Market Timing Research Articles

Factors Affecting Stock Selection and Market Timing Ability Between the Developed Country and Emerging Countries in Asean Markets

Objective: This research is designed to propose empirical evidence on factors affecting stock selection ability and market timing ability. Theoretical framework: Recent research found that most equity mutual funds underperform the market return due to a lack of stock selection and market timing abilities. However, rarely do they propose evidence of factors affecting the existence of these abilities Method: There are two-panel regression models developed in this research to show evidence of factors affecting stock selection and market timing abilities. The Dumitrescu–Hurlin (DH) test is used to gain a comprehensive understanding of the causality relationship between the variables Results and Conclusion: Based on observation of three ASEAN countries, this research proposes empirical evidence that the growth of fund size, volatility of the fund’s net asset value (NAV), and performance indicators of the underlying assets affect the stock selection ability differently in the respective countries. Similarly, the growth of fund size, volatility of the fund’s NAV, and macroeconomic indicators also affect the market timing ability differently Implications of the research: Therefore, the implementation of investment strategies in the three observed markets considers factors affecting the existence of the two abilities, effectively generating outperforming returns. Originality/value: Recent studies focused more on whether equity mutual funds are managed with stock selection and market timing abilities but not on factors affecting those abilities. This research proposes empirical evidence on factors affecting those abilities in different markets through econometrics analyses on panel data and the Dumitrescu–Hurlincausality test.

ANALISIS EKSPOSUR RISIKO REKSADANA SYARIAH DAN REKSADANA KONVENSIONAL DI INDONESIA DENGAN PENDEKATAN CAPM, MARKET TIMING ABILITY DAN DOWNSIDE RISK

This study was conducted to determine the risks of conventional mutual funds and sharia types of stocks in Indonesia during the period 2017-2021. Through this research, the public as potential investors, general investors, and investment managers will get information about the risk of mutual fund by comparing the results of risk, measurements of each mutual fund, considering the increasing number of mutual fund investment instruments of either type or number. The measurement methods used are capm beta value, beta market timing ability and beta downside (downside risk). The results showed that using these three measurements, the total risk exposure of Islamic mutual funds was lower than that of conventional mutual funds.

Price risk transmissions in the water-energy-food nexus: Impacts of climate risks and portfolio implications

The water-energy-food (WEF) nexus has quickly materialized as a critical factor that could threaten sustainable development goals. To contribute to the understanding of the WEF nexus from an economic perspective, this study investigates the price risk transmissions among the water, energy, and agricultural markets. We further analyze the critical impacts of climate risks, including physical and transition risks, on the transmission behaviors. Employing a quantile connectedness approach in the time-frequency domain, we provide a comprehensive analysis that allows for the consideration of different market conditions (extreme vs. normal) and time horizons (long vs. short). We find that the WEF nexus is relatively small in a normal market condition but increases substantially in an extreme market condition. The nexus is more pronounced in the short-term horizon compared to the long-term horizon. Among investigated factors, the U.S. climate policy and economic policy uncertainty have generally strengthened the WEF nexus while geopolitical risk and U.S. term spread tend to weaken the nexus. Analyzing the impacts of climate risks in detail, we find that in the short term, investors worry more about transition risks rather than physical risks in a normal market condition. In the long term, investors integrate information on both transition and physical risks but only in an extreme market condition. Our analysis of the economic implications further supports the view that investors care more about transition risks than physical risks when forming investment portfolios.

Do actively managed equity funds add value in developing economies? – The case of ‘inverse Gruber puzzle’ in Pakistan

