Average Market Return Research Articles

Choosing the Social Discount Rate for Australia

AbstractThis article argues that in cost–benefit analysis government should adopt the opportunity cost of capital as represented by the alternative project rate of return as the social discount rate rather than the private or social time discount rate or a weighted cost of funds rate that reflects estimated proportions of investment and consumption foregone. The appropriate metric for the alternative project rate of return is average market return allowing for non‐diversifiable risk but not for diversifiable project risk. The article concludes that the appropriate social discount rate for Australia, for all sectors and states and territories, is approximately 6.5 per cent.

The Global Financial Crisis, Inflation Rate And Stock Market Returns In Kenya

The moderating effect of events such as the 2008 Global Financial Crisis (GFC) on the relation between stock market returns and macroeconomic variables has attracted very little attention. This study investigates the extent to which the 2008 GFC moderated the relationship between inflation rate and stock market returns. The study uses month-onmonth inflation rate and year-on-year inflation rate from 1st January 1993 to 31st December 2015 and divides the sample data into pre-crisis period (from 1st January 1993 to 31st December 2007); crisis period (from 1st January 2008 to 30th June 2009); and post-crisis period (from 1st July 2009 to 31st December 2015). It uses a product-term regression model instead of the most widely applied additive regression model. Results indicate that a unit increase in the both measures of inflation rate had significant depressing effects on stock market returns after the crisis compared to before the crisis. Likewise, the results reveal that average stock market returns were significantly higher after the crisis compared to before the crisis at low rather than medium or high values of the two measures of inflation rate. These results suggest that the Kenyan stock market is highly sensitive to variations in inflation rate, especially as it emerges from a financial or political turmoil. This study is empirically innovative in the sense that it is the first to examine the moderating effect of the 2008 GFC on the relation between inflation rate and stock market returns in Kenya using a product-term model.

Generalized financial ratios to predict the equity premium

Empirical evidence for the price-dividend ratio to be a predictor of the equity premium is weak. We argue that changes in the economic conditions and market composition lead to a time-varying relationship between prices, dividends and the equity premium. Exploiting the information in the rolling window log-log regression of stock prices on dividends, we obtain the Generalized Price-Dividend Ratio (GPDR), that compares the price per share with a time-varying transformation of the dividend per share. The GPDR leads to economic and statistical gains when forecasting the equity premium of the S&P 500 at the 1, 3, 6 and 12 month horizon, as compared to using the classical price-dividend ratio or the prevailing historical average excess market return. Similar improvements are obtained for Generalized Financial Ratios based on the corporate earnings and book value.

Can ‘delitigation’ transform an industry?

I investigate whether removing product liability – “delitigation” – affects a firm’s market value. This research sheds light on the influence of litigation risk on firm value. Using the vaccine industry as an example, I find the average market return to the licensing of a new vaccine increases after the passage of legislation that removed most product liability for vaccines. While average market return to the licensing of any new drug that a vaccine maker produced also increases, returns to drug firms that do not make vaccines remain the same after the legislation. Company risk-taking enhances market reaction to the announcement of a new vaccine. Delitigation appears to contribute to the transformation of vaccine makers.

PEMILIHAN SAHAM YANG OPTIMAL MENGGUNAKAN CAPITAL ASSET PRICING MODEL (CAPM)

Optimal portfolio is the basis for investors to invest in stock. Capital Asset Pricing Model (CAPM) is a method to determine the value of the risk and return of a company stock. This research used are secondary data from the closing price of the monthly stock price (monthly closing price), Stock Price Index (SPI), and the monthly SBI rate. Samples taken as many as 41 stocks in LQ45 February-July 2015 on the Indonesian Stock Exchange (ISE). The study period during 5 year from October 2010 - October 2015. The result of analysis shows that the optimal portfolio consists of 18 companie . Th e average return of the optimal portfolio is higher than the average risk-free return (SBI rate) and the average market return. This proves that investing in stocks is more profitable than a risk-free investment. https://doi.org/10.26905/jmdk.v5i1.1315

Corporate Social Responsibility Ratings and Financial Performance: An Analysis of Sub-Ratings in Europe

