51 research outputs found
Short term persistence in mutual fund market timing and stock selection abilities
Using daily return data from 448 actively managed mutual funds over a recent 9-
year period, we look for persistence, over two consecutive quarters, in the ability of
funds to select individual stocks and time the market. That is, we decompose overall
fund performance into excess returns resulting from stock selection and timing abilities
and we separately test for persistence in each ability. We ¯nd persistence in the ability
to time the market only among well performing funds and in the ability to select stocks
only among the very best and worst performers. The existing literature patterns appear
only when funds are ranked by their overall performance, which includes stock selection,
market timing and fees. With respect to overall performance, there is persistence among
most poorly performing and only the top well performing funds. Furthermore, the
pro¯tability of a winner-picking strategy depends on the rebalancing frequency and
potentially the size of the investment. Small investors cannot pro¯t, whereas large
investors can take advantage of the class A share fee structure and realize positive
abnormal returns by annually rebalancing their portfolios
Testing the PIN variable
This paper puts the PIN variable (Probability of INformation-based
trading) to test. We ¯nd that for a large set of stocks, the PIN vari-
able is lower (albeit insigni¯cantly) in the periods before earnings an-
nouncements dates than in the periods after earnings announcements
dates. This is inconsistent with the idea of PIN capturing the proba-
bility of informed trading
Patriotic name bias and stock returns
Companies whose names contain the words “America(n)” or “USA” earn positive abnormal
returns of about 6% per annum during the Second World War, the War in
Korea and the War on Terror. These abnormal returns are not realized immediately
upon the outbreak of each of the wars but are accumulated gradually during wartime.
Given that no such effect is observed for the Vietnam War, we hypothesize that major,
victorious wars arouse investors’ patriotic feelings and cause them to gradually and
perhaps subconsciously gravitate toward stocks whose name has a patriotic flavor
Liberalism and home equity bias
Countries whose citizens have liberal ideals are less biased toward domestic equity. Data
from 30 countries suggests that economic as well as social liberalism is associated with
proportionally higher foreign equity holdings. A one standard deviation increase in the
level of economic (social) liberalism relative to time-series and cross-sectional averages,
is associated with a 5% (2%) relative decrease of home equity bias. These results hold
after controlling for standard rational and behavioral explanations of the home equity
bias as well as country and time fixed effects
Funding constraints and liquidity in two-tiered OTC markets
Using primary dealer transactional data from the government bond (gilt) market in the United Kingdom, we identify a new channel through which dealer funding constraints may impair liquidity in two-tiered OTC markets. The key finding is that funding constraints also inhibit dealers' ability to accommodate each others' trade requests in the inter-dealer segment, which limits their collective ability to manage inventories and share risk. As a result, funding constraints end up compromising liquidity above and beyond any direct effects caused by dealers' inability to accommodate client trade requests due to their individual balance sheet constraints
Price discovery and the cross-section of high-frequency trading
We quantify the price discovery contribution of high-frequency traders (HFTs) in the United Kingdom equity market and examine how it varies in their cross-section. For this, we group individual HFTs according to their liquidity taking/making activity. HFTs contribute about 14% of all trade-induced information, with aggressive HFTs accounting for two-thirds of this contribution. This suggests that HFTs who pursue strategies that require use of aggressive trades are the most informed, as opposed to passive HFTs who more likely act as market makers. However, information shares decline with the amount of aggressive volume, suggesting that HFTs' news trading strategies are not scalable. JEL classification: G1
Testing the PIN variable
This paper puts the PIN variable (Probability of INformation-based
trading) to test. We ¯nd that for a large set of stocks, the PIN vari-
able is lower (albeit insigni¯cantly) in the periods before earnings an-
nouncements dates than in the periods after earnings announcements
dates. This is inconsistent with the idea of PIN capturing the proba-
bility of informed trading
Liberalism and home equity bias
Countries whose citizens have liberal ideals are less biased toward domestic equity. Data
from 30 countries suggests that economic as well as social liberalism is associated with
proportionally higher foreign equity holdings. A one standard deviation increase in the
level of economic (social) liberalism relative to time-series and cross-sectional averages,
is associated with a 5% (2%) relative decrease of home equity bias. These results hold
after controlling for standard rational and behavioral explanations of the home equity
bias as well as country and time fixed effects
Short term persistence in mutual fund market timing and stock selection abilities
Using daily return data from 448 actively managed mutual funds over a recent 9-
year period, we look for persistence, over two consecutive quarters, in the ability of
funds to select individual stocks and time the market. That is, we decompose overall
fund performance into excess returns resulting from stock selection and timing abilities
and we separately test for persistence in each ability. We ¯nd persistence in the ability
to time the market only among well performing funds and in the ability to select stocks
only among the very best and worst performers. The existing literature patterns appear
only when funds are ranked by their overall performance, which includes stock selection,
market timing and fees. With respect to overall performance, there is persistence among
most poorly performing and only the top well performing funds. Furthermore, the
pro¯tability of a winner-picking strategy depends on the rebalancing frequency and
potentially the size of the investment. Small investors cannot pro¯t, whereas large
investors can take advantage of the class A share fee structure and realize positive
abnormal returns by annually rebalancing their portfolios
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