We investigate the dynamics of daily realised returns and risk premiums for a large cross-section of cryptocurrency pairs through the lens of an Instrumented Principal Component Analysis (IPCA) (see Kelly et al. 2019). We show that a model with three latent factors and time-varying factor loadings significantly outperforms a benchmark model with observable risk factors: the total (predictive) R
我们通过仪器主成分分析(IPCA)的视角，研究了大量加密货币对的每日实现回报和风险溢价的动态(见Kelly et al. 2019)。我们表明，具有三个潜在因素和时变因素负载的模型显着优于具有可观察风险因素的基准模型:总(预测)R
{"title":"A Factor Model for Cryptocurrency Returns","authors":"Daniele Bianchi, M. Babiak","doi":"10.2139/ssrn.3935934","DOIUrl":"https://doi.org/10.2139/ssrn.3935934","url":null,"abstract":"We investigate the dynamics of daily realised returns and risk premiums for a large cross-section of cryptocurrency pairs through the lens of an Instrumented Principal Component Analysis (IPCA) (see Kelly et al. 2019). We show that a model with three latent factors and time-varying factor loadings significantly outperforms a benchmark model with observable risk factors: the total (predictive) R","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"76 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124888084","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}
Companies actively manipulate stock price ranges through IPOs, stock splits, and repurchases. Indeed, empirical results suggest that the stock’s price range, whether at a high or low price level, affects market performance. Unfortunately, archival data does not allow us to test the effect of stock price levels on investor behavior due to uncontrolled confound effects. We thus conduct a controlled online experiment with 900 US retail investors to test whether a difference in stock price levels affects the investor’s risk perception, the price forecast, and the investment. Even though we find no differences in risk perception and forecasts, our results show significantly higher investments in high-priced stocks in comparison to low-priced stocks. This effect disappears when we allow fractional share purchases or restrict naive trading strategies.
{"title":"Stock Price Level Effect","authors":"Charlotte Borsboom, Sascha C. Füllbrunn","doi":"10.2139/ssrn.3907386","DOIUrl":"https://doi.org/10.2139/ssrn.3907386","url":null,"abstract":"Companies actively manipulate stock price ranges through IPOs, stock splits, and repurchases. Indeed, empirical results suggest that the stock’s price range, whether at a high or low price level, affects market performance. Unfortunately, archival data does not allow us to test the effect of stock price levels on investor behavior due to uncontrolled confound effects. We thus conduct a controlled online experiment with 900 US retail investors to test whether a difference in stock price levels affects the investor’s risk perception, the price forecast, and the investment. Even though we find no differences in risk perception and forecasts, our results show significantly higher investments in high-priced stocks in comparison to low-priced stocks. This effect disappears when we allow fractional share purchases or restrict naive trading strategies.","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"33 3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124970427","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}
English Abstract: This paper suggests a dynamic measure of intentional herding, causing the excess volatility or even systemic risk in financial markets, which is based on a new concept of cumulative returns in the same direction as well as the collective behavior of all investors towards the market consensus. Differing from existing measures, the measure allows us to directly detect time-varying and market-wide intentional herding using the model of Dynamic Conditional Correlation (DCC) (Engle, 2002) between the financial market and its components that is partially free of spurious herding due to the inclusion of the variables of the number of economic news announcements as a proxy of market information. Strong evidence in favor of the dynamic measure over the other measures is based on empirical application in the U.S. markets (DJIA and S&P100), supporting the tendency to exhibit time-varying intentional herding. More importantly, it is found that the impact of intentional herding on market volatility tends to be stronger during the periods of turbulent markets like the degradation of U.S. sovereign credit rating by S&P, and be more significant in S&P 100 than DJIA.
