Finance and Financial Management Commons^™

Co-Jumps, Co-Jump Tests, And Volatility Forecasting: Monte Carlo And Empirical Evidence, Weijia Peng, Chun Yao

WCBT Faculty Publications

This study classifies jumps into idiosyncratic jumps and co-jumps to quantitatively identify systematic risk and idiosyncratic risk by utilizing high-frequency data. We found that systematic risk occurs more frequently and has larger magnitudes than the idiosyncratic risk in an individual asset, which indicates that volatilities from one sector are largely derived from the contagious effect of other sectors. We further investigated the importance of idiosyncratic jumps and co-jumps to predict the sector-level S&P500 exchange-traded fund (ETF) volatility. It was found that the predictive content of co-jumps is higher than that of idiosyncratic jumps, suggesting that systematic risk is more informative …

Concept Links And Return Momentum, Qianqian Du, Dawei Liang, Zilin Chen, Jun Tu

Research Collection Lee Kong Chian School Of Business

Unlike traditional asset categories (e.g., industry classifications) that are generally defined clearly, some groups of stocks are tied to certain loosely defined “concepts” (e.g., e-commerce). When investors find it difficult to analyze ambiguous concept-oriented information, information diffuses slowly, creating “concept momentum”. Based on unique concept data in the Chinese stock market, this study constructs a concept-momentum strategy that involves buying stocks from past winning concepts and selling stocks from past losing concepts, which can generate pronounced abnormal returns. Neither risk factors, firm-level momentum, nor industry-level momentum can explain concept momentum. Furthermore, we find that both the underreaction and cross-stock lead-lag …

Kalman Filter Vs Alternative Modeling Techniques And Applied Investment Strategies, Heather E. Dempsey

Doctoral Dissertations (DBA)

This thesis examines the efficacy of alternative modeling techniques to predict stock market returns modeled with time-varying coefficients with the goal of developing and implementing a trading strategy that yields excess returns. First, we determine the modeling technique with the smallest forecast error using historical predictors: the differenced dividend-price ratio, lagged S&P 500 returns, and the change in implied volatility. The candidate modeling techniques include both constant and recursive ordinary least squares (OLS) regression methods and diverges from previous return forecast literature with the comparison of a state-space model (SSM) cast as a VAR(1) process to each OLS technique. The …

Joint News, Attention Spillover, And Market Returns Predictability, Li Guo, Lin Peng, Yubo Tao, Jun Tu

Research Collection Lee Kong Chian School Of Business

We analyze over 2.6 million news articles and propose a novel measure of joint news coverage of firms. The measure strongly and negatively predicts market returns, with a monthly R-squared of 3.93% in sample and 6.52% out of sample. The relation is causal, robust to existing predictors, and is especially strong when market uncertainty is high or when market frictions are large. At the firm level, joint news coverage is associated with a 20.3% increase in EDGAR downloads by new IPs from the investor bases of the other covered firms. Our evidence suggests that joint news triggers investor attention spillover …

The Ursinus College Investment Management Company Newsletter, Fall 2021, Scott Deacle, Maureen Cumpstone, Zachary Crebbin, Maddy Sorokanych, Michael Buck, Kareem Elghawy

Investment Management Company Newsletter

Inside this issue:

Letter from Madelynn Sorokanych '22

Letter from Michael Buck '22

At a Glance

Investment Strategies

Endowment at Work

UCIMCO Updates

Notable Trends

Semester Investment Performance

Endowment Outlook

Stock Selection Picks

Women's Fund Picks

Our Team

Special Thanks

Supporters

How to Contribute

Ucimco Endowment Semi-Annual Presentation, Fall 2021, Kareem Elghawy, Kyle Blaze, Jeremy Calabro, Ryan Carkhuff, Jacob Connelly, Christopher Craven, Zachary Crebbin, Olivia Defusco, Colin Holtzman, Brooke Hurley, Matthew Mcmahon, Jared Minnichbach, Zoey Nikolaou, Jared O'Connell, Erik Ojert, Thomas Pancheri, Christopher Porzelt, Tyler Sargent, Scott Sloan, Storm Snape, Matthew Snyder, Matthew Tuley

Business and Economics Presentations

The Ursinus College Investment Management Company (UCIMCO) consists of groups of student analysts who manage endowment-style and stock selection funds on behalf of the college endowment. This presentation, by the endowment team, examines performance and investment philosophy while discussing selections in the portfolio including: developed and emerging market equities, U.S. equities, corporate bonds, U.S. treasuries and U.S. real estate.

