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Welcome to the 2018 AFS Annual Meeting, being held this year, in conjunction with FPA in Chicago!

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Oral Session [clear filter]
Tuesday, October 2
 

8:00am CDT

A1a - Do Equal-Weighted Index Funds Outperform Market Cap-Weighted Index Funds? [CFP Investments]
Investors have traditionally been advised to invest in market capitalization weighted index funds such as the S&P 500 index funds. However, recent literature suggests that investors may be better off choosing equal-weighted indexes for their portfolio investments. We investigate this issue empirically and find that, over the last twenty-seven years, the equal-weighted S&P 500 index has consistently outperformed the capitalization-weighted S&P 500 index over rolling 1-year, 3-year and 5-year periods, both in terms of cumulative returns and Sharpe ratios. We also find that an ETF that tracks the equal-weighted S&P 500 index has consistently yielded better risk-adjusted returns than the most popular ETF that tracks the cap-weighted S&P 500. These differences are driven by the firm size and book-to-market factors. However, when we study the smaller S&P MidCap 400 and the S&P SmallCap 600 indexes, we find that the equal-weighted indexes perform no better than the traditional cap-weighted indexes. Our results should be of interest to investors, financial advisors and practitioners.

Author(s): S. Gowri Shankar, James M. Miller

Presenters
avatar for Gowri Shankar

Gowri Shankar

Faculty, University of Washington Bothell


Tuesday October 2, 2018 8:00am - 8:50am CDT
Michigan 1A

8:00am CDT

A1b - Risk and Reward of Fractionally-Leveraged ETFs in a Stock/Bond Portfolio [CFP Investments]
This article investigates 1.25X daily leveraged stock and bond exchange-traded funds (ETFs) as an alternative asset allocation for periodically rebalanced portfolios.  Performance is analyzed by replicating funds from 1989-2017.  Conditions for excess returns are derived analytically and confirmed empirically.  Simulations are conducted to evaluate portfolio performance to provide robust assessments under a variety of market conditions.  Results indicate a potential to amplify gains with a marginal reduction in Sharpe ratio. We conclude that for individual investors seeking additional returns from a stock/bond portfolio, the reduction of risk-adjusted return may be small enough to justify 1.25X leveraged ETFs over other alternatives with similar risk/reward profiles.

Author(s): James DiLellio

Presenters
avatar for James DiLellio

James DiLellio

Associate Professor, Pepperdine University


Tuesday October 2, 2018 8:00am - 8:50am CDT
Michigan 1A

8:00am CDT

A2a - How to Position a Retirement Investor’s Bond Portfolio in a Rising/Inverting Rate Environment (Work in progress)
The majority of the recessions in the last 50 years followed an inverted yield curve. We investigate the best strategy for a retirement investor’s allocation to fixed income when facing an upward sloping yield curve and a prospect of Fed hikes. We consider the cases of an investor holding individual 2-year and 10-year bonds, holding short and long bond funds, and holding corporate bond funds. We apportion the performance of each strategy to the duration, convexity and maturity effects of the capital gains plus the coupon cash flow. We find that the standard prescription to shorten the duration is often wrong, especially so in the last two cases of bond funds.

Author(s): Robert Dubil

Presenters
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Robert Dubil

Professor, University of Utah


Tuesday October 2, 2018 8:00am - 8:50am CDT
Michigan 1B

8:00am CDT

A2b - Post-Earnings-Announcement Drift: The Role of Investment Surprises
The paper first time examines the effect of investment surprises on post-earnings-announcement_x000D_
drift. Results show that investment surprises, which is a kind of non-earning concurrent_x000D_
information released at the same time with earnings announcement, have a negative effect on the_x000D_
post-earnings-announcement drift. Further various robustness checks confirm this relation. Our_x000D_
results are consistent with recent developments of the investment-based asset pricing model and_x000D_
support the argument that the post-earnings-announcement drift is due to the inaccuracy of_x000D_
underlying benchmark to capture the real risks.

Author(s): Aaron Lin

Presenters
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Aaron Lin

Western Connecticut State University


Tuesday October 2, 2018 8:00am - 8:50am CDT
Michigan 1B

8:00am CDT

A3a - Access to Finance for SMEs: Which Firms are Discouraged?
Using a representative survey-based dataset for Swiss SMEs, we analyze their access to finance. We model the credit allocation process for SMEs into a sequence of three steps and differentiate between “no-need”, “discouraged”,“denied” and "approved" firms. We set a specific focus on discouraged firms, those firms who reported a need for credit but did not apply for one, for reasons such as the fear of being turned down or the expectation of unfavorable interest rates and collateral requirements. Our results reveal that the group of discouraged borrowers is more similar to the denied borrowers than to the group of approved borrowers. Nevertheless, even with a conservative prediction, about 60 percent of the discouraged firms would have obtained a credit, if they applied for one. The self-rationing mechanism observed is thus rather inefficient and banks and policy makers should think about how to lower the group of discouraged borrowers.

Author(s): Andreas Dietrich, Reto Wernli

Presenters
AD

Andreas Dietrich

Professor for Banking, Lucerne University of Applied Sciences


Tuesday October 2, 2018 8:00am - 8:50am CDT
Michigan 1C

8:00am CDT

A3b - Diversity and Firm Performance
The modern American workplace is a microcosm of modern American society. The increasing diversity of the American workforce has made the increasing diversity of the American workplace a necessity. We explore the impact of diversity on firm performance. One way we measure a firm’s diversity is by using the Corporate Equality Index published by the Human Rights Campaign. We also use a firm’s inclusion in DiversityInc’s list of Top 50 Companies for Diversity, as well as discrimination lawsuit data from the Bloomberg BNA database. We expect that firms that have a better diversity reputation will outperform firms that do not.

Author(s): Makeen Huda, Jennifer Brodmann, M. Kabir Hassan

Presenters
MH

Makeen Huda

University of New Orleans


Tuesday October 2, 2018 8:00am - 8:50am CDT
Michigan 1C