Korean Abstract: 본 연구에서는 금융시장에서 초과변동성과 구조적 위험 등을 야기하는 의도적(intentional) 무리행동을 측정할 수 있는 보다 향상된 방법론을 제시하고자 하였다. 특히 기존의 무리 행동 측정에서 주로 활용되던 횡단면 표준편차 방법 대신 동태적 조건부 상관관계 모형(DCC)(Engle, 2000)을 추정함으로써 시변 동태적 무리행동을 직접 관측하는 방법을 사용하였으며, 이 과정에서 시장의 추세에 따라 무리지어 거래하는 투자자의 행태를 보다 명확히 관측하기 위해 일반적인 수익률 대신 가칭 CRS(Cunmulative Returns in the Same direction)를 활용하고, 공적 정보의 유입으로 발생하는 허위 무리행동에 비해 상대적으로 의도적 형태로 발생하는 무리행동을 구분하기 위해 정보의 강도(뉴스)를 통제하였다. 유럽의 재정위기 발생과 미국 신용등급 강등 시기를 포함하는 2010년 1월부터 2013년 5월까지 미국 금융시장(다우존스 산업지수와 S&P100 지수)을 대상으로 분석을 수행한 결과 시장 스트레스 기간 동안 미국 금융시장에도 유의미한 의도적 무리행동이 관측되었으며, 특히 이 시기 의도적 무리행동의 발생이 시장 수익률의 변동성에 미치는 영향과 강도는 다우존스 산업지수에 비해 S&P100 지수에서 더 강하게 나타나는 것으로 관측되었다.
{"title":"A Dynamic Measure of Intentional Herd Behavior Causing Excess Volatility in U.S. Stock Markets (미국 주식시장의 초과변동성과 의도적 무리행동의 동태적 측정)","authors":"Myung-Joong Kim, Beum-Jo Park","doi":"10.2139/ssrn.3877103","DOIUrl":"https://doi.org/10.2139/ssrn.3877103","url":null,"abstract":"<b>English Abstract:</b> This paper suggests a dynamic measure of intentional herding, causing the excess volatility or even systemic risk in financial markets, which is based on a new concept of cumulative returns in the same direction as well as the collective behavior of all investors towards the market consensus. Differing from existing measures, the measure allows us to directly detect time-varying and market-wide intentional herding using the model of Dynamic Conditional Correlation (DCC) (Engle, 2002) between the financial market and its components that is partially free of spurious herding due to the inclusion of the variables of the number of economic news announcements as a proxy of market information. Strong evidence in favor of the dynamic measure over the other measures is based on empirical application in the U.S. markets (DJIA and S&P100), supporting the tendency to exhibit time-varying intentional herding. More importantly, it is found that the impact of intentional herding on market volatility tends to be stronger during the periods of turbulent markets like the degradation of U.S. sovereign credit rating by S&P, and be more significant in S&P 100 than DJIA.<br><br><b>Korean Abstract:</b> 본 연구에서는 금융시장에서 초과변동성과 구조적 위험 등을 야기하는 의도적(intentional) 무리행동을 측정할 수 있는 보다 향상된 방법론을 제시하고자 하였다. 특히 기존의 무리 행동 측정에서 주로 활용되던 횡단면 표준편차 방법 대신 동태적 조건부 상관관계 모형(DCC)(Engle, 2000)을 추정함으로써 시변 동태적 무리행동을 직접 관측하는 방법을 사용하였으며, 이 과정에서 시장의 추세에 따라 무리지어 거래하는 투자자의 행태를 보다 명확히 관측하기 위해 일반적인 수익률 대신 가칭 CRS(Cunmulative Returns in the Same direction)를 활용하고, 공적 정보의 유입으로 발생하는 허위 무리행동에 비해 상대적으로 의도적 형태로 발생하는 무리행동을 구분하기 위해 정보의 강도(뉴스)를 통제하였다. 유럽의 재정위기 발생과 미국 신용등급 강등 시기를 포함하는 2010년 1월부터 2013년 5월까지 미국 금융시장(다우존스 산업지수와 S&P100 지수)을 대상으로 분석을 수행한 결과 시장 스트레스 기간 동안 미국 금융시장에도 유의미한 의도적 무리행동이 관측되었으며, 특히 이 시기 의도적 무리행동의 발생이 시장 수익률의 변동성에 미치는 영향과 강도는 다우존스 산업지수에 비해 S&P100 지수에서 더 강하게 나타나는 것으로 관측되었다.","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114967523","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}
Society needs financial intermediaries to create orderly efficient markets, to have informative prices, and to best allocate resources. However, when trust is eroded with high volatility and unpredictable events, financial crises are amplified and prices are distorted as financial intermediaries struggle to hold rapidly depreciating assets that are essential for economic recovery. Using a multi-factor model, I find that intermediary leverage, volatility, and more importantly their interaction, explain cross-sectional variations in expected returns. I propose an advancement based on the joint interaction between intermediary leverage and volatility to enable financial intermediaries to better manage their leverage in a rapidly evolving risk environment.
