Long women, short men

In 2011 the Lord Davies report, Women on Boards, recommended that FTSE 100 companies should aim to meet a target of 25% women on boards by 2015. The report observed that at the prevailing rate of change it would take more than 70 years to achieve gender-balanced boardrooms in the UK. The report commented, “This pace of change is not good enough.”

A new report,The Female FTSE Board Report 2014, from the Cranfield International Centre For Women Leaders aims to provide an update on progress following the Davies report.

The main statistics are summarised in the following table from the new report.

Women directors in FTSE 350 companies_summaryThe key finding is that FTSE 100 companies have increased the number of women on their board from 12.5% in 2011 to 20.7% today, with the FTSE 250 similarly increasing from 7.8% to 15.6%.

By 2014, 36 companies in the FTSE 100 had reached the target of 25% women on boards; and the report forecasts that a figure of 26.7% women on boards should be reached by 31 December 2015.

The ten FTSE 100 companies with the highest proportion of women on the boards is shown in the following table from the report.

Women directors - top 10 companies in FTSE 100Only two FTSE 100 companies have no women board members: Glencore Xstrata and Antofagasta.

It seems the number of female executive directorships is still pretty low: 6.9% (FTSE 100), 5.3% (FTSE 250); but the number of female CEOs has slightly increased, to four with Moya Greene (Royal Mail) and Carolyn McCall (EasyJet) last year joining Angela Ahrendts (Burberry) and Alison Cooper (Imperial Tobacco).


All very well, but what impact might all this have on companies’ share price performance?

We decided to have a look…

The following chart shows the performance of a portfolio comprising the 36 FTSE 100 companies that have met the target of 25% women on their boards. The analysis starts from 2011, the date of the Davies Report, and the FTSE 100 is added for comparison.

Women directors - performance of portfolio over 25bFrom the beginning of 2011 the portfolio has risen 28% in value, against an increase of 11% in the FTSE 100 Index.

The following chart is the same as the above, except a new portfolio is added: this new portfolio comprises the ten companies with the highest proportion of women on boards (as shown in the above table).

Women directors - performance of portfolio Top 10cA portfolio of just the ten companies with the highest female director weighting would have increased in value 37% over the period.

It would appear that since 2011 a portfolio of companies matching or exceeding the Davies Report target of 25% female board members would have out-performed the market. Further, portfolio performance would appear to be enhanced the greater the proportion of women on the board.

If this is the case then the obvious arbitrage strategy is long women short men.

Reference

Women on boards (February 2011)

The Female FTSE Board Report 2014 (2014), Susan Vinnicombe, Elena Doldor and Caroline Turner, Cranfield International Centre For Women Leaders

 

Social Share Toolbar

St Modwen Properties [SMP] – 28 years on the LSE

On this day in 1986 St Modwen Properties listed on the LSE.

Monthly seasonality of St Modwen Properties

The following chart plots the average monthly out-performance of the shares over the FTSE 100 Index since 1988. For example, on average St Modwen Properties has out-performed the FTSE 100 by 8.1 percentage points in February.
Average monthly performance of St Modwen Properties [SMP] relative to the FTSE 100 Index (1988-2013)

Observations:

  1. The strongest month for St Modwen Properties shares relative to the market has been February (the shares have out-performed the market in this month in 18 of the last 25 years).
  2. The weakest month for St Modwen Properties relative to the market has been October (the shares have only out-performed the market in this month in 10 of the past 26 years).

St Modwen Properties is in the FTSE 350 Real Estate Investment & Services [NMX8630] sector.

Social Share Toolbar

Easter holidays and the stock market

What impact, if any, does the Easter holiday have on the market?

A previous post looked at the behaviour of the market around holidays (sometimes referred to as the holiday effect). In this post we will narrow the focus to look at the behaviour of share prices around the Easter holiday.

The following chart shows the average daily returns for the FTSE 100 Index for the four days before, and three days after, the Easter holiday over the period 1984-2013.

