Search results

The Treynor and Mazuy framework is a widely used return-based model of market timing. However, existing corrections to the regression intercept can be manipulated through derivatives trading. Because they are conceptually flawed, these corrections produce biased performance measures. This paper aims to get back to Henriksson and Merton’s initial idea of option replication to overcome this issue and adapt the market timing model to various kinds of trading strategies and return-generating processes.

This paper proposes a theoretical adjustment based on Merton’s option replication approach adapted to the Treynor and Mazuy specification. The linear and quadratic coefficients of the regression are exploited to assess the cost of the replicating option that yields similar convexity for a passive portfolio. A similar reasoning applies for various timing patterns and in multi-factor models.

The proposed framework induces a potential rebalancing risk and involves the delicate issue of choosing the cheapest option. This paper shows that these issues can be overcome for reasonable tolerance levels. The option replication approach is a workable approach for practical applications.

The adaptation of Merton’s reasoning to the Treynor and Mazuy model has surprisingly never been proposed so far. This paper has the potential to correct for a pervasive bias in the estimation of the performance of a market timer in the context of this very popular quadratic regression setup. Because of the power of the option replication approach, the reasoning is shown to be applicable to multi-factor models, negative timing and market neutral strategies. This paper could fuel empirical studies that would shed new light on the genuine market timing skills of active portfolio managers.

The depth and breadth of the market for contingent claims, including exotic options, has expanded dramatically. Regulators have expressed concern regarding the risks of exotics to the financial system, due to the difficulty of hedging these instruments. Recent literature focuses on the difficulties in hedging exotic options, e.g., liquidity risk and other violations of the standard Black‐Scholes model. This article provides insight into hedging problems associated with exotic options: 1) hedging in discrete versus continuous time, 2) transaction costs, 3) stochastic volatility, and 4) non‐constant correlation. The author applies simulation analysis of these problems to a variety of exotics, including Asian options, barrier options, look‐back options, and quanto options.

The aim of this paper is to describe and explain how organizations develop and implement marketing action within their surrounding business networks.

The paper is an empirical case study research that covered periods 1993 to 1998 and 2002 to 2003 in manufacturer‐retailer networks in Germany. A conceptual model is developed and its applicability is illustrated.

The paper finds that marketing action is seen as an inventive stream of finding and doing what is possible for each organization in its respective network. Whilst organizations react to events as they unfold, marketing action in networks takes the form of creating and exercising a number of options that best reflect organizations' strengths and their capacities derived from network membership.

Although based on marketing episodes related to the development and introduction of new products in a manufacturer‐retailer network, the proposed model has far wider managerial implications. The efficiency of the model is achieved through the reduction into three generative stages of the complexity of marketing action in networks.

The model is explained in some depth, and its practical implications explained via the case study.

The development of a model of marketing action in networks based upon a network/option view of business‐to‐business marketing.

International Accounting Standards Rule 37 (IAS 37) for Contingent Liabilities and Assets were designed to make analysis of exposures facing a corporate entity easier to understand, but the rules may be insufficiently prescriptive making provisions inadequate predictors of potential outlays. The purpose of this research is to redress this problem. We apply financial option theory to objectively mark-to-market the appropriateness of provisions replacing subjective inputs with market derived calculations.

This study applies financial option theory to determine whether provisions are appropriate according to market data. This research supports inferences regarding the probability of a provision being used while evidencing scope for earnings management.

In addition to showing how IAS 37 provisions may be calibrated against market data, from the large sample of UK-listed companies, the proposition that over-provisioning is common and related to share price volatility, is supported, supporting the view that IAS 37 rules may facilitate earnings management.

The financial and reporting community have struggled in interpreting the appropriateness of IAS 37 provisions. Are they too large or too small? What is the probability they will be used? Using option theory and market data, various subjective judgements may now be validated. This research should have tangible value to analysts, auditors, investors and other stakeholders concerned in the accurate valuation of potential liabilities.

Replacing subjective judgement and insufficiently prescriptive guidance, this study shows that financial option theory and share price data may be used to objectively calibrate the size of IAS 37 provisions.

The purpose of this paper is to gain a better understanding of the market timing skills displayed by hedge fund managers during the 2007‐08 financial crisis.

