Cyclical Stocks Research Articles

Effect of sectoral holdings on the flow-performance sensitivity of mutual funds

We find that the flow-performance sensitivity (FPS) of mutual funds depends on the composition of their sectoral holdings. We use the Morningstar classification of fund holdings into the following three Super Sectors: Defensive, Sensitive, and Cyclical. On average, the FPS decreases as the fraction of defensive or sensitive stocks increases in the fund’s portfolio. The FPS increases as the fraction of cyclical stocks increases. During high sentiment periods, the sensitivity of new sales as well as redemptions increases, resulting in overall higher FPS for all funds. However, in both the low and the high sentiment periods, the FPS is lower for funds with a higher fraction of defensive or sensitive stocks and higher for funds with a higher fraction of cyclical stocks. Investors with a long investment horizon may wish to avoid mutual funds that invest primarily in cyclical stocks as funds with high FPS tend to have high liquidity costs.

Healthcare budgeting for cyclicality: Structured literature review of accounting, public administration and ­­­health management

IMPACT This article warns that cyclical stocks are affecting the delivery of routine healthcare services. Planning fails when a shock occurs and policy-makers and managers need to adapt to budgetary over-estimation. To ensure a sustainable level of services at all stages of the economic cycle, cyclical impact should be systematically determined. This would improve decision-making and help minimize institutional and political impediments. However, developing these capabilities is difficult, requiring a multi-year perspective to be incorporated into the annual budgeting process. An important prerequisite to do this is for stakeholders to understand the impact that cyclicality has on healthcare

Research on the Volatility Value of A-Share State-Owned Shipping Stocks

The A-share stock price of state-owned shipping enterprises is higher than the discount value constantly. It implies an American call option for a speculator, so the price contains the discount value and option value. In order to help the investors to find the real value and obtain higher returns under the high volatility caused by the fluctuations of the shipping cycle or the stock market valuation cycle, Least Square Monte Carlo Simulation (LSM) method is used to calculate the implied American call option with the date of COSCO shipping energy-transportation Co., Ltd. It is found that the discount value plus volatility value among 2016-2020 is approximate to the stock price. The option value increases with the extension of maturity and the rise of expected volatility. It explains the over value and high volatility of the A-share price of cyclical stocks and small-cap stocks with poor performance.

The profitability of trading strategies based on historical prices and risk: evidence from Thailand

Historical trends in share prices can be used in trading strategies to generate profits. Two such strategies are the momentum and contrarian trading strategies. The contrarian trading strategy tends to generate profits on the Stock Exchange of Thailand (SET; Pokavattana et al., 2019). The existence of contrarian profits, especially for cyclical stocks, has been confirmed for the period 1st January 2016 to 31st December 2019. It is generally suggested that contrarian investors form portfolios based on average prices over the past 60 days and hold the stock for one day. The longer the holding period, the smaller the contrarian profits. Once Fama and French's (2015) five-factor model is used to control for risk, the contrarian profits disappear. Accordingly, contrarian profits are driven by risk. These findings provide SET investors with a refined strategy and also yield implications for the stock markets in the close-knit ASEAN network.

Time Horizon, Risk, and Implications for Equity Selection

The author examines over 50 years of equity returns and finds distinct risk characteristics across different time horizons. Defensive, lower beta equities have had smaller monthly losses than their beta would suggest, making them attractive for conservative investors with shorter holding periods. In contrast, the volatility of cyclical, higher beta companies has been increasingly favorable over longer holding periods, bolstering risk-adjusted returns for long-horizon growth investors. This suggests that investors who align the mix of defensive and cyclical stocks to their goals and investment horizon can mitigate risks more effectively than those who simply hold the broad market and add bonds. TOPICS:Portfolio construction, equity portfolio management, analysis of individual factors/risk premia Key Findings • Defensive, lower beta equities have had smaller monthly losses than their beta would suggest, making them attractive for conservative investors with shorter holding periods. • The volatility of cyclical, higher beta companies has been increasingly favorable over longer holding periods, bolstering risk-adjusted returns for long-horizon growth investors. • Investors who align the mix of defensive and cyclical stocks to their goals and investment horizon can mitigate risks more effectively than those who simply hold the broad market and add bonds.

