Quantitative Analysis 300813 e 158645

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Macquarie Capital Securities Limited Burke Lau +852 3922 5494 [email protected] Lucas Lu +852 3922 1294 [email protected] Macquarie Capital (Europe) Limited Gurvinder Brar +44 20 3037 4036 [email protected] James Murray, CFA +44 20 3037 1976 [email protected] Inez Khoo +44 20 3037 2640 [email protected] Macquarie Securities (Australia) Limited John Conomos, CFA +61 2 8232 5157 [email protected] Francis Lim +612 8232 9313 [email protected] Werner Fortmann +612 8232 3333 [email protected] Macquarie Capital (USA) Inc. Gavin Smith, PhD +1 212 231 0588 [email protected] Nilesh Kalamkar +1 212 231 0360 [email protected] Macquarie First South Securities (Pty) Ltd Josiah Rudolph, FRM +27 11 583 2210 [email protected]

30 August 2013

Quantitative Analysis Academic Abstracts monitor The Macquarie Global Quant Conference on Sept 16-17 in Hong Kong is only

a few weeks out. Please contact your Macquarie representative if you are

interested in attending or for more information. Link to Conference Details.

Some of this month’s interesting ideas:

Quality minus Junk – Asness, Frazzini and Pedersen turn their attention to

quality metrics. They find that quality has some small predictive power and

that performance is heavily regime based.

Robust distance to default – Jessen & Lando finds the merton model

predictive but suggests that it can be improved by adjusting for stochastic

sensitive stocks where the merton model does not work as well.

Value investing – Chee, Sloan & Uysal develop a value investing framework

using prospective yields and create a realised yield metric to evaluate value

strategies, attribute returns to value and construct better value measures.

Low Vol Investing – Dangl & Kashofer test 63 ways to form low vol portfolios

and finds significant commonality in stocks. Poplularity and commonality of

stocks has led low vol to now trade at a PB premium. Chow, Hsu, Kuo & Li

advocate against naïve low vol, implementation issues with liquidity, high

turnover and shifts in exposures over time (PB premium) can erode returns.

Peer company impacts – Ozoguz & Rebello suggest that peer company

performance affects corporate decisions of companies. This ties into our work

recently on company-company linkags - Asia Pac Dynamics - Japan rally link

to Asia & Global Dynamics - Customer supplied Alpha

Comparing Textual Processing – Heston & Sinha find news impacts stock

performance for 1-2 days, longer weekly news impacts for the next quarter.

Stocks with no news have different returns profiles to stocks with news.

Overfitting backests – Prado discusses backtesting and how to avoid

overfitting / data mining. Suggests over fitting models leads to systemic losses

rather than just adding random noise.

Corporate site visits – Cheng, Du, Wang & Wang find significant price

reaction around corporate visits, especially for firms in poor information

environments and are positively associated with future earnings news

Factor models or portfolios of factor indices? – Lucas & Mendoza suggest

a multi-beta portfolio is superior to a portfolio of factor/style indices.

Financial innovation increases risk – Simsek suggests financial innovations

increases portfolio risk vs. reducing risks through risk sharing. Innovation and

belief disagreements lead investors to take more speculative risk.

Predicting forecast error – Henderson & Marks uses Revenue and Earnings

foreasts to imply margins which can be used to predict forecast errors.

Predicted forecast errors can help exploit earnings and revenue surprises.

Activist investors add value – Bebchuk, Brav & Jiang Performs a study of

~2000 activist interventions from 1994-2007 and finds positive longer term

effects. Improved performance and no reversal initial positive stock spike.

And many more: Read on for all of this month’s topical articles.

https://www.macquarieconnections.com/iconference/Custom/List/478?menuItemId=10

https://www.macquarieresearch.com/rp/d/r/publication.do?pub_id=7202977&file_name=AsiaPacDynamics100513e149036.pdf&uid=MTkxODk&

https://www.macquarieresearch.com/rp/d/r/publication.do?pub_id=7202977&file_name=AsiaPacDynamics100513e149036.pdf&uid=MTkxODk&

https://www.macquarieresearch.com/rp/d/r/publication.do?pub_id=7205769&file_name=GlobalDynamics180613e151981.pdf&uid=MTkxODk&

Macquarie Research Quantitative Analysis

30 August 2013 2

Academic Abstracts monitor Scanning the academic journals so you don’t have to

The Macquarie Academic Abstracts Monitor is a monthly report that highlights recent

academic articles that are directly relevant to quantitative investors.

Each month we scan a wide range of academic journals across a variety of subjects – from

finance and accounting, to psychology and applied mathematics – to find papers that we think

are of interest to our clients.

We focus on ideas that are directly relevant to day-to-day quantitative managers. Esoteric

research can be interesting but we have a philosophy that simple, intuitive ideas are often

best suited to actual implementation.

We include a web link to Journals so that clients can download interesting papers directly.

Working papers offer a timely source of new ideas

We also keep an eye on working paper repositories. The academic review process can be

lengthy (years rather than months) so working papers are often the timeliest source of new

ideas.

We include a web link to working papers so that clients can download interesting papers

directly.

Some of the other interesting papers we spotted this month were

Explaining Low Vol – Hsu & Li reviews plausible explanations for the low vol anomaly,

and decomposes low vol returns to show that it captures many other well know factor

premiums.

Optimism – Balasuriya, Muradoglu & Ayton unfortunately find no correlation between

optimism and future performance; the most financially optimistic tend to not perform better

than everyone else.

Flight to quality – Marsh and Pfleiderer analyse the optimal adjustments to a portfolio

required in response to a market crisis and suggest that most portfolios only require a

turnover of less than 10% to adjust to the new environment.

