Pim Van Vliet - Academia.edu (original) (raw)

Papers by Pim Van Vliet

Financial Analysts Journal

Http Dx Doi Org 10 3905 Jpm 2011 38 1 029, Oct 25, 2011

This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We con... more This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We construct 10 global sector indices over the extended sample period from 1970 to 2008. This enables us to test previously documented variables on a global basis and to examine whether they continued to work after their publication dates. We document significant returns for momentum (1-month and 12-1 month), earnings revisions and Sell in May seasonal, also after their publication dates. By contrast, monetary policy and valuation (mean-reversion and dividend yield) fail to predict global sector returns. Our out-of-sample tests reveal an average decay in performance of about one third. A long-short GTSA strategy that combines momentum with seasonal has an annual success ratio of 82% and delivers a compounded annual return of 9.9% after transaction costs. To the best of our knowledge, a global sector allocation study with such a long sample period and with such a broad range of variables has not been conducted before.

Modern Concepts of the Theory of the Firm, 2004

Over the last decade we have witnessed the rise and fall of the so-called new economy stocks. One... more Over the last decade we have witnessed the rise and fall of the so-called new economy stocks. One central question is to what extent these new firms differ from traditional firms. Empirical evidence suggests that stock returns are not normally distributed. In this article we investigate whether this also holds for portfolios of stocks from a growth industry. Furthermore, we will compare this type of portfolios with portfolios of stocks from a more traditional industry. Usually, only value weighted and equally weighted portfolios are used to describe and compare portfolio return characteristics. Instead, in our analysis, we use a novel approach in which we use an infinite number of portfolios that together represent the set of all feasible portfolio opportunities.

The mean-semivariance CAPM strongly outperforms the traditional mean-variance CAPM in terms of it... more The mean-semivariance CAPM strongly outperforms the traditional mean-variance CAPM in terms of its ability to explain the cross-section of US stock returns. If regular beta is replaced by downside beta, the traditional risk-return relationship is restored. The downside betas of low-beta stocks are substantially higher than the regular betas, while high-beta stocks involve less systematic downside risk than suggested by their regular betas. This pattern is especially pronounced during bad states-of-the-world, when the market risk premium is high. In sum, our results provide evidence in favor of market portfolio efficiency, provided we account for conditional downside risk.

Empirically, co-skewness of asset returns seems to explain a substantial part of the cross-sectio... more Empirically, co-skewness of asset returns seems to explain a substantial part of the cross-sectional variation of mean return not explained by beta. Thisfinding is typically interpreted in terms of a risk averse representativeinvestor with a cubic utility function. This comment questions thisinterpretation. We show that the empirical tests fail to impose risk aversionand the implied utility function takes an inverse S-shape. Unfortunately, thefirst-order conditions are not sufficient to guarantee that the market portfoliois the global maximum for an inverse S-shaped utility function, and ourresults suggest that the market portfolio is more likely to represent theglobal minimum than the global maximum. In addition, if we impose riskaversion, then co-skewness has minimal explanatory power.

This study conducts a classroom experiment and an online experiment to examine individual decisio... more This study conducts a classroom experiment and an online experiment to examine individual decision-making under risk. Like Levy and Levy (2002), the experiment uses pairs of mixed gambles with moderate probabilities to avoid the framing effect and certainty affect that may affect non-mixed gambles with extreme probabilities. Also, we use Stochastic Dominance criteria to avoid parametric specification of decision-maker preferences. Explicitly accounting for the Wakker (2003) comment, we find several serious violations of Cumulative Prospect Theory (CPT). In fact, in a head-to-head competition between Second-order Stochastic Dominance (SSD) and CPT, most individuals choose the SSD alternative.

The Journal of Index Investing, 2010

We show that the performance of a fundamental index with annual rebalancing, as proposed by Arnot... more We show that the performance of a fundamental index with annual rebalancing, as proposed by Arnott, Hsu and Moore , can be highly sensitive to the subjective choice of when to rebalance. For the year 2009, for example, we find that a fundamental index rebalanced every March outperformed the capitalization-weighted index by over 10%, whereas a fundamental index rebalanced every September underperformed. We provide intuitive and statistical evidence in support of the hypothesis that if two fundamental indexes diverge, they do not tend to mean-revert subsequently, i.e. the gap is likely to be permanent. This performance ambiguity is an undesirable feature for an index which is used for benchmarking purposes. We introduce the idea of blending multiple underlying fundamental indexes, each one rebalanced annually, but at different dates, as an example of how to construct a more robust fundamental index without increasing turnover.

SSRN Electronic Journal, 2000

ABSTRACT Various studies recommend investing in factor premiums beyond the classic market risk pr... more ABSTRACT Various studies recommend investing in factor premiums beyond the classic market risk premium, such as the small-cap, value, momentum, and low-volatility premiums. It is unclear, however, if factor investing can best be implemented using a long-only or a long-short approach. We empirically compare both approaches and find that although a long-short approach is superior theoretically, a long-only approach seems to be the preferred alternative in most scenarios, after accounting for practical issues such as benchmark restrictions, implementation costs and factor decay. In fact, we show that costs and decay may completely offset the value added of a long-short implementation. We conclude that investors should carefully consider the pros and cons of long-only and long-short approaches when implementing factor investing. The framework described in this paper is intended to help investors make that decision.

The Journal of Portfolio Management, 2007

We present empirical evidence that stocks with low volatility earn high risk-adjusted returns. Th... more We present empirical evidence that stocks with low volatility earn high risk-adjusted returns. The annual alpha spread of global low versus high volatility decile portfolios amounts to 12% over the 1986-2006 period. We also observe this volatility effect within the US, European and Japanese markets in isolation. Furthermore, we find that the volatility effect cannot be explained by other well-known effects such as value and size. Our results indicate that equity investors overpay for risky stocks. Possible explanations for this phenomenon include (i) leverage restrictions, (ii) inefficient two-step investment processes, and (iii) behavioral biases of private investors. In order to exploit the volatility effect in practice we argue that investors should include low risk stocks as a separate asset class in the strategic asset allocation phase of their investment process.

SSRN Electronic Journal, 2000

The mean-semivariance CAPM better explains the cross-section of US stock returns than the traditi... more The mean-semivariance CAPM better explains the cross-section of US stock returns than the traditional mean-variance CAPM does. If regular beta is replaced by downside beta, the cross-sectional risk-return relationship improves considerably. Especially during bad-states of the world, when the equity premium is high, we find a near-perfect relation between risk and return. The explanatory power of conditional downside risk remains after controlling for the known size, value and momentum effects. Marien de Gelder and Suzanne van der Tang for programming assistance. We appreciate the suggestions made by Martijn van den Assem,

SSRN Electronic Journal, 2000

Downside-market beta, when properly defined and estimated, explains a significant part of the cro... more Downside-market beta, when properly defined and estimated, explains a significant part of the cross-sectional variation of US stock returns and drives out regular market beta. Using monthly stock data from 1926 to present, the risk premium is estimated to be 3.59 to 7.62 percent per annum for downside beta, depending on the model specification, compared with 0.79 to 4.64 percent for regular beta. Consistent with the estimated beta premiums, forming portfolios based on downside beta yields substantially larger mean spreads than regular-beta portfolios.

The Journal of Index Investing, 2011

In this paper we discuss the benchmarking of low-volatility investment strategies, which are desi... more In this paper we discuss the benchmarking of low-volatility investment strategies, which are designed to benefit from the empirical result that low-risk stocks tend to earn high risk-adjusted returns. Although the minimum-variance portfolio of Markowitz is the ultimate low-volatility portfolio, we argue that it is not a suitable benchmark, as it can only be determined with hindsight. This problem is overcome by investable minimum-variance strategies, but because various approaches are equally effective at minimizing volatility it is ambiguous to elevate the status of any one particular approach to benchmark. As an example we discuss the recently introduced MSCI Minimum Volatility indices and conclude that these essentially resemble active low-volatility investment strategies themselves, rather than a natural benchmark for such strategies. In order to avoid these issues, we recommend to simply benchmark low-volatility managers against the capitalization-weighted market portfolio, using risk-adjusted performance metrics such as Sharpe ratio or Jensen's alpha.

