Template-Type: ReDIF-Article 1.0
Author-Name: Simon Keane
Author-X-Name-First: Simon
Author-X-Name-Last: Keane
Title: A reappraisal of share price maximization as a corporate financial objective
Abstract:
This paper challenges the conventional share price maximizing objective
and the assumption that a successful company can expect to achieve share
price growth above the normal drift caused by inflation and earnings
retention. The share price is an expectations-based measure, and more
efficient companies have no greater prospect of outperforming market
expectations than less efficient companies. The paper concludes that,
given the potentially dysfunctional effects of pursuing a share price
maximizing goal, it may be significant that share-price centred economies
such as the UK and the US tend to be associated with a more short-termist
perspective than bank-centred economies such as Germany and Japan.
Journal: The European Journal of Finance
Pages: 1-17
Issue: 1
Volume: 1
Year: 1995
Keywords: share price maximization, zero NPVs, short-termism,
X-DOI: 10.1080/13518479500000001
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000001
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:1-17
Template-Type: ReDIF-Article 1.0
Author-Name: J. Ignacio Pena
Author-X-Name-First: J. Ignacio
Author-X-Name-Last: Pena
Title: Comment
Abstract:
Journal: The European Journal of Finance
Pages: 18-20
Issue: 1
Volume: 1
Year: 1995
X-DOI: 10.1080/13518479500000002
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000002
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:18-20
Template-Type: ReDIF-Article 1.0
Author-Name: Christopher Smallwood
Author-X-Name-First: Christopher
Author-X-Name-Last: Smallwood
Title: Comment
Abstract:
From the point of view of a practitioner, I found Professor Keane's paper
interesting and stimulating. I do not agree with the arguments, mainly
because the model I have in mind of the way in which the world really
works is not consistent with the theoretical model which Keane is
addressing. His puzzles and paradoxes do not seem to me to be particularly
puzzling or paradoxical when certain unrealistic theoretica assumptions
are relaxed. This paper provides a brief summary of some of Professor
Keane's arguments; presents an alternative view of the way equity markets
actually behave in the real world; and finally contrasts the implications
of this alternative view with Professor Keane' own conclusions on such
issues as managements' approach to investment decisions and executive
renumeration packages.
Journal: The European Journal of Finance
Pages: 21-25
Issue: 1
Volume: 1
Year: 1995
X-DOI: 10.1080/13518479500000003
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000003
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:21-25
Template-Type: ReDIF-Article 1.0
Author-Name: Graham Quick
Author-X-Name-First: Graham
Author-X-Name-Last: Quick
Title: Comment
Abstract:
Journal: The European Journal of Finance
Pages: 26-30
Issue: 1
Volume: 1
Year: 1995
X-DOI: 10.1080/13518479500000004
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000004
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:26-30
Template-Type: ReDIF-Article 1.0
Author-Name: George Frankfurter
Author-X-Name-First: George
Author-X-Name-Last: Frankfurter
Title: Comment
Abstract:
Journal: The European Journal of Finance
Pages: 31-36
Issue: 1
Volume: 1
Year: 1995
X-DOI: 10.1080/13518479500000005
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000005
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:31-36
Template-Type: ReDIF-Article 1.0
Author-Name: S. M. Keane
Author-X-Name-First: S. M.
Author-X-Name-Last: Keane
Title: Rejoinder
Abstract:
Journal: The European Journal of Finance
Pages: 37-40
Issue: 1
Volume: 1
Year: 1995
X-DOI: 10.1080/13518479500000006
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000006
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:37-40
Template-Type: ReDIF-Article 1.0
Author-Name: Istemi Demirag
Author-X-Name-First: Istemi
Author-X-Name-Last: Demirag
Title: Short-term performance pressures: is there a consensus view?
Abstract:
The manufacturing sector in the UK has been performing rather badly in
comparison with its major international competitors. This deterioration in
performance can be seen in R&D spending patenting rates and in market
shares and appears to centre on deficiencies in product innovation. There
is general agreement that short-termismis one of the main factors
responsible for such poor performance in Britain. Does short-termism arise
from pressure in captial markets or is it generated within the firm? The
stock market is often blamed for putting inappropriate short-term
pressures on management by institutional investor intervention and hostile
take-over activity leading to changes in management policy and ultimately
to dismissal. On the other hand it is also argued that the problem of
short-termism originates within management itself. The purpose of this
paper is therefore to review the relevant literature surrounding the
debate on short-termism to draw conclusions on its likely causes and to
provide some suggestions as to how to manage these pressures.
Journal: The European Journal of Finance
Pages: 41-56
Issue: 1
Volume: 1
Year: 1995
Keywords: short-termism, financial institutions, market efficiency, investment decisions, performance evalution, management control styles,
X-DOI: 10.1080/13518479500000007
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000007
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:41-56
Template-Type: ReDIF-Article 1.0
Author-Name: Chritian De Boissieu
Author-X-Name-First: Chritian
Author-X-Name-Last: De Boissieu
Title: Derivatives Markets and Systematic Risks: Some Reflections
Abstract:
Derivatives are an essential part of risk management by all economic
agents (financial or non financial). They contribute, with other financial
innovations, to the allocative efficiency. Under certain circumstances
they could also generate systemic risks. The purpose of this article is to
underline the dramatic growth of derivatives instruments and the
articulation between OTC and exchange-traded markets. The current debate
about the regulatory framework applied to derivatives instruments and the
implementation of internal control procedures (leading to more appropriate
disclosure and reporting standards) is also discussed.
Journal: The European Journal of Finance
Pages: 57-68
Issue: 1
Volume: 1
Year: 1995
Keywords: derivatives markets, over-the-counter contracts, systemic risks, regulation, internal control,
X-DOI: 10.1080/13518479500000008
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000008
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:57-68
Template-Type: ReDIF-Article 1.0
Author-Name: Walter Allegretto
Author-X-Name-First: Walter
Author-X-Name-Last: Allegretto
Author-Name: Giovanni Barone-Adesi
Author-X-Name-First: Giovanni
Author-X-Name-Last: Barone-Adesi
Author-Name: Robert Elliott
Author-X-Name-First: Robert
Author-X-Name-Last: Elliott
Title: Numerical evaluation of the critical price and American options
Abstract:
An approximate solution to the American put value is proposed and
implemented numerically. Relaxation techniques enable the critical price
to be determined with high accuracy. The method uses a modification of the
quadratic approximation of MacMillan and Barone-Adesi and Whaley which
gives an expression for the critical price. Numerical experimentation and
iterative methods quickly provide highly accurate solutions.
Journal: The European Journal of Finance
Pages: 69-78
Issue: 1
Volume: 1
Year: 1995
Keywords: American options, critical price, numerical appoximations,
X-DOI: 10.1080/13518479500000009
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000009
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:69-78
Template-Type: ReDIF-Article 1.0
Author-Name: Terence Mills
Author-X-Name-First: Terence
Author-X-Name-Last: Mills
Author-Name: J. Andrew Coutts
Author-X-Name-First: J. Andrew
Author-X-Name-Last: Coutts
Title: Calendar effects in the London Stock Exchange FT-SE indices
Abstract:
This paper investigates the presence of various anomalies, or 'calendar
effects', in the FT-SE 100, Mid 250 and 350 indices, and the accompanying
industry baskets, for the period January 1986 to October 1992. Our results
broadly support similar evidence found for many countries concerning stock
market anomalies, for the 'January', 'weekend', 'half of the month' and
'holiday' effects all appear to be present in at least some of the
indices.
Journal: The European Journal of Finance
Pages: 79-93
Issue: 1
Volume: 1
Year: 1995
Keywords: anomalies, calendar effects, FT-SE indices,
X-DOI: 10.1080/13518479500000010
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000010
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:79-93
Template-Type: ReDIF-Article 1.0
Author-Name: Theodore Bos
Author-X-Name-First: Theodore
Author-X-Name-Last: Bos
Author-Name: Thomas Fetherston
Author-X-Name-First: Thomas
Author-X-Name-Last: Fetherston
Author-Name: Teppo Martikainen
Author-X-Name-First: Teppo
Author-X-Name-Last: Martikainen
Author-Name: Jukka Perttunen
Author-X-Name-First: Jukka
Author-X-Name-Last: Perttunen
Title: The international co-movements of Finish stocks
Abstract:
This paper provides new empirical evidence on the international
co-movements of Finnish stocks. The vector autoregression (VAR) approach
indicates that US and especially Swedish stock markets lead Finnish stock
market returns by approximately one or two months. The results based on
international market models indicate that the returns of individual
Finnish stocks are significantly positively related to those of Sweden,
while the relation between Finnish and US returns is significantly lower.
The relation seems to vary clearly between industries, some industries
being related to US markets as well. Significant time-series instability
is reported in the results, however.
Journal: The European Journal of Finance
Pages: 95-111
Issue: 1
Volume: 1
Year: 1995
Keywords: finance, asset pricing, stock markets, international, stability,
X-DOI: 10.1080/13518479500000011
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000011
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:1:p:95-111
Template-Type: ReDIF-Article 1.0
Author-Name: A. Buckley
Author-X-Name-First: A.
Author-X-Name-Last: Buckley
Title: The classical tax system, imputation tax and capital budgeting
Abstract:
Differences in the taxation systems in Britain, France, and some other
European countries (which use the imputation system) compared with the USA
and the Netherlands, among others (which use the classical tax system),
mean that the cost of equity capital should be specified, using a capital
asset pricing model methodology, in different ways. Under the imputation
system its value should be net of personal taxes; under the classical tax
system, it should be gross of personal taxes. Similarly the value of the
tax shield on debt for input into adjusted present value calculations
differs, being significantly greater under the classical tax system.
Formulae are set out to enable the calculation of the magnitude of the tax
shield readily to be undertaken.
Journal: The European Journal of Finance
Pages: 113-128
Issue: 2
Volume: 1
Year: 1995
Keywords: investment, taxation, value, project, appraisal,
X-DOI: 10.1080/13518479500000012
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000012
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:2:p:113-128
Template-Type: ReDIF-Article 1.0
Author-Name: K. Giannopoulos
Author-X-Name-First: K.
Author-X-Name-Last: Giannopoulos
Title: Estimating the time Varying Components of international stock markets' risk
Abstract:
In this study an alternative approach for assessing securities' risk is
applied. Various authors have argued that security returns are not
homoskedastic but exhibit variation over time. They have observed that
large changes tend be followed by more large changes in either direction,
and so volatility must be predictably high after large changes. This
phenomenon of securities' volatility, referred to as clustering, has
important implications for security pricing and risk management. Among the
most popular techniques currently used to capture the clustering effect
and to forecast future volatilityare those belonging to the family of
Autoregressive Conditional Heteroskedastic (ARCH) models. The main aim of
this paper is to investigate whether such volatility modelling can be used
to capture the time variation not only in the total risk of a security
return but also its systematic and unsystematic components. Using weekly
local stock market data, the time varying beta with the World Index has
been estimated via a bivariate GARCH-M model. The GARCH-M parameterization
used here is a dynamic specification of the SIM. The hypothesis that this
dynamic specification holds cannot be rejected for 11 out of 13 local
portfolios. The results provide evidence that both the systematic and the
non-systematic counterparts are also changing over time. However, in some
markets those risk changes may take place with some delay. This suggests
that some of the low correlation coefficients computed for certain stock
market returns may not be due to differences in business cycles among
those countries, but may be caused by the non-synchronous response to
world market developments. This finding should have important implications
in many investment decisions such as portfolio selection, market timing
and risk hedging.
Journal: The European Journal of Finance
Pages: 129-164
Issue: 2
Volume: 1
Year: 1995
Keywords: ARCH, SIM, time varying betas,
X-DOI: 10.1080/13518479500000013
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000013
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:2:p:129-164
Template-Type: ReDIF-Article 1.0
Author-Name: Ø. Gjerde
Author-X-Name-First: Ø.
Author-X-Name-Last: Gjerde
Author-Name: F. Sættem
Author-X-Name-First: F.
Author-X-Name-Last: Sættem
Title: Linkages among European and world stock markets
Abstract:
Causal relations and dynamic interactions among equity returns in ten
countries for the period 1983-1994 are analysed. An innovation accounting
approach based on a multivariate vector autoregressive (VAR) model is used
to estimate the proportion of each market return's forecast error
attributable to innovations in foreign market returns. Three major results
appear. The variance decompositions indicate a strong degree of economic
interaction among stock markets. The US stock market has a considerable
influence on stock market performance in almost every country, while there
is no substantial inter-continental influence from the European stock
markets on the world's two largest equity markets in New York and Tokyo.
Finally, the pattern of the impulse-response functions illustrates a rapid
international transmission of stock market events, supporting the
hypothesis of international stock market efficiency.
Journal: The European Journal of Finance
Pages: 165-179
Issue: 2
Volume: 1
Year: 1995
Keywords: VAR model, economic integration, stock markets,
X-DOI: 10.1080/13518479500000014
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000014
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:2:p:165-179
Template-Type: ReDIF-Article 1.0
Author-Name: Istemi Demirag
Author-X-Name-First: Istemi
Author-X-Name-Last: Demirag
Title: An empirical study of research and development top managers' perceptions of short-term pressures from capital markets in the United Kingdom
Abstract:
It is often argued that capital market pressures are increasingly
directed towards short-term performance evaluation of managers and their
operations. Whether these external capital market pressures actually exist
or not, short-term pressures on firms are influenced by managers' own
perceptions of these external pressures. If managers perceive the
existence of these external pressures it is likely that this will lead to
short-term behaviour on their part. The purpose of this paper is therefore
to examine (a) research and development (R&D) managers' perceptions of
short-term behaviour in capital markets in the UK, and (b) patterns of
behaviour relating to R&D which may be influenced by these perceptions.
The findings of this study indicate that approximately half of the UK
research and development managers perceive capital markets as responsible
for putting inappropriate short-term pressures on their companies'
management. However, an even larger proportion report short-termist
behaviour relating to R&D and its evaluation, suggesting that some at
least of the problem of 'short-termism' is internally generated.
Journal: The European Journal of Finance
Pages: 180-202
Issue: 2
Volume: 1
Year: 1995
Keywords: short-termism, research and development, market efficiency, investment decisions, performance evaluation, management control,
X-DOI: 10.1080/13518479500000015
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000015
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:2:p:180-202
Template-Type: ReDIF-Article 1.0
Author-Name: P. Doran
Author-X-Name-First: P.
Author-X-Name-Last: Doran
Author-Name: C. Clubb
Author-X-Name-First: C.
Author-X-Name-Last: Clubb
Title: The leasing equation in a general tax environment: a note
Abstract:
This note demostrates that the traditional method of evaluating a lease
is consistent with shareholder wealth maximization and that it is not
necessary for the company to take into account details of its
shareholders' personal taxation when making the lease or purchase
decision.
Journal: The European Journal of Finance
Pages: 203-206
Issue: 2
Volume: 1
Year: 1995
Keywords: leasing, personal taxes,
X-DOI: 10.1080/13518479500000016
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000016
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:2:p:203-206
Template-Type: ReDIF-Article 1.0
Author-Name: G. Y. N. Tang
Author-X-Name-First: G. Y. N.
Author-X-Name-Last: Tang
Title: Stability of international stock market relationships across month of the year and different holding intervals
Abstract:
Potential benefits from international diversification depend upon the
stability in stock market relationships. Using monthly data of 11
international stock markets, this paper examines the stability in stock
market relationships across month of the year and across different holding
intervals. Empirical results show that the correlation structure is more
stable than the covariance structure. While empirical evidence supports
the hypothesis that the correlation structure is very stable across
different holding intervals, the empirical support for the stability in
correlation structure across month of the year is much weaker.
Journal: The European Journal of Finance
Pages: 207-218
Issue: 3
Volume: 1
Year: 1995
Keywords: stability, month of the year, holding intervals, International,
X-DOI: 10.1080/13518479500000017
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000017
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:3:p:207-218
Template-Type: ReDIF-Article 1.0
Author-Name: George Mckenzie
Author-X-Name-First: George
Author-X-Name-Last: Mckenzie
Author-Name: Simon Wolfe
Author-X-Name-First: Simon
Author-X-Name-Last: Wolfe
Title: Limited liability and bank safety net procedures
Abstract:
A model is presented of bank behaviour which identifies the factors
determining a bank's optimal capital/asset ratio, its optimal liquidity
ratio, the expected value of non-performing loans and the probability of
bank failure. We propose that this last variable can act as an index of
bank credit-worthiness. The main factors determining this index are (i)
the risk associated with bank asset returns, (ii) the variability of bank
deposits, (iii) the costs associated with bank failure and (iv) the
implicit or explicit government subsidy involved in depositor protection
schemes. The principal general conclusion of the paper is that regulations
governing capital requirements, liquidity requirements and depositor
protection should be (a) risk related and (b) integrated. Depositor
protection can be improved through relatively high capital requirements.
However, the optimal strategy is for all bank safety net procedures and
incentive mechanisms to be related to the riskiness of individual bank
portfolios.
Journal: The European Journal of Finance
Pages: 219-235
Issue: 3
Volume: 1
Year: 1995
Keywords: capital adequacy requirements, deposit guarantees, limited liability. JEL classification codes G13, G21, G28,
X-DOI: 10.1080/13518479500000018
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000018
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:3:p:219-235
Template-Type: ReDIF-Article 1.0
Author-Name: Patricia Chelley-Steeley
Author-X-Name-First: Patricia
Author-X-Name-Last: Chelley-Steeley
Title: Calendar effects and the pricing of risk: the UK evidence
Abstract:
For some time there has been a puzzle surrounding the seasonal behaviour
of stock returns. This paper demonstrates that there is an asymmetric
relationship between risk and return across the different months of the
year. The paper finds that systematic risk is only priced during the
months of January, April and July. Variance risk and firm size are priced
during several months of the year including January. An analysis of the
relative behaviour of size based securities reveals that firm
capitalization makes a valuable contribution to the magnitude of risk
premiums.
Journal: The European Journal of Finance
Pages: 237-255
Issue: 3
Volume: 1
Year: 1995
Keywords: risk pricing, stock returns, calendar effect,
X-DOI: 10.1080/13518479500000019
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000019
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:3:p:237-255
Template-Type: ReDIF-Article 1.0
Author-Name: A. Baglioni
Author-X-Name-First: A.
Author-X-Name-Last: Baglioni
Title: Incomplete contracts, renegotiation, and the choice between bank loans and public debt issues
Abstract:
In a two-period model where an investment project is funded with standard
debt, the probability distribution of final cash flow is determined, at
the interim date, by an unverifiable state of nature together with a
choice by the controlling party (entrepreneur or creditor). With a control
allocation contingent on a noisy default signal, renegotiation may improve
efficiency in two ways: (i) reduce excessive risk-taking - due to the
entrepreneur's moral hazard - through debt forgiveness; (ii) avoid the
costs of financial distress associated with excessive liquidation or
underinvestment by debt-holders, by letting them receive an equity stake
in the firm. Such efficiency gain is an advantage of bank loans over
publicly traded debt, given that the former are more easily renegotiated
than the latter. The difference between the two types of debt is
increasing in the degree of contractual incompleteness (noise present in
the default signal) and in the portion of project value accounted for by
future discretionary investment options.
Journal: The European Journal of Finance
Pages: 257-278
Issue: 3
Volume: 1
Year: 1995
Keywords: incomplete contracts, debt renegotiation, financial distress, intermediation,
X-DOI: 10.1080/13518479500000020
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000020
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:3:p:257-278
Template-Type: ReDIF-Article 1.0
Author-Name: Jo Danbolt
Author-X-Name-First: Jo
Author-X-Name-Last: Danbolt
Title: An analysis of gains and losses to shareholders of foreign bidding companies engaged in cross-border acquisitions into the United Kingdom, 1986-1991
Abstract:
In this paper the gains and losses to shareholders of 71 foreign
companies which made takeover bids for companies listed in the United
Kingdom during the 1986-1991 period are analysed. The average abnormal
return during the month of the bid announcement was positive, although not
statistically significant. However, both prior to and sub-sequent to the
bid announcement month, the overseas bidders earned highly significant
negative abnormal returns. The cumulative abnormal returns over the five
month period following the bid announcement were-4.77% with the index
model and -9.79% with the market model. Further analysis established that
Continental European companies performed significantly worse than American
bidders. In addition, large companies and companies bidding for large
targets, performed significantly better than the other bidders.
Journal: The European Journal of Finance
Pages: 279-309
Issue: 3
Volume: 1
Year: 1995
Keywords: cross-border, acquisitions, takeovers, bidders,
X-DOI: 10.1080/13518479500000021
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000021
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:3:p:279-309
Template-Type: ReDIF-Article 1.0
Author-Name: Ian Nabney
Author-X-Name-First: Ian
Author-X-Name-Last: Nabney
Author-Name: Christian Dunis
Author-X-Name-First: Christian
Author-X-Name-Last: Dunis
Author-Name: Richard Dallaway
Author-X-Name-First: Richard
Author-X-Name-Last: Dallaway
Author-Name: Swee Leong
Author-X-Name-First: Swee
Author-X-Name-Last: Leong
Author-Name: Wendy Redshaw
Author-X-Name-First: Wendy
Author-X-Name-Last: Redshaw
Title: Leading edge forecasting techniques for exchange rate prediction
Abstract:
This paper describes how modern machine learning techniques can be used
in conjuction with statistical methods to forecast short term movements in
exchange rates, producing models suitable for use in trading. It compares
the results achieved by two different techniques, and shows how they can
be used in a complementary fashion. The paper draws on experience of both
inter-and intra-day forecasting taken from earlier studies conducted by
Logica and Chemical Bank Quantitative Research & Trading (QRT) group's
experience in developing trading models. In evaluating different models
both trading performance and forecasting accuracy are used as measures of
performance. Rule induction is a method for deriving classification rules
from data. Logica's data exploration toolkit DataMariner™, which
combines rule induction with statistical techniques, has been used
successfully to model several exchange rate time series. An attractive
feature of this approach is that the trading rules produced are in a form
that is familiar to analysts. We also show how DataMariner™, can be
used to determine the importance of different technical indicators and to
understand relationships between different markets. This understanding can
then be used to assist in building models using other analytical tools.
Neural networks are a general technique for detecting and modelling
patterns in data. We describe the principles of neural networks, the data
pre-processing that they require and our experience in training them to
forecast the direction and magnitude of movements in time series.
Journal: The European Journal of Finance
Pages: 311-323
Issue: 4
Volume: 1
Year: 1995
Keywords: machine learning techniques, leading-edge forecasting, rule induction, neural networks,
X-DOI: 10.1080/13518479500000022
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000022
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:4:p:311-323
Template-Type: ReDIF-Article 1.0
Author-Name: Dirk Emma Baestaens
Author-X-Name-First: Dirk Emma
Author-X-Name-Last: Baestaens
Author-Name: Willem Max Van Den Bergh
Author-X-Name-First: Willem Max Van Den
Author-X-Name-Last: Bergh
Author-Name: Herve Vaudrey
Author-X-Name-First: Herve
Author-X-Name-Last: Vaudrey
Title: Options as a predictor of common stock price changes
Abstract:
Since rather novel techniques such as neural nets allow investigation of
nonlinear model specification previously untested, it may be that
traditional models of price formation underperform through
misspecification rather than market efficiency. This paper explores
whether a multilayer backpropagation model offers exploitable profit
opportunities for some limited period. Using an intradaytransaction
dataset obtained from the European Options Exchange (Amsterdam), We
attempted to predict the return on Philips. Two neural nets are contrasted
to ordinary linear regression analysis on the basis of three benchmarks
(MSE, and net realized returns). An adaptively trained 33-14-1
architecture scored best on all criteria and yielded an annualized 11%
return following a simple one-period trading strategy.
Journal: The European Journal of Finance
Pages: 325-343
Issue: 4
Volume: 1
Year: 1995
Keywords: option pricing, intraday transaction data, stock return prediction, multilayer backpropagation algorithm,
X-DOI: 10.1080/13518479500000023
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000023
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:4:p:325-343
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Dunis
Author-X-Name-First: Christian
Author-X-Name-Last: Dunis
Author-Name: Andre Keller
Author-X-Name-First: Andre
Author-X-Name-Last: Keller
Title: Efficiency tests with overlapping data: an application to the currency options market
Abstract:
This paper presents the results of an empirical study into the efficiency
of the currency options market. The methodology derives from a simple
model often applied to the spot and forward markets for foreign exchange.
It relates the historic volatility of the underlying asset to the implied
volatility of an option on the underlying at a specified prior time and
then proceeds to test obvious hypotheses about the values of the
coefficients. The study uses panel regression to address the problem of
overlapping data which leads to dependence between observations. It also
uses volatility data directly quoted on the market in order to avoid the
biases which may occur when 'backing out' volatility from specific option
pricing models. In general, the evidence rejects the hypothesis that the
currency option market is efficient. This suggests that implied volatility
is not the best predictor of future exchange rate volatility and should
not be used without modification: the models presented in this paper could
be a way of producing revised forecasts.
Journal: The European Journal of Finance
Pages: 345-366
Issue: 4
Volume: 1
Year: 1995
X-DOI: 10.1080/13518479500000024
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000024
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:4:p:345-366
Template-Type: ReDIF-Article 1.0
Author-Name: J. I. Pena
Author-X-Name-First: J. I.
Author-X-Name-Last: Pena
Author-Name: E. Ruiz
Author-X-Name-First: E.
Author-X-Name-Last: Ruiz
Title: Stock market regulations and international financial integration: the case of Spain
Abstract:
International financial integration effects on the Spanish stock market
are studied, both for the conditional mean and conditional variance. New
institutional regulations in Spain are taken into account and their
efficiency consequences are addressed. Results suggest an increasing
international integration but nontrivial opportunities for financial
diversification may still be relevant.
Journal: The European Journal of Finance
Pages: 367-382
Issue: 4
Volume: 1
Year: 1995
Keywords: financial integration, market reforms, stochastic volatility,
X-DOI: 10.1080/13518479500000025
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000025
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:4:p:367-382
Template-Type: ReDIF-Article 1.0
Author-Name: M. M. Dacorogna
Author-X-Name-First: M. M.
Author-X-Name-Last: Dacorogna
Author-Name: U. A. Muller
Author-X-Name-First: U. A.
Author-X-Name-Last: Muller
Author-Name: C. Jost
Author-X-Name-First: C.
Author-X-Name-Last: Jost
Author-Name: O. V. Pictet
Author-X-Name-First: O. V.
Author-X-Name-Last: Pictet
Author-Name: J. R. Ward
Author-X-Name-First: J. R.
Author-X-Name-Last: Ward
Title: Heterogeneous real-time trading strategies in the foreign exchange market
Abstract:
The foreign exchange (FX) market is worldwide, but the dealers differ in
their geographical locations (time zones), working hours, time horizons,
home currencies, access to information,transaction costs, and other
institutional constraints. The variety of time horizones is large: from
intra-day dealers, who close their positions every evening, to long-term
investors and central banks. Depending on the constraints, the different
market participats need different strategies to reach their goal, which is
usually maximizing the profit, or rather a utility function including
risk. Different intra-day trading strategies can be studied only if
high-density data are available. Oslen & Associates (O & A) has collected
and analysed large amounts of FX quotes by market makers around the clock
(up to 5000 non-equally spaced prices per day for the German mark against
US$). Based on these data, a set of real-time intra-day trading models has
been developed. These models give explicit trading recommendations under
realistic constraints. They are allowed to trade only during the opening
hours of a market, depending on the time zone and local holidays. The
models have been running real-time for more than three years, thus leading
to an ex ante test. The test results, obtained with a risk-sensitive
performance measure, are presented. All these trading models are
profitable, but they differ in their risk behaviour and dealing frequency.
If a certain profitable intra-day algorithm is tested with different
working hours, its success can considerably change. A systematic study
shows that the best choice of working hours is usually when the most
important markets for the particular FX rate are active. All the results
demonstrate that the assumption of a homogeneous 24-hour FX market with
identical dealers, following an identical 'rational expectation', is far
from reality. To explain the market dynamics, a heterogeneous model of the
market with different types of dealers is more appropriate.
Journal: The European Journal of Finance
Pages: 383-403
Issue: 4
Volume: 1
Year: 1995
Keywords: foreign exchange market, trading model, heterogeneous expectations,
X-DOI: 10.1080/13518479500000026
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479500000026
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:1:y:1995:i:4:p:383-403
Template-Type: ReDIF-Article 1.0
Author-Name: Magnus Dahlquist
Author-X-Name-First: Magnus
Author-X-Name-Last: Dahlquist
Author-Name: Peter Sellin
Author-X-Name-First: Peter
Author-X-Name-Last: Sellin
Title: Stochastic dominance, tax-loss selling and seasonalities in Sweden
Abstract:
This paper examines two potential explanations of the January effect in
the Swedish stock market for the period from January 1919 to December
1994; The tax-loss selling hypothesis and the omitted risk factor
hypothesis. We document significantly higher returns in both January and
July over the sample period. In addition, there is a seasonal pattern in
the variances of the monthly returns. There also seems to be an
interaction between the variance and the mean effects. We identify six
different tax regimes where capital gains and losses are treated
differently, and test whether tax regime changes have an influence on the
January effect. Price pressures and rebounds implied by the tax-loss
selling hypothesis are also analysed. Finally, we use the concept of
stochastic dominance to study if the higher returns are due to
compensation to investors for bearing higher risk. However, we find no
support for either of the proposed hypotheses.
Journal: The European Journal of Finance
Pages: 1-19
Issue: 1
Volume: 2
Year: 1996
Keywords: January, Effect, Omitted, Risk, Factors, Tax, Effects, Turn, Of, The, Year,
X-DOI: 10.1080/135184796337571
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184796337571
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:1:p:1-19
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Author-Name: Ephraim Clark
Author-X-Name-First: Ephraim
Author-X-Name-Last: Clark
Author-Name: Eve Hicks
Author-X-Name-First: Eve
Author-X-Name-Last: Hicks
Title: Editorial
Abstract:
Journal: The European Journal of Finance
Pages: 3-4
Issue: 1
Volume: 2
Year: 1996
X-DOI: 10.1080/135184796337562
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184796337562
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:1:p:3-4
Template-Type: ReDIF-Article 1.0
Author-Name: Marc Chesney
Author-X-Name-First: Marc
Author-X-Name-Last: Chesney
Author-Name: Jean Lefoll
Author-X-Name-First: Jean
Author-X-Name-Last: Lefoll
Title: Predicting premature exercise of an American put on stocks: theory and empirical evidence
Abstract:
Journal: The European Journal of Finance
Pages: 21-39
Issue: 1
Volume: 2
Year: 1996
X-DOI: 10.1080/135184796337580
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184796337580
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:1:p:21-39
Template-Type: ReDIF-Article 1.0
Author-Name: R. Puntillo
Author-X-Name-First: R.
Author-X-Name-Last: Puntillo
Author-Name: D. Ipsen
Author-X-Name-First: D.
Author-X-Name-Last: Ipsen
Title: Poland's mass privatization program
Abstract:
This paper analyses three corporate finance aspects of Poland's proposed
mass privatization program (MPP): design feasibility, incentive systems
employed and initial valuation method of the selected state-owned
enterprises (SOEs). Also discussed are critical corporate governance
issues that will in part determine the ultimate success of Poland's unique
approach to mass privatization. Poland's MPP is designed to privatize en
masse over 400 mid-to-large size Polish SOEs. In the mid-1995, Poland's
MPP installed 15 specially designed national investment funds (NIFs) as
core investors in each of the 400+ privatized firms. NIFs, which are like
high-powered Western mutual funds, have hired consortia of Polish-foreign
fund managers or advisors to help restructure the target operating
companies over the next ten years. The stated goal of the MPP Law —
and the key basis of fund managers' incentive compensation — is to
increase shareholder value in the former SOEs through restructuring.
Journal: The European Journal of Finance
Pages: 41-55
Issue: 1
Volume: 2
Year: 1996
Keywords: Poland's, Transformation, Mass, Privatization, Poland, National, Investment, Funds, Voucher, Privatization,
X-DOI: 10.1080/135184796337599
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184796337599
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:1:p:41-55
Template-Type: ReDIF-Article 1.0
Author-Name: John Pointon
Author-X-Name-First: John
Author-X-Name-Last: Pointon
Author-Name: Suzanne Farrar
Author-X-Name-First: Suzanne
Author-X-Name-Last: Farrar
Author-Name: Jon Tucker
Author-X-Name-First: Jon
Author-X-Name-Last: Tucker
Title: European taxation and capital investment
Abstract:
A simulated study is conducted of the relative tax incentives to capital
investment in Europe. For 1994 required pre-tax rates of return vary from
8.5% for plant and machinery investments in Spain to l3.8% for commercial
property in Ireland. Within investment categories, however, the spreads
between countries are much narrower. After personal tax, the smallest tax
disincentives are found in Italy (to invest in plant and machinery and
commercial buildings) and the UK (industrial buildings). The largest
disincentives occur in the Netherlands (to invest in plant and machinery
and industrial buildings) and Ireland (with respect to commercial
property).
Journal: The European Journal of Finance
Pages: 57-76
Issue: 1
Volume: 2
Year: 1996
Keywords: Investment, Tax, Europe, Incentives, Capital,
X-DOI: 10.1080/135184796337607
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184796337607
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:1:p:57-76
Template-Type: ReDIF-Article 1.0
Author-Name: John Holland
Author-X-Name-First: John
Author-X-Name-Last: Holland
Title: Corporate and institutional control over the dissemination of price sensitive information
Abstract:
This article explores how companies and financial institutions used their
private relationship channels and contacts to encourage compliance with
the 1994 UK Stock Exchange guidance on the dissemination of price
sensitive information to the stock market. Extensive case data is used to
identify and illustrate this private self regulation process. The
companies and institutions developed 'mirror image' themes in their
approaches to self regulating the corporate release and institutional
receipt of price sensitive information. Both parties conducted this self
regulation within their regular contacts and links and as part of their
strategic decision processes. These matching self regulatory themes
provide a simple typology which reveals the spectrum of possible responses
across the corporate and institutional cases. The self regulatory process
is interpreted within finance theory and within institutional
organizational theory. Finally, the paper examines how the self regulatory
mechanism contrasts with and interacts with the more explicit and well
known market and legal mechanisms.
Journal: The European Journal of Finance
Pages: 77-102
Issue: 1
Volume: 2
Year: 1996
Keywords: Price, Sensitive, Information, Self, Regulation, Relationships,
X-DOI: 10.1080/135184796337616
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184796337616
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:1:p:77-102
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Strickland
Author-X-Name-First: Chris
Author-X-Name-Last: Strickland
Title: A comparison of diffusion models of the term structure
Abstract:
A number of different continuous time approaches that have been developed
to model the term structure of interest rates are examined. These
techniques span the interest rate literature over the last 20 years or so,
and are the most commonly used among both academics and practitioners. We
view this paper as a reference for the different term structure models,
aiming to bring together the three most commonly used approaches,
emphasizing their differences, analysing their respective advantages and
disadvantages, and with explicit representations where they exist for
prices of discount bonds.
Journal: The European Journal of Finance
Pages: 103-123
Issue: 1
Volume: 2
Year: 1996
X-DOI: 10.1080/135184796337625
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184796337625
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:1:p:103-123
Template-Type: ReDIF-Article 1.0
Author-Name: Dimitris Kirikos
Author-X-Name-First: Dimitris
Author-X-Name-Last: Kirikos
Title: The role of the forecast-generating process in assessing asset market models of the exchange rate: a non-linear case
Abstract:
This paper contains an assessment of three variants of the monetary
approach to exchange rate determination when the dynamics of the
information variables are described by a Markov switching regimes process
which generates non-linear forecasts. A large information set is used and
the empirical results are based on monthly data on six major US dollar
exchange rates over the period 1978-90. The relevant cross-equation
restrictions are tested statistically and the economic significance of the
models is evaluated on the basis of appropriate volatility tests. The
Markov model is compared with other popular stochastic processes.
Journal: The European Journal of Finance
Pages: 125-144
Issue: 2
Volume: 2
Year: 1996
Keywords: exchange rates, asset markets, Markov process, non-linear forecasts,
X-DOI: 10.1080/13518479600000001
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000001
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:2:p:125-144
Template-Type: ReDIF-Article 1.0
Author-Name: Patricia Chelley-Steeley
Author-X-Name-First: Patricia
Author-X-Name-Last: Chelley-Steeley
Author-Name: James Steeley
Author-X-Name-First: James
Author-X-Name-Last: Steeley
Title: Volatility transmission in the UK equity market
Abstract:
We provide evidence of the nature of the transmission of volatility
within the UK stock market. We find a distinct asymmetry in that shocks to
the return volatility of a portfolio of relatively large firms influence
the future volatility of a portfolio of relatively small firms, but find
that the reverse is not the case. The characteristics of the volatility
process suggest that this result is not caused by thin trading.
Journal: The European Journal of Finance
Pages: 145-160
Issue: 2
Volume: 2
Year: 1996
X-DOI: 10.1080/13518479600000002
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000002
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:2:p:145-160
Template-Type: ReDIF-Article 1.0
Author-Name: P. L. Dheeriya
Author-X-Name-First: P. L.
Author-X-Name-Last: Dheeriya
Title: Accessing international business resources on the Internet
Abstract:
In this paper we provide a brief description of the various ways in which
the international business faculty can gain access to databases, reports
and other resources on the internet. The objective of this paper is to
provide a low cost, efficient way of retrieving data which can be used for
international business research. This paper will be important to
international business researchers (both academicians and practitioners)
and students. By helping build the infrastructure for accessing
information for research, this paper indirectly contributes to existing
research.
Journal: The European Journal of Finance
Pages: 161-179
Issue: 2
Volume: 2
Year: 1996
Keywords: internet, international business, finance, e-mail, resources,
X-DOI: 10.1080/13518479600000003
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000003
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:2:p:161-179
Template-Type: ReDIF-Article 1.0
Author-Name: Adrian Buckley
Author-X-Name-First: Adrian
Author-X-Name-Last: Buckley
Author-Name: Peter Buckley
Author-X-Name-First: Peter
Author-X-Name-Last: Buckley
Author-Name: Pascal Langevin
Author-X-Name-First: Pascal
Author-X-Name-Last: Langevin
Author-Name: Ka Lun Tse
Author-X-Name-First: Ka Lun
Author-X-Name-Last: Tse
Title: The financial analysis of foreign investment decisions by large UK-based companies
Abstract:
Various studies of international investment appraisal practices of
US-based multinationals suggest that they largely fall to conform to
theoretical ideas on project screening and fall short of those used for
domestic projects. The findings of these American investigations are
summarized. The survey that is the focus of this paper relates to
international investment project appraisal practices of large UK
companies. It is a unique study in the sense that it is the first British
investigation of international capital appraisal procedures which applies
statistical analysis to its results. Broadly, the findings are not
dissimilar to those relating to US multinationals' practices. Particularly
interesting is the finding that 22% of respondents use payback and/or
accounting rate of return as their sole primary decision criterion. This
reinforces the continuing need for a better conceptual framework for
international investment appraisal.
Journal: The European Journal of Finance
Pages: 181-206
Issue: 2
Volume: 2
Year: 1996
Keywords: investment, value, international, appraisal,
X-DOI: 10.1080/13518479600000004
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000004
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:2:p:181-206
Template-Type: ReDIF-Article 1.0
Author-Name: Teppo Martikainen
Author-X-Name-First: Teppo
Author-X-Name-Last: Martikainen
Author-Name: Vesa Puttonen
Author-X-Name-First: Vesa
Author-X-Name-Last: Puttonen
Title: Sequential information arrival in the Finnish stock index derivatives markets
Abstract:
This paper investigates the hypothesis of sequential information arrival
in the Finnish stock index futures and options markets. With no short
selling restrictions in the derivatives markets, no causality
relationships between returns and trading volume are observed. However, by
using the so-called call-put signal, based on call and put volumes,
causality between returns and volume is found supporting the hypothesis of
sequential information arrival. In addition, it is discovered that the
increased volume in stock index options relative to index futures has
significantly increased their importance in the intermarket price
discovery process.
Journal: The European Journal of Finance
Pages: 207-217
Issue: 2
Volume: 2
Year: 1996
Keywords: futures, options, volume,
X-DOI: 10.1080/13518479600000005
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000005
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:2:p:207-217
Template-Type: ReDIF-Article 1.0
Author-Name: Jean-Paul Decamps
Author-X-Name-First: Jean-Paul
Author-X-Name-Last: Decamps
Title: Integrating the risk and term structures of interest rates
Abstract:
Merton (1974) analysed the risk structure of corporate bonds under the
assumption of a flat term structure of interest rates. We clarify his
results and extend them to the case of stochastic interest rates. As a
consequence we deal simultaneously with interest rate risk and with
default risk. We investigate the price of a corporate bond and the various
measures of the riskness of a corporate bond proposed by Merton ((i) the
Yield difference between the corporate bond and a default free bond with
the same characteristics, (ii) the standard deviation of the rate of
return of a corporate bond). We demonstrate and we explain why several of
Merton's conclusions are no longer valid in a stochastic term structure
framework.
Journal: The European Journal of Finance
Pages: 219-238
Issue: 3
Volume: 2
Year: 1996
Keywords: option pricing, term structure of interest rates, default risk, interest rate risk,
X-DOI: 10.1080/13518479600000006
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000006
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:3:p:219-238
Template-Type: ReDIF-Article 1.0
Author-Name: C. Henin
Author-X-Name-First: C.
Author-X-Name-Last: Henin
Author-Name: N. Pistre
Author-X-Name-First: N.
Author-X-Name-Last: Pistre
Title: Bounding the generalized convex call price
Abstract:
The present article introduces the concept of generalized calls (options
whose value at expiry can be any function of the difference between the
price of the underlying security and the striking price) and presents some
of the properties of such options through the use of absence of stochastic
dominance arguments. It deals with bounding relations of call premium
applied to generalized options of the convex type, i.e. nonlinear convex
options. These relations are obtained from the hypothesis of absence of
second-order stochastic dominance between comparable strategies and
without any hypothesis on the underlying security's distribution. The
article presents economic justification of this method, some classical
lemmas about stochastic dominance, and some bounds for convex calls.
Journal: The European Journal of Finance
Pages: 239-259
Issue: 3
Volume: 2
Year: 1996
Keywords: convex options, stochastic dominance, upper bounds, lower bounds, intersection points,
X-DOI: 10.1080/13518479600000007
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000007
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:3:p:239-259
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Strickland
Author-X-Name-First: Chris
Author-X-Name-Last: Strickland
Title: A comparison of models for pricing interest rate derivative securities
Abstract:
This paper looks at the different approaches and different models that
have been developed to value interest rate-dependent securities, providing
a survey of pricing procedures which are based on mathematical models of
the term structure. It can be viewed as a reference for the different
interest rate models with explicit representations, where they exist, for
prices of derivative instruments and an an analysis of their respective
advantages and disadvantages.
Journal: The European Journal of Finance
Pages: 261-287
Issue: 3
Volume: 2
Year: 1996
X-DOI: 10.1080/13518479600000008
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000008
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:3:p:261-287
Template-Type: ReDIF-Article 1.0
Author-Name: Chen Guo
Author-X-Name-First: Chen
Author-X-Name-Last: Guo
Title: A sufficient and necessary condition for arbitrage-free pricing
Abstract:
This paper derives a sufficient and necessary condition for
arbitrage-free pricing, by the mathematical definition of linear
dependency. It states that any pricing function that can be expressed as a
linear combination of some of its partial derivatives inherently possesses
the arbitrage-free property. This condition can serve as a quick 'reality
check' to help search for arbitrage-free asset pricing.
Journal: The European Journal of Finance
Pages: 289-295
Issue: 3
Volume: 2
Year: 1996
Keywords: arbitrage pricing, partial differential equation, linear dependency, Taylor series,
X-DOI: 10.1080/13518479600000009
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000009
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:3:p:289-295
Template-Type: ReDIF-Article 1.0
Author-Name: Les Clewlow
Author-X-Name-First: Les
Author-X-Name-Last: Clewlow
Author-Name: Andrew Carverhill
Author-X-Name-First: Andrew
Author-X-Name-Last: Carverhill
Title: A note on the efficiency of the binomial option pricing model
Abstract:
We discuss the efficiency of the binomial option pricing model for single
and multivariate American style options. We demonstrate how the efficiency
of lattice techniques such as the binomial model can be analysed in terms
of their computational cost. For the case of a single underlying asset the
most efficient implementation is the extrapolated jump-back method: that
is, to value a series of options with nested discrete sets of early
exercise opportunities by jumping across the lattice between the early
exercise times and then extrapolating from these values to the limit of a
continuous exercise opportunity set. For the multivariate case, the most
efficient method depends on the computational cost of the early exercise
test. However, for typical problems, the most efficient method is the
standard step-back method: that is, performing the early exercise test at
each time step.
Journal: The European Journal of Finance
Pages: 297-304
Issue: 3
Volume: 2
Year: 1996
X-DOI: 10.1080/13518479600000010
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000010
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:3:p:297-304
Template-Type: ReDIF-Article 1.0
Author-Name: A. Yuce
Author-X-Name-First: A.
Author-X-Name-Last: Yuce
Author-Name: C. Simga-Mugan
Author-X-Name-First: C.
Author-X-Name-Last: Simga-Mugan
Title: An investigation of the short- and long-term relationships between Turkish financial markets
Abstract:
In recent years the importance of emerging stock exchanges has been
demonstrated by the number of market studies. Although some of these stock
exchanges such as those of Korea and Taiwan have been investigated
extensively, there is only limited research on others including the
Turkish stock exchange. This study aims to fill this gap by investigating
the short- and long-term relationship between Turkish stock prices, and
the Turkish lira price of the US dollar. Turkish investors view both of
these instruments as investments. The exchange offices in Turkey serve
investors who continuously buy and sell foreign currencies. We expect that
at least one market would cause the other one, and there could be a
feedback relation or in the extreme case, there could even be long-run
equilibrium between these two markets. Data for this study are obtained
from a foreign exchange office and the Istanbul Stock Exchange for the
period January 1988 to December 1994. The data consist of daily closing
prices of the Istanbul Stock Exchange index, and the closing ask price of
the US dollar. Unit root tests indicate that both series are nonstationary
as 1(1). The results show that a long-run equilibrium does not exist,
however, the foreign exchange market causes the stock market in the
Granger sense.
Journal: The European Journal of Finance
Pages: 305-317
Issue: 4
Volume: 2
Year: 1996
Keywords: Cointegration, Turkish Stock Exchange, causality, emerging market, developing,
X-DOI: 10.1080/13518479600000011
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000011
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:4:p:305-317
Template-Type: ReDIF-Article 1.0
Author-Name: Terence Mills
Author-X-Name-First: Terence
Author-X-Name-Last: Mills
Author-Name: J. Andrew Coutts
Author-X-Name-First: J. Andrew
Author-X-Name-Last: Coutts
Title: Misspecification testing and robust estimation of the market model: estimating betas for the FT-SE industry baskets
Abstract:
Using daily data on the London Stock Exchange's FT-SE industry baskets,
this paper subjects the market model to a set of rigorous specification
tests designed to assess its statistical adequacy in the face of possible
model non-linearity and autocorrelation, heteroscedasticity and, in
particular, non-normality of residuals. It then utilizes robust methods of
estimation to provide valid estimates of the model's parameters in the
face of such misspecification. It is found that robust estimation usually
provides betas that are lower than those estimated by conventional
ordinary least squares.
Journal: The European Journal of Finance
Pages: 319-331
Issue: 4
Volume: 2
Year: 1996
Keywords: industry baskets, market model, misspecification, robust estimation,
X-DOI: 10.1080/13518479600000012
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000012
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:4:p:319-331
Template-Type: ReDIF-Article 1.0
Author-Name: Gordon Tang
Author-X-Name-First: Gordon
Author-X-Name-Last: Tang
Title: Day-of-the-week effect on skewness and kurtosis: a direct test and portfolio effect
Abstract:
This paper examines the day-of-the-week effect on skewness and kurtosis
of stock returns of six international stock markets using a new approach.
Empirical results show that a day-of-the-week effect exists on the
skewness and kurtosis of all stock markets except the US market. The
portfolio effect on skewness and kurtosis of stock returns across
different weekdays is compared. Our results show that skewness can be
eliminated through diversification only on Tuesday while kurtosis can be
diversified away on all weekdays except Thursday. Hence, it may not always
be beneficial for rational investors to diversity internationally when the
stock returns are not normally distributed.
Journal: The European Journal of Finance
Pages: 333-351
Issue: 4
Volume: 2
Year: 1996
Keywords: skewness, kurtosis, portfolio effect, day-of-the-week effect,
X-DOI: 10.1080/13518479600000013
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000013
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:4:p:333-351
Template-Type: ReDIF-Article 1.0
Author-Name: William Rees
Author-X-Name-First: William
Author-X-Name-Last: Rees
Title: The impact of open market equity repurchases on UK equity prices
Abstract:
This paper presents the first empirical evidence regarding the share
price impact of open market stock repurchases in the UK. The analysis
reveals a positive reaction on the day of the announcement of the
repurchase, consistent with the reaction found under very different
circumstances in the US, and consistent with the expected reaction on the
retirement of equity. The transactions are typically instigated by firms
that are underperforming the market and tends to follow a short-term fall
in the firm's share price. The reaction on the day of the repurchase is
positively related to the percentage of equity transacted. There is no
evidence that the return on the day of the announcement is affected by the
characteristics of the repurchase.
Journal: The European Journal of Finance
Pages: 353-370
Issue: 4
Volume: 2
Year: 1996
Keywords: G14 information and market efficiency, event studies, G32 financing policy: capital and ownership structure,
X-DOI: 10.1080/13518479600000014
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000014
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:4:p:353-370
Template-Type: ReDIF-Article 1.0
Author-Name: Colin Drury
Author-X-Name-First: Colin
Author-X-Name-Last: Drury
Author-Name: Mike Tayles
Author-X-Name-First: Mike
Author-X-Name-Last: Tayles
Title: UK capital budgeting practices: some additional survey evidence
Abstract:
Probably more surveys have been undertaken on the use of capital
budgeting techniques than on any other accounting and finance topic.
Despite the many surveys a number of issues remain unresolved. The surveys
have consisted of a sample of either very large or very small companies
and observations relating to the impact of company size have been derived
from comparing the responses from different surveys undertaken at
different points in time. The aim of this paper is to provide additional
empirical evidence relating to some of the unresolved issues and to
examine the impact of company size on the use of financial appraisal
techniques. In particular, the paper concentrates on the treatment of
inflation, the appraisal of advanced manufacturing technologies and
examines whether the empirical evidence supports the claim that many
companies use excessive discount rates.
Journal: The European Journal of Finance
Pages: 371-388
Issue: 4
Volume: 2
Year: 1996
Keywords: capital budgeting practices, investment appraisal, inflation, discount rates, advanced manufacturing technologies,
X-DOI: 10.1080/13518479600000015
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000015
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:4:p:371-388
Template-Type: ReDIF-Article 1.0
Author-Name: C. I. Lee
Author-X-Name-First: C. I.
Author-X-Name-Last: Lee
Author-Name: I. Mathur
Author-X-Name-First: I.
Author-X-Name-Last: Mathur
Title: A comprehensive look at the efficacy of technical trading rules applied to cross-rates
Abstract:
Moving average (MA) and channel rules (CH) are applied to ten spot
cross-rates -
AUD/JPY,GBP/JPY,CAD/JPY,DEM/GBP,DEM/ITL,DEM/JPY,DEM/CHF,CHF/GBP, and
CHF/JPY - to examine whether opportunities for profitable trading exist.
The results suggest that neither trasding rule is profitable. Overall, the
results are consistent with those reported in Lee and Mathur**and in sharp
contrast with the evidence from studies on dollar-denominated exchange
rates. The costs of direct currency exchange through cross-rates and
through indirect dollar-related transactions are also estimated. The
savings related to direct cross-rate currency exchanges are estimated to
range from 0.004% to 0.22%.
Journal: The European Journal of Finance
Pages: 389-411
Issue: 4
Volume: 2
Year: 1996
Keywords: trading rules, currency cross-rates,
X-DOI: 10.1080/13518479600000016
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479600000016
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:2:y:1996:i:4:p:389-411
Template-Type: ReDIF-Article 1.0
Author-Name: F. Barran
Author-X-Name-First: F.
Author-X-Name-Last: Barran
Author-Name: V. Coudert
Author-X-Name-First: V.
Author-X-Name-Last: Coudert
Author-Name: B. Mojon
Author-X-Name-First: B.
Author-X-Name-Last: Mojon
Title: Interest rates, banking spreads and credit supply: the real effects
Abstract:
We analyse the information content of the relative structure of interest
rates on economic activity. Over and above currently defined spreads, we
have defined spreads based on bank interest rates. In order to analyse the
information content of financial variables on economic activity, measured
through a set of proxy variables like output, investment, industrial
production, employment, private consumption, durable goods consumption and
inflation, Granger-causality tests are performed. The predictive power of
spreads is then compared with other inancial variables such as interest
rates and monetary and credit aggregates. The tests are performed on five
major OECD countries. A major conclusion is that 'bank' spreads are
informative about economic activity even though the relationship between
inancial aggregates and real activity has weakened.
Journal: The European Journal of Finance
Pages: 107-136
Issue: 2
Volume: 3
Year: 1997
Keywords: Interest Rate Spreads Credit Channel,
X-DOI: 10.1080/135184797337480
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337480
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:2:p:107-136
Template-Type: ReDIF-Article 1.0
Author-Name: F. Gonzalez Miranda
Author-X-Name-First: F. Gonzalez
Author-X-Name-Last: Miranda
Author-Name: N. Burgess
Author-X-Name-First: N.
Author-X-Name-Last: Burgess
Title: Modelling market volatilities: the neural network perspective
Abstract:
This paper investigates the use of Artificial Neural Networks (NN) to
forecast volatility. In particular, we assess the dynamic behaviour of
market volatility by forecasting the volatility implied in the transaction
prices of the Ibex35 index options. The use of the NN technique is done
within the framework of a model building strategy that tries to capitalize
on the well known feature of persistence in volatility series. We
demonstrate that forecasting with non-linear NNs generally produces
forecasts which, on the basis of out-of-sample forecast encompassing tests
and mean squared error comparisons, ordinarily dominate forecasts from
traditional linear methods. Better forecasting results for the NN are due
to its flexibility to account for potentially complex non-linear
relationships, which are not well captured by traditional linear methods.
We test and reject the hypothesis that volatility changes are
unpredictable on an hourly basis.
Journal: The European Journal of Finance
Pages: 137-157
Issue: 2
Volume: 3
Year: 1997
Keywords: Implied Volatility Neural Networks Linear Least Squares Encompassing Tests,
X-DOI: 10.1080/135184797337499
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337499
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:2:p:137-157
Template-Type: ReDIF-Article 1.0
Author-Name: David Chappell
Author-X-Name-First: David
Author-X-Name-Last: Chappell
Author-Name: Robert Eldridge
Author-X-Name-First: Robert
Author-X-Name-Last: Eldridge
Title: Non-linear characteristics of the sterling/European Currency Unit exchange rate: 1984-1992
Abstract:
The behaviour of the Sterling/European Currency Unit (ECU) exchange rate
is examined both during the time before Britain joined the European
exchange rate mechanism (ERM) and during the time of Britain's membership.
During the latter period, a GARCH (1, 1) model fits the data well but
during the pre-ERM period there is evidence of significant non-linear -
possibly chaotic - structure in the GARCH residuals. Analysis of the
dominant Lyapunov exponents and correlation dimension for the pre-ERM
period suggests that the data generation process may be chaotic and this
is reinforced by the highly significant BDS statistics obtained for this
sample period.
Journal: The European Journal of Finance
Pages: 159-182
Issue: 2
Volume: 3
Year: 1997
Keywords: Sterlingecu Exchange Rate Non-LINEARITY,
X-DOI: 10.1080/135184797337507
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337507
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:2:p:159-182
Template-Type: ReDIF-Article 1.0
Author-Name: Carlos Serrano-Cinca
Author-X-Name-First: Carlos
Author-X-Name-Last: Serrano-Cinca
Title: Feedforward neural networks in the classification of financial information
Abstract:
Financial research has given rise to numerous studies in which, on the
basis of the information provided by financial statements, companies are
classified into different groups. An example is that of the classification
of companies into those that are solvent and those that are insolvent.
Linear discriminant analysis (LDA) and logistic regression have been the
most commonly used statistical models in this type of work. One
feedforward neural network, known as the multilayer perceptron (MLP),
performs the same task as LDA and logistic regression which, a priori,
makes it appropriate for the treatment of financial information. In this
paper, a practical case based on data from Spanish companies, shows, in an
empirical form, the strengths and weaknesses of feedforward neural
networks. The desirability of carrying out an exploratory data analysis of
the financial ratios in order to study their statistical properties, with
the aim of achieving an appropriate model selection, is made clear.
Journal: The European Journal of Finance
Pages: 183-202
Issue: 3
Volume: 3
Year: 1997
Keywords: Neural Networks Multilayer Perceptron Bankruptcy Prediction Spanish Banking System,
X-DOI: 10.1080/135184797337426
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337426
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:3:p:183-202
Template-Type: ReDIF-Article 1.0
Author-Name: D. J. E. Baestaens
Author-X-Name-First: D. J. E.
Author-X-Name-Last: Baestaens
Title: Comment
Abstract:
Journal: The European Journal of Finance
Pages: 203-224
Issue: 3
Volume: 3
Year: 1997
X-DOI: 10.1080/135184797337435
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337435
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:3:p:203-224
Template-Type: ReDIF-Article 1.0
Author-Name: C. Serrano-Cinca
Author-X-Name-First: C.
Author-X-Name-Last: Serrano-Cinca
Title: Rejoinder
Abstract:
Journal: The European Journal of Finance
Pages: 225-230
Issue: 3
Volume: 3
Year: 1997
X-DOI: 10.1080/135184797337444
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337444
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:3:p:225-230
Template-Type: ReDIF-Article 1.0
Author-Name: Dominique Guegan
Author-X-Name-First: Dominique
Author-X-Name-Last: Guegan
Author-Name: Guillaume Leorat
Author-X-Name-First: Guillaume
Author-X-Name-Last: Leorat
Title: Consistent estimation to determine the embedding dimension in financial data; with an application to the dollar/deutschmark exchange rate
Abstract:
To detect chaos on observational data, we first need to know the
embedding dimension. We propose a consistent approach to estimate this
dimension using the theoretical work of Bosq and Guegan (1994) and we
apply the results to real financial data.
Journal: The European Journal of Finance
Pages: 231-242
Issue: 3
Volume: 3
Year: 1997
Keywords: Dimension Of Correlation Dynamical Systems Embedding Dimension Kernel Estimates Lyapunov Exponents Non-PARAMETRIC Estimation,
X-DOI: 10.1080/135184797337453
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337453
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:3:p:231-242
Template-Type: ReDIF-Article 1.0
Author-Name: J. Andrew Coutts
Author-X-Name-First: J. Andrew
Author-X-Name-Last: Coutts
Author-Name: Terence Mills
Author-X-Name-First: Terence
Author-X-Name-Last: Mills
Author-Name: Jennifer Roberts
Author-X-Name-First: Jennifer
Author-X-Name-Last: Roberts
Title: Time series and cross-section parameter stability in the market model: the implications for event studies
Abstract:
This paper investigates the time series and cross-section stability of
parameter estimates from the single-index market model, using a UK data
set relating to the security prices of parent companies, divesting in the
form of a management buyout. A battery of tests of structural stability
are undertaken, and we find that instability exists in the vast majority
of the fitted models, both in relation to changes in the estimation
period, and also to changes in the cross-section sample of firms included
in this analysis. The implications of instability for the event study
method are clearly illustrated by the construction of recursive cumulative
abnormal return series. Our results suggest that when the market model is
used within the event study framework, the quantitative results are
extremely sensitive to the chosen estimation period and cross-section
sample of firms. We suggest that if event studies continue to be pursued
in the applied finance literature, it is essential that tests of parameter
stability are incorporated into this framework. In addition, 'sensitivity
analysis', that is, changes to the estimation period and cross-section
sample employed, should also be investigated, and conclusions should be
limited to interpreting the patterns of the cumulative abnormal returns.
Journal: The European Journal of Finance
Pages: 243-259
Issue: 3
Volume: 3
Year: 1997
Keywords: Single-INDEX Market Model Parameter Estimates Time Series Cross-SECTION Stability,
X-DOI: 10.1080/135184797337462
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337462
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:3:p:243-259
Template-Type: ReDIF-Article 1.0
Author-Name: Peijie Wang
Author-X-Name-First: Peijie
Author-X-Name-Last: Wang
Author-Name: Colin Lizieri
Author-X-Name-First: Colin
Author-X-Name-Last: Lizieri
Author-Name: George Matysiak
Author-X-Name-First: George
Author-X-Name-Last: Matysiak
Title: Information asymmetry, long-run relationship and price discovery in property investment markets
Abstract:
The relationships between 'direct' and 'indirect' property investment,
emphasizing information asymmetry and price discovery, have been
investigated in the framework of cointegration and using the concept of
Granger causality. The implications of information asymmetry in the market
have been discussed and explanations offered.
