Publications

2020

Hossein Rad, Rand KY Low, Joëlle Miffre, and Robert Faff. Does sophistication of the Weighting Scheme Enhance the Performance of Long-Short Commodity Portfolios? Journal of Empirical Finance, 2020.
[Abstract▼] [BibTeX▼]

The article develops a long-short portfolio construction technique that captures the fundamentals of backwardation and contango present in commodity futures markets and simultaneously deviates from the equal-weighting scheme traditionally employed in the literature. The sophisticated weighting schemes based on risk minimization and risk timing are found to dominate the traditional naive allocation and the schemes based on utility maximization. The conclusion applies to both momentum and term structure portfolios and persists after accounting for transaction costs, lack of liquidity, various model specifications, and different sub-periods.
```
@article{rad_does_2019,
    author = "Rad, Hossein and Low, Rand KY and Miffre, Joëlle and Faff, Robert",
    title = "Does sophistication of the {Weighting} {Scheme} {Enhance} the {Performance} of {Long}-{Short} {Commodity} {Portfolios}?",
    journal = "Journal of Empirical Finance",
    doiOPT = "https://doi.org/10.1016/j.jempfin.2020.05.006",
    year = "2020"
}
```

2019

Rand KY Low and Terry Marsh. Cryptocurrency and blockchains: retail to institutional. Journal of Investing, 29(1):18–30, 2019.
[Abstract▼] [BibTeX▼]

A reduction in cost of traditional financial intermediation was one of the main motivations cited by Satoshi Nakamoto in his/her/their 2008 proposal for: “… an electronic payment system based on cryptographic proof instead of trust.” We begin here with some back-of-the-envelope calculations of these potential cost savings and benefits from the customer perspective. We then discuss the public blockchain ledger and various solutions to two important problems that are constraints on the public blockchain’s trustless consensus, viz. “mining” costs in proof-of-work and governance issues. We speculate that foreseeable institutional implementations will often involve integration of permissioned blockchains with public blockchains. We then discuss exchanges for trading cryptocurrencies, the second component of the crypto blockchains, and in particular their “teething problems” along with the evolution of a subset of them into increasingly “industrial strength” entities. We suggest that with a more industrial strength infrastructure in place, self-executing smart contracts are virtually natural counterparts for more traditional passive investment products. We end with a discussion of Security Token Offerings (STOs) and the newer Initial Coin Offerings (ICOs): STOs are an interesting hybrid between the ICOs and traditional IPOs; they could conceivably pave the way to a long-time-coming “direct electronic IPO” market.
```
@article{low_crypto_retail_institutional_2019,
    author = "Low, Rand KY and Marsh, Terry",
    title = "Cryptocurrency and Blockchains: Retail to Institutional",
    journal = "Journal of Investing",
    volume = "29",
    number = "1",
    pages = "18--30",
    doiOPT = "https://doi.org/10.3905/joi.2019.1.102",
    year = "2019"
}
```
Rand KY Low and Terry Marsh. Cryptocurrency: Tulip Mania or Digital Promise for the Millennial Generation? Studies in Economics and Finance, 36(1):2–7, 2019.
[Abstract▼] [BibTeX▼]

We provide a summarized description of cryptocurrencies and their relationship with other fiat currencies globally. We discuss whether the popularity of cryptocurrency is more akin to Tulip-mania or the digital currency for future generations.
```
@article{low_cryptocurrency_2019,
    author = "Low, Rand KY and Marsh, Terry",
    title = "Cryptocurrency: {Tulip} {Mania} or {Digital} {Promise} for the {Millennial} {Generation}?",
    journal = "Studies in Economics and Finance",
    volume = "36",
    number = "1",
    pages = "2--7",
    doiOPT = "10.1108/SEF-03-2019-355",
    year = "2019"
}
```

2018

Rand KY Low, Jamie Alcock, Robert Faff, and Timothy Brailsford. Canonical Vine Copulas in the Context of Modern Portfolio Management. In Asymmetric Dependence in Finance, chapter 11, pages 263–289. John Wiley & Sons, Ltd, Chichester, West Sussex, United Kingdom, 2018.
[Abstract▼] [BibTeX▼]

