A note on trader Sharpe Ratios

Traders in the financial world are assessed by the amount of money they make and, increasingly, by the amount of money they make per unit of risk taken, a measure known as the Sharpe Ratio. Little is known about the average Sharpe Ratio among traders, but the Efficient Market Hypothesis suggests that traders, like asset managers, should not outperform the broad market. Here we report the findings of a study conducted in the City of London which shows that a population of experienced traders attain Sharpe Ratios significantly higher than the broad market. To explain this anomaly we examine a surrogate marker of prenatal androgen exposure, the second-to-fourth finger length ratio (2D:4D), which has previously been identified as predicting a trader's long term profitability. We find that it predicts the amount of risk taken by traders but not their Sharpe Ratios. We do, however, find that the traders' Sharpe Ratios increase markedly with the number of years they have traded, a result suggesting that learning plays a role in increasing the returns of traders. Our findings present anomalous data for the Efficient Markets Hypothesis.

Genetic and gene expression analyses of the polycystic ovary syndrome candidate gene fibrillin-3 and other fibrillin family members in human ovaries

Several studies have demonstrated an association between polycystic ovary syndrome (PCOS) and the dinucleotide repeat microsatellite marker D19S884, which is located in intron 55 of the fibrillin-3 (FBN3) gene. Fibrillins, including FBN1 and 2, interact with latent transforming growth factor (TGF)-β-binding proteins (LTBP) and thereby control the bioactivity of TGFβs. TGFβs stimulate fibroblast replication and collagen production. The PCOS ovarian phenotype includes increased stromal collagen and expansion of the ovarian cortex, features feasibly influenced by abnormal fibrillin expression. To examine a possible role of fibrillins in PCOS, particularly FBN3, we undertook tagging and functional single nucleotide polymorphism (SNP) analysis (32 SNPs including 10 that generate non-synonymous amino acid changes) using DNA from 173 PCOS patients and 194 controls. No SNP showed a significant association with PCOS and alleles of most SNPs showed almost identical population frequencies between PCOS and control subjects. No significant differences were observed for microsatellite D19S884. In human PCO stroma/cortex (n = 4) and non-PCO ovarian stroma (n = 9), follicles (n = 3) and corpora lutea (n = 3) and in human ovarian cancer cell lines (KGN, SKOV-3, OVCAR-3, OVCAR-5), FBN1 mRNA levels were approximately 100 times greater than FBN2 and 200–1000-fold greater than FBN3. Expression of LTBP-1 mRNA was 3-fold greater than LTBP-2. We conclude that FBN3 appears to have little involvement in PCOS but cannot rule out that other markers in the region of chromosome 19p13.2 are associated with PCOS or that FBN3 expression occurs in other organs and that this may be influencing the PCOS phenotype.

Comparing different explanations of the volatility trend

We analyze the puzzling behavior of the volatility of individual stock returns over the past few decades. The literature has provided many different explanations to the trend in volatility and this paper tests the viability of the different explanations. Virtually all current theoretical arguments that are provided for the trend in the average level of volatility over time lend themselves to explanations about the difference in volatility levels between firms in the cross-section. We therefore focus separately on the cross-sectional and time-series explanatory power of the different proxies. We fail to find a proxy that is able to explain both dimensions well. In particular, we find that Cao et al. [Cao, C., Simin, T.T., Zhao, J., 2008. Can growth options explain the trend in idiosyncratic risk? Review of Financial Studies 21, 2599–2633] market-to-book ratio tracks average volatility levels well, but has no cross-sectional explanatory power. On the other hand, the low-price proxy suggested by Brandt et al. [Brandt, M.W., Brav, A., Graham, J.R., Kumar, A., 2010. The idiosyncratic volatility puzzle: time trend or speculative episodes. Review of Financial Studies 23, 863–899] has much cross-sectional explanatory power, but has virtually no time-series explanatory power. We also find that the different proxies do not explain the trend in volatility in the period prior to 1995 (R-squared of virtually zero), but explain rather well the trend in volatility at the turn of the Millennium (1995–2005).

