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Category Archives: Edward Tower

Motivation and Reasoning Behind Chinese Enterprises Overseas Listing

By Sjing Liang

Starting from the early 90s, the number of Chinese firms going public overseas has been increasing rapidly. By running a probit regression, this paper investigates the different factors that affect a Chinese firm’s choice of listing location, either a domestic or a foreign stock exchange. Our data consists of 286 foreign listed companies and 788 domestically listed ones that went public between 2005 and the first quarter of 2011. Our results reveal that, larger firms, in terms of their pre-IPO revenue values, are more likely to go public overseas. In addition, firms in high-tech and capital-intensive industries, namely technology, financials, and real estate, are better represented in overseas markets. We also find that stock markets with lower underpricing levels are more attractive to Chinese firms, who tend to avoid capital markets with high underpricing levels as they do not want to be undervalued at their IPOs.

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Advisor: Alon Brav, Edward Tower | JEL Codes: G10, G15 | Tagged: Chinese Enterprises, Initial Public Offerings, Oversea Listing, Stock Markets

Do Vanguard ETF Investors Make Good Decisions? – Testing the Bogle Hypothesis

By Meng Xie

John Bogle, the founder of Vanguard, is a notable opponent of frequent ETF trading. We test his
hypothesis that Vanguard investors are not trading ETFs intelligently. A comparison of dollarweighted
and time-weighted returns is the typical method used for assessing investor timing. We
instead employ Sharpe’s style analysis techniques to compare the returns of a portfolio of ETFs
to a basket of standard Vanguard funds that mimics the ETF portfolio’s pattern of returns. We
find that the ETF portfolio underperforms the standard Vanguard funds, providing empirical
evidence supporting Bogle’s view that ETFs are misused.

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Advisor: Edward Tower | JEL Codes: G11 | Tagged: Exchange-traded funds, Investment, Mutual funds, Vanguard

A Further Exploration of Reverse Takeovers as an Alternative to Initial Public Offerings

By Matt LoSardo

In theory a reverse takeover (RTO) should be a viable alternative to initial public offerings (IPO) for private companies looking to access the public capital markets.  Since the IPO process can be very timely and include significant costs, both direct and indirect, we analyze reverse takeovers as an alternative method.  Recent papers have posed some similar questions, evaluating underpricing and market-timing, which we look to confirm.  However, our paper seeks to build on these analyses, with a particular focus on long-term returns for RTO stocks.  Overall we find that reverse takeovers can be successfully used instead of IPOs and should be sustainable long-term investments.

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Advisor: Edward Tower, Marjorie McElroy | JEL Codes: G12, G24, G32, G34 | Tagged: Finance, Initial Public Offering, Reverse Takeover

The Determinants of Congressional Voting on the Emergency Economic Stabilization Act of 2008

By Ryan Miller

The purpose of this paper is to discover the determinants of Congressional voting in the House on the two different versions the Emergency Economic Stabilization Act of 2008, and to determine what caused Congressmen to switch their votes from the first bill to the second. Using a Probit model and independent variables representing the personal, this study finds that ideology, political contributions, “closeness” of the 2008 electoral race, other personal and political characteristics of House members, and other demographic characteristics of their home districts were important in determining the vote; the forces driving vote switching were more difficult to ascertain.

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Advisor: Edward Tower

Merrill Lynch Consults® Program: An Analysis of Performance

By Megha Bisarya

Compared to mutual funds, separately managed accounts are a relatively new product for the financial services industry. They are customized portfolios of stocks or bonds that are monitored by professional investment managers but owned by the individual. This study analyzes the performance of Merrill Lynch’s separately managed accounts program, known as the Consults® program. I find that on average, the funds in the Consults® program generated lower returns than their respective style indices during July 2005 to June 2006. The funds also under performed a Vanguard basket of index funds during this same time period. Moreover, I find that there is a significant relationship between the returns for the funds in the Consults® program for the first half of July 2005 to June 2006 with the second half.

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Advisor: Edward Tower

Time-Zone Arbitrage in Vanguard International Index Funds

By Katelyn Rae Donnelly

Historically, mutual funds have often calculated their asset values for international mutual funds using stale prices, because some fund components register their last trades before the market close. These stale prices have caused daily fund returns to be predictable. This allows an arbitrage opportunity for investors who move their money at the end of the US trading day to reflect the next day change in European equities. The thesis quantitatively traces the history of this phenomenon, known as time zone arbitrage, in various mutual funds, particularly the Vanguard Fund Family, before and after the
phenomenon became well known.

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Advisor: Edward Tower

An Empirical Analysis of Fundamental Indexation

By David Garver

The Capital Asset Pricing Model (CAPM) and the case for efficient market equity pricing has been dealt a series of blows over the last twenty years. The recent emergence (Arnott, Hsu & Moore, 2005) of a set of strategies that purport to beat the capitalization weighted market portfolio suggested by the efficient market hypothesis, using price insensitive valuation techniques (book value, total employment, and trailing five year averages of gross cash flow, revenue, sales and dividends) raises yet another strong challenge to financial dogma. This paper examines whether ETFs that track these ‘fundamental indexes’ experience superior risk adjusted performance on the CAPM and Fama-French Three Factor model relative to capitalization weighting or other ‘outperforming’ indexation strategies. The paper finds that over the period of June 2006 to March 2008, of the twelve domestic fundamental ETFs examined, only the Earnings 500 ETF consistently performed above the benchmarks. While the performance of large-cap and total market fundamental ETFs lend some strength to the argument for fundamental indexation, they underwhelm given fundamental indexation’s historical outperformance and undermine the claim that equity prices are, and will continue to be, significantly mistaken given the information inherent in firm fundamentals.

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Advisor: Edward Tower

Questions?

Undergraduate Program Assistant
Jennifer Becker
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu