Abstracts of Volume 40, Number 4, November 2005
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Asset Pricing and the
Illiquidity Premium
Howard W. Chan and Robert W. Faff
Performance of
Enhanced Index and Quantitative Equity Funds
Parvez Ahmed, Sudhir Nanda
Optimal Number of Stock
Holdings in Mutual Fund Portfolios Based on Market
Performance
Hany A. Shawky, David M. Smith
Marketing Closed-End
Fund IPOs: An Analysis of the International Stock Funds
David C. Leonard, Terry D. Nixon, David M. Shull
Return Characteristics of State-owned
and Non-state-owned Chinese A Shares
Michael J. Seiler, David M. Harrison, Pim van Vliet, Kit
Ching Yeung
Post-Merger Performance of Bank
Holding Companies
Morris Knapp, Alan Gart and David Becher
Do CRA-related Events Affect
Shareholder Wealth? The Case of Bank Mergers
Harold A. Black, Raphael W. Bostic, Breck L. Robinson,
Robert L. Schweitzer
Asset Pricing and the Illiquidity Premium
Howard W. Chan and Robert W. Faff
In this paper, we examine the asset-pricing role of
liquidity (as proxied by share turnover) in the context
of the Fama and French (1993) three-factor model. Our
analysis employs monthly Australian data, covering the
sample period from 1990 to 1998. The key finding of our
research is that the main test is unable to reject the
test of over-identifying restrictions, thus supporting
the overall favorability of the liquidity augmented
Fama-French model. In addition, we find that the
asset-pricing performance of the liquidity factor is
generally very robust to a wide range of sensitivity
checks.
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Performance of Enhanced Index and Quantitative Equity
Funds
Parvez Ahmed, Sudhir Nanda
We examine the performance of enhanced index and
quantitative equity funds. Both types of funds use
quantitative models in investment selection. Enhanced
index funds set an explicit objective to outperform a
benchmark index. Proponents of quantitative funds argue
that their management style takes human emotions out of
the investment decision-making process and leads to more
objective stock selection. We find evidence of
outperformance by quantitatively managed growth funds,
especially those investing in small cap stocks.
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Optimal Number of Stock Holdings in Mutual Fund
Portfolios Based on Market Performance
Hany A. Shawky, David M. Smith
Among the decisions most mutual fund portfolio managers
make is the number of stocks to hold. We posit that
there is an optimal number of stocks for each mutual
fund, reflecting the trade-off between diversification
benefits versus transactions and monitoring costs. We
find a significant quadratic relation between number of
stock holdings and risk-adjusted returns for U.S. equity
mutual fund portfolios during 1992-2000. Moreover, we
find that changes in the number of stocks held over time
are more highly correlated with mutual fund flows than
with funds’ investment returns.
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Marketing Closed-End Fund IPOs: An Analysis of the
International Stock Funds
David C. Leonard, Terry D. Nixon, David M. Shull
Various studies argue that underwriting fees are
excessive and investment bankers prolong the price
stabilization period in aftermarket trading of
closed-end fund (CEF) shares. The poor performance of
these funds also raises questions about the financial
sophistication of IPO buyers. In this study, we examine
these issues for a sample of international stock CEFs.
Our findings indicate that underwriting fees are not
excessive relative to industrial issues, and we do not
find that investment bankers prolong the stabilization
period to camouflage the underwriting cost. Our findings
are consistent with earlier studies that discounts
contribute significantly to the poor performance during
the first six months of aftermarket trading.
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Return Characteristics of State-owned and
Non-state-owned Chinese A Shares
Michael J. Seiler, David M. Harrison, Pim van Vliet, Kit
Ching Yeung
This study examines and compares stock returns and
volatilities between state-owned and non-state owned
firms on the Shanghai and Shenzhen stock exchanges.
Results vary significantly by exchange. Returns for both
firm types, on both exchanges, exhibit negative skewness
and high kurtosis inconsistent with a normal
distribution. Returns display significant
autocorrelation, even after the removal of lower order
effects. Granger causality tests reveal that Shenzhen
returns significantly lead Shanghai returns. Within both
exchanges, state-owned firms lead non-state-owned firms.
Neither state-owned nor non-state owned firm shares are
dominated in terms of second order stochastic dominance.
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Post-Merger Performance of Bank Holding Companies
Morris Knapp, Alan Gart and David Becher
This paper examines the results of material mergers
between bank holding companies. Merged bank holding
companies experience post-merger profitability below the
industry average. The market reaction to the merger
announcements is significantly negative. The most
important causes of the poor post-merger performance are
credit quality and the inadequate generation of fee
income. Asset mix and capitalization also play a major
part. The controllability of these items demonstrates
the management challenge associated with a material
merger.
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Do CRA-related Events Affect Shareholder Wealth? The
Case of Bank Mergers
Harold A. Black, Raphael W. Bostic, Breck L. Robinson,
Robert L. Schweitzer
This study explores how Community Reinvestment Act (CRA)
protests and their resolution affect the market value of
merging banks. We find, in contrast to earlier research,
that CRA-related events are not associated with
significant negative market reactions for either bidder
or target institutions. Rather, the market does not seem
to respond strongly to CRA-related events at all. The
results appear to stem from the choice of an estimation
period for establishing an institution’s baseline
stock-market price dynamics that does not include
abnormal security price movements induced by the merger
announcement.
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