CAMRI aims to provide a suitable research environment and sponsor research activities so as to further its stated mission and goals. The current financial research programmes at CAMRI are broadly divided into 4 areas:
1. Asset Pricing (both Empirical and Theory)
2. Market Microstructure, Financial Market Design, and Trading Strategies
3. Market Efficiency and Behavioural Finance
4. Delegated Portfolio Management
The outcomes and activities of these research programmes include equity research reports, student consulting practicum projects, disseminating research findings in the form of working papers, articles and books, organizing topical roundtables, conferences and applied research forums, teaching and educational activities, and improving pedagogy and hands-on, team-based and experiential learning at both the student and professional levels.
The various outcomes of the CAMRI research projects are listed below.
CAMRI Life-cycle Saving and Investing in Asia Research Series / CAMRI Equity Research Project / CAMRI Applied Finance Research Grants / Book Publication / Student Equity Reports / Published Papers / NUS Business School Working Papers
"On the Role of the State in Pension Plans and How Best to Achieve It", Laurent Lassalvy, 2011
Abstract
In this paper, the author explores the state’s role in the pension system and how best to achieve the public objective. A purely private pension system would not take into account externalities; so it is optimal for the state to ensure that all senior citizens receive a basic living pension. This can be achieved with a public pension life annuity paying a fixed percentage of per capita consumption (Merton (1983)). There should be a self-funded public pension fund, financed by compulsory contributions set at a level ensuring sufficient disposable income for all workers. All additional pension contributions, investments, and distributions could be managed by the private sector. As a corollary, we propose the government issues consumption-indexed bonds to reduce the public pension fund’s asset-liability mismatch, and improve the annuity price discovery process. Implications arising from home ownership and health care needs are also discussed; however the latter is too volatile and unpredictable to be handled within the public pension system. Rather, as is practiced in many countries, including Singapore via its Medisave/MediShield program, it should be financed and implemented through a separate, basic health care insurance scheme.
“Worry-free Inflation-Indexing for Sovereigns: How Governments can Effectively Deliver Inflation-Indexed Returns to Their Citizens and Retirees”, Zvi Bodie, Joseph Cherian, Wee Kang Chua, 2011
(Download PPT here)
Abstract
In this paper the authors explore how small countries such as Malaysia, Singapore, and Taiwan, can offer their aging populations the means to protect their retirement income against inflation without the governments directly issuing inflation-protected bonds. While inflation swaps are a well known means by which to attain this, the authors also show how an inflation index-replication strategy is also feasible. With this ability to provide inflation-adjusted returns, governments, pension funds, and other institutions can begin to offer a broad suite of inflation-indexed products, ranging from retirement annuities to inflation-linked insurance policies. This will improve the functioning of national pension systems, and hence the welfare of retirees. The added benefit of such structures is that they allow governments to broadly replicate their local Consumer Price Index (CPI) returns without disrupting their traditional financing structures. Given the potential of reinsuring national default risks across borders via currency and credit default swap facilities at the federal level, there is also a unique role for the government in this process as the reinsurer of last resort.
“The Role of the State in the Pension System”, Joseph Cherian and Laurent Lassalvy, Opinion Ed, Business Times, 25 October, 2011
How senior citizens are able to make ends meet is too important an issue for society, especially for the population-ageing nations, to be left to the full discretion of each household. Indeed, governments the world over are usually involved in the retirement savings and benefits process of their citizenry, be it through state pension systems, compulsory savings programmes or via tax incentives. Society benefits if all senior citizens receive a basic living pension. A joint commentary by Prof Joseph Cherian, CAMRI director, and Laurent Lassalvy, visiting consultant researcher at CAMRI.
