Portfolio diversification and filter rule profits

Previously, it has been shown that the profits from a simple market timing trading rule applied to a portfolio of shares can be affected by the inter-relationships between the returns of the component securities. In this short letter, the results from applying a more sophisticated 'filter' rule to the same data are reported. Unlike the simple trading rule, the filter rule does produce some evidence of economic profits.

Ownership structure and operating performance: evidence from the European maritime industry

In this paper we examine the relation between ownership structure and operating performance for European maritime firms. Using a sample of 266 firm-year observations, during the period 2002–2004, we provide evidence that operating performance is positively related with foreign held shares and investment corporation held shares, indicating better investor protection from managerial opportunism. We also find no relation between operating performance and employee held shares, suggesting no relation between employee commitment and firms’ economic performance. Furthermore, we find no relation between operating performance and government held shares, indicating that government may not adequately protect shareholders’ interests from managerial opportunism. Finally, we do find a positive relation between operating performance and portfolio held shares for code law maritime firms but not for common law maritime firms. Results are robust after adjusting for various firm and country risk characteristics. Overall, our results on the importance of the ownership structure are new to this setting and add to a large body of evidence linking ownership characteristics to corporate performance.

The impact of portfolio diversification on trading rule profits:some evidence for UK share portfolios

This paper demonstrates how the autocorrelation structure of UK portfolio returns is linked to dynamic interrelationships among the component securities of that portfolio. Moreover, portfolio return autocorrelation is shown to be an increasing function of the number of securities in the portfolio. Since the security interrelationships seemed to be more a product of their history of non-synchronous trading than of systematic industry-related phenomena, it should not be possible to exploit the high levels of return persistence using trading rules. We show that rules designed to exploit this portfolio autocorrelation structure do not produce economic profits.

Liquidity and portfolio optimisation

This thesis presents research within empirical financial economics with focus on liquidity and portfolio optimisation in the stock market. The discussion on liquidity is focused on measurement issues, including TAQ data processing and measurement of systematic liquidity factors (FSO). Furthermore, a framework for treatment of the two topics in combination is provided. The liquidity part of the thesis gives a conceptual background to liquidity and discusses several different approaches to liquidity measurement. It contributes to liquidity measurement by providing detailed guidelines on the data processing needed for applying TAQ data to liquidity research. The main focus, however, is the derivation of systematic liquidity factors. The principal component approach to systematic liquidity measurement is refined by the introduction of moving and expanding estimation windows, allowing for time-varying liquidity co-variances between stocks. Under several liability specifications, this improves the ability to explain stock liquidity and returns, as compared to static window PCA and market average approximations of systematic liquidity. The highest ability to explain stock returns is obtained when using inventory cost as a liquidity measure and a moving window PCA as the systematic liquidity derivation technique. Systematic factors of this setting also have a strong ability in explaining a cross-sectional liquidity variation. Portfolio optimisation in the FSO framework is tested in two empirical studies. These contribute to the assessment of FSO by expanding the applicability to stock indexes and individual stocks, by considering a wide selection of utility function specifications, and by showing explicitly how the full-scale optimum can be identified using either grid search or the heuristic search algorithm of differential evolution. The studies show that relative to mean-variance portfolios, FSO performs well in these settings and that the computational expense can be mitigated dramatically by application of differential evolution.

Portfolio analysis

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Price discovery for Chinese shares cross-listed in multiple markets

In this article we study the relationship between security returns cross-listed on the A share market of China and the H share market at the Stock Exchange of Hong Kong (SEHK). Most of these securities are also cross-listed on other markets. An important feature of this article is that we focus on the multilateral relationships between all cross-listed markets rather than concentrating only on the bi-lateral relationship between A and Hong Kong H shares. Using the impulse response functions and the variance decompositions from a Vector Autoregressive (VAR) process we show that the returns to the A share market are almost exclusively determined by domestic factors. In contrast, we find that the H share market is influenced by both the A share market within China and foreign stock markets elsewhere in the world. Impulse response functions suggest that innovations to the A share market and the Hong Kong H share market are partly transmitted to each other and to stock markets outside China. We show that liquidity has an important role to play in determining the impact that the home market has on cross-listed variance decompositions. © 2012 Copyright Taylor and Francis Group, LLC.

Integrating skills profiling and purchasing portfolio management:an opportunity for building purchasing capability

Kralijc’s (1983) purchasing portfolio approach holds that different types of purchases need different sourcing strategies, underpinned by distinct sets of resources and practices. The approach is widely deployed in business and extensively researched, and yet little research has been conducted on how knowledge and skills vary across a portfolio of purchases. This study extends the body of knowledge on purchasing portfolio management, and its application in the strategic development of purchasing in an organization, and on human resource management in the purchasing function. A novel approach to profiling purchasing skills is proposed, which is well suited to dynamic environments which require flexibility. In a survey, experienced purchasing personnel described a specific purchase and profiled the skills required for effective performance in purchasing that item. Purchases were categorized according to their importance to the organization (internally-oriented evaluation of cost and production factors) and to the supply market (externally-oriented evaluation of commercial risk and uncertainty). Through cluster analysis three key types of purchase situations were identified. The skills required for effective purchasing vary significantly across the three clusters (for 22 skills, p<0.01). Prior research shows that global organizations use the purchasing portfolio approach to develop sourcing strategies, but also aggregate analyses to inform the design of purchasing arrangements (local vs global) and to develop their improvement plans. Such organizations would also benefit from profiling skills by purchase type. We demonstrate how the survey can be adapted to provide a management tool for global firms seeking to improve procurement capability, flexibility and performance.

Portfolio size, non-trading frequency and portfolio return autocorrelation

In this paper we re-examine the relationship between non-trading frequency and portfolio return autocorrelation. We show that in portfolios where security specific effects have not been completely diversified, portfolio autocorrelation will not increase monotonically with increasing non-trading, as indicated in Lo and MacKinlay (1990). We show that at high levels of non-trading, portfolio autocorrelation will become a decreasing function of non-trading probability and may take negative values. We find that heterogeneity among the means, variances and betas of the component securities in a portfolio can act to increase the induced autocorrelation, particularly in portfolios containing fewer stocks. Security specific effects remain even when the number of securities in the portfolio is far in excess of that considered necessary to diversify security risk. © 2014 Elsevier B.V.

Joining the dots:using structured e-portfolio assignments to enhance reflection

Although there has been an increased interest in the use of electronic portfolios in higher education over the last five years, relatively little is known about the potential of such tools to support the development of higher order abilities for students, such as reflection, in a structured way that is suitable for assessment. This paper reports the findings from a small-scale research which sets out to compare the outcomes of reflective assignments in two cohorts of participants in a Postgraduate Certificate in Professional Practice in Higher Education in the UK. Participants in the programme were asked to submit reflective accounts using an e-portfolio system as part of their formal assessment. One cohort completed the assessment using some generic guidelines of how to reflect and construct an e-portfolio page without a given template or structure, whereas another cohort was given a specific template with clear assessment criteria to gauge the assembly of their reflections. The authors, who are also tutors in the programme, analysed the submitted reflections following open coding procedures. The analysis found a tendency for the reflection in the first cohort to be merely descriptive without progressing to speculating objectively about answers to relevant analytical questions about the process involved in the ability under scrutiny. In contrast the assignments of cohort two were found to be more insightful in terms of assimilating random bits of materials, thoughts and self-questions into complete reflective accounts. These findings bring some evidence to support and indeed promote a more structured approach to reflective practice, which can be further enhanced through a carefully created e-portfolio template and associated assessment criteria.