Mark C. Hutchinson

Marketing Performance Measurement and Firm Performance: Evidence from the European High-Technology Sector

Purpose – The research aims to test whether the ability to measure marketing performance affects the actual performance of firms, in the context of the European high‐tech sector. It also aims to test whether performance‐reporting frequency and size of marketing budget mediate the relationship between measurement ability and performance.Design/methodology/approach – Survey responses collected from 157 marketers were supplemented with firm performance data.Findings – Results show that marketing performance measurement ability positively impacts firm performance and that reporting frequency mediates this relationship.Research limitations/implications – More attention should be given to the activities that are measured rather than the metrics in use – which receive much attention in the literature. Current interest in marketing dashboards may be overstated.Practical implications – Enhanced ability to account for marketing leads not only to improved firm performance, but also to greater regard for marketing at...

High-Frequency Equity Pairs Trading: Transaction Costs, Speed of Execution, and Patterns in Returns

This article examines the characteristics of high-frequency pairs trading using a sample of FTSE100 constituent stocks for the period January to December 2007. The authors show that the excess returns of the strategy are extremely sensitive both to transaction costs and speed of execution. When we specify a moderate level of transaction costs (15 basis points), the excess returns of the strategy are reduced by more than 50%. Likewise, when a wait-one-period restriction on execution is implemented, the returns of the strategy are eliminated. When the time series properties of pairs trading returns are further examined, it is seen that the majority of returns occur in the first hour of trading. Finally, the authors find that the excess returns bear little exposure to traditional risk factors but are weakly related to market and reversal risk factors.

Convertible Bond Arbitrage: Risk and Return

This paper specifies a simulated convertible bond arbitrage portfolio to characterise the risks in convertible bond arbitrage. For comparison the risk profile of convertible bond arbitrage hedge fund indices at both monthly and daily frequencies is also examined. Results indicate that convertible bond arbitrage is positively related to default and term structure risk factors. These risk factors are augmented with the simulated convertible bond arbitrage portfolio, mimicking a passive investment in convertible bond arbitrage, to assess the risk and return of individual hedge funds. We provide estimates of the performance of two hedge fund indices (an equally weighted and value weighted index) and a sample of convertible bond arbitrage hedge funds using a factor model methodology. Lagged and contemporaneous observations of the risk factors are specified, controlling for illiquidity in the securities held by funds. Our results cover two time periods. Initially we find evidence of abnormal risk adjusted returns in the individual hedge fund data and the equally weighted hedge fund index and no evidence of abnormal risk adjusted returns in the value weighted hedge fund index. When we examine performance during the credit crisis of 2007 and 2008 we find evidence of negative abnormal returns amongst individual hedge funds and the hedge fund indices.

Simulating Convertible Bond Arbitrage Portfolios

The recent growth in interest in convertible bond arbitrage (CBA) has predominantly come from the hedge fund industry. Past empirical evidence has shown that a CBA strategy generates positive monthly abnormal risk-adjusted returns. However, these studies have focused on hedge fund returns which exhibit instant history bias, selection bias, survivorship bias and smoothing. This article replicates the core underlying CBA strategy to generate an equally weighted and market capitalization daily CBA return series free of these biases, for the period 1990 through 2002. These daily series also capture important short-run price dynamics that previous studies have ignored.

Just a One Trick Pony? An Analysis of CTA Risk and Return

Recently, a range of alternative risk premium products has been developed, promising investors hedge fund/Commodity Trading Advisor (CTA)-like returns with higher liquidity and transparency and relatively low fees. The attractiveness of these products rests on the assumption that they can deliver similar returns. Using a novel reporting bias–free sample of 3,419 CTA funds as a testing ground, the authors’ results suggest that this assumption is questionable. They find that CTAs are not a homogenous group. They identify eight different CTA substrategies, each with very different sources of return and low correlation between substrategies. To illustrate the difficulty of modelling the strategies, they specify recently identified alternative risk premiums from the academic literature as factors to examine the sources of return of CTAs. They find that these premiums fail to explain between 56% and 86% of returns. Their results suggest that given the heterogeneity of CTAs, although these new products may deliver on liquidity, transparency, and fees, investors expecting hedge fund/CTA-like returns may be disappointed.

Time Series Momentum and Macroeconomic Risk

The time series momentum strategy has been shown to deliver consistent profitability over a long time horizon. Funds pursuing these strategies are now a component of many institutional portfolios, due to the expectation of positive returns in equity bear markets. However, the return drivers of the strategy and its performance in other economic conditions are less well understood. The authors find evidence that the returns to the strategy are connected to the business cycle. Returns are positive in both recessions and expansions, but profitability is especially high in expansions. About 40% of returns are due to time varying factor-related risk exposure, consistent with rational asset pricing theories having a role in explaining the profitability of the strategy.

Dedicated Short Bias Hedge Funds: Diversification and Alpha during Financial Crises

During the recent financial crisis dedicated short bias (DSB) hedge funds exhibited extremely strong results while many other hedge fund strategies suffered badly. This article, prompted by this recent episode, investigates DSB hedge fund performance over an extended sample period, from January 1994 to December 2008. Performance and risk evaluation are carried out on an equally weighted DSB hedge fund portfolio using three different factor model specifications and both linear and nonlinear estimation techniques. The authors conclude that DSB hedge funds are a significant source of diversification for equity market investors and produce statistically significant levels of alpha. Their findings are robust to the specification of traditional and alternative risk factors, nonlinearity, and the omission of the crisis periods, which are particularly favorable for the DSB strategy.

Risk and Return of Merger Arbitrage in the UK: 2001 to 2004

This paper replicates the core underlying merger arbitrage strategy using daily data from the United Kingdom to generate three simulated merger arbitrage portfolio return series, for the period 2001 through to 2004. Past empirical evidence indicates that the merger arbitrage strategy generates large risk adjusted returns. More recent evidence indicates that the strategy has a return distribution equivalent to a short put option on a stock index. These prior studies have generally focused on monthly returns in the North American stock markets. For the UK market we find evidence that the merger arbitrage strategy exhibits little systematic risk and generates significant risk adjusted returns. Contrary to prior research we find no evidence of an increase in systematic risk in depreciating equity markets.