Differences In Average Returns Research Articles

Pengujian Monday Effect pada Indeks LQ-45 di Bursa Efek Indonesia pada saat Pandemi

Research in Indonesia found many anomalies in the stock market, such as the Phenomenon of Monday effect. The diversity of research results encourages to re-research the Phenomenon of Monday effect on different conditions, namely pandemic. The purpose of this study is to find out the occurrence of Monday effect on the Indonesia Stock Exchange at the time of the pandemic. This research was conducted on all LQ-45 companies in March to October 2020. Data collection by observing the available secondary data. The analysis technique used is one sample t-test. This research proves that there is no difference in average return on Monday which the phenomenon of Monday effect doesn’t occur during a pandemic.
 Keywords: Monday Effect; LQ-45 Index; Indonesia Stock Exchange.

Common Idiosyncratic Volatility and Carry Trade Returns

I provide new evidence that incomplete consumption risk sharing across countries is an important determinant of carry trade returns. I show that there is a strong co-movement in idiosyncratic volatilities over time, and that shocks to the common idiosyncratic volatility (CIV) factor, defined as the equally weighted average of the idiosyncratic volatilities in the cross-section, are priced. I find that high-interest rate currencies deliver low returns when the CIV increases, which are bad times for investors. Low-interest rate currencies provide a hedge by yielding positive returns. CIV shocks remain an empirically powerful risk factor in explaining the cross-section of carry trade returns after controlling for global foreign exchange (FX) volatility risk. Furthermore, CIV risk is correlated with cross-country income risk faced by households. My findings are consistent with a heterogeneous-agent model with persistent, uninsurable idiosyncratic shocks in consumption growth. The calibrated model quantitatively accounts for the cross-sectional differences in average returns across CIV-beta sorted portfolios for plausible market prices of CIV risk.

The Return Difference between Before and After Issuance of Sharia Bonds (Sukuk)

This study aims to analyze sharia downloading which returns shares on the Indonesian Stock Exchange. This study uses a study program to see the average abnormal returns around the sharia promulgation date (sukuk) and the average difference in abnormal returns before and after sharia withdrawal (sukuk). The population in this study were all sharia negotiations published in the 2014-2019 period. and still published in February 2020. The window period is 60 days (t - 30 and t + 30) with a sample of 15 publication events. The method used in this study was the t test and Wilcoxon signed rank test. The results showed that there was an average significant abnormal return around the date of promulgation of sharia (sukuk), namely on the 29th and 1st days before the promulgation of sharia (sukuk). And the results of the Wilcoxon sign rank test show that the significance level is 0.003, which means that H0 is accepted so that there is a significant difference in average returns between before and after the announcement of the sharia withdrawal (sukuk) announcement.

Private Information behind Insider Trades: Evidence from Cross Section and Time Series

We examine the private information associated with insider trades using a Chinese data set. Insider buys positively forecast individual stock returns and insider sales negatively forecast individual stock returns. Classifying insiders as corporate managers and institutional investors, we find that the trades by these two types have different asset pricing implications. Cross-sectionally, stocks more heavily bought by corporate managers have higher average returns compared to their less-bought counterparts, but institutional investor trading has no impact on cross-sectional differences in average returns. The economic value of institutional investors’ trades primarily derives from their time-series return predictability, as the collective buy-to-sell ratio of institutional investors significantly forecasts market returns. In contrast, the buy-to-sell ratio of corporate managers shows no predictive power.

Minimum-Variance Hedging Oil Price Risk for US Energy ETF Investors: Out-of-Sample Investigation

Oil price experienced crashes during the period of the 2008 global financial crisis and the recent period of oil price crisis in 2014. Hedging oil price risk becomes more important for energy industry investors. In this paper, we investigate the out-of-sample dynamic hedging performance by using the oil futures based on 11 methods for estimating the minimum-variance optimal hedge ratio for 5 US energy ETFs. Except variance, we also study the difference in average returns and utilities between the unhedged strategy and the hedged strategy by employing statistical tests. Finally, we study explore the performance of the hedged strategy in terms of cumulative return and variance under different oil market regimes.