Average daily returns of the FTSE 100 around Easter [1984-2013]The general profile of behaviour around Easter is similar to that seen before for all holidays.

The main differences are that H(-4) is significantly weak, and the average returns for the two days immediately before and after Easter are significantly higher than for all holidays. For example, the average return for H(-1) is 0.4% (13 times greater than the average return for all days in the year); for all holidays the figure is 0.2%. The standard deviation for the Easter H(-1) average return is also significantly low.

The following chart is similar to the above, but this time the period studied is 2000-2013.

Average daily returns of the FTSE 100 around Easter [2000-2013]This second chart suggests that the behaviour of the market around Easter has not changed significantly in recent years.

 

Social Share Toolbar

Diversification with ETFs

The following chart shows the 40 ETFs with the highest trading volumes and their correlations with the FTSE 100 Index. The ETFs are ranked by correlation; the ETFs at the top of the chart have the closest correlation with the FTSE 100 Index.

Correlation of the 40 most heavily traded ETFs with the FTSE 100 Index_bNotes:

  1. The iShares World, S&P500 and Emerging Markets ETFs are grouped at the top of the table; so don’t expect much diversification away from the FTSE 100 Index by investing in these.
  2. For proper diversification away from FTSE 100 Index investors need to look at the bond ETFs at the bottom of the table.

 

 

Social Share Toolbar

Index changes (S&P 500) – paper review

The S&P 500 Index Effect describes the tendency for companies joining the S&P 500 Index to experience a positive and permanent impact on their share prices and betas.

Academic research on the topic has addressed:

  1. Whether the effect actually exists and, if it does, if the effect is symmetric (i.e. do companies leaving the index experience a fall in price and beta), and whether the effect is permanent.
  2. What causes the effect
  3. Are these S&P 500  index changes information-free events
  4. The effect on index funds

This article presents a brief review and listing of academic papers on the S&P 500 Index Effect.


1. Form of the effect

The following papers found that the share prices of companies joining the S&P 500 Index experienced positive abnormal returns and that this effect was permanent: Beneish and Whaley (1997), Beneish and Whaley (2002), Chen, Noronha and Singal (2004), Cai (2007), Kappou, Brooks and Ward (2008) and Hrazdil and Scott (2009).

While some found the effect on price only temporary: Harris and Gurel (1986), Lynch and Mendenhall (1997) and Pruitt and Wei (1989).

Some found the effect asymmetric, whereby prices did not fall for companies leaving the S&P 500: Chen, Noronha and Singal (2004) and Zhou (2011).

After inclusion in the index these papers found that comovement (beta) increased: Barberis, Shleifer and Wurgler (2005), Kasch and Sarkar (2011) and Kasch and Sarkar (2012).

2. Causes of the effect

Several possible causes for the effect have been proposed-

The excess demand is due to indexing in the presence of downward sloping demand curves: Shleifer (1986), Beneish and Whaley (1996), Lynch and Mendenhall (1997) and Wurgler and Zhuravskaya (2002).

The bid-ask spread decreases which results in improved liquidity: Hegde and McDermott (2003) and Erwin and Miller (1998) .

Investor awareness increases: Dhillon and Johnson (1991), Chen, Noronha and Singal (2004), Elliott, Van Ness, Walker and Wan (2006) and Xie (2013).

Analyst coverage increases: Kalok Chan and Hung Wan Kot and Gordon Y.N. Tang (2013).

Operating performance of the companies improves: Denis, McConnell, Ovtchinnikov and Yu (2003), Kalok Chan and Hung Wan Kot and Gordon Y.N. Tang (2013), Jain (1987) and Dhillon and Johnson (1991).

3. An information-free event?

The following found that inclusion in the S&P 500 Index was not an information-free event: Geppert, Ivanov and Karels (2011), Gygax and Otchere (2010), Cai (2007) and Denis, McConnell, Ovtchinnikov and Yu (2003).

