The Cross Sectional Dispersion Of Stock Returns Alpha And The Information Ratio
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The Cross Sectional Dispersion Of Stock Returns Alpha And The Information Ratio
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Author : Larry R. Gorman
language : en
Publisher:
Release Date : 2019
The Cross Sectional Dispersion Of Stock Returns Alpha And The Information Ratio written by Larry R. Gorman and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Both the cross-sectional dispersion of U.S. stock returns and the VIX provide forecasts of alpha dispersion across high- and low-performing portfolios of stocks that are statistically and economically significant. These findings suggest that absolute return investors can use cross-sectional dispersion and time-series volatility as signals to improve the tactical timing of their alpha-focused strategies. Because active risk increases by a greater amount than alpha, however, high return dispersion/high VIX periods are followed by slightly lower information ratio dispersion. Therefore, relative return investors who keep score in an information ratio framework are unlikely to find return dispersion useful as a signal regarding when to increase or decrease the activeness of their portfolio strategies.
Cross Sectional Dispersion And Expected Returns
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Author : Thanos Verousis
language : en
Publisher:
Release Date : 2016
Cross Sectional Dispersion And Expected Returns written by Thanos Verousis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This study investigates whether the cross-sectional dispersion of stock returns, which reflects the aggregate level of idiosyncratic risk in the market, represents a priced state variable. We find that stocks with high sensitivities to dispersion offer low expected returns. Furthermore, a zero-cost spread portfolio that is long (short) in stocks with low (high) dispersion betas produces a statistically and economically significant return, after accounting for its exposure to other systematic risk factors. Dispersion is associated with a significantly negative risk premium in the cross-section (-1.32% per annum) which is distinct from premia commanded by a set of alternative systematic factors. These results are robust to a wide set of stock characteristics, market conditions, and industry groupings.
Cross Sectional Alpha Dispersion And Performance Evaluation
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Author : Campbell R. Harvey
language : en
Publisher:
Release Date : 2019
Cross Sectional Alpha Dispersion And Performance Evaluation written by Campbell R. Harvey and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Our paper explores the link between cross-sectional fund return dispersion and performance evaluation. The foundation of our model is the simple intuition that in periods of high return dispersion, which is associated with high levels of idiosyncratic risk for zero-alpha funds, it is easier for unskilled managers to disguise themselves as skilled. Rational investors should be more skeptical and apply larger discounts to reported performance in high dispersion environments. Our empirical results are consistent with this prediction. Using fund flow data, we show that a one-standard deviation increase in cross-sectional return dispersion is associated with an 11% to 17% decline in flow-performance sensitivity. The effect is stronger for recent data and among outperforming funds.
Signs That Markets Are Coming Back
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Author :
language : en
Publisher: Emerald Group Publishing
Release Date : 2014-05-30
Signs That Markets Are Coming Back written by and has been published by Emerald Group Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-05-30 with Business & Economics categories.
Contributions assess hedge fund success, offer better estimation of implied volatility, extension of real options to include information items as underlying assets, analysis of whether a firm's founders can take artificial dividends without consequence, the uneasiness of real estate, and accountability for attempted artificial earnings management.
Cross Sectional Return Dispersion And The Equity Premium
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Author : Paulo F. Maio
language : en
Publisher:
Release Date : 2019
Cross Sectional Return Dispersion And The Equity Premium written by Paulo F. Maio and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
In this paper, I examine whether stock return dispersion (RD) provides useful information about future stock returns. RD consistently forecasts a decline in the excess market return at multiple horizons, and compares favorably with alternative predictors used in the literature. The out-of-sample performance of RD tends to beat the alternative predictors, and is economically significant as indicated by the certainty equivalent gain associated with a trading investment strategy. RD has greater forecasting power for big and growth stocks compared to small and value stocks, respectively. I discuss a theoretical mechanism giving rise to the negative correlation between RD and the equity premium.
Two Essays On The Cross Section Of Stock Returns
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Author : Zhuo Tan
language : en
Publisher:
Release Date : 2013
Two Essays On The Cross Section Of Stock Returns written by Zhuo Tan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Finance categories.
