18 publications classées par:
type de publication
: Revue avec comité de lecture
Articles Goyal A. & Wahal S. (2015). Is Momentum an Echo?. Journal of Financial and Quantitative Analysis, 50(6), 1237-1267. [doi] [web of science] [abstract]
In the United States, momentum portfolios formed from 12 to 7 months prior to the current month deliver higher future returns than momentum portfolios formed from 6 to 2 months prior, suggesting an "echo" in returns. In 37 countries excluding the United States, there is no robust evidence of such an echo. In portfolios that combine securities in developed and emerging markets, or across three major geographic regions (Americas excluding United States, Asia, and Europe), there is also no evidence of an echo. Any echo in the United States appears to be driven largely by a carryover of short-term reversals from month -2.
Busse J., Goyal A. & Wahal S. (2014). Investing in a Global World. Review of Finance, 18(2), 561-590. [doi] [web of science] [abstract]
We examine active retail mutual funds and institutional products with a mandate to invest in global equity markets. We find little reliable evidence of alphas in the aggregate or on average. The right tail of the distribution contains some large alphas. Decomposing stock selection from country selection, we find some evidence of superior stock picking abilities in the extreme right tail. However, simulations suggest that they are produced just as likely by luck as by skill. Persistence tests show little evidence of continuation in superior performance.
Bernardo A., Chowdhry B. & Goyal A. (2012). Assessing Project Risk. Journal of Applied Corporate Finance, 24(3), 94-100. [doi] [abstract]
Finding the appropriate discount rate, or cost of capital, for evaluating investment projects requires an accurate estimate of project risk. This can be challenging because project risk cannot be estimated directly using the CAPM, but must instead be inferred from a set of traded securities, typically the equity betas of comparable firms in the same industry. These equity betas are then unlevered to undo the effect of comparable companies' financial leverage and obtain estimates of "asset" betas, which are then used to estimate project risk.¦The authors show that asset betas estimated in this way are likely to overestimate project risk. The equity returns of companies are risky not only because of their existing projects but also because of their growth opportunities. Such growth opportunities often include embedded "real options," such as the option to delay, expand, or abandon a project. Because such real options are similar to leveraged positions in the underlying project, a company's growth opportunities are typically riskier than its existing projects. Therefore, to properly assess project risk, analysts must also unlever the asset betas derived from comparable company stock returns for the leverage contributed by their growth options.¦The authors derive a simple method for unlevering asset betas for growth options leverage in order to properly assess project risk. They then show that standard methods for assessing project risk significantly overestimate project costs of capital-by as much as 2-3% in industries such as healthcare, pharmaceuticals, communications, medical equipment, and entertainment. Their method should also be applied to stock return volatility to derive project volatility, an important input for determining the value of a firm's growth opportunities and the appropriate time for investing in these opportunities.
Goyal A. (2012). Empirical Cross-Sectional Asset Pricing: A Survey. Financial Markets and Portfolio Management, 26(1), 3-38. [doi] [abstract]
I review the state of empirical asset pricing devoted to understanding cross-sectional differences in average rates of return. Both methodologies and empirical evidence are surveyed. Tremendous progress has been made in understanding return patterns. At the same time, there is a need to synthesize the huge amount of collected evidence.
Busse J., Goyal A. & Wahal S. (2010). Performance Persistence in Institutional Investment Management. Journal of Finance, 65(2), 765-790. [doi] [web of science] [abstract]
Using new, survivorship bias-free data, we examine the performance and persistence in performance of 4,617 active domestic equity institutional products managed by 1,448 investment management firms between 1991 and 2008. Controlling for the Fama-French (1993) three factors and momentum, aggregate and average estimates of alphas are statistically indistinguishable from zero. Even though there is considerable heterogeneity in performance, there is only modest evidence of persistence in three-factor models and little to none in four-factor models.
Chordia T., Goyal A., Sadka G., Sadka R. & Shivakumar L. (2009). Liquidity and the Post-Earnings-Announcement-Drift. Financial Analyst Journal, 65(4), 18-32. [doi] [web of science] [abstract]
The post-earnings-announcement drift is a long-standing anomaly that conflicts with market efficiency. This study documents that the post-earnings-announcement drift occurs mainly in highly illiquid stocks. A trading strategy that goes long high-earnings-surprise stocks and short low-earnings-surprise stocks provides a monthly value-weighted return of 0.04 percent in the most liquid stocks and 2.43 percent in the most illiquid stocks. The illiquid stocks have high trading costs and high market impact costs. By using a multitude of estimates, the study finds that transaction costs account for 70-100 percent of the paper profits from a long short strategy designed to exploit the earnings momentum anomaly.
Goyal A. & Saretto A. (2009). Cross-Section of Option Returns and Volatility. Journal of Financial Economics, 94(2), 310-326. [doi] [web of science] [abstract]
We study the cross-section of stock option returns by sorting stocks on the difference between historical realized volatility and at-the-money implied volatility. We find that a zero-cost trading strategy that is long (short) in the portfolio with a large positive (negative) difference between these two volatility measures produces an economically and statistically significant average monthly return. The results are robust to different market conditions, to stock risks-characteristics, to various industry groupings, to option liquidity characteristics, and are not explained by usual risk factor models. (C) 2009 Elsevier B.V. All rights reserved.
Goyal A., Pérignon C. & Villa C. (2008). How Common are Common Return Factors Across Nyse and Nasdaq?. Journal of Financial Economics, 90(3), 252-271. [doi] [web of science] [abstract]
We entertain the possibility of pervasive factors that are not common across two (or more) groups of securities. We propose and implement a general procedure to estimate the space spanned by common and group-specific pervasive factors. In our empirical analysis, we study the factor structure of excess returns on stocks traded on the NYSE and Nasdaq using our methodology. We find that there are only two common pervasive factors that govern the returns for both NYSE and Nasdaq. At the same time, the NYSE and Nasdaq each have one more group-specific factor that is not the same across the two exchanges. Our results point to the absence of complete similarity between the factors driving the returns on these exchanges.
Goyal A. & Wahal S. (2008). The Selection and Termination of Investment Managers by Plan Sponsors. Journal of Finance, 63(4), 1805-1847. [doi] [web of science] [abstract]
We examine the selection and termination of investment management firms by 3,400 plan sponsors between 1994 and 2003. Plan sponsors hire investment managers after large positive excess returns but this return-chasing behavior does not deliver positive excess returns thereafter. Investment managers are terminated for a variety of reasons, including but not limited to underperformance. Excess returns after terminations are typically indistinguishable from zero but in some cases positive. In a sample of round-trip firing and hiring decisions, we find that if plan sponsors had stayed with fired investment managers, their excess returns would be no different from those delivered by newly hired managers. We uncover significant variation in pre- and post-hiring and firing returns that is related to plan sponsor characteristics.
Goyal A. & Welch I. (2008). A Comprehensive Look at the Empirical Performance of Equity Premium Prediction. Review of Financial Studies, 21(4), 1455-1508. [doi] [web of science] [abstract]
Our article comprehensively reexamines the performance of variables that have been suggested by the academic literature to be good predictors of the equity premium. We find that by and large, these models have predicted poorly both in-sample (IS) and out-of-sample (OOS) for 30 years now; these models seem unstable, as diagnosed by their out-of-sample predictions and other statistics; and these models would not have helped an investor with access only to available information to profitably time the market.
Bernardo A., Chowdhry B. & Goyal A. (2007). Growth Options, Beta, and the Cost of Capital. Financial Management, 36(2), 5-17. [web of science] [abstract]
We show how to decompose a firm's beta into its beta of assets-in-place and its beta of growth opportunities.. Our empirical results demonstrate that the beta of growth opportunities is greater than the beta of assets-in-place for virtually all industries over all periods of time dating back to 1977. The difference has important implications for determining the cost of capital. For example, when choosing comparables to determine aproject beta one should match the growth opportunities of the project with those of the comparable firm. Assuming a 6% market equity risk premium, accounting for growth opportunities alters the project cost of capital by as much as 2% to 3%.
Avramov D., Chordia T. & Goyal A. (2006). Liquidity and Autocorrelations in Individual Stock Returns. Journal of Finance, 61(5), 2365-2394. [doi] [web of science] [abstract]
This paper documents a strong relationship between short-run reversals and stock illiquidity, even after controlling for trading volume. The largest reversals and the potential contrarian trading strategy profits occur in high turnover, low liquidity stocks, as the price pressures caused by non-informational demands for immediacy are accommodated. However, the contrarian trading strategy profits are smaller than the likely transactions costs. This lack of profitability and the fact that the overall findings are consistent with rational equilibrium paradigms suggest that the violation of the efficient market hypothesis due to short-term reversals is not so egregious after all.
