The objective of this paper is to investigate the relationship between audit committee characteristics (namely: audit committee size, financial experience, and audit committee independence) on performance, which includes financial, operating and stock performance. The study sample contained 106 corporations from the financial sector listed in the Amman Stock Exchange Market with a total of 212 observations during the 2008-2009 sample years. The results showed that the audit committee has an impact on financial and stock performance. It does not have an effect on operating performance.
{"title":"The Impact of Audit Committee Characteristics on the Performance: Evidence from Jordan","authors":"Dr. Adel Sarea","doi":"10.2139/ssrn.3648194","DOIUrl":"https://doi.org/10.2139/ssrn.3648194","url":null,"abstract":"The objective of this paper is to investigate the relationship between audit committee characteristics (namely: audit committee size, financial experience, and audit committee independence) on performance, which includes financial, operating and stock performance. The study sample contained 106 corporations from the financial sector listed in the Amman Stock Exchange Market with a total of 212 observations during the 2008-2009 sample years. The results showed that the audit committee has an impact on financial and stock performance. It does not have an effect on operating performance. <br>","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131474358","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 analyze the correlations of daily price returns for nine major cryptocurrencies between April 2013 and November 2018 and estimate their evolution using bivariate and multivariate modelling approaches. We detect pronounced time variation and fid these correlations to be generally increasing between early 2017 and late 2018. We then adopt a right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior (statistical instability) in the time series of the Network Value to Transactions (NVT) ratio (a measure of the dollar value of cryptocurrency transaction activity relative to its network value) of six cryptocurrencies. We show statistically significant evidence of mild explosiveness in all of them. At the end of 2017 and in 2018, several major cryptocurrencies experience significant (often simultaneous) instability associated with rising NVT ratios. Instability is a steady feature of cryptocurrency markets.
{"title":"Comovement and Instability in Cryptocurrency Markets","authors":"Pierangelo De Pace, Jayanth Rao","doi":"10.2139/ssrn.3523993","DOIUrl":"https://doi.org/10.2139/ssrn.3523993","url":null,"abstract":"We analyze the correlations of daily price returns for nine major cryptocurrencies between April 2013 and November 2018 and estimate their evolution using bivariate and multivariate modelling approaches. We detect pronounced time variation and fid these correlations to be generally increasing between early 2017 and late 2018. We then adopt a right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior (statistical instability) in the time series of the Network Value to Transactions (NVT) ratio (a measure of the dollar value of cryptocurrency transaction activity relative to its network value) of six cryptocurrencies. We show statistically significant evidence of mild explosiveness in all of them. At the end of 2017 and in 2018, several major cryptocurrencies experience significant (often simultaneous) instability associated with rising NVT ratios. Instability is a steady feature of cryptocurrency markets.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-07-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129916238","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 propose an asset pricing factor model constructed with semi-parametric characteristics-based mispricing and factor loading functions. We approximate the unknown functions by B-splines sieve where the number of B-splines coefficients is diverging. We estimate this model and test the existence of the mispricing function by a power enhanced hypothesis test. The enhanced test solves the low power problem caused by diverging B-spline coefficients, with the strengthened power approaches to one asymptotically. We also investigate the structure of mispricing components through Hierarchical K-means Clusterings. We apply our methodology to CRSP (Center for Research in Security Prices) and FRED (Federal Reserve Economic Data) data for the US stock market with one-year rolling windows during 1967-2017. This empirical study shows the presence of mispricing functions in certain time blocks. We also find that distinct clusters of the same characteristics lead to similar arbitrage returns, forming a “peer group” of arbitrage characteristics.
{"title":"Dynamic Peer Groups of Arbitrage Characteristics","authors":"Shuyi Ge, Shaoran Li, O. Linton","doi":"10.2139/ssrn.3638105","DOIUrl":"https://doi.org/10.2139/ssrn.3638105","url":null,"abstract":"We propose an asset pricing factor model constructed with semi-parametric characteristics-based mispricing and factor loading functions. We approximate the unknown functions by B-splines sieve where the number of B-splines coefficients is diverging. We estimate this model and test the existence of the mispricing function by a power enhanced hypothesis test. The enhanced test solves the low power problem caused by diverging B-spline coefficients, with the strengthened power approaches to one asymptotically. We also investigate the structure of mispricing components through Hierarchical K-means Clusterings. We apply our methodology to CRSP (Center for Research in Security Prices) and FRED (Federal Reserve Economic Data) data for the US stock market with one-year rolling windows during 1967-2017. This empirical study shows the presence of mispricing functions in certain time blocks. We also find that distinct clusters of the same characteristics lead to similar arbitrage returns, forming a “peer group” of arbitrage characteristics.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134018535","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 propose a parsimonious general equilibrium extension of the Black-Scholes economy that helps clarify how options' prices, expected returns, risk exposure, and optimal exercise policies respond to variations in the risk exposure of the underlying asset. The model allows one to separate the effects from changes in idiosyncratic versus systematic risk. Among the new insights we establish are that i) call prices typically respond negatively to increases in systematic risk, ii) the magnitude of call and put options' expected returns are monotonically decreasing in idiosyncratic risk, and iii) the optimal exercise date of an American put can be pushed backwards in time in response to an increase in systematic risk---decreasing the value of waiting. The effects of a change in risk on options are generally ambiguous because it affects their prices through two key channels---the volatility channel and the price channel---and a change in systematic risk causes a repricing of the underlying asset that may dominate the volatility channel. The comparative statics are robust to the presence of stochastic volatility, and thus yield internally consistent implications not only for the cross-section of options but also for the time-series of a particular option.
