Download or read book Two Essays on Expected Stock Returns written by Zhenyu Wang and published by . This book was released on 1995 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays on the Cross section of Stock Returns written by Zhuo Tan and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays that address issues related to the cross-section of stock returns. The first essay documents that actively managed mutual funds invest disproportionately in stocks with high historical risk-adjusted returns (alpha). This alpha-chasing behavior has a destabilizing effect on stock price. Specifically, low-alpha stocks earn higher subsequent returns than high-alpha stocks up to two months following portfolio formation—i.e. alpha is not persistent, but reverses. Consistent with liquidity-based price pressure, I find that low- (high)-alpha stocks that are heavily traded by mutual funds exhibit strong subsequent return reversals. Further analysis finds that trades from a few large funds are the primary source of this trading. However, there is no evidence to support the view that herding by fund managers explains fund managers’ preference for high-alpha stocks. The reason why managers of large mutual funds chase high-alpha stocks when alpha is not persistent remains a puzzle. The second essay shows that a better measure of mispricing confirms the primary prediction of the limits-of-arbitrage hypothesis that high levels of idiosyncratic risk prevent arbitrage activity. Rather than using returns to size, B/M and momentum portfolios, I construct a mispricing measure based on the difference between a stock’s price and its intrinsic value estimated using the residual income model of Ohlson (1995). I confirm that this measure explains future returns. I then use it and idiosyncratic return volatility to proxy for mispricing and arbitrage risk, respectively. I find that expected returns to undervalued (overvalued) stocks monotonically increase (decrease) with idiosyncratic risk. These findings support the limits-of-arbitrage hypothesis and that idiosyncratic risk is an impediment to arbitrage.

Download or read book Determinants of the Cross section of Expected Stock Returns in Japan written by John Meredith Griffin and published by . This book was released on 1997 with total page 410 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This dissertation consists of two essays which evaluate whether the cross-section of expected stock returns in Japan is more consistent with the recent risk or non-risk based theories. The first essay investigates whether the Fama and French (1993) size and book-to-market factors are risk proxies. If these factors are true proxies for risk they can be used to price assets across countries in a world where capital markets are at least partially integrated. I find that U.S. and Japanese size and book-to-market effects are not related. Japanese assets with high loadings on the Fama and French factors do not earn higher returns. To evaluate whether the results could be due to lack of integration between the U.S. and Japanese capital markets, the pricing implications are examined in Canada with a similar conclusion. These results are not consistent with the view that size and book-to-market are priced risk factors.

Download or read book Essays on Predicting and Explaining the Cross Section of Stock Returns written by Xun Zhong and published by . This book was released on 2019 with total page 181 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation consists of three chapters that study various aspects of stock return predictability. In the first chapter, I explore the interplay between the aggregation of information about stock returns and p-hacking. P-hacking refers to the practice of trying out various variables and model specifications until the result appears to be statistically significant, that is, the p-value of the test statistic is below a particular threshold. The standard information aggregation techniques exacerbate p-hacking by increasing the probability of the type I error. I propose an aggregation technique, which is a simple modification of 3PRF/PLS, that has an opposite property: the predictability tests applied to the combined predictor become more conservative in the presence of p-hacking. I quantify the advantages of my approach relative to the standard information aggregation techniques by using simulations. As an illustration, I apply the modified 3PRF/PLS to three sets of return predictors proposed in the literature and find that the forecasting ability of combined predictors in two cases cannot be explained by p-hacking. In the second chapter, I explore whether the stochastic discount factors (SDFs) of five characteristic-based asset pricing models can be explained by a large set of macroeconomic shocks. Characteristic-based factor models are linear models whose risk factors are returns on trading strategies based on firm characteristics. Such models are very popular in finance because of their superior ability to explain the cross-section of expected stock returns, but they are also criticized for their lack of interpretability. Each characteristic-based factor model is uniquely characterized by its SDF. To approximate the SDFs by a comprehensive set of 131 macroeconomic shocks without overfitting, I employ the elastic net regression, which is a machine learning technique. I find that the best combination of macroeconomic shocks can explain only a relatively small part of the variation in the SDFs, and the whole set of macroeconomic shocks approximates the SDFs not better than only few shocks. My findings suggest that behavioral factors and sentiment are important determinants of asset prices. The third chapter investigates whether investors efficiently aggregate analysts' earnings forecasts and whether combinations of the forecasts can predict announcement returns. The traditional consensus forecast of earnings used by academics and practitioners is the simple average of all analysts' earnings forecasts (Naive Consensus). However, this measure ignores that there exists a cross-sectional variation in analysts' forecast accuracy and persistence in such accuracy. I propose a consensus that is an accuracy-weighted average of all analysts' earnings forecasts (Smart Consensus). I find that Smart Consensus is a more accurate predictor of firms' earnings per share (EPS) than Naive Consensus. If investors weight forecasts efficiently according to the analysts' forecast accuracy, the market reaction to earnings announcements should be positively related to the difference between firms' reported earnings and Smart Consensus (Smart Surprise) and should be unrelated to the difference between firms' reported earnings and Naive Consensus (Naive Surprise). However, I find that market reaction to earnings announcements is positively related to both measures. Thus, investors do not aggregate forecasts efficiently. In addition, I find that the market reaction to Smart Surprise is stronger in stocks with higher institutional ownership. A trading strategy based on Expectation Gap, which is the difference between Smart and Naive Consensuses, generates positive risk-adjusted returns in the three-day window around earnings announcements.