Avramov D., Chordia T. & Goyal A. (2006). The Impact of Trades on Daily Volatility. Review of Financial Studies, 19(4), 1241-1277. [doi] [web of science] [abstract]
This article proposes a trading-based explanation for the asymmetric effect in daily volatility of individual stock returns. Previous studies propose two major hypotheses for this phenomenon: leverage effect and time-varying expected returns. However, leverage has no impact on asymmetric volatility at the daily frequency and, moreover, we observe asymmetric volatility for stocks with no leverage. Also, expected returns may vary with the business cycle, that is, at a lower than daily frequency. Trading activity of contrarian and herding investors has a robust effect on the relationship between daily volatility and lagged return. Consistent with the predictions of the rational expectation models, the non-informational liquidity-driven (herding) trades increase volatility following stock price declines, and the informed (contrarian) trades reduce volatility following stock price increases. The results are robust to different measures of volatility and trading activity.
Brandt M. W., Goyal A., Santa-Clara P. & Stroud J. R. (2005). A Simulation Approach to Dynamic Portfolio Choice with an Application to Learning About Return Predictability. Review of Financial Studies, 18(3), 831-873. [doi] [web of science] [abstract]
We present a simulation-based method for solving discrete-time portfolio choice problems involving non-standard preferences, a large number of assets with arbitrary return distribution, and, most importantly, a large number of state variables with potentially path-dependent or non-stationary dynamics. The method is flexible enough to accommodate intermediate consumption, portfolio constraints, parameter and model uncertainty, and learning. We first establish the properties of the method for the portfolio choice between a stock index and cash when the stock returns are either iid or predictable by the dividend yield. We then explore the problem of an investor who takes into account the predictability of returns but is uncertain about the parameters of the data generating process. The investor chooses the portfolio anticipating that future data realizations will contain useful information to learn about the true parameter values.
Goyal A. (2004). Demographics, Stock Market Flows, and Stock Returns. Journal of Financial and Quantitative Analysis, 39(1), 115-142. [web of science] [abstract]
This paper studies the link between population age structure, net outflows (dividends plus repurchases less net issues) from the stock market, and stock market returns in an overlapping generations framework. I find support for the traditional lifecycle models-the outflows from the stock market are positively correlated with the changes in the fraction of old people (65 and over) and negatively correlated with the changes in the fraction of middle-aged people (45 to 64). Changes in population age structure also add significant explanatory power to equity premium regressions. The population structure adds to the predictive power of regressions involving the investment/savings rate for the U.S. economy. Finally, international demographic changes have some power in explaining international capital flows.
Goyal A. & Santa-Clara P. (2003). Idiosyncratic Risk Matters!. Journal of Finance, 58(3), 975-1007. [doi] [web of science] [abstract]
This paper takes a new look at the predictability of stock market returns with risk measures. We find a significant positive relation between average stock variance (largely idiosyncratic) and the return on the market. In contrast, the variance of the market has no forecasting power for the market return. These relations persist after we control for macroeconomic variables known to forecast the stock market. The evidence is consistent with models of time-varying risk premia based on background risk and investor heterogeneity Alternatively, our findings can be justified by the option value of equity in the capital structure of the firms.
Goyal A. & Welch I. (2003). Predicting the Equity Premium with Dividend Ratios. Management Science, 49(5), 639-654. [doi] [web of science] [abstract]
Our paper suggests a simple, recursive residuals (out-of-sample) graphical approach to evaluating the predictive power of popular equity premium and stock market time-series forecasting regressions.. When applied, we find that dividend ratios should have been known to have no predictive ability even prior to the 1990s, and that any seeming ability even then was driven by only two years, 1973 and 1974. Our paper also documents changes in the time-series processes of the dividends themselves and shows that an increasing persistence of dividend-price ratio is largely responsible for the inability of dividend ratios to predict equity premia. Cochrane's (1997) accounting identity-that dividend ratios have to predict long-run dividend growth or stock returns-empirically holds only over horizons longer than 5-10 years. Over shorter horizons, dividend yields primarily forecast themselves.
Chowdhry B. & Goyal A. (2000). Understanding the Financial Crisis in Asia. Pacific-Basin Finance Journal, 8(2), 135-152. [doi] [abstract]
The financial crisis of East Asia in 1997 was largely unanticipated and was characterized by sharp falls in asset prices and currency values in several countries simultaneously. Many empirical models have been developed to predict the occurrence of such crisis. However, the out-of-sample performance of these models is disappointing. Most theoretical explanations of the crisis emphasize the role of banking sector and revolve around models of moral hazard or self-fulfilling runs on liquidity. Empirical tests of the models are, however, rare. Much work remains to be done to explain the contagion, and the effects of equity capital flows.