This dissertation consists of two essays that address issues related to the cross-section of stock returns. The first essay documents that actively managed mutual funds invest disproportionately in stocks with high historical risk-adjusted returns (alpha). This alpha-chasing behavior has a destabilizing effect on stock price. Specifically, low-alpha stocks earn higher subsequent returns than high-alpha stocks up to two months following portfolio formation—i.e. alpha is not persistent, but reverses. Consistent with liquidity-based price pressure, I find that low- (high)-alpha stocks that are heavily traded by mutual funds exhibit strong subsequent return reversals. Further analysis finds that trades from a few large funds are the primary source of this trading. However, there is no evidence to support the view that herding by fund managers explains fund managers’ preference for high-alpha stocks. The reason why managers of large mutual funds chase high-alpha stocks when alpha is not persistent remains a puzzle. The second essay shows that a better measure of mispricing confirms the primary prediction of the limits-of-arbitrage hypothesis that high levels of idiosyncratic risk prevent arbitrage activity. Rather than using returns to size, B/M and momentum portfolios, I construct a mispricing measure based on the difference between a stock’s price and its intrinsic value estimated using the residual income model of Ohlson (1995). I confirm that this measure explains future returns. I then use it and idiosyncratic return volatility to proxy for mispricing and arbitrage risk, respectively. I find that expected returns to undervalued (overvalued) stocks monotonically increase (decrease) with idiosyncratic risk. These findings support the limits-of-arbitrage hypothesis and that idiosyncratic risk is an impediment to arbitrage.
Expectations And The Structure Of Share Prices
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Author : John G. Cragg
language : en
Publisher: University of Chicago Press
Release Date : 2009-05-15
Expectations And The Structure Of Share Prices written by John G. Cragg and has been published by University of Chicago Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-05-15 with Business & Economics categories.
John G. Cragg and Burton G. Malkiel collected detailed forecasts of professional investors concerning the growth of 175 companies and use this information to examine the impact of such forecasts on the market evaluations of the companies and to test and extend traditional models of how stock market values are determined.
Return Dispersion Size And The Cross Section Of Stock Returns Evidence From The German Stock Market
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Author : Antonina Waszczuk
language : en
Publisher:
Release Date : 2013
Return Dispersion Size And The Cross Section Of Stock Returns Evidence From The German Stock Market written by Antonina Waszczuk and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
This paper investigates whether return dispersion (RD), proxied by the cross-sectional standard deviation of stock returns, captures variation in returns across German stocks between 1989 and 2010. I address existing evidence based on U.S. equity data that RD may serve as a proxy economic state variable. In the out-of-sample test I confirm the countercyclical character of RD and show that it loads significantly negatively on future equal-weighted average market return. Sorting stocks by their absolute loadings on RD, I uncover the negative pattern in simple average portfolio returns. Further analysis indicates that the negative relationship between absolute loadings on RD and future returns is present only in micro stock subgroup. This finding casts doubt on the RD as proxy for state variable. Instead, it suggests its relation to mispricing and idiosyncratic risk components. As a secondary results I confirm the existence of reversed size effect in German stock market over the considered period.
Essays On The Cross Sectional And Time Series Behavior Of Stock Returns
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Author : Vinod Chandrashekaran
language : en
Publisher:
Release Date : 1994
Essays On The Cross Sectional And Time Series Behavior Of Stock Returns written by Vinod Chandrashekaran and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with categories.
Return Of The Active Manager
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Author : C. Thomas Howard
language : en
Publisher: Harriman House Limited
Release Date : 2019-10-29
Return Of The Active Manager written by C. Thomas Howard and has been published by Harriman House Limited this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-10-29 with Business & Economics categories.
Emotional behavior and biases run throughout financial markets. This is the diagnosis of behavioral finance. But it is not enough to know that investors make biased decisions. What do we do about it? How do we move beyond diagnosis, to prescription? In this groundbreaking new book, investing and behavioural finance experts Thomas Howard and Jason A. Voss plug this void and show the new way ahead for investment managers and advisors. Return of the Active Manager provides a set of tools for investment professionals to overcome and take advantage of behavioral biases. Across seven compelling chapters, Return of the Active Manager details actionable advice on topics such as behaviourally-enhanced fundamental analysis, active equity fund evaluation and selection, harnessing big data, and investment firm structure. You learn how to exploit behavioural price distortions, how to recognise and avoid behavioural biases (in both yourself and clients), how to extract behavioral insights from the executives of prospective investments, and how manager behaviour can be used to predict future fund performance. An indispensable tool, Return of the Active Manager rationalises the financial markets and prescribes actionable strategies that build on the lessons of behavioural finance.