PurposeThis paper evaluates the performance of actively managed conventional and Islamic equity funds in a developing economy with a focus to assess the performance-growth puzzle posited by Gruber (1993) (a.k.a Gruber’s puzzle). Under the context of an emerging market of Pakistan, this study explores if actively managed equity fund (AMEF) managers have been able to add value by outperforming the market in terms of stock-selection and market-timing abilities; and the comparative performance analysis of Islamic versus conventional AMEFs is also carried out.Design/methodology/approachWe employ Sharpe and Treynor ratios, Capital asset pricing model, Fama–French three factors model (1993), Carhart four-factor model (1997) and Hendrickson (1981) market timing models on 45 equity funds comprising of 23 conventional and 22 Islamic equity funds operating in Pakistan for a period of 10 years. The overall sample period (2008–2018) is divided into two 5 years sub-periods (i.e. 2009–2013 and 2014–2018) and three 3 years sub-periods (2009–2011, 2012–2014 and 2015–2017) to be viewed in conjunction with the country's macro-economic condition.FindingsWe report that the actively managed equity funds (AMEFs) were unable to beat the market index with their stock selection or market timing capabilities. However, AMEFs depicted improved performance in the post-global financial crisis period where both conventional and Islamic AMEFs generated substantial rewards for the given amount of risk. Also, conventional AMEFs outperformed Islamic AMEFs potentially due to their holdings in highly leveraged value and large-cap stocks, while Islamic AMEFS invest more cautiously in small-cap and value firms. Analysis of market timing skills revealed that the funds have not been able to select the undervalued stocks and adopted a defensive strategy in the post-global financial crisis recovery period.Practical implicationsOur findings shed some interesting insights and raise some pertinent questions for research, policy, and practice – specifically for developing countries’ context. The no ‘return-growth’ configuration defies its fit with the ‘Gruber puzzle’ and somewhat presents a case of what we call the ‘Inverse Grubber puzzle’. This novel notion of the ‘Inverse Grubber puzzle’ should inform policy and practice to reflect on their practices, institutional arrangement, regulatory framework and policy design in developing economies characterized by lacklustre performance and growth of AMEFs. For example, the regulatory design may consider focusing on stimulating financial inclusion and deepening by motivating low-cost Index tracker funds (ITFs) – with lower fund management costs, while allocating the avoided cost to flow towards effective marketing campaigns driving greater awareness, financial deepening, and investor base diversification. For future research, financial development researchers may explore the implications and appropriateness of AMEFs versus ITFs in other developing economies.Originality/valueThe work reported in this paper is original and constitutes a valuable asset for ethno-religious-sensitive investors. The research has not been published in any capacity and is not under consideration for publication elsewhere.

The Impact of Stock Selection, Market Timing and Equity Fund Size on Equity Funds Performance during Covid-19

Investors in Indonesia pay attention to the financial market's investment tools, including mutual funds. Some mutual funds even provide a higher return on investment than alternative stock investments, with a lower level of risk be-cause investment managers properly manage them. This research aims to determine how stock mutual fund success is affected by factors such as stock selection, market timing, mutual fund size, and Covid-19, with Covid-19 serving as a moderator. Purposive sampling was utilized to conduct research on Indonesian equity funds. This study's sample consists of equity funds administered by fourteen investment management firms authorized and regulated by the Financial Services Authority (OJK). Panel data regression analysis in Eviews is used to examine the information. It was discovered that neither mutual fund size nor Covid-19 played a statistically important role in determining the success of equity funds. However, equity fund returns are significantly influenced by company picking and market timing. As a supplementary benefit, Covid-19 can significantly reduce the beneficial effects of overly optimistic stock picking on the returns of equity funds. This research also demonstrates that the effects of mutual fund size and market timing on stock fund returns are not reduced by using Covid-19.

Analyzing the Ability of Investment Managers in Equity Mutual Funds during the Covid-19 Pandemic in Indonesia

Mutual fund is one of the investment instruments widely used as an investment option. There are two essential things to be considered by the Investment Manager as a mutual fund manager: the stock selection and the market timing ability. The Covid-19 pandemic has caused many investors to experience potential investment losses. Understanding stock selection and market timing will be needed for determining which Investment Managers perform well in managing equity mutual fund, especially while dealing with the Covid-19 pandemic. The objective of this study is to analyze the ability of Investment Managers to perform stock selection and market timing, the performance of equity mutual fund, and the effect of stock selection and market timing ability on the performance of equity mutual fund in Indonesia. This study applies the Fama net selectivity methods to assess stock selection ability and Treynor-Mazuy and Henriksson-Merton models to analyze market timing ability. Sharpe, Treynor, and Jensen's alpha methods are also used for measuring mutual fund performance. The data is processed per mutual fund to recognize each mutual fund's stock selection and market timing ability. Furthermore, the research spans two time periods: before and following the Covid-19 pandemic. A dataset of 104 equity mutual funds from 2016-2021 has been analyzed. The findings show that only 9 and 12 Investment Managers have stock selection ability prior to and following the Covid-19 pandemic, respectively. According to Treynor Mazuy model, there are only two Investment Managers with market timing ability prior to the Covid-19 pandemic, and only twelve Investment Managers have market timing ability during the Covid-19 pandemic, according to the Henriksson-Merton model. Every mutual fund with stock selection ability outperformed the benchmark. However, not all equity mutual fund with market timing ability outperformed the benchmark.