Journal: The European Journal of Finance
Pages: 261-275
Issue: 3
Volume: 3
Year: 1997
Keywords: Direct Indirect Property Investment Information Asymmetry Price Discovery,
X-DOI: 10.1080/135184797337471
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337471
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:3:p:261-275
Template-Type: ReDIF-Article 1.0
Author-Name: Greg Filbeck
Author-X-Name-First: Greg
Author-X-Name-Last: Filbeck
Author-Name: Sue Visscher
Author-X-Name-First: Sue
Author-X-Name-Last: Visscher
Title: Dividend yield strategies in the British stock market
Abstract:
One particular investment strategy, a dividend yield strategy, has been
in existence for several years. This strategy consists of investing an
equal dollar amount in each of the ten stocks of a market index with the
highest dividend yields. With yearly rebalancing, the portfolio return in
the United States over time has exceeded that of the Dow. In this paper,
we find that a similar dividend yield investment strategy in Britain was
not effective between March 1984 and February 1994. The portfolio returns
exceeded the market returns on both unadjusted and risk adjusted bases, in
only four years. The superior multiple year Top Ten portfolio performances
were primarily due to the outstanding second year returns.
Journal: The European Journal of Finance
Pages: 277-289
Issue: 4
Volume: 3
Year: 1997
Keywords: Dividend British Investment Strategy,
X-DOI: 10.1080/135184797337372
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337372
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:4:p:277-289
Template-Type: ReDIF-Article 1.0
Author-Name: I. Bajeux-Besnainou
Author-X-Name-First: I.
Author-X-Name-Last: Bajeux-Besnainou
Author-Name: R. Portait
Author-X-Name-First: R.
Author-X-Name-Last: Portait
Title: The numeraire portfolio: a new perspective on financial theory
Abstract:
The numeraire portfolio, also called the optimal growth portfolio, allows
simple derivations of the main results of financial theory. The prices of
self financing portfolios, when the optimal growth portfolio is the
numeraire, are martingales in the 'true' (historical) probability. Given
the dynamics of the traded securities, the composition of the numeraire
portfolio as well as its value are easily computable. Among its numerous
properties, the numeraire portfolio is instantaneously mean variance
efficient. This key feature allows a simple derivation of standard
continuous time CAPM, CCAPM, APT and contingent claim pricing. Moreover,
since the Radon-Nikodym derivatives of the usual martingale measures are
very simple functions of the numeraire portfolio, the latter provides a
convenient link between the standard Capital Market Theory a la Merton and
the probabilistic approach a la Harrison-Kreps-Pliska.
Journal: The European Journal of Finance
Pages: 291-309
Issue: 4
Volume: 3
Year: 1997
Keywords: Martingale Pricing Equilibrium Pricing Numeraire Portfolio Theory,
X-DOI: 10.1080/135184797337381
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337381
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:4:p:291-309
Template-Type: ReDIF-Article 1.0
Author-Name: Georges Darbellay
Author-X-Name-First: Georges
Author-X-Name-Last: Darbellay
Author-Name: Marco Finardi
Author-X-Name-First: Marco
Author-X-Name-Last: Finardi
Title: Could nonlinear dynamics contribute to intra-day risk management?
Abstract:
We use techniques drawn from the field of nonlinear dynamics, often
popularly referred to as chaos theory, to study high frequency (tick by
tick) time series of foreign exchange and interest rates. The existence of
strange attractors is extensively investigated by applying the
nearest-neighbours algorithm for the computation of fractal dimensions to
the signals reconstructed with the time-delay embedding technique.
Furthermore, the state space reconstruction allows us to test whether, in
the course of a business day, forecasts based on this technique could
improve the timing of hedge trades, in the foreign exchange and interest
rate markets. We find that this approach does not reduce hedging costs.
This casts strong doubts on the ability of nonlinear dynamics to be of any
practical use in financial risk management.
Journal: The European Journal of Finance
Pages: 311-324
Issue: 4
Volume: 3
Year: 1997
Keywords: Nonlinear Dynamics Chaos Theory High Frequency Time Series Foreign Exchange Interest Rates Risk Management Forecasting Techniques,
X-DOI: 10.1080/135184797337390
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337390
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:4:p:311-324
Template-Type: ReDIF-Article 1.0
Author-Name: E. Jouini
Author-X-Name-First: E.
Author-X-Name-Last: Jouini
Author-Name: P. -F. Koehl
Author-X-Name-First: P. -F.
Author-X-Name-Last: Koehl
Author-Name: N. Touzi
Author-X-Name-First: N.
Author-X-Name-Last: Touzi
Title: Incomplete markets, transaction costs and liquidity effects
Abstract:
An agent's optimization problem of the expected terminal wealth utility
in a trinomial tree economy is solved. At each transaction date, the agent
can trade in a riskless asset, a primitive asset subject to constant
proportional transaction costs, and a contingent claim characterized by
some parameter kappa whose bid and ask price is defined by allowing for
different equivalent martingale measures. In addition to the classical
portfolio choice problem, the characteristic of the contingent claim
κ is determined endogenously in the optimization problem. Under
suitable conditions, it is proved that the optimal demand of the agent in
the primitive risky asset is zero independently of the choice of the
terminal wealth utility function: the agent prefers not to trade in the
asset subject to transaction costs, which prevents the market from being
complete, rather than trading in both assets. Next, the optimal choice of
the contingent claim is characterized and the results are applied to
European call and put options with fixed maturity and varying exercise
price κ.
Journal: The European Journal of Finance
Pages: 325-347
Issue: 4
Volume: 3
Year: 1997
Keywords: Contingent Claim Incomplete Markets Transaction Costs,
X-DOI: 10.1080/135184797337408
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337408
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:4:p:325-347
Template-Type: ReDIF-Article 1.0
Author-Name: D. K. Ghosh
Author-X-Name-First: D. K.
Author-X-Name-Last: Ghosh
Title: Arbitrage with hedging by forward contracts: exploited and exploitable profits
Abstract:
The theoretical conditions for covered interest arbitrage and exploitable
profit opportunities out of simple and triangular arbitrage in the absence
and presence of market imperfection are enunciated. A distinction is made
between pure arbitrage profits and arbitrage-induced total profits
attainable under the risk-free environment. Operational feasibility of
iterative arbitrage is also examined.
Journal: The European Journal of Finance
Pages: 349-361
Issue: 4
Volume: 3
Year: 1997
Keywords: Arbitrage Hedging Forward Contracts Program Trading Orders Ulation,
X-DOI: 10.1080/135184797337417
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337417
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:4:p:349-361
Template-Type: ReDIF-Article 1.0
Author-Name: Gonzalo Rubio
Author-X-Name-First: Gonzalo
Author-X-Name-Last: Rubio
Author-Name: Mikel Tapia
Author-X-Name-First: Mikel
Author-X-Name-Last: Tapia
Title: The liquidity premium in equity pricing under a continuous auction system
Abstract:
The paper shows that the cost of illiquidity is not (positively) priced
over all months in the Spanish continuous auction system, where liquidity
is provided in the absence of market makers. Two distinct approaches are
employed. Both the two-step traditional cross-sectional method and the
pooled cross-section time series analysis tend to indicate that the
liquidity premium is negative during months other than January. Moreover,
the liquidity premium in January is positive (although not significant)
and at the 10% level it seems to be significantly higher than the
liquidity premium over the rest of the year. Therefore, given the previous
results for the US market, we conclude that, independently of the market
trading mechanism with the exception of NASDAQ, the behaviour of the
relationship between the bid-ask spread and stock returns is rather
similar.
Journal: The European Journal of Finance
Pages: 1-28
Issue: 1
Volume: 4
Year: 1998
Keywords: asset pricing, market microstructure, liquidity premium,
X-DOI: 10.1080/13518479800000001
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479800000001
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:1:p:1-28
Template-Type: ReDIF-Article 1.0
Author-Name: Seth Armitage
Author-X-Name-First: Seth
Author-X-Name-Last: Armitage
Title: Seasoned equity offers and rights issues: a review of the evidence
Abstract:
The paper reviews evidence from the USA and UK on seasoned equity offers
(SEOs) and rights issues. There are two main avenues of research: first,
the market reaction to announcements of SEOs, and the related questions of
the price elasticity of demand for new shares and the timing of issues;
second, the costs of issuing and choice of issuing method. The negative
reaction to announcements is well documented and the evidence suggests it
is more due to an issue being a signal of overvaluation than to inelastic
demand. Other findings are less well understood. The shares of issuers
underperform appreciably in the long term, and there is evidence that
market receptiveness to new issues varies. Companies tend to choose the
most expensive method of issue both in terms of direct costs and negative
market reaction. US companies use underwritten non-rights, through
underwriting increases the direct costs. A possible explanation is that
certification of issue value by the sponsor is more credible with
non-rights issues in the USA and underwritten rights in the UK than with
the apparently cheaper alternatives.
Journal: The European Journal of Finance
Pages: 29-59
Issue: 1
Volume: 4
Year: 1998
Keywords: seasoned equity offers, rights issues, investment banking,
X-DOI: 10.1080/13518479800000002
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479800000002
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:1:p:29-59
Template-Type: ReDIF-Article 1.0
Author-Name: G. Geoffrey Booth
Author-X-Name-First: G. Geoffrey
Author-X-Name-Last: Booth
Author-Name: Gregory Koutmos
Author-X-Name-First: Gregory
Author-X-Name-Last: Koutmos
Title: Volatility and autocorrelation in major European stock markets
Abstract:
This paper models index stock returns for four major European stock
markets as conditionally heteroskedastic processes with time dependent
serial correlation. The evidence suggests that current returns in these
markets are nonlinearly dependent on their past history. The dependence is
strong during calm periods and weak during volatile periods and manifests
itself as an inverse relationship between first order autocorrelations and
volatility. While this relationship is statistically significant in daily
returns, it is absent from weekly returns. Additional tests reveal that
the nonlinear specification used by LeBaron (1992) is not necessarily the
most adequate representation of the short-term dynamics of stock index
returns.
Journal: The European Journal of Finance
Pages: 61-74
Issue: 1
Volume: 4
Year: 1998
Keywords: EAR-EGARCH model, volatility, autocorrelation, European stock markets,
X-DOI: 10.1080/13518479800000003
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479800000003
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:1:p:61-74
Template-Type: ReDIF-Article 1.0
Author-Name: John Pointon
Author-X-Name-First: John
Author-X-Name-Last: Pointon
Author-Name: Derek Spratley
Author-X-Name-First: Derek
Author-X-Name-Last: Spratley
Title: Financial effects of an uncertain change in VAT rates in the EU
Abstract:
The aims of this paper are first, to review the background to the
harmonization of VAT rates within the European Union and second, to model
the financial impact of the risks surrounding structural changes in VAT
rates. The underlying sales upon which VAT is based is modelled by a
geometric Brownian motion. By contrast the timing of a VAT rate change,
consitent with a negative exponential distribution, implies a Poisson jump
if and when the VAT rate changes. By combining the geometric Brownian
motion with a Poisson jump, a model is developed which requires the
solution to a second-order ordinary differential equation. This provides a
frmework to quantify the effects of VAT risk upon firm values. By using
market interest rates and an estimate of an overall market premium the
impact of VAT harmonization risk on companies within several EU countries
is analysed.
Journal: The European Journal of Finance
Pages: 75-83
Issue: 1
Volume: 4
Year: 1998
Keywords: VAT, Europe, Poisson, Brownian,
X-DOI: 10.1080/13518479800000004
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479800000004
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:1:p:75-83
Template-Type: ReDIF-Article 1.0
Author-Name: Gulnur Muradoglu
Author-X-Name-First: Gulnur
Author-X-Name-Last: Muradoglu
Author-Name: Nese Akkaya
Author-X-Name-First: Nese
Author-X-Name-Last: Akkaya
Author-Name: Jamel Chafra
Author-X-Name-First: Jamel
Author-X-Name-Last: Chafra
Title: The effect of the establishment of an organized exchange on weak form efficiency: the case of Istanbul Gold Exchange
Abstract:
Evidence is presented from IGE (the Istanbul Gold Exchange) that an
institutional regulation such as the establishment of an organized
exchange is an important component of informational efficiency that should
not be disregarded in the process of financial liberlization.
Journal: The European Journal of Finance
Pages: 85-92
Issue: 1
Volume: 4
Year: 1998
Keywords: weak form efficiency, gold market, institutional regulation,
X-DOI: 10.1080/13518479800000005
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518479800000005
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:1:p:85-92
Template-Type: ReDIF-Article 1.0
Author-Name: F. De Roon
Author-X-Name-First: F.
Author-X-Name-Last: De Roon
Author-Name: C. Veld
Author-X-Name-First: C.
Author-X-Name-Last: Veld
Author-Name: J. Wei
Author-X-Name-First: J.
Author-X-Name-Last: Wei
Title: A study on the efficiency of the market for Dutch long-term call options
Abstract:
The efficiency of the market for 5-year call options which are traded on
the European Options Exchange in Amsterdam is investigated. Both delta,
delta-vega and delta-gamma neutral arbitrage portfolios are studied. No
serious inefficiencies in the market for longterm call options are
detected. This result is in line with previous studies on different kinds
of call options and warrants. The results for the delta-vega and
delta-gamma neutral arbitrage strategies differ from the results of the
simple delta-neutral strategies in two ways: they lead to positive results
more often, but the variance of these results is also larger.
Journal: The European Journal of Finance
Pages: 93-111
Issue: 2
Volume: 4
Year: 1998
Keywords: Market Efficiency Long-TERM Call Options Arbitrage Hedging,
X-DOI: 10.1080/135184798337335
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337335
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:2:p:93-111
Template-Type: ReDIF-Article 1.0
Author-Name: E. Dinenis
Author-X-Name-First: E.
Author-X-Name-Last: Dinenis
Author-Name: S. K. Staikouras
Author-X-Name-First: S. K.
Author-X-Name-Last: Staikouras
Title: Interest rate changes and common stock returns of financial institutions: evidence from the UK
Abstract:
The objective of this paper is to examine the impact of interest rate
changes on the common stock returns of portfolios of financial
institutions in the UK. The five groups of financial institutions examined
are banks, insurance companies, investment trusts, property investment
companies and finance firms. In addition, a wide sample of nonfinancial
firms is considered for comparison purposes. A two-index model is employed
to test the effect of both current and unanticipated interest rate
changes. An element of volatility in market yields is also introduced in a
three-index model to measure the effect of variability in interest rates
on the returns of these financial intermediaries. Two main implications
emerge from the present paper for both financial and nonfinancial firms.
First, a significant negative relationship seems to exist between the
common stock returns and the changes in interest rates. Second, common
stock returns and variability of interest rates are related with a
significant positive coefficient.
Journal: The European Journal of Finance
Pages: 113-127
Issue: 2
Volume: 4
Year: 1998
Keywords: Financial Institutions Stock Returns Unexpected Interest Rate Changes Interest Rate Volatility,
X-DOI: 10.1080/135184798337344
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337344
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:2:p:113-127
Template-Type: ReDIF-Article 1.0
Author-Name: J. B. Holland
Author-X-Name-First: J. B.
Author-X-Name-Last: Holland
Author-Name: P. Doran
Author-X-Name-First: P.
Author-X-Name-Last: Doran
Title: Financial institutions, private acquisition of corporate information, and fund management
Abstract:
The article describes how 27 large UK financial institutions (FIs) sought
to acquire an information and influence advantage from the relationships
they enjoyed with investee companies in their portfolio. The financial
institutions invested much time and effort cultivating these links and
contacts. The primary aim of this relationship investment decision was to
produce added value in stock selection and asset allocation decisions. The
resulting fund performance was the means for inancial institutions to
satisfy a fiduciary duty to supply their clients with their preferred mix
of return, diversification and liquidity. This problem area is
investigated by using financial institutional case data to describe FI
behaviour when interacting with their relationship investee companies. The
article ends by analysing the case data and case structures through the
perspective of inance theory.
Journal: The European Journal of Finance
Pages: 129-155
Issue: 2
Volume: 4
Year: 1998
Keywords: Financial Institutions Private Information Fund Management,
X-DOI: 10.1080/135184798337353
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337353
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:2:p:129-155
Template-Type: ReDIF-Article 1.0
Author-Name: C. N. Bagley
Author-X-Name-First: C. N.
Author-X-Name-Last: Bagley
Author-Name: D. K. Ghosh
Author-X-Name-First: D. K.
Author-X-Name-Last: Ghosh
Author-Name: U. Yaari
Author-X-Name-First: U.
Author-X-Name-Last: Yaari
Title: Pecking order as a dynamic leverage theory
Abstract:
Static tradeoff theories, which do not explicitly treat the impact of
transaction costs, do not explain the policy of asymmetry between frequent
small debt transactions and infrequent large equity transactions. Nor do
these theories explain why the debt ratio is allowed to wander a
considerable distance from its alleged static optimum, or how much of a
distance should be tolerated. We offer a class of diffusion models that
mimic this behaviour in a stochastic-dynamic framework and are designed to
optimize a financing strategy using any static tradeoff theory as input.
The models developed reveal the determinants of the size and frequency of
equity transactions and the range of values over which leverage variations
are tolerated in four generic scenarios. They also yield a new formulation
of the cost of capital that recognizes stochastic transaction costs and a
penalty for deviation from any static-optimal leverage. Our class of
models augments the pecking order theory, provides a flexible quantitative
framework for its implementation as a decision tool, and facilitates the
formulation of additional hypotheses for its empirical validation.
Symmetrically, our results show the importance of dynamic factors in
designing and interpreting empirical tests of static tradeoff theories.
The results presented have important implications for the role played by
static tradeoff theories in a stochastic-dynamic framework. One such
implication is that the static-optimal leverage has no direct effect on
the firm's leverage policy in this setting. The target leverage for
refinancing transactions is different from the static-optimal leverage,
and the mean leverage is generally different from both. As a consequence,
the latter cannot be used to estimate the former. Another implication is
that even when the mean leverage equals the static optimum, mean reversion
is not an optimal behaviour and therefore not a legitimate test for the
existence of a static tradeoff in a dynamic context. Still another
implication is that wide variations in leverage ratios cannot be
interpreted as evidence of leverage indifference. It follows that the
pecking order theory is consistent with static tradeoff theories and does
not require the assumption of leverage indifference.
Journal: The European Journal of Finance
Pages: 157-183
Issue: 2
Volume: 4
Year: 1998
Keywords: Financial Leverage Dynamic Debt Policy Capital Structure,
X-DOI: 10.1080/135184798337362
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337362
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:2:p:157-183
Template-Type: ReDIF-Article 1.0
Author-Name: Istemi Demirag
Author-X-Name-First: Istemi
Author-X-Name-Last: Demirag
Title: Boards of Directors' short-term perceptions and evidence of managerial short-termism in the UK
Abstract:
Some researchers argue that capital market pressures are increasingly
directed towards short-term performance evaluation of managers and their
operations; others deny this. However, the crucial issue, it is argued in
this paper, is managers' perceptions of this: for if they perceive capital
markets as short-termist, they will behave in a short-term manner. This
paper begins by offering a theoretical model for studying the effects of
management perceptions on short-term behaviour of firms. Five hypotheses
were developed and tested. The hypotheses related to the degree of
short-term performance pressures as perceived by the boards of directors
and the degree of emphasis their companies put on short-term financial
control measures in determining R&D budgets. All the five hypotheses were
supported, and the results were explained through the 'model'. These
results support the view that perceived short-term pressures influence
firms' decisions to retain or adopt 'Financial Control' management styles
in their R&D budget determination. They also show that perceptions are a
valuable theoretical construct in exploring short-term behaviour in firms'
Research and Development and related innovation activities.
Journal: The European Journal of Finance
Pages: 195-211
Issue: 3
Volume: 4
Year: 1998
Keywords: Corporate Governance Short-TERMISM Management Perceptions Management Control Research Development Budgets,
X-DOI: 10.1080/135184798337263
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337263
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:3:p:195-211
Template-Type: ReDIF-Article 1.0
Author-Name: Tom Groot
Author-X-Name-First: Tom
Author-X-Name-Last: Groot
Title: Determinants of shareholders' short-term pressures: empirical evidence from Dutch companies
Abstract:
It is often argued that Anglo-Saxon corporate governance systems place
more emphasis on short-term results than do corporate governance systems
in continental European countries, such as Germany and the Netherlands.
Empirical evidence on this is scarce and often contradictory. This paper
examines differences in the perception of shareholders' short-term
orientation by the financial managers of UK and Dutch listed firms. These
differences turn out not to be as large as expected. Moreover, differences
in short-term pressures to perform also appear to exist between the firms
in the Dutch sample. This study attempts to identify factors that may
cause differences in short-term orientation among Dutch financial
managers. Two of the factors identiied are the existence of a trust office
and the risk profile of the firm.
Journal: The European Journal of Finance
Pages: 212-232
Issue: 3
Volume: 4
Year: 1998
Keywords: Corporate Governance Short-TERMISM Corporate Control Shareholder Management,
X-DOI: 10.1080/135184798337272
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337272
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:3:p:212-232
Template-Type: ReDIF-Article 1.0
Author-Name: C. L. Marston
Author-X-Name-First: C. L.
Author-X-Name-Last: Marston
Author-Name: B. M. Craven
Author-X-Name-First: B. M.
Author-X-Name-Last: Craven
Title: A survey of corporate perceptions of short-termism among analysts and fund managers
Abstract:
There is a popularly held view that institutional investors and
stockbrokers' analysts take a short-term view when making or advising on
investment decisions. Short-termism is held to be a particular problem for
economies such as the US and the UK which rely heavily on stock exchanges
to price securities and help reallocate resources through take-over. This
is deemed to be detrimental to long-term corporate development and overall
economic growth. The paper seeks to show the extent to which directors of
large UK companies perceive that analysts and institutional investors
evaluate their companies on short-term criteria. The role of institutional
investors in the context of short-termism is important because they own a
large proportion of equity. The paper then seeks to explain why some
company directors appear to believe in short-termism while others do not.
Hence the paper is not investigating whether 'the City' is short-termist
but is examining the reasons why directors of large publicly quoted
companies believe 'the City' is or is not short-termist about their
company. The conclusion of this paper is that there is some evidence to
support the view that 'the City' is perceived as being short-termist
towards some companies but that the phenomenon is more narrowly focused
and of lesser importance than its supporters claim.
Journal: The European Journal of Finance
Pages: 233-256
Issue: 3
Volume: 4
Year: 1998
Keywords: Analysts Fund Managers Investor Relations Perception Short-TERMISM,
X-DOI: 10.1080/135184798337281
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337281
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:3:p:233-256
Template-Type: ReDIF-Article 1.0
Author-Name: Mae Baker
Author-X-Name-First: Mae
Author-X-Name-Last: Baker
Title: Fund managers' attitudes to risk and time horizons: the effect of performance benchmarking
Abstract:
Results are reported of an interview survey conducted with 64 fund
managers. The objective of the survey is to identify the performance
appraisal and reward systems under which the fund managers are operating,
and to identify ways in which this impacts upon their investment
heuristics. The results of the interviews indicate that fund managers are
evaluated on a regular basis against performance benchmarks, although the
extent of such evaluation and the choice of benchmark differs according to
the types of funds under management. The papers hows th at performance
evaluation affects fund managers' attitudes to risk, to motivation and to
time horizons. It is shown that fund managers believe that the quarterly
relative performance monitoring to which many funds and fund managers are
subject, results in the adoption of a more short-termist attitude and
approach to the management of the funds in question.
Journal: The European Journal of Finance
Pages: 257-278
Issue: 3
Volume: 4
Year: 1998
Keywords: Performance Monitoring Fund Managers Short-TERMISM,
X-DOI: 10.1080/135184798337290
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337290
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:3:p:257-278
Template-Type: ReDIF-Article 1.0
Author-Name: J. B. Coates
Author-X-Name-First: J. B.
Author-X-Name-Last: Coates
Author-Name: E. W. Davis
Author-X-Name-First: E. W.
Author-X-Name-Last: Davis
Author-Name: P. A. Golder
Author-X-Name-First: P. A.
Author-X-Name-Last: Golder
Title: Comparisons of dividend per share behaviour of large UK and German companies over the period 1980-1995: preliminary findings
Abstract:
Following comments made in a House of Commons Trade and Industry
Committee Report in 1994, this paper considers the dividend behaviour of
46 large UK and 44 large German quoted companies over the period
1980-1995. The analysis is principally based on comparison of the
constancy, or otherwise, of dividends per share relative to profit before
non-recurring items (PBNRI). Where possible, contingency tests have been
applied to test the hypothesis that there is no difference between UK and
German companies in their dividends per share response to identified
changes in PBNRI. While interesting, statistically significant differences
are found with respect to the basic situation of dividend behaviour linked
to profit of the current or immediately preceding year, and the general,
provisional, conclusion does not support the view that the two countries'
dividend behaviour is that strikingly different. The relationship between
dividends per share (DPS) and dividend cover was also examined with
similar results. Differences in the two nations corporate dividend
behaviour are subsequently discussed by reference to comparisons of tax
and institutional shareholding characteristics.
Journal: The European Journal of Finance
Pages: 279-290
Issue: 3
Volume: 4
Year: 1998
Keywords: Dividend Policies Of British German Quoted Companies,
X-DOI: 10.1080/135184798337308
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337308
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:3:p:279-290
Template-Type: ReDIF-Article 1.0
Author-Name: Martin Conyon
Author-X-Name-First: Martin
Author-X-Name-Last: Conyon
Author-Name: Simon Peck
Author-X-Name-First: Simon
Author-X-Name-Last: Peck
Title: Board size and corporate performance: evidence from European countries
Abstract:
This paper examines the effects of board size on corporate performance
across a number of European economies. Agency models suggest that large
boards may destroy corporate value. Our fixed effects econometric evidence
demonstrates that the effect of board size on corporate performance is
generally negative. A negative effect is isolated for all five European
countries in question when performance is measured as return on equity;
this inverse relationship is more difficult to isolate using market-based
measures of performance.
Journal: The European Journal of Finance
Pages: 291-304
Issue: 3
Volume: 4
Year: 1998
Keywords: Corporate Governance Boards Of Directors Corporate Performance,
X-DOI: 10.1080/135184798337317
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337317
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:3:p:291-304
Template-Type: ReDIF-Article 1.0
Author-Name: Ian Davidson
Author-X-Name-First: Ian
Author-X-Name-Last: Davidson
Author-Name: Chris Mallin
Author-X-Name-First: Chris
Author-X-Name-Last: Mallin
Title: The influence of earnings per share on capital issues: some evidence from UK companies
Abstract:
This paper investigates the simple hypothesis that when companies issue
more capital, they have a tendency to select the type of capital, all
other things being equal, which results in the higher short-term earnings
per share (eps). The methodology employs probit analysis to test the
hypothesis that the form of issue selected was that which gave the higher
eps after controlling for other factors such as leverage and industry
classification. The results lead us to conclude that there is evidence in
capital issues of functional fixation on eps.
Journal: The European Journal of Finance
Pages: 305-309
Issue: 3
Volume: 4
Year: 1998
Keywords: Earnings Per Share Functional Fixation Capital Issues,
X-DOI: 10.1080/135184798337326
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337326
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:3:p:305-309
Template-Type: ReDIF-Article 1.0
Author-Name: P. Lequeux
Author-X-Name-First: P.
Author-X-Name-Last: Lequeux
Author-Name: E. Acar
Author-X-Name-First: E.
Author-X-Name-Last: Acar
Title: A dynamic index for managed currencies funds using CME currency contracts
Abstract:
The goal of this paper is to equip the investor with the tools and
understanding necessary to evaluate managed currencies' investments in a
meaningful way. It is shown that managed currency funds might exhibit a
common factor because most of the trading managers use similar technical
forecasts to trigger their positions in the financial markets. Therefore,
a dynamic benchmark is built, based on technical trading rules. Using the
stochastic properties of trading rules, three simple moving averages are
selected and given equal weight. Then the basket of trading rules is
applied to a set of currencies. The weighting between currencies is done
according to volumes traded on the OTC market as observed through Reuters
2000. Such a dynamic benchmark when adjusted for the leverage and
risk-free factors exhibits similar performances, namely returns and
volatility, to currency traders' benchmarks. The degree of correlation is
high and the tracking error is low. These results might have several
implications for institutions wishing to consider managed currency funds.
First, the dynamic index might be used as a test of market inefficiencies.
Second, the technical index might be used as a benchmark for currency
trading advisers. As a whole, it can be seen that managed currencies have
been trend-followers because the correlation coefficient between the
dynamic index and the currency managers is significantly positive. The
dynamic index might well be used to distinguish trend-followers from
contrarian and judgemental fund. Finally, the dynamic index might be used
as a tool to fulfil market expectations. On the one hand, an investor
anticipating trending markets might wish to buy the dynamic index. On the
other hand, an investor forecasting range-trading markets might wish to
sell the index. In sum, the dynamic index might constitute a new financial
product, as well as an appropriate benchmark for managed currencies funds.
Journal: The European Journal of Finance
Pages: 311-330
Issue: 4
Volume: 4
Year: 1998
Keywords: Benchmark;Currencies;Trend;Trading ;Rules,
X-DOI: 10.1080/135184798337209
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337209
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:4:p:311-330
Template-Type: ReDIF-Article 1.0
Author-Name: Amado Peiro
Author-X-Name-First: Amado
Author-X-Name-Last: Peiro
Author-Name: Javier Quesada
Author-X-Name-First: Javier
Author-X-Name-Last: Quesada
Author-Name: Ezequiel Uriel
Author-X-Name-First: Ezequiel
Author-X-Name-Last: Uriel
Title: Transmission of movements in stock markets
Abstract:
The paper analyses the relationships between three stock markets: New
York, Tokyo and Frankfurt. The non-simultaneity of the trading times in
these three markets determines the results of cross-correlations and
regressions with daily returns. To cope with this and other problems, an
empirical model is proposed and estimated. This model allows the
separation of the ability to influence and the sensitivity of the
different markets, and New York is found to be the most influential
market, with Tokyo the most sensitive.
Journal: The European Journal of Finance
Pages: 331-343
Issue: 4
Volume: 4
Year: 1998
Keywords: International, Linkages, Stock, Markets, Transmission, Of, Movements,
X-DOI: 10.1080/135184798337218
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337218
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:4:p:331-343
Template-Type: ReDIF-Article 1.0
Author-Name: G. Lypny
Author-X-Name-First: G.
Author-X-Name-Last: Lypny
Author-Name: M. Powalla
Author-X-Name-First: M.
Author-X-Name-Last: Powalla
Title: The hedging effectiveness of DAX futures
Abstract:
Dynamic futures hedging strategies have been shown to be effective in a
number of markets, but the gain in risk reduction over simple, constant
hedges varies. This paper examines the hedging effectiveness of German
stock index DAX futures and shows that the application of a dynamic
hedging strategy based on a GARCH(1,1) covariance structure, combined with
an error correction of the mean returns, yields economically significant
in- and out-of-sample improvements in welfare over a simple constant hedge
and over a dynamic hedge with the error correction but without the
GARCH(1,1) covariance structure. A nonparametric test of the model's
forecasts shows that it is able to predict both portfolio returns and
investor utility significantly better than the simpler alternative models
considered.
Journal: The European Journal of Finance
Pages: 345-355
Issue: 4
Volume: 4
Year: 1998
Keywords: Hedging, Stock, Index, Futures, Garch, Models, Dynamic, Hedging,
X-DOI: 10.1080/135184798337227
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337227
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:4:p:345-355
Template-Type: ReDIF-Article 1.0
Author-Name: Carole Corby
Author-X-Name-First: Carole
Author-X-Name-Last: Corby
Author-Name: Mark Hoven Stohs
Author-X-Name-First: Mark Hoven
Author-X-Name-Last: Stohs
Title: Investment opportunities and Irish equity offerings
Abstract:
Numerous empirical studies confirm that the stock market reacts
negatively to the announcement of an equity issue. Yet some seasoned
offerings occasion a positive market response. Studies investigating the
differentiation of positive from negative responses should contribute to
our understanding of both market and firm behaviour. In addition, few
studies to date have examined market responses in other institutional
and/or geographical settings. A sample of 95 open offerings by Irish firms
between 1987 and 1994 is investigated and, surprisingly, a neutral market
response is discovered. The hypothesis that a positive market response is
due to a firm's growth opportunities is tested. The intuition underlying
this growth opportunity hypothesis is that investors perceive the
potential gain in growth opportunities and willingly fund such
investments. The Irish evidence supports this hypothesis. It is
conjectured that the lack of a long-term debt market in Ireland may
explain these results.
Journal: The European Journal of Finance
Pages: 357-367
Issue: 4
Volume: 4
Year: 1998
Keywords: Stock, Offerings, Event, Studies, Investment, Opportunities, International, Investments, Irish, Stock, Returns,
X-DOI: 10.1080/135184798337236
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184798337236
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:4:y:1998:i:4:p:357-367
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Editorial
Abstract:
Journal: The European Journal of Finance
Pages: 1-1
Issue: 1
Volume: 5
Year: 1999
X-DOI: 10.1080/135184799337154
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337154
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:1:p:1-1
Template-Type: ReDIF-Article 1.0
Author-Name: Istemi. Demirag
Author-X-Name-First: Istemi.
Author-X-Name-Last: Demirag
Author-Name: Cristina De Fuentes
Author-X-Name-First: Cristina
Author-X-Name-Last: De Fuentes
Title: Exchange rate fluctuations and management control in UK-based MNCs: an examination of the theory and practice
Abstract:
This paper explores how UK MNCs assess their foreign subsidiary operating
managers' performance in parent company currency terms using operating
budgets. It shows how managers' performance evlauation systems may become
dysfunctional if the management of currency risk is centralized at the
parent company headquarters and the impact of these centralized currency
risk decisions on operating performance is subsequently ignored when
foreign operating managers are evaluated. The results of the study
indicate that the practices of UK MNCs in general have not improved since
the early 1980s and there seems to remain a significant gap between theory
and practice in this area. However, there is evidence to suggest that UK
MNCs, as their US counterparts, are becoming more interested in
identifying the impact of exchange rate changes on their foreign
subsidiary operations.
Journal: The European Journal of Finance
Pages: 3-28
Issue: 1
Volume: 5
Year: 1999
Keywords: Foreign Currency, Operating Exposure, Operating Budgets, Performance Evaluations, Control,
X-DOI: 10.1080/135184799337163
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337163
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:1:p:3-28
Template-Type: ReDIF-Article 1.0
Author-Name: J. P. Krahnen
Author-X-Name-First: J. P.
Author-X-Name-Last: Krahnen
Author-Name: C. Rieck
Author-X-Name-First: C.
Author-X-Name-Last: Rieck
Author-Name: E. Theissen
Author-X-Name-First: E.
Author-X-Name-Last: Theissen
Title: Insider trading and portfolio structure in experimental asset markets with a long-lived asset
Abstract:
Results are reported of a series of nine market experiments with
asymmetric information and a fundamental value process that is more
'realistic' than those in previous experiments. Both a call market
institution and a continuous double auction mechanism are employed.
Considerable pricing inefficiencies that are only partially exploited by
insiders were found. The magnitude of insider gains is analysed separately
for each experiment. Support is found for the hypothesis that the
continuous double auction leads to more efficient outcomes. Finally,
evidence of an endowment effect is presented: the initial portfolio
structure influences the final asset holdings of experimental subjects.
Journal: The European Journal of Finance
Pages: 29-50
Issue: 1
Volume: 5
Year: 1999
Keywords: Experimental Asset Markets, Market Efficiency, Market Institutions, Endowment Effect,
X-DOI: 10.1080/135184799337172
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337172
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:1:p:29-50
Template-Type: ReDIF-Article 1.0
Author-Name: G. G. Booth
Author-X-Name-First: G. G.
Author-X-Name-Last: Booth
Author-Name: P. Iversen
Author-X-Name-First: P.
Author-X-Name-Last: Iversen
Author-Name: S. K. Sarkar
Author-X-Name-First: S. K.
Author-X-Name-Last: Sarkar
Author-Name: H. Schmidt
Author-X-Name-First: H.
Author-X-Name-Last: Schmidt
Author-Name: A. Young
Author-X-Name-First: A.
Author-X-Name-Last: Young
Title: Market structure and bid-ask spreads: IBIS vs Nasdaq
Abstract:
A comparison is made between the bid-ask spreads of 30 high volume German
stocks traded on IBIS and 30 high volume US stocks traded on Nasdaq. IBIS
and Nasdaq are best described as agency and dealer auction markets,
respectively. On average, the market spread for these IBIS and Nasdaq
stocks is the same, but for the 10 most active stocks in each market, IBIS
spreads are considerably lower. For these latter stocks, IBIS spreads
change in a predictable manner throughout the day. Nasdaq spreads do not.
The critical factor appears to be the unrestricted access of suppliers of
immediacy that is distinctive for agency auction markets.
Journal: The European Journal of Finance
Pages: 51-71
Issue: 1
Volume: 5
Year: 1999
Keywords: Bid-ask Spreads, Germany, Nasdaq,
X-DOI: 10.1080/135184799337181
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337181
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:1:p:51-71
Template-Type: ReDIF-Article 1.0
Author-Name: Owain Ap Gwilym
Author-X-Name-First: Owain Ap
Author-X-Name-Last: Gwilym
Author-Name: Mike Buckle
Author-X-Name-First: Mike
Author-X-Name-Last: Buckle
Title: Volatility forecasting in the framework of the option expiry cycle
Abstract:
The paper presents new UK evidence on the relative predictive performance
of several implied and historical volatilities. The Datastream combination
of historical and implied volatilities is also tested empirically for the
first time. Daily observations are used to increase the power of the
tests, and particular attention is paid to forecasting over the life of
options. A further contribution of the paper is to examine relative
accuracy for several different horizons, and matching the amount of past
data to the forecast horizon is found to be effective when forecasting
over longer horizons. Historical volatility estimators are found to have
greater forecast accuracy than implied volatilities. Although implied
volatility is a biased estimator of realized volatility, regression tests
show that it contains more information than historical volatility. Also, a
simple trading rule using historical volatility estimators is unable to
exploit the forecast improvements since it fails to earn abnormal profits
after transactions costs.
Journal: The European Journal of Finance
Pages: 73-94
Issue: 1
Volume: 5
Year: 1999
Keywords: Volatility, Forecasting, Index Options,
X-DOI: 10.1080/135184799337190
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337190
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:1:p:73-94
Template-Type: ReDIF-Article 1.0
Author-Name: M. Chesney
Author-X-Name-First: M.
Author-X-Name-Last: Chesney
Author-Name: R. Gibson-Asner
Author-X-Name-First: R.
Author-X-Name-Last: Gibson-Asner
Title: The investment policy and the pricing of equity in a levered firm: a re-examination of the 'contingent claims' valuation approach
Abstract:
In this study we re-examine the pricing of equity and the risk incentives
of shareholders in levered firms. We derive a down-and-out call equity
valuation model which rests on the assumption that shareholders choose the
optimal investment and asset returns' volatility as a function of current
leverage. Contrarily to the Black and Scholes framework where,
irrespective of the firm's leverage, they would always select infinite
volatility projects, here the more deep out-of-the-money the shareholders'
claim, the greater their incentives to select riskier investment projects.
The model is thus consistent with and quantifies the asset substitution
problem previously acknowledged by the agency literature.
Journal: The European Journal of Finance
Pages: 95-107
Issue: 2
Volume: 5
Year: 1999
Keywords: Agency Problems, Asset Substitution, Contingent Claim, Down-and-out Call Option, Capital Structure, Leverage, Risk Incentives,
X-DOI: 10.1080/135184799337118
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337118
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:2:p:95-107
Template-Type: ReDIF-Article 1.0
Author-Name: K. Nyholm
Author-X-Name-First: K.
Author-X-Name-Last: Nyholm
Title: Estimation of the effective bid-ask spread on high frequency Danish bond data
Abstract:
In this paper the effective bid-ask spread is estimated using 12 high
frequency Danish bond samples. A clear-cut MA(1)-model for the mean of the
return series, and a GARCH(1,1)-model for the variance, are found.
Basically, Roll's model is used, but three different methods of
calculating the first-order autocovariance are suggested. Each of these in
turn produces three possible ways of estimating the effective bid-ask
spread. First, Roll's original autocovariance estimate is used. Second,
the autocovariance is calculating using the parameters of an estimated
MA(1) model. Third, the autocovariance is obtained from the parameters of
a joint MA(1)-GARCH(1,1) model. By means of bootstrapping the standard
error of the bid-ask spread estimates are found. It is shown that the gain
in efficiency, measured by the relative difference in the standard error
of the estimates, is 29% when going from method one to method two, but
only 1% when going from method two to method three. These results indicate
that the extra gain in efficiency obtained by taking account of the MA(1)
structure of the data is noteworthy, but the gain when incorporating the
GARCH-effects is negligible.
Journal: The European Journal of Finance
Pages: 109-122
Issue: 2
Volume: 5
Year: 1999
Keywords: Effective Spread Estimation, Time Series Models,
X-DOI: 10.1080/135184799337127
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337127
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:2:p:109-122
Template-Type: ReDIF-Article 1.0
Author-Name: A. Abhyankar
Author-X-Name-First: A.
Author-X-Name-Last: Abhyankar
Author-Name: L. S. Copeland
Author-X-Name-First: L. S.
Author-X-Name-Last: Copeland
Author-Name: W. Wong
Author-X-Name-First: W.
Author-X-Name-Last: Wong
Title: LIFFE cycles: intraday evidence from the FTSE-100 Stock Index futures market
Abstract:
We use a data set consisting of a complete history of all transactions
and quotes to examine intraday patterns in trading volume, volatility and
the quoted bid-ask spread in the market for FTSE-100 index futures. We
document a number of regularities in the pattern of daily returns and
volatility of the cash index. We also document intraday patterns in the
basis, i.e. the contemporaneous difference between the futures price and
the underlying cash index level. In general, we find returns vary over the
day, reflecting in particular the influence of the US market openings in
early afternoon London-time. We find that, while both volume and
volatility exhibit a U-shaped pattern over the day, movements in the
spread tend if anything to follow the opposite pattern. As far as
consistency with microstructure models is concerned, our results are more
supportive of the Brock and Kleidon model than the Admati and Pfleiderer
model.
Journal: The European Journal of Finance
Pages: 123-139
Issue: 2
Volume: 5
Year: 1999
Keywords: Trading Volume, Bid-ask Spread, Stock Index, Futures, Volatility, Liffe,
X-DOI: 10.1080/135184799337136
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337136
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:2:p:123-139
Template-Type: ReDIF-Article 1.0
Author-Name: Kenneth Mcclure
Author-X-Name-First: Kenneth
Author-X-Name-Last: Mcclure
Author-Name: Ronnie Clayton
Author-X-Name-First: Ronnie
Author-X-Name-Last: Clayton
Author-Name: Richard Hofler
Author-X-Name-First: Richard
Author-X-Name-Last: Hofler
Title: International capital structure differences among the G7 nations: a current empirical view
Abstract:
Historical research domestically and internationally suggests that
differences in capital structures exist for industry classification, firm
size and nationality. However, the data for most of these previous studies
are based on book values, include a limited number of countries, are not
up-to-date, and specifically do not cover the period of the late 1980s
when there were important developments in the globalization of financial
markets. In addition, no single study specifically compares all seven of
the world's major industrial nations (G7 Nations). Financial theory would
suggest that in an efficient global market the capital structure of
identical firms in different nations would be the same. If international
market imperfections still exist through the 1980s, current capital
structures and costs may be different among similar firms in different
nations; and business advantages (or disadvantages) may provide profits
(or costs) to firms incorporated in different countries. The intent of
this research is empirically to update the literature with recent
international data on both a book value and market value basis and to
include for the first time in a single study all the G7 Nations. The
results suggest significant financial structure differences still exist
among the G7 countries. Specifically, on a market value basis France,
Italy and Germany tend to use a higher proportion of total debt, US, UK,
Canada and Japan tend to use less debt, and France, Italy and Canada tend
to use a higher proportion of institutional debt (non-spontaneous funds)
than the US, UK, Japan and Germany.
Journal: The European Journal of Finance
Pages: 141-164
Issue: 2
Volume: 5
Year: 1999
Keywords: International Finance, Capital Structure, Corporate Finance,
X-DOI: 10.1080/135184799337145
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337145
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:2:p:141-164
Template-Type: ReDIF-Article 1.0
Author-Name: Adrian Buckley
Author-X-Name-First: Adrian
Author-X-Name-Last: Buckley
Title: An introduction to security returns
Abstract:
The equity premium - the difference between the return achievable from
investment in the equity market (RM) and the risk-free rate of return
(RF)- plays an important part in corporate finance. The expression equity
premium (sometimes referred to as the equity risk premium) is used to
denote the ex ante expectation of investors. The term excess return refers
to the ex post achievement of stock returns over and above the risk-free
return. If we compare US and UK returns, we find that total returns, real
returns and the value of (RM - RF) are all marginally higher for the UK.
Summarized evidence appears in Table 1 and Table 6. Such greater returns
may be due to an increased risk premium related to increasing unexpected
inflation. Particularly important in estimating the equity risk premium is
whether excess returns are measured using a geometric or an arithmetic
mean return. To a significant extent, this question revolves around mean
reversion in stock returns. Evidence of mean reversion is substantial,
although it cannot be proved unequivocally. Given the weight of evidence
of mean reversion, there may be a strong case for the use of a geometric
mean with an equity premium of between 3% and 5% - or even less.
Journal: The European Journal of Finance
Pages: 165-180
Issue: 3
Volume: 5
Year: 1999
Keywords: Equity Premium, Equity Risk Premium, Excess Return, Geometric Mean, Arithmetic Mean, Mean Reversion,
X-DOI: 10.1080/135184799337019
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337019
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:165-180
Template-Type: ReDIF-Article 1.0
Author-Name: G. G. Booth
Author-X-Name-First: G. G.
Author-X-Name-Last: Booth
Author-Name: T. Martikainen
Author-X-Name-First: T.
Author-X-Name-Last: Martikainen
Title: Excess returns and international diversification: The Scandinavian view
Abstract:
The paper discusses excess returns within four Scandinavian stock markets
and also how Scandinavian returns are related to the returns in
non-Scandinavian markets. Some underlying reasons for the observed
economically weak relationships between markets are reviewed. Moreover,
some reasons why the interrelationships between markets can be expected to
increase in the future are provided.
Journal: The European Journal of Finance
Pages: 181-185
Issue: 3
Volume: 5
Year: 1999
Keywords: Diversification, Scandanavia,
X-DOI: 10.1080/135184799337028
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337028
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:181-185
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Bessler
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Bessler
Title: Equity returns, bond returns, and the equity premium in the German capital market
Abstract:
This article reviews the empirical evidence for equity returns, bond
returns, and the equity premium in the German capital market for the
period from 1870 to 1995. Taken together, the studies reviewed provide
convincing evidence that over longer investment periods, average equity
returns have been higher than average bond returns. These excess returns,
however, have been highly volatile and negative in many years,
illustrating the higher risk of equity investments. Moreover, market
timing had a major positive or negative impact on overall returns. Despite
the historical evidence of a substantial equity premium there is still
little equity investment by German households.
Journal: The European Journal of Finance
Pages: 186-201
Issue: 3
Volume: 5
Year: 1999
Keywords: Equity Premium, German Capital Market, Stock Returns, Bond Returns,
X-DOI: 10.1080/135184799337037
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337037
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:186-201
Template-Type: ReDIF-Article 1.0
Author-Name: Dusan Isakov
Author-X-Name-First: Dusan
Author-X-Name-Last: Isakov
Title: Is beta still alive? Conclusive evidence from the Swiss stock market
Abstract:
Recent evidence from Fama and French (1992, 1996) and others shows that
betas and returns are not related empirically. They interpret this as
evidence against the validity of the capital asset pricing model and
conclude that the beta is not a good measure of risk. This paper claims
that usual tests do not leave much opportunity for beta to appear as a
useful variable capable of explaining returns, because tests are often
performed in periods where the average realized market excess return is
not significantly different from zero. In order to assess the usefulness
of beta, an alternative approach that dissociates results obtained in
periods where the realized market excess is positive from those where it
is negative is proposed. These new tests are then applied to a
representative sample of the Swiss stock market over the period 1983-1991.
The different results unambiguously support the fact that beta is a good
measure of risk, because beta is strongly related to the cross-section of
realized returns. These results also confirm that there are no arbitrage
opportunities on this market.
Journal: The European Journal of Finance
Pages: 202-212
Issue: 3
Volume: 5
Year: 1999
Keywords: Capital Asset Pricing Model, Risk, Stock Market,
X-DOI: 10.1080/135184799337046
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337046
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:202-212
Template-Type: ReDIF-Article 1.0
Author-Name: C. J. Adcock
Author-X-Name-First: C. J.
Author-X-Name-Last: Adcock
Author-Name: E. A. Clark
Author-X-Name-First: E. A.
Author-X-Name-Last: Clark
Title: Beta lives - some statistical perspectives on the capital asset pricing model
Abstract:
This note summarizes some technical issues relevant to the use of the
idea of excess return in empirical modelling. We cover the case where the
aim is to construct a measure of expected return on an asset and a model
of the CAPM type is used. We review some of the problems and show examples
where the basic CAPM may be used to develop other results which relate the
expected returns on assets both to the expected return on the market and
other factors.
Journal: The European Journal of Finance
Pages: 213-224
Issue: 3
Volume: 5
Year: 1999
Keywords: Arbitrage Pricing Theory, Arch Models, Beta, Capital Asset Pricing Model, Conditional Distributions, Multi-factor Models, Non-central Chi-squared,
X-DOI: 10.1080/135184799337055
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337055
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:213-224
Template-Type: ReDIF-Article 1.0
Author-Name: G. P. Diacogiannis
Author-X-Name-First: G. P.
Author-X-Name-Last: Diacogiannis
Title: A three-dimensional risk-return relationship based upon the inefficiency of a portfolio: derivation and implications
Abstract:
This paper derives a three-dimensional risk-return relationship employing
a set of risky securities and a portfolio that is located inside the
minimum-variance boundary of these securities. More specifically, it is
proved that the inefficiency of a portfolio that has an expected return
greater than the expected return of the global minimum variance portfolio,
is a necessary and sufficient condition for expressing the expected return
on any security under consideration as an exact linear function of its
relative risk in that portfolio and an additional risk associated with
moving inside the boundary portfolio set. Then two implications of the
theoretical results are discussed, one related to the cost of equity
capital and another related to past tests of the capital asset pricing
model.
Journal: The European Journal of Finance
Pages: 225-235
Issue: 3
Volume: 5
Year: 1999
Keywords: Risk-return Relationship, Inefficient Index, Cost Of Equity Capital,
X-DOI: 10.1080/135184799337064
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337064
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:225-235
Template-Type: ReDIF-Article 1.0
Author-Name: M. C. Freeman
Author-X-Name-First: M. C.
Author-X-Name-Last: Freeman
Author-Name: I. R. Davidson
Author-X-Name-First: I. R.
Author-X-Name-Last: Davidson
Title: Estimating the equity premium
Abstract:
Accurate estimation of the equity premium (the expected difference
between the returns to a well-diversified stock market portfolio and a
riskfree asset) is of central importance in many applications of finance
theory including project appraisal and portfolio selection. The standard
approach is to take the average observed excess returns to the market over
some recent time period (sometimes referred to as the ex post equity
premium) and apply this as an unbiased estimate of the ex ante equity
premium. The paper reviews the problems associated with such an approach
and contrasts it with alternative theoretical techniques.
Journal: The European Journal of Finance
Pages: 236-246
Issue: 3
Volume: 5
Year: 1999
Keywords: Equity Premium Puzzle, Riskfree Rate Puzzle, Capm, Portfolio Theory,
X-DOI: 10.1080/135184799337073
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337073
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:236-246
Template-Type: ReDIF-Article 1.0
Author-Name: Alan Clements
Author-X-Name-First: Alan
Author-X-Name-Last: Clements
Title: The cost of capital- the practitioners view
Abstract:
To many practitioners, serious doubts exist about various aspects of the
application of CAPM to the investment decision. This is especially so with
respect to the cost of equity, where varying possible specifications of
beta due to different observation periods leave many unconvinced. Is the
beta a satisfactory measure of risk? And is it correct that only market
risk matters? The practitioner is sceptical on these points and equally so
of the plethora of advice received on the magnitude of the equity premium.
With respect to financing, the thoughtful practitioner finds it
disappointing that estimates of the cost of capital are little used in
developing the company's funding strategy - including dividend policy. The
pecking order hypothesis leaves us with no optimal capital structure. It
merely tells us the way firms typically behave. Thinking practitioners
continue to await the fully comprehensive theory of corporate finance that
is wholly applicable in solving their problems. Maybe practitioners have
to work harder at understanding, selling and applying the more intricate
teachings of modern corporate finance but their patience is often tried by
unworldly and conflicting prescriptions.
Journal: The European Journal of Finance
Pages: 247-255
Issue: 3
Volume: 5
Year: 1999
Keywords: Investment, Financing, Theory, Practitioner,
X-DOI: 10.1080/135184799337082
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337082
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:247-255
Template-Type: ReDIF-Article 1.0
Author-Name: Herbert Rijken
Author-X-Name-First: Herbert
Author-X-Name-Last: Rijken
Author-Name: Menno Booij
Author-X-Name-First: Menno
Author-X-Name-Last: Booij
Author-Name: Adrian Buckley
Author-X-Name-First: Adrian
Author-X-Name-Last: Buckley
Title: Valuation differences between quoted and unquoted companies- empirical evidence from the UK
Abstract:
This paper focuses upon differences in the valuation of UK quoted and
unquoted companies. It draws on empirical evidence over the period from
1991 to 1997. It commences with an overview of the published literature.
This suggests a broad spectrum of valuation statistics ranging from very
minor discounts for non-listed companies relative to their quoted
brethren, up to a discount as high as 40%. The empirical analysis uses PE
ratios, derived from the publication Acquisitions Monthly, in respect of
non-listed, private companies selling out in takeover deals. These are
compared with average PE ratios for quoted companies in Britain. A raw
statistic of approximately 40% was found as the discount for non-listed
firms relative to quoted companies. However, this is dramatically
different when corrected for size. For size varying from less than GBP 0.5
million to about GBP 55 million, the discount ranges, respectively, from
16% to 6% with an average of around 10%. Regression equations relating
size and PE ratio are presented.
Journal: The European Journal of Finance
Pages: 256-275
Issue: 3
Volume: 5
Year: 1999
Keywords: Valuation, Quoted Companies, Non-quoted Companies, Discount, Pe Ratios,
X-DOI: 10.1080/135184799337091
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337091
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:256-275
Template-Type: ReDIF-Article 1.0
Author-Name: Hans Eijgenhuijsen
Author-X-Name-First: Hans
Author-X-Name-Last: Eijgenhuijsen
Author-Name: Adrian Buckley
Author-X-Name-First: Adrian
Author-X-Name-Last: Buckley
Title: An overview of returns in Europe
Abstract:
This paper is an attempt to present a digest of European security
returns. In this respect, Table 7 summarizes key data over recent years.
The table presents information for the period 1967 to 1990. By and large,
within Europe, equity returns appear to be very similar. To the extent
that if differences exist, they can probably be attributed to too short a
period for utterly unambiguous data on returns to be achieved. But there
may be another explanation which relates to an international capital asset
pricing model and the sinews of this topic are explored towards the end of
the paper. Data are presented which compare and contrast the part played
by equity markets in the structure of corporate financing in Europe. These
show the contrasting cult of the equity share, with its high emphasis in
Britain and much lower role in Germany and France, for example. Other
statistics reveal differing share ownership structures and pension fund
portfolio distributions in European countries. That the topic of realized
European security returns requires further research is obviously the case.
It is hoped that this paper — and others in this issue —
will stimulate a desire to undertake the necessary investigations.
Journal: The European Journal of Finance
Pages: 276-297
Issue: 3
Volume: 5
Year: 1999
Keywords: European Security Returns, Equity Markets, Share Ownership, International, Capital Asset Pricing Model,
X-DOI: 10.1080/135184799337109
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337109
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:3:p:276-297
Template-Type: ReDIF-Article 1.0
Author-Name: Atreya Chakraborty
Author-X-Name-First: Atreya
Author-X-Name-Last: Chakraborty
Author-Name: John Barkoulas
Author-X-Name-First: John
Author-X-Name-Last: Barkoulas
Title: Dynamic futures hedging in currency markets
Abstract:
The hedging effectiveness of dynamic strategies is compared with static
(traditional) ones using futures contracts for the five leading
currencies. The traditional hedging model assumes time invariance in the
joint distribution of spot and futures price changes thus leading to a
constant optimal hedge ratio (OHR). However, if this time-invariance
assumption is violated, time-varying OHRs are appropriate for hedging
purposes. A bivariate GARCH model is employed to estimate the joint
distribution of spot and futures currency returns and the sequence of
dynamic (time-varying) OHRs is constructed based upon the estimated
parameters of the conditional covariance matrix. The empirical evidence
strongly supports time-varying OHRs but the dynamic model provides
superior out-of-sample hedging performance, compared to the static model,
only for the Canadian dollar.
Journal: The European Journal of Finance
Pages: 299-314
Issue: 4
Volume: 5
Year: 1999
Keywords: Dynamic Hedging, Optimal Hedge Ratio, Bivariate Garch Model, Currency Futures,
X-DOI: 10.1080/135184799336975
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799336975
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:4:p:299-314
Template-Type: ReDIF-Article 1.0
Author-Name: J. Cable
Author-X-Name-First: J.
Author-X-Name-Last: Cable
Author-Name: K. Holland
Author-X-Name-First: K.
Author-X-Name-Last: Holland
Title: Modelling normal returns in event studies: a model-selection approach and pilot study
Abstract:
The choice of model of normal returns in event studies has been widely
discussed in the literature. While researchers frequently continue to use
an array of alternatives, there is currently some tendency to favour
cruder but simpler mean- or market-adjusted returns models. This paper
presents a general-to-specific model selection framework for testing the
data admissibility of the principal models in current use. Results from a
pilot study indicate a strong preliminary preference in favour of the
regression-based models, with the market model generally outperforming the
capital asset pricing model.
Journal: The European Journal of Finance
Pages: 331-341
Issue: 4
Volume: 5
Year: 1999
Keywords: Abnormal Returns, Event Studies,
X-DOI: 10.1080/135184799336993
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799336993
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:4:p:331-341
Template-Type: ReDIF-Article 1.0
Author-Name: Maria Do Ceu Ribeiro Cortez
Author-X-Name-First: Maria Do Ceu Ribeiro
Author-X-Name-Last: Cortez
Author-Name: Dean Paxson
Author-X-Name-First: Dean
Author-X-Name-Last: Paxson
Author-Name: Manuel Jose Da Rocha Armada
Author-X-Name-First: Manuel Jose Da Rocha
Author-X-Name-Last: Armada
Title: Persistence in Portuguese mutual fund performance
Abstract:
Recent evidence suggests that future performance is predictable from past
performance, that is, funds with superior (inferior) performance in the
past are likely to remain good (bad) performers in the future. This
research addresses the persistence of mutual fund performance in a
European regional market (the Portuguese equity fund market). Some of the
problems in evaluating fund persistence are identified in the context of
limited sample size and using the peer group median as a benchmark for
contingency table analysis of performance persistence. The criteria for
assessing performance persistence based on the contingency table
methodology of repeated winners and losers are presented in terms of
significance statistics, adjusted for small sample bias. The adjustments
are accomplished through the Yates continuity correction and Fisher's
exact p-value. The appropriateness of each criteria under different
circumstances is also discussed. The analysis of the returns of all
Portuguese domestic equity funds, since a representative number was
established, shows some performance persistence (on a quarterly basis).
The persistence, however, is reduced when the returns are controlled for
the various dimensions of risk. Significant risk persistence has been
documented. Furthermore, for more or less frequent intervals of
measurement, the industry persistence is rejected, although individual
funds exhibit superior/inferior performance.
Journal: The European Journal of Finance
Pages: 342-365
Issue: 4
Volume: 5
Year: 1999
Keywords: Performance Persistence, Contingency Tables, Small Sample Bias,
X-DOI: 10.1080/135184799337000
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337000
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:5:y:1999:i:4:p:342-365
Template-Type: ReDIF-Article 1.0
Author-Name: J. Board
Author-X-Name-First: J.
Author-X-Name-Last: Board
Author-Name: C. Sutcliffe
Author-X-Name-First: C.
Author-X-Name-Last: Sutcliffe
Author-Name: E. Patrinos
Author-X-Name-First: E.
