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Open Access
Article
Publication date: 11 July 2023

Yunsung Eom and Mincheol Woo

As of May 2022, the National Pension Service of Korea is the world's third-largest pension fund, with assets worth KRW912tn (approximately $US800bn). Of the KRW152tn…

Abstract

As of May 2022, the National Pension Service of Korea is the world's third-largest pension fund, with assets worth KRW912tn (approximately $US800bn). Of the KRW152tn (approximately $US133bn) invested in domestic equities, 45% is outsourced to external asset managers. Given the absence of prior research on the National Pension Service's (NPS's) management method, this study analyzes its trading strategies and market impact according to the fund management method from 2005 to 2022. The results are as follows: First, the stock characteristics selected by internal management using passive strategies are different from those selected by external management, in which various strategies are combined. Second, the contrarian investment strategy, which acts as a market stabilizer, is a characteristic of the external management trading pattern, while internal management increases volatility and does not improve liquidity. Third, there has been a change in the internal management strategy since 2016, when the fund management headquarters was relocated. This study is practically significant and distinctive in that it confirms the differences between the NPS's two investment methods in terms of trading strategies and market impact.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 31 no. 3
Type: Research Article
ISSN: 1229-988X

Keywords

Open Access
Article
Publication date: 10 June 2020

Pierre Rostan, Alexandra Rostan and Mohammad Nurunnabi

The purpose of this paper is to illustrate a profitable and original index options trading strategy.

10232

Abstract

Purpose

The purpose of this paper is to illustrate a profitable and original index options trading strategy.

Design/methodology/approach

The methodology is based on auto regressive integrated moving average (ARIMA) forecasting of the S&P 500 index and the strategy is tested on a large database of S&P 500 Composite index options and benchmarked to the generalized auto regressive conditional heteroscedastic (GARCH) model. The forecasts validate a set of criteria as follows: the first criterion checks if the forecasted index is greater or lower than the option strike price and the second criterion if the option premium is underpriced or overpriced. A buy or sell and hold strategy is finally implemented.

Findings

The paper demonstrates the valuable contribution of this option trading strategy when trading call and put index options. It especially demonstrates that the ARIMA forecasting method is a valid method for forecasting the S&P 500 Composite index and is superior to the GARCH model in the context of an application to index options trading.

Originality/value

The strategy was applied in the aftermath of the 2008 credit crisis over 60 months when the volatility index (VIX) was experiencing a downtrend. The strategy was successful with puts and calls traded on the USA market. The strategy may have a different outcome in a different economic and regional context.

Details

PSU Research Review, vol. 4 no. 2
Type: Research Article
ISSN: 2399-1747

Keywords

Open Access
Article
Publication date: 8 April 2022

Yunsung Eom and Mincheol Woo

As of March 2021, the National Pension Service (NPS) is the world’s 3rd largest pension fund with 872.5tn won (KRW) in management. Recently, the NPS proposed a policy to gradually…

Abstract

As of March 2021, the National Pension Service (NPS) is the world’s 3rd largest pension fund with 872.5tn won (KRW) in management. Recently, the NPS proposed a policy to gradually reduce the proportion of domestic stocks in the portfolio in the future. This change in the asset allocation strategy is related to the NPS’s exit strategy for domestic stocks. This study aims to examine the market impact cost asymmetry between buys and sells of the NPS and suggest a trading strategy for mitigating the market impact cost. The results are as follows. First, there is an asymmetry between buys and sells in the market impact cost of the NPS. The market impact cost of the NPS is gradually increasing over time. In particular, the market impact cost from selling has increased significantly in recent years. Second, past returns, volatility, liquidity and trading intensity can be found as external factors affecting the asymmetric market impact cost of the NPS. Although there is no difference between the buying and selling ratios of the NPS, the market impact cost from sells is relatively higher than that from buys. Third, after controlling for the order execution size of the NPS, the longer the trade execution period, the lower the market impact cost. This result implies that the strategy of splitting orders as a way to reduce the market impact cost is effective. The trading behavior of the NPS directly or indirectly affects other investors. If the sell of the NPS incurs excessive market impact cost, the negative impact on the stock price will be further exacerbated. Therefore, it is necessary for the NPS to reduce the market impact cost through split trading in executing orders in the domestic stock market. Findings of this study provide implications for countermeasures and long-term management strategies that can minimize the market impact cost of the NPS in the process of reducing the proportion of domestic stocks in the future.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 30 no. 3
Type: Research Article
ISSN: 1229-988X

