Jonathan Fletcher

On the conditional relationship between beta and return in international stock returns

This paper examines the conditional relationship between beta and return in international stock returns between January 1970 and July 1998 using the approach of Pettengill et al. [Pettengill, G., Sundaran, S., & Mathur, I. (1995). The conditional relation between beta and return. J Financ Quant Anal, 30, 101–116] (1995).Consistent with previous research, there is a flat unconditional relationship between beta and return. However, when the sample is split into up market and down market months, there is support for the relationship. There is a significant positive relationship between beta and return in up market months and a significant negative relationship between beta and return in down market months. Subsidiary results highlight a January effect in the conditional beta and return relationship.

An examination of the cross-sectional relationship of beta and return: UK evidence

Abstract This paper examines the conditional relationship between beta and return in UK stock returns. There is no evidence of a significant risk premium on beta when the unconditional relationship between beta and return is considered. When the sample is split into periods according to whether the excess market return is positive or negative, there is a significant relationship between beta and return. However, the relationship is stronger in months when the excess market return is negative than when it is positive. Subsidiary results of the paper also indicate the absence of the size effect in UK stock returns.

An exploration of the persistence of UK unit trust performance

We examine the persistence in UK unit trust performance between January 1982 and December 1996. We find significant persistence in the relative rankings of trusts using different performance measures. We also find significant persistence in the performance of portfolios of trusts, formed on the basis of prior year excess returns, when performance is evaluated relative to models based on the capital asset pricing model (CAPM) or arbitrage pricing theory (APT). However this persistence is eliminated when performance is evaluated relative to a model similar to Carhart [Journal of Finance 52 (1997) 57]. Using a conditional performance measure leads to significant reversals in performance with this model.

An Examination of Resampled Portfolio Efficiency

We examined the out-of-sample performance of using resampled portfolio efficiency, an approach proposed in 1998, in international asset allocation strategies for the period January 1983 to May 2000. For most models we used to estimate expected returns, using strategies based on resampled portfolio efficiency provided some benefits, in terms of improved Sharpe ratios and abnormal returns, over using traditional mean–variance strategies. We found little evidence, however, that active mean–variance strategies or resampled efficiency strategies would have generated significantly positive abnormal returns for the time period we considered. Mean–variance portfolio theory is one of the major developments in finance, but it has limitations when implemented. The principal limitation is that the expected return vector and covariance matrix of asset returns are unknown. Researchers have argued that traditional mean–variance portfolios based on the use of sample data are unstable because the method maximizes estimation error. The assets with higher expected returns, negative correlations, and smaller variances will tend to receive the greater weight, and these assets may have the greatest estimation error. As a result, mean–variance optimization often leads to portfolios that are not meaningful to institutional investors. The concept of “resampled portfolio efficiency” was developed to reduce the impact of estimation risk on the standard mean–variance optimization. It follows the process of simulating statistically equivalent efficient frontiers for a given set of expected returns and covariance matrix inputs. The resampled efficient frontier was originally defined as the set of portfolios that are the average weights of the “rank-associated” portfolios of the various simulated efficient frontiers. Using the resampled efficient frontier tends to moderate the extreme weights that can arise from a single mean–variance optimization. Simulation evidence has suggested that using resampled efficient portfolios leads to higher Sharpe ratios than those produced by traditional mean–variance-efficient portfolios. We examined the benefits of using resampled portfolio efficiency as contrasted to mean–variance efficiency in international asset allocation strategies. We used various performance measures to evaluate the out-of-sample performance of the two strategies between January 1983 and May 2000 for a given estimator of expected returns and covariance matrix. We also explored the robustness of the results by using various models of expected returns, including the historical mean, the James–Stein estimator of expected returns, a one-factor capital asset pricing model, and a model that uses instrumental variables to predict expected returns. The three main findings of the study are as follows: First, in confirmation of previous simulation results, some benefit can be gained in terms of improved Sharpe performance and better abnormal returns from using resampled efficiency strategies rather than traditional mean–variance strategies. Second, this benefit holds across most models used to estimate expected returns and the estimation window used to estimate expected returns. Third, neither active mean–variance nor resampled efficiency strategies outperformed the passive benchmark for the time period considered.

U.K. Unit Trust Performance: Does it Matter Which Benchmark or Measure is Used?

We explore the validity of different benchmark specifications used to evaluate U.K. fund performance, and we examine the sensitivity of U.K. unit trust performance to the factor benchmark specification and two performance measures. Our findings suggest that the different benchmark specifications create some bias when we evaluate U.K. fund performance with either performance measure. We find that the performance of the trusts is sensitive to the factor benchmark specification used, but not to the performance measure. We also find significant time-series variations in the abnormal performance of the trusts.

An Examination of UK Unit Trust Performance within the Arbitrage Pricing Theory Framework

This paper examines the performance of a sample of 101 United Kingdom unit trusts within an Arbitrage Pricing Theory framework and considers the relationship between performance and the investment objective, size and expenses of the trusts. Also, portfolio strategies using past trust performances to rank the trusts fails to generate significant abnormal returns relative to two different benchmark portfolios.

An Examination of Alternative Factor Models in UK Stock Returns

This paper examines the mean-variance efficiency of a number offactor models in UK stock returns. The paper also explores, using theapproach of MacKinlay (1995), whether missing risk factors ornonrisk-based explanations best explain the pricing errors of thedifferent factor models. The evidence in the paper suggests that themean-variance efficiency of each factor model is rejected and missing riskfactors are unable to explain the pricing errors of any of the models.Some nonrisk-based explanations, which posit a wide spread in abnormalreturns, may be a more plausible source of explaining the pricing errorsof the factor models.

The evaluation of the performance of UK American unit trusts

Abstract This article examines the performance of 85 UK unit trusts with North American investment objectives between January 1985 and December 1996 using unconditional and conditional performance measures. The paper finds that, on average, the trusts register insignificant performance to each of the respective benchmark portfolios. In addition there is no evidence of any predictability in performance. The results of the article are consistent with market efficiency in that unit trusts do not, on average, possess private information, higher expenses tend not to improve performance, and trusts are not able to consistently outperform the market.

Long Term Performance and Choice of SEO Method by UK Firms

The long term performance of firms making seasoned equity offerings (SEOs) in the UK, in an era of discretion over the choice of issue method, is shown to differ according to the chosen method across a number of different models of expected returns. The combination of prior and post�?SEO performance suggests that rights offering firms are less likely to time offers to exploit overvaluation than firms using placings. When judged on a long term basis rights offering firms are not of lesser quality than firms that choose other offering methods.

An examination of predictable risk and return in UK stock returns

Abstract This paper examines whether conditional asset pricing models can explain the predictability in UK stock returns using the frameworks of Ferson and Harvey (1999) and Kirby (1998) . The paper finds that the domestic Arbitrage Pricing Theory model is able to explain most of the observed time-series predictability in stock returns and tends to perform better than the domestic CAPM in explaining the predictability generated by the predictive instruments. The paper also finds that domestic asset pricing models tends to capture more of the time-series predictability in UK stock returns than international models. However none of the models are able to explain all of the predictability in returns.