This study examines if the change in aggregate Tobin’s q ratio (∆TBQ) can dynamically forecast return on the SP the reverse causality is not evident. The variance decomposition results reveal that ∆TBQ forecasts about 70% of SP at the two-quarter to eight-quarter horizons.
{"title":"Tobin's Q and Stock Market Performance","authors":"V. Sum","doi":"10.2139/ssrn.2293527","DOIUrl":"https://doi.org/10.2139/ssrn.2293527","url":null,"abstract":"This study examines if the change in aggregate Tobin’s q ratio (∆TBQ) can dynamically forecast return on the SP the reverse causality is not evident. The variance decomposition results reveal that ∆TBQ forecasts about 70% of SP at the two-quarter to eight-quarter horizons.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89600650","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In an influential paper, Frankel and Lee (1998) conclude that the stock return predictability of the value-to-price ratio (V/P) results from market mispricing. This paper confirms whether the V/P reflects the rational risk premiums associated with the V/P factor or is better explained by market inefficiency. Following Daniel and Titman (1997), this paper examines whether the V/P characteristics or the V/P factor loadings predict stock returns. The findings show that the V/P loadings are positively associated with average returns even after controlling for the V/P characteristics in both time series and cross-sectional tests. The overall results suggest that the mispricing explanation of the V/P effect is premature.
{"title":"Stock Return Predictability of Residual‐Income‐Based Valuation: Risk or Mispricing?","authors":"Lee-Seok Hwang, Woo‐Jong Lee","doi":"10.1111/abac.12007","DOIUrl":"https://doi.org/10.1111/abac.12007","url":null,"abstract":"In an influential paper, Frankel and Lee (1998) conclude that the stock return predictability of the value-to-price ratio (V/P) results from market mispricing. This paper confirms whether the V/P reflects the rational risk premiums associated with the V/P factor or is better explained by market inefficiency. Following Daniel and Titman (1997), this paper examines whether the V/P characteristics or the V/P factor loadings predict stock returns. The findings show that the V/P loadings are positively associated with average returns even after controlling for the V/P characteristics in both time series and cross-sectional tests. The overall results suggest that the mispricing explanation of the V/P effect is premature.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81993067","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The return rate in imprecision risk may be described as a fuzzy probabilistic set (Piasecki, 2011a). Properties of this return are considered in (Piasecki, 2011b) for any probability distribution of future value. On the other side, in (Piasecki, Tomasik, 2013) is shown that the Normal Inverse Gaussian distribution (NIG distribution) is the best matching probability distribution of logarithmic returns on Warsaw Stock Exchange. There will be presented the basic properties if imprecise return with NIG distribution of future value logarithm. The existence of expected return rate and basis risk characteristic will be discussed.
{"title":"Imprecise Return Rates on the Warsaw Stock Exchange","authors":"Krzysztof Piasecki","doi":"10.2139/ssrn.2270138","DOIUrl":"https://doi.org/10.2139/ssrn.2270138","url":null,"abstract":"The return rate in imprecision risk may be described as a fuzzy probabilistic set (Piasecki, 2011a). Properties of this return are considered in (Piasecki, 2011b) for any probability distribution of future value. On the other side, in (Piasecki, Tomasik, 2013) is shown that the Normal Inverse Gaussian distribution (NIG distribution) is the best matching probability distribution of logarithmic returns on Warsaw Stock Exchange. There will be presented the basic properties if imprecise return with NIG distribution of future value logarithm. The existence of expected return rate and basis risk characteristic will be discussed.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"69 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-05-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74218786","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Since the dismantling of the Bretton Woods system, gold has delivered average return comparable to the average return delivered by the aggregate US stock market. This suggests that none of the growth and technological improvement gains accrued to the financiers. In the context of modern asset pricing models, say the CAPM model or the Fama-French three factor model, gold is a risk free asset, as it has no covariation with the risk factors. The large average gold return is a Jensen's alpha not explained by covariation with what modern asset pricing models consider risk factors, i.e., the market, the growth, and the small firms risk factors.
