Scott D. Below

Using chaos measures to examine international capital market integration

Weekly changes for the period 1980 to 1994 in six major stock indices (the US, Korea, Taiwan, Japan, Singapore and Hong Kong) and the World Index are examined. Also examined are the corresponding foreign exchange rates between the US and these five countries. Using spectral analysis, techniques of nonlinear dynamics and ordinary least squares regression, evidence of varying levels of market integration are documented. Some of the time series examined exhibit nonlinear dependencies.

The Determinants of REIT Institutional Ownership: Tests of the CAPM

This study examines the determinants of institutional investment demand for REIT common stock. We estimate the demand function for financial institutions using the mean return and CAPM risk measures (beta and standard error) for REIT stocks. The objective is to determine whether institutional investment decisions are influenced by CAPM model attributes. In addition, we examine the predicatability of REIT institutional ownership based on the factors in our model. We employ conventional OLS forecasting techniques, as well as two neural network models in order to deal with possible nonlinearities in the relationships.

The Pricing of Real Estate Investment Trust Initial Public Offerings

This paper examines the pricing of Initial Public Offerings (IPOs) of Real Estate Investment Trusts (REITs). Unlike standard corporations, evidence suggests that REIT IPOs are correctly priced in the initial market. Significant negative initial-day return for mortgage REITs is found to be a function of using the bid price to calculate returns for those securities, which trade initially over the counter (OTC). If the bid-ask average or the ask price is used in calculating returns, any apparent overpricing disappears. Additionally, we find that once transactions costs are considered, an investor is better off purchasing a REIT on the offering.

The determinants of institutional demand for common stock: Tests of the capm vs. individual stock attributes

Abstract This study examines the determinants of institutional investment demand for common stock. We first estimate the demand function for seven classes of institutions using mean return and CAPM risk measures (beta and standard error). We then estimate the demand function for the same seven institutional classes using the first four moments of the returns distribution calculated in the conventional fashion on individual stocks. Our objective is to determine whether institutional investment decisions are influenced by the CAPM model attributes or by individual stock attributes. We find that institutional investors appear to aggressively seek high beta stocks and to avoid stocks with high unsystematic risk. Our results indicate that institutional investors evaluate stocks on the basis of individual attributes. Institutional investors appear to be strongly influenced by ex post measures of market returns and are averse to variance, skewness and kurtosis in returns.

Leveraged Index Investing: Rydex Nova Fund

This evaluation of the long-run performance of leveraged index investing uses Rydex Nova Fund as a proxy. The results of a regression model are used to predict the funds performance from 1950 through the time it was actually established in 1993. A Monte Carlo simulation suggests that the probability of outperforming the underlying index goes to one as the holding period goes to infinity. The volatility of the underlying index and the geometric nature of returns means that the return magnification achieved by leveraged funds over time will be lower than the funds daily target magnification.