Ucimco Stock Selection Semi-Annual Presentation, Fall 2021, Michael Buck, Stevie Benson, Walker Hamilton, Mason Jolivette, Harrison Lorenc, Devin Molina, Stephen Schoenborn, Jack Shimer, Mohammad Sufyan, John Wagner, Riley Yee

Business and Economics Presentations

The Ursinus College Investment Management Company (UCIMCO) consists of groups of student analysts who manage endowment-style and stock selection funds on behalf of the college endowment. This presentation, by the stock selection team, examines quarterly performance and strategy while discussing the most recent selections in the portfolio: Agios Pharmaceuticals, CubeSmart, Splunk and Nexstar Media Group.

Ursinus College Women's Investment Management Company, Fall 2021, Maddy Sorokanych, Taylor Beaumont, Shelby Boyle, Laura Bradley, Olivia Defusco, Rachel Grossbauer, Jess Gutekunst, Rebecca Lewis, Alice Nathanson, Madelyn Nau, Ketlee Staz, Marcella Thanh-Guyet, Theodora Zeibekis

Business and Economics Presentations

The Ursinus College Investment Management Company (UCIMCO) consists of groups of student analysts who manage endowment-style and stock selection funds on behalf of the college endowment. In 2020, a group of women students began to manage their own fund. This presentation reviews activities of the Fall 2021 semester and analyzes the stock performance of various companies including: Anthem, Inc., American Well Corporation, Netflix, Travel and Leisure Company, Cognizant Technology Solutions, Oshkosh and the Hershey Company.

Esg And The Market Return, Ran Chang, Liya Chu, Jun Tu, Bohui Zhang, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

We propose an environmental, social, and governance (ESG) index. We find that it has significant power in predicting the stock market risk premium, both in- and out-of-sample, and delivers sizable economic gains for mean-variance investors in asset allocation. Although the index is extracted by using the PLS method, its predictability is robust to using alternative machine learning tools. We find further that the aggregate of environmental variables captures short-term forecasting power, while that of social or governance captures long-term. The predictive power of the ESG index stems from both cash flow and discount rate channels.

The Profitability Of Warrant Issuers: An Empirical Investigation Of Single Stock And Index Warrants, Ichaya Wongnapakarn, Arnat Leemakdej, Chiyachantana N. Chiraphol, Pattarawan Prasarnphanich, Eakapat Manitkajornkit

Research Collection Lee Kong Chian School Of Business

This study examines the derivative warrant's profit of issuers compensated with the risk from issuing call and put derivative warrants because they have commitments in risk management and managing risk by hedging the underlying exposure. The average profit of issuers is a cumulative profit from the first trading day until the last trading day. Consistent with the imperfect competition for issuing put derivative warrants on single stock from different securities borrowing and lending advantages, the profit margin of a put warrant is higher than the call warrant. However, the profit margin from a put warrant is not necessarily higher than …

Tracking Retail Investor Activity, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang, Xinran Zhang

Research Collection Lee Kong Chian School Of Business

We provide an easy method to identify marketable retail purchases and sales using recent, publicly available U.S. equity transactions data. Individual stocks with net buying by retail investors outperform stocks with negative imbalances by approximately 10 bps over the following week. Less than half of the predictive power of marketable retail order imbalance is attributable to order flow persistence, while the rest cannot be explained by contrarian trading (proxy for liquidity provision) or public news sentiment. There is suggestive, but only suggestive, evidence that retail marketable orders might contain firm-level information that is not yet incorporated into prices.