Portfolio Concentration – Phoa transforms portfolio correlations into a point in cloud

space so they can be visualised.

Earnings Quality as alpha – Bender & Nielsen argue that accruals is an alpha factor not

a risk factor because it does not have high significance when regressed against stock

returns, not very volatile for a risk factor. Also most of the alpha for accruals comes from

stock selection.

Inverted strategies outperform too! – Arnott, Hsu & Tindall find that the inverted

strategies of many proposed outperforming portfolios also outperform. They suggest this

is due to intrinsic small cap and value biases over a market cap weighted index even in the

inverted strategies.


30 August 2013 3

Quarterly Journal of Economics Volume 128, Issue 3

Title: Speculation and Risk Sharing with New Financial Assets

Authors: Alp Simsek

Abstract Link: http://qje.oxfordjournals.org/content/128/3/1365

Key words: Suggests that increasing financial innovations have increased portfolio risks.

Review of Financial Studies September 2013, Volume 26, Issue 9

Title: Estimating the Costs of Issuer-Paid Credit Ratings

Authors: Jess Cornaggia, Kimberly J. Cornaggia

Abstract Link: http://rfs.oxfordjournals.org/content/26/9/2229.abstract

Key words: Rapid Ratings, Moody’s, loss avoidance, default risk, issuer-paid ratings, subscriber-paid ratings

Title: The Skew Risk Premium in the Equity Index Market

Authors: Roman Kozhan, Anthony Neuberger, Paul Schneider

Abstract Link: http://rfs.oxfordjournals.org/content/26/9/2174.abstract

Key words: Skew premium, variance risk

Journal of Index Investing Fall 2013, Vol.4, No.2

Title: Low-Volatility Investing

Authors: Jason Hsu and Feifei Li

Abstract Link: http://dx.doi.org/10.3905/jii.2013.4.2.067

Key words: Low-volatility, Index Investing

Title: Using Index ETFs for Multi-Asset-Class Investing: Shifting the Efficient Frontier Up

Authors: Pankay Agrrawal


Key words: Asset Allocation, ETFs

Title: ETFs within Institutional Managed Portfolios: A Review of the Latest Uses and Trends

Authors: Ursula Marchioni and Paula Niall


Key words: Asset Allocation, ETFs, Institutional Funds, Beta strategies

Journal of Banking & Finance November 2013, Vol. 37, No. 11

Title: Predicting forecast errors through joint observation of earnings and revenue forecasts

Authors: Brian J. Henderson, Joseph M. Marks

Abstract Link: http://dx.doi.org/10.1016/j.jbankfin.2013.07.005

Key words: Analyst forecast; Earnings announcement; Revenue

announcement; Profit margin

http://qje.oxfordjournals.org/content/128/3/1365

http://rfs.oxfordjournals.org/content/26/9/2229.abstract

http://rfs.oxfordjournals.org/content/26/9/2174.abstract

http://dx.doi.org/10.3905/jii.2013.4.2.067



http://dx.doi.org/10.1016/j.jbankfin.2013.07.005


30 August 2013 4

Journal of Portfolio Management Summer 2013, Vol.39, No.4

Title: Standing out from the crowd: Measuring Crowding in Quantitative Strategies

Authors: Rochester Cahan and Yin Luo

Abstract Link: http://www.iijournals.com/doi/abs/10.3905/jpm.2013.39.4.014

Key words: Crowding, systematic strategies, quantitative investing

Title: Earnings quality revisited

Authors: Jennifer Bender and Frank Nielsen


Key words: Earnings quality, risk factor, alpha signal, accruals

Title: The surprising alpha from Malkiel’s monkey and upside-down strategies

Authors: Robert D. Arnott, Jason Hsu, Vitali Kalesnik and Phil Tindall


Key words: Upside-down strategies, value and small cap tilts, historical outperformance

Title: Portfolio concentration and the geometry of co-movement

Authors: Wesley Phoa


Key words: Large correlation matrices, latent structures, portfolio concentration

Financial Management Fall 2013, Vol.42, No.2

Title: The quote exception rule: Giving high frequency trades an unintended advantage

Authors: Thomas H. McInish, James Upson

Abstract Link: http://onlinelibrary.wiley.com/doi/10.1111/fima.12017/abstract

Key words: Fast and low trades, execution quality, liquidity demanders

Title: Idiosyncratic volatility covariance and expected stock returns

Authors: David R. Peterson, Adam R. Smedema


Key words: Idiosyncratic volatility, portfolio volatility, risk-averse investors

Title: On the role of intangible information and capital gains taxes in long-term return reversals

Authors: Ajay Bhootra


Key words: Capital gains, reversals, tax effects, overreaction, intangible information

http://www.iijournals.com/doi/abs/10.3905/jpm.2013.39.4.014




http://onlinelibrary.wiley.com/doi/10.1111/fima.12017/abstract




30 August 2013 5

Financial Analysts Journal July / August 2013, Vol.69 No.4

Title: Flight to Quality and Asset Allocation in a Financial Crisis.

Authors: Terry Marsh and Paul Pfleiderer

Abstract Link: http://www.cfapubs.org/doi/abs/10.2469/faj.v69.n4.3

Key words: Portfolio management, Financial Crisis, Asset allocation

Title: What Drives Corporate Pension Plan Contributions: Moral Hazard or Tax Benefits?

Authors: Xuanjuan Chen, Tong Yu, and Ting Zhang


Key words: Pensions, Tax benefits, Bankruptcy

Title: Active Share and Mutual Fund Performance

Authors: Antti Petajisto


Key words: Returns dispersion, Volatility, Mutual Fund.

