Pub Date : 2019-11-11DOI: 10.1108/jcms-06-2019-0033
Zhixin Kang
Purpose The purpose of this paper is to test whether financial analysts’ rationality in making stocks’ earnings forecasts is homogenous or not across different information regimes in stocks’ past returns. Design/methodology/approach By treating stocks’ past returns as the information variable in this study, the authors employ a threshold regression model to capture and test threshold effects of stocks’ past returns on financial analysts’ rationality in making earnings forecasts in different information regimes. Findings The results show that three significant structural breaks and four respective information regimes are identified in stocks’ past returns in the threshold regression model. Across the four different information regimes, financial analysts react to stocks’ past returns quite differently when making one-quarter ahead earnings forecasts. Furthermore, the authors find that financial analysts are only rational in a certain information regime of stocks’ past returns depending on a certain return-window such as one-quarter, two-quarter or four-quarter time period. Originality/value This study is different from those in the existing literature by arguing that there could exist heterogeneity in financial analysts’ rationality in making earnings forecasts when using stocks’ past returns information. The finding that financial analysts react to stocks’ past returns differently in the different information regimes of past returns adds value to the research on financial analysts’ rationality.
{"title":"An investigation on impacts of structural changes in stocks’ past returns on financial analysts’ earnings forecasting rationality","authors":"Zhixin Kang","doi":"10.1108/jcms-06-2019-0033","DOIUrl":"https://doi.org/10.1108/jcms-06-2019-0033","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to test whether financial analysts’ rationality in making stocks’ earnings forecasts is homogenous or not across different information regimes in stocks’ past returns.\u0000\u0000\u0000Design/methodology/approach\u0000By treating stocks’ past returns as the information variable in this study, the authors employ a threshold regression model to capture and test threshold effects of stocks’ past returns on financial analysts’ rationality in making earnings forecasts in different information regimes.\u0000\u0000\u0000Findings\u0000The results show that three significant structural breaks and four respective information regimes are identified in stocks’ past returns in the threshold regression model. Across the four different information regimes, financial analysts react to stocks’ past returns quite differently when making one-quarter ahead earnings forecasts. Furthermore, the authors find that financial analysts are only rational in a certain information regime of stocks’ past returns depending on a certain return-window such as one-quarter, two-quarter or four-quarter time period.\u0000\u0000\u0000Originality/value\u0000This study is different from those in the existing literature by arguing that there could exist heterogeneity in financial analysts’ rationality in making earnings forecasts when using stocks’ past returns information. The finding that financial analysts react to stocks’ past returns differently in the different information regimes of past returns adds value to the research on financial analysts’ rationality.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124256924","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}
Pub Date : 2019-11-11DOI: 10.1108/jcms-05-2019-0032
A. Inci, R. Lagasse
Purpose This study investigates the role of cryptocurrencies in enhancing the performance of portfolios constructed from traditional asset classes. Using a long sample period covering not only the large value increases but also the dramatic declines during the beginning of 2018, the purpose of this paper is to provide a more complete analysis of the dynamic nature of cryptocurrencies as individual investment opportunities, and as components of optimal portfolios. Design/methodology/approach The mean-variance optimization technique of Merton (1990) is applied to develop the risk and return characteristics of the efficient portfolios, along with the optimal weights of the asset class components in the portfolios. Findings The authors provide evidence that as a single investment, the best cryptocurrency is Ripple, followed by Bitcoin and Litecoin. Furthermore, cryptocurrencies have a useful role in the optimal portfolio construction and in investments, in addition to their original purposes for which they were created. Bitcoin is the best cryptocurrency enhancing the characteristics of the optimal portfolio. Ripple and Litecoin follow in terms of their usefulness in an optimal portfolio as single cryptocurrencies. Including all these cryptocurrencies in a portfolio generates the best (most optimal) results. Contributions of the cryptocurrencies to the optimal portfolio evolve over time. Therefore, the results and conclusions of this study have no guarantee for continuation in an exact manner in the future. However, the increasing popularity and the unique characteristics of cryptocurrencies will assist their future presence in investment portfolios. Originality/value This is one of the first studies that examine the role of popular cryptocurrencies in enhancing a portfolio composed of traditional asset classes. The sample period is the largest that has been used in this strand of the literature, and allows to compare optimal portfolios in early/recent subsamples, and during the pre-/post-cryptocurrency crisis periods.