Author-X-Name-Last: Patrinos
Title: The performance of covered calls
Abstract:
Writing call options against long positions in the underlying equities is
the most popular options strategy. Since the variance is an inadequate
measure of risk for options strategies, this paper uses a range of
dominance criteria and four utility functions to compare the performance
of partly and fully covered call strategies with that of the underlying
equity portfolio. It is found that the dominance criteria are ineffective
in choosing between strategies. However, all four utility functions
(representing different combinations of absolute and relative risk
aversion) find that the covered call strategy is preferable for the data
period studied, supporting the widespread use of this strategy.
Journal: The European Journal of Finance
Pages: 1-17
Issue: 1
Volume: 6
Year: 2000
Keywords: Call Options, Covered Calls, Buy-writes, Overwrites,
X-DOI: 10.1080/135184700336937
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184700336937
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:1:p:1-17
Template-Type: ReDIF-Article 1.0
Author-Name: Babak Eftekhari
Author-X-Name-First: Babak
Author-X-Name-Last: Eftekhari
Author-Name: Christian Pedersen
Author-X-Name-First: Christian
Author-X-Name-Last: Pedersen
Author-Name: Stephen Satchell
Author-X-Name-First: Stephen
Author-X-Name-Last: Satchell
Title: On the volatility of measures of financial risk: an investigation using returns from European markets
Abstract:
The statistical properties of various measures of risk were investigated
with a view to explaining the reasons for lack of use in finance of risk
measures other than the variance, and to see if there is a sensible
measure to use for cross-European comparisons. As examples, the
semi-variance, the lower partial moment, the Gini, and the absolute
deviation were considered. A Monte Carlo study was conducted to study the
behaviour of these measures of risk. Bootstrap methods were used by
drawing random observations from real financial returns data, for the same
purpose. Specifically, the equity indices from the following stock markets
were used: Germany, United Kingdom, France, Italy, Holland and Belgium. It
is concluded that there is little reason to reject measures of risk other
than the variance based on a view that they are too volatile. Indeed the
evidence shows that whilst the standard deviation may be the appropriate
measure of risk for high volume markets (Germany, UK and France), it is
not the most reliable risk measurement (in terms of volatility) when
considering lower volume markets (Italy, Holland and Belgium). That is,
the more non-normal the returns, the more likely is the standard deviation
to be volatile compared to the Gini or the absolute deviation. Finally,
optimized portfolios were investigated using different risk measures and
substantial differences were found; this suggests these findings have
practical consequences.
Journal: The European Journal of Finance
Pages: 18-38
Issue: 1
Volume: 6
Year: 2000
Keywords: Absolute Deviation, Bootstrap, Gini, Lower Partial Moment, Measures Of Risk,
X-DOI: 10.1080/135184700336946
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184700336946
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:1:p:18-38
Template-Type: ReDIF-Article 1.0
Author-Name: Stephen Taylor
Author-X-Name-First: Stephen
Author-X-Name-Last: Taylor
Title: Stock index and price dynamics in the UK and the US: new evidence from a trading rule and statistical analysis
Abstract:
The predictability of long time series of stock index levels and stock
prices is investigated using both statistical and trading rule
methodologies. The trading rule analysis uses a double moving-average rule
and the methods of Brock, Lakonishok and LeBaron. Results are obtained for
the FTA, FTSE-100, DJIA and S&P-500 indices, prices for twelve UK stocks
and indices derived from these stock prices. Statistical analysis shows
that the index and price series are not random walks. The trading rule
analysis generally confirms this conclusion. However, small transaction
costs would eliminate the profitability of the moving-average rule.
Standard ARMA-ARCH models are estimated for time series of returns and
bootstrap methods are used to decide if the models can explain the
observed trading statistics. The models provide a reasonable description
but there is evidence from the trading rule methodology that standard
models sometimes fail to describe the dynamics of the indices and prices.
Several comparisons are made: between an index and the stock prices that
define the index, between spot levels and futures prices for indices, and
between UK and US indices.
Journal: The European Journal of Finance
Pages: 39-69
Issue: 1
Volume: 6
Year: 2000
Keywords: Stock Prices, Predictability, Trading Rules, Moving Averages, Random Walk Tests, Market Efficiency, Arch Models, Dow Jones Industrial Average, Financial Times Indices,
X-DOI: 10.1080/135184700336955
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184700336955
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:1:p:39-69
Template-Type: ReDIF-Article 1.0
Author-Name: Martin Scheicher
Author-X-Name-First: Martin
Author-X-Name-Last: Scheicher
Title: Time-varying risk in the German stock market
Abstract:
This paper compares two specifications of the Capital Asset Pricing Model
for a sample of German stocks. The specifications generate time-varying
first and second moments by conditioning on past information. This
explicit modelling of the time series behaviour of risk allows us to
characterize the driving factors of variances and covariances of returns.
In addition to a variety of diagnostic tests we evaluate the validity of
the one-factor restriction in the CAPM. The main findings are that risk is
time dependent and very variable and also that more than one factor is
needed to fit the data set.
Journal: The European Journal of Finance
Pages: 70-91
Issue: 1
Volume: 6
Year: 2000
Keywords: Capital Asset Pricing Model Capm, Volatility Clustering, Garch,
X-DOI: 10.1080/135184700336964
File-URL: http://www.tandfonline.com/doi/abs/10.1080/135184700336964
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:1:p:70-91
Template-Type: ReDIF-Article 1.0
Author-Name: Arielle Beyaert
Author-X-Name-First: Arielle
Author-X-Name-Last: Beyaert
Author-Name: Juan rez-Castej
Author-X-Name-First: Juan
Author-X-Name-Last: rez-Castej
Title: Switching regime models in the Spanish inter-bank market
Abstract:
Nonlinear present value models are adjusted to data from the Spanish
inter-bank market between 1986 and 1992, with the ultimate objective of
testing the rational expectations hypothesis of the term structure of the
interest rates. The nonlinearity stems from using models with two
stochastically switching regimes. The models are submitted to various
specification tests and are compared with linear present value models.
Very clearly differentiated regimes are identified, the analysis of the
results in the light of the institutional, political and economic events
that affected the Spanish economy during the period of study demonstrates
the usefulness of this type of models. The expectation hypothesis is,
however, rejected.
Journal: The European Journal of Finance
Pages: 93-112
Issue: 2
Volume: 6
Year: 2000
Keywords: Interest Rates Term Structure Markov Process Switching Regimes Rational Expectations Nonlinearity,
X-DOI: 10.1080/13518470050020789
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020789
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:93-112
Template-Type: ReDIF-Article 1.0
Author-Name: Ramaprasad Bhar
Author-X-Name-First: Ramaprasad
Author-X-Name-Last: Bhar
Author-Name: Carl Chiarella
Author-X-Name-First: Carl
Author-X-Name-Last: Chiarella
Title: Expectations of monetary policy in Australia implied by the probability distribution of interest rate derivatives
Abstract:
The paper describes and compares different methods of extracting the
implied probability distribution of the underlying interest rate futures
from the prices of traded options on these futures as well as from past
futures prices. These methods are applied to short-term contracts on bank
accepted bills trading on the Sydney Futures Exchange. The information on
the distribution of the underlying asset thus obtained is very important
to the central bank authorities since this allows them to monitor market
expectations regarding future price movements. Alternatively market
reaction to central, bank monetary policy changes may be judged this way.
It is also important to practitioners for use in pricing over the counter
(OTC) or exotic products where the trading volume is not particularly
high. In that situation, the information on the distribution recovered
from highly traded products from the exchange may be used as
representative for the OTC products as well. As an empirical application,
the recovered information on distribution is analysed in the context of
reductions in interest rates in Australia by the Reserve Bank between July
1996 and May 1997.
Journal: The European Journal of Finance
Pages: 113-125
Issue: 2
Volume: 6
Year: 2000
Keywords: Traded Options Interest Rate Futures Implied Probability Distribution Market Expectations Over The Counter Products,
X-DOI: 10.1080/13518470050020798
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020798
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:113-125
Template-Type: ReDIF-Article 1.0
Author-Name: Monica Billio
Author-X-Name-First: Monica
Author-X-Name-Last: Billio
Author-Name: Domenico Sartore
Author-X-Name-First: Domenico
Author-X-Name-Last: Sartore
Author-Name: Carlo Toffano
Author-X-Name-First: Carlo
Author-X-Name-Last: Toffano
Title: Combining forecasts: some results on exchange and interest rates
Abstract:
The aim of this work is to investigate whether the combination of
forecasts plays an important role in the improvement of forecast accuracy
Particular attention is paid to: (a) the methods of forecasting (the
methods compared are neural networks, fuzzy logic, GARCH models, switching
regime and chaotic dynamics); (b) combining the forecasts provided by the
different methods. This work has also the aim of revising a short-term
econometric forecast using a longer-term forecast. The revision process
usually runs the opposite way (revision is made on a longer-term forecast
using a short-term one to reflect the current available information, but
it is not excluded that it is possible to proceed as described above.
Daily data from the financial market is used. Some empirical applications
on exchange and interest rates are given.
Journal: The European Journal of Finance
Pages: 126-145
Issue: 2
Volume: 6
Year: 2000
Keywords: Forecast Combination Composite Forecasts Forecast Comparison Exchange Rates Interest Rates,
X-DOI: 10.1080/13518470050020806
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020806
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:126-145
Template-Type: ReDIF-Article 1.0
Author-Name: Catherine Bruneau
Author-X-Name-First: Catherine
Author-X-Name-Last: Bruneau
Author-Name: Ch. Duval-Kieffer
Author-X-Name-First: Ch.
Author-X-Name-Last: Duval-Kieffer
Author-Name: J. P. Nicolai
Author-X-Name-First: J. P.
Author-X-Name-Last: Nicolai
Title: Managing funds in the US market: how to distinguish between transitory distortions and structural changes in the stock prices?
Abstract:
The paper reports estimates of a reliable fundamental value of the S&P
index, standing for a long run target value in Error-Correction Modelling
of the dynamics of subsequent returns. The Present Value Model suggests
two fundamentals: dividends and a discount rate factor, specified as a
risk free rate plus an ex ante risk premium, to capture structural breaks
in the expectations. The dates of the shifts are identified by estimating
recursively a cointegration relationship. Monte Carlo simulations are used
to compute appropriate statistics for stationarity tests. The predictive
performance of the Error-Correcting Model is then used to implement
winning portfolio-investment strategies.
Journal: The European Journal of Finance
Pages: 146-162
Issue: 2
Volume: 6
Year: 2000
Keywords: Long Run Target Cointegration Structural Change Asset Management,
X-DOI: 10.1080/13518470050020815
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020815
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:146-162
Template-Type: ReDIF-Article 1.0
Author-Name: Giampiero Gallo
Author-X-Name-First: Giampiero
Author-X-Name-Last: Gallo
Author-Name: Barbara Pacini
Author-X-Name-First: Barbara
Author-X-Name-Last: Pacini
Title: The effects of trading activity on market volatility
Abstract:
The paper re-examines the question of excessive implied persistence of
volatility estimates when GARCH type models are used. Ten actively traded
US stocks are considered and as already established in the literature,
when volume traded is inserted in the GARCH (1, 1) or (EGARCH 1, 1) models
for returns, the estimated persistence is decreased. Since volume is
affected also by within-the-day price movements and hence is not weakly
exogenous relative to returns, alternative proxies for trading activities
are suggested. It is concluded that the difference between the opening
price and the closing price of the previous day accounts also for most of
the persistence in the autoregressive conditional heteroskedasticity.
Journal: The European Journal of Finance
Pages: 163-175
Issue: 2
Volume: 6
Year: 2000
Keywords: Persistence Market Efficiency,
X-DOI: 10.1080/13518470050020824
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020824
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:163-175
Template-Type: ReDIF-Article 1.0
Author-Name: Melendres Howe
Author-X-Name-First: Melendres
Author-X-Name-Last: Howe
Title: Bayesian approach to yield curve modelling with application to the simulation of EMU environments: generating scenarios by modelling yield curve movements
Abstract:
A Bayesian approach to yield curve modelling is developed where
information on the current and recent yield curves is used to generate
yield curve scenarios, and a model is proposed that generates return
distribution for bonds. The predictive power of the model is developed by
comparing out-of-sample lagged realized yields with forecast yields, and
it is demonstrated that the returns generated by this scenario approach
and those generated using the standard time series approach are
consistent. The model is applied to pre-EMU and post-EMU environments.
This paper assesses the implications of different assumptions on the early
post-EMU environment for international bond portfolio selection, as well
as the immediate short-term effect of EMU on risk and return.
Journal: The European Journal of Finance
Pages: 176-195
Issue: 2
Volume: 6
Year: 2000
X-DOI: 10.1080/13518470050020833
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020833
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:176-195
Template-Type: ReDIF-Article 1.0
Author-Name: Bertrand Maillet
Author-X-Name-First: Bertrand
Author-X-Name-Last: Maillet
Author-Name: Thierry Michel
Author-X-Name-First: Thierry
Author-X-Name-Last: Michel
Title: Further insights on the puzzle of technical analysis profitability
Abstract:
This paper extends current results concerning technical analysis
efficiency on the foreign exchange market and attempts to determine
whether filtering the raw exchange rate series with some trading rule
significantly changes its characteristics. Because of the non-normality of
exchange rate series, bootstrap methods are used on the main daily
exchange rates since 1974 to show technical analysis performance. The
technical analysis strategy tested generates returns whose distribution is
significantly different from the basic series. The robustness of the
results is tested in and out-of-sample and an explanation of the technical
analysis performance based on its filtering properties is suggested.
Journal: The European Journal of Finance
Pages: 196-224
Issue: 2
Volume: 6
Year: 2000
Keywords: International Finance Technical Analysis Performance Market Foreign Exchange Financial Forecasting Efficient Market Hypothesis,
X-DOI: 10.1080/13518470050020842
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020842
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:196-224
Template-Type: ReDIF-Article 1.0
Author-Name: Ignacio Mauleon
Author-X-Name-First: Ignacio
Author-X-Name-Last: Mauleon
Author-Name: Javier Perote
Author-X-Name-First: Javier
Author-X-Name-Last: Perote
Title: Testing densities with financial data: an empirical comparison of the Edgeworth-Sargan density to the Student's t
Abstract:
The Edgeworth—Sargan density has been shown capable of capturing
salient empirical regularities of financial data in some studies. The main
purpose of the reported study is to compare its performance with other
densities, most notably to the Student t. Both densities can account for
thick tails, and asymmetry One important by product of the comparison is
to test the existence of moments. The comparison of densities is carried
out with daily financial observations, spanning 25 years of data from two
major world stock markets. Attention is paid to the fitting of other
empirical regularities, and especially to the peak, frequently found at
the middle of the densities.
Journal: The European Journal of Finance
Pages: 225-239
Issue: 2
Volume: 6
Year: 2000
Keywords: Densities Comparison Edgeworth-SARGAN Student T Distributions Financial Data Testing Moment Existence,
X-DOI: 10.1080/13518470050020851
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020851
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:225-239
Template-Type: ReDIF-Article 1.0
Author-Name: Matti Vir
Author-X-Name-First: Matti
Author-X-Name-Last: Vir
Title: Analysing long memory and asymmetries
Abstract:
The paper presents evidence on nonlinearities in Finnish financial time
series. The analysis concentrates on the so-called long-memory property
which is examined using, various alternative test procedures. This
analysis makes use of relatively long monthly Finnish time series which
cover the period 1922-1996. The results give some evidence on long memory
but one cannot say that the results would overwhelmingly support the
existence of long memory in Finnish time series. There are, however,
considerable differences between variables and the results are quite
sensitive in terms of the treatment of short memory which also applies to
different ways of prefiltering the data. Clearly more work is required to
obtain more affirmative results in this respect. One way, of doing that is
to apply asymmetric time models to find the source of nonlinearity. When
that is done with the Finnish data some weak evidence on asymmetry is
obtained.
Journal: The European Journal of Finance
Pages: 240-258
Issue: 2
Volume: 6
Year: 2000
Keywords: Long Memory Forecasting Nonlinear Models,
X-DOI: 10.1080/13518470050020860
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050020860
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:240-258
Template-Type: ReDIF-Article 1.0
Author-Name: Nigel Meade
Author-X-Name-First: Nigel
Author-X-Name-Last: Meade
Author-Name: Gerry Salkin
Author-X-Name-First: Gerry
Author-X-Name-Last: Salkin
Title: The selection of multinational equity portfolios: forecasting models and estimation risk
Abstract:
The problem considered is the selection of a portfolio of international
assets, particularly the forecasting of the inputs to a selection
algorithm. Four models of the asset return generating process are
considered, two of which ignore the international nature of the universe
of assets, two which exploit it in different ways. Several estimation
methods are considered for each component: expected return, variance and
covariance of returns. The combinations of model and estimation method are
first evaluated in terms of their forecasting performance for the
components mentioned for the individual assets. The universe used is the
components of the Financial Times Eurotrack 100 Index. Significant
differences were found between the forecasting accuracy of the methods
considered for each component. In the final stage of the analysis, a
comparison of the returns on portfolios chosen using each combination
showed a significant difference. The analysis suggests that the choice of
estimation method is more critical than the choice of pricing model.
Journal: The European Journal of Finance
Pages: 259-279
Issue: 3
Volume: 6
Year: 2000
Keywords: Portfolio Selection Forecasting Estimation Risk,
X-DOI: 10.1080/13518470050085094
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050085094
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:3:p:259-279
Template-Type: ReDIF-Article 1.0
Author-Name: David Lovatt
Author-X-Name-First: David
Author-X-Name-Last: Lovatt
Author-Name: Ashok Parikh
Author-X-Name-First: Ashok
Author-X-Name-Last: Parikh
Title: Stock returns and economic activity: the UK case
Abstract:
This paper investigates the relationships between real stock returns and
a number of financial and economic variables for the UK economy for the
period 1980 to 1994. We begin by discussing a theoretical model proposed
by Balvers et al. and then re-estimate for the UK what may be regarded as
an application of that model by Fama applied to the US market. This
reproduces Fama's main results. For the UK we than suggest a slightly,
different application of the Balvers model, the most important feature of
which is the use of expectational macro-economic variables instead of
Fama's use of leading values of industrial production. We then go on to
investigate the unit root properties of the data and show that much of the
data is indeed characterized by the presence of unit root non stationarity
In the light of this, we propose an application of the Phillips-Loretan
error-correction model and show that this provides a plausible
relationship between real stock returns and most of the financial and
economic variables.
Journal: The European Journal of Finance
Pages: 280-297
Issue: 3
Volume: 6
Year: 2000
Keywords: Stock Market Models Cointegration,
X-DOI: 10.1080/13518470050085102
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050085102
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:3:p:280-297
Template-Type: ReDIF-Article 1.0
Author-Name: L. Copeland
Author-X-Name-First: L.
Author-X-Name-Last: Copeland
Author-Name: Ping Wang
Author-X-Name-First: Ping
Author-X-Name-Last: Wang
Title: Forecasting the returns on UK investment trusts: a comparison
Abstract:
The well known fact that investment trusts (closed-end mutual funds in
the USA) trade at a discount means that the return to an investor depends
not only on the change in net asset value (NAV), but also on changes in
the discount over the holding period. Using daily data, this paper models
the relationship between UK investment trust prices and NAV's using
cointegration methodology then shows that the forecasts based on the,
error correction mechanism (ECM) compare poorly with those from vector
autoregressions. And then incorporates a number of modifications to the
ECM in an attempt to improve the forecasts. In particular, modelling
volatility persistance and allow for asymmetric resonses in the ECM.
Journal: The European Journal of Finance
Pages: 298-310
Issue: 3
Volume: 6
Year: 2000
Keywords: Cointegrations Var Mutual Funds Net Asset Value Ecm Garch Asymmetry,
X-DOI: 10.1080/13518470050085111
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050085111
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:3:p:298-310
Template-Type: ReDIF-Article 1.0
Author-Name: David Brookfield
Author-X-Name-First: David
Author-X-Name-Last: Brookfield
Author-Name: Phillip Ormrod
Author-X-Name-First: Phillip
Author-X-Name-Last: Ormrod
Title: Credit agency regulation and the impact of credit ratings in the international bond market
Abstract:
The use of credit ratings in financial and other legal documents —
both in the USA and Europe —, has led to a situation in which the
major rating agencies have become (largely unwilling) participants in the
legislative process. This situation has become partly formalized in the US
(and is being repeated elsewhere in the European Union, Eastern Europe and
Latin America) through the creation of officially 'recognized' agencies
whose ratings now carry the imprimatur of the Securities and Exchange
Commission. The purpose of this paper is to contribute to the debate on
the necessity for formal legal status to be sustained in the market for
bond credit ratings. In this context, the criteria for a credible rating
agency are examined and evidence is provided on one element of the
criteria which is under-researched: namely, the impact of the ratings in
the market place. The influence of rating agencies in international
capital markets is assessed through an analysis of the impact of ratings
on the yields of bonds, represented by a comprehensive sample of actively
traded debt. The sample contains analysis of ratings introductions on both
new and seasoned debt and also examines the impact of ratings revisions.
It is concluded that official recognition has no market-based role and it
is argued that ratings are used by regulators because of the success of
the major agencies in performing their market function.
Journal: The European Journal of Finance
Pages: 311-331
Issue: 4
Volume: 6
Year: 2000
Keywords: Credit Ratings Credit Agencies Formal Legal Status Impact On Yields Of Bonds,
X-DOI: 10.1080/13518470050195092
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050195092
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:4:p:311-331
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Dunis
Author-X-Name-First: Christian
Author-X-Name-Last: Dunis
Author-Name: Pierre Lequeux
Author-X-Name-First: Pierre
Author-X-Name-Last: Lequeux
Title: Intraday data and hedging efficiency in interest spread trading
Abstract:
Three government bond futures contracts and their respective 3-month
interest rate futures contracts traded on LIFFE are examined. The data
period covers three years of observations, January 1994-December 1996,
sampled at half-hourly intervals. Borrowing from the calculation of
minimum variance hedge ratios, half-hourly minimum variance spread ratios
(the ratio of one contract to another, which provides the minimum
variance) are estimated for the above contracts. The hypothesis under
examination is whether there is any value-added in estimating minimum
spread ratios based on intraday data. Three spread ratios are defined: two
ratios calculated from daily data and a third one based on intraday data.
Evidence tends to indicate that spread ratios calculated from intraday
data exhibit a substantially lower variance than the other two spread
ratio speciications. Thus, it is shown that intraday data, in comparison
with daily data, allow for lower hedging costs. Moreover, the use of
intraday-based spread ratios might be a contributing factor to reducing
the maximum cumulative loss potentially incurred while holding a spread
position.
Journal: The European Journal of Finance
Pages: 332-352
Issue: 4
Volume: 6
Year: 2000
Keywords: Government Bond Futures Interest Rate Futures Intraday Data Hedging Efficiency Spread Ratios,
X-DOI: 10.1080/13518470050195100
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050195100
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:4:p:332-352
Template-Type: ReDIF-Article 1.0
Author-Name: Simon Wolfe
Author-X-Name-First: Simon
Author-X-Name-Last: Wolfe
Title: Structural effects of asset-backed securitization
Abstract:
This paper analyses the potential changes in the operational structure of
deposit-taking financial institutions that securitize assets. Findings
indicate that banks can create an asset securitization pipeline structure
that enables them to increase their return on capital. In other words,
through securitization banks can expand their loan provision business
without increasing their liabilities or their capital levels. Using a
contingent claims model, four factors that impact on the bank's decision
to securitize are highlighted and analysed: (i) the level of deposit
insurance; (ii) capital adequacy requirements; (iii) insolvency risk; and,
(iv) the risk of credit enhancements. Furthermore, we identify key
accounting and regulatory challenges that emerge for banks from the
process of asset backed securitization.
Journal: The European Journal of Finance
Pages: 353-369
Issue: 4
Volume: 6
Year: 2000
Keywords: Asset-BACKED Securitization Return On Capital Deposit Insurance Capital Adequacy,
X-DOI: 10.1080/13518470050195119
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470050195119
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:6:y:2000:i:4:p:353-369
Template-Type: ReDIF-Article 1.0
Author-Name: Felipe Aparicio
Author-X-Name-First: Felipe
Author-X-Name-Last: Aparicio
Author-Name: Javier Estrada
Author-X-Name-First: Javier
Author-X-Name-Last: Estrada
Title: Empirical distributions of stock returns: European securities markets, 1990-95
Abstract:
The assumption that daily stock returns are normally distributed has long
been disputed by the data. In this article the normality assumption is
tested (and clearly rejected) using time series of daily stock returns for
13 European securities markets. More importantly, four alternative
specifications are fitted to the data, overall support is found for the
scaled- t distribution (and partial support for a mixture of two Normal
distributions), and the magnitude of the error that stems from predicting
returns by using the Normal distribution is quantified. Data also show
that normality may be a plausible assumption for monthly (but not for
daily) stock returns.
Journal: The European Journal of Finance
Pages: 1-21
Issue: 1
Volume: 7
Year: 2001
Keywords: Distributions Of Stock Returns Non-NORMALITY European Markets,
X-DOI: 10.1080/13518470121786
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470121786
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:1:p:1-21
Template-Type: ReDIF-Article 1.0
Author-Name: Michael McKenzie
Author-X-Name-First: Michael
Author-X-Name-Last: McKenzie
Author-Name: Heather Mitchell
Author-X-Name-First: Heather
Author-X-Name-Last: Mitchell
Author-Name: Robert Brooks
Author-X-Name-First: Robert
Author-X-Name-Last: Brooks
Author-Name: Robert Faff
Author-X-Name-First: Robert
Author-X-Name-Last: Faff
Title: Power ARCH modelling of commodity futures data on the London Metal Exchange
Abstract:
A recent addition to the ARCH family of econometric models was introduced
by Ding and co-workers wherein the power term by which the data is
transformed was estimated within the model rather than being imposed by
the researcher. This paper considers the ability of the Power GARCH class
of models to capture the stylized features of volatility in a range of
commodity futures prices traded on the London Metals Exchange (LME). The
results of this procedure suggest that asymmetric effects are not
generally present in the LME futures data. Further, unlike stock market
data which is well described by the model, futures data is not as well
described by the APGARCH model. Nested within the APGARCH model are
several other models from the ARCH family. This paper uses the standard
log likelihood procedure to conduct pairwise comparisons of the relative
merits of each and the results suggest that it is the Taylor GARCH model
which performs best.
Journal: The European Journal of Finance
Pages: 22-38
Issue: 1
Volume: 7
Year: 2001
Keywords: Power Arch London Metal Exchange Futures,
X-DOI: 10.1080/13518470123011
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470123011
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:1:p:22-38
Template-Type: ReDIF-Article 1.0
Author-Name: Patricia Fraser
Author-X-Name-First: Patricia
Author-X-Name-Last: Fraser
Author-Name: Andrew McKaig
Author-X-Name-First: Andrew
Author-X-Name-Last: McKaig
Title: Basis variation and a common source of risk: evidence from UK futures markets
Abstract:
Using multiple equation Generalized Method of Moments (GMM) system
estimation procedures and monthly data at the three maturity horizons of
6, 9 and 12 months, the paper explores whether conditional spreads between
futures and spot rates on five contracts traded on LIFFE have a common
predictable component driven by a single unobservable source of risk. The
future contracts studied are: 3-month ECU; 3-month Euromark; FT100 Index;
German Government Bond; and 3-month Short Sterling. The sample period is
October 1989 through August 1996. Movement in the price of systematic risk
is proxied by ex ante variables that have been shown to have predictive
power for returns from bond and stock markets. These are: the return on
the US Standard and Poor index; the return on the German Dax index; the UK
and US 3-month treasury bill yield differential; the spread between the UK
20-year gilt yield and the UK 3-month treasury bill yield; the spread
between the debenture and loan stock yield and, the 20-year gilt yield;
the dividend yield on the FT Actuaries All Share index; and the change in
the yields on UK government consol 2.5% bonds. The results indicate that
common variation in bases exists and that relative conditional covariances
are constant over all horizons. The evidence reported also suggests that,
at short horizons, common basis variation is associated with both spot
price forecasts and futures market risk while, at medium and long
horizons, the dominant source of the reported common basis variation is
due to the systematic risk associated with the futures position.
Journal: The European Journal of Finance
Pages: 39-62
Issue: 1
Volume: 7
Year: 2001
Keywords: Multiple Equation Gmm Futures Maturity Horizon Common Predictable Variation In Bases Latent Variable Mode Systematic Risk Futures Risk Premium Spot Price Forecasts,
X-DOI: 10.1080/13518470122691
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470122691
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:1:p:39-62
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Mallin
Author-X-Name-First: Chris
Author-X-Name-Last: Mallin
Author-Name: Kean Ow-Yong
Author-X-Name-First: Kean
Author-X-Name-Last: Ow-Yong
Author-Name: Martin Reynolds
Author-X-Name-First: Martin
Author-X-Name-Last: Reynolds
Title: Derivatives usage in UK non-financial listed companies
Abstract:
In this paper, the authors present the results of a 1997 survey of
derivative used by some 231 UK non-financial companies. The questionnaire
instrument used in this research is based upon the postal survey
methodology of Bodnar et al. (1995). A glossary was attached to the
questionnaire survey to enable consistency in defining terminology used. A
direct comparison between US and UK findings was undertaken together with
an analysis of results from other published surveys conducted in the last
four years. We find broadly similar trends in the use of derivatives. The
results of our research show that derivatives usage to hedge financial
price risk is well established amongst larger UK companies. Our findings
support the size effect phenomena reported in other empirical studies. The
primary objective cited in using derivatives was to manage fluctuations in
accounting earnings, a focus that is inconsistent with the theoretical
view of paying attention to cash flow benefits of hedging. The predominant
issues of concern to UK inancial directors are the lack of evaluation of
risk of proposed derivative transactions and the level of transaction
costs incurred. This contrasts with the greater concerns of credit risk
and market risk raised by their US counterparts in Bodnar's study. A
possible explanation for these concerns could be the impact of the
currency crisis happening in Asia especially for firms that are exposed to
the affected currencies. It also suggests a lower level of sophistication
and liquidity in UK derivatives market. The value of developing a basis
for benchmarking good management practice in the use of derivatives to
manage financial price risk represents an important area of research. Such
a framework is of relevance to the demand and supply side of the
derivatives market and to Government policy makers.
Journal: The European Journal of Finance
Pages: 63-91
Issue: 1
Volume: 7
Year: 2001
Keywords: Derivatives Risk Management,
X-DOI: 10.1080/13518470121892
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470121892
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:1:p:63-91
Template-Type: ReDIF-Article 1.0
Author-Name: Fabio Mercurio
Author-X-Name-First: Fabio
Author-X-Name-Last: Mercurio
Author-Name: Juan Moraleda
Author-X-Name-First: Juan
Author-X-Name-Last: Moraleda
Title: A family of humped volatility models
Abstract:
Recent empirical studies on interest rate derivatives have shown that the
volatility structure of interest rates is frequently humped. Several
researchers have modelled interest rate dynamics in such a way that humped
volatility structures are possible and yet analytical formulas for
European options on discount bonds are derived. However, these models are
Gaussian, and hence interest rates may become negative. Here, a family of
interest rate models is proposed where (i) humped volatility structures
are possible; (ii) the interest rate volatility may depend on the level of
the interest rates themselves; and (iii) the valuation of interest rate
derivative securities can be accomplished through recombining lattices.
The second item implies that a number of probability distributions are
possible for the yield curve dynamics, and some of them ensure that
interest rates remain positive. Proportional models of the Ritchken and
Sankarasubramanian type and the Black and Karasinski model are proposed.
To ensure computational tractability the embedding of all models in this
paper in either the Ritchken and Sankarasubramanian or the Hull and White
class of models is demonstrated.
Journal: The European Journal of Finance
Pages: 93-116
Issue: 2
Volume: 7
Year: 2001
Keywords: Term Structure Of Interest Rates Interest Rate Derivatives Humped Volatility Models,
X-DOI: 10.1080/13518470122553
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470122553
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:2:p:93-116
Template-Type: ReDIF-Article 1.0
Author-Name: Gauri Ghai
Author-X-Name-First: Gauri
Author-X-Name-Last: Ghai
Author-Name: Maria De Boyrie
Author-X-Name-First: Maria
Author-X-Name-Last: De Boyrie
Author-Name: Shahid Hamid
Author-X-Name-First: Shahid
Author-X-Name-Last: Hamid
Author-Name: Arun Prakash
Author-X-Name-First: Arun
Author-X-Name-Last: Prakash
Title: Estimation of global systematic risk for securities listed in multiple markets
Abstract:
In this era of rapid globalization of financial markets there has been a
substantial increase in cross-listings of stocks in foreign and regional
capital markets. As many as a third to a half of the stocks in some major
exchanges are foreign listed. The multiple listings of stocks has major
implications for the concept of systematic risk. This paper demonstrates
that the estimator for systematic risk and the methodology itself changes
when stocks are listed in multiple markets. The paper suggests general
procedures, using maximum information from the multiple markets, to obtain
the estimator of beta under a variety of assumptions about the error terms
of the market models in the different capital markets. The assumptions
pertain both to the volatilities of the abnormal returns in each market,
and to the relationship between the markets.
Journal: The European Journal of Finance
Pages: 117-130
Issue: 2
Volume: 7
Year: 2001
Keywords: Capital Markets Systematic Risk Estimators,
X-DOI: 10.1080/13518470121761
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470121761
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:2:p:117-130
Template-Type: ReDIF-Article 1.0
Author-Name: R. Dacco
Author-X-Name-First: R.
Author-X-Name-Last: Dacco
Author-Name: S. Satchell
Author-X-Name-First: S.
Author-X-Name-Last: Satchell
Title: Forward and spot exchange rates in a bivariate TAR framework
Abstract:
Structural exchange rate models explain only a small part of the
movements in dollar exchange rate. Recent empirical work has focused on
the failure to account for nonlinearities in the data generating
mechanism, as an explanation of this bad performance. Here two bivariate
threshold autoregressive models for the spot and forward exchange rates
are considered. In the first model the regimes are determined by the log
difference of the two rates; in the second one the regimes are driven by
the forward spot no-arbitrage condition. These processes are able to
capture the 'swing' behaviour observed in the exchange rate market.
Finally the forecasting ability of the models for the dollar/DM exchange
rate is evaluated by stochastic simulation.
Journal: The European Journal of Finance
Pages: 131-143
Issue: 2
Volume: 7
Year: 2001
Keywords: Nonlinear Techniques Seemingly Unrelated Bivariate Threshold Autoregression Subitar Model Stochastic Simulation Dollar Dm Exchange Rate,
X-DOI: 10.1080/13518470122779
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470122779
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:2:p:131-143
Template-Type: ReDIF-Article 1.0
Author-Name: Ming-Shiun Pan
Author-X-Name-First: Ming-Shiun
Author-X-Name-Last: Pan
Author-Name: Y. Angela Liu
Author-X-Name-First: Y. Angela
Author-X-Name-Last: Liu
Author-Name: Herbert Roth
Author-X-Name-First: Herbert
Author-X-Name-Last: Roth
Title: Term structure of return correlations and international diversification: evidence from European stock markets
Abstract:
The paper examines the term structure of correlations of weekly returns
for the stock market in the US, Japan and nine European countries between
1988 and 1994. Stock indices are decomposed into permanent and temporary
components using a canonical correlation analysis and then short- and
long-horizon return correlations are calculated from these two price
components. The empirical results reveal that the relationships of return
correlations among these stock markets are not stable across return
horizons. While correlations, in general, tend to increase with return
horizons, there are several cases showing that correlations decline when
investment horizons increase.
Journal: The European Journal of Finance
Pages: 144-164
Issue: 2
Volume: 7
Year: 2001
Keywords: Stock Markets Weekly Returns Term Structure Correlation Analysis Short Horizon Long Horizon,
X-DOI: 10.1080/13518470122843
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470122843
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:2:p:144-164
Template-Type: ReDIF-Article 1.0
Author-Name: Cecilio Mar-Molinero
Author-X-Name-First: Cecilio
Author-X-Name-Last: Mar-Molinero
Author-Name: Carlos Serrano-Cinca
Author-X-Name-First: Carlos
Author-X-Name-Last: Serrano-Cinca
Title: Bank failure: a multidimensional scaling approach
Abstract:
Mathematical models for the prediction of company failure are by now well
established. Most of the work on multivariate modelling of distress
prediction attempts to obtain a score that gives the failure probability
of a company. A data set of 66 Spanish banks, 29 of which failed, is used
to show that multidimensional scaling (MDS) techniques can be of use to
produce simple tools for the analysis of financial health. MDS has the
advantage of producing pictorial representations that are easy to
interpret and use. This is done without loss of statistical rigour given
the very close links between MDS and other multivariate statistical
techniques that are normally used in the analysis of failure. As an
example, the technique is used to trace the financial path of an ailing
bank.
Journal: The European Journal of Finance
Pages: 165-183
Issue: 2
Volume: 7
Year: 2001
Keywords: Bankruptcy Prediction Financial Ratios Multidimensional Scaling Box And Whiskers Diagrams Spanish Banking System,
X-DOI: 10.1080/13518470122202
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470122202
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:2:p:165-183
Template-Type: ReDIF-Article 1.0
Author-Name: Shmuel Hauser
Author-X-Name-First: Shmuel
Author-X-Name-Last: Hauser
Author-Name: Azriel Levy
Author-X-Name-First: Azriel
Author-X-Name-Last: Levy
Author-Name: Uzi Yaari
Author-X-Name-First: Uzi
Author-X-Name-Last: Yaari
Title: Trading frequency and the efficiency of price discovery in a non-dealer market
Abstract:
The increasing popularity of non-dealer security markets that offer
automated, computer-based, continuous trading reflects a presumption that
institutionally-set trading sessions are economically obsolete. This
theoretical paper investigates the effect of the trading frequency, a key
feature of the trading mechanism, on the efficiency of price discovery in
a non-dealer market. By tracing the market pricing error to the
correlation structures of arriving information and pricing errors of
individual traders, the effect of diverging expectations on error-based
and overall return volatility is isolated. The analysis reveals that, due
to a portfolio effect, an increase in the trading time interval has
contradictory effects on the portion of return volatility stemming from
pricing errors. The greater accumulation of information increases
error-based return volatility, but the greater volume and number of
traders per session have the opposite effect. The net effect on overall
return volatility can go either way. It is found that the return
volatility of heavily traded securities is likely to be minimized under
continuous trading, but that of thinly traded securities may be minimized
under discrete trading at moderate time intervals. The latter is more
likely to occur the greater is the divergence of expectations among
traders. These findings challenge the presumption that automated
continuous trading in a non-dealer market is more efficient than discrete
trading for all securities, regardless of trading volume. The findings are
applicable to all economies, but have special importance for developing
countries where typically a single market is dominated by small issues and
a low volume of trade. As a by-product of the analysis, it is shown how to
correct the biased estimate of inter-session price volatility when
observations are less frequent than the trading sessions themselves.
Journal: The European Journal of Finance
Pages: 187-197
Issue: 3
Volume: 7
Year: 2001
Keywords: Trading Frequency Non-DEALER Security Markets Price Discovery Portfolio Effect Return Volatility,
X-DOI: 10.1080/13518470122687
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470122687
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:3:p:187-197
Template-Type: ReDIF-Article 1.0
Author-Name: Robert Tompkins
Author-X-Name-First: Robert
Author-X-Name-Last: Tompkins
Title: Implied volatility surfaces: uncovering regularities for options on financial futures
Abstract:
It is well known that the implied volatilities of options on the same
underlying asset differ across strike prices and terms to expiration.
However, the reason for this remains unclear. Before the development of
theory to explain this phenomenon, it may be helpful to better understand
the empirical record of implied volatility surfaces. If regularities are
discovered which are stable over time, this may aid the development of
theories to explain implied volatility surfaces and provide a means to
test alternative models. This paper identifies these regularities and
subsequent research will examine the implications of these results. While
a number of papers have examined individual option markets and identified
smile patterns, it is not clear whether the conclusions found are based
upon idiosyncrasies of a particular market or more generally apply to
options in other markets. This research fills this gap in the literature
by examining sixteen options markets on financial futures (comprising four
asset classes) and compares the smile patterns across markets.
Furthermore, this analysis considers a longer period of analysis than
previously examined in the literature. This allows assessment of the
stability of the implied volatility patterns for a variety of subperiods
and testing of models outside of sample.
Journal: The European Journal of Finance
Pages: 198-230
Issue: 3
Volume: 7
Year: 2001
Keywords: Implied Volatility Surfaces Volatility Smiles Shocks Risk Neutral Processes Skewness Kurtosis Heterokurtosis,
X-DOI: 10.1080/13518470110040375
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110040375
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:3:p:198-230
Template-Type: ReDIF-Article 1.0
Author-Name: Vivek Bhargava
Author-X-Name-First: Vivek
Author-X-Name-Last: Bhargava
Author-Name: Robert Brooks
Author-X-Name-First: Robert
Author-X-Name-Last: Brooks
Author-Name: D. K. Malhotra
Author-X-Name-First: D. K.
Author-X-Name-Last: Malhotra
Title: Implied volatilities, stochastic interest rates, and currency futures options valuation: an empirical investigation
Abstract:
Different models of pricing currency call and put options on futures are
empirically tested. Option prices are determined using different models
and compared to actual market prices. Option prices are determined using
historical as well as implied volatility. The different models tested
include both constant and stochastic interest rate models. To determine if
the model prices are different from the market prices, regression analysis
and paired t-tests are performed. To see which model misprices the least,
root mean square errors are determined. It is found that better results
are obtained when implied volatility is used. Stochastic interest rate
models perform better than constant interest rate models.
Journal: The European Journal of Finance
Pages: 231-246
Issue: 3
Volume: 7
Year: 2001
Keywords: Currency Options Implied Volatility Stochastic Interest Rates Currency Futures Options,
X-DOI: 10.1080/13518470121944
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470121944
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:3:p:231-246
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Jochum
Author-X-Name-First: Christian
Author-X-Name-Last: Jochum
Title: Is the covariance of international stock market returns regime dependent?
Abstract:
The application of a SWARCH model to stock market returns allows one to
endogenously determine the regime dependence of the stock market
volatility. Comparison of the results from a sample of daily data from
five major stock markets shows that the majority of the markets switch
regimes simultaneously. This fact is used to investigate the relation
between market volatility and the behaviour of the
variance—;covariance matrix. It is found that the international
variance—;covariance matrix is not stable and that changes in the
matrix are dependent on the volatility regime. A high level of variance
causes an increase in the average correlation coefficient. The co-movement
of the markets is further described by a steady increase in the covariance
over the whole sample period. It can be shown that both the time component
and the regime dependence of the average correlation have separate and
significant explanatory power.
Journal: The European Journal of Finance
Pages: 247-268
Issue: 3
Volume: 7
Year: 2001
Keywords: Swarch Correlation International Financial Markets,
X-DOI: 10.1080/13518470010042210
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470010042210
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:3:p:247-268
Template-Type: ReDIF-Article 1.0
Author-Name: Ah-Boon Sim
Author-X-Name-First: Ah-Boon
Author-X-Name-Last: Sim
Author-Name: Ralf Zurbruegg
Author-X-Name-First: Ralf
Author-X-Name-Last: Zurbruegg
Title: Optimal hedge ratios and alternative hedging strategies in the presence of cointegrated time-varying risks
Abstract:
This paper utilizes the inter-temporal relationship between the FTSE-100
stock index and its futures price level between 1992 and 1999 to examine
the characteristics of several minimum variance hedge ratios and the
performances of several alternative hedging strategies for dynamic
portfolio management in the presence of cointegrated time-varying risks.
Earlier studies neglected the importance of cointegration between the two
variables which resulted in biased estimates. These studies, in general,
also assume that the hedging period is the same as the estimation time
interval. This paper also looks at several key issues when the holding
period is longer than the estimation period, such as the construction of
optimal minimum variance hedge ratios, and the trade-off between
transaction costs and risk reduction.
Journal: The European Journal of Finance
Pages: 269-283
Issue: 3
Volume: 7
Year: 2001
Keywords: Hedge Ratios Hedging Strategies Cointegrated Time-VARYING Risk Ftse-100,
X-DOI: 10.1080/13518470110046153
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110046153
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:3:p:269-283
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Abstract:
Journal: The European Journal of Finance
Pages: 285-285
Issue: 4
Volume: 7
Year: 2001
X-DOI: 10.1080/13518470152652019
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470152652019
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:4:p:285-285
Template-Type: ReDIF-Article 1.0
Author-Name: Giulio Cifarelli
Author-X-Name-First: Giulio
Author-X-Name-Last: Cifarelli
Title: Introduction
Abstract:
Journal: The European Journal of Finance
Pages: 286-288
Issue: 4
Volume: 7
Year: 2001
X-DOI: 10.1080/13518470152652028
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470152652028
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:4:p:286-288
Template-Type: ReDIF-Article 1.0
Author-Name: Mehdi Azzouzi
Author-X-Name-First: Mehdi
Author-X-Name-Last: Azzouzi
Author-Name: Ian Nabney
Author-X-Name-First: Ian
Author-X-Name-Last: Nabney
Title: Dynamic local models for segmentation and prediction of financial time series
Abstract:
In the analysis and prediction of many real-world time series, the
assumption of stationarity is not valid. Aspecial form of
non-stationarity, where the underlying generator switches between
(approximately) stationary regimes, seems particularly appropriate for
financial markets. We introduce a new model which combines a dynamic
switching (controlled by a hidden Markov model) and a non-linear dynamical
system. We show how to train this hybrid model in a maximum likelihood
approach and evaluate its performance on both synthetic and financial
data.
Journal: The European Journal of Finance
Pages: 289-311
Issue: 4
Volume: 7
Year: 2001
Keywords: Time Series Segmentation Hidden Variational Techniques Bayesian Error Bars Markov Models State Space Models,
X-DOI: 10.1080/13518470110071155
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110071155
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:4:p:289-311
Template-Type: ReDIF-Article 1.0
Author-Name: Christophe Morel
Author-X-Name-First: Christophe
Author-X-Name-Last: Morel
Title: Stock selection using a multi-factor model - empirical evidence from the French stock market
Abstract:
Using a Barra-type factor model, we have attempted to determine whether
it is possible to beat the benchmark by taking advantage of anomalies
established in the financial empirical literature. More specifically we
have built an equity premium model based on three sets of factors
(accounting variables, stock market characteristics and sector indicators)
using a Bayesian method corrected for heteroscedasticity to estimate risk
premiums, a technique that takes agents' learning into account. The
results are encouraging: first, the factors that carried most weight on
the equity premiums corroborated the results of empirical studies
described in the financial literature, secondly, the portfolios
constructed from our methodology and simulated outside our sample,
returned higher performance than the benchmark and rewarded the supplement
of volatility.
Journal: The European Journal of Finance
Pages: 312-334
Issue: 4
Volume: 7
Year: 2001
Keywords: Anomalies Bayesian Estimation Equity Premium Multi-FACTOR Model,
X-DOI: 10.1080/13518470110071137
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110071137
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:4:p:312-334
Template-Type: ReDIF-Article 1.0
Author-Name: Foort Hamelink
Author-X-Name-First: Foort
Author-X-Name-Last: Hamelink
Title: Nonlinear analysis for forecasting currencies: are they useful to the portfolio manager?
Abstract:
The importance of a time-varying specification for both the return and
the risk of financial assets is well known. The purpose of this study is
to investigate if some of the most recently developed econometric models,
combined with technical indicators often used by practitioners, can
significantly predict future returns. While most studies have focused on
either univariate series or in-sample analyses of a given econometric
specification, this study considers a multivariate framework where a US
based investor daily reallocates a portfolio of three currencies
(Deutschmark, Swiss Franc and Japanese Yen). Series of three years
out-of-sample forecasts are analysed in terms of risk and return and it is
shown that some of the tested speciications can indeed signiicantly
predict future daily returns and correlations over this three-year period.
Journal: The European Journal of Finance
Pages: 335-355
Issue: 4
Volume: 7
Year: 2001
Keywords: Time-VARYING Specification Financial Assets Econometric Models Technical Indicators Future Returns Multivariate Framework,
X-DOI: 10.1080/13518470110071146
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110071146
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:7:y:2001:i:4:p:335-355
Template-Type: ReDIF-Article 1.0
Author-Name: Greet Asselbergh
Author-X-Name-First: Greet
Author-X-Name-Last: Asselbergh
Title: Financing firms with restricted access to financial markets: the use of trade credit and factoring in Belgium
Abstract:
Many authors emphasize the implications of restricted access to financial
markets for both small and new firms. The paper reports investigations
into the use of alternative means of financing. More specifically, the use
of trade credit and factoring are examined. Indeed, following the trade
credit management literature both institutional and macro economic
restrictions on small business finance can be overcome by 'larger
suppliers' extending trade credit to their smaller customers. However, the
DSO-rate cannot be used to measure the supplier's willingness to invest in
trade credit as it depends on both suppliers' and customers'
characteristics. The decision to extend trade credit is therefore
approximated by the will to control its management and operationalized by
the decision to factor or not to factor. The results of our study are
twofold. First, factoring is mainly used by small and medium-sized
companies. Moreover, when looking at the characteristics of the factor's
customers, new companies facing huge capital expenditure programmes and
seasonal sales decide to factor. The prejudice about factoring being a
last resort means of finance is, however, not supported: companies that
decide to use factoring are indeed less profitable, but this is simply due
to their high growth and/or capital intensive investment programmes.
Journal: The European Journal of Finance
Pages: 2-20
Issue: 1
Volume: 8
Year: 2002
Keywords: Factoring, Trade Credit, Small Business Finance, New Business Finance, Belgium,
X-DOI: 10.1080/13518470110076286
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110076286
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:1:p:2-20
Template-Type: ReDIF-Article 1.0
Author-Name: Gianna Boero
Author-X-Name-First: Gianna
Author-X-Name-Last: Boero
Author-Name: Costanza Torricelli
Author-X-Name-First: Costanza
Author-X-Name-Last: Torricelli
Title: The information in the term structure of German interest rates
Abstract:
This paper tests the Expectations Hypothesis (EH) of the term structure
of interest rates using new data for Germany. The German term structure
appears to forecast future short-term interest rates surprisingly well,
compared with previous studies with US data, while it has lower predictive
power for long-term interest rates. However, the direction suggested by
the coefficient estimates is consistent with that implied by the EH, that
is when the term spread widens, long rates increase. The use of
instrumental variables to deal with possible measurement errors in the
data significantly improves regressions for the long rates. Moreover,
re-estimation with proxy variables to account for the possibility of
time-varying term premia confirms that the evolution of both short and
long rates corresponds to the predictions of the EH and that most of the
information is in the term spread. These results are important as they
suggest that monetary policy in Germany could be guided by the slope of
the term structure.
Journal: The European Journal of Finance
Pages: 21-45
Issue: 1
Volume: 8
Year: 2002
Keywords: Expectations Hypothesis, Interest Rate, Term Structure, Term Premia, Forward Rates, Measurement Errors, Volatility,
X-DOI: 10.1080/13518470110040609
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110040609
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:1:p:21-45
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Hanousek
Author-X-Name-First: Jan
Author-X-Name-Last: Hanousek
Author-Name: Libor Nemecek
Author-X-Name-First: Libor
Author-X-Name-Last: Nemecek
Title: Mispricing and lasting arbitrage between parallel markets in the Czech Republic
Abstract:
If co-existing parallel markets are efficient, then arbitrage will
maintain a correct pricing relationship. A related question is whether two
parallel emerging markets offering more or less the same securities but
using different institutional designs, can behave as a single, fully
integrated market. In this paper an explicit model of price convergence
(with transaction costs) is introduced, in which price differences are
studied using levels of arbitrage activity. For the empirical analysis two
parallel markets in the Czech Republic are used — the Prague Stock
Exchange (PSE) and the RMS (over-the-counter system). In particular, the
degree of arbitrage activity is studied for different segments of the PSE
and the evolution of arbitrage in the early history of these emerging
markets. The empirical results provide evidence of market linkage for
actively traded stocks. A significant relationship is found between the
segment of the market to which a given firm belongs and the estimated
level of arbitrage trading. Moreover, the level of arbitrage activity
increases over time for all market segments, and as the markets mature,
the differences among the segments gradually disappear.
Journal: The European Journal of Finance
Pages: 46-69
Issue: 1
Volume: 8
Year: 2002
Keywords: Arbitrage, Emerging Markets, Integration Of Emerging Markets, Mispricing,
X-DOI: 10.1080/13518470110047639
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110047639
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:1:p:46-69
Template-Type: ReDIF-Article 1.0
Author-Name: David McMillan
Author-X-Name-First: David
Author-X-Name-Last: McMillan
Author-Name: Alan Speight
Author-X-Name-First: Alan
Author-X-Name-Last: Speight
Title: Temporal aggregation, volatility components and volume in high frequency UK bond futures
Abstract:
This paper examines volatility in UK Long Gilt and Short Sterling futures
over several intra-day frequencies. Initial GARCH model estimates are
found to exhibit remaining residual structure and to be inconsistent with
theoretical temporal aggregation results for all frequencies other than
the full day. Further estimates suggest that intra-day volatility is more
adequately characterized by a component model which decomposes volatility
into short-run effects which dominate intra-day periods and long-run
effects which dominate inter-day horizons, and that such components are
associated with the arrival of information flows as proxied by volume.
This component volatility model is also able to account for all dependence
in Long Gilt futures at frequencies of 15 minutes and lower, and in Short
Sterling futures at 1 hour and lower.
Journal: The European Journal of Finance
Pages: 70-92
Issue: 1
Volume: 8
Year: 2002
Keywords: Conditional Variance, Component Model, Intra, Temporal Aggregation, Futures Markets,
X-DOI: 10.1080/13518470110073676
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110073676
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:1:p:70-92
Template-Type: ReDIF-Article 1.0
Author-Name: Nelson Manuel Areal
Author-X-Name-First: Nelson Manuel
Author-X-Name-Last: Areal
Author-Name: Manuel Jose Da Rocha Armada
Author-X-Name-First: Manuel Jose Da Rocha
Author-X-Name-Last: Armada
Title: The long-horizon returns behaviour of the Portuguese stock market1
Abstract:
In the last few years several research studies have challenged the
traditional weak-form efficiency tests of the stock market. These studies
suggested an alternative to the random walk model, containing temporary
and permanent components. If stocks follow such a model then the
traditional tests, using returns computed for short intervals would be
unable to detect them. To investigate the evidence for such models in the
Portuguese stock market ten stock indexes were created. This is a pioneer
study of the Portuguese stock market, and uses nominal, real and excess
returns, computed for longer horizons. Three methodologies were used:
variance ratios, ordinary least squares regressions and weighted least
squares regressions. The statistical significance of the results was
studied using traditional parametric tests as well as non-parametric
tests. The evidence is mixed, as the presence of tendencies towards mean
aversion and mean reversion were detected. Results also show that the
evidence is very sensitive to the methodology used and the signifcance
tests performed. These results, however, do not necessarily reject the
weak-form market efficiency hypothesis.
Journal: The European Journal of Finance
Pages: 93-122
Issue: 1
Volume: 8
Year: 2002
Keywords: Market Efficiency, Stock Market Anomalies, Statistical Simulation Methods, Monte Carlo Methods,
X-DOI: 10.1080/13518470110076303
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110076303
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:1:p:93-122
Template-Type: ReDIF-Article 1.0
Author-Name: Laura Cavallo
Author-X-Name-First: Laura
Author-X-Name-Last: Cavallo
Author-Name: Stefania Rossi
Author-X-Name-First: Stefania
Author-X-Name-Last: Rossi
Title: Do environmental variables affect the performance and technical efficiency of the European banking systems? A parametric analysis using the stochastic frontier approach
Abstract:
The paper compares the efficiency of the European banking systems in view
of the constitution of the European Monetary Union. Since competition
among banks will increase, it is important to identify the most efficient
banking system able to play a role in that market. A parametric approach
is adopted, based on the estimation of a stochastic cost frontier. This
methodology enables one to measure X-inefficiency and to model it as a
function of environmental variables which may influence firms' efficiency.
By means of this analysis it is possible to identify the most efficient
banking systems and to focus on the determinants of deviations from cost
minimizing. The analysis highlights significant efficiency gaps among the
performances of banks in different countries and of different
institutional types. In particular, it is found that the Mittel-European
model is the one that operates closest to the efficient frontier. This may
indicate that, compared with separated banks, the universal banking system
allows for production plans which come closer to the optimal frontier. The
analysis suggests that, at the beginning of European Monetary Union,
national barriers and regulatory frameworks are still responsible for
deviation from the efficient frontiers.
Journal: The European Journal of Finance
Pages: 123-146
Issue: 1
Volume: 8
Year: 2002
Keywords: Stochastic Cost Frontier, Productivity, Technical Efficiency, Cost Efficiency, Banking Systems,
X-DOI: 10.1080/13518470110076277
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110076277
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:1:p:123-146
Template-Type: ReDIF-Article 1.0
Author-Name: David T. Llewellyn
Author-X-Name-First: David T.
Author-X-Name-Last: Llewellyn
Title: An analysis of the causes of recent banking crises
Abstract:
The incidence of systemic banking crises has risen over the
past twenty years and the costs have been high. Although each country's
experience has country-specific factors, several common elements appear in
most crisis countries: (1) volatility in the macro economy; (2) the
inheritance of structural weaknesses in the economy and financial system;
(3) hazardous banking practices; (4) hazardous incentive structures and
moral hazard within the financial system; (5) ineffective regulation; (6)
weak monitoring and supervision by official agencies; (7) the absence of
effective market discipline on banks, and (8) structurally unsound
corporate governance mechanisms within banks and their borrowing
customers. Causes of such crises are complex and a myopic focus on single
factors (e. g. instability in the macro economy, weak regulation, etc.)
misses the essential feature of interrelated and multidimensional causal
factors. Although macro-instability has been a common feature, and may
often have been the proximate cause, banking crises usually emerge because
instability in the economy reveals existing weaknesses within the banking
system.
Journal: The European Journal of Finance
Pages: 152-175
Issue: 2
Volume: 8
Year: 2002
Month: 6
X-DOI: 10.1080/13518470110071182
File-URL: http://hdl.handle.net/10.1080/13518470110071182
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:2:p:152-175
Template-Type: ReDIF-Article 1.0
Author-Name: Adi Schnytzer
Author-X-Name-First: Adi
Author-X-Name-Last: Schnytzer
Author-Name: Yuval Shilony
Author-X-Name-First: Yuval
Author-X-Name-Last: Shilony
Title: On the timing of inside trades in a betting market
Abstract:
The paper presents a game-theoretical model to examine the
equilibrium timing of insider trades in a market with a finite life span.
An example of such a market is that for horse betting, where insiders must
bet before the race or their information is of no value. We show that
there is no equilibrium in pure strategies but that there is a unique, sub
game perfect equilibrium in mixed strategies. The issue arises because
waiting to bet may lead to information leaks whereas betting too soon may
imply paying too high a price for the bet. We derive empirical hypotheses
and test them.
Journal: The European Journal of Finance
Pages: 176-186
Issue: 2
Volume: 8
Year: 2002
Month: 6
X-DOI: 10.1080/13518470110071164
File-URL: http://hdl.handle.net/10.1080/13518470110071164
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:2:p:176-186
Template-Type: ReDIF-Article 1.0
Author-Name: Bent Jesper Christensen
Author-X-Name-First: Bent Jesper
Author-X-Name-Last: Christensen
Author-Name: Charlotte Strunk Hansen
Author-X-Name-First: Charlotte Strunk
Author-X-Name-Last: Hansen
Title: New evidence on the implied-realized volatility relation
Abstract:
We consider the relation between the volatility implied in an
option's price and the subsequently realized volatility. Earlier studies
on stock index options have found biases and inefficiencies in implied
volatility as a forecast of future volatility. More recently, Christensen
and Prabhala find that implied volatility in at-the-money one-month OEX
call options on the S&P 100 index in fact is an unbiased and efficient
forecast of ex-post realized index volatility after the 1987 stock market
crash. In this paper, the robustness of the unbiasedness and efficiency
result is extended to a more recent period covering April 1993 to February
1997. As a new contribution, implied volatility is constructed as a trade
weighted average of implied volatilities from both in-the-money and
out-of-the-money options and both puts and calls. We run a horse race
between implied call, implied put, and historical return volatility.
Several robustness checks, including a new simultaneous equation approach,
underscore our conclusion, that implied volatility is an efficient
forecast of realized return volatility.
Journal: The European Journal of Finance
Pages: 187-205
Issue: 2
Volume: 8
Year: 2002
Month: 6
X-DOI: 10.1080/13518470110071209
File-URL: http://hdl.handle.net/10.1080/13518470110071209
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:2:p:187-205
Template-Type: ReDIF-Article 1.0
Author-Name: Keith Pond
Author-X-Name-First: Keith
Author-X-Name-Last: Pond
Title: Administration of recoveries in individual insolvency: case studies of two UK banks
Abstract:
Against a background of greater competition, market
saturation and falling margins over the past decade UK banks have sought
greater efficiencies in credit and risk assessment procedures, especially
with personal lending products. In the same way they have attempted to
reduce costs associated with the monitoring and collection of bad debts.