In a previous research article, we studied the relationship between aggregate Corporate Social Responsibility (CSR) ratings issued by the European rating agency, Vigeo, and accounting and stock market performance of a sample of European companies. Because the Vigeo CSR ratings are the sum of sub-rating scores assigned in the following six categories: Business Behavior (BB), Community Involvement (CIN), Corporate Governance (CG), Environment (ENV), Human Resources (HR), Human Rights (HRts), the purpose of the present article is to perform a detailed analysis of the Vigeo sub-ratings in order to confirm and extend the findings of our prior research. The overall objective of the present study is to deepen our investigation into the sub-ratings by measuring their impact on accounting and stock market performance by first using a “Prospective” approach in which the subsequent performance of the sample companies is predicted by their CSR sub-ratings. We then perform a “Retrospective” analysis which looks at the accounting and stock market performance of companies at time N-1 as compared with the CSR sub-ratings issued at time N (in other words, whether the performance predicts the ratings). With respect to the Prospective approach, a negative relationship is found between the CSR sub-ratings and the subsequent accounting and stock market performance of the sample companies. The results of the Retrospective analysis indicate that the sub-ratings are: (1) positively related to the market capitalization (i.e. size) of the sample companies; (2) negatively related to the difference between the risk of the companies and the average risk of their industry sectors; (3) negatively related to the difference between the market return of the sample companies and the average market return of the companies in the sector. The Retrospective approach confirms the three concepts developed in our previous work namely “political visibility”, “priority” and “downgrading”. In addition, certain sub-ratings, namely: environment (ENV), human resources (HR) and community involvement (CIN) dominate in the aggregate ratings, possibly due to their greater visibility and ease of measurement as compared with corporate governance (CG), human rights (HRts), and business behavior (BB), which are more difficult to measure and require a deeper understanding of the individual companies.

Detecting the January Effect in the Egyptian Stock Market

Calendar anomalies are the most popular anomalies specially month of the year or January effect. January effect refers to the theory that monthly average stock market return is highest in January than any other month of the year. The importance of detecting this anomaly is that investors can capitalize on knowing this information to achieve abnormal returns. There is lack of research on January, or monthly, effect in the Egyptian stock exchange, even for the existing ones results are contradicting. This research objective is to detect January effect in the Egyptian stock exchange over the period from 26 of July 2004, to 31st of January 2009, on both the EGX30 general index and the companies that constitute it as of 1st of February 2009.The research will use two models to test January effect. The first one is the basic model that has been used widely to detect January effect worldwide. The second model is the extended model adopted from Agrawal (1994) which introduces the effect of the Dow Jones Industrial Average index DJIA returns on the EGX30 returns.The research examines the January effect on the EGX30s’ companies using an extended model to the basic one after introducing the effect of both the security’s trading volume and the return on the EGX30.Findings supported the absence of January effect on the EGX30, and its companies. However, it was detected that December is the month of the year on the EGX30.

A Test of Asymmetric Volatilityin the Nigerian Stock Exchange

This study seeks to test for the presence of asymmetric effect in the Nigerian Stock Exchange. In order to achieve the objective of the study, the researcher obtains the average market return, the equilibrium market returns generated by the risk factors of the APT, and then subjects them to asymmetric tests using the TAR-GARCH technique. Findings from the study reveal that equilibrium market return generated by pre-specified APT does not significantly respond to information asymmetry. This implies that is volatility does not really change with information. However, the equilibrium market return generated by statistical APT exhibits the presence of information asymmetry whereby the volatility of stock returns significantly responds to information. This reveals the presence of leverage effect in the Nigerian stock market whereby stock returns volatility increases with bad news but the volatility reduces with good or positive news. The researcher recommends that government agents in respect of this market should provide more adequate means of information diffusion into the market at zero cost to all participants.