{"title":"Cryptocurrencies: applications and investment opportunities","authors":"A. Inci, R. Lagasse","doi":"10.1108/jcms-05-2019-0032","DOIUrl":"https://doi.org/10.1108/jcms-05-2019-0032","url":null,"abstract":"\u0000Purpose\u0000This study investigates the role of cryptocurrencies in enhancing the performance of portfolios constructed from traditional asset classes. Using a long sample period covering not only the large value increases but also the dramatic declines during the beginning of 2018, the purpose of this paper is to provide a more complete analysis of the dynamic nature of cryptocurrencies as individual investment opportunities, and as components of optimal portfolios.\u0000\u0000\u0000Design/methodology/approach\u0000The mean-variance optimization technique of Merton (1990) is applied to develop the risk and return characteristics of the efficient portfolios, along with the optimal weights of the asset class components in the portfolios.\u0000\u0000\u0000Findings\u0000The authors provide evidence that as a single investment, the best cryptocurrency is Ripple, followed by Bitcoin and Litecoin. Furthermore, cryptocurrencies have a useful role in the optimal portfolio construction and in investments, in addition to their original purposes for which they were created. Bitcoin is the best cryptocurrency enhancing the characteristics of the optimal portfolio. Ripple and Litecoin follow in terms of their usefulness in an optimal portfolio as single cryptocurrencies. Including all these cryptocurrencies in a portfolio generates the best (most optimal) results. Contributions of the cryptocurrencies to the optimal portfolio evolve over time. Therefore, the results and conclusions of this study have no guarantee for continuation in an exact manner in the future. However, the increasing popularity and the unique characteristics of cryptocurrencies will assist their future presence in investment portfolios.\u0000\u0000\u0000Originality/value\u0000This is one of the first studies that examine the role of popular cryptocurrencies in enhancing a portfolio composed of traditional asset classes. The sample period is the largest that has been used in this strand of the literature, and allows to compare optimal portfolios in early/recent subsamples, and during the pre-/post-cryptocurrency crisis periods.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129993698","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}
Pub Date : 2019-11-11DOI: 10.1108/jcms-09-2019-0044
R. Goyal, N. Kakabadse, A. Kakabadse
PurposeBoards presently are considered the most critical component in improving corporate governance (CG). Board diversity is increasingly being recommended as a tool for enhancing firm performance. Academic research and regulatory action regarding board diversity are focussed mainly on gender and ethnic composition of boards. However, the perspective of board members on board diversity and its impact is mostly missing. Moreover, while strategic leadership perspective suggests that a broader set of upper echelon’s characteristics may shape their actions, empirical evidence investigating the impact of less-explored attributes of diversity is almost non-existent. While the research on the input–output relationship between board diversity and firm performance remains equivocal, an intervening relationship between board diversity and board effectiveness needs to be understood. The purpose of this paper is to address all three limitations and explore the subject from board members’ perspective.Design/methodology/approachThe paper presents the findings of qualitative, exploratory research conducted by interviewing 42 board members of FTSE 350 companies. The data are analysed thematically.FindingsThe findings of the research suggest that board members of FTSE 350 companies consider the diversity of functional experience to be a critical requirement for boards’ role-effectiveness. Functionally diverse boards manage external dependencies more effectively and challenge assumptions of the executive more efficiently, thus improving CG. The findings significantly contribute to the literature on board diversity, as well as to strategic leadership theory and other applicable theories. The research is conducted with a relatively small but elite and difficult to approach set of 42 board members of FTSE 350 companies.Practical implicationsThe paper makes a unique and significant contribution to praxis by presenting the perspective of practitioners of CG – board members. The findings may encourage board nomination committees to seek board diversity beyond the gender and ethnic characteristics of directors. The findings may also be relevant for policy formulation, as they indicate that functionally diverse boards have improved effectiveness in a range of board roles.Social implicationsBoard diversity is about building a board that accurately reflects the make-up of the population and stakeholders of the society where the company operates. The aim of board diversity is to cultivate a broad range of attributes and perspectives that reflects real-world demographics as boards need to continue to earn their “licence to operate in society” as organisations have a responsibility to multiple constituents and stakeholders, including the community and the wider society within which they exist. Building social capital through diversity has value in the wider context of modern society and achieving social justice.Originality/valueThe paper makes an original and unique contribut