Journal of Accounting & Economics November-December 2013, Vol.56, No 2-3

Title: Tax avoidance and geographic earnings disclosure.

Authors: Ole-Kristian Hope, Mark (Shuai) Ma, Wayne B. Thomas

Abstract Link: http://www.sciencedirect.com/science/article/pii/S0165410113000475

Key words: Tax avoidance; Geographic earnings disclosure; SFAS 131; Schedule M-3

Title: Proxy advisory firms and stock option repricing.

Authors: David F. Larcker, Allan L. McCall, Gaizka Ormazabal


Key words: Proxy advisory firms; Stock option repricing; Institutional shareholder voting

Journal of International Financial Markets, Institutions and Money October 2013, Vol.26

Title: U.S. prompt corrective action and bank risk.

Authors: Rhys ap Gwilym, Angelos Kanas, Philip Molyneux


Key words: Prompt corrective action; Credit risk; Default risk; Cointegration; Switching cointegration

Title: Oil shocks, policy uncertainty and stock market return.

Authors: Wensheng Kang, Ronald A. Ratti


Key words: Oil shocks; Economic policy uncertainty; Stock returns; Structural VAR

http://www.cfapubs.org/doi/abs/10.2469/faj.v69.n4.3



http://www.sciencedirect.com/science/article/pii/S0165410113000475





30 August 2013 6

Review of Accounting and Finance Vol.12, No.3

Title: CEO compensation and firm performance: Evidence from the US property and liability insurance industry.

Authors: Fang Sun, Xiangjing Wei, Xue Huang

Abstract Link: http://www.emeraldinsight.com/journals.htm?issn=1475-

7702&volume=12&issue=3&articleid=17092717&show=abstract

Key words: Business performance, CEO compensation, Chief executives, Compensation, Efficiency, Firm performance, Insurance companies, P&L insurance industry, Property insurance, United States of America

Title: Market assessment of intangibles and voluntary disclosure about

innovation: the incidence of IFRS.

Authors: Marie-Josée Ledoux, Denis Cormier

Abstract Link: http://www.emeraldinsight.com/journals.htm?issn=1475-

7702&volume=12&issue=3&articleid=17092719&show=abstract

Key words: Canada, Disclosure, Financial reporting, Intangible assets, International Financial Reporting Standards, International standards, Stock markets, Voluntary disclosure

Journal of Corporate Finance December 2013, Vol.23

Title: Investment opportunities and share repurchases.

Authors: Walter I. Boudry, Jarl G. Kallberg, Crocker H. Liu


Key words: REITs; Share repurchases; Investment opportunities

Title: Demographics of dividends.

Authors: Gina Nicolosi


Key words: CEO; Dividend policy; Payout policy; Overconfidence; Optimism

Title: Asymmetric benchmarking of pay in firms.

Authors: Francis Bill, Hasan Iftekhar, John Kosed, Sharma Zenu


Key words: CEO compensation; VP compensation; Benchmarking; Pay for luck

Journal of Trading Summer 2013, Vol. 8, No. 3

Title: Block-Crossing Networks and The Value of Natural Liquidity.

Authors: Vladimir Markov, Tito Ingargiola

Abstract Link: http://www.iijournals.com/doi/abs/10.3905/jot.2013.8.3.016

Key words: Dark pools, liquidity, limit pricing.

Title: A Daily Trading Strategy in the ETN Space.

Authors: Lovjit Thukral, Dean Diavatopoulos, Hélyette Geman, Colby Wright

Abstract Link: http://www.iijournals.com/doi/abs/10.3905/jot.2013.8.3.057

Key words: ETN, mispricing, active portfolio management

http://www.emeraldinsight.com/journals.htm?issn=1475-7702&volume=12&issue=3&articleid=17092717&show=abstract







http://www.iijournals.com/doi/abs/10.3905/jot.2013.8.3.016

http://www.iijournals.com/doi/abs/10.3905/jot.2013.8.3.057


30 August 2013 7

Journal of Forecasting Volume 32, Issue 6

Title: Predicting Recessions with Factor Linear Dynamic Harmonic Regressions.

Authors: Marcos Bujosa, Antonio García-Ferrer, Aránzazu de Juan

Abstract Link: http://onlinelibrary.wiley.com/doi/10.1002/for.2246/abstract

Key words: Forecasting ; linear dynamic harmonic regression; leading indicator; factor analysis; business cycles; Spanish economy

Title: Exponentially Smoothing the Skewed Laplace Distribution for Value-at-Risk Forecasting.

Authors: Richard Gerlach, Zudi Lu, Hai Huang


Key words: asymmetric Laplace distribution; exponential smoothing; forecasting; skewness and heavy tails; time-varying parameters; value-at-risk (VaR)

Title: The Role of High-Frequency Intra-daily Data, Daily Range and Implied Volatility in Multi-period Value-at-Risk Forecasting.

