How well do conventional stock market indicators predict stock market movements?: Working paper series--03-02

The P/E ratios and the dividend yield of the S&P 500 are analyzed in relation to subsequent stock returns and are show to explain less than 20% of the variation in returns. Some analysts suggest that these indicators should be examined in relation to interest rates. Interest rates are shown not to improve the explanatory power of the indicators. Unfortunately, the conventional indicators studied here are not very helpful and may have caused some investors to miss out on substantial returns

The president's social security plan: How much would you pay to participate? Working paper series--05-07

President Bush is in favor of using private retirement accounts to partially replace the current pay-as-you-go social security program. We use a simple life-cycle model to analyze whether or not private accounts would benefit workers. "Cash equivalents" are calculated under different assumptions to see how much a worker would be willing to pay to participate in the private account program. In most circumstances, workers would benefit from the private account program. Only when market rates of return are very low or a person expects to live for a very long time does the current pay-as-you-go system give a greater present value to a worker

The IPO market: Do investors and analysts who follow IPOs learn? Working paper series--02-26

5370 IPOs are examined between 1975 and 1996 for evidence of trends in investor and analyst behavior over time. Following Ritter (1991) and Loughran and Ritter (1995), wealth relatives are calculated and aftermarket performance is examined each year over the sample period. IPOs followed by analysts, and reported on IBES within one year of the offer date, have consistently outperformed IPOs not followed by analysts. Historically, however, all firms typically underperform the market in years two and three following the IPO. This underperformance appears to change in the years following 1990 when IPOs followed by analysts outperform an industry control in each of the first three years following the IPO. This suggests analysts may be learning over time. Investors, however, do not appear to be learning. In spite of years of evidence showing that the returns of IPOs underperform the market in the years following the offering, no change in investor behavior is shown in recent years

How well do conventional stock market indicators predict stock market movements? Working paper series--03-02

5370 IPOs are examined between 1975 and 1996 for evidence of trends in investor and analyst behavior over time. Following Ritter (1991) and Loughran and Ritter (1995), wealth relatives are calculated and aftermarket performance is examined each year over the sample period. IPOs followed by analysts, and reported on IBES within one year of the offer date, have consistently outperformed IPOs not followed by analysts. Historically, however, all firms typically underperform the market in years two and three following the IPO. This underperformance appears to change in the years following 1990 when IPOs followed by analysts outperform an industry control in each of the first three years following the IPO. This suggests analysts may be learning over time. Investors, however, do not appear to be learning. In spite of years of evidence showing that the returns of IPOs underperform the market in the years following the offering, no change in investor behavior is shown in recent years

Refining our understanding of beta through quantile regressions: Working paper series--10-07

The Capital Asset Pricing Model (CAPM) has been a key theory since the 1960's. One of its main contributions is to attempt to identify how the risk of a particular stock is related to the risk of the overall stock market using the risk measure, beta. If the relationship between an individual stock's returns and the returns of the market exhibit heteroskedasticity, then the estimates of beta for different quantiles of the relationship can be quite different. The behavioral ideas first proposed by Kahneman and Tversky (1979), which they called prospect theory, postulate that i) people exhibit "loss-aversion" in a gain frame, and, ii) people exhibit "risk-seeking" in a loss frame. If this is true people could prefer lower beta stocks after they have experienced a gain and higher beta stocks after they have experienced a loss. Stocks that exhibit converging heteroskedasticty (9.8% of our sample) should be preferred by investors and stocks that exhibit diverging heteroskedasticity (19.8% of our sample) should not be preferred. Investors may be able to benefit by choosing portfolios that are more closely aligned with their preferences

Profits from currency futures based on the random walk hypothesis: Working paper series--03-12

Since the advent of floating exchange rates in 1973 there has been a debate about what is the best predictor of currency spot rates. The two most prominent candidates have been the current futures price and the current spot price. Lee Thomas' (1985, 1986) basic proposition rests on the argument that if the current spot rate follows a driftless random-walk process, then the spot rate of a currency will not tend towards the rate of the futures contract price. In other words, the best predictor of the spot rate in the future is today's spot price and not today's futures contract price. The investing strategy indicated by this belief is to simply buy (go long) any futures contract that is below today's spot price and sell (go short) any contract that is above today's spot price. Results from January of 1990 through March of 2003 show that by following this strategy, 63.0% of the trades result in a profit. Various simulations result in annualized returns from 6.5% to 17.4% and none results in a margin call