{"title":"Improving corporate governance with functional diversity on FTSE 350 boards: directors’ perspective","authors":"R. Goyal, N. Kakabadse, A. Kakabadse","doi":"10.1108/jcms-09-2019-0044","DOIUrl":"https://doi.org/10.1108/jcms-09-2019-0044","url":null,"abstract":"PurposeBoards presently are considered the most critical component in improving corporate governance (CG). Board diversity is increasingly being recommended as a tool for enhancing firm performance. Academic research and regulatory action regarding board diversity are focussed mainly on gender and ethnic composition of boards. However, the perspective of board members on board diversity and its impact is mostly missing. Moreover, while strategic leadership perspective suggests that a broader set of upper echelon’s characteristics may shape their actions, empirical evidence investigating the impact of less-explored attributes of diversity is almost non-existent. While the research on the input–output relationship between board diversity and firm performance remains equivocal, an intervening relationship between board diversity and board effectiveness needs to be understood. The purpose of this paper is to address all three limitations and explore the subject from board members’ perspective.Design/methodology/approachThe paper presents the findings of qualitative, exploratory research conducted by interviewing 42 board members of FTSE 350 companies. The data are analysed thematically.FindingsThe findings of the research suggest that board members of FTSE 350 companies consider the diversity of functional experience to be a critical requirement for boards’ role-effectiveness. Functionally diverse boards manage external dependencies more effectively and challenge assumptions of the executive more efficiently, thus improving CG. The findings significantly contribute to the literature on board diversity, as well as to strategic leadership theory and other applicable theories. The research is conducted with a relatively small but elite and difficult to approach set of 42 board members of FTSE 350 companies.Practical implicationsThe paper makes a unique and significant contribution to praxis by presenting the perspective of practitioners of CG – board members. The findings may encourage board nomination committees to seek board diversity beyond the gender and ethnic characteristics of directors. The findings may also be relevant for policy formulation, as they indicate that functionally diverse boards have improved effectiveness in a range of board roles.Social implicationsBoard diversity is about building a board that accurately reflects the make-up of the population and stakeholders of the society where the company operates. The aim of board diversity is to cultivate a broad range of attributes and perspectives that reflects real-world demographics as boards need to continue to earn their “licence to operate in society” as organisations have a responsibility to multiple constituents and stakeholders, including the community and the wider society within which they exist. Building social capital through diversity has value in the wider context of modern society and achieving social justice.Originality/valueThe paper makes an original and unique contribut","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121561721","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}
Pub Date : 2019-11-11DOI: 10.1108/jcms-09-2019-0045
Aykut Ahlatçioglu, Nesrin Okay
Purpose The purpose of this paper is to assess the information value of earnings announcements for the 2007–2017 period in Borsa Istanbul. Design/methodology/approach Abnormal volatility (AVOL) and abnormal absolute return (AAR) in the three-day window around the earnings announcement are used as proxies for information content. A pooled regression of AVOL and AAR is conducted to test for the existence of information content and analyze its time trend along with its determinants. Findings The authors find significantly positive AVOL and AAR which shows that earnings have information content for investors during the sample period. Furthermore, both proxies demonstrate a positive time trend after controlling for various firm characteristics and surprise measures. The authors take this as evidence that overall informativeness of earnings has increased over time. The authors observe that this increase is most prevalent for growth companies and earnings announcements with high absolute surprise. This study provides partial support for the hypothesis that value of earnings announcements has increased after an improvement in information dissemination technology with the inception of the online disclosure platform, KAP. Practical implications Understanding information value of earnings announcements is of interest for companies which prepare earnings reports, regulators who set standards on their content and frequency and investors which make investment decisions based on information released at these announcements. Originality/value There had been few non-US studies related to information value of earnings announcements. The overwhelming majority of these are conducted using limited data sets from the latter part of the last century and only analyze annual earnings announcements. The authors aim to shed light on the subject using a broad and recent sample of quarterly earnings announcements from a major emerging market, Turkey.