Authors: Dimitrios P. Louzis, Spyros Xanthopoulos-Sisinis, Apostolos P. Refenes


Key words: Realized GARCH; Value-at-Risk; multiple forecasting horizons; alternative volatility measures

http://onlinelibrary.wiley.com/doi/10.1002/for.2246/abstract




30 August 2013 8

Working papers

National Bureau of Economic Research (NBER)

http://www.nber.org/new_archive/

Title: Unemployment and Business Cycles

Authors: Lawrence J. Christiano, Martin S. Eichenbaum, Mathias Trabandt

Link: http://www.nber.org/papers/w19265

Key Words: Developed a general equilibrium model that accounts for labor market variables

Title: Unethical Culture, Suspect CEOs and Corporate Misbehavior

Authors: Lee Biggerstaff, David C. Cicero, Andy Puckett


Key Words: Outside-hire ‘suspect’ CEOs and CEOs who personally benefitted from option backdating were more likely to engage in corporate misbehavior

Title: CEO Investment Cycles

Authors: Yihui Pan, Tracy Yue Wang, Michael S. Weisbach


Key Words: Governance-related factors internal to the firm are as important as economy-wide factors in explaining firms’ investments

Title: Happiness, Behavioral Economics, and Public Policy

Authors: Arik Levinson


Key Words: Demonstrate happiness does not react to long-term changes and overreacts to temporary changes

IMF Working Paper

http://www.imf.org/external/pubs/cat/wp1_sp.aspx

Title: Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China

Authors: Il Houng Lee ; Murtaza H. Syed ; Xin Wang

Link: http://www.imf.org/external/pubs/cat/longres.aspx?sk=40893.0

Key Words: Income inequality in China is mostly explained by location, education, access to health insurance and labor market variables

Title: Capital Flows are Fickle: Anytime, Anywhere

Authors: John C Bluedorn ; Rupa Duttagupta ; Jaime Guajardo ; Petia Topalova

Link: http://www.imf.org/external/pubs/cat/longres.aspx?sk=40885.0

Key Words: Most types of flows are volatile, generally more for the developed market than emerging market

http://www.nber.org/new_archive/

http://www.nber.org/papers/w19265




http://www.imf.org/external/pubs/cat/wp1_sp.aspx

http://www.imf.org/external/pubs/cat/longres.aspx?sk=40893.0

http://www.imf.org/external/pubs/cat/longres.aspx?sk=40885.0


30 August 2013 9

arXiv.org > q-fin Working Papers

http://arxiv.org/archive/q-fin

Title: Quantum Tunneling of Stock Price in Range Bound Market Conditions

Authors: Ovidiu Racorean

Abstract Link: http://arxiv.org/abs/1307.6727

Key words: Found the aforementioned particular stock price movement is assimilated with a quantum tunneling effect

Title: A Modern Approach to the Efficient-Market Hypothesis

Authors: Gabriel Frahm


Key words: Completeness is a sufficient and necessary condition for a market to be informationally efficient

Title: Gold, Oil, and Stocks

Authors: Jozef Barunik, Evzen Kocenda, Lukas Vacha


Key words: No evidence of lead lag relationship among them and they cannot be used together for risk diversification

Title: Time-reversal asymmetry in financial systems

Authors: X.F. Jiang, T.T. Chen, B. Zheng


Key words: Time-reversal asymmetry is at the daily time scale and is mainly induced by external forces

Title: Where Do Thin Tails Come From?

Authors: Nassim Nicholas Taleb


Key words: Introduced a general dose-response curve to explain thin tail

Title: Energy, entropy, and arbitrage

Authors: Soumik Pal, Ting-Kam Leonard Wong


Key words: Analyses portfolio performance relative to a benchmark from the lens of energy and entropy which does not need probabilistic or structural assumptions.

http://arxiv.org/archive/q-fin

http://arxiv.org/abs/1307.6727







30 August 2013 10

SSRN Working Papers – Financial Economics Network

http://www.ssrn.com/fen/index.html

Title: Minimum-Variance Stock Picking - A Shift in Preferences for Minimum-Variance Portfolio Constituents

Authors: Thomas Dangl, Michael Kashofer

Link: http://ssrn.com/abstract=2302453

Key Words: Test 63 different ways to form minimum variance portfolios and finds significant commonality in stocks selected and also used to trade at a PB discount but now trades at a premium.

Title: Is the Decline in the Information Content of Earnings Following Restatements Short-Lived?

Authors: Xia Chen, Qiang Cheng, Alvis K. Lo


Key Words: Finds price less responsive to earnings changes after earnings restatements

Title: Short Selling Risk

Authors: Joseph Engelberg, Adam V. Reed, Matthew Ringgenberg


Key Words: Finds short selling risk affect prices in the cross-section. Higher short selling risk stocks have lower returns

Title: Quality Minus Junk

Authors: Clifford S. Asness, Andrea Frazzini, Lasse Heje Pedersen


Key Words: Quality stocks outperform and varies over time

Title: General Purpose Technologies and Stock Returns

Authors: Po-Hsuan Hsu, Wei Yang


Key Words: Suggests Patents predict consumption and production growth and also cross section of returns.

Title: Analysts’ Forecasts During Periods of High Market Uncertainty

Authors: Dan Amiram, Wayne R. Landsman, Edward L. Owens, Stephen Stubben


Key Words: Analysts are less informative during periods of high uncertainty, and don’t revive frequently enough.

Title: Information, Competition, and Investment Sensitivity to Peer Stock Prices

Authors: Arzu Ozoguz, Michael J. Rebello


Key Words: Finds prices of peers affect competition, capital investments and growth of peer companies

http://www.ssrn.com/fen/index.html

http://ssrn.com/abstract=2302453








30 August 2013 11

Title: News versus Sentiment: Comparing Textual Processing Approaches for Predicting Stock Returns

Authors: Steven L. Heston, Nitish Ranjan Sinha


Key Words: Finds daily news only impacts stock performance for 1-2 days, while weekly news impacts stocks for the next quarter. Also finds stocks with no news have distinctly different future returns than stocks with news.

Title: Insider Trading Laws, Learning and Firm Valuation: A Global Perspective

Authors: Udomsak Wongchoti, Pankaj K. Jain, Evgeny Radetsky


Key Words: Stronger insider trading laws lead to more efficient markets. Finds the convergence rate of P/B faster in markets with strong insider trading laws.

