Professor Ronald Bird

Bird, R.G. & Yeung, D.C. 2012, 'How do investors react under uncertainty?', Pacific-Basin Finance Journal, vol. 20, no. 2, pp. 310-327.
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It has long been accepted that risk plays an important role in determining valuation where risk reflects that investors are unsure of future returns but are able to express their prior expectations by a probability distribution of these returns. Knight (1921) introduced the concept of uncertainty where investors possess incomplete knowledge about this distribution and so are unable to formulate priors over all possible outcomes. One common approach for making uncertainty tractable is to assume that investors faced with uncertainty will base their decisions on the worst case scenario (i.e. follow maxmin expected utility). As a consequence it is postulated that investors will become more pessimistic as uncertainty increases, upgrading bad news and downgrading good news. Using Australian data, we find evidence that investors react to bad news at times of high market uncertainty but largely ignore good news which is consistent with them taking on a pessimistic bias. However, we also find evidence of the reverse when market uncertainty is low with investors taking on an optimistic stance by ignoring bad news but reacting to good news. We also find that the impact that market uncertainty has on the reaction of investors to new information is modified by the prevailing market sentiment at the time of the announcement. Besides throwing light on the question of how uncertainty impacts on investor behaviour, our findings seriously challenge the common assumption made that investors consistently deal with uncertainty by applying maxmin expected utility.

Bird, R.G., Momente, F. & Reggiani, F. 2012, 'The market acceptance of corporate social responsibility: A comparison across six countries/regions', Australian Journal of Management, vol. 37, no. 2, pp. 153-168.
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Information on the link between market performance and corporate social responsibility (CSR) activities provides an indication of the extent of acceptance by investors of these types of activities. The nature of this relationship is of critical importance for management trying to reconcile the demands of the company's shareholders with those of a much wider group of stakeholders and for investors pursuing a socially responsible investing strategy. Using an international database we investigate the extent to which expenditures on CSR activities are valued across market in six countries/regions. We find that CSR activities are highly valued by the investors in the European markets, where our findings clearly indicate that such activities lead to higher market valuations. In the US, Japan and Australia expenditures on CSR activities have a neutral impact on company valuation, which is still a good outcome for management who wish to incorporate into their decision process the objectives of a wide spectrum of stakeholders and for investors wishing to tilt their investments towards the more socially responsible companies.

Bird, R.G. & Casavecchia, L. 2011, 'Conditional style rotation model on enhanced value and growth portfolios: The European experience', Journal of Asset Management, vol. 11, no. 6, pp. 375-390.
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This article analyses the extent of the excess returns that can be generated within the European markets by rotating one+s portfolio between value and growth stocks. Academic and professional attention has been devoted in the past to the analysis of the potential value-enhancement generated by rotation strategies based on macroeconomic models and applied to value and growth portfolios and/or indexes. We demonstrate that such models can be employed successfully to rotate between value and growth portfolios that are formed using traditional valuation metrics. However, we find that the value-enhancing potential of such rotation strategies is eroded when the value and growth portfolios are themselves enhanced using market sentiment and financial health indicators.

Bird, R.G., Menzies, G.D., Dixon, P. & Rimmer, M. 2011, 'The economic costs of US stock mispricing', Journal of Policy Modeling, vol. 33, no. 4, pp. 552-567.
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The USAGE model for the United States is used to quantify economic costs due to stock mispricing, made operational by shocking Tobin+s q. The simulations quantify a potentially large impact even in the most favorable environment, where export demand holds up, and, the dollar is pro-cyclical. A two-year investment boom in two sectors increases consumption by a Net Present Value (NPV) amount of nearly one per cent, due to a positive investment externality onto the US terms of trade. If the investment is wasted, however, the consumption loss is nearly one-half of a per cent. A 5-year `capital strike+ across the whole economy subsequent to the boom + mimicking financial distress from a burst bubble + shaves around 10 per cent off consumption. Given these significant costs associated with +boom+ and +bust+ equity markets, we consider some, policy options that might result in greater stability in these markets.