{"title":"Two Gold Return Puzzles","authors":"Gueorgui I. Kolev","doi":"10.2139/ssrn.2266974","DOIUrl":"https://doi.org/10.2139/ssrn.2266974","url":null,"abstract":"Since the dismantling of the Bretton Woods system, gold has delivered average return comparable to the average return delivered by the aggregate US stock market. This suggests that none of the growth and technological improvement gains accrued to the financiers. In the context of modern asset pricing models, say the CAPM model or the Fama-French three factor model, gold is a risk free asset, as it has no covariation with the risk factors. The large average gold return is a Jensen's alpha not explained by covariation with what modern asset pricing models consider risk factors, i.e., the market, the growth, and the small firms risk factors.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-05-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76637273","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines the nature of the linkages between stock market prices and exchange rates in six advanced economies, namely the US, the UK, Canada, Japan, the euro area, and Switzerland, using data on the banking crisis between 2007 and 2010. Bivariate GARCH-BEKK models are estimated producing evidence of unidirectional spillovers from stock returns to exchange rate changes in the US and the UK, in the opposite direction in Canada, and of bidirectional spillovers in the euro area and Switzerland. Furthermore, causality-in-variance from stock returns to exchange rates changes is found in Japan and in the opposite direction in the euro area and Switzerland, whilst there is evidence of bidirectional feedback in the US and Canada. These findings imply limited opportunities for investors to diversify their assets during this period.
{"title":"On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010","authors":"G. Caporale, J. Hunter, F. Menla Ali","doi":"10.2139/ssrn.2248684","DOIUrl":"https://doi.org/10.2139/ssrn.2248684","url":null,"abstract":"This study examines the nature of the linkages between stock market prices and exchange rates in six advanced economies, namely the US, the UK, Canada, Japan, the euro area, and Switzerland, using data on the banking crisis between 2007 and 2010. Bivariate GARCH-BEKK models are estimated producing evidence of unidirectional spillovers from stock returns to exchange rate changes in the US and the UK, in the opposite direction in Canada, and of bidirectional spillovers in the euro area and Switzerland. Furthermore, causality-in-variance from stock returns to exchange rates changes is found in Japan and in the opposite direction in the euro area and Switzerland, whilst there is evidence of bidirectional feedback in the US and Canada. These findings imply limited opportunities for investors to diversify their assets during this period.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"14 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73537303","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the strategies of different types of investors (the insider, the information follower, and the price follower) who have asymmetric information about future news events and how these strategies affect stock prices. We show that stock price jumps occur when the insider receives accurate inside information or a low expected news event happens. In addition, the stock trading volume increases when the insider has private information. Our empirical tests show that the trading volume is high before and after stock price jumps. In this model, the price follower is in a disadvantaged position, which can be alleviated by the competition between the insider and the information follower.
{"title":"Stock Price Movements with Asymmetric Information","authors":"K. Wang, Walter Wang","doi":"10.2139/ssrn.2263631","DOIUrl":"https://doi.org/10.2139/ssrn.2263631","url":null,"abstract":"We examine the strategies of different types of investors (the insider, the information follower, and the price follower) who have asymmetric information about future news events and how these strategies affect stock prices. We show that stock price jumps occur when the insider receives accurate inside information or a low expected news event happens. In addition, the stock trading volume increases when the insider has private information. Our empirical tests show that the trading volume is high before and after stock price jumps. In this model, the price follower is in a disadvantaged position, which can be alleviated by the competition between the insider and the information follower.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"24 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83308260","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this note, I study further a new approach recently introduced for the hedging of derivatives in incomplete markets via non quadratic local risk minimization. A structure result is provided, which essentially shows the equivalence between non-quadratic risk minimization under the historical probability and quadratic local risk minimization under an equivalent, implicitly defined probability.