In the context of managing downside correlations, we examine the use of multi-dimensional elliptical and asymmetric copula models to forecast returns for portfolios with 3–12 constituents. Our analysis assumes that investors have no short-sales constraints and a utility function characterized by the minimization of Conditional Value-at-Risk (CVaR). We examine the efficient frontiers produced by each model and focus on comparing two methods for incorporating scalable asymmetric dependence (AD) structures across asset returns using the Archimedean Clayton copula in an out-of-sample, long-run multi-period setting. For portfolios of higher dimensions, we find that modelling asymmetries within the marginals and the dependence structure with the Clayton canonical vine copula (CVC) consistently produces the highest-ranked outcomes across a range of statistical and economic metrics when compared to other models incorporating elliptical or symmetric dependence structures. Accordingly, we conclude that CVC copulas are ‘worth it’ when managing larger portfolios.
```
@incollection{low_canonical_2018,
    author = "Low, Rand KY and Alcock, Jamie and Faff, Robert and Brailsford, Timothy",
    title = "Canonical {Vine} {Copulas} in the {Context} of {Modern} {Portfolio} {Management}",
    copyright = "© 2018 John Wiley \\& Sons Ltd",
    isbn = "9781119288992",
    booktitle = "Asymmetric {Dependence} in {Finance}",
    publisher = "John Wiley \\& Sons, Ltd",
    year = "2018",
    doiOPT = "10.1002/9781119288992.ch11",
    keywords = "Archimedean Clayton copula, asset allocation, asymmetric dependence, canonical vine copula model, investment fund, multivariate probability models, portfolio management",
    pages = "263--289",
    chapter = "11",
    address = "Chichester, West Sussex, United Kingdom"
}
```
Rand KY Low, Te Li, and Terry Marsh. BV–VPIN: Measuring the impact of order flow toxicity and liquidity on international equity markets. Journal of Risk, 21(2):63–97, 2018.
[Abstract▼] [BibTeX▼]

Order flow toxicity is the measure of a trader’s exposure to the risk that counterparties possess private information or other informational advantages. High levels of order flow toxicity can culminate in market makers providing liquidity at a loss or in the suboptimal execution of trades. From a regulatory perspective, high levels of toxicity can be harmful to overall market liquidity and precede precipitous drops in asset prices. The bulk volume–volume-synchronized probability of informed trading (BV–VPIN) model is one way of measuring the “toxicity” component of order flow, and it has been successfully applied in high-frequency trading environments. We apply the BV–VPIN to daily data from a range of international indexes in order to extend previous analyses of its properties. We find that a rise in BV–VPIN effectively foreshadows high levels of volatility in the equity indexes of several countries. If a BV–VPIN futures contract were to exist, we show that it would exhibit safe haven characteristics during market downturns. In particular, a simple active portfolio management strategy that times investments in equities (risk-free assets) when BV–VPIN levels are low (high) outperforms a buy-and-hold strategy. Thus, we find support for the application of BV-VPIN in international equity markets as a risk monitoring and management tool for portfolio managers and regulators.
```
@article{low_bvvpin_2018,
    author = "Low, Rand KY and Li, Te and Marsh, Terry",
    title = "{BV}–{VPIN}: {Measuring} the impact of order flow toxicity and liquidity on international equity markets",
    journal = "Journal of Risk",
    volume = "21",
    number = "2",
    pages = "63--97",
    year = "2018",
    doiOPT = "10.21314/JOR.2018.399"
}
```
Necmi Avkiran, Christian Ringle, and Rand KY Low. Monitoring transmission of systemic risk: application of partial least squares structural equation modeling in financial stress testing. Journal of Risk, 20(5):83–115, 2018.
[Abstract▼] [BibTeX▼]

Regulators need a method that is versatile, is easy to use and can handle complex path models with latent (not directly observable) variables. In a first application of partial least squares structural equation modeling (PLS-SEM) in financial stress testing, we demonstrate how PLS-SEM can be used to explain the transmission of systemic risk. We model this transmission of systemic risk from shadow banking to the regulated banking sector (RBS) using a set of indicators (directly observable variables) that are sources of systemic risk in shadow banking and consequences of systemic risk measured in the RBS. Procedures for predictive model assessment using PLS-SEM are outlined in clear steps. Statistically significant results based on predictive modeling indicate that around 75% of the variation in systemic risk in the RBS can be explained by microlevel and macrolevel linkages that can be traced to shadow banking (we use partially simulated data). The finding that microlevel linkages have a greater impact on the contagion of systemic risk highlights the type of significant insight that can be generated through PLS-SEM. Regulators can use PLS-SEM to monitor the transmission of systemic risk, and the demonstrated skills can be transferred to any topic with latent constructs.
```
@article{avkiran_monitoring_2018,
    author = "Avkiran, Necmi and Ringle, Christian and Low, Rand KY",
    title = "Monitoring transmission of systemic risk: application of partial least squares structural equation modeling in financial stress testing",
    shorttitle = "Monitoring transmission of systemic risk",
    journal = "Journal of Risk",
    volume = "20",
    number = "5",
    pages = "83--115",
    doiOPT = "10.21314/JOR.2018.386",
    year = "2018"
}
```
Rand KY Low. Vine copulas: modelling systemic risk and enhancing higher-moment portfolio optimisation. Accounting & Finance, 58(S1):423–463, 2018.
[Abstract▼] [BibTeX▼]

Asymmetric dependence in equities markets has been shown to have detrimental effects on portfolio diversification as assets within the portfolio exhibit greater correlations during market downturns compared to market upturns. By applying the Clayton canonical vine copula (CVC) to model asymmetric dependence, we produce a measure of systemic risk across a portfolio of assets. In addition, we use the Clayton CVC to produce estimates of expected returns in an application to higher-moment portfolio optimisation and find evidence of an improvement in performance across a range of risk-adjusted return measures and the indices of acceptability.
```
@article{low_vine_2018,
    author = "Low, Rand KY",
    title = "Vine copulas: modelling systemic risk and enhancing higher-moment portfolio optimisation",
    volume = "58",
    copyright = "© 2017 AFAANZ",
    issn = "1467-629X",
    shorttitle = "Vine copulas",
    doiOPT = "10.1111/acfi.12274",
    number = "S1",
    journal = "Accounting \\& Finance",
    year = "2018",
    keywords = "Clayton copula, asymmetric dependence, behavioural finance, portfolio management, vine copula",
    pages = "423--463"
}
```

2016

Rand KY Low, Robert Faff, and Kjersti Aas. Enhancing mean–variance portfolio selection by modeling distributional asymmetries. Journal of Economics and Business, 85:49–72, 2016.
[Abstract▼] [BibTeX▼]

Why do mean–variance (MV) models perform so poorly? In searching for an answer to this question, we estimate expected returns by sampling from a multivariate probability model that explicitly incorporates distributional asymmetries. Specifically, our empirical analysis shows that an application of copulas using marginal models that incorporate dynamic features such as autoregression, volatility clustering, and skewness to reduce estimation error in comparison to historical sampling windows. Using these copula-based models, we find that several MV-based rules exhibit statistically significant and superior performance improvements even after accounting for transaction costs. However, we find that outperforming the naïve equally-weighted (1/N) strategy after accounting for transactions costs still remains an elusive task.
```
@article{yew_low_enhancing_2016,
    author = "Low, Rand KY and Faff, Robert and Aas, Kjersti",
    title = "Enhancing mean–variance portfolio selection by modeling distributional asymmetries",
    volume = "85",
    issn = "0148-6195",
    doiOPT = "10.1016/j.jeconbus.2016.01.003",
    journal = "Journal of Economics and Business",
    year = "2016",
    keywords = "Asymmetric marginals, Copula, Mean–variance, Portfolio management",
    pages = "49--72"
}
```
Rand KY Low, Yiran Yao, and Robert Faff. Diamonds vs. precious metals: What shines brightest in your investment portfolio? International Review of Financial Analysis, 43:1–14, 2016.
[Abstract▼] [BibTeX▼]

