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Full-Text Articles in Business
What Difference Do The New Factor Models Make In Portfolio Allocation?, Frank J. Fabozzi, Dashan Huang, Fuwei Jiang, Jiexun Wang
What Difference Do The New Factor Models Make In Portfolio Allocation?, Frank J. Fabozzi, Dashan Huang, Fuwei Jiang, Jiexun Wang
Research Collection Lee Kong Chian School Of Business
This paper compares the Hou-Xue-Zhang four-factor model with the Fama-French five-factor model from an investing perspective both in- and out-of-sample. Without margin requirements and model uncertainty, the Hou-Xue-Zhang model outperforms the Fama-French model. However, the outperformance could become negligible if an investor is subject to margin requirements and model uncertainty. The Hou-Xue-Zhang model shows similar power as the Fama-French model in describing the covariance matrix of asset returns. Overall, the two models do not make a difference for investing in a realistic setting.
Upper Bounds On Return Predictability, Dashan Huang, Guofu Zhou
Upper Bounds On Return Predictability, Dashan Huang, Guofu Zhou
Research Collection Lee Kong Chian School Of Business
Can the degree of predictability found in data be explained by existing asset pricing models? We provide two theoretical upper bounds on the R2 of predictive regressions. Using data on the market portfolio and component portfolios, we find that the empirical R2 are significantly greater than the theoretical upper bounds. Our results suggest that the most promising direction for future research should aim to identify new state variables that are highly correlated with stock returns instead of seeking more elaborate stochastic discount factors.
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.
Market Segmentation, Liquidity Spillover, And Closed-End Country Fund Discounts, Sai Pang (Justin) Chan, Ravi Jain, Yihong Xia
Market Segmentation, Liquidity Spillover, And Closed-End Country Fund Discounts, Sai Pang (Justin) Chan, Ravi Jain, Yihong Xia
Research Collection Lee Kong Chian School Of Business
In a segmented international capital market, the illiquidity of a country fund in the market in which its shares are traded affects only the share price of the fund (S), while the illiquidity of its underlying assets in the market in which these are traded affects only the fund net asset value (NAV). In an integrated market, illiquidity in one market can easily spill over to another and affect both the fund share price and its underlying asset value. It follows that the closed-end country fund premium, P[reverse not equivalent]ln(S)-ln(NAV), is negatively (positively) affected by the fund (underlying asset) illiquidity …
A Tale Of Two Prices: Liquidity And Asset Prices In Multiple Markets, Justin Sai Pang Chan, Dong Hong, Marti G. Subrahmanyam
A Tale Of Two Prices: Liquidity And Asset Prices In Multiple Markets, Justin Sai Pang Chan, Dong Hong, Marti G. Subrahmanyam
Research Collection Lee Kong Chian School Of Business
This paper investigates the liquidity effect in asset pricing by studying the liquidity-premium relationship of an American depositary receipt (ADR) and its underlying share. Using the [Amihud, Yakov, 2002. Illiquidity and stock returns: cross-section and time series effects. Journal of Financial Markets 5, 31-56] measure, the turnover ratio and trading infrequency as proxies for liquidity, we show that a higher ADR premium is associated with higher ADR liquidity and lower home share liquidity, in terms of changes in these variables. We find that the liquidity effects remain strong after we control for firm size and a number of country characteristics, …