Return Puzzle Research Articles

Nanowires for Solid‐State Lithium Batteries

AbstractA vital approach to accessing high‐safety and high‐energy‐density lithium batteries is to develop solid‐state electrolytes (SSEs) instead of liquid electrolytes. However, lithium‐ion transport and interface stability issues puzzle the construction of solid‐state lithium batteries (SSLBs). Thus, developing fast‐ionic conductors with high electrochemical performances and chemical stability is crucial to SSLBs. Nanowires (NWs) possess high aspect ratios for maintaining carrier transport along the radial direction, thus being extensively employed in SSLBs for the enhancement of ion transport efficiency, mechanical properties, thermostability, flame retardancy, and interface stability between electrodes and electrolytes, consequently boosting the cycle stability and safety of SSLBs. In this work, the advances in NWs for SSLBs, from rational design and synthesis strategies to applications in composite cathodes, anode materials, and SSEs of SSLBs, are systematically reviewed. The key role of NWs in electrodes and the enhancement mechanism of SSE performance by introducing NWs are concluded in detail. Finally, the existing challenges and anticipated prospects for the future development of advanced nanowire‐based SSLBs are summarized and demonstrated. This review aims to provide a comprehensive understanding to facilitate the application of NWs in SSLBs.

Impact of post-IPO investments on the long-term financial market performance of Japanese IPOs: A preregistered report

This pre-registered report seeks to understand how investments made after a firm's initial public offering (IPO) impact its long-run IPO financial performance. That IPOs substantially underperform three to five years after going public (Loughran and Ritter, 1995) has been much debated with various factors implicated in causing the “new issues puzzle”. However, few studies focus on how firms actually spend their IPO capital and the associated impacts of those choices on long-term performance. By empirically testing the impact of the actual “use of proceeds” by newly public IPOs, the proposed study will bridge this gap. It can also inform corporate decision making by addressing how spending on debt repayment, fixed assets, working capital, and investments in shares, as well as investments in shares of stock, secondary stock, and foreign direct investments impact a firm's long-term financial market performance.

Is sentiment the solution to the risk–return puzzle? A (cautionary) note

The risk–return relationship in stock markets is often found to be negative or non-existent, in contrast with fundamental finance theories. In this note we investigate if one proposed solution to this puzzle, which states that high irrational investor sentiment disrupts the otherwise positive risk–return nexus, is robust across popular sentiment proxies and therefore empirically comprehensively validated. We find that it is not robust, as most individual sentiment proxies fail to support the hypothesised negative impact of sentiment on the risk–return relationship. Only when a common component of individual proxies is extracted to form a single sentiment measure do we find robust support for the notion that high sentiment impedes rational asset pricing.

The Asymmetric Overnight Return Anomaly in the Chinese Stock Market

Traditional asset pricing theory suggests that to compensate for the uncertainty that investors bear, risky assets should generate considerably higher rates of return than the risk-free rate. However, the overnight return anomaly in the Chinese stock market, which refers to the anomaly that overnight return is significantly negative, contradicts the risk–return trade-off. We find that this anomaly is asymmetrical, as the overnight return is significantly negative after a negative daytime return, whereas the anomaly does not occur following a positive daytime return. We explain this anomaly from the perspective of investor attention. We show that the attention of individual investors behaves asymmetrically such that they draw more attention on negative daytime returns, and play an essential role in explaining the overnight return puzzle.

Stock Liquidity and Issuing Activity

Issuing activity does not result in superior post-issue liquidity. New issues are just as liquid as their peer non-issuers. Even the kinds of new issues that are supposed to be more liquid than others (initial public offerings (IPOs) backed by venture capital, new issues with high-prestige underwriters, severely underpriced IPOs) have the same liquidity as other similar issuers. The paper thus refutes the existing liquidity-based explanations of the new issues puzzle. The paper also shows that the low-minus-high turnover factor seems to explain the new issues puzzle and related anomalies only because it picks up volatility risk.

What drives the distress risk–return puzzle? A perspective on limits of arbitrage

AbstractEmpirical research has documented a negative relationship between distress risk and stock returns. This negative risk–return trade‐off, known as the distress puzzle, poses a challenge to asset pricing models. In this study, we provide a new explanation of the distress puzzle by considering the effect of arbitrage asymmetry. We find that the negative distress risk–return relation is stronger in stocks that have higher limits of arbitrage. The investors are virtually unable to short sell mispriced high distress risk stocks due to the low supply of lendable stocks from institutions and that arbitrage is costly. In addition, we show that the limits of arbitrage effect is distinct from liquidity effect in explaining the distress puzzle.