Title: Market Reaction to Announcements of Convertible Bonds Issue in the United Kingdom

Authors: Norhuda Abdul Rahim


Key Words: Event study finds convertible bond issues lead to stock price underperformance, suggesting managers time high stock prices to issue.

Title: Robustness of Distance-to-Default

Authors: Cathrine Jessen, David Lando


Key Words: Tests sensitivity of Merton distance to default model, and finds stocks with stochastic sensitivity are less predictive and suggests adjustments to make it work better.

Title: A Framework for Value Investing

Authors: Richard G. Sloan, Seungmin Chee, Aydin Uysal


Key Words: Creates a ‘realised value’ metric based on cash flows and prices which can be used to see how much of the returns have been driven by fundamentals vs. speculative to analyse valuation strategies.

Title: Less is More: Evidence from International Asset Pricing Models

Authors: Marie-Claude Beaulieu, Marie-Hélène Gagnon, Lynda Khalaf


Key Words: Tests a large number of international factor models and finds that more factors leads to identification problems and spurious inference.

Title: Optimal Trading Oracles and a Statistic for Assessing a Trader's Performance

Authors: Graham L. Giller


Key Words: Suggests measuring trader performance by looking at the correlation between a perfect trading vs. the actual trading.









30 August 2013 12

Title: The Effect of Operational Slack, Diversification, and Vertical Relatedness on the Stock Market Reaction to Supply Chain Disruptions

Authors: Kevin B. Hendricks, Vinod R. Singhal, Rongrong Zhang


Key Words: Analyses supply chain disruptions and finds companies with more slack have less severe market price reaction.

Title: Robust Market Making

Authors: Álvaro Cartea, Ryan Donnelly, Sebastian Jaimungal


Key Words: Finds using robust methods help reduce inventory risk, adverse selection and increases sharp ratio by assuming errors / noise in the market marketing models

Title: Identification and Inference Using Event Studies

Authors: Refet S. Gürkaynak, Jonathan H. Wright


Key Words: Reviews the use of event studies and suggests that it is useful to answer questions in macro-economics and finance.

Title: Search for Alpha-Ema Weighted Momentum Based Approach

Authors: Anirudh Mehta


Key Words: Explores the momentum effect and finds weak form efficiency and finds there is a weak momentum effect.

Title: Indexers and Co-Movement

Authors: Vincent Gregoire


Key Words: Suggests a large part of the increase in co-movement in stocks was due to the introduction of indexation since 1970s

Title: Analysing the Effects of Tactical Overlays on Equal-Weighted and (Min CVAR) Equal Risk-Weighted Portfolios

Authors: Sathish Umapathy


Key Words: Finds overlays can enhance strategic portfolios if you can identify the right one to use in each regime

Title: Are Stock Markets Really so Inefficient? The Case of the 'Halloween Indicator'

Authors: Hubert Dichtl, Wolfgang Drobetz


Key Words: Tests the seasonality effect and finds that it has weakened recently

Title: Are Investors’ Corporate Site Visits Informative?

Authors: Qiang Cheng, Fei Du, Xin Wang, Yutao Wang


Key Words: Finds significant price reaction around corporate visits, especially for firms in poor information environments and positively associated with future earnings news.










30 August 2013 13

Title: Indexing, Transformed: Using Data Transformations to Create Multi-Beta Indexes

Authors: Ian Lucas, Christopher Mendoza


Key Words: Suggests a multi-beta portfolio is superior to a portfolio of several pure style indices

Title: Market Reaction to Earnings News: A Unified Test of Information Risk and Transaction Costs

Authors: Qi Zhang, Charlie X. Cai, Kevin Keasey


Key Words: Finds strong earnings news reaction with high information risk stocks.

Title: Culture and R2

Authors: Cheol S. Eun, Lingling Wang, Steven Chong Xiao


Key Words: Finds stocks co-move more (less) in more collectivistic (individualistic) countries.

Title: Investor Overreaction to Analyst Reference Points

Authors: Jean-Sebastien Michel


Key Words: Finds investors over-react to analysts’ forecasts which are exactly at the maximum or minimum of guidance range.

Title: Did Behavioral Mutual Funds Exploit Market Inefficiencies During or after the Financial Crisis?

Authors: Nikolaos Philippas


Key Words: Finds behavioural funds underperformed during the financial crisis from 2007-2013 and were unable to take advantage of market inefficiencies and behavioural biases.

Title: Do Behavioral Biases Affect Order Aggressiveness?

Authors: Jiangze Bian, Kalok Chan, Donghui Shi, Hao Zhou


Key Words: Finds evidence of the disposition effect in the aggressiveness of traders on the Shanghai stock exchange. Prior investment outcome impacts risk taking behavior of investors.

Title: Investor Sentiment Aligned: A Powerful Predictor of Stock Returns

Authors: Dashan Huang, Fuwei Jiang, Jun Tu, Guofu Zhou


Key Words: Improves on the Baker and Wurgler (2006) measure of investor sentiment by reducing the noise components.

Title: Individual Investors' Trading Motives and Security Selling Behavior

Authors: Joachim Weber, Benjamin Loos, Steffen Meyer, Andreas Hackethal


Key Words: Finds liquidity based sales exhibit more behavioural biases than speculative trades.










30 August 2013 14

Title: Is it Better to Be Optimistic? -- Financial Optimism and Well-Being

Authors: Jiayi Balasuriya, Yaz Gulnur Muradoglu, Peter Ayton


Key Words: Finds that being optimistic doesn’t significantly improve financial prospects, and tends to be negatively correlated with current wealth. Optimism may be delusional and not related to future prospects.

