Investment-related anomalies in Australia: Evidence and explanations

Cao, Viet Nga; Gray, Philip; Zhong, Angel

doi:10.1016/j.irfa.2018.10.007

Cited by 18 publications

(7 citation statements)

References 58 publications

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“…The mean values of both MOM and REV are positive, which are 0.0014 and 0.0100 respectively and are consistent with the existing literature(Zhong and Gray, 2016). The mean of IVOL is 0.0342, which is lower than the IVOL in the Australian stock market reported byCao et al (2018). The average MAX of Australian stocks is 0.0766 per month, which is lower than Zhong and Gray's (2016) result of 0.1182.…”

supporting

confidence: 87%

Investor sentiment and the economic policy uncertainty premium

Nartea

Bai

2020

Pacific-Basin Finance Journal

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Motivated by recent studies documenting an equity premium associated with economic policy uncertainty (EPU), we test the hypothesis that the EPU premium is stronger (weaker) following periods of low (high) investor sentiment. We estimate stock sensitivity to an economic policy uncertainty (EPU) index and show that stocks in the Australian equities market in the highest uncertainty beta tertile underperform stocks in the lowest tertile, similar to US stocks. However, we find that this negative uncertainty premium remains significant only following periods of low investor sentiment as it disappears following periods of high sentiment. Our results complement the US evidence in that uncertainty averse investors are willing to pay high prices for stocks with positive uncertainty beta and require extra compensation to hold stocks with negative beta, but only in low sentiment periods. These results are consistent with strong (weak) intertemporal hedging demand for positive EPU beta stocks in low (high) sentiment periods. It is also consistent with limited (full) participation of pessimistic investors and investors with high aversion to uncertainty in low (high) sentiment periods. Our results suggest that betting against EPU as a trading strategy would be relatively more profitable when executed during low sentiment periods.

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supporting

confidence: 87%

Investor sentiment and the economic policy uncertainty premium

Nartea

Bai

2020

Pacific-Basin Finance Journal

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“…Elliot et al (2018) show the presence of the asset growth anomaly across small-cap and large-cap stocks. Cao et al (2018) document the presence of five asset related anomalies in the Australian market.…”

Section: Literature Reviewmentioning

confidence: 99%

Equity market anomalies in major European economies

Pandey¹,

Sehgal

Mohapatra³

et al. 2021

Investment Management and Financial Innovations

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This paper investigates five leading equity market anomalies – size, value, momentum, profitability, and asset growth, for four Western European markets, namely, Germany, France, Italy and Spain, from January 2002 to March 2018. The study tests whether these anomalies reverse under different macro-economic uncertainty conditions, and evaluates if strategies based on time diversification can be formed using these equity market anomalies. Market anomalies were tested using four major asset pricing models – the Capital Asset Pricing Model, the Fama-French three-factor model, the Carhart model, and the Fama-French five-factor model. Macro-economic uncertainty was tested using two proxies, namely VIX and default premiums. Time diversified strategies were examined by estimating Sharpe ratios of combined portfolios formed by combining winner univariate portfolios. Value effect in Germany, Size effect in France and Profitability effect in Italy and Spain provide the highest unadjusted returns on long side strategies. No significant reversal of these anomalies was found under different macroeconomic uncertainties. Asset pricing tests show that CAPM works well for Spain and Italy, while Carhart’s model explains returns in Germany. The Fama-French five factor model does not seem to be a good descriptor of asset pricing for data. No suitable model for explaining asset returns is identified for France. Finally, it is observed that some of the equity market anomalies seem to be countercyclical and therefore provide time diversification opportunities. The study has implications for academicians, investors, and policy makers by providing insights for developing profitable investment strategies and highlighting the efficacy of alternative models as performance benchmarks.

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“…2 To be included in the study, stocks must have institutional ownership data for at least 12 consecutive months prior to portfolio formation. Consistent with prior Australian studies using daily stock return data, stocks must also have 65 valid trading days over the previous 252 trading days at the end of each month to be eligible for inclusion (Zhong, 2018;Cao et al, 2019).…”

Section: Data and Key Variablesmentioning

confidence: 99%

“…There is a respectable body of literature that documents the existence of wellknown stock market anomalies in the Australian equity market, such as the size, book-to-market (BM), profitability, asset growth and momentum (Demir et al, 2004;Gharghori et al, 2009;Dou et al, 2013;Gray, 2014;Cao et al, 2019). However, it is unclear whether institutional investors act as rational arbitrageurs to exploit mispricing opportunities that arise from welldocumented stock market anomalies.…”

Section: Introductionmentioning

confidence: 99%

Institutional trading in stock market anomalies in Australia

Zhong

2021

Accounting & Finance

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This study examines the role played by institutional investors in Australia. With a unique database that provides comprehensive coverage of institutional ownership, this study is the first to examine the overall performance of all institutions in the Australian equity market. Institutional investors do not outperform the market. Examining their trading activities in greater detail, we find that institutional investors do not exploit well-known stock market anomalies, with the exception of momentum. Institutional investors are also found to sell loser stocks heavily at the end of the financial year, thus contributing to a strong quarter-end momentum effect.

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Investment-related anomalies in Australia: Evidence and explanations

Cited by 18 publications

References 58 publications

Investor sentiment and the economic policy uncertainty premium

Investor sentiment and the economic policy uncertainty premium

Equity market anomalies in major European economies

Institutional trading in stock market anomalies in Australia

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