Dynamic behavior of value and growth stocks

The difference between the performance of growth and value portfolios presents an interesting puzzle for researchers in finance. Most studies showed that value stocks outperform growth stocks. This is the so-called value premium. In this article, we try to find an answer to the question as to why value stocks generate superior returns to growth stocks by dividing growth and value stocks into switching- and fixed-style stocks. We show that the difference in returns between value and growth stocks is caused by frequently rebalancing portfolios and find a value premium for the switching-style stocks and a growth premium for the fixed-style stocks. We will try to find an explanation for this phenomenon using the behavioral finance explanation that investors are unable to process information correctly. We use earnings announcement return data to test whether expectations of investors about future growth are too extreme.

Path integral formulation of the tunneling dynamics of a superfluid Fermi gas in an optical potential

To describe the tunneling dynamics of a stack of two-dimensional fermionic superfluids in an optical potential, we derive an effective action functional from a path integral treatment. This effective action leads, in the saddle point approximation, to equations of motion for the density and the phase of the superfluid Fermi gas in each layer. In the strong coupling limit (where bosonic molecules are formed) these equations reduce to a discrete nonlinear Schrodinger equation, where the molecular tunneling amplitude is reduced for large binding energies. In the weak coupling (BCS) regime, we study the evolution of the stacked superfluids and derive an approximate analytical expression for the Josephson oscillation frequency in an external harmonic potential. Both in the weak and intermediate coupling regimes the detection of the Josephson oscillations described by our path integral treatment constitutes experimental evidence for the fermionic superfluid regime.Comment: 13 pages + 2 figure

Style investing:behavioral explanations of stock market anomalies

Abstract PhD-project The aim of this thesis is to explore the mechanisms of style investing. My project consists of two parts, each with an individual goal: 1. The first objective will be to analyze the implications of the dynamics of value and growth strategies for the US stock market. 2. The second objective will be to find explanations for stock returns by introducing the effects of collective preferences of investors into the dynamics of stock markets. We introduce style popularity as an important influencing factor in the investment process. By analyzing alternative methods with a more sophisticated ranking we want to show better insights in the dynamical process of value stocks. We make a distinction between switching versus fixed-style stocks. Within each style we distinguish between stocks that stay for one period and stocks that stay for two or more periods within a particular style. We analyze how stocks behave when they switch from style and what variables or factors are important to explain the style-switching behaviour. We find that only a small fraction of the value group is responsible for the value premium, namely the switching-style stocks. Theories regarding the value premium like the error-in-expectation hypothesis are tested with this new classification. This leads to new insights and conclusions for the value premium. The sub division of value and growth stocks into switching versus fixed-style stocks is critical note against style investing, because the label of value or growth stocks is limited. To profit from particular investment styles portfolio managers have to choose stocks that migrate from one style to another. The second objective is to develop an alternative perspective on the performance of style investing. Barberis and Shleifer (2003) created a model that is based on a demand-driven process. Stock returns are determined by investors who base their asset choice on a group level instead of an individual level of stocks. The investment process is in terms of investment cycles where the demand of a particular style is based on the past performance of the style. Instead of choosing a passive benchmark and trying to beat this benchmark by over- and underweighting stocks investors nowadays choose a particular style that did well in the past and hope that this will be a guarantee for future performance. We describe the popularity of investment styles as collective preferences of individuals and the changes of such preferences over time. In order to measure popularity, it will be necessary to construct a popularity index for different investment styles. Using different variables that reflect popularity we create a popularity index that reflects whether a style is popular or not. Having constructed a popularity index, it will be possible to check to what extent these portfolios are exposed to style investing or style popularity. In addition, the time series of returns form the different investment styles will be used to show that past performance is a guarantee for the attractiveness of investment styles