Sarwar, Golam ORCID: 0000-0003-3060-887X (2017) Essays on investment. PhD thesis, University of Greenwich.

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Abstract

This research provides three self-contained empirical studies in investment management. The first essay performs a comparative analysis of the asymmetries in size, value, and momentum premiums and their macroeconomic determinants over the UK economic cycles, using Markov switching approach. We find clear evidence of cyclical variations in the three premiums, most notable in the size premium. Macroeconomic variables prompting such cyclicality the most are variables that proxy credit market conditions, namely the interest rates, term structure and credit spread. We find that forecasts based on our model have considerable economic significance for investors, particularly for trading strategies involving small-cap stocks.

The second essay contributes to the style timing literature by quantifying survival time of style portfolio momentum and implement style timing strategies based on the mean survival time. We find that empirical survival times differ from those implied by theoretical models (Random Walk and ARMA (1, 1)) - suggesting the profitability of momentum trading. We illustrate this by forming long-only, short-only and long-short trading strategies that exploit positive and negative momentum and their average survival time. Our trading strategies show that utilising momentum mean survival time yields considerably higher Sharpe ratios than the naive buy-and-hold at a feasible level of transaction costs. This finding is most pronounced among the long/short strategies.

The third essay contributes to the scarce literature of sector rotation by studying the risk-adjusted performance of sector portfolios with Fama-French three-factor (3FM) and five-factor models (5FM). We argue that if either of the models generates true alpha then we can incorporate investment strategies to generate higher returns. Although our empirical findings assert the theoretical argument that 5FM explains cross section of expected sector returns in greater accuracy, it is not found to be significantly different from 3FM while trading with Fama-French sector portfolios. However, while trading with readily investable sector ETFs, 5FM found to outperform 3FM which justifies our argument that Fama-French 5FM provides truer alpha than 3FM that can be exploited by sector rotation strategies.

Item Type:	Thesis (PhD)
Uncontrolled Keywords:	Finance; investment; macroeconomics;
Subjects:	H Social Sciences > HG Finance
Faculty / School / Research Centre / Research Group:	Faculty of Business Faculty of Business > Department of Accounting & Finance
Last Modified:	26 Apr 2019 13:48
URI:	http://gala.gre.ac.uk/id/eprint/23741

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