{"title":"Options and Risk","authors":"G. Bruno, Jørgen Haug","doi":"10.2139/ssrn.3633825","DOIUrl":"https://doi.org/10.2139/ssrn.3633825","url":null,"abstract":"We propose a parsimonious general equilibrium extension of the Black-Scholes economy that helps clarify how options' prices, expected returns, risk exposure, and optimal exercise policies respond to variations in the risk exposure of the underlying asset. The model allows one to separate the effects from changes in idiosyncratic versus systematic risk. Among the new insights we establish are that i) call prices typically respond negatively to increases in systematic risk, ii) the magnitude of call and put options' expected returns are monotonically decreasing in idiosyncratic risk, and iii) the optimal exercise date of an American put can be pushed backwards in time in response to an increase in systematic risk---decreasing the value of waiting. The effects of a change in risk on options are generally ambiguous because it affects their prices through two key channels---the volatility channel and the price channel---and a change in systematic risk causes a repricing of the underlying asset that may dominate the volatility channel. The comparative statics are robust to the presence of stochastic volatility, and thus yield internally consistent implications not only for the cross-section of options but also for the time-series of a particular option.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122991233","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}
Using four different asset pricing models to estimate the residual returns, I show empirically that there are no material differences in the statistical and economic significance between idiosyncratic momentum strategies based on different asset-pricing models. I also show that idiosyncratic momentum is priced in the cross-section of returns, but spanned by a combination of risk factors when the combination includes price momentum. Despite being explained by common risk factors, the results suggest that idiosyncratic momentum is a stronger factor than price momentum and has a lower exposure to earnings momentum than price momentum.
{"title":"Idiosyncratic Momentum and the Importance of the Asset Pricing Model","authors":"Simon Hovmark","doi":"10.2139/ssrn.3633108","DOIUrl":"https://doi.org/10.2139/ssrn.3633108","url":null,"abstract":"Using four different asset pricing models to estimate the residual returns, I show empirically that there are no material differences in the statistical and economic significance between idiosyncratic momentum strategies based on different asset-pricing models. I also show that idiosyncratic momentum is priced in the cross-section of returns, but spanned by a combination of risk factors when the combination includes price momentum. Despite being explained by common risk factors, the results suggest that idiosyncratic momentum is a stronger factor than price momentum and has a lower exposure to earnings momentum than price momentum.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124452382","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}
Abstract This paper provides a mispricing-based explanation for the negative relation between firm-level productivity and stock returns. Investors appear to underprice unproductive firms and overprice productive firms. We find evidence consistent with the speculative overpricing of productive firms driven by investor sentiment and short sale constraints. Investors erroneously extrapolate past productivity growth and its associated operating performance and stock returns, despite their subsequent reversals. Such mispricing is perpetuated because of limits to arbitrage and is partially corrected around earnings announcements when investors are surprised by unexpected earnings news. Decomposition analysis indicates that extrapolative mispricing and limits to arbitrage explain most of the return predictability of firm-level productivity.
{"title":"Mispricing Firm-level Productivity","authors":"Tze Chuan ‘Chewie’ Ang, F. Lam, K. Wei","doi":"10.2139/ssrn.3632567","DOIUrl":"https://doi.org/10.2139/ssrn.3632567","url":null,"abstract":"Abstract This paper provides a mispricing-based explanation for the negative relation between firm-level productivity and stock returns. Investors appear to underprice unproductive firms and overprice productive firms. We find evidence consistent with the speculative overpricing of productive firms driven by investor sentiment and short sale constraints. Investors erroneously extrapolate past productivity growth and its associated operating performance and stock returns, despite their subsequent reversals. Such mispricing is perpetuated because of limits to arbitrage and is partially corrected around earnings announcements when investors are surprised by unexpected earnings news. Decomposition analysis indicates that extrapolative mispricing and limits to arbitrage explain most of the return predictability of firm-level productivity.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127360929","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}
Investors with future-return-related information use it to adjust past decisions that no longer fit. Using this rationale, we decompose institutional trading into adjustive (adjusting past portfolio decisions) and implied (implied by past portfolio weights) trades. Adjustive trades positively predict future stock returns and earnings surprises, whereas implied trades negatively predict returns. The return-predictability of adjustive trades is strong across all stock, institution, portfolio turnover, and flow types. It declines over time but persists among institutions with moderate investment horizons. An institutional investor’s tendency to trade adjustively and the performance of adjustive trades for the top 20% of institutions are highly persistent. The results illustrate the distribution and evolvement of institutional investors’ informational advantages.
