Raw Returns Research Articles

Do higher-order realized moments matter for cryptocurrency returns?

This study utilizes intraday price data of Bitcoin, Ethereum, and Ripple to investigate how sensitive cryptocurrency returns are to higher-order realized moments (i.e., variance, skewness, kurtosis, hyper-skewness, hyper-kurtosis), and whether such sensitivity, if any, varies across bear and bull market conditions. We also evaluate the forecasting power of higher-order moments for future cryptocurrency returns. The empirical analysis draws on a quantile regression approach, after orthogonalizing raw returns with respect to a diverse set of global influences and risk factors. The results reveal that all moments up to the fifth order are generally relevant to explaining cryptocurrency returns, but with different degrees, depending on both the type and state of the cryptomarket. Moreover, both skewness and hyper-skewness show statistically significant predictive capabilities, whether in-sample or out-of-sample, for subsequent returns. Our evidence provides practical implications for asset pricing and risk management decisions.

Borsa İstanbul da 2013-2018 Yılları Arasında İlk Kez Halka Arz Edilen Payların Kısa Dönem Fiyat Performanslarının İncelenmesi (Research of Short-Run Price Performance of Initial Public Offering Shares between 2013-2018 in Borsa Istanbul)

Purpose – The objective of this study is to examine the notion of underpricing for stocks offered in initial public offerings in order to enlarge the equity base and provide an important financing opportunity for joint stock corporations, after the regulations made by the Capital Markets Board of Turkey (SPK) in 2013. Design/methodology/approach – In this study, the end-of-period and beginning prices of the stocks offered in initial public offerings were analysed to demonstrade performance analysis and compared with other studies in the literature. The calculation of the price performances of stocks does not consider macro factors affecting the market. While measuring the price performances, BIST 100 index data were used by taking initial raw returns and initial abnormal returns into consideration. Findings – After the initial public offering regulations made by the Capital Markets Board of Turkey in 2013, the price performances of the stocks of the first 50 companies that were offered to the public in Borsa Istanbul A.S. (BIST) in 2013-2018 are examined based on the price performances in their first day, in the first 30 days according to years, the market in which they are traded in and the BIST 100 index. It has been observed that the obtained findings differ from other studies conducted in other developed, emerging markets and the previous years’ dataset. Discussion – The stock price that a company determines when offering its shares to the public in primary markets, depends on the state of the economy, the company’s position in the sector and the interest of the investors in the capital markets of that period. In this context, the size of the company in the sector, its position in the capital market and its weight in the index affect the offering price and the price performance of the first 30 days,and these effects can be investigated.

Come together: trust, sociability and individual investors' stock-portfolio returns

PurposePrevious studies have found that trusting and sociable individuals are more likely to participate in the stock market and hold risky assets. The purpose of this paper is to explore if trust and sociability also are related to individual investors' stock-portfolio returns.Design/methodology/approachThe authors study the questions in the paper by linking survey measures of trust and sociability to investors' actual stock portfolios.FindingsThe authors find that trusting investors acquire higher raw and risk-adjusted stock-portfolio returns, but that the returns do not differ depending on how sociable investors are. These results suggest that trust is important for investors' stock-portfolio decisions, and that trusting investors tend to perform better in the stock market than less-trusting investors.Originality/valueThis is, to the best of the authors’ knowledge, the first paper that relates survey measures of trust and sociability to investors' actual stock-portfolio holdings. This is important to increase the understanding for how trust and sociability are related to the financial decisions individuals makes.

United States Stock Market Response to FDA Approval of New Dermatologic Drugs

The Food and Drug Administration (FDA) has approved several new dermatologic drugs in the last decade. The public response to their approval has not yet been evaluated. To analyze the United States stock market response surrounding FDA approval of new dermatologic drugs between 2008 and 2018. A list of 34 FDA approved dermatologic drugs for publicly traded companies was compiled from the CenterWatch New Dermatology Drugs List and the FDA Annual Reports on New Drugs. Company and stock market data was acquired from the Center for Research in Security Prices (CRSP) United States Stock database. Cumulative abnormal returns (CAR) were calculated as the difference between raw returns and expected value-weighted returns. Data analyses were performed using SAS 9.4 (Cary, NC). The average CAR for the 21-day window period surrounding FDA approval of new dermatologic drugs was +1.71%. Drugs approved for the treatment of hyperhidrosis (+17.7%), bacterial skin infections (+7.18%), and rosacea (+6.83%) added the most market value. The market value added to private or internationally traded companies could not be assessed. FDA approval of dermatologic drugs generally has a positive market response. Information on market reaction may provide important insights for investors, pharmaceutical companies, and researchers. J Drugs Dermatol. 2020;19(6): doi:10.36849/JDD.2020.5033.

