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- Parameter uncertainty (3)
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- Bayesian analysis (2)
- Commodity Trading Advisors (2)
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- Financial Crisis (2)
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- Systematic Trend Followers (2)
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- Bayesian priors (1)
- Black Scholes (1)
- Book-to-market (1)
- Bull and bear markets (1)
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- Conditional value-at-risk; Worst-case conditional value-at-risk; Relative robust conditional value-at-risk; Portfolio selection problem; Linear programming (1)
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- Deviance information criterion (1)
Articles 1 - 24 of 24
Full-Text Articles in Business
Bayesian Analysis Of Structural Credit Risk Models With Microstructure Noises, Shirley J. Huang, Jun Yu
Bayesian Analysis Of Structural Credit Risk Models With Microstructure Noises, Shirley J. Huang, Jun Yu
Research Collection Lee Kong Chian School Of Business
In this paper a Markov chain Monte Carlo (MCMC) technique is developed for the Bayesian analysis of structural credit risk models with microstructure noises. The technique is based on the general Bayesian approach with posterior computations performed by Gibbs sampling. Simulations from the Markov chain, whose stationary distribution converges to the posterior distribution, enable exact finite sample inferences of model parameters. The exact inferences can easily be extended to latent state variables and any nonlinear transformation of state variables and parameters, facilitating practical credit risk applications. In addition, the comparison of alternative models can be based on devian information criterion …
Do Foreign Institutions Improve Stock Liquity?, Chi Shen Wei
Do Foreign Institutions Improve Stock Liquity?, Chi Shen Wei
Research Collection Lee Kong Chian School Of Business
This paper examines whether capital flows by foreign institutions improve liquidity in domestic markets. I find that stocks with increased foreign institutional ownership subsequently experience higher liquidity. However, it is difficult to interpret this evidence as a causal relation because institutions tend to self-select into more liquid stocks. To solve this problem, I exploit the 2003 US dividend tax cut as a natural experiment. The results from a 2SLS (IV) regression confirm that liquidity improved more in dividend-paying stocks located in US tax-treaty countries compared to similar stocks located in non-treaty countries. These patterns are consistent with the notion that …
Investing Into The Abyss: The Continued Misclassification Of Multi-Sector Managed Funds, John R Watson, N. Allen, Kok Fai Phoon, J. Wickramanayake
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 …
International Diversification With Factor Funds, Cheol S. Eun, Sandy Lai, Frans A. De Roon, Zhe Zhang
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 …
Investor Inattention And The Underreaction To Stock Recommendations, Roger Loh
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.
A Dynamic Model For The Forward Curve, Choong Tze Chua, Foster Dean, Krishna Ramaswamy, Robert Stine
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 …
Price Movers On The Stock Exchange Of Thailand: Evidence From A Fully Automated Order-Driven Market, Charlie Charoenwong, David K. Ding, Nattawut Jenwittayaroje
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 …
Incorporating Economic Objectives Into Bayesian Priors: Portfolio Choice Under Parameter Uncertainty, Jun Tu, Guofu Zhou
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 …
The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
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 …
How Predictable Is The Chinese Stock Market?, Fuwei Jiang, David E. Rapach, Jack K. Strauss, Jun Tu
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
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
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
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 …
An Analysis Of Extreme Price Shocks And Illiquidity Among Systematic Trend Followers, Bernard Lee, Shih-Fen Cheng, Annie Koh
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
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]
Collective Investments For Pension Savings: Lessons From Singapore's Central Provident Fund Scheme, Benedict S. Koh, Olivia S. Mitchell, Joelle H. Y. Fong
Collective Investments For Pension Savings: Lessons From Singapore's Central Provident Fund Scheme, Benedict S. Koh, Olivia S. Mitchell, Joelle H. Y. Fong
Research Collection Lee Kong Chian School Of Business
Singapore's mandatory national defined contribution pension system permits participants to invest their retirement savings in a wide range of investment instruments if they wish, rather than leaving their savings in Central Provident Fund (CPF) accounts to earn interest rates by default. This article asks whether workers seeking to earn higher returns can expect to do better than the CPF-managed default, by moving their money into professionally managed unit trusts. We use historical data to investigate whether fund managers possess superior stock picking and market timing skills, as well as whether they exhibit persistence in performance and offer diversification benefits to …
Is Regime Switching In Stock Returns Important In Portfolio Decisions?, Jun Tu
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
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
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 …
Investing Into The Abyss: The Continued Misclassification Of Multi-Sector Managed Funds, N. Allen, Kok Fai Phoon, J. Watson, J. Wickramanayake
Investing Into The Abyss: The Continued Misclassification Of Multi-Sector Managed Funds, N. Allen, Kok Fai Phoon, J. Watson, J. Wickramanayake
Research Collection Lee Kong Chian School Of Business
The rapid expansion in assets managed by the Australian managed fund industry has resulted in it becoming a major sector of the financial system, second only to that of the banking industry. With more than A$550 billion invested in the industry investors should be concerned about the lack of reliable information available in regard to equity style management. In particular investors should be concerned about the probable mis-match between stated objectives and the actual objectives pursued by fund managers. In this study, we apply return-based style analysis (Sharpe 1988, 1992) to investigate the style and asset allocation strategies of 50 …
An Analysis Of Extreme Price Shocks And Illiquidity Among Systematic Trend Followers, Wing Bernard Lee, Shih-Fen Cheng, Annie Koh
An Analysis Of Extreme Price Shocks And Illiquidity Among Systematic Trend Followers, Wing 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 …
Long-Term Earnings Growth Forecasts, Limited Attention, And Return Predictability, Zhi Da, Mitchell Craig Warachka
Long-Term Earnings Growth Forecasts, Limited Attention, And Return Predictability, Zhi Da, Mitchell Craig Warachka
Research Collection Lee Kong Chian School Of Business
Long-term earnings expectations are critically important to stock price valuations. We identify relative optimism and relative pessimism in long-term analyst forecasts by comparing these forecasts with implied short-term earnings growth forecasts across rms within the same industry. Stocks with relatively optimistic and relatively pessimistic long-term analyst forecasts have negative and positive risk-adjusted returns, respectively. This return predictability depends critically on short-term forecasts since relative optimism and relative pessimism originate from the slow diffusion of information from short-term to long-term analyst forecasts. Our results indicate that market participants have limited attention regarding the long-term earnings implications of information.
Is Regime Switching In Stock Returns Important In Asset Allocations?, Jun Tu
Is Regime Switching In Stock Returns Important In Asset Allocations?, 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, …
Strategic Financial Management: Evidence From Seasoned Equity Offerings, Michael Barclay, Fangjian Fu, Clifford Smith
Strategic Financial Management: Evidence From Seasoned Equity Offerings, Michael Barclay, Fangjian Fu, Clifford Smith
Research Collection Lee Kong Chian School Of Business
Extant theories of capital structure assume myopic financial managers. So they have hard time to explain the financing behavior of seasoned equity offering (SEO) firms. In contrast with the pecking order theory, SEO firms typically are financially healthy companies with significant cash balances, low leverage, and unused debt capacity. At odds with the tradeoff theory, SEOs often move firms away from, rather than closer to, their target leverage ratios. SEOs appear to be driven by capital needs associated with large investment projects rather than by market timing considerations. Firms issue debt following the SEO to finance investment further and to …