Download or read book Two Essays in Finance written by Ward R. Kangas and published by Universal-Publishers. This book was released on 1997-10 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on data on publicly traded insurance firms, the first essay examines questions about the effect of large catastrophic events on insurance firms. Rather than looking at a single event, thirty catastrophic events were aggregated into quintiles and the cumulative abnormal returns around these events were found to be significantly positive over a 25 day trading window. There is no significant evidence that post-catastrophic stock returns are correlated to the magnitude of the catastrophe. The second essay analyzes the effect of a large land grant university, the University of Illinois, on the State Treasury of Illinois. If the State Treasury were acting as its own agent trying to maximize revenues, would it choose higher education as an investment versus other alternative investments. While it is true the State makes large expenditures for the operations of the University, it is also true that individuals receiving degrees on average receive higher incomes. Taxes or higher incomes offset the cost of operating the University. The study is broken out by the level of student: undergraduate, masters, doctorate, medical professional, and by function of the University. It was found that all levels of education have a positive return not only for the individual, but also for the State Treasury. This is in excess of any non-pecuniary benefits to the State of having a better educated population, or the local taxation effects on the county or city where the campus is located. These returns are found to be higher than other types of investments.

Download or read book Two Essays on the Cross section of Stock Returns written by James L. Davis and published by . This book was released on 1994 with total page 254 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays on the Cross section of Stock Returns written by Peter Wong and published by . This book was released on 2013 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies two distinct topics. First, I examine whether the idiosyncratic volatility discount anomaly documented by Ang, Hodrick, Xing, and Zhang (2006, 2009) is related to earnings shocks, and I find that a substantial portion of the idiosyncratic volatility discount can be explained by earnings momentum and post-formation earnings shocks. When these two effects are accounted for, idiosyncratic volatility has little, if any, return predictability. Second, I propose a parsimonious measure to characterize the severity of the microstructure noise at the individual stock level and assess the impact of this microstructure induced illiquidity on cross-sectional return predictability. One of the main advantages of this measure is that it is very simple to construct (requires only daily stock returns data). Using this measure I find that firms with the largest microstructure bias command a return premium as large as 9.61% per year, even after controlling for the premiums associated with size, book-to-market, momentum, and traditional liquidity price impact and cost measures. In addition, the bias premium is strongest among small, low price, volatile, and illiquid stocks. On the other hand, the premiums associated with size, illiquidity, and return reversal are most pronounced among stocks with the largest bias.

Download or read book Two Essays on Time series Patterns in Security Returns written by David Kenji Heike and published by . This book was released on 1997 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays on the Impact of Idiosyncratic Risk on Asset Returns written by Jie Cao and published by . This book was released on 2009 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation, I explore the impact of idiosyncratic risk on asset returns. The first essay examines how idiosyncratic risk affects the cross-section of stock returns. I use an exponential GARCH model to forecast expected idiosyncratic volatility and employ a combination of the size effect, value premium, return momentum and short-term reversal to measure relative mispricing. I find that stock returns monotonically increase in idiosyncratic risk for relatively undervalued stocks and monotonically decrease in idiosyncratic risk for relatively overvalued stocks. This phenomenon is robust to various subsamples and industries, and cannot be explained by risk factors or firm characteristics. Further, transaction costs, short-sale constraints and information uncertainty cannot account for the role of idiosyncratic risk. Overall, these findings are consistent with the limits of arbitrage arguments and demonstrate the importance of idiosyncratic risk as an arbitrage cost. The second essay studies the cross-sectional determinants of delta-hedged stock option returns with an emphasis on the pricing of volatility risk. We find that the average delta-hedged option returns are significantly negative for most stocks, and they decrease monotonically with both total and idiosyncratic volatility of the underlying stock. Our results are robust and cannot be explained by the Fama-French factors, market volatility risk, jump risk, or the effect of past stock return and volatility-related option mispricing. Our results strongly support a negative market price of volatility risk specification that is proportional to the volatility level. Reflecting this volatility risk premium, writing covered calls on high volatility stocks on average earns about 2% more per month than selling covered calls on low volatility stocks. This spread is higher when it is more difficult to arbitrage between stock and option.

