The profitability of herding: evidence from Taiwan

2018 ◽  
Vol 44 (7) ◽  
pp. 919-934 ◽  
Author(s):  
Chun-Da Chen ◽  
Riza Demirer
Keyword(s):  
Design Methodology ◽  
State Space Model ◽  
Investment Strategy ◽  
Investment Strategies ◽  
Past Performance ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Content Type ◽  
Space Model ◽  
High Level

Purpose The purpose of this paper is to show that the level of herding in an industry can be the basis for a profitable investment strategy. Design/methodology/approach The authors apply three different herding measures in the paper, including cross-sectional standard deviation, cross-sectional absolute deviation and non-linear model – state–space model. Findings The authors find that industries that experience a high level of herding yield higher subsequent returns regardless of their past performance. Consequently, the authors show that a herding-based investment strategy generates significant profits, even after adjusting for risk. The findings also show that the herding effect when combined with past performance as part of a conditional investment strategy yields significant profits regardless of the formation and holding periods. The findings suggest that the level of herding could serve as a systematic driver of returns and could be exploited for profitable investment strategies. Originality/value To the best of authors’ knowledge, this is the first study in the literature to show that herding by itself can serve as a determinant of returns regardless of past performance.

Market earnings expectation, measurement error in analysts’ consensus forecasts and prediction of stock returns

2018 ◽  
Vol 31 (2) ◽  
pp. 249-266
Author(s):  
Jung Hoon Kim
Keyword(s):  
Measurement Error ◽  
Stock Returns ◽  
Capital Markets ◽  
Investment Strategy ◽  
Price Ratio ◽  
Investment Strategies ◽  
Cross Sectional ◽  
Content Type ◽  
Consensus Forecasts ◽  
Earnings Expectation

Purpose In capital markets research, analysts’ consensus forecasts are widely used as a proxy for unobservable market earnings expectation. However, they measure the market earnings expectation with error that may vary cross-sectionally, as the market does not consistently rely on analysts’ consensus forecasts to form earnings expectation (Walther, 1997). Based on this notion, this paper aims to relate the prediction of future stock returns to the cross-sectional variation of the error in measuring market earnings expectation embedded in analysts’ consensus forecasts. Design/methodology/approach This study uses empirical analyses based on stock returns and annual analysts’ consensus forecasts. Findings Based on the analytical work by Abarbanell et al. (1995), this study reports that when the measurement error in annual analysts’ consensus forecasts is the smallest, forward earnings-to-price ratio (constructed with annual analysts’ consensus forecasts) best explains future stock returns, and the forward earnings-to-price ratio-based investment strategy is the most profitable. Originality/value Findings of this study are useful to capital markets research that relies on the market earnings expectation and to practitioners seeking more profitable investment strategies.

The selection of popular trading strategies

2015 ◽  
Vol 41 (6) ◽  
pp. 563-581
Author(s):  
Yi-Tsai Chung ◽  
Tung Liang Liao ◽  
Yi-Chein Chiang
Keyword(s):  
Stock Markets ◽  
Design Methodology ◽  
Investment Strategy ◽  
Relative Performance ◽  
Investment Strategies ◽  
Data Set ◽  
Content Type ◽  
Portfolio Managers ◽  
Practical Implications ◽  
Selection Of

