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Tag Archives: Investment
Leverage and Varying Metrics of Firm Performance
By Preston Jiateng Huang
This paper sets out to examine the effect of leverage on company performance. Drawing on the methodology of key prior research, this study finds that leverage has a consistent negative effect on firm growth; by contrast, no such negative impact was found on return on equity. Importantly, such patterns hold throughout the entire period under study (1970-2017), during which several disruptive economic events have occurred. These results highlight the importance of selecting appropriate company performance measures when studying the effect of debt load on a firm as well as the misalignment of incentives for policymakers and company management. Other implications are also discussed.
Advisor: Professor Kyle Jurado | JEL Codes: G24; G31; G32
The Investment Cost of Currency Crises in Emerging Markets: An Empirical Treatment from 1994-2015
By Eric Ramoutar
Currency crises – large and sudden depreciations in the value of a country’s currency – have been an unfortunate by-product of increased financial openness over the last half century. This study extends the already vast literature on the impact of currency crises by estimating how currency crises affect domestic investment in emerging markets. Specifically, the study uses panel data with fixed effects and various robust standard errors as well as a generalized method of moments estimator to investigate the impact of currency crises on domestic investment in a sample of 14 countries that experienced currency crises between 1994 and 2015 and 10 that did not. The results of the analysis initially indicate that, after controlling for a host of macroeconomic fundamentals, currency crises contribute significantly to dampened domestic investment. Ultimately, after controlling for banking crises, the study concludes that relatively severe, but not all, currency crises have a significant depressing effect on investment. The results further indicate that all currency crises should not be treated equally; those involving exceptionally large depreciations lead to an even greater decline in domestic investment.
Advisor: Cosmin Ilut, Kent Kimbrough, Lori Leachman | JEL Codes: E4, F3, F4, E42, F31, F32, F41, G01
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.
Advisor: Edward Tower | JEL Codes: G11 | Tagged: Exchange-traded funds, Investment, Mutual funds, Vanguard
A Case Study on the Informational Role of Futures Markets: Can Weather Futures Forecast Electricity Consumption?
by Ying Chiat Ho
Abstract
This paper provides a case study on the informational role of futures prices by investigating the ability of Cooling Degree Day (CDD) futures prices to forecast electricity consumption for New York State. I develop a cross-sectional model relating electricity consumption with the cumulative CDDs in a month for New York City and utilize the 30-day ahead settlement prices of the New York CDD futures contracts within the model to forecast electricity consumption. The forecasts derived explain up to 94.68% of the variation in actual electricity consumption, suggesting that the CDD futures prices contain useful forward-looking information about electricity consumption.
Professor Edward Tower, Faculty Advisor
JEL Codes: G13,
Assessing the Performance of Actively Managed Global Funds
by Luyuan Fan
Abstract
It has been widely debated whether managed funds outperform their index counterparts. Many scholars have carried out empirical testing for U.S. managed funds, but few have examined global funds. This study compares the total returns and risk-adjusted returns for 29 largest global funds with that of a basket of Vanguard indexes over 5 two-year periods from January 1997 to December 2006. We discover that the global funds outperform the basket of indexes before expenses. Also, the global funds outperform the indexes by an increasing amount in later periods than in earlier ones, implying accumulated experience and improved fund management skills of fund managers over time. Moreover, the average of the return differentials in favor of global funds in five periods is lower than the return differential over the entire 10-year period, indicating fund managers’ superior style-picking skills. After expenses, the indexes win on average, because most global funds have high expense ratios (of up to 2 %.) However, low cost global funds, such as the Vanguard Global Equity, make an exception.
Professor Edward Tower, Faculty Advisor
JEL Codes: E22,
