Market timing ability of pooled superannuation funds January 1981 to December 1987

Article Abstract:

The performance of pooled superannuation funds is analysed within a framework that recognises that risk management or 'market timing' is an important aspect of the fund manager's decision-making. Two broad approaches to the issue of 'market timing' are adopted: first, the performance evaluation model developed by Henriksson and Merton (1981) which allows for return differentials to arise from both security selection and market timing; and second, the recursive residuals methodology of Brown, Durbin and Evans (1975) which identifies points in chronological time when the risks of the funds underwent a change. The results indicate that only 5 out of 16 funds had significant shifts in their risk over the period of the study, all of which occurred in late 1986 to early 1987. It follows that the usual Jensen measure of performance is inappropriate for these funds since one component of their performance is due to market timing activities. The return performance of these market timing activities is significantly negative for 15 to 16 funds indicating that their timing ability is perverse. To some extent this is an artifact of the market crash of October 1987 and that all funds had a positive exposure to equities. However, due to their asset allocation policies all funds are assigned significantly positive security selection performance. (Reprinted by permission of the publisher.)

Analysis, Capital market, Capital markets, Mutual funds, Financial research

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The impact of unexpected earnings and dividends on abnormal returns to equity

Article Abstract:

This paper contributes to the empirical literature which documents the existence of a positive association between unexpected earnings and/or dividends announcements and abnormal returns to equity. The paper addresses some of the methodological limitations evident in the literature. In particular, one methodological difficulty encountered by previous studies is that since earnings and dividend announcements are usually made contemporaneously it is difficult to assess the marginal effect of either announcement on security returns. This problem is dealt with by constructing portfolios of securities which are randomized with respect to unexpected earnings (dividends), but which are systematically ranked on unexpected dividends (earnings). The results indicate that unexpected earnings announcements have a significant marginal impact on abnormal returns. In addition, there is evidence of an impact of unexpected dividends on returns, but it is weaker than unexpected earnings. (reproduced by permission of the publisher)

Profits, Dividends, Corporate profits

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Multifactor asset pricing models

Article Abstract:

Since the early 1960's, the mean-variance Capital Asset Pricing Model (CAPM) has been a dominant paradigm in modern finance. Recently, the accumulation of anomalous evidence, and a realisation that empirical tests of the model are tautologically related to the efficiency of the market index, have pushed that paradigm to a point of crisis. This paper reviews alternative asset pricing models which coexisted with the CAPM and may provide plausible substitutes. The major distinguishing feature of these models is that they predict multiple risk factors and, with the exception of the Arbitrage Pricing Theory (APT), are extensions of the CAPM. (Reprinted by permission of the publisher.)

Models, Finance, Assets (Accounting), Capital assets pricing model, Capital asset pricing model

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