Does Industry Timing Ability Of Hedge Funds Predict Their Future Performance, Survival, And Fund Flows?, Turan G. Bali, Stephen J. Brown, Mustafa O. Caglayan, Umut Celiker

Business Faculty Publications

This paper investigates hedge funds’ ability to time industry-specific returns and shows that funds’ timing ability in the manufacturing industry improves their future performance, probability of survival, and ability to attract more capital. The results indicate that the best industry-timing hedge funds in the manufacturing sector have the highest return exposure to earnings surprises. This, together with persistently sticky earnings surprises, transparent information environment in regards to earnings releases, and large post-earnings-announcement drift in the manufacturing industry, explain to a great extent why best-timing hedge funds can generate significantly larger future returns compared to worst-timing hedge funds.

A Dynamic Delegated Investment Model Of Spacs, Dan Luo, Jian Sun

Research Collection Lee Kong Chian School Of Business

We study SPACs in a continuous-time delegated investment model. Our model is built upon three unique features of SPACs: the sponsor and the investor are only partially aligned, a SPAC has a short time horizon, and the investor has the final control over investment approval. Due to the misalignment in incentives, the sponsor has an increasing incentive to propose unprofitable projects to the investor; in response, the investor exerts more stringent screening based on her information. Although the screening helps curb the sponsor’s moral hazard, it also dampens the disciplining effect of partial alignment in incentives. When the investor’s information …

Investment Behavior During Covid Pandemic: An Evidence From Emerging Asian Markets, Sana Tauseef

Business Review

This study investigates the investor behavior in Asian emerging markets during the COVID pandemic period and assesses the asymmetric patterns and the influence of global and regional return dynamics on local investor behavior. It uses daily firm-level data from January 2001 to December 2020 for nine Asian emerging countries: China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Taiwan and Thailand to estimate the impact of extreme price movements, market liquidity and US and Chinese market returns on local return dispersions using a non-linear specification. The findings indicate that rational price behavior prevailed in all markets over the COVID period. Though herding …

Are Disagreements Agreeable? Evidence From Information Aggregation, Dashan Huang, Jiangyuan Li, Liyao Wang

Research Collection Lee Kong Chian School Of Business

Disagreement measures are known to predict cross-sectional stock returns but fail to predict market returns. This paper proposes a partial least squares disagreement index by aggregating information across individual disagreement measures and shows that this index significantly predicts market returns both in- and out-of-sample. Consistent with the theory in Atmaz and Basak (2018), the disagreement index asymmetrically predicts market returns with greater power in high-sentiment periods, is positively associated with investor expectations of market returns, predicts market returns through a cash flow channel, and can explain the positive volume-volatility relationship.

Stock Market Manipulation Detection Using Continuous Wavelet Transform & Machine Learning Classification, Sarah Youssef

Theses and Dissertations

Stock market manipulation detection is important for both investors and regulators. Being able to detect stock manipulation and preventing it gives investors the confidence in the market fairness and integrity. It also helps maintaining liquidity of the stocks and market efficiency. Implementing data mining algorithms in manipulation detection is a relatively recent technique but in the past few years there has been an increasing interest in it's applications in this domain. The benefit of monitoring manipulative trade behavior is that it can be implemented on live feed of stock data, which saves a lot of time in detecting stock price …

The Pricing Of Initial Public Offering And Market Efficiency, Chiyachantana N. Chiraphol

Research Collection Lee Kong Chian School Of Business

This study investigates long-run performance of Thai initial public offerings (IPOs). To examine the longrun performance of Thai IPOs, we compute buy-and-hold abnormal returns and cumulative abnormal returns for two years after the IPOs. We find strong evidence of long run underpricing in Thai market. Specifically, the average buy-and-hold abnormal returns and cumulative abnormal returns are 64.5% and 18.4% respectively. However, our multi-variate analysis does not indicate a strong relation between long-run underperformance and firm-specific factors, such as firm size, firm age, investment banker reputation and firm profitability.

