{"title":"Can Market Regimes Really be Timed with Historical Volatility?","authors":"Richard J. McGee","doi":"10.2139/ssrn.3832340","DOIUrl":"https://doi.org/10.2139/ssrn.3832340","url":null,"abstract":"Recent research findings suggest long-term investor utility benefits through scaling expected returns by recent realized volatility. We test for utility gains to volatility timing using a utility regime-based methodology to classify investor-specific market investment regimes based solely on recent realized volatility levels. Under this framework we find limited informational content in using recent realized volatility to forecast utility regimes for the market index. To reconcile our findings we replicate work by Moreira and Muir (2017) and find that their reported Sharpe ratio gains through volatility-managing the US market factor do not appear to be statistically significant. We find that their scheme under-performs buy and hold in terms of Sharpe ratio over 30 of the 70 twenty year sub-periods in our sample (58 out of 70 for an un-leveraged investor). Furthermore, the historical out-performance of volatility management for the market index is highly sensitive to the timing of re-balancing within a month, suggesting that the strategy may not be robust to the precise timing of key market events relative to volatility changes. Strategy adopters should be aware that this timing is not guaranteed to line up favorably over future investment periods.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"330 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124303440","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}
{"title":"Central Bank Information Shocks, Value Gains, and Value Crashes","authors":"Samer Adra, Elie Menassa","doi":"10.2139/ssrn.3831583","DOIUrl":"https://doi.org/10.2139/ssrn.3831583","url":null,"abstract":"Monetary policy shocks that convey new macroeconomic information are significant predictors of both the absolute and risk-adjusted returns from value investing. Positive Fed information shocks lead to higher subsequent value returns. Crashes in the returns of value investing are most likely to occur in the aftermath of negative Fed information shocks. The effect of Fed information shocks on value returns and crashes is to a large extent driven by these shocks’ impact on informed trading. Moreover, we show that, in terms of influencing the performance of value strategies, information shocks by the Fed are more impactful than conventional monetary shocks.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131048417","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}
{"title":"Institutional Trading around FOMC Meetings: Evidence of Fed Leaks","authors":"Nicola Mano","doi":"10.2139/ssrn.3830271","DOIUrl":"https://doi.org/10.2139/ssrn.3830271","url":null,"abstract":"Fed leaks to the financial sector are actively exploited by institutional investors to trade ahead of the Federal Open Market Committee (FOMC) meetings. Using detailed transaction records from Ancerno, I find evidence consistent with informed institutional trading on the stock market on the days before the FOMC scheduled announcements. The institutional trading imbalance on highly exposed stocks is in the same direction of the subsequent monetary policy surprise. The magnitude of this result is economically significant. I find that trades in anticipation of FOMC meetings are particularly strong before easing monetary policy shocks - when the aggregate market reaction is positive -, for the most-active traders, and for the hedge funds that are headquartered close to one of the regional reserve banks. Fed informal communication with the financial sector seems to be driven by the non-voting members of the Federal Open Market Committee. These findings contribute to an information-based explanation of the pre-FOMC drift and, from a policy perspective, suggest that any benefits of Fed unofficial communication must be balanced against the risk of giving some investors an unfair advantage.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"139 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116902193","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}
{"title":"Let’s Get Physical: Comparing Metrics of Physical Climate Risk","authors":"Linda I. Hain, Julian F. Kölbel, Markus Leippold","doi":"10.2139/ssrn.3829831","DOIUrl":"https://doi.org/10.2139/ssrn.3829831","url":null,"abstract":"Abstract Investors and regulators require reliable estimates of physical climate risks for decision-making. While assessing these risks is challenging, several commercial data providers and academics have started to develop firm-level physical risk scores. We compare six physical risk scores. We find a substantial divergence between these scores, also among those based on similar methodologies. We show how this divergence could cause problems when testing whether financial markets are pricing physical risks. Hence, financial markets may not adequately account for the physical risk exposure of corporations using available risk scores. Finally, we identify key sources of uncertainty for further investigation.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"171 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122591820","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}
{"title":"Managerial Performance Persistence of Hedge Funds","authors":"Michel Guirguis","doi":"10.2139/ssrn.3826964","DOIUrl":"https://doi.org/10.2139/ssrn.3826964","url":null,"abstract":"This article examines performance persistence of 773 hedge funds from the period 1990 to 2003. The sample is free of survivorship bias, backfill, and selection bias. We find evidence of managerial positive performance persistence using multi-factor models. Performance is measured by Jensen’s alpha based on regression models such as the CAPM, Fama and French,(1993), three-factor model, Carhart, (1997), four- factor model and Guirguis,(2005), six-factor model. A positive value of Jensen’s alpha means that the fund manager has outperformed the market index. A negative value of Jensen’s alpha shows inferior performance. The significant t-statistic is a sign of stock picking ability based on skills and not on luck. Positive alphas measure the contribution of the manager to the performance of the fund. Thus, a positive and statistically significant alpha indicates superior managerial performance persistence of the fund. Negative values or statistically insignificant values represent inferior or neutral managerial performance persistence. Based on CAPM regression results, all style categories display alpha that is positive and not statistically significant at 5% level. Based on Fama and French,(1993), three factor model regression results, seven out of nine categories display a significant alpha. Based on Carhart’s ,(1997), four - factor model, eight out of nine style categories display an alpha that is positive and statistically significant at the 5% significance level. Based on my regression results or Guirguis, (2005), six - factor model all style categories display an alpha that is positive and statistically significant at the 5% significance level.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"102 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116779856","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}
