Kenneath Washer
- Courses3
- Reviews11
- School: Texas A&M University
- Campus: Commerce
- Department: Finance
- Email address: Join to see
- Phone: Join to see
-
Location:
Commerce, TX - Dates at Texas A&M University: November 2003 - June 2008
- Office Hours: Join to see
Biography
Texas A&M University Commerce - Finance
Professor of Finance
Higher Education
Kenneth
Washer, DBA, CFA, CFP®
Omaha, Nebraska
I am proud to be part of Creighton University's Heider College of Business where I earned tenure and the rank of full professor. I am an active researcher and strive to be a great teacher and mentor. Omaha is a wonderful city that offers many great activities. Go Bluejays!
Experience
Texas A&M University-Commerce
Associate Professor of Finance
I started working here while I was finishing up my degree requirements at Louisiana Tech. I can't believe I managed a 4 class teaching load while I was studying for comps and writing a dissertation. My two biggest accomplishments were earning tenure and starting a very successful online Financial Planning Certificate Program.
Creighton University's Heider College of Business
Associate Professor fo Finance
I teach a junior level investments course and a graduate course each semester. I've published over 20 articles in my career and presented numerous papers.
Creighton University's Heider College of Business
Professor of Finance
Kenneath worked at Creighton University's Heider College of Business as a Professor of Finance
Education
Louisiana Tech University
DBA and MBA
Finance
I completed my MBA (1995) and DBA (1998). My dissertation dealt with Common Stock Repurchases.Southern Arkansas University
BBA
Accounting
We went to the NAIA College World Series my freshman year and finished third in the nation. I was a pitcher.
Publications
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Are stock prices in the US nonstationary? Evidence from contemporary unit root tests
Applied Financial Economics
This article extends the empirical literature on the efficiency of stock markets in the US by applying a battery of unit root tests to empirically ascertain whether stock prices are mean reverting. This article, unlike previous studies, employs a disaggregated approach using the daily closing values of the Dow Jones industrial average, NASDAQ composite and S&P 500 index covering the period 5 February 1971 to 31 December 2009 to investigate the integration properties of the US stock market. The empirical findings reveal that the three major stock price series are nonstationary, indicating that they do not follow a trend path. The primary implication is that trading strategies that simply rely on mean reversion of stock prices are valueless.
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Are stock prices in the US nonstationary? Evidence from contemporary unit root tests
Applied Financial Economics
This article extends the empirical literature on the efficiency of stock markets in the US by applying a battery of unit root tests to empirically ascertain whether stock prices are mean reverting. This article, unlike previous studies, employs a disaggregated approach using the daily closing values of the Dow Jones industrial average, NASDAQ composite and S&P 500 index covering the period 5 February 1971 to 31 December 2009 to investigate the integration properties of the US stock market. The empirical findings reveal that the three major stock price series are nonstationary, indicating that they do not follow a trend path. The primary implication is that trading strategies that simply rely on mean reversion of stock prices are valueless.
An Intuitive Examination of Downside Risk
Journal of Financial Planning
This paper offers insight regarding several unresolved issues related to downside risk evaluation. Specifically, we provide clarity to semivariance, which is a well-known, but often misunderstood risk measure. We examine the calculation methodology for both semivariance and semideviation and give practical financial planning interpretations. Semideviation is used in the Sortino ratio, which assesses return per unit of downside risk. The Sortino ratio is pervasive and well understood, but we question whether a majority of practitioners can make an accurate calculation of the semideviation measure. Popular asset class returns from 1926–2011 are examined, and we find that while small company stocks and large company stocks have similar Sharpe ratios, small stocks have superior Sortino ratios. The information ratio is an important measure of active fund manager performance. We suggest replacing the standard deviation of active return with the semideviation. A real-world example demonstrates the value of this revised metric.
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Are stock prices in the US nonstationary? Evidence from contemporary unit root tests
Applied Financial Economics
This article extends the empirical literature on the efficiency of stock markets in the US by applying a battery of unit root tests to empirically ascertain whether stock prices are mean reverting. This article, unlike previous studies, employs a disaggregated approach using the daily closing values of the Dow Jones industrial average, NASDAQ composite and S&P 500 index covering the period 5 February 1971 to 31 December 2009 to investigate the integration properties of the US stock market. The empirical findings reveal that the three major stock price series are nonstationary, indicating that they do not follow a trend path. The primary implication is that trading strategies that simply rely on mean reversion of stock prices are valueless.