Download or read book Essays in Honor of Peter C B Phillips written by Thomas B. Fomby and published by Emerald Group Publishing. This book was released on 2014-11-21 with total page 772 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume honors Professor Peter C.B. Phillips' many contributions to the field of econometrics. The topics include non-stationary time series, panel models, financial econometrics, predictive tests, IV estimation and inference, difference-in-difference regressions, stochastic dominance techniques, and information matrix testing.

Download or read book Essays on Empirical Asset Pricing written by Niels Joachim Christfort Gormsen and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Equity Risk Premium written by William N. Goetzmann and published by Oxford University Press. This book was released on 2006-11-16 with total page 568 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is the return to investing in the stock market? Can we predict future stock market returns? How have equities performed over the last two centuries? The authors in this volume are among the leading researchers in the study of these questions. This book draws upon their research on the stock market over the past two dozen years. It contains their major research articles on the equity risk premium and new contributions on measuring, forecasting, and timing stock market returns, together with new interpretive essays that explore critical issues and new research on the topic of stock market investing. This book is aimed at all readers interested in understanding the empirical basis for the equity risk premium. Through the analysis and interpretation of two scholars whose research contributions have been key factors in the modern debate over stock market perfomance, this volume engages the reader in many of the key issues of importance to investors. How large is the premium? Is history a reliable guide to predict future equity returns? Does the equity and cash flows of the market? Are global equity markets different from those in the United States? Do emerging markets offer higher or lower equity risk premia? The authors use the historical performance of the world's stock markets to address these issues.

Download or read book Two Essays on Asset Pricing written by Xiaofei Zhao and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Stock Return Predictability written by Qing Bai and published by . This book was released on 2014 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation consists of two essays. Essay I examines the return predictability by firm level R & D and innovation measures and shows that technology spillover helps to explain the positive innovation-return relation. Essay II propose a novel measure of conditional value premium based on firm's stock split announcement. This measure is shown to have a strong predicting power over value premium both in sample and out of sample. Essay I: I show that technology spillovers are important information phenomena that benefit both other innovators (as emphasized in the Industrial Organization literature) and stock market investors. I find that the premium associated with R & D and patenting activities is largely restricted to firms located in more isolated technology spaces with fewer spillovers. Moreover, there is a strong lead-lag effect among firms engaging in innovative activities: the stock prices of firms in more isolated technology spaces react more slowly to new information than do the stock prices of firms in more competitive technology spaces. Finally, announcement-day returns to patent grants are greater for more technologically important patents (measured by forward citations), but only for firms in more crowded technology spaces. My results indicate that investors are able to value innovative investments by exploiting the information flows associated with greater technology spillovers. Essay II: I propose a novel conditional value premium measure based on the present-value relation that the stock price impact of a firm's public announcement reveals the firm's expected discount rates. Specifically, because most splitting stocks are growth stocks on which, by construction, the value premium has strong influence, the average splitting stock announcement-day returns track closely conditional value premium. I find very similar results using announcements of divested asset acquisitions in which acquirers are usually growth firms. Consistent with risk-based explanations, my conditional value premium measure correlates positively with future GDP growth and helps explain the cross-section of stock returns.

Download or read book Essays in Financial Economics written by Rita Biswas and published by Emerald Group Publishing. This book was released on 2019-10-24 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume, dedicated to John W. Kensinger, explores a variety of topics in financial economics, including firm growth, investment risks, and the profitability of the banking industry. With its global perspective, Essays in Financial Economics is a valuable addition to the bookshelf of any researcher in finance.

Download or read book Dissertation Abstracts International written by and published by . This book was released on 2008 with total page 584 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on the Predictability of Stock Returns written by Amit Goyal and published by . This book was released on 2001 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt: