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March 24, 2010 Abdullah Al-Ashi Jungha Woo Muna Albasman Talha Yasin.

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Presentation on theme: "March 24, 2010 Abdullah Al-Ashi Jungha Woo Muna Albasman Talha Yasin."— Presentation transcript:

1 March 24, 2010 Abdullah Al-Ashi Jungha Woo Muna Albasman Talha Yasin

2 (When rolling periods is (+2) months) JAN 2003 FEB 2003 MAR 2003 APR 2003 MAY 2003 2 1.IBM 2.MSFT 3.GOOG 4.DELL 5.JAVA 6.YHOO 7.CIT 8.PM 9.EXPE 10.COST 1.IBM 2.GOOG 1.IBM 2.GOOG 3.MSFT 4.DELL 3.MSFT 4.DELL 5.JAVA 6.COST 5.JAVA 6.COST 7.PM 8.CIT 7.PM 8.CIT 9.EXPE 10.YHOO 9.EXPE 10.YHOO Sorting points Earning report dates Gt = -

3  Applied adjusted price and adjusted volume for Reference price, Capital gain overhang (Gt) computation  adjusted price = unadjusted prc/cum adjusting factor( dsf.cfacpr)  adjusted volume = unadjusted vol* cum vol adj factor ( dsf.cfacshr)  Used to compute correct reference price

4  Fixed incorrect capital gain overhang values  Due to incomplete CRSP mutual fund database, some mutual funds holding reports include 0 as total market value when its number of shares and stock price are both positive.  Corrected: Now, only 2 missing value exist out of millions of observations

5  Formed portfolio in terms of Gt, CAR using SAS and divided that into quintile.  Computed one month rolling portfolio  …

6  Calculated holding period (1&2-months) returns with adjusted price  Calculated the 1&2-month portfolio excess return, regressed to get monthly alpha for each quintile  Running time was around 190 min for 1- month portfolio excess return calculation and around 120min for the 2-month portfolio excess return

7  For delisting events, we currently assumed 100% loss incurred  Technically, holding period return value can be refined by calculating delisting returns and investing risk-free assets for the last month of the rolling period  Adopted 100% loss for simplicity  Will improve later  Table join is costly

8 IDCARReturn (Feb-Jan/Jan) Rf 01 Return- Rf 837500.0387126743 0.0666666000000030.1-0.033333399999997 44813-0.032715938-0.095238078231292 0.1-0.195238078231292 74500-0.0708713680.1498973380181220.10.049897338018122 1-month portfolio of JAN2003 2-month portfolio of JAN2003 IDCARReturn (March-Jan/Jan) Rf 01 Return- Rf 837500.03871267430.2666666000000030.10.166666600000003 44813-0.032715938-0.14285708163265 1 0.1-0.242857081632651 74500-0.0708713680.0616016833156530.1 -0.038398316684347

9 IDCARReturn (March-Feb/Feb) Rf 02 Return- Rf 885031.21384125620.5789473881994460.090.488947388199446 881780.86552235670.09-1.0900 843140.5666373861 00.09-0.0900 1-month portfolio of FEB2003 2-month portfolio of FEB2003 IDCARReturn (Apr-Feb/Feb) Rf 02 Return- Rf 885031.2138412562-0.0631578980542940.09-0.15315789805429 881780.86552235670.09-1.0900 843140.5666373861 -2.0849055778390900.09-2.17490557783909

10 Quintiles Classification 1-mon portfolioAverage excess monthly returnExcess Market Return minDateq1q2q3q4q5 02-Jan-2003-0.0333-0.19520.049900-2.4400 03-Feb-2003-0.2119-0.2562-0.1880-0.2125-0.2102-1.6300 03-Mar-2003-0.2102-0.2149-0.2116-0.2146-0.2104 0.9300 01-Apr-2003-0.1634-0.2059-0.1980-0.1733-0.1022 8.1800 2-mon portfolioAverage excess monthly returnExcess Market Return minDateq1q2q3q4q5 02-Jan-20030.1667-0.2429-0.0384 00-2.4400 03-Feb-2003-0.1919-0.2241-0.1943-0.1961-0.1900-1.6300 03-Mar-2003-0.0751-0.1459-0.1300-0.1522-0.0964 0.9300 01-Apr-2003 0.0236-0.0681-0.1165-0.02630.1135 8.1800

11 Regression  Time-series averages of excess monthly returns, in excess of CRSP market index where R is the portfolio’s return rate, R f is the risk-free return rate, and Mkt is the return of the whole stock market.  R f and Mkt downloaded from Ken French’s online data library, http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html#BookEquity

12 Table V of Disposition Effect Paper Monthsq1 (good) q2q3q4q5 (bad) L/S +1 -0.3899-0.4667-0.5781-0.4591-0.40640.0165 +2 -0.3807-0.4625-0.5779-0.4550-0.40120.0205

13

14 Calculate holding period return  First, need to get the first trading day of each month( called mindate)  Secondly, integrate CAR and Gt over all the available data set, and compute Gt at mindates  CAR values available at earning report dates  Gt values meaningful at mindates.  Calculate the adjusted price difference, return for each stocks in quintile  Calculation of returns and alphas

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