Klaus Grobys

University of Vaasa · School of Accounting and Finance

This is the first study to investigate the profitability of Barroso and Santa-Clara’s [J. Financial Econ., 2015, 116, 111–120] risk-managing approach for George and Hwang’s [J. Finance, 2004, 59, 2145–2176] 52-week high momentum strategy in an industrial portfolio setting. The findings indicate that risk-managing adds value as the Sharpe ratio incr...

A total of 1.1 million bitcoin were stolen in the 2013-2017 period. Noting that the average price for Bitcoin in 2018 was USD 7,572 the corresponding monetary equivalent of losses is USD 8.9 billion which strongly shows the societal impact of this criminal activity. Investigating the response of the uncertainty of Bitcoin when hacking incidents occ...

This is the first paper that explores lottery-like demand in cryptocurrency markets. Since recent research provides evidence that cryptocurrency returns are rather short-memory processes in their nature, we modify Bali et al.'s (2011, 2017) MAX measure and employ a weekly forecast horizon and last week's daily log-returns for calculating the metric...

In this article, we investigate industry momentum strategies. We find that industry portfolios that outperformed in the previous month generate on average significantly higher returns in the holding period than assets that underperformed. Plain and risk‐managed strategies using this short‐run industry momentum are not subject to optionality effects...

This paper investigates Barroso and Santa-Clara’s [J. Financ. Econ., 2008, 116, 111–120] risk-managed momentum strategy in an industry momentum setting. We investigate several traditional momentum strategies including that recently proposed by Novy-Marx [J. Financ. Econ., 2012, 103, 429–453]. We moreover examine the impact of different variance for...

Based on Bitcoin's mining schedule, all Bitcoin will be mined and in circulation by the year 2140. Bitcoin advocates may argue that in the ex-post 2140 period-as the Bitcoin ecosystem grows-increased transaction fees might cover the costs for maintaining the blockchain in the absence of block rewards. Contrary to this enthusiastic view on Bitcoin's...

Departing from previous studies, this paper uses power laws to model daily realized variances for the top-10 altcoins in terms of historical market capitalization. To compute joint test, we propose a novel methodology based on blocks bootstraps to estimate the covariance matrix of power-law exponents. Empirical tests provide strong evidence for eme...

Departing from previous studies, this paper uses power laws to model foreign exchange rate risks in terms of realized foreign exchange rate (FX) variances for daily and weekly data. Empirical tests based on daily data provide strong evidence for emergent market risk behavior manifested in a common power-law exponent governing the cross section of r...

This is the first study that explicitly explores the risk of the Fama and French equity risk factors in terms of their realized variances. Using the available data for each risk factor, our results show that realized factor variances exhibit strong power-law behavior. A striking commonality is that the power-law exponents are ≈ 2 regardless of whic...

This simulation-based study proposes a novel test for power laws. While earlier research relied on tests based on Kolmogorov-Smirnov distances which is often considered a weak type of test, the test statistic proposed here offers remarkable properties in terms of its power suggesting a strong test. Contrary to earlier well-established research, it...

Fitting Dow Jones 30 index data for the 1790−1999 period to a log-periodic power-law singularity (LPPLS) model, the seminal paper from Johansen and Sornette (2001) was the first to show that the U.S. equity growth rate is accelerating such that the market is growing as a power law towards a spontaneous singularity. Their model suggests that the U.S...

This study explores the dependency structure of S&P 500 survivor stocks. Using a hand-collected sample of stocks that survived in the S&P 500 since March 1957, we employ rescaled/range analysis to investigate survivors. First, we find non-linearities in the return processes of survivor stocks due to Paretian tails. Second, the return processes of v...

Analogous to traditional Initial Public Offerings (IPO), Initial Coin Offerings (ICOs) represent an emerging channel through which firms can access external funding using the new evolving digital financial market for tokens. However, while ICOs represent an alternative funding channel for startups, the ICO market is essentially unregulated, which c...

