Christiane Goodfellow’s research while affiliated with Jade University of Applied Sciences and other places

This note compares three different risk measures based on the same stock return data: (1) the portfolio variance as in Markowitz (1952), (2) the value at risk based on the historical return distribution, and (3) the value at risk based on a t copula. Unless return series follow a Normal distribution, Normal-based risk measures underestimate risk, particularly so during periods of market stress, when accurate risk measurement is essential. Based on these insights, we recommend that supervisors discontinue to accept Normal-based value at risk estimations. We are happy to share our commented R-code with practitioners who wish to implement our methodology. Risk measurement is the foundation of risk management and hence of vital importance in any financial institution. Supervisory capital requirements according to Basel III or Solvency II are also derived from risk measures. Investors are interested in ratings which are based on risk assessments. This note is therefore relevant to practitioners and supervisors alike.

This article compares the performance of behavioural finance funds with the performance of the market and that of matched mutual funds across the major regions of the world from 1990 to 2010. Performance is measured raw and risk-adjusted. The empirical evidence suggests that behavioural finance funds neither outperform nor underperform the market or matched actively managed mutual funds. Overall, the empirical findings vary strongly with the set-up of the investigation. We conclude that either stock markets are more efficient, or fund management is worse, than behavioural finance funds advertise. This is consistent with other studies’ results.

This paper contributes to the debate about the relative qualities of floor and electronic trading systems by analysing the effects of bringing forward the Xetra closing time from 8.00pm to 5.30pm in November 2003, while the Frankfurt floor remains open until 8.00pm. This natural experiment provides a 'cleaner' institutional setting than in Venkataraman (2001), as it enables us to investigate trading quality on both platforms for the same stocks in the same country before and after the event. The empirical evidence suggests that primarily institutional investors trading in large stocks transfer to the floor when Xetra closes earlier. It appears that investors remain with Xetra for informed trading though. for their helpful comments and suggestions on earlier drafts. All remaining errors are ours. Martin T. Bohl is indebted to the Alexander von Humboldt Foundation for financial support.

This article contributes to the debate about the relative qualities of floor and electronic trading systems by analysing the effects of bringing forward the Xetra closing time from 8.00pm to 5.30pm in November 2003, while the Frankfurt floor remains open until 8.00 pm. This natural experiment provides a 'cleaner' institutional setting than in Venkataraman (2001), as it enables us to investigate trading quality on both platforms for the same stocks in the same country before and after the event. The empirical evidence suggests that primarily institutional investors trading in large stocks transfer to the floor when Xetra closes earlier. It appears that investors remain with Xetra for informed trading though.

This paper examines individual investors’ trading behaviour by testing the presence of Monday and January anomalies on the Polish futures market, where individuals are the predominant trader type. Both anomalies are well established in the literature, and they are at least partially attributed to individual investors’ trading activities. We conduct an intraday analysis of trading volume, open interest, returns, and return volatility on the futures market in Poland and find the contribution of individuals to market anomalies to be grossly overstated. Hence, individual investors’ trading on the Polish futures market surpasses the prediction by the majority of investigations for mature stock markets.

This paper tests for the presence of a weather effect on liquidity in a screen-based electronic stock market. The Exchange Liquidity Measure XLM enables us to separate the effect of cloudy skies on liquidity provided by market makers from this effect on liquidity naturally in the market. The empirical evidence suggests that cloudy skies correspond with high natural liquidity levels and low liquidity injected by market makers. This result is consistent with findings for floor-based stock trading and with the hypothesis that market makers add less value in markets with high natural liquidity.

This paper contributes to the debate about individual and institutional investors' trading behaviour with new evidence from the Polish stock market. While most existing studies focus on institutional investors' trading in developed markets, we test for the presence of herding during market up- and downswings on an emerging market. Our unique approach is to combine an established method relying on daily prices with institutional features of the Warsaw Stock Exchange. It enables us to separate individuals from institutions by examining two trading mechanisms with different investor structures. The empirical results suggest that individuals engage in herding during market downswings, while there is less evidence of imitating trading behaviour in bullish markets. Regardless of the state of the market, institutions' trading behaviour does not appear to exhibit herd behaviour. Further evidence suggests that herding by individuals becomes less pronounced over time.

Stadtgraben 9, 48143 Münster, Fax +49-251-83-22846. b Tel. +49-251-83-25005, E-Mail: martin.bohl@wiwi.uni-muenster.de c European Business School, Schloss Reichartshausen, 65375 Oestrich-Winkel. Oktober 2007 Zusammenfassung In dieser Studie werden die Effekte der Vorverlegung des Handelsschlusses im elektro-nischen deutschen Börsenhandelssystem Xetra am 3. November 2003 von 20.00 Uhr auf 17.30 Uhr auf den nicht anonymen Parketthandel der Frankfurter Wertpapierbörse untersucht. Die Ergebnisse zeigen, dass die Handelsqualität auf dem Börsenparkett von dieser Maßnahme profitiert hat. Es gibt keine Anzeichen für negative Netzwerkeffekte, der Handel ist abends signifikant liquider geworden. Vor allem nichtinformierte Inve-storen weichen, seit Xetra früher schließt, in der Zeit von 17.30 Uhr bis 20.00 Uhr auf das Parkett aus. Die Wahrscheinlichkeit von informationsbasiertem Handel ist daher nach der vorverlegten Beendigung des elektronischen Handels auf dem Parkett niedri-ger als zuvor. Insbesondere für Privatanleger ist der Parketthandel somit attraktiver geworden. * Wir danken der Wissenschaftsförderung der Sparkassen-Finanzgruppe für die finanzielle Unterstützung und der Deutsche Börse AG für die Bereitstellung der Daten von der Frankfurter Wertpapierbörse. Ferner danken wir dem anonymen Gutachter für wertvolle Hinweise sowie Taras Bodnar, Harald Henke, David Sondermann und Christian Voigt für die konstruktive Unterstützung.

This paper provides empirical evidence on the impact of the introduction of derivatives trading in Poland on the conditional volatility of the underlying instruments. The theoretical argument about this impact hinges upon the degree of information of spot traders relative to the arriving futures and options traders. If the debut of futures or options has a stabilising effect on the corresponding cash market, this is indicative of well informed traders on the derivatives market. Overall, the empirical evidence suggests that the introduction of derivatives trading had a stabilising effect on the stock market. In light of the unique investor structure on the Polish derivatives market, which is dominated by individuals, we conclude that individuals entering the derivatives market are better informed than the literature on individual investors' trading behaviour suggests.