4. The effect on index funds

The following papers looked at the effect of index changes on index funds: Madhavan and Ming (2002), Chen, Noronha and Singal (2006), Dunham and Simpson (2010), Kappou, Brooks and Ward (2010) and Green and Jame (2011).

INDEX (of papers listed below)

[Papers listed in reverse date order; indicates major paper.]

  1. Stock price response to S&P 500 index inclusions: Do options listings and options trading volume matter? [2013]
  2. A comprehensive long-term analysis of S&P 500 index additions and deletions [2013]
  3. Media coverage, analyst recommendation upgrade and information content of inclusions into S&P indexes [2013]
  4. Is There an S&P 500 Index Effect? [2012]
  5. An examination of the information content of S&P 500 index changes: Analysis of systematic risk [2011]
  6. Strategic trading by index funds and liquidity provision around S&P 500 index additions [2011]
  7. Comovement Revisited [2011]
  8. Asymmetric Changes in Stock Prices and Investor Recognition Around Revisions to the S&P 500 Index [2011]
  9. Do Index Fund Managers Trade Opportunistically Around Index Changes? An Empirical Examination of S&P 500 Index Funds [2010]
  10. Analysis of the probability of deletion of S&P 500 companies: Survival analysis and neural networks approach [2010]
  11. S&P 500 Index Inclusions and Analysts’ Forecast Optimism [2010]
  12. The S&P500 index effect reconsidered: Evidence from overnight and intraday stock price performance and volume [2010]
  13. Index composition changes and the cost of incumbency [2010]
  14. S&P 500 Index Revisited: Do Index Inclusion Announcements Convey Information about Firms’ Future Performance? [2009]
  15. The Effect of Demand on Stock Prices: Evidence from the S&P Index Float Adjustment [2008]
  16. A re-examination of the index effect: Gambling on additions to and deletions from the S&P 500′s ‘gold seal’ [2008]
  17. What’s in the News? Information Content of S&P 500 Additions [2007]
  18. What Drives the S&P 500 Inclusion Effect? An Analytical Survey [2006]
  19. Index Changes and Losses to Index Fund Investors [2006]
  20. The addition and deletion effects of the standard & poor’s 500 index and its dynamic evolvement from 1990 to 2002: demand curves, market efficiency, information, volume and return [2006]
  21. Comovement [2005]
  22. The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New Explanation [2004]
  23. The liquidity effects of revisions to the S&P 500 index: an empirical analysis [2003]
  24. Price Pressure on the NYSE and Nasdaq: Evidence from S&P 500 Index Changes [2003]
  25. S&P 500 Index Additions and Earnings Expectations [2003]
  26. S&P 500 Index Replacements [2002]
  27. The Hidden Costs of Index Rebalancing: A Case Study of the S&P 500 Composition Changes of July 19, 2002 [2002]
  28. Does Arbitrage Flatten Demand Curves for Stocks? [2002]
  29. Price Effects of Addition or Deletion from the Standard & Poor’s 500 Index: Evidence of Increasing Market Efficiency [2001]
  30. The liquidity effects associated with addition of a stock to the S&P 500 index: evidence from bid/ask spreads [1998]
  31. A Scorecard from the S&P Game [1997]
  32. New Evidence on Stock Price Effects Associated with Charges in the S&P 500 Index [1997]
  33. An Anatomy of the “S&P Game”: The Effects of Changing the Rules [1996]
  34. Changes in the Standard and Poor’s 500 List [1991]
  35. Institutional Ownership and Changes in the S&P 500 [1989]
  36. The Effect on Stock Price of Inclusion in or Exclusion from the S&P 500 [1987]
  37. Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures [1986]
  38. Do Demand Curves for Stocks Slope Down? [1986]
  39. Does Delisting from the S&P 500 Affect Stock Price? [1986]