SSRN Electronic Journal, 2000

The Journal of Portfolio Management, 2011

This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We con... more This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We construct 10 global sector indices over the extended sample period from 1970 to 2008. This enables us to test previously documented variables on a global basis and to examine whether they continued to work after their publication dates. We document significant returns for momentum (1-month and 12-1 month), earnings revisions and Sell in May seasonal, also after their publication dates. By contrast, monetary policy and valuation (mean-reversion and dividend yield) fail to predict global sector returns. Our out-of-sample tests reveal an average decay in performance of about one third. A long-short GTSA strategy that combines momentum with seasonal has an annual success ratio of 82% and delivers a compounded annual return of 9.9% after transaction costs. To the best of our knowledge, a global sector allocation study with such a long sample period and with such a broad range of variables has not been conducted before.

The Journal of Portfolio Management, 2008

In this paper we examine global tactical asset allocation (GTAA) strategies across a broad range ... more In this paper we examine global tactical asset allocation (GTAA) strategies across a broad range of asset classes. Contrary to market timing for single asset classes and tactical allocation across similar assets, this topic has received little attention in the existing literature. Our main finding is that momentum and value strategies applied to GTAA across twelve asset classes deliver statistically and economically significant abnormal returns. For a long top-quartile and short bottom-quartile portfolio based on a combination of momentum and value signals we find a return of 12% per annum over the 1986-2007 period. Performance is stable over time, also present in an out-of-sample period and sufficiently high to overcome transaction costs in

Journal of Asset Management, 2012

... PIM VAN VLIET Robeco Investments p.van.vliet@robeco.com July 2011 1 We would like to thank Gu... more ... PIM VAN VLIET Robeco Investments p.van.vliet@robeco.com July 2011 1 We would like to thank Guido Baltussen, David Blitz, Ronald Doeswijk, Eric Falkenstein, Stefan Grimbacher, Artino Janssen, Jan Sytze Mosselaar, Nico van der Sar, Raoul Sprangers, Dazhi Zheng, and ...

Journal of Asset Management, 2011

... Pim van Vliet 1 and David Blitz 2. Correspondence: Pim van Vliet, Coolsingel 120, NL 3011 AG,... more ... Pim van Vliet 1 and David Blitz 2. Correspondence: Pim van Vliet, Coolsingel 120, NL 3011 AG, Rotterdam, The Netherlands. E-mail: p.van.vliet@robeco.nl. ... Copyright © 2011 Palgrave Macmillan, a division of Macmillan Publishers Limited. ...

The Financial Review, 2005

This study examines and compares stock returns and volatilities between state-owned (SO) and non-... more This study examines and compares stock returns and volatilities between state-owned (SO) and non-state-owned (NSO) firms on the Shanghai and Shenzhen stock exchanges. Results vary significantly by exchange. Returns for both firm types, on both exchanges, exhibit negative skewness and high kurtosis inconsistent with a normal distribution. Returns display significant autocorrelation, even after the removal of lower-order effects. Granger causality tests reveal that Shenzhen returns significantly lead Shanghai returns. Within both exchanges, SO firms lead NSO firms. Neither SO nor NSO firm shares are dominated in terms of second-order stochastic dominance.

Management Science, 2006

ABSTRACT In a classroom choice experiment with mixed gambles and moderate probabilities, we find ... more ABSTRACT In a classroom choice experiment with mixed gambles and moderate probabilities, we find severe violations of cumulative prospect theory (CPT) and of Markowitz stochastic dominance. Our results shed new light on the exchange between Levy and Levy (2002) and Wakker (2003) in this journal.

Financial Analysts Journal

Http Dx Doi Org 10 3905 Jpm 2011 38 1 029, Oct 25, 2011

This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We con... more This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We construct 10 global sector indices over the extended sample period from 1970 to 2008. This enables us to test previously documented variables on a global basis and to examine whether they continued to work after their publication dates. We document significant returns for momentum (1-month and 12-1 month), earnings revisions and Sell in May seasonal, also after their publication dates. By contrast, monetary policy and valuation (mean-reversion and dividend yield) fail to predict global sector returns. Our out-of-sample tests reveal an average decay in performance of about one third. A long-short GTSA strategy that combines momentum with seasonal has an annual success ratio of 82% and delivers a compounded annual return of 9.9% after transaction costs. To the best of our knowledge, a global sector allocation study with such a long sample period and with such a broad range of variables has not been conducted before.

Modern Concepts of the Theory of the Firm, 2004

Over the last decade we have witnessed the rise and fall of the so-called new economy stocks. One... more Over the last decade we have witnessed the rise and fall of the so-called new economy stocks. One central question is to what extent these new firms differ from traditional firms. Empirical evidence suggests that stock returns are not normally distributed. In this article we investigate whether this also holds for portfolios of stocks from a growth industry. Furthermore, we will compare this type of portfolios with portfolios of stocks from a more traditional industry. Usually, only value weighted and equally weighted portfolios are used to describe and compare portfolio return characteristics. Instead, in our analysis, we use a novel approach in which we use an infinite number of portfolios that together represent the set of all feasible portfolio opportunities.

The mean-semivariance CAPM strongly outperforms the traditional mean-variance CAPM in terms of it... more The mean-semivariance CAPM strongly outperforms the traditional mean-variance CAPM in terms of its ability to explain the cross-section of US stock returns. If regular beta is replaced by downside beta, the traditional risk-return relationship is restored. The downside betas of low-beta stocks are substantially higher than the regular betas, while high-beta stocks involve less systematic downside risk than suggested by their regular betas. This pattern is especially pronounced during bad states-of-the-world, when the market risk premium is high. In sum, our results provide evidence in favor of market portfolio efficiency, provided we account for conditional downside risk.

Empirically, co-skewness of asset returns seems to explain a substantial part of the cross-sectio... more Empirically, co-skewness of asset returns seems to explain a substantial part of the cross-sectional variation of mean return not explained by beta. Thisfinding is typically interpreted in terms of a risk averse representativeinvestor with a cubic utility function. This comment questions thisinterpretation. We show that the empirical tests fail to impose risk aversionand the implied utility function takes an inverse S-shape. Unfortunately, thefirst-order conditions are not sufficient to guarantee that the market portfoliois the global maximum for an inverse S-shaped utility function, and ourresults suggest that the market portfolio is more likely to represent theglobal minimum than the global maximum. In addition, if we impose riskaversion, then co-skewness has minimal explanatory power.

This study conducts a classroom experiment and an online experiment to examine individual decisio... more This study conducts a classroom experiment and an online experiment to examine individual decision-making under risk. Like Levy and Levy (2002), the experiment uses pairs of mixed gambles with moderate probabilities to avoid the framing effect and certainty affect that may affect non-mixed gambles with extreme probabilities. Also, we use Stochastic Dominance criteria to avoid parametric specification of decision-maker preferences. Explicitly accounting for the Wakker (2003) comment, we find several serious violations of Cumulative Prospect Theory (CPT). In fact, in a head-to-head competition between Second-order Stochastic Dominance (SSD) and CPT, most individuals choose the SSD alternative.