Retrieving information from an intensive hand-collected whitepaper data library covering 5,033 ICOs launched before 2020, we analyze the determinants of ICO success as measured by the amount of raised funding. We assess the sentiment and readability in ICO whitepapers in addition to other information disclosures. Whereas we do not find any evidence...

The momentum effect attracted considerable amount of attraction among scholars. Over the past 30 years, the paper from Jegadeesh and Titman (1993)-published in the well-known Journal of Finance-has been cited more than 14,000 times. Many explanations for this phenomenon have been proposed in the academic literature resting upon the common foundatio...

About this book: Inspired by Nassim N. Taleb’s works The Black Swan, Antifragile, and Skin in the Game, Klaus Grobys explores how rationality and irrationality are manifested in human behavior across various domains of human life. The stories discussed in this book are based on real-life observations. This work deals with political incorrectness, t...

This study extends Mandelbrot’s (2008) multifractal model of asset returns to model realized variances across different time frequencies. In a comparative manner, various degrees of time deformations are explored for implementation of the multiplicative cascade. In doing so, this study focuses on two effects: discontinuity measured by the specific...

Employing partially hand-collected data, sample hedge funds are formed into four categories depending on their level of automation. We find that hedge funds with the highest level of automation outperform other hedge funds with more reliance on human involvement. Also, we find that a man versus machine zero-cost strategy that is long hedge funds po...

The concept of correlation appears to be the cornerstone of modern finance as it is applied in almost all finance-related research studies. However, Fama (1963) argued that “if the [population] variance is infinite, other statistical tools (e.g., least-squares regression) which are based on the assumption of finite variance will, at best, be consid...

While the majority of earlier studies uses autocorrelation-based methodologies to explore the dependency structure for Bitcoin, this paper follows Benoit Mandelbrot in taking a fractal point of view. We show that both Bitcoin and S&P 500 returns are subject to fractality in terms of statistical self-affinity. Surprisingly, S&P 500 returns are 'wild...

Factor momentum produces robust average returns that exhibit a similar economic magnitude as stock price momentum. To the extent that the post-earnings announcement drift (PEAD) factor captures mispricing, winner factors earn profits from being long on underpriced stocks and short on overpriced stocks. Conversely, loser-factors’ negative exposure t...

In the era of digitalization, cryptocurrencies have become an alternative asset for both retail and institutional investors. While the emerging digital ecosystem based on blockchain technology offers numerous advantages, it is important to be aware of potential risks such as hacking incidents. In the 2011–2021 period, approximately 1.7 million unit...

This study tests the power law null hypothesis for G10 currencies. Using high frequency intraday data to model realized variances, we find that most foreign exchange rate variances are governed by power law processes exhibiting an exponent below three, which implies that the variance of variance does not exist for most variances. Lower frequency da...

This paper investigates the performance and characteristics of survivor stocks in the S&P 500 index. Using both in-sample and out-of-sample comparisons, survivor stocks outperformed this market index by a considerable margin. Relative to other S&P 500 index companies, survivor stocks tend to be small-value stocks that exhibit high profitability and...

While stablecoins such as Tether closely track the peg, there is some evidence for recurring spikes in stablecoins’ intraday volatilities rendering stablecoin volatilities unstable (Grobys et al., 2021). Using the Barndorff-Nielsen and Shephard (2006a) methodology, the purpose of our study is to examine whether jumps in Tether have an impact on (su...

Extending Fama and French’s U.S. study on choosing factors to international equity markets, we test nested and non-nested asset pricing models for North America, Europe, Asia excluding Japan, and Japan. For non-nested models, we propose a new simulation methodology using a blocks bootstrap approach that takes into account factor dependencies. The r...

This paper investigates the volatility processes of stablecoins and their potential stochastic interdependencies with Bitcoin volatility. We employ a novel approach to choose the optimal combination for the power law exponent and the minimum value for the volatilities bending the power law. Our results indicate that Bitcoin volatility is well-behav...

Recent research shows that the vast majority of scientific studies published in leading finance journals fails scientific replication (Hou, Xue, and Zhang, 2020; Harvey, Liu, and Zhu; 2016). This study argues that p-hacking, publication pressure and the selection bias from leading finance journals are perhaps not the underlying root cause for this...

This paper explores whether asset market equilibria in cryptocurrency markets do exist. In doing so, it distinguishes between privacy and non-privacy coins. Most recently, privacy coins have attracted increasing attention in the public debate as non-privacy cryptocurrencies, such as Bitcoin, do not satisfy some users’ demands for anonymity. Analyzi...

This paper explores cross-sectionally the determinants of ICO success as measured by the amount of raised funding. Our study is the first that retrieves an intensive hand-collected data library covering the entire population of all 5,033 ICOs launched in the 2014-2019 period. Another important novel aspect is that we address the question whether ps...

Recent research shows that the vast majority of scientific studies published in leading finance journals fails scientific replication (Hou, Xue, and Zhang, 2020; Harvey, Liu, and Zhu; 2016). This study argues that p-hacking, publication pressure and the selection bias from leading finance journals are perhaps not the underlying root cause for this...

This paper investigates the volatility processes of stablecoins and their potential stochastic interdependencies with Bitcoin volatility. We employ a novel approach to choose the optimal combination for the power law exponent and the minimum value for the volatilities bending the power law. Our results indicate that Bitcoin volatility is well-behav...

This is the first paper that explores lottery-like demand in cryptocurrency markets. Since recent research provides evidence that cryptocurrency returns appear to be short-memory processes, we modify Bali, Cakici and Whitelaw’s (2011) and Bali, Brown, Murray, and Tang’s (2017) MAX measure and employ a weekly forecast horizon and daily log-returns f...

Cryptocurrencies employ different consensus protocols to verify transactions. While the “proof-of-work” consensus protocol is the most energy-consuming protocol, “proof-of-stake” and the hybrid of these two consensus protocols, which consume considerably less energy, have also been introduced. We employ portfolio analysis to explore whether energy...

This study examines the profitability of the mixing and integrating approach for constructing multi-factor smart beta portfolios. While most studies explore this issue in a U.S. market setting, this is the first study that exclusively focus on the Nordic equity market, which exhibits some unique and stylized features as recently highlighted in the...

In the era of digitalization, cryptocurrencies have become an alternative asset for both retail and institutional investors. While the new emerging digital ecosystem based on blockchain technology has been praised for offering plenty of advantages such as decentralization, discretion or increased efficiency in terms of faster settlements among othe...

From an entrepreneurial perspective, Initial Coin Offering (ICO) has become an alternative way for attaining funding for business projects using the new evolving digital financial market for tokens. Unfortunately, the majority of all ICOs are subject to scam which casts doubt on this new innovative tool for acquiring funding. Using a unique intensi...

This paper examines volatility interdependencies between value and momentum returns. Using U.S. data over the period 1926–2015, we document persistent periods of low and high volatility spillovers between value and momentum strategies. Moreover, we find that the intensity of the volatility spillovers may change substantially in very short periods o...

Using the coronavirus COVID-19 outbreak as a set-up for a quasi-experiment, this study derives novel insights on the dynamic correlation between Bitcoin and US stocks. Given the unprecedented scale of infections and the nature of the virus, the potential impact on the dynamic correlation was unpredictable and therefore uncertain. Using a difference...

Factor momentum produces robust average returns that exhibit a similar economic magnitude as documented for stock price momentum. To the extent that the PEAD factor captures mispricing, winner factors profit from being long on underpriced stocks and short on overpriced stocks. Oppositely, loser factors' negative exposure to the PEAD factor suggests...

We examine all available 146 Proof-of-Work-based cryptocurrencies that started trading prior to the end of 2014 and track their performance until December 2018. We find that about 60% of those cryptocurrencies were eventually in default. The substantial sums of money involved mean those bankruptcies will have an enormous societal impact. Employing...

