Manuel Lobato, Javier Rodríguez and Herminio Romero
This study examines the risk-adjusted performance of socially responsible exchange traded funds (SR ETFs) in comparison to conventional ETFs.
Abstract
Purpose
This study examines the risk-adjusted performance of socially responsible exchange traded funds (SR ETFs) in comparison to conventional ETFs.
Design/methodology/approach
The main empirical result is based on a risk-adjusted performance metric that does not rely on a linear framework. It measures the difference between the returns of an ETF and the returns of a volatility-match and efficient portfolio. In addition, performance is measured using alpha based on single and multifactor formulations.
Findings
Results show that the performance of SRI ETFs is not different from the performance of conventional ETFs.
Originality/value
Given the results of the study, socially aware investors can choose to invest in SRI ETFs without sacrificing performance.
Details
Keywords
Manuel Lobato, Javier Rodriguez and Herminio Romero
Patents and patent citations provide a solid signal to investors about a firm’s innovation agenda. This signal can be even more useful for investors demanding securities from…
Abstract
Purpose
Patents and patent citations provide a solid signal to investors about a firm’s innovation agenda. This signal can be even more useful for investors demanding securities from foreign firms, given the asymmetric information and adverse selection risk they face. This study aims to examine the patenting activities in the USA performed by non-US companies that trade as American Depositary Receipts (ADRs) in US stock markets.
Design/methodology/approach
The authors examine the effect on the trading volume of a sample of ADRs following the publication of their first patent in the USA.
Findings
The results show that the publication of a first patent has no effect on the liquidity of these ADRs when compared with same-country ADRs without patents.
Originality/value
This study enriches the literature on the relation between innovation, information and the stock market.
Details
Keywords
Carlos Colón De Armas, Javier Rodriguez and Herminio Romero
This study examines the influence of the presidential elections on the behaviour of US investors according to the trading activity of two of the most popular investment vehicles…
Abstract
Purpose
This study examines the influence of the presidential elections on the behaviour of US investors according to the trading activity of two of the most popular investment vehicles: exchange-traded funds and close-ended funds.
Design/methodology/approach
Based on the fact that investors in these two investment vehicles differ by, at least, two demographic factors that influence investment decisions, age and labour status, inferences are made about the degree of interest and the amount of trading activity that presidential elections provoke.
Findings
The evidence demonstrates that, during the last four US presidential elections, exchange-traded funds' investors trade significantly more than close-ended funds' investors during several event windows centred on the day of an election in which a republican candidate is elected. Close-ended funds' investors are more active during the election of a democratic candidate, although the statistical evidence in that regard is weak. Thus, it appears reasonable to conclude that younger investors who are gainfully employed are induced to trade by a presidential election in which a republican candidate prevails. Apparently, a democratic victory does not provoke the same behaviour.
Originality/value
Although the relation between politics and economics is not an unexplored topic, it is not clear whether the presidential elections themselves constitute an event that triggers the trading behaviour of investors.
Details
Keywords
Carlos Colón-De-Armas, Javier Rodriguez and Herminio Romero
The purpose of this paper is to examine the shifts in investor sentiment around the last seven US presidential elections (1988 through 2012).
Abstract
Purpose
The purpose of this paper is to examine the shifts in investor sentiment around the last seven US presidential elections (1988 through 2012).
Design/methodology/approach
Investor sentiment is measured by changes in closed-end funds discounts, and the results are corroborated with three robustness tests, including an alternate measure of investor sentiment obtained from the survey conducted by the American Association of Individual Investors.
Findings
Closedend funds discounts are significantly diminished from two weeks before a US presidential election to a week before the election, and persist until the week after the election, suggesting an increase in investors’ optimism during that period, particularly when a Democrat is elected president. More than the particular party prevailing, however, investors appear to be more interested in avoiding the entrenchment of power since the results suggest that they become optimistic when a change in the ruling party takes place, but become pessimistic when there is power continuity in the White House. The increase in investor optimism that is observed around the time of US presidential elections is not replicated during non-election years, which seems to corroborate that the elections are indeed driving the results.
Originality/value
This paper is the first to formally examine the relation between investor sentiment and US presidential elections using closed-end funds discounts as the measure for sentiment.
Details
Keywords
Manuel Lobato, Javier Rodríguez and Herminio Romero-Perez
This study aims to examine the herding behavior of socially responsible exchange traded funds (SR ETFs) in comparison to conventional ETFs during the COVID-19 pandemic.
Abstract
Purpose
This study aims to examine the herding behavior of socially responsible exchange traded funds (SR ETFs) in comparison to conventional ETFs during the COVID-19 pandemic.
Design/methodology/approach
To test for herding behavior, the authors use the cross-sectional absolute deviation and a quadratic market model.
Findings
During the pandemic, investments in socially responsible financial products grew rapidly. And investors in the popular SR ETFs herd during this special period, while holders of conventional ETFs did not.
Practical implications
Investors in socially responsible investments must do their own research and make their own financial decisions, rather than follow the crowd, especially during extreme events like the COVID-19 pandemic.
Originality/value
The evidence shows that, during the pandemic, socially responsible ETFs behaved in line with theoretical predictions of herding, that is, herding is more significant during extreme market conditions.
Details
Keywords
Manuel Lobato, Mario Jordi Maura, Javier Rodriguez and Herminio Romero-Perez
This study aims to examine investor attention by exploring the trading behavior of investors in US-based exchange traded funds (ETFs) of countries active in the Federation…
Abstract
Purpose
This study aims to examine investor attention by exploring the trading behavior of investors in US-based exchange traded funds (ETFs) of countries active in the Federation Internationale de Football Association (FIFA) World Cups.