本文的目的是评估Borsa Istanbul 2007-2017年期间盈余公告的信息价值。设计/方法/方法使用收益公告前后三天窗口内的异常波动率(AVOL)和异常绝对收益(AAR)作为信息内容的代理。对AVOL和AAR进行了池回归，以检验信息含量的存在性，并分析其时间趋势及其决定因素。研究结果作者发现显著正的AVOL和AAR，这表明收益具有信息内容的投资者在样本期间。此外，在控制了各种企业特征和惊喜度量后，这两个代理都显示出正的时间趋势。作者以此为证据，证明收入的总体信息量随着时间的推移而增加。作者观察到，这种增长在成长型公司和具有高度绝对惊喜的收益公告中最为普遍。本研究部分支持了盈余公告价值在信息传播技术改进后随着在线披露平台KAP的出现而增加的假设。实际意义了解盈余公告的信息价值对编制盈余报告的公司、对其内容和频率制定标准的监管机构以及根据这些公告中发布的信息做出投资决策的投资者都很有意义。独创性/价值在美国以外，很少有与收益公告的信息价值相关的研究。其中绝大多数是使用上世纪下半叶的有限数据集进行的，并且只分析年度收益公告。作者试图通过对主要新兴市场土耳其最近公布的季度收益的广泛样本来阐明这一主题。
{"title":"A longitudinal analysis for informativeness of earnings announcements in Borsa Istanbul","authors":"Aykut Ahlatçioglu, Nesrin Okay","doi":"10.1108/jcms-09-2019-0045","DOIUrl":"https://doi.org/10.1108/jcms-09-2019-0045","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to assess the information value of earnings announcements for the 2007–2017 period in Borsa Istanbul.\u0000\u0000\u0000Design/methodology/approach\u0000Abnormal volatility (AVOL) and abnormal absolute return (AAR) in the three-day window around the earnings announcement are used as proxies for information content. A pooled regression of AVOL and AAR is conducted to test for the existence of information content and analyze its time trend along with its determinants.\u0000\u0000\u0000Findings\u0000The authors find significantly positive AVOL and AAR which shows that earnings have information content for investors during the sample period. Furthermore, both proxies demonstrate a positive time trend after controlling for various firm characteristics and surprise measures. The authors take this as evidence that overall informativeness of earnings has increased over time. The authors observe that this increase is most prevalent for growth companies and earnings announcements with high absolute surprise. This study provides partial support for the hypothesis that value of earnings announcements has increased after an improvement in information dissemination technology with the inception of the online disclosure platform, KAP.\u0000\u0000\u0000Practical implications\u0000Understanding information value of earnings announcements is of interest for companies which prepare earnings reports, regulators who set standards on their content and frequency and investors which make investment decisions based on information released at these announcements.\u0000\u0000\u0000Originality/value\u0000There had been few non-US studies related to information value of earnings announcements. The overwhelming majority of these are conducted using limited data sets from the latter part of the last century and only analyze annual earnings announcements. The authors aim to shed light on the subject using a broad and recent sample of quarterly earnings announcements from a major emerging market, Turkey.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"70 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121864532","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}
Pub Date : 2019-09-20DOI: 10.1108/jcms-06-2019-0034
Chamil W. Senarathne
Purpose The purpose of this paper is to examine whether Fama–French common risk-factor portfolio investors herd on a daily basis for five developed markets, namely, Europe, Japan, Asia Pacific ex Japan, North America and Globe. Design/methodology/approach To examine the herd behavior of common risk-factor portfolio investors, this paper utilizes the cross-sectional absolute deviations (CSAD) methodology, covering a daily data sampling period of July 1990 to January 2019 from Kenneth R. French-Data Library. CSAD driven by fundamental and non-fundamental information is assessed using Fama–French five-factor model. Findings The results do not provide evidence for herding under normal market conditions, either when reacting to fundamental information or non-fundamental information, for any region under consideration. However, Fama–French common risk-factor portfolio investors mimic the underlying risk factors in returns related to size and book-to-market value, size and operating profitability, size and investment and size and momentum of the equity stocks in European and Japanese markets during crisis period. Also, no considerable evidence is found for herding (on fundamental information) under crisis and up-market conditions except for Japan. Ancillary findings are discussed under conclusion. Research limitations/implications Further research on new risk factors explaining stock return variation may help improve the model performance. The performance can be improved by adding new risk factors that are free from behavioral bias but significant in explaining common stock return variation. Also, it is necessary to revisit the existing common risk factors in order to understand behavioral aspects that may affect cost of capital calculations (e.g. pricing errors) and valuation of investment portfolios. Originality/value This is the first paper that examines the herd behavior (fundamental and non-fundamental) of Fama–French common risk-factor investors using five-factor model.
{"title":"Do Fama–French common risk-factor portfolio investors herd on a daily basis? Implications for common risk-factor regressions","authors":"Chamil W. Senarathne","doi":"10.1108/jcms-06-2019-0034","DOIUrl":"https://doi.org/10.1108/jcms-06-2019-0034","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to examine whether Fama–French common risk-factor portfolio investors herd on a daily basis for five developed markets, namely, Europe, Japan, Asia Pacific ex Japan, North America and Globe.\u0000\u0000\u0000Design/methodology/approach\u0000To examine the herd behavior of common risk-factor portfolio investors, this paper utilizes the cross-sectional absolute deviations (CSAD) methodology, covering a daily data sampling period of July 1990 to January 2019 from Kenneth R. French-Data Library. CSAD driven by fundamental and non-fundamental information is assessed using Fama–French five-factor model.\u0000\u0000\u0000Findings\u0000The results do not provide evidence for herding under normal market conditions, either when reacting to fundamental information or non-fundamental information, for any region under consideration. However, Fama–French common risk-factor portfolio investors mimic the underlying risk factors in returns related to size and book-to-market value, size and operating profitability, size and investment and size and momentum of the equity stocks in European and Japanese markets during crisis period. Also, no considerable evidence is found for herding (on fundamental information) under crisis and up-market conditions except for Japan. Ancillary findings are discussed under conclusion.\u0000\u0000\u0000Research limitations/implications\u0000Further research on new risk factors explaining stock return variation may help improve the model performance. The performance can be improved by adding new risk factors that are free from behavioral bias but significant in explaining common stock return variation. Also, it is necessary to revisit the existing common risk factors in order to understand behavioral aspects that may affect cost of capital calculations (e.g. pricing errors) and valuation of investment portfolios.\u0000\u0000\u0000Originality/value\u0000This is the first paper that examines the herd behavior (fundamental and non-fundamental) of Fama–French common risk-factor investors using five-factor model.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"78 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116236054","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}
Pub Date : 2019-07-08DOI: 10.1108/JCMS-04-2019-0016
Halil Kiymaz
Purpose The purpose of this paper is to examine socially responsible investment (SRI) fund performance and investigate the factors influencing fund performance. Design/methodology/approach The study uses return data from the Morningstar database for 152 SRI funds from January 1995 to May 2015. The initial analysis includes the use of various risk-adjusted performance measures, including Sharpe ratio, Treynor ratio, Information ratio, Sortino ratio and M2. The study also uses four factor models, including Jensen single-factor model, Fama–French three-factor model, Carhart four-factor model and Fama–French five-factor model to explain SRI fund returns. Finally, a cross-sectional regression analysis is applied to investigate the determinants of SRI fund returns. Findings The results show that, on average, the SRI funds provide comparable risk-adjusted returns relative to various benchmark market indices. Market factor is significant in explaining SRI fund returns. Examining each factor model, the results do not support Fama–French’s three-factor model as neither size nor value factor is significant. The author finds weak support for Carhart’s momentum factor along with the market factor. Finally, the Fama–French five-factor model shows market, size and operating profit factors explain SRI fund returns. The study also finds the fund performance is stronger for funds with the higher turnover ratio, the larger fund size and more managerial experience and lower for funds with higher expense ratio. Also, funds formed with negative screening perform better than positive or mixed screened funds. Originality/value SRI funds have received considerable attention from investors. This study contributes to the literature by examining SRI fund performance and investigating factors influencing their performance using multiple factor models and cross-sectional regression analysis. The findings are relevant for investors who demand responsible investment opportunities without sacrificing returns for nonfinancial screenings. Findings also suggest that investors should consider fund characteristics when selecting SRI funds.