An Intuitive Examination of Downside Risk
Journal of Financial Planning
This paper offers insight regarding several unresolved issues related to downside risk evaluation. Specifically, we provide clarity to semivariance, which is a well-known, but often misunderstood risk measure. We examine the calculation methodology for both semivariance and semideviation and give practical financial planning interpretations. Semideviation is used in the Sortino ratio, which assesses return per unit of downside risk. The Sortino ratio is pervasive and well understood, but we question whether a majority of practitioners can make an accurate calculation of the semideviation measure. Popular asset class returns from 1926–2011 are examined, and we find that while small company stocks and large company stocks have similar Sharpe ratios, small stocks have superior Sortino ratios. The information ratio is an important measure of active fund manager performance. We suggest replacing the standard deviation of active return with the semideviation. A real-world example demonstrates the value of this revised metric.
Day-of-the-week effect in the Canadian money market
Emerald
Purpose – The purpose of this paper is to examine the day-of-the-week effect for three primary money market instruments in Canada. The sample period is 1980-2009. Design/methodology/approach – The authors use three approaches. First, a parametric t-test is employed to determine if a particular day-of-the-week mean return is significantly different from zero, using both a full sample and a trimmed sample. Next, the Wilcoxon signed ranked test is utilized to assess whether the median weekday return is different from zero for each day. Lastly, a binary regression model is used to test if Monday’s mean return is different from other days. Findings – The traditional Monday effect is prevalent in the 1980s for corporate paper and treasury bills (TB), but not for bankers acceptances (BA). In the 1990s, the Monday effect disappears completely. However, in the 2000s the Monday effect reappears, but is positive (it reverses) for both corporate paper and BA. The authors also find strong support for Wednesday being a high return day, which concurs with related money market studies. Research limitations/implications – While the results are statistically significant, the economic significance is dubious. This study helps market participants in that it shows that they need to allow for distinct day-of-the-week patterns when using yield spreads. Practical implications – One practical implication for practitioners is to time purchases of Canadian money market securities for Monday when returns are low (relying on the results of the full sample period). Issuers should time sales for non-Mondays when returns are higher and yields are lower. Originality/value – This study is original in that it is the first one to analyze day-of-the-week effects in the Canadian money market. The authors compare the results to studies that focus on the US market.
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Are stock prices in the US nonstationary? Evidence from contemporary unit root tests
Applied Financial Economics
This article extends the empirical literature on the efficiency of stock markets in the US by applying a battery of unit root tests to empirically ascertain whether stock prices are mean reverting. This article, unlike previous studies, employs a disaggregated approach using the daily closing values of the Dow Jones industrial average, NASDAQ composite and S&P 500 index covering the period 5 February 1971 to 31 December 2009 to investigate the integration properties of the US stock market. The empirical findings reveal that the three major stock price series are nonstationary, indicating that they do not follow a trend path. The primary implication is that trading strategies that simply rely on mean reversion of stock prices are valueless.
An Intuitive Examination of Downside Risk
Journal of Financial Planning
This paper offers insight regarding several unresolved issues related to downside risk evaluation. Specifically, we provide clarity to semivariance, which is a well-known, but often misunderstood risk measure. We examine the calculation methodology for both semivariance and semideviation and give practical financial planning interpretations. Semideviation is used in the Sortino ratio, which assesses return per unit of downside risk. The Sortino ratio is pervasive and well understood, but we question whether a majority of practitioners can make an accurate calculation of the semideviation measure. Popular asset class returns from 1926–2011 are examined, and we find that while small company stocks and large company stocks have similar Sharpe ratios, small stocks have superior Sortino ratios. The information ratio is an important measure of active fund manager performance. We suggest replacing the standard deviation of active return with the semideviation. A real-world example demonstrates the value of this revised metric.
