Area of Expertise
- Asset Pricing
- Behavioral Finance
- Capital Markets
- Finance - Econometrics
- Return Predictability
- Stock Valuation
My current research interests revolve around the equity risk premium related to price bubbles and the equity premium puzzle, and as related to time-varying risk premia. I use simulation methods to explore price bubbles, and patterns in returns to various classes of assets to explore time-variation in risk premia. My research on time-varying risk premia is based on links between human sentiment and financial risk tolerance, which are well supported in the medical, psychology, and economics literatures. This work provides a bridge between a classic notion of rationality and irrational behavioural finance notions that investor mood or bias causes swings in asset prices.
2015-2019 Canadian Securities Institute Research Foundation Limited Term Professorship- $150,000
2015-2019 $114,230 SSHRC Insight Research Grant, 2015-2019 (Principal Investigator).
2011-2015 $71,899 SSHRC Insight Development Research Grant, 2011-2015 (Co-investigator).
2010-2013 $78,700 SSHRC Research Grant, 2010-2013 (Co-investigator).
2010-2013 $65,500 SSHRC Research Grant, 2010-2013 (Principal Investigator).
2007-2010 $58,000 SSHRC Research Grant, 2007-2010 (Principal Investigator).
1996-1999 $65,000 SSHRC Research Grant, 1996-1999 (Co-investigator).
Kamstra, M., Kramer, L., Levi, M. and Wermers, R. (2017), "Seasonal Asset Allocation: Evidence from Mutual Fund Flows", Journal of Financial and Quantitative Analysis, 52(1), 71-109.
We analyze the flow of money between mutual fund categories, finding strong evidence of seasonality in investor risk aversion. Aggregate investor flow data reveal an investor preference for safe mutual funds in autumn and risky funds in spring. During September alone, outflows from equity funds average $13 billion, controlling for previously documented flow determinants (e.g., capital-gains overhang). This movement of large amounts of money between fund categories is correlated with seasonality in investor risk aversion, consistent with investors preferring safer (riskier) investments in autumn (spring). We find consistent evidence in Canada and also in Australia, where seasons are offset by 6 months.
Charupat, N., Kamstra, M. and Milevsky, M. (2016), "The Sluggish and Asymmetric Reaction of Life Annuity Prices to Changes in Interest Rates", Journal of Risk and Insurance, 83(3), 519-555.
Many assume that in the short run, annuity prices promptly and efficiently respond to changes in interest rates. Using a unique database of quotes, we show this is not the case. Prices are less sensitive to changes in rates than expected, and responses are asymmetric. Prices react more rapidly and with greater sensitivity to an increase than to a decrease in rates. The results are robust, but there is a small degree of heterogeneity in the responses of different insurance companies. When rates increase, larger firms are slightly quicker to improve prices. The opposite is true when rates decline. In sum, we show that the microstructure of annuity dynamics is more complicated than (simply) adding mortality credits to bond yields.
Kamstra, M., Kramer, L. and Levi, M. (2015), "Seasonal Variation in Treasury Returns", Critical Finance Review, 4(1), 45-115.
We document a novel and striking annual cycle in the U.S. Treasury market, with a variation in mean monthly returns of over 80 basis points from peak to trough. We show that this seasonal Treasury return pattern does not arise due to macroeconomic seasonalities, seasonal variation in risk, the weather, cross-hedging between equity and Treasury markets, conventional measures of investor sentiment, seasonalities in the Treasury market auction schedule, seasonalities in the Treasury debt supply, seasonalities in the FOMC cycle, or peculiarities of the sample period considered. Rather, the seasonal pattern in Treasury returns is significantly correlated with a proxy for variation in investor risk aversion across the seasons, and a model based on that proxy is able to explain more than sixty percent of the average seasonal variation in monthly Treasury returns. The White (2000) reality test confirms that the correlation between returns and the proxy for seasonal variation in investor risk aversion cannot be easily dismissed as the simple result of data snooping.
Kamstra, M., Kramer, L., Levi, M. and Wang, T. (2014), "Seasonally Varying Preferences: Theoretical Foundations for an Empirical Regularity", Review of Asset Pricing Studies, 4(1), 39-77.
We investigate an asset pricing model with preferences cycling between high risk aversion and low EIS in fall/winter and the reverse in spring/summer. Calibrating to consumption data and allowing plausible preference parameter values, we produce returns that match observed equity and Treasury returns across the seasons: risky returns are higher and risk-free returns are lower or stable in fall/winter, and they reverse in spring/summer. Further, risky returns vary more than risk-free returns. A novel finding is that both EIS and risk aversion must vary seasonally to match observed returns. Further, the degree of necessary seasonal change in EIS is small. (JEL E44, G11, G12)
Kamstra, M., Roberts, G. and Shao, P. (2014), "Does the Secondary Loan Market Reduce Borrowing Costs?", Review of Finance, 18(3), 1139-1181.