A comparison of alternative bankruptcy prediction models

Early models of bankruptcy prediction employed financial ratios drawn from pre-bankruptcy financial statements and performed well both in-sample and out-of-sample. Since then there has been an ongoing effort in the literature to develop models with even greater predictive performance. A significant innovation in the literature was the introduction into bankruptcy prediction models of capital market data such as excess stock returns and stock return volatility, along with the application of the Black–Scholes–Merton option-pricing model. In this note, we test five key bankruptcy models from the literature using an upto- date data set and find that they each contain unique information regarding the probability of bankruptcy but that their performance varies over time. We build a new model comprising key variables from each of the five models and add a new variable that proxies for the degree of diversification within the firm. The degree of diversification is shown to be negatively associated with the risk of bankruptcy. This more general model outperforms the existing models in a variety of in-sample and out-of-sample tests.

Evaluating multivariate volatility forecasts : how effective are statistical and economic loss functions?

Multivariate volatility forecasts are an important input in many financial applications, in particular portfolio optimisation problems. Given the number of models available and the range of loss functions to discriminate between them, it is obvious that selecting the optimal forecasting model is challenging. The aim of this thesis is to thoroughly investigate how effective many commonly used statistical (MSE and QLIKE) and economic (portfolio variance and portfolio utility) loss functions are at discriminating between competing multivariate volatility forecasts. An analytical investigation of the loss functions is performed to determine whether they identify the correct forecast as the best forecast. This is followed by an extensive simulation study examines the ability of the loss functions to consistently rank forecasts, and their statistical power within tests of predictive ability. For the tests of predictive ability, the model confidence set (MCS) approach of Hansen, Lunde and Nason (2003, 2011) is employed. As well, an empirical study investigates whether simulation findings hold in a realistic setting. In light of these earlier studies, a major empirical study seeks to identify the set of superior multivariate volatility forecasting models from 43 models that use either daily squared returns or realised volatility to generate forecasts. This study also assesses how the choice of volatility proxy affects the ability of the statistical loss functions to discriminate between forecasts. Analysis of the loss functions shows that QLIKE, MSE and portfolio variance can discriminate between multivariate volatility forecasts, while portfolio utility cannot. An examination of the effective loss functions shows that they all can identify the correct forecast at a point in time, however, their ability to discriminate between competing forecasts does vary. That is, QLIKE is identified as the most effective loss function, followed by portfolio variance which is then followed by MSE. The major empirical analysis reports that the optimal set of multivariate volatility forecasting models includes forecasts generated from daily squared returns and realised volatility. Furthermore, it finds that the volatility proxy affects the statistical loss functions’ ability to discriminate between forecasts in tests of predictive ability. These findings deepen our understanding of how to choose between competing multivariate volatility forecasts.

Dynamic texture reconstruction from sparse codes for unusual event detection in crowded scenes

Unusual event detection in crowded scenes remains challenging because of the diversity of events and noise. In this paper, we present a novel approach for unusual event detection via sparse reconstruction of dynamic textures over an overcomplete basis set, with the dynamic texture described by local binary patterns from three orthogonal planes (LBPTOP). The overcomplete basis set is learnt from the training data where only the normal items observed. In the detection process, given a new observation, we compute the sparse coefficients using the Dantzig Selector algorithm which was proposed in the literature of compressed sensing. Then the reconstruction errors are computed, based on which we detect the abnormal items. Our application can be used to detect both local and global abnormal events. We evaluate our algorithm on UCSD Abnormality Datasets for local anomaly detection, which is shown to outperform current state-of-the-art approaches, and we also get promising results for rapid escape detection using the PETS2009 dataset.

Developing a conceptual framework of strategic entrepreneurship

Purpose: This paper aims to examine the integration of entrepreneurship and strategy to develop a conceptual framework of strategic entrepreneurship. The framework is developed through an analysis of theory and refined through an examination of practice. Design/methodology/approach: This framework is considered in the context of potentially entrepreneurial and strategic activity undertaken by 12 of the 17 state-owned enterprises (SOEs) operating in New Zealand in 2006-2007. Based on a review of documents, observation, and interviews with SOE executives, cases of 12 SOE activities were analysed to compare and contrast strategic entrepreneurship in practice. Findings: The findings reveal distinct elements within the four activities classified as strategic entrepreneurship, activities, such as leveraging from core skills and resources from a strategic perspective, and innovation from an entrepreneurial perspective. Originality/value: This study is one of the first to examine the nature of strategic entrepreneurship in practice and the associated financial returns.