Research on the Role of RMB-denominated Oil Trade in Promoting RMB Internationalisation

With the development of the global economy and the continuous expansion of international trade, currency internationalization has become an important goal of monetary policies of various countries. In this context, China has become the second largest economy in the world, and promoting the internationalization of the RMB has become one of the urgent issues for the Chinese government to address. In recent years, the internationalization of RMB has achieved remarkable results, but the use of RMB is still limited in the international commodity market, especially in the oil market. This paper takes the RMB-denominated oil trade as an entry point to analyze its contribution to the internationalization of the RMB and its potential impact. The paper first explains the importance of oil trade to the global economy and analyzes the current situation of the oil market with the US dollar as the main settlement currency. As one of the most important energy sources in the world, oil occupies a pivotal position in international trade. However, for a long time, the pricing and settlement of the oil market has relied mainly on the U.S. dollar, which gives the U.S. dollar a significant dominant position in the global arena and also exposes other countries to the risks associated with exchange rate fluctuations in oil trade. Second, this paper analyzes theoretically and empirically the role of RMB-denominated oil trade in promoting RMB internationalization. Theoretically, RMB-denominated oil trade will help increase the demand for RMB in the international market, reduce exchange rate risk, and thus accelerate the process of RMB internationalization. The empirical analysis shows that in recent years, with the growing volume of China's oil imports and the advancement of RMB internationalization, RMB-denominated oil trade has achieved initial results, and some countries have started to adopt RMB for oil settlement. Then, the paper discusses the challenges faced by RMB-denominated oil trade and the policy measures that the Chinese government should take. In the current international financial system, the U.S. dollar is "entrenched" as an international currency, and it is not easy to realize RMB-denominated oil trade. The Chinese government should strive to improve the credibility and convertibility of the RMB, actively participate in international oil market rule-making, strengthen cooperation with major oil producing and marketing countries, and promote domestic financial market reform to create a favorable external environment for RMB-denominated oil trade. Finally, the paper concludes that RMB-denominated oil trade is important for RMB internationalization. By realizing RMB-denominated oil trade, it is expected to improve the position of RMB in the international market and create favorable conditions for RMB internationalization. At the same time, it will help promote global currency diversification, reduce the sensitivity of China's economy to external shocks, and achieve more stable and sustainable economic development.

Political Uncertainty and Initial Public Offerings: A Literature Review

The literature on the influence of political and policy-related uncertainties on financial aspects has gained an impetus in the last two decades. This study adds to the existing literature by reviewing the impact of political uncertainty on initial public offerings (IPOs). We aim to provide a holistic overview of the past research in this domain, identify the potential research gaps, and explore them further. We performed a bibliometric analysis using VOSviewer to identify the major keywords used, the most cited papers, the authors, and the major countries where research in this domain has taken place. Our perspective on the current state of the literature has been threefold. First, considering the importance of market timing in the firm’s decision to go public, it was seen that firms had shown an unwillingness to come up with an IPO during periods of high political uncertainty. Second, political uncertainty has shown its influence in all the phases of the IPO process; however, political connections and donations mitigate this effect. Third, the research in this domain is still at a very nascent stage and is mainly restricted to China and the US. Thus, we believe that there are several areas that are yet to be explored.

Determinants of exit options of venture capitalists: evidence from India

PurposeA critical aspect in venture capital (VC) exiting is the choice of exit mode. This study aims to predict if venture capitalists (VCs) can take the venture capital undertaking public by identifying the impact of investment attributes, market timing and macroeconomic conditions on the choice of mode of exit for VCs.Design/methodology/approachThe study uses logistic regression on a sample of 632 Indian VC-backed firms where VCs exited during the past two decades via initial public offers (IPOs) and other routes, including strategic sale, secondary sale and buyback.FindingsResults suggest that growth stage investments, larger syndication size and a larger number of IPOs increase the probability of exiting through IPOs, whereas investments in the information technology and information technology-enabled services industry have a higher likelihood of being exited through other routes. Region and gross domestic product are found to be statistically insignificant in predicting the likelihood for a particular mode of exit.Practical implicationsThe results have practical implications for VCs as knowledge regarding the influence of investment attributes, market timing and macroeconomic conditions can help them in deciding their exit strategy vis-à-vis mode of exit and can maximize their potential gains. The results also have implications for the potential investors, primarily the public at large and acquirers.Originality/valueThe determinants of VC exit options remain an unexplored area in the Indian context. To the best of the authors’ knowledge, the study is the first of its kind that has used investment attributes, market timing and macroeconomic conditions to predict VC exit options in India.