Common Risk Factors in the Cross Section of Catastrophe Bond Returns

Historically, cat bonds have provided high single-digit average annual returns, paired with a low volatility and little correlation to other asset classes. While there is an extensive literature that explains (ex-ante) cat bonds spreads, there is no factor model in the academic literature that explains this (ex-post) realized return puzzle. Based on monthly quoted prices for the complete cat bond market from 2001 to 2020, we provide insights into relevant risk factors in the cross-section of cat bond returns. After investigating a battery of possible cat bond return factors in bivariate and multivariate portfolio sorts as well as Fama-MacBeth regressions, we propose a four-factor cat bond model. Its factors are the seasonality adjusted probability of first loss, a separate seasonality adjustment factor and the two corporate bond factors TERM and DEF from Fama & French. This novel four-factor model predicts 60% of the time series variation of the historical cat bond market returns - as opposed to 4% for the Fama & French three- or five-factor model - and substantially reduces the observable alpha of the cat bond market.

Is the new issue puzzle real? Evidence from implied cost of capital

PurposeThis study aims to provide new explanation of the new issue puzzle.Design/methodology/approachThis study uses market implied cost of capital (ICC), rather than ex post realized returns, as proxy for ex ante expected returns, and sheds new light on the question why initial public offering (IPO) firms underperform the market within a 3–5 years period after the offerings.FindingsUsing ICC, the author finds that the market expects to earn higher risk premium for new listing firms than similar firms, which is contradictory to the documented new issue puzzle. The higher expected returns come from higher idiosyncratic volatility for newly listed firms, which are young and have more growth opportunities. The author also reports that investors are negatively surprised by lower-than-expected performances of newly listed firms.Originality/valueThe author’s results provide new empirical evidence that the new issue puzzle does not exist. Previous results observed IPO firms' under-performance is attributable to that ex post realized returns are a noisy proxy for ex ante expected returns, especially for newly listed firms with limited information.

Multi authority access control mechanism for secure cloud storage

Cloud stockpiling encourages the two people and ventures to cost adequately share their information over the Internet. In any case, this furthermore carries irksome challenges to the passageway control of shared data since relatively few cloud servers can be totally trusted. Right now, present check and monetarily wise property-based data find a good pace conveyed capacity structures. Specifically, we manufacture a multiauthority CP-ABE plot that features: 1) the system needn't waste time with a totally trusted in central force, and all property pros self-ruling issue puzzle keys for customers; 2) every trademark authority can continuously oust any customer from its space with the ultimate objective that those revoked customers can't find a good pace way redistributed data; 3) cloud servers can invigorate the mixed data from the present timespan to the accompanying one to such a degree, that the denied customers can't find a good pace available data; and 4) the update of secret keys and ciphertext is acted in an open manner.

The overnight return puzzle and the “T+1” trading rule in Chinese stock markets

Overnight returns in Chinese stock markets are on average negative. This overnight return puzzle appears to be unique to Chinese markets. We hypothesize that a particular arrangement in Chinese stock markets explains the puzzle: the “T+1” trading rule. T+1 trading prohibits traders from selling the shares they bought on the same day. This restriction leads to a discount on daily opening prices. We find empirical support that the T+1 induced discount explains the overnight return puzzle and estimate the average T+1 discount at 14 bps. In addition, we establish that the T+1 discount contributes significantly to overnight risk.

Credit risk – Return puzzle: Evidence from India

Although asset pricing theories predict a positive relation between risk and returns, empirical findings on credit risk-return relationship are mixed. And, observed negative relation between the two in this regard is referred to as credit risk-return puzzle. Using credit rating as a measure of credit risk, we have investigated into the existence of this puzzle in India during July 2011 to March 2019. We have used information for the companies listed on the National Stock Exchange for this purpose. Our results validate the presence of this puzzle in the Indian stock market. Moreover, credit risk is observed to be a systematic risk, which has not been captured in the traditional asset pricing models. We have also observed partial evidence favoring both behavioural and rational pricing explanations—the two widely acknowledged explanations in the literature behind this puzzle. On our further query in this connection, we have not seen any significant change in the puzzle due to the recent enactment of the Insolvency and Bankruptcy Code.

Expected and realized returns in conditional asset pricing models: A new testing approach

Abstract We develop a new approach for testing conditional asset pricing models that avoids the issues in using realized returns as a proxy for expected returns. Testable restrictions are developed by asking what realized returns we would observe, given the pricing model under scrutiny. The new reverse testing approach is used to test the Merton ICAPM and a long-standing risk–return puzzle: the price of market risk has often turned out to be insignificant and at times even negative. The results from the new testing approach on US data give strong support for a positive relationship between conditional variance and the equity premium.

Ex-dividend day price behavior and liquidity in a tax-free emerging market

This paper investigates the effect of liquidity on the ex-dividend day price premium. It is well documented that prices drop less than the dividend amount on the ex-day; this market inefficiency is generally attributed to the tax-induced clientele effect and various structural frictions. We show that, even in a tax-free market characterized by the presence of large block holders and the absence of the usual microstructure impediments, abnormal returns persist. Using a newly defined free-float adjusted measure of market fluidity, we find that liquidity is economically and statistically significant in the determination of the ex-dividend day price anomaly, indicating that trading restrictions can partially explain the ex-dividend return puzzle.

