Bull Market Period Research Articles

PEROLD-SHARPE REBALANCING STRATEGIES IN PRACTICE

The purpose of this paper is to investigate the different strategies for portfolio rebalanc-ing (buy-and-hold, constant weights, and constant-proportion portfolio insurance (CPPI) suggested by Perold and Sharpe in a reallife environment using the actual market data and considering trans-action costs. Methodology. Exchange-traded funds were used to represent asset classes, and actual market prices in 2007-2015 for the ETFs used to conduct the research. The Monte-Carlo simulations were used to generate 400 portfolios over 3 different time horizons in order to get a representative sample. Two actual fee structures were used from the leading U.S. brokerage firms. Results of the portfolio dynamics research show outperformance of CPPI over other strategies on holding periods over 36 months, and on shorter time horizons CPPI and constant weights strategies clearly dominate over buyand- hold strategy. Contrary to the previous conclusions by Perold and Sharpe, there was no definite link between the stock market dynamics or volatility and the preferred strategy. We also see that after a bull market period the CPPI portfolio allocation shifts to 100% equity. The portfolio turnover is typically higher and much more dispersed for CPPI strategy than for constant weights strategy. We also found a strong negative correlation between the CPPI portfolio turnover and the initial equity allocation, whereas for constant weights strategy the turnover is higher at 50% allocation to both stocks and bonds. Practical implications. The strategy choice is shown to be more a matter of the holding period; CPPI seems the best choice over longer periods. Contrary to the widespread perception, our research shows that brokerage fees has not had a material influence on the simulated portfolio performance and, thus, should not be a factor for choosing a strategy. Originality/value. Unlike previous studies in this area that focused on analytical derivation based on sample statistics, we used the Monte-Carlo simulation on the actual asset prices and brokerage fees structures. The results of our research are much closer to the actual portfolio dynamics seen in practice. We also address issues like portfolio turnover and transaction costs that are often over-looked by academic researchers.

An intelligent short term stock trading fuzzy system for assisting investors in portfolio management

Financial markets are complex systems influenced by many interrelated economic, political and psychological factors and characterised by inherent nonlinearities. Recently, there have been many efforts towards stock market prediction, applying various fuzzy logic techniques and using technical analysis methods.This paper presents a short term trading fuzzy system using a novel trading strategy and an “amalgam” between altered commonly used technical indicators and rarely used ones, in order to assist investors in their portfolio management. The sample consists of daily data from the general index of the Athens Stock Exchange over a period of more than 15 years (15/11/1996 to 5/6/2012), which was also divided into distinctive groups of bull and bear market periods.The results suggest that, with or without taking into consideration transaction costs, the return of the proposed fuzzy model is superior to the returns of the buy and hold strategy. Τhe proposed system can be characterised as conservative, since it produces smaller losses during bear market periods and smaller gains during bull market periods compared with the buy and hold strategy.

What Have 25 Years of Performance Data Taught Us About Private Equity Real Estate?

Executive SummaryNCREIF has published performance data covering a 25-year historical period for institutional investments following core, value-add, and opportunistic strategies in private equity real estate assets. In this paper, I summarize salient observations regarding capital appreciation, income, fees and expenses, the income share of total return, the effects of cash reserves and leverage, net total returns, systematic risk, and risk-adjusted performance during five informative market periods: two severe real estate market downturns, one complete real estate bull market, and two incomplete bull market periods. The available data challenge several points of conventional wisdom regarding private equity real estate returns.

Asymmetric effects of monetary policy on an emerging stock market

This paper examines the relationship between monetary policy and the stock market based on data from two stock indices in China - the Shanghai Composite Index and Shenzhen Composite Index. The result shows only unanticipated monetary policy can affect the stock return significantly. Based on anticipated effects, we examine whether monetary policy has asymmetric effects on the stock market by using a linear model with a dummy variable and a modified Markov–switching model respectively. Our empirical results support existing evidence for developed markets, suggesting that monetary policy has a significant impact on stock returns in bear–market periods, whereas the impact is weak and insignificant in bull–market periods. Given this, we surmise that investor sentiments and borrowing constraints are the main causes of the asymmetric effects found.