Sell in May and Go Away in Small & Big Companies on Indonesia Stock Exchange

The study was conducted to prove the occurrence of market abnormalities phenomena, namely, sell in May and go away on the Indonesian Stock Exchange (IDX). By distinguishing stocks based on their size from stock prices as indicators, it is expected to see more accurate results in revealing this phenomenon. The hypothesis in this study is that there are differences in stock returns in May-October and November-April. The results of the study prove that there are no differences in stock returns in May-October and in November-April both in small companies and large companies. Although it is proven that there is no sell in may affect and go away on the IDX, the difference in average stock returns in May-October and Nov-April in small companies is -1.56%, indicating that small companies have a negative average return. While the difference in the average return of large companies in May-Oct and Nov-Apr is 0.09%.

A Corporate Financing-Based Asset Pricing Model

I show that an asset pricing model for the equity claims of a value-maximizing firm can be constructed from its optimal financial contracting behavior. I study a dynamic contracting model in which firms trade off the costs and benefits of a given promise to pay external lenders in a specific economic state. Deals between firms and financiers reveal the importance of that state for firm's equity value, namely the stochastic discount factor the firm responds to. I empirically evaluate the model in the cross section of expected equity returns. I find that the financial contracting approach goes a long way in rationalizing observed cross-sectional differences in average returns, also in comparison to leading asset pricing models. In addition, the model discloses that two easily measured variables, the growth rates on net worth and profitability, generate sizeable cross-sectional spreads in returns. Finally, a calibrated version of the model is broadly consistent with observed corporate policies of US listed firms.

Oil volatility risk and expected stock returns

Abstract After the financialization of commodity futures markets in 2004–2005 oil volatility has become a strong predictor of returns and volatility of the overall stock market. Furthermore, stocks’ exposure to oil volatility risk now drives the cross-section of expected returns. The difference in average return between the quintile of stocks with low exposure versus high exposure to oil volatility is significant at 0.66% per month, and oil volatility risk carries a significant risk premium of − 0.60% per month. We also find that increases in oil price uncertainty predict tightening funding constraints of financial intermediaries suggesting a link between oil volatility risk and the stock market.

Firm characteristics, consumption risk, and firm-level risk exposures

We propose a novel approach to measuring firm-level risk exposures and costs of equity. Using a simple consumption-based asset pricing model that explains nearly two-thirds of the variation in average returns across 55 anomaly portfolios, we map the relation between exposures to consumption risk and portfolio-level characteristics. We use this relation to calculate exposures to consumption risk at the firm level and show that the calculated consumption risk exposures yield portfolios with large differences in average returns and ex post consumption risk exposures consistent with those predicted by our calculated betas. Further, industry betas and risk premia implied by our procedure display economically intuitive variation over time. Finally, Fama-MacBeth regressions suggest that risk exposures calculated using our procedure dominate those from alternative factor models at explaining cross-sectional variation in returns.

Stock Options as Lotteries

ABSTRACTWe investigate the relationship between ex ante total skewness and holding returns on individual equity options. Recent theoretical developments predict a negative relationship between total skewness and average returns, in contrast to the traditional view that only coskewness is priced. We find, consistent with recent theory, that total skewness exhibits a strong negative relationship with average option returns. Differences in average returns for option portfolios sorted on ex ante skewness range from 10% to 50% per week, even after controlling for risk. Our findings suggest that these large premiums compensate intermediaries for bearing unhedgeable risk when accommodating investor demand for lottery‐like options.

Grazing Winter Rye Cover Crop in a Cotton No‐Till System: Yield and Economics

Winter annual cover crop use is limited in conservation management systems in the United States. Grazing cover crops could encourage cover crop adoption if returns offset establishment costs without reducing crop yields. A 4‐yr field experiment was conducted near Watkinsville, GA, in which a rye (Secale cereale L.) cover crop was grazed by cattle or roller‐crimped before planting cotton (Gossypium hirsutum L.). Cattle consumed about 2.4 Mg ha−1 of forage annually but amounts were variable due to weather conditions. Rye residue remaining at cotton planting averaged 6.7 Mg ha−1 for non‐grazed compared with 1.7 Mg ha−1 for grazed treatments. Cotton yields tended to be better in the non‐grazed treatment but were significantly different only in 2009 when yields were reduced in the grazed treatment due to soil compaction. Four‐year average lint yield was 120 kg ha−1 greater for the non‐grazed treatment. Cotton fiber quality parameters were generally better in the non‐grazed treatment but not enough to change crop price. Differences between grazed and non‐grazed returns ranged from $–26 to $355 and averaged $81 ha−1 when based on market year prices. The difference in average return increased to $110 ha−1 when based on 2012 market year prices. Although negative effects of soil compaction were observed the final year, returns from grazing have the potential to offset establishment costs of a rye cover crop and increase profits for cotton producers in the Southern Piedmont of the United States.