Title: Identifying Skilled Mutual Fund Managers by Their Ability to Forecast Earnings

Authors: Hao Jiang and Lu Zheng

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2309025

Key Words: Authors review the ability of fund managers to forecast earnings and use this as a benchmark for evaluating skillful fund managers. They observe that this signal does a good job in evaluating fund managers.

Title: Trading Volume and Time Varying Betas

Authors: Christopher Hrdlicka


Key Words: The paper evaluates link between trading volume and market betas and finds that volume and changes in betas are positively correlated.

Title: Management Forecast Quality and Capital Investment Decisions

Authors: T Goodman, M Neamtiu, N Shroff and H White


Key Words: Authors show that managers with higher quality external earnings forecasts make better investment decisions and this information can be used to infer the quality of capital budgeting decisions within the firms.

Title: A Survey of Low Volatility Strategies

Authors: Tzee-man Chow, Jason Hsu, Li-Lan Kuo and Feifei Li


Key Words: Authors review the performance of low volatility strategies and highlight implementation challenges which if ignored can lead to lower returns.

Title: The Probability of Back-Test Over-Fitting

Authors: Marcos Lopez de Prado


Key Words: Authors review the challenges of using back-testing methodology to justify investments in trading signals

Title: The Long-Term Effects of Hedge Fund Activism

Authors: L Bebcuk, A Brav and W Jiang


Key Words: Authors using long-run data show that shareholder activism leads to longer-term improvements in firms’ operating performance and returns.


http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2309025







30 August 2013 15

Title: Following the Rules? Corporate Tax Reporting by CEOs with Military Experience

Authors: Kelvin Law and Lillian Mills


Key Words: Authors find that CEOs with military experience pay higher cash and GAAP tax rates, less likely to be sued, restate financial statement and engage in earnings management.

Title: Do Fraudulent Firms Engage in Disclosure Herding?

Authors: Gerard Hoberg and Craig Lewis


Key Words: Authors using text analysis find firms use complexity to potentially conceal fraudulent activity, and these firms often discuss issues relating to uncertainty, litigation, and speculative statements.

Title: The Value of Soft Information in Credit Rating Reports

Authors: Sumit Agarwal, Vincent Chen and Weina Zhang


Key Words: Authors using text analysis find that positive tone is related to positive abnormal returns during downgrade s and tone also provides default-related information.

Title: Earnings Targets and Annual Bonus Incentives

Authors: R Indjejikian, M Matejka, K Merchant and Wim Van der Stede


Key Words: Authors observe that companies review past information when setting earnings targets in bonus plans and revise if they’re not being met.

Title: Individual Investors and Financial Disclosure

Authors: A Lawrence


Key Words: Authors observe that individual investors invest more in firms with clear and concise disclosures as it reduces relative information disadvantage.

Title: Investor Attention, Visual Price Pattern and Momentum Investing

Authors: Li-Wen Chen and Hsin-Yi Yu


Key Words: Authors observe that stocks with discernible visual patterns of past prices are more likely to grab investor attention leading to stronger momentum profits.

Title: An Algorithm for Computing Risk Parity Weights

Authors: Florin Spinu


Key Words: Authors discuss an algorithm to compute risk parity weights.









30 August 2013 16

Title: The Effects of Headquarters Co-Location on Firms’ Information Environment

Authors: J Jennings, J Lee, D Matsumoto


Key Words: Authors that the co-location of firms in the same industry not only affects operating decisions but also management’s communication with investors and financial analysts.

Title: Board Committee Monitoring and CEO Pay: Some New Evidence

Authors: Shams Pathan, Peh Hwa Wong and Stephen Gray


Key Words: Authors investigate how and to what extent the monitoring capabilities of the three principal board committees (audit, compensation and nomination) relate to CEO pay (i.e., total pay, mix and incentives) and note that the effect of board committee monitoring intensity on CEO pay is both statistically and economically significant.




30 August 2013 17

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada

Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be

expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 30 June 2013

AU/NZ Asia RSA USA CA EUR Outperform 49.80% 57.68% 48.05% 41.13% 61.75% 47.10% (for US coverage by MCUSA, 8.12% of stocks followed are investment banking clients)

Neutral 39.85% 24.45% 42.86% 54.70% 34.42% 30.89% (for US coverage by MCUSA, 6.60% of stocks followed are investment banking clients)

Underperform 10.35% 17.87% 9.09% 4.17% 3.83% 22.01% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)

Company Specific Disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

Analyst Certification: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94 122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General Disclaimers: Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Securities Ltd and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd; Macquarie Securities (NZ) Ltd; Macquarie First South Securities (Pty) Limited; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities (Malaysia) Sdn Bhd; Macquarie Securities Korea Limited and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia), and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL) or MGL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any of the above mentioned entities. MGL provides a guarantee to the Monetary Authority of Singapore in respect of the obligations and liabilities of Macquarie Capital Securities (Singapore) Pte Ltd for up to SGD 35 million. This research has been prepared for the general use of the wholesale clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. 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Recommendations contained in one type of research product may differ from recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Before making an investment decision on the basis of this research, you need to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of your particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Clients should contact analysts at, and execute transactions through, a Macquarie Group entity in their home jurisdiction unless governing law permits otherwise. The date and timestamp for above share price and market cap is the closed price of the price date. #CLOSE is the final price at which the security is traded in the relevant exchange on the date indicated. Country-Specific Disclaimers: Australia: In Australia, research is issued and distributed by Macquarie Securities (Australia) Ltd (AFSL No. 238947), a participating organisation of the Australian Securities Exchange. New Zealand: In New Zealand, research is issued and distributed by Macquarie Securities (NZ) Ltd, a NZX Firm. Canada: In Canada, research is prepared, approved and distributed by Macquarie Capital Markets Canada Ltd, a participating organisation of the Toronto Stock Exchange, TSX Venture Exchange & Montréal Exchange. Macquarie Capital Markets North America Ltd., which is a registered broker-dealer and member of FINRA, accepts responsibility for the contents of reports issued by Macquarie Capital Markets Canada Ltd in the United States and sent to US persons. Any person wishing to effect transactions in the securities described in the reports issued by Macquarie Capital Markets Canada Ltd should do so with Macquarie Capital Markets North America Ltd. The Research Distribution Policy of Macquarie Capital Markets Canada Ltd is to allow all clients that are entitled to have equal access to our research. United Kingdom: In the United Kingdom, research is issued and