“The Real Retirement Life Income Fund: An Inflation Protected, Dignified Standard of Living for all Singaporeans”, Divya Mandloi, Rohit Singh and Clarissa Turner, November 2011
Abstract
This paper proposes the Real Retirement Life Income (RRI) Fund, a sovereign-managed, individually-funded, social safety net retirement scheme for Singapore. The RRI Fund invests monthly and lump sum contributions directly into inflation-protected securities and ensures a guaranteed, safety-net level of real cash flows from retirement to death, which is sufficient to maintain a dignified standard of living for all Singaporeans. An Excel-based financial calculator called the RRI Fund Calculator has been developed in tandem with this analysis so as to calculate the required monthly contributions for households based on their current capabilities and preferences. The RRI Fund Calculator is designed to minimise assumptions and ambiguity, whilst providing the flexibility required to cater for individual circumstances. The Calculator uses current and estimated real cash flows for a household to estimate the real monthly contribution that will ensure a level of real income in retirement that will allow for a dignified standard of living. The real discount rates are obtained based on market expectations of the real term structure, thus providing a certain hedge against inflation. At the same time, instead of assuming a flat term structure based on historical data, the real term structure used in the RRI Fund Calculator is obtained from market inflation-indexed bond rates.
Please click here for The RRI Fund Calculator
"Planning for a dignified life after retirement", Divya Mandloi, Rohit Singh and Clarissa Turner, The Business Times, 12 December 2011
Retirement planning is difficult due to its long-term nature and high degree of uncertainty. Longevity and inflation are two key risks. In addressing some of the challenges in planning retirement, a team of NUS MBA students propose a potential solution through their Real Retirement Income Fund and RRI Fund calculator. Their research project was sponsored as part of CAMRI’s Life-cycle Saving and Investing in Asia Research Series.
"Consumer Behaviors in Financial Markets", Sumit Agarwal, August 2010
Abstract
In light of the recent meltdown in the subprime mortgage market and the subsequent financial crisis of 2007-2008, there is a growing concern that U.S. consumers are ill-prepared to make sound decisions in an increasingly complex financial environment. We find that younger and older borrowers are more prone to make financial mistakes. We also observe that there are significant variations across demographic groups. For example, as the number of goals increases, we find an increase in the number of financial instruments. We also find aggressive growth individuals tend to have more insurance policies, suggesting that the insurance policies may not be as conservative as they initially look. This subject is important as it applies to Asian consumers’ saving and investing behaviour, which also coincides with CAMRI’s Life-Cycle Saving and Investing in Asia Research Series.
Note: Professor Sumit Agarwal was named Research Director at CAMRI in May 2012. In this newly-created role at CAMRI, Professor Agarwal will head research activities at CAMRI generally, with a particular emphasis on research involving Consumer Lifecycle Finance.
CAMRI Multi-Factor Stock Selection Equity Research Project
This project focuses on developing new multi-factor stock selection models for simulated fund management. It will be derived from company-level financial and accounting information by conjoining asset pricing theory with backtests, econometric, statistical and analytical programming methods. The quantitative factor composite groupings currently being considered are Valuation, Growth, Profitability, Efficiency, Momentum and Liquidity. The initial research would focus on the Russell 3000 universe, which represents the top 3,000 publicly-held US companies based on total market capitalization. Once successfully completed, the model will be deployed for fund management simulation and training at the Investment Management & Trading Lab at CAMRI. The long term objective of the project is to develop a robust, multi-factor equity model for stock selection in the Asian markets.
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Call For Applied Research Proposals (AY 2011/12)
CAMRI is seeking to create and disseminate an applied finance research program in the area of asset management through both direct and indirect support of NUS Business School’s faculty. Based on a recent gift of S$15,000 from the Investment Management Association of Singapore (IMAS), which was provided in order to support applied finance research at CAMRI that will broadly benefit the investment management industry in Singapore, CAMRI is looking to fund applied finance research proposals of up to S$15,000 in the areas of:
1. Delegated Portfolio Management (unit trusts, mutual funds, hedge funds, private equity)
2. Commodities, Derivatives, Asset Pricing (Empirical & Theory)
3. Financial Market Microstructure, Market Design, Trading Strategies
4. Market Efficiency, Behavioral Finance
This could include topics in the area of life-cycle saving and investing in Singapore in particular, and Asia in general, especially in the context of retirement planning, inflation-indexed products, etc.
These research grants are meant to:
a. stimulate original and fundamental applied finance research thinking in the area of asset management;
b. improve the Singapore investment management industry’s knowledge and understanding of asset management and related issues; and
c. disseminate this knowledge to a wider academic and practitioner audience, say for example, at one of CAMRI’s Applied Research Forums.
A 3-5 page applied finance research proposal grant application is all that is required. Each application will be evaluated based on the importance and quality of the proposed applied research. Although projects are not required to have a strictly Asian focus, preference will be given to research proposals with emphasis on issues relevant to the development of the asset management industry in Singapore and Asia. The research is nevertheless expected to have a global impact.
The budget may cover RA support, equipment, travel, supplies, computing time, etc., directly related to the area of research. The research grant is worth up to S$15,000 tenable over a period of one year. Not more than 2 grants will be awarded in each academic year. If two grants are indeed awarded, each would be worth S$7,500. While we expect a working paper that is suitable for publication to be the ultimate outcome of this research funding exercise, a short final report is all that is required at the end of the project, along with the dissemination of the knowledge acquired from this research to a wider academic and practitioner audience, say, at one of CAMRI’s Applied Research Forums.
The 3-5 page applied research proposal grant application should be submitted to:
Ms Himali Kothari
Associate Director, CAMRI
NUS Business School
15 Kent Ridge Drive
Level 3, Mochtar Riady Building
Singapore 119245
Email:
The submission deadline is 8 August 2011. Applications should be from NUS Business School faculty, and they will be evaluated by CAMRI’s Research Committee. The Research Selection Committee comprises of Professors Anand Srinivasan (Head, Finance Department), Fong Wai Mun (Deputy Head, Finance Department), and Joseph Cherian (Director, CAMRI). Applicants will be informed of the outcome of the review within 2 weeks of the deadline.
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Personal Financial Planning
Authors: Fong Wai Mun and Benedict Koh
Singapore : Prentice Hall, 2011
4th edition
ISBN: 9810686404
Personal Financial Planning is the most comprehensive textbook on the subject in Singapore. The main objectives of the book are to encourage individuals to plan their finances in a systematic manner, taking into account their needs, financial circumstances and constraints. Financial advisors can also benefit from using the book to update their financial knowledge and as a basis for giving advice to their clients. Some of the topics covered by the book include time value of money, cash budgeting, credit management, buying a property, insurance, portfolio management and income tax planning. The authors, who are leading instructors in the field of personal finance, are also actively involved in wealth management consulting to many banks and financial institutions in Singapore. A new edition of the book, which research was partially funded by CAMRI, has just been published and includes many new topics that are of practical relevance to individuals seeking to manage their wealth.
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"The Impact of International Institutional Investors on Local Equity Prices: Reversal of the Size Premium", Hao Jiang and Takeshi Yamada, Financial Analysts Journal, 2011, vol 67(6), pp 61-76
Abstract
Using comprehensive company-level ownership data from Japan, the authors found that the equity size premium correlates strongly with the investment flows of international institutional investors. When investment flows intensified and shifted into larger stocks in the mid-1990s, the equity size premium was reversed. Their findings suggest that a large fraction of the time variation in the size premium is driven by price pressures, regardless of any shift in the fundamentals of small and large companies.
"Stale Prices and the Performance Evaluation of Mutual Funds", Meijun Qian, Journal of Financial and Quantitative Analysis, 2011, vol. 46(2), pp 369-394
Abstract
Staleness in measured prices imparts a positive statistical bias and a negative dilution effect on mutual fund performance. First, evaluating performance with nonsynchronous data generates a spurious component of alpha. Second, stale prices create arbitrage opportunities for high-frequency traders whose trades dilute the portfolio returns and hence fund performance. This paper introduces a model that evaluates fund performance while controlling directly for these biases. Empirical tests of the model show that alpha net of these biases is on average positive although not significant and about 40 basis points higher than alpha measured without controlling for the impacts of stale pricing. The difference between the net alpha and the measured alpha consists of three components: a statistical bias, the dilution effect of long-term fund flows, and the dilution effect of arbitrage flows. Whereas the two former are small, the latter is large and widespread in the fund industry.
“The Role of Institutional Investors in Initial Public Offerings”, Huang Jiekun, Thomas Chemmanur and Gang Hu, Review of Financial Studies 23, 2010, vol. 23(12), pp 4496-4540
Abstract
Authors use a proprietory institutional trading dataset to examine the role of institutional investors in IPOs. Authors find that institutional investors possess a significant informational advantage in IPOs, are able to realize significant profits from their participation in IPOs, and play a supportive role in the IPO aftermarket.
"The Good News in Short Interest", Ekkehart Boehmer, Bradford D. Jordan and Zsuzsa R. Huszár, Journal of Financial Economics, 2010, vol. 96(1), pp 80-97
Abstract
Authors study the information content in monthly short interest using NYSE-, AMEX-, and NASDAQ-listed stocks from 1988 to 2005. Authors show that stocks with relatively high short interest subsequently experience negative abnormal returns, but the effect can be transient and of debatable economic significance. In contrast, authors find that relatively heavily traded stocks with low short interest experience both statistically and economically significant positive abnormal returns. These positive returns are often larger (in absolute value) than the negative returns observed for heavily shorted stocks. Because stocks with greater short interest are priced more accurately, their results suggest that short selling promotes market efficiency. However, they show that positive information associated with low short interest, which is publicly available, is only slowly incorporated into prices, which raises a broader market efficiency issue. Their results also cast doubt on existing theories of the impact of short sale constraints.
"Stock Market Declines and Liquidity", Allaudeen Hameed, Wenjin Kang and S Viswanathan, Journal of Finance, 2010, vol. 65(1), pp 257-293
Abstract
Consistent with recent theoretical models where binding capital constraints lead to sudden liquidity dry-ups, authors find that negative market returns decrease stock liquidity, especially for high volatility stocks and during times of tightness in the funding market. The asymmetric effect of changes in aggregate asset values on liquidity and commonality in liquidity cannot be fully explained by changes in demand for liquidity or volatility effects. Authors document inter-industry spill-over effects in liquidity, which are likely to arise from capital constraints in the market making sector. They also find economically significant returns to supplying liquidity following periods of large drop in market valuations.
"Interaction of Investor Trades and Market Volatility: Evidence from the Tokyo Stock Exchange", K-H Bae, K. Ito and Takeshi Yamada, Pacific-Basin Finance Journal, 2008, vol. 16(4), pp 370-388 (CFA Institute Asian Investment Research Award 2007)
Abstract
This paper examines the relation between market volatility and investor trades by identifying who supplies and demands market liquidity on the Tokyo Stock Exchange. Because the different trading patterns of various investor types such as individual investors, institutional investors, and foreign investors affect market liquidity differently, authors find that market volatility fluctuates significantly depending on which investor types participate in trade. They show that market volatility increases by more than 50% from the average level when there are greater buy trades by momentum investors that demand liquidity and at the same time there are less sell trades by contrarian (or profit-taking) investors that supply liquidity. On the other hand, volatility dampens by more than 57% from the average level when there are greater sell trades by profit-taking investors, mostly by domestic investors, supplying liquidity while there are less momentum buy trades that demand liquidity.
