Segal Graduate School of Business Final Projects

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The Diversification Effects Of The Inclusion Of Real Estate Assets In A Canadian Investment Portfolio: A 2010 To 2018 Perspective

Author: 
Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2019-08
Abstract: 

This study investigates the effects of adding real estate investments such as REITs and real estate mutual funds to a Canadian equities and fixed income portfolio during the time period from 2010 to 2018. Detailed analysis has been performed to arrive at the conclusion that adding real estate funds to a Canadian investment portfolio can significantly improve the returns for the investor. Diversifying by adding real estate assets to a portfolio not only improves the return, but also lowers the overall risk of the portfolio.

Even though there is significant overlap between the constituents of the S&P TSX Composite Real Estate sector and the real estate funds, the data and analysis presented in this paper demonstrates that it is still very advisable to include real estate funds into Canadian investment portfolios.

There are many studies which have examined the effects of adding real estate investment trusts to a portfolio. However, there are fewer recent studies which have examined these effects for a Canadian investment portfolio that is not yet invested in real estate assets. This study uses the monthly returns of the S&P TSX Composite, S&P TSX REIT, the Bloomberg Canadian REIT Index (BBCREIT) and the Thompson Reuters Canadian All bond All Index (TRCAALL) in order to create an optimal tangency portfolio, including a thorough risk/return analysis, a data robustness test for different time periods from 2010 to 2018, and a regression analysis is also included.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Andrey Pavlov
Department: 
Beedie School of Business-Segal Graduate School

Diversification Effect of Emerging Market Over Time

Author: 
Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2018-12
Abstract: 

This paper studies the influence of U.S monetary policy on international stockreturn-risk characteristics over three major periods led by U.S recessions. Additionally, itaddresses whether emerging market provides diversification benefits to the optimalportfolio for a typical Canadian investor. Results show that U.S monetary policy does not significantly influence the returnsof most stock markets. However, it does significantly affect their risk characteristics. Dueto the changing return, risk and variance-covariance for assets under each period, optimalasset allocation results varied greatly over time. Emerging market did not consistentlyprovide diversification benefits under all periods. Results from the most recent period ledby the Great Recession show no diversification benefit from emerging market, contraryto studies of earlier periods where benefits were present.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Peter Klein
Department: 
Beedie School of Business-Segal Graduate School

The Dynamics of Precious Metal Markets VaR: A GARCH-Type Approach

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2018-12
Abstract: 

The data analysis of the metal markets has recently attracted a lot of attention, mainly because the prices of precious metal are relatively more volatile than its historical trend. A robust estimate of extreme loss is vital, especially for mining companies to mitigate risk and uncertainty in metal price fluctuations. This paper examines the Value-at-Risk and statistical properties in daily price return of precious metals, which include gold, silver, platinum, and palladium, from January 3, 2008 to November 27, 2018. The conditional variance is modeled by different univariate GARCH-type models (GARCH and EGARCH). The estimated model suggests that the two models both worked effectively with the metal price returns and volatility clustering in those metal returns are very clear. In the second part, backtesting approach is applied to evaluate the effectiveness of the models. In comparison of VaRs for the four precious metals return, gold has the highest and most steady VaR, then is platinum and silver, while palladium has the lowest and most volatile VaR. The backtesting result confirms that our approach is an adequate method in improving risk management assessments.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Andrey Pavlov
Department: 
Beedie School of Business-Segal Graduate School

The Disappearance of the Small Firm Premium

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2018-12
Abstract: 

The objective of this paper is to analyze the small firm premium in the US equity market during the period 1998 to 2017. We find the difference in returns between large-sized firms and small-sized firms tends to emerge after economic recessions. In addition, although we find a significant size premium over the entire period, the size premium does not exist in the years following the recent financial crisis, which may imply a structural change in the market.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Amir Rubin
Department: 
Beedie School of Business-Segal Graduate School

Relationship Between R&D Expense and Stock Performance

Peer reviewed: 
No, item is not peer reviewed.
Abstract: 

The objective of this project is to analyze whether a higher level of research and development (R&D)expense generates a higher stock return for firms. Data include firms from all industries in NorthAmerica in 1980-2017. The empirical methods are the firm-year approach and calendar-timeapproach. Our results show that a high R&D expense impacts the stock performance positively. Further, equal-weighted calendar-time portfolios that are long high R&D firms and short low R&Dfirms result in a significant alpha.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Amir Rubin
Department: 
Beedie School of Business-Segal Graduate School

Performance of Canadian Hedge Fund

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2018-12
Abstract: 

This paper conducts the performance analysis and attribution of Canadian hedge funds. Firstly, we compare the key statistics of Canadian hedge fund indices, global hedge fund indices and traditional market indices. Then we conclude that Canadian hedge funds have higher risk-adjusted returns than the worldwide market.