Keywords

Open Access
Article
Publication date: 26 October 2018

Luc Chavalle and Luis Chavez-Bedoya

This paper aims to analyze the impact of transaction costs in portfolio optimization in Peru. The study aims to compare the transaction costs structure applied in Peru with…

5114

Abstract

Purpose

This paper aims to analyze the impact of transaction costs in portfolio optimization in Peru. The study aims to compare the transaction costs structure applied in Peru with respect to the ones applied in the USA, and over a few dimensions.

Design/methodology/approach

The paper opted for an empirical study analyzing the cost of rebalancing portfolios over a set period and dimensions. Stocks have been carefully selected using Bloomberg terminals, and portfolio designed then rebalanced using VBA programming. Over a few dimensions as type and number of stocks, holding period and trading strategy, the behavior of these different transaction costs has been compared. The analysis has been done for four different portfolios.

Findings

The paper provides empirical insights about how a retail investor actively trading in Peru can pay up to 14 times more in transaction costs than trading the same portfolio in the USA. These comparatively high transaction costs prevent retail investors to trade in the Peruvian stock market while fueling illiquidity to this market.

Research limitations/implications

The paper deals with a limited amount of Peruvian stocks. Researchers are encouraged to test the proposition further, including other dimensions.

Practical implications

The paper includes implications for any retail investor that wants to invest in Peruvian stocks, giving an insight about how expensive it is to actively rebalance a portfolio in Peru.

Originality/value

This paper fulfils an identified need to study how much it costs to actively invest on the stock market in Peru.

Details

Journal of Economics, Finance and Administrative Science, vol. 24 no. 48
Type: Research Article
ISSN: 2077-1886

Keywords

Open Access
Article
Publication date: 3 February 2020

Heba M. Ezzat

This paper aims at developing a behavioral agent-based model for interacting financial markets. Additionally, the effect of imposing Tobin taxes on market dynamics is explored.

1200

Abstract

Purpose

This paper aims at developing a behavioral agent-based model for interacting financial markets. Additionally, the effect of imposing Tobin taxes on market dynamics is explored.

Design/methodology/approach

The agent-based approach is followed to capture the highly complex, dynamic nature of financial markets. The model represents the interaction between two different financial markets located in two countries. The artificial markets are populated with heterogeneous, boundedly rational agents. There are two types of agents populating the markets; market makers and traders. Each time step, traders decide on which market to participate in and which trading strategy to follow. Traders can follow technical trading strategy, fundamental trading strategy or abstain from trading. The time-varying weight of each trading strategy depends on the current and past performance of this strategy. However, technical traders are loss-averse, where losses are perceived twice the equivalent gains. Market makers settle asset prices according to the net submitted orders.

Findings

The proposed framework can replicate important stylized facts observed empirically such as bubbles and crashes, excess volatility, clustered volatility, power-law tails, persistent autocorrelation in absolute returns and fractal structure.

Practical implications

Artificial models linking micro to macro behavior facilitate exploring the effect of different fiscal and monetary policies. The results of imposing Tobin taxes indicate that a small levy may raise government revenues without causing market distortion or instability.

Originality/value

This paper proposes a novel approach to explore the effect of loss aversion on the decision-making process in interacting financial markets framework.

Details

Review of Economics and Political Science, vol. 5 no. 2
Type: Research Article
ISSN: 2356-9980

Keywords

Open Access
Article
Publication date: 1 February 2022

Khumbulani L. Masuku and Thabo J. Gopane

The study considers time-varying risk premium in investigating the capability of technical analysis (TA) to predict and outperform a buy–hold strategy in Bitcoin exchange rate…

1646

Abstract

Purpose

The study considers time-varying risk premium in investigating the capability of technical analysis (TA) to predict and outperform a buy–hold strategy in Bitcoin exchange rate returns.