ISLAMIC VS CONVENTIONAL FUNDS WITHIN THE FAMILY: SELECTIVITY SKILLS AND MARKET TIMING ABILITY

ABSTRACT
 The aim of the study is to compare the performance of Islamic mutual fund (IMF) and conventional mutual fund (CMF) within the same family, in addition, to examine the performance of fund family in Malaysia for the period from 2007 to 2018. The study used eight measures of performance, raw returns, excess returns, Sharpe ratio, Treynor ratio, Jensen alpha, Carhart four-factor model as selectivity models, In addition to Treynor & Mazuy (TM) and Hendrickson & Merton (HM) as market timing models. The study contributes by investigating and compares the performance at the family level. The results reported that IMFs exhibited some fund selection ability over CMFs. However, both types of funds displayed poor market timing ability. At a fund family level, the results show the fund families exhibited good fund selections skills, at the same time, fund family still exhibited poor market timing ability. The novel result of this study that the difference in performance between Islamic and conventional funds shrank compared to the results of previous studies. Due to the common advantages offered by the families for both types of funds. The findings are important to investors because the results provide new evidence about the fund families' performance. Most investors follow the top-down approach, where mutual fund investors initially choose fund families before deciding which funds to hold. In addition, the results are important for managers to decide which types of funds that they may issue in their own families, so that they can perform well in the future.

Returns and volume

PurposeThe relationship between returns and trading volume is central in financial economics because it has both a theoretical interest and important practical implications with regard to the structure of financial markets and the level of speculation activity. The aim of this study is to provide new insights into the association between returns and trading volume by investigating their kernel (instantaneous) causality. The empirical analysis relies on time series data from 22 commodities futures markets (agricultural, energy and metals) in the USA.Design/methodology/approachNon-parametric (local linear) regressions are applied to daily data on returns and on trading activity; generalized correlation measures are computed and their differences are subjected to formal statistical testing.FindingsThe results suggest that raw returns are likely to kernel-cause volume and volume is likely to kernel-cause price volatility. The patterns of causal order are generally in line with what is stipulated by the relevant theory, they provide guidance for model specification and they appear to explain the empirical evidence on temporal (lag-lead) causality between the same pairs of variables obtained in earlier works.Originality/valueThe concept of kernel causality has very recently become a part of the toolkit for econometric/statistical analysis. To the best of the author’s knowledge, this is the first study that relies on the notion of kernel (instantaneous) causality to provide new evidence on a relationship that is of keen interest to investors, professional economists and policymakers.

Should Investors Join the Index Revolution? Evidence from Around the World

Over the past fifteen years, passive investing has seen 1.5 trillion dollars of fund inflows while active investing has seen 500 billion of outflows. These numbers are in line with the tenets of passive investing, which assert it is close to impossible to consistently outperform the market. We therefore ask in this paper whether there are truly no viable alternatives to indexing and passive investing. We devise a simple actively-managed strategy based on a new version of the minimum variance portfolio that outperforms comparable stock indices around the world with on average 20.2% higher raw returns, 46.7% higher risk-adjusted returns, and 28.4% smaller drawdowns. Furthermore, it exhibits 32.4% lower portfolio turnover than the 1/N strategy of DeMiguel et al. (2009) around the world. Not only does this actively-managed portfolio have higher returns at lower risk (the well-known risk-return puzzle), it also displays higher returns at higher skewness levels (i.e. lower downside risk) and thus presents a novel skewness-return puzzle. Moreover, the portfolio also has lower recession risk. Our evidence thus suggests that the principles of passive investing should be questioned and that more effort in the actively-managed fund industry should be devoted to the exploration and application of similar strategies to overcome the industry's decades-long underperformance.