Oil Risk Exposure and Expected Stock Returns

After the financialization of commodity futures markets in 2004-05 oil volatility has become a strong predictor of returns and volatility of the overall stock market. Furthermore, stocks' exposure to oil volatility risk now drives the cross-section of expected returns. The difference in average return between the quintile of stocks with low exposure and high exposure to oil volatility is significant at 0.66% per month, and oil volatility risk carries a significant risk premium of -0.60% per month. In the post-financialization period, oil volatility risk is strongly related with various measures of funding liquidity constraints suggesting an economic channel for the effect.

A Simple Consumption-Based Asset Pricing Model and the Cross-Section of Equity Returns

We propose a novel approach to measuring firm-level risk exposures and costs of equity. Using a simple consumption-based asset pricing model that explains nearly two-thirds of the variation in average returns across 55 portfolios, we map the relation between exposures to consumption risk and portfolio-level characteristics. We use this relation to calculate exposures to consumption risk at the firm level and show that the calculated consumption risk exposures yield portfolios with large differences in average returns and ex post consumption risk exposures consistent with those predicted by our calculated betas. Further, industry betas and risk premia implied by our procedure display economically intuitive variation over time. Finally, Fama-MacBeth regressions suggest that risk exposures calculated using our procedure dominate those from alternative factor models at explaining cross-sectional variation in returns.

Embedded risk management in dryland sheep systems II. Risk analysis

Climatic variability is a major constraint to improved productivity and profitability in dryland grazing systems. This paper reports the physical and economic benefits obtained from incorporating tactical responses in risk management strategies for dryland sheep production systems constrained by climatic variability. A total of 112 potential risk management strategy:response combinations were evaluated using the simulation model LincFarm. The strategies differed in stocking rate (SR; stock units (SU) ha−1), pasture type (legume or grass-based system), and stock classes. All strategies were evaluated at 10, 12, 14 or 16 SR, first without tactical responses and then with responses triggered when soil moisture levels fell to 10.0%, 12.5% or 15.0% in the top 25cm soil. The results show that all strategies including tactical adjustments to management and marketing were economically superior to those that did not vary tactically. The difference in average returns between the best strategy with tactical responses and the best without is $336.04ha−1 year−1, an increase of 40%. The value of including tactical responses in corresponding strategies ranged between 2.98% and 37.32%. This was in addition to tactical responses decreasing the variability of returns by between 19.74% and 67.38%. The combination of risk and return defines a risk-efficient frontier on which any individual farmer should find an optimal strategy which reflects their risk attitude. By including tactical adjustments additional strategies become risk-efficient and the number on the frontier increased from 5 to 11. Comparing the two sets of strategies showed that failure to incorporate tactical adjustments may result in sub-optimal risk management strategies being chosen whereas failure to accommodate risk attitude may change the strategy chosen, but not necessarily to one that is sub-optimal. The results suggest conventional ryegrass:clover pastures are risk efficient when management is aggressive (high stocking rate and later climate response) and that either conventional pasture systems or those with high nutritive value species are superior when management is more conservative. In all cases, retaining a proportion of flexible stock classes such as 2year old cattle or a mob of older ewes is essential. The results also emphasise the importance of maintaining high pasture quality to ensure fast lamb growth rates and early drafting.

기본적 변수가 주식수익률에 미치는 영향 - 패널자료로부터의 근거

본 연구는 기업규모, 장부가치/시장가치 비율, 순이익/주가 비율, 현금흐름/주가 비율, 레버리지 등 기본적 변수를 사용하여 주식수익률에 유의적인 변수를 확인하고자 하였다. 이를 위해 본 연구에서는 횡단면 자료와 시계열 자료를 결합한 패널자료(panel data)를 이용하여 패널자료분석방법으로 연구모형을 실증적으로 분석하였다. 일반적으로 패널자료를 사용하면 Hsiao[13]가 지적한 바와 같이 표본의 크기를 확대시켜 자유도를 증가시키고 이론적으로 설명변수간 다중공선성(muti-collinearity) 문제를 완화할 수 있다. 실증분석결과에 의하면 기업규모(SIZ), 장부가치/시장가치 비율(B/M), 순이익/주가 비율(E/P), 현금흐름/주가 비율(C/P) 등이 주식수익률의 횡단면적 차이를 설명할 수 있는 유의적인 변수라 할 수 있다. This paper examines the effects of fundamental variables on stock returns. Therefore, the major purpose of this study is to identify fundamental variables having a systematical effect on the stock return. The paper uses panel data analysis. We find that the results of regressions say that firm size, book-to-market ratio(B/M), earning-to-price ratio(E/P), cash flow-to-price ratio(C/P) can explain the differences in average returns across stocks.

