Portfolio and Security Analysis Commons^™

Stock Exchange Governance And Market Quality, Chandrasekhar Krishnamurti, John M. Sequeira, Fangjian Fu

Research Collection Lee Kong Chian School Of Business

We show that organization structure of a stock exchange matters by utilizing the unique setting prevailing in India. India has two major stock markets, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These two exchanges adopt similar trading systems, trade essentially identical stocks, and follow the same trading hours. However, these exchanges have different organizational structures: BSE is mutualized whereas NSE is demutualized. Using the Hasbrouck [Review of Financial Studies 6 (1993) 191] measure of market quality we show that NSE provides a better quality market than BSE. This result is consistent with the work of Domowitz …

Trading Your Neighbor's Etfs: Competition Or Fragmentation?, Beatrice Boehmer, Ekkehart Boehmer

Research Collection Lee Kong Chian School Of Business

On July 31, 2001, for the first time in its history, the New York Stock Exchange (NYSE) began trading three unlisted securities. The DIA, SPY, and QQQ are the most actively traded Exchange Traded Funds (ETFs) and are listed on the American Stock Exchange. On April 15, 2002 another 27 ETFs followed. These two events provide a unique experiment for studying the impact of a new entrant on market quality. In contrast to recently revived concerns about the adverse impact of market fragmentation, we document that the NYSE entry leads to a dramatic improvement in liquidity that we attribute to …

Estimating Credit Risk Premia, Kian Guan Lim

Research Collection Lee Kong Chian School Of Business

This paper investigates the nature of the credit risk premium adjustments in the Jarrow-Lando-Turnbull model of credit risk spreads. The adjustments relate the equivalent martingale measures to the empirical measures of unconditional transition probabilities. We provide a modi ed version of the risk adjustment that allows a linear partition of the credit spread into an unconditional default component, a recovery component, and the risk premium adjustment. The risk adjustments are related to conditional default risk, illiquidity risk, and other factors not related to recovery e ects. The log-transform of these risk adjustments can be speci ed as linear regressions on …

Asymptotic Dynamics And Value-At-Risk Of Large Diversified Portfolios In A Jump-Diffusion Market, Kian Guan Lim, Xiaoqing Liu, Kai Chong Tsui

Research Collection Lee Kong Chian School Of Business

This paper studies the modelling of large diversi ed portfolios in a nancial market with jump-di usion risks. The portfolios considered include three categories: equal money-weighted portfolios, risk minimizing portfolios, and market indices. Reduced-form dynamics driven jointly by one Brownian Motion and one Poisson process are derived for the asymptotics of such portfolios. We prove that derivatives written on a portfolio can be priced by treating the asymptotic dynamics as the underlying process if the number of assets in the portfolio is su ciently large. Analytical and Monte Carlo Value-at-Risk (VaR) can be computed for the portfolios based on their …

Spread, Depth, And Order Flow Patterns Of Warrants And Their Underlying Stocks On The Stock Exchange Of Thailand, Charlie Charoenwong, Nuttawat Visaltanachoti, David K. Ding

Research Collection Lee Kong Chian School Of Business

This study compared the trading characteristics of warrants and their underlying stocks. The Stock Exchange of Thailand provided a good platform for comparing the trading characteristics of warrants and their underlying stocks because both these securities are traded in the same market venue and have identical trading rules. Hence, the impact of trading protocol on intraday variation and an informed trader's decision to buy warrants or stocks was controlled. The paper found that they have a similar downward sloping pattern of spreads, adverse selection component, and liquidity immediacy, U-shaped for volatility and trading volume, and upward-sloping for depth and market …

Asian Hedge Funds: Return Persistence, Style, And Fund Characteristics, Francis Koh, Winston T. H. Koh, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

This study explores the return persistence properties, styles, and fund characteristics of hedge funds that mainly invest in Asia. We examine, for the first time, a high resolution hedge fund dataset which includes monthly return information as well as detailed fund characteristics data. We find that the returns of Asian hedge funds persist most strongly at monthly horizons to quarterly horizons. This persistence weakens considerably when we lengthen the measurement period beyond a quarter, and does not appear to be due to the imputation of fees or to systematic risk as measured by a simple factor model. Further, we show …

The Quality Of Analysts Earnings Forecasts During The Asian Crisis: Evidence From Singapore, Roger Loh, Mujtaba Mian

Research Collection Lee Kong Chian School Of Business

Examines the efficiency of security analysts' earnings forecasts in Singapore. Regression of actual earnings change on forecasted change; Extremism in forecasted change; Impact of business crisis on the quality of earnings forecasts.