Purpose – The relative performance of five popular nonzero-investment strategies, including Size, book-to-market ratios, earnings-to-price (E/P) ratios, cash flow-to-price (CF/P) ratios and dividend-to-price ratios, and their corresponding zero-investment strategies (also known as premiums) are first examined altogether for equally weighted (EW) and value-weighted (VW) methods to check whether a certain strategy (or some strategies) could be recommended to portfolio managers as the best (better) strategy (strategies). The paper aims to discuss these issues. Design/methodology/approach – This paper uses the stochastic dominance (SD) approach, a non-parametric test, to investigate the relative performance among various strategies and help investors search for the best or better strategy (strategies). Findings – The main results show that both the highest E/P and CF/P strategies (and their corresponding premiums) generally produce higher returns than the other three strategies (and their corresponding premiums) through allocating investors’ capital between the risky and risk-free assets for the EW and VW methods, respectively. Research limitations/implications – This study only examines US stock markets by SD approach, whether the results are consistent with non-US markets still needs further investigation. The findings imply that investors can benefit by investing in the highest E/P or CF/P stocks (or their corresponding premiums) to make more profit or less loss for US stock markets. Practical implications – First, the SD findings suggest that investors or portfolio managers can allocate their funds between risky and risk-free assets to maximize their profits. Next, the simulation results again prove that the profits of each nonzero-investment or zero-investment strategy for EW portfolios are higher than those of each corresponding strategy for VW portfolios. Finally, the findings imply that portfolio managers or investors can invest in the highest E/P or CF/P stocks (or their corresponding premiums) to make more profit or less loss. Originality/value – This study first uses an extensive data set (1952-2009) to examine the relative performance of nonzero-investment strategies and their corresponding zero-investment strategies for the five popular indicators altogether for the EW and VW methods with the SD approach for US stock markets. Moreover, the results reveal that the investors or portfolio managers can invest in the highest E/P and/or CF/P portfolios (or their corresponding premiums) to make more profit or less loss.

Herd behavior in the French stock market

2017 ◽  
Vol 16 (4) ◽  
pp. 497-515 ◽  
Author(s):  
Houda Litimi
Keyword(s):  
Stock Market ◽  
Trading Volume ◽  
Design Methodology ◽  
Garch Model ◽  
Herd Behavior ◽  
Conditional Volatility ◽  
Herding Behavior ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Content Type

Purpose This paper aims to investigate the herding behavior in the French stock market and its effect on the idiosyncratic conditional volatility at a sectoral level. Design/methodology/approach This sample covers all the listed companies in the French stock market, classified by sector, over four major crisis periods. The author modifies the cross-sectional absolute deviation (CSAD) model to include trading volume and investors sentiment as herding triggers. Furthermore, the author uses a modified GARCH model to investigate the effect of herding on conditional volatility. Findings Herding is present in the French market during crises, and it is present in only some sectors during the entire period. The main trigger for investors to embark into a collective herding movement differs from one sector to another. Furthermore, herding behavior has an inhibiting effect on market conditional volatility. Originality/value The author modifies the CSAD model to investigate the presence of herding in the French stock market at a sectoral level during turmoil periods. Furthermore, the particularly designed GARCH model provides new insights on the effect of herding and volume turnover on the conditional volatility.

Book-tax differences: are they affected by equity-based compensation?

2015 ◽  
Vol 28 (3) ◽  
pp. 300-318 ◽  
Author(s):  
Chunwei Xian ◽  
Fang Sun ◽  
Yinghong Zhang
Keyword(s):  
Earnings Management ◽  
Design Methodology ◽  
Discretionary Accruals ◽  
Tax Planning ◽  
Managerial Discretion ◽  
Cross Sectional ◽  
Content Type ◽  
Equity Incentives ◽  
Alternative Measures ◽  
High Level

Purpose – This study aims to investigate the moderating effect of equity-based compensation on the sources of book-tax differences. The authors investigate whether equity-based compensation affects the association between book-tax differences and tax planning, and the association between book-tax differences and earnings management. Design/methodology/approach – The authors use a sample of 9,024 firm-year observations (913 firms) spanning the period 1992-2011, obtained from ExecuComp and Compustat. They estimate cross-sectional regressions of the proxy for tax planning, discretionary accruals and their interactions with equity-based compensation on book-tax differences. Findings – The authors find that tax planning-related book-tax differences increase as the equity-based pay of executives does, and that earnings management-related book-tax differences decrease as the equity-based pay of executives increases. The results are robust across three alternative measures of tax planning. Originality/value – Equity-based compensation plays an important role in managerial discretion on tax planning and earnings management. The findings suggest that, although equity incentives promote a high level of both tax planning and earnings management, they motivate managers to constrain the level of earnings management to avoid larger book-tax differences.

scholarly journals Herding behaviour of Chinese A- and B-share markets

2019 ◽  
Vol 27 (1) ◽  
pp. 49-65
Author(s):  
Xin-Ke Ju
Keyword(s):  
Financial Crisis ◽  
Financial Risk ◽  
Design Methodology ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Content Type ◽  
Value Stocks ◽  
Stock Portfolios ◽  
Fundamental Information ◽  
Investment Styles

