http://repub.eur.nl/res/aut/6345/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/37423/ 2012-12-01T00:00:00Z We are the first to investigate the cross-section of stock returns in the new emerging equity markets, the so-called frontier emerging markets. Our unique survivorship-bias free data set consists of more than 1400 stocks over the period 1997 to 2008 and covers 24 of the most liquid frontier emerging markets. The major benefit of using individual stock characteristics is that it allows us to investigate whether return factors that have been documented in developed countries also exist in these markets. We document the presence of economically and statistically significant value and momentum effects, and a local size effect. Our results indicate that the value and momentum effects still exist when incorporating conservative assumptions of transaction costs. Additionally, we show that value, momentum, and local size returns in frontier markets cannot be explained by global risk factors. http://repub.eur.nl/res/pub/37822/ 2012-09-01T00:00:00Z Investigating the value added by inflation-linked bonds in investment portfolios in emerging markets, the author found that the inclusion of inflation-linked bonds improved the risk-return characteristics of investment portfolios in many of the emerging markets. He also found that inflation-linked bond returns correlate more positively with realized inflation than do nominal bonds, even in the short run. Thus, investors should consider adding emerging market inflation-linked bonds to their investment portfolios. http://repub.eur.nl/res/pub/37685/ 2012-09-01T00:00:00Z European index funds and exchange-traded funds underperform their benchmarks by 50 to 150 basis points per annum. The explanatory power of dividend withholding taxes as a determinant of this underperformance is at least on par with fund expenses. Dividend taxes also explain performance differences between funds that track different benchmarks and time variation in fund performance. Our results imply that not only fund expenses, but also dividend taxes can result in a substantial drag on mutual fund performance. http://repub.eur.nl/res/pub/37773/ 2012-08-01T00:00:00Z This article studies the interaction and profitability of the five most well-established calendar effects: the Halloween effect, January effect, turn-of-the-month (TOM) effect, weekend effect and holiday effect. We find that Halloween and TOM are the strongest and most profitable effects. The equity premium over the sample 1963-2008 is 7.2 per cent if there is a Halloween or TOM effect, and 2.8 per cent in all other cases. An investment strategy based on these two effects gives higher net risk-adjusted returns than a passive buy-and-hold strategy. These findings are robust across different sample periods, market segments and international stock markets. http://repub.eur.nl/res/pub/37284/ 2012-08-01T00:00:00Z We are the first to investigate the cross-section of stock returns in the new emerging equity markets, the so-called frontier emerging markets. Our unique survivorship-bias free data set consists of more than 1,400 stocks over the period 1997 to 2008 and covers 24 of the most liquid frontier emerging markets. The major benefit of using individual stock characteristics is that it allows us to investigate whether return factors that have been documented in developed countries also exist in these markets. We document the presence of economically and statistically significant value and momentum effects, and a local size effect. Our results indicate that the value and momentum effects still exist when incorporating conservative assumptions of transaction costs. Additionally, we show that value, momentum, and local size returns in frontier markets cannot be explained by global risk factors. http://repub.eur.nl/res/pub/22277/ 2012-05-01T00:00:00Z This paper examines the ability of balanced pension plan managers to successfully time the equity and bond market and select the appropriate assets within these markets. In order to evaluate both market timing abilities in these balanced pension plans, we extend the traditional equity market timing models to also account for bond market timing. As far as we know, we are among the first to apply this multifactor timing model to investigate equity and bond market timing simultaneously. This performance evaluation has been conducted on two samples of Spanish balanced pension plans, one with Euro Zone and one with World investment focus. This allows us to decompose managers' skills into three components: selectivity, equity market timing, and bond market timing. Our findings suggest that the average stock-picking ability of pension plans is positive. World schemes tend to have positive bond timing skills, while Euro Zone pension plans are on average not able to time equity or bond markets. http://repub.eur.nl/res/pub/31879/ 2012-02-28T00:00:00Z We investigate the added value of inflation-linked bonds in an investment portfolio. Recently, several studies questioned the added value of