https://ojs.aut.ac.nz/applied-finance-letters/issue/feed Applied Finance Letters 2018-05-26T03:55:58+12:00 Prof. Bart Frijns acfr@aut.ac.nz Open Journal Systems Applied Finance Letters publishes mainly empirical research with implications and relevance for academia and finance industry. The aim is to encourage high-quality contributions that foster discussions among academics, policy makers and financial practitioners. The Journal welcomes submissions from all fields of finance, and is especially interested in innovative and original contributions. https://ojs.aut.ac.nz/applied-finance-letters/article/view/65 Returns to Low Risk Investment Strategy 2018-05-26T03:55:55+12:00 Shilpa Girish Peswani shilpaphddata@gmail.com <p>The paper studies the low risk anomaly in the Indian market using entire National Stock Exchange (NSE) as sample from January 2001 to June 2016. It provides evidence that low risk portfolio sorted for total risk, systematic risk as well as unsystematic risk individually for the large cap, mid cap, small cap and the entire NSE universe give higher returns to the investor as compared to high risk portfolio. The difference of returns from low risk portfolio versus high risk portfolio is positive as well as economically and statistically significant for all the risk measures. The results also prove that low risk portfolio investing strategy returns outperform the benchmark portfolio. Using either total volatility, idiosyncratic volatility or beta as a risk measure in stocks, the low risk portfolio gives higher returns even after controlling for the well-known size, value and momentum factors. The excess returns are the highest for low risk portfolio sorted for volatility of large cap stocks. Most of the low risk portfolios consists of growth and winner stocks. In conclusion, the low risk portfolio investment strategy is independent of size and gives positive excess returns as compared to high risk portfolio in the Indian stock market.</p> 2017-12-06T09:23:57+13:00 ##submission.copyrightStatement## https://ojs.aut.ac.nz/applied-finance-letters/article/view/61 Commodity Market Heterogeneity and Cross-Market Integration 2018-05-26T03:55:58+12:00 Michael Kunkler michaelkunkler@yahoo.co.uk <p>We evaluate the recent levels of heterogeneity and cross-market integration for fluctuations in commodity futures returns for a post-financial-crisis data sample. We find that a single commodity-market risk factor explains 30.6% of the total variation in commodity futures returns. The commodity-market risk factor is significantly correlated with the dominant market-wide risk factors from other asset classes: +66.7% with a market risk factor for the US equity market; -74.2% with a US dollar risk factor for the FX market; and -27.8% with an interest-rate level risk factor for the US interest rate market. Thus, a part of the systematic variation in the commodity market is integrated with other asset classes.</p> 2017-12-06T00:00:00+13:00 ##submission.copyrightStatement## https://ojs.aut.ac.nz/applied-finance-letters/article/view/79 Short and Sweet or Just Short? The Readability of Product Disclosure Statements 2018-05-26T03:55:57+12:00 Aaron Gilbert aaron.gilbert@aut.ac.nz Ayesha Scott ayesha.scott@aut.ac.nz <p>Given the importance of information in making informed financial decisions, it is vital that investors are able to understand the information provided to them. With this in mind, in 2013, New Zealand legislators replaced the existing disclosure documents with the Product Disclosure Statement (“PDS”). The change was in response to large and complex disclosure documents from providers of new or ongoing sales of financial products. PDS documents have a strictly enforced word limit and are meant to be written in plain English to allow “prudent but non-expert” investors access to the information they contain.  We compare the readability of the old prospectus and investment statements (the disclosure documents legally required before 2013) with the new PDS for a sample of superannuation mutual funds (referred to in New Zealand as KiwiSaver funds). We find that while the documents are definitely shorter, there have been mixed improvements in the readability of the documents. The main improvements are a reduction in the amount of finance terminology used, while the language in PDSs compared to investment statements is actually more complex, likely driven by the word limit. As a result, while investors require less finance knowledge, they appear to require a higher level of general education to understand the documents, potentially putting the information out of reach of over half the general population.</p> 2017-12-06T00:00:00+13:00 ##submission.copyrightStatement## https://ojs.aut.ac.nz/applied-finance-letters/article/view/69 Flight of the Condors: Evidence on the Performance of Condor Option Spreads in Australia 2018-05-26T03:55:56+12:00 Scott James Niblock scott.niblock@scu.edu.au <p>This paper examines whether superior nominal and risk-adjusted returns can be generated using condor option spread strategies on a large capitalized Australian stock. Monthly Commonwealth Bank of Australia Ltd (CBA) condor option spreads are constructed from 2012 to 2015 and their returns established.<strong> </strong>Standard and alternative measures are used to determine the nominal and risk-adjusted performance of the spreads. The results show that the short put condor spread produces superior nominal and risk-adjusted returns, but seemingly underperformed when the upside potential ratio was taken into consideration. The long iron condor spread also offers reasonable returns across both performance metrics. On the other hand, the short call condor, long call condor, short iron condor and long put condor spreads did not perform as well on a nominal and risk-adjusted return basis. The results suggest that constructing spreads on the foundation of volatility preferences could be a driver of performance for condor option spreads strategies. For instance, short volatility condor spreads with negatively skewed return distribution shapes appear to add value, while long volatility condor spreads with positively skewed return distribution shapes seem to be less attractive over the sample period. Overall, condor option spreads demonstrate high risk-return profiles, offer versatility in their construction and intended pay-off outcomes, create value in some instances and can be executed across varying market conditions. It is suggested that risk averse investors best avoid condor option spreads, while those with above average risk tolerances may be well suited to the strategies, particularly short volatility-driven condor spreads.</p> 2017-12-06T09:19:56+13:00 ##submission.copyrightStatement##