As described above, this article investigates the bond market integrity and market timing ability in Taiwan’s bond market, and thus the dataset consists of bond funds issued in Taiwan. For the purpose of comparison, the sample period for the study covers ten years, from January 2001 to June 2010. Table 1 presents a total of 32 bond funds’ name, trading code, and date of establishment. The data were obtained from the Taiwan Economic Journal (hence TEJ) database.
10 Read more
However, the nonparametric test also embodies some relatively mild restrictions on behaviour. First, the test requires β t be a non-decreasing function of ˆ r m,t+1 . Grinblatt and Titman (1989) demonstrate that this requires (i) non-increasing absolute risk aversion, (ii) independently and identically distributed (iid) market returns and (iii) independent selectivity and timing information. First, the requirement of non-increasing absolute risk aversion is less restrictive than that of the TM and HM measures which require specific linear and binary response functions respectively. For example, the linear response function embodied in the TM measure is consistent with the manager maximising a Constant Absolute Risk Aversion (CARA) preference function (Admati et al, 1986). However, such an assumption is questionable if there is non-linearity in the payment to fund managers in respect of benchmark evaluation (Admati and Pfleiderer, 1997), option compensation (Carpenter, 2000) and a non-linear performance-flow responses by investors (Chevalier and Ellison, 1997). Second, the iid assumption rules out heteroscedasticity in market returns and hence volatility timing by fund managers – but empirically this effect appears to be weak (Busse 1999). Third, distinguishing between timing and selectivity skill in the attribution of performance is difficult empirically though independent selectivity and timing information is a common assumption (see Admati et al 1986, Grinblatt and Titman 1989). As discussed previously, Jagannathan and Korajczyk (1986) question this assumption with respect to options and option- like securities with nonlinear pay-offs. The non-parametric measure, like that of TM and HM, cannot distinguish between market timing and spurious option related effects. However, all funds examined in this study are comprised of at least 80% UK domestic equity (typically funds hold an even higher percentage) so any distortion due to holding options is likely to be relatively small 7 .
27 Read more
With the development of China’s stock market, equity mutual funds are playing a more and more important role in shaping the market. However, with some many funds in the present market, which ones are able to predict the future market movements and adjust the risk exposure of their fund portfolios correspondingly to make reasonable return faced by various mar- ket conditions? Based on the former study, this paper uses a new method to reexamine the market-timing ability of open-end, equity funds in China, that is, to decompose the market-timing ability into cash-flow timing and discount rate timing. This differentiation provides a more specific metric to measure the funds’ market timing performance besides rate of return, T-M measure and H-M measure, etc. The empirical study reveals that on average, Chinese equity fund managers can bring about 0.58% excess return per year when timing the aggregate stock market, but it is not significant at any rea- sonable levels. However, the writer finds there have significant timing skill in Chinese equity fund managers who can predict the changes of discount rate and it is highly unlikely to find an equity fund that can make continuous pos- itive return as it declares. Therefore, it is hard for a common investor to make abnormal returns through investing capital in the mutual funds for a long time.
23 Read more
To anticipate our forecasting results, we find that the MS-VECM that allows for inter- national spillovers does not outperform the competing models examined in terms of point forecasting performance. However, our model significantly outperforms all of the competing models both in terms of market timing ability and in terms of density forecasting performance in that it generates predictive densities that are much closer to the true predictive density of the data. 4 Overall, these results suggest that, while the statistical performance of the linear and nonlinear models examined in this paper diﬀers little in terms of conditional mean, investigation of hit rates and market timing ability suggests that the most general nonlinear model proposed performs better in forecasting the direction of future stock returns. In addition, inspection of the predictive densities implied by the various models also allows us to discriminate between models, indicating that both multiple regimes and the allowance for international spillovers are important ingredients for a model to produce satisfactory predictive densities. This implies that, although the various models examined do not diﬀer statistically in terms of their pre- dictive performance with respect to the conditional mean, the most general nonlinear model proposed provides a better characterization of the uncertainty surrounding the point forecasts. We illustrate the practical importance of our results on density forecasting with a simple
38 Read more
The academic literature on mutual funds market timing and stock selection is exhaustive There has been mixed results about the superior performance by active fund managers. The classic work of Jensen (1968) shows that on an average mutual funds do not outperform the index and outperformance if any is due to luck. Several other works of Malkiel (1995), Gruber (1996), Cahart (1997), Scaillet, and Wermers (2010) support Jensen`s findings. On the other hand there were studies like Grinblatt and Titman (1989), Grinblatt and Titman (1993) and Wermers (2000) showed a positive outperformance. Treynor and Mauzy (1966) investigated if portfolio managers can outguess the market. TM included a quadratic term to the original CAPM, to test for market timing to find if there any convex relation between market beta and the return on the market. They found that only one out of the 57 funds in their sample had significant market timing ability at 95% confidence level. The study concluded that the fund managers were unable to time the market.
