Portfolio and Security Analysis Commons^™

Improving Vix Futures Forecasts Using Machine Learning Methods, James Hosker, Slobodan Djurdjevic, Hieu Nguyen, Robert Slater

SMU Data Science Review

The problem of forecasting market volatility is a difficult task for most fund managers. Volatility forecasts are used for risk management, alpha (risk) trading, and the reduction of trading friction. Improving the forecasts of future market volatility assists fund managers in adding or reducing risk in their portfolios as well as in increasing hedges to protect their portfolios in anticipation of a market sell-off event. Our analysis compares three existing financial models that forecast future market volatility using the Chicago Board Options Exchange Volatility Index (VIX) to six machine/deep learning supervised regression methods. This analysis determines which models provide ...

The Growth Of Socially Responsible Investing Practices In U.S. Equity Markets And Abnormal Sin Stock Returns, Jack Lori

CMC Senior Theses

In my Senior Thesis, I explore the growth of socially responsible investing (SRI) practices in U.S. equity markets and abnormal sin stocks returns. I analyze the historical performance of socially responsible ETFs and portfolios of current sin stocks—alcohol, tobacco, gaming, and aerospace & defense stocks. I propose that as socially responsible investing practices continue to grow in U.S. equity markets, more industries will eventually be deemed sinful—such as sugary beverages, fast food/sugary food, biotech & pharmaceuticals, and tech/social media. I examine two sinful industries—alcohol and tobacco—by comparing the performance of these sinful portfolios before and after their industries were widely perceived as sinful.

I explored these topics for a few key reasons. First, socially responsible investing practices in U.S. equity markets have exploded in popularity over the last decade. Every year, we see increasing amounts of money screened for environmental, social and governance (ESG) factors. Despite its increase in popularity, many people have claimed that socially responsible investing isn’t financially responsible investing—it underperforms as compared to common benchmarks such as the S&P 500. On the other hand, existing literature has supported the claim that investing in sin stocks generates abnormal returns for investors. I hypothesize that these two areas of portfolio management are connected—as socially responsible investing practices continue to grow, more industries will eventually be widely perceived as sinful. If the sin stock anomaly does exist and portfolios of sin stocks do generate abnormal returns, individuals and institutions can benefit from an immediate and long term investment strategy by investing in these “future” sinful industries now.

Using three distinct capital asset pricing models—the Fama-French 3 Factor Model, the Fama-French 3 Factor Model plus Momentum, and the Fama-French 5 Factor Model—I come to four main conclusions. First, investing in socially responsible ETFs does not generate positive abnormal returns; in some instances, it generates statistically significant negative abnormal returns. Second, across the Fama-French 3 Factor Model, the Fama-French 3 Factor Model plus Momentum, and the Fama-French 5 Factor Model, portfolios of sin stocks from 1977-2018 generate statistically significant positive abnormal returns. Third, during the same time horizon, portfolios of future sin stocks exhibit similar levels ...

Are Women Executives Hurting Firm Performance? An Examination Of Gender Diversity On Firm Risk, Performance, And Executive Compensation, Krystal Diane Sung

CMC Senior Theses

In order to assess the continuing imbalance of top executives between genders, I examine the effects of gender diversity within top management teams on firm risk, performance, and executive compensation. Capitalizing on previous analysis, I apply three unique differentiators. First, I utilize current data from 2012 to 2017 from Compustat, CRSP, and ExecuComp. Second, I provide a unique subset view on a firm and individual performance of female CEOs to examine executive compensation. Third, my scope of analysis expands to S&P Composite 1500 companies. I use separate models to estimate the effect of gender diversity on firm risk by ...

Matching Fintech Advice To Participant Needs: Lessons And Challenges, Stephen L. Deschenes, P Brett Hammond

Wharton Pension Research Council Working Papers

The financial services industry is changing rapidly with the arrival of new economies of scale and networking effects attributable to FinTech, particularly via online or ‘robo’ advice. This chapter reviews the ‘robo-experience:’ how does it differ, if at all, from more traditional advice, and what is likely to happen next? After reviewing the goals and objectives of robo-advice, evolving advice models, who uses robo-advice, and investor behavior, we conclude that first adopters tend to be more affluent Millennial investors, as well as others seeking fast, mobile, and easy access to their finances. Nevertheless, though robo-advice has promised much, evidence is ...

Security Analysts And Capital Market Anomalies, Li Guo, Frank Weikai Li, K.C. John Wei

Research Collection Lee Kong Chian School Of Business

We examine whether analysts use information in well-known stock return anomalies when making recommendations. We find results contrary to the common view that analysts are sophisticated information intermediaries who help improve market efficiency. Specifically, when analysts make more favorable recommendations to stocks classified as overvalued, these stocks tend to have particularly large negative abnormal returns ex post. Moreover, analysts whose recommendations are more aligned with anomaly signals are more skilled and elicit greater recommendation announcement returns. Our results suggest that analysts' biased recommendations could be a source of market frictions that impede the efficient correction of mispricing.

Hedge Fund Franchises, William Fung, David Hsieh, Narayan Naik, Song Wee Melvyn Teo

Research Collection Lee Kong Chian School Of Business

We investigate the growth strategies of hedge fund firms. We find that firms with successful first funds are able to launch follow-on funds that charge higher performance fees, set more onerous redemption terms, and attract greater inflows. Motivated by the aforementioned spillover effects, first funds outperform follow-on funds, after adjusting for risk. Consistent with the agency view, greater incentive alignment moderates the performance differential between first and follow-on funds. Moreover, multiple-product firms underperform single-product firms but harvest greater fee revenues, thereby hurting investors while benefitting firm partners. Investors respond to this growth strategy by redeeming from first funds of firms ...

Sensation Seeking And Hedge Funds, Stephen Brown, Yan Lu, Sugata Ray, Song Wee Melvyn Teo

Research Collection Lee Kong Chian School Of Business

We show that motivated by sensation seeking, hedge fund managers who own powerful sports cars take on more investment risk but do not deliver higher returns, resulting in lower Sharpe ratios, information ratios, and alphas. Moreover, sensation-seeking managers trade more frequently, actively, and unconventionally, and prefer lottery-like stocks. We show further that some investors are themselves susceptible to sensation seeking and that sensation-seeking investors fuel the demand for sensation-seeking managers. While investors perceive sensation seekers to be less competent, they do not fully appreciate the superior investment skills of sensation-avoiding fund managers.

Ursinus College Student-Managed Investment Fund Prospectus, Fall 2018, Paul Cottam, Shelby Boyle, Tim Carroll, Samantha Crossan, Joseph Heasley, Jake Kang, Thomas Kelly, Chris Moreno, Johnathan Myers, Steve Palis, Daan Slaats, Parker Wolf, Chenyu Yin

Ursinus Student-Managed Investment Fund Prospectus

This prospectus contains a performance summary for previous stocks and endowment funds as well as strategy and analysis for the following new stocks in the managed fund: American Woodmark Corporation, Comtech Telecommunications Corp. and LGL Group, Inc.

Ursinus College Student-Managed Investment Fund Newsletter, Fall 2018, Isaac Abrams, Liam Close, Thomas Reinhart, Daan Slaats

Investment Fund Newsletter

Inside this issue:

What's New?

Brief History of Ursinus

What our Newest Students are Saying

What are "They" Saying?

2018 Fund Performance

Allianz Field Trip

Looking Forward

Cryptocurrencies: Their Current Validity And Future As Currency And As A Part Of An Investment Strategy, Austin R. Johnson

Senior Theses

This paper examines the current and future prospects of cryptocurrencies with a focus on the most well-known and highest valued cryptocurrency, Bitcoin. Specifically, it will address how Bitcoin can be utilized as a currency and as part of an investment strategy and whether its utilization makes financial sense now and will in the future. The paper showcases the past behavior of Bitcoin, how the Bitcoin system functions, how Bitcoin acts as a currency, how Bitcoin can be used as an investment asset, and why it will continue to be employed as such in the future. This paper will show that ...

Stock Buyback Announcements: An Examination Of Abnormal Returns In Stock Price & Credit Default Swaps For S&P100 Companies, Alan L. Delfavero

Doctoral Dissertations

This event study examines the short-run effect of stock buyback announcements on stock price and credit default swaps (CDS) exclusively for mega capitalization S&P100 companies. The research sample consists of 53 S&P100 companies and includes 133 buyback announcement events occurring between September 2011 and May 2018. The study utilizes the market model to estimate expected returns and to compute abnormal returns (AR) for equity and abnormal change (AC) in CDS. Based on an initial analysis, it’s determined that there is a statistically significant AR and cumulative abnormal return (CAR) for stock price, and a significant AC in ...

Reflective Practice Series: Selected Instructional Models Using Synchronous Video Conferencing Software, Martin W. Sivula

MBA Faculty Conference Papers & Journal Articles

With the vast array of resources available to instructors, one would think that instruction and teaching would yield success for all learners. Now, well into the 21^st century has much changed in the classroom? Certainly, movable desks and chairs, advanced audio and visual equipment, and a plethora of all types of technologies which might be able to enhance training and education. Over the last several decades research on individualized instruction, cognitive science, educational psychology, and multimedia instruction (to name a few) have permeated the literature on instruction. With all the research and the vast array of studies on improving ...

Monitoring From Afar: Do Foreign Institutional Investors Deter Insider Trading?, Claire Yurong Hong, Frank Weikai Li, Qifei Zhu

Research Collection Lee Kong Chian School Of Business

This paper examines the disciplinary effect of foreign institutional investors on opportunistic insider trading. Using a novel global insider trading data set containing 35,557 firms from 26 countries over the period 2000-2015, we find that greater foreign institutional ownership significantly reduces the profitability of insider trading, above and beyond the effect of domestic institutional ownership. Using the exogenous variation in foreign institutional ownership induced by MSCI index inclusion, we show that the effect is causal. The impact of foreign investors is stronger in countries with weak insider trading regulations and poor institutional environments, and operates mainly through the monitoring ...