Several studies explore the use of gold and other precious metals for protecting investors’ wealth during periods of market turmoil. However, alternative investments, although increasing in popularity, still remain unfamiliar to the majority of investors. We explore the safe haven and hedging properties of diamonds versus precious metals in an international study to evaluate diamonds as a viable investment alternative. Furthermore, we compare the performance between the returns of physical diamonds and diamond indices. Our analysis indicates superior performance by precious metals compared to diamonds. However, investors enjoy greater benefit from directly investing in physical diamonds rather than diamond indices. For investors looking to protect their assets against highly volatile market conditions, precious metals remain a better option. Investors should continue to keep abreast of developments with the evolution of the diamond investments industry and physical diamonds can be included in a portfolio for their downside diversification potential.
```
@article{low_diamonds_2016,
    author = "Low, Rand KY and Yao, Yiran and Faff, Robert",
    title = "Diamonds vs. precious metals: {What} shines brightest in your investment portfolio?",
    volume = "43",
    issn = "1057-5219",
    shorttitle = "Diamonds vs. precious metals",
    doiOPT = "10.1016/j.irfa.2015.11.002",
    journal = "International Review of Financial Analysis",
    year = "2016",
    keywords = "Diamonds, Gold, Hedges, Precious metals, Safe haven",
    pages = "1--14"
}
```
Hossein Rad, Rand KY Low, and Robert Faff. The profitability of pairs trading strategies: Distance, cointegration and copula methods. Quantitative Finance, 16(10):1541–1558, 2016.
[Abstract▼] [BibTeX▼]

We perform an extensive and robust study of the performance of three different pairs trading strategies—the distance, cointegration and copula methods—on the entire US equity market from 1962 to 2014 with time-varying trading costs. For the cointegration and copula methods, we design a computationally efficient two-step pairs trading strategy. In terms of economic outcomes, the distance, cointegration and copula methods show a mean monthly excess return of 91, 85 and 43 bps (38, 33 and 5 bps) before transaction costs (after transaction costs), respectively. In terms of continued profitability, from 2009, the frequency of trading opportunities via the distance and cointegration methods is reduced considerably, whereas this frequency remains stable for the copula method. Further, the copula method shows better performance for its unconverged trades compared to those of the other methods. While the liquidity factor is negatively correlated to all strategies’ returns, we find no evidence of their correlation to market excess returns. All strategies show positive and significant alphas after accounting for various risk-factors. We also find that in addition to all strategies performing better during periods of significant volatility, the cointegration method is the superior strategy during turbulent market conditions.
```
@article{rad_profitability_2016,
    author = "Rad, Hossein and Low, Rand KY and Faff, Robert",
    title = "The profitability of pairs trading strategies: {Distance}, cointegration and copula methods",
    volume = "16",
    issn = "1469-7688",
    doiOPT = "10.1080/14697688.2016.1164337",
    number = "10",
    journal = "Quantitative Finance",
    year = "2016",
    keywords = "Cointegration, Copula, Pairs trading, Quantitative strategies, Statistical arbitrage",
    pages = "1541--1558"
}
```
Rand KY Low and Enoch Tan. The role of analyst forecasts in the momentum effect. International Review of Financial Analysis, 48:67–84, 2016.
[Abstract▼] [BibTeX▼]

We evaluate the extent to which sell-side equity analysts can facilitate market efficiency when there is increasing uncertainty about a stock's future value. The prevalence of the 52-week-high momentum anomaly, that can be largely attributed to information uncertainty, provides a setting for examining the value and timing of analysts' earnings forecast revisions. Our study finds that analysts can provide value-relevant signals to investors by picking up indicators of momentum. The ability to identify under or over-valued stocks suggests that analysts are important information intermediaries in the price-continuation momentum effect. However, we also observe pervasive asymmetric reaction to good and bad news throughout our study that is consistent with incentive-driven reporting and optimistic biases. Nevertheless, analysts' forecast revisions are informative at different stages to re-establish stock prices back to their fundamental valuation.
```
@article{low_role_2016,
    author = "Low, Rand KY and Tan, Enoch",
    title = "The role of analyst forecasts in the momentum effect",
    volume = "48",
    issn = "1057-5219",
    doiOPT = "10.1016/j.irfa.2016.09.007",
    journal = "International Review of Financial Analysis",
    year = "2016",
    keywords = "52-Week-high price, Analysts' forecast revision, Momentum, Optimistic bias, Recency bias",
    pages = "67--84"
}
```

2015

Jacquelyn Humphrey, Karen Benson, Rand KY Low, and Wei-Lun Lee. Is diversification always optimal? Pacific-Basin Finance Journal, 35:521–532, 2015.
[Abstract▼] [BibTeX▼]

Finance theory and recent literature suggest that investors should diversify their retirement savings across a number of funds. However, the Australian government encourages investors to consolidate retirement savings into just one fund. Using a number of optimization techniques, we investigate which of these two actions would result in the best outcome for investors in terms of risk and return. We find that in the majority of cases investors would be better off not diversifying their holdings; mainly because superannuation funds cannot be short sold. Consolidation therefore does appear to be the optimal strategy for the average superannuation investor.
```
@article{humphrey_is_2015,
    author = "Humphrey, Jacquelyn and Benson, Karen and Low, Rand KY and Lee, Wei-Lun",
    title = "Is diversification always optimal?",
    volume = "35",
    issn = "0927-538X",
    doiOPT = "10.1016/j.pacfin.2015.09.003",
    urldate = "2019-01-19",
    journal = "Pacific-Basin Finance Journal",
    year = "2015",
    keywords = "Diversification, Retirement funds, Superannuation",
    pages = "521--532"
}
```

2013

Rand KY Low, Jamie Alcock, Timothy Brailsford, and Robert Faff. Canonical vine copulas in the context of modern portfolio management: Are they worth it? Journal of Banking & Finance, 37(8):3085–3099, 2013.
[Abstract▼] [BibTeX▼]

In the context of managing downside correlations, we examine the use of multi-dimensional elliptical and asymmetric copula models to forecast returns for portfolios with 3–12 constituents. Our analysis assumes that investors have no short-sales constraints and a utility function characterized by the minimization of Conditional Value-at-Risk (CVaR). We examine the efficient frontiers produced by each model and focus on comparing two methods for incorporating scalable asymmetric dependence structures across asset returns using the Archimedean Clayton copula in an out-of-sample, long-run multi-period setting. For portfolios of higher dimensions, we find that modeling asymmetries within the marginals and the dependence structure with the Clayton canonical vine copula (CVC) consistently produces the highest-ranked outcomes across a range of statistical and economic metrics when compared to other models incorporating elliptical or symmetric dependence structures. Accordingly, we conclude that CVC copulas are ‘worth it’ when managing larger portfolios.
```
@article{low_canonical_2013,
    author = "Low, Rand KY and Alcock, Jamie and Brailsford, Timothy and Faff, Robert",
    title = "Canonical vine copulas in the context of modern portfolio management: {Are} they worth it?",
    volume = "37",
    issn = "0378-4266",
    shorttitle = "Canonical vine copulas in the context of modern portfolio management",
    doiOPT = "10.1016/j.jbankfin.2013.02.036",
    number = "8",
    journal = "Journal of Banking \\& Finance",
    year = "2013",
    keywords = "Asymmetric dependence, Canonical vine, Clayton copula, Conditional value-at-risk, Portfolio management, Vine copula",
    pages = "3085--3099"
}
```

Distinctions

2015

Australia Award - Endeavour Fellowship (Search for Kwong Yew Low, Australian Federal Government).
Australian Institute of Business and Economics (AIBE) Research Scholar.
Diamonds vs. precious metals: What shines brightest in your investment portfolio? referenced in the Diamonds: A rising asset class industry report from the Singapore Diamond Exchange (SDiX).

2014

AFAANZ Research Grant - Role of risk-adjusted returns metrics in retirement choices.
UQ Research Fellowship - Portfolio optimization and risk management techniques for financial crises.

2013

Dean's Award for Outstanding HDR Theses

2012

UQ Graduate School International Travel Award (Funding Visiting Scholar position in the UK).

2011

Best paper in Finance’ at the 4th International Accounting & Finance Doctoral Symposium (IAFDS), Salamanca, Spain.
3MT Presentation Winner (UQ Faculty of Business, Economics & Law).
3MT People’s Choice Award (UQ Faculty of Business, Economics & Law).

2009

Australian Postgraduate Award Industry Scholarship (APAI) with Tactical Global Management. with the University of Queensland (UQ).

2008

Certificate of Appreciation for participating in EBI R400 Beta Site-Release (Honeywell Software Centre).

2007

Honeywell Technical Excellence Champion Award (Asia-Pacific).
Honeywell Bravo Award.

2005

Meridian Award for Final Year Engineer projects (Design & Implementation, University of Melbourne).

2004

Melbourne Abroad Scholarship (Melbourne Abroad, University of Melbourne).
North American Exchange Scholarship (Faculty of Engineering, University of Melbourne).