Purpose The purpose of this paper is to examine the evidence of herding phenomenon, spill-over effects related to herding and whether herding is driven by fundamentals or non-fundamentals for various sub-periods and sub-samples. Design/methodology/approach The cross-sectional absolute deviation model is applied to China’s A- and B-share markets in combination with fundamental information. Findings Herding is prevalent on both A- and B-share markets. In detail, investors on A-share market herd for small and growth stock portfolios irrespective of market states while they only herd for large or value stocks in down market, therefore leading the whole herding behaviour to be pronounced in down market. Comparatively, on B-share market, herding is robust for various investment styles (small or large, value or growth) or market situations. Additionally, spill-over effects related to herding do not exist no matter from A-shares to B-shares or from B-shares to A-shares. Moreover, investors on B-share markets tend to herd as the response to non-fundamental information more frequently during financial crisis. Originality/value Investors on A- and B-share markets tend to herd as the response to non-fundamental information more frequently during financial crisis. Analysing the herding behaviours could be helpful in controlling the financial risk.

Forecasting the development of a pursuit race between competitors

2010 ◽  
Vol 28 (3) ◽  
pp. 239-246
Author(s):  
Rolf Kunstek
Keyword(s):  
State Space ◽  
Design Methodology ◽  
State Space Model ◽  
Statistical Concept ◽  
Content Type ◽  
Space Model ◽  
Savings Banks ◽  
Bank Deposits ◽  
Market Shares ◽  
Practical Implications

PurposeThe purpose of this paper is to present a method of forecasting the development of the market shares of competitors in a pursuit race.Design/methodology/approachThe statistical concept of co‐integration is applied to a state space model in order to operationalize the pursuit race in competition. Two time series served as data input for the designed model. They document the development of the monthly market shares of German savings banks and German cooperative banks with respect to the end‐of‐month volume of non‐bank deposits.FindingsThe analysis of the competition between the two bank groups proves that the development of their market shares is co‐integrated in the shape of a long lasting pursuit race. Therefore, the forecasts of the changes in market shares are very accurate and reliable.Practical implicationsWith the help of such a statistical analysis, a competitor is able to monitor the development of competition effectively to forecast the changes that are to be expected. Thus, the method described here helps the firm to react in time to the movements of its competitors.Originality/valueThis paper is an important contribution to gain insight in the quantitative dynamics of competition according to co‐integration by the parameters of state space model.

scholarly journals Designing for the satisfaction of high-level needs

2014 ◽  
Vol 26 (6) ◽  
pp. 639-649 ◽  
Author(s):  
Petter Stenmark ◽  
Johan Lilja
Keyword(s):  
Customer Satisfaction ◽  
Design Methodology ◽  
Service Innovation ◽  
New Product ◽  
Service Development ◽  
Content Type ◽  
The Creation ◽  
High Level ◽  
Satisfaction Surveys

Purpose – The purpose of this paper is to introduce a methodology that can support the process of understanding and designing for the satisfaction of high-level needs in practice. The satisfaction of high-level needs has seldom been in focus when it comes to customer satisfaction surveys or the process of new product or service development. However, needs do occur on various levels, and the satisfaction of high-level needs actually appears to have the greatest potential for the creation of loyalty among customers and customer satisfaction. The satisfaction of high-level needs has furthermore been pointed out as a strategy for the creation of attractive quality. Design/methodology/approach – The paper is based on literature studies and the application of the Ideation Need Mapping (INM) methodology in a specific case. Findings – The paper presents the INM methodology that could be used for guiding product and service innovation in practice. More specifically, the methodology supports the process of understanding and designing for the satisfaction of high-level needs. Originality/value – This paper aims to contribute to envisioning and demonstrating how the understanding of, and design for, satisfaction of high-level needs can be done in practice.

