Security Returns Research Articles

Dynamic relation between global Islamic and conventional sectoral stock and bonds indexes

This paper examines the relationship between 10 Global sectoral conventional and Islamic assets. For each sector, a conventional, an Islamic stock index and a bond are retained. The analyzed relations are done by taking into account diverse investment horizons by using MODWT and GARCH-DCC-type models. Our results indicate that adding bond indexes into a portfolio composed with conventional stock or Islamic stock is efficient. As for the correlations between conventional and Islamic sectoral indexes, they depend on the sector. Relations between returns of securities are quite similar to the relations between high-frequency part of these series and are very volatile at low frequency.

Can fat-tail create the momentum and reversal?

ABSTRACT We suggest that fat-tail variations can cause both short-term momentum and long-term reversal simultaneously, in both the time series and cross-sectional returns of securities. The fat-tail of the distribution is known to explain many anomalies in the financial market, but not momentum. To support our argument, we adopt widely accepted models in the literature, which generate reversal only, and revise a single assumption: Each random variable follows a non-normal stable distribution rather than a normal distribution. This single difference generates additional short-term return momentum. This finding shows that 1) investor irrationality is not essential to generate both phenomena, and 2) we must be cautious not to overuse normal distributions in the models.

Is (Systematic) Value Investing Dead?

Value investing is the age-old investment strategy that involves buying securities that appear cheap relative to some fundamental anchor. For equity investors that anchor is typically a measure of intrinsic value linked to financial statement variables. Recently, there has been much written about the death of value investing. While undoubtedly many systematic approaches to value investing have suffered recently, we find the suggestion that value investing is dead to be premature. Both from a theoretical and empirical perspective, expectations of fundamental information have been and continue to be an important driver of security returns. We also address a series of critiques levelled at value investing and find them generally lacking in substance.

Random Walk Hypothesis and Security Return in Nigeria

Random Walk Hypothesis and Security Return in Nigeria

Multi-period portfolio selection with mental accounts and realistic constraints based on uncertainty theory

This paper discusses an uncertain multi-period portfolio selection problem in the situation where the future security return rates are given by experts’ estimations instead of historical data. In financial market, investors may have different attitudes towards risk for different goals. In order to reflect these conflicting risk attitudes for different goals, mental accounts are introduced to the investment. In addition, investment strategies may be affected by some realistic constraints such as background risk, liquidity risk, transaction cost and cardinality constraint. Based on uncertainty theory, a nonlinear multi-period portfolio selection model is proposed with consideration of mental accounts and realistic constraints. In the model, indeterminate quantities such as security return rates and turnover rates are assumed to be uncertain variables. Within the framework of uncertainty theory, we discuss the equivalents of the model and show that the nonlinear model can be equivalently transformed into a linear programming model. Finally, a case study is given to illustrate the performance of the proposed model.

Option Profit and Loss Attribution and Pricing: A New Framework

ABSTRACTThis paper develops a new top‐down valuation framework that links the pricing of an option investment to its daily profit and loss attribution. The framework uses the Black‐Merton‐Scholes option pricing formula to attribute the short‐term option investment risk to variation in the underlying security price and the option's implied volatility. Taking risk‐neutral expectation and demanding no dynamic arbitrage result in a pricing relation that links an option's fair implied volatility level to the underlying volatility level with corrections for the implied volatility's own expected direction of movement, its variance, and its covariance with the underlying security return.

STOCK SPLIT AND STOCK MARKET REACTION: THE EVIDENCE OF INDONESIAN PUBLIC COMPANY

Purpose of study: Go Public Company can raise funds for its operations through the sale of shares to investors. But if the stock price is too high, it can make the investors are not interested in buying stock. Stock market value can be reduced by the stock-split. This study aims to examine the effect of the stock split on abnormal return, stock price; trading volume and security return variability in the go public company on the Indonesia Stock Exchange.
 Methodology: Researchers use data from 41 companies that were taken by purposive sampling from 2013 to 2016. The hypotheses in this study were tested using a Paired sample t-test. 
 Result: The researcher found that the stock split event causes the difference between the stock price, trading volume and security return variability between before and after the stock split. But the results found that the stock split did not cause any differences between the abnormal return before and after the stock split. 
 Application: The results of this study can provide an overview of the relationship between stock split events with stock prices and stock trading volumes.
 Novelty/Originality of this study: This research using different methods compare with previous, namely multiple discriminant analysis. The multiple discriminant analysis methods are part of the discriminant analysis, which is a multivariate technique that includes the dependence method, namely the presence of variables.