Next, we investigate the outperformance of Canadian hedge fund by utilising the linear regression model and critical risk factors. To specify risk factors into local and global factors, we follow the methodology of Klein, Purdy, Schweigert and Vedrashko (2015). We also use market and commodity timing variables in the analysis of local risk factors, while neither of them has the significant correlation with Canadian hedge fund returns except for the return of Fixed Income and Managed Feature sub-index.

Finally, we make further study of the performance of Canadian hedge funds in different periods, with the focus on the change of coefficients in the linear model. We find that the coefficients of risk factors change in different periods.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Peter Klein
Department: 
Beedie School of Business-Segal Graduate School

The Impact of Crisis and Recessions on Excess Equity Return

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2018-12
Abstract: 

This study examines the equity excess return and the effect of financial crisis and financial recession probabilities on the excess return. In the paper, we observed the relationship of equity excess return and six different variables, which include: economic sentiment, economic growth, risk-free rate, inflation rate, recession year, and U.S. recession probability, in U.S, Canada, Brazil, Russia, and UK.

The Capital Asset Pricing Model and the Arbitrage Pricing Theory are two of the models that used most often to price the expected return of the equities. The statistical analysis in our study use the modification of the Arbitrage Pricing Theory with the purpose to explain the equity excess return in different countries that involved in our study.

The result of our study shows that after adding the new variables, which are recession probability and recession years, they actually do not have a significant effect on the equity excess return on most of the countries.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Carlos da Costa
Department: 
Beedie School of Business-Segal Graduate School

Open Interest and Equity Abnormal Return on Expiration Dates

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2018-12
Abstract: 

This paper focuses on the possible existence of a pricing inefficiency in stocks that have traded options. The idea is that because option writers are more sophisticated than option buyers, they may influence the underlying stock price in their desired direction. Since option writers are mainly financial institutions, they are able to open large positions in both the options and underlying stocks, and as such, have the ability and incentive to affect stock prices through transactions to benefit their short option position. Through our analysis, we find that options with a larger amount of net call-side open interest on the last trading day before expiration is negatively related to the underlying stock price change on that day. This result is consistent with the idea that the option writers have the capacity to move prices in their desired directions on the last trading day before expiration.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Amir Rubin
Department: 
Beedie School of Business-Segal Graduate School

Value-at-Risk Measures During Crisis Periods

Author: 
Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2018-12
Abstract: 

Value-at-Risk (VaR) is a commonly used measure of market risk in the financialindustry. The measure seeks to identify the loss that an investment may realize within acertain confidence level. It is used to evaluate the market risks of assets and to calculatecapital reserve requirements. However, despite its wide use in financial riskmanagement, it has several well-known limitations. This project analyses a class of VaRmodels that were published in the academic literature and evaluates their performancewhen market conditions are stressed. The findings of this research reveal that thesemodels perform poorly when market conditions are changing. Managers who rely onthese VaR models may underestimate their risks and fail to set aside appropriate capitalreserves to handle adverse market moves.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Andrey Pavlov
Department: 
Beedie School of Business-Segal Graduate School

Leverage and Pricing of U.S. and Canadian Leveraged Buyouts

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2018-12
Abstract: 

This paper provides the empirical analysis of leverage and pricing of leveraged buyout (LBO) transactions. We collected sample data of 87 deals that were completed over the period of 1995 to 2013 in United States and Canada. We analysed the LBOs patterns based on industry, geography and time period using key financial multiples reflecting leverage and pricing ratios. We further matched firms following LBOs with comparable public companies as well as pre-buyout position and draw results using regression analysis. Based on the empirical analysis of our sample, the results show that the capital structure of the leverage buyouts is not driven by industry characteristics but there could be links between leverage and pricing of deals based on market-wide factors and fund managers’ behaviours.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Christina Atanasova
Department: 
Beedie School of Business-Segal Graduate School