Examining the influence of mindfulness on organizational role stress (ORS): a monitor acceptance theory perspective

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Uma Warrier ◽  
Cyril Foropon ◽  
Melinda Chehimi
Keyword(s):  
Design Methodology ◽  
Negative Relationship ◽  
Role Stress ◽  
Role Overload ◽  
Cross Sectional ◽  
Content Type ◽  
Organizational Role ◽  
It Organization ◽  
Context Specific ◽  
Personal Inadequacy

PurposeThe purpose of this paper is to examine the influence of mindfulness on organizational role stress (ORS) based on the Monitor Acceptance Theory (MAT) perspective.Design/methodology/approachThis study is based on a cross-sectional data analysis collected from 137 employees working at an Indian IT organization located in Bangalore (India). ORS and MAAS scales have been used for measuring ORS and mindfulness, respectively.FindingsOverall, the study findings have indicated a negative relationship (r = −0.588) between mindfulness (M) and ORS. First, both personal inadequacy (PI) and self-role distance (SRD) are found to be predominantly impacted by M, whereas both role erosion (RE) and role overload (RO) appear to be less affected by mindfulness. Second, SRD appears to be the highest ORS sub-dimension among IT employees. Third, building on the extant literature, it can be inferred that “no one size fits all”, ORS is both organization and context specific.Originality/valueThis study pioneers to establish empirical evidence between M and ORS. Training employees on M can help in effectively handling ORS.

Promoting authenticity through celebrity brands

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Amanda Kennedy ◽  
Stacey M. Baxter ◽  
Alicia Kulczynski
Keyword(s):  
Design Methodology ◽  
Consumer Attitudes ◽  
Purchase Intentions ◽  
Consumer Perceptions ◽  
Positive Outcomes ◽  
Content Type ◽  
Monetary Compensation ◽  
High Level ◽  
Practical Implications

Purpose This paper aims to examine the importance of celebrity brands in influencing consumer perceptions of celebrity authenticity, which drives positive consumer attitudes and intentions. In addition, the notion of low-celebrity investment is investigated as a factor that diminishes the positive outcomes associated with celebrity brands. Design/methodology/approach Study 1 examines the effect of brand situation (endorsement versus celebrity brand) on consumer attitudes and intentions. Studies 2 and 3 investigate the role of celebrity authenticity in explaining the effects observed in Study 1. Study 4 examines celebrity investment as a bound of the phenomenon. Findings Study 1 demonstrates that consumers report heightened attitudes and intentions towards celebrity brands when compared to endorsements. Studies 2 and 3 provide evidence that authenticity explains the effects observed in Study 1. Results of Study 4 show that when consumers are aware of low-celebrity investment, the celebrity is viewed as inauthentic regardless of brand situation. Research limitations/implications This research is limited as it focuses only on known celebrity endorsers who were matched with products that had a high level of fit. In addition, purchase intentions were measured as opposed to the study of actual purchase behaviour. Practical implications This research has important implications for the development of endorsements and celebrity brands by demonstrating that consumers view celebrities as authentic when they are involved with brands for reasons other than monetary compensation. Originality/value This research shows that consumers have heightened attitudes and intentions towards celebrity brands compared to endorsements. This research identifies celebrity authenticity as the process underlying the observed phenomenon. However, celebrity investment is identified as a boundary condition demonstrating that knowledge of low investment results in a celebrity being viewed as inauthentic.

The impact of the COVID-19 pandemic on autistic adults – a survey

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Conor James Davidson ◽  
Keri Lodge ◽  
Alwyn Kam
Keyword(s):  
Coping Strategies ◽  
Design Methodology ◽  
Online Survey ◽  
Negative Impact ◽  
Significant Deterioration ◽  
Cross Sectional ◽  
Content Type ◽  
Autistic People ◽  
Autistic Adults ◽  
The Impact

Purpose To date there has been limited research on the impact of the COVID-19 pandemic on autistic people. This study aims to present the results of a survey of autistic people (n = 51) conducted by a UK specialist autism team. Design/methodology/approach A cross-sectional online survey. Findings A total of 72% respondents reported either some or significant deterioration in mental health during the pandemic. The issues that caused most negative impact were uncertainty over what will happen next and disruption of normal routine. Respondents reported a variety of coping strategies to help them through the pandemic. Originality/value To date there has been little research looking specifically at the impact of the COVID-19 pandemic on autistic people. This paper adds weight to the evidence that the pandemic has had a particularly severe impact on autistic adults and includes useful information on potential coping strategies for this population.

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