Profits From Currency Futures Based On The Random Walk Hypothesis

Since the advent of floating exchange rates in 1973 there has been a debate about what is the best predictor of currency spot rates.  The two most prominent candidates have been the current futures price and the current spot price.  Lee Thomas’ (1985, 1986) basic proposition rests on the argument that if the current spot rate follows a driftless random-walk process, then the spot rate of a currency will not tend toward the rate of the futures contract price.  In other words, the best predictor of the spot rate in the future is today’s spot price and not today’s futures contract price.  The investing strategy indicated by this belief is to simply buy (go long) any futures contract that is below today’s spot price and sell (go short) any contract that is above today’s spot price.  Results from January of 1990 through March of 2003 show that by following this strategy, 63.2% of the trades result in a profit.  Various simulations result in annualized returns from 5.18% to 14.76% and none results in a margin call

The Presidents Social Security Plan: How much would you pay to participate?

President Bush is in favor of using private retirement accounts to partially replace the current pay-as-you-go social security program.  We use a simple life-cycle model to analyze whether or not private accounts would benefit workers.  "Cash equivalents" are calculated under different assumptions to see how much a worker would be willing to pay to participate in the private account program.  In most circumstances, workers would benefit from the private account program.  Only when market rates of return are very low or a person expects to live for a very long time does the current pay-as-you-go system give a greater present value to a worker

Observation and Spectral Measurements of the Crab Nebula with Milagro

The Crab Nebula was detected with the Milagro experiment at a statistical significance of 17 standard deviations over the lifetime of the experiment. The experiment was sensitive to approximately 100 GeV - 100 TeV gamma ray air showers by observing the particle footprint reaching the ground. The fraction of detectors recording signals from photons at the ground is a suitable proxy for the energy of the primary particle and has been used to measure the photon energy spectrum of the Crab Nebula between ~1 and ~100 TeV. The TeV emission is believed to be caused by inverse-Compton up-scattering scattering of ambient photons by an energetic electron population. The location of a TeV steepening or cutoff in the energy spectrum reveals important details about the underlying electron population. We describe the experiment and the technique for distinguishing gamma-ray events from the much more-abundant hadronic events. We describe the calculation of the significance of the excess from the Crab and how the energy spectrum is fit. The fit is consistent with values measured by IACTs between 1 and 20 TeV. Fixing the spectral index to values that have been measured below 1 TeV by IACT experiments (2.4 to 2.6), the fit to the Milagro data suggests that Crab exhibits a spectral steepening or cutoff between about 20 to 40 TeV.Comment: Submitted to Astrophysical Journa

Spectrum and Morphology of the Two Brightest Milagro Sources in the Cygnus Region: MGRO J2019+37 and MGRO J2031+41

The Cygnus region is a very bright and complex portion of the TeV sky, host to unidentified sources and a diffuse excess with respect to conventional cosmic-ray propagation models. Two of the brightest TeV sources, MGRO J2019+37 and MGRO J2031+41, are analyzed using Milagro data with a new technique, and their emission is tested under two different spectral assumptions: a power law and a power law with an exponential cutoff. The new analysis technique is based on an energy estimator that uses the fraction of photomultiplier tubes in the observatory that detect the extensive air shower. The photon spectrum is measured in the range 1 to 200 TeV using the last 3 years of Milagro data (2005-2008), with the detector in its final configuration. MGRO J2019+37 is detected with a significance of 12.3 standard deviations ($\sigma$), and is better fit by a power law with an exponential cutoff than by a simple power law, with a probability $>98$% (F-test). The best-fitting parameters for the power law with exponential cutoff model are a normalization at 10 TeV of $7^{+5}_{-2}\times10^{-10}$ $\mathrm{s^{-1}\: m^{-2}\: TeV^{-1}}$, a spectral index of $2.0^{+0.5}_{-1.0}$ and a cutoff energy of $29^{+50}_{-16}$ TeV. MGRO J2031+41 is detected with a significance of 7.3$\sigma$, with no evidence of a cutoff. The best-fitting parameters for a power law are a normalization of $2.4^{+0.6}_{-0.5}\times10^{-10}$ $\mathrm{s^{-1}\: m^{-2}\: TeV^{-1}}$ and a spectral index of $3.08^{+0.19}_{-0.17}$. The overall flux is subject to an $\sim$30% systematic uncertainty. The systematic uncertainty on the power law indices is $\sim$0.1. A comparison with previous results from TeV J2032+4130, MGRO J2031+41 and MGRO J2019+37 is also presented.Comment: 11 pages, 10 figure