Performance Persistence of Indian Fund of Mutual Funds: With Special Reference to Bull and Bear Market

This paper examines the performance persistence of Indian Fund of Mutual Funds (FoFs) during the period from January 2nd 2007 to December 31st 2010. The entire study period classified into three sub-periods based on the movement of BSE 500 index closing value and they are named as First Bull Market Period, Bear Market Period and Second Bull Market Period. The performance of individual FoFs in each sub-period are assessed by employing the performance measures of average excess return, Sharpe ratio and Jensen’s alpha. After testing the performance of the sample funds, contingence table is created by classifying the sample funds as winner or loser. Malkiel Z-test, Brown and Goetzmann Z-test and Khan and Rude Chi-square test is used to test the performance persistence of sample funds and found that the fund excel in the bull market do not expect to do well in the bear market. This study also concluded that the investors cannot earn above average risk adjusted return in the bull market period by hiring the above median performer of earlier bull market period.

The Clean Techs equity indexes at stake: Risk and return dynamics analysis

The goal of this paper is to measure the financial performance of 21 primary Clean Techs (CT) equity indexes, covering the primary energy markets worldwide. We use a modified state-space market model to recursively estimate the risk/return performance of each index, and two market benchmarks are considered, thus providing a more accurate picture of the financial outcomes of investing in these relatively new financial instruments. The main findings indicate that during periods of market stability, Clean Techs indexes outperform market portfolio in terms of returns. This superior performance is a consequence of the higher risk levels associated with Clean Techs indexes. This research also supports that CT indexes with a restricted investment universe underperform the market portfolio in terms of returns. Moreover, we find a structural change in the dynamics of the Clean Techs indexes' return/risk performance that coincides with the beginning of the financial crisis. Although the CT indexes are highly volatile financial instruments, even in bull market periods, they turn even riskier during the recent financial crisis. In addition, the CT provider portfolio allocation policy and the activities covered by these indexes influenced the risk/return performance of a limited number of CT equity indexes.

The Influence of Macroeconomic Factors over the Firm’s Diversification Strategy: Empirical Evidence from US Publicly Trading Firms from 1979 to 2006

The objective of this research is to establish whether a relationship between firm motives for diversification and macroeconomic conditions exists. To measure the influence of the eco nomic factors on the firm diversification decision, if any, several multi-factor models are employed. As a measurement of diversification level, the change in the number of segments per firm by year (SegGrowth) is estimated on some economic indexes. The study period is divided on sub-periods based on the bull and bear markets as defined by Dow Theory and the Standard & Poor’s Equity Research. Results from the regression models suggest that the firm diversification decision is influenced by poor macroeconomic conditions. The average number of segments per year during bear market periods is significantly greater than that for the bull market periods. These results indicate that firms have a propensity to diversify dur ing poor economic conditions. One possible explanation is that when the firm faces eco nomic and financial risks, the diversification could be a solution to lower the risk or to exploit new productive opportunities.

La influencia de los factores macroeconómicos sobre la estrategia de diversificación corporativa: datos empíricos de empresas de comercio público de EE.UU. pertenecientes al período comprendido entre 1979 y 2006

The objective of this research is to establish whether a relationship between firm motives for diversification and macroeconomic conditions exists. To measure the influence of the economic factors on the firm diversification decision, if any, several multi-factor models are employed. As a measurement of diversification level, the change in the number of segments per firm by year (SegGrowth) is estimated on some economic indexes. The study period is divided on sub-periods based on the bull and bear markets as defined by Dow Theory and the Standard & Poor’s Equity Research. Results from the regression models suggest that the firm diversification decision is influenced by poor macroeconomic conditions. The average number of segments per year during bear market periods is significantly greater than that for the bull market periods. These results indicate that firms have a propensity to diversify during poor economic conditions. One possible explanation is that when the firm faces economic and financial risks, the diversification could be a solution to lower the risk or to exploit new productive opportunities. Key words: Macroeconomic factors; diversification decision.

The CCM model: a stock valuation tool for a student managed investment fund

PurposeThe purpose of this paper is to develop and test a model that can be used to help students learn the investment analysis process and accurately identify good and bad investment opportunities.Design/methodology/approachThe model tested in this research was developed by a former member of the student managed investment fund Coyote Capital Management at the University of South Dakota. The goal of this project was to refine that original model and test it using historical data from a sample of companies during both bull and bear market periods.FindingsDuring the bull market period (2004‐2006), 81 per cent of the model's recommendations were correct, and during the 2007‐2009 bear market period, approximately 66 per cent of the model's recommends were correct.Originality/valueWhile following the model's recommendations could potentially produce returns well above those of the market in the best case scenario and returns in line with the market in the worst case scenario, there are many factors that should go into making an investment decision. This model can be useful as an item in the investor's tool kit, and it has the potential to help students better understand the process of evaluating an investment opportunity.

Initial Public Offerings, Earnings Management and Venture Capital: Evidence in Bull and Bear Market Conditions

Earnings management at the time of the IPO is an important issue and has captured considerable attention of academic literatures. However, there have been few studies testing earnings management in the context of market condition, and when financial intermediaries such as venture capital (VC) involve in the IPO process. This study investigates how VCs influence on earnings management of IPOs upon market condition. We find evidence that if IPO firms go public in the bear market periods, VCs are more likely to inflate their earnings more aggressively at the IPO, compared to the bull market periods. Specifically, while most of studies have argued that VCs have certification effect and monitoring effect to discourage earnings management, we argue that, with empirical finding in Korea, VCs have incentives to inflate their IPOs’ earnings for harvesting high returns in the IPO year and the inflated earnings are more deepened in bear market periods.

Business confidence and stock returns in the USA: a time-varying Markov regime-switching model

This article presents evidence in favour of time-varying Markov regime-Switching (MS) properties in all shares stock returns in the USA. The model specifications include the US Institute for Supply Management's (ISM) manufacturing and Nonmanufacturing Business Activity Index (NMBAI) in the transition equations. We find that the developments in the ISM manufacturing index affect the regime-switching probabilities in both bull and bear stock market periods. The business activity in nonmanufacturing sectors, on the other hand, has a bearing only on bull market periods. We also test for the possibility of a common factor influencing both stock returns and business confidence in the manufacturing sector by estimating a time-varying MS model with the US industrial production in the transition equation. We find that the null hypothesis of a fixed transition probability MS model cannot be rejected when the US industrial production index is included in the transition equation of a time-varying MS model. We conclude that the information content in the ISM manufacturing confidence index, such as expectational shifts, has a separate influence on the stock market regimes over and above that of actual developments in industrial production.

Equanimity of Risk and Return Relationship between Shariah Index and General Index in India

The present study empirically examines the risk and return of the Nifty Shariah index and Nifty index during the period 2nd January 2007 to 31st December 2010. The sample period is further divided into bull market period and bear market period based on the movement of the both indices during the study period. The objective of the study is to analyse the performance of the Islamic index and common index and to test whether any significant difference between both indices in India. Based on the previous studies, the present paper employs Risk adjusted measurement such as Sharpe index, Treynor Index and Jensen alpha. The t- test is used to test the mean returns difference between both indices. The study found that Nifty Shariah has been underperformed during the sample and sub sample period. According to ttest, the mean difference between both indices has not been significant which reveals both are consistent. The risk adjusted returns for the both indices reveals that both were underperforming with respect to risk free rate of return. The study has also disclosed the low volatile nature of Nifty Shariah than Nifty index. Finally, the study concludes that Nifty Shariah and Nifty indices in India are performing in a similar manner.