Failure to monitor debt recoveries adequately, however, can lead to
further pressure on profits. This paper uses a case study approach to
outline key strategies adopted by two major banks in respect of formal
insolvency, the 'tip' of a considerable debt recovery 'iceberg'. The paper
illustrates the reactions and changing administrative practices of banks,
as unsecured creditors, and draws on empirical research that has charted
the effect of the Insolvency Act 1986 as regards individual debtors. The
collection of bad debts presents banks with risks, heightened by adverse
selection and moral hazard problems greater than those applicable to
credit risk assessment. However, while the 'downside risk' equates with
the debt write-off plus transaction costs the 'upside potential' has
elements of both tangible and intangible benefit. The paper goes on to
review specific centralization and outsourcing policies against the
critical risks in insolvency. It also suggests that the bargaining power
of major creditors, including banks, is increased through these
activities, to the possible detriment of smaller creditors and of debtors.
Journal: The European Journal of Finance
Pages: 206-221
Issue: 2
Volume: 8
Year: 2002
Month: 6
X-DOI: 10.1080/13518470110071191
File-URL: http://hdl.handle.net/10.1080/13518470110071191
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:2:p:206-221
Template-Type: ReDIF-Article 1.0
Author-Name: Eric J. Levin
Author-X-Name-First: Eric J.
Author-X-Name-Last: Levin
Author-Name: Robert E. Wright
Author-X-Name-First: Robert E.
Author-X-Name-Last: Wright
Title: Estimating the price elasticity of demand in the London stock market
Abstract:
The hypothesis that demand curves for individual stocks slope
downwards is typically investigated by empirical analysis of stock price
movements following events that cause shifts in demand or supply. However,
it is difficult to attribute observed price movements between downward
sloping demand curves and information conveyed by the event. In this paper
an econometric approach, based on market-maker response to unexpected
changes in inventory, is used to separate out the slope of the demand
curve from information effects and estimate the slopes of the demand
curves for twenty stocks included in the Financial Times-Stock
Exchange 100 Share Index (FTSE100). The analysis suggests that
downward sloping demand curves would decrease the price by about 7.5% for
a 1% increase in the number of outstanding shares.
Journal: The European Journal of Finance
Pages: 222-237
Issue: 2
Volume: 8
Year: 2002
Month: 6
X-DOI: 10.1080/13518470110071218
File-URL: http://hdl.handle.net/10.1080/13518470110071218
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:2:p:222-237
Template-Type: ReDIF-Article 1.0
Author-Name: Jane M. Binner
Author-X-Name-First: Jane M.
Author-X-Name-Last: Binner
Author-Name: Alicia M. Gazely
Author-X-Name-First: Alicia M.
Author-X-Name-Last: Gazely
Author-Name: Shu-Heng Chen
Author-X-Name-First: Shu-Heng
Author-X-Name-Last: Chen
Title: Financial innovation and Divisia monetary indices in Taiwan: a neural network approach
Abstract:
In this paper a weighted index measure of money using the
'Divisia' formulation is constructed for the Taiwan economy and its
inflation forecasting potential is compared with that of its traditional
simple sum counterpart. This research extends an earlier study by Gazely
and Binner by examining the theory that rapid financial innovation,
particularly during the financial liberalization of the 1980s, has been
responsible for the poor performance of conventional simple sum monetary
aggregates. The Divisia index is adjusted in two ways to allow for the
major financial innovations that Taiwan has experienced since the 1970s.
The technique of neural networks is used to allow a completely flexible
mapping of the variables and a greater variety of functional form than is
currently achievable using conventional econometric techniques. Results
suggest that superior tracking of inflation is possible for networks that
employ a Divisia M2 measure of money that has been adjusted to incorporate
a learning mechanism to allow individuals to gradually alter their
perceptions of the increased productivity of money. Divisia measures of
money appear to offer advantages over their simple sum counter parts as
macroeconomic indicators.
Journal: The European Journal of Finance
Pages: 238-247
Issue: 2
Volume: 8
Year: 2002
Month: 6
X-DOI: 10.1080/13518470110071173
File-URL: http://hdl.handle.net/10.1080/13518470110071173
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:2:p:238-247
Template-Type: ReDIF-Article 1.0
Author-Name: R. D. Brooks
Author-X-Name-First: R. D.
Author-X-Name-Last: Brooks
Author-Name: R. W. Faff
Author-X-Name-First: R. W.
Author-X-Name-Last: Faff
Author-Name: M. McKenzie
Author-X-Name-First: M.
Author-X-Name-Last: McKenzie
Title: Time varying country risk: an assessment of alternative modelling techniques
Abstract:
Three different techniques for the estimation of a time-varying beta are
investigated: a bivariate GARCH model, the Schwert and Seguin approach,
and the Kalman filter method. These approaches are applied to a set of
monthly Morgan Stanley country index data over the period 1970 to 1995 and
their relative performances compared. In-sample forecast tests of the
performance of each of these methods for generating conditional beta
suggest that the GARCH-based estimates of risk generate the lowest
forecast error although these are not necessarily significantly less than
those generated by the other techniques considered.
Journal: The European Journal of Finance
Pages: 249-274
Issue: 3
Volume: 8
Year: 2002
Keywords: Time, Country Risk, Garch, Kalman Filter,
X-DOI: 10.1080/13518470110074837
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110074837
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:3:p:249-274
Template-Type: ReDIF-Article 1.0
Author-Name: M. A. H. Dempster
Author-X-Name-First: M. A. H.
Author-X-Name-Last: Dempster
Author-Name: C. M. Jones
Author-X-Name-First: C. M.
Author-X-Name-Last: Jones
Title: Can channel pattern trading be profitably automated?
Abstract:
Financial markets, such as the global foreign exchange (FX) market, often
exhibit trending behaviour. Within such trends, the market level
oscillates with changes in market consensus. Continued oscillations of
this type result in the formation of wave patterns within the underlying
trend known as channels, which are used by technical analysts as trade
entry signals. A sample space of such channels has been constructed from a
set of US dollar/British pound Spot FX tick data from 1989-1997 using
pattern recognition algorithms and the profitability of trading using such
patterns has been estimated. A number of attributes of the resulting
collection of channels has been subjected to statistical analysis with the
aim of classifying patterns that can be traded profitably using a number
of simple trading rules. Results of this analysis show that there exist
statistically significant links between the channels' attributes and
profitability.
Journal: The European Journal of Finance
Pages: 275-301
Issue: 3
Volume: 8
Year: 2002
Keywords: Technical Analysis, Technical Trading, Currency Trading, Intra, High Frequency Financial Data, Multivariate Discriminant Analysis, Pattern Recognition,
X-DOI: 10.1080/13518470110052831
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110052831
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:3:p:275-301
Template-Type: ReDIF-Article 1.0
Author-Name: Holger Claessen
Author-X-Name-First: Holger
Author-X-Name-Last: Claessen
Author-Name: Stefan Mittnik
Author-X-Name-First: Stefan
Author-X-Name-Last: Mittnik
Title: Forecasting stock market volatility and the informational efficiency of the DAX-index options market
Abstract:
Alternative strategies for predicting stock market volatility are
examined. In out-of-sample forecasting experiments implied-volatility
information, derived from contemporaneously observed option prices or
history-based volatility predictors, such as GARCH models, are
investigated to determine if they are more appropriate for predicting
future return volatility. Employing German DAX-index return data it is
found that past returns do not contain useful information beyond the
volatility expectations already reflected in option prices. This supports
the efficient market hypothesis for the DAX-index options market.
Journal: The European Journal of Finance
Pages: 302-321
Issue: 3
Volume: 8
Year: 2002
Keywords: Market Efficiency, Implied Volatility, Garch, Combined Forecasting,
X-DOI: 10.1080/13518470110074828
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110074828
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:3:p:302-321
Template-Type: ReDIF-Article 1.0
Author-Name: Kim Nummelin
Author-X-Name-First: Kim
Author-X-Name-Last: Nummelin
Author-Name: Mika Vaihekoski
Author-X-Name-First: Mika
Author-X-Name-Last: Vaihekoski
Title: World capital markets and Finnish stock returns
Abstract:
The paper explores issues related to time-varying global equity market
integration from a Finnish perspective. Finland is an interesting market
since profound economic changes and financial deregulation have taken
place since the mid-1980s. Using Finnish firm size ranked portfolios and a
conditional four-factor asset pricing model, several restrictions on asset
behaviour are examined. It is found that a proxy for changing market
integration — lagged foreign equity ownership — has a
significant impact on the relative importance of local and global risk
factors. Significant differences are found between the pricing of shares
that were freely-available to all (unrestricted shares) and domestic
investors only (restricted shares). Results also suggest that major
capital market reforms profoundly affect the degree of market integration,
but local risk factors do not become redundant.
Journal: The European Journal of Finance
Pages: 322-343
Issue: 3
Volume: 8
Year: 2002
Keywords: Conditional Asset Pricing, Integration, Partial Segmentation, Intertemporal Gmm, Finnish Stock Market,
X-DOI: 10.1080/13518470010007418
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470010007418
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:3:p:322-343
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Abstract:
Journal: The European Journal of Finance
Pages: 345-345
Issue: 4
Volume: 8
Year: 2002
X-DOI: 10.1080/1351847022000047565
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847022000047565
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:4:p:345-345
Template-Type: ReDIF-Article 1.0
Author-Name: Domenico Sartore
Author-X-Name-First: Domenico
Author-X-Name-Last: Sartore
Author-Name: Marcello Esposito
Author-X-Name-First: Marcello
Author-X-Name-Last: Esposito
Title: Guest Editorial
Abstract:
Journal: The European Journal of Finance
Pages: 346-351
Issue: 4
Volume: 8
Year: 2002
X-DOI: 10.1080/1351847021000015803
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000015803
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:4:p:346-351
Template-Type: ReDIF-Article 1.0
Author-Name: Roberto Golinelli
Author-X-Name-First: Roberto
Author-X-Name-Last: Golinelli
Author-Name: Sergio Pastorello
Author-X-Name-First: Sergio
Author-X-Name-Last: Pastorello
Title: Modelling the demand for M3 in the Euro area
Abstract:
Modelling monetary transmission is central to understanding the role of
monetary policy in the Euro area, and money demand is commonly seen as a
link in that transmission mechanism. Since the beginning of the 1990s,
many studies have suggested that the demand for Euro area broad money is
stable over the long run because the estimation of an area-wide demand for
money function provides an appropriate solution to a number of potential
causes of misspecification of the single-country relations (such as
spillover effects and currency substitution), and enjoys the positive
consequences of a statistical averaging effect. On the other side, it must
be stressed that previous benefits can be achieved at the risk of
introducing parameter heterogeneity into the area-wide relationship. In
order to shed some light on the issue, this study is first devoted to an
analysis of the main econometric features of the money M3 demand at Euro
area and single country levels, then it compares the two sets of results
in a common framework that, differently from all previous studies,
explicitly takes account of the potential nonstationarity of the variables
of interest in both estimation and testing phases. The comparison shows
that the area-wide money demand is more smooth and less subject to shocks
than the single-country ones. Finally, a number of poolability tests run
over subgroups highlight that low precision associated with the estimates
of the parameters of the national models makes it impossible to exclude
that their long-run specifications do in fact coincide.
Journal: The European Journal of Finance
Pages: 371-401
Issue: 4
Volume: 8
Year: 2002
Keywords: Money Demand, Area-WIDE, Country-SPECIFIC, Poolability,
X-DOI: 10.1080/13518470210160911
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210160911
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:4:p:371-401
Template-Type: ReDIF-Article 1.0
Author-Name: A. Espasa
Author-X-Name-First: A.
Author-X-Name-Last: Espasa
Author-Name: E. Senra
Author-X-Name-First: E.
Author-X-Name-Last: Senra
Author-Name: R. Albacete
Author-X-Name-First: R.
Author-X-Name-Last: Albacete
Title: Forecasting inflation in the European Monetary Union: A disaggregated approach by countries and by sectors
Abstract:
Inflation in the European Monetary Union is measured by the Harmonized
Indices of Consumer Prices (HICP) and it can be analysed by breaking down
the aggregate index in two different ways. One refers to the breakdown
into price indexes corresponding to big groups of markets throughout the
European countries and another considers the HICP by countries. Both
disaggregations are of interest because in each one, the component prices
are not fully cointegrated, having more than one common factor in their
trends. The paper shows that the breakdown by group of markets improves
the European inflation forecasts and constitutes a framework in which
general and specific indicators can be introduced for further
improvements.
Journal: The European Journal of Finance
Pages: 402-421
Issue: 4
Volume: 8
Year: 2002
Keywords: Core Inflation, Cointegration, Common Factor, Univariate Models, Veqcm, Bottom-UP, Approach,
X-DOI: 10.1080/13518470210167284
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210167284
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:4:p:402-421
Template-Type: ReDIF-Article 1.0
Author-Name: Asmara Jamaleh
Author-X-Name-First: Asmara
Author-X-Name-Last: Jamaleh
Title: Explaining and forecasting the euro/dollar exchange rate through a non-linear threshold model
Abstract:
A linear econometric error correction model (ECM) model is built, based
on short interest rates, gross domestic product (GDP) growth expectations
and inflation differentials, in order to explain the euro/dollar exchange
rate dynamics and provide reliable forecasts. This specification performs
well. However, the introduction of non-linear threshold dynamics provides
a better understanding of 'abnormal' features other than deviations from
long-run equilibrium levels, allowing for the possibility of asymmetric
behaviour. Empirical evidence of this is found in the actual dynamics of
the euro. The non-linear specification performs better than the linear
model in both in-sample fitting and out-of-sample forecasting, showing
that fundamentals hold, working also through some non-linear mechanism, in
explaining the euro/dollar dynamics.
Journal: The European Journal of Finance
Pages: 422-448
Issue: 4
Volume: 8
Year: 2002
Keywords: Euro Dollar Exchange Rate, Economic Fundamentals, Long-RUN, Equilibrium, Outliers, Non-LINEARITY, Threshold Models,
X-DOI: 10.1080/13518470210167301
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210167301
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:4:p:422-448
Template-Type: ReDIF-Article 1.0
Author-Name: Silvia Sgherri
Author-X-Name-First: Silvia
Author-X-Name-Last: Sgherri
Title: The fiscal dimension of a common monetary policy: results with a non-Ricardian global model
Abstract:
The paper studies the interaction of fiscal and monetary policy within an
Economic and Monetary Union (EMU). Results suggest that, in a model in
which bonds and money are counted as net wealth, an important source of
cross-country heterogeneity in response to a common monetary shock is the
differences in national economies' budgetary positions. In particular, we
note that centralising seigniorage revenues may lead, in the long term, to
wealth redistribution across countries. Although institutional
arrangements such as the Stability Pact might not be necessary to ensure
fiscal sustainability, its strict enforcement is shown to be associated
with overall ever-lasting benefits. Transition to the new steady state is,
however, likely to be remarkably costly for high-debt EMU countries.
Finally, different degrees of efficiency characterising European credit
markets do not seem to play a major role in explaining asymmetric
responses.
Journal: The European Journal of Finance
Pages: 449-479
Issue: 4
Volume: 8
Year: 2002
Keywords: Economic And Monetary Union, Asymmetric Monetary Transmissions, Stability, And Growth Pact, Ricardian Non-NEUTRALITIES, Multimod Mark Iii,
X-DOI: 10.1080/1351847021000025759
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000025759
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:4:p:449-479
Template-Type: ReDIF-Article 1.0
Author-Name: Domenico Sartore
Author-X-Name-First: Domenico
Author-X-Name-Last: Sartore
Author-Name: Lucia Trevisan
Author-X-Name-First: Lucia
Author-X-Name-Last: Trevisan
Author-Name: Michele Trova
Author-X-Name-First: Michele
Author-X-Name-Last: Trova
Author-Name: Francesca Volo
Author-X-Name-First: Francesca
Author-X-Name-Last: Volo
Title: US dollar/Euro exchange rate: a monthly econometric model for forecasting
Abstract:
The intent of this paper is the construction of an econometric model able
to produce reliable and reasonable forecasts for the US dollar/Euro real
exchange rate. In order to achieve this aim, an area-wide model is
analysed. The aggregation is motivated by the fact that the Euro-zone is
under a single monetary policy. Furthermore, a more parsimonious
parametric model enables one to consider an important source of
non-stationarity given by the presence of structural breaks using the
multivariate cointegration analysis. Against the Meese-Rogoff critique,
the out-of-sample one-step-ahead forecasts using actual values of the
exogenous produced by the estimated VECM are reasonably satisfactory.
Journal: The European Journal of Finance
Pages: 480-501
Issue: 4
Volume: 8
Year: 2002
Keywords: Real Exchange Rates, Cointegration, Structural Breaks, Area-WIDE Model, Forecasting,
X-DOI: 10.1080/13518470210160894
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210160894
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:8:y:2002:i:4:p:480-501
Template-Type: ReDIF-Article 1.0
Author-Name: Miguel Martinez Sedano
Author-X-Name-First: Miguel Martinez
Author-X-Name-Last: Sedano
Title: Legal constraints, transaction costs and the evaluation of mutual funds
Abstract:
The paper considers the legal restrictions on investment and the
transaction costs related to optimal turnover that affect mutual funds. A
method is developed for mutual fund performance evaluation when both these
factors are included in the reference portfolios, and it is applied to a
sample of available Spanish mutual funds. The poor performance results
reflected in previous studies are not significantly modified. However,
when net returns on the reference portfolios are used in the evaluation
the performance is clearly improved.
Journal: The European Journal of Finance
Pages: 199-218
Issue: 3
Volume: 9
Year: 2003
Keywords: legal restrictions, transaction costs, net returns, reference portfolio, performance,
X-DOI: 10.1080/13518470010011260
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470010011260
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:3:p:199-218
Template-Type: ReDIF-Article 1.0
Author-Name: Hossein Asgharian
Author-X-Name-First: Hossein
Author-X-Name-Last: Asgharian
Title: Are highly leveraged firms more sensitive to an economic downturn?
Abstract:
The paper tests the hypothesis that highly leveraged firms lose market
shares to their less leveraged rivals in an industry downturn. Both
parametric and semiparametric regression methods are applied to analyse
the relationships between firm performance and leverage. It is found that
the highly leveraged firms in distressed industries face relatively lower
sales growth and stock returns but are still able to retain a relatively
higher growth in profitability. The findings may suggest that the decline
in sales of the highly leveraged firms might be a result of managers'
preferences to decrease the activity of product lines with low
profitability.
Journal: The European Journal of Finance
Pages: 219-241
Issue: 3
Volume: 9
Year: 2003
Keywords: financial distress, firm performance, nonlinear model, semiparametric regression, robust regression,
X-DOI: 10.1080/13518470210132381
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210132381
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:3:p:219-241
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Dunis
Author-X-Name-First: Christian
Author-X-Name-Last: Dunis
Author-Name: Jason Laws
Author-X-Name-First: Jason
Author-X-Name-Last: Laws
Author-Name: Stephane Chauvin
Author-X-Name-First: Stephane
Author-X-Name-Last: Chauvin
Title: FX volatility forecasts and the informational content of market data for volatility
Abstract:
The paper examines the medium-term forecasting ability of several
alternative models of currency volatility. The data period covers more
than eight years of daily observations, January 1991 to March 1999, for
the spot exchange rate, 1- and 3-month volatility of the DEM/JPY, GBP/DEM,
GBP/USD, USD/CHF, USD/DEM and USD/JPY. Comparing with the results of
'pure' time series models, the reported work investigates whether market
implied volatility data can add value in terms of medium-term forecasting
accuracy. This is done using data directly available from the marketplace
in order to avoid the potential biases arising from 'backing out'
volatility from a specific option pricing model. On the basis of the over
34 000 out-of-sample forecasts produced, evidence tends to indicate that,
although no single volatility model emerges as an overall winner in terms
of forecasting accuracy, the 'mixed' models incorporating market data for
currency volatility perform best most of the time.
Journal: The European Journal of Finance
Pages: 242-272
Issue: 3
Volume: 9
Year: 2003
Keywords: forecasting accuracy, implied volatility, model combination, volatility models,
X-DOI: 10.1080/13518470210151100
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210151100
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:3:p:242-272
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Pedersen
Author-X-Name-First: Christian
Author-X-Name-Last: Pedersen
Author-Name: Stephen Satchell
Author-X-Name-First: Stephen
Author-X-Name-Last: Satchell
Title: Can NN-algorithms and macroeconomic data improve OLS industry returns forecasts?*
Abstract:
Using an extensive range of macroeconomic indicators and a number of
two-stage models mixing OLS and a non-parametric approach known as the
nearest neighbour algorithm, the authors analyse the potential for
improving forecasts of US industry returns over those built by OLS on
industry-specific variables only. Basic performance is measured by the
average cross-sectional correlation over time between the 55 forecasted
returns and the realized returns across industries. Since investors and
asset managers typically want a steady performance over time, the
volatility of this cross-sectional correlation is further taken into
account in an adaptation of the Sharpe Ratio. Strong evidence is found in
favour of certain macroeconomic factors as dominant industry return
predictors, and some two-stage models based either purely on OLS or a mix
between OLS and the non-linear model can lift both cross-sectional
forecasting correlation and Sharpe Ratio. However, viewed overall in
relation to the benchmark OLS model, performance is not consistently
improved by any particular model.
Journal: The European Journal of Finance
Pages: 273-289
Issue: 3
Volume: 9
Year: 2003
Keywords: nearest neighbour algorithm, OLS industry returns, forecasting,
X-DOI: 10.1080/1351847032000051244
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000051244
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:3:p:273-289
Template-Type: ReDIF-Article 1.0
Author-Name: Graham Smith
Author-X-Name-First: Graham
Author-X-Name-Last: Smith
Author-Name: Hyun-Jung Ryoo
Author-X-Name-First: Hyun-Jung
Author-X-Name-Last: Ryoo
Title: Variance ratio tests of the random walk hypothesis for European emerging stock markets
Abstract:
The hypothesis that stock market price indices follow a random walk is
tested for five European emerging markets, Greece, Hungary, Poland,
Portugal and Turkey, using the multiple variance ratio test. In four of
the markets, the random walk hypothesis is rejected because of
autocorrelation in returns. For the Istanbul market, which had markedly
higher turnover than the other markets in the 1990s, the stock price index
follows a random walk. This contrasts with the results of earlier
research, carried out for periods of lower turnover, which rejected the
random walk hypothesis.
Journal: The European Journal of Finance
Pages: 290-300
Issue: 3
Volume: 9
Year: 2003
Keywords: emerging markets, random walk hypothesis, stock prices, variance ratio tests,
X-DOI: 10.1080/1351847021000025777
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000025777
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:3:p:290-300
Template-Type: ReDIF-Article 1.0
Author-Name: Bruce Burton
Author-X-Name-First: Bruce
Author-X-Name-Last: Burton
Author-Name: A. Alasdair Lonie
Author-X-Name-First: A. Alasdair
Author-X-Name-Last: Lonie
Author-Name: David Power
Author-X-Name-First: David
Author-X-Name-Last: Power
Title: Insider trading, growth opportunities and the market reaction to new financing announcements
Abstract:
The paper examines three hypotheses about the effect of insider trading
on the market response to new financing announcements (NFAs) using a
sample of disclosures made by UK firms between 1989 and 1991. The study
demonstrates first that no systematic relationships exist between the
market response to NFAs and pre-announcement insider trading. Second,
contrary to the predictions of John and Mishra (1990), the values of
growth indicators do not differ significantly between firms that are
subject to insider buying and selling prior to NFAs. Third, while there is
some evidence to suggest that insider trading and growth prospects
influence the market reaction to debt issue announcements, the evidence is
not pervasive across growth measures and does not extend to equity issues.
This final result helps to resolve an apparent contradiction between the
signalling models of John and Mishra (1990), and John and Lang (1991), and
suggests that prior studies of the market reaction to NFAs are not
significantly flawed by their failure to consider the signalling role of
pre-announcement insider trading. The findings are also shown to be
relevant to the current debate about whether, and how, insider trading
regulations should be tightened.
Journal: The European Journal of Finance
Pages: 301-322
Issue: 4
Volume: 9
Year: 2003
X-DOI: 10.1080/1351847021000025786
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000025786
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:4:p:301-322
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Bo Jakobsen
Author-X-Name-First: Jan Bo
Author-X-Name-Last: Jakobsen
Author-Name: Torben Voetmann
Author-X-Name-First: Torben
Author-X-Name-Last: Voetmann
Title: Post-acquisition performance in the short and long run. Evidence from the Copenhagen Stock Exchange 1993-1997
Abstract:
The paper investigates the short-run price adjustment around acquisition
announcements and the long-run upward bias of cross-sectional average
buy-and-hold returns. The geometric Brownian motion model is applied to
decompose the cross-sectional average long-run returns into transformed
mean and volatility components. The decomposition improves the
interpretation of security performance. The methodology is demonstrated on
the security performance of bidding firms listed on the Copenhagen Stock
Exchange. The most surprising finding is that the long-run abnormal return
after three years is not significantly different from zero. This implies
that the bidding firms do not under-perform relative to the market. This
result stands in contrast to findings in other studies and it may reflect
that earlier studies do not adjust correctly for the volatility component.
These current findings indicate that the market efficiency hypothesis is
intact in the long run. It is only in the very short run, a few days
around acquisition announcements, that the market makes a significant
adjustment to uphold the efficiency hypothesis.
Journal: The European Journal of Finance
Pages: 323-342
Issue: 4
Volume: 9
Year: 2003
Keywords: event-study methodology, wealth relatives, long-run returns, acquisitions, right-skewness,
X-DOI: 10.1080/1351847031000074475
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847031000074475
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:4:p:323-342
Template-Type: ReDIF-Article 1.0
Author-Name: Juan-Pedro Gomez
Author-X-Name-First: Juan-Pedro
Author-X-Name-Last: Gomez
Author-Name: Fernando Zapatero
Author-X-Name-First: Fernando
Author-X-Name-Last: Zapatero
Title: Asset pricing implications of benchmarking: a two-factor CAPM
Abstract:
The paper considers the equilibrium effects of an institutional investor
whose performance is benchmarked to an index. In a partial equilibrium
setting, the objective of the institutional investor is modelled as the
maximization of expected utility (an increasing and concave function, in
order to accommodate risk aversion) of final wealth minus a benchmark. In
equilibrium this optimal strategy gives rise to the two-beta CAPM:
together with the market beta a new risk-factor (termed active management
risk) is brought into the analysis. This new beta is defined as the
normalized (to the benchmark's variance) covariance between the asset
excess return and the excess return of the market over the benchmark
index. The empirical test supports the model's predictions. The
cross-section return on the active management risk is positive and
significant, especially after 1990, when institutional investors became
the representative agent of the market.
Journal: The European Journal of Finance
Pages: 343-357
Issue: 4
Volume: 9
Year: 2003
Keywords: asset pricing, benchmark portfolio, relative performance,
X-DOI: 10.1080/1351847021000025768
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000025768
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:4:p:343-357
Template-Type: ReDIF-Article 1.0
Author-Name: Jose Montalvo
Author-X-Name-First: Jose
Author-X-Name-Last: Montalvo
Title: Liquidity and market makers: a pseudo-experimental analysis with ultrahigh frequency data
Abstract:
An analysis is given of the effect of market makers on liquidity using a
transaction-level database. For this purpose, the focus is on a financial
market where a change in regulations created explicitly the category of
market maker in 1997 and that date is used to construct a
pseudo-experiment. In contrast with other studies that use ultrahigh
frequency data, the days to be analysed are selected using a statistical
procedure to match observations before and after the change in regulation.
The propensity score is used to perform the matching. After choosing the
days, an estimate of an ordered probit model is made to explain the
intraday behaviour of price changes. The coefficient estimates from the
ordered probit model are used to calculate a measure of liquidity based on
the steepness of the response function of price changes to volume. The
results show that liquidity, measured in this way, has not been affected
by the introduction of the market makers.
Journal: The European Journal of Finance
Pages: 358-378
Issue: 4
Volume: 9
Year: 2003
Keywords: market makers, change in regulations, ordered probit model, liquidity,
X-DOI: 10.1080/1351847021000025795
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000025795
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:4:p:358-378
Template-Type: ReDIF-Article 1.0
Author-Name: Balasingham Balachandran
Author-X-Name-First: Balasingham
Author-X-Name-Last: Balachandran
Title: UK interim and final dividend reductions: a note on price reaction
Abstract:
Price reactions to interim and final dividend reductions are found to be
significantly negative and stronger for interim dividend reductions.
Although the market reacted negatively around final dividend reduction
announcements it bounced back to its prior level within one month of the
announcements. The magnitude of price reactions to dividend reductions is
found to be statistically related to the size of the dividend reduction,
the post-announcement effect from day 2 to day 20, the pre-announcement
effect from day -20 to day -2, the gearing ratio and the dummy variable
interim versus final dividend reduction.
Journal: The European Journal of Finance
Pages: 379-390
Issue: 4
Volume: 9
Year: 2003
Keywords: price reactions, UK dividend reductions, interim shock effect,
X-DOI: 10.1080/1351847022000028430
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847022000028430
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:4:p:379-390
Template-Type: ReDIF-Article 1.0
Author-Name: Manuel J. da Rocha Armada
Author-X-Name-First: Manuel J.
Author-X-Name-Last: da Rocha Armada
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Abstract:
Journal: The European Journal of Finance
Pages: 392-392
Issue: 5
Volume: 9
Year: 2003
X-DOI: 10.1080/1351847032000166039
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000166039
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:5:p:392-392
Template-Type: ReDIF-Article 1.0
Author-Name: Olivier Brandouy
Author-X-Name-First: Olivier
Author-X-Name-Last: Brandouy
Author-Name: Pascal Barneto
Author-X-Name-First: Pascal
Author-X-Name-Last: Barneto
Author-Name: Lawrence Leger
Author-X-Name-First: Lawrence
Author-X-Name-Last: Leger
Title: Asymmetric information, imitative behaviour and communication: price formation in an experimental asset market
Abstract:
The paper describes experimental results from a simulated stock market
with manipulation of asymmetric information and communication, including
conditions intended to promote imitative behaviour and rumour. Price
discovery was inefficient when the presence of insiders was disguised,
compared to a homogeneous expectations baseline. When the presence of
insiders was revealed observed prices became efficient with respect to bad
news but not with respect to good news, possibly suggesting loss-averse
behaviour. With free communication there was a decrease in both efficiency
and price volatility—insider information was masked by noise. Price
formation under these conditions was similar to baseline, but with weak
evidence of speculative pricing. It is conjectured that other factors than
informational noise may be necessary determinants of herd behaviour, but
further work is indicated.
Journal: The European Journal of Finance
Pages: 393-419
Issue: 5
Volume: 9
Year: 2003
Keywords: experimental markets, limitation, rumour, asymmetric information,
X-DOI: 10.1080/1351847032000087786
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000087786
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:5:p:393-419
Template-Type: ReDIF-Article 1.0
Author-Name: Per Bjarte Solibakke
Author-X-Name-First: Per Bjarte
Author-X-Name-Last: Solibakke
Title: Validity of discrete-time stochastic volatility models in non-synchronous equity markets
Abstract:
The paper investigates the validity of versions of discrete-time
stochastic volatility models for index series known to contain component
stocks exhibiting non-synchronous trading. The efficient method of moments
(EMM) is used to fit versions of the discrete-time stochastic volatility
(SV) model. The EMM methodology confronts moment conditions generated by a
score generator (SNP) that are valid by construction. The moment generator
suggests non-linearity in the index series. The EMM construction shows
that a classical discrete time stochastic volatility model is rejected. An
extended model incorporating an asymmetric volatility specification
validates all the moment scores. Option values from Black and Scholes (BS)
and Monte Carlo simulations (MC) seem significantly different. The results
suggest that BS does not price asymmetry adequately. Asymmetry suggests
increased market risk inducing higher BS call prices and lower (higher) BS
put pricing for ATM and OTM options (ITM) relative to MC.
Journal: The European Journal of Finance
Pages: 420-448
Issue: 5
Volume: 9
Year: 2003
Keywords: non-synchronous trading, discrete-time stochastic volatility, efficient method of moments,
X-DOI: 10.1080/1351847032000087795
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000087795
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:5:p:420-448
Template-Type: ReDIF-Article 1.0
Author-Name: Jongwoo Lee
Author-X-Name-First: Jongwoo
Author-X-Name-Last: Lee
Author-Name: Dean Paxson
Author-X-Name-First: Dean
Author-X-Name-Last: Paxson
Title: Confined exponential approximations for the valuation of American options
Abstract:
We provide an alternative analytic approximation for the value of an
American option using a confined exponential distribution with tight upper
bounds. This is an extension of the Geske and Johnson compound option
approach and the Ho et al. exponential extrapolation method. Use of a
perpetual American put value, and then a European put with high input
volatility is suggested in order to provide a tighter upper bound for an
American put price than simply the exercise price. Numerical results show
that the new method not only overcomes the deficiencies in existing
two-point extrapolation methods for long-term options but also further
improves pricing accuracy for short-term options, which may substitute
adequately for numerical solutions. As an extension, an analytic
approximation is presented for a two-factor American call option.
Journal: The European Journal of Finance
Pages: 449-474
Issue: 5
Volume: 9
Year: 2003
Keywords: confined exponential distribution, analytical approximations, tight upper bounds, two-factor American option,
X-DOI: 10.1080/1351847032000082796
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000082796
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:5:p:449-474
Template-Type: ReDIF-Article 1.0
Author-Name: Joao Amaro De Matos
Author-X-Name-First: Joao Amaro
Author-X-Name-Last: De Matos
Author-Name: Paula Antao
Author-X-Name-First: Paula
Author-X-Name-Last: Antao
Title: Market illiquidity and bounds on European option prices
Abstract:
The paper analyses the impact of illiquidity of a stock paying no
dividends on the pricing of European options written on that stock. In
particular, it is shown how illiquidity generates price bounds on an
option on this stock, even in the absence of other imperfections, such as
transaction costs and trading constraints, or the assumption of stochastic
volatility. Moreover, price bounds are shown to be asymmetric with respect
to the option price under perfect liquidity. This fact explains, under
some conditions, the appearance of a smile effect when the implied
volatility is estimated from the mid-quote.
Journal: The European Journal of Finance
Pages: 475-498
Issue: 5
Volume: 9
Year: 2003
Keywords: illiquidity, stock, dividends, European options, price bounds, smile effect,
X-DOI: 10.1080/1351847032000087777
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000087777
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:5:p:475-498
Template-Type: ReDIF-Article 1.0
Author-Name: Wai Mun Fong
Author-X-Name-First: Wai Mun
Author-X-Name-Last: Fong
Author-Name: Kim Hock See
Author-X-Name-First: Kim Hock
Author-X-Name-Last: See
Title: Basis variations and regime shifts in the oil futures market
Abstract:
The conditional volatility of crude oil futures returns is modelled as a
regime switching process. The model features transition probabilities that
are functions of the basis. Consistent with the theory of storage, in
volatile periods, an increase in backwardation is associated with an
increase in the likellihood of switching to or remaining in the
high-volatility state. Conditional on regimes, GARCH persistence is
significantly reduced. Out-of-sample tests show that incorporating regime
shifts improves the accuracy of short-term volatility forecasts.
Journal: The European Journal of Finance
Pages: 499-513
Issue: 5
Volume: 9
Year: 2003
Keywords: crude oil futures, conditional volatility, regime switching, forecasting, GARCH persistence,
X-DOI: 10.1080/1351847032000082808
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000082808
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:5:p:499-513
Template-Type: ReDIF-Article 1.0
Author-Name: Isabel Vieira
Author-X-Name-First: Isabel
Author-X-Name-Last: Vieira
Title: Evaluating capital mobility in the EU: a new approach using swaps data
Abstract:
The level of capital mobility prevailing within a group of core European
Union (EU) countries is evaluated by means of cointegration-based tests of
the covered interest parity (CIP). Unlike previous studies, this one
concentrates on long maturities, investigating three to ten-year assets,
and employing swap rates as a means of covering foreign exchange risk.
Although CIP has not been previously assessed for EU long-term interest
rates, such evaluation has practical interest. In fact, given EU member
states' scarcity of mechanisms to react to asymmetric shocks, financial
markets may become one major source of adjustment and stabilization. To
this end, it is the mobility of long-term capital that is of critical
importance. The analysis in this paper suggests that long-term financial
flows appear to be completely unrestrained only between domestic Dutch and
German markets.
Journal: The European Journal of Finance
Pages: 514-532
Issue: 5
Volume: 9
Year: 2003
Keywords: financial integration, capital mobility, covered interest parity,
X-DOI: 10.1080/1351847032000082817
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000082817
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:5:p:514-532
Template-Type: ReDIF-Article 1.0
Author-Name: Raphael Markellos
Author-X-Name-First: Raphael
Author-X-Name-Last: Markellos
Author-Name: Terence Mills
Author-X-Name-First: Terence
Author-X-Name-Last: Mills
Title: Asset pricing dynamics
Abstract:
This paper is concerned with the issue of dynamics in financial data and
asset pricing models such as the CAPM. A literature review in this area is
undertaken and highlights the need for a modern time series econometric
approach in asset pricing. Such an approach is discussed and deals with
problems related to structural breaks and microstructures, dynamics in the
mean and variance process, and non-stationary regressions and
cointegration. An empirical application using UK stock market data
demonstrates the merit of the proposed methodology in correcting market
model regressions.
Journal: The European Journal of Finance
Pages: 533-556
Issue: 6
Volume: 9
Year: 2003
Keywords: Capital Asset Pricing Model, time series, econometrics, UK market model,
X-DOI: 10.1080/1351847032000082547
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000082547
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:6:p:533-556
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Brooks
Author-X-Name-First: Chris
Author-X-Name-Last: Brooks
Author-Name: Simon Burke
Author-X-Name-First: Simon
Author-X-Name-Last: Burke
Title: Information criteria for GARCH model selection
Abstract:
In this paper, a set of appropriately modified information criteria for
selection of models from the AR-GARCH class is derived. It is argued that
unmodified or naively modified traditional information criteria cannot be
used for order determination in the context of conditionally
heteroscedastic models. The models selected using the modified criteria
are then used to forecast both the conditional mean and the conditional
variance of two high frequency exchange rate series. The analysis
indicates that although the use of such model selection methods does lead
to significantly improved forecasting accuracies for the conditional
variance in some instances, these improvements are by no means universal.
The use of these criteria to jointly select conditional mean and
conditional variance model orders leads to performance degradation for the
conditional mean forecasts compared to models which do not allow for the
heteroscedasticity.
Journal: The European Journal of Finance
Pages: 557-580
Issue: 6
Volume: 9
Year: 2003
Keywords: Akaike information criterion, Schwarz information criterion, GARCH, high frequency financial data, exchange rate prediction, volatility forecasting,
X-DOI: 10.1080/1351847021000029188
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000029188
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:6:p:557-580
Template-Type: ReDIF-Article 1.0
Author-Name: Matilde Olvido Fernandez
Author-X-Name-First: Matilde Olvido
Author-X-Name-Last: Fernandez
Author-Name: Juan Samuel Baixauli
Author-X-Name-First: Juan Samuel
Author-X-Name-Last: Baixauli
Title: Motives for partial acquisitions between firms in the spanish stock market
Abstract:
The paper analyses the motivations for inter-company investment on the
Spanish Stock Market through the study of a sample of significant
acquisitions reported to the CNMV (the Spanish Securities and Exchange
Commission) by quoted firms. By analysing the sign of the cumulative
abnormal returns (CAR) and of the correlations among the gains produced by
the operation, an attempt is made to find out which motives predominate of
the three most important ones suggested by the literature for takeovers:
synergy, agency and hubris. Empirical evidence is presented that in the
Spanish Stock Market the main motive for acquiring a holding is similar to
synergy, especially in partial acquisitions with positive total gains.
However, in the samples with negative total gains a main motive similar to
hubris always appears. The analysis takes into account the size of the
investment and distinguishes between the first report and subsequent ones.
Results are similar to those obtained by other authors for takeovers in
the US Stock Market, except that in this sample, agency motives do not
appear clearly.
Journal: The European Journal of Finance
Pages: 581-601
Issue: 6
Volume: 9
Year: 2003
Keywords: partial acquisition, event study, seemingly unrelated regression, bootstrap simulations, correlation between gains,
X-DOI: 10.1080/1351847032000051956
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000051956
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:6:p:581-601
Template-Type: ReDIF-Article 1.0
Author-Name: Frank Riedel
Author-X-Name-First: Frank
Author-X-Name-Last: Riedel
Title: Heterogeneous time preferences and interest rates—the preferred habitat theory revisited
Abstract:
The influence of heterogeneous time preferences on the term structure is
studied in the framework of a continuous-time pure exchange economy, in
which agents have, apart from differential time preferences, the same
degree of relative risk aversion. A closed-form solution for the financial
equilibrium is obtained. In equilibrium, one long-term bond and one
short-term bond form a complete market. Agents use these bonds to finance
their consumption plans. The long-term bond is bought by agents with a
long habitat. The short rate is a weighted average of the short rates
which prevail in homogeneous economies populated by one type of agent
only. It is shown by example that heterogeneity of time preferences can
produce additional humps in the yield curve.
Journal: The European Journal of Finance
Pages: 3-22
Issue: 1
Volume: 10
Year: 2004
Keywords: time preferences, term structure, interest rates, Preferred Habitat Theory, heterogeneity,
X-DOI: 10.1080/13518470210160885
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210160885
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:1:p:3-22
Template-Type: ReDIF-Article 1.0
Author-Name: Seth Armitage
Author-X-Name-First: Seth
Author-X-Name-Last: Armitage
Title: Returns after personal tax on UK equity and gilts, 1919-1998
Abstract:
This paper investigates whether personal tax could help explain the size
of the historic equity premium in the UK measured before personal tax. If
there has been a higher tax burden on equity, some of the premium could be
viewed as compensation for tax. It is estimated here that personal tax
reduces the arithmetic mean nominal return on equity from 13.3% to 11.1%
pa during the period 1919-1998, and the mean return on gilts from 7.1% to
5.6% pa. Thus, personal tax accounts for a slightly higher proportion of
the before-tax return on gilts than on equity, implying that the equity
premium is not a compensation for a higher tax burden on equity.
Journal: The European Journal of Finance
Pages: 23-43
Issue: 1
Volume: 10
Year: 2004
Keywords: personal tax, equity risk premium, long term returns,
X-DOI: 10.1080/1351847032000143404
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000143404
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:1:p:23-43
Template-Type: ReDIF-Article 1.0
Author-Name: Hans Bystrom
Author-X-Name-First: Hans
Author-X-Name-Last: Bystrom
Title: Orthogonal GARCH and covariance matrix forecasting: The Nordic stock markets during the Asian financial crisis 1997-1998
Abstract:
In risk management, modelling large numbers of assets and their variances
and covariances in a unified framework is often important. In such
multivariate frameworks, it is difficult to incorporate GARCH models and
thus a new member of the ARCH-family, Orthogonal GARCH, has been suggested
as a remedy to inherent estimation problems in multivariate ARCH
modelling. Orthogonal GARCH creates positive definite covariance matrices
of any size but builds on assumptions that partly break down during stress
scenarios. This article therefore assesses the stress performance of the
model by looking at four Nordic stock indices and covariance matrix
forecasts during the highly volatile years of 1997 and 1998. Overall,
Orthogonal GARCH is found to perform significantly better than traditional
historical variance and moving average methods. Out-of-sample evaluation
measures include symmetric loss functions (RMSE), asymmetric loss
functions, operational methods suggested by the Basle Committee on Banking
Supervision, as well as a forecast evaluation methodology based on pricing
of simulated 'rainbow options'.
Journal: The European Journal of Finance
Pages: 44-67
Issue: 1
Volume: 10
Year: 2004
Keywords: principal components, multivariate GARCH, covariance matrix, forecast evaluation,
X-DOI: 10.1080/1351847032000061379
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000061379
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:1:p:44-67
Template-Type: ReDIF-Article 1.0
Author-Name: Juergen Bufka
Author-X-Name-First: Juergen
Author-X-Name-Last: Bufka
Author-Name: Oliver Kemper
Author-X-Name-First: Oliver
Author-X-Name-Last: Kemper
Author-Name: Dirk Schiereck
Author-X-Name-First: Dirk
Author-X-Name-Last: Schiereck
Title: A note on estimating the divisional cost of capital for diversified companies: an empirical evaluation of heuristic-based approaches
Abstract:
This note provides an empirical analysis of the potential for
heuristic-based approaches to derive a divisional cost of equity from a
firm's total cost of capital. Since an empirical relationship between
fundamental information and systematic risk has previously been shown in
other studies, idiosyncratic information on risk and performance ought to
serve as a good proxy to calculate divisional adjustments. Two practically
used, heuristic-based approaches are tested and a significant relationship
is found between one of the measures and CAPM beta. This method may offer
a plausible and comparatively uncomplicated method for adjusting a firm's
total cost of capital for divisional use.
Journal: The European Journal of Finance
Pages: 68-80
Issue: 1
Volume: 10
Year: 2004
Keywords: divisional cost of capital, heuristic-based approaches, risk adjustment,
X-DOI: 10.1080/1351847032000137410
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000137410
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:1:p:68-80
Template-Type: ReDIF-Article 1.0
Author-Name: Rumi Masih
Author-X-Name-First: Rumi
Author-X-Name-Last: Masih
Author-Name: A. Mansur
Author-X-Name-First: A.
Author-X-Name-Last: Mansur
Author-Name: M. Masih
Author-X-Name-First: M.
Author-X-Name-Last: Masih
Title: Common stochastic trends and the dynamic linkages driving european stock markets: evidence from pre- and post-october 1987 crash eras
Abstract:
Given the impact of the October 1987 crash pre-empting fears of a
deep-seated financial collapse, there is now much scope for assessing its
importance quantitatively. In this paper, time series techniques are used
to analyse the dynamic linkages and propagation of shocks among five
European stock markets. While we do not find any long-run relationship of
stock markets over the entire sample ped, evidence is found in support of
a unique cointegrating vector over each of the pre- and post-crash
samples. Furthermore, the dynamic analysis reveals that the lead-lag
relationships changed quite significantly over the sample following the
crash.
Journal: The European Journal of Finance
Pages: 81-104
Issue: 1
Volume: 10
Year: 2004
Keywords: Stock price index, Pre/post crash, Granger temporal causality, Cointegration, Vector error-correction model, Variance decomposition, Impulse response function,
X-DOI: 10.1080/13518470110040591
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110040591
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:1:p:81-104
Template-Type: ReDIF-Article 1.0
Author-Name: Seppo Ikaheimo
Author-X-Name-First: Seppo
Author-X-Name-Last: Ikaheimo
Author-Name: Anders Kjellman
Author-X-Name-First: Anders
Author-X-Name-Last: Kjellman
Author-Name: Jan Holmberg
Author-X-Name-First: Jan
Author-X-Name-Last: Holmberg
Author-Name: Sari Jussila
Author-X-Name-First: Sari
Author-X-Name-Last: Jussila
Title: Employee stock option plans and stock market reaction: evidence from Finland
Abstract:
This paper examines whether the adoption of stock option plans results in
changes in shareholders' wealth, and whether the stock market reactions to
ESOP announcements could be explained by the target group of ESOP and the
dilution effect. Short-horizon test methods are applied for this purpose.
The sample consists of ESOP announcements of Finnish publicly quoted
companies on the Helsinki Stock Exchange during the time period 1988-1998.
The event study results show a slightly positive market reaction to
announcements of ESOPs targeted to management and a negative market
reaction in the case of ESOPs targeted to all employees. The results of
regression analysis show that the ESOPs with limited dilution convey
positive information to the stock market and the dilution effect has a
negative impact on stock returns, especially in the case of ESOPs targeted
to all employees.
Journal: The European Journal of Finance
Pages: 105-122
Issue: 2
Volume: 10
Year: 2004
Keywords: stock options, security market reaction,
X-DOI: 10.1080/1351847032000137447
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000137447
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:2:p:105-122
Template-Type: ReDIF-Article 1.0
Author-Name: Edward McLaney
Author-X-Name-First: Edward
Author-X-Name-Last: McLaney
Author-Name: John Pointon
Author-X-Name-First: John
Author-X-Name-Last: Pointon
Author-Name: Melanie Thomas
Author-X-Name-First: Melanie
Author-X-Name-Last: Thomas
Author-Name: Jon Tucker
Author-X-Name-First: Jon
Author-X-Name-Last: Tucker
Title: Practitioners' perspectives on the UK cost of capital
Abstract:
The aims of this study were to determine how UK finance practitioners
derive and review the cost of capital, and to ascertain whether the final
figure varied with the choice of method. To investigate behaviour in the
real world a survey questionnaire was employed, eliciting responses from
the finance directors of 193 UK quoted firms. The results suggest that the
cost of capital calculation is subject to wide variation across firms,
both with regard to the overall figure and the precise computation of its
components. The intuitive appeal of the WACC and CAPM approaches appears
to ensure their continued popularity in the real world. However, firms
tend not to make all of the adjustments to the overall figure which
academics might expect, only making simple adjustments for risk and the
tax advantage to debt. The after-tax money cost of capital which is
approximately 10%, is influenced by the choice of method, and firms do not
appear to revise their overall cost figure rapidly in response to the
environment. The cost of capital decision is of such strategic importance
for the longer-term maintenance and expansion of firm value that it is
nearly always made within the domain of the board of directors.
Journal: The European Journal of Finance
Pages: 123-138
Issue: 2
Volume: 10
Year: 2004
Keywords: cost of capital, CAPM, WACC, dividends, earnings,
X-DOI: 10.1080/1351847032000137401
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000137401
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:2:p:123-138
Template-Type: ReDIF-Article 1.0
Author-Name: Frank Westermann
Author-X-Name-First: Frank
Author-X-Name-Last: Westermann
Title: Does the Euro affect the dynamic interactions of stock markets in Europe? Evidence from France, Germany and Italy
Abstract:
The dynamic links between stock market indices are analyzed in a GARCH-M
framework, using daily data from France, Germany, Italy and the USA. It is
shown that indices in the periods before and after the introduction of the
Euro as a single currency display a very distinct behaviour. Consistent
with the literature, in the earlier period price changes are found to have
an impact the next day on other markets. In the latter period this type of
co-movement disappeared within Europe. Feedback trading has been shown to
induce (negative) autocorrelation in national stock markets. In this paper
an international version of the feedback trading model is used to
illustrate that the lead-lag relationships across countries and the
strength of these links depend on the currency regime.
Journal: The European Journal of Finance
Pages: 139-148
Issue: 2
Volume: 10
Year: 2004
Keywords: Euro, feedback trading model, GARCH model, stock market indices,
X-DOI: 10.1080/1351847032000143378
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000143378
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:2:p:139-148
Template-Type: ReDIF-Article 1.0
Author-Name: Nico Valckx
Author-X-Name-First: Nico
Author-X-Name-Last: Valckx
Title: The decomposition of US and Euro area stock and bond returns and their sensitivity to economic state variables
Abstract:
This paper decomposes US and Euro area excess stock and bond return
innovations into news factors using the Campbell-Schiller methodology. The
results indicate that stock return volatility is mostly due to volatility
of future excess return news. Inflation news plays a minor role although
it is significantly correlated with excess return innovations. For the
bond market too, it is future return news—not inflation
news—that moves bond returns most. For finite investment horizons,
however, asset market movements give a differential importance to the
various news components. Results are comparable for the US and the Euro
area, but differ in terms of magnitudes. In addition, sensitivities
('betas') to a set of state variables are estimated, yielding high
interest rate betas and low money growth betas. Generally, inflation,
unemployment and leading indicator betas are significant. Asset market
exposures to oil and exchange rate changes are more significant for the
Euro area than in the US.
Journal: The European Journal of Finance
Pages: 149-173
Issue: 2
Volume: 10
Year: 2004
Keywords: equity premium, term premium, dynamic Gordon model, variance decomposition, asset pricing factor sensitivities,
X-DOI: 10.1080/1351847032000137393
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000137393
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:2:p:149-173
Template-Type: ReDIF-Article 1.0
Author-Name: Gust Janssen
Author-X-Name-First: Gust
Author-X-Name-Last: Janssen
Title: Public information arrival and volatility persistence in financial markets
Abstract:
This paper explores the relationship between daily market volatility and
the arrival of public information in four different financial markets.
Public information is measured as the daily number of economic news
headlines, divided in six categories of news. Statistical analysis of the
news data suggests the presence of particular seasonality effects, as well
as a strong degree of autocorrelation. Over the period 1994-1998,
significant effects of specific news categories on the volatility of US
stocks, treasury bills, bonds and dollar were detected. However, the
effects - in size and duration - vary by news category and by financial
market. It is demonstrated that most of the volatility persistence, as
observed by GARCH models, tends to disappear when news is included in the
conditional variance equation.
Journal: The European Journal of Finance
Pages: 177-197
Issue: 3
Volume: 10
Year: 2004
Keywords: news, volatility, persistence, autocorrelation, GARCH,
X-DOI: 10.1080/1351847022000015812
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847022000015812
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:3:p:177-197
Template-Type: ReDIF-Article 1.0
Author-Name: Carlos Bana
Author-X-Name-First: Carlos
Author-X-Name-Last: Bana
Author-Name: E. Costa
Author-X-Name-First: E.
Author-X-Name-Last: Costa
Author-Name: Joao Oliveira Soares
Author-X-Name-First: Joao Oliveira
Author-X-Name-Last: Soares
Title: A multicriteria model for portfolio management
Abstract:
The paper presents a new model to support the selection of a portfolio of
stocks based on the results of the fieldwork undertaken with fund managers
and using direct rating, MACBETH and optimisation techniques. The model
consists of defining a benchmark portfolio (in this case, the Dow Jones
Eurostoxx50) and scoring its different stocks according to several
expected return criteria. Based on this multicriteria value analysis, a
procedure is proposed to suggest adjustments to the proportions of the
stocks in the portfolio. Finally, the risk of this modified portfolio is
taken into consideration in an optimization module that includes
constraints concerning the limits of variation for the proportion of each
stock.
Journal: The European Journal of Finance
Pages: 198-211
Issue: 3
Volume: 10
Year: 2004
Keywords: portfolio management, financial markets, multicriteria decision analysis,
X-DOI: 10.1080/1351847032000113254
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000113254
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:3:p:198-211
Template-Type: ReDIF-Article 1.0
Author-Name: A. Mayo
Author-X-Name-First: A.
Author-X-Name-Last: Mayo
Title: High-order accurate implicit finite difference method for evaluating American options
Abstract:
A numerical method is presented for valuing vanilla American options on a
single asset that is up to fourth-order accurate in the log of the asset
price, and second-order accurate in time. The method overcomes the
standard difficulty encountered in developing high-order accurate finite
difference schemes for valuing American options; that is, the lack of
smoothness in the option price at the critical boundary. This is done by
making special corrections to the right-hand side of the differnce
equations near the boundary, so they retain their level of accuracy. These
corrections are easily evaluated using estimates of the boundary location
and jump in the gamma that occurs there, such as those developed by Carr
and Eaguet. Results of numerical experiments are presented comparing the
method with more standard finite difference methods.
Journal: The European Journal of Finance
Pages: 212-237
Issue: 3
Volume: 10
Year: 2004
Keywords: American options, finite difference method,
X-DOI: 10.1080/1351847032000168641
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000168641
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:3:p:212-237
Template-Type: ReDIF-Article 1.0
Author-Name: Javier Estrada
Author-X-Name-First: Javier
Author-X-Name-Last: Estrada
Title: The cost of equity of internet stocks: a downside risk approach
Abstract:
Beta as a measure of risk has been under fire for many years. Although
practitioners still widely use the CAPM to estimate the cost of equity of
companies, they are aware of its problems and are looking for
alternatives. A possible alternative is to estimate the cost of equity
based on the semideviation, a well-known and intuitively plausible measure
of downside risk. Complementing evidence reported elsewhere about the
ability of the semideviation to explain the cross-section of returns in
emerging markets and that of industries in emerging markets, this article
reports results showing that the semideviation also explains the
cross-section of Internet stock returns.
Journal: The European Journal of Finance
Pages: 239-254
Issue: 4
Volume: 10
Year: 2004
Keywords: Internet, equity, risk, beta, downside, semideviation,
X-DOI: 10.1080/1351847032000137429
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000137429
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:4:p:239-254
Template-Type: ReDIF-Article 1.0
Author-Name: Patricia Fraser
Author-X-Name-First: Patricia
Author-X-Name-Last: Fraser
Author-Name: Foort Hamelink
Author-X-Name-First: Foort
Author-X-Name-Last: Hamelink
Author-Name: Martin Hoesli
Author-X-Name-First: Martin
Author-X-Name-Last: Hoesli
Author-Name: Bryan Macgregor
Author-X-Name-First: Bryan
Author-X-Name-Last: Macgregor
Title: Time-varying betas and the cross-sectional return-risk relation: evidence from the UK
Abstract:
The seminal study by Fama and MacBeth in 1973 initiated a stream of
papers testing for the cross-sectional relation between return and risk.
The debate as to whether beta is a valid measure of risk was reanimated by
Fama and French and subsequent studies. Rather than focusing on exogenous
variables that have a larger explanatory power than an asset's beta in
cross-sectional tests, the matrix of variances-covariances is assumed to
follow a time varying ARCH process. Using monthly data from the UK market
from February 1975 to December 1996, the cross-sectional return-risk
relations obtained with an unconditional specification for assets' betas
are compared to those obtained when the estimated betas are based on an
ARCH model. The approach taken by Pettengill, Sundaram and Mathur, which
allows a negative cross sectional return-risk relation in periods in which
the market portfolio yields a negative return relative to the risk free
rate, was also investigated. These tests are also carried out on samples
pertaining to a specific month and on samples from which a particular
month is removed. Results suggest that the CAPM holds better in downward
moving markets than in upward moving markets hence beta is a more
appropriate measure of risk in bear markets.
Journal: The European Journal of Finance
Pages: 255-276
Issue: 4
Volume: 10
Year: 2004
Keywords: CAPM, QTARCH, return-risk relation, UK market,
X-DOI: 10.1080/13518470110053407
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110053407
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:4:p:255-276
Template-Type: ReDIF-Article 1.0
Author-Name: Ralf Ostermark
Author-X-Name-First: Ralf
Author-X-Name-Last: Ostermark
Author-Name: Jaana Aaltonen
Author-X-Name-First: Jaana
Author-X-Name-Last: Aaltonen
Author-Name: Henrik Saxen
Author-X-Name-First: Henrik
Author-X-Name-Last: Saxen
Author-Name: Kenneth Soderlund
Author-X-Name-First: Kenneth
Author-X-Name-Last: Soderlund
Title: Nonlinear modelling of the Finnish Banking and Finance branch index
Abstract:
It is well documented that daily returns of several financial assets
cannot be modelled by pure linear processes. It seems to be generally
accepted that many economic variables follow nonlinear processes. The
sources of nonlinearity can be divided in two classes: those where
nonlinearities stem from the conditional variance and those where
non-linearities enter through the conditional mean. Efforts in modelling
the former have resulted in development of the ARCH-family models. There
is, however, less evidence on nonlinearity in the mean of financial time
series. One family of models that is applied in finance is the STAR. In
this paper some nonlinear modelling techniques are applied to a Finnish
financial time series, the daily Banking and Finance branch index on the
Helsinki Stock Exchange. The techniques include a variance-nonlinear model
from the ARCH family, a mean-nonlinear model, namely Smooth Transition
Autoregression (STAR)-model and a neural network. Linearity is tested for
by standard autocorrelation tests, LM-tests against the specific nonlinear
models and the BDS-test. The study provides supplements to a range of
earlier research. It demonstrates that the stock series is both linearly
and nonlinearly dependent. Adapting an ARCH(3) eliminates the dependencies
most satisfactorily. The ARCH-models and STAR-models were estimated using
the SHAZAM-package.
Journal: The European Journal of Finance
Pages: 277-289
Issue: 4
Volume: 10
Year: 2004
Keywords: nonlinear time series, variance-nonlinearity, mean-nonlinearity,
X-DOI: 10.1080/13518470210124641
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210124641
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:4:p:277-289
Template-Type: ReDIF-Article 1.0
Author-Name: Mary Thomson
Author-X-Name-First: Mary
Author-X-Name-Last: Thomson
Author-Name: Andrew Pollock
Author-X-Name-First: Andrew
Author-X-Name-Last: Pollock
Author-Name: Karen Henriksen
Author-X-Name-First: Karen
Author-X-Name-Last: Henriksen
Author-Name: Alex Macaulay
Author-X-Name-First: Alex
Author-X-Name-Last: Macaulay
Title: The influence of the forecast horizon on judgemental probability forecasts of exchange rate movements
Abstract:
An experiment is reported which compares directional forecasting
performance of experts, novices and simple statistical models over three
time horizons on a task involving probabilistic forecasts of exchange rate
movements. Probability-judgement accuracy analyses illustrated no clear
overall performance differences between experts and novices, but
significant differences between the groups on various important components
of judgement suggested that the groups obtained their similar overall
scores using different cognitive strategies. Striking horizon effects and
expertize-horizon interactions were also observed. The subjects performed
better than a random walk forecaster, but worse than the random walk with
constant drift and first-order autoregressive models. Composite human
judgement, however, not only improved on individual judgement but, also,
surpassed the simple statistical models in many instances. Possible
explanations are offered for these results, suggestions are made for
future research, and practical implications are emphasized.
Journal: The European Journal of Finance
Pages: 290-307
Issue: 4
Volume: 10
Year: 2004
Keywords: exchange rate movements, forecasting, judgement, probability,
X-DOI: 10.1080/13518470110047620
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110047620
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:4:p:290-307
Template-Type: ReDIF-Article 1.0
Author-Name: Sudipto Sarkar
Author-X-Name-First: Sudipto
Author-X-Name-Last: Sarkar
Title: Yield spreads, agency costs and the corporate bond call feature
Abstract:
This paper theoretically compares yields and optimal default policies for
callable and non-callable corporate debt. It shows that, contrary to the
conventional wisdom, it is possible for the yield spread (callable minus
non-callable) to be negative. It also identifies the key determinants of
the yield spread. Next, it shows that the optimal default trigger for
non-callable debt is higher than the trigger for callable debt, resulting
in additional default-related costs. Thus, the use of non-callable debt
gives rise to an indirect agency cost of early default, which is the
difference in total firm value with callable and non-callable debt. This
agency cost provides a rationale for the existence of callable debt. By
examining the determinants of the magnitude of this agency cost, the
conditions that make callable debt more attractive (to the issuing firm)
relative to non-callable debt are identified. This allows certain
predictions to be made regarding the likelihood of a call feature in a
corporate bond. The model's implications are supported by existing
empirical studies.
Journal: The European Journal of Finance
Pages: 308-327
Issue: 4
Volume: 10
Year: 2004
Keywords: callable debt yield spread, agency cost, default policy,
X-DOI: 10.1080/13518470110046162
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110046162
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:4:p:308-327
Template-Type: ReDIF-Article 1.0
Author-Name: Wojciech Charemza
Author-X-Name-First: Wojciech
Author-X-Name-Last: Charemza
Author-Name: Kalvinder Shields
Author-X-Name-First: Kalvinder
Author-X-Name-Last: Shields
Author-Name: Anna Zalewska
Author-X-Name-First: Anna
Author-X-Name-Last: Zalewska
Title: Predictability of stock markets with disequilibrium trading
Abstract:
This paper analyses the predictability of a hypothetical market with
freely negotiated prices on which exists a censoring of one-period returns
which are in excess of an arbitrary level ('floor' and 'ceiling'). It is
shown that the expected value of returns (adjusted for drift) conditional
on last period information regarding the censoring are equal to zero (and
therefore the market is not predictable in mean) if there is no
intertemporal spillover on the market. A simple simulation model is
proposed and applied for the analysis of the effects of intertemporal and
cross-spillovers resulting from quantity constraints. Statistical
predictability tests are proposed, based on the corrected Student-t
statistic of a regression of returns of some information concerning the
previous censoring. An illustrative empirical analysis of six main time
series of returns on the Warsaw Stock Exchange confirms their ex-ante, but
not ex-post, predictability.
Journal: The European Journal of Finance
Pages: 329-344
Issue: 5
Volume: 10
Year: 2004
Keywords: efficient markets, East European financial markets, censored returns,
X-DOI: 10.1080/13518470210167293
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210167293
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:5:p:329-344
Template-Type: ReDIF-Article 1.0
Author-Name: Pawel Miłobędzki
Author-X-Name-First: Pawel
Author-X-Name-Last: Miłobędzki
Title: Predictability of stock markets with disequilibrium trading. A commentary paper
Abstract:
The paper focuses on the problem of predictability of stock market
returns with disequilibrium trading. It is shown that the predictability
of returns may be the consequence of quantity constraints appearing in the
markets due to the imposition of administrative restrictions on trade. A
relevant test of predictability for the Warsaw Stock Exchange (WSE) based
on information referring to disequilibrium states occurrence is proposed.
The empirical results of its application to the WSE on a sample containing
session-to-session observations from the period January 1995 to December
1999 strongly support the hypothesis of predictability.
Journal: The European Journal of Finance
Pages: 345-352
Issue: 5
Volume: 10
Year: 2004
Keywords: efficient market hypothesis, martingale, predictability of stock returns, disequilibrium trading, emerging markets, Warsaw Stock Exchange,
X-DOI: 10.1080/1351847042000199033
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000199033
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:5:p:345-352
Template-Type: ReDIF-Article 1.0
Author-Name: Daniel Lane
Author-X-Name-First: Daniel
Author-X-Name-Last: Lane
Author-Name: William Ziemba
Author-X-Name-First: William
Author-X-Name-Last: Ziemba
Title: Jai Alai arbitrage strategies
Abstract:
This paper presents arbitrage and risk arbitrage betting strategies for
Team Jai Alai. This game is the setting for the analysis and most results
generalize to other sports betting situations and some financial market
applications. The arbitrage conditions are utility free while the risk
arbitrage wagers are constructed according to the Kelly criterion/capital
growth theory that maximizes asymptotically long-run wealth almost surely.
Journal: The European Journal of Finance
Pages: 353-369
Issue: 5
Volume: 10
Year: 2004
Keywords: arbitrage, risk arbitrage, hedging, sequential investing,
X-DOI: 10.1080/1351847042000254239
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000254239
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:5:p:353-369
Template-Type: ReDIF-Article 1.0
Author-Name: David Edelman
Author-X-Name-First: David
Author-X-Name-Last: Edelman
Author-Name: Nigel O'Brian
Author-X-Name-First: Nigel
Author-X-Name-Last: O'Brian
Title: Tote arbitrage and lock opportunities in racetrack betting
Abstract:
A game-theoretic approach to the investigation of arbitrage opportunities
based on combinations of exotic wagers for the same event is described.
This situation is also known as a 'lock' or 'Dutch Book'. The technique is
applied to recent totalizator data from Australian thoroughbred races. It
appears that such opportunities appear fairly regularly, at least
according to published final dividends for various bet types. The method
is demonstrated in some detail on a particular example.
Journal: The European Journal of Finance
Pages: 370-378
Issue: 5
Volume: 10
Year: 2004
Keywords: dutch book, lock, arbitrage, zero-sum game, minimax, totalisator, pari-mutuel, gambling, bet, wager, racetrack,
X-DOI: 10.1080/1351847042000199042
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000199042
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:5:p:370-378
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Cain
Author-X-Name-First: Michael
Author-X-Name-Last: Cain
Author-Name: David Peel
Author-X-Name-First: David
Author-X-Name-Last: Peel
Title: The utility of gambling and the favourite-longshot bias
Abstract:
The traditional explanation for the usual favourite-longshot bias in
gambling is that gamblers are risk-lovers. Conditions are derived under
which the bias occurs and it is shown to be consistent with a utility
function that has elasticity greater than one in a certain range. With a
utility function that displays risk-aversion as well as risk-loving
behaviour over its domain, it is demonstrated that the expected return-win
probability frontier is not monotonic as has been hitherto tacitly
assumed. This provides a consistent explanation for both the usual
favourite-longshot bias and also for the few examples where a reverse bias
has been observed. Pooled data supports the thesis that the frontier is
not completely monotonic but does indeed have a turning point.
Journal: The European Journal of Finance
Pages: 379-390
Issue: 5
Volume: 10
Year: 2004
Keywords: betting markets, risk-return frontier, reverse bias,
X-DOI: 10.1080/1351847042000199051
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000199051
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:5:p:379-390
Template-Type: ReDIF-Article 1.0
Author-Name: Simon Stevenson
Author-X-Name-First: Simon
Author-X-Name-Last: Stevenson
Title: A performance evaluation of portfolio managers: tests of micro and macro forecasting
Abstract:
This study examines the performance of Irish domiciled funds over the
period 1988 to 2000. The study specifically examines whether Irish
portfolio managers, particularly in light of the small and thinly traded
domestic market, can effectively partake in micro or macro forecasting.
Four alternative models are used to jointly assess micro and macro
forecasting, while a fifth non-parametric model is used to solely examine
market timing effects. The results reveal consistent evidence of poor
micro forecasting/stock selection ability across the funds examined. The
macro forecasting results are more varied, with some evidence of positive
timing ability in two of the models. In addition, significant correlations
are generally found between the funds micro and macro forecasting ability,
while diagnostic tests reveal limited evidence of mis-specification in the
models used.
Journal: The European Journal of Finance
Pages: 391-411
Issue: 5
Volume: 10
Year: 2004
Keywords: Ireland, portfolio managers, micro/macro forecasting, models, market timing,
X-DOI: 10.1080/1351847032000143413
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000143413
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:5:p:391-411
Template-Type: ReDIF-Article 1.0
Author-Name: Nihat Aktas
Author-X-Name-First: Nihat
Author-X-Name-Last: Aktas
Author-Name: Eric de Bodt
Author-X-Name-First: Eric
Author-X-Name-Last: de Bodt
Author-Name: Michel Levasseur
Author-X-Name-First: Michel
Author-X-Name-Last: Levasseur
Title: Heterogeneity effects from market interventions
Abstract:
The aim of this paper is to test whether the European Commission
activities generate a heterogeneity effect on the merging parties. A
sample of 74 firms involved in 45 contested merger and acquisition
operations during the years 1990 to 1999 is used. The methodology is based
on the GARCH framework. The main result is that, globally, the DGC
interventions seem not to reduce significantly the heterogeneity among
investors, except for the operations where it takes strong decisions like
prohibition. In these last cases, the signal coming from the DGC
encompasses valuable information and is well understood by market
participants.
Journal: The European Journal of Finance
Pages: 412-436
Issue: 5
Volume: 10
Year: 2004
Keywords: heterogeneity, flow of information, event studies, (G)ARCH, abnormal returns,
X-DOI: 10.1080/1351847032000166922
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000166922
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:5:p:412-436
Template-Type: ReDIF-Article 1.0
Author-Name: Edward Jones
Author-X-Name-First: Edward
Author-X-Name-Last: Jones
Author-Name: Jo Danbolt
Author-X-Name-First: Jo
Author-X-Name-Last: Danbolt
Author-Name: Ian Hirst
Author-X-Name-First: Ian
Author-X-Name-Last: Hirst
Title: Company investment announcements and the market value of the firm
Abstract:
This paper examines the stock market reaction to 402 company investment
announcements made by UK companies during the 1991-1996 period. The
market-adjusted abnormal returns are generally positive but small.
Investment announcements are classified according to functional
categories, and we find the level of abnormal returns to vary according to
the type of capital investment being announced. In particular, we find the
market to react more favourably to investments that 'create' future
investment opportunities, than to investments which can be categorized as
'exercising' investment opportunities. The market reaction also varies
with firm size, with large companies tending to experience smaller
responses to announcements than do smaller firms. Chung et al. (1998)
reported that the quality of a company's investment opportunities is the
primary determinant of market reactions to capital expenditure decisions.
The findings presented here lend some support to a role for investment
opportunities in market valuations. Project size is also found to have a
significant positive impact on the level of abnormal returns.
Journal: The European Journal of Finance
Pages: 437-452
Issue: 5
Volume: 10
Year: 2004
Keywords: capita1 investment, investment announcements, event study,
X-DOI: 10.1080/1351847032000168696
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000168696
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:5:p:437-452
Template-Type: ReDIF-Article 1.0
Author-Name: Francisco Alonso
Author-X-Name-First: Francisco
Author-X-Name-Last: Alonso
Author-Name: Roberto Blanco
Author-X-Name-First: Roberto
Author-X-Name-Last: Blanco
Author-Name: Ana Del Rio
Author-X-Name-First: Ana Del
Author-X-Name-Last: Rio
Author-Name: Alicia Sanchis
Author-X-Name-First: Alicia
Author-X-Name-Last: Sanchis
Title: Estimating liquidity premia in the Spanish government securities market
Abstract:
This paper investigates the presence of liquidity premia in the relative
pricing of assets traded on the Spanish government securities market.
First, a classification of bonds into four different categories based on
their degree of liquidity is proposed. Second, liquidity premia are
estimated introducing liquidity parameters in the estimation of the
zero-coupon yield curve. Results suggest the existence of a liquidity
premium for post-benchmark bonds (both strippable and non-strippable). The
size of this premium is relatively small. In the case of pre-benchmark
bonds, the lack of liquidity does not seem to be priced. It is also shown
that these pricing discrepancies are robust to the impact of taxes on
bonds.
Journal: The European Journal of Finance
Pages: 453-474
Issue: 6
Volume: 10
Year: 2004
Keywords: liquidity premium, bid-ask spread, yield curve, benchmark,
X-DOI: 10.1080/1351847042000254202
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000254202
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:6:p:453-474
Template-Type: ReDIF-Article 1.0
Author-Name: Abdulnasser Hatemi-J
Author-X-Name-First: Abdulnasser
Author-X-Name-Last: Hatemi-J
Author-Name: Eduardo Roca
Author-X-Name-First: Eduardo
Author-X-Name-Last: Roca
Title: An examination of the equity market price linkage between Australia and the European Union using leveraged bootstrap method
Abstract:
The paper examines the equity market price interaction between Australia
and the European Union - represented by the UK, Germany and France - based
on the Toda-Yamamoto causality test, which is bootstrapped with leveraged
adjustments. A new information criterion is used to choose the optimal lag
order. Weekly MSCI data covering the period 1988 to 2001 is used, divided
into two subperiods to allow for a structural break arising from the ERM
crisis of 1992. Results show that, during the period before the ERM
crisis, no significant causal links exist between Australia and any of
three EU countries. During the period after the ERM crisis, Australia also
had no causal links with Germany and France but it had with the UK, with
causality running from the UK to Australia but not vice-versa. Thus,
Australian investors may find the German and French, but not the UK,
equity markets, attractive venues for their international diversification.
German and French, but not British, investors may also obtain the same
benefit from the Australian equity market.
Journal: The European Journal of Finance
Pages: 475-488
Issue: 6
Volume: 10
Year: 2004
Keywords: equity market integration, leveraged bootstrap, causality, European Union,
X-DOI: 10.1080/1351847032000168678
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000168678
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:6:p:475-488
Template-Type: ReDIF-Article 1.0
Author-Name: Jyh-Bang Jou
Author-X-Name-First: Jyh-Bang
Author-X-Name-Last: Jou
Author-Name: Tan Lee
Author-X-Name-First: Tan
Author-X-Name-Last: Lee
Title: The agency problem, investment decision, and optimal financial structure
Abstract:
This article constructs a real options model in which a firm has a
privileged right to exercise an irreversible investment project with a
stochastic payoff. Supposing that the investment costs are fully sunk, a
firm that exercises the investment option after debt is in place will then
choose a better state to exercise this option as it issues more bonds.
This debt-overhang phenomenon, however, benefits the firm since waiting is
itself valuable. Accordingly, the firm will both exercise the investment
option later and issue more bonds as compared with a firm that issues
bonds upon exercising the investment option.
Journal: The European Journal of Finance
Pages: 489-509
Issue: 6
Volume: 10
Year: 2004
Keywords: bankruptcy, financial structure, irreversible investment, limited liability,
X-DOI: 10.1080/1351847032000168669
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000168669
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:6:p:489-509
Template-Type: ReDIF-Article 1.0
Author-Name: Attila Odabasl
Author-X-Name-First: Attila
Author-X-Name-Last: Odabasl
Author-Name: Celal Asku
Author-X-Name-First: Celal
Author-X-Name-Last: Asku
Author-Name: Vedat Akgiray
Author-X-Name-First: Vedat
Author-X-Name-Last: Akgiray
Title: The statistical evolution of prices on the Istanbul stock exchange
Abstract:
This study documents the statistical properties of the stock returns on
the Istanbul Stock Exchange (ISE) for the January 1988 to December 1999
period and tries to assess the evolution of the underlying stochastic
structure over this time period. It also investigates empirically the
relative efficiency of the ISE to test whether the rapid development of
this market over the last decade caused it to become a relatively more
efficient market. This is accomplished through a number of parametric and
non-parametric tests of the random walk hypothesis using daily, weekly and
monthly observations of the value-weighted ISE-100 index series. The
emphasis is more on the evolution of the price process than on static
tests of a random walk model as such. The findings indicate that the price
mechanism in the ISE has evolved into a more informationally efficient
process in little more than a decade of existence.
Journal: The European Journal of Finance
Pages: 510-525
Issue: 6
Volume: 10
Year: 2004
Keywords: market efficiency, emerging markets, ISE Index returns, unit-root tests, variance-ratio tests, non-stationarity,
X-DOI: 10.1080/1351847032000166931
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000166931
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:6:p:510-525
Template-Type: ReDIF-Article 1.0
Author-Name: Victor Gonzalez
Author-X-Name-First: Victor
Author-X-Name-Last: Gonzalez
Author-Name: Francisco Gonzalez
Author-X-Name-First: Francisco
Author-X-Name-Last: Gonzalez
Title: Stock repurchases with legal restrictions. Evidence from Spain
Abstract:
This paper analyses the consequences of legal restrictions on the volume
of shares firms can repurchase. Results suggest that the imposition of a
limit on the volume of common stock favours the use of open market
repurchases (OMRs) compared to other methods of repurchase such as tender
offer repurchases (TORs) and Dutch auctions (DAs). The positive share
abnormal returns around both announcements of open market buybacks and
sellbacks in the full sample suggest that they are basically used to
change the ownership structure of the firm in a consistent way with the
convergence of interest hypothesis. The positive abnormal stock returns
around open market repurchases, which are significantly different to the
negative ones around sellbacks, when there are no changes in ownership
structure also indicates the existence of a signalling and free cash flow
effects.
Journal: The European Journal of Finance
Pages: 526-541
Issue: 6
Volume: 10
Year: 2004
Keywords: buybacks, sellbacks, corporate control, signalling, free cash flow, event study,
X-DOI: 10.1080/13518470410001674341
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470410001674341
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:6:p:526-541
Template-Type: ReDIF-Article 1.0
Author-Name: Roberto Pascual
Author-X-Name-First: Roberto
Author-X-Name-Last: Pascual
Author-Name: Alvaro Escribano
Author-X-Name-First: Alvaro
Author-X-Name-Last: Escribano
Author-Name: Mikel Tapia
Author-X-Name-First: Mikel
Author-X-Name-Last: Tapia
Title: On the bi-dimensionality of liquidity
Abstract:
Variations in overall liquidity can be measured by simultaneous changes
in both immediacy costs and depth. Liquidity changes, however, are
ambiguous whenever both liquidity dimensions do not reinforce each other.
In this paper, ambiguity is characterized using an instantaneous
time-varying elasticity concept. Several bi-dimensional liquidity measures
that cope with the ambiguity problem are constructed. First, it is shown
that bi-dimensional measures are superior since commonalities in overall
liquidity cannot be fully explained by the common factors in
one-dimensional proxies of liquidity. Second, it is shown that an
infinitesimal variation in either market volatility or trading activity
augments the probability of observing an unambiguous liquidity adjustment.
Ambiguity strongly depends on the expected (deterministic) component of
volatility.
Journal: The European Journal of Finance
Pages: 542-566
Issue: 6
Volume: 10
Year: 2004
Keywords: liquidity, measurement, immediacy, depth, elasticity, ambiguity, bi-dimensional,
X-DOI: 10.1080/13518470410001674323
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470410001674323
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:6:p:542-566
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Bartholdy
Author-X-Name-First: Jan
Author-X-Name-Last: Bartholdy
Author-Name: Glenn Boyle
Author-X-Name-First: Glenn
Author-X-Name-Last: Boyle
Author-Name: Roger Stover
Author-X-Name-First: Roger
Author-X-Name-Last: Stover
Title: Deposit insurance and the stock market: evidence from Denmark
Abstract:
Previous studies of the relationship between deposit insurance and bank
market values have usually been limited to consideration of minor changes
in bank regulations, but the 1987 initiation of deposit insurance in
Denmark permits examination of a potentially major policy shift. It is
found that the market values of large Danish banks exhibited a modest
positive reaction to the announcement of insurance, but that small risky
banks responded negatively. These results partially contrast with those
previously found for the USA, an outcome that seems likely to reflect the
interaction of deposit insurance with the particular characteristics of
the pre-existing Danish regulatory system.
Journal: The European Journal of Finance
Pages: 567-578
Issue: 6
Volume: 10
Year: 2004
Keywords: deposit insurance, bank regulation, Denmark,
X-DOI: 10.1080/1351847042000255670
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000255670
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:10:y:2004:i:6:p:567-578
Template-Type: ReDIF-Article 1.0
Author-Name: Soosung Hwang
Author-X-Name-First: Soosung
Author-X-Name-Last: Hwang
Author-Name: Steve Satchell
Author-X-Name-First: Steve
Author-X-Name-Last: Satchell
Title: Valuing information using utility functions: how much should we pay for linear factor models?
Abstract:
Thus paper reports on an investigation into what is an appropriate level
of investment management fees. Existing results are extended and several
formulae are provided for the case of power utility and normal returns.
Using the CRRA utility function with the range of the coefficient of the
CRRA suggested by Mehra and Prescott, it is found that the value of
information added by the linear factor models of Fama and French exceeds
observed management fees and only equals them for hitherto unmeasured
magnitudes of risk aversion.
Journal: The European Journal of Finance
Pages: 1-16
Issue: 1
Volume: 11
Year: 2005
Keywords: CAPM, Fama-French model, value of information, logarithmic and power utilities,
X-DOI: 10.1080/1351847042000286630
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000286630
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:1:p:1-16
Template-Type: ReDIF-Article 1.0
Author-Name: Peter Anker
Author-X-Name-First: Peter
Author-X-Name-Last: Anker
Author-Name: Jorn Wasmund
Author-X-Name-First: Jorn
Author-X-Name-Last: Wasmund
Title: Signalling with official interest rates: the case of the German discount and lombard rate
Abstract:
A major characteristic of the operating procedure of the European Central
Bank (ECB) is its reliance on standing facilities. It is intended that the
official rates on those facilities also serve the function of signalling.
The case of Germany, where the Bundesbank followed a similar signalling
strategy, is analysed. In particular the paper investigates whether
announcements of official interest rates provide information not already
contained in other policy measures and whether the resulting revisions of
expectations are efficient. Significant differences are found between
signalling in the case of increasing and decreasing interest rates.
Journal: The European Journal of Finance
Pages: 17-31
Issue: 1
Volume: 11
Year: 2005
Keywords: Term structure, operating procedure, market efficiency,
X-DOI: 10.1080/13518470010011251
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470010011251
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:1:p:17-31
Template-Type: ReDIF-Article 1.0
Author-Name: Bjorn Hansson
Author-X-Name-First: Bjorn
Author-X-Name-Last: Hansson
Author-Name: Peter Hordahl
Author-X-Name-First: Peter
Author-X-Name-Last: Hordahl
Title: Forecasting variance using stochastic volatility and GARCH
Abstract:
This paper estimates the conditional variance of daily Swedish OMX-index
returns with stochastic volatility (SV) models and GARCH models and
evaluates the in-sample performance as well as the out-of-sample
forecasting ability of the models. Asymmetric as well as weekend/holiday
effects are allowed for in the variance, and the assumption that errors
are Gaussian is released. Evidence is found of a leverage effect and of
higher variance during weekends. In both in-sample and out-of-sample
comparisons SV models outperform GARCH models. However, while asymmetry,
weekend/holiday effects and non-Gaussian errors are important for the
in-sample fit, it is found that these factors do not contribute to
enhancing the forecasting ability of the SV models.
Journal: The European Journal of Finance
Pages: 33-57
Issue: 1
Volume: 11
Year: 2005
Keywords: Variance, stochastic volatility, GARCH models, forecasting ability, weekend/holiday effects,
X-DOI: 10.1080/1351847021000025803
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847021000025803
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:1:p:33-57
Template-Type: ReDIF-Article 1.0
Author-Name: Giampaolo Gabbi
Author-X-Name-First: Giampaolo
Author-X-Name-Last: Gabbi
Author-Name: Andrea Sironi
Author-X-Name-First: Andrea
Author-X-Name-Last: Sironi
Title: Which factors affect corporate bonds pricing? Empirical evidence from eurobonds primary market spreads
Abstract:
The question of which factors determine corporate bonds pricing is
investigated by analysing the spreads of eurobonds issued by major G-10
companies during the 1991-2001 period. Three main results emerge from the
analysis. First, bond ratings appear as the most important determinant of
yield spreads, with investors' reliance on rating agencies judgments
increasing over time. Second, the primary market efficiency and the
expected secondary market liquidity are not relevant explanatory factors
of spreads cross-sectional variability. Finally, rating agencies adopt a
different, 'through the cycle', evaluation criteria of default risk with
respect to the forward looking one adopted by bond investors.
Journal: The European Journal of Finance
Pages: 59-74
Issue: 1
Volume: 11
Year: 2005
Keywords: Eurobonds, credit ratings, spreads, default risk, bonds,
X-DOI: 10.1080/1351847032000143422
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000143422
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:1:p:59-74
Template-Type: ReDIF-Article 1.0
Author-Name: Tobias Miarka
Author-X-Name-First: Tobias
Author-X-Name-Last: Miarka
Author-Name: Michael Troge
Author-X-Name-First: Michael
Author-X-Name-Last: Troge
Title: Do bank-firm relationships reduce bank debt? Evidence from Japan
Abstract:
The paper analyses how close relationships to banks influence a firm's
choice of financing its debt through publicly marketed bonds or bank
loans. It is shown that large Japanese firms use less bank debt, if banks
own shares in the firm or bank employees are members of the firm's board.
This result supports a theoretical framework, where banks are able to
control agency problems associated with debt. Firms use bank loans in
order to be monitored, which enables them to access cheaper bond finance.
Closer bank-firm relationships facilitate monitoring for the bank and
reduce therefore the need for bank finance.
Journal: The European Journal of Finance
Pages: 75-92
Issue: 1
Volume: 11
Year: 2005
Keywords: Bank-firm relationships, monitoring, bond finance,
X-DOI: 10.1080/1351847032000168687
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000168687
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:1:p:75-92
Template-Type: ReDIF-Article 1.0
Author-Name: Chun Lee
Author-X-Name-First: Chun
Author-X-Name-Last: Lee
Author-Name: Ike Mathur
Author-X-Name-First: Ike
Author-X-Name-Last: Mathur
Author-Name: Kimberly Gleason
Author-X-Name-First: Kimberly
Author-X-Name-Last: Gleason
Title: The tick/volatility ratio as a determinant of the compass rose pattern
Abstract:
This study provides evidence that low frequency data masks certain
returns phenomena in the foreign exchange (forex) market. It is shown that
the compass rose pattern is entirely absent in daily returns in the spot
and futures forex markets. In contrast, the intraday returns, especially
those for holding periods of less than an hour, clearly exhibit the
pattern. Monte Carlo investigation of the tick/volatility ratio provides
convincing evidence that the pattern appears only if the tick/volatility
ratio is above some threshold level. Since intraday returns have a ratio
above the threshold value, they exhibit the pattern. On the other hand,
the absence of the pattern in daily returns is due to the fact that the
spot and futures currency returns examined have a ratio much smaller than
the threshold value. Overall, the evidence is consistent with the
hypothesis that the tick/volatility ratio is a determinant of the compass
rose pattern. The economic implications of this pattern are discussed.
Journal: The European Journal of Finance
Pages: 93-109
Issue: 2
Volume: 11
Year: 2005
X-DOI: 10.1080/1351847032000137438
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000137438
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:2:p:93-109
Template-Type: ReDIF-Article 1.0
Author-Name: P. B. Solibakke
Author-X-Name-First: P. B.
Author-X-Name-Last: Solibakke
Title: Non-linear dependence and conditional heteroscedasticity in stock returns evidence from the norwegian thinly traded equity market
Abstract:
The paper investigates the presence of non-linear dependencies in stock
returns for the Norwegian equity market as it is very difficult to
interpret the unconditional distribution of stock returns and its economic
implications if the i.i.d. assumption is violated. Standard tests of
non-linear dependence give strong evidence for the presence of
non-linearity in raw returns. Modelling non-linear dependence must
distinguish between models that are non-linear in mean and hence depart
from the Martingale hypothesis, and models that are non-linear in variance
and hence depart from independence but not from the Martingale hypothesis.
Therefore, three non-linear models of asset returns are formulated
applying ARMA-GARCH specifications for the conditional mean and variance
equations. The paper goes on to answer which model has the necessary
characteristics that are sufficient to account for most of the non-linear
dependence. In the Norwegian equity market most of the non-linear
dependence seems to be conditional heteroscedasticity. However, the most
thinly traded assets still report significant non-linear dependence for
all non-linear specifications. These results imply that the independence
hypothesis can be rejected for all assets, portfolios and indices.
Moreover, for thinly traded assets the Martingale hypothesis can also be
rejected. The economic implications from the unconditional distributions
of thinly traded assets are therefore very difficult to interpret and are
unfamiliar territory for those who are accustomed to thinking
analytically, intuitively and linearly.
Journal: The European Journal of Finance
Pages: 111-136
Issue: 2
Volume: 11
Year: 2005
Keywords: non-linearity, conditional heteroscedasticity, trading/non-trading, ARMA-ARCH/GARCH, non-linear test statistic,
X-DOI: 10.1080/13518470110074350
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110074350
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:2:p:111-136
Template-Type: ReDIF-Article 1.0
Author-Name: D. Guegan
Author-X-Name-First: D.
Author-X-Name-Last: Guegan
Author-Name: L. Mercier
Author-X-Name-First: L.
Author-X-Name-Last: Mercier
Title: Prediction in chaotic time series: methods and comparisons with an application to financial intra-day data
Abstract:
Different prediction methods for chaotic deterministic systems are
compared. Two methods of reconstructing the dynamics of the systems are
considered with a view to producing a profitable trading model. The
methods developed are the 'nearest neighbours' method and the 'radial
basis functions' method. The optimal prediction horizon according to the
sampling time step, and a reliable method to measure the prediction error
are discussed. These methods are applied to the intra-day series of
exchange rates, namely DEM/FRF. Developments concerning the importance of
noise when chaotic systems are studied are provided.
Journal: The European Journal of Finance
Pages: 137-150
Issue: 2
Volume: 11
Year: 2005
Keywords: Chaotic systems, nearest neighbors, prediction radial basis functions,
X-DOI: 10.1080/13518470110074846
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470110074846
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:2:p:137-150
Template-Type: ReDIF-Article 1.0
Author-Name: Gabriela De Raaij
Author-X-Name-First: Gabriela
Author-X-Name-Last: De Raaij
Author-Name: Burkhard Raunig
Author-X-Name-First: Burkhard
Author-X-Name-Last: Raunig
Title: Evaluating density forecasts from models of stock market returns
Abstract:
Density forecasts have become important in finance and play a key role in
modern risk management. Using a flexible density forecast evaluation
framework that extends the Berkowitz likelihood ratio test this paper
evaluates in- and out-of-sample density forecasts of daily returns on the
DAX, ATX and S&P 500 stock market indices from models of financial returns
that are currently widely used in the financial industry. The results
indicate that GARCH-t models produce good in-sample forecasts. No model
considered in this study delivers fully acceptable out-of-sample
forecasts. The empirical findings emphasize that proper distributional
assumptions combined with an adequate specification of relevant
conditional higher moments are necessary to obtain good density forecasts.
Journal: The European Journal of Finance
Pages: 151-166
Issue: 2
Volume: 11
Year: 2005
Keywords: Density forecasting, forecast evaluation, risk management, GARCH models,
X-DOI: 10.1080/1351847042000255652
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000255652
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:2:p:151-166
Template-Type: ReDIF-Article 1.0
Author-Name: Albert Link
Author-X-Name-First: Albert
Author-X-Name-Last: Link
Author-Name: Donald Siegel
Author-X-Name-First: Donald
Author-X-Name-Last: Siegel
Title: Generating science-based growth: an econometric analysis of the impact of organizational incentives on university-industry technology transfer
Abstract:
In recent years, there has been a rapid rise in commercial knowledge
transfers from universities to practitioners or university/industry
technology transfer (UITT), via licensing agreements, research joint
ventures, and startups. In a previous study in 1999, the authors outlined
a production function model to assess the relative efficiency of UITT and
conducted field research to identify several organizational factors that
could enhance the effectiveness of university management of intellectual
property portfolios. This paper extends this framework and evaluates the
impact of organizational incentives on the effectiveness of UITT. It is
found that universities having more attractive incentive structures for
UITT, i.e. those that allocate a higher %age of royalty payments to
faculty members, tend to be more efficient in technology transfer
activities. University administrators who wish to foster UITT should be
mindful of the importance of financial incentives.
Journal: The European Journal of Finance
Pages: 169-181
Issue: 3
Volume: 11
Year: 2005
Keywords: University/industry technology transfer (UITT), stochastic frontier estimation (SFE), organizational incentives,
X-DOI: 10.1080/1351847042000254211
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000254211
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:169-181
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Graff
Author-X-Name-First: Michael
Author-X-Name-Last: Graff
Title: Abstract
Abstract:
The finance-growth nexus is discussed, and a framework for empirical
analysis is formulated. Based on data for 93 countries from 1960-1990, a
growth equation is estimated. It includes the standard regressors as well
as a new proxy for financial activity and interaction effects of the
latter with catching-up, education, and physical capital accumulation.
Financial activity generally has a positive impact on economic growth.
Then, the countries are ranked with respect to their degree of
corporatism, institutional quality, democracy, market orientation and
characteristics of their financial systems. The sample is split according
to these control variables. It is shown that the finance-growth nexus is
indeed contingent on socio-economic factors. Specifically, the growth
effect of a given level of financial activity is higher in more law
enforcing and more corporatist countries, whereas the results are
inconclusive with respect to democracy, market orientation and financial
structure.
Journal: The European Journal of Finance
Pages: 183-205
Issue: 3
Volume: 11
Year: 2005
Keywords: Financial activity, economic growth, cross-country regressions, institutional quality, market orientation,
X-DOI: 10.1080/13518470410001674332
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470410001674332
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:183-205
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Doucouliagos
Author-X-Name-First: Chris
Author-X-Name-Last: Doucouliagos
Title: Price exhaustion and number preference: time and price confluence in Australian stock prices
Abstract:
Confluence occurs when different trading filters generate signals that
point to the same directional move. Using regression analysis, this paper
investigates confluence trading signals associated with number preference
and price exhaustion, for a sample of Australian stocks. The results show
that certain price levels tend to act as psychological barriers, and that
price exhaustion signals are a real phenomenon in the Australian stock
market. It is shown also that confluence exists in the Australian stock
market. Importantly, confluence is associated with price retracements that
are of economic and statistical significance, offering profitable trading
opportunities. The results suggest that Australian stocks do not follow a
random walk.
Journal: The European Journal of Finance
Pages: 207-221
Issue: 3
Volume: 11
Year: 2005
Keywords: Price exhaustion, number preference, confluence,
X-DOI: 10.1080/1351847042000254194
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000254194
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:207-221
Template-Type: ReDIF-Article 1.0
Author-Name: Francesco Menoncin
Author-X-Name-First: Francesco
Author-X-Name-Last: Menoncin
Title: Risk management and asset allocation with jump-diffusion exogenous risks: Some algebraic approximated solutions
Abstract:
This paper analyses the portfolio problem of an investor who wants to
maximize the expected utility of his terminal wealth both in a complete
and an incomplete financial market. The investor must cope with two sets
of exogenous risks following jump-diffusion processes. Thanks to an
approximated solution some rules are provided to follow for hedging
portfolio against exogenous risks. Finally, some comparisons with models
computing the optimal portfolio in a closed form are carried out in order
to check the goodness of our approximation.
Journal: The European Journal of Finance
Pages: 223-246
Issue: 3
Volume: 11
Year: 2005
Keywords: Asset allocation, exogenous risk, Feynman-Kac-super-˘ theorem, stochastic investment opportunities,
X-DOI: 10.1080/1351847042000254220
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000254220
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:223-246
Template-Type: ReDIF-Article 1.0
Author-Name: Marco Mazzoli
Author-X-Name-First: Marco
Author-X-Name-Last: Mazzoli
Title: Investments, financial structure and imperfect financial markets: An intertemporal discrete-time framework
Abstract:
This paper deals with the problem of simultaneity between the firm's
investments and financial structure in the context of dynamic optimization
where the process of information spreading that associates the
profitability of the firm to its share price only takes part gradually,
due to market imperfections and diverging incentives between shareholders
and managers. In particular, the latter are assumed to hold the control of
the firm and decide upon the allocation of its cash-flow. This creates a
link between cash-flow and rate of discount of profits, generating a
'financial channel of transmission' of the real shocks.
Journal: The European Journal of Finance
Pages: 247-258
Issue: 3
Volume: 11
Year: 2005
Keywords: Investment, intertemporal firm choice, capital structure, financing policy,
X-DOI: 10.1080/1351847042000286649
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000286649
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:247-258
Template-Type: ReDIF-Article 1.0
Author-Name: Joao Liborio
Author-X-Name-First: Joao
Author-X-Name-Last: Liborio
Title: Dynamic bond portfolio choice in a model with Gaussian diffusion regimes
Abstract:
This paper studies bond prices, intertemporal consumption and portfolio
choice in a simple two-factor continuous-time regime-switching term
structure model. The real interest rate and the expected inflation are
modelled as an “extended” Ornstein-Uhlenbeck process, whose
mean and variance shift randomly within a high-low Markovian regime. The
prices of nominal and indexed bonds, the nominal and real term premia and
the consumption-portfolio choice of a typical risk-averse investor are
studied in the case in which the regime is observed.
Journal: The European Journal of Finance
Pages: 259-270
Issue: 3
Volume: 11
Year: 2005
Keywords: Portfolio choice, regime-switching models, term structure,
X-DOI: 10.1080/13518470500039287
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039287
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:259-270
Template-Type: ReDIF-Article 1.0
Author-Name: Giampaolo Gabbi
Author-X-Name-First: Giampaolo
Author-X-Name-Last: Gabbi
Title: Semi-correlations as a tool for geographical and sector asset allocation
Abstract:
Many studies show that international correlations have changed over time.
This phenomenon has modified the practices of many portfolio managers,
which are now preferably linked with sector behaviour. In order to prove
the benefits of this management style, some new evidence is provided for
correlation dynamics among geographic areas and business sectors. The
concept of semi-correlation is applied to asset allocation in order to
compare whether it applies efficiently to sectors and countries. The paper
shows that use of semi-correlations has the potential both to improve
expected return and to reduce volatility.
Journal: The European Journal of Finance
Pages: 271-281
Issue: 3
Volume: 11
Year: 2005
Keywords: Asset allocation, correlation, neural networks, return forecast,
X-DOI: 10.1080/13518470500039220
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039220
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:271-281
Template-Type: ReDIF-Article 1.0
Author-Name: Giovanni Ferri
Author-X-Name-First: Giovanni
Author-X-Name-Last: Ferri
Author-Name: Li-gang Liu
Author-X-Name-First: Li-gang
Author-X-Name-Last: Liu
Title: Assessing the effort of rating agencies in emerging economies: Some empirical evidence
Abstract:
Credit rating agencies (RAs) help reduce information asymmetries between
corporate issuers and investors. However, although information asymmetries
are more severe in emerging than in developed countries, corporate ratings
bestow lower information content in the former. This is a problem since
deserving corporations that are based in emerging countries require that
the suitable rating they receive by a major RA—indispensable for
them to issue debt in developed capital markets—be a credible
signal to investors. Among the possible explanations, it is conjectured
that this unsatisfactory situation might result from RAs not investing
enough in collecting information on emerging countries' corporations.
Here, an indicator is used of RAs' effort to gather information and test
econometrically whether—controlling for both sovereign ratings and
the corporate performance indicators used by RAs—higher effort
affects corporate ratings. A negative relationship between RAs' effort and
corporate ratings is found in developed countries whereas the relationship
is positive in emerging countries. While the result for developed
countries is coherent with the hypothesis that RAs raise their effort
vis-a-vis problematic corporations, the result for emerging countries is
inconsistent with such hypothesis. This evidence suggests that inducing
RAs to raise their effort is desirable for corporations in emerging
countries.
Journal: The European Journal of Finance
Pages: 283-295
Issue: 3
Volume: 11
Year: 2005
Keywords: Credit risk, sovereign risk, corporate credit ratings,
X-DOI: 10.1080/13518470500039246
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039246
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:283-295
Template-Type: ReDIF-Article 1.0
Author-Name: Roberto Casarin
Author-X-Name-First: Roberto
Author-X-Name-Last: Casarin
Author-Name: Marco Lazzarin
Author-X-Name-First: Marco
Author-X-Name-Last: Lazzarin
Author-Name: Loriana Pelizzon
Author-X-Name-First: Loriana
Author-X-Name-Last: Pelizzon
Author-Name: Domenico Sartore
Author-X-Name-First: Domenico
Author-X-Name-Last: Sartore
Title: Relative benchmark rating and persistence analysis: Evidence from Italian equity funds
Abstract:
The recent introduction into the Italian mutual fund market of
Morningstar performance rating of private institutions gives rise to the
question of what is the relation between this relative benchmark measure
and the other traditional performance measures. This paper provides a
comprehensive analysis of the relative benchmark performance measure
(Morningstar rating) applied to Italian equity funds. It is found that
this performance measure is highly correlated with the classical
performance measures (Sharpe ratio, Sortino ratio and Treynor ratio) and
poorly correlated with the customized benchmark measure (Information
ratio). Furthermore, performing a persistence analysis, using
non-parametric methods Cross-product Ratio and Chi-squared test, it is
observed that only the Morningstar rating measure generates a strong
degree of persistence. These results deviate from most European studies,
which argue that Italian mutual funds display weak persistence.
Journal: The European Journal of Finance
Pages: 297-308
Issue: 4
Volume: 11
Year: 2005
Keywords: Mutual funds, performance evaluation, persistence analysis, Morningstar rating,
X-DOI: 10.1080/1351847042000286658
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000286658
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:4:p:297-308
Template-Type: ReDIF-Article 1.0
Author-Name: Pierre Giot
Author-X-Name-First: Pierre
Author-X-Name-Last: Giot
Title: Market risk models for intraday data
Abstract:
In this paper, market risk at an intraday time horizon is quantified
using normal GARCH, Student GARCH, RiskMetrics and high-frequency duration
(log-ACD) models set in the framework of the conditional VaR methodology.
Because of the small time horizon of the intraday returns (15 and 30
minute returns in this paper), an evaluation of intraday market risk can
be useful to market participants (traders, market makers) involved in
frequent trading. As expected, the volatility features an important
intraday seasonality, which must be removed prior to using the market risk
models. The four models are applied to intraday returns data for three
stocks traded on the New York Stock Exchange and it is shown that the
Student GARCH model performs best. The use of price durations as a measure
of risk on time is commented upon.
Journal: The European Journal of Finance
Pages: 309-324
Issue: 4
Volume: 11
Year: 2005
Keywords: Intraday market risk, value-at-risk, duration models, NYSE,
X-DOI: 10.1080/1351847032000143396
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000143396
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:4:p:309-324
Template-Type: ReDIF-Article 1.0
Author-Name: John Cotter
Author-X-Name-First: John
Author-X-Name-Last: Cotter
Title: Uncovering long memory in high frequency UK futures
Abstract:
Accurate volatility modelling is paramount for optimal risk management
practices. One stylized feature of financial volatility that impacts the
modelling process is long memory explored in this paper for alternative
risk measures, observed absolute and squared returns for high frequency
intraday UK futures. Volatility series for three different asset types,
using stock index, interest rate and bond futures are analysed. Long
memory is strongest for the bond contract. Long memory is always strongest
for the absolute returns series and at a power transformation of k <
1. The long memory findings generally incorporate intraday periodicity.
The APARCH model incorporating seven related GARCH processes generally
models the futures series adequately documenting ARCH, GARCH and leverage
effects.
Journal: The European Journal of Finance
Pages: 325-337
Issue: 4
Volume: 11
Year: 2005
Keywords: Long memory, APARCH, high frequency futures,
X-DOI: 10.1080/13518470410001674314
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470410001674314
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:4:p:325-337
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Dunis
Author-X-Name-First: Christian
Author-X-Name-Last: Dunis
Author-Name: Til Klein
Author-X-Name-First: Til
Author-X-Name-Last: Klein
Title: Analysing mergers and acquisitions in European financial services: An application of real options
Abstract:
This paper applies real option pricing theory to the analysis of a sample
of 15 recent mergers and acquisitions in the European financial services
industry. Overall, it is found that those acquisitions were not on average
overpaid. Nevertheless, further analysis, assuming the option premium
equalled the takeover premium, shows that either the implicitly assumed
volatility was too low, the assumed time to maturity was very short and/or
the assumed subsequent market performance was too optimistic.
Journal: The European Journal of Finance
Pages: 339-355
Issue: 4
Volume: 11
Year: 2005
Keywords: Banking system, event studies, mergers and acquisitions, real options,
X-DOI: 10.1080/1351847032000137456
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847032000137456
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:4:p:339-355
Template-Type: ReDIF-Article 1.0
Author-Name: Daniel Capocci
Author-X-Name-First: Daniel
Author-X-Name-Last: Capocci
Author-Name: Albert Corhay
Author-X-Name-First: Albert
Author-X-Name-Last: Corhay
Author-Name: Georges Hubner
Author-X-Name-First: Georges
Author-X-Name-Last: Hubner
Title: Hedge fund performance and persistence in bull and bear markets
Abstract:
This paper tests the performance of 2894 hedge funds in a time period
that encompasses unambiguously bullish and bearish trends whose pivot is
commonly set at March 2000. The database proves to be fairly trustable
with respect to the most important biases in hedge funds studies, despite
the high attrition rate of funds observed in the down market. An original
ten-factor composite performance model is applied that achieves very high
significance levels. The analysis of performance indicates that most hedge
funds significantly outperformed the market during the whole test period,
mostly thanks to the bullish subperiod. In contrast, no significant
underperformance of individual hedge funds strategies is observed when
markets headed south. The analysis of persistence yields very similar
results, with most of the predictability being found among middle
performers during the bullish period. However, the 'Market Neutral'
strategy represents a remarkable exception, as abnormal performance is
sustained throughout and significant persistence can be found between the
20% and 69% best performers in this category, probably thanks to an
extreme adaptability and a very active investment behaviour.
Journal: The European Journal of Finance
Pages: 361-392
Issue: 5
Volume: 11
Year: 2005
Keywords: Hedge funds, funds of funds, selection bias, abnormal returns, bullish market, bearish market, persistence,
X-DOI: 10.1080/1351847042000286676
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000286676
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:5:p:361-392
Template-Type: ReDIF-Article 1.0
Author-Name: Greg Gregoriou
Author-X-Name-First: Greg
Author-X-Name-Last: Gregoriou
Author-Name: Fabrice Rouah
Author-X-Name-First: Fabrice
Author-X-Name-Last: Rouah
Author-Name: Stephen Satchell
Author-X-Name-First: Stephen
Author-X-Name-Last: Satchell
Author-Name: Fernando Diz
Author-X-Name-First: Fernando
Author-X-Name-Last: Diz
Title: Simple and cross efficiency of CTAs using data envelopment analysis
Abstract:
Data envelopment analysis (DEA) is applied, and basic and
cross-efficiency models are used to evaluate the performance of CTA
classifications. With the ever-increasing number of CTAs, there is an
urgent requirement to provide money managers, pension funds, and
high-net-worth individuals with a trustworthy appraisal method in ranking
their efficiency. DEA can achieve this, and one important benefit of this
measure is that benchmarks are not required, thereby alleviating the
problem of using traditional benchmarks to examine non-normal returns.
This article aims to investigate CTAs and to identify the ones that have
achieved superior performance or, in other words, have an efficiency score
of 100 in a risk/return setting.
Journal: The European Journal of Finance
Pages: 393-409
Issue: 5
Volume: 11
Year: 2005
Keywords: Data envelopment analysis, commodity trading advisors, efficiency, benchmark,
X-DOI: 10.1080/1351847042000286667
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000286667
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:5:p:393-409
Template-Type: ReDIF-Article 1.0
Author-Name: James Hedges
Author-X-Name-First: James
Author-X-Name-Last: Hedges
Title: Hedge Fund Transparency
Abstract:
This paper presents an overview of key issues for hedge fund investment
taken from a practitioners perspective.
Journal: The European Journal of Finance
Pages: 411-417
Issue: 5
Volume: 11
Year: 2005
X-DOI: 10.1080/1351847042000286685
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000286685
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:5:p:411-417
Template-Type: ReDIF-Article 1.0
Author-Name: Alessio Sancetta
Author-X-Name-First: Alessio
Author-X-Name-Last: Sancetta
Author-Name: Stephen Satchell
Author-X-Name-First: Stephen
Author-X-Name-Last: Satchell
Title: New test statistics for market timing with applications to emerging markets hedge funds
Abstract:
A new framework is provided for identifying market timing. The analysis
focuses on the local joint history of the hedge fund with the benchmark.
The approach is fully nonparametric. Therefore, it has the advantage of
avoiding the misspecification problems so common in this literature. The
test statistic is some rank preserving function of a second-order
U-process. This empirical process allows one to define a set of statistics
for market timing. The relevant asymptotic distribution is detailed. Some
of these statistics are used to study the timing component of emerging
markets funds using the 1999 dataset of Hwang and Satchell.
Journal: The European Journal of Finance
Pages: 419-443
Issue: 5
Volume: 11
Year: 2005
Keywords: Empirical process, Kendall's tau, nonparametric estimation, performance measurement,
X-DOI: 10.1080/1351847042000286694
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000286694
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:5:p:419-443
Template-Type: ReDIF-Article 1.0
Author-Name: C. J. Adcock
Author-X-Name-First: C. J.
Author-X-Name-Last: Adcock
Title: Exploiting skewness to build an optimal hedge fund with a currency overlay
Abstract:
This paper documents an investigation into the use of portfolio selection
methods to construct a hedge fund with a currency overlay. The fund, which
is based on number of international stock and bond market indices and is
constructed from the perspective of a Sterling investor, allows the
individual exposures in the currency overlay to be optimally determined.
As well as using traditional mean variance, the paper constructs the hedge
funds using portfolio selection methods that incorporate skewness in the
optimisation process. These methods are based on the multivariate
skewnormal distribution, which motivates the use of a linear skewness
shock. An extension to Stein's lemma gives the ability to explore the
mean-variance-skewness efficient surface without the necessity to be
concerned with the precise form of an individual investor's utility
function. The results suggest that it is possible to use mean variance
optimisation methods to build a hedge fund based on the assets and return
forecasts described. The results also suggest that the inclusion of a
skewness component in the optimisation is beneficial. In many of the cases
reported, the skewness term contributes to an improvement in performance
over and above that given by mean variance methods.
Journal: The European Journal of Finance
Pages: 445-462
Issue: 5
Volume: 11
Year: 2005
Keywords: Currency hedging, multivariate skew normal distribution, portfolio selection,
X-DOI: 10.1080/13518470500039527
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039527
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:5:p:445-462
Template-Type: ReDIF-Article 1.0
Author-Name: Bertrand Maillet
Author-X-Name-First: Bertrand
Author-X-Name-Last: Maillet
Author-Name: Thierry Michel
Author-X-Name-First: Thierry
Author-X-Name-Last: Michel
Title: Technical analysis profitability when exchange rates are pegged: A note
Abstract:
This note extends earlier results which concluded that generally
technical analysis trading rules were profitable when applied to several
US dollar exchange rates. These results were linked to the presence of
long swings in the dollar series, and here, it is tested whether they
still hold in a different setting, with a quasi-fixed exchange rate
system. Applying non-parametric and parametric tests to the main European
currencies does not allow to confirm, in this case, the profitability of
these rules. These results strengthen the likelihood of the hypothesis of
a causal link from the exchange rate DGP to the profitability of technical
analysis trading rules, as already highlighted in several articles.
Journal: The European Journal of Finance
Pages: 463-470
Issue: 6
Volume: 11
Year: 2005
Keywords: International finance, technical analysis, performance, foreign exchange market, financial forecasting, efficient market hypothesis,
X-DOI: 10.1080/13518470210124614
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470210124614
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:6:p:463-470
Template-Type: ReDIF-Article 1.0
Author-Name: Dennis Dittrich
Author-X-Name-First: Dennis
Author-X-Name-Last: Dittrich
Author-Name: Werner Guth
Author-X-Name-First: Werner
Author-X-Name-Last: Guth
Author-Name: Boris Maciejovsky
Author-X-Name-First: Boris
Author-X-Name-Last: Maciejovsky
Title: Overconfidence in investment decisions: An experimental approach
Abstract:
By experimentally inducing risk aversion, overconfidence in an investment
setting is investigated, comparing the evaluation of actual investment
decisions with alternative choices. After selecting their own investment,
subjects confront three alternative investment choices, including the
optimal one, and are asked about their willingness to pay and to
substitute their own for alternative choices. Overconfidence is defined as
the persistent overevaluation of the own investment decision. Results
indicate that overconfidence increases (i) with the absolute deviation
from optimal choices, (ii) with task complexity involving the number of
risky assets, and (iii) decreases with individual perceived uncertainty.
Journal: The European Journal of Finance
Pages: 471-491
Issue: 6
Volume: 11
Year: 2005
Keywords: Risky decision making, behavioural finance, portfolio choice, experimental economics,
X-DOI: 10.1080/1351847042000255643
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000255643
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:6:p:471-491
Template-Type: ReDIF-Article 1.0
Author-Name: Gabe De Bondt
Author-X-Name-First: Gabe
Author-X-Name-Last: De Bondt
Title: Determinants of corporate debt securities in the Euro area
Abstract:
This study examines the macroeconomic determinants of corporate debt
securities in the euro area. The financing costs, as approximated by the
cost of debt securities vis-a-vis other sources of corporate finance, and
financing needs, as captured by mergers and acquisitions and gross
domestic product, are found to be significant determinants in the short
and long run. The empirical results are also supportive of substitution
between debt security and internal financing unrelated to cost of
differentials in the short run and of differences in the determination of
long- and short-term debt securities. These findings are robust across
different samples and specifications.
Journal: The European Journal of Finance
Pages: 493-509
Issue: 6
Volume: 11
Year: 2005
Keywords: Corporate finance, debt securities, euro area,
X-DOI: 10.1080/1351847042000255661
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000255661
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:6:p:493-509
Template-Type: ReDIF-Article 1.0
Author-Name: Anders Ekholm
Author-X-Name-First: Anders
Author-X-Name-Last: Ekholm
Author-Name: Daniel Pasternack
Author-X-Name-First: Daniel
Author-X-Name-Last: Pasternack
Title: The negative news threshold—An explanation for negative skewness in stock returns
Abstract:
A vast literature documents negative skewness in stock index return
distributions on several markets. In this paper the issue of negative
skewness is approached from a different angle to previous studies by
combining the Trueman's 1997 model of management disclosure practices with
symmetric market responses in order to explain negative skewness in stock
returns. Empirical tests reveal that returns for days when non-scheduled
news items are disclosed are the source of negative skewness in stock
returns, as predicted. These findings suggest that negative skewness in
stock returns is induced by asymmetries in the news disclosure policies of
firm management. Furthermore, it is found that the returns are negatively
skewed only for non-scheduled firm-specific news disclosures for firms
where the management is compensated with stock options.
Journal: The European Journal of Finance
Pages: 511-529
Issue: 6
Volume: 11
Year: 2005
Keywords: Disclosure policies, stock return distributions, negative skewness,
X-DOI: 10.1080/1351847042000286702
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000286702
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:6:p:511-529
Template-Type: ReDIF-Article 1.0
Author-Name: Suzanne Fifield
Author-X-Name-First: Suzanne
Author-X-Name-Last: Fifield
Author-Name: David Power
Author-X-Name-First: David
Author-X-Name-Last: Power
Author-Name: C. Donald Sinclair
Author-X-Name-First: C. Donald
Author-X-Name-Last: Sinclair
Title: An analysis of trading strategies in eleven European stock markets
Abstract:
In recent years, the validity of the weak form efficient market
hypothesis (EMH) has been called into question as several studies have
uncovered evidence that technical trading rules have predictive ability
with respect to both developed and emerging stock market indices. This
study analyses the forecasting power of 2 of the most popular trading
rules using index data for a selection of 11 European stock markets over
the January 1991 to December 2000 period. The findings indicate that the
emerging markets included in this paper are informationally inefficient;
these markets displayed some degree of predictability in their share
returns, although the developed markets did not. Furthermore, the results
point to large differences in the performance of the rules examined; while
small size filters consistently outperformed the buy-and-hold strategy in
the emerging markets examined even after the consideration of transaction
costs, the performance of the moving average rules was erratic and varied
dramatically from market to market.
Journal: The European Journal of Finance
Pages: 531-548
Issue: 6
Volume: 11
Year: 2005
Keywords: Trading rules, emerging markets, market efficiency,
X-DOI: 10.1080/1351847042000304099
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000304099
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:11:y:2005:i:6:p:531-548
Template-Type: ReDIF-Article 1.0
Author-Name: Konstantinos Tolikas
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Tolikas
Author-Name: Richard Brown
Author-X-Name-First: Richard
Author-X-Name-Last: Brown
Title: The distribution of the extreme daily share returns in the Athens stock exchange
Abstract:
Extreme Value Theory (EVT) methods are used to investigate the asymptotic
distribution of the lower tail for daily returns in the Athens Stock
Exchange (ASE) over the period 1986 to 2001. Overall, the Generalised
Logistic (GL) distribution is found to provide adequate descriptions of
the stochastic behaviour of the ASE index extreme minima over the period
studied. However, using moving windows techniques we show that the
parameters of this distribution appear to vary with a tendency to become
less fat tailed over time. This paper argues that market risk measurement
models that are able to exploit this time varying behaviour could lead to
more accurate risk estimates and therefore, have potentially important
implications for risk assessment.
Journal: The European Journal of Finance
Pages: 1-22
Issue: 1
Volume: 12
Year: 2006
Keywords: Extreme value theory, L-moments, probability weighted moments, anderson-darling goodness of fit test, generalised extreme value distribution, generalised logistic distribution,
X-DOI: 10.1080/1351847042000304107
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000304107
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:1:p:1-22
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Annaert
Author-X-Name-First: Jan
Author-X-Name-Last: Annaert
Author-Name: Anouk Claes
Author-X-Name-First: Anouk
Author-X-Name-Last: Claes
Author-Name: Marc De Ceuster
Author-X-Name-First: Marc
Author-X-Name-Last: De Ceuster
Title: Intertemporal stability of the European credit spread co-movement structure1
Abstract:
Corporate bonds expose the investor to credit risk, which will be
reflected in the credit spread. Based on the EMU Broad Market indices,
this paper reports studies of the intertemporal stability of the
covariance and correlation matrices of credit spread changes on weekly
data. For a multivariate framework, the Box and Jennrich tests are the
most commonly used test statistics in the literature. However, it is shown
that for small samples these tests are not well specified when the
normality assumption is relaxed. A bootstrap-based statistical inference
provides evidence that correlations and covariances between various
(investment grade) credit spread changes are unstable over the 1998-2003
period.
Journal: The European Journal of Finance
Pages: 23-32
Issue: 1
Volume: 12
Year: 2006
Keywords: Credit spreads, diversification, correlations, corporate bonds,
X-DOI: 10.1080/1351847042000304116
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000304116
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:1:p:23-32
Template-Type: ReDIF-Article 1.0
Author-Name: Sven Husmann
Author-X-Name-First: Sven
Author-X-Name-Last: Husmann
Author-Name: Lutz Kruschwitz
Author-X-Name-First: Lutz
Author-X-Name-Last: Kruschwitz
Author-Name: Andreas Loffler
Author-X-Name-First: Andreas
Author-X-Name-Last: Loffler
Title: WACC and a generalized tax code
Abstract:
Valuation of firms is generally based on the WACC approach which
typically neglects personal income taxes. This paper extends this approach
to incorporate personal income taxes and develop a generalized valuation
formula which can be used for any taxation system. The approach is
illustrated for four different taxation systems highlighting the
importance of considering personal taxes.
Journal: The European Journal of Finance
Pages: 33-40
Issue: 1
Volume: 12
Year: 2006
Keywords: WACC, tax shield, imputation system,
X-DOI: 10.1080/1351847042000304125
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847042000304125
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:1:p:33-40
Template-Type: ReDIF-Article 1.0
Author-Name: Chiara Pederzoli
Author-X-Name-First: Chiara
Author-X-Name-Last: Pederzoli
Title: Stochastic Volatility and GARCH: a Comparison Based on UK Stock Data
Abstract:
This paper compares two types of volatility models for returns, ARCH-type
and stochastic volatility (SV) models, both from a theoretical and an
empirical point of view. In particular a GARCH(1,1) model, an EGARCH(1,1)
model and a log-normal AR(1) stochastic volatility model are considered.
The three models are estimated on UK stock data: a series of the British
equity index FTSE100 is used to estimate the relevant parameters.