Day-of-the-week effect in the Canadian money market
Emerald
Purpose – The purpose of this paper is to examine the day-of-the-week effect for three primary money market instruments in Canada. The sample period is 1980-2009. Design/methodology/approach – The authors use three approaches. First, a parametric t-test is employed to determine if a particular day-of-the-week mean return is significantly different from zero, using both a full sample and a trimmed sample. Next, the Wilcoxon signed ranked test is utilized to assess whether the median weekday return is different from zero for each day. Lastly, a binary regression model is used to test if Monday’s mean return is different from other days. Findings – The traditional Monday effect is prevalent in the 1980s for corporate paper and treasury bills (TB), but not for bankers acceptances (BA). In the 1990s, the Monday effect disappears completely. However, in the 2000s the Monday effect reappears, but is positive (it reverses) for both corporate paper and BA. The authors also find strong support for Wednesday being a high return day, which concurs with related money market studies. Research limitations/implications – While the results are statistically significant, the economic significance is dubious. This study helps market participants in that it shows that they need to allow for distinct day-of-the-week patterns when using yield spreads. Practical implications – One practical implication for practitioners is to time purchases of Canadian money market securities for Monday when returns are low (relying on the results of the full sample period). Issuers should time sales for non-Mondays when returns are higher and yields are lower. Originality/value – This study is original in that it is the first one to analyze day-of-the-week effects in the Canadian money market. The authors compare the results to studies that focus on the US market.
Inflation Risk and Asset Class Performance
Journal of Finance and Investment Analysis
This paper investigates the historical relationship between inflation rates and asset class returns in order to give perspective on which classes perform best when inflation rates are high. This is important to investors as the monetary base has tripled since July 2008, which may be “sowing the seeds” for future above normal inflation levels. Several Federal Open Market Committee members have expressed concern about monetary policy recently and believe that the Federal Reserve needs to focus more on inflation and less on economic recovery. Our research suggests that gold is not only an excellent inflation hedge, but it also improves Sharpe ratios when added to traditional stock/bond portfolios.
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Are stock prices in the US nonstationary? Evidence from contemporary unit root tests
Applied Financial Economics
This article extends the empirical literature on the efficiency of stock markets in the US by applying a battery of unit root tests to empirically ascertain whether stock prices are mean reverting. This article, unlike previous studies, employs a disaggregated approach using the daily closing values of the Dow Jones industrial average, NASDAQ composite and S&P 500 index covering the period 5 February 1971 to 31 December 2009 to investigate the integration properties of the US stock market. The empirical findings reveal that the three major stock price series are nonstationary, indicating that they do not follow a trend path. The primary implication is that trading strategies that simply rely on mean reversion of stock prices are valueless.
An Intuitive Examination of Downside Risk
Journal of Financial Planning
This paper offers insight regarding several unresolved issues related to downside risk evaluation. Specifically, we provide clarity to semivariance, which is a well-known, but often misunderstood risk measure. We examine the calculation methodology for both semivariance and semideviation and give practical financial planning interpretations. Semideviation is used in the Sortino ratio, which assesses return per unit of downside risk. The Sortino ratio is pervasive and well understood, but we question whether a majority of practitioners can make an accurate calculation of the semideviation measure. Popular asset class returns from 1926–2011 are examined, and we find that while small company stocks and large company stocks have similar Sharpe ratios, small stocks have superior Sortino ratios. The information ratio is an important measure of active fund manager performance. We suggest replacing the standard deviation of active return with the semideviation. A real-world example demonstrates the value of this revised metric.
Day-of-the-week effect in the Canadian money market
Emerald
Purpose – The purpose of this paper is to examine the day-of-the-week effect for three primary money market instruments in Canada. The sample period is 1980-2009. Design/methodology/approach – The authors use three approaches. First, a parametric t-test is employed to determine if a particular day-of-the-week mean return is significantly different from zero, using both a full sample and a trimmed sample. Next, the Wilcoxon signed ranked test is utilized to assess whether the median weekday return is different from zero for each day. Lastly, a binary regression model is used to test if Monday’s mean return is different from other days. Findings – The traditional Monday effect is prevalent in the 1980s for corporate paper and treasury bills (TB), but not for bankers acceptances (BA). In the 1990s, the Monday effect disappears completely. However, in the 2000s the Monday effect reappears, but is positive (it reverses) for both corporate paper and BA. The authors also find strong support for Wednesday being a high return day, which concurs with related money market studies. Research limitations/implications – While the results are statistically significant, the economic significance is dubious. This study helps market participants in that it shows that they need to allow for distinct day-of-the-week patterns when using yield spreads. Practical implications – One practical implication for practitioners is to time purchases of Canadian money market securities for Monday when returns are low (relying on the results of the full sample period). Issuers should time sales for non-Mondays when returns are higher and yields are lower. Originality/value – This study is original in that it is the first one to analyze day-of-the-week effects in the Canadian money market. The authors compare the results to studies that focus on the US market.