Are All Individual Investors Equally Prone to the Disposition Effect All the Time? New Evidences from a Small Market

This paper investigates the disposition effect on the Portuguese stock market, on the basis of a unique database that consists of trading records of 1496 individual investors. We found strong evidence of the disposition effect, studied on the basis of trades, volume and value traded. This preference for realizing gains to losses was observed every month of the year and for all individual investors. Even in the end of the fiscal year, the disposition effect still holds (in spite of the existence of fiscal incentives for the so-called fiscal effect), as opposed to the evidence found in other markets. We also studied the disposition effect related to market tendency. By partitioning the data period in a bull and a bear period, we found evidence of disposition effect for both periods, but with differences in terms of its intensity. In bull market periods, the disposition effect is even more evident than in bear markets. These results, we believe, can strongly be explained with behavioral reasons. We also investigated the disposition effect related to investors' sophistication. We partitioned investors, classifying sophisticated investors as the ones that trade more frequently, have a higher volume of transactions and a higher portfolio value and found evidence that more sophisticated investors are less prone to the disposition effect than less sophisticated ones, even though both groups exhibit evidence of this effect.

Behavioral Finance: An Analysis of the Performance of Behavioral Finance Funds

This article analyzes 31 mutual funds whose portfolio construction methodologies employ aspects of behavioral finance. The assets of the mutual funds in the study were valued at approximately US$ 16 billion as of August 2009. Major findings of the authors include the following. First, evidence exists of a strong seasonality effect among behavioral funds. Second, behavioral fund managers exhibit an inability to predict equity market reversals due, in large part, to their willingness to attempt to benefit from trend momentum. Third, they have superior performance during bull market periods vis-à-vis bear market periods, notably with small-cap behavioral funds generally outperforming their large-cap peers. When examining the outperformance of behavioral funds against a respective benchmark, there is no conclusive evidence to suggest that these strategies outperform. The most common observations that behavioral funds attempt to exploit include the momentum effect, winner–loser effect, post-earnings-announcement drift, and prospect theory. Insider buying was also observed as a key signal used by behavioral fund managers to anticipate future market trends. <b>TOPICS:</b>In portfolio management, portfolio construction, mutual fund performance

Economic impact of marketing alliances on shareholders' wealth

PurposeThe purpose of this paper is to examine whether marketing alliances create value for shareholders, and whether the results are robust across different business cycles.Design/methodology/approachUsing standard event study methodology, abnormal returns (AR) were computed for 402 firms which formed marketing alliances in a 12‐month period covering three business time periods, namely bull, bear and post 9/11 periods. ANOVA and regression analyses were performed on cumulative abnormal returns (CAR).FindingsSignificant and positive AR were found on announcement day for firms forming marketing alliances. When the sample is segmented by market capitalization, small cap firms were found to stand to benefit the most, particularly when partnering with a large firm. During the bear market period, marketing alliances tend to benefit small cap firms and firms with low profitability, whereas during the bull market period, marketing alliances benefit firms with low asset utilization.Research limitations/implicationsResults are limited by the accuracy of the models used to measure AR.Practical implicationsThe results seem to suggest that smaller partners tend to benefit more from marketing alliance, and the effect changes with business cycle.Originality/valueThe paper analyses how the benefits of forming a marketing alliance are shared between partnering firms and how the different phases of business cycle influence the distribution of benefits.

Mean reversion in stock market prices: New evidence based on bull and bear markets

Abstract In this paper we test whether mean reversion in stock market prices presents a different behavior in bull and bear markets. We date the US bull and bear periods using Bry and Boschan (1971) algorithm. We examine the order of integration in the S&P 500 stock market index covering a daily period from August 1929 to December 2006 in bull and bear phases. Our results indicate the existence of different episodes of mean reversion, which mainly correspond to bull market periods.

