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on Financial Markets |
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Issue of 2015‒08‒13
ten papers chosen by |
| By: | Jorge Galán; Sofía B. Ramos; Helena Veiga |
| Abstract: | This paper studies the efficiency of a sample of mutual funds that invest in the United States. Estimating a production function using Bayesian stochastic frontier analysis, we find evidence that the underlying technology presents economies of scale both at the fund and firm level. We also find evidence that informational asymmetries affect efficiency. Funds that invest domestically are likely to be more efficient than foreign funds investing in the US. Moreover, an inspection at the distribution process shows that funds sold directly to investors rather than by financial intermediaries are more efficient. The level of inefficiency persistence is overall high.Persistency of inefficiency is particularly higher for ethical funds, funds oriented to large firm sand lower in funds oriented to growth firms. The analysis done in two separate periods also shows that the efficiency of the funds changes. In particular, funds oriented to non-ethical, small and growth firms become more efficient over the period. Finally, funds' efficiency decreases during global financial crisis, but at the end of the sample period some funds recover and their efficiency levels are higher than those registered before the financial crisis. Our results have implications for investors' decisions in mutual funds. |
| Keywords: | Economies of Scale , Efficiency , Mutual Funds , Persistence , Stochastic Frontier Analysis |
| JEL: | C11 C23 C51 G11 G14 G15 G24 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wsrepe:ws1517&r=fmk |
| By: | Cenedese, Gino (Bank of England); Payne, Richard (Cass Business School, City University London); Sarno, Lucio (Cass Business School, City University London and Centre for Economic Policy Research); Valente, Giorgio (City University of Hong Kong) |
| Abstract: | The sign of the correlation between equity returns and exchange rate returns can be positive or negative in theory. Using data for a broad set of 42 countries, we find that exchange rate movements are in fact unrelated to differentials in country-level equity returns. Consequently, a trading strategy that invests in countries with the highest expected equity returns and shorts those with the lowest generates substantial returns and Sharpe ratios. These returns partially reflect compensation for global equity volatility risk, but significant excess returns remain after controlling for exposure to standard risk factors. |
| Keywords: | Empirical asset pricing; exchange rates; international asset allocation |
| JEL: | F31 G15 |
| Date: | 2015–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0537&r=fmk |
| By: | Paresh K Narayan (Deakin University); Susan S Sharma (Deakin University); Kannan Thuraisamy (Deakin University) |
| Abstract: | We develop country-level governance indices using governance risk factors and examine whether country-level governance can predict stock market returns. We find that country-level governance predicts stock market returns only in countries where governance quality is poor. For countries with well-developed governance, there is no evidence that governance predicts returns. Our findings also confirm that investors in countries with weak governance can utilise information contained in country-level governance indicators to devise profitable portfolio strategies. |
| Keywords: | Predictability; Returns; Governance; Country characteristics. |
| URL: | http://d.repec.org/n?u=RePEc:dkn:ecomet:fe_2015_04&r=fmk |
| By: | Weihong HUANG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, 14 Nanyang Drive, Singapore 637332); Yu ZHANG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, 14 Nanyang Drive, Singapore 637332) |
| Abstract: | This paper studies investors' strategy change frequency and their wealth accumulation by financial investments. Artificial investors are put into a real stock market. They trade S&P 500 following common strategies in practice. Fundamental analysis generally surpasses technical analysis in all market situa- tions except boom periods. Though investors' strategy change behavior, which is driven by the past performance of strategies, seems reasonable, a faster strat- egy change does not guarantee a higher final wealth. Active strategy change hurts investor' wealth in bear markets and in markets with major trend rever- sals. In bull markets, both fast and slow strategy change behaviors work better than a moderate speed of strategy change. A detailed decomposition of wealth accumulation via ?nancial investment shows the dependence of wealth on in- vestors' past transactions. This may explain the relation between investors' strategy change frequency and their wealth. |
| Keywords: | Financial Investment Strategy, Strategy Change Frequency, Wealth Accumulation, Standard & Poor's 500 |
| JEL: | C63 G19 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:nan:wpaper:1502&r=fmk |
| By: | Paresh K Narayan (Deakin University); Ruipeng Liu (Deakin University) |
| Abstract: | In this paper we propose a generalised autoregressive conditional heteroskedasticity (GARCH) model-based test for a unit root. The model allows for two endogenous structural breaks. We test for unit roots in 156 US stocks listed on the NYSE over the period 1980 to 2007. We find that the unit root null hypothesis is rejected in 40% of the stocks, and only in four out of the nine sectors the null is rejected for over 50% of stocks. We conclude with an economic significance analysis, showing that mostly stocks with mean reverting prices tend to outperform stocks with non-stationary prices. |
| Keywords: | Efficient Market Hypothesis; GARCH; Unit Root; Structural Break; Stock Price. |
| URL: | http://d.repec.org/n?u=RePEc:dkn:ecomet:fe_2015_01&r=fmk |
| By: | Paresh K Narayan (Deakin University) |
| Abstract: | In this paper, we find that CDS return shocks are important in explaining the forecast error variance of sectoral equity returns for the USA. The CDS return shocks have different effects on equity returns and return volatility in the pre-crisis and crisis periods. It is the post-Lehman crisis period in which the effects of CDS return shocks are the most dominant. Finally, we construct a spillover index and find that it is time-varying and explains a larger share of total forecast error variance of sectoral equity and CDS returns for some sectors than for others. |
| Keywords: | Equity Returns; CDS Spread; Forecast Error Variance; Spillover. |
| URL: | http://d.repec.org/n?u=RePEc:dkn:ecomet:fe_2015_02&r=fmk |
| By: | Aleksander Berentsen; Sébastien Philippe Kraenzlin; Benjamin Müller |
| Abstract: | How can a central bank control interest rates in an environment with large excess reserves? In this paper, we develop a dynamic general equilibrium model of a secured money market and calibrate it to the Swiss franc repo market to study this question. The theoretical model allows us to identify the factors that determine demand and supply of central bank reserves, the money market rate and trading activity in the money market. In addition, we simulate various instruments that a central bank can use to exit from unconventional monetary policy. These instruments are assessed with respect to the central bank's ability to control the money market rate, their impact on the trading activity and the operational costs of an exit. All exit instruments allow central banks to attain an interest rate target. However, the trading activity differs significantly among the instruments and central bank bills and reverse repos are the most cost-effective. |
| Keywords: | exit strategies, money market, repo, monetary policy, interest rates |
| JEL: | E40 E50 D83 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2015-09&r=fmk |
| By: | Asian Development Bank (ADB); Asian Development Bank (ADB) (Economic Research and Regional Cooperation Department, ADB); Asian Development Bank (ADB) (Economic Research and Regional Cooperation Department, ADB); Asian Development Bank (ADB) |
| Abstract: | This publication reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. It covers the 10 members of the Association of Southeast Asian Nations plus the People’s Republic of China; Hong Kong, China; and the Republic of Korea. |
| Keywords: | bonds, local currency, foreign currency, bond yields, emerging East Asia, bonds outstanding, bond issuance, bond market foreign investor holdings, People’s Republic of China, Hong Kong, China, Indonesia, Republic of Korea, Malaysia,, Philippines, Singapore, Thailand, Viet Nam, credit spreads, government bonds, corporate bonds, treasury bonds, central bank, bills, maturity, oil and gas, Kazakhstan, India, Taipei,China, corporate debt |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:asd:wpaper:rps157120-2&r=fmk |
| By: | Joakim Westerlund (Deakin University); Paresh K Narayan (Deakin University); Xinwei Zheng (Deakin University) |
| Abstract: | This paper proposes a simple panel data test for stock return predictability that is flexible enough to accommodate three key salient features of the data, namely, predictor persistency and endogeneity, and cross-sectional dependence. Using a large panel of Chinese stock market data comprising more than one million observations, we show that most financial and macroeconomic predictors are in fact able to predict returns. We also show how the extent of the predictability varies across industries and firm sizes. |
| Keywords: | Panel data; Bias; Cross-section dependence; Predictive regression; Stock return predictability; China. |
| JEL: | C22 C23 G1 G12 |
| URL: | http://d.repec.org/n?u=RePEc:dkn:ecomet:fe_2015_11&r=fmk |
| By: | Deepa (Deakin University); Paresh K Narayan (Deakin University) |
| Abstract: | In this paper we show that Indian stock returns, based on industry portfolios, portfolios sorted on book-to-market, and on size, are predictable. While we discover that this predictability holds both in in-sample and out-of-sample tests, predictability is not homogenous. Some predictors are important than others and some industries and portfolios of stocks are more predictable and, therefore, more profitable than others. We also discover that a mean combination forecast approach delivers significant out-of-sample performance. Our results survive a battery of robustness tests. |
| Keywords: | Stock Returns; Predictability; Profits; Sectors; Rational asset pricing; India. |
| URL: | http://d.repec.org/n?u=RePEc:dkn:ecomet:fe_2015_07&r=fmk |