We show that lenders make price concessions for the right to resell loans and reveal a strong countervailing association between the ex ante probability of loan resale and the initial loan spreads. We disentangle the side effects (reduced monitoring) from the benefits (enhanced liquidity) brought by the secondary loan resales. The average net impact of simultaneously reducing the probability of the presence of resale constraint and raising the probability of resale across the full sample is to lower spreads by 14 basis points. On balance, the secondary loan market provides clear benefits to the issuers of debt.
Kamstra, M., Kramer, L.A. and Levi, M.D. (2013), "A Careful Re-Examination of Seasonality in International Stock Markets: Comment on Sentiment and Stock Returns", Journal of Banking and Finance, 36, 934-956.
In questioning Kamstra, Kramer, and Levi’s (2003) finding of an economically and statistically significant seasonal affective disorder (SAD) effect, Kelly and Meschke (2010) make errors of commission and omission. They misrepresent their empirical results, claiming that the SAD effect arises due to a “mechanically induced” effect that is non-existent, labeling the SAD effect a “turn-of-year” effect (when in fact their models and ours separately control for turn-of-year effects), and ignoring coefficient-estimate patterns that strongly support the SAD effect. Our analysis of their data shows, even using their low-power statistical tests, there is significant international evidence supporting the SAD effect. Employing modern, panel/time-series statistical methods strengthens the case dramatically. Additionally, Kelly and Meschke represent the finance, psychology, and medical literatures in misleading ways, describing some findings as opposite to those reported by the researchers themselves, and choosing selective quotes that could easily lead readers to a distorted understanding of these findings.
Kamstra, M., Kramer, L. and Levi, M. (2013), "Effects of Daylight-Saving Time Changes on Stock Market Returns and Stock Market Volatility: Rebuttal", Psychological Reports, 112(1), 89-99.
In a 2011 reply to our 2010 comment in this journal, Berument and Dogen maintained their challenge to the existence of the negative daylight-saving effect in stock returns reported by Kamstra, Kramer, and Levi in 2000. Unfortunately, in their reply, Berument and Dogen ignored all of the points raised in the comment, failing even to cite the Kamstra, et al. comment. Berument and Dogen continued to use inappropriate estimation techniques, over-parameterized models, and low-power tests and perhaps most surprisingly even failed to replicate results they themselves reported in their previous paper, written by Berument, Dogen, and Onar in 2010. The findings reported by Berument and Dogen, as well as by Berument, Dogen, and Onar, are neither well-supported nor well-reasoned. We maintain our original objections to their analysis, highlight new serious empirical and theoretical problems, and emphasize that there remains statistically significant evidence of an economically large negative daylight-saving effect in U.S. stock returns. The issues raised in this rebuttal extend beyond the daylight-saving effect itself, touching on methodological points that arise more generally when deciding how to model financial returns data.
Courses TaughtMGMT 2000 Quantitative Analysis for Management Decisions
FINE 4200 (now numbered 3200) Investments
FINE 6200 Investments,
FINE 6310 Econometrics of Finance Markets
FINE 6500 Behavioral Finance
FINE 7300 Topics in Finance
DCAD 7500 Quantitative Analysis
Project Title Role Award Amount Year Awarded Granting Agency Project Title Role Award Amount$150,000.00 Year Awarded2015-2019 Granting AgencyCanadian Securities Institute Research Foundation Limited Term Professorship Project Title Role Award Amount$114,230.00 Year Awarded2015-2018 Granting AgencySSHRC Insight Research Grant Project Title RoleCo-Investigator Award Amount$71,899.00 Year Awarded2011-2014 Granting AgencySocial Sciences and Humanities Research Council - Insight Development Research Grant Project Title RoleCo-Investigator Award Amount$78,700.00 Year Awarded2010-2013 Granting AgencySocial Sciences and Humanities Research Council - Research Grant Project TitleFundamental valuation, bubbles, and fads: estimating prices and risk premia RolePrincipal Investigator Award Amount$65,500.00 Year Awarded2010-2013 Granting AgencySocial Sciences and Humanities Research Council - Research Grant Project TitleIndividual investors' portfolio adjustments and implications for time-varying risk aversion RolePrincipal Investigator Award Amount$58,000.00 Year Awarded2007-2010 Granting AgencySocial Sciences and Humanities Research Council - Research Grant Project Title RoleCo-Investigator Award Amount$65,000.00 Year Awarded1996-1999 Granting AgencySSHRC Research Grant Project Title Role Award Amount$36,000.00 Year Awarded1993-1996 Granting AgencySSHRC Research Grant Project Title Role Award Amount$17,500.00 Year Awarded1992-1997 Granting AgencySSHRC Small Grants, Simon Fraser University Project Title Role Award Amount$7,000.00 Year Awarded1992 Granting AgencyPresident's Research Grant Award, Simon Fraser University Project Title Role Award Amount$45,000.00 Year Awarded1985-1989 Granting AgencySSHRC Doctoral Fellowship Project Title Role Award Amount$11,000.00 Year Awarded1984-1985 Granting AgencySSHRC Special Master of Arts Fellowship