Background:We investigate whether the success of contrarian investment strategies can be attributed to differences in the relative illiquidity of stocks categorized as value investments versus those categorized as gla...Background:We investigate whether the success of contrarian investment strategies can be attributed to differences in the relative illiquidity of stocks categorized as value investments versus those categorized as glamour portfolios.Methods:Following Lakonishok et al.(J Financ 49:1541–1578,1994),we assess the illiquidity characteristics of portfolios that underlie contrarian investment strategies that are based on the level of stock’s book to market.Results:We find strong evidence that those portfolios characterized as value investments are associated with dramatically greater levels of illiquidity than glamour portfolios.We further demonstrate that strategies based on the illiquidity in the year prior to portfolio formation result in return characteristic of ostensibly contrarian strategies.Conclusions:These results suggest that the higher returns associated with contrarian investment strategies are the result of the higher illiquidity associated with value portfolios and represent compensation that the investor receives for accepting illiquidity.They also suggest that researchers should be cautious before attributing apparent anomalies to behavior-driven expectational errors rather than to other attributes unrelated to behavior,such as illiquidity.展开更多
Under the NTS Reform(Non-Tradable Share Reform),this paper explores the cross-sectional relations between illiquidity and stock returns by considering the idiosyncratic volatility biases in the Shanghai A’Share stock...Under the NTS Reform(Non-Tradable Share Reform),this paper explores the cross-sectional relations between illiquidity and stock returns by considering the idiosyncratic volatility biases in the Shanghai A’Share stock market.Differing from prior studies,stock returns are decreasing in a stock’s illiquidity both before and after the NTS Reform.Regarding the negative relation between illiquidity and stock returns,we find that stock returns show no clear relation with illiquidity after controlling for idiosyncratic volatility biases.Furthermore,we use residual approach to eliminate the effect of idiosyncratic volatility,and find there exists a positive relation between illiquidity and stock returns after the NTS Reform.展开更多
This paper deals with illiquidity measurement of stocks on Croatian Stock market. Illiquidity measures used in this paper are daily ratio of absolute stock return to its dollar volume (ILLIQ) and RCT (Relative change ...This paper deals with illiquidity measurement of stocks on Croatian Stock market. Illiquidity measures used in this paper are daily ratio of absolute stock return to its dollar volume (ILLIQ) and RCT (Relative change in turnover). Aim of this paper is to show that illiquidity measure RCT makes clear distinction between liquid and illiquid stocks that should be reflected through investment strategy where investment in RCT based illiquid portfolios outperforms investment in ILLIQ based portfolios and CROBEX index. Research was carried out on eighteen stocks from Zagreb Stock Exchange (ZSE) which are constituents of CROBEX index. Portfolios of liquid and portfolios of illiquid stocks based on results of illiquidity measurement were constructed. Behaviour in terms of return and volatility of these portfolios in following one-year period was observed. Results showed that portfolios formed using RCT as measure of illiquidity constantly outperformed CROBEX index and ILLIQ based portfolios. Returns of RCT based portfolios had lower standard deviation and were more stable than ILLIQ based portfolios in whole period. RCT as a measure of illiquidity produces valuable information on stock liquidity that can be exploited as investment strategy reflecting itself in larger expected returns of RCT portfolios in future period than expected returns of ILLIQ based portfolios and market.展开更多
This paper presents a rational expectation equilibrium model to explore how the financial contagion occurs between the unlinked markets that do not share common fundamentals.In the proposed model,the authors assume tw...This paper presents a rational expectation equilibrium model to explore how the financial contagion occurs between the unlinked markets that do not share common fundamentals.In the proposed model,the authors assume two of the three risky assets share no common fundamental factors,but are connected by one intermediate asset via cross fundamentals.Through this channel,investors transmit fundamental risk from one asset to another by dint of the cross fundamentals.This mechanism causes liquidity comovement and subsequently becomes a source of market crisis:Through the contagion mechanism,an initial liquidity shock in one asset can result in a drop tendency in liquidity and price informativeness for another asset.Such comovement in liquidity offers a new explanation for idiosyncratic assets in financial contagion.展开更多
The subprime crisis was quite damaging for hedge funds.Using the local projection method(Jordà2004,2005,2009),we forecast the dynamic responses of the betas of hedge fund strategies to macroeconomic and financial...The subprime crisis was quite damaging for hedge funds.Using the local projection method(Jordà2004,2005,2009),we forecast the dynamic responses of the betas of hedge fund strategies to macroeconomic and financial shocks—especially volatility and illiquidity shocks—over the subprime crisis in order to investigate their market timing activities.In a robustness check,using TVAR(Balke 2000),we simulate the reaction of hedge fund strategies’betas in extreme scenarios allowing moderate and strong adverse shocks.Our results show that the behavior of hedge fund strategies regarding the monitoring of systematic risk is highly nonlinear in extreme scenarios—especially during the subprime crisis.We find that countercyclical strategies have an investment technology which differs from procyclical ones.During crises,the former seek to capture non-traditional risk premia by deliberately increasing their systematic risk while the later focus more on minimizing risk.Our results suggest that the hedge fund strategies’betas respond more to illiquidity uncertainty than to illiquidity risk during crises.We find that illiquidity and VIX shocks are the major drivers of systemic risk in the hedge fund industry.展开更多
This study investigates and compares the effects of the Coronavirus disease 2019(COVID-19)pandemic,the Chicago mercantile exchange(CME)'s negative price suggestion on prices and trading activities in the crude oil...This study investigates and compares the effects of the Coronavirus disease 2019(COVID-19)pandemic,the Chicago mercantile exchange(CME)'s negative price suggestion on prices and trading activities in the crude oil futures market to discuss the cause of negative crude oil futures prices.Through event studies,the empirical results show that the COVID-19 pandemic no longer impacts crude oil futures prices in April,2020 after controlled market risk,while the CME's negative prices suggestion can explain the crude oil futures price changes around and even after April 8,2020 to some degree.Moreover,this study uncovers anomalies in prices and trading activities by analyzing returns,trading volume,open interest,and illiquidity measures using vector autoregressive(VAR)models.The results imply that CME's allowing negative prices strengthens the price impact on trading volume and makes illiquidity risk matter.This study's results coincide with the following lawsuit evidence of market manipulation.展开更多
We conduct an empirical analysis of Shanghai-Hong Kong Stock Connect to reveal the dynamic impacts of stock connect trading activity on the stock pool's Amihud illiquidity proxy, index return, and CNY-HKD exchange...We conduct an empirical analysis of Shanghai-Hong Kong Stock Connect to reveal the dynamic impacts of stock connect trading activity on the stock pool's Amihud illiquidity proxy, index return, and CNY-HKD exchange rate. From pairwise conditional g causality analysis, we note a mutual significant causal connection between northbound net buying volume and Shanghai stock exchange return on all frequency levels. Meanwhile, we find a significant causal impact on the Shanghai portfolio's liquidity from northbound net buying volume. And there is a significant causal impact from the southbound net buying volume on Hang Seng Index return. Both are significant at the low-frequency level. In particular, northbound trading activity stimulates the Shanghai portfolio's liquidity in the low trading activity regime from the threshold VAR analysis. In robust analysis, we find similar significant dynamic causal connection and stimulation effects for the northbound trades when replacing Amihud illiquidity with the turnover rate. The result might relate to the investment behaviors looking for opportunity in the low trading activity regime. In contrast, the investors' beliefs may vary in the high trading activity regime, which weakens the connection between trading activities and other factors like liquidity.展开更多
文摘Background:We investigate whether the success of contrarian investment strategies can be attributed to differences in the relative illiquidity of stocks categorized as value investments versus those categorized as glamour portfolios.Methods:Following Lakonishok et al.(J Financ 49:1541–1578,1994),we assess the illiquidity characteristics of portfolios that underlie contrarian investment strategies that are based on the level of stock’s book to market.Results:We find strong evidence that those portfolios characterized as value investments are associated with dramatically greater levels of illiquidity than glamour portfolios.We further demonstrate that strategies based on the illiquidity in the year prior to portfolio formation result in return characteristic of ostensibly contrarian strategies.Conclusions:These results suggest that the higher returns associated with contrarian investment strategies are the result of the higher illiquidity associated with value portfolios and represent compensation that the investor receives for accepting illiquidity.They also suggest that researchers should be cautious before attributing apparent anomalies to behavior-driven expectational errors rather than to other attributes unrelated to behavior,such as illiquidity.
文摘Under the NTS Reform(Non-Tradable Share Reform),this paper explores the cross-sectional relations between illiquidity and stock returns by considering the idiosyncratic volatility biases in the Shanghai A’Share stock market.Differing from prior studies,stock returns are decreasing in a stock’s illiquidity both before and after the NTS Reform.Regarding the negative relation between illiquidity and stock returns,we find that stock returns show no clear relation with illiquidity after controlling for idiosyncratic volatility biases.Furthermore,we use residual approach to eliminate the effect of idiosyncratic volatility,and find there exists a positive relation between illiquidity and stock returns after the NTS Reform.
