MAY 2009 The Case for Small Cap and Value DIMENSIONAL FUND ADVISORS IN RECENT DECADES‚ RESEARCHERS HAVE DISCOVERED a number of interesting results by studying the world’s stock markets. Two of the more interesting discoveries are the size effect and the value effect. The size effect refers to the tendency for small cap stocks to have higher average returns than large cap stocks. Banz (1981) shows that this return difference persists after controlling for systematic (beta) risk‚ and Fama and
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more predictable in most countries. A financial shock can result in the sudden reversal of capital flows and also in sharp declines in inflows. Generally‚ it is assumed that FDI as compared to Portfolio Investment (PI) is more stable‚ less prone to volatility and brings significant development benefits to the country‚ reasons why many developing countries have designed incentive packages to attract foreign capital. “FDI triggers technology spillovers‚ assists human capital formation‚ contributes to international
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duration of up to a year. Exchange rates have a massive influence on the price of traded products. Theoretically‚ exchange rate responses to terms-of-trade shocks can operate via the “income effect” of Dornbusch (1976)2; whereby exchange rate volatility in the short run is greater due to its compensating elements for sticky prices. Additional‚ the Balassa-Samuelson effect emphasizes that the nominal exchange rate will incorporate expectations of future commodity price increases; if costs of adjustment
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Test Bank: Chapter 1 Introduction 1. List three types of traders in futures‚ forward‚ and options markets i. _ _ _ _ _ _ _ _ ii. _ _ _ _ _ _ _ _ iii. _ _ _ _ _ _ _ _ 2. Which of the following is not true (circle one) a. When a CBOE call option on IBM is exercised‚ IBM issues more stock b. An American option can be exercised at any time during its life c. An call option will always be exercised at maturity if the underlying asset price is greater than the strike price d. A put option will always be
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Financial Investments Fall 2012 Joni Kokkonen General outline 1. “Technological” part of asset allocation – How can we characterize the opportunities available to the investor given the features of the broad asset markets in which they can invest? – The investment opportunity set 2. “Personal” part of asset allocation – How should an individual investor choose the best risk-return combination from the set of feasible combinations? 3. Equilibrium – When all investors optimize their
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hil61217_ch20_case.qxd 5/12/04 17:17 Page 46 ADDITIONAL CASES ■ CASE 20.3 PLANNING PLANERS This was the first time that Carl Schilling had been summoned to meet with the bigwigs in the fancy executive offices upstairs. And he hopes it will be the last time. Carl doesn’t like the pressure. He has had enough pressure just dealing with all the problems he has been encountering as the foreman of the planer department on the factory floor. What a nightmare this last month has been! Fortunately
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aMFE Reference Nobody22 May 11‚ 2010 Variables S = Stock price F = Forward price K = Strike price C = Call option P = Put option r = Continuous risk-free interest rate δ = Continuous dividend rate t = Time σ = Volatility (Normal distribution) ∆ = Shares of stock to replicate option B = Amount to borrow to replicate option p∗ = % Chance stock will increase (using r) p = % Chance stock will increase (using α) q = % Chance stock will decrease u = Ratio increase in the price d = Ratio decrease
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References: Amilon H (2003) GARCH estimation and discrete stock prices: an application to low-priced Australian stocks Andersen TG‚ Bollerslev T‚ Diebold FX‚ Labys P (1999) (Understanding‚ optimizing‚ using and forecasting) realized volatility and correlation‚ New York University‚ Leonard N School Finance Department Working Paper‚ No. 99–061 Antoniou A‚ Vorlow CE (2005) Price clustering and discreteness: is there chaos behind the noise? Physica A 348:389–403 Ball C (1988) Estimation bias
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What is meant by market risk? 2. Why is the measurement of market risk important to the manager of a financial institution? 3. What is meant by daily earnings at risk (DEAR)? What are the three measurable components? What is the price volatility component? 4. Follow bank has a $1 million position in a five-year‚ zero-coupon bond with a face value of $1‚402‚552. The bond is trading at a yield to maturity of 7.00 percent. The historical mean change in daily yields is 0.0 percent‚ and
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supervision‚ he hands a USB containing his current work to a junior analyst (Sullivan) and warns him to “be careful.”The analyst completes Dale’s project and is able to interpret his findings as the firm being in dangerous proximity of exceeding Historic Volatility levels. He learns
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