Using the coronavirus COVID-19 outbreak as a setup for a quasi-experiment, this study derives novel insights on the dynamic correlation between Bitcoin and U.S. stocks. Given the unprecedented scale of infections and the nature of the virus, the potential impact on the dynamic correlation was unpredictable and therefore uncertain. Using a differenc...

This paper studies simple moving average trading strategies employing daily price data on the ten most-traded cryptocurrencies that exhibit the ‘privacy function’. Investigating the 2016–2018 period, our results indicate a variable moving average strategy is successful only when applied to Dash generating returns of 14.6%−18.25% p.a. in excess of t...

This paper studies simple moving average trading strategies employing daily price data on the eleven most-traded cryptocurrencies in the 2016–2018 period. Our results indicate a variable moving average strategy is successful when using the 20 days moving average trading strategy. Specifically, excluding Bitcoin the technical trading rule generate a...

Retrieving a set of 143 cryptocurrencies for a sample spanning 2014–2018, we investigate the popular momentum strategy implemented in the cryptocurrency market. Contrary to earlier studies our findings do not indicate any evidence of significant momentum payoffs, supporting the view that the cryptocurrency market is far more efficient than suggeste...

This is the first article that explores the recently proposed average ranking approach for the value and momentum strategy in the Nordic equity market offering an exceptional experimental environment. Our results indicate that in the Nordic stock markets, the value anomaly offered excess returns in the 1993–2017 sample period only when small stocks...

Recent research (see Moreira and Muir, 2017) suggests that volatility-managed portfolios take less risk when volatility is high produce large alphas, increase Sharpe ratios, and produce large utility gains for mean-variance investors. We extend this literature by investigating the profitability of volatility-managing the Fama and French (2017) loca...

We investigate the potential link between momentum in currency returns and global economic risk as measured by currency return dispersion (RD). Initial tests contribute to the exchange rate puzzle by showing that a common macroeconomic risk component in currency markets is present in global equity markets. Subsequent tests indicate that the spread...

This study employs option price data to back out the implied portfolio volatilities of the dollar and carry trade risk factors of the G-10 currencies. We construct a forward-looking option-implied volatility spillover index. Our findings indicate that the dollar and carry trade risk factors are orthogonal in the first moment and exhibit strong stoc...

This paper takes a novel perspective on value and momentum effects by examining volatility spillovers between these two strategies. Using data on the U.S. stock markets over the period 1926-2015, we document persistent periods of low and high volatility spillovers between value and momentum returns. Moreover, we find that the intensity of the volat...

This article studies the option-like behaviour of popular momentum strategies implemented in foreign exchange markets. The results confirm recent research findings of strong option-like behaviour for momenutm measures, based on the cumulative return from 12 and 6 months prior to the formation date Surprisingly, there is no such evidence for the pop...

This study employs option-price data to back out the implied cross-sectional return variance in the G10 currencies. It investigates the relation of implied cross-sectional return dispersion in the currency market and subsequent realized cross-sectional return dispersion. We find that implied cross-sectional return variance, based on option-price da...

This study explores whether the credit risk anomaly exhibits option-like behaviour similar to the momentum anomaly. It finds that the inverted credit risk spread indeed displays option-like behaviour in bear market states. Unlike a momentum portfolio, which is effectively a short call option on the market, an inverted credit risk portfolio appears...

This paper explores whether a link between sovereign credit ratings and currency returns exists. Perhaps contrary to expectations, it finds that currencies of countries with higher credit risk tend to generate lower returns than those with a lower credit risk. The credit risk spread cannot be explained by standard risk factors.

Four prominent new asset pricing factors have recently been proposed. We test whether these factors fulfill the necessary conditions to qualify as risk factors. We show that the investment and betting-against-beta factors fulfill these conditions. However, the profitability and quality factors do not fulfill these conditions pointing towards non-ri...