Do Investment Banks Matter for M&A Returns?

W e document a significant investment bank fixed effect in the announcement returns of M&A deals. The interquartile range of bank fixed effects is 1.26%, compared with a fullsample average return of 0.72%. The results remain significant after controlling for the component of returns attributable to the acquirer. Our findings suggest that investment banks matter for M&A outcomes, and contrast earlier studies that show no positive link between various measures of advisor quality and M&A returns. Differences in average returns across banks are also persistent over time and predictable from prior performance. Clients do not chase past returns, which may explain why persistence exists in M&A performance while it is absent in mutual funds. (JEL G24, G34) Mer gers and acquisitions (M&A) are among the most critical decisions a CEO can make. Successful mergers can create substantial synergies, while misguided acquisitions can lead to misallocation of companies to parents unable to reap their full potential. In addition to these large effects on shareholder value, a bad acquisition also increases the CEO’s risk of being fired ( Lehn and Zhao 2006). A prominent example is the departure of Carly Fiorina from Hewlett Packard, which was widely attributed to her acquisition of Compaq. The quality of M&A transactions is also of great importance to the economy as a whole. The total value of M&A announced by a U.S. acquirer in 2007 was $2.1 trillion, around 15% of GDP.

Stock Options as Lotteries

We investigate the relationship between ex-ante total skewness and holding returns on individual equity options. Recent theoretical developments predict a negative relationship between total skewness and average returns, in contrast to the traditional view that only coskewness should be priced. We find, consistent with recent theory, that total skewness exhibits a strong and negative relationship with average option returns. The differences in average returns between low and high skewed options is large, ranging from 10 to 50 per cent per week, even after controlling for risk. Our findings suggest that these large premiums compensate intermediaries for bearing unhedgable risk when accommodating the relatively high investor demand for lottery-like options.

Speculative Retail Trading and Asset Prices

This paper examines the characteristics and pricing of stocks that are actively traded by speculative investors. We find that stocks with high retail trading proportion (RTP) have strong lottery features and they attract investors who are known to exhibit a strong propensity to gamble with stocks. High levels of RTP also reflect active trading by risk-seeking realization utility investors. Stocks whose trading are dominated by speculative investors tend to be overpriced and earn significantly negative alpha. The average return difference between the top and the bottom RTP quintiles is about -0.60% per month. This negative RTP premium is stronger among stocks that have lottery features or are located in regions in which people exhibit a stronger propensity to gamble. Collectively, these results indicate that speculative trading importantly affect stock prices.

The Conditional Beta and the Cross‐Section of Expected Returns

We examine the cross‐sectional relation between conditional betas and expected stock returns for a sample period of July 1963 to December 2004. Our portfolio‐level analyses and the firm‐level cross‐sectional regressions indicate a positive, significant relation between conditional betas and the cross‐section of expected returns. The average return difference between high‐ and low‐beta portfolios ranges between 0.89% and 1.01% per month, depending on the time‐varying specification of conditional beta. After controlling for size, book‐to‐market, liquidity, and momentum, the positive relation between market beta and expected returns remains economically and statistically significant.

Firms' Cash Holdings and the Cross-Section of Equity Returns

This paper documents a new empirical finding: an investing strategy that is long in stocks of firms with a high cash-to-assets ratio (High Cash portfolio) and short in stocks of firms with a low cash-to-assets ratio (Low Cash portfolio) produces an average excess return of 42 basis points per month. The three Fama-French factors are not able to explain such a difference in average returns, while a cash factor (HCMLC) does. I propose a structural model of the firm's investing and savings decisions that rationalizes the empirical evidence relating corporate cash holdings to the average excess equity returns. I amend the real option model of the firm of Berk, Green, and Naik [1999] to allow for a non-trivial capital structure decision. In my setup, firms can finance investment by means of equity or retained earnings. Equity issuance involves pecuniary costs such as bankers and lawyers' fees. Corporate savings allow the firm to avoid costly external financing, but yield a return which is lower than shareholders would be able to obtain. Because of risky cash flows, the model generates an additional precautionary savings motive that is the key ingredient to explain the positive relationship between corporate cash holdings and average equity returns found in the data.