Stock price response to S&P 500 index inclusions: Do options listings and options trading volume matter?
Authors [Year]: Yangyang Chen and Constantine Koutsantony and Cameron Truong and Madhu Veeraraghavan [2013]
Journal [Citations]: Journal of International Financial Markets, Institutions and Money, 23, pp379–401
Abstract: This study investigates the stock price response to Standard & Poor’s (S&P) 500 index inclusions during the period 1996–2010 and the role of options listings and options trading volume with regard to the information content of index inclusion announcements. Specifically, we address the following questions: (1) Is the magnitude of abnormal returns from the announcements of S&P 500 inclusions significantly lower for stocks with options listings? and (2) Is the magnitude of abnormal returns from the announcements of S&P 500 inclusions significantly lower for stocks with a high level of options trading volume? Our findings indicate that options listings themselves are not related to the magnitude of abnormal returns from the announcements of S&P 500 inclusions. We also find that greater levels of options trading volume do not convey private information about the S&P 500 index changes. We document that any measurable impact of options trading on the stock price response to S&P 500 inclusion announcements lies primarily in the level of abnormal options trading volume in the period immediately preceding the announcements.
Ref: AA645

Continue reading

Social Share Toolbar

Bounceback Portfolio 2014 – Result

The idea of the Bounceback Portfolio is that a portfolio of the 10 worst performing FTSE 350 stocks in one year has historically beaten the index in the first three months of the following year. The selection of the Bounceback Portfolio stocks for 2014 was described in this earlier post.

The following chart shows the performance of the stocks in the Bounceback Portfolio 2014 over the first three months of the year.

Performance of Bounceback Portfolio 2014The portfolio as a whole increased 9.2% in the first quarter 2014, which beat the -1.6% return for the FTSE 350 Index.

This means the Bounceback Portfolio strategy has now beaten the index in 12 of the past 13 years (the one failure was last year).

Other posts on the Bounceback Portfolio.

 

Social Share Toolbar

Average market behaviour in April

The following chart plots the average performance of the FTSE 100 Index during April since 1984 (more info on this type of chart).

FTSE 100 average month chart for April [1984-2013]As can be seen, historically the market has on average generally risen steadily throughout the whole month of April, ending at the high for the month.

March 2014

The following chart shows the average performance of the market in March (1984-2013) and overlays the actual performance in March 2014.

Average month chart - March overlay March 2014 (2014)In March 2014 the big difference from the average March was the weakness in share prices in the first two weeks of the month.

Social Share Toolbar

2014 1Q market review – international markets

Equity and commodity markets

The following chart shows the returns on a range of international stock markets and commodities in the first quarter of 2014.

International market returns 2014 1QNotes-

  1. Italy!
  2. FTSE 100 was the second weakest equity market in the G7
  3. Apart from India, the BRIC’s 2013 weakness continued into the first quarter.

Currency markets

The following chart shows a sample of currency moves against the British pound in 2014 1Q. For example, the British pound strengthened 7.9% against the Russian Ruble, and fell 4.6% against the New Zealand Dollar.

Pound sterling performance 2014 1QEquity and commodity markets (sterling)

The following chart shows the returns on the same markets as in the first chart, but this time in sterling terms (i.e. showing the currency-adjusted returns for a UK investor). The order of the markets has been kept the same as in the first chart.

International market returns 2014 1Q (GBP)Notes-

  1. As GBP strengthened a small amount against USD and EUR in the period this had the effect of reducing (marginally) the gains in US and Euro denominated markets in sterling terms.
  2. Sterling-adjusted, the Indian equity market jumped over gold to be the second strongest market in the period.
  3. Although the Brazil equity market fell in the period, sterling investors would have seen a gain due to the weakness of GBP against BRL.

(Similar analysis for 2012, 1H 2013, 2013.)

 

Social Share Toolbar

Strong/weak sectors in April

Strong sectors

The table below lists the sectors that have historically out-performed the market in April.

Sector TIDM
Electronic & Electrical Equipment
Industrial Engineering
Personal Goods

Weak sectors

The following table lists the sectors that have been weak in April.

Sector TIDM
Household Goods
Mining
Mobile Telecommunications
Software & Computer Services

 

Social Share Toolbar