Paper: Una vuelta por el mundo…

Equity Premia Around the World

Abstract: 
We update our global evidence on the long-term realized equity risk premium, relative to both bills and bonds, in 19 different countries. Our study now runs from 1900 to the start of 2011. While there is considerable variation across countries, the realized equity risk premium was substantial everywhere. For our 19-country World index, over the entire 111 years, geometric mean real returns were an annualized 5.5%; the equity premium relative to Treasury bills was an annualized 4.5%; and the equity premium relative to long-term government bonds was an annualized 3.8%. The expected equity premium is lower, around 3% to 3½% on an annualized basis.

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Paper: Equity Yields

Equity Yields

Abstract
We study a new data set of prices of traded dividends with maturities up to 10 years across three world regions: the US, Europe, and Japan. We use these asset prices to construct equity yields, analogous to bond yields. We decompose these yields to obtain a term structure of expected dividend growth rates and a term structure of risk premia, which allows us to decompose the equity risk premium by maturity. We find that both expected dividend growth rates and risk premia exhibit substantial variation over time, particularly for short maturities. In addition to predicting dividend growth, equity yields help predict other measures of economic growth such as consumption growth. We relate the dynamics of growth expectations to recent events such as the financial crisis and the earthquake in Japan.

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Paper: Información privilegiada

Decoding Inside Information

Abstract

Exploiting the fact that insiders trade for a variety of reasons, we show that there is  predictable, identifiable “routine” insider trading that is not informative for the future  of firms. A portfolio strategy that focuses solely on the remaining “opportunistic”  traders yields value-weighted abnormal returns of 82 basis points per month, while  abnormal returns associated with routine traders are essentially zero. The most informed opportunistic traders are local, non-executive insiders from geographically concentrated, poorly governed firms. Opportunistic traders are significantly more likely to have SEC enforcement action taken against them, and reduce trading following waves of SEC insider trading enforcement.

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Fun & Finance: #14, Charla sobre Mercado

En esta ocasión, German le ofrece a Gaston un pantallazo como mirar las conexiones dentro del mercado financiero.

Siempre mejor en HD.

No se olviden de LIKE THIS !!

Paper: Diversificación, rebalanceo como soluciones…

Diversification Return, Portfolio Rebalancing, and the Commodity Return Puzzle

Diversification return is an incremental return earned by a rebalanced portfolio of assets. The diversification return of a rebalanced portfolio is often incorrectly ascribed to a reduction in variance. We argue that the underlying source of the diversification return is the rebalancing, which forces the investor to sell assets that have appreciated in relative value and buy assets that have declined in relative value, as measured by their weights in the portfolio. In contrast, the incremental return of a buy-and-hold portfolio is driven by the fact that the assets that perform the best become a greater fraction of the portfolio. We use these results to resolve two puzzles associated with the Gorton and Rouwenhorst index of commodity futures, and thereby obtain a clear understanding of the source of the return of that index. Diversification return can be a significant source of return for any rebalanced portfolio of volatile assets.

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Paper: Pricing y Modelo estructural de Credito

Stochastic evolution equations in portfolio credit modelling

Abstract

We consider a structural credit model for a large portfolio of credit risky assets where the correlation is due to a market factor. By considering the large portfolio limit of this system we show the existence of a density process for the asset values. This density evolves according to a stochastic partial differential equation and we establish existence and uniqueness for thesolution taking values in a suitable function space. The loss function of the portfolio is then a function of the evolution of this density at the default boundary. We develop numerical methods for pricing and calibration of the model to credit indices and consider its performance pre and post credit crunch.

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Paper: ETNs pricing, un rompecabeza

The Indicative Value – Price Puzzle in ETNs: Liquidity Constraints, Information Signaling, or an Ineffective System for Share Creation?

Abstract:
The prices of ETNs often significantly exceed their indicative values. Since ETNs share many features in common with zero-coupon bonds, this empirical finding is unexpected. (Adopting the language of Wright, Diavatopoulos, and Felton (2010), we refer to this as the negative WDFD puzzle.) Using a sample of 93 ETNs over the period June 6, 2006 to December 31, 2009, we explore three possible explanations for the negative WDFD puzzle. We find that the puzzle is not a result of liquidity constraints. In fact, increased trading volume is mildly correlated with more extreme mispricing in ETNs. We also find that ETN prices significantly exceeding their corresponding indicative values do not possess information about the future prospects of the asset, commodity, or index tied to the ETN. Instead, we conclude that the negative WDFD puzzle is the result of (1) uninformed, return-chasing investors and (2) an ineffective current system for creating new shares of existing ETNs. To work towards eliminating the negative WDFD puzzle, we recommend that ETN issuers restructure their systems for creating new ETN shares by allowing profit-motivated investors to initiate the process of share creation as they identify extreme mispricing in the market place.

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Paper: QE y su impacto en el mercado

The financial market impact of quantitative easing

Abstract

As part of its response to the global banking crisis and a sharp downturn in domestic economic prospects, the Bank of England’s Monetary Policy Committee (MPC) began a programme of large-scale asset purchases (commonly referred to as quantitative easing or QE) in March 2009, with the aim of injecting additional money into the economy and so increasing nominal spending growth to a rate consistent with meeting the CPI inflation target in the medium term. By February 2010, the MPC had made £200 billion of purchases, most of which had been of UK government securities (gilts). Based on analysis of the reaction of financial market prices and econometric estimates, this paper attempts to assess the impact of the Bank’s QE policy on asset prices. Our estimates of the reaction of gilt prices to the programme suggest that QE may have depressed gilt yields by about 100 basis points. On balance the evidence seems to suggest that the largest part of the impact of QE came through a portfolio rebalancing channel. The wider impact on other asset prices is more difficult to disentangle from other influences: the initial impact was muted but the overall effects were potentially much larger, though subject to considerable uncertainty.

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Paper: Frecuencia de trading y asset pricing

Trading Frequency and Asset Pricing: Evidence from a New Price Impact Ratio

Abstract:
In this study we propose a new price impact ratio as an alternative to the widely used Amihud’s (2002) Return-to-Volume ratio (RtoV). This new measure, which is deemed Return-to-Turnover ratio (RtoTR), essentially modifies RtoV by substituting trading volume in its denominator with the turnover ratio for each security. We demonstrate that the new price impact ratio has a number of appealing features. Using daily data from all stocks listed on the London Stock Exchange over the period 1991-2008, we provide overwhelming evidence that this ratio, while being unequivocal to construct and interpret, is also free of size bias. More importantly, it encapsulates the stocks’ cross-sectional variability in trading frequency, a relatively neglected but important determinant of stock returns given the recently observed trends in financial markets. Overall, our findings argue against the conventional wisdom that there is a simple direct link between trading costs and stock prices by strongly suggesting that it is the compound effect of trading frequency and transaction costs that matters for asset pricing, not each aspect in isolation.

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Paper: Commodities y Liquidez

Liquidity Commonality in Commodities

Abstract:
Commodities have become an important asset class. However there has been little focus on commodities in the literature as compared to stocks and bonds. We show, using data from 16 agricultural, energy, industrial metal, precious metal, and livestock commodities, that there is a strong systematic liquidity factor (liquidity commonality) in commodities. This existed at the start of our sample period in 1997 but has become stronger over time. We also find that systematic liquidity risk is an important determinant of commodity returns. Finally, there is no consistent relation between changes in systematic stock market liquidity and changes in systematic commodity liquidity.

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