Inflation Risk and Asset Class Performance
Journal of Finance and Investment Analysis
This paper investigates the historical relationship between inflation rates and asset class returns in order to give perspective on which classes perform best when inflation rates are high. This is important to investors as the monetary base has tripled since July 2008, which may be “sowing the seeds” for future above normal inflation levels. Several Federal Open Market Committee members have expressed concern about monetary policy recently and believe that the Federal Reserve needs to focus more on inflation and less on economic recovery. Our research suggests that gold is not only an excellent inflation hedge, but it also improves Sharpe ratios when added to traditional stock/bond portfolios.
Exchange Traded Notes and the Lehman Bankruptcy
Academy of Accounting and Financial Studies Journal
Exchange traded notes (ETNs) have existed since 2006 yet they have received scant attention in the academic literature. ETNs have several advantages over exchange traded funds (ETFs) such as minimal tracking error and favorable tax treatment. On the negative side, ETN investors bear credit risk, which was severe during the Great Recession. Since ETNs and ETFs are often structured based on the same indexes and are not always easily distinguishable from one another by investors, a comparison of the two types of securities is important. This study provides institutional and technical details related to ETNs that investors should understand better. The study also investigates the most significant risk affecting ETNs, credit risk, using regression analysis. The regression results show that credit risk matters as higher credit spreads decrease the number of ETNs outstanding. As a practical matter for investors, events like the Lehman bankruptcy in September 2008 will impact the demand for ETNs, which will remain volatile and subject to economic conditions.
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Are stock prices in the US nonstationary? Evidence from contemporary unit root tests
Applied Financial Economics
This article extends the empirical literature on the efficiency of stock markets in the US by applying a battery of unit root tests to empirically ascertain whether stock prices are mean reverting. This article, unlike previous studies, employs a disaggregated approach using the daily closing values of the Dow Jones industrial average, NASDAQ composite and S&P 500 index covering the period 5 February 1971 to 31 December 2009 to investigate the integration properties of the US stock market. The empirical findings reveal that the three major stock price series are nonstationary, indicating that they do not follow a trend path. The primary implication is that trading strategies that simply rely on mean reversion of stock prices are valueless.
An Intuitive Examination of Downside Risk
Journal of Financial Planning
This paper offers insight regarding several unresolved issues related to downside risk evaluation. Specifically, we provide clarity to semivariance, which is a well-known, but often misunderstood risk measure. We examine the calculation methodology for both semivariance and semideviation and give practical financial planning interpretations. Semideviation is used in the Sortino ratio, which assesses return per unit of downside risk. The Sortino ratio is pervasive and well understood, but we question whether a majority of practitioners can make an accurate calculation of the semideviation measure. Popular asset class returns from 1926–2011 are examined, and we find that while small company stocks and large company stocks have similar Sharpe ratios, small stocks have superior Sortino ratios. The information ratio is an important measure of active fund manager performance. We suggest replacing the standard deviation of active return with the semideviation. A real-world example demonstrates the value of this revised metric.
