Macquarie Research, Academic abstracts monitor

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Quantitative Analysis
Academic abstracts monitor
Welcome to our second Academic Abstracts Monitor for 2011. The number of
published journal articles took a pause this month after a prolific January. But
there has been an increase in working papers published on SSRN and ARXIV
this month which more than made up for it.
Some of this month’s interesting ideas…
 Accounting anomalies – Richardson, Wysocki and Tuna have a paper out
reviewing recent published accounting anomalies with a focus on forecasting
stock returns. This paper provides a good introduction to the quant way of
thinking and analyzing signals.
 Investor Recognition – Richardson, Sloan and You introduce an interesting
idea decomposing stock returns into short term moves driven by changes in
Investor Recognition and the long term trends driven by fundamentals.
 Investor Sentiment – Stambaugh, Yu and Yuan discuss a related idea that
market wide investor sentiment impacts the mis-pricing of stocks. They suggest
pricing anomalies should perform better during periods of high sentiment.
 Value/Glamour Strategies – Piotroski and So study the value/glamour effect
and find that it is an artifact of erroneous performance expectations that can be
predicted from financial statement analysis.
 Is IFRS better? – Sahut and Boulerne analyze the change from local GAAP to
IFRS in Europe and find that the intangibles line item has become more
informative and better able to explain stock market returns than local GAAP.
 Predicting crisis using mimicry – Harmon, Aguiar, Chinellato suggest that
large single day price moves were can be predicted by high levels of market
mimicry.
 Political crisis impact – H. Huang, Chan, I. Huang and Chang study the
impact of stock volatility around political crisis and find that companies with
better corporate governance tend to experience less price volatility during
periods of political crisis.
 Speed of price convergence – Hrazdil and Chung perform a short horizon
analysis to work out how fast it takes new information to be priced in. They find
that for large cap stocks on the NYSE it takes 5-15 minutes, while for small cap
it takes over 20 minutes.
 Stealth Trading – Ascioglu, Comerton and McInish test stealth trading, where
informed traders strategically break up their orders to hide their market impact.
They find evidence that small and medium size trades contribute the most to
price changes, while large trades have more impact on high volatility days.
 Are you trading predictably? – Heston Korajczyk, Sadka and Thorson find
that stocks that have strong relative returns in a given half hour are likely to
have similar outperformance in the same half hour the next day. They suggest
shifting the timing of trades around to be less predictable and reduce execution
costs.
 Explaining the low vol anomaly – Baker, Bradley and Wurgler argue that the
low volatility anomaly is due to irrational demand for higher risk as well as
institutional managers mandate restrictions of having fixed benchmark, which
discourages them from arbitraging away the low volatility anomaly.