Portfolio and Security Analysis Commons^™

Book Reviews, Edward M. Roche, John Coale, Keely M. Fahoum, Leland Erickson, Mark J. Roberts, Millard E. Moon, Ed.D., Colonel (Ret.)

Journal of Strategic Security

No abstract provided.

Political Terrorism: An Historical Case Study Of The Italian Red Brigades, Major Victor H. Sundquist

Journal of Strategic Security

As the world's governments become increasingly engulfed in economic and political strife, international leaders should step back and understand what historical realities enabled political extremism to surface in particular regions of the world. More important, these leaders need to recognize what past governments did to counter these movements. Global communities are currently witnessing a dynamic trend of populous uprisings that in some cases, like Greece and the United States, have the potential to severely disrupt the activities of local governments. Consequently, it behooves leaders to reflect upon historical precedence in order to avoid repeating the same mistakes of our forefathers. …

International Diversification With Factor Funds, Cheol S. Eun, Sandy Lai, Frans A. De Roon, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

We propose a new investment strategy employing “factor funds” to systematically enhance the mean-variance efficiency of international diversification. Our approach is motivated by the increasing evidence that size (SMB), book-to-market (HML), and momentum (MOM) factors, along with the market factor, adequately describe international stock returns, and by the direct link between investors’ portfolio choice problems and international asset pricing theories and tests. Using data from ten developed countries during the period 1981-2008, we show that the “augmented” optimal portfolio involving local factor funds substantially outperforms the “benchmark” optimal portfolio comprising country market indices only as measured by their portfolio Sharpe …

Investing Into The Abyss: The Continued Misclassification Of Multi-Sector Managed Funds, John R Watson, N. Allen, Kok Fai Phoon, J. Wickramanayake

Research Collection Lee Kong Chian School Of Business

The objective of this paper is to assess whether Australian multi-sector managed funds are misclassified, and then, having found this to be the case, determine if this misclassification has any impact on fund performance. We adopt a strong form of returns based style analysis to investigate a monthly sample of Australian multi-sector funds over the five-year sample period 2003:04-2008:03. The evidence provided demonstrates that insufficient attention has been paid as to whether fund managers are able to keep within their tactical asset allocation ranges and presents that misclassification exist for Australian multi-sector managed funds but that the effect on fund …

Investor Inattention And The Underreaction To Stock Recommendations, Roger Loh

Research Collection Lee Kong Chian School Of Business

Investors’ reaction to stock recommendations is often incomplete so that there is a predictable post-recommendation drift. I investigate investor inattention as a plausible explanation for this drift by using prior turnover as a proxy for attention. I find that low attention stocks react less to stock recommendations than high attention stocks around the three-day event window. Subsequently, the recommendation drift of firms with low attention is more than double in magnitude when compared to firms with high attention. Similar conclusions are reached with alternative proxies for attention. The evidence supports investor inattention as a source of the stock recommendation drift.

The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

This paper evaluates hedge funds that grantfavorable redemption terms to investors. Within this group of purportedlyliquid funds, high net inflow funds subsequently outperform low net inflowfunds by 4.79% per year after adjusting for risk. The return impact of fundflows is stronger when funds embrace liquidity risk, when market liquidity islow, and when funding liquidity, as measured by the Treasury-Eurodollar spread,aggregate hedge fund flows, and prime broker stock returns, is tight. Inkeeping with an agency explanation, funds with strong incentives to raisecapital, low manager option deltas, and no manager capital co-invested are morelikely to take on excessive liquidity risk. These results …

A Dynamic Model For The Forward Curve, Choong Tze Chua, Foster Dean, Krishna Ramaswamy, Robert Stine

Research Collection Lee Kong Chian School Of Business

This article develops and estimates a dynamic arbitrage-free model of the current forward curve as the sum of (i) an unconditional component, (ii) a maturity-specific component and (iii) a date-specific component. The model combines features of the Preferred Habitat model, the Expectations Hypothesis (ET) and affine yield curve models; it permits a class of low-parameter, multiple state variable dynamic models for the forward curve. We show how to construct alternative parametric examples of the three components from a sum of exponential functions, verify that the resulting forward curves satisfy the Heath-Jarrow-Morton (HJM) conditions, and derive the risk-neutral dynamics for the …

Incorporating Economic Objectives Into Bayesian Priors: Portfolio Choice Under Parameter Uncertainty, Jun Tu, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

This paper proposes a way to allow Bayesian priors to reflect the objectives of an economic problem. That is, we impose priors on the solution to the problem rather than on the primitive parameters whose implied priors can be backed out from the Euler equation. Using monthly returns on the Fama-French 25 size and book-to-market portfolios and their 3 factors from January 1965 to December 2004, we find that investment performances under the objective-based priors can be significantly different from those under alternative priors, with differences in terms of annual certainty-equivalent returns greater than 10% in many cases. In terms …

Price Movers On The Stock Exchange Of Thailand: Evidence From A Fully Automated Order-Driven Market, Charlie Charoenwong, David K. Ding, Nattawut Jenwittayaroje

Research Collection Lee Kong Chian School Of Business

This study examines trade sizes used by informed traders. The selected sample includes 73 active stocks from the Stock Exchange of Thailand (SET), a pure limit order market, that cover two distinct market conditions of a bull and bear market. Using intraday data, the study finds that large sized trades (i.e., larger than the 75th percentile) account for a disproportionately large impact on changes in traded and quoted prices. This finding compares with the results of studies conducted on U.S. markets that show informed traders employ trade sizes falling between the 40th and 95th percentiles (Barclay and Warner 1993; Chakravarty …

Investor Diversification And The Pricing Of Idiosyncratic Risk, Fangjian Fu

Research Collection Lee Kong Chian School Of Business

Theories predict that, due to investor under-diversification, idiosyncratic risk is positively priced in expected stock returns. Empirical studies based on various methodologies yield mixed evidence. This study circumvents the debate on methodological issues and traces the pricing of idiosyncratic risk to its economic source – investor under-diversification. Assuming that institutional investors tend to hold more diversified portfolios and thus care little about idiosyncratic risk relative to individual investors, we find that the positive relation between idiosyncratic risk and stock returns is significantly stronger (weaker) in stocks that are held and traded more by individual (institutional) investors. In addition, the pricing …

Cover & Front Matter

Journal of Strategic Security

No abstract provided.

How Predictable Is The Chinese Stock Market?, Fuwei Jiang, David E. Rapach, Jack K. Strauss, Jun Tu

Research Collection Lee Kong Chian School Of Business

We analyze return predictability for the Chinese stock market, including the aggregate market portfolio and the components of the aggregate market, such as portfolios sorted on industry, size, book-to-market and ownership concentration. Considering a variety of economic variables as predictors, both in-sample and out-of-sample tests highlight significant predictability in the aggregate market portfolio of the Chinese stock market and substantial differences in return predictability across components. Among industry portfolios, Finance and insurance, Real estate, and Service exhibit the most predictability, while portfolios of small-cap and low ownership concentration firms also display considerable predictability. Two key findings provide economic explanations for …

Industry Recommendations: Characteristics, Investment Value, And Relation To Firm Recommendations, Ohad Kadan, Madureira Leonardo, Rong Wang, Tzachi Zach

Research Collection Lee Kong Chian School Of Business

We study analysts’ industry recommendations. We find that the distribution of industry recommendations is quite balanced. Analysts show more optimism towards industries with high levels of R&D, past profitability and past returns. Industry recommendations possess investment value as portfolios based on these recommendations generate risk-adjusted abnormal returns. Finally, industry recommendations contain information which is orthogonal to that included in firm recommendations, and more so for brokers who benchmark their firm recommendations to industry peers. Consequently, the investment value of analysts’ recommendations is enhanced when both industry and firm recommendations are used.

Reference Point Adaptation And Disposition Effect: Evidence From Institutional Trading, Chiraphol N. Chiyachantana, Zongfei Yang

Research Collection Lee Kong Chian School Of Business

Using a large proprietary database of institutional trades, we investigate whether, and to what extent, the dynamic adaptation of reference point translates into variations in the disposition effect, and establish three key results. First, the propensity to realize losses declines sharply with the magnitude of prior losses due to insufficient adaptation of reference point. Second, recent adverse information accelerates investors’ adaptation to price depreciation and increases investors’ willingness to realize losses. Finally, a priori of losing money in highly speculative investments decreases investors’ aversion to realize losses. Collectively, the findings suggest that both prior outcomes and recent expectations contribute to …

Investment Performance Of Domestic And International Equity Funds In Malaysia., Choo Chih Tung

Student Works (2010-2019)

The a exploration on the performance of the unit trust funds in Malaysia is becoming more and more important nowadays as there is an increased demand and it is perceived to be able to provide better returns by diversifying its investment portfolio. This study focus on the excess returns provided by the unit trust funds when compare with the four market indexes. The returns from both Domestic Equity Funds and International Equity Funds were compare with the Bursa Malaysia (KLCI), Morgan Stanley World Index (MXWO), Morgan Stanley Asia Pacific ex-Japan (MXAPJ) and Europe, Australia and Far East Index (MXEA).

The …

An Analysis Of Extreme Price Shocks And Illiquidity Among Systematic Trend Followers, Bernard Lee, Shih-Fen Cheng, Annie Koh

Research Collection Lee Kong Chian School Of Business

We construct an agent-based model to study the interplay between extreme price shocks and illiquidity in the presence of systematic traders known as trend followers. The agent-based approach is particularly attractive in modeling commodity markets because the approach allows for the explicit modeling of production, capacities, and storage constraints. Our study begins by using the price stream from a market simulation involving human participants and studies the behavior of various trend-following strategies, assuming initially that their participation will not impact the market. We notice an incremental deterioration in strategy performance as and when strategies deviate further and further from the …

Pricing Options In An Extended Black Scholes Economy With Illiquidity: Theory And Empirical Evidence, Umut Cetin, Robert Jarrow, Mitchell Protter, Mitchell Warachka

Research Collection Lee Kong Chian School Of Business

This article studies the pricing of options in an extended Black Scholes economy in which the underlying asset is not perfectly liquid. The resulting liquidity risk is modeled as a stochastic supply curve, with the transaction price being a function of the trade size. Consistent with the market microstructure literature, the supply curve is upward sloping with purchases executed at higher prices and sales at lower prices. Optimal discrete time hedging strategies are then derived. Empirical evidence reveals a significant liquidity cost intrinsic to every option. [PUBLICATION ABSTRACT]

Selective Intervention And Economic Re-Engineering: Lessons Form Singapore's Parks In Indonesia And India, Caroline Yeoh, Siang Yeung Wong

Research Collection Lee Kong Chian School Of Business

No abstract provided.

Ballistic Missile Defense: New Plans, Old Challenges, Elizabeth Zolotukhina

Journal of Strategic Security

On September 17, 2009—the 70th anniversary of the Soviet invasion of Poland in 1939 that marked the beginning of World War II—the Obama Administration announced its intention to shelve plans for the U.S. Ballistic Missile Defense (BMD) that had been developed under former President George W. Bush. Pointing to a new intelligence assessment, President Obama argued that his predecessor's plan to deploy an X-band radar station outside of Prague, Czech Republic, and 10 two-stage interceptor missiles in Poland would not adequately protect America and its European allies from the Iranian threat and reiterated his opposition to utilizing unproven technology in …

U.S. Response To Terrorism: A Strategic Analysis Of The Afghanistan Campaign, Valentina Taddeo

Journal of Strategic Security

This article examines the U.S. response to global terrorism and its campaign in Afghanistan from 2001 to today. The aim of this article is first to understand the fallacies, missteps, and misunderstandings of the U.S. approach in Afghanistan. Second, the analysis evaluates the lessons learnt and some possible strategies for achieving long-term stability and security in Afghanistan. In particular, the analysis focuses on the different strategies adopted by the United States and their achievements. Despite a first victory over the Taliban regime, the initial approach was focused on the enemy only and it lacked long-term planning, paving the way to …