Bird, R.G., Casavecchia, L., Pellizzari, P. & Woolley, P.K. 2011, 'The impact on the pricing process of costly active management and performance chasing clients', Journal of Economic Interaction and Coordination, vol. 6, no. 1, pp. 61-82.
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One of the necessary features of markets to produce efficient pricing is competition between information-based investors who quickly impound new information into price. However, a significant proportion of funds invested in today+s equity markets are in the hands of managers who pursue a style that utilises little or none of the available information.We simulate such a market where the funds are being managed using the following three investment styles: fundamental, omentum and index. We confirm that the major pricing anomalies that have been highlighted previously in the literature are a natural consequence of competition between managers utilising these three investment styles.More importantly, we show that this situation is unlikely to change as long as markets continue to be dominated by costly active managers with clients who pursue outperformance.

Menzies, G.D., Bird, R.G., Dixon, P. & Rimmer, M. 2011, 'Asset Price Regulators, Unite: You have the Macroeconomy to Win and the Microeconomic Losses are Small', Economic Record, vol. 87, no. 278, pp. 449-464.
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The global financial crisis (GFC) has rekindled debate about the desirability of governmental interference in asset markets + either through the operation of policy levers, or through the chosen institutional setup. In this article, we quantify economic costs because of mispricing of real assets in the USAGE model of the USA. The microeconomic costs of misallocated capital are small. The model suggests that regulators (or central banks) who risk mispricing by influencing asset prices do so without incurring large economic costs.

Bagna, E., Bini, M., Bird, R.G., Momente, F. & Reggiani, F. 2010, 'Accounting for employee stock options: What can we learn from the market's perceptions?', Journal of International Financial Management and ..., vol. 21, no. 2, pp. 161-186.
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The scope of this is paper is to provide new empirical evidence on the value relevance of employee stock options (ESOs) in Europe. We show, empirically, that the market participants when pricing a firm's equity place approximately the same valuation weights on the ESO-deferred compensation expense (the so called +ESO asset+) and the compensation option liability (the so called +ESO liability+). Our empirical findings support the theoretical work of Ohlson and Penman who suggest that the deferred compensation expense be treated as a contra-liability. The second contribution of our work rests on the nature of the ESO expense. We show that the distinction between persistent and non-persistent ESO expenses is of critical importance for the market participants. Accordingly, an improved accounting disclosure should assist the investors in assessing the long-term goals of the ESO plans at the firm level

Bird, R.G. & Gray, J. 2009, 'Improving pension management and delivery: An (im)modest and likely (un)popular proposal', Rotman International Journal of Pension Management, vol. 2, no. 2, pp. 36-40.
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The single-minded aim of retirement savings policy is to maximize after-cost returns to members while providing products and services to meet individual needs. In that it fails. The dominant cause of failure is ineffective and unnecessary competition. The dominant solution is greater cooperation. This article demonstrates how excessive competition has undermined investors+ ability to save for retirement through inefficient pricing, agency costs, and excessive choice. To ensure more cooperation, and less competition, the authors propose a three-pronged approach: structuring management arrangements to extract maximum economic growth and investment returns; taking steps to rid the system of over-servicing; and, structuring relationships to minimize agency costs. While the authors use Australia as their institutional setting, their (im)modest, and likely (un)popular proposal has universal (un)appeal and applicability.

Mar, J.L., Bird, R.G., Casavecchia, L. & Yeung, D.C. 2009, 'Fundamental indexation: An Australian investigation', Australian Journal of Management, vol. 34, no. 1, pp. 1-20.
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Capitalisation-weighted indexes provide the basis for passive investment strategies designed to capture market performance. However, these cap-weighted indexes are claimed to be sub-optimal because of their tendency to overweight overvalued shares and underweight undervalued shares. U.S. evidence suggests that fundamental indexes, which select, rank and weight stocks according to fundamental measures of size such as book value and revenue, outperform cap-weighted indexes. This study examines fundamental indexation in an Australian context over the period 1995 to 2006 and finds support for the U.S. results. However, we also find that the superiority of fundamental indexation is largely explained by its inherent bias towards value stocks, which raises the question as to whether a more overt value tilt may not provide a superior means for exploiting mispricings in markets.