Dividend Omissions And Intraindustry Information Transfers, Gary L. Caton, Jeremy Goh, Ninon Kohers

Research Collection Lee Kong Chian School Of Business

We examine potential information transfers from companies that announce dividend omissions to their industry rivals. Specifically, we examine the abnormal stock returns and abnormal earnings forecast revisions of rivals after a company makes a dividend-omission announcement. Our results show negative and significant abnormal stock returns and negative and significant abnormal forecast revisions for rival companies in response to the announcement, and a significant and positive relation between the two. We conclude that a dividend-omission announcement transmits unfavorable information across the announcing company's industry that affects cash flow expectations and ultimately stock prices.

Investor Skepticism V. Investor Confidence: Why The New Research Analyst Reforms Will Harm Investors, John L. Orcutt

Law Faculty Scholarship

Part I of this Article provides an overview of research analysts and their basic functions, including a discussion of sell-side analysts' role in the market's recent boom and bust. Part II examines the conflicts of interest that have plagued sell-side research, and Part III reviews the Regulatory Actions that are meant to address these conflicts. In Part IV, the author will make the case for encouraging, rather than lessening, investor skepticism in sell-side research and will explain why the Regulatory Actions are not likely to improve the performance of sell-side analysts. Finally, Part V will offer a simpler proposal to …

An Examination Of Employees' Understanding And Implementation Of The Information Security Program At Xyz Engineering Center, Dale J. Mancini

Dissertations

Purpose of Study. Due to an increase in global competition and employee dishonesty, the need for information security is on the rise. Consequently the XYZ Engineering Center faces an ever-increasing threat of industrial espionage and information theft. Employees of the Center have been given the product-security policy and have been encouraged to secure confidential information. Therefore, this study was designed to determine the level at which employees at the XYZ Engineering Center understand, value, and practice information security. Additionally, the study also examined employee views on physical safety while at work.

Methodology. The study used analysis of variance and a …

The Effect Of Taxes On The Pricing Of Defaultable Debt, Kian Guan Lim, Fenghua Song, Mitchell Craig Warachka

Research Collection Lee Kong Chian School Of Business

Empirical studies have documented the dependence of corporate credit spreads on default risk, equity premiums, and taxes. However, taxes have previously not been incorporated into reduced-form credit risk models. Therefore, we first extend the existing literature by considering a default intensity that depends on taxes as well as the default-free short rate and a market index. Consequently, we establish a theoretical basis to explain previous empirical findings regarding the significant impact of taxation on defaultable bond prices. Unlike previous models, tax implications for defaultable debt cannot be constructed from a sum of tax effects on zero coupon bonds. Our empirical …

Are All Rivals Affected Equally By Bond Rating Downgrades?, Gary L. Caton, Jeremy Goh

Research Collection Lee Kong Chian School Of Business

We use revisions in analysts' earnings forecasts to examine how the bad news associated with a bond rating downgrade gets transferred from the downgraded company to its rivals. In general, we find that stock analysts revise their earnings expectations downward for rivals of companies with downgraded debt. However, the significance of the revision is limited to rivals of downgraded companies with non-investment grade debt only. For the rivals of companies with investment grade debt, we find no significant forecast revisions. We hypothesize that this differential impact is due to differing levels of market visibility. This is consistent with our finding …

Asset Prices And Information Traders’ Abilities: Evidence From Experimental Asset Markets, Lucy F. Ackert, Bryan K. Church, Ping Zhang

Faculty Articles

This study reports the results of fifteen experimental asset markets designed to investigate the effects of forecasts on market prices, traders’ abilities to assess asset value, and the link between the two. Across the fifteen markets, the authors investigate alternative forecast-generating processes. In some markets the process produces an unbiased estimate of asset value and in others a biased estimate. The processes generating the biased forecasts, though, are less variable than the process generating the unbiased forecast. The authors find that, in general, periodend asset price reflects private forecasts, regardless of the forecast-generating process. Subsequently, they investigate whether traders’ abilities …

Advanced Portfolio Theory: Why Understanding The Math Matters, Tom Arnold

Finance Faculty Publications

The goal of this paper is to motivate the use of efficient set mathematics for portfolio analysis [as seen in Roll, 1977] in the classroom. Many treatments stop at the two asset portfolio case (avoiding the use of matrix algebra) and an alarming number of treatments rely on illustration and templates to provide a heuristic sense of the material without really teaching how efficient portfolios are generated. This is problematic considering that the benefits of understanding efficient set mathematics go beyond portfolio analysis and into such topics as regression analysis (as demonstrated here).