Should investors join the index revolution? Evidence from around the world

Over the past 15 years, passive investing has seen 1.5 trillion dollars of fund inflows while active investing has seen 500 billion of outflows. These numbers are in line with the tenets of passive investing, which assert it is close to impossible to consistently outperform the market. We therefore ask in this paper whether there are truly no viable alternatives to indexing and passive investing. We devise a simple actively managed strategy based on a new version of the minimum variance portfolio that outperforms comparable stock indices around the world with on average 20.2% higher raw returns, 46.7% higher risk-adjusted returns, and 28.4% smaller drawdowns. Furthermore, it exhibits 32.4% lower portfolio turnover than the 1/N strategy of DeMiguel et al. (Rev Financ Stud 22(5):1915–1953, 2009) around the world. Not only does this actively managed portfolio have higher returns at lower risk (the well-known risk-return puzzle), it also displays higher returns at higher skewness levels (i.e., lower downside risk) and thus presents a novel skewness-return puzzle. Moreover, the portfolio also has lower recession risk. Our evidence thus suggests that the principles of passive investing should be questioned and that more effort in the actively managed fund industry should be devoted to the exploration and application of similar strategies to overcome the industry’s decades-long underperformance.

The Effect of Fund and Family Characteristics on Islamic Mutual Fund Flows: Evidence from Saudi Arabia

Islamic mutual funds (IMF) are growing as a substitutional investment vehicle for investors who want to combine value and financial objectives in their investment. A group of the funds is managed by one Investment Company called the family of funds. This study investigates the flow-performance relationship in IMF, in addition to the extent to which family and fund characteristics contribute to explaining fund flows in Saudi Arabia for the period from 2007 to 2017. The study uses raw returns to calculate the fund performance and use the percentage money flow (FLOW), defined as money flow scaled by the total net asset of the fund. The results show there is a positive relationship between past performance and fund flow that mean IMF investors make rational financial decisions by directing fund flows to better performing funds. In addition, the results show family characteristics have an impact on IMF inflow.

Corporate governance and underpricing of small and medium enterprises IPOs in India

PurposeThe purpose of the paper is to examine the impact of corporate governance mechanisms, i.e. board structure and ownership structure on the underpricing of small and medium enterprises (SME) IPOs in India.Design/methodology/approachMost of the extant empirical research studies have either pivoted on mainstream IPOs or SMEs IPOs in developed economies, but the present study examines 200 SME IPOs issued during Feb 2012 to April 2017. Multiple regressions have been used to examine the impact of the corporate governance mechanisms on raw return (RR). Furthermore, robustness of the results has been verified through the employment of market-adjusted excess return (MAER) as an additional proxy of underpricing.FindingsThe results highlight that board size, inverse of board committees, board independence, board age, board directorships positively, and top ten shareholding negatively influence RR. Further, direction of promoter ownership variable indicates curvilinear relationship with underpricing. Other explanatory variables used in model lack statistical validity. Similar results have been obtained when variables were regressed against MAER with related board members being additionally significant in model.Practical implicationsThe findings suggest that Indian investors do take cues from board structure and ownership patterns for making investment decisions in small- and medium-sized firms. Further, the results are also helpful to top management in structuring their boards.Originality/valueThe present research enriches SME IPOs underpricing literature because the impact of corporate governance mechanisms on unadjusted returns is relatively under explored particularly within the context of small- and medium-sized firms.

Risk-Reward Trade-Off and Volatility Performance of Islamic Versus Conventional Stock Indices: Global Evidence

In this paper, we compare the performance of Islamic stock indices (ISI) and conventional stock indices (CSI) from FTSE, DJ, MSCI, S&Ps and Jakarta series using common risk-return metrics. The sample consists of 64 ISI and CSI, and covers the period from 2002 to 2017. The majority of the stock indices are from the Pacific Rim countries’ stock markets. Additionally, we employ the GARCH-M model to examine the impact of past volatility on spot returns. Findings suggest that the ISI are less sensitive to the average market movements compared to the CSI, but surprisingly offer similar raw returns suggesting primary support for the low risk-high return paradox. On further examination, results reveal that M2, Omega, Sharpe and Treynor measures indicate that ISI underperform CSI while Jensen’s alpha and Sortino ratio put ISI ahead of CSI. Moreover, findings show that pre-crisis winners (CSI) were losers during the 2008 crisis but subsequently recovered and ended up with higher returns than ISI. Findings also show that the previous volatility of stock returns can be potentially used for predicting future returns.