Bird, R.G. & Casavecchia, L. 2007, 'Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience', The European Journal of Finance, vol. 13, no. 8, pp. 769-793.
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The well-documented market underperformance of the majority of value and growth stocks over a 12-month holding period reflects that traditional valuation metrics might tell us whether a stock is potentially cheap or expensive but little about when, or even if, it will experience a market correction. Two indicators have come to the fore in recent years that provide useful insights: sentiment/momentum and accounting fundamentals/financial health.We examine their single and combined impact on value and growth stocks and find that (i) they are effective in introducing a timing element into the selection of both value and growth stocks, (ii) the sentiment indicator completely dominates the financial health indicator and, (iii) both indictors contribute to the performance of the good and bad growth stocks. The size and significance of the investment profits that potentially can be generated using the two indicators in combination questions of the efficiency of the European equity markets.We conclude that our findings are consistent with the pricing cycle for a stock proposed by Lee and Swaminathan (Lee, C. and Swaminathan, B. (2000) Price momentum and trading volume, Journal of Finance, 55, pp. 2017 2069.) and the under- and over-reaction in pricing inherent in models proposed by Barberis et al. (Barberis, N., Shleifer A., and Vishny, R. (1998) A model of investor sentiment, Journal of Financial Economics, 49, pp. 307 343.) and Hong and Stein (Hong, H. and Stein, J.C. (1999) A unified theory of underreaction, momentum trading and overreaction in asset markets, Journal of Finance, 54, pp. 2143-2184.).

Bird, R.G. & Casavecchia, L. 2007, 'Value Enhancement Using Momentum Indicators: The European Experience', International Journal of Managerial Finance, vol. 3, no. 3, pp. 229-262.
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Abstract: Purpose The purpose of this research is to study the extent to which various price and earnings momentum measures can be used to enhance portfolio performance by better timing entry into value stocks (and isolating those growth stocks that still have some period to run). Design/methodology/approach The paper uses the traditional methodology of ranking stocks on the basis of certain value and momentum measures (e.g. book-to-market, market return over some prior period), forming portfolios based on these rankings which are held for a specific period of time. The portfolios are formed on the basis of a single measure of multiple measures and the returns and associated p-values are calculated with the objective of determining how these portfolios perform relative to a benchmark portfolio composed of all the companies in the universe. The analysis is conducted on a database consisting of approximately 8,000 companies drawn from 15 European countries over the period from January 1989 to May 2004.

Bird, R.G., Hall, A.D., Momente, F. & Reggiani, F. 2007, 'What Corporate Social Responsibility Activities are Valued by the Market?', Journal of Business Ethics, vol. 76, no. 2, pp. 189-206.
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Corporate management is torn between either focusing solely on the interests of stockholders (the neo-classical view) or taking into account the interests of a wide spectrum of stakeholders (the stakeholder theory view). Of course, there need be no conflict where taking the wider view is also consistent with maximising stockholder wealth. In this paper, we examine the extent to which a conflict actually exists by examining the relationship between a company's positive (strengths) and negative (concerns) corporate social responsibility (CSR) activities and equity performance. In general, we find little evidence to suggest that managers taking a wider stakeholder perspective will jeopardise the interest of its stockholders. However, our findings do suggest that the market is not only influenced by the independent CSR activities, but also the totality of these activities and that the facets that they value do vary over time. It seems that most recently, the market has valued most firms that satisfied minimum requirements in the areas of diversity and environmental protection but were most proactive in the area of employee-relations.

Bird, R.G. & Gerlach, R. 2006, 'A Bayesian model averaging approach to enhance value investment', International Journal of Business and Economics, vol. 5, no. 2, pp. 111-127.
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Simple financial ratios such as book-to-market are often used to identify value stocks. This paper examines the extent to which fundamental accounting information can be used to better identify truly undervalued value stocks to enhance profit in a simple value strategy. Gibbs sampling and model averaging are used in a logistic regression setting, employing fundamental accounting information as explanatory variables, in the design of an implementable investment strategy applied to markets in the US, the UK and Australia.

