Comparing large-sample maximum Sharpe ratios and incremental variable testing

Most existing results on the distribution of the maximum Sharpe ratio depend on the assumption of multivariate normal return distributions. We use recent results from the literature to provide an analytical representation of the distribution of the difference between two maximum Sharpe ratios for much less restrictive distributional assumptions, both with and without short sales. Knowing the distribution of the difference enables us to test ex ante whether or not the inclusion of additional variables leads to a significant improvement in the maximum Sharpe ratio. In addition, we characterize the optimal long-only solution and provide conditions for global optimality

Tax avoidance as an investment style : a graphical time series approach

Corporate tax avoidance has been very topical mainly due to the aggressive tax strategies implemented by large corporations in recent years. Corporate tax management has always been a part of core business (Bowers, 2015) and is an essential component of tax strategy (Atwood, Drake, Myers & Myers, 2012). Management is encouraged to make tax efficient decisions where the marginal benefit is greater than the marginal cost thereof (Hanlon & Heitzman, 2010). Benefits associated with tax avoidance include cash tax savings amongst others (Inger, 2014) which positively impacts earnings forecasts and company valuations. The purpose of the research report was to establish whether a style based investment strategy focused on levels of tax avoidance would yield superior returns compared to the benchmark for investors. The literature review provided insights into tax avoidance such as the associated benefits and cost together with the impact on firm value. Data related to company performance as well as financial data for companies included in the JSE All Share Index was collected for the period 2002 to 2019. Muller and Ward’s (2013) investment research style methodology was used which examines the effect of style-based strategies on the performance of JSE listed companies. Based on the results of the sample, levels of tax avoidance was not associated with increased company performance. The results supported prior literature findings in terms of confirming that the optimal tax avoidance levels of companies should be considered when making investment decisions as well as the impact of overly aggressive or conservative tax avoidance strategies on company performance and firm valueMini Dissertation (MBA)--University of Pretoria, 2019.pt2020Gordon Institute of Business Science (GIBS)MB