"Market Segmentation, Liquidity Spillover, and Closed-end Country Fund Discounts", Justin S. P. Chan, Ravi Jain and Yihong Xia, Journal of Financial Markets, 2008, vol. 11(4), pp 377-399
Abstract
In a segmented international capital market, the illiquidity of a country fund in the market in which its shares are traded affects only the share price of the fund (S), while the illiquidity of its underlying assets in the market in which these are traded affects only the fund net asset value (NAV). In an integrated market, illiquidity in one market can easily spill over to another and affect both the fund share price and its underlying asset value. It follows that the closed-end country fund premium, P ≡ ln(S) - ln(NAV), is negatively (positively) affected by the fund (underlying asset) illiquidity in segmented capital markets, but has only an ambiguous association with either fund or underlying asset illiquidity in an integrated market. Empirical evidence for the 8/1987 to 12/2001 period from U.S.-traded single-country closed-end funds shows that the fund premium has a negative (positive) association with the fund (underlying asset) illiquidity, and the relation is much stronger for funds investing in segmented markets. The results suggest that illiquidity plays a significant role in explaining closed-end country fund premia.
"Stock Price Synchronicity and Analyst Following in Emerging Markets", K Chan and Allaudeen Hameed, Journal of Financial Economics, 2006, vol. 80, pp 115-147
Abstract
This paper examines the relationship between the stock price synchronicity and analyst activity in emerging markets. Contrary to the conventional wisdom that security analysts specialize in the production of firm-specific information, authors find that securities which are covered by more analysts incorporate greater (lesser) market-wide (firm-specific) information. Using the R-square statistics of the market model as a measure of the synchronicity of stock price movements, they find that more analyst coverage leads to an increase in stock price synchronicity. Furthermore, after controlling for the influence of firm size on the lead-lag relation, the authors find that the returns on a high analyst-following portfolio lead returns on a low analyst-following portfolio more than vice versa. Authors also find that the aggregate changes in the earnings forecast of the high analyst-following portfolio affect the aggregate returns of the portfolio itself as well as those of the low analyst-following portfolio, whereas the aggregate changes in the earnings forecasts of the low analyst-following portfolio have no predictive ability. Finally, when the forecast dispersion is high, the effect of analyst coverage on stock price synchronicity is reduced.
"Stock Return Autocorrelations, Cross-Autocorrelations and Market Conditions in Japan", Allaudeen Hameed and Y Kusnadi, Journal of Business, 2006, vol. 79(6), pp 3029-3056
Abstract
Authors show that changes in market conditions significantly affect cross-autocorrelations and speed of adjustment in weekly stock returns. Authors find significant positive cross-autocorrelations between weekly returns on a portfolio of small firms and lagged large firm portfolio returns only when the lagged aggregate market has experienced a decline in value in the short and long horizons. These positive return cross-autocorrelations are also associated with lower abnormal portfolio trading volume and greater delays in the adjustment of individual stock prices to (negative) market-wide information, particularly for small firms. The effect of lagged market states cannot be explained by market microstructure biases such as non-synchronous trading or thin trading.
"How do Individual, Institutional, and Foreign Investors Win and Lose in Equity Trades?", K-H Bae, K. Ito and Takeshi Yamada, International Review of Finance, 2006, vol. 6(3-4), pp 129-155
Abstract
Authors investigate the gains and losses from equity trades of individual investors, various institutional investors, and foreign investors in the Tokyo Stock Exchange. Authors develop a trade-weighted performance measure and examine the impact of trading intervals, price spreads, and market timing on performance. Authors find that different investor types gain or lose from different sources. For example, authors discover that individual investors have poor market timing ability but potentially gain during short-run trading intervals as their average sell price is consistently higher than the average purchase price. In contrast, they find that foreign investors consistently generate gains from trade due to good market timing, although their average sell price is lower than the average purchase price. Also, the authors find that foreign investors extract significant portion of their gains by trading against Japanese institutional investors when Japanese investors trade before their fiscal-year end.