{"title":"Comparing Quadratic and Non-Quadratic Local Risk Minimization for the Hedging of Contingent Claims","authors":"F. Abergel","doi":"10.2139/ssrn.2208396","DOIUrl":"https://doi.org/10.2139/ssrn.2208396","url":null,"abstract":"In this note, I study further a new approach recently introduced for the hedging of derivatives in incomplete markets via non quadratic local risk minimization. A structure result is provided, which essentially shows the equivalence between non-quadratic risk minimization under the historical probability and quadratic local risk minimization under an equivalent, implicitly defined probability.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"80 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-01-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84575022","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There have been numerous articles and reports describing different cyclical patterns according to the historical data and charts, as well as predictions about future movements of stock prices in the guidance of the realized cycles. Presently, cycle in Singapore stock market is a hot topic with some experts in this area predicting that the STI will peak in 2006, while there have been some other Investment Guru(s) who suggests that the Singapore stock market follows a 14-year cycle, taking on alternatively 7-year bull and 7-year bear runs in the market. According to the 14-year cycle theory, the Singapore stock market is now at the third year of the 7-year Bull Run, which will lead to a peak for STI in year 2008. Will STI peak in 2006 or 2008? This article gives readers our point of view.
{"title":"When Will STI Peak?","authors":"W. Wong","doi":"10.2139/ssrn.2202676","DOIUrl":"https://doi.org/10.2139/ssrn.2202676","url":null,"abstract":"There have been numerous articles and reports describing different cyclical patterns according to the historical data and charts, as well as predictions about future movements of stock prices in the guidance of the realized cycles. Presently, cycle in Singapore stock market is a hot topic with some experts in this area predicting that the STI will peak in 2006, while there have been some other Investment Guru(s) who suggests that the Singapore stock market follows a 14-year cycle, taking on alternatively 7-year bull and 7-year bear runs in the market. According to the 14-year cycle theory, the Singapore stock market is now at the third year of the 7-year Bull Run, which will lead to a peak for STI in year 2008. Will STI peak in 2006 or 2008? This article gives readers our point of view.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"37 8 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-01-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72958112","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Algorithmic trading leads to contradictory conclusions of market participants and observers: While the former blame it to break the market, the latter find it makes it better. To explain these contradictory views, we create a few-type market simulation in a discrete-time, one-asset world. We analyse both the observable factors average bid-offer spread and volatility as well as the unobservable distribution of profits and losses of the market participants. We conclude that regarding HFT, market observers and market participants talk at cross-purposes.
{"title":"Algorithmic Trading vs. Bid-Offer Spreads, Volatility, and the Distribution of Profits and Losses: A Simulation","authors":"Arne Breuer, Hans-Peter Burghof","doi":"10.2139/ssrn.2200075","DOIUrl":"https://doi.org/10.2139/ssrn.2200075","url":null,"abstract":"Algorithmic trading leads to contradictory conclusions of market participants and observers: While the former blame it to break the market, the latter find it makes it better. To explain these contradictory views, we create a few-type market simulation in a discrete-time, one-asset world. We analyse both the observable factors average bid-offer spread and volatility as well as the unobservable distribution of profits and losses of the market participants. We conclude that regarding HFT, market observers and market participants talk at cross-purposes.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2013-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76009736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We provide a proof that volatility weighting over time increases the Sharpe or Information Ratio. The higher the degree of volatility smoothing achieved by volatility weighting, the higher the risk-adjusted performance. Our results apply to risky portfolios managed against a risk free or risky benchmark (so including alpha strategies) and to volatility targeting strategies. We provide an empirical illustration of our results.
{"title":"A Proof of the Optimality of Volatility Weighting Over Time","authors":"Winfried Hallerbach","doi":"10.2139/ssrn.2008176","DOIUrl":"https://doi.org/10.2139/ssrn.2008176","url":null,"abstract":"We provide a proof that volatility weighting over time increases the Sharpe or Information Ratio. The higher the degree of volatility smoothing achieved by volatility weighting, the higher the risk-adjusted performance. Our results apply to risky portfolios managed against a risk free or risky benchmark (so including alpha strategies) and to volatility targeting strategies. We provide an empirical illustration of our results.","PeriodicalId":11800,"journal":{"name":"ERN: Stock Market Risk (Topic)","volume":"123 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2012-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79485276","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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