Joseph Cerniglia and Joshua Livnat Volume 6, Number 2, Second Quarter 2008 This study investigates whether stock market reactions to earnings information of firms that release their earnings close to quarter-end (Early) are systematically different from their industry peers which report later during the quarter (Late). Unexpectedly, we find that immediate market reactions to early… Read more
Articles
Optimal Static Allocation Decisions in the Presence of Portfolio Insurance
Felix Goltz, Lionel Martellini and Koray D. Simsek Volume 6, Number 2, Second Quarter 2008 The focus of this paper is to determine what fraction a myopic risk-averse investor should allocate to investment strategies with convex exposure to stock market returns in a general economy with stochastically time-varying interest rates and equity risk premium. Our… Read more
Are Analysts All Alike? Identifying Earnings Forecasting Ability
Louis K. C. Chan, David Ikenberry, Josef Lakonishok and Sangwoo Lee Volume 6, Number 2, Second Quarter 2008 Investors and the financial media apparently believe that some Wall Street equity analysts research is superior to others. We examine whether such quality differentials exist, in terms of analysts ability to forecast earnings accurately, and whether these… Read more
Noise, CAPM and the Size and Value Effects
Robert Arnott and Jason Hsu Volume 6, Number 1, First Quarter 2008 We model a continuous time one factor economy where stock prices are noisy proxies of the informationally efficient stock values. The pricing error process is modeled as a mean-reverting process, which gives us a well-defined notion of over-pricing (positive pricing error) and under-pricing… Read more
A Model of Fund Growth For Managed Futures: Evidence of Managerial Skill
Paul Lajbcygier Volume 6, Number 1, First Quarter 2008 Fund size is an essential component of a funds overall value. In this work, we argue that growth in fund size results from managerial skill. To test this argument, we estimate a model that links fund growth to performance characteristics. We use the model to isolate… Read more
The Profound Effects of Automation on Stock Markets Around the World
Pankaj K. Jain Volume 6, Number 1, First Quarter 2008 We document the profound impact of technology on the functioning of financial markets around the world. Specially, we report a strong trend towards fully automated trading systems. This trend is associated with a significant decline in the cost of equity capital. These findings are consistent… Read more
Bayes vs. Resampling: A Rematch
Campbell R. Harvey, John C. Liechty and Merrill W. Liechty Volume 6, Number 1, First Quarter 2008 We replay an investment game that compares the performance of a player using Bayesian methods for determining portfolio weights with a player that uses the Monte Carlo based resampling approach advocated in Michaud (Efficient Asset Management. Boston: Harvard… Read more
Estimation Error and Portfolio Optimization: A Resampling Solution
Richard Michaud and Robert Michaud Volume 6, Number 1, First Quarter 2008 Markowitz (1959) mean-variance (MV) portfolio optimization has been the practical standard for asset allocation and equity portfolio management for almost 50 years. However it is known to be overly sensitive to estimation error in risk-return estimates and have poor out-of-sample performance characteristics. The… Read more
Interest Rate Models Implied Volatility Function Stochastic Movements
Thomas S. Y. Ho and Blessing Mudavanhu Volume 5, Number 4, Fourth Quarter 2007 This paper presents a one-factor and a two-factor arbitrage-free interest rate models with parsimonious implied volatility functions. The models are empirically tested on the entire swaption surface in three currencies (US dollar, Euro, and Japanese yen) over a 5-year period. They… Read more
The Pricing of Credit Default Swaps During Distress
Jochen R. Andritzky and Manmohan Singh Volume 5, Number 4, Fourth Quarter 2007 Credit default swaps (CDS) provide the buyer with insurance against certain types of credit events by entitling him to exchange any of the bonds permitted as deliverable against their par value. Unlike bonds, whose risk spreads are assumed to be the product… Read more