"International Momentum Strategies: A Stochastic Dominance Approach", Fong Wai Mun, Lean H H and Wing Keung Wong, Journal of Financial Markets, 2005, vol. 8(1), pp 89-109
Abstract
The momentum effect (Jagadeesh and Titman 1993, 2001) remains an anomaly that has so far defied standard risk-based explanations. This raises the question of whether the momentum is real, or simply an artifact of misspecified asset pricing models. Another interesting question is whether any asset pricing model that invokes standard assumptions about investor preferences e.g. risk aversion, can fully account for momentum. We investigate these issues by using a different approach based on stochastic dominance to test for the momentum effect. We use a stochastic dominance approach because the associated tests are non-parametric , do not require asset pricing benchmarks and have direct utility interpretations in terms of risk aversion and skewness preference. We apply our tests to momentum portfolios implemented on international stock indices. The results show that momentum exists globally, has persisted over time, is robust to the January effect and nonsynchronous trading biases and cannot be explained away using realistic levels of transaction costs. More importantly, our results imply that any rational asset pricing model which assumes investors are non-satiated and risk averse will be unable to explain momentum. Models that incorporate behavioral biases of investors may offer a more promising alternative.
"Asset Price Shocks, Financial Constraint, and Investment: Evidence from Japan", V Goyal and Takeshi Yamada, Journal of Business, 2004, vol. 77(1), pp 175-200
Abstract
Authors examine corporate investment spending around the asset price bubble in Japan in the late 1980s and make three contributions to our understanding of how stock valuations affect investment. First, investment responds significantly to nonfundamental components of stock valuations during asset price shocks; fundamentals matter less. Clearly, the stock market is not a sideshow. Second, the time series variation in the investment cash flow sensitivity is affected more by changes in monetary policy than by shifts in collateral values. Third, asset price shocks primarily affect firms that rely more on bank financing and not necessarily those that use equity financing.
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"Adverse Information and Mutual Fund Runs", Meijun Qian and A. Başak Tanyeri, 2011
Abstract
This paper is the first one to document that anticipation of adverse events can trigger runs in mutual funds. Using the event of the 2003 and 2004 litigations filed in the U.S. over market-timing and late-trading practices, we find that runs start as early as six months before litigation announcements. The pre-event runs are about half the size of runs that follow announcements, which is about 1% of total assets per month. In addition, investors who run before litigation announcements earn significantly higher risk- and peer-adjusted returns than those who run after because, as the return data on fund holdings show, the former avoid fire-sale costs. In funds holding illiquid assets or funds incurring large outflows, the cumulative differences in abnormal returns can be as high as 6%. Hence, our analysis suggests that a pro-rata ownership design is not sufficient to prevent runs in mutual funds.
"The Impact of International Institutional Investors on Local Equity Prices: Reversal of the Size Premium", Hao Jiang and Takeshi Yamada, 2011
Abstract
Using comprehensive firm-level ownership data from Japan, this paper finds that equity size premium correlates strongly with the investment flows of international institutional investors. When their investment flows intensified and shifted into larger stocks in the mid-1990s, a reversal of equity size premium occurred. Authors' results suggest that a large fraction of the time-variation in the size premium is driven by price pressures, without a shift in the fundamentals of small and large firms.
"Time Diversification under Loss Aversion: A Bootstrap Analysis", Wai Mun Fong, 2011
Abstract
In this paper, time diversification from the viewpoint of prospect theory investors is examined. Author uses a block bootstrap approach to generate returns of U.S. stocks and Treasury bills for time horizons from 1 year to 20 years. Author discovered that on average, bootstrapped value functions are mainly positive and increase monotonically with the time horizon, while in contrast, mean-variance optimal portfolios are more conservative, with the optimal proportion of the portfolio invested in stocks declining with time horizon. Their results suggest that time diversification ought to be viewed more favourbly by prospect theory investors than by mean-variance investors.