A Hedonic Analysis of the Effects of Transport Accessibility on Flat Prices in Hong Kong

This research analyses the effect of public transport accessibility on the prices of flats in Hong Kong. In order to correctly identify the impact of transport convenience, we estimate regression models by regions in bear and bull markets separately. In addition, we consider the standard pricing variables such as age of the building, floor area of the flat, location in the city, and nearness to amenities. The results suggest that transport accessibility is strongly associated with value of a flat. The flats that are within walking distance of the subway station are significantly more expensive than those out of the walking distance; access to ferry stations is preferred except in the New Territories district; being close to bus stations is considered as a disadvantage, probably due to the noise associated with the traffic. These effects are stronger during bull market period. It seems that in 'wealthier' periods, convenience and the quality of living environment are more important.

Investing in Growth Stocks vs. Value Stocks

This article examines whether the performance in the investment in value stocks vs. growth stocks is different in terms of the holding period and stock market conditions. The study analyzes the performance of high- and low-P/E portfolios for the quarterly and monthly rebalancing as well as the annual rebalancing, using a sample period of April 1986 to March 2003, divided into a general bull market period of April 1986 to March 2000 and a recent bear market period of April 2000 to March 2003. The findings show that regardless of the frequency of portfolio rebalancing, high-P/E portfolios outperform low-P/E portfolios especially for the bull market period. However, when adjusted for the risk inherent in different P/E portfolios, low-P/E portfolios outperform high-P/E portfolios for all rebalancing frequencies. Finally, the evidence shows that more frequent rebalancing tends to improve the performance of low-P/E portfolios but reduces the performance of high-P/E portfolios. <b>TOPICS:</b>Equity portfolio management, performance measurement, portfolio construction

Stochastic dominance and behavior towards risk: The market for Internet stocks

Internet stocks registered large gains in the late 1990s, followed by large losses from early 2000. Using stochastic dominance theory, we infer how investor risk preferences have changed over this cycle, and relate our findings to utility theory and behavioral finance. Our major findings are as follows. First, risk averters and risk seekers show a distinct difference in preference for Internet versus “old economy” stocks. This difference is most evident during the bull market period (1998–2000) where Internet stocks stochastically dominate old economy stocks for risk seekers but not risk averters. In the bear market, risk averters show an increased preference for old economy stocks, while risk seekers show a reduced preference for Internet stocks. These results are inconsistent with prospect theory and indicate that investors exhibit reverse S-shaped utility functions.

The Structural Changes in the FF Three-Factor Model and its Robustness in the Bear-Bull Market Periods

We examine the robustness of the Fama-French three-factor model in several bear and bull market periods. Data on bull and bear market periods are from the website of Global Financial Data. The data on the monthly returns of the 25 Fama French portfolios and the explanatory variablesmR, SMB, and HML are taken from the website of Dr. Kenneth French. We test for the significance of the individual regression parameters as well as for the equality of the coefficient vectors in each of the adjacent bear-bull periods. To make sure that our tests are not influenced by heteroskadisticity we use Toyoda's test to test the equality of the coefficient vectors in each of the adjacent bull-bear periods. We find that the model performs equally well in both bear and bull periods. In comparison to earlier bull-bear periods, however, the coefficient of determination decreases significantly in later periods. Furthermore, using cumulative sum of squares of recursive residuals and log likelihood ratio techniques, we find a structural change in the model in the year 2000. We use the Welch test to identify which regression parameters induce this structural change. We find that all the coefficients associated with explanatory variables undergo significant changes; however, the constant term remains insignificant. We conclude that the parameters of the Fama-French three-factor model are generally not influenced by bear and bull market conditions. This finding may make the FF three-factor model more useful—the prediction of future bull-bear market period may become redundant in estimating the risk premium. The regime change in the FF three-factor model in the year 2000 indicates that one should use post-1999 data to compute the parameters of the FF three-factor model to estimate the risk premium.