{"title":"The Value of Olympic Sponsorship. Domestic vs. Foreign Sponsoring Firms","authors":"D. Baim, Levon Goukasian, M. B. Misch","doi":"10.2139/ssrn.3810357","DOIUrl":"https://doi.org/10.2139/ssrn.3810357","url":null,"abstract":"This paper examines the impact of Olympic Sponsorship announcements on stock returns for sponsors of the ten Olympic Summer Games held between 1984 and 2020. The paper finds that sponsorship announcements are associated with an average 0.44% impact on returns on the announcement day. This increase translates to a $61 million increase in sponsoring firms’ market value, on average. The study also documents significant differences in the impact of Olympic sponsorship announcements on domestic versus foreign sponsors’ stock returns as well as significant differences on the returns of Olympic Partners versus Olympic Supporters. Abnormal returns for firms domiciled in the host country are shown to be significantly higher than abnormal returns for firms domiciled outside the host country. Also, abnormal returns are significantly higher for Olympic Partners, who pay a higher sponsorship fee, than for Olympic Supporters, who pay a lower price. Overall, our findings imply that Olympic sponsorship is a value-creating strategy, especially for domestic firms.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121207912","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}
{"title":"Mirror, Mirror on the Wall: Machine Predictions and Self-Fulfilling Prophecies","authors":"Kevin Bauer, A. Gill","doi":"10.2139/ssrn.3829772","DOIUrl":"https://doi.org/10.2139/ssrn.3829772","url":null,"abstract":"We show that disclosing machine predictions to affected parties can trigger self-fulfilling prophecies. In an investment game, we experimentally vary investors’ and recipients’ access to a machine prediction about recipients’ likelihood to pay back an investment. Recipients who privately learn about an incorrect machine prediction alter their behavior in the direction of the prediction. Furthermore, when recipients learn that an investor has disregarded a machine prediction of no-repayment, this further lowers the repayment amount. We interpret these findings as evidence that transparency regarding machine predictions can alter recipients’ beliefs about what kind of person they are and what investors expect of them. Our results indicate that providing increased access to machine predictions as an isolated measure to alleviate accountability concerns may have unin- tended negative consequences for organizations by possibly changing customer behavior.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125633808","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}
{"title":"Informed Trading and Co-Illiquidity","authors":"M. Massa, A. Rzeźnik, Soeren Hvidkjaer","doi":"10.2139/ssrn.3826452","DOIUrl":"https://doi.org/10.2139/ssrn.3826452","url":null,"abstract":"We study the link between informed trading and co-movement in illiquidity. We argue that investors concerned with liquidity and fire-sale shocks respond to an increase in informed trading by shifting their portfolios away from stocks with high information asymmetry. This rebalancing causes a substitution in ownership away from the investors who induce financial fragility and co-movement in illiquidity, reducing the co-illiquidity of affected stocks. We exploit two experiments – the SHO experiment and the short selling bans – that impact the incentives/ability of informed traders to trade. The results suggest that informed traders ameliorate co-movement in illiquidity, a major problem that emerged during the global financial crisis.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"95 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122616001","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}
{"title":"Bubbly Firm Dynamics and Aggregate Fluctuations","authors":"Haozhou Tang, Donghai Zhang","doi":"10.2139/ssrn.3825479","DOIUrl":"https://doi.org/10.2139/ssrn.3825479","url":null,"abstract":"This study generalizes a standard heterogeneous firm model with endogenous entry and exit by allowing for asset bubbles. We highlight the selection effect of bubbles that incentivizes low-productivity firms to enter or remain in the market. We show that a rise in the aggregate bubble can boost real economic activities by increasing the number of entrants and decreasing the number of exits. Using firm-level data, we find that an overvalued firm is less likely to exit the market, which supports the novel transmission channel of bubbles. Moreover, we show that the model-implied impulse responses are consistent with those identified in the data. Finally, we demonstrate that a model without bubbles fails to reproduce our empirical findings.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132386611","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}
{"title":"Market Sentiment and an Overnight Anomaly","authors":"Radovan Vojtko, Daniela Hanicova","doi":"10.2139/ssrn.3829582","DOIUrl":"https://doi.org/10.2139/ssrn.3829582","url":null,"abstract":"Various research shows that market sentiment, also called investor sentiment, plays a role in market returns. Market sentiment refers to the general mood on the financial markets and investors' overall tendency to trade. The mood on the market is divided into two main types, bullish and bearish. Naturally, rising prices indicate bullish sentiment. On the other hand, falling prices indicate bearish sentiment. This paper shows various ways to measure market sentiment and its influence on returns. Additionally, we take a look at an overnight anomaly in combination with three market sentiment indicators. We analyse the Brain Market sentiment indicator in addition to VIX and the short-term trend in SPY ETF. Our aim is not to build a trading system. Instead, it is to analyse financial markets behaviour. Overall the transaction costs of this kind of strategy would be very high. However, more appropriate than using this system on its own would be to use it as an overlay when deciding when to make trades.","PeriodicalId":260048,"journal":{"name":"Capital Markets: Market Efficiency eJournal","volume":"C-26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126480735","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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