The Journal of Index Investing, 2010

We show that the performance of a fundamental index with annual rebalancing, as proposed by Arnot... more We show that the performance of a fundamental index with annual rebalancing, as proposed by Arnott, Hsu and Moore , can be highly sensitive to the subjective choice of when to rebalance. For the year 2009, for example, we find that a fundamental index rebalanced every March outperformed the capitalization-weighted index by over 10%, whereas a fundamental index rebalanced every September underperformed. We provide intuitive and statistical evidence in support of the hypothesis that if two fundamental indexes diverge, they do not tend to mean-revert subsequently, i.e. the gap is likely to be permanent. This performance ambiguity is an undesirable feature for an index which is used for benchmarking purposes. We introduce the idea of blending multiple underlying fundamental indexes, each one rebalanced annually, but at different dates, as an example of how to construct a more robust fundamental index without increasing turnover.

SSRN Electronic Journal, 2000

ABSTRACT Various studies recommend investing in factor premiums beyond the classic market risk pr... more ABSTRACT Various studies recommend investing in factor premiums beyond the classic market risk premium, such as the small-cap, value, momentum, and low-volatility premiums. It is unclear, however, if factor investing can best be implemented using a long-only or a long-short approach. We empirically compare both approaches and find that although a long-short approach is superior theoretically, a long-only approach seems to be the preferred alternative in most scenarios, after accounting for practical issues such as benchmark restrictions, implementation costs and factor decay. In fact, we show that costs and decay may completely offset the value added of a long-short implementation. We conclude that investors should carefully consider the pros and cons of long-only and long-short approaches when implementing factor investing. The framework described in this paper is intended to help investors make that decision.

The Journal of Portfolio Management, 2007

We present empirical evidence that stocks with low volatility earn high risk-adjusted returns. Th... more We present empirical evidence that stocks with low volatility earn high risk-adjusted returns. The annual alpha spread of global low versus high volatility decile portfolios amounts to 12% over the 1986-2006 period. We also observe this volatility effect within the US, European and Japanese markets in isolation. Furthermore, we find that the volatility effect cannot be explained by other well-known effects such as value and size. Our results indicate that equity investors overpay for risky stocks. Possible explanations for this phenomenon include (i) leverage restrictions, (ii) inefficient two-step investment processes, and (iii) behavioral biases of private investors. In order to exploit the volatility effect in practice we argue that investors should include low risk stocks as a separate asset class in the strategic asset allocation phase of their investment process.

SSRN Electronic Journal, 2000

The mean-semivariance CAPM better explains the cross-section of US stock returns than the traditi... more The mean-semivariance CAPM better explains the cross-section of US stock returns than the traditional mean-variance CAPM does. If regular beta is replaced by downside beta, the cross-sectional risk-return relationship improves considerably. Especially during bad-states of the world, when the equity premium is high, we find a near-perfect relation between risk and return. The explanatory power of conditional downside risk remains after controlling for the known size, value and momentum effects. Marien de Gelder and Suzanne van der Tang for programming assistance. We appreciate the suggestions made by Martijn van den Assem,

SSRN Electronic Journal, 2000

Downside-market beta, when properly defined and estimated, explains a significant part of the cro... more Downside-market beta, when properly defined and estimated, explains a significant part of the cross-sectional variation of US stock returns and drives out regular market beta. Using monthly stock data from 1926 to present, the risk premium is estimated to be 3.59 to 7.62 percent per annum for downside beta, depending on the model specification, compared with 0.79 to 4.64 percent for regular beta. Consistent with the estimated beta premiums, forming portfolios based on downside beta yields substantially larger mean spreads than regular-beta portfolios.

The Journal of Index Investing, 2011

In this paper we discuss the benchmarking of low-volatility investment strategies, which are desi... more In this paper we discuss the benchmarking of low-volatility investment strategies, which are designed to benefit from the empirical result that low-risk stocks tend to earn high risk-adjusted returns. Although the minimum-variance portfolio of Markowitz is the ultimate low-volatility portfolio, we argue that it is not a suitable benchmark, as it can only be determined with hindsight. This problem is overcome by investable minimum-variance strategies, but because various approaches are equally effective at minimizing volatility it is ambiguous to elevate the status of any one particular approach to benchmark. As an example we discuss the recently introduced MSCI Minimum Volatility indices and conclude that these essentially resemble active low-volatility investment strategies themselves, rather than a natural benchmark for such strategies. In order to avoid these issues, we recommend to simply benchmark low-volatility managers against the capitalization-weighted market portfolio, using risk-adjusted performance metrics such as Sharpe ratio or Jensen's alpha.

