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Session Chair: Emmanouil Platanakis, University of Bath
Location:Room "Auditorium"
Presentations
Timing the factor zoo
Christoph Reschenhofer1, Andreas Neuhierl2, Otto Randl1, Josef Zechner1
1Vienna University of Economics and Business, Austria; 2Washington University in St. Louis
Discussant: Miao Zhang (University of Southern California)
We provide a comprehensive analysis of the timing success for equity risk factors. Our analysis covers over 300 risk factors (factor zoo) and a high dimensional set of predictors. The performance of almost all groups of factors can be improved through timing, with improvements being highest for profitability and value factors. Past factor returns and volatility stand out as the most successful individual predictors of factor returns. However, both are dominated by aggregating many predictors using partial least squares. The median improvement of a timed vs. untimed factor is about 2% p.a. A timed multifactor portfolio leads to a 20% increase in return relative to its untimed counterpart.
1Olin Business School, Washington University in St. Louis; 2Rutgers University
Discussant: Christoph Reschenhofer (Vienna University of Economics and Business)
We investigate the effect of ETF ownership on stock market anomalies and market efficiency. We find that low ETF ownership stocks exhibit higher returns, greater Sharpe ratios, and highly significant alphas in comparison to high ETF ownership stocks. We show that high ETF ownership stocks demonstrate more pronounced information flows than low ETF ownership stocks which reduces their mispricing as they are more informationally efficient. We find similar results when we match the two groups based on size, volume, book-to-market, and momentum. Our results are robust to different matching methods and to a wide array of controls in Fama-MacBeth regressions. Using Russell index reconstitution, we find causal evidence that ETF ownership attenuates anomaly returns.
Wisdom of the Institutional Crowd: Implications for Anomaly Returns
Miao Zhang, AJ Chen, Gerard Hoberg
University of Southern California, United States of America
Discussant: Joren Koëter (Rotterdam School of Management, Erasmus University)
We hypothesize that when price correction requires more capital than any one investor can provide, institutions coordinate trading via crowd-sourcing in the media. When the crowd reaches a consensus, synchronized trading occurs, prices are corrected, and anomaly returns result. We use over one million Wall Street Journal articles from 1980 to 2020 to develop a novel textual measure of institutional investors making predictions in the media (InstPred). We show that (i) both value and momentum anomaly returns are 34% to 63% larger when InstPred is higher; (ii) these effects are driven by stocks whose institutional investors are highly cited in WSJ articles; and (iii) institutional investors collectively trade the anomalies more aggressively when InstPred is higher. Our results cannot be explained by existing measures such as document tone.