Firm boundaries, incentives, and fund performance: Evidence from a private pension fund system

The private pension fund system in Turkey presents a unique institutional structure where bank holding companies can own both private pension companies and asset management firms. More often than not, pension companies delegate their operational mandates to the asset management arm of the same bank. This practice exposes the retail investor to a double agency problem and raises questions about conflicts of interest and fiduciary duty. Our analysis reveals that the funds set up and managed under the same bank holding company perform worse on a risk-adjusted basis than the funds with an arm's length relationship between the pension company and the asset manager. We show that this relative underperformance is not simply a bank effect; bank-affiliated pension companies and asset managers do just as well, if not better than their peers, when they are not operating under the same roof. Unfortunately, this inefficient institutional structure is not eliminated by market discipline because these funds attract more flows from retail investors, and the underperformance is not discernible in raw returns.

Size of Offer, Over-subscription Ratio and Performance of Malaysian IPOs

This paper examines the initial and the long-run performance of initial public offerings (IP0s) stocks listed on the Main Board of the Kuala Lumpur Stock Exchange. This study finds a significant mean initial return and mean over-subscription ratio, even-though not as high as reported in earlier studies. Size of offer is not correlated with the over-subscription ratio. In general, initial returns. are significantly higher than returns for subsequent longer-term holding periods. Mean initial returns among the three types of issue compared are not significantly different from each other Only in the case of offer for sale that we find a significant positive correlation between its over-subscription ratio and its initial return. Offer for sale also shows a positive correlation between its over-subscription ratio and its raw let11111 far day-365, but turns significantly negative for day-910 and day-] 095. In the case of combination of public issue and offer for sale, over-subscription ratio is not significantly correlated with longer- term returns, for either raw or adjusted return. Finally, in the case of public issue, its over-subscription ratio is significantly correlated with its raw return only for day-180 and day-540, and for its adjusted return, the correlation is significant only for day-180 and day-365.

The Green and Brown Performances of Mutual Fund Portfolios

Interest in socially responsible investing (SRI) has skyrocketed within the mutual fund industry. Central to this development is whether SRI funds underperform conventional funds. Using a novel approach, we decompose mutual fund portfolios into socially responsible (green) and non-socially responsible (brown) components. We find that, in comparison to the non-socially responsible component, the socially responsible portion exhibits a lower raw return, lower risk-adjusted return, lower Sharpe ratio, and similar degree of performance reversal. The magnitudes of these underperformances are, however, small, and align with SRI having a limited negative impact on fund performance while potentially offering some diversification benefits.

Price and Volatility Spillovers between Global Equity, Gold, and Energy Markets Prior to and during the COVID-19 Pandemic

This study sets out to provide fresh evidence on the dynamic interrelationships, at both return and volatility levels, between global equity, gold, and energy markets prior to and during the outbreak of the novel coronavirus. We undertake our analysis within a bivariate GARCH(p, q) framework, after orthogonalizing raw returns with respect to a rich set of relevant universal factors. Under the COVID-19 regime, we find bidirectional return spillover effects between equity and gold markets, and unidirectional mean spillovers from energy markets to the equity and gold counterparts. The results also suggest the presence of large reciprocal shock spillovers between equity and both of energy and gold markets, and cross-shock spillovers from energy to gold markets. Most probably driven by the recent oil price collapse, energy markets appear to have a substantial cross-volatility spillover impact on the others. Our results offer implications for policymakers and investors.

A Study of Performance of the KLSE Syariah Index

This study compares the performance of the Syariah Index (SI) and the Composite Index (CI) of the Kuala Lumpur Stock Exchange (KLSE) during the period April 1 999 to January 2002, Both the raw and risk-adjusted returns were calculated for the indices for the whole and two sub-periods. Results based on the raw returns revealed that generally, the KLSE SI and CI recorded the same level of returns. Tests using performance measures of Adjusted Sharpe Index, Treynor Index and Adjusted Jensen Alpha revealed that there were also no significant difference in the (risk-adjusted) performance of both indices. We therefore conclude that Syariah-approved stocks were not more favourable than the other stocks in the KLSE.

