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Author: Miguel Anton Sancho Publisher: ISBN: Category : Languages : en Pages :
Book Description
In this thesis I study the effects of institutional trading on the comovementof financial assets. In the first chapter, joint work with Christopher Polk, we connect stocks through common active mutual fund ownership, and use these connections to forecast cross-sectional variation in return covariance, controlling for similarity in style and other pair characteristics. We argue this covariance is due to contagion based on return decomposition evidence, cross-sectional heterogeneity in the extent of the effect, and the magnitude of average abnormal returns to a cross-stock reversal trading strategy exploiting information in these connections. We show that the typical long/short hedge fund covaries negatively with this strategy suggesting that hedge funds may potentially exacerbate the price dislocation we document. In the second chapter I study the sources of change in the systematic risks of stocks added to the S&P 500 index. Firstly, using vector autoregressions (VARs) and a two-beta decomposition, I find that I cannot reject the hypothesis that all of the well-known change in beta comes from the cash-flow news component of a firm's return. Secondly, I study fundamentals of included firms directly to reduce any concerns that the VAR-based results are sensitive to my particular speciffcation. As ownership structure cannot directly influence fundamentals, these results challenge previous findings, as they are consistent with the change in beta being due to a selection effect. In the third chapter, joint work with Daniel Bergstresser, we explore index-based comovement in the market for Credit Default Swaps (CDS). We exploit the additions of individual CDS contracts in the Markit CDX Index, a major credit derivative benchmark. We find that for single name CDS contracts, comovement increases after inclusion in the index. Comparing movements in the CDS spreads to movements of the bonds of the same issuers, the CDS spread comovement increases significantly more than the bond spread comovement. This pattern of evidence is consistent with the excess comovement in equity markets documented by Barberis et al (2005) and others.
Author: Miguel Anton Sancho Publisher: ISBN: Category : Languages : en Pages :
Book Description
In this thesis I study the effects of institutional trading on the comovementof financial assets. In the first chapter, joint work with Christopher Polk, we connect stocks through common active mutual fund ownership, and use these connections to forecast cross-sectional variation in return covariance, controlling for similarity in style and other pair characteristics. We argue this covariance is due to contagion based on return decomposition evidence, cross-sectional heterogeneity in the extent of the effect, and the magnitude of average abnormal returns to a cross-stock reversal trading strategy exploiting information in these connections. We show that the typical long/short hedge fund covaries negatively with this strategy suggesting that hedge funds may potentially exacerbate the price dislocation we document. In the second chapter I study the sources of change in the systematic risks of stocks added to the S&P 500 index. Firstly, using vector autoregressions (VARs) and a two-beta decomposition, I find that I cannot reject the hypothesis that all of the well-known change in beta comes from the cash-flow news component of a firm's return. Secondly, I study fundamentals of included firms directly to reduce any concerns that the VAR-based results are sensitive to my particular speciffcation. As ownership structure cannot directly influence fundamentals, these results challenge previous findings, as they are consistent with the change in beta being due to a selection effect. In the third chapter, joint work with Daniel Bergstresser, we explore index-based comovement in the market for Credit Default Swaps (CDS). We exploit the additions of individual CDS contracts in the Markit CDX Index, a major credit derivative benchmark. We find that for single name CDS contracts, comovement increases after inclusion in the index. Comparing movements in the CDS spreads to movements of the bonds of the same issuers, the CDS spread comovement increases significantly more than the bond spread comovement. This pattern of evidence is consistent with the excess comovement in equity markets documented by Barberis et al (2005) and others.
Author: Lu Zhang Publisher: ISBN: Category : Depressions Languages : en Pages : 137
Book Description
This thesis consists of three essays. The first essay studies the ability of stock return idiosyncrasy to predict future economic conditions over time. The second essay investigates the technological innovation and creative destruction during the 1920s and the 1930s, one of the most innovative periods in the 20th century. The third essay tests the performance of an investment strategy using information about past market-wide comovement. Stock return idiosyncrasy, defined as the ratio of firm-specific to systematic risk in individual stock returns, contains information about future growth rate in real GDP, industrial production, real fixed assets investment, and unemployment. Forecasts are generally significant one-quarter-ahead, particularly after World War II. These effects persist after controlling for other potential leading economic indicators, both in-sample and out-of-sample. These findings are consistent with information generating firms, presumably uniquely well-informed about economic conditions because their core business is information, adjusting their information production before downturns. The second essay studies the process of creative destruction during the technological revolution in the 1920s and 1930s. Intensified creative destruction magnifies the performance gap between winner and loser firms, and thus elevates firm-specific stock return variation. We find high firm-specific return variation in innovative industries and firms during the 1920s boom and the subsequent depression. We also find some evidence of elevated firm-specific return variation in manufacturing sectors with higher labor productivity, more research staff and more extensive electrification. In the third essay, we define the directional market-wide comovement measure as the proportion of stocks moving up together. Positing that high comovement reflects large fund inflows, we devise an investment strategy of entering the market whenever positive directional market-wide comovement passes a certain threshold. Specifically, this comovement-based investment strategy holds the market index when the market-wide upward comovement in the prior one to four weeks is above the fourth decile of the historical comovement distribution, and invests in the risk-free asset otherwise. During the sample period of 1954 to 2014, this strategy outperforms the NYSE value-weighted market index by 6.42% per year. Out of sample tests using NASDAQ stocks and TSE stocks validate the strategy. Our findings suggest that marketwide upward comovement identifies periods of market run-ups, when unsophisticated investor buying is apt to be driven by herding or information cascades.
Author: Miguel Anton Sancho
Author: Miguel Anton Sancho
Author: Lu Zhang
Author: Aleksandar Georgiev
Author: Darryll Hendricks
Author: Ya Tang
Author: Tse-Chun Lin
Author: Min Hwang
Author: Junghee Park
Author: Ira Krasteva Petrova
Author: