Wrangling the Herd: A Cross-Cultural and Cross-Industry Approach to Herding Market Behavior
By Tyler Fenton and Jarred Kotzin The traditional efficient market hypothesis serves as the foundation of modern economic theory, governing the investigation of financial markets. While this premise assumes all investors are rational and all information is immediately incorporated into markets, this paper explores herding behavior – a central tenet of behavioral finance that explains […]
Word-of-Mouth Effects in the Holdings and Trading Activities among Canadian Mutual Fund Managers
By Chang Liu The study tests the word-of-mouth effects among mutual fund managers in Canada with methodology based on a previous study (Hong et al., 2005), with multiple modifications to it such as the method to locate the mutual fund managers. The results confirm the original findings yet with unexpected outcomes. This study demonstrates smaller […]
Market Dynamics and the Forward Premium Anomaly: A Model of Interacting Agents
By Phillip Hogan and Evan Myer This paper presents a stochastic model of exchange rates, which is used to explain the forward premium anomaly. In the model, agents switch between four trading strategies, and these changes drive the evolution of the exchange rate. This framework is meant to more realistically represent the important market dynamics […]
Enhanced versus Traditional Indexation for International Mutual Funds: Evaluating DFA, Wisdom Tree and RAFI PowerShares
By Heehyun Lim This paper uses stye analysis to compare the performance of traditional international index funds and enhanced international index funds. It attempts to measure the value added beyond classic indexation by the consideration of fundamentals. By employing Sharpe’s style analysis, I formulate a synthetic portfolio composed of DFA traditional funds to imitate each […]
Motivation and Reasoning Behind Chinese Enterprises Overseas Listing
By Sjing Liang and Xiao Chen 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 […]
Volatility and Correlation Modeling for Sector Allocation in International Equity Markets
By Melanie Fan and Kate Yuan Reliable estimates of volatility and correlation are crucial in asset allocation and risk management. This paper investigates Static, RiskMetrics, and Dynamic Conditional Correlation (DCC) models for estimating volatility and correlation by testing them in an asset allocation context. Optimal allocation weights for one year found using estimates from each […]
Taming the Dragon: The Modernization of the Chinese Equity Markets and its Effects on IPO Underpricing
By William Benesh The extreme underpricing of Chinese Initial Public Offerings in the early days of the Chinese equity markets was reduced by several reforms instituted by the Chinese government from around 2000 to 2002. These reforms reduced 1-day returns on IPOs from 295% to 72%. The reforms reduced IPO underpricing by decreasing the inequality […]
Could the Kaminsky-Reinhart Model Have Predicted the 2002 Uruguayan Currency and Banking Crises?
by Steven R. Vickers Abstract Because currency and banking crises cause substantial and prolonged disruptions to an economy, economists have long sought ways to predict these events in advance. One recent theory advanced is the “leading indicators” approach of Kaminsky (1998) and Kaminsky and Reinhart (1999). Kaminsky (1998) presents four separate composite indicators, and Kaminsky […]