22 Read more
of firms was significantly extended. In fact, three main theories have been developed to explain the financial structure of firms. The first theory called “trade-off”, the second is referred to as the theory of hierarchical funding or “ pecking order ” . These first two the- ories are considered, for more than long, as two theoretical frameworks of reference for researchers while studying the capital’s structure of firms. The work of Becker and Wurgler (2002) leads to the emergence of a third theoretical analysis, known under the name of the modern theory of the firm or still under the acronym of “ Market Timing Theory of Capital Structure ” . It is thanks to their work that many searches are based on this new theory of “ market timing ” in the study of the determinants of capital ’ s structure of enterprises. First, our goal is to adopt the main explanatory factors of the structural variations observed in the levels of debt. Then, we will attempt to test the various models arising from each theory to determine which one that best matches the context of Tunisia. We have analyzed the structure of the capital of a sample of Tunisian listed companies in the light of different financial theories (Adedeji 1998, Bacha and Attia 2016).
25 Read more
HXSS announced the plan for HXSS’ first private issuing of A-shares on 6 June 2013, and the stock price was still at historic lows. According to the company announcement and executives explain that a number of execu- tive purposes to participate in the private placement can be summed up as confidence in enterprise development and optimistic about the future development of the industry. While the reaction of the secondary market unex- pectedly, and it later settled the day down 5.21% and the closing price at RMB 4.37, respectively, once trading resumed. On June 24th 2013, the stock price has fallen sharply below the offering price of RMB 3.83 per share. After a period of ups and downs, until April 2nd 2014, HXSS’s announced that 90 million shares of funds have been credited into account, and closed at RMB 3.80 per share, closing to the offering price. Then, on April 4th 2014, HXSS’s closing price of 3.84 yuan per share, higher than the issuance price. Thereafter, on April 18th, 2014, HXSS posted the annual financial report and announced that company had made a profit instead of suf- fering a loss. Figure 1 shows that the price’s changes of HXSS from May 2013 to April 2014.
12 Read more
The M & M ratio is also derived from the Sharpe ratio. It measures the returns of portfolio P while taking into consideration the amount of the portfolio risk relative to a benchmark. The intuition behind this measure is that a manager who has taken the same risk as its benchmark should generate returns similar to the benchmark. If the manager’s portfolio gives superior returns, it means that we are witnessing a higher performance. The latter is captured by the M&M ratio and can be considered as the incremental return added as compared to the level of market (benchmark) risk. The M&M measure can be written as follows:
A.1. Sample. The B&B 93:03 sample is based on the 1993 National Postsec- ondary Student Aid Study, 48 restricted to students who were identified as bac- calaureate recipients in the 1992-1993 school year. We use the restricted-access version of this dataset to generate the moments we match in our simulation. Since the simulation exercise was not done within the secure data environment, all data used in the estimation – as well as descriptive statistics reported elsewhere in the paper – have to meet disclosure restrictions. This requirement imposes two sub- stantial limitations for our purposes: all sample sizes and frequency counts must be rounded to the nearest 10, and no values can be reported for cells with fewer than 3 individuals. While the estimation procedure uses percentage frequencies rather than count data, the second restriction results in some data loss: this is particularly the case for wage data, which we measure separately for those who switch fields and those who do not, within each major-timing of specialization cell. While college graduates are likely to be more homogenous in ability than other groups (for instance, college entrants), they are nevertheless a disparate collection of individuals. We restrict the sample in a number of ways, both due to data quality and for conceptual reasons. The entire sample includes 10,980 individuals. We first restrict to individuals who are between 21 and 23 years of age at college graduation, reducing the sample to 7,090. Many of these students transferred institutions some years into their studies. Unfortunately, detailed course data is only available from the degree-granting university; in many cases, transferred courses are noted on the final transcripts, but without a date and often without a course-specific credit value. We retain as many transfer students as we can: essentially, those who transferred after one year or less, and whose transferred courses are identified. 49 This remains a costly restriction, reducing the sample to
74 Read more
of underpricing must be higher than the cost of withdrawal when a company decides to pull an IPO (Boeh & Dunbar, 2013). Previous research focuses on the US-American market which already identified some determinants of withdrawal. Although the European economic, financial as well as legal systems differ drastically from the USA, there is no application to the European market including Germany – the biggest economy in Europe (Bessler & Thies, 2007). That is the reason why the dissertation focuses on companies that have withdrawn their initial public offering in Germany. The aim of the research is to identify determinants that influence the probability to withdraw. Thus, the probability of withdrawal, based on market and issuer characteristics, will be derived to draw inferences for companies that intend to go public. This can be valuable information for issuers, underwriters and investors as well as authorities likewise. As stated above, filing an IPO is costly, especially losses due to underpricing can be severe for the firm (Boeh & Dunbar, 2013). The findings on determinants of withdrawal might help to minimise information asymmetry in the process of an IPO and hence influence the companies’ decision to pull the IPO.
69 Read more
This study aims to investigate the persistence of timing and stock picking ability of “winner fund managers” instead of winner funds. The sample of this study is the previous and next equity funds which the same fund managers manage in Taiwan. we measure the ranking of timing and stock picking ability of fund managers for the period they manage the specific fund. The result shows that for the whole fund managers, the successive two funds they manage are performance persistent. Moreover, the stock picking ability of the two funds they manage is persistent no matter the two funds belonging to the same fund company or not. Regarding the winner fund manager, we find no persistence of return, timing ability and stock picking ability. No matter the winner fund managers change the jobs to the other fund companies or not, the next funds the winner fund managers manage are not timing and stock picking ability persistent. The result of logistic regression demonstrates that the probability of becoming timing or stock picking winners of the next funds which the timing or stock picking winner managers manage is not significantly higher than other funds. The result indicates that investors do not necessarily follow the timing and stock picking winner fund managers. The performance of the next funds which the winner fund managers manage may reverse especially for the successive two funds belonging to the same fund company. Little literature investigates the issue regarding the fund timing and stock picking performance from the viewpoint of “fund managers”. The results of this study provide investing implications for fund investors when they are choosing funds.
12 Read more
The results for the sell trades do not provide strong evidence of market timing in the case of small companies (Table 4, Panel D). The pre-event window CARs show mixed evidence of managers’ systematic trading based on their perceptions about the company. For example, the CARs increase as we move from quintile 1 to quintile 3 and then decline again. Additionally, there are no significant differences in means between small and large stocks, and the differences across the quintiles are not statistically significant. The event day and post- event day returns are not fully consistent with our predictions. None of the CARs across the size quintiles are statistically significant, except the post-event return for quintile 1. The mean difference t-test is not significant for event day returns and the chi-square test shows that there are no significant differences among the means. Overall, insiders sell after a significant rise in prices and the trend stops after they sell. This shows weak evidence of timing. Therefore, the results indicate that insiders are able to time their buy trades but not their sell trades in the case of small companies. This is consistent with Lakonishok and Lee (2001) in the US and Gregory et al. (1994) in the UK, who find that insiders’ timing ability is more pronounced in small firms.
37 Read more
participants’ actions are brought together in collective patterns. Such as practice approach is particularly apt given the dominance of online trading platforms (e.g., Knorr Cetina & Bruegger, 2002; Preda, 2009) and common pricing tools (e.g., Beunza & Stark, 2012; Millo & MacKenzie, 2009) that predispose continuous trading and wide pricing transparency in many financial markets (Madhavan, 2000). However, existing research has neglected a wider set of financial markets, where common tools and technologies are not present, and different trading protocols demand different means of coordination (Beckert, 2009). As a result, scholars call for further studies into the social practices that may arise in coordinating different types of financial markets, and that may also be pertinent to these technologically-dominated markets. In this paper, we therefore explore the social practices of coordination in those financial markets where a common market device, such as a trading platform or calculative tool, cannot be assumed.
the in-sample period this ability does not appear to be very efficient as the implied trading rules look quite complicated and sophisticated unlike the best pure price rules which can often be very simple indeed. This may suggest the order book rules would not be robust. These sophisticated order book rules are in fact less stable during the genetic selection process because any small mutation can easily “kill” the rule. The probability that a simple rule will mutate is smaller as it is less sensitive and therefore they are more stable. The GA can at least keep their performance as a benchmark for genetic selection for a longer time. Complicated rules are destroyed more frequently and the GA has to re-start with building well performing trading rules from the very beginning. Hence, this process takes more time and machine resources and so is less likely to converge towards the optimum. In order to filter out useless variables by the GA, we would need to increase number of repetitions of the GA substantially and, probably, the population size.
