Hedge Fund Strategies in the Post-Crisis Era

This chapter examines the performances of various hedge fund strategies based on various reward-to-risk ratios after the 2008 global crisis. We document that a majority of hedge fund strategies deliver lower average returns compared to equities and bonds; yet the volatilities of their returns have also been low. The equity hedge strategy has the highest reward-to-risk ratios among the major strategy categories, whereas the relative value arbitrage strategy has the lowest. Technology/healthcare, merger arbitrage, discretionary thematic, and asset-backed arbitrage strategies tend to have the highest reward-to-risk ratios in their respective categories. Time-series regressions of hedge fund strategy returns on various fund pricing factors provide evidence that hedge funds, on average, do not generate abnormal returns once the pricing factors are controlled for. We also document that hedge fund strategy returns generally load negatively on the bond market and aggregate credit risk factors and positively on the market portfolio.

Effects of Bank Specific Factors on Stock Returns of Listed Commercial Banks in Kenya

The objective of this study was to establish the effects of bank specific factors on stock returns of listed commercial banks in Kenya, with four specific objectives; to determine the effect of capital adequacy on stock returns of listed commercial banks in Kenya, to determine the effect of asset quality on stock returns of listed commercial banks in Kenya, to determine the effect of earnings ability on stock returns of listed commercial banks in Kenya and to determine the effect of liquidity on stock returns of listed commercial banks in Kenya. The Kenyan banking sector instability within the stock market has been of great concern as depicted by continuous fluctuations in the stock prices of listed banks. Studies undertaken in other stock markets displayed mixed findings and much concentration has been on the United States, Turkey and Indonesian stock markets. Hence, a study providing a Kenyan perspective on the link between banks’ internal environment and stock returns of listed banks was crucial. The study was based on market portfolio theory, efficiency structure hypothesis and the buffer capital theory. The research targeted all the 11 listed commercial banks at the Nairobi Securities Exchange. Quarterly data was collected for the period 2010-2019. A pooled panel regression model was used in the estimation of the significance of the impact of the variables. Findings of the research established that capital adequacy and earnings had a significant effect on stock returns. The study recommends that commercial banks should improve their capital base and expand their asset quality through better loan management.

Selection of the right proxy market portfolio for CAPM

The purpose of the paper is to select the right market proxy for calculating the expected return, since critically evaluating proxies or selecting the correct proxy market portfolio is essential for portfolio management because the change in the market portfolio proxy affects returns. In this study, monthly data of equity indices are evaluated to find out the better market proxy. The indices taken are BSE 30 (Sensex), Nifty 50, BSE 100, BSE 200, and BSE 500. The macroeconomic variables used in the study are industrial production index (IIP), consumer price index (CPI), money supply (M1), and exchange rate in India. To avoid the influence of COVID-19, the research period was from January 2013 to December 2019 to critically evaluate these proxies in order to find the most appropriate market proxy. This paper reveals a noteworthy relationship between stock market returns and macroeconomic factors, while suggesting that the BSE 500 is a better choice for all equity indices, as the index also shows a significant relationship with all macroeconomic variables. BSE500 is a composite index comprising all sectors with low, mid and large cap securities, therefore it reflects the impact of macroeconomic factors most efficiently, taking it as a market proxy. This study was carried out in the context of India and can be replicated for other countries.

Risk-Adjusted Seasonality in Muslim Frontier Stock Markets

<p>We investigate the evidence of three risk-adjusted calendar anomalies in eight frontier markets. </p> Our sample consists of the daily closing prices of their stock indices for the period of January 2006 to September 2019. We categorize the data with respect to day-of-the-week, Lunar calendar and Islamic calendar. Using Morgan Stanley Capital International (MSCI) eight Markets Index as our proxy of the market portfolio, most of the frontier markets tested exhibit calendar seasonality. We confirm that systematic risk varies with respect to day-of-the-week, Lunar months and Islamic months. After consideration of time-varying risk and applying Bonferroni correction, few frontier markets exhibit profitable investment opportunities from calendar return anomalies for active investment managers. This study contributes to the existing literature by documenting evidence of the presence of both day-of-the-week and month-of-the-year return seasonality both for the Gregorian and Islamic calendar for frontier markets.

Risk-Adjusted Seasonality in Muslim Frontier Stock Markets

<p>We investigate the evidence of three risk-adjusted calendar anomalies in eight frontier markets. </p> Our sample consists of the daily closing prices of their stock indices for the period of January 2006 to September 2019. We categorize the data with respect to day-of-the-week, Lunar calendar and Islamic calendar. Using Morgan Stanley Capital International (MSCI) eight Markets Index as our proxy of the market portfolio, most of the frontier markets tested exhibit calendar seasonality. We confirm that systematic risk varies with respect to day-of-the-week, Lunar months and Islamic months. After consideration of time-varying risk and applying Bonferroni correction, few frontier markets exhibit profitable investment opportunities from calendar return anomalies for active investment managers. This study contributes to the existing literature by documenting evidence of the presence of both day-of-the-week and month-of-the-year return seasonality both for the Gregorian and Islamic calendar for frontier markets.

Binary Beetle Antennae Search Algorithm for Tangency Portfolio Diversification

The tangency portfolio, also known as the market portfolio, is the most efficient portfolio and arises from the intercept point of the Capital Market Line (CML) and the efficient frontier. In this paper, a binary optimal tangency portfolio under cardinality constraint (BOTPCC) problem is defined and studied as a nonlinear programming (NLP) problem. Because such NLP problems are widely approached by heuristic, a binary beetle antennae search algorithm is employed to provide a solution to the BTPSCC problem. Our method proved to be a magnificent substitute to other evolutionary algorithms in real-world datasets, based on numerical applications and computer simulations.