Practical Meta-Reinforcement Learning of Evolutionary Strategy with Quantum Neural Networks for Stock Trading

We show the practicality of two existing meta-learning algorithms Model- Agnostic Meta-Learning and Fast Context Adaptation Via Meta-learning using an evolutionary strategy for parameter optimization, as well as propose two novel quantum adaptations of those algorithms using continuous quantum neural networks, for learning to trade portfolios of stocks on the stock market. The goal of meta-learning is to train a model on a variety of tasks, such that it can solve new learning tasks using only a small number of training samples. In our classical approach, we trained our meta-learning models on a variety of portfolios that contained 5 randomly sampled Consumer Cyclical stocks from a pool of 60. In our quantum approach, we trained our quantum meta-learning models on a simulated quantum computer with portfolios containing 2 randomly sampled Consumer Cyclical stocks. Our findings suggest that both classical models could learn a new portfolio with 0.01% of the number of training samples to learn the original portfolios and can achieve a comparable performance within 0.1% Return on Investment of the Buy and Hold strategy. We also show that our much smaller quantum meta-learned models with only 60 model parameters and 25 training epochs have a similar learning pattern to our much larger classical meta-learned models that have over 250,000 model parameters and 2500 training epochs. Given these findings, we also discuss the benefits of scaling up our experiments from a simulated quantum computer to a real quantum computer. To the best of our knowledge, we are the first to apply the ideas of both classical meta-learning as well as quantum meta-learning to enhance stock trading.

Comparing between Investing in Food, Telecommunications, and Transportation Industries in Thailand

This paper attempt to answer which is a good investment in Thailand if the only choice is between food, telecom, and transport industries respectively. To compare which is an acceptable investment, The Capital Asset Pricing Model (CAPM) used to look at expected returns during 1 January 2008–1 January 2018. Beta is used to measure the risk of investment. In the Sharpe the higher ratio, the better the portfolio by using the historical data to determine the good investment. The food industry is a better investment than SET and Thailand 10 year bond for the Thai market. Because the food industry is defensive stocks, it tends to have stable performance in economic downturns and upturns. This paper looking at a forecast of a daily expected a return by using the expected return from CAPM and Beta this paper found that Transport industry is a good forecast investment in Thailand because with the “transport network project” from the Thai government to improve the transport in Bangkok. And Transport industry is cyclical stocks they are sensitive to economic fluctuations and tends to exhibit more radical swings, correlated with the overall business cycle.

Cyclical Consumption and Time-Variation in Expected Stock Returns

This paper introduces a new consumption-based predictive variable, cyclical consumption, that captures time-variation in expected stock returns. Predictive regressions provide evidence of a strong negative relation between cyclical consumption and future excess stocks returns, implying that expected stock returns are high when cyclical consumption is low in ecconomic contractions. Cyclical consumption contains relevant information about expected stock returns not already embedded in existing consumption-based predictive variables such as the consumption-wealth ratio and strongly outperforms financial predictive variables such as the price-dividend ratio.

Optimized Indicators of Technical Analysis on the New York Stock Exchange

The article is focused on the use of technical analysis and it’s indicators. The main aim is the evaluation of technical analysis for selected index instruments which are traded on NYSE. The secondary objective is the optimization of indicator’s parameters of technical analysis and subsequent comparison of profitability of business strategies based on these optimized parameters. The empirical analysis includes the backtesting of optimized indicators and comparison with the default settings of these indicators. The optimization and backtesting were performed on cyclical stocks, represented by stock index S&P 500 Financial from 11/1/2014 to 10/31/2015.

Stocks, bonds, T-bills and inflation hedging: From great moderation to great recession

Inflation hedging is an important issue for long-term investors, even during prolonged periods of relatively low inflation. This study analyzes the inflation-hedging properties of US stocks, bonds, and T-bills at the subindex level during the years 1983–2012. Our analysis provides only partial confirmation of the hypothesis that, during the post-1980 period, the returns of cyclical stocks exhibit a more positive long-run relation with inflation than the returns of non-cyclical stocks. Stocks in both cyclical and non-cyclical industries have virtually no hedging ability until the fall of Lehman Brothers in September 2008. From that moment on, equity subindices particularly in the cyclical industries start to develop statistically significant but economically modest hedging ability, even in the short run. In contrast to T-bills, long positions in bonds turn out poor inflation hedges during the entire sample period, regardless of maturity, issuer, risk rating and investment horizon. Only short positions in long-term bond indices including Treasury bonds (with maturities of 10 years and longer) may have some long-run inflation hedging capacity.

When Does Cyclical Investing Pay Off? The Impact of Information Quality in Equilibrium

We study the implications of the quality of information about the business cycle for the pricing of defensive and cyclical stocks in a general equilibrium framework. We rely on a two-tree Lucas-style endowment economy in which the business cycle is modeled as an unobservable mean reverting process that inuences one of the two assets. The representative Epstein-Zin investor learns about the latent business cycle variable from past dividends and from an additional signal. We nd that expected excess returns on both cyclical and defensive stocks increase when information quality deteriorates, i.e. when the signal becomes more noisy. Variance reacts in an asymmetric way: a lower information quality induces a higher return variance of cyclical stocks and a lower return variance of defensive stocks. These ndings are in line with stylized facts from the data when we use the dispersion in analysts’ GDP forecasts as a measure for information quality.