Day-of-the-week effect in the Canadian money market
Emerald
Purpose – The purpose of this paper is to examine the day-of-the-week effect for three primary money market instruments in Canada. The sample period is 1980-2009. Design/methodology/approach – The authors use three approaches. First, a parametric t-test is employed to determine if a particular day-of-the-week mean return is significantly different from zero, using both a full sample and a trimmed sample. Next, the Wilcoxon signed ranked test is utilized to assess whether the median weekday return is different from zero for each day. Lastly, a binary regression model is used to test if Monday’s mean return is different from other days. Findings – The traditional Monday effect is prevalent in the 1980s for corporate paper and treasury bills (TB), but not for bankers acceptances (BA). In the 1990s, the Monday effect disappears completely. However, in the 2000s the Monday effect reappears, but is positive (it reverses) for both corporate paper and BA. The authors also find strong support for Wednesday being a high return day, which concurs with related money market studies. Research limitations/implications – While the results are statistically significant, the economic significance is dubious. This study helps market participants in that it shows that they need to allow for distinct day-of-the-week patterns when using yield spreads. Practical implications – One practical implication for practitioners is to time purchases of Canadian money market securities for Monday when returns are low (relying on the results of the full sample period). Issuers should time sales for non-Mondays when returns are higher and yields are lower. Originality/value – This study is original in that it is the first one to analyze day-of-the-week effects in the Canadian money market. The authors compare the results to studies that focus on the US market.
Inflation Risk and Asset Class Performance
Journal of Finance and Investment Analysis
This paper investigates the historical relationship between inflation rates and asset class returns in order to give perspective on which classes perform best when inflation rates are high. This is important to investors as the monetary base has tripled since July 2008, which may be “sowing the seeds” for future above normal inflation levels. Several Federal Open Market Committee members have expressed concern about monetary policy recently and believe that the Federal Reserve needs to focus more on inflation and less on economic recovery. Our research suggests that gold is not only an excellent inflation hedge, but it also improves Sharpe ratios when added to traditional stock/bond portfolios.
Exchange Traded Notes and the Lehman Bankruptcy
Academy of Accounting and Financial Studies Journal
Exchange traded notes (ETNs) have existed since 2006 yet they have received scant attention in the academic literature. ETNs have several advantages over exchange traded funds (ETFs) such as minimal tracking error and favorable tax treatment. On the negative side, ETN investors bear credit risk, which was severe during the Great Recession. Since ETNs and ETFs are often structured based on the same indexes and are not always easily distinguishable from one another by investors, a comparison of the two types of securities is important. This study provides institutional and technical details related to ETNs that investors should understand better. The study also investigates the most significant risk affecting ETNs, credit risk, using regression analysis. The regression results show that credit risk matters as higher credit spreads decrease the number of ETNs outstanding. As a practical matter for investors, events like the Lehman bankruptcy in September 2008 will impact the demand for ETNs, which will remain volatile and subject to economic conditions.
The Ethics of Hedging by Executives
Journal of Business Ethics (forthcoming)
Executives of many publicly held firms agree to compensation packages that create immense exposure to their employer’s stock. Corporate boards, aspiring to motivate executives to make value-maximizing decisions, often tie an executive’s earnings to stock price performance through stock or option awards. However, this engenders a significant ethical dilemma for many executives who are uncomfortable with sizable, firm-specific risk and desire to reduce it through hedging activities. Recent research has shown that executive hedging has become more prevalent. In essence, managers are unwinding the acute economic incentive to act in the best interest of the owners. This appears to violate the spirit of the compensation contract and from a normative standpoint, is not how executives should act. In this paper, we describe how some executives are acting in regard to this issue (descriptive ethics), how they should act (normative ethics) and how they can be helped to get from what they are doing, to what they should be doing (prescriptive ethics).
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Are stock prices in the US nonstationary? Evidence from contemporary unit root tests
Applied Financial Economics
This article extends the empirical literature on the efficiency of stock markets in the US by applying a battery of unit root tests to empirically ascertain whether stock prices are mean reverting. This article, unlike previous studies, employs a disaggregated approach using the daily closing values of the Dow Jones industrial average, NASDAQ composite and S&P 500 index covering the period 5 February 1971 to 31 December 2009 to investigate the integration properties of the US stock market. The empirical findings reveal that the three major stock price series are nonstationary, indicating that they do not follow a trend path. The primary implication is that trading strategies that simply rely on mean reversion of stock prices are valueless.
An Intuitive Examination of Downside Risk
Journal of Financial Planning
This paper offers insight regarding several unresolved issues related to downside risk evaluation. Specifically, we provide clarity to semivariance, which is a well-known, but often misunderstood risk measure. We examine the calculation methodology for both semivariance and semideviation and give practical financial planning interpretations. Semideviation is used in the Sortino ratio, which assesses return per unit of downside risk. The Sortino ratio is pervasive and well understood, but we question whether a majority of practitioners can make an accurate calculation of the semideviation measure. Popular asset class returns from 1926–2011 are examined, and we find that while small company stocks and large company stocks have similar Sharpe ratios, small stocks have superior Sortino ratios. The information ratio is an important measure of active fund manager performance. We suggest replacing the standard deviation of active return with the semideviation. A real-world example demonstrates the value of this revised metric.
Day-of-the-week effect in the Canadian money market
Emerald
Purpose – The purpose of this paper is to examine the day-of-the-week effect for three primary money market instruments in Canada. The sample period is 1980-2009. Design/methodology/approach – The authors use three approaches. First, a parametric t-test is employed to determine if a particular day-of-the-week mean return is significantly different from zero, using both a full sample and a trimmed sample. Next, the Wilcoxon signed ranked test is utilized to assess whether the median weekday return is different from zero for each day. Lastly, a binary regression model is used to test if Monday’s mean return is different from other days. Findings – The traditional Monday effect is prevalent in the 1980s for corporate paper and treasury bills (TB), but not for bankers acceptances (BA). In the 1990s, the Monday effect disappears completely. However, in the 2000s the Monday effect reappears, but is positive (it reverses) for both corporate paper and BA. The authors also find strong support for Wednesday being a high return day, which concurs with related money market studies. Research limitations/implications – While the results are statistically significant, the economic significance is dubious. This study helps market participants in that it shows that they need to allow for distinct day-of-the-week patterns when using yield spreads. Practical implications – One practical implication for practitioners is to time purchases of Canadian money market securities for Monday when returns are low (relying on the results of the full sample period). Issuers should time sales for non-Mondays when returns are higher and yields are lower. Originality/value – This study is original in that it is the first one to analyze day-of-the-week effects in the Canadian money market. The authors compare the results to studies that focus on the US market.
Inflation Risk and Asset Class Performance
Journal of Finance and Investment Analysis
This paper investigates the historical relationship between inflation rates and asset class returns in order to give perspective on which classes perform best when inflation rates are high. This is important to investors as the monetary base has tripled since July 2008, which may be “sowing the seeds” for future above normal inflation levels. Several Federal Open Market Committee members have expressed concern about monetary policy recently and believe that the Federal Reserve needs to focus more on inflation and less on economic recovery. Our research suggests that gold is not only an excellent inflation hedge, but it also improves Sharpe ratios when added to traditional stock/bond portfolios.
Exchange Traded Notes and the Lehman Bankruptcy
Academy of Accounting and Financial Studies Journal
Exchange traded notes (ETNs) have existed since 2006 yet they have received scant attention in the academic literature. ETNs have several advantages over exchange traded funds (ETFs) such as minimal tracking error and favorable tax treatment. On the negative side, ETN investors bear credit risk, which was severe during the Great Recession. Since ETNs and ETFs are often structured based on the same indexes and are not always easily distinguishable from one another by investors, a comparison of the two types of securities is important. This study provides institutional and technical details related to ETNs that investors should understand better. The study also investigates the most significant risk affecting ETNs, credit risk, using regression analysis. The regression results show that credit risk matters as higher credit spreads decrease the number of ETNs outstanding. As a practical matter for investors, events like the Lehman bankruptcy in September 2008 will impact the demand for ETNs, which will remain volatile and subject to economic conditions.
The Ethics of Hedging by Executives
Journal of Business Ethics (forthcoming)
Executives of many publicly held firms agree to compensation packages that create immense exposure to their employer’s stock. Corporate boards, aspiring to motivate executives to make value-maximizing decisions, often tie an executive’s earnings to stock price performance through stock or option awards. However, this engenders a significant ethical dilemma for many executives who are uncomfortable with sizable, firm-specific risk and desire to reduce it through hedging activities. Recent research has shown that executive hedging has become more prevalent. In essence, managers are unwinding the acute economic incentive to act in the best interest of the owners. This appears to violate the spirit of the compensation contract and from a normative standpoint, is not how executives should act. In this paper, we describe how some executives are acting in regard to this issue (descriptive ethics), how they should act (normative ethics) and how they can be helped to get from what they are doing, to what they should be doing (prescriptive ethics).
Yes, Virginia, There Is a Santa Claus Rally: Statistical Evidence Supports Higher Returns Globally
Journal of Financial Planning
Statistical evidence from this study supports the existence of the so-called Santa Claus rally. Daily returns during the holiday period showed both a higher mean and more desirable risk metrics than returns for the rest of the year. These findings are significant using both parametric and non-parametric tests. The results were more robust for the “long” holiday period versus the “short” holiday period. The longer period includes two January trading days and thus may benefit from the well-documented January effect. The short period eliminated these January trading days and shows a significant rally still persists in many developed countries.
Creditor Nations' Equity Indexes and the U.S. Debt Downgrade
International Journal of Economics and Finance
On Friday, August 5, 2011 Standard and Poor’s rating agency downgraded long-term U.S. Treasury debt from AAA to AA+ for the first time in history. In this study, the impact of this downgrade on world stock markets is examined. We analyze the immediate effect of this downgrade on leading stock indices of 31 nations owning U.S. Treasury debt. We find that the downgrade had a marked effect on the first trading day following the announcement. It truly was a macroeconomic event. We further examine whether return differentials were partially explained by the level of U.S. debt that each country possessed (both on an absolute and relative basis). We find no evidence of this relationship, which suggests equity markets in countries owning considerable Treasury securities suffered no more or less than equity markets in countries with less U.S. Treasury debt.
Securities Lending Activities in Mutual Funds and ETFs: Ethical Considerations
Journal of Business Ethics (Forthcoming)
Securities lending has been a lucrative business for mutual funds and exchange-traded funds (ETFs) over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors.
Are stock prices in the US nonstationary? Evidence from contemporary unit root tests
Applied Financial Economics
This article extends the empirical literature on the efficiency of stock markets in the US by applying a battery of unit root tests to empirically ascertain whether stock prices are mean reverting. This article, unlike previous studies, employs a disaggregated approach using the daily closing values of the Dow Jones industrial average, NASDAQ composite and S&P 500 index covering the period 5 February 1971 to 31 December 2009 to investigate the integration properties of the US stock market. The empirical findings reveal that the three major stock price series are nonstationary, indicating that they do not follow a trend path. The primary implication is that trading strategies that simply rely on mean reversion of stock prices are valueless.
An Intuitive Examination of Downside Risk
Journal of Financial Planning
This paper offers insight regarding several unresolved issues related to downside risk evaluation. Specifically, we provide clarity to semivariance, which is a well-known, but often misunderstood risk measure. We examine the calculation methodology for both semivariance and semideviation and give practical financial planning interpretations. Semideviation is used in the Sortino ratio, which assesses return per unit of downside risk. The Sortino ratio is pervasive and well understood, but we question whether a majority of practitioners can make an accurate calculation of the semideviation measure. Popular asset class returns from 1926–2011 are examined, and we find that while small company stocks and large company stocks have similar Sharpe ratios, small stocks have superior Sortino ratios. The information ratio is an important measure of active fund manager performance. We suggest replacing the standard deviation of active return with the semideviation. A real-world example demonstrates the value of this revised metric.
Day-of-the-week effect in the Canadian money market
Emerald
Purpose – The purpose of this paper is to examine the day-of-the-week effect for three primary money market instruments in Canada. The sample period is 1980-2009. Design/methodology/approach – The authors use three approaches. First, a parametric t-test is employed to determine if a particular day-of-the-week mean return is significantly different from zero, using both a full sample and a trimmed sample. Next, the Wilcoxon signed ranked test is utilized to assess whether the median weekday return is different from zero for each day. Lastly, a binary regression model is used to test if Monday’s mean return is different from other days. Findings – The traditional Monday effect is prevalent in the 1980s for corporate paper and treasury bills (TB), but not for bankers acceptances (BA). In the 1990s, the Monday effect disappears completely. However, in the 2000s the Monday effect reappears, but is positive (it reverses) for both corporate paper and BA. The authors also find strong support for Wednesday being a high return day, which concurs with related money market studies. Research limitations/implications – While the results are statistically significant, the economic significance is dubious. This study helps market participants in that it shows that they need to allow for distinct day-of-the-week patterns when using yield spreads. Practical implications – One practical implication for practitioners is to time purchases of Canadian money market securities for Monday when returns are low (relying on the results of the full sample period). Issuers should time sales for non-Mondays when returns are higher and yields are lower. Originality/value – This study is original in that it is the first one to analyze day-of-the-week effects in the Canadian money market. The authors compare the results to studies that focus on the US market.
Inflation Risk and Asset Class Performance
Journal of Finance and Investment Analysis
This paper investigates the historical relationship between inflation rates and asset class returns in order to give perspective on which classes perform best when inflation rates are high. This is important to investors as the monetary base has tripled since July 2008, which may be “sowing the seeds” for future above normal inflation levels. Several Federal Open Market Committee members have expressed concern about monetary policy recently and believe that the Federal Reserve needs to focus more on inflation and less on economic recovery. Our research suggests that gold is not only an excellent inflation hedge, but it also improves Sharpe ratios when added to traditional stock/bond portfolios.
Exchange Traded Notes and the Lehman Bankruptcy
Academy of Accounting and Financial Studies Journal
Exchange traded notes (ETNs) have existed since 2006 yet they have received scant attention in the academic literature. ETNs have several advantages over exchange traded funds (ETFs) such as minimal tracking error and favorable tax treatment. On the negative side, ETN investors bear credit risk, which was severe during the Great Recession. Since ETNs and ETFs are often structured based on the same indexes and are not always easily distinguishable from one another by investors, a comparison of the two types of securities is important. This study provides institutional and technical details related to ETNs that investors should understand better. The study also investigates the most significant risk affecting ETNs, credit risk, using regression analysis. The regression results show that credit risk matters as higher credit spreads decrease the number of ETNs outstanding. As a practical matter for investors, events like the Lehman bankruptcy in September 2008 will impact the demand for ETNs, which will remain volatile and subject to economic conditions.
The Ethics of Hedging by Executives
Journal of Business Ethics (forthcoming)
Executives of many publicly held firms agree to compensation packages that create immense exposure to their employer’s stock. Corporate boards, aspiring to motivate executives to make value-maximizing decisions, often tie an executive’s earnings to stock price performance through stock or option awards. However, this engenders a significant ethical dilemma for many executives who are uncomfortable with sizable, firm-specific risk and desire to reduce it through hedging activities. Recent research has shown that executive hedging has become more prevalent. In essence, managers are unwinding the acute economic incentive to act in the best interest of the owners. This appears to violate the spirit of the compensation contract and from a normative standpoint, is not how executives should act. In this paper, we describe how some executives are acting in regard to this issue (descriptive ethics), how they should act (normative ethics) and how they can be helped to get from what they are doing, to what they should be doing (prescriptive ethics).
Yes, Virginia, There Is a Santa Claus Rally: Statistical Evidence Supports Higher Returns Globally
Journal of Financial Planning
Statistical evidence from this study supports the existence of the so-called Santa Claus rally. Daily returns during the holiday period showed both a higher mean and more desirable risk metrics than returns for the rest of the year. These findings are significant using both parametric and non-parametric tests. The results were more robust for the “long” holiday period versus the “short” holiday period. The longer period includes two January trading days and thus may benefit from the well-documented January effect. The short period eliminated these January trading days and shows a significant rally still persists in many developed countries.
Partial Roth Conversions in Early Retirement: An Effective Strategy for Extending Portfolio Longevity
Journal of Financial Service Professionals
Roth conversions are beneficial to middle-class Americans with substantial tax-deferred accounts and modest taxable incomes. Those approaching retirement or in retirement perhaps best fit this description. A conversion strategy not only extends the life of a portfolio, it also protects against substantial future tax expenditures through the transfer of funds to a tax-free Roth IRA account in early retirement. The analysis conducted demonstrates that a dual-earning couple with combined annual income of $200,000 would be astute to fund a traditional 401(k) over a Roth 401(k) and then, at retirement, initiate partial Roth conversions.
