Quarterly Returns Research Articles

Strategic portfolio rebalancing: Integrating predictive models and adaptive optimization objectives in a dynamic market

Adjusting investment strategy is one of the ways to handle dynamic market conditions. This study proposes a novel portfolio management strategy using appropriate optimization objectives for different stock market trends while also incorporating market trends and stock return predictions The optimization objectives that will be evaluated for different market trends are maximizing the Sharpe ratio, minimizing risk, and minimizing expected shortfall. This study utilizes simulation modelling with various predictive models on building the portfolios. The results show that, in an upward market trend, the strategy is to choose stocks with positive returns, and the objective is to maximize the Sharpe ratio. The portfolio that follows this strategy during upward market trends has greater returns than both the Indonesian Composite Index and LQ45, which serve as stock market benchmarks, with 90% certainty. Meanwhile, during the downward market trend, the strategy is to choose stocks with a negative correlation with the Indonesian Composite Index, and the proper optimization objective is to minimize risk. A portfolio that follows this strategy during downward market trends has greater returns than stock market benchmarks with 95% certainty. Across the evaluation period from 2018 to 2023, the portfolio using the proposed strategy outperforms both stock market benchmarks, with a higher quarterly Sharpe ratio of 0.3047 and cumulative return of 107.90%. The proposed portfolio has a higher quarterly return than the stock market benchmark with 99% certainty. Therefore, the proposed strategy shows a promising result in a dynamic market.

Is One Head Better Than Two? Dual Leadership and Firm Performance During the COVID‐19 Crisis

We provide novel evidence on the value of combined CEO and board chair positions (CEO duality) for firms during the COVID‐19 pandemic in 2020. Based on 4,840 firm‐quarter observations from 1,210 unique firms in the US, we show that CEO duality firms outperformed non‐duality firms by a 0.58% margin in quarterly return on assets in 2020, which is equivalent to an incremental annual net profit of US$164 million. A difference‐in‐difference estimation confirms that the benefit of CEO duality is observed only in the COVID‐19 crisis period. Our main finding is robust to potential endogeneity concerns and alternative performance measures. Additional analyses show that the positive impact of CEO duality stems from the mechanisms of operating cost savings and working capital optimization during the crisis. Our finding underscores the benefit of CEO duality when economic uncertainty is high and a speedy decision is important.

EXPLORING THE RELATIONSHIP OF MULTIPLE TIME DURATION RETURNS, AND ANNUAL VOLATILITY INTER SE FOR VARIOUS INDICES ON THE NATIONAL STOCK EXCHANGE

Stock exchanges are the epicenter of any capitalistic and free market model economy and the variety of indices maintained by them serve as the barometer. NSE, the largest stock exchange in India maintains and publishes prices changes data for 87 stock indices constituted based on different themes, strategy, and sectors including the benchmark NIFTY-50. The main objective of this study is to understand relationship for returns of 1 month, 3 months, 1 year, 3 years, 5 years and 1-year volatility inter se. The study interestingly reveals that there is impact of quarterly returns of the indices on annual returns. On the contrary it is unaffected by monthly returns. On the volatility front short term returns were seen affected by annual volatility while long term returns did not with exception of 5 year figures.