Analyst Teams, Bingxu Fang, Ole-Kristian Hope

Research Collection School Of Accountancy

This paper examines the impact of teamwork on sell-side analysts’ performance. Using a hand-collected sample of over 50,000 analyst research reports, we find that analyst teams issue more than 70% of annual earnings forecasts. In contrast, most prior research implicitly assumes that forecasts are issued by individual analysts. We document that analyst teams generate more accurate earnings forecasts than individual analysts and that the stock market reacts more strongly to forecast revisions issued by teams. Analyst teams also cover more firms, issue earnings forecasts more frequently, and issue less stale forecasts. Analysts working in teams are more likely to be …

Speed Acquisition, Shiyang Huang, Bart Zhou Yueshen

Research Collection Lee Kong Chian School Of Business

Speed is a salient feature of modern financial markets. This paper studies investors' speed acquisition together with their information acquisition. Speed heterogeneity arises in equilibrium, fragmenting the information aggregation process with a nonmonotone impact on price informativeness. Various competition effects drive speed and information to be either substitutes or complements. The model cautions the possible dysfunction of price discovery: An improving information technology might complement speed acquisition, which shifts the concentration of price discovery over time, possibly hurting price informativeness. Novel predictions are discussed regarding investor composition and their investment performance.

Hedge Funds And Their Prime Broker Analysts, Sung Gon Chung, Manoj Kulchania, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

Are sell-side analysts reluctant to go against the investment views of their hedge funds when these hedge funds are their prime brokerage clients? We show that prime broker analysts tend to upgrade stocks recently bought by their clients. For stocks with upgraded recommendations, post-announcement cumulative abnormal returns are significantly lower for those purchased by the prime brokerage clients. Our results are stronger with high-dollar-turnover clients who generate more trading commissions. We also find that a hedge fund with a large bet on a stock has a stronger incentive to pressure the fund’s prime brokers to issue a favorable recommendation on …

Japanese Monetary Policy And Its Impact On Stock Market Implied Volatility During Pleasant And Unpleasant Weather, Marinela Adriana Finta

Research Collection Lee Kong Chian School Of Business

We investigate the effect of Japan's Monetary Policy Meeting releases on the intraday dynamics of the Nikkei Stock Average Volatility Index and its futures during pleasant and unpleasant weather. We show that at the time of a monetary policy release when the temperature is pleasant, there is a significant decline in Japanese equities' implied volatility and futures, which lasts for about 10 min and 5 min, respectively. This decline is longer and exhibits a greater variation when releases occur during cold days. Finally, we emphasize the achievable economic profits and losses, given the reaction of Nikkei VI futures to the …

Bitcoin As A Viable Alternative To Legacy Reserve Assets: Reasons, Risks, And Adoption, Jeffry Blake Dunson Ii

Senior Honors Theses

Reserve assets include commodities, currencies, or other capital held by institutions as a hedge against the fluctuations of external factors. While the United States’ rise to power helped establish the US dollar as the most predominant reserve asset of the past fifty years, current events & the fast pace of technological advancement has exposed some limitations in the system. Blockchain technology has allowed for assets with cryptographically verifiable integrity that fundamentally depart from the US dollar standard and has potential to overhaul reserve assets as we know it. The course of this research details the downsides of legacy reserve assets, …

Forecasts And Implications Using Vix Options, Spencer Stanley, William Trainor

Undergraduate Honors Theses

This study examines the Chicago Board Option Exchange (CBOE) Volatility Index (VIX) which is the implied volatility calculated from short-term option prices on the Standards & Poor’s 500 stock index (S&P 500). Findings suggest VIX overestimates average volatility by approximately 3% but explains 55% of S&P 500’s proceeding month’s volatility. The implied volatility (IV) from options on the VIX add additional explanatory power for the S&P’s 500 proceeding kurtosis values (a measure of tail risk). The VIX option’s volatility smirks did not add additional explanatory power for explaining the S&P 500 volatility or kurtosis. A simple trading rule based on …

Evaluating Methods Of Calculating Country-Specific Market Risk Premium, Lora Taylor

Finance Undergraduate Honors Theses

In this paper I will discuss three different methods for calculating country specific market risk premium will be discussed. The methods that will be discussed are that of a historical moving average, Aswath Damodaran’s method, and the methodology and survey results from Pablo Fernandez. The weaknesses of the different methods will also be discussed. Additionally, the CAPM model of valuation will be explained as well as the three different concepts that are used interchangeably under the term market risk premium.