"Shareholder Coordination Costs and the Market for Corporate Control", Huang Jiekun, 2011
Abstract
Author examines the impact of coordination costs among shareholders on the market for corporate control. Using two measures, one based on the geographic distance among institutional investors and the other based on the correlation in their portfolio allocation decisions, to proxy for coordination costs, author shows that target firms with lower shareholder coordination costs experience significantly higher abnormal returns around the takeover announcement. In a similar vein, acquirer firms with lower shareholder coordination costs are associated with higher acquisition announcement returns. These effects are particularly pronounced after the 1992 proxy reform which relaxes the restrictions on communication and coordination among shareholders.
"Capitalizing on Capitol Hill: Informed Trading by Hedge Fund Managers", Huang Jiekun and Meng Gao, 2011
Abstract
Authors examine the hypothesis that hedge funds obtain an informational advantage in securities trading through their connections with lobbyists. Authors find that connected hedge funds tend to trade more heavily in politically sensitive stocks, and they perform significantly better on politically sensitive positions than non-political positions.
"Stock Price Synchronicity and Liquidity", K Chan, Allaudeen Hameed and Wenjin Kang, 2011
Abstract
Authors argue and provide evidence that stock price synchronicity reduces the adverse selection faced by liquidity providers and therefore improves the liquidity of the stock. Authors report robust evidence that stocks whose returns (or earnings) co-move more with the market index have higher liquidity. Besides market co-movement, larger industry wide component in returns also improves the liquidity. They also find that improvements in liquidity following additions to the S&P 500 index are related to the stock’s increase in return co-movement. There is also evidence that the lower bid-ask spread of ETFs is due to their relatively large stock price synchronicity.
"Strategic Complementarities and Mutual Fund Runs", Meijun Qian and A. Basak Tanyeri, 2010
Abstract
Are self-fulfilling runs possible in mutual funds? This paper provides insights by investigating whether anticipation of adverse events can trigger runs in mutual funds. The adverse event in question is the litigations concerning market-timing and late trading practices that were filed in 2003 and 2004. Authors find that pre-event runs start as early as six months before litigation announcements. The size of pre-event runs is about half the size of the runs after litigation announcements. Investors, who run before litigation announcements, earn significantly higher risk- and peer- adjusted returns than do those who run after, especially in funds holding illiquid assets and in funds incurring large outflows. The return difference is driven by the fire-sale costs because event returns of firms held by implicated funds with negative flows are significantly negative. Their analysis suggests that pro-rata-ownership design may not suffice to prevent runs in the mutual funds. Return differences due to the timing of withdrawals suggest strategic complementarities in the fund industry, where investors have incentives to withdraw in anticipation of other investors doing so.
"Hedge Funds and Shareholder Wealth Gains in Leveraged Buyouts", Huang Jiekun, 2010
Abstract
This paper examines the effect of hedge funds on target shareholder gains in leveraged buyouts (LBOs). Author finds that the buyout premium is increasing in the preannouncement presence of hedge funds, measured as the fraction of equity held by hedge funds in the target firm before the announcement. This effect is driven primarily by hedge funds with activism agendas. This effect is stronger for LBOs with management participation than for third-party LBOs, and is stronger for club deal LBOs than for solo-sponsored LBOs. Using a geographic instrument for the presence of hedge fund, author finds that this relationship persists even after controlling for endogeneity. These findings indicate that hedge funds protect target shareholder interests in LBOs.
"Gender and Corporate Finance: Are Male Executives Overconfident Relative to Female Executives?", Huang Jiekun and Darren Kisgen, 2010
Abstract
Using a difference-in-differences approach around executive transitions, authors examine whether men and women differ in corporate financial decisions. Authors find that companies with female CFOs make fewer acquisitions, and acquisitions made by female CFO firms have announcement returns approximately 2% higher than those made male CFO firms. Women appear to undertake greater scrutiny and exhibit less hubris in acquisition decisions. Female CFOs issue debt less frequently, and debt and equity issuances have higher announcement returns for female CFO firms. However, female CFO capital decisions are no more likely to move a firm toward its target leverage.
