Applied Finance Letters (E-Journal - Auckland Centre for Financial Research)
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FUTURES PRICES LINKAGES IN THE US SOYBEAN COMPLEX
Full text linkThis work investigates the linkages among the futures prices of soybeans, soybean meal, and soybean oil in the US. This has been pursued using a flexible methodology that allows modelling price relationships at different parts of their joint distribution. According to the empirical results, the markets are strongly connected in the vertical direction regardless of the sign and the size of shocks. The meal and oil prices maintain a negative relationship at the median and the upper quantiles but they are not connected under large negative shocks. The soybean market is a net transmitter of price risk to the other two markets while price shocks around the median tend to be transmitted with higher intensity relative to those at the extremes
MEASURING THE EFFICIENCY OF INDEX FUNDS: EVIDENCE FROM INDIA
Full text linkThe purpose of this study is to analyse the technical efficiency of Index funds using data envelopment analysis (DEA) and to assess the reasons of inefficiency. Based on secondary data collected from the annual reports of the Association of Mutual Funds in India, this study examined the efficiency performance of the top Index funds available to Indian investors from the year 2018 to 2022 using radial measurers (BCC) of data envelopment analysis. The results show that the average efficiency of Index funds was 83.04 percent during the study period, and the average efficiency of index funds was almost stable during the study period. Only 10 percent of the index funds operated efficiently during the study period. The least amount of slack was found in the input "expense ratio". This reiterates that investment risk is the cause of the funds' inefficiency and not the associated expenses. This study is first of its kind that has assessed the of Indian index funds and therefore holds important insights for regulators, policy makers and practitioners
ARE FACTOR INVESTING STRATEGIES SUCCESSFUL OUT-OF-SAMPLE: EVIDENCE FROM THE NIFTY INDICES
Full text linkDo factor investment strategies that have generated superior returns in the past continue to do so out-of-sample? To test this hypothesis, I check the performance of nine factor-based indices of the National Stock Exchange (NSE) of India. My results show that the performance of most indices falls considerably in the out-of-sample period, i.e. the period after the launch of an index. The results hold for absolute as well as excess and risk-adjusted returns. In additional tests, I find that none of the factor strategies generates significant alpha after controlling for standard factors such as size, value, and momentum
PROFESSOR ROBERT I. WEBB’S CONTRIBUTIONS TO THE FIELD OF DERIVATIVES
Full text linkIt is a great pleasure to publish this special issue dedicated to Professor Robert I. Webb for his outstanding contributions to academia. Professor Web, the Paul Tudor Jones II Research Professor at the McIntire School of Commerce at the University of Virginia in Charlottesville was the Editor-in-Chief of the Journal of Futures Markets for 24 years, from 1997 to 2021. Through his efforts as an Editor, he has shaped and influenced derivatives research around the globe, lifting standards, indicating research directions, and engaging with derivative communities worldwide. To recognize the contributions of Prof. Webb, we have solicited papers from various editorial board members of the Journal of Futures Markets that make up this special issue
COST OF EQUITY CAPITAL AND UNDERSTATED PENSION LIABILITIES
Full text linkPension discount rates have a powerful effect on the size of reported defined benefit corporate pension liabilities because of the long-term nature of projected benefit obligations. Firms often choose pension discount rates that are above the guideline long-term Treasury, AAA-grade, and AA-grade corporate bond yields. We assess the sizes of understated pension liabilities relative to these benchmark interest rates and relate them to individual firms’ implied cost of equity. We find that firms with large understated pension liabilities have a higher implied cost of equity after taking into account standard control variables and other pension information such as funded status and mandatory contributions
THE IMPACT OF OIL PRICE UNCERTAINTY ON US STOCK RETURNS
No full textOil price uncertainty has a negative and significant impact on stock returns during the period of 2003–2020 but not the earlier period of 1984–2002. The impact of stock price uncertainty on oil returns for both periods is not significant. Oil price uncertainty is important in examining stock price movement, particularly during years of financial crises. Cross-market causalities in returns and volatilities are not significant in both directions
REFLECTIONS ON EDITING THE JOURNAL OF FUTURES MARKETS AND FACTORS INFLUENCING DERIVATIVES MARKETS RESEARCH
Full text linkThe Journal of Futures Markets is the leading academic journal specializing in publishing scholarly research on derivative securities and markets. I had the privilege of serving as Editor of the Journal of Futures Markets for 24 years. That position provided me with a catbird seat with which to view the evolution of the financial-economic literature on derivative securities and markets. It also provided me with an opportunity to reflect on how changes in derivative securities and markets, have influenced research. These include the influence of technological advances; changes in market microstructure; financial crises; the growth of derivatives markets in emerging economies; the introduction of credit default swaps, VIX derivatives, cryptocurrency derivatives; and other new products; among others. Although my reflections on the impact of market events on derivatives research is the principal focus of this paper, I want to preface that discussion with some comments on the editing process and the influence of my education, research, and experience on my role as an Editor
RESILIENCE TO CRUDE OIL: AUSTRALIAN EVIDENCE ON LITIGATION FUNDING
Full text linkUsing daily data from January 2011 to November 2020, this study examines the return shocks between crude oil and litigation funding in Australia. Based on Diebold and Yilmaz’s (2012) return spillover effects, we find evidence that litigation funding and the crude oil market share a lower degree of return shocks connectedness, relative to the overall stock market. Further, the oil price crashes (including the COVID-19-induced oil price crash) are also weakly correlated to the return shocks connectedness between litigation funding and the crude oil market. Our findings suggest that litigation funding is mainly immune from economic disruptions. These findings are of interest to policymakers, market participants, and crude oil investors in comprehending the spillover effects of crude oil on other sectors of the economy. 
BOAREN: IMPROVING REGULARIZATION IN LINEAR REGRESSION WITH AN APPLICATION TO INDEX TRACKING
Full text linkIn this paper we introduce the Arbitrary Rectangle-range Elastic Net (AREN): an elastic net with coefficients restricted to some rectangle in , . The AREN method is one of many regularization techniques intended to increase prediction accuracy in linear regression models by shrinking the magnitude (and possibly eliminating some) of the regression coefficients in an effort to control over-fitting and under-fitting. In this work we describe the AREN features and discuss its statistical consistency properties in estimation and in selecting the correct set of predictors. We also introduce bootstrapping as a way to improve the “small-sample” performance of AREN in selecting predictors. We then apply the AREN (with and without bootstrapping) to tracking the value of the S&P 500 index using a reduced set of stocks
ASYMMETRIC PRICING AND AIRLINE PERFORMANCE
Full text linkWe study the relation of asymmetric pricing with operating performance and stock returns of U.S. airlines. We construct two proxies to measure the degree of asymmetric pricing: Degree of Asymmetry (DOA) and Peer-adjusted DOA, and then simultaneously test how the direction and magnitude of asymmetric pricing affect airline performance. We find that raising air ticket price, regardless of whether the fuel cost is increasing or decreasing, is associated with significantly higher sales growth and stock returns than reducing price in the same scenario. However, raising price above industry peers is two-edged: it may increase profit margin, but at the cost of a slowdown in sales growth