Examining the efficiency and interdependence of US credit and stock markets through MF-DFA and MF-DXA approaches

Shahzad, Syed Jawad Hussain; Nor, Safwan Mohd; Mensi, Walid; Kumar, Ronald Ravinesh

doi:10.1016/j.physa.2016.12.037

Cited by 48 publications

(17 citation statements)

References 64 publications

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“…And SCDS market adjusts to this shock within one week. These results are similar to the findings of previous studies (Shahzad, Nor, Mensi, & Kumar, 2017;Narayan et al, 2014). However, our findings are for sovereign markets in comparison with industry level findings of these studies.…”

Section: Resultssupporting

confidence: 92%

Relationship between Stock and the Sovereign CDS markets: A panel VAR based analysis

Shear¹,

Butt²

2017

SAJMS

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This study explores the relationship between the Stock and the Sovereign Credit Default Swaps (SCDS) markets by using dataset of 36 countries.We apply Panel Vector Autoregressive (PVAR) model to gauge the impact of one market's shocks to the other. Our results decipher that changes in stock market returns explain the significant portion of the SCDS market spreads' changes. Furthermore, the magnitude of this explanation is linked with the volatility of the SCDS market. These analyses indicate that the firsthand information about the country's sovereign credit risk is contained in the respective stock market, and can be used by participants/investors to predict the SCDS market spreads.

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Section: Resultssupporting

confidence: 92%

Relationship between Stock and the Sovereign CDS markets: A panel VAR based analysis

Shear¹,

Butt²

2017

SAJMS

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“…One possibility is such risk is not properly captured by market participants. While the developed markets have traditionally been considered efficient, some studies show that the Australian and the US markets might not be fully efficient [19][20], and similar is the case with the UK market [21]. This is in line with prior findings related to CG [16][17].…”

Section: Resultssupporting

confidence: 73%

Optimal portfolios vis-à-vis corporate governance ratings: some UK evidence

Nor¹,

Zawawi²

2018

EA-XXI

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Socially responsible investments may offer investors higher returns because of the perceived lower risk and thus associated cost (monitoring, litigation, etc.), although it might also be less profitable as posited by proponents of the Efficient Market Hypothesis where higher risk is compensated with higher returns. Corporate governance (CG)-one of the key components in socially responsible investing-has been extensively studied for evaluating its relationship with firm performance. In this paper, we extend prior literature by exploring the investment performances of two distinct portfolios built using strong versus weak corporate governance firms. We contribute by investigating the value of corporate governance (or lack thereof) in formulating portfolios. Using London Stock Exchange data for the period January 2012 through June 2018 and both ends of the quartile spectrum from 2017 Good Governance Report, we optimize each portfolio based on their Sharpe criterion. Our findings offer some practical and theoretical implications. Investors who are conscious about CG and attempt to maximize Sharpe measure by investing in strong governance firms may face lower portfolio risk by foregoing higher returns. Whereas reduction in value-at-risk midway onwards appears to suggest investment in companies with strong CG would less likely to fail in the long run. Volatility and downside volatility results tell similar story. Indeed, from the agency theoretical perspective, companies with strong CG would lead to lower agency cost (and risk) and better firm performance. We find profitable outcomes for both portfolios, although out-of-sample, weak governance portfolio dominates in terms of several key performance metrics.

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“…In fact, weak form inefficiency has similarly been observed in the developed markets. For example, Nor and Wickremasinghe (2014) [16] show that some forms of technical analysis still have potentials to reap positive returns in Australia, while recently, Shahzad et al (2017a) [17] find that even in the U.S. market, some sectors have greater degree of inefficiency over the others. The fact that a number of real-world portfolio offered by mutual funds in Malaysia seem to generate poor returns and/or low Sharpe ratios further support our argument (for the list and performances of some mutual funds in the country, refer to http://www.fundsupermart.com.my).…”

Section: Resultsmentioning

confidence: 99%

Further examination of the 1/N portfolio rule: a comparison against Sharpe-optimal portfolios under varying constraints

Nor¹,

Islam²

2017

EA-XXI

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Practical trading constraints (such as asset bounds and transaction costs) are known to affect the efficient frontier of an investment portfolio. In this study, we investigate out-of-sample trading performances of tangency portfolios against the naïve 1/N policy under varying constraints. Our aim is to deliberate if such constraints are influential to the relative (individual) performances between (of) the two competing strategies. Using FTSE Bursa Malaysia KLCI constituent stocks of 30 companies listed, we form several portfolios with different Ns and constraint specifications. Sample period spans 2006 through 2015, in order to alleviate possible confounding affects on risk/return dynamics caused by the 1MDB financial scandal and the U.S. Federal Reserve increasing its key interest rate starting from December 2015. Performance metrics exhibit sensitivity of portfolios to the degree (variability) of constraints, specifically floor, ceiling and the consideration of trading cost. Among other valuable findings, it has been found out that in all the cases researched the simple 1/N portfolio selection rule offers superior outcome as compared to the tangency portfolios. Generally stated, the naïve policy outperforms the more sophisticated portfolio optimization model in terms of the Sharpe criterion, information ratio and maximum drawdown during the period under investigation. Relative performances remain consistent regardless of the number of stocks included in the portfolio. Нор С. М. кандидат економічних наук, фондовий менеджер, Малайзійський університет Теренггану, Теренггану, Малайзія, дослідник, Інститут стратегічних економічних досліджень Вікторії, Університет Вікторії, Мельбурн, Австралія Іслам С. М. Н. кандидат економічних наук, професор, Інститут стратегічних економічних досліджень Вікторії, Університет Вікторії, Мельбурн, Австралія Подальший розгляд правила 1/N портфоліо: порівняння з оптимальними за Шарпом портфелями за різних обмежень Анотація. Відомо, що практичні торгові обмеження впливають на ефективну межу інвестиційного портфеля. У цій роботі ми досліджуємо позабіржові торговельні показники дотичних портфелів проти наївної політики 1/N за різних обмежень. Наша мета -виявити, чи впливають такі обмеження на дії між конкуруючими стратегіями. Використовуючи акції 30 компаній на фондовій біржі FTSE Bursa Malaysia KLCI, ми формуємо кілька портфелів із різними специфікаціями N та обмеженнями. Вибірка охоплює період з 2006 по 2015 рік, коли в кінці року усувається можливе змішування впливу на динаміку ризику/ прибутковості, викликане фінансовим скандалом 1 МБР, та початком підвищення ключової процентної ставки Федеральною резервною системою США починаючи з грудня 2015 року. Показники ефективності демонструють чутливість портфелів до ступеня (мінливості) обмежень, зокрема, нижньої межі, верхньої межі й урахування вартості торгівлі. Ключові слова: оптимізація портфеля; коефіцієнт Шарпа; коефіцієнт інформації; максимальна просадка; наївна диверсифікація; практичні обмеження. Нор С. М. кандидат экономических наук...

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Examining the efficiency and interdependence of US credit and stock markets through MF-DFA and MF-DXA approaches

Cited by 48 publications

References 64 publications

Relationship between Stock and the Sovereign CDS markets: A panel VAR based analysis

Relationship between Stock and the Sovereign CDS markets: A panel VAR based analysis

Optimal portfolios vis-à-vis corporate governance ratings: some UK evidence

Further examination of the 1/N portfolio rule: a comparison against Sharpe-optimal portfolios under varying constraints

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