Diagnostic tests are implemented to evaluate how well the models fit the
data. The models are used to obtain daily volatility forecasts and these
volatilities are used to estimate the “VaR” on a simple
one-unit position on FTSE100. The VaR accuracy is tested by means of a
backtest. While the results do not lead to a straightforward preference
between GARCH(1,1) and SV, the EGARCH shows the best performance.
Journal: The European Journal of Finance
Pages: 41-59
Issue: 1
Volume: 12
Year: 2006
Keywords: Volatility models, stochastic volatility, GARCH, value at risk,
X-DOI: 10.1080/13518470500039121
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039121
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:1:p:41-59
Template-Type: ReDIF-Article 1.0
Author-Name: Hannu Kahra
Author-X-Name-First: Hannu
Author-X-Name-Last: Kahra
Author-Name: Antti Kanto
Author-X-Name-First: Antti
Author-X-Name-Last: Kanto
Author-Name: Hannu Schadewitz
Author-X-Name-First: Hannu
Author-X-Name-Last: Schadewitz
Author-Name: Dallas Blevins
Author-X-Name-First: Dallas
Author-X-Name-Last: Blevins
Title: Anatomy of Interim Disclosures During Bimodal Return Distributions
Abstract:
For over 30 years, observers of financial markets have been puzzled by
the behaviour of the market model residuals. This research offers one
answer to two of the questions raised by the anomalous behaviour of the
residuals. The first is the failure of cumulative abnormal residuals
(CARs) to be centred at zero and normally or t distributed. The second is
the failure of CARs to be homoscedastic. The authors argue that, in some
cases, a bimodal distribution fits the data better. During the period
1985-1993 there were 47 Helsinki Exchanges listed firms having at least
one bimodal return distribution after the publication of an interim
report. This frequency represents 76% of the total number of firms
observed. Bimodality occurs most prominently during the first few days
after the event. Internal factors, contained in the interim reports, and
external factors, available exogenously, help explain the uncertainty that
gives rise to expost bimodality. Sometimes bimodality disappears during
the investigation period, while at other times bimodality remains. These
findings should promote the use of more sophisticated methods for
non-normal return distributions and longer examination periods after the
event. On the practical side, these results should help managers refine
their communication practices.
Journal: The European Journal of Finance
Pages: 61-75
Issue: 1
Volume: 12
Year: 2006
Keywords: Bimodal distribution, interim reports, voluntary disclosure,
X-DOI: 10.1080/13518470500039501
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039501
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:1:p:61-75
Template-Type: ReDIF-Article 1.0
Author-Name: Edith Ginglinger
Author-X-Name-First: Edith
Author-X-Name-Last: Ginglinger
Author-Name: Jean-Francois L'her
Author-X-Name-First: Jean-Francois
Author-X-Name-Last: L'her
Title: Ownership structure and open market stock repurchases in France
Abstract:
This paper examines open market stock repurchases in France. We find a
positive average market reaction to the repurchase announcement. However,
the magnitude of the price reaction is found to depend on a number of
corporate governance structure measures. The positive aspects of the
announcement only appear for a company with a low likelihood of being
taken over, and with a low risk of minority shareholder expropriation.
Specifically, stock repurchase programmes are good news when the firm is
supported by foreign institutional investors, and in the case of
controlled firms, when the firm has a second large shareholder, which
guarantees an effective balance of power for the controlling shareholders.
Journal: The European Journal of Finance
Pages: 77-94
Issue: 1
Volume: 12
Year: 2006
Keywords: Open market share repurchases, undervaluation, ownership structure,
X-DOI: 10.1080/13518470500039543
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039543
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:1:p:77-94
Template-Type: ReDIF-Article 1.0
Author-Name: Robert Lensink
Author-X-Name-First: Robert
Author-X-Name-Last: Lensink
Author-Name: Victor Murinde
Author-X-Name-First: Victor
Author-X-Name-Last: Murinde
Title: The Inverted-U hypothesis for the effect of uncertainty on investment: Evidence from UK firms
Abstract:
This paper offers the first attempt to test the inverted-U hypothesis for
the effect of uncertainty on investment, implied by a number of recent
theoretical studies, using a panel of UK firms. It is found that the
effect of uncertainty on corporate investment is indeed approximated by an
inverted-U shaped relationship: at low levels of uncertainty the effect is
positive, but it becomes negative at high levels of uncertainty. This
result represents the first empirical verification of the hypothesis with
respect to UK firms.
Journal: The European Journal of Finance
Pages: 95-105
Issue: 2
Volume: 12
Year: 2006
Keywords: Inverted-U hypothesis, corporate investment and uncertainty, UK firms,
X-DOI: 10.1080/13518470500145928
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500145928
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:2:p:95-105
Template-Type: ReDIF-Article 1.0
Author-Name: Manfred Fruhwirth
Author-X-Name-First: Manfred
Author-X-Name-Last: Fruhwirth
Author-Name: Leopold Sogner
Author-X-Name-First: Leopold
Author-X-Name-Last: Sogner
Title: The Jarrow/Turnbull default risk model—Evidence from the German market
Abstract:
This article estimates default intensities within the continuous-time
Jarrow and Turnbull model for German bank and corporate bond prices. It is
shown that a joint implicit estimation of the default intensity and the
recovery rate is numerically unstable. In addition to cross-sectional
estimations, separate estimations (for each bond individually) are
performed. Results strongly support separate estimation over the building
of any cross-sections. In contrast to preceeding literature, the optimum
volume of data required to provide reasonable estimates of the default
intensity is also investigated. It is shown that calibration based on
daily data as a rule does not minimize the ex ante mean squared pricing
errors. Finally, it is shown that the constant default intensity
assumption is not sound with the underlying data and the determinants of
the default intensity are investigated. Regressions show that the lagged
default intensity estimate, the level of the default-free term structure
and liquidity proxies affect the estimated default intensity via joint
parameters.
Journal: The European Journal of Finance
Pages: 107-135
Issue: 2
Volume: 12
Year: 2006
Keywords: Credit risk, intensity-based models, Jarrow/Turnbull model, term structure of interest rates,
X-DOI: 10.1080/13518470500145969
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500145969
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:2:p:107-135
Template-Type: ReDIF-Article 1.0
Author-Name: G. Geoffrey Booth
Author-X-Name-First: G. Geoffrey
Author-X-Name-Last: Booth
Author-Name: Aydin Yuksel
Author-X-Name-First: Aydin
Author-X-Name-Last: Yuksel
Title: Price resolution in an emerging market: Evidence from the Istanbul Stock Exchange
Abstract:
This study examines price resolution an emerging market that uses a very
large relative tick size. Intraday transaction data from the Istanbul
Stock Exchange are used to provide evidence concerning clustering when
prices change and when they do not change. The results show that in this
one-tick market there exists little if any clustering. The clustering that
does exist primarily arises from sequential transactions at the same
price. The observed positive relation between clustering associated with
price changes and uncertainty occurs in periods of high uncertainty during
which multiple-tick spreads and price changes are observed.
Journal: The European Journal of Finance
Pages: 137-152
Issue: 2
Volume: 12
Year: 2006
Keywords: Stock price clustering, tick size, emerging markets, Istanbul Stock Exchange,
X-DOI: 10.1080/13518470500146017
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500146017
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:2:p:137-152
Template-Type: ReDIF-Article 1.0
Author-Name: R. Jankowitsch
Author-X-Name-First: R.
Author-X-Name-Last: Jankowitsch
Author-Name: H. Mosenbacher
Author-X-Name-First: H.
Author-X-Name-Last: Mosenbacher
Author-Name: S. Pichler
Author-X-Name-First: S.
Author-X-Name-Last: Pichler
Title: Measuring the liquidity impact on EMU government bond prices
Abstract:
The work reported in this paper aimed to measure the impact of liquidity
on European Monetary Union (EMU) government bond prices. Although there is
a growing theoretical and empirical literature on liquidity effects in
fixed income markets there is no clear answer to the questions how to
measure liquidity and whether liquidity is priced in the market at all.
The empirical analysis here is based on a unique data set containing
individual bond data from six major EMU government bond markets, allowing
one to compare yield curves estimated for subportfolios formed with
respect to different potential liquidity measures. In a second procedure,
liquidity measures are collected on the individual bond level and
estimated pricing errors, given some reference yield curve, are regressed
against these liquidity variables. This enables the conduction of formal
tests on the pricing impact of liquidity measures. Results indicate that
the benchmark property and the number of contributors are the most
promising liquidity proxies having significant results in most countries.
The results do not support the hypothesis that other liquidity measures
under consideration, such as the on-the-run property, the issue size, and
bid-ask spread related measures have a persistent price impact. A
cross-country analysis of the subportfolio level indicates that liquidity
effects cannot explain the size of the yield spreads between different
issuers. This implies that effects other than liquidity, such as credit
risk, are important driving factors of cross-country yield spreads.
Journal: The European Journal of Finance
Pages: 153-169
Issue: 2
Volume: 12
Year: 2006
Keywords: Liquidity, EMU, government bonds, price impact, cross-country analysis,
X-DOI: 10.1080/13518470500146041
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500146041
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:2:p:153-169
Template-Type: ReDIF-Article 1.0
Author-Name: Ercan Balaban
Author-X-Name-First: Ercan
Author-X-Name-Last: Balaban
Author-Name: Asli Bayar
Author-X-Name-First: Asli
Author-X-Name-Last: Bayar
Author-Name: Robert Faff
Author-X-Name-First: Robert
Author-X-Name-Last: Faff
Title: Forecasting stock market volatility: Further international evidence
Abstract:
This paper evaluates the out-of-sample forecasting accuracy of eleven
models for monthly volatility in fifteen stock markets. Volatility is
defined as within-month standard deviation of continuously compounded
daily returns on the stock market index of each country for the ten-year
period 1988 to 1997. The first half of the sample is retained for the
estimation of parameters while the second half is for the forecast period.
The following models are employed: a random walk model, a historical mean
model, moving average models, weighted moving average models,
exponentially weighted moving average models, an exponential smoothing
model, a regression model, an ARCH model, a GARCH model, a GJR-GARCH
model, and an EGARCH model. First, standard (symmetric) loss functions are
used to evaluate the performance of the competing models: mean absolute
error, root mean squared error, and mean absolute percentage error.
According to all of these standard loss functions, the exponential
smoothing model provides superior forecasts of volatility. On the other
hand, ARCH-based models generally prove to be the worst forecasting
models. Asymmetric loss functions are employed to penalize
under-/over-prediction. When under-predictions are penalized more heavily,
ARCH-type models provide the best forecasts while the random walk is
worst. However, when over-predictions of volatility are penalized more
heavily, the exponential smoothing model performs best while the ARCH-type
models are now universally found to be inferior forecasters.
Journal: The European Journal of Finance
Pages: 171-188
Issue: 2
Volume: 12
Year: 2006
Keywords: Stock market volatility, forecasting, forecast evaluation,
X-DOI: 10.1080/13518470500146082
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500146082
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:2:p:171-188
Template-Type: ReDIF-Article 1.0
Author-Name: Martin Hess
Author-X-Name-First: Martin
Author-X-Name-Last: Hess
Title: Timing and diversification: A state-dependent asset allocation approach
Abstract:
The influence of changing economic environment leads the distribution of
stock market returns to be time-varying. A conditionally optimal
investment hence requires a dynamic adjustment of asset allocation. In
this context, this paper examines the improvement in portfolio performance
by simulating portfolio strategies that are conditioned on the Markov
regime switching behaviour of stock market returns. Including a memory
effect eliminates the empirical shortcoming of discrete state models,
namely that they produce a standard and an extreme state in stock returns.
So far, this has prevented the regimes from being used as a valuable
conditioning variable. Based on a discrete state indicator variable, is
presented evidence of considerable performance improvement relative to the
static model due to optimal shifting between aggressive and well
diversified portfolio structures.
Journal: The European Journal of Finance
Pages: 189-204
Issue: 3
Volume: 12
Year: 2006
Keywords: Asymmetric stock return distribution, conditional asset pricing, dynamic diversification, Markov regime switching, timing,
X-DOI: 10.1080/13518470500162741
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500162741
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:3:p:189-204
Template-Type: ReDIF-Article 1.0
Author-Name: Gregory Koutmos
Author-X-Name-First: Gregory
Author-X-Name-Last: Koutmos
Author-Name: Andreas Pericli
Author-X-Name-First: Andreas
Author-X-Name-Last: Pericli
Author-Name: Lenos Trigeorgis
Author-X-Name-First: Lenos
Author-X-Name-Last: Trigeorgis
Title: Short-term Dynamics in the Cyprus Stock Exchange
Abstract:
This paper investigates the short-term dynamics of stock returns in an
emerging stock market namely, the Cyprus Stock Exchange (CYSE). Stock
returns are modelled as conditionally heteroscedastic processes with
time-dependent serial correlation. The conditional variance follows an
EGARCH process, while for the conditional mean three nonlinear
specifications are tested, namely: (a) the LeBaron exponential
autoregressive model; (b) the Sentana and Wadhwani positive feedback
trading model; and finally (c) a model that nests both (a) and (b). There
is an inverse relationship between volatility and autocorrelation
consistent with the findings from several other stock markets, including
the US. This pattern could be the manifestation of a certain form of noise
trading namely positive feedback trading or, momentum trading strategies.
There is little evidence that market declines are followed with higher
volatility than market advances, the so-called 'leverage effect', that has
been observed in almost all developed stock markets. In out of sample
forecasts, the nonlinear specifications provide better results in terms of
forecasting both first and second moments of the distribution of returns.
Journal: The European Journal of Finance
Pages: 205-216
Issue: 3
Volume: 12
Year: 2006
Keywords: Cyprus Stock Exchange, positive feedback trading, stock return dynamics, EGARCH, GED, exponential autoregression, forecasting,
X-DOI: 10.1080/13518470500146074
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500146074
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:3:p:205-216
Template-Type: ReDIF-Article 1.0
Author-Name: Dick Davies
Author-X-Name-First: Dick
Author-X-Name-Last: Davies
Author-Name: Christian Eckberg
Author-X-Name-First: Christian
Author-X-Name-Last: Eckberg
Author-Name: Andrew Marshall
Author-X-Name-First: Andrew
Author-X-Name-Last: Marshall
Title: The determinants of Norwegian exporters' foreign exchange risk management
Abstract:
This paper examines foreign exchange (FX) hedging by Norwegian exporting
firms to provide empirical evidence on the determinants of the hedging
decision. The paper contributes to prior studies by, first, focusing on
exporters to ensure that the companies in the sample have FX exposure,
thereby allowing a more rigorous test of the theoretical determinants of
hedging, and, secondly, in contrast to most previous studies that have
focused on FX external hedging instruments, the use of both internal and
external instruments is examined. Univariate, multivariate and
multinominal analyses all provide evidence consistent with the firm value
maximization hypotheses of underinvestment and risk aversion. Also, the
following characteristics of firms—size, extent of
internationalization and liquidity—are found to be related to the
decision to hedge FX risk. However, the evidence on the links between the
firm characteristics and the decision to hedge is not consistent across
internal and external FX hedgers, and also varies for individual hedging
instruments. Therefore it is argued that the empirical evidence on the
theoretical determinants cannot be generalized to cover the full range of
FX hedging strategies (which includes internal hedging instruments).
Unlike empirical studies for other countries the evidence for Norwegian
firms does not support the hypothesis that the avoidance of financial
distress and the need to resort to external capital markets is a
significant determinant of the hedging decision. Whilst the evidence
suggests that country-specific factors may play a role in determining the
use of FX hedging, it does not imply that the different policies adopted
are necessarily inconsistent with the firm value maximization hypothesis.
Journal: The European Journal of Finance
Pages: 217-240
Issue: 3
Volume: 12
Year: 2006
Keywords: Hedging, theoretical determinants, internal and external, exporters, firm value,
X-DOI: 10.1080/13518470500249274
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500249274
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:3:p:217-240
Template-Type: ReDIF-Article 1.0
Author-Name: Ignacio Mauleon
Author-X-Name-First: Ignacio
Author-X-Name-Last: Mauleon
Title: Modelling multivariate moments in European Stock Markets
Abstract:
This research extends the results of Mauleon and Perote, and derives
analytically a general framework for the multivariate Edgeworth Sargan
(ES) density. Its capability to account for multivariate moments beyond
correlation is shown-mainly, co-skewness, co-kurtosis and co-volatility.
The multivariate ES is then fitted to the residuals of a VAR model applied
to three European stock market series of daily data (FTSE, DAX, CAC40),
accounting for univariate as well as multivariate departures from
normality. The complete model - with nearly 60 parameters - is set up and
estimated jointly by maximum likelihood. Two alternative multivariate
probability density functions, student's t and the normal skewed, are also
estimated and compared to the ES. The empirical results show: (1) in spite
of the high nonlinearity and complexity of the model, it is feasible to
fit it to empirical data; (2) statistically significant multivariate
effects, other than correlations, are found, and (3) the tail fit of the
ES is significantly better.
Journal: The European Journal of Finance
Pages: 241-263
Issue: 3
Volume: 12
Year: 2006
Keywords: Multivariate ES density, co-skewness, co-kurtosis and co-volatility, European stock markets,
X-DOI: 10.1080/13518470500249233
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500249233
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:3:p:241-263
Template-Type: ReDIF-Article 1.0
Author-Name: Luciana Mancinelli
Author-X-Name-First: Luciana
Author-X-Name-Last: Mancinelli
Author-Name: Aydin Ozkan
Author-X-Name-First: Aydin
Author-X-Name-Last: Ozkan
Title: Ownership structure and dividend policy: Evidence from Italian firms
Abstract:
This paper reports on empirical investigations into the relationship
between dividend policy and ownership structure of firms, using a sample
of 139 listed Italian companies. Ownership structure in Italy is highly
concentrated and hence the relevant agency problem to analyse seems to be
the one that arises from the conflicting interests of large shareholders
and minority shareholders. This paper therefore attempts to test the rent
extraction hypothesis by relating the firm's dividend payout ratio to
various ownership variables, which measure the degree of concentration in
terms of the voting rights of large shareholders. The hypothesis that
other non-controlling large shareholders may have incentives to monitor
the largest shareholder is also tested. The results of the empirical
analysis reveal that firms make lower dividend payouts as the voting
rights of the largest shareholder increase. Results also suggest that the
presence of agreements among large shareholders might explain the limited
monitoring power of other 'strong' non-controlling shareholders.
Journal: The European Journal of Finance
Pages: 265-282
Issue: 3
Volume: 12
Year: 2006
Keywords: Dividend policy, ownership structure, agency costs,
X-DOI: 10.1080/13518470500249365
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500249365
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:3:p:265-282
Template-Type: ReDIF-Article 1.0
Author-Name: Roderick Bain
Author-X-Name-First: Roderick
Author-X-Name-Last: Bain
Author-Name: Donald Hausch
Author-X-Name-First: Donald
Author-X-Name-Last: Hausch
Author-Name: William Ziemba
Author-X-Name-First: William
Author-X-Name-Last: Ziemba
Title: An application of expert information to win betting on the Kentucky Derby, 1981-2005
Abstract:
The Kentucky Derby features top three-year-old thoroughbred horses. Run
at [image omitted] miles, it is typically at least 1/8 mile longer
than any of the horses has raced before. This extra distance, usually
combined with a large field, makes the race a difficult test of stamina
for horses this young. Bettors, because there is no direct evidence of
whether a horse has the stamina to compete effectively at [image
omitted] miles, are also challenged. The informational content of
one publicly available, pedigree-based measure of stamina, the Dosage
Index, is used with simple performance measures to identify a
semi-strong-form inefficiency, and to create a betting scheme based on the
optimal capital growth model that merges these criteria with the public's
opinion. Statistically significant profits, net of transaction costs,
could have been achieved during the period 1981 to 2005.
Journal: The European Journal of Finance
Pages: 283-301
Issue: 4
Volume: 12
Year: 2006
Keywords: Semi-strong market efficiency, capital growth theory, speculative investments, sports betting,
X-DOI: 10.1080/13518470500531051
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500531051
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:4:p:283-301
Template-Type: ReDIF-Article 1.0
Author-Name: Hans Bystrom
Author-X-Name-First: Hans
Author-X-Name-Last: Bystrom
Title: Using extreme value theory to estimate the likelihood of banking sector failure
Abstract:
The growing interest in management of credit risk and estimation of
default probabilities has given rise to a range of more or less elaborate
credit risk models. While these models work well for non-financial firms
they are usually not very successful in capturing the financial strength
of banks. As an answer to this, Hall and Miles suggest a simple approach
of estimating bank failure probabilities based solely on their stock
prices. This paper suggests an extension to the Hall and Miles model using
extreme value theory and applies the extended model to the Swedish banking
sector around the banking crisis of the early 1990s. The extended model
captures very well the increased likelihood of a systemic banking sector
failure around the peak of the crisis and it produces default
probabilities that are more stable, more realistic and more consistent
with Moody's and Fitch rating implied default rates than probabilities
from the original Hall and Miles model.
Journal: The European Journal of Finance
Pages: 303-312
Issue: 4
Volume: 12
Year: 2006
Keywords: Banking sector failure, default risk, extreme value theory,
X-DOI: 10.1080/13518470500146116
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500146116
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:4:p:303-312
Template-Type: ReDIF-Article 1.0
Author-Name: Shaun Bond
Author-X-Name-First: Shaun
Author-X-Name-Last: Bond
Author-Name: Stephen Satchell
Author-X-Name-First: Stephen
Author-X-Name-Last: Satchell
Title: Asymmetry and downside risk in foreign exchange markets
Abstract:
This paper evaluates the double gamma distribution as a means of
modelling asymmetry in the conditional distribution of financial data. To
do this the model is applied to ten exchange rate series covering mature
and emerging market countries. A second contribution of this paper is to
highlight the link between the double gamma distribution and the
measurement of the second lower partial moment (or semi-variance). The
resulting empirical performance of the double gamma model is found to be
mixed when compared to a symmetric GARCH-t model. Estimates of conditional
downside risk based on the double gamma model are constructed for each
series. The results for the Malaysian Riggit, Zimbabwe Dollar and the
Korean Won demonstrate the extreme downside volatility experienced by
these countries during the emerging markets currency crisis.
Journal: The European Journal of Finance
Pages: 313-332
Issue: 4
Volume: 12
Year: 2006
Keywords: Double-gamma, skewness, lower partial moments, GARCH,
X-DOI: 10.1080/13518470500459808
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500459808
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:4:p:313-332
Template-Type: ReDIF-Article 1.0
Author-Name: Ansgar Wohlschlegel
Author-X-Name-First: Ansgar
Author-X-Name-Last: Wohlschlegel
Title: Bankruptcy law and financial structure: The impact of managerial incentives
Abstract:
Providing the manager of a firm with suitable incentives to act in the
investors' interest may be socially efficient, but not individually
rational for the investors themselves. This paper specifies a second-best
arrangement and shows how investors can be induced to implement it by
means of an optimal bankruptcy code in the case where only standard
financial contracts are available. It explains why bankruptcy law should,
in some states of nature, let shareholders and senior creditors decide
jointly, and provides a rationale for the existence of junior debt, which
never enjoys any power of decision.
Journal: The European Journal of Finance
Pages: 333-345
Issue: 4
Volume: 12
Year: 2006
Keywords: Managers, incentives, investors, bankruptcy code, debt,
X-DOI: 10.1080/13518470500248466
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500248466
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:4:p:333-345
Template-Type: ReDIF-Article 1.0
Author-Name: Andros Gregoriou
Author-X-Name-First: Andros
Author-X-Name-Last: Gregoriou
Author-Name: Christos Ioannidis
Author-X-Name-First: Christos
Author-X-Name-Last: Ioannidis
Title: Information costs and liquidity effects from changes in the FTSE 100 list
Abstract:
In this paper we examine the stock price effect of changes in the
composition of the FTSE 100 over the time period of 1984-2001. Like the
S&P 500 listing studies, we find that the price and trading volume of
newly listed firms increases. The evidence is consistent with the
information cost/liquidity explanation. This is because investors hold
stocks with more available information, implying that they have lower
trading costs. This explains the increase in the stock price and trading
volume of newly listed stocks to the FTSE 100 List. We find the reverse
effect for the deletions from the FTSE 100.
Journal: The European Journal of Finance
Pages: 347-360
Issue: 4
Volume: 12
Year: 2006
Keywords: Information costs, trading costs, bid-ask spreads, liquidity,
X-DOI: 10.1080/13518470500249340
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500249340
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:4:p:347-360
Template-Type: ReDIF-Article 1.0
Author-Name: Constantin Mellios
Author-X-Name-First: Constantin
Author-X-Name-Last: Mellios
Author-Name: Eric Paget-Blanc
Author-X-Name-First: Eric
Author-X-Name-Last: Paget-Blanc
Title: Which factors determine sovereign credit ratings?
Abstract:
The purpose of this study is to examine the determinants of the sovereign
credit ratings provided by the three major rating agencies: Fitch Ratings,
Moody's and Standard and Poor. A principal component analysis is employed
in order to identify the common factors affecting these ratings. The
impact of the variables correlated with these factors on ratings is then
assessed through an ordered logistic model. Results show that sovereign
ratings are mostly influenced by per capita income, government income,
real exchange rate changes, inflation rate and default history. The study
also highlights the importance of corruption, as measured by Transparency
International's Corruption Perceptions Index, which appears as a proxy for
both economic development and the quality of the governance of a country.
Journal: The European Journal of Finance
Pages: 361-377
Issue: 4
Volume: 12
Year: 2006
Keywords: Credit ratings, sovereign debts, sovereign default, principal component analysis, logistic model,
X-DOI: 10.1080/13518470500377406
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500377406
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:4:p:361-377
Template-Type: ReDIF-Article 1.0
Author-Name: Silvia Marchesi
Author-X-Name-First: Silvia
Author-X-Name-Last: Marchesi
Title: Buybacks of domestic debt in public debt management
Abstract:
This paper shows how public debt repurchases can be used to reduce the
costs of debt service under the hypothesis that the government could be of
two types and that there is asymmetric information between the government
and the private sector. For example, at the beginning of a fiscal
stabilization a government typically does not enjoy full credibility among
investors and high interest rates on longterm bonds may reflect
credibility problem rather than term premia. In a two-period framework,
this paper suggests that buybacks could be used to reduce the risk premia
since they can signal government commitment to a previously-announced
policy.
Journal: The European Journal of Finance
Pages: 379-400
Issue: 5
Volume: 12
Year: 2006
Keywords: Asymmetric information, signalling, public debt management, buybacks,
X-DOI: 10.1080/13518470500459931
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500459931
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:5:p:379-400
Template-Type: ReDIF-Article 1.0
Author-Name: Leo De Haan
Author-X-Name-First: Leo
Author-X-Name-Last: De Haan
Author-Name: Elmer Sterken
Author-X-Name-First: Elmer
Author-X-Name-Last: Sterken
Title: The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK
Abstract:
According to the 'broad credit view' bank-dependent firms are more
strongly affected by monetary contractions than firms with access to
non-bank forms of external finance. Within the credit view the bank
lending channel focuses on the special role of bank loans, and predicts
that monetary contractions reduce loan supply to firms facing information
problems. However, the 'relationship lending channel' argues that,
especially in bank-based economies, bank-dependent firms have close ties
with banks, which may reduce the sensitivity of their use of bank debt to
monetary shocks. The sensitivity of corporate debt structures to changes
in the monetary policy stance is analysed using a sample of 22,000 firms
in the Euro area and the UK. Evidence is found for the credit view, the
relationship lending channel, but not for the bank lending channel.
Journal: The European Journal of Finance
Pages: 401-420
Issue: 5
Volume: 12
Year: 2006
Keywords: Broad credit view, bank lending channel, relationship lending, monetary policy,
X-DOI: 10.1080/13518470500459840
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500459840
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:5:p:401-420
Template-Type: ReDIF-Article 1.0
Author-Name: Jose Guedes
Author-X-Name-First: Jose
Author-X-Name-Last: Guedes
Author-Name: Gilberto Loureiro
Author-X-Name-First: Gilberto
Author-X-Name-Last: Loureiro
Title: Estimating the expropriation of minority shareholders: Results from a new empirical approach
Abstract:
A novel methodological approach is proposed to estimate the effect of
separation of ownership and control by dominant shareholders on firm
value. The approach offers two major innovations. First, it frees the
researcher from the necessity of having to make an ad hoc judgment call
regarding which firms feature entrenched owners and which don't. Under
this approach, the main shareholder becomes entrenched when the Shapley
Value (SV) of his voting rights crosses an unknown threshold that is
estimated jointly with the other model parameters. This approach allows
one to perform a test on the joint hypotheses that the incentive to
expropriate held by the dominant shareholder impacts negatively the market
performance of the firm if the main shareholder is entrenched but produces
no impact otherwise. Secondly, it generates a market-based estimate of the
critical level of power at which the main shareholder becomes entrenched.
The method is applied to a sample of European firms and a threshold equal
to 0.34 is estimated. Most firms from the UK have a main shareholder with
a SV below the estimated threshold; in contrast, about half of the
continental firms in the sample feature main shareholders whose power
index is above the estimated threshold. A negative relationship is found
between the incentive to expropriate and corporate valuation above the
threshold, that is both statistically and economically significant; below
the threshold, we find no evidence of a relationship.
Journal: The European Journal of Finance
Pages: 421-448
Issue: 5
Volume: 12
Year: 2006
Keywords: Dominant shareholder, ownership, control, market performance, Shapley Value,
X-DOI: 10.1080/13518470500459972
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500459972
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:5:p:421-448
Template-Type: ReDIF-Article 1.0
Author-Name: Ercan Balaban
Author-X-Name-First: Ercan
Author-X-Name-Last: Balaban
Author-Name: Charalambos Th. Constantinou
Author-X-Name-First: Charalambos Th.
Author-X-Name-Last: Constantinou
Title: Volatility clustering and event-induced volatility: Evidence from UK mergers and acquisitions
Abstract:
The paper describes simultaneous tests of the effects of announcements of
UK mergers and acquisitions on both the mean and conditional volatility
functions for UK bidder firms. Unlike previous research, the entire data
set is utilized, thus avoiding researcher-chosen event periods. The
cross-sectional test statistics for 745 firms show that the announcement
day returns are significantly negative and the conditional volatility
decreases. Results suggest that the event studies should incorporate
firm-specific time-varying volatility into their abnormal return
generating processes and into the tests calibrating the significance of
both abnormal return and abnormal volatility around an event.
Journal: The European Journal of Finance
Pages: 449-453
Issue: 5
Volume: 12
Year: 2006
Keywords: Conditional heteroscedasticity, volatility clustering, event studies, mergers and acquisitions, announcement effects, abnormal performance,
X-DOI: 10.1080/13518470500377430
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500377430
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:5:p:449-453
Template-Type: ReDIF-Article 1.0
Author-Name: Arie Preminger
Author-X-Name-First: Arie
Author-X-Name-Last: Preminger
Author-Name: Uri Ben-Zion
Author-X-Name-First: Uri
Author-X-Name-Last: Ben-Zion
Author-Name: David Wettstein
Author-X-Name-First: David
Author-X-Name-Last: Wettstein
Title: Extended switching regression models with time-varying probabilities for combining forecasts
Abstract:
This paper introduces a new methodology, which extends the well-known
switching regression model. The extension is via the introduction of
several latent state variables, each one of which influencing a disjoint
set of the model parameters. Furthermore, the probability distribution of
the state variables is allowed to vary over time. This model is called the
time varying extended switching regression (TV-ESR) model. The model is
used to combine volatility forecasts of several currencies (JPY/USD,
GBP/USD, and CHF/USD). A detailed comparison of the forecasts generated by
the TV-ESR approach is made with those of traditional linear combining
procedures and other methods for combining forecasts derived from the
switching regression model. On the basis of out-of-sample forecast
encompassing tests as well as other measures for forecasting accuracy,
results indicate that the use of this new method yields overall better
forecasts than those generated by competing models.
Journal: The European Journal of Finance
Pages: 455-472
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Forecast combining, TV-ESR models, volatility modelling,
X-DOI: 10.1080/13518470500039360
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039360
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:455-472
Template-Type: ReDIF-Article 1.0
Author-Name: Soosung Hwang
Author-X-Name-First: Soosung
Author-X-Name-Last: Hwang
Author-Name: Pedro L. Valls Pereira
Author-X-Name-First: Pedro L. Valls
Author-X-Name-Last: Pereira
Title: Small sample properties of GARCH estimates and persistence
Abstract:
It is shown that the ML estimates of the popular GARCH(1,1) model are
significantly negatively biased in small samples and that in many cases
converged estimates are not possible with Bollerslev's non-negativity
conditions. Results also indicate that a high level of persistence in
GARCH(1,1) models obtained using a large number of observations has
autocorrelations lower than these ML estimates suggest in small samples.
Considering the size of biases and convergence errors, it is proposed that
at least 250 observations are needed for ARCH(1) models and 500
observations for GARCH(1,1) models. A simple measure of how much GARCH
conditional volatility explains squared returns is proposed. The measure
indicates that for a typical index return volatility whose ARCH parameter
is very small, the conditional volatility hardly explains squared returns.
Journal: The European Journal of Finance
Pages: 473-494
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Small sample, volatility, GARCH, persistence,
X-DOI: 10.1080/13518470500039436
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500039436
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:473-494
Template-Type: ReDIF-Article 1.0
Author-Name: Svetlana Borovkova
Author-X-Name-First: Svetlana
Author-X-Name-Last: Borovkova
Title: Detecting market transitions and energy futures risk management using principal components
Abstract:
An empirical approach to analysing the forward curve dynamics of energy
futures is presented. For non-seasonal commodities—such as crude
oil—the forward curve is well described by the first three
principal components: the level, slope and curvature. A principal
component indicator is described that detects transitions between the two
fundamental market states remarkably well. For seasonal
commodities—such as electricity and natural gas—it is shown
how to extract the seasonal component from the forward curve. The
principal component indicator can then be applied to the de-seasoned
forward curve to detect significant price deviations that may support
profitable trading strategies. A principal component approach to forward
curve modelling is applied to computing portfolio value-at-risk. This
approach is combined with a new two-step resampling procedure to improve
value-at-risk estimates.
Journal: The European Journal of Finance
Pages: 495-512
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Commodity futures, forward curve, seasonality, principal component analysis, market transition forecasts, value-at-risk,
X-DOI: 10.1080/13518470500377380
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500377380
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:495-512
Template-Type: ReDIF-Article 1.0
Author-Name: Nuno Cassola
Author-X-Name-First: Nuno
Author-X-Name-Last: Cassola
Author-Name: Claudio Morana
Author-X-Name-First: Claudio
Author-X-Name-Last: Morana
Title: Volatility of interest rates in the euro area: Evidence from high frequency data
Abstract:
The paper studies the euro area money market from a microstructure
perspective. The focus is on the empirical estimation of the factors
underlying the volatility of the overnight interest rate and its
transmission along the money market yield curve. Two sources of volatility
are separated out, one related to the institutional features of the
operational framework and payments system, and the other, related to the
impact of policy decisions. A novel data set is used composed of hourly
observations and covering several short-term interest rates. The sample
runs from 4/12/2000 to 31/05/2002. Two common long-memory factors are
found to drive the volatility processes. The first explains the
long-memory dynamics of the shortest maturity. The other explains the
transmission of volatility to other maturities. It is shown that
announcements of interest rate changes exercise the strongest impact on
the volatility of the shortest maturities. Persistent effects of liquidity
shortages that are transmitted along the money market yield curve are
documented. However, these effects are not the rule and can be explained
by exceptional circumstances.
Journal: The European Journal of Finance
Pages: 513-528
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Money market microstructure, stochastic volatility, fractional integration and cointegration,
X-DOI: 10.1080/13518470500162758
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500162758
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:513-528
Template-Type: ReDIF-Article 1.0
Author-Name: Laurens Swinkels
Author-X-Name-First: Laurens
Author-X-Name-Last: Swinkels
Author-Name: Pieter Van Der Sluis
Author-X-Name-First: Pieter
Author-X-Name-Last: Van Der Sluis
Title: Return-based style analysis with time-varying exposures
Abstract:
This paper focuses on the estimation of mutual fund styles by
return-based style analysis. Often the investment style is assumed to be
constant through time. Alternatively, time variation is sometimes
implicitly accounted for by using rolling regressions when estimating the
style exposures. The former assumption is often contradicted empirically,
and the latter is inefficient due to its ad hoc chosen window size. Here,
the Kalman filter is used to model time-varying exposures of mutual funds
explicitly. This leads to a testable model and more efficient use of the
data, which reduces the influence of spurious correlation between mutual
fund returns and style indices. Several stylized examples indicate that
more reliable style estimates can be obtained by modelling the style
exposure as a random walk, and estimating the coefficients with the Kalman
filter. The differences with traditional techniques are substantial in
these stylized examples. The results from the empirical analyses indicate
that the structural model estimated by the Kalman filter improves style
predictions and influences results on performance measurement.
Journal: The European Journal of Finance
Pages: 529-552
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Dynamic models, Kalman filter, Mutual funds, Style analysis,
X-DOI: 10.1080/13518470500248508
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500248508
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:529-552
Template-Type: ReDIF-Article 1.0
Author-Name: John Cotter
Author-X-Name-First: John
Author-X-Name-Last: Cotter
Title: Extreme Value Estimation of Boom and Crash Statistics
Abstract:
Extreme price movements associated with market crashes and booms have
catastrophic repercussions for all investors and it is necessary to make
accurate predictions of the frequency and severity of these events. This
paper investigates the extreme behaviour of equity market returns and
quantifies the possible losses experienced during financial crises.
Extreme value theory using the block maxima method is applied to equity
indices representing American, Asian and European markets. The empirical
evidence shows that the tail indices are characterized by the fat-tailed
Frechet distribution. Extreme return levels associated with market crashes
are more severe than booms. Asian markets exhibit the largest propensity
for experiencing crashes and booms.
Journal: The European Journal of Finance
Pages: 553-566
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Extreme value theory, market crashes and booms,
X-DOI: 10.1080/13518470500460111
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500460111
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:553-566
Template-Type: ReDIF-Article 1.0
Author-Name: Rita D'Ecclesia
Author-X-Name-First: Rita
Author-X-Name-Last: D'Ecclesia
Author-Name: Mauro Costantini
Author-X-Name-First: Mauro
Author-X-Name-Last: Costantini
Title: Comovements and correlations in international stock markets
Abstract:
The interrelationship between international stock markets is a key issue
in international portfolio management and risk measurement. The dynamics
of security returns and their risk characteristics have a crucial role in
the financial market theory. Recent empirical studies have tested market
efficiency measuring the degree of integration of international financial
markets. These studies have shown that international markets react quickly
to news but they are volatile and difficult to predict, with a changing
correlation structure of security returns among countries. In this paper
the nature of the relationship between the major international stock
markets in Canada, Japan, UK and the US, is analysed using the common
trends and common cycles approach. The presence of co-movements is
investigated to try to detect a long-term stationary component, the common
trend, and a short-term stationary cyclical component, among international
stock markets. The implications for international portfolio management are
also discussed.
Journal: The European Journal of Finance
Pages: 567-582
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Common cycles, common trends, cointegration, VECM, market diversification,
X-DOI: 10.1080/13518470500531135
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500531135
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:567-582
Template-Type: ReDIF-Article 1.0
Author-Name: Robert Tompkins
Author-X-Name-First: Robert
Author-X-Name-Last: Tompkins
Title: Why Smiles Exist in Foreign Exchange Options Markets: Isolating Components of the Risk Neutral Process
Abstract:
Prices of foreign exchange options systematically diverge from those
consistent with several previous option pricing models. This paper
examines whether alternative models better explaining the empirical
dynamics of the foreign exchange futures markets can yield implied
volatility surfaces similar to those observed for options on Foreign
Exchange futures. The most suitable alternative models include jumps and
stochastic volatility. The inclusion of both these factors introduces
unspanned sources of risk and therefore, the martingale measure will not
necessarily be unique. However, it is not the objective of this research
to propose which martingale measure is optimal; the aim, instead, is to
gain a deeper understanding of the properties (and particularly the order
of magnitude) of the risk premium. This is done by choosing a feasible
martingale measure (based upon the no arbitrage condition), assuming no
market price of jump or stochastic volatility risks, and price options
under this measure. The implied volatility biases from model-based option
prices are then compared to the actual implied volatility surfaces for
options on these markets. The systematic and substantive differences that
are found suggest a negative risk premium, which is a relatively more
important (and universal) component in FX option pricing than previously
reported. Furthermore, it appears that the relative risk premium across
strike price and time is similar across four foreign exchange options
markets. This may imply that some systematic mechanism causes the risk
premium in these markets.
Journal: The European Journal of Finance
Pages: 583-603
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Stochastic volatility, normal inverse Gaussian distributions, methods of moments estimation, implied volatility smiles,
X-DOI: 10.1080/13518470500531150
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500531150
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:583-603
Template-Type: ReDIF-Article 1.0
Author-Name: Alvaro Veiga
Author-X-Name-First: Alvaro
Author-X-Name-Last: Veiga
Author-Name: Leonardo Souza
Author-X-Name-First: Leonardo
Author-X-Name-Last: Souza
Title: Using Irregularly Spaced Returns to Estimate Multi-factor Models: Application to Brazilian Equity Data
Abstract:
Multi-factor models are useful tools to explain cross-sectional
covariance in equities returns. In this paper a new estimation method is
proposed that makes use of irregularly spaced returns and an empirical
example is provided with the 389 most liquid equities in the Brazilian
Market. The market index shows itself capable of explaining equity returns
while the US$/Brazilian real exchange rate and the Brazilian short
interest rate do not. The example shows the usefulness of the estimation
method in further using the model to fill in missing values and to provide
interval forecasts.
Journal: The European Journal of Finance
Pages: 605-626
Issue: 6-7
Volume: 12
Year: 2006
Keywords: Multi-factor model, missing data, irregularly spaced returns,
X-DOI: 10.1080/13518470600763489
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600763489
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:605-626
Template-Type: ReDIF-Article 1.0
Author-Name: Kate Phylaktis
Author-X-Name-First: Kate
Author-X-Name-Last: Phylaktis
Author-Name: Lichuan Xia
Author-X-Name-First: Lichuan
Author-X-Name-Last: Xia
Title: The Changing Roles of Industry and Country Effects in the Global Equity Markets
Abstract:
This paper examines the roles of country and industry effects on
international equity returns using a comprehensive database covering 50
industry groups and 34 countries over the period 1992 to 2001. The study
focuses on the evolving process of those effects over time and on
geographical differences. The main results are as follows: although the
country effects still dominate the industry effects in the full sample
period, there has been a major upward shift in industry effects since
1999. The degree of this shift varies across regions and is prominent in
Europe and North America, while in Asia Pacific and Latin America, country
effects still dominate. The increasing industry effects are not found to
be confined to the Technology, Media and Telecommunications sectors and
thus are not considered a temporary phenomenon. The above developments
have implications for international portfolio diversification.
Journal: The European Journal of Finance
Pages: 627-648
Issue: 8
Volume: 12
Year: 2006
Keywords: Portfolio diversification, risk, international equity markets, industrial structure,
X-DOI: 10.1080/13518470500460202
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500460202
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:8:p:627-648
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Breuer
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Breuer
Author-Name: Marc Gurtler
Author-X-Name-First: Marc
Author-X-Name-Last: Gurtler
Title: Performance Evaluation, Portfolio Selection, and HARA Utility
Abstract:
The main goal of this work is the generalization of the approach of
Jobson and Korkie for funds performance evaluation. Therefore, the paper
considers the portfolio selection problem of an investor who faces short
sales restrictions when choosing among F different investment funds and
assumes the investor's utility function to be of the HARA type. A
performance measure is developed and its relationship to previously
proposed measures is discussed. Particular attention is given to the
special case of cubic utility implying skewness preferences. Findings are
illustrated by an empirical example.
Journal: The European Journal of Finance
Pages: 649-669
Issue: 8
Volume: 12
Year: 2006
Keywords: HARA utility, performance evaluation, portfolio selection, skewness,
X-DOI: 10.1080/13518470500460228
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500460228
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:8:p:649-669
Template-Type: ReDIF-Article 1.0
Author-Name: Bruce Burton
Author-X-Name-First: Bruce
Author-X-Name-Last: Burton
Author-Name: Christine Helliar
Author-X-Name-First: Christine
Author-X-Name-Last: Helliar
Author-Name: David Power
Author-X-Name-First: David
Author-X-Name-Last: Power
Title: Practitioners' Perspectives on the IPO Process and the Perils of Flotation
Abstract:
A substantive literature examines the short- and long-run performance of
share returns following an Initial Public Offering (IPO). However, the
related issue of why companies seek to raise money through an IPO, or the
factors that are important in this equity-issuing process, have attracted
very little academic attention. The current paper seeks to redress this
imbalance by investigating attitudes to these issues in the UK using two
research methods: (i) a detailed questionnaire survey of companies that
have recently undertaken an IPO; and (ii) interviews with managers and
advisers who have been involved in the IPO process.
Journal: The European Journal of Finance
Pages: 671-692
Issue: 8
Volume: 12
Year: 2006
Keywords: Share returns, Initial Public Offering, attitudes, survey,
X-DOI: 10.1080/13518470500460038
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500460038
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:8:p:671-692
Template-Type: ReDIF-Article 1.0
Author-Name: Gabrielle Wanzenried
Author-X-Name-First: Gabrielle
Author-X-Name-Last: Wanzenried
Title: Capital Structure Dynamics in the UK and Continental Europe
Abstract:
This paper investigates empirically the effects of institutions and
market characteristics on corporate capital structure dynamics. Based on
the fact that firms may temporarily deviate from their optimal capital
structure due to the existence of adjustment costs, a partial adjustment
model is used that links these transaction costs to country-specific
characteristics such as the development of the financial markets, legal
system, and macroeconomic environment. The sample comprises data from 873
firms in France, Germany, Italy and the UK over the period from 1982 to
2002. The results support the hypotheses that more developed financial
markets, greater efficiency of the legal system and better protection of
shareholders all have a positive effect on the speed at which firms adjust
their capital structure towards the target. Similarly, higher economic
growth and a higher inflation rate positively affect the speed of
adjustment to the optimal capital structure as well.
Journal: The European Journal of Finance
Pages: 693-716
Issue: 8
Volume: 12
Year: 2006
Keywords: Capital structure, dynamic analysis, institutions and markets,
X-DOI: 10.1080/13518470500460178
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500460178
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:8:p:693-716
Template-Type: ReDIF-Article 1.0
Author-Name: Snorre Lindset
Author-X-Name-First: Snorre
Author-X-Name-Last: Lindset
Title: A Generalization of the Formulas for Options on the Maximum or the Minimum of Several Assets
Abstract:
This paper generalizes the option on the maximum or the minimum of two
assets (several assets) within a stochastic interest rate framework. A
Gaussian model is used to describe the interest rates. Closed-form
solutions for the market values are presented. The use of the options is
illustrated with numerical examples.
Journal: The European Journal of Finance
Pages: 717-730
Issue: 8
Volume: 12
Year: 2006
Keywords: Options on maximum or minimum of several assets, Heath, Jarrow, and Morton term structure of interest rates, multivariate probabilities,
X-DOI: 10.1080/13518470500392876
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500392876
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:8:p:717-730
Template-Type: ReDIF-Article 1.0
Author-Name: Erik Liden
Author-X-Name-First: Erik
Author-X-Name-Last: Liden
Title: Stock Recommendations in Swedish Printed Media: Leading or Misleading?
Abstract:
This paper analyses the initiated and changed recommendations published
in six well-known Swedish newspapers and business magazines for the period
1996-2000 using a buy-and-hold abnormal returns (BHARs) approach. The
results distinguish between recommendations from analysts and journalists.
Buy recommendations were misleading investors, whereas sell
recommendations were leading them correctly, overall yielding returns in
line with the market. This asymmetry is due to positive information from
the management of the company being more intricate to interpret than
negative. Both good and bad information provided by the management is
generally positively biased, a phenomenon influencing both analyst and
journalist recommendations. Following buy and sell recommendations from
analysts yielded BHARs in line with those from journalists, which in turn
generates returns in line with their peers. Going short in the recommended
stocks, irrespective of type and origin, would lead to a 24-month BHAR of
14%.
Journal: The European Journal of Finance
Pages: 731-748
Issue: 8
Volume: 12
Year: 2006
Keywords: Stock recommendations, EMH, printed media, initiations, information asymmetry,
X-DOI: 10.1080/13518470500531093
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500531093
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:8:p:731-748
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Pierdzioch
Author-X-Name-First: Christian
Author-X-Name-Last: Pierdzioch
Author-Name: Andrea Schertler
Author-X-Name-First: Andrea
Author-X-Name-Last: Schertler
Title: Sources of Predictability of European Stock Markets for High-technology Firms
Abstract:
The paper reports on studies of return predictability of stock indexes of
blue-chip firms and high-technology firms in Germany, France and the UK
during the second half of the 1990s. Return predictability was measured in
terms of first-order autocorrelation coefficients, and evidence was found
for the return predictability of stock indexes of high-technology firms,
but not for the return predictability of stock indexes of blue-chip firms.
These findings suggest that a candidate for explaining the economic
sources of the return predictability of these stock indexes of
high-technology firms is transaction costs in the form of the costs of
gathering and processing information in new technological fields.
Journal: The European Journal of Finance
Pages: 1-27
Issue: 1
Volume: 13
Year: 2007
Keywords: Stock markets, return predictability, high-technology firms,
X-DOI: 10.1080/13518470600762408
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600762408
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:1:p:1-27
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Bessler
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Bessler
Author-Name: Andreas Kurth
Author-X-Name-First: Andreas
Author-X-Name-Last: Kurth
Title: Agency Problems and the Performance of Venture-backed IPOs in Germany: Exit Strategies, Lock-up Periods, and Bank Ownership
Abstract:
The agency problems for initial public offerings are well documented in
the literature. The objective of this research is to investigate the
potential conflicts of interest for the 'Neuer Markt' in Germany. Of
special interest are venture-backed IPOs and those in which banks acted as
venture capitalist, underwriter, and provided analyst recommendations.
High initial returns and outperformance are observed over the first 6
months of trading, which decreases significantly over the subsequent 18
months. The individual performance depends on the VC's underwriter and
bank affiliation, exit behaviour, and lock-up commitment. Venture
capitalists, and especially banks, timed their exit well. This indicates
some serious agency problems in the German IPO market.
Journal: The European Journal of Finance
Pages: 29-63
Issue: 1
Volume: 13
Year: 2007
Keywords: Initial public offerings, venture capital, agency problems, bank equity ownership,
X-DOI: 10.1080/13518470600763661
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600763661
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:1:p:29-63
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Bauer
Author-X-Name-First: Christian
Author-X-Name-Last: Bauer
Title: A Better Asymmetric Model of Changing Volatility in Stock and Exchange Rate Returns: Trend-GARCH
Abstract:
The impact of short run price trending on the conditional volatility is
tested empirically. A new family of conditionally heteroscedastic models
with a trend-dependent conditional variance equation: The Trend-GARCH
model is described. Modern microeconomic theory often suggests the
connection between the past behaviour of time series, the subsequent
reaction of market individuals, and thereon changes in the future
characteristics of the time series. Results reveal important properties of
these models, which are consistent with stylized facts found in financial
data sets. They can also be employed for model identification, estimation,
and testing. The empirical analysis supports the existence of trend
effects. The Trend-GARCH model proves to be superior to alternative models
such as EGARCH, AGARCH, TGARCH OR GARCH-in-Mean in replicating the
leverage effect in the conditional variance, in fitting the news impact
curve and in fitting the volatility estimates from high frequency data. In
addition, we show that the leverage effect is dependent on the current
trend, i.e. it differentiates between bullish and bearish markets.
Furthermore, trend effects can account for a significant part of the long
memory property of asset price volatilities.
Journal: The European Journal of Finance
Pages: 65-87
Issue: 1
Volume: 13
Year: 2007
Keywords: GARCH, trend, volatility, news impact curve, leverage effect, persistence,
X-DOI: 10.1080/13518470600763752
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600763752
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:1:p:65-87
Template-Type: ReDIF-Article 1.0
Author-Name: Dominic Gasbarro
Author-X-Name-First: Dominic
Author-X-Name-Last: Gasbarro
Author-Name: Wing-Keung Wong
Author-X-Name-First: Wing-Keung
Author-X-Name-Last: Wong
Author-Name: J. Kenton Zumwalt
Author-X-Name-First: J. Kenton
Author-X-Name-Last: Zumwalt
Title: Stochastic Dominance Analysis of iShares
Abstract:
Country indices as represented by iShares exhibit non-normal return
distributions with both skewness and kurtosis. Earlier studies provide
procedures for determining the statistical significance of stochastic
dominance measures and the Sharpe Ratio. This present study uses these
refinements to compare the performance of 18 country market indices. The
iShares are indistinguishable when using the Sharpe Ratio as no
significant differences are found. In contrast, stochastic dominance
procedures identify dominant iShares. Although the results vary over time,
stochastic dominance appears to be both more robust and discriminating
than the CAPM in the ranking of the iShares.
Journal: The European Journal of Finance
Pages: 89-101
Issue: 1
Volume: 13
Year: 2007
Keywords: Stochastic dominance, Sharpe ratio, skewness, country index funds,
X-DOI: 10.1080/13518470601025243
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601025243
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:1:p:89-101
Template-Type: ReDIF-Article 1.0
Author-Name: Michele Bagella
Author-X-Name-First: Michele
Author-X-Name-Last: Bagella
Author-Name: Leonardo Becchetti
Author-X-Name-First: Leonardo
Author-X-Name-Last: Becchetti
Author-Name: Rocco Ciciretti
Author-X-Name-First: Rocco
Author-X-Name-Last: Ciciretti
Title: Earning Forecast Error in US and European Stock Markets
Abstract:
The paper investigates the dynamics and determinants of the earning
forecast bias in two (US and Eurozone) stock samples matched by size and
industry affiliation. Evidence is found that the European bias is
significantly higher in absolute terms, irrespective of the year and the
distance from the release date, with the exception of the 1997-2000 period
in which US stocks are more optimistically valued. Cross-market
differences persist when they are regressed, in a panel GMM estimate, on
various controls such as the number of individual forecasts and their
standard deviation for any considered stock, with the latter being
significantly lower in the US market. Finally, it is observed that a
convergence process is at work in both markets, with the bias becoming
progressively lower as the release date gets closer.
Journal: The European Journal of Finance
Pages: 105-122
Issue: 2
Volume: 13
Year: 2007
Keywords: Earnings forecast bias, comparative financial systems, corporate governance,
X-DOI: 10.1080/13518470600762507
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600762507
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:2:p:105-122
Template-Type: ReDIF-Article 1.0
Author-Name: H. Semih Yildirim
Author-X-Name-First: H. Semih
Author-X-Name-Last: Yildirim
Author-Name: George Philippatos
Author-X-Name-First: George
Author-X-Name-Last: Philippatos
Title: Efficiency of Banks: Recent Evidence from the Transition Economies of Europe, 1993-2000
Abstract:
This study examines the cost and profit efficiency of banking sectors in
twelve transition economies of Central and Eastern Europe (CEE) over the
period 1993-2000, using the stochastic frontier approach (SFA) and the
distribution-free approach (DFA). The managerial inefficiencies in CEE
banking markets were found to be significant, with average cost efficiency
level for 12 countries of 72% and 77% by the DFA and the SFA,
respectively. The alternative profit efficiency levels are found to be
significantly lower relative to cost efficiency. According to the SFA,
approximately one-third of banks' profits are lost to inefficiency, and
almost one-half according to the DFA. The results of the second-stage
regression analyses suggest that higher efficiency levels are associated
with large and well-capitalized banks. The degree of competition has a
positive influence on cost efficiency and a negative one on profit
efficiency, while market concentration is negatively linked to efficiency.
Finally, foreign banks are found to be more cost efficient but less profit
efficient relative to domestically owned private banks and state-owned
banks.
Journal: The European Journal of Finance
Pages: 123-143
Issue: 2
Volume: 13
Year: 2007
Keywords: Banking, efficiency, transition economies, stochastic cost frontier,
X-DOI: 10.1080/13518470600763687
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600763687
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:2:p:123-143
Template-Type: ReDIF-Article 1.0
Author-Name: Souad Lajili-Jarjir
Author-X-Name-First: Souad
Author-X-Name-Last: Lajili-Jarjir
Title: Explaining the Cross-section of Stock Returns in France: Characteristics or Risk Factors?
Abstract:
In this study, the three-factor model of Fama and French and the
'characteristic model' of Daniel and Titman are tested using the French
Stock Market. Stocks are ranked by size and book to market ratio and then
by ex-ante β, HML or SMB loadings. Based on average returns, results
reject the factor model with 'characteristic balanced' portfolios. In
contrast, in time-series regressions, results are consistent with the
factor pricing model and inconsistent with the characteristic-based
pricing model. Because the value premium is small, conclusions must be
interpreted carefully. However, size and market premiums allow more
powerful tests of the two models.
Journal: The European Journal of Finance
Pages: 145-158
Issue: 2
Volume: 13
Year: 2007
Keywords: Asset pricing, anomalies, risk factors, Fama and French model,
X-DOI: 10.1080/13518470600813557
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600813557
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:2:p:145-158
Template-Type: ReDIF-Article 1.0
Author-Name: David Lovatt
Author-X-Name-First: David
Author-X-Name-Last: Lovatt
Author-Name: Andrew Boswell
Author-X-Name-First: Andrew
Author-X-Name-Last: Boswell
Author-Name: Reza Noor
Author-X-Name-First: Reza
Author-X-Name-Last: Noor
Title: A Note on the Predictability of UK Stock Returns
Abstract:
This note presents evidence on the predictability of UK stock returns
using a database of companies in the FTSE-Allshare Index newly constructed
towards the beginning of 1998. The tests used are autocorrelations at
various lags and variance ratios for several aggregations of base
observations. The evidence is consistent with that published for US stock
returns, namely that daily stock returns contain a strong element of
predictability.
Journal: The European Journal of Finance
Pages: 159-164
Issue: 2
Volume: 13
Year: 2007
Keywords: UK daily stock returns, autocorrelations, variance ratios,
X-DOI: 10.1080/13518470500378107
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500378107
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:2:p:159-164
Template-Type: ReDIF-Article 1.0
Author-Name: Valentyn Panchenko
Author-X-Name-First: Valentyn
Author-X-Name-Last: Panchenko
Title: Impact of Analysts' Recommendations on Stock Performance
Abstract:
This paper examines the effect of analysts' recommendations on stock
return, volume and volatility. The study covers a sample of 36 large cap
stocks traded on the US stock market over the period June 1997-May 2003.
The empirical evidence suggests a significant impact of analysts'
recommendations on the stock market. The research considers market
microstructure and looks at the motivation and behaviour of analysts.
Journal: The European Journal of Finance
Pages: 165-179
Issue: 2
Volume: 13
Year: 2007
Keywords: Analysts' recommendations, stock returns, volume, volatility,
X-DOI: 10.1080/13518470500459782
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470500459782
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:2:p:165-179
Template-Type: ReDIF-Article 1.0
Author-Name: Candida Ferreira
Author-X-Name-First: Candida
Author-X-Name-Last: Ferreira
Title: The Bank Lending Channel Transmission of Monetary Policy in the EMU: A Case Study of Portugal
Abstract:
This paper confirms the importance of bank performance to the
credit-lending channel of monetary policy in the countries of the EMU and
particularly in Portugal during recent years. The paper's main innovations
are (1) its use of macro and microeconomic statistical data; (2) the
introduction of three calculated bank-performance indicators—asset
structure, conversion of clients' resources into credits and financial
margins—into an adaptation of the Bernanke and Binder model; and
(3) the use of panel data estimations not only to demonstrate the
importance of the bank lending channel, but also to analyse the effects of
the calculated indicators in bank-lending growth.
Journal: The European Journal of Finance
Pages: 181-193
Issue: 2
Volume: 13
Year: 2007
Keywords: Bank lending, monetary policy transmission, panel estimates, Portuguese economy,
X-DOI: 10.1080/13518470601025128
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601025128
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:2:p:181-193
Template-Type: ReDIF-Article 1.0
Author-Name: Leonardo Becchetti
Author-X-Name-First: Leonardo
Author-X-Name-Last: Becchetti
Author-Name: Stefania Di Giacomo
Author-X-Name-First: Stefania
Author-X-Name-Last: Di Giacomo
Title: Deviations from Fundamentals in US and EU Stock Markets: A Comparative Analysis
Abstract:
A 'two-stage growth' discounted cash flow (DCF) model is built to test
whether changes in the underlying market fundamentals help to explain
movements in stock prices. Empirical results on two samples of US and EU
stocks show that the 'fundamental' earning price ratio (E/P) explains a
significant share of cross-sectional variation of the observed E/P, this
impact being stronger in the US market. It is also found that: (i) the
fundamental component of the E/P has superior explanatory power than
simpler measures of expected earnings growth; (ii) 'non-fundamental'
components, interpreted as signals reducing asymmetric information (such
as firm size, the number of forecasts and the chartist momentum), mitigate
the role of the fundamentals; (iii) current deviations from the
fundamentals are affected by ex post adjustment of publicly available
information in the EU sample. It is argued that differences in regulatory
environments and in the composition of investors between the US and EU
financial systems may help to explain these comparative findings. Results
appear consistent with the 'market integrity hypothesis' postulating that
reliance on publicly observable fundamentals is higher when insider
trading is lower.