{"title":"Financial Intermediary Leverage, Volatility, and the Cross-Section of Asset Returns","authors":"S. Chan","doi":"10.2139/ssrn.3856777","DOIUrl":"https://doi.org/10.2139/ssrn.3856777","url":null,"abstract":"Society needs financial intermediaries to create orderly efficient markets, to have informative prices, and to best allocate resources. However, when trust is eroded with high volatility and unpredictable events, financial crises are amplified and prices are distorted as financial intermediaries struggle to hold rapidly depreciating assets that are essential for economic recovery. Using a multi-factor model, I find that intermediary leverage, volatility, and more importantly their interaction, explain cross-sectional variations in expected returns. I propose an advancement based on the joint interaction between intermediary leverage and volatility to enable financial intermediaries to better manage their leverage in a rapidly evolving risk environment.","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"15 79","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120857801","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 discusses the state of the art in research in racetrack and lottery investment markets. Market efficiency and the pricing of various wagers is studied along with new developments since the Thaler and Ziemba (1988) review. The weak form inefficient market approach using stochastic programming optimization models changed racetrack betting from handicapping to a financial market allowing professional syndicates to operate as successful hedge funds. The topics discussed include the role of arbitrage and risk arbitrage, syndicates, betting exchange rebates, behavioral biases, portfolio insurance and fundamental and mispricing information in racetrack and lottery markets as well as other sports betting markets. I co-authored the Beat the Racetrack books which provided a weak form winning system for place and show bets and analyzed racing as a financial market and Efficiency of Racetrack Betting Markets, the "bible" for Hong Kong racing betting syndicates. These made me known to practitioners and consultants and I have consulted for several racing syndicates
{"title":"Parimutuel Betting Markets: Racetracks and Lotteries Revisited","authors":"W. Ziemba","doi":"10.2139/ssrn.3865785","DOIUrl":"https://doi.org/10.2139/ssrn.3865785","url":null,"abstract":"This paper discusses the state of the art in research in racetrack and lottery investment markets. Market efficiency and the pricing of various wagers is studied along with new developments since the Thaler and Ziemba (1988) review. The weak form inefficient market approach using stochastic programming optimization models changed racetrack betting from handicapping to a financial market allowing professional syndicates to operate as successful hedge funds. The topics discussed include the role of arbitrage and risk arbitrage, syndicates, betting exchange rebates, behavioral biases, portfolio insurance and fundamental and mispricing information in racetrack and lottery markets as well as other sports betting markets. I co-authored the Beat the Racetrack books which provided a weak form winning system for place and show bets and analyzed racing as a financial market and Efficiency of Racetrack Betting Markets, the \"bible\" for Hong Kong racing betting syndicates. These made me known to practitioners and consultants and I have consulted for several racing syndicates <br>","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130098716","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 investigate the value-growth premium puzzle by merging insights from urban economics and finance that relate firm location to its stock performance. The value-growth premium in locations with high historical house price appreciation is 3.6% larger per year than the premium in areas that experienced little house price appreciation. The link between housing value appreciation and the cross-section of returns supports investment-based models explaining the value premium; moreover we find the house price channel reduces growth firm returns rather than increasing returns of value firms. House price appreciation remains significant after controlling for common explanations of the premium.
{"title":"Firm Location and the Value-Growth Premium","authors":"B. Ambrose, Yifan Chen, Timothy T. Simin","doi":"10.2139/ssrn.3861819","DOIUrl":"https://doi.org/10.2139/ssrn.3861819","url":null,"abstract":"We investigate the value-growth premium puzzle by merging insights from urban economics and finance that relate firm location to its stock performance. The value-growth premium in locations with high historical house price appreciation is 3.6% larger per year than the premium in areas that experienced little house price appreciation. The link between housing value appreciation and the cross-section of returns supports investment-based models explaining the value premium; moreover we find the house price channel reduces growth firm returns rather than increasing returns of value firms. House price appreciation remains significant after controlling for common explanations of the premium.","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132500916","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 document a comprehensive new classification of the legal structures backing municipal bonds and the effects that different legal features have on bond yields. It is a well-documented fact that investors rely on credit ratings to determine the credit risk of municipal bonds. However, rating agencies do not fully factor in the legal structures backing the bonds because measuring and testing the effects of said legal structures is inherently onerous. Since the price of risk is unusually high in this market, these flaws have important effects on yields.
