• Selected
• Entire List

Abstract:
In this paper we study the investment dynamics employed by hedge fund managers. Using daily data for nine investable hedge fund strategies, we use a rolling-over regression technique, which allows us to capture the time-variability present in the different strategies of hedge fund managers. The results indicate that the inclusion of time-variability is important as the risk exposures change significantly over time. Our results show no evidence of traditional alpha out-performance within a multifactor framework. Given this inability to generate consistent alpha returns, we also analyze the performance data relative to the factor specific beta risk. To this end, we replicate static hedge fund returns and compare them to the actual hedge fund returns. We conclude that most hedge fund returns beat the replicated static trading strategy. This suggests that particular hedge funds add alpha return through the skill of timing alternative beta risk.

Abnormal returns, Hedge funds, Multifactor model, Studies, Investment, Dynamics, Data, Strategy, Regression, Managers, Risk, Exposure, Time, Framework, Performance

Abstract:
Absence of arbitrage conditions impose important restrictions on the dynamics of bond and exchange rate returns. It can be shown that the exchange rate serves to convert prices of international undiversifiable risks from one currency to another. Put differently, arbitrage ensures that risk carries the same price in any two countries when evaluated from a particular viewpoint. As a consequence of this, expected returns should be equal after being converted to a common currency. We develop, estimate and test a linear 3-country asset pricing model for exchange risk hedged bond returns. Using US, UK, and German bond portfolio return data we find favorable evidence for the exchange rate being an unconditional converter of prices of risk across countries. Few other papers verify this important arbitrage pricing corollary.

multi-country asset pricing model, exchange risk, price of risk conversion

Abstract:
This paper assesses the effects of monetary unification in Europe on the pricing behavior in financial markets and more in particular on excess returns. We use the standard IAPT framework to analyze the role of the exchange rate in separating excess return pricing accross European countries. We find that, already in the decade prior to EMU, exchange rate changes do not (unconditionally) correlate strongly with financial market movements across countries. Consequently elimination of exchange rate variability through monetary unification is not likely to have had major implications for pricing behavior in EMU markets.

EMU, multi-country asset pricing model, exchange risk, price of risk conversion

Abstract:
Using a large and unique real-life dataset we investigate gender differences in the recommendation issuing process of financial analysts. We document gender heterogeneity in the probability to issue a particular type of recommendation that is related to gender differences in risk attitudes. Interestingly, these gender differences disappear when competition increases, implying that gender differences in preferences for performing in a competition is related to gender differences in risk attitude. In addition, we document that the differences are most pronounced when the dispersion in existing recommendations is low; male analyst have a larger probability to issue extreme positive recommendations and to deviate from the consensus recommendation, exactly at the time the market could interpret this behavior as being skilled.

Analyst Recommendations, Gender Differences, Professional Labor Markets

Abstract:
We present a two-stage model for the decision making process of financial analysts when issuing earnings forecasts. In the first stage, financial analysts perform a fundamental earnings analysis in which they are, potentially, subject to a behavioral bias. In the second stage analysts can adjust their earnings forecast in line with their strategic incentives. The paper analyzes this decision process throughout the forecasting period and explains the underlying drivers. Using quarterly earnings forecasts, we document that throughout the entire forecasting period financial analysts overweight their private information. At the same time, financial analysts behave strategically. They issue initial optimistic forecasts by strategically inflating their forecast. In their last revision, they become pessimistic and strategically deflate their earnings forecast, which creates the possibility of a positive earnings surprise. This analysis of the dynamics of the decision process provides empirical evidence on the coexistence of overconfidence and strategic incentives.

Financial analysts, Earnings Forecasts, Overconfidence, Conflicts

Abstract:
We present a two-stage model for the decision making process of financial analysts when issuing earnings forecasts. In the first stage, financial analysts perform a fundamental earnings analysis in which they are, potentially, subject to a behavioral bias. In the second stage analysts can adjust their earnings forecast in line with their strategic incentives. The paper analyzes this decision process throughout the forecasting period and explains the underlying drivers. Using quarterly earnings forecasts, we document that throughout the entire forecasting period financial analysts overweight their private information. At the same time, financial analysts behave strategically. They issue initial optimistic forecasts by strategically inflating their forecast. In their last revision, they become pessimistic and strategically deflate their earnings forecast, which creates the possibility of a positive earnings surprise. This analysis of the dynamics of the decision process provides empirical evidence on the coexistence of overconfidence and strategic incentives.

financial analysts, earnings forecasts, overconfidence, conflicts of interest