Performance of Taiwanese Domestic Equity Funds during Quantitative Easing

This study is the first to analyze the performance of Taiwanese domestic equity funds between January 2009 and October 2014, the period during which quantitative redirected capital flows toward developing economies and the Taiwanese Stock Exchange Weighted Index compounded at approximately 12.9% annually. Adopting methods endorsed by earlier research, we evaluated 15 Taiwanese equity funds’ performance relative to market averages using the Sharpe (1966) and Treynor (1965) ratios and Jensen’s alpha method (1968). To test market timing proficiency, we applied the Treynor and Mazuy (1966) and Henriksson and Merton (1981) regression analysis methods. Jensen’s alpha method (1968) was used to measure fund managers’ stock selection skills. Results revealed that funds significantly under-performed Taiwan’s average annual market return and demonstrated no exceptional stock-selection skills and market timing proficiency during the era of quantitative easing.

Control of the Processes of Restructuring Debts of a Corporate Debtor Using the Financial Immunization Method

The new financial turmoil in Russia has taken up the matter with many domestic-owned firms regarding more intensive management of their business and financial risks, including through managing the rate of return on invested capital. Changes in the rate of return may be both in favor of a company and to the bad due to the fact that the average market return deviation from the return planned by such company might be negative or positive. To address the problem of hedging the process of restructuring debts of a corporate debtor, this paper suggests using the financial immunization solution, which is applied for debt management in the form of bonds at the stock market. A creditor may create, instead of an old debt, such portfolio of the debtor's future payments, which will firstly provide it with the same rate of return as in the original contract, and which will secondly protect it against any change in the average market rate of return in the business sector under review in such a way that any deviation of the rate of return from the initially predetermined one would enable the creditor to obtain a larger value of the new portfolio than the value of the old debt.

Assessing Market Risk of Indian Index Funds

An index fund is a mutual fund that aims to imitate a benchmark index. In India, there has been significant growth in the number of such funds since 2002. These funds are exposed mainly to market risk. The assessment and comparison of the market risk and the risk-adjusted returns of these funds are topics of interest to both researchers and investors. Value-at-risk and expected shortfall are well-known measures of the market risk. The Sharpe ratio and the Treynor ratio measure risk-adjusted return earned in excess of average market return. For each fund, we estimate these measures. Most of the index funds exhibit similar market risk as the NIFTY or the SENSEX index, which they mimic. Moreover, the market risk of these funds seems to be unaffected by multiple-fund management by the respective fund managers. However, there exist significant differences among the risk-adjusted daily returns, earned in excess of the average daily index return, of the various Indian index funds. Ideally, an index fund is expected to exhibit similar risk and risk-adjusted return as the benchmark index. We identify some such Indian index funds.

CHARACTERISTICS OF OMEGA-OPTIMIZED PORTFOLIOS AT DIFFERENT LEVELS OF THRESHOLD RETURNS

There is little literature considering effects that the loss-gain threshold used for dividing good and bad outcomes by all downside (upside) risk measures has on portfolio optimization and performance. The purpose of this study is to assess the performance of portfolios optimized with respect to the Omega function developed by Keating and Shadwick at different levels of the threshold returns. The most common choices of the threshold values used in various Omega studies cover the risk-free rate and the average market return or simply a zero return, even though the inventors of this measure for risk warn that “using the values of the Omega function at particular points can be critically misleading” and that “only the entire Omega function contains information on distribution”. The obtained results demonstrate the importance of the selected values of the threshold return on portfolio performance – higher levels of the threshold lead to an increase in portfolio returns, albeit at the expense of a higher risk. In fact, within a certain threshold interval, Omega-optimized portfolios achieved the highest net return, compared with all other strategies for portfolio optimization using three different test datasets. However, beyond a certain limit, high threshold values will actually start hurting portfolio performance while meta-heuristic optimizers typically are able to produce a solution at any level of the threshold, and the obtained results would most likely be financially meaningless.