The Information Content Of Sudden Insider Silence, Claire Yurong Hong, Frank Weikai Li

Research Collection Lee Kong Chian School Of Business

We present evidence of investors underreacting to the absence of events in financialmarkets. Routine-based insiders strategically choose to be silent when they possessprivate information not yet reflected in stock prices. Consistent with our hypothesis,insider silence following routine sell (buy) predict positive (negative) future return aswell as fundamentals. The return predictability of insider silence is stronger amongfirms with poor information environment and facing higher arbitrage costs, and alarge fraction of abnormal returns concentrates on future earnings announcements. Along-short strategy that exploits insiders’ strategic silence behavior generates abnormalreturns of 6% to 10% annually

Monitoring From Afar: Do Foreign Institutional Investors Deter Insider Trading?, Claire Yurong Hong, Frank Weikai Li, Qifei Zhu

Research Collection Lee Kong Chian School Of Business

This paper examines the disciplinary effect of foreign institutional investors on opportunistic insider trading. Using a novel global insider trading data set containing 35,557 firms from 26 countries over the period 2000-2015, we find that greater foreign institutional ownership significantly reduces the profitability of insider trading, above and beyond the effect of domestic institutional ownership. Using the exogenous variation in foreign institutional ownership induced by MSCI index inclusion, we show that the effect is causal. The impact of foreign investors is stronger in countries with weak insider trading regulations and poor institutional environments, and operates mainly through the monitoring ...

Transaction Cost Optimization For Online Portfolio Selection, Bin Li, Jialei Wang, Dingjiang Huang, Steven C. H. Hoi

Research Collection School Of Information Systems

To improve existing online portfolio selection strategies in the case of non-zero transaction costs, we propose a novel framework named Transaction Cost Optimization (TCO). The TCO framework incorporates the L1 norm of the difference between two consecutive allocations together with the principles of maximizing expected log return. We further solve the formulation via convex optimization, and obtain two closed-form portfolio update formulas, which follow the same principle as Proportional Portfolio Rebalancing (PPR) in industry. We empirically evaluate the proposed framework using four commonly used data-sets. Although these data-sets do not consider delisted firms and are thus subject to survival bias ...

Disclosure Of Pending Lawsuits And Bond Terms, Yun Lou

Research Collection School Of Accountancy

I examine the effect of the disclosure of pendinglawsuits in 10-K/Q filings on the contractual terms of newly issued bonds. Ifind that firms’ decision to disclose pending lawsuits and the amount ofdisclosed information (i.e., the level of disclosure) have opposite effects.Specifically, firms that disclose a higher proportion of their pending lawsuitsface higher yields and are more likely to include default clauses pertaining tocourt judgments in the bond prospectuses. However, within the subsample offirms that disclose their lawsuits, I find that firms with a higher level of disclosureregarding their pending lawsuits are rewarded with lower yields. This evidencesuggests ...

Passive Investors, Jill E. Fisch, Asaf Hamdani, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

The increasing percentage of the modern capital markets owned by passive investors – index funds and ETFs – has received extensive media and academic attention. This growing ownership concentration as well as the potential power of passive investors to affect both corporate governance and operational decision-making at their portfolio firms has led some commentators to call for passive investors to be subject to increased regulation and even disenfranchisement. These reactions fail to account for the institutional structure of passive investors and the market context in which they operate. Specifically, this literature assumes that passive investors compete primarily on cost and that, as ...

The Competitive Landscape Of High-Frequency Trading Firms, Ekkehart Boehmer, Dan Li, Gideon Saar

Research Collection Lee Kong Chian School Of Business

We examine product differentiation in the high-frequency trading (HFT) industry, where the “products” are secretive proprietary trading strategies. We demonstrate how principal component analysis can be used to detect underlying strategies that are common to multiple HFT firms, and show that there are three product categories with distinct attributes. We study how HFT competition in each product category impacts the market environment, presenting evidence that indicates how it influences the short-horizon volatility of stocks as well as the viability of trading venues.

Is Sell-Side Research More Valuable In Bad Times?, Roger Loh, René Stulz

Research Collection Lee Kong Chian School Of Business

Because uncertainty is high in bad times, investors find it harder to assess firm prospects and, hence, should value analyst output more. However, higher uncertainty makes analysts’ tasks harder so it is unclear if analyst output is more valuable in bad times. We find that, in bad times, analyst revisions have a larger stock-price impact, earnings forecast errors per unit of uncertainty fall, reports are more frequent and longer, and the impact of analyst output increases more for harder-to-value firms. These results are consistent with analysts working harder and investors relying more on analysts in bad times.