Le devenir des grands criminels

ObjectivesWhat happens to those who are called serious criminals once the conviction has been handed down and the possibilities for appeal exhausted; and, first and foremost, what is meant by the term serious criminal? Is this only the penal qualification of a criminal conviction, or should it be combined with the length of the sentence? Is the repetition of criminal acts a condition for this designation, or is the “simple” sentence of life imprisonment, whatever the reason for the sentence, sufficient? MethodsThrough the examination of the various legislative developments and the confrontation between different players in the judicial system, the future of these subjects is put into perspective. ResultsThe difficulty of finding a single definition of the concept of serious criminality illustrates, on its own, the diversity of profiles and individual situations it covers. However, given the sociology of long-term prisoners, the combination of three criteria, excluding the repetition of criminal acts, seems relevant to the definition of the concept of a serious criminal: the sentencing of the individual, male or female, a sentence of at least 15 years, the assignment of the convicted individual to a penal institution, whether a jail, a prison, or a maximum security prison. The definition criteria therefore exclude the nature of the acts that led to the conviction, the question of repeat offenses in the commission of criminal acts, as well as the age group to which he belongs. As of July 1, 2018, according to figures from the French prison administration, 500 prisoners were serving a life sentence, 1,000 prisoners were serving a criminal sentence of more than 20 years, and 5,200 prisoners were serving a criminal sentence of more than 10 years, out of a total number of 71,000 prisoners. DiscussionFor these serious criminals, how can we reconcile the objectives set by the law with regard to the function assigned to the prison sentence – namely to prepare the integration or reintegration of the convicted person in order to enable him to act as a responsible person, respecting the rules and interests of society and avoiding the commission of new offenses – with the crucial question of dangerousness in the case of serious criminals? Whether or not the convicted person is considered a major criminal, the objective of the prison journey must remain the same: to allow a safe return to civilian life from the point of view of society and to provide security for the convicted person. This secure return will be made possible if all the parties involved (the prefectoral authority, the judge in charge of enforcing sentences, representatives of the public prosecutor's office, integration and probation prison counsellors, coordinating doctors) work in concert, the challenge in terms of public safety being essential. ConclusionTo talk about the future of serious criminals requires, after the relatively unknown question of the management of detention, that we look at the question of the adjustment of the sentence. Recent criminal procedural reforms, which have focused on combating prison overcrowding and limiting the imposition of short prison sentences, have had relatively little impact on those sentenced to very long sentences. The treatment of serious criminals in detention and then at the sentencing stage has its own specific features. The objectives sought are first of all those common to all persons serving a sentence of imprisonment or criminal confinement, namely the prevention of recidivism and the rehabilitation of the convicted person, objectives set out in article 707 of the French Code of Criminal Procedure. Follow-through with serious criminals in the event of a return to civilian life also deserves attention because it differs from the way other cases are handled.

Two-Pass Model of CAPM: Evidence from Pakistan Stock Exchange

This research study analyzes the variation in monthly returns of securities for companies listed in Pakistan Stock Exchange-PSX (Formerly known as KSE). The Capital Asset Pricing Model (CAPM) of SLB has provided a method for researchers and experts to forecast the risks and returns. The main purpose of CAPM is to estimate beta of security to explain how much security is aligned or sensitive with the movement or changes in the market return. The research is conducted by means of monthly market capitalization of companies; portfolios are formed and the role of idiosyncratic risk in explaining the variations in the stock returns have been studied. With the same portfolios, the relationship of risk and return relationship has also been analyzed. This empirical analysis is conducted for the period of May 2010 - April 2014. Data analysis reveal that the idiosyncratic risk is a significant factor in explaining the stock returns. Capital Asset Pricing model is rejected in this study context because of positive and significant intercept in all portfolios. The research findings strongly support Chan and Chui (1996) and Strong and Xu (1997), assertions that the relationship between beta and security returns is weak. Therefore, CAPM is an empirically anemic model to be used in the Pakistani market.