The relationship between currency carry trades and U.S. stocks

The article examines the relationship between daily returns of currency carry trades and U.S. stocks from January 1995 through September 2010. Carry trade and stock returns are highly correlated with no Granger‐causality in either direction. An EGARCH model shows that significant volatility spillovers flow from the stock market to the carry‐trade market, but not vice versa. The markets are more correlated in periods of high volatility. Volatilities in both markets also increase more with negative innovations than positive innovations. A sectoral analysis of the index suggests that volatilities of cyclical stocks have more impact than noncyclical stocks on carry trades.

Is the stock market efficient in bad times and inefficient in good times?

This article examines the cross sectional predictability of stock returns within the framework of time varying risk premia and asymmetric risk. In bad times, small, value and cyclical stocks are riskier than big, growth and noncyclical stocks, thereby explaining the value, size and cyclical premia. In contrast, in good times, value, big and noncyclical stocks generate higher average returns than do growth, small and cyclical stocks, despite the fact that they are not riskier. Furthermore, empirical tests of macroeconomic models highlight that average returns are commensurate with risk only in bad times. These results are robust to different measures of risk and different sets of test assets.

Sources of Systematic Risk

Using the restrictions implied by the heteroskedasticity of stock returns, we identify four factors in the U.S. industry returns. The first correlates highly with the market portfolio; the second is a portfolio of stocks that produce investment goods minus stocks that produce consumption goods; the third differentiates between cyclical and noncyclical stocks. The fourth, a portfolio of industries that produce input goods minus the rest of the market, is a robust predictor of excess returns on the market portfolio and bond returns. The extracted factors are shown to contain significant information about future macroeconomic and financial variables.

Sector Rotation and Monetary Conditions

We investigate the efficacy of a sector rotation strategy that utilizes an easily observable signal based on monetary conditions. Using 33 years of data, we find that the rotation strategy earns consistent and economically significant excess returns while requiring only infrequent rebalancing. The strategy places greater emphasis on cyclical stocks during periods of Fed easing, and overweights defensive stocks during periods of Fed tightening. Interestingly, the benefits from the rotation strategy accrue predominantly during periods of poor equity market performance, which is when performance enhancement is most valued by investors. Specifically, during restrictive monetary periods, returns to the strategy are nearly twice that of comparable investments, yet the strategy assumes less risk. Overall, our results suggest that investors should consider monetary conditions when determining their portfolio allocations <b>TOPICS:</b>Equity portfolio management, portfolio construction, performance measurement

Hysteresis and cyclical adjustment in the stock markets: the macroeconomic effects of technological progress

The aim of this paper is to investigate the effects of technological change on stock market dynamics. We develop an intertemporal optimising model, the central innovation of which is the distinction between the non-perishables and perishables sectors. We discuss the conditions likely to lead to cyclical stock market behaviour in response to technological shocks. Furthermore, we show that one-off technological advances may have persistent effects giving the country a permanent growth advantage. This gives an alternative mechanism for explaining differential growth rates to that already established in the endogenous growth literature.

Poised for Gains: Cyclical Stocks That Should Do Well in 2003

Poised for Gains: Cyclical Stocks That Should Do Well in 2003

As January Goes … / Cyclical Stocks That Should Do Well in 2003 / Equity Income Funds Hold Up Well / Dentsply International for Gains

As January Goes … / Cyclical Stocks That Should Do Well in 2003 / Equity Income Funds Hold Up Well / Dentsply International for Gains

Hysteresis and Cyclical Adjustment in the Stock Markets: The Macroeconomic Effects of Technological Progress

The aim of this paper is to investigate the effects of technological change on stock market dynamics. We develop an intertemporal optimising model, the central innovation of which is the distinction between the non-perishables and perishables sectors. We discuss the conditions likely to lead to cyclical stock market behaviour in response to technological shocks. Furthermore, we show that one-off technological advances may have persistent effects giving the country a permanent growth advantage. This gives an alternative mechanism for explaining differential growth rates to that already established in the endogenous growth literature.

GROUP EFFECTS AND BETA NONSTATIONARITY

Recent evidence indicates that while random diversification can lead to the elimination of the majority of systematic risk, the systematic selection of securities can result in significant group effects blocking this dissipation of unsystematic risk. The group effects associated with investment in growth, cyclical, stable and oil stocks found by Farrell and Martin and Klemkosky were reexamined while allowing for beta nonstationarity. It was found that the beta nonstationarity effect, while quite large for individual stocks and small portfolios tended diversify away quite quickly. It was further found that much of what has in the past been termed a group effect is actually the result of beta nonstationarity.