文摘This paper deals with illiquidity measurement of stocks on Croatian Stock market. Illiquidity measures used in this paper are daily ratio of absolute stock return to its dollar volume (ILLIQ) and RCT (Relative change in turnover). Aim of this paper is to show that illiquidity measure RCT makes clear distinction between liquid and illiquid stocks that should be reflected through investment strategy where investment in RCT based illiquid portfolios outperforms investment in ILLIQ based portfolios and CROBEX index. Research was carried out on eighteen stocks from Zagreb Stock Exchange (ZSE) which are constituents of CROBEX index. Portfolios of liquid and portfolios of illiquid stocks based on results of illiquidity measurement were constructed. Behaviour in terms of return and volatility of these portfolios in following one-year period was observed. Results showed that portfolios formed using RCT as measure of illiquidity constantly outperformed CROBEX index and ILLIQ based portfolios. Returns of RCT based portfolios had lower standard deviation and were more stable than ILLIQ based portfolios in whole period. RCT as a measure of illiquidity produces valuable information on stock liquidity that can be exploited as investment strategy reflecting itself in larger expected returns of RCT portfolios in future period than expected returns of ILLIQ based portfolios and market.
基金supported by China Postdoctoral Science Foundation under Grant No.2019M660424the National Natural Science Foundation of China under Grant Nos.71771008 and 71803029Guangdong Province Philosophy and Social Science Planning Project under Grant No.GD21YYJ10。
文摘This paper presents a rational expectation equilibrium model to explore how the financial contagion occurs between the unlinked markets that do not share common fundamentals.In the proposed model,the authors assume two of the three risky assets share no common fundamental factors,but are connected by one intermediate asset via cross fundamentals.Through this channel,investors transmit fundamental risk from one asset to another by dint of the cross fundamentals.This mechanism causes liquidity comovement and subsequently becomes a source of market crisis:Through the contagion mechanism,an initial liquidity shock in one asset can result in a drop tendency in liquidity and price informativeness for another asset.Such comovement in liquidity offers a new explanation for idiosyncratic assets in financial contagion.
基金support from the IPAG Business School and from the Social Sciences and Humanities Research Council of Canada(SSHRC)—Grant No.435-2019-0078.
文摘The subprime crisis was quite damaging for hedge funds.Using the local projection method(Jordà2004,2005,2009),we forecast the dynamic responses of the betas of hedge fund strategies to macroeconomic and financial shocks—especially volatility and illiquidity shocks—over the subprime crisis in order to investigate their market timing activities.In a robustness check,using TVAR(Balke 2000),we simulate the reaction of hedge fund strategies’betas in extreme scenarios allowing moderate and strong adverse shocks.Our results show that the behavior of hedge fund strategies regarding the monitoring of systematic risk is highly nonlinear in extreme scenarios—especially during the subprime crisis.We find that countercyclical strategies have an investment technology which differs from procyclical ones.During crises,the former seek to capture non-traditional risk premia by deliberately increasing their systematic risk while the later focus more on minimizing risk.Our results suggest that the hedge fund strategies’betas respond more to illiquidity uncertainty than to illiquidity risk during crises.We find that illiquidity and VIX shocks are the major drivers of systemic risk in the hedge fund industry.
基金supported by Dr.Lu’s grants from the National Natural Science Foundation of China under Grant No.71871213Prof.Bu’s grants from the National Natural Science Foundation of China under Grant Nos.71671012 and 91846108。
文摘This study investigates and compares the effects of the Coronavirus disease 2019(COVID-19)pandemic,the Chicago mercantile exchange(CME)'s negative price suggestion on prices and trading activities in the crude oil futures market to discuss the cause of negative crude oil futures prices.Through event studies,the empirical results show that the COVID-19 pandemic no longer impacts crude oil futures prices in April,2020 after controlled market risk,while the CME's negative prices suggestion can explain the crude oil futures price changes around and even after April 8,2020 to some degree.Moreover,this study uncovers anomalies in prices and trading activities by analyzing returns,trading volume,open interest,and illiquidity measures using vector autoregressive(VAR)models.The results imply that CME's allowing negative prices strengthens the price impact on trading volume and makes illiquidity risk matter.This study's results coincide with the following lawsuit evidence of market manipulation.
基金Supported by the National Natural Science Foundation of China(71988101)。
文摘We conduct an empirical analysis of Shanghai-Hong Kong Stock Connect to reveal the dynamic impacts of stock connect trading activity on the stock pool's Amihud illiquidity proxy, index return, and CNY-HKD exchange rate. From pairwise conditional g causality analysis, we note a mutual significant causal connection between northbound net buying volume and Shanghai stock exchange return on all frequency levels. Meanwhile, we find a significant causal impact on the Shanghai portfolio's liquidity from northbound net buying volume. And there is a significant causal impact from the southbound net buying volume on Hang Seng Index return. Both are significant at the low-frequency level. In particular, northbound trading activity stimulates the Shanghai portfolio's liquidity in the low trading activity regime from the threshold VAR analysis. In robust analysis, we find similar significant dynamic causal connection and stimulation effects for the northbound trades when replacing Amihud illiquidity with the turnover rate. The result might relate to the investment behaviors looking for opportunity in the low trading activity regime. In contrast, the investors' beliefs may vary in the high trading activity regime, which weakens the connection between trading activities and other factors like liquidity.