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Abstract:
In this paper, the relationship between house prices and rents across eight major metropolitan areas in the U.S. is examined, and a rent price index to provide the framework of our analysis is developed. Adjustments in the rent-price ratio can theoretically occur through the numerator, the denominator, or both. Intuitively, rents are stickier than prices, and therefore, prices are expected to do most of the adjusting when the ratio significantly deviates from historical norms. Our results support this intuition. Our analysis shows that low rent-price ratios are associated with subsequent periods of low or negative house price changes. This implies that house prices overshoot fundamental values associated with capitalization of future rents, and revert to equilibrium through subsequent price correction. Based on rent-price index levels across the eight regions we analyzed, the current housing market correction has already unwound much of its previous overshooting, but it is important to note that the overshooting process may work to the downside as well as the upside. For house price data, we utilize the S&P/Case-Shiller Home Price Indices. For rent data, we utilize the Bureau of Labor Statistic's metro area owner's equivalent rent indices, an input to the Consumer Price Index (CPI).

rent-price ratio

Abstract:
Dividends are an important part of the total return stream of S&P 500, contributing one-third of long term total returns. S&P 500 linked index derivatives have meaningful exposure to dividend risk. Globally, index dividends are widely traded in over-the-counter markets and over the past year have begun trading on exchange environments. A sector analysis of S&P 500 dividend points suggests that while Financials and Consumer Staples are typically the largest contributors, dividends from individual sectors may contribute differently in dissimilar environments. The S&P 500 Dividend Index isolates dividend points of the S&P 500 on a quarterly basis, providing a benchmark for dividend risk management and trading contracts. Applications include: • Hedging: The index can be used as the underlying basis to hedge dividend risk embedded in index derivatives. • Arbitrage: Implied dividend points deviate and may often underestimate, realized dividends. This provides an opportunity to execute index-linked dividend arbitrage strategies. • Calendar spreads: Market implied dividends are driven by dividend growth expectations and perceptions of risk to dividends. As a result, implied levels incorporate a 'divided risk premium', which is compounded with increasing maturity. This provides opportunities to execute calendar spreads between longer-dated and shorter-dated dividends using index-linked tools. • Dividend stripping: A portfolio manager may synthetically sell index dividends to buy more cash equities. This strategy can be executed when the expected capital appreciation is greater than the dividend income.

index dividends

Abstract:
While published literature has largely concentrated on the performance persistence phenomenon, research is sparse in regards to the determinants of investment performance. In this paper, Standard & Poor's makes a strong effort to establish robust results by comparing the performance of different fund portfolios formed based upon qualitative and quantitative fund factors, and providing an economically meaningful measure of the magnitude of the relation between performance and attributes. On the qualitative factors side, for developed equities and bonds funds, larger funds tend to outperform smaller funds as economies of scale dominates market liquidity. Funds with lower expense ratios tend to provide better risk-adjusted performance compared to their higher expense counterparts. On the quantitative factors side, Jensen alpha and information ratio tend to do the best job in predicting future fund performance. Superior performance is a short-lived phenomenon that is observable only when funds are selected and sampled frequently. Therefore, fund selection framework should focus more on finding an appropriate mix of factors that successfully predict fund outperformance over shorter time periods, rather than focus on finding fund managers that consistently outperform over longer time periods.

fund selection, quantitative, qualitative, performance

Abstract:
We investigate the stock price reaction to UK going-concern audit report disclosures in the calendar year subsequent to publication. Over this period our firm population underperforms by between 24% and 31% depending on the benchmark adopted. This market underreaction to such an unambiguous bad news release is not a post-earnings announcement drift phenomenon; it is also robust to other potentially confounding explanations. However, whatever the reasons for such stock mispricing, we find costly arbitrage prevents rational investors forcing prices back into line with fundamental value. Our results have implications for the market's ability to impound bad news appropriately and the incompleteness of arbitrage in such small "loser" firm situations.

Market anomalies, Investor biases, Behavioral finance, Limits to arbitrage