Equity Indexing: Conitegration and Stock Price Dispersion: A Regime Switiching Approach to market Efficiency

This paper examines the performance of a general dynamic equity indexing strategy based on cointegration, from a market efficiency perspective. A consistent return in excess of the benchmark is demonstrated over different time horizons and in different, real world and simulated stock markets. A measure of stock price dispersion is shown to be a leading indicator for the excess return, and their relationship is modelled as a Markov switching process of two market regimes. We find that the entire ‘abnormal return’ is associated with the high volatility regime, so the presence of a latent risk factor cannot be ruled out. Moreover, any market inefficiencies identified by the dynamic indexing model are temporary and occur only in special market circumstances. Our results have implications for equity fund managers: we shown how, without any stock selection, solely through smart optimisation and market timing, the benchmark performance can be significantly enhanced.cointegration, dispersion, efficient market hypothesis equity markets, index tracking, Markov switching

A Comparison of Cointegration & Tracking Error Models for Mutual Funds & Hedge Funds

We present a detailed study of portfolio optimisation based on cointegration, a statistical tool that here exploits a long-run equilibrium relationship between stock prices and an index price. We compare the theoretical and empirical properties of cointegration optimal equity portfolios with those of portfolios optimised on the tracking error variance. From an eleven year out of sample performance analysis we find that for simple index tracking the additional feature of cointegration between the tracking portfolio and the index has no clear advantages or disadvantages relative to the tracking error variance (TEV) minimization model. However ensuring a cointegration relationship does pay off when the tracking task becomes more difficult. Cointegration optimal portfolios clearly dominate the TEV equivalents for all of the statistical arbitrage strategies based on enhanced indexation, in all market circumstancescointegration, tracking error, index tracking, statistical arbitrage

The Cointegration Alpha: Enchanced Index Tracking and Long-Short Equity Market Neutral Stragies

This paper presents two applications of cointegration based trading strategies: a classic index tracking strategy and a long-short equity market neutral strategy. As opposed to other traditional index tracking or long-short equity strategies, the portfolio optimisation is based on cointegration rather than correlation. The first strategy aims to replicate a benchmark accurately in terms of returns and volatility, while the other seeks to minimise volatility and generate steady returns under all market circumstances. Additionally, several combinations of these two strategies are explored. To validate the applicability of the cointegration technique to asset allocation, pioneered by Lucas (1997) and Alexander (1999), and explain how and why it works, we have employed a panel data on DJIA and its constituent stocks. When applied to constructing trading strategies in the DJIA, the cointegration technique produces encouraging results. For example, between January 1995 and December 2001 the most successful self-financing statistical arbitrage strategies returned (net of transaction and repo costs) approximately 10% with roughly 2% annual volatility and negligible correlation with the market. The comprehensive set of back-test results reported is meant to offer a detailed picture of the cointegration mechanism, and to emphasise its practical implementation issues. Its key characteristics, i.e. mean reverting tracking error, enhanced weights stability and better use of the information contained in stock prices, allow a flexible design of various funded and self-financing trading strategies, from index and enhanced index tracking, to long-short market neutral and alpha transfer techniques. Further enhancement of the strategy should target first, the identification of successful stock selection rules to supplement the simple cointegration results and second, the investigation of the potential benefits of applying optimal rebalancing rules.cointegration, enchanced index tracking, long-short equity, market neutral, hedge fund, alpha strategy

Detecting Switching Strategies in Equity Hedge Funds

Equity hedge funds are thought to effectively operate market timing by implementing switching strategies conditional on market circumstances. In this paper we use only the reported monthly returns on a set of funds to infer the type of switching strategies they follow, if any, as well as their switching times. A set of regime-switching models for each equity hedge funds’ returns against various benchmarks are estimated; subsequently we answer the following general questions: What proportion of equity funds seem to have switching strategies in place? Which are the most popular instruments for switching strategies? And what is the relationship between the switching times of different funds? The general methodology applied in this paper may be useful to investors that wish to detect, from only from their reported returns, whether and when a particular fund has been timing the market.

Sources of Over-performance in Equity Markets: Mean Reversion, Common Trends and Herding

In the field of optimisation models for passive investments, we propose a general portfolio construction model based on principal component analysis. The portfolio is designed to replicate the first principal component of a group of stocks, instead of a traditional benchmark, thus capturing only the common trend in the stock returns. The main advantage of this approach is that the reduction of the noise present in stock returns facilitates the replication task considerably and the optimal portfolio structure is very stable. We analyse the portfolio performance over different time horizons and in different international equity markets. The strategy over-performs both equally weighted and price weighted benchmarks, even after transaction costs. A market premium, a value premium associated with mean reversion in stock returns, and a volatility premium which give the strategy characteristics of a benchmark enhancer, all explain the over-performance, but have time-varying contributions to it. A behavioural explanation for the mean reversion mechanism leads to the conclusion that the portfolio performance is influenced by the extent of investors herding towards the common trend in stock returns.common trends, mean revrsion, herding, principal component analysis, abnormal returns, value strategies, behavioural finance