"Ownership Structure, Share Transferability, and Corporate Risk-Taking", Huang Jiekun, Nianhang Xu and Qingbo Yuan, 2010
Abstract
Authors show that the divergence among control rights, cash flow rights, and share transfer rights have important implications for corporate risk-taking. Chinese listed SOEs and family firms to examine the response of corporate risk-taking to restrictions on the property rights of the controlling shareholders.
"Information, Analysts and Stock Return Comovement", Allaudeen Hameed, J Shen, Randall Morck and Bernard Yeung, 2010
Abstract
Authors examine information spillover as a source of stock return synchronicity, where information about highly-followed "prominent" stocks is used to price other "neglected" stocks sharing a common fundamental component. Authors find that stocks followed by few analysts co-move significantly with firm-specific fluctuations in the prices of highly followed stocks in the same industry, but do not observe the converse. This effect is more prominent in industries where analysts follow fewer stocks. Earnings forecast revisions for highly followed stocks cause price changes in little followed stocks, but the converse is again not observed. This is consistent with information spillover being primarily unidirectional – flowing from prominent to neglect stocks, but not vice versa. These findings also validate models of specialized information intermediaries in stock markets assisting the information capitalization process.
"Trading Agents and Liquidity Risk", Joseph Cherian, S Mahanti and M Subrahmanyam, 2009
Abstract
A recent area of concern – and analysis – in both financial economics and capital markets has been liquidity. Broadly speaking, liquidity is the ease with which a financial asset can be traded. Liquidity risk, on the other hand, can be defined as the uncertainty associated with the measure of liquidity. Using a simple information-based model of liquidity, we define, develop, and empirically test some measures of liquidity risk, both at the stock- and market-levels. In this model, trading agents are characterized as being driven by superior information, liquidity needs, or hedging requirements. The bid-ask spreads derived from this model have the desired historical properties, and the ability to forecast future liquidity. We also provide empirical evidence that validates the notion that liquidity affects financial market performance.
"Institutional Trading, Brokerage Commissions, and Information Production Around Stock Splits",Huang Jiekun, T Chemmanur and G Hu, 2009
Abstract
Using a large sample of transaction-level institutional trading data, authors directly test Brennan and Hughes' (1991) information production theory of stock splits for the first time in the literature. Authors compare brokerage commissions paid by institutional investors before and after a split, and relate the informativeness of institutional trading to brokerage commissions paid. They also compute realized institutional trading profitability net of brokerage commissions and other trading costs. Their results can be summarized as follows. First, both commissions paid and trading volume by institutional investors increase after a stock split. Second, institutional trading immediately after a split has predictive power for the firm's subsequent long-term stock return performance; this predictive power is concentrated in stocks which generate higher commission revenues for brokerage firms and is greater for institutions that pay higher brokerage commissions. Third, institutions make positive abnormal profits during the post-split period even after taking brokerage commissions and other trading costs into account; institutions paying higher commissions significantly outperform those paying lower commissions. Fourth, the information asymmetry faced by firms decreases after a split; the greater the increase in brokerage commissions after a split, the greater the reduction in information asymmetry. Overall, our results are broadly consistent with the implications of the information production theory.
"Dynamic Liquidity Preferences of Mutual Funds", Huang Jiekun, 2008
Abstract
Author examines the relationship between expected market volatility and the demand for liquidity in open-end mutual funds. He finds that fund managers hold more cash and tilt their holdings more heavily toward liquid stocks when the market is expected to be more volatile. This dynamic preference for liquidity is more pronounced among low-load funds, funds whose past performance has been unfavorable, funds with high return volatility, small funds, growth-oriented funds, and high-turnover funds. Author further shows that this type of behavior is valuable for fund investors during high volatility periods because it has led to significantly (both statistically and economically) higher subsequent abnormal returns.
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