Research🔎
Working papers📝
Abstract: In January 2025, the Center for Research in Security Prices (CRSP) will discontinue the existing CRSP tape used in many published papers. This transition rewrites 9.62% of monthly returns by more than one basis point primarily due to a change in the dividend reinvestment assumption. The mean absolute change equals 22 basis points. Analyzing the impact of these changes for a comprehensive set of premia in several thousand sorting specifications reveals that, on average, 11.43% of all monthly long-short returns differ by more than ten basis points. Reassuringly, these differences do not translate into significant changes in (time-series) average premia or their significance. However, these changes potentially affect conditional analyses on return-based premia, dividend-paying industries, NBER recession periods, and samples prior to 2000.
Abstract: Negative screening (of ”sin” stocks) is one of the most common strategies used by socially responsible investors. The existing literature identifies sin companies using industry classification codes (IC). We propose an alternative continuous measure of firms’ exposure to sin activities (sinfulness) based on textual analysis (TA) of their annual reports. Sinfulness captures both cross-sectional and time-series variation in firms’ exposure to sin activities. The correlation between the IC and TA sin indicators is only 0.69, with twice as many sin stocks in TA than in IC. TA reveals several important false positive and numerous false negative sin stocks in IC. A sinfulness- weighted portfolio of sin stocks earns an annualized Fama-French 6-factor alpha of 5%. Further tests suggest that the abnormal performance is not explained by crash risk or mispricing, but is significantly related to litigation (legal) risk.
Data📂: sin_data.zip
Coverage📰: AlphaArchitect
Presentations📍: 6th Annual Conference of the Global Research Alliance on Sustainable Finance and Investment at Yale University (GRASFI 2023); 29th Annual Meeting of the German Finance Association (DGF 2023); 20th Annual Corporate Finance Days (CFD 2023); WHU Conference on CSR, the Economy and Financial Markets (CSR 2023); 18th Annual Conference on Asia-Pacific Financial Markets (CAFM 2023); 21th EUROFIDAI-ESSEC Paris December Finance Meeting (PDFM 2023); 63rd Annual Meeting of the Southwestern Finance Association (SWFA 2024)
Figure: Number of unconditional buy signals and information-driven (CID) buy signals with increasing surplus requirements
Abstract: We propose a simple approach to synthesize presumably information-driven insider trading signals for the cross-section of stocks. We find that the resulting composite strategy can predict returns, predominantly in equal-weighted portfolios, in our global sample. The results indicate that the benefits of our composite strategy reflect a short-term informational advantage of insiders. Finally, cross-country analysis reveals that varying insider trading restrictions between countries have limited explanatory power for the benefits of the composite strategy.
Appendix📂: Stock Market Data; RavenPack Mapping
Presentations📍: Finance Seminar at HEC Liège (2023); Finance Seminar at University of Maastricht (2023); 63rd Annual Meeting of the Southwestern Finance Association (SWFA 2024); Robeco Research Seminar (2024); 4th Frontiers of Factor Investing Conference (FoFI 2024)°; 40th International Conference of the French Finance Association (AFFI 2024)°; 33rd Annual Meeting of the European Financial Management Association (EFMA 2024)°; 30th Annual Meeting of the German Finance Association (DGF 2024); 5th Annual Boca-ECGI Corporate Finance and Governance Conference (BOCA-ECGI 2024)
Publications📄
Journal of Empirical Finance 80, (2025), 101560.
Abstract: I study the performance of nine (downside) volatility-managed equity factors before and after considering transaction costs in 45 international equity markets. My results suggest that volatility management is most promising for market, value, profitability, and especially momentum portfolios. The performance of volatility-managed market and value portfolios can be further enhanced by applying downside volatility as a scaling factor. Nevertheless, only the managed market and momentum strategies are partially robust to transaction cost suggesting that the persistence of abnormal returns can largely be explained by the associated transaction costs. Cross-country analysis suggests that the slow trading hypothesis is partially able to explain cross-country performance differences of volatility-managed value and momentum portfolios. Finally, performance decomposition analysis reveals additional suggestive evidence in support of the slow trading hypothesis.
Presentations📍: 28th Annual Meeting of the German Finance Association (DGF 2022); 83rd Annual Conference of the German Association for Business Research (VHB 2022)