Investing In Hedge Funds: Risks, Returns And Pitfalls, Francis Koh, Winston T. H. Koh, David Kuo Chuen Lee, Kok Fai Phoon

Research Collection Lee Kong Chian School Of Business

Hedge funds are collective investment vehicles fast becoming popular with high net worth individuals as well as institutional investors. These are funds that are often established with a special legal status that allows their investment managers a free hand to use derivatives, short sell, and exploit leverage to raise returns and cushion risk. Given that that they have substantial latitude to invest, it is instructive to examine the performance of hedge funds compared to other forms of managed funds. This paper provides an overview of hedge funds and discusses their empirical risk and return profiles. It also poses some concerns …

The Search For Stock Market Bubbles: An Examination Of The Nyse Index, Andrew J. Economopoulos, Avinash G. Shetty

Business and Economics Faculty Publications

Many have put forth reasons why the stock market has climbed to new and unprecedented heights. Two reasons are examined: (1) investors are expecting prices to increase and are bidding up price irrationally; (2) investors have moved to a long-term strategy and are requiring a lower risk premium. For the latter reason, the rise in stock prices is due to a change in the fundamentals, and for the former reason the rise represents the classical bubble. The evidence indicates that risk preferences have changed while price momentum does not appear during bubble periods.

An Assessment Of Air Force Development Portfolio Management Practices, Michael A. Greiner, Kevin J. Dooley, Dan L. Shunk, Ross T. Mcnutt

Faculty Publications

Selecting and managing development project portfolios is a critical function within the Air Force’s weapon systems development process. Decision makers must weigh benefits, costs, and mission needs for a variety of proposed new initiatives and current weapon systems programs in order to develop an effective portfolio that provides the best value to the User. This research examines current Air Force development portfolio management practices as perceived by those involved with the decision making process. Research findings indicate several gaps between Air Force practices and those commercial best practices as found in the literature. A general approach for bridging the differences …

Sampling Concepts, Paul Boyd, Ph.D.

MBA Faculty Conference Papers & Journal Articles

The usefulness of any research is dependent upon how well the group studied represents the group about which decisions are to be made or conclusions drawn. That is, it depends upon how well the sample reflects relevant characteristics of the population. When it is possible to study every member of that group there is no problem, for on these occasions we can easily calculate the exact attribute (parameter) of interest for our population.

For example, if we were interested in determining the average number of gallons of gasoline sold to customers at our service station yesterday, we …

Diversification Benefits From Foreign Real Estate Investment, C. Mitchell Conover, H. Swint Friday, G. Stacy Sirmans

Finance Faculty Publications

Previous research has questioned the stability of international equity diversification. This study examines whether foreign real estate exists in a more segmented market and whether foreign real estate provides any diversification benefit beyond that obtainable from foreign stocks. Using data encompassing the stock market crash of 1987, foreign real estate was found to have a lower correlation with U.S. stocks than foreign stocks. This lower correlation is shown to be stable through time as foreign real estate has a lower correlation in nearly the entire time period. Foreign real estate was also found to have a significant weight in efficient …

Evidence Of Short-Run Persistence In Unit Trusts Performance In Malaysia, Chien Hwa Chong, Puay Eng Kho

Student Works (2000-2009)

The objective of this research is to determine whether there is statistical evidence in performance persistence of Malaysia unit trusts. Tests for performance persistence is also tests for weak form market efficiency of unit trusts in Malaysia. The study is also of practical value since performance persistence indicates that past performance is good prediction of future performance. If there was statistical evidence on performance persistence, then Investors should select the unit trusts to invest based on past performance of the unit trusts. Both parametric and non-parametric statistical tests were carried out to test for performance persistence. Parametric tests employed the …

A Study Of Benjamin Graham's Stock Selection Criteria In The Kuala Lumpur Stock Exchange, Lee Fah Thong

Student Works (2000-2009)

The fundamentalists believe that all securities have an intrinsic value, which can differ from its market price and eventually. the market price of a security will gravitate towards its true value. Graham believed that even though securities market could be overall efficient. any conscientious investor could gain superior returns through pockets of inefficiencies by paying close attention to investment fundamentals and taking advantage of undervaluation and mispricing of individual securities. He also proposed ten selection criteria to identify underpriced securities. The study aims to investigate whether the portfolios formed using Grahams selection criteria could achieve superior performance in the Kuala …

Off-Shore Borrowing And Guarantees By Banks: Implication For Portfolio Management., C. C. Edordu

Bullion

The subject I have been asked to reflect on is important and somewhat provocative given the potential significance of foreign capital in the development process and the implied doubt the topic raises about the capacity of banks to manage their portfolios on accessing external finance. With regard to financing tenors, it is pertinent to point out that the tenor of liabilities of most banks in Nigeria and Africa is short. The paper has focused on the various discussions about the conditions for good governance, which raises questions about the structure and functioning of the state, its relationship to society and …