IPO market timing. The evidence of the disposition effect among corporate managers

Until now, IPO market timing has been mostly associated with a varying number of IPOs in certain periods of “hot” and “cold” issue markets. We would like to offer a different perspective. We focus on a speed of the IPO process, after the decision to go public was actually made. Our hypothesis is that in “hot market” managers will tend to minimize the time necessary to go public in order to take advantage of high valuations as quickly as possible. On the contrary, if the firm is not ready with the IPO on time and in the meantime the market falls during the going-public process, managers will tend to delay the IPO hoping that the good market conditions will come back soon. We argue that such a behavior might be attributed to the disposition effect among firms' managers.We find a statistically significant negative correlation between the market return and the speed of the IPO process. The absolute correlation coefficient is higher when the market return is calculated 90days prior to the Approval Date of the prospectus than when it is calculated 90days after the Approval Date. Hence, a vast part of the market influence on the speed of the offering process has its origin at the time when offering is formally not possible yet. External factors occurring after the Approval Date seem to be less important than the managerial decision influenced by observation of the market situation prior to the Approval Date.We also find that for firms débuting faster than the median of our sample, the average market return in the period between the IPO date and the median is positive. On the other hand, in the group of slower firms, the average market return in the period between the median and the IPO date is negative. There is an analogy between firms – débuting too fast in bullish market and too slow in bearish market, and investors – selling winning stocks too quickly and keeping falling stocks for too long in their portfolios. Both managers and investors seem to be biased by the S-shape utility function, as predicted by the prospect theory of Kahnemann and Tversky (1979).

John Doe's Old-Age Provision: Dollar Cost Averaging and Time Diversification

Do timing and time diversification improve the average investor's stock market return? Contrary to literature's scenario of wealthy investors, average investors invest each month over life. Many purchases prevent investors from buying at peak, but horizons decrease, giving latter investments less time to offset losses. This paper accommodates timing using internal rates of return, facilitating the comparison of wealthy and average investors. One to 480 months investments in S&P and downward trending Nikkei, are compared. In conclusion, average investor's risk and return ratios improve with horizon and, compared to wealthy investors, in bullish and deteriorate in bearish markets.

Stock Market Performance under Different Government Periods: Evidence from Bangladesh

While there are many factors that influence stock market activity, the main focus of this paper is to examine stock market performance under different political leadership in Bangladesh. This study mainly considers two different daily DSE indices’ (DSI and DGEN) return and some key market indicators for the sample period March 20, 1991 to April 30, 2013. We basically analyzed average market return, volatility and risk for each government term (five terms) individually. By means of descriptive observation and statistical analysis we found evidence that the performance of stock market was superior under government term 4 (2006 to 2009) while performance was worst under government term 2 (1996 to 2001) and term 5 (2009 to 2013). It was also found that the government term 4 was led by nonpolitical party, i.e. Caretaker government whereas the government terms 2 & 5 were led by the same political party.

Stock index tracking by Pareto efficient genetic algorithm

This paper proposes a heuristic searching approach on construction of a tracking portfolio, which is able to get the average market return and can even outperform some hedge funds that are managed actively. The tracking portfolio is expected to replicate the performance of a benchmark index return with a part of its component stocks while reducing the cost of transaction by limiting the number of rebalancing and unnecessary investment on less influential component stocks. The mathematical model being proposed is based on a hybrid genetic algorithm with a self-adaptive evolving mechanism. In order to enhance the model efficiency, we optimize the original genetic algorithm by applying Pareto efficiency as utility measure and goal programming for the inevitable conflicts of multiple objectives/interests. The proposed approach provides a comprehensive solution to index tracking problem by considering as many practical issues as possible. The constructed portfolio has a satisfactory performance on experiments based on CSI300, FTSE100 and HSI data. The proposed formulation of index tracking is therefore believed to be a good alternative to many current techniques.

Return Dispersion, Size, and the Cross-Section of Stock Returns - Evidence from the German Stock Market

This paper investigates whether return dispersion (RD), proxied by the cross-sectional standard deviation of stock returns, captures variation in returns across German stocks between 1989 and 2010. I address existing evidence based on U.S. equity data that RD may serve as a proxy economic state variable. In the out-of-sample test I confirm the countercyclical character of RD and show that it loads significantly negatively on future equal-weighted average market return. Sorting stocks by their absolute loadings on RD, I uncover the negative pattern in simple average portfolio returns. Further analysis indicates that the negative relationship between absolute loadings on RD and future returns is present only in micro stock subgroup. This finding casts doubt on the RD as proxy for state variable. Instead, it suggests its relation to mispricing and idiosyncratic risk components. As a secondary results I confirm the existence of reversed size effect in German stock market over the considered period.