Investors’ reactions on the publication of integrated reports. Evidence from European stock markets

The last decades brought to stock market investors’ attention several key issues regarding companies’ activity, besides the financial statements. These issues, such as environmental, social, or corporate governance policies are nowadays included in integrated reports issued by many listed companies worldwide. Although these topics seem to currently attract a high interest in the media, our study’s aim is to determine whether the listed firms’ release of Integrated Reports has any bearing on the issuers’ performance on the capital market as assessed by market value, return, and risk. In this respect, we analysed three different stock market time series’ reactions – daily close prices, daily logarithmic returns, and risk measured by the Expected Shortfall – to the publication of integrated reports, for a sample of 48 companies, listed on various European stock markets. In order to identify any sudden changes in the analysed time series behaviour, immediately after the publication date, we used the Bai-Perron multiple structural breaks test. Our results show that no consistent, significant reactions occur within the analysed time series immediately after the publication of integrated reports, but only isolated, circumstantial reactions seem to appear. Moreover, it seems that the markets show common significant reactions to certain events, marked by major structural breaks, but none of these events could be related to the publication of integrated reports. Within this context, our paper manages to prove that although it currently constitutes a hot topic worldwide, integrated reporting is not a key feature in the investors’ short-term decisionmaking process.

Islamic Fund Managers' Market Timing Abilities and their Impact on Fund Performances

This study examines Shariah-compliant fund's financial performance compared to conventional funds based on managerial timing abilities. Compared with traditional fund managers' timing skills, the study focuses on the most neglected area of Shariah-compliant manager timing abilities, liquidity, and volatility timing abilities. The study uses 69 funds whose significant exposure is the equity between January 2010 and June 2022, consisting of three investment styles: equity, asset allocation, and balanced funds. The study incorporates volatility factors based on Busse (1999) and liquidity factors from Amihud (2002) into the Carhart (1997) four-factor model. The study found that Islamic fund managers have better liquidity and volatility timing skills than conventional fund managers. The results are robust for analyzing individual funds based on different liquidity measures. There is no substantial evidence that Islamic and traditional fund managers can predict market returns.

COVID-19 impact on the decision process of the Italian Medicine Agency: a quantitative assessment.

Since the COVID-19 pandemic has placed more attention on drugs' approval process and the importance of rapid decision-making in the healthcare sector, it is crucial to assess how time to market (TTM) of drugs varied. To estimate the impact of the COVID-19 pandemic on TTM of drugs in Italy. An IQVIA database was used to retrieve information on drugs that obtained positive opinion from the Committee for Medicinal Products for Human Use between January 2015 and December 2021. The available observations were divided into three groups (Pre COVID, Partially COVID, and Fully COVID) according to the timing of their negotiation process. Differences in average TTM among the three groups were analyzed in three steps: (1) descriptive statistics; (2) univariate analysis; (3) multivariate analysis, using a matching estimator. A total of 363 unique combinations of molecule and indication met the inclusion criteria: 174 in the Pre COVID group, 69 in the Partially COVID group, and 123 in the Fully COVID group. Descriptive statistics and univariate analysis found a statistically significant difference in TTM among the three periods, with average TTM increasing during the pandemic (+136 days, p = 0.00) and then decreasing afterward (-23 days, p = 0.09). In the matching analysis, results for the Partially COVID period were confirmed (+108 days, p = 0.00) while results for the Fully COVID period lost significance but maintained a negative sign. The results suggest that after an adjustment phase in the Partially COVID period, a return to the status quo was reached.

Holistic Approach in Design Research

Holistic Approach in Design Research

Incorporating Alternative Risk Premia into Balanced Portfolios: Is there any added value?

Evaluating Alternative Risk Premia products as standalone investments is not sufficient to conclude whether these products add value to institutional investors, whose portfolios are largely composed of well-diversified equity and bond allocations, and usually smaller ones to alternative assets. We study whether the inclusion of ARP products adds value to two well-known benchmarks of balanced allocations: the 60/40 world equity/bond portfolio and the Pictet LPP 2015-60 index. Taking a sample of live ARP products from 2016 to May 2021, we find that a systematic allocation to ARP with no equity exposure improves risk-adjusted performance, due to risk reduction, even though it causes a small drag in long-term return. This impact is similar to the one many investors seek in Trend-Following funds or Tail-Hedge products, for which we compare results. The drag in performance disappears if one can dynamically manage the inclusion of ARP into the balanced portfolios, even though market timing ability is at the very least a rare asset.

Fund Family Performance: Evidence from Emerging Countries

This study examines fund family performance, in terms of selectivity and market timing skills of fund family managers, in Saudi Arabia, Malaysia, Indonesia, and Pakistan from 2007–2021. Selectivity skills are measured using excess returns, Sharpe ratio, Treynor ratio, Jensen’s alpha, and Carhart’s four-factor model, whereas market timing ability is measured using the Treynor-Mazuy and Henriksson-Merton models. The analysis is carried out on three levels of sample: by entire sample, by country, and by Islamic vs conventional families. The findings evince the good selectivity but poor timing skills of family managers. A novel contribution of this study is that family managers of Islamic and conventional families have different selectivity and timing skills, which can be attributed to the different goals of each type of family.

Implications of Internal Funds Surplus for Determining Agency Spending of SEO Proceeds and Timing Incentives

AbstractAccording to the pecking order theory, firms with potential investment projects should raise external capital if and only if sufficient internal funds are not available. The theory can be violated if equity issuers are motivated by market timing and increasing funds for insiders’ benefits, indicating that firms may already have internal funds surplus without including external funds, but still issue equity. By controlling for future funds needs, the analyses show that issuers that engage in market timing and spend the SEO proceeds on value‐destroying projects are strongly associated with their internal funds surplus. Moreover, SEO announcement returns are lower for issuers with internal funds surplus. This pattern strongly supports the predictive ability of internal funds surplus to detect the need for external capital and ultimately to determine timing incentives and agency spending of SEO proceeds.

What sets cooperative farmers apart from non-cooperative farmers? A transaction cost economics analysis of coffee farmers in Mexico

This study investigates what factors relate to the coffee farmer’s cooperative affiliation decision and whether this decision impacts the farmer’s cash holdings. First, we propose a cooperative affiliation model based on transaction cost economics theory. There is a lack of consensus in the literature on what factors explain the farmer’s cooperative affiliation decision in the coffee sector. Overall, we find that the more specialized coffee farmers are, the more likely they will become cooperative affiliates. This is consistent with transaction cost economics predicting that cooperatives are business structures that can reduce transaction costs and safeguard specialized assets from opportunistic behavior. Specifically, logit regression models suggest that shade-grown coffee plantations, off-farm income, coffee farming experience, low-level market competition, farmland size, altitude, and private farmland are statistically related to the farmer’s decision to affiliate with cooperatives. Results on farmland size and shade-grown coffee plantations can be particularly relevant for scholars, policymakers, cooperative leaders, and extension professionals in the region. Second, based on the affiliation model, we employ propensity score matching to evaluate the impact of the farmer’s cooperative affiliation decision on cash holdings, particularly on cash shortness. It is often claimed that farmers do not affiliate with cooperatives because these organizations cannot pay them in full at harvest and coffee collection time. It is believed that cooperatives’ inability to pay farmers early increases the likelihood of farmers’ cash shortness and their need for additional financing to operate or cover household needs. However, this study finds no evidence that the affiliation decision is related to the likelihood of the farmer experiencing cash shortness around harvesting and selling time.

What Information Implied in the Equity Offering Mechanism with Market Timing Considerations?

What Information Implied in the Equity Offering Mechanism with Market Timing Considerations?

Approaches to learn about employer learning

AbstractThe empirical literature on employer learning assumes that employers learn about unobserved ability differences across workers as they spend time in the labour market. This article describes testable implications that arise from this basic hypothesis and how they have been used to quantify the contribution of job market signalling and human capital in measured returns to education. While the empirical basis is still thin, the results suggest that signalling contributes at most about 25% to the observed returns to education.

IMPROVED DESIGN OF SINGLE-LAYERED WIRE STRAND FOR COMBINED TENSILE AND CRIMPING APPLICATION WITH MESHING OPTIMIZATION

Faced with increasing competition in the global automotive market, reducing costs and design time has become a major focus of development among manufacturers. Faced with these needs, the numerical simulation of shaping processes has become an essential tool. It saves considerable time in the upstream phase of a project by reducing the number of experimental campaigns on prototypes. The studied mechanical system consists mainly in a part crimping at one end of a multi-stranded wire rope, which is stressed in tension. In order to reduce calculation time, it is important to get the optimal meshing parameters which provide a high accuracy. In this paper, a numerical model of a single layered wire rope is studied. The objective is to determine the optimal size and shape of meshing elements to get both accurate and fast results. First of all, the wire strand is investigated in tension and compared with the analytical formulation by G.Costello. Then, the organized wire strand is investigated in crimping process. The process reveals an optimal solution for wire strand structure with a 95% reduction of computation time without losing accuracy. This model is then used to simulate the behavior of a strand in one of the first-ever combined crimping-tensile test in order to obtain a minimal crimping length. This work can be very important for designers to reduce considerably the calculation time of their numerical models while guarantying a great accuracy in the mechanical behavior of a wire rope. Keywords: Wire rope, Finite element simulation, meshing process, Optimization, Mesh elements parameters optimization, Single-layered wire strand numerical model, Wire strand optimal mesh parameters, Wire rope crimping simulation, Tensile stressed wire strand