Quantitative Analysis Academic Abstracts monitor ::August:: Macquarie Research,

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Quantitative Analysis
Academic Abstracts monitor
During these hot summer days, we were busy trawling through finance journals
and the SSRN website. Here is another interesting collection of papers that we
have identified.
Some of the ideas that caught our attention are…
 Mutual fund manager portfolio choices – Huang, Sialm and Zhang find that
funds which shift their risk levels significantly over time perform worse than
those that keep risk levels stable over time, indicating poor timing abilities for
risk-taking. In another study on mutual managers‘ portfolio choices, Pool,
Stoffman and Yonker note that managers overweight companies headquartered
in states where they grew up, which does not, of course, result in higher returns.
This tendency to overweight familiar stocks is stronger in managers of smaller
funds, early in their careers. Later in their careers, managers hold more of
companies located close to their mutual fund complex headquarters.
 Employee satisfaction surveys to predict stock returns – In a recent
Journal of Financial Economics article, Edmans reports that a value-weighted
portfolio of ―100 Best companies to work for in America‖ earned an annual
excess return of 3.5% from 1984 to 2009. These companies experienced
positive earnings surprises and announcement returns. (See our detailed
piece on this broad topic, Quantamentals – Socially Responsible Investing
(SRI), March 2011.)
 Measuring Flow Toxicity – Easley and et al propose an improved method to
measure the probability of trading with informed traders using the volume
imbalance in order flow (VPIN). This can be estimated in volume-time rather
than clock-time, which improves its predictive power in the presence of highfrequency
traders. Also, the VPIN metric helps predict short-term volatility.
 Dysfunctional role of High Frequency Trading? – Jarrow and Protter show
that high frequency traders can create mispricings rather than act as
arbitrageurs who make financial markets more efficient.
 Information content of stock splits – Chen, Ngyuyen and Singal find that
stock splits are followed by positive abnormal future earnings growth. Also,
the stocks that split had higher abnormal post-split returns and earnings
surprises when they had a greater breadth of institutional ownership.
 Deferred Tax Liabilities – Diehl examines the usefulness of deferred tax
ratios as predictors of stock prices. This is a potentially useful factor since
financial reporting is subject to more managerial discretion than US tax
reporting.
 Earnings Announcement Premium – Barber, George and Lehavy document
that globally the average stock returns during earnings announcement months
is 11% higher annually than in non-announcement months. They suggest that
this is due to the price pressure effect from the increased attention to these
stocks around earnings releases.