Academic abstracts monitor:: Macquarie Research

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Quantitative Analysis
Academic abstracts monitor
Some of this month’s interesting ideas…
 Equal weight vs. optimised portfolios – Tu and Zhou have a paper out
looking at the issue of naïve diversification (1/N) outperforming optimised
portfolios in real data sets of small sample sizes. They find that combining the
naïve and more sophisticated techniques can lead to outperformance over the
1/N rule as well as the sophisticated strategies on their own.


 Continuous vs. periodic disclosure – There were a few articles this month
looking at the impact of continuous vs. discrete disclosure. Lerman and Livnat
find that the introduction of continuous Form 8-K has not diminished the
impact of periodic 10-K filings. Da, Gurun and Warachka test the ―frog-in-thepan‖
hypothesis that investors become insensitive to continuous disclosure
(vs. discrete) which leads to stronger momentum effects.

 Individual investor reaction to earnings news – Taylor studies the impact
of earnings news on individual investors to see if this disclosure event benefits
unsophisticated investors. He finds that individual trading around
announcement events earns significant losses. And more informative
earnings announcements led to greater losses for individual investors.

 Analyst dispersion and factor performance –Yu finds that stocks with high
forecast dispersion tend to underperform. He also finds that value strategies
works better in high dispersion stocks while growth performs worse.

 Local investor information advantage – Bernile, Kumar and Sulaeman find
that investors in stocks which have a strong economic link to the state the
investors are located in have an informational advantage over other investors.

 Corporate Governance in HK – Cheung, Stouraitis and Tan test a corporate
governance score card in HK. They find that good corporate governance is
associated with higher stock returns and lower risk.

 Commonality in order characteristics – Corwin and Lipson analyze the
importance of professional and retail order flow factor commonality. They find
high commonality in professional and program trades, suggesting that their
trading decisions are correlated and impact price returns, while retail traders
are not highly correlated.

 Accounting estimates – Lev, Li and Sougiannis test the predictive ability of
company accounting estimates and find that they improve the prediction of
next year earnings but are poor predictors of cash flows. From this they can
conclude that the usefulness of accounting estimates are limited.

 Advertising and earnings management – Cohen, Mashruwala and Zach
find that companies reduce advertising activities in the short term to meet
earnings targets, while companies in the late stage of their life cycle increase
advertising to meet earnings guidance.

 Disgust promotes disposal – Han, Lerner and Zeckhauser have an
interesting article suggesting that humans may irrationally dispose of objects
which disgust them, which may have implications for investor decision making
and trend following strategies.