30 August 2013 18

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Asia Research Head of Equity Research John O’Connell (Global – Head) (612) 8232 7544 Peter Redhead (Asia – Head) (852) 3922 4836

Automobiles/Auto Parts Janet Lewis (China) (852) 3922 5417 Amit Mishra (India) (9122) 6720 4084 Clive Wiggins (Japan) (813) 3512 7856 Michael Sohn (Korea) (82 2) 3705 8644

Banks and Non-Bank Financials Ismael Pili (Asia, Hong Kong, China) (852) 3922 4774 Suresh Ganapathy (India) (9122) 6720 4078 Nicolaos Oentung (Indonesia) (6221) 2598 8366 Alastair Macdonald (Japan) (813) 3512 7476 Chan Hwang (Korea) (822) 3705 8643 Matthew Smith (Malaysia, Singapore) (65) 6601 0981 Alex Pomento (Philippines) (632) 857 0899 Gilbert Lopez (Philippines) (632) 857 0892 Dexter Hsu (Taiwan) (8862) 2734 7530 Passakorn Linmaneechote (Thailand) (662) 694 7728

Conglomerates Alex Pomento (Philippines) (632) 857 0899 Gilbert Lopez (Philippines) (632) 857 0892 Somesh Agarwal (Singapore) (65) 6601 0840

Consumer and Gaming Gary Pinge (Asia) (852) 3922 3557 Linda Huang (China, Hong Kong) (852) 3922 4068 Amit Mishra (India) (9122) 6720 4084 Lyall Taylor (Indonesia) (6221) 2598 8489 Toby Williams (Japan) (813) 3512 7392 HongSuk Na (Korea) (822) 3705 8678 Alex Pomento (Philippines) (632) 857 0899 Somesh Agarwal (Singapore) (65) 6601 0840 Best Waiyanont (Thailand) (662) 694 7993

Emerging Leaders Jake Lynch (China, Asia) (8621) 2412 9007 Adam Worthington (ASEAN) (852) 3922 4626 Michael Newman (Japan) (813) 3512 7920

Industrials Janet Lewis (Asia) (852) 3922 5417 Patrick Dai (China) (8621) 2412 9082 Saiyi He (China) (852) 3922 3585 Inderjeetsingh Bhatia (India) (9122) 6720 4087 Andy Lesmana (Indonesia) (6221) 2598 8398 Kenjin Hotta (Japan) (813) 3512 7871 Juwon Lee (Korea) (822) 3705 8661 Sunaina Dhanuka (Malaysia) (603) 2059 8993 David Gambrill (Thailand) (662) 694 7753

Insurance Scott Russell (Asia, Japan) (852) 3922 3567 Chung Jun Yun (Korea) (822) 2095 7222

Software and Internet David Gibson (Asia) (813) 3512 7880 Jiong Shao (China, Hong Kong) (852) 3922 3566 Steve Zhang (China, Hong Kong) (852) 3922 3578 Nitin Mohta (India) (9122) 6720 4090 Nathan Ramler (Japan) (813) 3512 7875 Prem Jearajasingam (Malaysia) (603) 2059 8989

Oil, Gas and Petrochemicals James Hubbard (Asia) (852) 3922 1226 Aditya Suresh (Hong Kong, China) (852) 3922 1265 Jal Irani (India) (9122) 6720 4080 Polina Diyachkina (Japan) (813) 3512 7886 Brandon Lee (Korea) (822) 3705 8669 Sunaina Dhanuka (Malaysia) (603) 2059 8993 Trevor Buchinski (Thailand) (662) 694 7829

Pharmaceuticals and Healthcare Abhishek Singhal (India) (9122) 6720 4086

Property Callum Bramah (Asia) (852) 3922 4731 David Ng (China, Hong Kong) (852) 3922 1291 Jeffrey Gao (China) (8621) 2412 9026 Abhishek Bhandari (India) (9122) 6720 4088 Andy Lesmana (Indonesia) (6221) 2598 8398 Sunaina Dhanuka (Malaysia) (603) 2059 8993 RJ Aguirre (Philippines) (632) 857 0890 Tuck Yin Soong (Singapore) (65) 6601 0838 Corinne Jian (Taiwan) (8862) 2734 7522 David Liao (Taiwan) (8862) 2734 7518 Patti Tomaitrichitr (Thailand) (662) 694 7727

Resources / Metals and Mining Graeme Train (China) (8621) 2412 9035 Matty Zhao (Hong Kong) (852) 3922 1293 Rakesh Arora (India) (9122) 6720 4093 Adam Worthington (Indonesia) (852) 3922 4626 Riaz Hyder (Indonesia) (6221) 2598 8486 Polina Diyachkina (Japan) (813) 3512 7886 David Liao (Taiwan) (8862) 2734 7518 Chak Reungsinpinya (Thailand) (662) 694 7982 Andrew Dale (852) 3922 3587