Azzi, S. & Bird, R.G. 2005, 'Prophets during boom and gloom downunder', Global Finance Journal, vol. 15, no. 3, pp. 337-367.
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Bird, R.G., He, X., Thosar, S.B. & Woolley, P.K. 2005, 'The case for market inefficiency: investment style and market pricing', The Journal of Asset Management, vol. 5, no. 6, pp. 365-388.
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Bird, R.G. & Whitaker, J. 2004, 'The performance of value and momentum investment portfolios: recent experience in the major European markets.Part 2.', Journal of Asset Management, vol. 5, no. 3, pp. 157-175.
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In a previous paper ('The Performance of Value and Momentum Investment: Portfolios: Recent Experience in the Major European Markets', Journal of Asset Management, 4(4), 221+46, 2003), the authors found that simple value and momentum investment strategies achieved good performance when applied to the major European markets since 1990. This paper extends this analysis to more complex strategies involving a combination of value and momentum investing, which were found to be particularly complementary and so give rise to exceptional investment outcomes. It is suggested that the findings support the existence of a value/momentum cycle along the lines of that proposed by Swaminathan and Lee ('Do Stock Prices Overreact to Earnings News?' Cornell Graduate School of Management Working Paper, 2000) and that this has very real implications for how managers might enhance either value or growth investment strategies.

Bird, R.G. & Whitaker, J. 2003, 'The performance of value and momentum investment portfolios: recent experience in the major European markets', Journal of Asset Management, vol. 4, no. 4, pp. 221-246.
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Woolley, P.K. & Bird, R.G. 2003, 'Economic implications of passive investing', The Journal of Asset Management, vol. 3, no. 4, pp. 303-312.
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Bird, R.G. & Gallagher, D.R. 2002, 'The evaluation of active manager returns in a non-symmetrical environment', Journal of Asset Management, vol. 2, no. 4, pp. 303-324.
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Gerlach, R., Bird, R.G. & Hall, A.D. 2002, 'Bayesian variable selection in logistic regression: predicting company earnings direction', Australian & New Zealand Journal of Statistics, vol. 42, no. 2, pp. 155-168.
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Bird, R.G. & McKinnon, J.G. 2001, 'Changes in the Behavior of Earnings Surprise: International Evidence & Implications', Journal of Investing, vol. 10, no. 3, pp. 19-32.
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Bird, R.G., Gerlach, R. & Hall, A.D. 2001, 'The Prediction of Earnings Movements Using Accounting Data: An Update & Extension of Ou and Penman', Journal of Asset Management, vol. 2, no. 2, pp. 180-195.
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Bird, R.G., Mceiwee, B. & McKinnon, J.G. 2000, 'A global perspective of analyst's earning forecasts', Journal of Investing, vol. 9, no. 4, pp. 76-82.

Bird, R.G., Cunningham, R., Dennis, D. & Tippett, M. 1990, 'Portfolio insurance: A simulation under different market conditions', Insurance Mathematics & Economics, vol. 9, no. 1, pp. 1-19.
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Bird, R.G., Dennis, D. & Tippett, M. 1988, 'A stop loss approach to portfolio insurance', Journal Of Portfolio Management, vol. 15, no. 1, pp. 35-40.

Bird, R.G., Mccrae, M. & Beggs, J. 1987, 'Are gamblers really risk takers', Australian Economic Papers, vol. 26, no. 49, pp. 237-253.
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This paper examines the attitudes of gamblers to risk as displayed by their betting behaviour on horse races. Although traditional economic theory assumes that individuals are averse to risk, numerous authors (e.g. Ali 1977; Asch, Malkiel and Quandt 1982; Snyder 1978 and Weitzman 1965) have produced empirical evidence to suggest that gamblers are in fact risk takers. This paper presents empirical evidence not inconsistent with these previous findings but proceeds to put a different interpretation on the results. In particular, we extend the traditional two moment utility model to include skewness. Arditti and others (Arditti 1967, 1971) have suggested that well-informed risk-averse equity investors should prefer positively skewed return distributions. Although the importance of positive skewness to these investors has been questioned (Francis 1975), we find that it is a characteristic that is strongly favoured by those who gamble on race horses. However, the introduction of skewness cannot alone explain another trait of these gamblers + their willingness to participate m an activity which promises a negative return. In Section II we describe the data collection procedures and the method used in this study. The results reported in Section III are consistent with those in previous studies which concluded that gamblers are risk-takers. In Section IV the discussion of these results is extended to include skewness. The issue of why gamblers participate in a negative return activity is addressed in Section V. We conclude with a brief summary of our principal findings.

Bird, R.G. & Mccrae, M. 1987, 'Tests of the efficiency of racetrack betting using bookmaker odds', Management Science, vol. 33, no. 12, pp. 1552-1562.

Bird, R.G., Choi, D. & Yeung, D.C. 2011, 'Market uncertainty and sentiment, and the post-earnings announcement drift', Australasian Finance and Banking Conference, Sydney Australia, December 2011 in 24th Australasian Finance and Banking Conference Proceedings, ed Moshirian, F. et al, University of NSW, Sydney, pp. 1-43.
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The post-earnings announcement drift (PEAD) first identified over 40 years ago seems to be as much alive today as it ever was. Numerous attempts have been made to explain its continued existence. In this paper we provide evidence to support a new explanation: that the PEAD is a reflection of the level of market uncertainty and sentiment that prevails during the post-announcement period. The finding that uncertainty plays a role in explaining how investors respond to information suggests that it should be included as a factor in pricing models while the fact that market sentiment also has a role is another instance of the importance of human behaviour in establishing prices

Bird, R.G. & Yeung, D.C. 2010, 'Institutional ownership and IPO performance: Australian evidence', Financial Management Association Annual Meeting, New York, USA, October 2010 in Financial Management Association 2010 Meetings, ed Anup Agrawal et al, Financial Management Association, New York, USA, pp. 1-25.
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The duo IPO anomalies of underpricing and long run underperformance have inspired a plethora of studies. Yet few have examined the impact of majority investors in IPOs, namely institutional investors. Consistent with previous studies, we found large underpricing which was greatest in those issuers with the highest initial institutional ownership. Yet these issuers experienced the worst long ]run underperformance which casts doubts over the informed ]trading hypothesis. The findings are consistent with overreactions driven by informational cascade in the IPO market. High level of initial institutional interests generates informational herding that drives these issuers f prices beyond the fundamental. Over time, market correction leads to the long ]run underperformance. Our results cast a somewhat different light on institutions f role in IPOs, rather than being a valuable source of price discovery; Institutions may be a force of destabilization in what is already an event wrath with uncertainty.

Azzi, S., Bird, R.G., Griringhelli, P. & Rossi, E. 2005, 'Biases and information in analysts' recommendations: The European experience', European Financial Management Association Conference, Milan, Italy, June 2005 in Proceedings of the European Financial Management Association 2005 Annual Meetings, ed -, EFMA, Milan, Italy, pp. 1-42.
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Financial analysts are viewed as playing an important intermediary role in gathering and interpreting data and thus converting it into useful information for the investment community. However, in recent years, it has become more apparent that the analysts come under much internal and external pressure when making their forecasts and recommendations. Jegadeesh et al (2004) have highlighted that this results in US equity analysts being biased towards large, high momentum growth stocks when making their recommendations which presumedly causes them to add little or no value in their own right. However, they find that the analysts recommendations changes do provide useful incremental investment insights. Azzi and Bird (2005) when evaluating Australian analysts similarly found that it was only the recommendation changes that provided useful information to investors. However, they also found evidence to suggest that the analysts attempt to adjust the biases in their recommendations over the market cycle. The implication being that biases identified in the Jegadeesh et al study may have been as much a reflection of the analysts pursuing the types of stocks that were performing well during the period rather than any long-term bias in these recommendations.