The Decision to Concentrate: Active Management, Manager Skill, and Portfolio Size

Recent research shows that more highly concentrated portfolios produce superior risk-adjusted returns. The untested premise is that it is the most skillful managers who hold the most concentrated portfolios. In this article, the authors formally examine the implicit assertion that the initial portfolio concentration decision is related to a manager’s inherent investment skill. First, they present a theoretical model indicating that the greater the manager’s skill level, the more concentrated the portfolio should be. Second, they conduct a simulation analysis of the capacity to make accurate ex ante security return forecasts; they show that skilled managers would select as few as 5% of the available securities and that the portfolio concentration decision is directly proportional to investment prowess. Finally, they provide an empirical examination of the actual skill–concentration relationship for actively managed equity mutual funds over 2002–2015 and document that managers who demonstrated past skill do form portfolios with higher concentration levels. The authors conclude that talented asset managers should and actually do hold more concentrated portfolios and that the extent of this concentration decision is meaningfully related to forecasting skill. TOPICS:Manager selection, mutual fund performance, equity portfolio management Key Findings • The authors analyze the level of skill that an active manager must have to justify the decision to form a concentrated set of security holdings rather than a broadly diversified portfolio. • Using a conceptual model and a simulation, they establish a strong direct connection between a manager’s forecasting talent and the portfolio concentration decision. Optimal portfolio sizes decline to as little as 5% of the investable universe with increasing skill. • The authors develop three portfolio concentration measures and demonstrate with an extensive set of historical mutual fund returns that managers with the best past performance do indeed hold the most concentrated portfolios over time.

ANALYZING THE FRACTAL STRUCTURE OF STOCK RETURNS: EVIDENCE FROM ISTANBUL STOCK EXCHANGE

Efficient Market Hypothesis States that alt new information is reflected in the market price fully and immediately. Security returns are essentially unpredictable since they follow a random walk. Therefore the impact of the new information is essentially unpredictable; it is as likely to be negative as positive. Financial asset returns are often modeled with a series of small, normally distributed changes. Brownian motion asserts the independence of the changes but there are patterns or trends in Capital market returns and they persist over time. Therefore security returns are not fully random. This paper applies Hurst’s R/S (Rescaled Range) analysis to XU030 and XU100 index within different time horizons. The analysis proceeded from two basic principles: dependence of each period in time series data and fractional Brownian motion of time series. The persistence behaviour of İstanbul Stock Exchange is investigated. The results show that each series taken into consideration exhibits a biased process characteristic of fractal Brownian motion.

Have Investors Paid a Performance Price? Examining the Behavior of ESG Equity Funds

The academic and practitioner literature provides a variety of contradicting theories as to expected consequences of environmental, social, and governance (ESG)-related factors on the risk and return of equity securities. In light of these heterogeneous expectations, this article sets out to empirically investigate the performance characteristics of investable ESG equity funds to assess whether support for a particular direction in performance impact can be found. The dataset comprises index and active equity mutual funds and exchange-traded funds with a US investment focus that indicate the use of ESG factors in their investment process and extends over a period of 15 years (2004–2018). The empirical results are rather mixed. The authors find substantial cross-sectional dispersion in performance among funds. After controlling for style factor exposures, the majority of funds in any of the tested ESG categories does not produce statistically significant positive or negative gross alpha. An industry-based performance contribution analysis reveals that systematic differences in allocations relative to the broad market exist. However, their median contribution to performance is close to zero over time. Overall, return and risk differences of ESG funds can be significant but appear to be mainly driven by fund-specific criteria rather than by a homogeneous ESG factor. As a result, investors would be better served by assessing investment implications on a fund-by-fund basis. TOPICS:ESG investing, mutual fund performance, passive strategies, portfolio theory Key Findings • The majority of environmental, social, and governance (ESG) equity funds in any of the tested categories do not produce statistically significant positive or negative gross alpha. • Systematic differences in industry allocations relative to the broad market exist, but their median contribution to performance is close to zero over time. • Mixed and substantial cross-sectional dispersion in performance among ESG funds suggests that both the direction and magnitude of any risk or return impact is best assessed on a fund-by-fund basis.

Empirical Analysis of the Illiquidity Premia of German Real Estate Securities

In this study, we analyze illiquidity premia and their effect on the expected returns of German real estate securities. To this end, we use a unique data set that includes real estate stocks, real estate investment trusts (REITs), and open- and closed-end real estate funds for 2003 to 2017. We follow Amihud‘s (2002) structural approach; specifically, we estimate Amihud‘s illiquidity factors, investigate the relationships between expected returns and illiquidity, and analyze the effects of expected and unexpected market illiquidity on future returns. We show that illiquidity plays an important role in expected REITs; however, it has less-clear effects on open- and closed-end funds. We found that the adjusted ILLIQ includes appropriate correction factors for securities with low trading activity and is a useful improvement. We also find evidence of structural breaks in the relationship between returns and illiquidity.

The effects of macroeconomic factors on the rate of return of securities

The effects of macroeconomic factors on the rate of return of securities

Study of Comparison of Stock Performance Before And After Doing Split Stock In Go Public Companies That Are Listing on The Idx Period 2013 – 2015

This study aims to determine the difference in abnormal return, trading volume activity, and security return variability before and after the stock split announcement on companies listed on the Indonesia Stock Exchange for the period 2013 - 2015. Testing the information content will be done by looking at differences in average abnormal return, average security return variability and average trading volume activity five days before and five days after the announcement of the stock split. The data analysis method that will be used is descriptive statistical analysis and different tests before and after the stock split announcement using the Wilcoxon signed rank test. The results of this study indicate that there are significant abnormal return differences before and after the stock split announcement, there is no significant difference in trading volume activity before and after the stock split announcement, and there is no significant difference in security return variability before and after the stock split announcement.

Improving Evaluation Techniques for Credit Risky Securities

The present value of bonds and loans is commonly calculated as a sum of contractual cash flows discounted by default-free interest rates added by an appropriate credit spread. The evidence that investors require higher nominal returns for credit risky securities is commonly invoked as the main argument in support of this approach. However, although it is widely applied in the common practice, it remains a quick-fix solution for several reasons. First, it does not properly account for the probability of collecting contractual cash flows. Second, it leads to the wrong conclusion that the present value of financial instruments remains unchanged when fluctuations of risk-free rates are perfectly balanced by opposite changes in the relevant credit spread. Third, it makes the more risky bonds appear more profitable because credit spread, when included into discount rates, inevitably leads to calculate internal rates of return inversely correlated to the borrower’s creditworthiness. This work shows how refined cash-flow mapping techniques may be used in order to design a double-leg approach which properly accounts for expected credit losses and credit survival probabilities. This approach leads to an accurate evaluation of traded bonds on the sole basis of market information. In addition, it defines complete non-arbitrage conditions and overcomes the flaws of the most common pricing models for credit risky securities.

The Impacts of Financial Freedom on International Real Estate Securities

The aim of the paper is to study how trade freedom and financial freedom affect the excess return of real estate security, and we apply annual data for 1,108 publicly traded real estate companies of 24 countries from 2006 to 2013 to examine it. The main findings are as follows : First, for whole sample, the coefficients of the index of trade freedom, the index of financial freedom, are significantly negative, which means that higher freedom of trade and financial will increase efficiency of real estate market but the excess return of real estate will decrease. Second, comparing the effect of the indexes to affect excess return of real estate securities in three different regions, the indexes of financial freedom and Trade freedom are vital factors, but all of four indexes of freedom are important in Europe and other area. Third, the coefficients of indexes of monetary freedom and indexes of trade freedom are negative in both of high and non-high income groups. Finally, for the group of non-high income level, the coefficient of index of investment freedom is negative and the coefficient of index of financial freedom is positive, which are different with the results of the whole sample.

Too Much Rebalancing Is Not a Good Thing

There is now an abundance of literature showing that the equal weighted portfolio outperforms the value weighted portfolio. However, this has led to claims that the act of rebalancing itself within an equal weight strategy is what leads to outperformance, whether or not individual security returns are mean-reverting. In this paper we show that you can achieve the same, if not better, returns than that of the equal weighted portfolio rebalanced monthly by rebalancing less than half of the time. This is achieved by considering only whether the diversification benefit is increasing or decreasing over some period of time.

Extractive institutions? Investor returns to Indian railway companies in the age of high imperialism

AbstractDid colonial policies in India deliver excessive returns to British investors? We answer this question using annual data on Indian securities trading on the London Stock Exchange. We present new series on market capitalization, capital gains, dividend yields, and total returns of railway securities from 1880 to 1929. The average annual total return on the largest and most important Indian railway securities was 3.7%. These returns were not excessive by any financial standard. Indeed, they were lower than the return on railway securities in North America, Latin America, and Asia. We also undertake an event study analysis to assess whether Indian railways significantly benefited British investors. When the Government of India purchased large positions in the private railway companies between 1880 and 1910, there were opportunities for profit making. However, we find no evidence of abnormal investor returns in the years leading to the purchase of railway companies. Broadly our findings call into question the extractive nature of colonial railway policy.

AN ECONOMETRIC PANEL-MIDAS MODEL OF ASSET RETURNS IN THE BRAZILIAN STOCK MARKET

We present the specification, estimation and testing of an econometric model intended to explain and forecast individual returns of securities listed on the Brazilian stock market. The model's explanatory variables include macroeconomic, fundamental and behavioural variables sampled at different frequencies. The model uses the MIDAS regression methodology, which supports estimation of regressions with variables sampled at different frequencies. The sample includes non-financial institutions listed in the Brazilian stock exchange from 2010 to 2016. The results indicate that the model is robust in explaining and forecasting quarterly returns of individual shares listed on that market.