{"title":"Factors influencing SRI fund performance","authors":"Halil Kiymaz","doi":"10.1108/JCMS-04-2019-0016","DOIUrl":"https://doi.org/10.1108/JCMS-04-2019-0016","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to examine socially responsible investment (SRI) fund performance and investigate the factors influencing fund performance.\u0000\u0000\u0000Design/methodology/approach\u0000The study uses return data from the Morningstar database for 152 SRI funds from January 1995 to May 2015. The initial analysis includes the use of various risk-adjusted performance measures, including Sharpe ratio, Treynor ratio, Information ratio, Sortino ratio and M2. The study also uses four factor models, including Jensen single-factor model, Fama–French three-factor model, Carhart four-factor model and Fama–French five-factor model to explain SRI fund returns. Finally, a cross-sectional regression analysis is applied to investigate the determinants of SRI fund returns.\u0000\u0000\u0000Findings\u0000The results show that, on average, the SRI funds provide comparable risk-adjusted returns relative to various benchmark market indices. Market factor is significant in explaining SRI fund returns. Examining each factor model, the results do not support Fama–French’s three-factor model as neither size nor value factor is significant. The author finds weak support for Carhart’s momentum factor along with the market factor. Finally, the Fama–French five-factor model shows market, size and operating profit factors explain SRI fund returns. The study also finds the fund performance is stronger for funds with the higher turnover ratio, the larger fund size and more managerial experience and lower for funds with higher expense ratio. Also, funds formed with negative screening perform better than positive or mixed screened funds.\u0000\u0000\u0000Originality/value\u0000SRI funds have received considerable attention from investors. This study contributes to the literature by examining SRI fund performance and investigating factors influencing their performance using multiple factor models and cross-sectional regression analysis. The findings are relevant for investors who demand responsible investment opportunities without sacrificing returns for nonfinancial screenings. Findings also suggest that investors should consider fund characteristics when selecting SRI funds.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"38 3","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114042665","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}
Pub Date : 2019-07-08DOI: 10.1108/JCMS-03-2019-0013
T. Kuzubaş, Burak Saltoǧlu, Ayberk Sert, Ayhan Yüksel
Purpose The purpose of this paper is to provide an in-depth performance evaluation of funds offered by the Turkish pension system. Design/methodology/approach This paper compares aggregate fund index returns with the corresponding asset class returns, estimates a factor model to decompose excess returns to factor exposures, i.e., β return and excess return originating from residual α and analyzes persistence of fund returns using migration tables and Fama–MacBeth regressions and tests for market timing ability. Findings Majority of pension funds are unable to generate excess returns. Majority of funds are unable to generate a positive α and fund returns are predominantly driven factor exposures. There is evidence for slight persistence in returns, mainly due to factor exposures and funds do not exhibit market timing ability. Originality/value In this paper, the authors perform an in-depth analysis of pension fund performance for the Turkish pension fund system. The authors identify weaknesses and strengths of the pension fund industry and provide policy recommendations for a better design of pension fund system.
{"title":"Performance evaluation of the Turkish pension fund system","authors":"T. Kuzubaş, Burak Saltoǧlu, Ayberk Sert, Ayhan Yüksel","doi":"10.1108/JCMS-03-2019-0013","DOIUrl":"https://doi.org/10.1108/JCMS-03-2019-0013","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to provide an in-depth performance evaluation of funds offered by the Turkish pension system.\u0000\u0000\u0000Design/methodology/approach\u0000This paper compares aggregate fund index returns with the corresponding asset class returns, estimates a factor model to decompose excess returns to factor exposures, i.e., β return and excess return originating from residual α and analyzes persistence of fund returns using migration tables and Fama–MacBeth regressions and tests for market timing ability.\u0000\u0000\u0000Findings\u0000Majority of pension funds are unable to generate excess returns. Majority of funds are unable to generate a positive α and fund returns are predominantly driven factor exposures. There is evidence for slight persistence in returns, mainly due to factor exposures and funds do not exhibit market timing ability.\u0000\u0000\u0000Originality/value\u0000In this paper, the authors perform an in-depth analysis of pension fund performance for the Turkish pension fund system. The authors identify weaknesses and strengths of the pension fund industry and provide policy recommendations for a better design of pension fund system.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"407 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115323235","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}
Pub Date : 2019-07-08DOI: 10.1108/JCMS-06-2018-0024
Anqi Xiong, A. Akansu
Purpose Transaction cost becomes significant when one holds many securities in a large portfolio where capital allocations are frequently rebalanced due to variations in non-stationary statistical characteristics of the asset returns. The purpose of this paper is to employ a sparsing method to sparse the eigenportfolios, so that the transaction cost can be reduced and without any loss of its performance. Design/methodology/approach In this paper, the authors have designed pdf-optimized mid-tread Lloyd-Max quantizers based on the distribution of each eigenportfolio, and then employed them to sparse the eigenportfolios, so those small size orders may usually be ignored (sparsed), as the result, the trading costs have been reduced. Findings The authors find that the sparsing technique addressed in this paper is methodic, easy to implement for large size portfolios and it offers significant reduction in transaction cost without any loss of performance. Originality/value In this paper, the authors investigated the performance the sparsed eigenportfolios of stock returns in S&P500 Index. It is shown that the sparsing method is simple to implement and it provides high levels of sparsity without causing PNL loss. Therefore, transaction cost of managing a large size portfolio is reduced by employing such an efficient sparsity method.