{"title":"Strategic bets: An Analysis of Institutional Investors’ Information Advantages","authors":"Yawen Jiao","doi":"10.2139/ssrn.3389091","DOIUrl":"https://doi.org/10.2139/ssrn.3389091","url":null,"abstract":"Investors with future-return-related information use it to adjust past decisions that no longer fit. Using this rationale, we decompose institutional trading into adjustive (adjusting past portfolio decisions) and implied (implied by past portfolio weights) trades. Adjustive trades positively predict future stock returns and earnings surprises, whereas implied trades negatively predict returns. The return-predictability of adjustive trades is strong across all stock, institution, portfolio turnover, and flow types. It declines over time but persists among institutions with moderate investment horizons. An institutional investor’s tendency to trade adjustively and the performance of adjustive trades for the top 20% of institutions are highly persistent. The results illustrate the distribution and evolvement of institutional investors’ informational advantages.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133361286","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 essay provides a gentle introduction to the concept of time dilation and its effect on riskless fixed income returns. A no-arbitrage argument is derived which demonstrates that investors are only indifferent between investment on earth and some other place in the universe, if companies offer returns that are contingent on the location of the individual investors. Since this has a direct impact on capital cost, time dilation could be seen as a form of factor endowment.
{"title":"Our Current Understanding of the Interstellar Economy","authors":"Gabriel Übleis","doi":"10.2139/ssrn.3623450","DOIUrl":"https://doi.org/10.2139/ssrn.3623450","url":null,"abstract":"This essay provides a gentle introduction to the concept of time dilation and its effect on riskless fixed income returns. A no-arbitrage argument is derived which demonstrates that investors are only indifferent between investment on earth and some other place in the universe, if companies offer returns that are contingent on the location of the individual investors. Since this has a direct impact on capital cost, time dilation could be seen as a form of factor endowment.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126308952","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}
Motivated by the theory of demand-based option pricing in imperfect markets, we examine the relation between short-sale constraints and equity option returns, conditional on the level of mis-pricing in the underlying stock. We report a monotonic relation between various measures of short-sales constraints and delta-hedged returns of put options on overpriced stocks. This relation is robust to controls for firm attributes and limits to arbitrage proxies. Our findings suggest that while investors drive up the demand for these put options, dealers command a high premium as compensation for the increased market making risk. We do not find a robust relation for either put options on under-priced stocks or call options.
{"title":"Mispricing, Short-Sale Constraints, and the Cross-Section of Option Returns","authors":"Lakshmi Shankar Ramachandran, Jitendra Tayal","doi":"10.2139/ssrn.3635130","DOIUrl":"https://doi.org/10.2139/ssrn.3635130","url":null,"abstract":"Motivated by the theory of demand-based option pricing in imperfect markets, we examine the relation between short-sale constraints and equity option returns, conditional on the level of mis-pricing in the underlying stock. We report a monotonic relation between various measures of short-sales constraints and delta-hedged returns of put options on overpriced stocks. This relation is robust to controls for firm attributes and limits to arbitrage proxies. Our findings suggest that while investors drive up the demand for these put options, dealers command a high premium as compensation for the increased market making risk. We do not find a robust relation for either put options on under-priced stocks or call options.","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133283236","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 paper presents an equilibrium bond-pricing model that jointly explains the upward-sloping nominal and real yield curves and the violation of the expectations hypothesis. Instead of relying on the inflation risk premium, the ambiguity-averse agent faces different amounts of Knightian uncertainty in the long run versus the short run; hence, the model-implied nominal and real short rate expectations are upward sloping under the agent’s worst-case equilibrium beliefs. The expectations hypothesis roughly holds under investors’ worst-case beliefs. The difference between the worst-case scenario and the true distribution makes realized excess returns on long-term bonds predictable. (JEL D81, D84, E23, E31, E43, E44, G12)
{"title":"Ambiguity, Nominal Bond Yields, and Real Bond Yields","authors":"G. Zhao","doi":"10.2139/ssrn.3762090","DOIUrl":"https://doi.org/10.2139/ssrn.3762090","url":null,"abstract":"This paper presents an equilibrium bond-pricing model that jointly explains the upward-sloping nominal and real yield curves and the violation of the expectations hypothesis. Instead of relying on the inflation risk premium, the ambiguity-averse agent faces different amounts of Knightian uncertainty in the long run versus the short run; hence, the model-implied nominal and real short rate expectations are upward sloping under the agent’s worst-case equilibrium beliefs. The expectations hypothesis roughly holds under investors’ worst-case beliefs. The difference between the worst-case scenario and the true distribution makes realized excess returns on long-term bonds predictable. (JEL D81, D84, E23, E31, E43, E44, G12)","PeriodicalId":209192,"journal":{"name":"ERN: Asset Pricing Models (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126315958","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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