Journal: The European Journal of Finance
Pages: 195-226
Issue: 3
Volume: 13
Year: 2007
Keywords: DCF fundamental value, price earning ratio, non-fundamental components, asymmetric information, insider trading,
X-DOI: 10.1080/13518470600880150
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600880150
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:3:p:195-226
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Bartholdy
Author-X-Name-First: Jan
Author-X-Name-Last: Bartholdy
Author-Name: Dennis Olson
Author-X-Name-First: Dennis
Author-X-Name-Last: Olson
Author-Name: Paula Peare
Author-X-Name-First: Paula
Author-X-Name-Last: Peare
Title: Conducting Event Studies on a Small Stock Exchange
Abstract:
This paper analyses whether it is possible to perform an event study on a
small stock exchange with thinly trade stocks. The main conclusion is that
event studies can be performed provided that certain adjustments are made.
First, a minimum of 25 events appears necessary to obtain acceptable size
and power in statistical tests. Second, trade to trade returns should be
used. Third, one should not expect to consistently detect abnormal
performance of less than about 1% (or perhaps even 2%), unless the sample
contains primarily thickly traded stocks. Fourth, nonparametric tests are
generally preferable to parametric tests of abnormal performance. Fifth,
researchers should present separate results for thickly and thinly traded
stock groups. Finally, when nonnormality, event induced variance, unknown
event day, and problems of very thin trading are all considered
simultaneously, no one test statistic or type of test statistic dominates
the others.
Journal: The European Journal of Finance
Pages: 227-252
Issue: 3
Volume: 13
Year: 2007
Keywords: Event studies, thin trading,
X-DOI: 10.1080/13518470600880176
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600880176
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:3:p:227-252
Template-Type: ReDIF-Article 1.0
Author-Name: Amer Demirovic
Author-X-Name-First: Amer
Author-X-Name-Last: Demirovic
Author-Name: Dylan Thomas
Author-X-Name-First: Dylan
Author-X-Name-Last: Thomas
Title: The Relevance of Accounting Data in the Measurement of Credit Risk
Abstract:
Option pricing theory provides a robust and theoretically sound framework
for the measurement of credit risk. Assuming perfect market conditions,
information relevant to the measurement of a firm's credit risk is
reflected in its equity price, with no role for accounting data. This
hypothesis is tested using UK data and credit ratings as a proxy for
credit risk. It is found that Merton's distance-to-default measure is the
most significant variable in the measurement of credit risk. However, it
is also found that accounting variables are incrementally informative when
added to a model that contains only the distance-to-default measure. The
incremental informativeness of accounting data varies across industries
and depends on firm size. Although it is found that the general level of
credit risk depends on the state of the economy, there is no evidence to
suggest that the incremental informativeness of the accounting variables
depends upon macroeconomic conditions.
Journal: The European Journal of Finance
Pages: 253-268
Issue: 3
Volume: 13
Year: 2007
X-DOI: 10.1080/13518470601025177
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601025177
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:3:p:253-268
Template-Type: ReDIF-Article 1.0
Author-Name: Frank Fabozzi
Author-X-Name-First: Frank
Author-X-Name-Last: Fabozzi
Author-Name: Omar Masood
Author-X-Name-First: Omar
Author-X-Name-Last: Masood
Author-Name: Radu Tunaru
Author-X-Name-First: Radu
Author-X-Name-Last: Tunaru
Title: Discrete Variable Chain Graphical Modelling for Assessing the Effects of Fund Managers' Characteristics on Incentives Satisfaction and Size of Returns
Abstract:
The relevance of a fund manager's educational and experience profile to
the size of investment portfolio return has been the subject of recurrent
research in the last decade. While previous research considered an
external reference point of view analysing industry-wide aggregated data,
little research, if any, has been directed at revealing the inside story
of what influences the subjective perception of the risk framework the
managers at a financial institution have to work under or whether managers
consider incentives they receive to be satisfactory. This survey-based
study analyses the answers of 120 fund managers from one of the world's
largest banks to a set of questions designed to unveil the links between
the objective and more subjective factors that contribute to the
investment activity in the banking industry. This context is different
from previous studies because information has been collected not only on
objective characteristics such as age, size of portfolio, and size of
incentives but also on whether investment decisions are based on
subjective judgment or analytic tools and on the level of satisfaction
with incentives and the bank's risk management system. This paper provides
a methodology capable of exploring the links among the variables obtained
from the interviews, graphical chain modelling, which offers an elegant
solution to the problem caused by the sparsity of the data, testing with
categorical ordinal variables, and model selection. The results may help
senior management of financial institutions identify possible linkages
that determine a stable and encouraging working environment for fund
managers.
Journal: The European Journal of Finance
Pages: 269-282
Issue: 3
Volume: 13
Year: 2007
Keywords: Fund managers, ROI, contingency tables, graphical chain models,
X-DOI: 10.1080/13518470600813581
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600813581
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:3:p:269-282
Template-Type: ReDIF-Article 1.0
Author-Name: Peter Casson
Author-X-Name-First: Peter
Author-X-Name-Last: Casson
Author-Name: George Mckenzie
Author-X-Name-First: George
Author-X-Name-Last: Mckenzie
Title: A Comparison of Measures of Earnings Per Share
Abstract:
This paper explores alternative methods for computing earnings per share
(EPS) for a company whose capital structure consists of ordinary shares
and warrants. The methods for computing EPS identified by the FASB (1996)
are critically evaluated and an alternative measure, the holding period
approach,is developed within the framework of contingent claims analysis.
Two types of errors are shown to characterize the accounting measures of
EPS. One arises from failure of accounting measures to fully recognize the
contingent nature of the warrant. The other arises from the practice of
not recognizing instances of anti-dilution. A further factor is the
treatment of any difference between the proceeds from the issue of the
warrants and their fair value at that time. This is ignored in existing
measures and yet may have a significant effect on the value of the claims
of ordinary shareholders on the company's earnings. Using a simulation
method it is shown that the imputed earnings method of computing EPS is a
very close approximation to the holding period method and is considerably
more accurate than treasury stock measures favoured by accounting
standards bodies.
Journal: The European Journal of Finance
Pages: 283-298
Issue: 3
Volume: 13
Year: 2007
Keywords: Accounting standards, dilution, earnings per share, contingent claims, warrants,
X-DOI: 10.1080/13518470601024865
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601024865
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:3:p:283-298
Template-Type: ReDIF-Article 1.0
Author-Name: Johan Parmler
Author-X-Name-First: Johan
Author-X-Name-Last: Parmler
Author-Name: Andres Gonzalez
Author-X-Name-First: Andres
Author-X-Name-Last: Gonzalez
Title: Is Momentum Due to Data-snooping?
Abstract:
This paper explores the profitability of momentum strategies, by
investigating if a momentum strategy is superior to a benchmark model once
the effects of data-snooping have been accounted for. Two data sets are
considered. The first set of data consists of US stocks and the second one
consists of Swedish stocks. For the US data strong evidence is found of a
momentum effect and hence the hypothesis of weak market efficiency is
rejected. Splitting the sample in two parts, it is found that the overall
significance is driven by events in the earlier part of the sample. The
results for the Swedish data indicate that momentum strategies based on
individual stocks generate significant profits. A very weak or no momentum
effect can be found when stocks are sorted into portfolios. Finally, and
perhaps most importantly, results show that data-snooping bias can be very
substantial. Neglecting the problem would lead to very different
conclusions.
Journal: The European Journal of Finance
Pages: 301-318
Issue: 4
Volume: 13
Year: 2007
Keywords: Momentum strategies, data-snooping, benchmark model, market efficiency,
X-DOI: 10.1080/13518470600880127
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600880127
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:4:p:301-318
Template-Type: ReDIF-Article 1.0
Author-Name: Ovidiu V. Precup
Author-X-Name-First: Ovidiu V.
Author-X-Name-Last: Precup
Author-Name: Giulia Iori
Author-X-Name-First: Giulia
Author-X-Name-Last: Iori
Title: Cross-correlation Measures in the High-frequency Domain
Abstract:
On a high-frequency scale the time series are not homogeneous, therefore
standard correlation measures cannot be directly applied to the raw data.
To deal with this problem the time series have to be either homogenized
through interpolation, or methods that can handle raw non-synchronous time
series need to be employed. This paper compares two traditional methods
that use interpolation with an alternative method applied directly to the
actual time series. The three methods are tested on simulated data and
actual trades time series.
Journal: The European Journal of Finance
Pages: 319-331
Issue: 4
Volume: 13
Year: 2007
Keywords: High-frequency correlation, Fourier method, co-volatility weighting, Epps effect,
X-DOI: 10.1080/13518470600813565
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600813565
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:4:p:319-331
Template-Type: ReDIF-Article 1.0
Author-Name: Christian L. Dunis
Author-X-Name-First: Christian L.
Author-X-Name-Last: Dunis
Author-Name: Vincent Morrison
Author-X-Name-First: Vincent
Author-X-Name-Last: Morrison
Title: The Economic Value of Advanced Time Series Methods for Modelling and Trading 10-year Government Bonds
Abstract:
The motivation for this paper is to determine the potential economic
value of advanced modelling methods for devising trading decision tools
for 10-year Government bonds. Two advanced methods are used: time-varying
parameter models with the implementation of state space modelling using a
Kalman filter and nonparametric nonlinear models with Neural Network
Regression (NNR). These are benchmarked against more traditional
forecasting techniques to ascertain their potential as a forecasting tool
and their economic value as a base for a trading decision tool. The models
were developed using data from the UK Gilt market, US T-Bond market and
German Bund market. Using in-sample data from April 2001to January 2003to
develop the models, their results were assessed using the out-of-sample
period of January 2003 to June 2003. Performance evaluation was based upon
forecasting accuracy measures and financial criteria using a simulated
trading strategy incorporating realistic trading costs. It is concluded
that for the time series studied and for the period under investigation,
the performance of the advanced models is mixed. While the NNR models have
the ability to forecast the 10-year Government bond yield and add economic
value as a trading decision tool, the Kalman filter models' performance is
not as conclusive. The Kalman filter models outperformed the traditional
techniques using forecasting accuracy measures, however they did not
perform as well in the simulated trading strategy.
Journal: The European Journal of Finance
Pages: 333-352
Issue: 4
Volume: 13
Year: 2007
Keywords: ARMA models, forecasting accuracy, Kalman filter, logistic regression, MACD technical models, neural network regression, technical trading models, trading efficiency,
X-DOI: 10.1080/13518470600880010
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600880010
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:4:p:333-352
Template-Type: ReDIF-Article 1.0
Author-Name: Peter Carr
Author-X-Name-First: Peter
Author-X-Name-Last: Carr
Author-Name: Anita Mayo
Author-X-Name-First: Anita
Author-X-Name-Last: Mayo
Title: On the Numerical Evaluation of Option Prices in Jump Diffusion Processes
Abstract:
The fair price of a financial option on an asset that follows a Poisson
jump diffusion process satisfies a partial integro-differential equation.
When numerical methods are used to solve such equations the integrals are
usually evaluated using either quadrature methods or fast Fourier methods.
Quadrature methods are expensive since the integrals must be evaluated at
every point of the mesh. Though less so, Fourier methods are also
computationally intensive since in order to avoid wrap around effects they
require enlargement of the computational domain. They are also slow to
converge when the parameters of the jump process are not smooth, and for
efficiency require uniform meshes. We present a different and more
efficient class of methods which are based on the fact that the integrals
often satisfy differential equations. Depending on the process the asset
follows, the equations are either ordinary differential equations or
parabolic partial differential equations. Both types of equations can be
accurately solved very rapidly. We discuss the methods and present results
of numerical experiments.
Journal: The European Journal of Finance
Pages: 353-372
Issue: 4
Volume: 13
Year: 2007
Keywords: Jump diffusion process, option pricing, differential equations,
X-DOI: 10.1080/13518470701201512
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701201512
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:4:p:353-372
Template-Type: ReDIF-Article 1.0
Author-Name: Konstantinos Tolikas
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Tolikas
Author-Name: Athanasios Koulakiotis
Author-X-Name-First: Athanasios
Author-X-Name-Last: Koulakiotis
Author-Name: Richard A. Brown
Author-X-Name-First: Richard A.
Author-X-Name-Last: Brown
Title: Extreme Risk and Value-at-Risk in the German Stock Market
Abstract:
Extreme Value Theory methods are used to investigate the distribution of
the extreme minima in the German stock market over the period 1973 to
2001. Innovative aspects of this paper include (i) a wide set of
distributions considered, (ii) L-moment diagrams employed to identify the
most appropriate distribution/s, (iii) 'probability weighted moments' used
to estimate the parameters of these distribution/s and (iv) the
Anderson-Darling goodness of fit test employed to test the adequacy of
fit. The 'generalized logistic' distribution is found to provide adequate
descriptions of the extreme minima of the German stock market over the
period studied. VaR analysis results show that the EVT methods used in
this study can be particularly useful for market risk measurement since
they produce estimates that outperform those derived by traditional
methods at high confidence levels.
Journal: The European Journal of Finance
Pages: 373-395
Issue: 4
Volume: 13
Year: 2007
Keywords: Extreme value theory, value-at-risk, L-moments, probability weighted moments, Anderson-Darling goodness of fit test, generalized extreme value distribution, generalized logistic distribution,
X-DOI: 10.1080/13518470600763737
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470600763737
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:4:p:373-395
Template-Type: ReDIF-Article 1.0
Author-Name: Kais Dachraoui
Author-X-Name-First: Kais
Author-X-Name-Last: Dachraoui
Author-Name: Georges Dionne
Author-X-Name-First: Georges
Author-X-Name-Last: Dionne
Title: Conditions Ensuring the Decomposition of Asset Demand for All Risk-Averse Investors
Abstract:
The paper explores how the demand for a risky asset can be decomposed
into an investment effect and a hedging effect by all risk-averse
investors. This question has been shown to be complex when considered
outside of the mean-variance framework. Dependence among returns on the
risky assets is restricted to quadrant dependence and it is found that the
demand for one risky asset can be decomposed into an investment component
based on the risk premium offered by the asset and a hedging component
used against the fluctuations in the return on the other risky asset. The
paper also discusses how the class of quadrant-dependent distributions is
related to that of two-fund separating distributions. This contribution
opens up the search for broader distributional hypotheses suitable to
asset demand models. Examples are discussed.
Journal: The European Journal of Finance
Pages: 397-404
Issue: 5
Volume: 13
Year: 2007
Keywords: Portfolio choice, investment effect, hedging effect, quadrant dependence, two-fund separation, Asset demand model,
X-DOI: 10.1080/13518470601025326
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601025326
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:5:p:397-404
Template-Type: ReDIF-Article 1.0
Author-Name: Lawrence Kryzanowski
Author-X-Name-First: Lawrence
Author-X-Name-Last: Kryzanowski
Author-Name: Skander Lazrak
Author-X-Name-First: Skander
Author-X-Name-Last: Lazrak
Title: Trading Activity, Trade Costs and Informed Trading for Acquisition Targets and Acquirers
Abstract:
Microstructure effects of tender offer acquisitions on targets and
acquirers differentiated by listing venue and payment method are examined.
Trading activity increases more for targets than for acquirers upon offer
announcement. Investors are more likely to sell targets upon announcement
using direct market orders against ask limit orders for cash payment
offers. While target liquidity improves as spread costs fall and quoted
depths increase, acquirer liquidity falls continuously to successful offer
completion. Due to increased trading differences, temporary trade costs
fall more for targets than for acquirers. Permanent trade costs decline
over the tender offer cycle for both parties, and especially for targets
for cash tender offers and for acquirers for shares tender offers. The
probability of informed trading declines (remains constant) for targets
(acquirers) because increased trading intensity is greater (the same) for
uninformed versus informed traders. As expected, abnormal returns and
changes in own-firm permanent return volatility are negatively (but
weakly) and positively (and strongly) related, respectively, to changes in
information asymmetry upon announcement.
Journal: The European Journal of Finance
Pages: 405-439
Issue: 5
Volume: 13
Year: 2007
Keywords: Tender offers, microstructure, trade behaviour, liquidity, informed trading, asymmetric information, volatility,
X-DOI: 10.1080/13518470601137709
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601137709
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:5:p:405-439
Template-Type: ReDIF-Article 1.0
Author-Name: Vasyl Golosnoy
Author-X-Name-First: Vasyl
Author-X-Name-Last: Golosnoy
Author-Name: Yarema Okhrin
Author-X-Name-First: Yarema
Author-X-Name-Last: Okhrin
Title: Multivariate Shrinkage for Optimal Portfolio Weights
Abstract:
This paper proposes a multivariate shrinkage estimator for the optimal
portfolio weights. The estimated classical Markowitz weights are shrunk to
the deterministic target portfolio weights. Assuming log asset returns to
be i.i.d. Gaussian, explicit solutions are derived for the optimal
shrinkage factors. The properties of the estimated shrinkage weights are
investigated both analytically and using Monte Carlo simulations. The
empirical study compares the competing portfolio selection approaches.
Both simulation and empirical studies show that the proposed shrinkage
estimator is robust and provides significant gains to the investor
compared to benchmark procedures.
Journal: The European Journal of Finance
Pages: 441-458
Issue: 5
Volume: 13
Year: 2007
Keywords: Portfolio selection, shrinkage estimation, multivariate shrinkage, estimation risk,
X-DOI: 10.1080/13518470601137592
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601137592
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:5:p:441-458
Template-Type: ReDIF-Article 1.0
Author-Name: Francisco J. Callado Munoz
Author-X-Name-First: Francisco J. Callado
Author-X-Name-Last: Munoz
Title: The Use of Collateral in Gross and Net Payment Systems
Abstract:
The purpose of this paper is to make a comparative analysis of modern
gross and net payment systems, emphasizing the implications of the
availability of intraday liquidity in the former, and of collateral
requirements in the latter. In contrast to previous models, an economy
with two assets is described: eligible as collateral and not eligible,
with the aim of being able to determine the implications of the
requirement of these guarantees on banks' portfolio decisions—which
affects their return—and on the probability and the consequences of
a systemic crisis. This allows for comparison of the effects on social
welfare of each of the two systems for different sets of parameters that
characterize social risk aversion, opportunity set of banks, and the
functioning of each settlement model. In a calibration exercise, it is
shown how it would be legitimate for a benevolent authority to have a
preference for a gross system, like TARGET, over a net system, like EURO1,
for relatively high values, although plausible, of risk aversion.
Journal: The European Journal of Finance
Pages: 459-481
Issue: 5
Volume: 13
Year: 2007
Keywords: Payment systems, intraday liquidity, collateral, contagion, systemic risk, European Union, gross payment system, net payment system, TARGET, EURO1,
X-DOI: 10.1080/13518470601137634
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601137634
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:5:p:459-481
Template-Type: ReDIF-Article 1.0
Author-Name: Dawood Ashraf
Author-X-Name-First: Dawood
Author-X-Name-Last: Ashraf
Author-Name: Yener Altunbas
Author-X-Name-First: Yener
Author-X-Name-Last: Altunbas
Author-Name: John Goddard
Author-X-Name-First: John
Author-X-Name-Last: Goddard
Title: Who Transfers Credit Risk? Determinants of the Use of Credit Derivatives by Large US Banks
Abstract:
Credit derivatives enable banks to transfer selected credit risks to
third parties. An empirical model is developed for the motivation for bank
participation in credit derivative markets and, conditional on
participation, the factors that determine the volume of business
transacted. Participation appears to be closely related to bank size, but
there is only limited evidence that entry barriers related to franchise
value or past experience in dealing in derivatives are important. There is
evidence that banks use credit derivatives as part of their overall risk
management strategy. However, the use of credit derivatives does not
appear to be influenced by the extent of managerial share ownership.
Journal: The European Journal of Finance
Pages: 483-500
Issue: 5
Volume: 13
Year: 2007
Keywords: Banking, financial innovation, credit derivatives,
X-DOI: 10.1080/13518470601137840
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601137840
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:5:p:483-500
Template-Type: ReDIF-Article 1.0
Author-Name: Maik Eisenbeiss
Author-X-Name-First: Maik
Author-X-Name-Last: Eisenbeiss
Author-Name: Goran Kauermann
Author-X-Name-First: Goran
Author-X-Name-Last: Kauermann
Author-Name: Willi Semmler
Author-X-Name-First: Willi
Author-X-Name-Last: Semmler
Title: Estimating Beta-Coefficients of German Stock Data: A Non-Parametric Approach
Abstract:
Although the consumption based asset pricing theory appears to be
theoretically superior and more elegant than the beta pricing model, in
practice the beta pricing model is more widely applied. Indeed, beta
pricing models are one of the most widely adopted tools in financial
analysis. They readily allow handling systematic risk as priced in
financial assets. However, accurately estimating beta-coefficients is not
as straightforward as implicitly suggested by Sharpe's standard market
model, i.e. simply using the ordinary least-squares (OLS) regression. This
is primarily because beta-coefficients cannot generally be assumed to be
stable over time. In order to overcome this deficiency, we present and
apply a non-parametric estimation technique that allows capturing this
time effect and promises both more reliable estimates than obtained with
an OLS regression as well as better manageability compared with the
existing time-series approaches dealing with time-varying
beta-coefficients. Estimation results for constant and time-varying betas
are presented for portfolios of German industries.
Journal: The European Journal of Finance
Pages: 503-522
Issue: 6
Volume: 13
Year: 2007
Keywords: Systematic risk, time-varying beta-coefficients, non-parametric estimation, spline smoothing, varying-coefficient model,
X-DOI: 10.1080/13518470701201405
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701201405
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:6:p:503-522
Template-Type: ReDIF-Article 1.0
Author-Name: T. R. A. Corns
Author-X-Name-First: T. R. A.
Author-X-Name-Last: Corns
Author-Name: S. E. Satchell
Author-X-Name-First: S. E.
Author-X-Name-Last: Satchell
Title: Skew Brownian Motion and Pricing European Options
Abstract:
The volatility smile and systematic mispricing of the Black-Scholes
option pricing model are the typical motivation for examining stochastic
processes other than geometric Brownian motion to describe the underlying
stock price. In this paper a new stochastic process is presented, which is
a special case of the skew-Brownian motion of Ito and McKean. The process
in question is the sum of a standard Brownian motion and an independent
reflecting Brownian motion that is similar in construction to the
stochastic representation of a skew-normal random variable. This
stochastic process is taken in its exponential form to price European
options. The derived option price nests the Black-Scholes equation as a
special case and is flexible enough to accommodate stochastic volatility
as well as stochastic skewness.
Journal: The European Journal of Finance
Pages: 523-544
Issue: 6
Volume: 13
Year: 2007
Keywords: Options, skew Brownian motion, skew-normal, skew-symmetric, hedging, non-Gaussian,
X-DOI: 10.1080/13518470701201488
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701201488
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:6:p:523-544
Template-Type: ReDIF-Article 1.0
Author-Name: Snorre Lindset
Author-X-Name-First: Snorre
Author-X-Name-Last: Lindset
Author-Name: Arne-Christian Lund
Author-X-Name-First: Arne-Christian
Author-X-Name-Last: Lund
Title: A Technique for Reducing Discretization Bias from Monte Carlo Simulations: Option Pricing under Stochastic Interest Rates
Abstract:
Control variates are often used to reduce variability in Monte Carlo
estimates and their effectiveness is traditionally measured by the
so-called speed-up factor. The main objective of this paper is to
demonstrate that a control variate can also be applied to reduce the bias
stemming from the discretization of the state variable dynamics. This is
particularly valuable when stochastic interest rate models are
discretized, since bias reduction through more grid points is
computationally expensive.
Journal: The European Journal of Finance
Pages: 545-564
Issue: 6
Volume: 13
Year: 2007
Keywords: Monte Carlo simulation, control variate, discretization bias, variance reduction, compound options, stochastic interest rates,
X-DOI: 10.1080/13518470701198791
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701198791
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:6:p:545-564
Template-Type: ReDIF-Article 1.0
Author-Name: Abe De Jong
Author-X-Name-First: Abe
Author-X-Name-Last: De Jong
Author-Name: Ronald Van Dijk
Author-X-Name-First: Ronald
Author-X-Name-Last: Van Dijk
Title: Determinants of Leverage and Agency Problems: A Regression Approach with Survey Data
Abstract:
This paper reports on empirical investigations of the determinants of
leverage and agency problems. Use is made of private data obtained through
questionnaires, and a regression model is estimated in which leverage and
four agency problems are explained, i.e. direct wealth transfer, asset
substitution, underinvestment and overinvestment. The application of
regression analysis on survey data is novel in finance. Therefore, this
paper contains an in-depth description of the research methods. Results
for a sample of Dutch firms confirm that the trade-off between tax
advantages and bankruptcy costs determines leverage. Free cash flow and
corporate governance characteristics appear to be determinants of
overinvestment. Despite finding that agency problems are present, no
evidence is found for direct relations between leverage and the agency
problems.
Journal: The European Journal of Finance
Pages: 565-593
Issue: 6
Volume: 13
Year: 2007
Keywords: Survey research, capital structure, the Netherlands, agency problems, corporate governance,
X-DOI: 10.1080/13518470701198734
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701198734
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:6:p:565-593
Template-Type: ReDIF-Article 1.0
Author-Name: Peter Løchte Jørgensen
Author-X-Name-First: Peter Løchte
Author-X-Name-Last: Jørgensen
Title: Lognormal Approximation of Complex Path-Dependent Pension Scheme Payoffs
Abstract:
This paper analyzes an explicit return smoothing mechanism which has
recently been introduced as part of a new type of pension savings contract
that has been offered by Danish life insurers. We establish the payoff
function implied by the return smoothing mechanism and show that its
probabilistic properties are accurately approximated by a suitably adapted
lognormal distribution. The quality of the lognormal approximation is
explored via a range of simulation-based numerical experiments, and we
point to several other potential practical applications of the paper's
theoretical results.
Journal: The European Journal of Finance
Pages: 595-619
Issue: 7
Volume: 13
Year: 2007
Keywords: Account-based pension schemes, return smoothing, payoff distributions, density approximation, Monte Carlo simulation, Asian options,
X-DOI: 10.1080/13518470701201645
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701201645
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:7:p:595-619
Template-Type: ReDIF-Article 1.0
Author-Name: Reinhold Hafner
Author-X-Name-First: Reinhold
Author-X-Name-Last: Hafner
Author-Name: Martin Wallmeier
Author-X-Name-First: Martin
Author-X-Name-Last: Wallmeier
Title: Volatility as an Asset Class: European Evidence
Abstract:
Volatility movements are known to be negatively correlated with stock
index returns. Hence, investing in volatility appears to be attractive for
investors seeking risk diversification. The most common instruments for
investing in pure volatility are variance swaps, which now enjoy an active
over-the-counter (OTC) market. This paper investigates the risk-return
tradeoff of variance swaps on the Deutscher Aktienindex and Euro STOXX 50
index over the time period from 1995 to 2004. We synthetically derive
variance swap rates from the smile in option prices. Using quotes from two
large investment banks over two months, we validate that the synthetic
values are close to OTC market prices. We find that variance swap returns
exhibit an option-like profile compared to returns of the underlying
index. Given this pattern, it is crucial to account for the non-normality
of returns in measuring the performance of variance swap investments. As
in the US, the average returns of selling variance swaps are found to be
strongly positive and too large to be compatible with standard equilibrium
models. The magnitude of the estimated risk premium is related to variance
uncertainty and past index returns. This indicates that the variance swap
rate does not seem to incorporate all past information relevant for
forecasting future realized variance.
Journal: The European Journal of Finance
Pages: 621-644
Issue: 7
Volume: 13
Year: 2007
Keywords: Implied volatility, smile, variance swap, volatility risk premium,
X-DOI: 10.1080/13518470701380142
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701380142
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:7:p:621-644
Template-Type: ReDIF-Article 1.0
Author-Name: T. R. J. Goodworth
Author-X-Name-First: T. R. J.
Author-X-Name-Last: Goodworth
Author-Name: C. M. Jones
Author-X-Name-First: C. M.
Author-X-Name-Last: Jones
Title: Factor-based, Non-parametric Risk Measurement Framework for Hedge Funds and Fund-of-Funds
Abstract:
A factor-decomposition based framework is presented that facilitates
non-parametric risk analysis for complex hedge fund portfolios in the
absence of portfolio level transparency. This approach has been designed
specifically for use within the hedge fund-of-funds environment, but is
equally relevant to those who seek to construct risk-managed portfolios of
hedge funds under less than perfect underlying portfolio transparency.
Using dynamic multivariate regression analysis coupled with a qualitative
understanding of hedge fund return drivers, one is able to perform a
robust factor decomposition to attribute risk within any hedge fund
portfolio with an identifiable strategy. Furthermore, through use of Monte
Carlo simulation techniques, these factors can be employed to generate
implied risk profiles at either the constituent fund or aggregate
fund-of-funds level. As well as being pertinent to risk forecasting and
monitoring, such methods also have application to style analysis, profit
attribution, portfolio stress testing and diversification studies. This
paper outlines such a framework and presents sample results in each of
these areas.
Journal: The European Journal of Finance
Pages: 645-655
Issue: 7
Volume: 13
Year: 2007
Keywords: Hedge fund, fund-of-funds, risk, non-parametric, value-at-risk, multi-factor, Monte Carlo,
X-DOI: 10.1080/13518470701322284
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701322284
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:7:p:645-655
Template-Type: ReDIF-Article 1.0
Author-Name: Sven-Olov Daunfeldt
Author-X-Name-First: Sven-Olov
Author-X-Name-Last: Daunfeldt
Title: Tax-Induced Trading and the Identity of the Marginal Investor: Evidence from Sweden
Abstract:
Changes in the Swedish tax code during the 1990s were structured in a way
that offers an opportunity to test whether ex-dividend prices were
determined by the taxation of domestic individual investors. The results
presented in this paper indicate that ex-dividend prices were not
influenced by the relatively large tax changes for domestic individual
investors. In addition, there was no evidence that the taxation of
domestic individual investors influenced ex-dividend prices for any
specific dividend yield group.
Journal: The European Journal of Finance
Pages: 657-667
Issue: 7
Volume: 13
Year: 2007
Keywords: Ex-dividend, capital gains, taxation, dividend yields,
X-DOI: 10.1080/13518470701380290
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701380290
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:7:p:657-667
Template-Type: ReDIF-Article 1.0
Author-Name: Hong Bo
Author-X-Name-First: Hong
Author-X-Name-Last: Bo
Title: Nonlinear Effects of Debt on Investment: Evidence from Dutch Listed Firms
Abstract:
Nonlinear effects of debt on investment are investigated using an
unbalanced panel of 94 Dutch listed nonfinancial firms during the period
1985-2000. Evidence shows that the nonlinear relation between debt and
investment can be represented by a U curve, which contradicts the
financial constraints theory. One possible explanation of the U curve
relation between debt and investment may be the debt capital gain in the
presence of inflation.
Journal: The European Journal of Finance
Pages: 669-687
Issue: 7
Volume: 13
Year: 2007
Keywords: Investment-debt relation, debt borrowing constraint, agency costs, debt capital gain in the presence of inflation,
X-DOI: 10.1080/13518470701322300
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701322300
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:7:p:669-687
Template-Type: ReDIF-Article 1.0
Author-Name: Markku Lanne
Author-X-Name-First: Markku
Author-X-Name-Last: Lanne
Author-Name: Saikkonen Pentti
Author-X-Name-First: Saikkonen
Author-X-Name-Last: Pentti
Title: Modeling Conditional Skewness in Stock Returns
Abstract:
In this paper, we propose a new GARCH-in-Mean (GARCH-M) model allowing
for conditional skewness. The model is based on the so-called z
distribution capable of modeling skewness and kurtosis of the size
typically encountered in stock return series. The need to allow for
skewness can also be readily tested. The model is consistent with the
volatility feedback effect in that conditional skewness is dependent on
conditional variance. Compared to previously presented GARCH models
allowing for conditional skewness, the model is analytically tractable,
parsimonious and facilitates straightforward interpretation.Our empirical
results indicate the presence of conditional skewness in the monthly
postwar US stock returns. Small positive news is also found to have a
smaller impact on conditional variance than no news at all. Moreover, the
symmetric GARCH-M model not allowing for conditional skewness is found to
systematically overpredict conditional variance and average excess
returns.
Journal: The European Journal of Finance
Pages: 691-704
Issue: 8
Volume: 13
Year: 2007
Keywords: GARCH, conditional skewness, asset pricing,
X-DOI: 10.1080/13518470701538608
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701538608
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:8:p:691-704
Template-Type: ReDIF-Article 1.0
Author-Name: Simon Stevenson
Author-X-Name-First: Simon
Author-X-Name-Last: Stevenson
Author-Name: Patrick Wilson
Author-X-Name-First: Patrick
Author-X-Name-Last: Wilson
Author-Name: Ralf Zurbruegg
Author-X-Name-First: Ralf
Author-X-Name-Last: Zurbruegg
Title: Assessing the Time-Varying Interest Rate Sensitivity of Real Estate Securities
Abstract:
This paper examines the sensitivity of real estate securities to changes
in both market and central bank interest rates. It is commonly viewed that
the traded real estate market is one of the industry sectors most
susceptible to interest rate movements. This is due to traditional high
levels of borrowing, the impact of rate changes on property yields and
indirectly upon occupational demand and thus rental income. The results
which are the first to examine the UK sector, highlight the impact of
interest rates on UK property companies, in relation to both returns and
volatility. The paper also illustrates that this sensitivity is not
confined to periods of high and volatile interest rates as the sample
period under examination is characterized by historically low and stable
rates.
Journal: The European Journal of Finance
Pages: 705-715
Issue: 8
Volume: 13
Year: 2007
Keywords: Real estate securities, Interest rate sensitivity, GARCH model,
X-DOI: 10.1080/13518470701705678
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705678
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:8:p:705-715
Template-Type: ReDIF-Article 1.0
Author-Name: Johannes Prix
Author-X-Name-First: Johannes
Author-X-Name-Last: Prix
Author-Name: Otto Loistl
Author-X-Name-First: Otto
Author-X-Name-Last: Loistl
Author-Name: Michael Huetl
Author-X-Name-First: Michael
Author-X-Name-Last: Huetl
Title: Algorithmic Trading Patterns in Xetra Orders
Abstract:
Computerized trading controlled by algorithms - “Algorithmic
Trading” - has become a fashionable term in investment banking. We
investigate a set of Xetra order data to find traces of algorithmic
trading by studying the lifetimes of cancelled orders. Even though it is
widely agreed that an algorithm must randomize its order activities to
avoid exploitation by other traders, we still find systematic patterns in
the submission and cancellation of certain Xetra orders, indicating the
activity of algorithmic trading. The trading patterns observed might be
interpreted as fishing for profitable roundtrips.
Journal: The European Journal of Finance
Pages: 717-739
Issue: 8
Volume: 13
Year: 2007
Keywords: Market microstructure, algorithmic trading, cancellations, order lifetime, Xetra,
X-DOI: 10.1080/13518470701705538
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705538
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:8:p:717-739
Template-Type: ReDIF-Article 1.0
Author-Name: Gregory Koutmos
Author-X-Name-First: Gregory
Author-X-Name-Last: Koutmos
Author-Name: George Philippatos
Author-X-Name-First: George
Author-X-Name-Last: Philippatos
Title: Asymmetric Mean Reversion in European Interest Rates: A Two-factor Model
Abstract:
This paper tests for asymmetric mean reversion in European short-term
interest rates using a combination of the interest rate models introduced
by Longstaff and Schwartz (Longstaff, F.A., Schwarts, E.S. (1992) Interest
rate volatility and the ferm structure: A two factor general equilibrium
model, Journal of Finance, 48, pp. 1259-1282.) and Bali (Bali, T. (2000)
Testing the empirical performance of stochastic volatility models of the
short-term interest rates, Journal of Financial and Quantitative Analysis,
35, pp. 191-215.). Using weekly rates for France, Germany and the United
Kingdom, it is found that short-term rates follow in all instances
asymmetric mean reverting processes. Specifically, interest rates exhibit
non-stationary behavior following rate increases, but they are strongly
mean reverting following rate decreases. The mean reverting component is
statistically and economically stronger thus offsetting non-stationarity.
Volatility depends on past innovations past volatility and the level of
interest rates. With respect to past innovations volatility is asymmetric
rising more in response to positive innovations. This is exactly opposite
to the asymmetry found in stock returns.
Journal: The European Journal of Finance
Pages: 741-750
Issue: 8
Volume: 13
Year: 2007
Keywords: Interest rates, asymmetric mean reversion, two-factor model,
X-DOI: 10.1080/13518470701705728
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705728
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:8:p:741-750
Template-Type: ReDIF-Article 1.0
Author-Name: David Forrest
Author-X-Name-First: David
Author-X-Name-Last: Forrest
Author-Name: Ian Mchale
Author-X-Name-First: Ian
Author-X-Name-Last: Mchale
Title: Anyone for Tennis (Betting)?
Abstract:
The most robust anomaly noted in the literature on wagering markets is
(positive) longshot bias: over a period of 50 years, it has been well
documented in horse betting that higher expected returns accrue to short-
than to long-odds bets. However, a few examples of betting markets with
zero or negative bias have been found, for example in certain American
sports. The understanding of longshot bias is likely to be informed by
comparing and contrasting conditions in markets displaying positive, zero,
and negative bias but, to date, relatively few markets have been examined.
This paper employs a large data set on professional men's tennis matches
and a new econometric approach to the estimation of the relationship
between returns and odds. It finds positive bias throughout the range of
odds. It discusses this finding in the context of the debate on why biases
exist and persist in wagering markets, focusing particularly on bettors'
attitudes towards risk and skewness.
Journal: The European Journal of Finance
Pages: 751-768
Issue: 8
Volume: 13
Year: 2007
Keywords: Sports betting, longshot bias, risk preference,
X-DOI: 10.1080/13518470701705736
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705736
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:8:p:751-768
Template-Type: ReDIF-Article 1.0
Author-Name: Ron Bird
Author-X-Name-First: Ron
Author-X-Name-Last: Bird
Author-Name: Lorenzo Casavecchia
Author-X-Name-First: Lorenzo
Author-X-Name-Last: Casavecchia
Title: Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience
Abstract:
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.,
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., Stein, J.C.
(1999) A unified theory of underreaction, momentum trading and
overreaction in asset markets, Journal of Finance, 54, pp. 2143-2184.).
Journal: The European Journal of Finance
Pages: 769-793
Issue: 8
Volume: 13
Year: 2007
Keywords: Sentiment, financial health, market efficiency, asset pricing anomalies,
X-DOI: 10.1080/13518470701705777
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705777
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:13:y:2007:i:8:p:769-793
Template-Type: ReDIF-Article 1.0
Author-Name: Karl Felixson
Author-X-Name-First: Karl
Author-X-Name-Last: Felixson
Author-Name: Eva Liljeblom
Author-X-Name-First: Eva
Author-X-Name-Last: Liljeblom
Title: Evidence of ex-dividend trading by investor tax category
Abstract:
This paper investigates the identity of the ex-dividend date traders
using the Finnish unique database that records the trades of all investors
on the market. We find evidence of two investor groups trading around the
ex-dividend date: domestic non-financial investors doing dividend
capturing arbitrage and foreign investors together with domestic financial
institutions doing mainly the opposite. We report significant deviations
from neutral buy probabilities for these investor groups around the
ex-dividend date, deviations that are in line with their taxational
characteristics. While a part of the trading can be characterized as
dividend clientele trading, we also found arbitrage activity by some
investors. Evidence of the arbitrage activity being more severe for
high-yield stocks was also found. In terms of tax revenues lost, the
economic importance of the short-term arbitrage activity seems to be
minor.
Journal: The European Journal of Finance
Pages: 1-21
Issue: 1
Volume: 14
Year: 2008
Keywords: dividends, taxation, foreign owners,
X-DOI: 10.1080/13518470701773460
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701773460
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:1:p:1-21
Template-Type: ReDIF-Article 1.0
Author-Name: Luis Gil-Alana
Author-X-Name-First: Luis
Author-X-Name-Last: Gil-Alana
Author-Name: Juncal Cunado
Author-X-Name-First: Juncal
Author-X-Name-Last: Cunado
Author-Name: Fernando Perez De Gracia
Author-X-Name-First: Fernando Perez
Author-X-Name-Last: De Gracia
Title: Stochastic volatility in the Spanish stock market: a long memory model with a structural break
Abstract:
In this paper, we examine the stochastic volatility behaviour in the
Spanish stock market returns over the time period 2 January 2001 - 12 May
2006. We use a long memory model that takes into account the existence of
an endogenous structural break. When no breaks are taken into account the
results show that the orders of integration of the absolute and squared
return values (which are used as proxies of volatility) are higher than 0
but smaller than 0.5, implying that the stochastic volatility is
stationary but long memory. If a break is considered, long memory is also
found in the two sub-samples, with higher orders of integration before the
break, which takes place at around 2003 for the IBEX, and at 2004 for the
less liquid assets IGBM.
Journal: The European Journal of Finance
Pages: 23-31
Issue: 1
Volume: 14
Year: 2008
Keywords: stochastic volatility, absolute returns, squared returns, long memory, structural break, Spain,
X-DOI: 10.1080/13518470701773650
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701773650
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:1:p:23-31
Template-Type: ReDIF-Article 1.0
Author-Name: S. D. Howell
Author-X-Name-First: S. D.
Author-X-Name-Last: Howell
Title: What a delta hedge really does - a theoretical and pedagogical note
Abstract:
The Black-Scholes description of delta hedging makes the instantaneous
value of the short sale negative, but the value should be zero by the
principle of no arbitrage. This violation of no-arbitrage makes it
impossible to illustrate the Black-Scholes delta hedging of an endowment
of one call by an example containing only legally realizable transactions,
and this causes confusion as to what delta hedging really does. Like Cox
and Ross (1976), we model the short sale as having cash proceeds, and
after including these, its instantaneous net value is zero. From this
fact, delta hedging yields the risk-free rate of return on the option's
opening value, for as long as required, in both discrete and continuous
time. The terms of the Black-Scholes equation can be interpreted as
inflows or outflows of cash, whose values are fixed at the time of
hedging, and which risk-averse investors correctly price as risk-free even
under the objective probability measure. The Cox and Ross model of
no-arbitrage can be re-interpreted as a model of delta hedging, giving the
same result, and we also use it to directly derive the Black-Scholes
equation for risk neutral investors.
Journal: The European Journal of Finance
Pages: 33-47
Issue: 1
Volume: 14
Year: 2008
Keywords: delta hedging, CAPM, Black-Scholes equation, risk neutral world,
X-DOI: 10.1080/13518470701773759
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701773759
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:1:p:33-47
Template-Type: ReDIF-Article 1.0
Author-Name: Sandra Deungoue
Author-X-Name-First: Sandra
Author-X-Name-Last: Deungoue
Title: Will we pay in the same way?
Abstract:
The purpose of this study is to analyse the evolution of payment
behaviours by emphasizing the role of the regulation and the financial
opening. We test whether the convergence process of payment technologies
and regulations is propagated from upstream to downstream through the
channel of standardized products, leading to the convergence of the demand
for payment services. A test of conditional beta-convergence, relating to
the use of five payment instruments, is performed on a panel of European
countries. In general, results show evidence for convergence for all means
of payment.
Journal: The European Journal of Finance
Pages: 49-67
Issue: 1
Volume: 14
Year: 2008
Keywords: convergence, retail payment market, bank supply,
X-DOI: 10.1080/13518470701773692
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701773692
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:1:p:49-67
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Abstract:
Journal: The European Journal of Finance
Pages: 71-71
Issue: 2
Volume: 14
Year: 2008
X-DOI: 10.1080/13518470801965784
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801965784
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:2:p:71-71
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Annaert
Author-X-Name-First: Jan
Author-X-Name-Last: Annaert
Author-Name: Marc De Ceuster
Author-X-Name-First: Marc
Author-X-Name-Last: De Ceuster
Title: Editorial
Abstract:
Journal: The European Journal of Finance
Pages: 73-73
Issue: 2
Volume: 14
Year: 2008
X-DOI: 10.1080/13518470801965917
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801965917
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:2:p:73-73
Template-Type: ReDIF-Article 1.0
Author-Name: L. Vanessa Smith
Author-X-Name-First: L. Vanessa
Author-X-Name-Last: Smith
Author-Name: Demosthenes Tambakis
Author-X-Name-First: Demosthenes
Author-X-Name-Last: Tambakis
Title: Testing for changing persistence in US Treasury on/off spreads under weighted-symmetric estimation
Abstract:
The debt management policy changes of 1998-2001 and subsequent reversal
of the US government's fiscal position have prompted research on the
dynamics of the US Treasury bond market. The recursive break test
procedure of Leybourne et al. (2003) is extended by using
weighted-symmetric estimation to detect a single change in persistence in
US Treasury on/off spreads. It is found that a significant change from
I(0) to I(1) occurred in the late 1990s, which appears to be linked to
changes in the US Treasury's debt management policy. Monte Carlo evidence
shows that correcting for conditional heteroscedasticity in the data can
successfully deal with the tests being oversized, albeit at a considerable
loss in power for smaller sample sizes and large short-run variation in
volatility. It is therefore advisable mainly for large sample sizes.
Journal: The European Journal of Finance
Pages: 75-89
Issue: 2
Volume: 14
Year: 2007
Keywords: persistence, unit root test, break point, Monte Carlo simulation, US Treasury bonds, liquidity,
X-DOI: 10.1080/13518470601025276
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470601025276
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2007:i:2:p:75-89
Template-Type: ReDIF-Article 1.0
Author-Name: Jasper Anderluh
Author-X-Name-First: Jasper
Author-X-Name-Last: Anderluh
Author-Name: Svetlana Borovkova
Author-X-Name-First: Svetlana
Author-X-Name-Last: Borovkova
Title: Commodity volatility modelling and option pricing with a potential function approach
Abstract:
We consider a novel approach to modelling of commodity prices and apply
it to commodity option pricing and volatility estimation. This approach is
particularly suited for prices with multiple attraction regions, such as
crude oil and other energy and agricultural commodities. The price is
modelled as a diffusion process governed by a potential function with
minima at the attraction points. When applied to crude oil prices, the
method captures characteristic behaviour of the prices remarkably well.
Pricing of European options on spot and futures commodity contracts is
developed within the potential model, and compared to the Black-Scholes
framework. The approach provides a new way of estimating the volatility,
which is particularly useful when option prices (and hence implied
volatilities) are not readily available; this is often the case for
commodity markets. European options on physical commodities and commodity
futures are priced using the volatility forecasts obtained from the model.
The performance of the model is evaluated on the basis of the hedging
costs of an option. For options on crude oil, the method outperforms - in
terms of hedging costs—the Black-Scholes approach with historical
volatility.
Journal: The European Journal of Finance
Pages: 91-113
Issue: 2
Volume: 14
Year: 2008
Keywords: commodity prices, multiple attraction regions, potential function, volatility esimation, option pricing, hedging costs,
X-DOI: 10.1080/13518470701773593
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701773593
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:2:p:91-113
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Koetter
Author-X-Name-First: Michael
Author-X-Name-Last: Koetter
Title: The stability of bank efficiency rankings when risk preferences and objectives are different
Abstract:
We analyze the stability of efficiency rankings of German universal banks
between 1993 and 2004. First, we estimate traditional efficiency scores
with stochastic cost and alternative profit frontier analysis. Then, we
explicitly allow for different risk preferences and measure efficiency
with a structural model based on utility maximization. Using the almost
ideal demand system, we estimate input- and profit-demand functions to
obtain proxies for expected return and risk. Efficiency is then measured
in this risk-return space. Mean risk-return efficiency is somewhat higher
than cost and considerably higher than profit efficiency (PE). More
importantly, rank-order correlation between these measures are low or even
negative. This suggests that best-practice institutes should not be
identified on the basis of traditional efficiency measures alone.
Apparently, low cost and/or PE may merely result from alternative yet
efficiently chosen risk-return trade-offs.
Journal: The European Journal of Finance
Pages: 115-135
Issue: 2
Volume: 14
Year: 2008
Keywords: risk, efficiency, banks, Germany,
X-DOI: 10.1080/13518470701380068
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701380068
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:2:p:115-135
Template-Type: ReDIF-Article 1.0
Author-Name: J. H. M. Anderluh
Author-X-Name-First: J. H. M.
Author-X-Name-Last: Anderluh
Title: Pricing Parisians and barriers by hitting time simulation
Abstract:
Parisian options are not exchange traded, but there are various
applications of Parisian optionality in the fields of real option theory,
convertible bond valuation and credit risk. Especially the valuation of
consecutive Parisian options is complicated and there exist no explicit
formulas for these contracts. So far valuation can be done by numerically
inverting Laplace transforms or by PDE methods. This paper develops a
Monte Carlo method by exploiting the Markovian nature of the underlying
value process. As a result, the Parisian option value can be written as an
expression that can be solved by Monte Carlo integration, where the
Parisian times are the random variables that need to be simulated. The
Parisian times cannot be simulated directly as there exists no explicit
distribution function. Therefore, these times are approximated by the
simulation of hitting times in a special way. The quality of this
approximation can be controlled and is a trade-off between accuracy and
computation time.
Journal: The European Journal of Finance
Pages: 137-156
Issue: 2
Volume: 14
Year: 2008
Keywords: Monte Carlo, Parisian option, hitting time, barrier option, excursion,
X-DOI: 10.1080/13518470701705595
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705595
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:2:p:137-156
Template-Type: ReDIF-Article 1.0
Author-Name: Hugues Pirotte
Author-X-Name-First: Hugues
Author-X-Name-Last: Pirotte
Author-Name: Celine Vaessen
Author-X-Name-First: Celine
Author-X-Name-Last: Vaessen
Title: Residual value risk in the leasing industry: A European case
Abstract:
This paper is dedicated to recovery and residual value risks' modelling
issues of automotive lease portfolios. First, loss-given-default
distributions are estimated and compared for different samples based on
risk drivers. Second, the residual value risk is approached through a
resampling technique to provide one of the first empirical analysis on
residual value losses in the automotive lease sector. Probability density
function of losses and Value-at-risk measures are estimated on the basis
of a private database comprising a unique set of 4828 individual
automotive lease contracts issued between 1990 and 2001 by a major
European financial institution. Then, a discussion is led in relation to
the capital requirements related to residual value risk stemming from the
Basel II Accord. As the greatest part of recovery risk is diversifiable,
our conclusion is that a wider recognition of physical collateral in
capital adequacy regulations should allow us to better reflect the
relatively low-risk profile of automotive lease exposures.
Journal: The European Journal of Finance
Pages: 157-177
Issue: 2
Volume: 14
Year: 2008
Keywords: leasing, residual value risk, loss given default (LGD), Basel II Accord,
X-DOI: 10.1080/13518470701705637
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705637
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:2:p:157-177
Template-Type: ReDIF-Article 1.0
Author-Name: Bryan Mase
Author-X-Name-First: Bryan
Author-X-Name-Last: Mase
Title: A change of focus: Stock market reclassification in the UK
Abstract:
This paper examines the impact of a change of focus by a firm, as
signified by a firm's stock market reclassification. It distinguishes
between a firm's sector reclassification motivated by information specific
to that firm and one that results from the redefinition and reorganisation
of a sector. The direction of the price effects following reclassification
depends significantly upon this distinction. Furthermore, a stock's return
comovement with the FTSE All-Share Index is affected by its
reclassification into a new sector, consistent with the allocation of
stocks into categories by investors. Reclassification can induce common
factors in the returns to stocks in an index without there being any
change in these stocks' fundamental cash flows.
Journal: The European Journal of Finance
Pages: 179-193
Issue: 3
Volume: 14
Year: 2008
Keywords: return comovement, restructuring, sector reclassification,
X-DOI: 10.1080/13518470801892285
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801892285
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:3:p:179-193
Template-Type: ReDIF-Article 1.0
Author-Name: John Goddard
Author-X-Name-First: John
Author-X-Name-Last: Goddard
Author-Name: David Mcmillan
Author-X-Name-First: David
Author-X-Name-Last: Mcmillan
Author-Name: John Wilson
Author-X-Name-First: John
Author-X-Name-Last: Wilson
Title: Dividends, prices and the present value model: firm-level evidence
Abstract:
Recent stock price movements have led to a re-examination of the present
value model. Typically, empirical studies have employed a long span of US
stock market index data, and have attributed a failure to detect
cointegration to the presence of bubbles. This study considers UK
firm-level data, and implements panel unit root and cointegration tests.
Recent panel tests that allow for cross-sectional dependence control for
factors such as bubbles that may result in temporary deviations from the
long-run price-dividend relationship. The panel test results largely
support the present value model, yielding evidence of cointegration
between real prices and dividends.
Journal: The European Journal of Finance
Pages: 195-210
Issue: 3
Volume: 14
Year: 2008
Keywords: stock prices, present value model, firm-level data,
X-DOI: 10.1080/13518470801890792
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890792
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:3:p:195-210
Template-Type: ReDIF-Article 1.0
Author-Name: Panayiotis Andreou
Author-X-Name-First: Panayiotis
Author-X-Name-Last: Andreou
Author-Name: Yiannos Pierides
Author-X-Name-First: Yiannos
Author-X-Name-Last: Pierides
Title: Empirical investigation of stock index futures market efficiency: the case of the Athens Derivatives Exchange
Abstract:
Pricing and trading practices in the Athens Derivatives Exchange, a newly
established derivatives market, result in significant futures arbitrage
profit opportunities for low-cost traders. We find that a large part of
the mispricing is due to transaction costs, but additional factors, such
as anticipated volatility and time to maturity, also contribute. Ex ante
tests reveal significant arbitrage opportunities that could have been
exploited up to 30 min after they had been identified. All different
tests employed indicate that the derivatives market was inefficient during
its early trading history because arbitrage opportunities persisted even
after other market impact costs were taken into consideration.
Journal: The European Journal of Finance
Pages: 211-223
Issue: 3
Volume: 14
Year: 2008
Keywords: market efficiency, market frictions, cost of carry model,
X-DOI: 10.1080/13518470801890768
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890768
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:3:p:211-223
Template-Type: ReDIF-Article 1.0
Author-Name: Ebenezer Asem
Author-X-Name-First: Ebenezer
Author-X-Name-Last: Asem
Author-Name: Aditya Kaul
Author-X-Name-First: Aditya
Author-X-Name-Last: Kaul
Title: Trading time and trading activity: evidence from extensions of the NYSE trading day
Abstract:
The New York Stock Exchange extended its trading hours by 30 min in
1974 and in 1985; the first extension resulting in a delayed close and the
second in an early open. We find a shift in volume to the new period after
each extension. Additionally, there is a larger increase in volume after
the 1985 extension than after the 1974 extension. We argue that the second
effect is explained by the first. The extension at the end of the day
allows some investors to postpone their trades, which results in
occasional information cancellation or discovery; this mutes the effect of
the extension on volume. In contrast, the extension at the start of the
day allows some investors to accelerate trades, which precludes
information cancellation or discovery and its negative effect on volume.
This explanation suggests that the effect of an extension on volume
depends, at least in part, on its timing.
Journal: The European Journal of Finance
Pages: 225-242
Issue: 3
Volume: 14
Year: 2008
Keywords: trading hours, turnover, information, return variability, event study,
X-DOI: 10.1080/13518470801892236
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801892236
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:3:p:225-242
Template-Type: ReDIF-Article 1.0
Author-Name: Manolis Kavussanos
Author-X-Name-First: Manolis
Author-X-Name-Last: Kavussanos
Author-Name: Ilias Visvikis
Author-X-Name-First: Ilias
Author-X-Name-Last: Visvikis
Title: Hedging effectiveness of the Athens stock index futures contracts
Abstract:
This paper examines the hedging effectiveness of the FTSE/ATHEX-20 and
FTSE/ATHEX Mid-40 stock index futures contracts in the relatively new and
fairly unresearched futures market of Greece. Both in-sample and
out-of-sample hedging performances using weekly and daily data are
examined, considering both constant and time-varying hedge ratios. Results
indicate that time-varying hedging strategies provide incremental
risk-reduction benefits in-sample, but under-perform simple constant
hedging strategies out-of-sample. Moreover, futures contracts serve
effectively their risk management role and compare favourably with results
in other international stock index futures markets. Estimation of investor
utility functions and corresponding optimal utility maximising hedge
ratios yields similar results, in terms of model selection. For the
FTSE/ATHEX Mid-40 contracts we identify the existence of speculative
components, which lead to utility-maximising hedge ratios, that are
different to the minimum variance hedge ratio solutions.
Journal: The European Journal of Finance
Pages: 243-270
Issue: 3
Volume: 14
Year: 2008
Keywords: hedging effectiveness, futures markets, constant and time-varying hedge ratios, utility functions, VECM-GARCH-X,
X-DOI: 10.1080/13518470801890701
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890701
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:3:p:243-270
Template-Type: ReDIF-Article 1.0
Author-Name: Atreya Chakraborty
Author-X-Name-First: Atreya
Author-X-Name-Last: Chakraborty
Author-Name: Abdikarim Farah
Author-X-Name-First: Abdikarim
Author-X-Name-Last: Farah
Author-Name: John Barkoulas
Author-X-Name-First: John
Author-X-Name-Last: Barkoulas
Title: Takeover defenses, golden parachutes, and bargaining over stochastic synergy gains: a note on optimal contracting
Abstract:
We incorporate managerial risk aversion and stochasticity of takeover
synergy gains into Harris' (Harris, E.G. 1990. Antitakeover measures,
golden parachutes, and target firm shareholder welfare. Rand Journal of
Economics 21, no. 4: 614-25. bargaining model for the coexistence of
antitakeover defenses and golden parachutes in corporate charters. We show
that: (i) it is not always optimal that the target-firm shareholders adopt
antitakeover defenses, (ii) the size of the golden parachute is
proportional to the riskiness of the synergistic gains, and (iii) the
target-firm shareholders are unequivocally better-off with golden
parachutes than takeover-contingent stock options.
Journal: The European Journal of Finance
Pages: 273-280
Issue: 4
Volume: 14
Year: 2008
Keywords: golden parachutes, antitakeover defenses, tender offers, mergers and acquisitions,
X-DOI: 10.1080/13518470802041684
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802041684
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:4:p:273-280
Template-Type: ReDIF-Article 1.0
Author-Name: Rainer Jankowitsch
Author-X-Name-First: Rainer
Author-X-Name-Last: Jankowitsch
Author-Name: Michaela Nettekoven
Author-X-Name-First: Michaela
Author-X-Name-Last: Nettekoven
Title: Trading strategies based on term structure model residuals
Abstract:
The term structure of interest rates is an important input for basically
every pricing model and is mostly calibrated on coupon bond prices.
Therefore, the estimated interest rates should accurately explain the
market prices of these bonds. However, nearly all empirical papers on
interest rate estimation, e.g. Svensson, L.E.O. 1994. Estimating and
interpreting forward interest rates: Sweden 1992-1994, IMF Working Paper,
International Monetary Fund, report significant pricing errors in their
sample. So an important question is what drives these pricing errors of
the bonds. One simple explanation would be different tax treatment or
different liquidity, but most papers on this research topic, e.g. Elton,
E., and T.C. Green. 1998. Tax and liquidity effects in pricing government
bonds. Journal of Finance 53: 1533-62, cannot fully explain the observed
pricing errors. Therefore, these errors must be at least partially caused
by either model misspecification or by the deviation of particular bond
prices from general market conditions, i.e. mispricing revealing
insufficient market efficiency. We provide empirical evidence for the
German government bond market that risk-adjusted trading strategies based
on bond pricing errors can yield about 15 basis points p.a. abnormal
return compared to benchmark portfolios. Furthermore, the abnormal returns
are continuously achieved over the whole time period and not randomly on a
few days and show a relation to changes in the level and the curvature of
the term structure of interest rates. Therefore, pricing errors contain
economic information about deviations of bond prices from general market
conditions and are not exclusively caused by model misspecification and/or
differences in liquidity and tax treatment of individual bonds.
Journal: The European Journal of Finance
Pages: 281-298
Issue: 4
Volume: 14
Year: 2008
Keywords: trading strategy, bond pricing errors, abnormal returns, government bonds, market efficiency,
X-DOI: 10.1080/13518470802041783
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802041783
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:4:p:281-298
Template-Type: ReDIF-Article 1.0
Author-Name: Panagiotis Andrikopoulos
Author-X-Name-First: Panagiotis
Author-X-Name-Last: Andrikopoulos
Author-Name: Arief Daynes
Author-X-Name-First: Arief
Author-X-Name-Last: Daynes
Author-Name: David Latimer
Author-X-Name-First: David
Author-X-Name-Last: Latimer
Author-Name: Paraskevas Pagas
Author-X-Name-First: Paraskevas
Author-X-Name-Last: Pagas
Title: Size effect, methodological issues and 'risk-to-default': evidence from the UK stock market
Abstract:
This paper re-examines the small firm premium in the UK from December
1987 to December 2004 using a new survivorship bias-free and look-ahead
bias-free database of the UK market covering stocks officially listed in
the UK during this period. Prior research (Dimson, E., and P.R. Marsh.