ARDL Inference for Some Macroeconomic Variables on Nigerian Stock Prices

Abstract This study presents inferences about the effect of quarterly returns of some macroeconomic variables on Nigerian stock prices (NSP) by means of the autoregressive distributed lag (ARDL) model. Four models were studied using NSP, inflation rate (IFR), broad money supply (BMS), and exchange rate (EXR) data that spanned from 1999 to 2021. The rolling correlation was first carried out to test the significance of signals between each input variable and NSP. In testing for co-integration existence and to account for short- and long-term relationships between the study variables, the ARDL bounds test and error correction model (EMC) were utilized, respectively. Also, in determining the stability of the estimated parameters, the recursive cumulative sum (RCUSUM), RCUSUM of squares, and recursive moving sum (RMOSUM) charts were applied. The first model results revealed that at 5% IFR, it has no influence on NSP, both in the long run and short run. However, the second model revealed that BMS has a significant positive effect, both in the long run and short run, on NSP. The third model results showed that the EXR effect on NSP is not significant at 5% in the long run, but in the short run, it significantly negatively affects NSP in the second and third lags. Results from the fourth model revealed that IFR at lag one and BMS are positive and significant in influencing NSP in the long run. In contrast, EXR has a significant negative influence on NSP in the short run, but BMS has a positive and significant effect on NSP in the short run at 5%. The RCUSUM, RCSUMS, and RMOSUM charts revealed that the estimated parameters for the respective models are stable. The study concludes that NSP is influenced negatively by EXR and positively by IFR and BMS. The study recommends that the monetary policy rate should be controlled to lower the cost of borrowings, enhance liquidity levels in the stock market, and develop policies that can have a combined positive impact on stock prices.

Curbing Enthusiasm: Media Sentiment and the Disciplining Role of Quarterly Earnings Announcements

ABSTRACT A longstanding literature suggests that earnings provide the market with relevant information about firm performance, but one often overlooked benefit is their role in disciplining market expectations. This study examines the role of earnings announcements in constraining potential mispricing associated with firm-specific media sentiment. We show that media sentiment-driven quarterly returns (orthogonal to risk factors and fundamental news) largely reverse when public earnings are released. Our results suggest that quarterly earnings announcements play an important role in reducing media sentiment-related mispricing. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G14; L82; M41.

Banks’ financial soundness during the COVID-19 pandemic

Ever since the COVID-19 pandemic hit the global economy, banks all over the world experienced significant reductions in loan growth and increases in distressed and non-performing assets. The persistent increase in non-performing loans, accompanied by low interest rates, led to a surge in banking risk, posing a solemn threat to banks’ stability. In this paper, we empirically assess the accounting- and market-based risks of banks during the COVID-19 pandemic. Using a quarterly panel of international banks over the period 2020:Q1 – 2021:Q1, we find that banks exhibit greater accounting risk and increased return volatility during the pandemic. In particular, we report that a 1% growth of total COVID cases reduces (increases) our sample banks’ z-score (standard deviation of quarterly return) by 0.756 (2.51%). Our results remain robust across alternative measures of the pandemic, z-score decomposition, and across daily and monthly stock returns. We obtain consistent results for both U.S. and non-U.S. banks, as well as for banks from both high- and low-income economies. We use a propensity score matching strategy to deal with endogeneity. Additional tests reveal that government responses such as economic support, stringency, and containment play important roles in banking risk and stability during the pandemic.

코로나19 위기 상황에서 기업규모에 따른ESG 경영활동과 주가 변동 간 영향 관계 연구

[Purpose] This study aims to demonstrate and provide implications for the influence relationship between ESG management activities and stock price fluctuations of companies in 2020, which showed rapid volatility in the capital market due to the COVID-19 crisis.
 [Methodology] In this study, the level of ESG management was indexed with the Korea Corporate Governance Institute’s 2020 ESG rating. Stock price fluctuations were measured by the quarterly return on shares of each company. To confirm the difference according to the company size, the analysis was also performed by dividing into large, medium, and small caps.
 [Findings] This study confirmed that the level of ESG management activity is in a positive relationship with stock price fluctuations depending on the direction and intensity of the capital market fluctuations during all the year of 2020 as well as the first quarter of 2020, and that the influence relationship varies depending on the size of the company.
 [Implications] Prior research until recently has focused on the short period of recovery from the initial stage of the COVID-19 pandemic. This study demonstrated the relationship between ESG management and stock price fluctuations by company size during all the year 2020.

