于南非丰富的矿藏、完备的基础设施、先进的金融体制、英国式的法律政治制度及与西方世界的历史和文化联系,加上取之不尽的黑人廉价劳动力,使得南非成为西方资本的投资天堂.二战后至20世纪70年代初,外资在南非的收益率一直在20%～27%之间,高出在非洲其他国家收益的3～4倍,比在世界其他地区多50%～80%.20世纪80年代,由于国际制裁,大量外资撤资,南非经济受到沉重打击.     

The tax-loss selling hypothesis,market liquidity,and price pressure around the turn-of-the-year

In this paper, we use intra-day data for all stocks listed on the ISSM and provide new and direct evidence consistent with the tax-loss selling hypothesis. We find that (a) there is abnormal selling pressure prior to the year-end for stocks that have experienced large capital losses in the current and prior years (b) investors delay realizing capital gain by postponing the sale of capital gain stocks until after the new year (c) there is a significant decrease in the average trade size for stocks with large capital losses before the year-end and for stocks with capital gains in the new year, which suggests that individuals, rather than institutional investors, are the major sellers around the year-end (d) the tax-loss selling hypothesis, and not firm size or share price, is the fundamental explanation for abnormal January returns. Further, small or low share priced firms with capital gains do not experience abnormal returns in January. However, conditional on capital losses, small or low share priced firms magnify the turn-of-the-year effect (e) On average, the increase in selling activity adversely affects market liquidity by increasing bid-ask spreads and reducing depths. (f) The tax-loss selling pressure not only causes the price to be at the bid at the year-end, it also temporarily depresses the equilibrium price indicating the short run demand curve is not perfectly elastic (g) the year-end buying activity suggests that large investors buy capital loss stocks prior to the year-end to take advantage of the temporarily depressed price and capital gain stocks after the new year to reinvest the proceeds of the tax-loss selling.     

慎投印度高铁

在日前举行的第二次中印战略经济对话中,中印双方决定设立基础设施工作组,主管两国的高铁合作项目。对印度而言,与中国开展高铁合作所带来的潜在利益不言而喻。目前印度的基础设施在全球竞争力指数中仅排名第91位,其电力、交通、通信等领域暴露出的问题早已为世人所知。     

Investing in equity mutual funds

We construct optimal portfolios of equity funds by combining historical returns on funds and passive indexes with prior views about asset pricing and skill. By including both benchmark and nonbenchmark indexes, we distinguish pricing-model inaccuracy from managerial skill. Modest confidence in a pricing model helps construct portfolios with high Sharpe ratios. Investing in active mutual funds can be optimal even for investors who believe managers cannot outperform passive indexes. Optimal portfolios exclude hot-hand funds even for investors who believe momentum is priced. Our large universe of funds offers no close substitutes for the Fama-French and momentum benchmarks.     

艺术品,未来的投资之王?

“这几年艺术品投资比任何其他投资的回报都高,有的几年时间可以翻几百倍,我个人做什么都赔过钱．但投资艺术品从没赔过钱。几年前,有个台湾收藏家,给了我5张范曾的画,借了30万,后来钱没还,画就给我了,现在不到10年,这些画,一张就值80万。”     

Investing for the Long-run in European Real Estate

We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies among European stocks, bonds, real estate, and cash, when excess asset returns are predictable. Simulations are performed for scenarios involving different risk aversion levels, horizons, and statistical models capturing predictability in risk premia. Importantly, under one of the scenarios, the investor takes into account the parameter uncertainty implied by the use of estimated coefficients to characterize predictability. We find that real estate ought to play a significant role in optimal portfolio choices, with weights between 12 and 44%. Under plausible assumptions, the welfare costs of either ignoring predictability or restricting portfolio choices to traditional financial assets only are found to be in the order of 150–300 basis points per year. These results are robust to changes in the benchmarks and in the statistical framework.      

ESG Investing in Graham & Doddsville

The author describes how and why the world's best “business value investors” have long incorporated environmental, social, and governance (ESG) considerations into their investment decision‐making. As the main source of value in companies has increasingly shifted from tangible to intangible assets, many followers of Graham & Dodd have delivered exceptional investment results by taking an “earnings‐power” approach to identifying high‐quality businesses—businesses with enduring competitive advantages that are sustained through significant ongoing investment in their core capabilities and, increasingly, their important non‐investor “stakeholders.” While the ESG framework may be relatively new, it can be thought of as providing a lens through which to view the age‐old issue of “quality.” Graham & Dodd's 1934 classic guide to investing, Security Analysis, and Phil Fisher's 1958 bestseller, Common Stocks and Uncommon Profits, both identify a number of areas of analysis that would today be characterized as ESG. Regardless of whether they use the labels “E,” “S,” and “G,” investors who make judgments about earnings power and sustainable competitive advantage are routinely incorporating ESG considerations into their decision‐making. The challenge of assessing a company's sustainable competitive advantage requires analysis based on concepts such as customer franchise value, as well as intangibles like brands and intellectual property. For corporate managers communicating ESG priorities, and for investors analyzing ESG issues, the key is to focus on their relevance to the business. In this sense, corporate reporting on sustainability issues should be viewed as analogous to and an integral part of financial reporting, with a management focus on materiality and relevance (while avoiding a “promotional” approach) that is critical to credibility.     

21世纪投资技巧

21世纪,人们的钱逐渐多了起来,于是对未来生活、生存和发展的投资必须做出适当的选择。如今,搞投资、玩股票,已经不能再靠单纯的有钱和消息来保证不败了。中国也会有越来越多的人可以玩玩财富与投资的游戏了。那么如何实现投资收益的最大化呢?这的确需要掌握一些投资技巧。请看     

Investing in Europe Better German Stocks

As the Euro-zone strives for stabilizing and recovering, there＇s no better time to invest in German stock market.     

Trading and Investing in Volatility Products

Since the banking crisis the market for volatility exchange‐traded products has developed rapidly as it opens to clients beyond the large institutional investor pool. Speculation is driven by increasingly complex leveraged and inverse exposures including those that attempt to trade on significant roll costs in volatility futures curves. Longer‐term investors use these products for the purposes of equity diversification, driven by fears of an ongoing Eurozone crisis. We survey the burgeoning academic literature in this area and present a comprehensive and up‐to‐date comparison of the market and statistical characteristics of European and US exchange‐traded volatility products.