The role of institutional rural property in diversified investment portfolios in NSW, Australia

The food and fuel crisis experienced in 2006 to 2008 has highlighted the importance of agricultural commodity production throughout developing and developed economies and has placed greater awareness and importance on rural property and rural property markets. These factors have led to an increased interest from major property investment institutions and property companies in the role of rural property in a mixed asset or mixed property investment portfolio. This paper will analyse rural property sales in New South Wales for the period 1990-2008, and will compare total return performance across a number of rural property sectors based on geographic location and land use type. These results show that the inclusion of rural property in an investment portfolio has benefits in relation to return and risk.

Tracking the Brisbane residential property market : Post GFC

Prior to the GFC, Brisbane and Perth were experiencing the highest increases in median residential house prices, compared to the other major Australian cities, due to strong demand for both owner occupied and investment residential property. In both these cities, a major driver of this demand and subsequent increases in residential property prices was the strong resources sector. With the onset of the GFC in 2008, the resources and construction sectors in Queensland contracted significantly and this had both direct and indirect impacts on the Brisbane residential property market. However, this impact was not consistent across Brisbane residential property sectors. The affect on houses and units differed, as did the impact based on geographic location and suburb value. This paper tracks Brisbane residential property sales listings, sales and returns over the period February 2009 to July 2010 and provides an analysis of the residential market for 24 Brisbane suburbs. These suburbs cover main residential areas of Brisbane and are based on an equal number of low, medium and high socioeconomic areas of Brisbane. This assessment of socio-economic status for the suburbs is based on both median household income and median house price. The analysis will cover both free standing residential property and residential units/townhouses/villas. The results will show how each of these residential property sub markets have performed following the GFC.

Aggravation of ADAMTS and MMP production and ERK1/2 pathway in the interaction of osteoarthritic subchondral bone osteoblasts and articular cartilage chondrocytes : a possible pathogenic role in osteoarthritis

Introduction: Degradative enzymes, such as A disintegrin and metalloproteinase with thrombospondin motifs (ADAMTS) and matrix metalloproteinases (MMPs), play key roles in osteoarthritis (OA) development. The aim of the present study was to investigate if cross-talk between subchondral bone osteoblasts (SBOs) and articular cartilage chondrocytes (ACCs) in OA alters the expression and regulation of ADAMTS5, ADAMTS4, MMP-1, MMP-2, MMP-3, MMP-8, MMP-9 and MMP-13, and also to test the possible involvement of mitogen activated protein kinase (MAPK) signaling pathway during this process. Methods: ACCs and SBOs were isolated from normal and OA patients. An in vitro co-culture model was developed to study the regulation of ADAMTS and MMPs under normal and OA joint cross-talk conditions. MAPK-ERK inhibitor, PD98059 was applied to delineate the involvement of specific pathway during this interaction process. Results: Indirect co-culture of OA SBOs with normal ACCs resulted in significantly increased expression of ADAMTS5, ADAMTS4, MMP-2, MMP-3 and MMP-9 in ACCs, whereas co-culture of OA ACCs led to increased MMP-1 and MMP-2 expression in normal SBOs. The upregulation of ADAMTS and MMPs under these conditions was correlated with activation of the MAPK-ERK1/2 signaling pathway and the addition of the MAPK-ERK inhibitor, PD98059, reversed the overexpression of ADAMTS and MMPs in co-cultures. Conclusion: In summary, we believe, these results add to the evidence that in human OA, altered bi-directional signals transmitted between SBOs and ACCs significantly impacts the critical features of both cartilage and bone by producing abnormal levels of ADAMTS and MMPs. Furthermore, we have demonstrated for the first time that this altered cross-talk was mediated by the phosphorylation of MAPK-ERK1/2 signaling pathway.