52 Read more
Third, the policy relevance is at least threefold. (1) Essence of convergence or catch-up in market exposure among funds. Accordingly, evidence of catch-up theoretically implies the feasibility of common policy initiative among funds within a specific category or homogenous panel. (2) Policy implications from fundamental characteristics are relevant because market timing studies in the mutual fund industry have been based on equity funds for the most part. There are growing calls for more complete studies that go beyond equity funds in the assessment of mutual fund managers’ market timing abilities (Elton et al., 2011). (3) The distinction between the effects of information asymmetry (hereafter IA) and uncertainty in market timing has crucial policy relevance because these two concepts have been used interchangeably in prior expositions. From a preliminary assessment based on correlation analysis, these two concepts do not appear to display a high degree of substitution warranting concerns of over-parameterization.
25 Read more
( c o − f (α)) + c 1 σ + c 2 σ 2 + . . . + c n σ n − 1 = 0 (2.3) where f ( α ) is a given value. In particular f ( α ) may be a value derived from a no-arbitrage relationship which portends a market equilibrium, and we need to find values of σ that satisfy the equation. If c i ’s are known, for arbitrary α ˜ ∈ E , then for any factorization f ( α ˜ ) = g(α )q(α ) + r( α ˜ ) in which r( α) ˜ 6 = 0 there will be arbitrage opportunities. In particular, there is α ˜ ∈ E for which there is no polynomial f ∈ F (α) for which it is a root. However, the quotient relationship g (α) q (α) suggests that f ( α) = ˜ f (α) + r ( α) ˜ where f ( α ˜ ) = g (α) q (α) and r ( α ˜ ) is an error term. For instance, the relation holds if q ( α ) is a minimal polynomial. See (Pollard and Diamond, 1975, pg. 44).
42 Read more
In panel A of Table.3, the mean value of leverage of hot market firms is greater than that of cold market firms. First and second column of panel B in Table 3 shows the regression results which we analyse book leverage as a dependent variable and hot market dummy and control variables as independent variables. HOT dummy is positive but is insignificant indicating that hot market firms do not deviate from their leverage target any more than cold market firms do in pre-IPO period. Thus, although the mean leverage values of hot market firms are higher than that of cold market firms, this difference is not significant when we control for other independent variables. As a result, we can not find any significant evidence that they go public and tend to lower their leverage ratios at the IPO time. In addition to this findings, it is obviously seen in Table 3 that profitability of firms is negatively and significantly related with the leverage supporting the pecking order theory.
13 Read more
Brau and Fawcett (2004) asked 336 chief ﬁ nancial oﬃ cers (CFOs) to compare practice to theory inter alia in the area if IPO timing. Overall stock market conditions were identiﬁ ed as the single most important determinant of IPO timing. Two other factors were also perceived as strongly inﬂ uencing the timing of an IPO: industry conditions and the need for capital to support growth. On the contrary, two other explanations – other good ﬁ rms are currently going public and ﬁ rst day stock performance of recent IPOs – were viewed as relatively unimportant. The data suggest that CFOs do pursue windows of opportunity, but they deﬁ ne these windows in terms of overall stock market and industry conditions and not by the IPO market.
Secondly, contrary to the abovementioned authors who use the Jensen alpha in the CAPM model to measure managers’ skills, this paper distinguishes three different types of managerial skills – namely, outperformance skill, selectivity skill and market timing skill. A manager with outperformance skill possesses the ability to generate an abnormal rate of returns as measured by a statistically significant Jensen alpha. A fund manager with selectivity skill is able to select financial assets that will perform better in the future, whereas a manager with market timing skill has the ability to predict correctly the future direction of the market, using advanced econometric methods. We use the Treynor-Mazuy (1966) “quadratic CAPM regression model” to obtain selectivity and market timing skill coefficients and the Jensen (1968) “linear CAPM regression model” to obtain the outperformance skill coefficient.
14 Read more
compensated by the accompanying higher returns and thus risk is not involved in the determination of comprehensive performance. An implication of the finding is that the manager characteristics that are associated with lower risk should not be taken into consideration in the selection of fund managers when the target is to achieve better comprehensive performance. Additionally, timing skill and picking ability affect a fund’s excess return and the impact of picking ability is greater than that of timing skill. Therefore, we conclude that fund manager characteristics affect comprehensive performance mainly through their impact on managers’ picking ability, which in turn affect excess return and, ultimately, comprehensive performance. The common characteristics that influence picking ability, excess return, and comprehensive performance are possession of an MBA or a CFA. We also address endogeneity concerns and rule out the possibility that managers with an MBA or a CFA share common characteristics, such as belonging to the same fund management firm or graduating from the same university. Therefore, having an MBA or a CFA is the most important quality of fund managers in China to outperform his/her peers in achieving better stock picking ability, higher excess returns, and better comprehensive performance.
31 Read more