IPO Market Timing: The Evidence of the Disposition Effect among Corporate Managers

Until now, IPO market timing has been mostly associated with a varying number of IPOs in certain periods of “hot” and “cold” issue markets. We would like to offer a different perspective. We focus on a speed of the IPO process, after the decision to go public was actually made. Our hypothesis is that in “hot market” managers will tend to minimize the time necessary to go public in order to take advantage of high valuations as quickly as possible. On the contrary, if the firm is not ready with the IPO on time and in the meantime the market falls during the going-public process, managers will tend to delay the IPO hoping that the good conjuncture will come back soon. We argue that such a behavior might be attributed to the disposition effect among firms’ managers.We find a statistically significant negative correlation between the market return and the speed of the IPO process. The absolute correlation coefficient is higher when the market return is calculated 90 days prior to the Approval Date of the prospectus than when it is calculated 90 days after the Approval Date. Hence, a vast part of the market influence on the speed of the offering process has its origin at the time when offering is formally not possible yet. External factors occurring after the Approval Date seem to be less important than the managerial decision influenced by observation of the market situation prior to the Approval Date. We also find that for firms debuting faster than the median of our sample, the average market return in the period between the IPO date and the median is positive. On the other hand, in the group of slower firms, the average market return in the period between the median and the IPO date is negative. There is an analogy between firms – debuting too fast in bullish market and too slow in bearish market, and investors – selling winning stocks too quickly and keeping falling stocks for too long in their portfolios. Both managers and investors seem to be biased by the S-shape utility function, as predicted by the prospect theory of Kahnemann and Tversky (1979).

The Global Financial Crisis’ Impact on Short-term Performance of IPO: The Case Study of New Zealand Firms’ IPOs

The global financial crisis had major effects on the New Zealand (NZ) capital market, financial system and economy. It prompted responses across the full range of the NZ Securities Commission and the NZ Reserve Bank policies, including amendment of the Securities Act 2009, monetary policy, liquidity management and prudential policies. This paper investigates the impact of global financial crisis on short-term performance of New Zealand firms’ Initial Public Offering (IPOs) for the period before, during and after the crisis. Using New Zealand firms’ IPOs from 2006 to 2010, this study employs an event study method which applies market adjusted return and market model to calculate abnormal returns. Two-sample mean-comparison test and the Multivariate Regression Model (MVRM) are used in this study. The result reveals that there is a significant difference between short-term IPOs’ performance before, during and after the global financial crisis. Further, the MVRM result supports the two-sample mean-comparison test result in which 2008 and 2009 periods have a negative significant impact on abnormal returns, suggesting that it has underperformed the average market returns. This study provides recent evidence for New Zealand IPOs’ short-run performance during the global financial crisis. A study of New Zealand is interesting as most previous studies consider mature markets like the US and the UK.

The Global Financial Crisis’ Impact on Short-Term Performance of IPO: The Case Study of New Zealand Firms’ IPOs

The global financial crisis had major effects on the New Zealand (NZ) capital market, financial system and economy. It prompted responses across the full range of the NZ Securities Commission and the NZ Reserve Bank policies, including amendment of the Securities Act 2009, monetary policy, liquidity management and prudential policies. This paper investigates the impact of global financial crisis on short-term performance of New Zealand firms’ Initial Public Offering (IPOs) for the period before, during and after the crisis. Using New Zealand firms’ IPOs from 2006 to 2010, this study employs an event study method which applies market adjusted return and market model to calculate abnormal returns. Two-sample mean-comparison test and the Multivariate Regression Model (MVRM) are used in this study. The result reveals that there is a significant difference between short-term IPOs’ performance before, during and after the global financial crisis. Further, the MVRM result supports the two-sample mean-comparison test result in which 2008 and 2009 periods have a negative significant impact on abnormal returns, suggesting that it has underperformed the average market returns. This study provides recent evidence for New Zealand IPOs’ short-run performance during the global financial crisis. A study of New Zealand is interesting as most previous studies consider mature markets like the US and the UK.