The Overnight Return Puzzle and the 'T+1' Trading Rule in Chinese Stock Markets

We document a puzzling phenomenon, namely that overnight returns in Chinese stock markets are on average statistically and economically significantly negative. This finding seems to violate conventional asset pricing theory, yet the anomaly is robust to the choice of stock exchange, type of shares, and sample period, present in different market regimes (bull or bear markets), and persists across assets of small, medium, and large market capitalization. Moreover, this overnight return puzzle appears to be unique to Chinese markets. We hypothesize that a particular arrangement in Chinese stock markets explains the puzzle: the so-called trading rule. The T+1 trading rule prohibits traders to sell shares they bought on the same the day. This asymmetric trading restriction should lead to a discount on daily opening prices. We find empirical support that the T+1 induced discount can indeed explain the overnight return puzzle, and we rule out other explanations. We estimate the average T+1 discount at 14 basis points. In addition, we establish that the T+1 discount contributes significantly to overnight risk. While the T+1 trading rule was introduced with the belief it would reduce volatility, we propose that the rule has had unintentional consequences, namely a substantial discount for opening prices and the adverse effect of increasing volatility.

Common idiosyncratic volatility and returns: From an investment horizon perspective

Abstract“Idiosyncratic risk–return puzzle” is conflicting and confusing. It becomes more complex by the introduction of the common idiosyncratic volatility (CIV). We shed new light on the issue from the perspective of heterogeneity of investors with different investment horizons. We study the “CIV puzzle” with Chinese A‐Share market evidence and further contribute by employing the wavelet multiresolution analysis framework to decompose the overall CIV into timescales that refer to risks in different terms. We apply these timescales in Fama–Macbeth regressions to investigate their pricing effects. The results suggest that the “CIV puzzle” is an investment horizon specification problem. The relationship between returns and common idiosyncratic risk is negative in the short run, positive in the intermediate run, and then negative again in the longer run. We also contribute to the international empirical evidence with an in‐depth analysis of the Chinese stock market over the period 1999–2016. The results are robust across different specifications of the CIV. Our findings have important implications for portfolio and risk management.

The investment return puzzle on the Johannesburg Stock Exchange

ABSTRACTFirms that invest into positive net present value projects should outperform firms that do not invest. Surprisingly, several studies on United States data have found a negative relationship between capital investment and subsequent shareholder return. There are conflicting explanations for this negative relationship. The present study also confirmed a significant negative relationship between capital investment and subsequent shareholder returns in the South African developing market conditions. Over the period from 1992 to 2017, shares on the Johannesburg Stock Exchange with lower investment rates consistently outperformed shares with higher investment rates, exhibiting similar behaviour to the US. We find that the negative investment return is significantly associated to the firm’s book-to-market value consistent to the rational-based q-theory of investment with real options explanation.

The Risk and Return Conundrum Explained: International Evidence*

The relationship between risk and expected returns has been investigated extensively in the financial economics literature. Theoretical models generally predict a positive relation between the two. Nevertheless, the empirical findings so far have been inconclusive. Using a generalization of the analytical framework developed by Theodossiou and Savva (2016) along with time-varying asymmetry, linked to the upside and downside uncertainty, the risk–return puzzle is investigated across international stock markets. The investigation reveals that the contradictory findings are the result of ignoring the impact of skewness on the total price of risk. That is, in the absence of skewness the relationship between risk and return is positive as depicted by finance theory. However, negative skewness results in lowering the total price of risk and in some cases reverting its sign from positive to negative.

Ex-Dividend Day Price Behavior and Liquidity in a Tax-Free Emerging Market

This paper investigates the effect of liquidity on the ex-dividend day price premium. It is well documented that prices drop less than the dividend amount on the ex-day; this market inefficiency is generally attributed to the tax-induced clientele effect and various structural frictions. We show that, even in a tax-free market where the usual microstructure impediments are absent, abnormal returns persist. Using a new measure of liquidity, we find that liquidity is economically and statistically significant in the determination of the ex-dividend day price anomaly, indicating that trading restrictions can partially explain the ex-dividend return puzzle.

Bank Loan Undrawn Spreads and the Predictability of Stock Returns

This paper documents a new high risk-low return puzzle. Specfically, we find that a forward-looking risk measure extracted from credit line undrawn spreads negatively predicts borrowers' future stock returns. This negative risk-return relation is separate from previously documented asset pricing puzzles related to idiosyncratic volatility, analyst forecast dispersion, and credit risk. A long-short strategy based on this finding generates a significant alpha of over 7% per annum.

The new issues puzzle revisited: The role of firm quality in explaining IPO returns

We study the risk and return characteristics of IPOs for up to 60 months. After controlling for Asness et al. (2014) quality minus junk factor, IPOs outperform the benchmark portfolios. The previously-documented negative abnormal IPO returns may derive from inaccurate benchmarks.