Asymmetric Inefficiency in the Market Response to Non‐earnings 8‐K Information*

ABSTRACTThis paper examines the pricing efficiency of 8‐K filings for events other than earnings announcements. Since these filings provide timely information that is material to investors and explain variations in quarterly returns to a degree similar to other disclosures, understanding how the stock price absorbs their information is important for investors, regulators, and academics. By testing the statistical correlation between the immediate stock returns in response to these filings and subsequent stock returns before, during, and after the forthcoming earnings announcement, we find evidence of investor overreaction to good news but underreaction to bad news in the immediate window. Essentially, the price increases too much for good news but fails to decrease enough for bad news, resulting in overpricing for both. Most of the correction for this overpricing occurs in the period leading up to the forthcoming earnings announcement, while the rest happens during the announcement. Drawing on Miller (1977), we further illustrate that, in the presence of short‐sale constraints, increase in investor disagreement spurred by interpretation difficulty is the most likely mechanism for the observed overpricing. We fail to find sufficient evidence in support of alternative mechanisms, including managerial disclosure strategies, analyst optimistic bias, and retail investor participation. This asymmetric mispricing for non‐earnings 8‐Ks contrasts with the symmetric mispricing commonly found for other types of disclosures, where investors either systematically underreact or overreact to public information. Our results could broadly speak to the pricing of other public information that is inherently difficult to interpret.

Quasi-hedge funds market in Poland in view of their performance persistence

Performance persistence analysis is important as it has a decisive influence on investor allocation decisions. Investors can use quasi-hedge funds’ persistence to build effective investment strategies. Thus, the paper explores performance persistence of quasi-hedge funds operating at the Polish capital market. The methodology is based on constructing the new market performance index intended only for absolute return funds. It is validated regarding absolute returns of Polish quasi-hedge funds. The Absolute Return Index (ARI) is used to rate quasi-hedge funds’ performance persistence in assessing their fundamental purpose: to deliver consistently positive returns in all market conditions. For this, their quarterly return rates are used. All 53 funds operating for at least 36 months and representing 48.2% of the entire segment of absolute return funds are analyzed. The use of ARI allows examining quasi-hedge funds’ performance persistence in terms of market changes and the assessment of their purpose. In the short term (6 months) profitability remained persistent, while in the long term (12 months) such a hypothesis could be refuted. More than 40% of funds showed positive persistence within six months; only positive persistence occurred in the short term. 9.4% of funds repeatedly obtained negative returns, so absolute return funds’ negative performance persisted neither in the short nor long term. Closed-ended investment funds showed much stronger persistence of above-average positive returns, which additionally tended to avoid repeating negative returns in two-quarter and four-quarter series. This confirms the assumption that in this respect the Polish market is similar to the developed ones.

.Modeling the selection of the optimal stock portfolio based on the combined approach of clustered value at risk and Mental Accounting

This paper concentrates on the modelling of optimal stock portfolio selection based on Risk Assessment and Behavioral Financial Approach Mental Accounting and 28 expert’s opinion. In this approach developing the model approved by the opinion of academic and practical experts using quantitative and qualitative methods. Using quarterly return data of industrial indices for ten years in form of eight training and two test years indicates that the performance of DMSS and MVO based portfolios is equal however by regarding the value at risk and liquidity constraints in modeling, DMSS based portfolios perform higher than MVO portfolios.

How Important are Earnings Announcements as an Information Source?*

In a competitive information market, a single information source can only dominate other sources individually, not collectively. We explore whether earnings announcements constitute such a dominant source using Ball and Shivakumar's (2008) [How much new information is there in earnings?, Journal of Accounting Research, 2008, 46(5), pp. 975–1016] R 2 metric: the proportion of the variation in annual returns explained by the four quarterly earnings announcement returns. We find that the earnings announcement days' R 2 is 11% – higher than the corresponding R 2 of days with dividend announcements, management forecasts, preannouncements, and 10-K and 10-Q filings and their amendments, and comparable to that of the four days with the largest realised absolute returns in a year. Additional analysis reveals that earnings announcements convey extreme bad news as often as management forecasts and preannouncements; for any other type of news, earnings announcements are much more frequent. We conclude that earnings ...

Trading is Hazardous to Your Wealth: Evidence from Mutual Funds Around the World

textabstractWe study the trading performance of actively-managed mutual funds from 16 domicile countries investing in 42 equity markets over the period 2001-2014. In the aggregate, funds achieve particularly poor returns in U.S. equity: after adjusting for style, the stocks they buy underperform those they sell by 0.61% per quarter. In non-U.S. equity, mutual fund trades achieve a gross quarterly return of only 0.19%, which appears small relative to trading costs in international markets. The relative size of the active mutual fund industry and the tendency of mutual funds to trade in herds contribute to their poor trading performance. Using the U.S. market as an important case with a longer time series and richer information, we find further supporting evidence.

The Impact on Stock Returns of Crowding by MutualFunds

Evidence from recent financial debacles suggests that crowding can adversely impact the subsequent performance of crowded investments and destabilize financial markets. However, the term “crowding” has been used loosely in the public media. To be precise, the authors define and develop a measure of crowding that captures the interaction of correlated trades and illiquidity and use this metric to study how crowding on stocks by mutual funds affects the subsequent returns on the stocks for the period from 1981 to 2012. They find a strong negative association between the crowding measure and the quarterly returns two quarters ahead. More in-depth analysis reveals that a long–short portfolio with a long position in the least crowded stocks and a short position in the most crowded stocks can earn an annualized abnormal return as high as 14.53% after adjusting for size, book to market, and momentum characteristics. The authors further confirm that the substantial abnormal returns are not driven by time-varying expected returns. Surprisingly, the abnormal returns can mostly be attributed to the least crowded stocks, which have characteristics resembling stocks neglected by mutual funds. They demonstrate that their crowding measure is an improvement over the liquidity measure and conveys important signals beyond what is embedded in turnover.

Causal relationship of stock performance and macroeconomic variables: Empirical evidences from Brazil, Russia, India and China (BRIC)

The rise of BRIC (Brazil, Russia, India and China) in the global investment market is still too mysterious to investors. This paper attempts to investigate the causal relationship among quarterly returns of BRIC’s stock market indices using a set of pre-examined macroeconomic variables such as, economic growth (GDP), risk free rates (the U.S. t-bill rates), exchange rates against USD, international oil prices and inflation in order to understand the leading factor of BRIC’s stock market returns. This paper covers the sample period from 1996:Q4 to 2013:Q1. The error correction model and Granger causality approach were applied to investigate the relationship among the variables. The results indicate that none of the explanatory variables Granger cause stock market performance in China and India. In homogenous, there is Granger causality from BRIC’s stock market performance to the risk free rates and international oil prices. This finding implies that BRIC has strong market impact or purchasing power to influence the key raw input of an economy, as well as the largest risk free investment instrument in the world. Generally, the Fed model, international trading effect and portfolio balance model are inapplicable to BRIC. The safest investment guidance for investors is to follow the changes in oil prices to forecast the movement in stock performance in Brazil. This is because there is an actual sign (from the error correction model) and significant pairwise Granger causality between stock market returns and oil prices in Brazil. Key words : stock market performance, macroeconomic variables, granger causality, risk free rates; unit root tests, cointegration tests

Can stock market time the FPIs: a study of seasonality

The purpose of the paper is to analyse the presence of the days of the week effect, quarter effect, and month effect on the net investment of foreign portfolio investors (FPI) in India. For this purpose, research has been conducted for the time period from 4th January 2000 till 30th November 2016. FPI's daily net inflows have been analysed for occurrence and existence of month effect along with day of the week and quarter effect. Interaction effect between the quarter, month and nifty returns has been also analysed. Augmented dummy regression with ARIMA and GARCH has been used to analyse presence of seasonal anomalies in FPIs. Results confirmed the presence of calendar effect i.e., December month of the year (December) effect on the FPIs. Also, Friday effect and the Quarter 4 effect were present in the investing pattern of FPIs. Study concluded that FPIs were more biased towards trading more on Fridays and in the month of December in the overall analysis. Also, the presence of quarter effect was seemed to be caused by the presence of month effect along with the nifty returns of those specific months. Hence, there exists the strong interaction effect among the anomalies in the FPI net investment to India.

