The Adam Cheng Effect: The man who crashes the market
August 4th 2006 13:04
Some of you would be wondering the title of the post but before getting in to the topic, lets have a market wrap up for the week. The ASX S&P 200 benchmark index and the All Ords on Friday fell 0.8% lead by resource stocks after base metals prices fell across the world despite Thursday rebound sourced from the positive US leads and local banking stocks.
For the past few weeks I have documented the Aussie equity market movements with near daily updates, and if you had followed the posts you would have noticed that the Aussie market is strongly affected by the:
The above list represent the generally observable factors with strong influence on the market, therefore they could be construe as risk factors as well, that is expected return of an asset contains risk that could cause the expected returns to perform otherwise of the expected. Hence the relationship of risk and return. Heard of the High Risk High Returns?
Risk is also quantified for the purpose of pricing asset, especially for equities. An example of an asset pricing model is the Capital Asset Pricing Model or CAPM, where the risk is represented by Beta which is a variable to which the returns varies with the performance of the market proxy.
Other pricing model such as the Alternative Pricing Model or Factor models could take into account of factors such as the list above while CAPM do not function as such. At the end of it, all these pricing models try to attempt the same objective of determining the expected returns of a stock or a portfolio using various market and (or) stock price moving factors.
Getting the jizz of it? Now, lets imagine what if the market is affected by another factor such as a person? An apperance or an action of a person that can affect the whole market significantly. No, its not George Bush, John Howard nor Osama bin Laden. Thier speeches or actions may affect the market but are not enough to cause a consistent significant impact on the markets. But there is one such person who did it and is likely to continue to do so.
Moving up north to the former British crown colony of Hong Kong, now a Special Administrative Region of China, there is one such person who can cause a consistent significant NEGATIVE impact on the market there. He is Adam Cheng, a popular television drama actor who first crashed the market in 1992 by more than -20% for starring in, coincidentally, a popular series about the stock market called Greed of Men.
Subsequently there had been a release of eight series starring Adam and each time his series hit the airwaves, the market fell. Research by analysts find for the period 1992 to 2003, an average market decline of -12.2% for a total of nine series broadcasted starring Adam Cheng.
Until today no one can explain the mind numbing anomaly and there seems no solid reason for such effect. To the local population, Adam could be viewed as a person who has powerful metaphysical force that is usually "attributed" to people who are born to be emperors, presidents or powerful generals who can change the coures of a nation and history.
However, in my opinion, the first effect could be very well be a coincident which unfortunately, had a large negative impact therefore creating a strong mental perception linking the then wildly popular stock market themed TV drama series with the crash.
Hong Kong being a predominantly Chinese territory, who are perceived as being more culturally superstitious than thier mainland counterparts made a lasting blame on Adam Cheng for the crash on the basis of the so-called metaphysical force he posses. Therefore each time he appeared on the idiot box, investors panicked, particularly those small time retail investors and as such created a self-fulfilling prophecy by crashing the market themselves.
But the question of Hong Kong being the financial capital of Asia could not have done such irrational move given the dominance of institutional investors and professional funds. The reason could be that these participants, hereafter; informed investors, noticed such reactions by the retail investors (uninformed), exploited the anomaly therefore pushing the market further south, through short-selling which is not restricted in Hong Kong.
In the end of it, I strongly believe that this "Adam Cheng Effect" is a case of Behavioural Finance which I hope to analyse the so-called effect under this discipline in the future.
For the past few weeks I have documented the Aussie equity market movements with near daily updates, and if you had followed the posts you would have noticed that the Aussie market is strongly affected by the:
1) US market performance
2) Metal prices
3) Resource sector performance
4) Inflation
5) and China to a certain extent
2) Metal prices
3) Resource sector performance
4) Inflation
5) and China to a certain extent
The above list represent the generally observable factors with strong influence on the market, therefore they could be construe as risk factors as well, that is expected return of an asset contains risk that could cause the expected returns to perform otherwise of the expected. Hence the relationship of risk and return. Heard of the High Risk High Returns?
Risk is also quantified for the purpose of pricing asset, especially for equities. An example of an asset pricing model is the Capital Asset Pricing Model or CAPM, where the risk is represented by Beta which is a variable to which the returns varies with the performance of the market proxy.
Other pricing model such as the Alternative Pricing Model or Factor models could take into account of factors such as the list above while CAPM do not function as such. At the end of it, all these pricing models try to attempt the same objective of determining the expected returns of a stock or a portfolio using various market and (or) stock price moving factors.
Getting the jizz of it? Now, lets imagine what if the market is affected by another factor such as a person? An apperance or an action of a person that can affect the whole market significantly. No, its not George Bush, John Howard nor Osama bin Laden. Thier speeches or actions may affect the market but are not enough to cause a consistent significant impact on the markets. But there is one such person who did it and is likely to continue to do so.
Moving up north to the former British crown colony of Hong Kong, now a Special Administrative Region of China, there is one such person who can cause a consistent significant NEGATIVE impact on the market there. He is Adam Cheng, a popular television drama actor who first crashed the market in 1992 by more than -20% for starring in, coincidentally, a popular series about the stock market called Greed of Men.
Subsequently there had been a release of eight series starring Adam and each time his series hit the airwaves, the market fell. Research by analysts find for the period 1992 to 2003, an average market decline of -12.2% for a total of nine series broadcasted starring Adam Cheng.
Until today no one can explain the mind numbing anomaly and there seems no solid reason for such effect. To the local population, Adam could be viewed as a person who has powerful metaphysical force that is usually "attributed" to people who are born to be emperors, presidents or powerful generals who can change the coures of a nation and history.
However, in my opinion, the first effect could be very well be a coincident which unfortunately, had a large negative impact therefore creating a strong mental perception linking the then wildly popular stock market themed TV drama series with the crash.
Hong Kong being a predominantly Chinese territory, who are perceived as being more culturally superstitious than thier mainland counterparts made a lasting blame on Adam Cheng for the crash on the basis of the so-called metaphysical force he posses. Therefore each time he appeared on the idiot box, investors panicked, particularly those small time retail investors and as such created a self-fulfilling prophecy by crashing the market themselves.
But the question of Hong Kong being the financial capital of Asia could not have done such irrational move given the dominance of institutional investors and professional funds. The reason could be that these participants, hereafter; informed investors, noticed such reactions by the retail investors (uninformed), exploited the anomaly therefore pushing the market further south, through short-selling which is not restricted in Hong Kong.
In the end of it, I strongly believe that this "Adam Cheng Effect" is a case of Behavioural Finance which I hope to analyse the so-called effect under this discipline in the future.
Can this man be quantified as a market risk? Perhaps call him the Adam Beta?
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