Mark Rubinstein This is the third in a series of articles on Great Moments in Financial Economics to appear in the Journal. For each, the purpose is to trace, as well as the author can, the history of the development of an important idea. In this case, the idea, usually associated with the work of… Read more
Articles
THE MARKET MAKER IN THE AGE OF THE ECN
Wayne H. Wagner Electronic trading venues demonstrate an impressive ability to successfully match trades with high accuracy, low cost, and at remarkable speeds. Are they on track to take over the trading process, or will there always be activities better performed by human beings… Read more
CAN SIMPLE BUY AND SELL RULES INCREASE INDEX FUTURE DAY TRADING PROFITABILITY?
Susana Yu and Joel Rentzler Day trading index futures is popular. Two common strategies are trend-following and gap-reversal. This paper uses these strategies as “base strategies” and asks whether simple intraday exit rules can increase their profitability. Intraday stop-loss exit rules appear to add return to a trend-following base strategy of buying index futures at… Read more
RESAMPLED FRONTIERS VERSUS DIFFUSE BAYES: AN EXPERIMENT
Harry M. Markowitz and Nilufer Usmen… Read more
INDEXATION OF MOMENTUM EFFECTS
Eugene Y. Lee Momentum is now viewed as another factor of equity returns in addition to factors such as beta, market capitalization, and market-to-book ratio. In this paper, I propose indexation of momentum effects to pave the way for development of the momentum-based investment products and for improved performance evaluation of the actively managed funds… Read more
LONG-RUN INVESTMENT MANAGEMENT FEE INCENTIVES AND DISCRIMINATING BETWEEN TALENTED AND UNTALENTED MANAGERS
Robert Ferguson and Dean Leistikow Ferguson and Leistikow [(1997). Journal of Financial Engineering 6, 1–30] (FLa) was the first long-run risk-neutral analysis of the performance volatility incentives created by investment management fee structures. This paper extends FLa in six ways. It allows the portfolio’s value to change, incorporates expected investment performance, and addresses expenses and… Read more
PRICE DISCOVERY FOR CROSS-LISTED STOCKS
Cheol S. Euna and Sanjiv Sabherwal We investigate price discovery for internationally traded stocks. For a sample of Canadian stocks cross-listed on the Toronto Stock Exchange (TSE) and the NYSE, we find that both markets contribute to price discovery. The US share of price discovery ranges from 0.4% to 98.1%, and averages 36%. The US… Read more
TIME DIVERSIFICATION
Jack L. Treynor To maintain constant dollar risk, an investor concerned with his terminal wealth must sell when the stock market rises and buy when it falls. Although an asset with constant dollar risk doesn’t exist in nature, it can be approximated with actual investment positions… Read more
IS STOCK RETURN PREDICTABILITY SPURIOUS?
Wayne E. Ferson, Sergei Sarkissian, and Timothy Simin Two problems, spurious regression bias and naïve data mining, conspire to mislead analysts about predictive models for stock returns. This article demonstrates the two problems, how they interact, and makes suggestions for what to do about it… Read more
FUND MANAGERS MAY CAUSE THEIR BENCHMARKS TO BE PRICED “RISKS”
Michael Stutzer The presence of a positive intercept (“alpha”) in a regression of an investment fund’s excess returns on a broad market portfolio’s excess return (as in the CAPM), and other “factor” portfolios’ excess returns (e.g. the Fama and French factors) is frequently interpreted as evidence of superior fund performance. This paper theoretically and empirically… Read more