This study explores whether the credit risk anomaly exhibits option-like behavior similar to the momentum anomaly. Employing a market-timing regression model as in Daniel and Moskowitz (2013), it finds that the inverted credit risk spread indeed displays option-like behavior in bear market states. Unlike a momentum portfolio, which is effectively a...

This paper studies the option-like behavior of popular momentum strategies implemented in foreign exchange markets. The results confirm those of Daniel and Moskowitz (2013) in finding strong option-like behavior for both momentum measures, based on the cumulative return from 12 and 6 months prior to the formation date to one month prior to the form...

This article studies the profitability of a selection of prominent momentum-based strategies in the European Monetary Union (EMU). In contrast to past examples documenting the lack of profitability of unconditional price momentum in the most recent decade, the current research finds that unconditional price momentum yielded significant positive pay...

This study examines the asset growth anomaly in the presence of different macroeconomic states. The results show that the asset growth effect is strongly associated with macroeconomic conditions. When the economy is quiet, the spread between low and high investment firms is small and insignificant. In times of economic stress, the spread is economi...

This paper proposes a market-wide credit risk factor for the US stock market and investigates its properties that are dependent on economic conditions. The market price of credit risk is found to be statistically significantly negative, supporting earlier studies. However, a sample-split analysis reveals that this negative payoff is nonexistent in...

This study examines the volatility spillovers between the foreign exchange rate markets of three of the USA’s major trading partners and the US stock market, utilizing the forecast-error variance decomposition framework of a VAR model proposed by Diebold and Yilmaz (2009). The empirical results, based on a data set covering the period 1986–2014 sug...

This article investigates the potential link between momentum in currency returns and global economic risk as measured by currency return dispersion (RD). We find that the spread on zero-cost currency momentum strategies is larger and highly significant in high RD states compared to low RD states. Also, the relation between these momentum payoffs a...

This paper explores whether a link between sovereign credit ratings and currency returns exists. Perhaps contrary to expectations, it finds that currencies of countries with higher credit risk tend to generate lower returns than those with a lower credit risk. The credit risk spread cannot be explained by standard risk factors.

This study employs option-price data to back out the implied cross-sectional return variance in the G10 currencies. It investigates the relation of implied cross-sectional return dispersion in the currency market and subsequent realized cross-sectional return dispersion. We find that implied cross-sectional return variance, based on option-price da...

Recent research finds that cross-sectional return dispersion provides a risk-based explanation for some investment anomalies, including accrual, investment, and momentum strategies. This study extends the analyses of return dispersion to a broad set of anomalies by testing whether the state of return dispersion is associated with anomalous returns....

This article investigates the relation of idiosyncratic volatility (IVOL) and future returns on a portfolio level in global equity markets. In contrast to previous studies (Ang et al. 2006, 2009), it reveals that the spread between stock indices exhibiting a high IVOL and stock indices with low IVOL is positive and unrelated to movements in the bus...

This article investigates the link between momentum-based trading strategies implemented in global equity markets and country-specific credit ratings. The findings indicate that only the momentum strategy based on intermediate past returns generate statistically significant profits. Notably, the winner portfolios exhibit a higher average credit rat...

This paper investigates the size distortions of HCCME-based tests for serial correlation and the wild bootstrapped counterparts in the presence of asymmetric conditional heteroskedasticity. Thereby, asymmetric effects are allowed to enter the residual process of the dynamic regression model in both the GARCH parameterization and the innovation proc...

This paper investigates the profitability of momentum-based trading strategies pursued during the most recent economic downturns in global equity markets. In contrast to previous studies, it reveals that such strategies generated statistically significant negative returns during the most recent recessions. These ”momentum crashes” happen during mar...

We investigate the causality between the real federal budget deficit returns and real stock market returns for the US economy. We divide the overall sample into two sub-samples running from 1968:1 to 1988:3 and from 1988:4 to 2011:3. In contrast to earlier studies, we find a significant positive relationship between real stock market returns and re...