{"title":"Not all General Obligations Are Created Equal: A Commentary","authors":"Darío Cestau","doi":"10.2139/ssrn.3859633","DOIUrl":"https://doi.org/10.2139/ssrn.3859633","url":null,"abstract":"We document a comprehensive new classification of the legal structures backing municipal bonds and the effects that different legal features have on bond yields. It is a well-documented fact that investors rely on credit ratings to determine the credit risk of municipal bonds. However, rating agencies do not fully factor in the legal structures backing the bonds because measuring and testing the effects of said legal structures is inherently onerous. Since the price of risk is unusually high in this market, these flaws have important effects on yields.","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124544192","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}
With concerns on inflation flaring up, there has been renewed interest in potentially including commodities in diversified portfolios. This article builds off prior research in examining which commodities to include and in what size. The article briefly reviews the relevant literature and proposes a novel and uncomplicated portfolio solution, which takes into consideration both historical results and plausible new paradigms. In addition, an investor would be able to implement this portfolio solution through deeply liquid futures markets.
{"title":"Commodities, Crude Oil, and Diversified Portfolios","authors":"H. Till","doi":"10.2139/ssrn.3860231","DOIUrl":"https://doi.org/10.2139/ssrn.3860231","url":null,"abstract":"With concerns on inflation flaring up, there has been renewed interest in potentially including commodities in diversified portfolios. This article builds off prior research in examining which commodities to include and in what size. The article briefly reviews the relevant literature and proposes a novel and uncomplicated portfolio solution, which takes into consideration both historical results and plausible new paradigms. In addition, an investor would be able to implement this portfolio solution through deeply liquid futures markets.","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"69 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129298289","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The content of this article will be concerned with the mathematical limitations of the early MPT theories and will leave aside other topics related to portfolio optimization such as the factoring of behavioural biases, portfolio optimization criteria (by style, country, industry, etc), or the purpose of the optimization (asset allocation, ALM, long-short portfolios, etc). Furthermore, this article does not intend to cover all the body of research but only to emphasize those models that either propose a brand new approach, or have been broadly adopted by the industry over the last decade.
MVO (Minimum Variance Optimization) was an innovative approach to investments more than fifty years ago, albeit it was not without pitfalls. New machine learning techniques such as PCA, Clustering or Graph Theory have been able to tackle the main challenges proposed by the original MVO portfolio optimization problem.
{"title":"Embracing Machine Learning To Tackle Portfolio Optimisers Limitations","authors":"Carlos Salas Najera","doi":"10.2139/ssrn.3857049","DOIUrl":"https://doi.org/10.2139/ssrn.3857049","url":null,"abstract":"The content of this article will be concerned with the mathematical limitations of the early MPT theories and will leave aside other topics related to portfolio optimization such as the factoring of behavioural biases, portfolio optimization criteria (by style, country, industry, etc), or the purpose of the optimization (asset allocation, ALM, long-short portfolios, etc). Furthermore, this article does not intend to cover all the body of research but only to emphasize those models that either propose a brand new approach, or have been broadly adopted by the industry over the last decade. <br><br>MVO (Minimum Variance Optimization) was an innovative approach to investments more than fifty years ago, albeit it was not without pitfalls. New machine learning techniques such as PCA, Clustering or Graph Theory have been able to tackle the main challenges proposed by the original MVO portfolio optimization problem.","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"60 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126522727","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In the presence of rising concern about climate change that potentially affects risk and return of investors’ portfolio companies, active investors might have dispersed climate risk exposures. We compute mutual fund covariance with market-wide climate change news index and find that high (positive) climate beta funds outperform low (negative) climate beta funds by 0.24% per month on a risk-adjusted basis. High climate beta funds tilt their holdings toward stocks with high potential to hedge against climate change. In the cross section, such stocks yield higher excess returns, which are driven by greater pricing pressure and superior financial performance over our sample period.
{"title":"Climate Sensitivity and Mutual Fund Performance","authors":"Thang Ho","doi":"10.2139/ssrn.3839888","DOIUrl":"https://doi.org/10.2139/ssrn.3839888","url":null,"abstract":"In the presence of rising concern about climate change that potentially affects risk and return of investors’ portfolio companies, active investors might have dispersed climate risk exposures. We compute mutual fund covariance with market-wide climate change news index and find that high (positive) climate beta funds outperform low (negative) climate beta funds by 0.24% per month on a risk-adjusted basis. High climate beta funds tilt their holdings toward stocks with high potential to hedge against climate change. In the cross section, such stocks yield higher excess returns, which are driven by greater pricing pressure and superior financial performance over our sample period.","PeriodicalId":389424,"journal":{"name":"FinPlanRN: Other Investments (Topic)","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126573082","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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