The Art of Investing in Hedge Funds: Fund Selection and Optimal Allocations

With institutional investors increasingly involved in alternative investments, portfolio optimisation within a large universe of hedge funds has become a key area for research. This paper develops a portfolio construction model that is specifically designed for funds of hedge funds, incorporating specific controls for operational limitations, data biases and incompleteness. Absolute performance is targeted by selecting funds according to their relative abnormal return, alpha. Whilst different factor models provide quite different estimates of a hedge fund’s alpha, we find that ranking funds according to their alpha is an efficient selection process. In an extensive out-of-sample historical analysis, funds of funds that are selected in this way and then allocated using constrained minimum variance optimisation are shown to perform much better than the equally weighted portfolio of all funds, or minimum variance portfolios of randomly selected funds. This is true even when hedge funds are selected according to their alphas produced by the simplest factor model. Of the four factor models considered in this analysis the best out-of-sample performance is obtained using the statistical factor model.Hedge fund, risk adjusted performance, mean-variance, constrained optimisation

Stress and anxiety among physicians and nurses in Romania during the COVID-19 pandemic

Objective. This study aimed at identifying the stress and anxiety levels among physicians and nurses working in Romanian hospitals during the COVID-19 pandemic. Methods and Results. We conducted an online survey with a questionnaire completed by 169 healthcare providers aged between 25 and 69 years from COVID and non-COVID hospitals. There were 87.6% physicians and 12.4% nurses, with 61.5% women and 38.5% men. Clinicians experienced high levels of stress in 2.7% of the cases, medium stress in 68.9% of the cases, and low stress in 28.4% of the cases. Women experienced more stress (2.9% high level, 66.3% medium level) than men (1.5% high level, 64.6% medium level), while men are more anxious (73.8% high level, 26.2% medium level) than women (63.6% high level, 33.7% medium level). In both COVID and non-COVID healthcare providers, the stress score directly correlates with the anxiety score. Overall, during this period, the responders felt stressed and anxious (p=0.001). Conclusions. The COVID-19 pandemic is a strong reason for increased stress and anxiety among physicians and nurses. Men are more anxious and women more stressed. The stress and anxiety scores are different according to the hospital type

Preliminary studies regarding antimicrobial effect of various kuwanon G – antibiotic combinations on some MRSA strains

Methicillin-resistant Staphylococcus aureus (MRSA) is a constant therapeutic challenge in humans and animals, due to the limited range of antibiotics that can be used for the management of infections. This preliminary study is based on the assessment of the antibacterial activity of kuwanon G (a prenylated flavonoid present in white mulberry, Morus alba L., Moraceae) and its interactions with various antibiotics (oxacillin, amoxicillin, erythromycin and gentamicin) against four MRSA clinical isolates (MRSA T1 – T4). The sources of all clinical isolates resistant to cefoxitin and oxacillin were infections (recurrent otitis, pyoderma and laryngopharyngitis) in dogs. Minimum inhibitory concentrations (MICs) for kuwanon G and antibiotics were determined by the microdilution method. Interactions between kuwanon G and antibiotics were evaluated by the checkerboard method and time-kill assay. MICs varied between 6.25 and 12.5μg/mL for kuwanon G alone against all four MRSA clinical isolates. According to the calculated fractional inhibitory concentration index, various combinations were synergistic and additive. Microbicidial time has confirmed the synergy as the logarithmic reductions of colony-forming units obtained for the combinations of kuwanon G and some antibiotics were 2log10 lower than the logarithmic reductions obtained for the most potent/active component of the combination. The obtained results are promising, taking into account the antibacterial activity of kuwanon G, as well as its synergistic effects with the most used antibiotics. This study reports on the antibacterial activity of kuwanon G and suggests its ability to act synergistically with antibiotics; combinations effective in combating Gram-positive including MRSA infections might be developed

Prenylated phenolics as promising candidates for combination antibacterial therapy: morusin and kuwanon G

Combination of antibiotics with natural products is a promising strategy for potentiating antibiotic activity and overcoming antibiotic resistance. The purpose of the present study was to investigate whether morusin and kuwanon G, prenylated phenolics in Morus species, have the ability to enhance antibiotic activity and reverse antibiotic resistance in Staphylococcus aureus and Staphylococcus epidermidis. Commonly used antibiotics (oxacillin, erythromycin, gentamicin, ciprofloxacin, tetracycline, clindamycin) were selected for the combination studies. Checkerboard and time-kill assays were used to investigate potential bacteriostatic and bactericidal synergistic interactions, respectively between morusin or kuwanon G and antibiotics. According to both fractional inhibitory concentration index and response surface models, twenty combinations (14 morusin-antibiotic combinations, six kuwanon G-antibiotic combinations) displaying bacteriostatic synergy were identified, with 4–512-fold reduction in the minimum inhibitory concentration values of antibiotics in combination. Both morusin and kuwanon G reversed oxacillin resistance of methicillin-resistant Staphylococcus aureus. In addition, morusin reversed tetracycline resistance of Staphylococcus epidermidis. At half of the minimum inhibitory concentrations, combinations of morusin with oxacillin or gentamicin showed bactericidal synergy against methicillin-resistant Staphylococcus aureus. Fluorescence and differential interference contrast microscopy and scanning electron microscopy showed an increase in the membrane permeability and massive leakage of cellular content in methicillin-resistant Staphylococcus aureus exposed to morusin or kuwanon G. Overall, our findings strongly indicate that both prenylated compounds are good candidates for the development of novel antibacterial combination therapies