Abstract We are deeply saddened by the passing of our colleague and friend, Craig Holden. Craig was the Gregg T. and Judith A. Summerville Chair of Finance at the Kelley School of Business at Indiana University and the current Department Chair. He was a prolific scholar and advisor to many students. In his role as SFS Secretary/Treasurer, which he began in 2012, Craig was a tremendous contributor to the SFS and its journals. He was a champion of international research collaboration, online publication, and was instrumental in improvements that changed how we interact with papers online. Most recently, when the 2020 Cavalcade was going to be canceled due to COVID-19, Craig volunteered to host the entire event virtually with the Kelley School. With only a few weeks of lead time, he managed to design an online conference format that was a great success and serves as a model for many other conferences. Craig was a wonderful colleague who cared greatly for his coworkers, his students, and for the profession. He spoke fondly of his family, of the Kelley School of Business, and of UCLA, where he earned his PhD. The SFS is better for his involvement these past nine years, and we will miss him greatly.
我们对同事和朋友克雷格·霍尔顿的逝世深感悲痛。Craig曾担任印第安纳大学凯利商学院的Gregg T. and Judith A. Summerville金融学主席，现任系主任。他是一位多产的学者，也是许多学生的导师。Craig于2012年开始担任SFS秘书/财务主管，他对SFS及其期刊做出了巨大贡献。他是国际研究合作和在线出版的倡导者，在改变我们与在线论文互动的方式方面发挥了重要作用。最近，当2020年的Cavalcade由于COVID-19而被取消时，克雷格自愿与凯利学校一起主持整个活动。在短短几周的筹备时间内，他设法设计了一种在线会议形式，取得了巨大的成功，并成为许多其他会议的典范。克雷格是一位非常出色的同事，他非常关心他的同事、学生和整个行业。他深情地谈到了他的家庭、凯利商学院(Kelley School of Business)和他获得博士学位的加州大学洛杉矶分校(UCLA)。因为他的参与，这九年我们的工作更出色了，我们会非常想念他。
{"title":"In Memoriam: Craig W. Holden","authors":"","doi":"10.1093/rapstu/raab014","DOIUrl":"https://doi.org/10.1093/rapstu/raab014","url":null,"abstract":"Abstract We are deeply saddened by the passing of our colleague and friend, Craig Holden. Craig was the Gregg T. and Judith A. Summerville Chair of Finance at the Kelley School of Business at Indiana University and the current Department Chair. He was a prolific scholar and advisor to many students. In his role as SFS Secretary/Treasurer, which he began in 2012, Craig was a tremendous contributor to the SFS and its journals. He was a champion of international research collaboration, online publication, and was instrumental in improvements that changed how we interact with papers online. Most recently, when the 2020 Cavalcade was going to be canceled due to COVID-19, Craig volunteered to host the entire event virtually with the Kelley School. With only a few weeks of lead time, he managed to design an online conference format that was a great success and serves as a model for many other conferences. Craig was a wonderful colleague who cared greatly for his coworkers, his students, and for the profession. He spoke fondly of his family, of the Kelley School of Business, and of UCLA, where he earned his PhD. The SFS is better for his involvement these past nine years, and we will miss him greatly.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-05-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/rapstu/raab014","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48750443","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 exploit detailed transaction and position data for a sample of long-short equity hedge funds to study the trading activity of fundamental investors. We find that hedge funds exhibit skill in opening positions, but that they close their positions too early, thereby forgoing about one-third of the trades’ potential profitability. We explain this behavior with the limits of arbitrage: hedge funds close positions early in order to reallocate their capital to more profitable investments and/or to accommodate tightened financial constraints. Consistent with this view, we document that hedge funds leave more money on the table after opening new positions, negative returns, or increases in funding constraints and volatility. (JEL G11, G12, G14, G15)
{"title":"Fundamental Arbitrage under the Microscope: Evidence from Detailed Hedge Fund Transaction Data","authors":"von Beschwitz B, Lunghi S, Schmidt D, et al.","doi":"10.1093/rapstu/raab013","DOIUrl":"https://doi.org/10.1093/rapstu/raab013","url":null,"abstract":"<span><div>Abstract</div>We exploit detailed transaction and position data for a sample of long-short equity hedge funds to study the trading activity of fundamental investors. We find that hedge funds exhibit skill in opening positions, but that they close their positions too early, thereby forgoing about one-third of the trades’ potential profitability. We explain this behavior with the limits of arbitrage: hedge funds close positions early in order to reallocate their capital to more profitable investments and/or to accommodate tightened financial constraints. Consistent with this view, we document that hedge funds leave more money on the table after opening new positions, negative returns, or increases in funding constraints and volatility. (<span style=\"font-style:italic;\">JEL</span> G11, G12, G14, G15)</span>","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138512369","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}
