Minh Chau To

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.

The E-V stationarity of secure returns: Some empirical evidence

Abstract The joint hypothesis that the expected return vector and the variance-covariance matrix of returns are intertemporally stationary is rejected for the monthly return data for securities included on the CRSP file. This finding is robust in that it is invariant to the type of sampling procedure used and to whether nominal or real security returns are used. In contrast, the hypothesis that the correlation matrix of returns is intertemporally stationary could not be rejected for the same samples of securities.

Benchmark Invariancy, Seasonality and APM-Free Portfolio Performance Measures

The Jobson-Korkie (1981) Z score and the positive period weighting (PPW) score of Grinblatt and Titman (1989) are applied to various benchmarks of market and mimicking portfolios to study the benchmark invariancy problem. Significantly different portfolio performance inferences are found for a sample of 146 equity mutual funds depending on the mean-variance efficiency of the portfolio benchmarks (mimicking portfolios versus market indices). Portfolio performance inferences are affected significantly by the number of factors, nonsynchronous trading adjustment, and the sizes of the firms used for factor extraction. The returns of the portfolio benchmarks exhibit significant monthly seasonalities, which, in turn, significantly influence mutual fund performance inferences.

Externalities, preferences, and urban residential location: Some empirical evidence

This study tests the validity of the preference explanation for the pattern of residential urban location based on a study of 2 North American cities and using the Alonso-Muth model. 3 explanations are given for the movement of high-income households to the suburbs from the city core: 1) the existence of important racial and social externalitites 2) the relative real estate tax savings that accrue to suburban residences and 3) the spatial equilibrium theory which was developed by Alonso with Muth. The Alonso-Muth model measures the effect that the bidprice of a house and income of a household have on the distance the residential location will be from the city core. Wheatons 1965 study of a San Francisco Bay area examined the Alonso-Muth model and found that it did not adequately explain the suburban location of higher-income households. The author points out the limitations of Wheatons study and justifies the need for another validation study of the model using household data from Montreal. These results are supportive of the Alonso-Muth model. To examine the validity of preferences as an explanation for the pattern of residential location of income groups a model of arbitrage between distance and housing are developed. Unlike the Wheaton study the major finding of this study is that consumers preferences can significantly determine residential location patterns in at least 1 urban center.

Futures market equilibrium with heterogeneity and a spot market at harvest

Abstract This paper studies equilibrium in the futures market for a commodity in a single good economy, which is populated by heterogeneous producers and speculators. The commodity is traded only in the spot market at harvest whereas futures contracts written on the commodity are traded continuously. The model illustrates the role of heterogeneity and non-tradeness in a futures market equilibrium. The results show that the futures price is driven by aggregate wealth, rather than the spot price as in other models and that the futures price process is a simple one which depends on the relative risk process.