Optimal f and Portfolio Return Optimisation in US Futures Markets

While considerable evidence has been produced concerning the efficacy of trading rules in futures markets, the results have generally not allowed for the reinvestment of profits as might be observed for real traders. Similarly, the determination of the appropriate capital allocation required per futures contract traded has been largely unstructured so making reported percentage returns questionable. This paper provides evidence of the profitability of a simple and publicly available trading rule in five futures markets but more importantly incorporates the ability to reinvest any profits via the ‘Optimal f’ technique described by Vince (1990). The results indicate that money management in speculative futures trading plays a more important role in trading rule profitability than previously considered by providing dramatic differences in profitability depending on how aggressively the trader capitalises each futures contract.Futures, Optimal f, Money Management, Trading Rules, Technical Analysis.

Liquidity management around seasoned equity offerings

We investigate firms' liquidity practices around seasoned equity offerings (SEOs). We broadly classify issuers on the basis of whether the firm belongs to an industry deemed to be financially constrained or unconstrained. We find that constrained-industry issuers tend to save more cash to conserve funding capacity in anticipating investment. Unconstrained industry issuers, in contrast, carry high debt and limited cash reflecting a sizable financial leash. We also find that the former firms experience significant cash stockpiling following new equity issues, whereasforthe lattergroup, there is a significant decline in long-term debt. In the long run, unconstrained issuers who aggressively manage liquidity pre-issue have lower operating profit. However, the relation does not hold for market-based performance because investors, observingthe liquidity information, quickly discount stock value at the time of the offering. Rather, post-issue market underperformance can be attributed to investors' downward revisions relating to the transitory nature of investment opportunities

A LIKELIHOOD RATIO TEST OF THE ZERO‐BETA CAPM IN AUSTRALIAN EQUITY RETURNS

This paper tests the zero‐beta CAPM with Australian equity returns, using the multivariate approach developed by Gibbons (1982). For the period 1958 to 1987, based on its asymptotic distribution, the likelihood ratio test (LRT) statistic indicates a strong rejection of the model when an equally weighted market index is used. However, small sample adjustments to the test suggested by Jobson and Korkie (1982) and by Shanken (1985) place the validity of this conclusion in some doubt. When a value weighted market index is used for the period 1974 to 1987, the tests reveal at least moderate support for the zero‐beta CAPM

A simple template for pitching research

In this article, I propose a simple new research tool – a template designed for pitching research. The two-page pitching template begins with four ‘preliminaries’: working title, research question, key papers and motivation. Following this is the core of the template based on a ‘3-2-1 countdown’, namely THREE elements – idea, data and tools; TWO questions – What's new? and So what?; and ONE bottom line – contribution. The template ends with ‘other’ considerations. Finance and accounting examples are given to illustrate application of the template

An Empirical Test of the Arbitrage Pricing Theory on Australian Stock Returns 1974‐85

This paper examines empirically, issues concerning the Arbitrage Pricing Theory (APT). Firstly, in the spirit of Chamberlain and Rothschild [1983], the existence of an approximate factor structure is explored. Secondly, following Beggs [1986] and employing a principal components approach, a test of arbitrage pricing and the importance of the error of approximation, is conducted. Finally, using a non nested framework, the APT and CAPM are tested against each other. The results show mixed support for the APT having up to 3 priced factors

Creating fama and french factors with style

This paper utilizes Frank Russell style portfolios to create useful proxies for the Fama and French (1992) factors. The proxy-mimicking portfolios are shown to represent a pervasive source of exposure across U.S. industry portfolios and to generally possess similar properties to those utilized in the finance literature. Further, a set of multivariate asset-pricing tests of the three-factor Fama and French asset-pricing (FF) model based on the proxy factors fails to reject the model. However, these tests do not reveal strong evidence of significantly positive risk premiums, particularly in the case of the size and book-to-market factors

A Multivariate Test of an Equilibrium APT with Time Varying Risk Premia in the Australian Equity Market

This paper applies an asymptotic principal components technique, developed by Connor and Korajczyk (1988), to test an equilibrium version of the Arbitrage Pricing Theory (APT), which permits time varying risk premia, using Australian equity data. Cross-equation restrictions imposed by the APT on a multivariate regression of excess returns on derived factors are tested. Both one-step and iterative versions of the technique are used and results are compared to the capital asset pricing model (CAPM). While the APT appears to perfor M better than the CAPM, neither model can adequately explain monthly seasonal mispricing in Australian equities

The empirical relationship between aggregate consumption and security prices in Australia

This paper provides an empirical examination of the consumption-based capital asset pricing model (CCAPM) using Australian data. Multivariate tests of the CCAPM using actual quarterly consumption data indicate good support for the CCAPM. In a second phase of tests, the maximum correlation portfolio (MCP) is used to proxy the consumption variable using monthly data. Generally, the results of these tests are very mixed. Finally, for non-nested tests of the CCAPM versus the CAPM the evidence favours the traditional CAPM using quarterly data, but is inconclusive using monthly data