Design/methodology/approach
The present study employs event study methodology to measure abnormal returns and excess trading volume of country-specific ETFs during six FIFA World Cups. The sample of ETFs includes 19 participating countries.
Findings
Consistent with investor behavior that might be explained by attention effect, the study finds that country-specific ETFs from participating countries do indeed behave differently during FIFA World Cups events. The authors find significant evidence of abnormal trading volume and, albeit weaker, abnormal returns during cups.
Originality/value
This study contributes to the literature on investor behavior, linking investor attention with salient sports events.
Details
Keywords
Mario Jordi Maura-Pérez and Herminio Romero-Perez
This study aims to analyze the factors related to the failure of 535 Federal Deposit Insurance Corporation (FDIC)-Insured United States banks in conjunction with the 2008…
Abstract
Purpose
This study aims to analyze the factors related to the failure of 535 Federal Deposit Insurance Corporation (FDIC)-Insured United States banks in conjunction with the 2008 financial crisis.
Design/methodology/approach
The research consists of an analysis of the following three five-year partitions: pre-crisis (2002–2006), crisis (2007–2011) and post-crisis (2012–2016). The main hypothesis is that the factors explaining bank failures vary by period. Using logistic regression analysis, the authors identify the desirable models by period based on three model selection strategies.
Findings
Liquidity and non-risk-based capital ratios are important explanatory factors in all three periods. As the authors can see from the results, when comparing the full period (2002–2016) and the three five-year period partitions (2002–2006, 2007–2011 and 2012–2016), the ratios change from period to period, but they measure the same financial areas of concern in different contexts as follows: liquidity, leverage/risk exposure and capital adequacy. Risk-based capital ratios are not effective predictors of bank failures.
Originality/value
Recent academic studies have analyzed bank failures during periods that cover the years before, during and after the crisis, but most of these studies discuss bank failures in the forecasting context only. This study includes an analysis of failure determinants during pre-crisis, crisis and post-crisis subperiods based on the FDIC monitoring system of bank failures and identifies what ratios are more relevant during each period and how they change from period to period.
Details
Keywords
Javier Rodríguez and Herminio Romero
This paper aims to study the market timing skill of USA-based foreign open-end mutual funds in their geographical focus market.
Abstract
Purpose
This paper aims to study the market timing skill of USA-based foreign open-end mutual funds in their geographical focus market.
Design/methodology/approach
The authors use daily fund data and two multi-factor extensions of the Treynor-Mazuy (1966) and Henriksson-Merton (1981) timing models to measure US-based foreign funds’ market timing skill during 1999 to 2010. In particular, the authors study fund managers’ skill to time their geographical focus market.
Findings
The authors report that, in general, foreign funds do not accurately time their geographical focus market. However, during January 2008 to December 2010, the sub period that includes the 2008 global financial crisis, most foreign funds in this sample not only focused on their domestic market, the USA, but also demonstrated statistically significant, good timing skill.
Originality/value
Although US-based foreign funds’ market-timing skill is not an unexplored topic, this study is the first to consider these funds’ skill to time their geographical focus market, a skill that has been studied in the context of hedge funds.
Details
Keywords
Javier Rodriguez and Herminio Romero
The purpose of this paper is to contrast market risk exposure and diversification of single-listed American depository receipts (“ADRs”) with those of dual-listed ADRs from the…
Abstract
Purpose
The purpose of this paper is to contrast market risk exposure and diversification of single-listed American depository receipts (“ADRs”) with those of dual-listed ADRs from the same geographical region during 2004-2012.
Design/methodology/approach
The study uses orthogonal returns in two-factor models to infer exposure to the US and ADRs’ home markets.
Findings
The authors found that both ADR types provide no diversification and are significantly exposed to US market risk. The authors also found that portfolios of both single- and dual-listed ADRs behave significantly differently than their home markets.
Originality/value
Only several academic papers discuss single-listed ADRs, and to the best of the knowledge, this study is the first to assess their diversification value.
Details
Keywords
Javier Rodríguez and Herminio Romero
The purpose of this paper is to examine the risk-adjusted performance of US-based global real estate mutual funds (GREMFs) with emphasis on their ability to manage their domestic…
Abstract
Purpose
The purpose of this paper is to examine the risk-adjusted performance of US-based global real estate mutual funds (GREMFs) with emphasis on their ability to manage their domestic and foreign portfolios exposures.
Design/methodology/approach
The paper applies common econometric measures of portfolio performance and implements a non-traditional methodology called attribution returns to measure forecasting ability. In this setting the paper compares the actual monthly fund return to what would have been earned by the set of indices that best reflects the fund's investment strategy during the previous month. Performance and forecasting ability is examined during two different time periods: 2001-2005 and 2006-2010.
Findings
It is found that global real estate fund managers outperform the market and show good forecasting ability during the 2001-2005 time period. Good forecasting ability translates to positive risk-adjusted performance, as attribution returns are positively correlated with α.
Originality/value
Despite the significant growth in the number of US-based GREMFs and the ample coverage these funds receive in the popular press, few studies are solely devoted to the examination of these funds. In this study the paper empirically examines the ability of fund managers to successfully forecast country/regional political and economic conditions as well as fluctuations in currency exchanges rates brought about by the changes they made to their portfolios’ domestic and foreign exposures.