Kudret Topyan

Cross-Sectional Stock Return Predictability in China

Cross-sectional stock return predictability has always been an intriguing issue for the researchers as it relates to a number of resilient puzzles in finance. This paper provides a comprehensive analysis on the stock return predictability in China form January 1994 to March 2011 by employing both portfolio method and cross-sectional regressions. We find strong predictive power of size, price, book-to-market ratio, cash-flow-to-price ratio, and earnings-to-price ratio. The total as well as idiosyncratic volatility are also consistent stock return predictors in China. The results exist for stocks listed in Shanghai Stock Exchange as well as Shenzhen Stock Exchange. Unlike evidence for the other markets (e.g. U.S), the momentum fails to qualify as a useful predictor in the portfolio method. It is only when used with other predictors that it exhibits predictive power for the Chinese stocks. Overall, the variables related to cheapness of stocks such as book-to-market ratio and cash-flow-to-price ratio demonstrate reliable forecast power, but earnings-to-price ratio is less reliable.

The effect of alcoholic beverage excise tax on alcohol-attributable injury mortalities

This study examines the effect of state excise taxes on different types of alcoholic beverages (spirits, wine, and beer) on alcohol-attributable injury mortalities—deaths caused by motor vehicle accidents, suicides, homicides, and falls—in the United States between 1995 and 2004, using state-level panel data. There is evidence that injury deaths attributable to alcohol respond differently to changes in state excise taxes on alcohol-specific beverages. This study examines the direct relationship between injury deaths and excise taxes without testing the degree of the association between excise taxes and alcohol consumption. The study finds that beer taxes are negatively related to motor vehicle accident mortality, while wine taxes are negatively associated with suicides and falls. The positive coefficient of the spirit taxes on falls implies a substitution effect between spirits and wine, suggesting that an increase in spirit tax will cause spirit buyers to purchase more wine. This study finds no evidence of a relationship between homicides and state excise taxes on alcohol. Thus, the study concludes that injury deaths attributable to alcohol respond differently to the excise taxes on different types of alcoholic beverages.

Cross-Sectional Return Predictability in Taiwan Stock Exchange: An Empirical Investigation

This paper provides an analysis of the effectiveness of certain return predictors in Taiwan Stock Exchange (TWSE) from January 1990 to December 2011 by employing both portfolio method and cross-sectional regressions. While we found no statistically significant predictive power of beta, total volatility, and idiosyncratic volatility the two cheapness variables, book-to-market (BKMT) and cash-flow-to-price (FPR) ratios showed strong consistent economically and statistically significant predictive powers. In addition, our multiple regressions found predictive power in total volatility, short-term reversal (STREV), and market capitalization in the set of small stocks, while our all stock set showed predictive power only in total volatility and STREV.

An empirical note on demand for speculation and futures risk premium: A Kalman Filter application

Abstract This study examines the behavior of demand for speculation, and the relationship between futures risk premium, open interest, daily futures trading, and the market index in the case of gold, silver, and copper markets. Following Bessembinder (1992), the paper focuses on the questions of: (a) whether there is a consistent systematic relationship between risk premium and futures trading activity and the market index, and, (b) whether speculative behavior exhibits systematic behavior around the markets expectation. The introduction of the Kalman Filter approach allows for a flexible trend model and obviates the need to specify the nature of trends of series. In order to test the hypotheses the frequency-domain regression coefficients are compared with their case- specific counterparts. The empirical findings show that the speculative behavior is not symmetric in backwardation and contango markets. Furthermore, a negative relationship between the market and risk premia is observed in gold and silver; whereas the same relationship is positive in the case of copper.

Book-to-Market Ratio

The book-to-market ratio is the book value of equity divided by market value of equity. The underlined book-to-market effect is also termed as value effect. The book-to-market effect is well documented in finance. In general, high book-to-market stocks, also referred as value stocks, earn significant positive excess returns while low book-to-market stocks, also referred as growth stocks, earn significant negative excess returns. Both, Fama and French (1992) and Lakonishok, Shleifer, and Vishny (1994) reported that book-to-market ratio is strongly correlated with the stock’s future performance and highlight it as a popular return predictor. They are, however, in disagreement concerning the source of book-to-market effect: Fama and French (1992) attribute this to unobserved risk factors, while Lakonishok, Shleifer, and Vishny (1994) attribute it to mispricing. As a result, the observed correlation might be originated from risk-related factors as well as mispricing.

Return Predictability in Santiago Stock Exchange: An Empirical Analysis Using Portfolio Method

This paper provides a comprehensive analysis on stock return predictability in Santiago Stock Exchange from January 2007 to January 2016 by employing portfolio method. In the riskrelated predictors, we found no statistically significant predictive power of beta, total volatility, and idiosyncratic volatility in all stock sets. In addition to market cap and short-term reversal, the two cheapness variables, book-to-market and cash-flow-to-price ratios showed consistent economically and statistically significant predictive powers in determining the stock returns in the Santiago Stock Exchange. We also found that regrouping the stocks as small and large, low and high book-to-market, beta, and momentum according to the median values adds insights to the analysis. Our results show that the set of large stocks in the exchange is the least predictable set of stocks, however, momentum is efficiently predicted their return. Momentum is significant only for the large stocks and low bookto-market stocks, and risk-related predictors are good for high beta stocks only.

Short-Term Reversal

Short-term reversal is a well-documented market anomaly that was first noted by Fama (1965). Following Jegadeesh (1990), Jegadeesh and Titman (1995b), and Lehmann (1990), the reversal variable for each stock in month t is defined as the return of the same stock over the previous month. Jegadeesh (1990) shows that for the period 1934–1987, short-term reversal strategy yielded approximately 2 percent extra return per month. Profits based on short-term reversal strategy may be explained as the reflection of the investors’ initial price overreaction to information (see, for example, Shiller, 1984; Stiglitz, 1989; Subrahmanyam, 2005), or as the price pressure connected to liquidity shocks (see, for example, Grossman and Miller, 1988; Jegadeesh and Titman, 1995a; Pastor and Stambaugh, 2003).