Macquarie Research, Academic Abstracts Monitor for Januaray 2011.

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Quantitative Analysis
Academic abstracts monitor
Welcome to our first Academic Abstracts Monitor for 2011. This is a bumper issue,
with almost all of the journals we monitor producing new volumes for the start of the
year. To help you sort through the record number of articles this month we‘ve added
a table of contents on the second page. There should be something of interest for
everyone in here this month!

Some of this month’s interesting ideas…
 Analyzing analysts – there are a number of articles this month that focus on
analyst forecasts and behavior. Loh and Stulz examine when analyst
recommendation changes are influential and in a similar vein Kim et al look for
characteristics of analysts that are related to forecasting skill. Bonini et al look at
analyst target price accuracy, several authors look at analyst forecast optimism
while Susana Yu develops a pairs trading strategy based on divergent analyst
recommendations.
 Sector allocation modeling– Doeswijk and Vliet use a quantitative approach to
constructing a global tactical sector allocation model. They define ten global
sectors and investigate seven variables over 38 years, finding that momentum,
earnings revisions and seasonal patterns can be effectively exploited to produce
significant after cost returns.
 Using garbage – in the ongoing search for new sources of data Alexi Savov looks
at ―Asset Pricing with Garbage‖. He argues that the volume of garbage is more
dynamic than other measures of consumption and more correlated with stock
markets and therefore could be a useful macro variable for asset pricing. Another
potential macro indicator flagged by Bakshi et al this month is the Baltic Dry Index.
 Firm life expectancy – Dan diBartolomeo takes a novel approach to using
structured credit models and backs out the market implied life of a firm. In addition
to its potential application as a measure of both credit and systematic risk he also
demonstrates a relationship between implied firm life and corporate sustainability
metrics.
 Frog in the pan – Zhi Da et al test the hypothesis that investors are less attentive
to information arriving continuously in small amounts than to information with the
same cumulative implications arriving at discrete time points. They find strong
evidence that continuous information induces stronger and more persistent returns
and demonstrate that momentum can be effectively conditioned by
continuous/discrete stock information, producing a spread of almost 5%.
 Inferring information from futures and options markets – Hong and Yogo find
strong predictive power in the change in futures open interest levels, with
application to currency, bond and stock markets. Jin at al investigate the positive
predictive power of implied volatility skews on equity returns.
 Are Quants All Fishing in the Same Small Pond with the Same Tackle Box? –
Despite widening anecdotal evidence to the contrary, Gustafson and Halper study
returns of quantitative managers and find no distinguishable trend in correlation
over recent years. They also see little evidence of common factor loadings.
 Remembering Mandelbrot – for those of you that were fans of the work the late
Benoit Mandelbrot (1924-2010), Quantitative Finance has published a series of
articles in appreciation of his life and significant contribution to quantitative
disciplines.