Does the XBRL Reporting Format Provide Incremental Information Value? A Study Using XBRL Disclosures During the Voluntary Filing Program

This study investigates whether the eXtensible Business Reporting Language (XBRL) reporting format provides incremental information value beyond the same 10K/10Q filings previously provided in HTML format. Using a sample from the XBRL Voluntary Filing Program, we document a significant increase in stock price variance on the day when voluntary XBRL reports are filed. We find market response is stronger when more content is filed on the same day. To evaluate relative information value, we decompose the quarterly return variance for three primary news announcements related to earnings including earnings announcement, HTML filing, and XBRL filing. We find XBRL filings have larger relative information value than HTML filings. Our results indicate that the XBRL reporting format provides incremental information content.

Integration Analysis’ Explanatory Power Over Stock Returns: Evidence from Indonesia

The main purpose of this research is to identify whether integration analysis for stock returns has higher predictive power compared to technical analysis and fundamental analysis alone based on research conducted in Indonesia. To fulfill the objective, the “blue chip” Indonesian companies are chosen. The research data period is 2007–2011 and taken quarterly. Technical analysis uses previous quarter return to predict current quarter returns. Fundamental analysis uses operating cash flow and price-to-book ratio. Integrated analysis combines these three variables to test the combined predictive power over current quarter stock returns. The results are compared using multiple regression analysis. Change in price-to-book ratio is significant and can help predict stock returns while previous quarter returns do not have predictive power of the next quarter returns, possibly due to the volatility in Indonesian market. Operating cash flow, while important, does not have predictive power over stock returns, possibly due to it not being an important factor in making investment decisions in Indonesia. Potential investors should understand Price-to-Book ratio and use it in any analysis concerning stock returns. They should also be prudent not to make investment decisions based on historical stock returns. Operating cash flow-generating ability is not one of the indicators the market watches out for. Integrated analysis outperforms a purely technical analysis, but not a purely fundamental analysis.

The cross section of expected holding period returns and their dynamics: A present value approach

We provide a tractable model of firm-level expected holding period returns using two firm fundamentals—book-to-market ratio and return on equity—and study the cross-sectional properties of the model-implied expected returns. We find that firm-level expected returns and expected profitability are time-varying but highly persistent and that forecasts of holding period returns strongly predict the cross section of future returns up to three years ahead. We show a highly significant predictive pooled regression slope for future quarterly returns of 0.86. The popular factor-based expected return models have either an insignificant or a significantly negative association with future returns. In supplemental analyses, we show that these forecasts are also informative of the time series variation in aggregate conditions. For a representative firm, the slope of the conditional expected return curve is more positive in good times, when expected short-run returns are relatively low, and the model-implied forecaster of aggregate returns exhibits modest predictive ability. Collectively, we provide a simple, theoretically motivated, and practically useful approach to estimating multi-period-ahead expected returns.

New evidence of quarterly return patterns in the Spanish stock market

This article updates the evidence found by Ortiz et al. (2010) in the Spanish stock market. Our results provide a lack of significant return anomalies around the first three quarter ends of the year, which questions the role of window dressing in these return patterns. Nevertheless, the results confirm a significant turn-of-the-year effect for small-cap stocks with poor return records, which may be consistent with the tax-loss selling hypothesis despite the wash sales regulation. Using a new approach, we find that this January effect is a widespread sector anomaly. Finally, the turn-of-the-year anomaly definitively exceeds the first trading days for the small-cap stocks.

Relational Analysis of Global Private Equity and GDP of Eight Major Economies

In this study, we examine the importance of venture capital by determining the relationship of the quarterly returns of Global Growth Equity indexes to the percentage change in quarterly GDP of eight major economies: Canada, the European Union, France, Italy, Germany, Japan, the United Kingdom, and the United States. For the purposes of our study, we use regression analysis to investigate the effects of Global Growth Equity index returns on the percentage change in GDP. We observe that the Global Growth Equity Index (U.S.) is the only factor that is able to explain the change in GDP of two countries in our study, Canada and France.