Technology Jeffrey Su (Asia, Taiwan) (8862) 2734 7512 Steve Zhang (China, Hong Kong) (852) 3922 3578 Nitin Mohta (India) (9122) 6720 4090 Claudio Aritomi (Japan) (813) 3512 7858 Damian Thong (Japan) (813) 3512 7877 David Gibson (Japan) (813) 3512 7880 George Chang (Japan) (813) 3512 7854 Daniel Kim (Korea) (822) 3705 8641 Soyun Shin (Korea) (822) 3705 8659 Daniel Chang (Taiwan) (8862) 2734 7516 Ellen Tseng (Taiwan) (8862) 2734 7524 Tammy Lai (Taiwan) (8862) 2734 7525

Telecoms Nathan Ramler (Asia, Japan) (813) 3512 7875 Danny Chu (China, Hong Kong) (852) 3922 4762 Riaz Hyder (Indonesia) (6221) 2598 8486 Prem Jearajasingam (Malaysia, Singapore) (603) 2059 8989 Aaron Salvador (Philippines) (632) 857 0895 Joseph Quinn (Taiwan) (8862) 2734 7519

Transport & Infrastructure Janet Lewis (Asia, Japan) (852) 3922 5417 Bonnie Chan (Hong Kong) (852) 3922 3898 Nicholas Cunningham (Japan) (813) 3512 6044 Sunaina Dhanuka (Malaysia) (603) 2059 8993 Corinne Jian (Taiwan) (8862) 2734 7522

Utilities & Renewables Gary Chiu (Asia) (852) 3922 1435 Inderjeetsingh Bhatia (India) (9122) 6720 4087 Prem Jearajasingam (Malaysia) (603) 2059 8989 Aaron Salvador (Philippines) (632) 857 0895

Commodities Colin Hamilton (Global) (4420) 3037 4061 Jim Lennon (4420) 3037 4271 Duncan Hobbs (4420) 3037 4497 Graeme Train (8621) 2412 9035 Rakesh Arora (9122) 6720 4093

Economics Peter Eadon-Clarke (Asia, Japan) (813) 3512 7850 Aimee Kaye (ASEAN) (65) 6601 0574 Richard Gibbs (Australia) (612) 8232 3935 Tanvee Gupta (India) (9122) 6720 4355

Quantitative / CPG Gurvinder Brar (Global) (4420) 3037 4036 Josh Holcroft (Asia). (852) 3922 1279 Burke Lau (Asia) (852) 3922 5494 Simon Rigney (Asia, Japan) (852) 3922 4719 Eric Yeung (Asia) (852) 3922 4077 Suni Kim (Japan) (813) 3512 7569

Strategy/Country Viktor Shvets (Asia) (852) 3922 3883 Chetan Seth (Asia) (852) 3922 4769 Joshua van Lin (Asia Micro) (852) 3922 1425 Peter Eadon-Clarke (Japan) (813) 3512 7850 David Ng (China, Hong Kong) (852) 3922 1291 Jiong Shao (China) (852) 3922 3566 Rakesh Arora (India) (9122) 6720 4093 Nicolaos Oentung (Indonesia) (6121) 2598 8366 Chan Hwang (Korea) (822) 3705 8643 Yeonzon Yeow (Malaysia) (603) 2059 8982 Alex Pomento (Philippines) (632) 857 0899 Conrad Werner (Singapore) (65) 6601 0182 Daniel Chang (Taiwan) (8862) 2734 7516 David Gambrill (Thailand) (662) 694 7753 Find our research at Macquarie: www.macquarie.com.au/research Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com Email [email protected] for access

Asia Sales Regional Heads of Sales Robin Black (Asia) (852) 3922 2074 Chris Gray (ASEAN) (65) 6601 0288 Peter Slater (Boston) (1 617) 598 2502 Jeffrey Shiu (China & Hong Kong) (852) 3922 2061 Thomas Renz (Geneva) (41) 22 818 7712 Bharat Rawla (India) (9122) 6720 4100 Chris Gould (Indonesia) (6221) 515 1555 Miki Edelman (Japan) (813) 3512 7857 John Jay Lee (Korea) (822) 3705 9988 Ruben Boopalan (Malaysia) (603) 2059 8888 Gino C Rojas (Philippines) (632) 857 0861 Eric Roles (New York) (1 212) 231 2559 Paul Colaco (New York) (1 212) 231 2496

Regional Heads of Sales cont’d Sheila Schroeder (San Francisco) (1 415) 762 5001 Erica Wang (Taiwan) (8862) 2734 7586 Angus Kent (Thailand) (662) 694 7601 Julien Roux (UK/Europe) (44) 20 3037 4867 Sean Alexander (Generalist) (852) 3922 2101

Regional Head of Distribution Justin Crawford (Asia) (852) 3922 2065

Sales Trading Adam Zaki (Asia) (852) 3922 2002 Phil Sellaroli (Japan) (813) 3512 7837 Kenneth Cheung (Singapore) (65) 6601 0288

Sales Trading cont’d Mike Keen (UK/Europe) (44) 20 3037 4905 Chris Reale (New York) (1 212) 231 2555 Marc Rosa (New York) (1 212) 231 2555 Stanley Dunda (Indonesia) (6221) 515 1555 Suhaida Samsudin (Malaysia) (603) 2059 8888 Michael Santos (Philippines) (632) 857 0813 Isaac Huang (Taiwan) (8862) 2734 7582 Dominic Shore (Thailand) (662) 694 7707

Quantitative Analysis 300813 e 158645

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