Lawrence Kryzanowski

The Contrarian Investment Strategy Does Not Work in Canadian Markets

This paper tests the overreaction hypothesis using monthly data for stocks listed on the Toronto Stock Exchange over the 1950–1988 period. Unlike De Bondt and Thaler (1985), (1987), it finds statistically significant continuation behavior for the next one (and two) year(s) for winners and losers, and insignificant reversal behavior for winners and losers over longer formation/test periods of up to ten years. While the systematic risks of the winners decrease significantly over all test periods, the systematic risks of the losers increase significantly for only the 12-month formation/test periods (unlike Chan (1988)). The only significant change in variance from the formation to test periods occurs for the losers for the 12-month formation/test periods. The findings are robust for January versus non-January and size-based portfolios (unlike Zarowin (1989), (1990)). The findings are robust for various performance measures (specifically, market-adjusted CAR, and the Jensen (1968) and Sharpe (1966) portfolio performance measures).

An Exploratory Analysis of the Order Book, and Order Flow and Execution on the Saudi Stock Market

The microstructure of the Saudi Stock Market (SSM) under the new computerized trading system, ESIS, is described, and order and other generated data sets are used to examine the patterns in the order book, the dynamics of order flow, and the probability of executing limit orders. Although the SSM has a distinct structure, its intraday patterns are surprisingly similar to those found in other markets with different structures. We find that liquidity, as commonly measured by width and depth, is relatively low on the SSM. However, liquidity it is exceptionally high when measured by immediacy. Limit orders that are priced reasonably, on average, have a short duration before being executed, and have a high probability of subsequent execution.

Performance Attribution using an APT with Prespecified Macrofactors and Time-Varying Risk Premia and Betas

This paper assesses the selection and timing abilities of 130 equity mutual funds using a conditional APT model with specified macrofactors, and time-varying risk premia and betas. For all fund categories based on investment objectives, a significant proportion of the funds exhibits negative abnormal asset selection performance based on the unconditional Jensen (1968) alpha, and a reduced proportion of the funds in each category attempts to time the realizations of the macrofactors (including those captured by the residual market factor). The average selection performance of the mutual funds improves and the proportion of funds attempting to time macrofactor realizations declines when measured using the asset selection and factor-timing models with time-varying risk premia and betas.

General Factor Models and the Structure of Security Returns

Based on Markowitzs pioneering study [40], Sharpe [56] and Lintner [38] advanced the first positivist formulations of the capital asset pricing model (CAPM). Their models were subsequently refined by Mossin [45], Fama [15], Black [1], and others. Even though the CAPM has been studied extensively, it has not been empirically validated. According to Roll [48], the CAPM cannot be tested in an unambiguous fashion because of a number of intractable measurement and computational difficulties, and the joint nature of the hypotheses to be tested.

Intraday Market Price Integration for Shares Cross-Listed Internationally

This study investigates market price integration by testing per-share trade execution price or cost (TEP/C) differentials for matched intraday trades for a sample of Canadian shares cross-listed in the U.S. The TSE trade price advantage over the entire time period changed significantly after both the TSEs own minimum quotation increment reduction and that of its U.S. competitors. We show that the differential TEP/C is equivalent to the international effective spread differential and that market quality comparisons, which benchmark using the National instead of the International BBO, need to compare both national effective half-spread and midspread differences. Our cross-sectional regression results support our predictions that TEP/C differentials can be explained by differences in national midspreads and by ex ante proxies of national effective half-spreads. The TEP/C differentials vary inversely with increasing levels of our measure of signed market nonfragmentation.

Market behaviour around Canadian stock-split ex-dates

Abstract Market behavior around split ex-dates is examined for stocks listed on the Toronto Stock Exchange (TSE). The mean abnormal return on the split ex-date is significant and positive using traditional event-study techniques, and insignificant for conditional residual variances modelled using various ARCH processes. The mean beta increase post-split ex-date becomes insignificant using various ARCH processes. The significant increase in the observed return variance on the split ex-date appears to be caused by increased noise, and not increased true return variance. The changes in observed variances are positively related to the changes in relative bid-ask spreads and raw trading volumes.

Integration or Segmentation of the Canadian Stock Market: Evidence Based on the APT

The domestic and international arbitrage pricing theories are modified to encompass the hypotheses that the Canadian and global North American equity markets are completely or partly integrated (segmented). The exchange rate determination literature is used to identify potentially priced binational factors, and the sensitivities and factor prices are estimated using nonlinear seemingly unrelated regression. The two equity markets are only partly integrated (segmented). Canadian stock returns are influenced by the pure domestic components of the term structure and lagged industrial production and by the pure international components of the differential in the Canada/U.S. leading indicators and the interest rate of Eurodeposits.

Analysis of Small-Business Financial Statements Using Neural Nets:

This paper provides a tutorial in the use of artificial neural networks (ANNs) in accounting and finance in the form of a well-documented exploratory application of an ANN with automatic learning to the analysis and interpretation of the noisy data contained in the financial statements of a sample of small businesses. The application uses the learning algorithm of the Boltzmann machine (BM), which employs the technique of stochastic optimization called simulated annealing. Various experiments are run using balanced training sets and (un)balanced test sets. Since most assessment errors are boundary errors and the ratios of successful classifications for the test sets are clearly above chance for the balanced training/test sets, the BM with two- and three-class output separation appears to have practical value. As expected, the BM demonstrates better accuracy as the size of the training sample increases in a balanced fashion, and less accuracy as the test set is augmented in an unbalanced manner.

Capacity effects and winner fund performance: the relevance and interactions of fund size and family characteristics

This study analyzes the existence of capacity effects and performance persistence for US equity mutual funds for the period from 1992 to 2007. We focus on winner funds and distinguish between capacity effects from both size and inflows and explore their interactions with two measures of family size, i.e. family total net assets under management (family TNA) and the number of funds at the family level (family breadth). The differentiation of family size allows us to analyze competing effects at the family level such as economies of scale as well as organizational complexity costs and conflicts of interest. Our empirical results confirm diseconomies of scale at the winner fund level and indicate that only small winner funds with low inflows significantly outperform the four-factor benchmark on a net return basis. There are no universal benefits from economies of scale at the family level, but our findings suggest the existence of conflicts of interest in families offering a relatively large number of funds. Small winner funds in families offering a small number of funds significantly outperform while economies of scale only materialize among extremely small winner funds. We provide detailed robustness checks for our empirical results. Overall, simply conditioning on fund size is not sufficient for selecting future outperforming funds. The results indicate that fund investors may earn positive abnormal returns when combining information on fund size with information on fund flows or fund family affiliations in their asset allocation decisions.

Valuation effects of Canadian stock split announcements

The abnormal returns for two types of announcement dates are examined for a large sample of stock splits on the Toronto Stock Exchange (TSE). The mean abnormal return is positive and statistically significant for the split proposal announcement date, and positive and not statistically significant for the split approval date. These findings are not only consistent with those found for stock splits in the United States [Grinblatt, Masulis and Titman (1984)], but are also robust to various thin-trading autocorrelation and heteroscedasticity adjustments, and the exclusion of splitting stocks which are interlisted on non-Canadian stock markets.