Market prices are noisy signals of economic fundamentals. In a two-period model, we show that if the central bank uses market prices as guidance for intervention, large strategic investors who benefit from high prices would depress market prices to induce a market-supportive intervention. Stronger anticipated interventions lead to deeper price depressions preintervention and sharper price reversals post-intervention. The central bank intervention harms strategic investors even though it is the investors who tried to mislead the central bank. The model predicts a V-shaped price pattern around central bank interventions, consistent with recent evidence. (JEL G14, G18)
{"title":"Strategic Trading When Central Bank Intervention Is Predictable","authors":"Liyan Yang, Haoxiang Zhu","doi":"10.1093/rapstu/raab011","DOIUrl":"https://doi.org/10.1093/rapstu/raab011","url":null,"abstract":"Market prices are noisy signals of economic fundamentals. In a two-period model, we show that if the central bank uses market prices as guidance for intervention, large strategic investors who benefit from high prices would depress market prices to induce a market-supportive intervention. Stronger anticipated interventions lead to deeper price depressions preintervention and sharper price reversals post-intervention. The central bank intervention harms strategic investors even though it is the investors who tried to mislead the central bank. The model predicts a V-shaped price pattern around central bank interventions, consistent with recent evidence. (JEL G14, G18)","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-04-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138512356","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 : 2021-04-10eCollection Date: 2021-12-01DOI: 10.1093/rapstu/raab010
Jussi Keppo, Tyler Shumway, Daniel Weagley
We document significant persistence in the market timing performance of active individual investors, suggesting that some investors are skilled at timing. Using data on all trades by active Finnish individual investors over almost 15 years, we also show that the net purchases of skilled versus unskilled investors predict monthly market returns. Our results lend credibility to the view that market returns are predictable, without having to specify which variables active investors use to successfully time the market. (JEL G10, G11, G12, G14, G15).
{"title":"Are Monthly Market Returns Predictable?","authors":"Jussi Keppo, Tyler Shumway, Daniel Weagley","doi":"10.1093/rapstu/raab010","DOIUrl":"https://doi.org/10.1093/rapstu/raab010","url":null,"abstract":"<p><p>We document significant persistence in the market timing performance of active individual investors, suggesting that some investors are skilled at timing. Using data on all trades by active Finnish individual investors over almost 15 years, we also show that the net purchases of skilled versus unskilled investors predict monthly market returns. Our results lend credibility to the view that market returns are predictable, without having to specify which variables active investors use to successfully time the market. (<i>JEL</i> G10, G11, G12, G14, G15).</p>","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-04-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/rapstu/raab010","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"39903475","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper considers the puzzle of increased trading volume around information releases through the lens of canonical models of disagreement. I use a unique data set of clicks on news by key finance professionals to simultaneously measure gradual information diffusion and differences of opinion. I find that neither channel subsumes the other and that the two are complementary in generating trading volume around news events. Their relative strengths depend on the characteristics of the underlying information: gradual information diffusion matters more for straightforward news, while differences of opinion play a larger role around textually ambiguous news. (JEL G12, G14, G41, D84) Received January 12, 2020; editorial decision: November 24, 2020 by Editor: Jeffrey Pontiff. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
{"title":"Disagreement after News: Gradual Information Diffusion or Differences of Opinion?","authors":"Anastassia Fedyk","doi":"10.1093/rapstu/raab008","DOIUrl":"https://doi.org/10.1093/rapstu/raab008","url":null,"abstract":"This paper considers the puzzle of increased trading volume around information releases through the lens of canonical models of disagreement. I use a unique data set of clicks on news by key finance professionals to simultaneously measure gradual information diffusion and differences of opinion. I find that neither channel subsumes the other and that the two are complementary in generating trading volume around news events. Their relative strengths depend on the characteristics of the underlying information: gradual information diffusion matters more for straightforward news, while differences of opinion play a larger role around textually ambiguous news. (JEL G12, G14, G41, D84) Received January 12, 2020; editorial decision: November 24, 2020 by Editor: Jeffrey Pontiff. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138512329","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 proposes that computational complexity generates noise. The same asset is often held for completely different reasons by many funds following a wide variety of threshold-based trading rules. Under these conditions, we show it can be computationally infeasible to predict how these various trading rules will interact with one another, turning the net demand from these funds into unpredictable noise. This noise-generating mechanism can operate in a wide range of markets and also predicts how noise volatility will vary across assets. We confirm this prediction empirically using data on exchange-traded funds. (JEL G00, G02, G14). Received May 28 2019; editorial decision December 16 2020 by Editor Thierry Foucault. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
{"title":"The Sound of Many Funds Rebalancing","authors":"Alex Chinco, Vyacheslav Fos","doi":"10.1093/rapstu/raab009","DOIUrl":"https://doi.org/10.1093/rapstu/raab009","url":null,"abstract":"This paper proposes that computational complexity generates noise. The same asset is often held for completely different reasons by many funds following a wide variety of threshold-based trading rules. Under these conditions, we show it can be computationally infeasible to predict how these various trading rules will interact with one another, turning the net demand from these funds into unpredictable noise. This noise-generating mechanism can operate in a wide range of markets and also predicts how noise volatility will vary across assets. We confirm this prediction empirically using data on exchange-traded funds. (JEL G00, G02, G14). Received May 28 2019; editorial decision December 16 2020 by Editor Thierry Foucault. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-03-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138512346","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}
Kalok Chan, A. Ellul, Itay Goldstein, C. Holden, Monika Piazzesi, Jeffrey Pontiff
{"title":"The Annual Report of the Society for Financial Studies for 2019–2020","authors":"Kalok Chan, A. Ellul, Itay Goldstein, C. Holden, Monika Piazzesi, Jeffrey Pontiff","doi":"10.1093/RCFS/CFAB001","DOIUrl":"https://doi.org/10.1093/RCFS/CFAB001","url":null,"abstract":"","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80145221","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}
Portfolio performance measures using holdings data are panel regressions. The returns of a fund’s stocks are regressed on its lagged portfolio weights. Stock fixed effects isolate average performance from time-series predictive ability. Control variables condition for fund performance on the characteristics of the stocks held. The long-term performance of average holdings drives some of the classical measures, while predictive ability drives others. A “buy-and-hold drift,” where portfolio weights increase over time in the higher alpha stocks, affects performance measures. Investor flows respond to average performance net of the buy-and-hold drift. (JEL G11, G14, G23, G29).
{"title":"A Panel Regression Approach to Holdings-Based Fund Performance Measures","authors":"Wayne Ferson, Junbo L Wang","doi":"10.1093/rapstu/raab007","DOIUrl":"https://doi.org/10.1093/rapstu/raab007","url":null,"abstract":"Portfolio performance measures using holdings data are panel regressions. The returns of a fund’s stocks are regressed on its lagged portfolio weights. Stock fixed effects isolate average performance from time-series predictive ability. Control variables condition for fund performance on the characteristics of the stocks held. The long-term performance of average holdings drives some of the classical measures, while predictive ability drives others. A “buy-and-hold drift,” where portfolio weights increase over time in the higher alpha stocks, affects performance measures. Investor flows respond to average performance net of the buy-and-hold drift. (JEL G11, G14, G23, G29).","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-03-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138512353","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 fund managers’ reputation concerns in an equilibrium model, in which we tie together a number of seemingly unrelated phenomena. The model shows that because of reputation concerns, hedge fund managers, especially those with an average reputation, prefer strategies with negatively skewed return distributions. One subtle consequence of this preference is that capital sometimes appears slow moving, leaving profitable investment opportunities unexploited, yet other times appears fast moving, causing large capital relocation and price fluctuations in the absence of fundamental news. More broadly, the analysis demonstrates a limitation of market discipline: fund managers may distort their investments precisely because of market discipline.
