Hwang, Soosung and Satchell, S. (Stephen) (2000) The disappearance of style in the US equity market. Working Paper. Warwick Business School Financial Econometrics Research Centre, University of Warwick.

Preview

PDF WRAP_Hwang_fwp99-18.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (484Kb)

Abstract

This paper investigates the modelling of style returns in the US and the returns to style "tilts" based on forecasts of enhanced future style returns. We use hidden Markov model to build our forecasts. Our finding that style returns are less forecastible in more recent years is consistent with the hypothesis that style returns are the result of anomalies rather than risk premia. The erosion of anomalous returns as public awareness of their presence is translated into strategies that arbitrage away the excess returns seems to be a hypothesis consistent with our modelling results.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Stocks -- United States, Risk -- Econometric models
Series Name:	Working Papers Series
Publisher:	Warwick Business School Financial Econometrics Research Centre
Place of Publication:	University of Warwick
Date:	10 April 2000
Volume:	Vol.1999
Number:	No.18
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Alpha Strategies Ltd.
References:	Bauman, W. S. and R. E. Miller, 1997, Investor expectations and the performance of value stocks versus growth stocks, Journal of Portfolio Management 23(3), 57-68. Bauman, W. S. and C. M. Conover, and R. E. Miller, 1999, Investor Overreaction in International Stock Markets, Journal of Portfolio Management 25(4), 102- 111. Bienstock, S. and E.H. Sorenson, 1993 Segregating growth from value: its not always either/or, Salomon Brothers Discussion Paper. Brush, J. S., 1997, Comparisons and combinations of long and long/short strategies, Financial Analysts Journal, May/June, 89–89. Capaul, C., I. Rowley, and W. Sharpe, 1993, International value and growth stock returns, Financial Analysts Journal, 27–36. Dacco, R., and S. Satchell, 1998, Why do regime-switching models forecast so badly?, Journal of Forecasting, forthcoming. Erb, C. B., C. R. Harvey, and T. E. Viskanta, 1997, Demographics and International Investment, Financial Analysts Journa 53(4), 14-28. Erb, C. B., C. R. Harvey, and T. E. Viskanta, 1996, Political Risk, Financial Risk and Economic Risk, Financial Analysts Journal 52(6), 28-46. Ferson, W. and C. Harvey, 1997, Fundamental Determinants of International Equity Returns: A Perspective on Conditional Asset Pricing, Journal of Banking and Finance 21, 1625-1665. Ferson, W., S. Sarkissian, and T. Simin, 1998, The alpha factor asset pricing model: a parable, (University of Washington), mimeo. Filardo, A. J., 1994, Business-cycle phases and their transitional dynamics, Journal of Business and Economic Statistics 12(3), 299–308. Goodwin, T. H., 1993, Business-cycle analysis with a Markov switching model, Journal of Business and Economic Statistics 11(3), 331–339. Hamilton, J.D., 1989, A new approach to the economic analysis of nonstationary time-series and the business cycle, Econometrica 57, 357–384. Hamilton, J.D., 1991, A quasi-Bayesian approach to estimating parameters for mixtures of normal distributions, Journal of Business and Economic Statistics 9, 27-39. Hamilton, J.D., 1994, Time Series Analysis, (Priceton). Huberman, G., A. Shmuel, and R.F. Stambaugh, 1987, Mimicking portfolios and exact arbitrage pricing, Journal of Finance 42, 1-10. Jensen, G. R., R.R. Johnson, and J.M. Mercer, 1998, The inconsistency of smallfirm and value stock premiums, Journal of Portfolio Management 24(2), 27-36. Kim, C.J., 1993, Unobserved-component time-series models with Markov switching heteroscedasticity, Journal of Business and Economic Statistics 11(3), 341–349. Kuberek, R.C., 1998, Using style factors to differentiate equity performance over short horizons, Journal of Portfolio Management 24(3), 33-40. La-Porta, R., 1996, Expectations and the cross-section of stock returns, Journal of Finance 51(5), 1715-42. Lehmann, B.N., and D.M. Modest, 1988, The empirical foundations of the arbitrage pricing theory, Journal of Financial Economics 21, 23–54. Pagan, A.R., and G.W. Schwert, 1990, Alternative models for conditional stock volatility, Journal of Econometrics 45, 267–290. Rozeff, M.S., and Zaman, M.A., 1998, Overreaction and insider trading: evidence from growth and value portfolios, Journal of Finance 53(2), 701-16. Satchell, S.E., and Y. Yoon, 1996, Tactical style allocation: applications of the Markov switching model to value-growth investment and tactical asset allocation, (University of Cambridge), Discussion Paper in Accounting and Finance: AF25. Siegel, J.J., 1995, The Nifty-fifty revisited: do growth stocks ultimately justify their price? Journal of Portfolio Management 21(4), 8-20. Sharpe, W., 1991, Asset allocation: management style and performance measurement, Journal of Portfolio Management, 7–19. Umstead, D.A., 1993, Value investing: a style for all seasons, Paper presented at INQUIRE Europe Conference, October.
URI:	http://wrap.warwick.ac.uk/id/eprint/1832

Request changes to a record

Actions (login required)

View Item