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Article
Publication date: 31 May 2017

Bohyun Yoon, Kyoung-Woo Sohn and Won-Suk Liu

Recently, due to its passive property, the smart beta has become one of the most interest topics in searching the alpha. In this paper, we attempt to show whether the smart beta…

102

Abstract

Recently, due to its passive property, the smart beta has become one of the most interest topics in searching the alpha. In this paper, we attempt to show whether the smart beta strategy generate abnormal excess return, in tradition, which are known as the exclusive property of active fund. Further, we attempt to verify the key drivers of the alpha in the smart beta portfolios. For this purpose, we categorize various smart beta strategies by their scheme for asset picking and risk reduction. Then, based on our categorization, we evaluate and analyze the performance of smart beta strategy in perspective. Our empirical analyses show following results: applying alternative risk reduction scheme to traditional market index portfolio would results in enhanced efficiency; however, without combining any asset picking scheme, the performance of the smart beta portfolio seems explained by the Fama-French 3 factor. Our results lead us to conjecture that it is not the portfolio weighting scheme alone but in association with asset selection scheme that generate significant alpha in the smart beta strategy. In actual practice, our results imply that any passive fund may succeed in seeking the alpha without active strategy, thereby avoiding the risk of market timing and saving the management cost.

Details

Journal of Derivatives and Quantitative Studies, vol. 25 no. 2
Type: Research Article
ISSN: 2713-6647

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Available. Open Access. Open Access
Article
Publication date: 31 August 2017

Youngmin Choi and Bohyun Yoon

This paper focuses on the strategic application based on the empirical results of risk-return relationship against the classical concept. Empirical analysis from domestic data, we…

26

Abstract

This paper focuses on the strategic application based on the empirical results of risk-return relationship against the classical concept. Empirical analysis from domestic data, we verify that the traditional concept-‘high risk, high return’ relationship are maintained, however, we confirm the falling pattern in the highest total volatility group. Even though we implies double sorting method to control the well known systematic factor such as BM and size, we still confirm such abnormal risk-return relationship. Furthermore, we perform sub-period analysis before and after the liberalization of Korean capital market and we find such abnormal risk-return relationship is appeared after the liberalization. Based on our empirical results, we establish and verify the new benchmark that evenly allocate highest volatility portfolio to sub-volatility portfolio. Under the new benchmark, we confirm the expansion of the efficient frontier and the improvement of Sharpe ratio. We believe that our results provide an applicability research of smart beta strategy and new benchmark based on such strategy. We expect our research to be used as preliminary study to overcome the era of “new normal” and to reform the investment strategies correspond to segmentation of benchmark.

Details

Journal of Derivatives and Quantitative Studies, vol. 25 no. 3
Type: Research Article
ISSN: 2713-6647

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Available. Open Access. Open Access
Article
Publication date: 31 May 2014

Bohyun Yoon and Young-Min Choi

There have been several studies of alternative equity index strategies which suggest better investment opportunities with higher risk adjusted return pointing out empirical…

7

Abstract

There have been several studies of alternative equity index strategies which suggest better investment opportunities with higher risk adjusted return pointing out empirical evidence of inefficient risk-return trade-off implied in the market-cap weighted index. Commercial products based on these strategies, regarded as passive equity strategies, become more popular in the U.S. and European stock markets. We investigates whether these strategies are also valid in Korean stock market and our empirical results add support to their efficacy.

From Fama-French 3-factor analysis, we find that the excess return of alternative equity index is attributed to market, size and value factors and it does not show a significantly positive alpha. Even without positive alpha, however, these strategies are valuable to investors in the sense that they offer opportunities to fully exploit size and value premium with long-only portfolios. The advantage of these strategies is more straightforward recalling the fact that rebalancing of Fama-French factor portfolios involves short-sale and high turnover.

Details

Journal of Derivatives and Quantitative Studies, vol. 22 no. 2
Type: Research Article
ISSN: 2713-6647

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Publication date: 9 June 2020

Anna Melinda and Ratna Wardhani

With the increasing understanding of stakeholders on sustainability aspects for the business, companies are nowadays paying more attention to environmental and social issues. This…

Abstract

With the increasing understanding of stakeholders on sustainability aspects for the business, companies are nowadays paying more attention to environmental and social issues. This study aims to examine the relationship between Environmental, Social, Governance (ESG) Index and firms’ value. Moreover, this study also examines how the controversy score influences the company’s value. The authors employ a dataset of 1.356 companies from 22 countries in Asia which representing the Asian market from 2014 to 2018. This study shows that ESG index score and controversy score are statistically significant, affecting the firms’ value, measured by Tobin’s Q. From the individual tests, the findings of this study indicate that ESG-environmental, ESG-social, and ESG-governance, individually affect the firms’ value. This study suggests that providing disclosure on ESG aspects is essential, not only to increase company value but also to show the company resilience and sustainability. On the other hand, ESG controversy score surprisingly indicates a positive relationship with the company value. The result implies that controversies provide a positive signal to the investor because controversies could provide a signal to the public of companies’ willingness to have transparency and accountability.

Details

Advanced Issues in the Economics of Emerging Markets
Type: Book
ISBN: 978-1-78973-578-9

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