inflation-linked bonds based on empirical analyses on developed markets. We extend the cross-section of countries with a set of nine emerging markets and conclude that for many of these countries the inclusion of inflation linked bonds improves the risk-return characteristics of investment portfolios. We also document that inflation-linked bond returns correlate more with realized inflation than nominal bonds, even on the short run. Hence, investors that invest in nominal bonds and equities should also allocate a significant amount to inflation-linked bonds. Furthermore, our mean-variance spanning tests indicate that US investors that already invest in emerging markets nominal bonds and emerging markets equities benefit from adding emerging markets inflation-linked bonds to their investment portfolio. http://repub.eur.nl/res/pub/23940/ 2011-01-01T00:00:00Z In deze bijdrage geven we een overzicht van een aantal voorstellen die recent genoemd zijn met betrekking tot het wijzigen van de waarderingsmethodiek van pensioenverplichtingen. De voorstellen zijn terug te voeren op een drietal wezenlijk verschillende argumenten. Het optimale beleggingsbeleid zal bij een eventuele wijziging echter op dezelfde wijze veranderen: langlopende renteswaps worden minder aantrekkelijk en kortlopende obligaties, bedrijfsobligaties, of inflatiegerelateerde obligaties worden aantrekkelijker. Deze veranderende aantrekkelijkheid volgt rechtstreeks uit de mate waarin ze de waardeontwikkeling van de pensioenverplichtingen volgen bij een andere rekenrente. http://repub.eur.nl/res/pub/21037/ 2010-03-01T00:00:00Z We investigate the construction of well-diversified high-conviction equity portfolios, building on Rudin and Morgan (2006) who introduced the Portfolio Diversification Index (PDI) as a new measure of portfolio diversification applied to long/short equity hedge funds in an in-sample period. We are the first to investigate the out-of-sample properties of the PDI. Our research applies a novel portfolio selection algorithm to maximize the PDI of a portfolio of stocks in the S&P 500 Index over 2000 to 2009. We construct equally-weighted, well-diversified portfolios, consisting of 5 to 30 stocks and compare these with randomly selected portfolios of the same stock sizes. Our results indicate that investors using our algorithm to maximize the PDI can improve the diversification of high-conviction equity portfolios. For example, a portfolio of 20 stocks constructed using the algorithm with the PDI behaves out-of-sample as if it contains 10 independent stocks, i.e. a PDI score of 10. Although this is less than the PDI score of 15 achieved in-sample, it is a significant improvement over the PDI score of 7, which occurs with a randomly selected portfolio. Our research is robust with respect to the number of stocks in the investment portfolio and the time period under consideration. http://repub.eur.nl/res/pub/21036/ 2009-10-01T00:00:00Z This paper examines the ability of balanced pension plan managers to successfully time the equity and bond market and select the appropriate assets within these markets. In order to evaluate both market timing abilities in these balanced pension plans, we extend the traditional equity market timing models to also account for bond market timing. As far as we know, we are among the first to apply this multifactor timing model to investigate equity and bond market timing simultaneously. This performance evaluation has been conducted on two samples of Spanish balanced pension plans, one with Euro Zone and one with World investment focus. This allows us to decompose managers’ skills in three components: selectivity, equity market timing, and bond market timing. Our findings suggest that the average stock picking ability of pension plans is positive. World schemes tend to have positive bond timing skills, while Euro Zone pension plans are on average not able to time equity or bond markets. http://repub.eur.nl/res/pub/16035/ 2009-06-01T00:00:00Z We measure the economic value of information derived from macroeconomic variables and from technical trading rules for emerging markets currency investments. Our analysis is based on a sample of 21 emerging markets with a floating exchange rate regime over the period 1997-2007 and explicitly accounts for trading restrictions on foreign capital movements by using non-deliverable forward data. We document that both types of information can be exploited to implement profitable trading strategies. In line with evidence from surveys of foreign exchange professionals concerning the use of fundamental and technical analysis, we find that combining the two types of information improves the risk-adjusted performance of the investment strategies. http://repub.eur.nl/res/pub/10891/ 2007-12-21T00:00:00Z We measure the economic value of information derived from macroeconomic variables and from technical trading rules for emerging markets currency investments. Our analysis is based on a sample of 21 emerging markets with a floating exchange rate regime over the period 1997-2007 and