{"title":"Reputation Concerns and Slow-Moving Capital","authors":"Steven Malliaris, Hongjun Yan","doi":"10.1093/rapstu/raab006","DOIUrl":"https://doi.org/10.1093/rapstu/raab006","url":null,"abstract":"We analyze fund managers’ reputation concerns in an equilibrium model, in which we tie together a number of seemingly unrelated phenomena. The model shows that because of reputation concerns, hedge fund managers, especially those with an average reputation, prefer strategies with negatively skewed return distributions. One subtle consequence of this preference is that capital sometimes appears slow moving, leaving profitable investment opportunities unexploited, yet other times appears fast moving, causing large capital relocation and price fluctuations in the absence of fundamental news. More broadly, the analysis demonstrates a limitation of market discipline: fund managers may distort their investments precisely because of market discipline.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138512349","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 show that endogenous information signaling in the CDS market, together with sluggish updates on corporate credit ratings assigned by major rating agencies, creates anomalies such as return momentum within the CDS market and across CDS-to-stock return momentum. Using 5-year credit default swap (CDS) contracts on 1,247 U.S. firms from 2003 to 2011, a three-month formation and one-month holding period CDS momentum strategy yields 52 bps per month with a Sharpe ratio of 0.423. The performance is better for entities with lower credit ratings (83 bps per month), high CDS depth (80 bps per month), and during the financial crisis (97 bps per month). Furthermore, our cross-market tests show that by incorporating past CDS returns into the stock momentum portfolio formation process, traditional stock momentum strategies avoid abrupt losses during the crisis period and improve their performance by a net of 104 bps per month. This joint-market momentum strategy is particularly profitable for entities with high CDS depth. Importantly, we show that both within the CDS market and CDS-to-stock joint-market, momentum profits exist because CDS returns correctly anticipate future credit rating changes. This mechanism completely differentiates CDS momentum from bond return momentum.
{"title":"CDS Momentum: Slow-Moving Credit Ratings and Cross-Market Spillovers","authors":"Jongsub Lee, A. Naranjo, Stace Sirmans","doi":"10.1093/RAPSTU/RAAA025","DOIUrl":"https://doi.org/10.1093/RAPSTU/RAAA025","url":null,"abstract":"We show that endogenous information signaling in the CDS market, together with sluggish updates on corporate credit ratings assigned by major rating agencies, creates anomalies such as return momentum within the CDS market and across CDS-to-stock return momentum. Using 5-year credit default swap (CDS) contracts on 1,247 U.S. firms from 2003 to 2011, a three-month formation and one-month holding period CDS momentum strategy yields 52 bps per month with a Sharpe ratio of 0.423. The performance is better for entities with lower credit ratings (83 bps per month), high CDS depth (80 bps per month), and during the financial crisis (97 bps per month). Furthermore, our cross-market tests show that by incorporating past CDS returns into the stock momentum portfolio formation process, traditional stock momentum strategies avoid abrupt losses during the crisis period and improve their performance by a net of 104 bps per month. This joint-market momentum strategy is particularly profitable for entities with high CDS depth. Importantly, we show that both within the CDS market and CDS-to-stock joint-market, momentum profits exist because CDS returns correctly anticipate future credit rating changes. This mechanism completely differentiates CDS momentum from bond return momentum.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":null,"pages":null},"PeriodicalIF":13.1,"publicationDate":"2021-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80161767","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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