Antonios Siganos

Momentum returns and size of winner and loser portfolios

Previous studies in the field of the momentum effect have defined winner and loser portfolios only by using deciles, quintiles or triciles. This article overcomes this limitation by investigating the magnitude of momentum gains for various sizes of winner and loser portfolios. It is found that beyond the first few extreme winners and losers, there is a continuous decline of momentum gains for larger number of shares portfolios. Maximum momentum returns, at the magnitude of 2.09% per month, emerge when only the 40 top and bottom performing shares are employed. This study also shows that for large portfolios, it is not essential for investors to sell the loser portfolio short, since its influence on momentum returns is insignificant. Overall, this article supports the existence of the momentum effect and even shows that investors can take a better advantage of the continuation in share prices than previously reported.

Momentum profits and macroeconomic factors

This article tests whether macroeconomic variables and market sentiment influence the size of momentum profits. It finds that although returns to the winner and loser portfolios are influenced by a range of macroeconomic and market wide variables; momentum profits are influenced only by the scale of portfolio outflows. Thus, when investors are sending their capital elsewhere, reduced funds at home, dampen the profitability of the momentum trading strategy. It also finds that when the market closes, below its opening level in the previous six months, momentum profits are higher, which might be a reflection of mean reversion in the market.

Short-selling constraints and ‘quantitative’ investment strategies

This study uses stock lending data from Data Explorers to assess the impact of short-selling constraints on the profitability of eight investment strategies. Returns from unconstrained long–short portfolios are compared with those from ‘feasible’ portfolios, constrained to short-selling only those shares that can be borrowed. We find that only a small percentage of the firms identified by Datastream for short-selling are available for lending, but our results suggest that differences in profitability between unconstrained and feasible strategies are statistically insignificant. We also find that the stock borrowing fee for the majority of the strategies is normally less than 1% per annum, showing that prior UK studies, which assumed that the short-selling fee is flat at 1.50% per annum, have overestimated such cost. Overall, these results indicate that stock loan unavailability and stock borrowing fees do not explain the persistence of returns from anomaly-exploiting quantitative investment strategies in the UK stock market.

FT coverage and UK target price run-ups

We focus on the market expectation hypothesis to explain the increase in share prices and trading volume of target firms before their merger announcements that have conventionally been attributed to either insider trading or market expectation. We use Financial Times (FT) coverage as a proxy of merger expectation and search for relevant articles for 783 UK target firms between 1998 and 2010. We identify a total of 1049 rumour articles and find that the FT market expectation proxy explains a small percentage of the target price run-ups. Results are strong during the sample period, even though the magnitude for both returns and trading volume tends to decrease within recent years. There is also a strong contemporaneous relation between abnormal returns and trading volume. Unexplained increases in target prices and trading volume may be attributed to insider trading.

Can retail investors exploit stock market anomalies

This article investigates the extent to which small investors can exploit a range of stock market anomalies. The study uses a small number of companies to define both long and short portfolios, and investigates the post-cost profitability of the following strategies: earnings/price, return/assets, price, asset growth, size, dividend/price and overreaction. Transaction cost is estimated when buying underlying shares and when selling short shares with Contracts For Difference (CFDs). Findings show that only the earnings/price strategy can enjoy net gains for small investors showing some evidence against stock market efficiency.

Why Do Financially Unconstrained Firms Borrow to Repurchase Shares

Financially unconstrained firms frequently issue debt to repurchase shares. Controlling for financial constraints, we show that levered repurchases are associated with lower credit spreads and that the debt of companies making such repurchases is more likely to be rated. These results are consistent with debt market timing to coincide with share repurchases, especially when the firm is financially unconstrained. We further show that unconstrained firms that borrow during share repurchases are associated with higher investment expenditures than those that do not borrow. This result indicates that the additional cash flow from borrowing allows these firms to increase their investments.

Sympathy as a Determinant of Cross-Border Merger Activity

This paper introduces cross-country sympathy as a determinant of cross-border merger activity. We use abnormal votes exchanged between countries in the Eurovision Song Contest between 1999 and 2013 to proxy for sympathy across countries. We find that pairs of countries sharing high sympathy levels experience high levels of cross-border merger activity, while pairs of countries sharing low levels of sympathy exhibit low cross-border merger activity. Sympathy subsumes the significance of culture as a determinant of cross-border merger activity. We find that the relation is driven by private-to-private acquisitions rather than public-to-public merger deals, showing that managers of private firms are influenced more by sympathy.

Firm characteristics that drive the momentum pattern in the UK stock market

Previous studies have estimated the company characteristics of previous winners and losers to explore the momentum effect. Using UK data, this study focuses on the characteristics of companies that actually generate the momentum pattern. These are previous winners who keep performing well (WW) and past losers who consistently perform poorly (LL). This study illustrates that WW and LL firms may exhibit market-based characteristics similar to those of young, low-priced, small capitalisation companies, but that there are significant differences. Accounting and fundamental signals (e.g. profitability, value/growth) tend to distinguish winners from losers. Based on firm characteristics, we further develop investment strategies that can outperform significantly the profitability of the momentum strategy.