Automated recognition of drunk driving on highways from video sequences

A new method for the detection of abnormal vehicle trajectories is proposed. It couples optical flow extraction of vehicle velocities with a neural network classifier. Abnormal trajectories are indicative of drunk or sleepy drivers. A single feature of the vehicle, eg., a tail light, is isolated and the optical flow computed only around this feature rather than at each pixel in the image.

Corporate governance mechanisms and earnings management in transitional countries – evidence from Chinese listed firms

The objective of this thesis is to investigate whether the corporate governance practices adopted by Chinese listed firms are associated with the quality of earnings information. Based on a review of agency and institutional theory, this study develops hypotheses that predict the monitoring effectiveness of the board and the audit committee. Using a combination of univariate and multivariate analyses, the association between corporate governance mechanisms and earnings management are tested from 2004 to 2008. Through analysing the empirical results, a number of findings are summarised as below. First, board independence is weakened by the introduction of government officials as independent directors on the boards. Government officials acting as independent directors, claim that they meet the definition of independent director set by the regulation. However, they have some connection with the State, which is the controlling shareholder in listed SOEs affiliated companies. Consequently, the effect of the independent director’s expertise in constraining earnings management is mitigated as demonstrated by an insignificant association between board expertise and earnings management. An alternative explanation for the inefficiency of board independence may point to the pre-selection of independent directors by the powerful CEO. It is argued that a CEO can manipulate the board composition and choose the "desirable" independent directors to monitor themselves. Second, a number of internal mechanisms, such as board size, board activities, and the separation of the roles of the CEO and chair are found to be significantly associated with discretionary accruals. This result suggests that there are advantages in having a large and active board in the Chinese setting. This can offset the disadvantages associated with large boards, such as increased bureaucracy, and hence, increase the constraining effects of a large and resourceful board. Third, factor analysis identifies two factors: CEO power and board power. CEO power is the factor which consists of CEO duality and turnover, and board power is composed of board size and board activity. The results of CEO power show that if a Chinese listed company has CEO duality and turnover at the same time, it is more likely to have a high level of earnings management. The significant and negative relationship between board power and accruals indicate that large boards with frequent meetings can be associated with low level of earnings management. Overall, the factor analysis suggests that certain governance mechanisms complement each other to become more efficient monitors of opportunistic earnings management. A combination of board characteristics can increase the negative association with earnings management. Fourth, the insignificant results between audit committees and earnings management in Chinese listed firms suggests that the Chinese regulator should strengthen the audit committee functions. This thesis calls for listed firms to disclose more information on audit committee composition and activities, which can facilitate future research on the Chinese audit committee’s monitoring role. Fifth, the interactive results between State ownership and board characteristics show that dominant State ownership has a moderating effect on board monitoring power as the State totally controls 42% of the issued shares. The high percentage of State ownership makes it difficult for the non-controlling institutional shareholders to challenge the State’s dominant status. As a result, the association between non-controlling institutional ownership and earnings management is insignificant in most situations. Lastly, firms audited by the international Big4 have lower abnormal accruals than firms audited by domestic Chinese audit firms. In addition, the inverse U-shape relationship between audit tenure and earnings quality demonstrates the changing effects of audit quality after a certain period of appointment. Furthermore, this thesis finds that listing in Hong Kong Stock Exchanges can be an alternative governance mechanism to discipline Chinese firms to follow strict Hong Kong listing requirements. Management of Hong Kong listed companies are exposed to the scrutiny of international investors and Hong Kong regulators. This in turn reduces their chances of conducting self-interested earnings manipulation. This study is designed to fill the gap in governance literature in China that is related to earnings management. Previous research on corporate governance mechanisms and earnings management in China is not conclusive. The current research builds on previous literature and provides some meaningful implications for practitioners, regulators, academic, and international investors who have investment interests in a transitional country. The findings of this study contribute to corporate governance and earnings management literature in the context of the transitional economy of China. The use of alternative measures for earnings management yields similar results compared with the accruals models and produces additional findings.