Short-term price-performance analysis of initial public offerings: an application on health industry in NYSE

Purpose - The purpose of this study is to investigate short-term underpricing anomaly of IPOs in health industry firms in USA. This study tried to test short-term underpricing anomaly that suggests investors may able to get abnormal returns by purchasing stocks at issuance date and selling them after holding for short time period. Methodology – Analysis period is taken into consideration as first 7 days after the issuance. To conduct analysis in the study, a sample, which includes 12 listed firms, is built. Stock returns are calculated from issuance date until 7th day. First raw returns are calculated based on price movements of each IPO and then abnormal returns are calculated by comparing them to NYSE index return. In order to get smoother series to reflect normal distribution features, compound abnormal returns are calculated. Findings – Raw returns are positive but significant only on 5th day after issuance. Abnormal returns except for 2nd and 3rd day are positive but statistically significant only 5th day after issuance. Compound abnormal returns are positive except for 3rd day but similarly it is statistically significant on 5th day after issuance. Based on test results, an investor who purchased stocks at the issuance and hold them until 5th day would get higher return (abnormal return) by %0,71 and higher compound return (compound abnormal return) by %1,23 than market average. Conclusion – According to results of t-test, it can claimed that underpricing anomaly can be confirmed for the firms are traded in health industry in NYSE.

Behavior of investor flows in Israeli provident funds

PurposeThe purpose of this paper is to study the sensitivity of provident fund investors to past performance and how market conditions, changes in risk and liquidity levels influence the net flows into provident funds by using a unique sample from Israel.Design/methodology/approachThe study checks the impact of different levels of fund performance on provident fund flows using three alternative proxies for performance: raw return and the risk adjusted returns based on the Sharpe ratio and the Jensen’s α. The analysis relies on the time fixed effect and fund fixed effect regression models.FindingsResults reveal that there exists an approximately concave flow–performance relationship and performance persistence among Israeli provident funds. Israeli provident fund investors are risk averse so they overreact to bad performance both in bull and bear markets. Moreover, liquidity is an important factor to influence the flow–performance curve. The investors’ strong negative response to poor performance and relative insensitivity to outperformance show that provident fund managers are not rewarded for their risk-shifting activities as in mutual funds.Originality/valueThe authors explore the behavior of investor flows in non-institutional retirement savings funds specifically outside of the USA, which is a topic not properly investigated in literature. Moreover, examining inflows and outflows separately gives the authors a richer understanding of investors in pension schemes. This study also enhances the understanding of the impact of fund liquidity on the flow–performance relationship for the retirement funds segment.

An Empirical Study on Initial Listing Performance of IPOs in India

In this paper, we analyzed the initial listing performance of initial public offerings (IPOs) by computing the raw return (RR) and the market adjusted excess return (MAER). The study also identified and analyzed the factors that had an influence on the performance of IPOs. We used a sample of 239 IPOs offered during the period from 2016–2018 and examined the performance by employing factors such as offer price, issue size, and method of pricing. The analysis indicated that the offer price had a positive relationship towards the initial listing performance of IPOs ; whereas the issue size, market return, and listing delay showed a negative relationship towards the performance of IPOs. Apart from this, the study also highlighted that underpricing existed in Indian markets during the study period and the level of underpricing was high in fixed price method of issuing IPOs in comparison to book building method of issuing IPOs. It was also found that there was a significant relationship between initial listing performance of IPOs with varying offer price, varying issue size, method of pricing, and different sectors.

MARKET TO BOOK VALUE, FIRM SIZE, AND THE UNDERPRICING OF INDONESIAN INITIAL PUBLIC OFFERINGS

The focus of this study is to analyse whether market to book value ratio and firm size determine the extent of initial returnrate of firms making initial public offering (IPO). The subject of the study is all IPO from the period of 2007-2016. There are 173 IPOs used as sample. It uses two measurements of initial retuns, the raw return and the market adjusted return. As documented in many studies, there is evidence that on average the Indonesian IPO experience underpricing. Results using regression analysis show that market to bookvalue ratio and firm size have negative and significant effect on both of the measures for initial return. This finding asserts the importance of understanding the market to book value ratio in the valuation of Indonesia IPOs.