The performance of a market timer can be measured through the 1966 Treynor and Mazuy model, provided the regression alpha is properly adjusted by using the cost of an option‐based replicating portfolio, as shown by Hübner. The paper adapts this approach to the case of multi‐factor models with positive, negative or neutral betas. This new approach is applied on a sample of hedge funds whose managers are likely to exhibit market timing skills. This concentrates on funds that post weekly returns, and analyzes three hedge funds strategies in particular: long‐short equity, managed futures, and funds of hedge funds. The paper analyzes a particular period during which the managers of these funds are likely to magnify their presumed skills, namely around the financial and banking crisis of 2008.

Some funds adopt a positive convexity as a response to the US market index, while others have a concave sensitivity to the returns of an emerging market index. Thus, the paper identifies “positive”, “mixed” and “negative” market timers. A number of signs indicate that only positive market timers manage to acquire options below their cost, and deliver economic significant performance, even in the midst of the financial crisis. Negative market timers, by contrast, behave as if they were forced to sell options without getting the associated premium. This behaviour is interpreted as a possible result of re sales, leading them to liquidate positions under the pressure of redemption orders, and inducing negative performance adjusted for market timing.

The paper suggests that the convexity in returns that is generally associated with market timing can be attributed to three sources: timing skills, exposure to nonlinear risk factors, or liquidity pressures. It manages to identify the impact of the latter two effects in the context of hedge funds.

This research applies a static hedging portfolio method derived from Derman, Ergener, and Kani (1995) (henceforth Derman's SHP method) and a new SHP method with European cash-or-nothing binary options developed by Chung, Shih, and Tsai (2013) to price European continuous double barrier (ECDB) options and the rebates of the ECDB options. Our numerical results indicate that the new SHP method outperforms Derman's SHP method in terms of efficiency and effectiveness under all circumstances.

A recent paper by Morris et al. (2013b) presented evidence that students can develop entrepreneurial competencies through international fieldwork. This paper explores whether the same results can be developed in a traditional classroom setting.

The study is a systematic replication of the Morris study with the addition of a matched pair, quasi-experimental design, with a self-replication. Data were collected on 13 self-reported competencies at the start of a semester from two groups using the Morris instrument. The treatment group was exposed to a curriculum designed to teach entrepreneurial competencies, and both groups were re-surveyed at the end of the semester. The process was then repeated with a different cohort, one year later, to replicate the initial study.

Five competencies saw significant increases in the first treatment group. However, only three of these competencies increased more in the treatment group than the control group. In the replication study, only one competency was significantly higher in the treatment group, and that competency was not one of the original three.

Educators and policymakers should select a curriculum that is valid and reliable. Entrepreneurship educators and policymaker should devote more time to evaluating the effectiveness of different pedagogical techniques for improving entrepreneurial competencies.

To the best of our knowledge, this is one of the first studies in entrepreneurship education to undertake a matched pair, quasi-experimental design with an in-study replication. The results indicate that serious inferential errors arise if simpler designs are used, even though such designs are the norm in entrepreneurship research.

The purpose of this paper is to present and demonstrate how the use of a multifactor model in the analysis of market timing skill can be misleading because the use of a multifactor model does not suit all investment styles equally well. If the factors of the analysis model do not span the portfolio holdings of a fund with less conventional investment strategy, the use of a multifactor model may even deteriorate the overall inference in measuring the market timing skill of a large sample of funds.

This study investigates the limitations of multifactor models in the analysis of market timing skill by applying the traditional Treynor-Mazuy and Henriksson-Merton analysis models of market timing skill using a set of “placebo” funds which are “natural” passive market timers.

The results of the study show that the incorporation of the Carhart four-factor model into the analysis of market timing skill considerably reduces the percentage of significant market timing results. But, as expected, the reduction of bias is not equal for different investment styles, and it works best when the factors of the analysis model are related to the investment style of the placebo portfolio.

This style-related limitation of multifactor models in the analysis of market timing skill may result in detecting funds with less conventional investment strategies as market timers since the factors used in the analysis are not likely to span their investment styles.

This study shows that the use of a multifactor model may lead to inferring passive market timers with less conventional investment styles as market timers. In addition, the findings of the study leave option replication approaches as more preferable bias corrections than multifactor extensions.

The payoffs of exotic options (e.g., up‐and‐out call options) are dependent on the time‐path of asset prices rather than the price of the asset at a fixed point in time. The authors of this article compare various models for calibrating volatility surfaces in order to price up‐and‐out call options.