Persistence In Style-Adjusted Mutual Fund Returns, Melvyn Teo, Sung-Jun Woo

Research Collection Lee Kong Chian School Of Business

The literature on mutual fund persistence took a hit with the finding that one-year stock momentum and expense ratios account for most of the persistence in mutual fund performance (Carhart, 1992; Carhart, 1997). However, since equity mutual funds are grouped into styles (e.g., large value, small growth, mid-cap growth, etc.) and are often confined to trading stocks within their style, one should measure fund performance relative to style when investigating managerial ability. Using CRSP mutual fund data and a methodology similar to Carhart (1997), we find that differences in style-adjusted fund returns persist for up to six years. Neither one-year …

Is A Convertible Bond Call Really Bad News?, Louis H. Ederington, Jeremy C. Goh

Research Collection Lee Kong Chian School Of Business

The article tests and rejects the hypothesis that managers call in-the-money convertibles when they view a decline in the value of the firm as likely. Inconsistent with this view, it finds that insiders generally buy equity before conversion-forcing calls. Also, analysts tend to raise their earnings forecasts following a call. There is no evidence that earnings analysts interpret a conversion-forcing call as bad news. Indeed there is evidence that, relative to firms in general, analysts are revising their earnings forecasts upward in the months surrounding conversion-forcing calls. The article concludes that an announcement of a conversion-forcing call of a firm's …

The Effectiveness Of Institutional Activism, Gary L. Caton, Jeremy Goh, Jeffrey Donaldson

Research Collection Lee Kong Chian School Of Business

Researchers examined earnings-forecast revisions and stock returns after release of the Focus List of poorly performing companies by the Council of Institutional Investors. Using Tobin's q as a measure of a company's ability to improve performance, researchers found significant and positive abnormal forecast revisions and post-release stock returns for companies with q greater than one. Findings support the proposition that institutional activism is effective for underperforming companies - but only those companies with the ability to respond to the challenge to improve performance.

An Experimental Study Of Circuit Breakers: The Effects Of Mandated Market Closures And Temporary Halts On Market Behavior, Lucy Ackert, Bryan K. Church, Narayanan Jayaraman

Faculty Articles

This paper analyzes the effect of circuit breakers on price behavior, trading volume, and profit-making ability in a market setting. We conduct nine experimental asset markets to compare behavior across three regulatory regimes: market closure, temporary halt, and no interruption. We find that the presence of a circuit breaker rule does not affect the magnitude of the absolute deviation in price from fundamental value or trading profit. The primary driver of price behavior is information. By comparison, trading activity is significantly affected by the presence of a circuit breaker. Market participants advance trades when a trading interruption is imminent.

An Empirical Examination Of The Price-Dividend Relation With Dividend Management, Lucy F. Ackert, William C. Hunter

Faculty Articles

Some recent empirical evidence suggests that stock prices are not properly modeled as the present discounted value of expected dividends. In this paper, we estimate a present value model of stock price that is capable of explaining the observed long-term trends in stock prices. The model recognizes that firm managers control cash dividend payments. The model estimates indicate that stock price movements may be explained by managerial behavior.

Market Interdependence; Gold Bullion, S&P500, Mining Company Adr’S And Underlying Security Markets, Roberto Curci, Robert A. Clark, Cynthia J. Brown

Scholarship and Professional Work - Business

The internationalization of equity markets appears to be associated with a level of interdependence and transmission of stock price movements across national markets. This study examines the responses of international and ADR securities common stimulus. The study analyzes the equity price behavior of companies engaged in the production of such companies which are cross-listed in U.S. equity markets through ADRs and in underlying economic markets.

Strategic Asset Allocation For Individual Investors: The Impact Of The Present Value Of Social Security Benefits, Steve Fraser, William Jennings, David King

Management Faculty Research and Publications

This paper demonstrates the dramatic effect of social security wealth on individuals’ asset allocation. We first discuss why social security wealth should be included in portfolio asset-mix decisions. We then draw parallels between social security benefits and inflation-indexed treasury bonds to help quantify the present value of social security benefits. Finally, we show the portfolio impact of including social security wealth under several asset-mix decision rules. Excluding social security wealth from the asset mix decision results in sub-optimal portfolios. Including social security wealth provides an incentive for including more stock in the asset mix.

A Comparison Between Eva And Conventional Accounting Performance Measures For Listed Companies In Malaysia, Sow Chen Wong

Student Works (2000-2009)

This research was carried out with two primary objectives namely to investigate the relationship between Economic Value Added (EVA) and stock returns and how it compares with conventional accounting measures in explaining stock returns. The results indicate that there is a significant positive relationship between EVA and stock returns. Although the relationship is positive, it is relatively weak. All the accounting performance measures also exhibit a positive relationship with stocks. With regards to the ability of EVA in explaining stock returns, It was better compared to any of the accounting performance measures. The best accounting measure was price earnings ratio. …