explicitly accounts for trading restrictions on foreign capital movements by using non-deliverable forward data. We document that both types of information can be exploited to implement profitable trading strategies. In line with evidence from surveys of foreign exchange professionals concerning the use of fundamental and technical analysis, we find that combining the two types of information improves the risk-adjusted performance of the investment strategies. http://repub.eur.nl/res/pub/7132/ 2005-11-30T00:00:00Z Latvian employees have to choose a pension fund for the second-pillar of the Latvian pension system. These pension funds invest about 85% in domestic assets. In this paper, we address the question why this strong home bias might exist. Firstly, we conclude that the Latvian pension law is strict on international diversification. However, not to the extent that it can fully explain the home bias. Secondly, our empirical analysis suggests that international diversification lowers investment risks for Latvian (pension) investors. Thus, it seems hard to explain the home bias of Latvian pension funds by lack of diversification benefits. Thirdly, Latvian pension fund managers might have more (private) information about Latvian companies than international companies. Therefore, they might prefer to invest more domestically to add more value for their clients. Finally, Latvian employees might have a strong preference to invest in companies they are familiar with. Since we are not aware of any research on the latter two topics, we can only speculate that currently many investment policies are suboptimal for Latvian employees saving for retirement. We expect the Latvian pension industry to develop new products that reduce risk by allowing for more diversification. In addition, we recommend Latvian employees to pay attention to the investment policy of their pension fund and think carefully about the rewards, risks, and costs that are involved. http://repub.eur.nl/res/pub/12630/ 2004-09-01T00:00:00Z This paper investigates the question whether individual stock momentum in Europe is subsumed by country or industry momentum. We introduce a portfolio-based regression approach, which directly allows to test hypotheses about the existence and relative importance of multiple effects (e.g., momentum, value, and size), even when only a moderate number of stocks are available. Our results suggest that the positive expected excess returns of momentum strategies in European stock markets are primarily driven by individual stock effects, while industry momentum plays a less important role and country momentum is even weaker. These results are robust to the inclusion of value and size effects. http://repub.eur.nl/res/pub/978/ 2003-10-20T00:00:00Z We decompose the conditional expected mutual fund return in five parts. Two parts, selectivity and expert market timing, can be attributed to manager skill, and three to variation in market exposure that can be achieved by private investors as well. The dynamic model that we use to estimate the relative importance of the components in the decomposition is a generalization of the performance evaluation models by Lockwood and Kadiyala (1988) and Ferson and Schadt (1996). We find that the restrictions imposed in existing models may lead to different inferences about manager selectivity and timing skill. The results from our sample of 78 asset allocation mutual funds indicate that several funds exhibit significant expert market timing, but for most funds variation in market exposures does not yield any economically significant return. Funds with high turnover and expense ratios are associated with managers with better skills. http://repub.eur.nl/res/pub/246/ 2002-10-28T00:00:00Z The driving force behind the well-documented medium term momentum effect in stock returns is subject of much debate. Empirical papers that aim to find the determinants of this return continuation, seem to be almost exclusively restricted to US stock markets. Consequently, regional effects have received little attention in these analyses. This paper contributes to the discussion by investigating the presence of country and industry momentum in Europe and addressing the question whether individual stock momentum is subsumed by country or industry momentum.We examine these issues by introducing a portfolio-based regression approach, which allows to test hypotheses about the existence and relative importance of multiple effects using standard statistical techniques. While the traditional sorting techniques are not suited to disentangle a multitude of possibly interrelated effects (e.g. momentum, value, and size), our method can be used even when only a moderate number of stocks are available. Our results suggest that the positive expected excess returns of momentum strategies in European stock markets are primarily driven by individual stocks effects, while industry momentum plays a less important role and country momentum is even weaker. These results are robust to the inclusion of value and size effects.