Factorising equity returns in an emerging market through exogenous shocks and capital flows

A technique from stochastic portfolio theory [Fernholz, 1998] is applied to analyse equity returns of Small, Mid and Large cap portfolios in an emerging market through periods of growth and regional crises, up to the onset of the global financial crisis. In particular, we factorize portfolios in the South African market in terms of distribution of capital, change of stock ranks in portfolios, and the effect due to dividends for the period Nov 1994 to May 2007. We discuss the results in the context of broader economic thinking to consider capital flows as risk factors, turning around more established approaches which use macroeconomic and socio-economic conditions to explain Foreign Direct Investment (into the economy) and Net Portfolio Investment (into equity and bond markets).Comment: 27 pages, 12 figure

On pricing kernels, information and risk

We discuss the finding that cross-sectional characteristic based models have yielded portfolios with higher excess monthly returns but lower risk than their arbitrage pricing theory counterparts in an analysis of equity returns of stocks listed on the JSE. Under the assumption of general no-arbitrage conditions, we argue that evidence in favour of characteristic based pricing implies that information is more likely assimilated by means of nonlinear pricing kernels for the markets considered.Comment: 20 pages, 3 figures, 1 tabl

How much did Glacial North Atlantic Water shoal?

Author Posting. © American Geophysical Union, 2014. This article is posted here by permission of American Geophysical Union for personal use, not for redistribution. The definitive version was published in Paleoceanography 29 (2014): 190-209, doi:10.1002/2013PA002557.Observations of δ13C and Cd/Ca from benthic foraminifera have been interpreted to reflect a shoaling of northern source waters by about 1000 m during the Last Glacial Maximum, with the degree of shoaling being significant enough for the water mass to be renamed Glacial North Atlantic Intermediate Water. These nutrient tracers, however, may not solely reflect changes in water mass distributions. To quantify the distribution of Glacial North Atlantic Water, we perform a glacial water mass decomposition where the sparsity of data, geometrical constraints, and nonconservative tracer effects are taken into account, and the extrapolation for the unknown water mass end-members is guided by the modern-day circulation. Under the assumption that the glacial sources of remineralized material are similar to that of the modern day, we find a steady solution consistent with 241 δ13C, 87 Cd/Ca, and 174 δ18O observations and their respective uncertainties. The water mass decomposition indicates that the core of Glacial North Atlantic Water shoals and southern source water extends in greater quantities into the abyssal North Atlantic, as previously inferred. The depth of the deep northern-southern water mass interface and the volume of North Atlantic Water, however, are not grossly different from that of the modern day. Under this scenario, the vertical structure of glacial δ13C and Cd/Ca is primarily due to the greater accumulation of nutrients in lower North Atlantic Water, which may be a signal of the hoarding of excess carbon from the atmosphere by the glacial Atlantic.G.G. is supported by NSF grants OIA-1124880 and OCE-1301907, and the WHOI Ocean and Climate Change Institute.2014-09-1