SSRN Electronic Journal, 2000

The Journal of Portfolio Management, 2011

This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We con... more This study examines seven variables for Global Tactical Sector Allocation (GTSA) purposes. We construct 10 global sector indices over the extended sample period from 1970 to 2008. This enables us to test previously documented variables on a global basis and to examine whether they continued to work after their publication dates. We document significant returns for momentum (1-month and 12-1 month), earnings revisions and Sell in May seasonal, also after their publication dates. By contrast, monetary policy and valuation (mean-reversion and dividend yield) fail to predict global sector returns. Our out-of-sample tests reveal an average decay in performance of about one third. A long-short GTSA strategy that combines momentum with seasonal has an annual success ratio of 82% and delivers a compounded annual return of 9.9% after transaction costs. To the best of our knowledge, a global sector allocation study with such a long sample period and with such a broad range of variables has not been conducted before.

The Journal of Portfolio Management, 2008

In this paper we examine global tactical asset allocation (GTAA) strategies across a broad range ... more In this paper we examine global tactical asset allocation (GTAA) strategies across a broad range of asset classes. Contrary to market timing for single asset classes and tactical allocation across similar assets, this topic has received little attention in the existing literature. Our main finding is that momentum and value strategies applied to GTAA across twelve asset classes deliver statistically and economically significant abnormal returns. For a long top-quartile and short bottom-quartile portfolio based on a combination of momentum and value signals we find a return of 12% per annum over the 1986-2007 period. Performance is stable over time, also present in an out-of-sample period and sufficiently high to overcome transaction costs in

Journal of Asset Management, 2012

... PIM VAN VLIET Robeco Investments p.van.vliet@robeco.com July 2011 1 We would like to thank Gu... more ... PIM VAN VLIET Robeco Investments p.van.vliet@robeco.com July 2011 1 We would like to thank Guido Baltussen, David Blitz, Ronald Doeswijk, Eric Falkenstein, Stefan Grimbacher, Artino Janssen, Jan Sytze Mosselaar, Nico van der Sar, Raoul Sprangers, Dazhi Zheng, and ...

Journal of Asset Management, 2011

... Pim van Vliet 1 and David Blitz 2. Correspondence: Pim van Vliet, Coolsingel 120, NL 3011 AG,... more ... Pim van Vliet 1 and David Blitz 2. Correspondence: Pim van Vliet, Coolsingel 120, NL 3011 AG, Rotterdam, The Netherlands. E-mail: p.van.vliet@robeco.nl. ... Copyright © 2011 Palgrave Macmillan, a division of Macmillan Publishers Limited. ...

The Financial Review, 2005

This study examines and compares stock returns and volatilities between state-owned (SO) and non-... more This study examines and compares stock returns and volatilities between state-owned (SO) and non-state-owned (NSO) firms on the Shanghai and Shenzhen stock exchanges. Results vary significantly by exchange. Returns for both firm types, on both exchanges, exhibit negative skewness and high kurtosis inconsistent with a normal distribution. Returns display significant autocorrelation, even after the removal of lower-order effects. Granger causality tests reveal that Shenzhen returns significantly lead Shanghai returns. Within both exchanges, SO firms lead NSO firms. Neither SO nor NSO firm shares are dominated in terms of second-order stochastic dominance.

Management Science, 2006

ABSTRACT In a classroom choice experiment with mixed gambles and moderate probabilities, we find ... more ABSTRACT In a classroom choice experiment with mixed gambles and moderate probabilities, we find severe violations of cumulative prospect theory (CPT) and of Markowitz stochastic dominance. Our results shed new light on the exchange between Levy and Levy (2002) and Wakker (2003) in this journal.