Design/methodology/approach

The study tests the technical trading rule of fixed moving average (FMA) on daily actual and equilibrium returns of Bitcoin exchange rates. The equilibrium returns are computed using dynamic CAPM in conjunction with a VAR-MGARCH (1, 1) system. The empirical evaluation of the study uses a case study of four Bitcoin exchange rates (BTC/AUD, BTC/EUR, BTC/JPY and BTC/ZAR) for the period 19 June 2010 to 30 October 2020.

Findings

The findings are consistent with related studies in conventional foreign exchange markets that find TA to be profitable, especially in emerging markets. Nevertheless, the consideration of risk premium has the effect of reducing the abnormal returns. Also, further robust tests reveal that Bitcoin returns possess a momentum effect which prompts further study in efficient market hypothesis research.

Practical implications

The empirical findings of this study should benefit portfolio managers and active investors on the strength of TA to predict returns in a speculative market like the Bitcoin exchange rate market.

Originality/value

The study takes cognisance that cryptocurrency trading is speculative in nature which renders it a good candidate for TA methods. While there are studies that have explored the value of TA in Bitcoin exchange rates, these studies fail to incorporate the effects of time-varying risk premiums, the strength and focus of the current paper.

Details

Journal of Capital Markets Studies, vol. 6 no. 1
Type: Research Article
ISSN: 2514-4774

Keywords

Open Access
Article
Publication date: 8 June 2021

Mohamed Shaker Ahmed

The present research aims to examine a range of momentum trading strategies for the tourism and hospitality sector.

1406

Abstract

Purpose

The present research aims to examine a range of momentum trading strategies for the tourism and hospitality sector.

Design/methodology/approach

The paper followed the methodology of Jegadeesh and Titman (1993) to construct the portfolios. In this methodology, all portfolios were formed and evaluated by their cumulative stock returns over the past J periods and holding the position for the next K periods. In total, nine formation and holding periods were used, represented by 3, 6 and 12. For example, strategy 3–3 (that is, strategy with J = 3 and K = 3) refers to the strategy that stocks are ranked based on their previous three months and then held for the next three months.

Findings

The findings demonstrated that none of these momentum investing strategies was profitable. Most of the results, however, show positive, but insignificant momentum returns. This finding can be interpreted as price reversal over a horizon of three to twelve months in the US hospitality and tourism sector. These results are robust to size, different formation and holding combinations, beta and turnover.

Research limitations/implications

Regarding the research limitations, this paper only considers the US tourism and hospitality sector. Therefore, the extension of results to other developed and developing markets should be taken carefully. Also, this paper relies only on the methodology of Jegadeesh and Titman (1993). Other methodologies could be suitable avenues for future research.

Practical implications

Investors and portfolio managers who seek for earning abnormal returns by investing in the US HT stocks can attain their hopes by constructing portfolios based on existing guidelines in the literature and adopting a short-term reversal trading strategy or by buying past losers and selling past winners of the US tourism and hospitality stocks.

Originality/value

This research contributes to the hospitality finance literature by offering the investors who are interested in the US hospitality and tourism sector an uncomplicated trading rule that uses real return data and is expected to generate actual returns. Moreover, the momentum strategy of Jegadeesh and Titman (1993) is never used in the hospitality finance literature.

研究目的

本研究旨在探討各種可應用於旅遊及酒店業的動量交易策略。

研究設計/方法/理念

本文按照 Jegadeesh 和 Titman(1993)的研究方法來建造投資組合。使用這研究方法時,所有投資組合均以它們在過去J 時期的累積股票收益和在未來K 時期的持倉來建立及評價的。九個組成方式及持有期被使用,以3、6、12來表示。例如,策略3-3(那就是說,該策略以J = 3和 K = 3)指的策略是以有關的股票基於過去三個月而被分等級,繼而在未來三個月被持有。

研究結果

研究結果顯示,這些投資策略全沒帶來利潤;唯大部分結果顯示正動能策略報酬,雖報酬是微不足道的。這研究結果或許可理解為在美國酒店及旅遊業為期三至十二個月的價格逆轉。這些結果就規模、不同組成方式和持有組合、beta 和成交量而言是強而有力的。

研究的局限/意義

就研究的局限而言,本文只是考慮美國的酒店及旅遊業;因此,如把研究結果伸延至其它已開發或發展中的市場,則需小心處理。另外,本文只依賴 Jegadeesh 和 Titman(1993)的研究方法,就此,使用其它研究方法會是日後相關研究的適當途徑。

實際的意義

欲透過投資於美國酒店及旅遊股票而尋求賺取異常收益的投資者和投資組合經理可如願以償,方法是基於文獻內現存的準則建造投資組合,以及採用短期的逆轉交易策略,或買入美國酒店及旅遊業過去輸家及賣出過去贏家。

研究的原創性/價值

本研究為酒店金融文獻作出貢獻,因研究為對美國酒店及旅遊業有興趣的投資者提供了使用實際收益數據及預期可創造實際回報的簡單交易規則;而且, Jegadeesh 和 Titman(1993)的動量策略從未在酒店金融文獻內被使用過。

Details

European Journal of Management and Business Economics, vol. 31 no. 3
Type: Research Article
ISSN: 2444-8451

Keywords

Open Access
Article
Publication date: 30 November 2014

Jaepil Ryu and Hyun Joon Shin

This paper presents 6 time-series that have negative correlation with KOSPI200 Index and a quantitative trading methodology based on stochastic control chart using these…

14

Abstract

This paper presents 6 time-series that have negative correlation with KOSPI200 Index and a quantitative trading methodology based on stochastic control chart using these time-series. The proposed quantitative trading framework detects trade (long or short) timing by monitoring whether a time-series touches 4 trigger lines, which play a role as control limits in control chart. In other words, a time-series upwardly touches one of trigger line, then the framework take a short position on KOSPI200 Index Futures, while in case of downward touch, it takes a long position. The 6 time-series are derived from VKOSPI and USD Futures Index that are negatively correlated with KOSPI200 Index, and have a significance that prevents disclosure of trading strategies by processing and transforming the original time-series. Computational experiments using real KOSPI200 futures index for recent 4 years are conducted to show the excellence of the proposed investment strategies against benchmark strategies under quantitative trading framework.

Details

Journal of Derivatives and Quantitative Studies, vol. 22 no. 4
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 31 December 2004

Jung Taik Hyun and Jin Young Hong

The economic success of East Asia was due to an export-led growth strategy, which was heavily dependent on the global trading system underpinned by the General Agreement on…

Abstract

The economic success of East Asia was due to an export-led growth strategy, which was heavily dependent on the global trading system underpinned by the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). In recent years, however; East Asian countries have shifted their trade policy focus to regional agreements and made Free Trade Agreements (FTAs) among themselves arid with other regions. Government organization has been restructured to increase FTA activities. Generally, the current literature predicts that FTA activities of East Asia would help to increase the welfare of the region. In this paper; we offer a critical assessment of East Asia FTAs. We note that East Asia FTAs provide incomplete coverage of sectors and are likely to lead to an inefficient resource allocation. FTA movements are not matched with actual trade flows. The benefits of East Asia FTAs are fairly limited and potential benefits, if any, would not likely be materialized in the near future. Our overall assessment is that the recent policy shift in East Asian countries from multilateral trade orientation or unilateral action to regionalism or a parallel multilateral and regional trade approach will not produce much gain. The governments should increase their efforts at economic reform and reduce barriers to trade and investment, rather than to allocate more resource and manpower to FTA activities.

Details

Journal of International Logistics and Trade, vol. 2 no. 2
Type: Research Article
ISSN: 1738-2122

Keywords

Open Access
Article
Publication date: 31 May 2005

Tong Suk Kim, Yun Keun Lee and Jung-Soon Hyun

The term structure of KTB (Korea Treasury Bond) is empirically implemented and forecasted by the extended 2-factor CIR model. Pearson and Sun model. MLE is applied to estimate…

9

Abstract

The term structure of KTB (Korea Treasury Bond) is empirically implemented and forecasted by the extended 2-factor CIR model. Pearson and Sun model. MLE is applied to estimate parameters. Using KTB prices forecasted by the model, strategies of trading and hedge between KTB, KTF (Korea Treasury Futures) are established. In this article we can see that Pearson and Sun model appropriately explains the term structure of KTB but does not fit forecasting KTB prices. However, the model well forecasts the direction of interest rate moving up or down. Through such a forecast‘ profit via trading KTB and KTF can be realized.

Details

Journal of Derivatives and Quantitative Studies, vol. 13 no. 1
Type: Research Article
ISSN: 2713-6647

Keywords

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