nep-fmk New Economics Papers
on Financial Markets
Issue of 2015‒01‒14
four papers chosen by

  1. Common Factors in Return Seasonalities By Matti Keloharju; Juhani T. Linnainmaa; Peter Nyberg
  2. Investment Horizon and Repo in the Over-the-Counter Market By Hajime Tomura
  3. An Application of a Short Memory Model With Random Level Shifts to the Volatility of Latin American Stock Market Returns By Gabriel Rodriguez; Roxana Tramontana
  4. Russian Mutual Funds: Skill vs. Luck By Petr Parshakov

  1. By: Matti Keloharju; Juhani T. Linnainmaa; Peter Nyberg
    Abstract: A strategy that selects stocks based on their historical same-calendar-month returns earns an average return of 13% per year. We document similar return seasonalities in anomalies, commodities, international stock market indices, and at the daily frequency. The seasonalities overwhelm unconditional differences in expected returns. The correlations between different seasonality strategies are modest, suggesting that they emanate from different common factors. Our results suggest that seasonalities are not a distinct class of anomalies that requires an explanation of its own---rather, they are intertwined with other return anomalies through shared common factors. A theory that is able to explain the risks behind any common factor is thus likely able to explain a part of the seasonalities.
    JEL: G12
    Date: 2014–12
  2. By: Hajime Tomura (Graduate School of Economics, University of Tokyo)
    Abstract: This paper presents a three-period model featuring a short-term investor in the over-the-counter bond market. A short-term investor stores cash because of a need to pay cash at some future date. If a short-term investor buys bonds, then a deadline for retrieving cash lowers the resale price of bonds for the investor through bilateral bargaining in the bond market. Ex-ante, this hold-up problem explains the use of a repo by a short-term investor, the existence of a haircut, and the vulnerability of a repo market to counterparty risk. This result holds without any uncertainty about bond returns or asymmetric information.
    Keywords: Repo; Over-the-counter market; Securities broker-dealer; Short-term investor; Haircut.
    JEL: G24
    Date: 2014–11
  3. By: Gabriel Rodriguez (Departamento de Economía - Pontificia Universidad Católica del Perú); Roxana Tramontana (Departamento de Economía - Pontificia Universidad Católica del Perú)
    Abstract: Empirical research indicates that the volatility of stock return time series have long memory. However, it has been demonstrated that short memory processes contaminated with random level shifts can often be confused as being long memory. Often this feature is referred to as spurious long memory. This paper represents an empirical study of the random level shift (RLS) model using the approach of Lu and Perron (2010) and Li and Perron (2013) for the volatility of daily stocks returns data for Öve Latin American countries. The RLS model consists of the sum of a short term memory component and a level shift component, where the level shift component is governed by a Bernoulli process with a shift probability . The estimation results suggest that the level shifts in the volatility of daily stocks returns data are infrequent but once they are taken into account, the long memory characteristic and the GARCH e§ects disappear. An out-of-sample forecasting exercise is also provided. JEL Classification-JEL: C22
    Keywords: Returns, Volatility, Long Memory, Random Level Shifts, Kalman Filter, Forecasting, Latin America
    Date: 2014
  4. By: Petr Parshakov (National Research University Higher School)
    Abstract: Our work is focused on Russian mutual funds managers' skills versus luck testing. Using the bootstrap procedure of Kosowski et al. (2007) we test Jensen's alpha signicance for each fund. We found that only 5% of equity mutual funds do have skills. These results for the emerging Russian market are similar to previous studies of developed markets. Interestingly, skilled funds are not characterized with the extremely high alpha. This leads to an unexpected conclusion: an investor should avoid funds with a very high alpha
    Keywords: asset management, Russian stock market, skill, mutual fund
    JEL: G23 C12
    Date: 2014

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