{"title":"On sparsity of eigenportfolios to reduce transaction cost","authors":"Anqi Xiong, A. Akansu","doi":"10.1108/JCMS-06-2018-0024","DOIUrl":"https://doi.org/10.1108/JCMS-06-2018-0024","url":null,"abstract":"\u0000Purpose\u0000Transaction cost becomes significant when one holds many securities in a large portfolio where capital allocations are frequently rebalanced due to variations in non-stationary statistical characteristics of the asset returns. The purpose of this paper is to employ a sparsing method to sparse the eigenportfolios, so that the transaction cost can be reduced and without any loss of its performance.\u0000\u0000\u0000Design/methodology/approach\u0000In this paper, the authors have designed pdf-optimized mid-tread Lloyd-Max quantizers based on the distribution of each eigenportfolio, and then employed them to sparse the eigenportfolios, so those small size orders may usually be ignored (sparsed), as the result, the trading costs have been reduced.\u0000\u0000\u0000Findings\u0000The authors find that the sparsing technique addressed in this paper is methodic, easy to implement for large size portfolios and it offers significant reduction in transaction cost without any loss of performance.\u0000\u0000\u0000Originality/value\u0000In this paper, the authors investigated the performance the sparsed eigenportfolios of stock returns in S&P500 Index. It is shown that the sparsing method is simple to implement and it provides high levels of sparsity without causing PNL loss. Therefore, transaction cost of managing a large size portfolio is reduced by employing such an efficient sparsity method.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128145589","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}
Pub Date : 2019-06-20DOI: 10.1108/JCMS-03-2019-0014
Albert Rapp
Purpose The purpose of this paper is to investigate whether sentiment and mood, which are distinct theoretical concepts, can also be distinguished empirically. Design/methodology/approach Using a sample of German small-cap stocks and linear techniques, the effect of sentiment and mood on short-term abnormal stock return following earnings announcements is tested separately. Findings Mood tends to be a positive factor in predicting short-term abnormal stock return, as its biologically based impact uniformly affects the risk aversion of all market participants. Notably, negative mood influences stock return significantly negatively. Sentiment is no factor, however, as its cognitively based impact affects only unsophisticated investors, namely, their cash-flow expectations. Research limitations/implications As the sample is restricted to small-cap stocks from a single stock market and only two proxies of sentiment and mood, respectively, are used, the findings should be generalized with caution. Future research might investigate other markets and employ different proxies of sentiment and mood. Practical implications Market participants should be aware of the different effect of sentiment and mood on stock return and adjust investment strategies accordingly. Social implications As sophisticated investors are likely to profit from the irrational behavior of unsophisticated investors, who are prone to sentiment, the financial literacy of retail investors should be enhanced. Originality/value This paper is unique in distinguishing between sentiment and mood, both theoretically and empirically. Such distinction was largely ignored by related past research.
{"title":"Sentiment versus mood: a conceptual and empirical investigation","authors":"Albert Rapp","doi":"10.1108/JCMS-03-2019-0014","DOIUrl":"https://doi.org/10.1108/JCMS-03-2019-0014","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to investigate whether sentiment and mood, which are distinct theoretical concepts, can also be distinguished empirically.\u0000\u0000\u0000Design/methodology/approach\u0000Using a sample of German small-cap stocks and linear techniques, the effect of sentiment and mood on short-term abnormal stock return following earnings announcements is tested separately.\u0000\u0000\u0000Findings\u0000Mood tends to be a positive factor in predicting short-term abnormal stock return, as its biologically based impact uniformly affects the risk aversion of all market participants. Notably, negative mood influences stock return significantly negatively. Sentiment is no factor, however, as its cognitively based impact affects only unsophisticated investors, namely, their cash-flow expectations.\u0000\u0000\u0000Research limitations/implications\u0000As the sample is restricted to small-cap stocks from a single stock market and only two proxies of sentiment and mood, respectively, are used, the findings should be generalized with caution. Future research might investigate other markets and employ different proxies of sentiment and mood.\u0000\u0000\u0000Practical implications\u0000Market participants should be aware of the different effect of sentiment and mood on stock return and adjust investment strategies accordingly.\u0000\u0000\u0000Social implications\u0000As sophisticated investors are likely to profit from the irrational behavior of unsophisticated investors, who are prone to sentiment, the financial literacy of retail investors should be enhanced.\u0000\u0000\u0000Originality/value\u0000This paper is unique in distinguishing between sentiment and mood, both theoretically and empirically. Such distinction was largely ignored by related past research.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125702042","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}
Pub Date : 2019-06-18DOI: 10.1108/JCMS-03-2019-0009
Ming‐Te Lee, K. Nien
Purpose The purpose of this paper is to address the opposing views of the relationship between directors’ and officers’ liability insurance (D&O insurance) and stock price crash risk in a major Asian emerging stock market. Design/methodology/approach This paper finds an endogenous relationship between D&O insurance and stock price crash risk. Hence, the two-stage least squares regression analysis is used to address the endogeneity issue when the relationship is examined. Moreover, this paper further controls the quality of other corporate governance mechanisms to investigate whether D&O insurance still has an effect on stock price crash risk. Findings The effect of D&O insurance coverage is significantly negatively related to firm-specific stock price crash risk in Taiwan. More importantly, even when the quality of other corporate governance mechanisms is controlled, the negative relationship between D&O insurance coverage and firm-specific stock price crash risk remains significant. The evidence supports that D&O insurance serves as an effective external monitoring mechanism, strengthens corporate governance, and thus reduces stock price crash risk. Originality/value Emerging Asian markets suffer a dearth of research on the relationship of D&O insurance coverage and the firm-specific stock price crash risk. Investigating the relationship in Taiwan, the present study fills the research void. The findings show that D&O insurance plays an important role in reducing stock price crash risk of Taiwanese firms even when other corporate governance mechanisms are in place.
{"title":"Does D&O insurance matter for stock price crash risk? Evidence from an Asian emerging market","authors":"Ming‐Te Lee, K. Nien","doi":"10.1108/JCMS-03-2019-0009","DOIUrl":"https://doi.org/10.1108/JCMS-03-2019-0009","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to address the opposing views of the relationship between directors’ and officers’ liability insurance (D&O insurance) and stock price crash risk in a major Asian emerging stock market.\u0000\u0000\u0000Design/methodology/approach\u0000This paper finds an endogenous relationship between D&O insurance and stock price crash risk. Hence, the two-stage least squares regression analysis is used to address the endogeneity issue when the relationship is examined. Moreover, this paper further controls the quality of other corporate governance mechanisms to investigate whether D&O insurance still has an effect on stock price crash risk.\u0000\u0000\u0000Findings\u0000The effect of D&O insurance coverage is significantly negatively related to firm-specific stock price crash risk in Taiwan. More importantly, even when the quality of other corporate governance mechanisms is controlled, the negative relationship between D&O insurance coverage and firm-specific stock price crash risk remains significant. The evidence supports that D&O insurance serves as an effective external monitoring mechanism, strengthens corporate governance, and thus reduces stock price crash risk.\u0000\u0000\u0000Originality/value\u0000Emerging Asian markets suffer a dearth of research on the relationship of D&O insurance coverage and the firm-specific stock price crash risk. Investigating the relationship in Taiwan, the present study fills the research void. The findings show that D&O insurance plays an important role in reducing stock price crash risk of Taiwanese firms even when other corporate governance mechanisms are in place.\u0000","PeriodicalId":118429,"journal":{"name":"Journal of Capital Markets Studies","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121395182","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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