Portfolio and Security Analysis Commons^™

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 …

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 …

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 …

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 …

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]

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 …

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 …

North Korea And Support To Terrorism: An Evolving History, Bruce E. Bechtol, Jr.

Journal of Strategic Security

The DPRK's (Democratic People's Republic of Korea or North Korea) support for terrorism began as an ideologically-based policy financed by the Soviet Union that eventually led to a policy designed to put money into the coffers of the elite in Pyongyang—in short, a "proliferation for hire" policy. This article articulates a brief history of the North Korean regime, the rise to power of Kim Il-sung and his son, Kim Jong-il, and North Korea's persistent support to terrorist groups around the globe.

The Multiple Faces Of Effective Grand Strategy, Bryan N. Groves

Journal of Strategic Security

Effective national leaders throughout history have deliberately developed grand strategies and successfully implemented them to attain their political goals, while also integrating and accomplishing economic, social, defense, and sometimes religious objectives. Not all leaders have been successful, however, as this process is immensely complex and can be adversely affected by the actions of other leaders around their region and the world. It bears examination, then, to determine what factors contribute to successful grand strategies and why many leaders fail to reach their stated ends. This article utilizes a historic case study approach and explores three key areas of grand strategy: …

Indian Involvement In Afghanistan In The Context Of The South Asian Security System, Melanie Hanif

Journal of Strategic Security

This article focuses on the regional requirements for a pacification of Afghanistan. For this purpose, Afghanistan is analytically "reframed" as part of South Asia. The hypothesis is that India is the only regional actor that might possess both the incentives and the capabilities to deal with the negative security externalities emanating from Afghanistan.In South Asia, material characteristics such as the delineation of the region and its power polarity are unclear. India's role within the region is even more controversial. By examining India's role within its security environment, this paper will suggest how this lack of clarity could be remedied. In …

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 …

Small To Mid-Size Sporting Events: Are We Prepared To Recover From An Attack?, Brian M. Harrell, Konrad Crockford, Pierre Boisrond, Sarah Tharp-Hernandez, Suzanne Parker

Journal of Strategic Security

This article describes a fictional deadly attack by a lone-wolf terrorist during a high school football event in a small town, here in the United States. The authors begin by describing an attack and then focus on the response from the medical community, city, county, state, and federal government officials. Next, the authors make several recommendations on what actions are needed to develop an effective plan to combat terrorist activities during a small- to mid-size sports event. Among the actions needed, the authors focus on the following: response planning, emergency action plan, incident command, policies and procedures, and security staff …

The Weakest Link: The Risks Associated With Social Networking Websites, Yosef Lehrman

Journal of Strategic Security

The relatively rapid rise in popularity of social networking services is now well known. MySpace, Twitter, and Facebook have become well known sites and terms. According to the Web traffic tracking site Alexa.com, as of December 2009, Facebook had 350 million registered users, MySpace just under 475 million, and Twitter 44.5 million. Many people think very little of posting prodigious amounts of personal information on social networking sites, not realizing that this information puts them at risk. Specifically, those in the law enforcement and military communities may not realize that information posted on these sites can compromise operational security and …

Book Reviews, Edward J. Hagerty, Daniel Masters, Mark J. Roberts, Leland Ericson

Journal of Strategic Security

No abstract provided.

Is Regime Switching In Stock Returns Important In Portfolio Decisions?, Jun Tu

Research Collection Lee Kong Chian School Of Business

The stock market displays regime switching between upturns and downturns. This paper provides a Bayesian framework for making portfolio decisions that takes this regime switching into account, together with asset pricing model uncertainty and parameter uncertainty. The findings reveal that the economic value of accounting for regimes is substantially independent of whether or not model and parameter uncertainties are incorporated: the certainty-equivalent losses associated with ignoring regime switching are generally above 2% per year and can be as high as 10%. These results suggest that the more realistic regime switching model is fundamentally different from the commonly used single-state model, …

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.

Portfolio Selection Under Distributional Uncertainty: A Relative Robust Cvar In Portfolio Management, Dashan Huang, Shushang Zhu, Frank Fabozzi, Masao Fukushima

Research Collection Lee Kong Chian School Of Business

Robust optimization, one of the most popular topics in the field of optimization and control since the late 1990s, deals with an optimization problem involving uncertain parameters. In this paper, we consider the relative robust conditional value-at-risk portfolio selection problem where the underlying probability distribution of portfolio return is only known to belong to a certain set. Our approach not only takes into account the worst-case scenarios of the uncertain distribution, but also pays attention to the best possible decision with respect to each realization of the distribution. We also illustrate how to construct a robust portfolio with multiple experts …