Forthcoming Articles: This section provides you information about Select Articles that are going to be published in forthcoming issues of irjaf.
Toward A Bottom-Up Approach to Assessing Sovereign Default Risk: An Update
Edward I. Altman, Stern School of Business, New York University
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Herbert Rijken, Vrije University
We propose a totally new approach toward assessing sovereign risk by examining rigorously the health and aggregate default risk of a nation’s private corporate sector. Models such as our new Z-Metrics™ approach can be utilized to measure the median probability of default of the non-financial sector cumulatively for five years, both as an absolute measure of corporate risk vulnerability and a relative measure compared to other sovereigns and to the market’s assessment via the now liquid credit-default-swap market. Specifically, we measure the default probabilities of listed corporate entities in nine European countries, and the U.S.A., as of 2009 and 2010. These periods coincide with the significant rise in concern with sovereign default risk in the Euro country sphere. We conclude that our corporate health index of the private sector measured at periods prior to the explicit recognition by most credit professionals, not only gave an effective early warning indicator but provided a mostly appropriate hierarchy of relative sovereign risk. Policy officials should, we believe, nurture, not penalize, the tax revenue paying and jobs generating private sector when considering austerity measures of distressed sovereigns.
Was Steve Jobs Really That Valuable To Apple?
James V. Koch, Old Dominion University
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Robert N. Fenili, Georgetown Economic Services
Steve Jobs (1955-2011), the charismatic former CEO of Apple, Inc., was one of the best known corporate leaders in the world and some considered him irreplaceable. However, was this really true? Using conventional event study methods, we focus upon fourteen “events” between 2004 and 2011 in which new information about Mr. Jobs’ health was flushed into the marketplace, on occasion by Apple or Jobs, but more often by the commentary and speculations of media observers, stock analysts and bloggers. The most significant event was Jobs’ resignation as CEO on August 24, 2011 and the climax event his death on October 5, 2011. We test the magnitude of these announcements on Apple’s share price and its market capitalization. We find that the impact of these announcements upon Apple share prices was mixed, usually modest, and disappeared over time. While Jobs’ health did on occasion have an impact on Apple’s share price and market capitalization, investors soon discounted Apple’s share price to recognize the possibility of his departure as CEO. Hence, subsequent bad news about his health usually had modest impact and was not always predictable in sign.
Can Simple One and Two-Factor Investing Strategies Capture the Value Premium?
Boris S. Abbey, Fayetteville State University
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Patrick J. Larkin, Fayetteville State University
Previous studies, including Houge and Loughran (2006) argue that it is difficult for investors to capture the widely documented value premium by investing in large cap stocks or mutual funds. In this study we investigate the question of whether it is possible to construct mechanical strategies based on well known value and GARP (growth at a reasonable price) factors that can be implemented by individual investors to capture the extra returns that have historically accrued to value stocks. We identify several strategies that beat the value weighted U.S market over our sample period of 1981-2010. All of the strategies can be implemented by individual investors, but some of them are very risky.
Active Portfolio Equivalent (APE) Score: A new look at a portfolio tracking error risk proxy
Frank Michello, Middle Tennessee State University
This article introduces Active Portfolio Equivalent (APE) score as a new risk proxy for portfolio tracking error. It derives APE score as the sum of absolute differences between the portfolio holdings percent weightings and the weights of the benchmark divided by two and then uses this measure as a proxy of risk for the portfolio. We use Monte Carlo simulation to create long-only equity portfolios based on the S&P 500 to obtain mean relative returns and relative return volatilities that we use to conduct testable hypotheses. We find that: (i) APE scores are a risk proxy for relative return volatilities (risk measure), i.e. APE is a good indicator of tracking error, and (ii) APE scores are not related to mean relative return levels (alpha), i.e. APE scores are not indicative of alpha or relative rate of return.