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- Asset allocation (1)
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Analyst Price Target Expected Returns And Option Implied Risk, Turan G. Bali, Jianfeng Hu, Scott Murray
Analyst Price Target Expected Returns And Option Implied Risk, Turan G. Bali, Jianfeng Hu, Scott Murray
Research Collection Lee Kong Chian School Of Business
Motivated by the nature of asset pricing models, we investigate the cross-sectional relation between the market's ex-ante view of a stock's risk and the stock's ex-ante expected return. We demonstrate that an ex-ante measure of expected returns based on analyst price targets is highly related to the market's required rate of return. Using this measure, we show that ex-ante measures of volatility, skewness, and kurtosis derived from option prices are positively related to ex-ante expected returns. We then decompose the risk measures into systematic and unsystematic components and find that while expected returns are related to both systematic and unsystematic …
Industry-Based Style Investing, Russell Jame, Qing Tong
Industry-Based Style Investing, Russell Jame, Qing Tong
Research Collection Lee Kong Chian School Of Business
Motivated by the style investing model of Barberis and Shleifer (2003), we examine the industry-wide investment decisions of retail investors. We find that retail investor industry demand is highly correlated and strongly related to past industry returns. Moreover, industries heavily bought by retail investors over the past year significantly underperform industries heavily sold over the subsequent year. Similarly, stocks in industries heavily bought by retail investors underperform stocks in industries heavily sold, even after controlling for firm-level demand. Our results suggest that industry-wide categorization influences the investment decisions of retail investors and has a significant impact on asset prices.
Does Option Trading Convey Stock Price Information?, Jianfeng Hu
Does Option Trading Convey Stock Price Information?, Jianfeng Hu
Research Collection Lee Kong Chian School Of Business
After executing option orders, options market makers turn to the stock market to hedge away the underlying stock exposure. As a result, the stock exposure imbalance in option transactions translates into an imbalance in stock transactions. This paper decomposes the total stock order imbalance into an imbalance induced by option transactions and an imbalance independent of options. The analysis shows that the option-induced imbalance significantly predicts future stock returns in the cross section, but the imbalance independent of options only has a transitory price impact. Further investigation suggests that options order flow contains important information about the underlying stock value.
Forecasting The Equity Risk Premium: The Role Of Technical Indicators, Christopher J. Neely, David E. Rapach, Jun Tu, Guofu Zhou
Forecasting The Equity Risk Premium: The Role Of Technical Indicators, Christopher J. Neely, David E. Rapach, Jun Tu, Guofu Zhou
Research Collection Lee Kong Chian School Of Business
Academic research relies extensively on macroeconomic variables to forecast the U.S. equity risk premium, with relatively little attention paid to the technical indicators widely employed by practitioners. Our paper fills this gap by comparing the predictive ability of technical indicators with that of macroeconomic variables. Technical indicators display statistically and economically significant in-sample and out-of-sample predictive power, matching or exceeding that of macroeconomic variables. Furthermore, technical indicators and macroeconomic variables provide complementary information over the business cycle: technical indicators better detect the typical decline in the equity risk premium near business-cycle peaks, whereas macroeconomic variables more readily pick up the …
The Price Discovery Puzzle In Offshore Yuan Trading: Different Contributions For Different Contracts, David K. Ding, Yiuman Tse, Michael R. Williams
The Price Discovery Puzzle In Offshore Yuan Trading: Different Contributions For Different Contracts, David K. Ding, Yiuman Tse, Michael R. Williams
Research Collection Lee Kong Chian School Of Business
The People's Bank of China (PBC) lifted yuan trading restrictions in July of 2010 that led to offshore yuan spot trading in Hong Kong. Based on causality analyses, we find that price discovery is absent between the onshore and offshore spot markets. However, we document the presence of price discovery between onshore spot and offshore nondeliverable forward (NDF) rates. These seemingly inconsistent results present a puzzle wherein one offshore market appears to be more informationally integrated with the onshore market than another. We conclude that price discovery differences in the offshore markets stem from the offshore spot and forward contracts …