Hedge Fund Performance With The Treynor-Black Model, Gurkamal S. Pannu

Honors Theses

This paper seeks to analyze the information ratio differences between long/short hedge funds over the past two decades using the Treynor-Black model. The Treynor-Black model is a method to derive an optimal portfolio allocation across safe and risky assets, based off of expected alphas of active investments and the unsystematic volatility that can be attributed to each given security. We first developed and implemented a model to forecast information ratios on a database of long/short hedge funds. With the predicted information ratios, we calculated out-of-sample allocation weights from a Treynor-Black active portfolio model. These weights were then tested in a …

Short Selling Around Reverse Stock Splits, Ryan Voges

All Graduate Plan B and other Reports, Spring 1920 to Spring 2023

I examine whether short selling increases around reverse stock splits using 2019 daily short selling data instead of bimonthly short interest data required by FINRA. In my difference-in-difference analysis, I find that average short selling increases significantly for firms that reverse split their stock, relative to matched control firms that do not, around the split dates. I also find that firms that reverse split their stock experience negative cumulative abnormal returns in the 20-day period after the reverse stock splits, particularly for those firms that are heavily shorted. These results are in agreeance with existent literature and suggest that short …

Do Students Buy Attention-Grabbing Stocks? A Field Experiment, George Psaradakis

Business and Economics Honors Papers

In this paper, we look to find out whether or not student investors are drawn to “attention-grabbing” stocks. We define “attention-grabbing” stocks as those that are issued by companies with either large numbers of Twitter followers, large general marketing budgets, or both. Our theory is that the more followers that a publicly traded company has on Twitter and/or the more money the company spends on marketing and advertising, the more likely a student would be to invest in its stock.

A field experiment was conducted in which undergraduate students constructed their own virtual stock portfolios. A treatment group was given …

Ursinus College Women's Investment Management Company, Taylor Beaumont, Shannon Blessing, Olivia Defusco, Julia Ewing, Angela Gervasi, Wendy Luo, Eve Peiffer, Becca Lewis, Ellie Templeton, Emily Benning, Rebecca Lam, Maddy Sorokanych, Theodora Zeibekis, Marcella Thanh-Guyet, Delanie Rogers

Business and Economics Presentations

The Ursinus College Investment Management Company (UCIMCO) consists of groups of student analysts who manage endowment-style and stock selection funds on behalf of the college endowment. In 2020, a group of women students began to manage their own fund. This presentation reviews activities of the previous year and analyzes the stock performance of various companies including: Anthem, Inc., American Well Corporation, SNAP, Inc., Yatsen Holdings Ltd. and Yum China Holdings.

The Ursinus College Investment Management Company Newsletter, Spring 2021, Scott Deacle, George Psaradakis, Jacob Kang, Kareem Elghawy, Wendy Luo

Investment Management Company Newsletter

Inside this issue:

Letter from Kareem Elghawy '22

Letter from Wendy Luo '21

At a Glance

Investment Strategies

Endowment at Work

UCIMCO Updates

Fall Semester Investment Performance

Endowment Outlook

Stock Selection Picks

Women's Fund Picks

Our Team

Supporters

How to Contribute

Analyst Talent, Information, And Investment Strategies, Zhichuan Li, Stephen R. Foerster, Zhenyang Tang, Chongyu Dang

Business Publications

Analyst talent, rather than the number of analysts following a firm, matters most to investors. We find: 1) Analysts with greater “natural” forecasting talent—controlling for experience, brokerage affiliation, and task complexity—contribute relatively more firm-specific rather than industry or market information; 2) Earnings forecasts by low-talent analysts may lead to substantial mispricing; 3) When earnings surprises are large, post-earnings-announcement drift is more prominent among firms covered by low-talent analysts; 4) Firms with low-talent analysts have significantly more insider trading prior to positive earnings news; and 5) Investing following insider trading is more profitable in stocks followed by low-talent analysts.