Profitability of Index-based Size and Style Rotation Strategies in the UK Equity Markets

The objective of this paper is to examine whether short-term directional variation in the size and style spreads of indices in the UK equity market is predictable and exploitable by means of active style rotation strategies. Using a set of market related, macroeconomic and fundamental variables chosen by the Principal Component Analysis (PCA) method, we employ a recursive dynamic modelling approach (logit model) to predict the direction of the style index return spreads. Our style rotation strategies are based on small-capitalisation, large-capitalisation, value and growth segments of the market, using the appropriate style benchmark indices as proxies for styles, namely: FTSE 350 Value, FTSE 350 Growth, FTSE Small Cap and FTSE 100. The period analysed is January 1987 to May 2005. The results indicate that the optimal long only and long/short style rotation strategies are profitable for UK investors and that both the size of transaction costs and the strength of the forecasting signal play an important role in determining the profitability of the rotation strategy. Finally, we believe that there are two comparatively simple and cheap ways in which the suggested rotation strategies can be applied by a real-world investor: through ETFs and stock index futures.PCA, Logit model, value/growth and small/large style rotation

REWARDING AND SUCCESS OF INFORMATION SYSTEMS DEVELOPMENT PROJECTS

The purpose of the research is to determine the causes of failure of information systems development projects. We came to the hypothesis that rewarding can improve the success of information systems development projects. For this reason, it is suggested that employment contracts be tied to business results. Extrinsic and intrinsic rewards are a good motivator that affects the improvement of employee performance, i.e. increases productivity, business results and job satisfaction and contributes to increasing the success of information systems development projects. Designers and managers of information systems development projects who participated in the research, gave their views on the impact of rewards on the success of the information systems development project in response to survey questions. The attitudes were evaluated on a five-point Likert scales. We obtained additional data based on conversations with managers and designers who deal with the development of information systems. Through the research design, we determined an independent variable related to the employment contract based on business results, which is the basis for the application of various forms of remuneration, and a dependent variable related to the success of the information systems development project. The main findings of the research are related to the definition of the contract between the owner on the one hand and managers and designers on the other hand, which solves the problems of opportunistic behavior of managers and designers of information systems development project. In addition, the factors of extrinsic and intrinsic rewards that are most often used to motivate managers and designers of information systems development are defined. The practical implications of the research refer to the benefits that the company owner, managers and designers of the information systems development will have. They will receive the best model of employment contract for employees working on the development of an information systems project. In addition, they will receive information about the views of designers and project managers related to reward factors that improve the success of the information systems development project. The originality of the research refers to the creation of a model that links the work contract based on business results with reward factors that help to increase the success of the information systems development project

A dynamic look-ahead Monte Carlo algorithm for pricing Bermudan options

Under the assumption of no-arbitrage, the pricing of American and Bermudan options can be casted into optimal stopping problems. We propose a new adaptive simulation based algorithm for the numerical solution of optimal stopping problems in discrete time. Our approach is to recursively compute the so-called continuation values. They are defined as regression functions of the cash flow, which would occur over a series of subsequent time periods, if the approximated optimal exercise strategy is applied. We use nonparametric least squares regression estimates to approximate the continuation values from a set of sample paths which we simulate from the underlying stochastic process. The parameters of the regression estimates and the regression problems are chosen in a data-dependent manner. We present results concerning the consistency and rate of convergence of the new algorithm. Finally, we illustrate its performance by pricing high-dimensional Bermudan basket options with strangle-spread payoff based on the average of the underlying assets.Comment: Published in at http://dx.doi.org/10.1214/105051607000000249 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org

Determination of orbits of comets: P/Kearns-Kwee, P/Gunn, including nongravitational effects in the comets' motion

To improve the orbits, all the positional observations of the comets were collected. The observations were selected and weighted according to objective mathematical criteria and the mean residuals a priori were calculated for both comets. We took into account nongravitational effects in the comets' motion using Marsden's method applied in two ways: either determining the three constant parameters, A(sub 1), A(sub 2), A(sub 3) or the four parameters A, eta, I, phi connected with the rotating nucleus of the comet. To link successfully all the observations, we had to assume for both comets that A(t) = A(sub O)exp(-B x t) where B was an additional nongravitational parameter

Benchmark-adjusted performance of US equity mutual funds and the issue of prospectus benchmarks

This study examines the impact of mismatch between prospectus benchmark and fund objectives on benchmark-adjusted fund performance and ranking in a sample of 1281 US equity mutual funds. All funds in our sample report S&P500 index as a prospectus benchmark, yet 2/3 of those are placed in the Morningstar category with risk and objectives different to those of the S&P500 index. We identify more appropriate ‘category benchmarks’ for those mismatched funds and obtain their benchmark-adjusted alphas using recent Angelidis et al. (J Bank Finance 37(5):1759–1776, 2013) methodology. We find that S&P500-adjusted alphas are higher than ‘category benchmark’-adjusted alphas in 61.2% of the cases. In terms of fund quartile rankings, 30% of winner funds lose that status when the prospectus benchmark is substituted with the one better matching their objectives. In the remaining performance quartiles, there is no clear advantage of using S&P 500 as a benchmark. Hence, the prospectus benchmark can mislead investors about fund’s relative performance and ranking, so any reference to performance in a fund’s prospectus should be treated with caution