1987. The Hoare Govett smaller companies index for the UK. Hoare Govett
Limited, January; Dimson, E., and P.R. Marsh. 1999. Murphy's law and
market anomalies. Journal of Portfolio Management 25, no. 2: 53-69)
documented an annual small-size premium in the UK market of around 6%
during the period 1955-1986 and an annual small-size discount of 6% during
the years 1989-1997. Our results show a continuation of the small firm
premium in the UK during 1988-2004 in excess of 7% per year. We conclude
that the reversal of the small firm premium documented by Dimson and Marsh
(1999. Murphy's law and market anomalies. Journal of Portfolio Management
25, no. 2: 53-69) is dependent on the data sample and methodology used.
The main contribution to the 7%+geometric annual premium reported here
comes mainly during the years 1993 and 1999. Furthermore, exploitation of
the small firm premium depends on the strategy used and in particular on
the length of the holding period before rolling over the strategy. Thus,
while it can be argued that an economically significant small firm anomaly
continues to exist, it appears to be sample-dependent, time-varying and
unreliable, and difficult to exploit in practice.
Journal: The European Journal of Finance
Pages: 299-314
Issue: 4
Volume: 14
Year: 2008
Keywords: small-size effect, market efficiency, methodological issues, UK equity market,
X-DOI: 10.1080/13518470802042070
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042070
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:4:p:299-314
Template-Type: ReDIF-Article 1.0
Author-Name: Giulio Cifarelli
Author-X-Name-First: Giulio
Author-X-Name-Last: Cifarelli
Author-Name: Giovanna Paladino
Author-X-Name-First: Giovanna
Author-X-Name-Last: Paladino
Title: Reserve overstocking in a highly integrated world. New evidence from Asia and Latin America
Abstract:
Monthly data are used to investigate reserves management in eight Asian
and Latin American countries. Idiosyncratic explanatory variables enter
into co-integration relationships based on a stochastic buffer stock
model, where a reserve variability measure is obtained via conditional
variance approaches. International factors influence the co-integration
residuals (representing the excess demands for reserves), which tend to
co-move within and across geographical areas. Principal components
analysis is then implemented to associate their common drivers with the US
fed fund effective interest rate and real-effective exchange rate. This
two-step approach sheds light on some controversial aspects of reserves
and exchange rate management, such as 'fear of floating' and mercantilist
behavior. Our results suggest that the size of recent excess reserve
holdings is probably overstated.
Journal: The European Journal of Finance
Pages: 315-336
Issue: 4
Volume: 14
Year: 2008
Keywords: emerging markets reserves, co-integration, PCA,
X-DOI: 10.1080/13518470802041981
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802041981
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:4:p:315-336
Template-Type: ReDIF-Article 1.0
Author-Name: Andrei Kuznetsov
Author-X-Name-First: Andrei
Author-X-Name-Last: Kuznetsov
Author-Name: Rostislav Kapelyushnikov
Author-X-Name-First: Rostislav
Author-X-Name-Last: Kapelyushnikov
Author-Name: Natalya Dyomina
Author-X-Name-First: Natalya
Author-X-Name-Last: Dyomina
Title: Performance of closely held firms in Russia: evidence from firm-level data*
Abstract:
This paper evaluates the impact of ownership concentration on firm
performance in a weak institutional environment. Specifically, using new
survey evidence, we seek to appraise quantitatively the performance of
block-holder-controlled firms in Russia and to identify, within the domain
of corporate governance theory, factors that may explain such performance.
We find evidence of negative association between the size of the dominant
owners' shareholding and performance parameters such as investment,
capacity utilization, and profitability. At the same time, we establish
that control structures with multiple, large shareholders increase
efficiency. The ambiguity of the effects of ownership concentration
suggests that country-specific factors play an important role.
Journal: The European Journal of Finance
Pages: 337-358
Issue: 4
Volume: 14
Year: 2008
Keywords: corporate governance, ownership structures, performance, Russia,
X-DOI: 10.1080/13518470802041924
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802041924
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:4:p:337-358
Template-Type: ReDIF-Article 1.0
Author-Name: Stefan Truck
Author-X-Name-First: Stefan
Author-X-Name-Last: Truck
Title: Forecasting credit migration matrices with business cycle effects—a model comparison
Abstract:
Migration matrices are considered a major determinant for credit risk
management. They are widely used for credit value-at-risk determination,
portfolio management or derivative pricing. It is well known that
migration matrices show strong variations and cyclical behavior through
time. We compare a factor model approach and numerical adjustment methods
for estimation and forecasting of conditional migration matrices. Our
findings show that the methods may lead to quite different forecasting
results. Although the numerical adjustment methods fail to outperform the
naive approach of taking previous year's migration matrix as an estimator,
the one-factor model provides significantly better in-sample and
out-of-sample results. Additionally, on the basis of a chosen
risk-sensitive goodness-of-fit criteria, we are able to interpret the
results in terms of risk.
Journal: The European Journal of Finance
Pages: 359-379
Issue: 5
Volume: 14
Year: 2008
Keywords: credit risk, transition matrices, forecasting, credit VaR,
X-DOI: 10.1080/13518470701773635
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701773635
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:5:p:359-379
Template-Type: ReDIF-Article 1.0
Author-Name: Markus Ebner
Author-X-Name-First: Markus
Author-X-Name-Last: Ebner
Author-Name: Thorsten Neumann
Author-X-Name-First: Thorsten
Author-X-Name-Last: Neumann
Title: Time-varying factor models for equity portfolio construction
Abstract:
Most equity risk models applied in practice assume stable return
correlations over time. However, there is considerable evidence suggesting
that correlations among stock returns and hence, variance-covariance
matrices (VCMs) become unstable over time. In this paper, we account for
correlation instabilities in US stock returns and derive VCMs from
time-varying factor model estimates. To do so, we use three different
estimation approaches: (1) moving window least squares, (2) flexible least
squares and (3) the random walk model. Our empirical results suggest that
a time-varying estimation of return correlations fits the data
considerably better than time-invariant estimation and thus, increases the
efficiency of risk estimation and portfolio selection.
Journal: The European Journal of Finance
Pages: 381-395
Issue: 5
Volume: 14
Year: 2008
Keywords: portfolio construction, stock betas, time-varying estimation,
X-DOI: 10.1080/13518470801892194
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801892194
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:5:p:381-395
Template-Type: ReDIF-Article 1.0
Author-Name: Stelios Bekiros
Author-X-Name-First: Stelios
Author-X-Name-Last: Bekiros
Author-Name: Dimitris Georgoutsos
Author-X-Name-First: Dimitris
Author-X-Name-Last: Georgoutsos
Title: Non-linear dynamics in financial asset returns: the predictive power of the CBOE volatility index
Abstract:
In this paper we attempt to predict the direction of change of the S&P500
index over the period 8 April 1998 to 5 February 2002 by means of a
recurrent neural network (RNN). We demonstrate that the incorporation in
the trading rule of the Chicago Board Options Exchange (CBOE) volatility
index changes strongly enhances its profitability during 'bear' market
periods. This improvement is measured in comparison with a RNN including
changes of estimated conditional volatility measures, a linear
autoregressive model as well as to a buy-and-hold strategy. We suggest a
number of theories that are consistent with our findings.
Journal: The European Journal of Finance
Pages: 397-408
Issue: 5
Volume: 14
Year: 2008
Keywords: technical trading rules, recurrent neural networks, implied volatility,
X-DOI: 10.1080/13518470802042203
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042203
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:5:p:397-408
Template-Type: ReDIF-Article 1.0
Author-Name: Lingjie Ma
Author-X-Name-First: Lingjie
Author-X-Name-Last: Ma
Author-Name: Larry Pohlman
Author-X-Name-First: Larry
Author-X-Name-Last: Pohlman
Title: Return forecasts and optimal portfolio construction: a quantile regression approach
Abstract:
In finance there is growing interest in quantile regression with the
particular focus on value at risk and copula models. In this paper, we
first present a general interpretation of quantile regression in the
context of financial markets. We then explore the full distributional
impact of factors on returns of securities and find that factor effects
vary substantially across quantiles of returns. Utilizing distributional
information from quantile regression models, we propose two general
methods for return forecasting and portfolio construction. We show that
under mild conditions these new methods provide more accurate forecasts
and potentially higher value-added portfolios than the classical
conditional mean method.
Journal: The European Journal of Finance
Pages: 409-425
Issue: 5
Volume: 14
Year: 2008
Keywords: return forecast, quantile regression, portfolio construction,
X-DOI: 10.1080/13518470802042369
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042369
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:5:p:409-425
Template-Type: ReDIF-Article 1.0
Author-Name: Akifumi Isogai
Author-X-Name-First: Akifumi
Author-X-Name-Last: Isogai
Author-Name: Satoru Kanoh
Author-X-Name-First: Satoru
Author-X-Name-Last: Kanoh
Author-Name: Toshifumi Tokunaga
Author-X-Name-First: Toshifumi
Author-X-Name-Last: Tokunaga
Title: A further extension of duration-dependent models
Abstract:
The duration dependence of stock market cycles has been investigated
using the Markov switching model where the market conditions are
unobservable. In conventional modeling, restrictions are imposed such that
the transition probability is a monotonic function of duration, which is
truncated at a certain value. This paper proposes a model that is free
from these arbitrary restrictions and nests the conventional models. In
the model, the parameters that characterize the transition probability are
formulated in the state space. Empirical results from several stock
markets show that the duration structures greatly differ depending on
countries. These structures are not necessarily monotonic functions of
duration and, therefore, cannot be described by the conventional models.
Journal: The European Journal of Finance
Pages: 427-449
Issue: 5
Volume: 14
Year: 2008
Keywords: duration, world stock markets, Markov switching model, non-parametric model, Gibbs sampling, marginal likelihood,
X-DOI: 10.1080/13518470802042518
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042518
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:5:p:427-449
Template-Type: ReDIF-Article 1.0
Author-Name: M. E. Malliaris
Author-X-Name-First: M. E.
Author-X-Name-Last: Malliaris
Author-Name: S. G. Malliaris
Author-X-Name-First: S. G.
Author-X-Name-Last: Malliaris
Title: Forecasting inter-related energy product prices
Abstract:
Five inter-related energy products are forecasted one month into the
future using both linear and nonlinear techniques. Both spot prices and
data derived from those prices are used as input data in the models. The
models are tested by running data from the following year through them.
Results show that, even though all products are highly correlated, the
prediction results are asymmetric. In forecasts for crude oil, heating
oil, gasoline and natural gas, the nonlinear forecasts were best, while
for propane, the linear model gave the lowest error.
Journal: The European Journal of Finance
Pages: 453-468
Issue: 6
Volume: 14
Year: 2008
Keywords: neural network, regression model, inter-related products, forecasting,
X-DOI: 10.1080/13518470701705793
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705793
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:6:p:453-468
Template-Type: ReDIF-Article 1.0
Author-Name: Jahangir Sultan
Author-X-Name-First: Jahangir
Author-X-Name-Last: Sultan
Author-Name: Mohammad Hasan
Author-X-Name-First: Mohammad
Author-X-Name-Last: Hasan
Title: The effectiveness of dynamic hedging: evidence from selected European stock index futures
Abstract:
This paper estimates time-varying optimal hedge ratios (OHRs) using a
bivariate generalized autoregressive conditional heteroscedastic (GARCH)
error correction model. The GARCH specification accounts for time-varying
distribution in asset returns while the error correction term preserves
short-run deviations between two fundamentally linked assets. Using stock
index and stock index futures from four European countries, we compare the
hedging effectiveness of the GARCH error correction model with alternative
hedging models that hold the OHR constant. Overall, in three out of four
cases, the GARCH error correction model is shown to offer superior risk
reduction compared with the competing models. Finally, we also estimate
the OHRs using the GARCH-X model, which allows the error correction term
to be a determinant of the time-varying volatility. The GARCH-X model
performs similar to the GARCH error correction model. The results
presented in this paper have important insights into the risk management
of financial assets when returns distribution changes over time.
Journal: The European Journal of Finance
Pages: 469-488
Issue: 6
Volume: 14
Year: 2008
Keywords: stock index futures, bivariate GARCH-X, error correction term, time varying minimum variance hedge ratio, out of sample hedge effectiveness,
X-DOI: 10.1080/13518470801890685
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890685
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:6:p:469-488
Template-Type: ReDIF-Article 1.0
Author-Name: Miroslav Misina
Author-X-Name-First: Miroslav
Author-X-Name-Last: Misina
Title: Changing investors' risk appetite: Reality or fiction?
Abstract:
Changes in investors' risk appetite have been used to explain various
phenomena in asset markets. And yet, the basis for their use is generally
weak: popular indicators of changes in risk appetite typically have scant
foundation in theory and give contradictory signals in practice. This has
led to the views that it is a convenient ex post rationalization rather
than a well-founded explanation of asset price movements. This paper
starts from the premise that changing risk appetite might be a legitimate
explanation, but that there is an identification problem, both
theoretically and empirically. The solution offered here is based on the
approach introduced by Kumar and Persaud (Kumar, M., and A. Persaud. 2002.
Pure contagion and investors' shifting risk appetite: analytical issues
and empirical evidence. International Finance 5: 401-36.), and on the work
of Misina (Misina, M. 2003. What Does the Risk-Appetite Index Measure?
Bank of Canada, Working Paper 2003-23.) who established the theoretical
conditions under which that approach will correctly identify changes in
risk appetite. We propose a method to implement these conditions and thus
ensure that the resulting index is empirically sound. This index is then
used to examine the presence of changes in risk appetite in the data, and,
more generally, whether this explanation is appropriate in particular
circumstances. The empirical illustration is based on a portfolio of
foreign currencies, but the techniques are general and can be applied to
any portfolio.
Journal: The European Journal of Finance
Pages: 489-501
Issue: 6
Volume: 14
Year: 2008
Keywords: risk appetite, risk-appetite indexes, asset prices,
X-DOI: 10.1080/13518470801890784
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890784
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:6:p:489-501
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Dunis
Author-X-Name-First: Christian
Author-X-Name-Last: Dunis
Author-Name: Jason Laws
Author-X-Name-First: Jason
Author-X-Name-Last: Laws
Author-Name: Ben Evans
Author-X-Name-First: Ben
Author-X-Name-Last: Evans
Title: Trading futures spread portfolios: applications of higher order and recurrent networks
Abstract:
This paper investigates the modelling and trading of oil futures spreads
in the context of a portfolio of contracts. A portfolio of six spreads is
constructed and each spread forecasted using a variety of modelling
techniques, namely, a cointegration fair value model and three different
types of neural network (NN), such as multi-layer perceptron (MLP),
recurrent, and higher order NN models. In addition, a number of trading
filters are employed to further improve the trading statistics of the
models. Three different filters are optimized on an in-sample measure of
down side risk-adjusted return, and these are then fixed out-of-sample.
The filters employed are the threshold filter, correlation filter, and the
transitive filter. The results show that the best in-sample model is the
MLP with a transitive filter. This model is the best performer
out-of-sample and also returns good out-of-sample statistics.
Journal: The European Journal of Finance
Pages: 503-521
Issue: 6
Volume: 14
Year: 2008
Keywords: futures spreads, cointegration, trading filters, higher order networks, recurrent networks,
X-DOI: 10.1080/13518470801890834
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890834
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:6:p:503-521
Template-Type: ReDIF-Article 1.0
Author-Name: Bart Frijns
Author-X-Name-First: Bart
Author-X-Name-Last: Frijns
Author-Name: Dimitris Margaritis
Author-X-Name-First: Dimitris
Author-X-Name-Last: Margaritis
Title: Forecasting daily volatility with intraday data
Abstract:
The aim of this paper is to assess to what extent intraday data can
explain and predict end-of-the-day volatility. Using a realized volatility
measure as proposed by Andersen, T., T. Bollerslev, F. Diebold, and P.
Labys. 2001. The distribution of realized exchange rate volatility.
Journal of the American Statistical Association 96: 42-55, we hypothesize
that volatility generated at the start of the day is an important
predictor of daily volatility either on its own accord or in conjunction
with information about the seasonal pattern characterizing intraday
volatility. We address the question of how much information needs to
arrive to the market before a good predictor can be formed. Using data
from a specialist market (NYSE), a dealer market (Nasdaq) and a continuous
auction market (Paris Bourse), we investigate how different trading
structures may affect intraday volatility formation. As a preview to our
results, we find that the explanatory power of first-hour volatility for
daily volatility is as high as 68%, whereas the average volatility
generated during this first hour is <30%. Comparison to a standard
GARCH model shows that the forecasts based on the intraday data are
generally highly informative both on their own accord and in combination
with the GARCH forecasts.
Journal: The European Journal of Finance
Pages: 523-540
Issue: 6
Volume: 14
Year: 2008
Keywords: intraday return volatility, volatility forecasting, realized volatility, quadratic variation,
X-DOI: 10.1080/13518470802187644
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802187644
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:6:p:523-540
Template-Type: ReDIF-Article 1.0
Author-Name: Christopher Green
Author-X-Name-First: Christopher
Author-X-Name-Last: Green
Title: Financial reform in emerging markets
Abstract:
Journal: The European Journal of Finance
Pages: 541-544
Issue: 7
Volume: 14
Year: 2008
X-DOI: 10.1080/13518470802173537
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802173537
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:7:p:541-544
Template-Type: ReDIF-Article 1.0
Author-Name: Ilko Naaborg
Author-X-Name-First: Ilko
Author-X-Name-Last: Naaborg
Author-Name: Robert Lensink
Author-X-Name-First: Robert
Author-X-Name-Last: Lensink
Title: Banking in transition economies: does foreign ownership enhance profitability?
Abstract:
This paper studies the relationship between foreign ownership and bank
performance. A cross-section of 216 banks in transition economies in
Central and Eastern Europe and Central Asia is used. In the analyses a
continuous foreign ownership variable is applied. The results are checked
by using a foreign ownership dummy variable. A negative relationship is
found between foreign ownership and banks' interest revenues and
profitability, although overhead costs are negatively related to foreign
bank ownership as well. The results are independent of countries' GDP per
capita and concentration in the banking sector. Evidence is presented for
the existence of a home field advantage for domestic banks.
Journal: The European Journal of Finance
Pages: 545-562
Issue: 7
Volume: 14
Year: 2008
Keywords: banking, foreign ownership, profitability, transition countries,
X-DOI: 10.1080/13518470701322268
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701322268
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:7:p:545-562
Template-Type: ReDIF-Article 1.0
Author-Name: Roger Kelly
Author-X-Name-First: Roger
Author-X-Name-Last: Kelly
Author-Name: George Mavrotas
Author-X-Name-First: George
Author-X-Name-Last: Mavrotas
Title: Savings and financial sector development: panel cointegration evidence from Africa
Abstract:
The paper uses different measures of financial sector development (FSD)
for a dynamic heterogeneous panel of 17 African countries to examine the
impact of FSD on private savings. An innovative econometric methodology is
also employed related to a series of cointegration tests within a panel.
This is an important contribution, since traditional panel data analysis
adopted in previous studies suffers from serious heterogeneity bias
problems. The empirical results obtained vary considerably among countries
in the panel, thus highlighting the importance of using different measures
of FSD rather than a single indicator. The evidence is rather
inconclusive, although in most of the countries in the sample, a positive
relationship between FSD and private savings seems to hold. The empirical
analysis also suggests that a change in government savings is offset by an
opposite change in private savings in most of the countries in the panel,
thus confirming the Ricardian equivalence hypothesis. Liquidity
constraints do not seem to play a vital role in most of the African
countries in the group, since the relevant coefficient is negative and
significant in only a small group of countries.
Journal: The European Journal of Finance
Pages: 563-581
Issue: 7
Volume: 14
Year: 2008
Keywords: financial sector development, private savings, panel cointegration tests, Africa,
X-DOI: 10.1080/13518470801890602
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890602
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:7:p:563-581
Template-Type: ReDIF-Article 1.0
Author-Name: Christopher Green
Author-X-Name-First: Christopher
Author-X-Name-Last: Green
Author-Name: Victor Murinde
Author-X-Name-First: Victor
Author-X-Name-Last: Murinde
Title: The impact of tax policy on corporate debt in a developing economy: a study of unquoted Indian companies
Abstract:
Taxation has potentially important implications for corporate behaviour.
However, there have been few studies of the impact of taxation on
companies in developing countries, and fewer still concerned with unquoted
companies. In this paper, we study the impact of tax policy on the
financial decisions of a sample of unquoted companies in India during the
period 1989-99 when tax rates were generally reduced as part of a wider
programme of financial liberalization. We examine the impact of the tax
regime on company financing decisions, within the context of a model of
company leverage, controlling for non-tax influences suggested by the
theory of corporate finance. The analysis is carried out using a balanced
panel consisting of the published accounts of 97 Indian unquoted
companies, which reported continuously during 1989-99. The model is
estimated using Generalized Methods of Moments (GMM). Estimates of the
impact of the 1990s tax reforms are derived, and implications for policy
are drawn.
Journal: The European Journal of Finance
Pages: 583-607
Issue: 7
Volume: 14
Year: 2008
Keywords: India, corporate finance, taxation,
X-DOI: 10.1080/13518470701705702
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705702
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:7:p:583-607
Template-Type: ReDIF-Article 1.0
Author-Name: Rose Ngugi
Author-X-Name-First: Rose
Author-X-Name-Last: Ngugi
Title: Capital financing behaviour: evidence from firms listed on the Nairobi Stock Exchange
Abstract:
This study investigates the determinants of capital structure for a
sample of 22 firms listed on the Nairobi Stock Exchange during the period
1991-1999. Reduced form equations derived from the static trade-off model
and the pecking order hypothesis are estimated and tested using panel data
techniques. The results show that a pecking order model with an adjustment
process cannot be rejected. Specifically, it is found that the main
determinants of capital financing behaviour consist of information
asymmetries, non-debt tax shields and local capital market infrastructure.
Journal: The European Journal of Finance
Pages: 609-624
Issue: 7
Volume: 14
Year: 2008
Keywords: Nairobi Stock Exchange, static trade-off model and pecking order hypothesis,
X-DOI: 10.1080/13518470802042245
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042245
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:7:p:609-624
Template-Type: ReDIF-Article 1.0
Author-Name: C. Kirkpatrick
Author-X-Name-First: C.
Author-X-Name-Last: Kirkpatrick
Author-Name: V. Murinde
Author-X-Name-First: V.
Author-X-Name-Last: Murinde
Author-Name: M. Tefula
Author-X-Name-First: M.
Author-X-Name-Last: Tefula
Title: The measurement and determinants of x-inefficiency in commercial banks in Sub-Saharan Africa
Abstract:
This paper uses the translog stochastic cost and profit frontier approach
to measure the degree of x-inefficiency in a panel of 89 commercial banks
drawn from nine Sub-Saharan African countries, covering the period
1992-99. The paper then models the determinants of x-inefficiency in terms
of bank-specific factors and general macroeconomic variables. It is found
that profit x-inefficiency is slightly higher than cost x-inefficiency,
which suggests that revenue x-inefficiency is rather small. The evidence
also shows that the degree of cost x-inefficiency is exacerbated by bad
loans, high capital ratios and financial liberalisation. In contrast, it
is shown that larger banks are more efficient and the level of foreign
bank penetration reduces x-inefficiency. These findings have important
implications for bank managers and regulators in Sub-Saharan Africa.
Journal: The European Journal of Finance
Pages: 625-639
Issue: 7
Volume: 14
Year: 2008
Keywords: x-inefficiency, commercial banks, Sub-Saharan Africa,
X-DOI: 10.1080/13518470701705769
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705769
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:7:p:625-639
Template-Type: ReDIF-Article 1.0
Author-Name: Tomoe Moore
Author-X-Name-First: Tomoe
Author-X-Name-Last: Moore
Author-Name: Christopher Green
Author-X-Name-First: Christopher
Author-X-Name-Last: Green
Title: Flow of funds and the impact of financial controls on bank portfolio behaviour: a study of India
Abstract:
This paper studies the flow of funds and portfolio behaviour of Indian
banks from 1951 to 1994. In this period, financial controls such as
variable reserve ratios were important constraints on bank behaviour,
especially before liberalization took place in the early 1990s. We
estimate a system of demand functions which uses as framework the Almost
Ideal Demand System and which incorporates the reserve ratio regulations.
Attention is paid to cointegration and to structural breaks. The estimated
model provides coherent and plausible parameter estimates for prices and
other variables. We find that a standard portfolio model can usefully be
applied to the study of financial behaviour in a developing economy such
as India, and some interesting policy implications can be drawn.
Journal: The European Journal of Finance
Pages: 641-661
Issue: 7
Volume: 14
Year: 2008
Keywords: flow of funds, India, banking system, AIDS model,
X-DOI: 10.1080/13518470801890800
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890800
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:7:p:641-661
Template-Type: ReDIF-Article 1.0
Author-Name: Michel Beine
Author-X-Name-First: Michel
Author-X-Name-Last: Beine
Author-Name: Gunther Capelle-Blancard
Author-X-Name-First: Gunther
Author-X-Name-Last: Capelle-Blancard
Author-Name: Helene Raymond
Author-X-Name-First: Helene
Author-X-Name-Last: Raymond
Title: International nonlinear causality between stock markets
Abstract:
In this paper, we test for linear and nonlinear Granger causality between
the French, German, Japanese, UK and US daily stock index returns from
1973 to 2003. We find a strong contemporaneous linear dependence between
European countries and a directional linear dependence from the US towards
the other markets. Besides, linear causality increases after 1987, a
finding consistent with the expected effects of financial liberalization
of the 1980s and the 1990s. Above all, we document the presence of
bidirectional nonlinear causality between daily returns. To check for
spurious nonlinear causality, we filter out heteroskedasticity using a
FIGARCH model. The dramatic decrease in the number of significant
nonlinear causality lags confirms that heteroskedasticity played a major
part in the previous findings. We then check if a few structural breaks
can explain the remaining nonlinear causality. We find that a large number
of nonlinear relationships vanish when we control for structural breaks,
whereas linear causality remains.
Journal: The European Journal of Finance
Pages: 663-686
Issue: 8
Volume: 14
Year: 2008
Keywords: international co-movements, linear and nonlinear causality, FIGARCH, multiple structural breaks, financial integration,
X-DOI: 10.1080/13518470802042112
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042112
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:8:p:663-686
Template-Type: ReDIF-Article 1.0
Author-Name: Mohammad Hasan
Author-X-Name-First: Mohammad
Author-X-Name-Last: Hasan
Title: Stock returns, inflation and interest rates in the United Kingdom
Abstract:
The Fisherian theory of interest asserts that a fully perceived change in
inflation would be reflected in nominal interest rates and stock returns
in the same direction in the long run. This paper examines the Fisherian
hypothesis of asset returns using alternative techniques of linear
regression, and vector error correction models to examine the nature of
the relationship between stock returns and inflation in the UK. Consistent
with the Fisherian hypothesis, empirical evidence in the linear regression
model suggests a positive and statistically significant relationship
between stock returns and inflation, which regards common stock as a good
hedge against inflation. The results based on the unit root and
cointegration tests indicate a long-run reliable relationship between
price levels, share prices, and interest rates which could be interpreted
as the long-run determinants of stock returns. The findings also suggest a
bidirectional relationship between stock returns and inflation. The
evidence of a significant Fisher effect is robust across model
specifications.
Journal: The European Journal of Finance
Pages: 687-699
Issue: 8
Volume: 14
Year: 2008
Keywords: inflation, stock returns, Fisher effect, cointegration,
X-DOI: 10.1080/13518470802042211
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042211
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:8:p:687-699
Template-Type: ReDIF-Article 1.0
Author-Name: Dieter Nautz
Author-X-Name-First: Dieter
Author-X-Name-Last: Nautz
Author-Name: Karsten Ruth
Author-X-Name-First: Karsten
Author-X-Name-Last: Ruth
Title: Monetary disequilibria and the euro/dollar exchange rate
Abstract:
Although stable money demand functions are crucial for the monetary model
of the exchange rate, empirical research on exchange rates and money
demand is more or less disconnected. This paper tries to fill the gap for
the euro/dollar exchange rate. We investigate whether monetary
disequilibria provided by the empirical literature on US and European
money demand functions contain useful information about exchange rate
movements. Our results suggest that the empirical performance of the
monetary exchange rate model improves when insights from the money demand
literature are explicitly taken into account.
Journal: The European Journal of Finance
Pages: 701-716
Issue: 8
Volume: 14
Year: 2008
Keywords: euro, dollar exchange rate, monetary model, money demand functions,
X-DOI: 10.1080/13518470802042310
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042310
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:8:p:701-716
Template-Type: ReDIF-Article 1.0
Author-Name: Peter Laurence
Author-X-Name-First: Peter
Author-X-Name-Last: Laurence
Author-Name: Tai-Ho Wang
Author-X-Name-First: Tai-Ho
Author-X-Name-Last: Wang
Title: Distribution-free upper bounds for spread options and market-implied antimonotonicity gap
Abstract:
We derive in closed form distribution-free bounds and optimal hedging
strategies for spread options. Upper bounds are obtained when the spread
option's joint distribution is constrained by the prices of traded options
with all available strikes of a given maturity. The difference between the
upper bound and the market price is a useful new measure of codependence,
which we refer to as the market implied antimonotonicity gap.
Journal: The European Journal of Finance
Pages: 717-734
Issue: 8
Volume: 14
Year: 2008
Keywords: antimonotonicity gap, arbitrage-free bounds, codependence, copula, spread options, super-replication,
X-DOI: 10.1080/13518470802173164
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802173164
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:8:p:717-734
Template-Type: ReDIF-Article 1.0
Author-Name: Vassilios Babalos
Author-X-Name-First: Vassilios
Author-X-Name-Last: Babalos
Author-Name: Guglielmo Maria Caporale
Author-X-Name-First: Guglielmo Maria
Author-X-Name-Last: Caporale
Author-Name: Alexandros Kostakis
Author-X-Name-First: Alexandros
Author-X-Name-Last: Kostakis
Author-Name: Nikolaos Philippas
Author-X-Name-First: Nikolaos
Author-X-Name-Last: Philippas
Title: Testing for persistence in mutual fund performance and the ex-post verification problem: evidence from the Greek market
Abstract:
The present study examines a series of performance measures with the aim
of solving the ex-post verification problem. These measures are employed
to test the performance persistence hypothesis of domestic equity funds in
Greece, during the period 1998-2004. Correctly adjusting for risk factors
and documented portfolio strategies explains a significant part of the
reported persistence. The intercept of the augmented Carhart regression is
proposed as the most appropriate performance measure. Using this measure,
weak evidence for persistence, only before 2001, is documented. The growth
of the fund industry, the direction of flows to past winners and the
integration in the international financial system are suggested to be the
reasons for the absence of performance persistence.
Journal: The European Journal of Finance
Pages: 735-753
Issue: 8
Volume: 14
Year: 2008
Keywords: mutual funds, performance persistence, market efficiency, emerging markets,
X-DOI: 10.1080/13518470802173248
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802173248
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:8:p:735-753
Template-Type: ReDIF-Article 1.0
Author-Name: Gavin Kretzschmar
Author-X-Name-First: Gavin
Author-X-Name-Last: Kretzschmar
Author-Name: Axel Kirchner
Author-X-Name-First: Axel
Author-X-Name-Last: Kirchner
Title: Recovery of hidden state participation effects on oil and gas asset values
Abstract:
Commodity price shocks are shown to cause shifts in both the quantity and
timing of risk in natural resource assets. We provide evidence that static
risk measures understate the periodicity of price risk implicit in
depleting assets. Risk measurement is demonstrated to be asset specific
and to vary heterogeneously in response to the combined effects of state
participation and market factors. We use a global sample of oilfield
assets to demonstrate that oilfield participation terms cause corporate
asset cash flows, volatility horizons and minimum variance hedge ratios to
vary in response to oil price. We provide additional insights into
movements in the timing of physical oil and gas asset risk, a hidden
effect not recoverable from market oil prices. Temporal variance for
physical assets is shown to be a hidden dimensional outcome of the effects
of market factors and state participation.
Journal: The European Journal of Finance
Pages: 755-769
Issue: 8
Volume: 14
Year: 2008
Keywords: oil and gas, volatility, ledging,
X-DOI: 10.1080/13518470802173347
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802173347
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:8:p:755-769
Template-Type: ReDIF-Article 1.0
Author-Name: Sascha Mergner
Author-X-Name-First: Sascha
Author-X-Name-Last: Mergner
Author-Name: Jan Bulla
Author-X-Name-First: Jan
Author-X-Name-Last: Bulla
Title: Time-varying beta risk of Pan-European industry portfolios: A comparison of alternative modeling techniques
Abstract:
This paper investigates the time-varying behavior of systematic risk for
18 pan-European sectors. Using weekly data over the period 1987-2005, six
different modeling techniques in addition to the standard constant
coefficient model are employed: a bivariate t-GARCH(1,1) model, two Kalman
filter (KF)-based approaches, a bivariate stochastic volatility model
estimated via the efficient Monte Carlo likelihood technique as well as
two Markov switching models. A comparison of ex-ante forecast performances
of the different models indicate that the random walk process in
connection with the KF is the preferred model to describe and forecast the
time-varying behavior of sector betas in a European context.
Journal: The European Journal of Finance
Pages: 771-802
Issue: 8
Volume: 14
Year: 2008
Keywords: time-varying beta risk, Kalman filter, bivariate t-GARCH, stochastic volatility, efficient Monte Carlo likelihood, Markov switching, European industry portfolios,
X-DOI: 10.1080/13518470802173396
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802173396
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:14:y:2008:i:8:p:771-802
Template-Type: ReDIF-Article 1.0
Author-Name: Helmut Herwartz
Author-X-Name-First: Helmut
Author-X-Name-Last: Herwartz
Author-Name: Leonardo Morales-Arias
Author-X-Name-First: Leonardo
Author-X-Name-Last: Morales-Arias
Title: In-sample and out-of-sample properties of international stock return dynamics conditional on equilibrium pricing factors
Abstract:
We conduct a comprehensive analysis of the in-sample and out-of-sample
properties of stock return dynamics in 14 developed and 12 emerging
markets. We start by formulating a theoretically founded asset-pricing
model that decomposes log stock returns into equilibrium pricing factors
(accounting and discount factors) and short-run (vector) autoregressive
dynamics. Based on this model, we design both in-sample and out-of-sample
panel modeling techniques to investigate international stock market
returns at short and long horizons. Our findings show that (i) there is
evidence of in-sample signaling from the equilibrium relations but this
feature does not appear to translate into out-of-sample forecasting, (ii)
a rolling window forecasting scheme can better approximate the
distributional features of returns in comparison with a recursive method,
(iii) forecasting with single-lagged equilibrium relationships does not
play a uniformly significant role in anticipating returns, (iv)
forecasting with a full model containing all lagged equilibrium relations
can outperform both a random walk model and a VAR(1) model and (v) linear
combinations of alternative forecasts reduce ex-ante uncertainty.
Journal: The European Journal of Finance
Pages: 1-28
Issue: 1
Volume: 15
Year: 2009
Keywords: international asset pricing, dynamic heterogenous panels, out-of-sample forecasting, forecast combination,
X-DOI: 10.1080/13518470802423338
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802423338
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:1:p:1-28
Template-Type: ReDIF-Article 1.0
Author-Name: Abdullah Iqbal
Author-X-Name-First: Abdullah
Author-X-Name-Last: Iqbal
Author-Name: Susanne Espenlaub
Author-X-Name-First: Susanne
Author-X-Name-Last: Espenlaub
Author-Name: Norman Strong
Author-X-Name-First: Norman
Author-X-Name-Last: Strong
Title: Earnings management around UK open offers
Abstract:
We examine the long run operating and stock price performance of UK open
offer firms in the context of the earnings management hypothesis. We find
that in the pre-offer period offer firms report significant improvements
in their operating performance unrelated to cash flow performance. Results
on return performance show that offer firms outperform various benchmarks
in the pre-offer year but underperform up to four years after the offer.
Regression results show that pre-offer discretionary current accruals
predict the long-run post-offer return underperformance but do not predict
the short-run reaction to SEO announcements. Our findings are more
consistent with the earnings management hypothesis than with either the
timing hypothesis or the managerial response hypothesis and suggest that
investors do not take full account of the information available at the
time of open offers.
Journal: The European Journal of Finance
Pages: 29-51
Issue: 1
Volume: 15
Year: 2009
Keywords: Earnings management, open offers, SEOs, return performance, operating performance,
X-DOI: 10.1080/13518470701705652
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705652
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:1:p:29-51
Template-Type: ReDIF-Article 1.0
Author-Name: Seth Armitage
Author-X-Name-First: Seth
Author-X-Name-Last: Armitage
Author-Name: John Capstaff
Author-X-Name-First: John
Author-X-Name-Last: Capstaff
Title: Comment on 'earnings management around UK open offers'
Abstract:
This note discusses the result of Iqbal, A., S. Espenlaub, and N. Strong.
2008. Earnings management around UK open offers. European Journal of
Finance, this issue, regarding long-run abnormal returns following open
offers and announcement abnormal returns, compared with differing results
in two previous studies based on similar samples. A survivorship bias
explains some of the differences in the reported long-run abnormal
returns. The difference in the announcement abnormal returns could be due
to use of different data sources.
Journal: The European Journal of Finance
Pages: 53-60
Issue: 1
Volume: 15
Year: 2009
Keywords: seasoned equity offers, long-run abnormal returns, announcement abnormal returns,
X-DOI: 10.1080/13518470801890735
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470801890735
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:1:p:53-60
Template-Type: ReDIF-Article 1.0
Author-Name: Susanne Espenlaub
Author-X-Name-First: Susanne
Author-X-Name-Last: Espenlaub
Author-Name: Abdullah Iqbal
Author-X-Name-First: Abdullah
Author-X-Name-Last: Iqbal
Author-Name: Norman Strong
Author-X-Name-First: Norman
Author-X-Name-Last: Strong
Title: Datastream returns and UK open offers
Abstract:
We report a fundamental error in Datastream equity data for share prices
and return indices relating to a failure to make any capital adjustments
for UK open offers before February 2002. We re-examine the findings of
Iqbal, Espenlaub, and Strong (2008), correcting for this error. We find
that the short-run market reaction to open offers is now significantly
positive. However, we confirm that long-run post-offer returns continue to
be significantly negative up to a four-year horizon and, most importantly,
that pre-issue discretionary current accruals predict the long-run
underperformance, in support of the earnings management hypothesis. We
continue to find no support for the timing hypothesis or the managerial
response hypothesis.
Journal: The European Journal of Finance
Pages: 61-69
Issue: 1
Volume: 15
Year: 2009
Keywords: Datastream equity data, UK open offers, stock market reactions, earnings management hypothesis,
X-DOI: 10.1080/13518470802560642
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802560642
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:1:p:61-69
Template-Type: ReDIF-Article 1.0
Author-Name: David Hillier
Author-X-Name-First: David
Author-X-Name-Last: Hillier
Author-Name: Patrick McColgan
Author-X-Name-First: Patrick
Author-X-Name-Last: McColgan
Author-Name: Samwel Werema
Author-X-Name-First: Samwel
Author-X-Name-Last: Werema
Title: Asset sales and firm strategy: an analysis of divestitures by UK companies
Abstract:
This paper examines the financial causes and consequences of the decision
to sell-off non-financial assets as part of a new or ongoing restructuring
programme by UK non-financial companies between 1993 and 2000. We report
that asset sales follow a period of declining operating returns and tend
to occur in diversified companies with high levels of financial leverage.
Stock prices respond positively to asset sale announcements. This arises
due to improvements in operating returns and a decline in financial
leverage and corporate diversification subsequent to the disposal. Our
findings suggest that asset sales represent an effective operational
response to a firm's poor financial condition. However, we also find that
a manager's decision to sell assets is strongly influenced by the explicit
threats to their control from lenders and competition from product, labour
and takeover markets.
Journal: The European Journal of Finance
Pages: 71-87
Issue: 1
Volume: 15
Year: 2009
Keywords: asset sales, corporate restructuring, firm strategy, managerial discipline, operating performance,
X-DOI: 10.1080/13518470802173438
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802173438
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:1:p:71-87
Template-Type: ReDIF-Article 1.0
Author-Name: Owain ap Gwilym
Author-X-Name-First: Owain ap
Author-X-Name-Last: Gwilym
Author-Name: Samir Aguenaou
Author-X-Name-First: Samir
Author-X-Name-Last: Aguenaou
Author-Name: Mark Rhodes
Author-X-Name-First: Mark
Author-X-Name-Last: Rhodes
Title: The determinants of trading volume for cross-listed Euribor futures contracts
Abstract:
This article investigates the determinants of trading volume for the
Euribor futures contract traded at both Euronext-LIFFE and Eurex. Granger
causality tests suggest that volumes on the two exchanges are
interdependent. Hausman tests demonstrate that the volumes are determined
simultaneously. Such results are consistent with a scenario of competition
for volume between the exchanges. A model of the determinants of volume is
then specified to reflect the cross-exchange influences. The study is the
first investigation of this type for Euribor and contributes new findings
to the literature on cross-listed futures. The article applies an
innovative selection of explanatory variables. An illiquidity ratio is
found to have a significant inverse relationship with LIFFE volume, but is
not significantly related to Eurex volume. Other determinants have very
similar effects across the exchanges. Volumes at both exchanges are
significantly lower on Mondays and Fridays. There is a significant
negative relationship between days to maturity and volume, and volumes are
significantly higher on the expiration days of futures contracts. European
Central Bank announcements lead to significantly elevated trading volumes.
Journal: The European Journal of Finance
Pages: 89-102
Issue: 1
Volume: 15
Year: 2009
Keywords: trading volume, cross-listing, interest rate futures,
X-DOI: 10.1080/13518470802423148
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802423148
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:1:p:89-102
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Abstract:
Journal: The European Journal of Finance
Pages: 103-103
Issue: 2
Volume: 15
Year: 2009
X-DOI: 10.1080/13518470902784043
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902784043
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:103-103
Template-Type: ReDIF-Article 1.0
Author-Name: Helena Pinto
Author-X-Name-First: Helena
Author-X-Name-Last: Pinto
Author-Name: Sydney Howell
Author-X-Name-First: Sydney
Author-X-Name-Last: Howell
Author-Name: Dean Paxson
Author-X-Name-First: Dean
Author-X-Name-Last: Paxson
Title: Modelling the number of customers as a birth and death process
Abstract:
Birth and death may be a better model than Brownian motion for many
physical processes, which real options models will increasingly need to
deal with. In this paper, we value a perpetual American call option, which
gives the monopoly right to invest in a market in which the number of
active customers (and hence the sales rate) follows a birth and death
process. The problem contains a singular point, and we develop a mixed
analytic/numeric method for handling this singular point, based on the
method of Frobenius. The method may be useful for other cases of singular
points. The birth and death model gives lower option values than the
geometric Brownian motion model, except at very low volatilities, so that
if a firm incorrectly assumes a geometric Brownian motion process in place
of a birth and death process, it will invest too seldom and too late.
Journal: The European Journal of Finance
Pages: 105-118
Issue: 2
Volume: 15
Year: 2009
Keywords: real options, birth and death processes and Frobenius method,
X-DOI: 10.1080/13518470802042021
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802042021
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:105-118
Template-Type: ReDIF-Article 1.0
Author-Name: Pedro Martinez-Solano
Author-X-Name-First: Pedro
Author-X-Name-Last: Martinez-Solano
Author-Name: Jose Yague-Guirao
Author-X-Name-First: Jose
Author-X-Name-Last: Yague-Guirao
Author-Name: Fulgencio Lopez-Martinez
Author-X-Name-First: Fulgencio
Author-X-Name-Last: Lopez-Martinez
Title: Asset securitization: effects on value of banking institutions
Abstract:
This paper examines the reaction of the Spanish stock market to the
announcement of securitization operations by listed banks in the period
1993-2004. Results indicate the existence of positive and significant
abnormal returns on the day immediately following the announcement date.
The average cumulative abnormal returns over windows of varying lengths
around the announcement date are also positive and significant. The
market's reaction is stronger when the bank has a higher proportion of
equity in its capital structure, when it is less profitable, and when it
has previously undertaken securitization transactions.
Journal: The European Journal of Finance
Pages: 119-136
Issue: 2
Volume: 15
Year: 2009
Keywords: securitization, banking, profitability, efficiency, event study,
X-DOI: 10.1080/13518470802466188
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802466188
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:119-136
Template-Type: ReDIF-Article 1.0
Author-Name: Carlos Alegria
Author-X-Name-First: Carlos
Author-X-Name-Last: Alegria
Author-Name: George McKenzie
Author-X-Name-First: George
Author-X-Name-Last: McKenzie
Author-Name: Simon Wolfe
Author-X-Name-First: Simon
Author-X-Name-Last: Wolfe
Title: Earnings announcements by UK companies: Evidence of extreme events?
Abstract:
This paper investigates the abnormal share return dispersion occurring
when companies announce their interim or final earnings. Whereas, prior
research has focused on abnormal returns, little attention has been given
to investigating the dispersion of the abnormal returns. We find strong
empirical evidence supporting an abnormal dispersion of share returns on
event dates. Moreover, we find that these public announcements are sources
of extreme share price movements. Our study provides a step forward in
identifying factors underlying the leptokurtosis that is traditionally
found in time series stock market returns. Our data sample is comprised of
interim and full year results for mid-to-large capitalisation UK companies
for the period 1984-2005. Consistent with the extant literature on this
subject, we find no evidence of market inefficiency around the event date,
or straightforward arbitrage opportunities on the event date. However, we
find using Paretian statistics that the abnormal return dispersion on the
event date is three times higher than on normal non-event days.
Journal: The European Journal of Finance
Pages: 137-156
Issue: 2
Volume: 15
Year: 2009
Keywords: event studies, extreme events, abnormal returns, information events, market efficiency,
X-DOI: 10.1080/13518470802466261
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802466261
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:137-156
Template-Type: ReDIF-Article 1.0
Author-Name: Jose Carlos Dias
Author-X-Name-First: Jose Carlos
Author-X-Name-Last: Dias
Author-Name: Mark Shackleton
Author-X-Name-First: Mark
Author-X-Name-Last: Shackleton
Title: Durable vs. disposable equipment choice under interest rate uncertainty
Abstract:
This article analyzes present value costs under stochastic interest rates
and investigates the effect of interest rate uncertainty on the
replacement investment decision that a firm must make when a piece of
equipment becomes obsolete and needs replacement with either short- or
long-lived equipment. We consider the replacement problem under stochastic
interest rates in a CIR economy (Cox, Ingersoll, and Ross 1985a,b).
Depending on the interest rate levels, interest rate volatility and the
optionality to switch between durable and expendable assets at each
renewal time, managers may prefer to invest in long-lived but more
expensive assets instead of short-lived but less costly assets and vice
versa.
Journal: The European Journal of Finance
Pages: 157-167
Issue: 2
Volume: 15
Year: 2009
Keywords: real options, interest rate uncertainty, replacement investment decisions, interest rate policy,
X-DOI: 10.1080/13518470802560790
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802560790
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:157-167
Template-Type: ReDIF-Article 1.0
Author-Name: Jorge Farinha
Author-X-Name-First: Jorge
Author-X-Name-Last: Farinha
Author-Name: Oscar Lopez-de-Foronda
Author-X-Name-First: Oscar
Author-X-Name-Last: Lopez-de-Foronda
Title: The relation between dividends and insider ownership in different legal systems: international evidence
Abstract:
This paper provides new international evidence on the relationship
between dividend policy and insider ownership by analysing a sample of
USA, UK and Irish firms characterized by an Anglo-Saxon tradition and a
matching sample of other EU companies from Civil Law legal systems. We
hypothesize that, due to the different characteristics of both the legal
system and the nature of agency conflicts in firms from those countries,
the relation between dividend policies and ownership by insiders will be
considerably distinct between the two sets of companies. We find that
while in firms with an Anglo-Saxon tradition the relation between
dividends and insider ownership follows the pattern
negative-positive-negative, in Civil Law countries the relation is
positive-negative-positive. These results are consistent with our
hypotheses and breed new insights into the role of the dividend policy as
a disciplining mechanism in countries with different legal systems and
distinct agency problems.
Journal: The European Journal of Finance
Pages: 169-189
Issue: 2
Volume: 15
Year: 2009
Keywords: dividend policy, corporate governance, insider ownership, international financial markets, dynamic panel data and GMM estimation,
X-DOI: 10.1080/13518470802588718
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802588718
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:169-189
Template-Type: ReDIF-Article 1.0
Author-Name: Leif Holger Dietze
Author-X-Name-First: Leif Holger
Author-X-Name-Last: Dietze
Author-Name: Oliver Entrop
Author-X-Name-First: Oliver
Author-X-Name-Last: Entrop
Author-Name: Marco Wilkens
Author-X-Name-First: Marco
Author-X-Name-Last: Wilkens
Title: The performance of investment grade corporate bond funds: evidence from the European market
Abstract:
This paper examines the risk-adjusted performance of mutual funds offered
in Germany which exclusively invest in the 'rather new' capital market
segment of euro-denominated investment grade corporate bonds. The funds
are evaluated employing a single-index model and several multi-index and
asset-class-factor models. In contrast to earlier studies dealing with
(government) bond funds, we account for the specific risk and return
characteristics of investment grade corporate bonds and use both
rating-based indices and maturity-based indices, respectively, in our
multi-factor models. In line with earlier studies, we find evidence that
corporate bond funds, on average, under-perform the benchmark portfolios.
Moreover, there is not a single fund exhibiting a significantly positive
performance. These results are robust to the different models. Finally, we
examine the driving factors behind fund performance. As well as examining
the influence of several fund characteristics, particularly fund age,
asset value under management and management fee, we investigate the impact
of investment style on the funds' risk-adjusted performance. We find
indications that funds showing lower exposure to BBB-rated bonds, older
funds, and funds charging lower fees attain higher risk-adjusted
performance.
Journal: The European Journal of Finance
Pages: 191-209
Issue: 2
Volume: 15
Year: 2009
Keywords: performance measurement, European corporate bond market, investment grade corporate bond mutual funds, multi-index model, asset-class-factor model, generalized Treynor ratio,
X-DOI: 10.1080/13518470802588841
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802588841
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:191-209
Template-Type: ReDIF-Article 1.0
Author-Name: Julia Sawicki
Author-X-Name-First: Julia
Author-X-Name-Last: Sawicki
Title: Corporate governance and dividend policy in Southeast Asia pre- and post-crisis
Abstract:
The relationship between dividends and corporate governance in five East
Asian countries over the period 1994-2003, comparing the outcome and
substitute models, is investigated. Evidence of a pre-crisis negative
relationship between dividends and governance indicates that dividends act
as a substitute for other corporate governance mechanisms during this
exuberant period. A strong positive relationship between governance and
dividends emerges post-crisis, consistent with substantial improvements in
governance empowering shareholders. The relationship is incremental to the
effect of the legal regime, confirming that shareholder protection at the
firm level is important to forcing firms to disgorge cash in an outcome
model of dividends.
Journal: The European Journal of Finance
Pages: 211-230
Issue: 2
Volume: 15
Year: 2009
Keywords: corporate governance, financial crisis, dividends, emerging markets,
X-DOI: 10.1080/13518470802604440
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802604440
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:211-230
Template-Type: ReDIF-Article 1.0
Author-Name: Sofia Ramos
Author-X-Name-First: Sofia
Author-X-Name-Last: Ramos
Title: Competition and stock market development
Abstract:
Previous research has found great disparity in growth rates of stock
markets supporting the idea that the ranking in financial development is
volatile. This paper analyzes the development of stock markets in the last
decades and attempts to explain why countries change their ranking in
financial development. For that purpose, I analyze 101 stock markets from
1975 to 2003. I find that the divergence is mainly explained by changes in
law and regulation enhancing competition. In addition, the general level
of competition is positively related with stock market development.
Competition causes a decrease in the transaction costs and the cost of
capital, driving more firms to list and more traders to trade. Results are
consistent through time.
Journal: The European Journal of Finance
Pages: 231-247
Issue: 2
Volume: 15
Year: 2009
Keywords: financial development, stock markets, regulation, competition,
X-DOI: 10.1080/13518470802697311
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802697311
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:231-247
Template-Type: ReDIF-Article 1.0
Author-Name: Graham Smith
Author-X-Name-First: Graham
Author-X-Name-Last: Smith
Title: Martingales in European emerging stock markets: Size, liquidity and market quality
Abstract:
The hypothesis that stock index returns form a martingale difference
sequence (MDS) is tested for 10 European emerging stock markets: the Czech
Republic, Estonia, Hungary, Malta, Poland, Russia, the Slovak Republic,
Slovenia, Turkey and the Ukraine, using joint variance ratio tests based
on signs and the wild bootstrap, for the period beginning in January 1998
and ending in September 2007. For comparative purposes, the same tests are
carried out with data for the United Kingdom and the United States. In two
of the emerging markets, Poland and Turkey, and the two developed markets,
none of the tests rejects the martingale hypothesis. For the stock markets
in Malta, the Slovak Republic and Slovenia, all of the evidence finds that
stock index returns do not form a martingale difference sequence. The
results are discussed in light of stock market characteristics: size,
liquidity and the quality of the market are important for MDS returns.
Journal: The European Journal of Finance
Pages: 249-262
Issue: 3
Volume: 15
Year: 2009
Keywords: European stock markets, capitalisation, conditional heteroscedasticity, liquidity, market quality, martingale, variance ratio test, wild bootstrap,
X-DOI: 10.1080/13518470802423262
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802423262
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:3:p:249-262
Template-Type: ReDIF-Article 1.0
Author-Name: Yuming Li
Author-X-Name-First: Yuming
Author-X-Name-Last: Li
Author-Name: Maosen Zhong
Author-X-Name-First: Maosen
Author-X-Name-Last: Zhong
Title: International asset returns and exchange rates
Abstract:
We present a consumption-based international asset-pricing model to study
global equity premiums, the US riskfree rate and the cross section of
international asset returns. The model entails idiosyncratic,
country-specific consumption risk, which helps explain the magnitude of
global equity premiums. It also features country-specific habit formation,
which helps explain the level of the interest rate on the US short-term
Treasury bills traded by domestic and international investors. We find
that the model explains approximately 40-50% of the cross section of
currency and equity premiums as well as expected returns from value and
growth portfolios of at least a dozen countries. Changes in real exchange
rates are responsible for explaining approximately half of the cross
section of international asset returns.
Journal: The European Journal of Finance
Pages: 263-285
Issue: 3
Volume: 15
Year: 2009
Keywords: international asset pricing, consumption-based model, habit formation, idiosyncratic risks, equity premiums, currency premiums, exchange rates, inflation rates,
X-DOI: 10.1080/13518470802423429
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802423429
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:3:p:263-285
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Bessler
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Bessler
Author-Name: Wolfgang Drobetz
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Drobetz
Author-Name: Heinz Zimmermann
Author-X-Name-First: Heinz
Author-X-Name-Last: Zimmermann
Title: Conditional performance evaluation for German equity mutual funds
Abstract:
We investigate the conditional performance of a sample of German equity
mutual funds over the period from 1994 to 2003 using both the beta-pricing
approach and the stochastic discount factor (SDF) framework. On average,
mutual funds cannot generate excess returns relative to their benchmark
that are large enough to cover their total expenses. Compared to
unconditional alphas, fund performance sharply deteriorates when we
measure conditional alphas. Given that stock returns are to some extent
predictable based on publicly available information, conditional
performance evaluation raises the benchmark for active fund managers
because it gives them no credit for exploiting readily available
information. Underperformance is more pronounced in the SDF framework than
in beta-pricing models. The fund performance measures derived from
alternative model specifications differ depending on the number of
primitive assets taken to calibrate the SDF as well as the number of
instrument variables used to scale assets and/or factors.
Journal: The European Journal of Finance
Pages: 287-316
Issue: 3
Volume: 15
Year: 2009
Keywords: mutual funds, stock return predictability, conditional performance measurement, stochastic discount factor,
X-DOI: 10.1080/13518470802423445
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802423445
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:3:p:287-316
Template-Type: ReDIF-Article 1.0
Author-Name: Taras Bodnar
Author-X-Name-First: Taras
Author-X-Name-Last: Bodnar
Author-Name: Wolfgang Schmid
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Schmid
Title: Econometrical analysis of the sample efficient frontier
Abstract:
The efficient frontier is a parabola in the mean-variance space which is
uniquely determined by three characteristics. Assuming that the portfolio
asset returns are independent and multivariate normally distributed, we
derive tests and confidence sets for all possible arrangements of these
characteristics. Note that all of our results are based on the exact
distributions for a finite sample size. Moreover, we determine a
confidence region of the whole efficient frontier in the mean-variance
space. It is shown that this set is bordered by five parabolas.
Journal: The European Journal of Finance
Pages: 317-335
Issue: 3
Volume: 15
Year: 2009
Keywords: asset allocation, efficient frontier, portfolio analysis, mean-variance portfolio, parameter uncertainty, interval estimation,
X-DOI: 10.1080/13518470802423478
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802423478
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:3:p:317-335
Template-Type: ReDIF-Article 1.0
Author-Name: Anders Johansson
Author-X-Name-First: Anders
Author-X-Name-Last: Johansson
Title: Stochastic volatility and time-varying country risk in emerging markets
Abstract:
This study suggests an alternative method to estimate time-varying
country risk. We first apply a new multivariate stochastic volatility (SV)
model to a set of emerging stock markets. To estimate the SV model, we use
a Bayesian Markov chain Monte Carlo simulation procedure. By applying the
deviance information criterion, we show that the new model performs well
relative to alternative multivariate SV models. We then compute the
conditional betas for the different markets and compare the results with
an often-used procedure based on multivariate GARCH models. We show that
the new multivariate SV model more accurately captures the time-varying
nature of country risk. The conditional betas show signs of large
variations, indicating the importance of taking time-varying country risk
into consideration when managing emerging market portfolios.
Journal: The European Journal of Finance
Pages: 337-363
Issue: 3
Volume: 15
Year: 2009
Keywords: conditional beta, multivariate stochastic volatility, Markov chain Monte Carlo, emerging markets,
X-DOI: 10.1080/13518470802466006
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802466006
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:3:p:337-363
Template-Type: ReDIF-Article 1.0
Author-Name: Pierre Giot
Author-X-Name-First: Pierre
Author-X-Name-Last: Giot
Author-Name: Mikael Petitjean
Author-X-Name-First: Mikael
Author-X-Name-Last: Petitjean
Title: Short-term market timing using the bond-equity yield ratio
Abstract:
This paper takes a new look at the market-timing ability of the
bond-equity yield ratio (BEYR). We compare the short-term profitability of
a naive strategy based on the extreme values of the BEYR to the short-term
profitability of a sophisticated strategy relying on regime switches. In
contrast to previous studies, we do not document any major international
evidence that these dynamic strategies deliver significantly higher
risk-adjusted returns than the buy-and-hold portfolios. Moreover, the
profitability of these active strategies is not improved when the equity
yield, instead of the BEYR, is used as a criterion to time the market.
Journal: The European Journal of Finance
Pages: 365-384
Issue: 4
Volume: 15
Year: 2009
Keywords: valuation ratio, switching, regime, market timing,
X-DOI: 10.1080/13518470802466097
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802466097
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:4:p:365-384
Template-Type: ReDIF-Article 1.0
Author-Name: Paul Guest
Author-X-Name-First: Paul
Author-X-Name-Last: Guest
Title: The impact of board size on firm performance: evidence from the UK
Abstract:
We examine the impact of board size on firm performance for a large
sample of 2746 UK listed firms over 1981-2002. The UK provides an
interesting institutional setting, because UK boards play a weak
monitoring role and therefore any negative effect of large board size is
likely to reflect the malfunction of the board's advisory rather than
monitoring role. We find that board size has a strong negative impact on
profitability, Tobin's Q and share returns. This result is robust across
econometric models that control for different types of endogeneity. We
find no evidence that firm characteristics that determine board size in
the UK lead to a more positive board size-firm performance relation. In
contrast, we find that the negative relation is strongest for large firms,
which tend to have larger boards. Overall, our evidence supports the
argument that problems of poor communication and decision-making undermine
the effectiveness of large boards.
Journal: The European Journal of Finance
Pages: 385-404
Issue: 4
Volume: 15
Year: 2009
Keywords: corporate governance, board size, firm performance, endogeneity, UK,
X-DOI: 10.1080/13518470802466121
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802466121
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:4:p:385-404
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Ewerhart
Author-X-Name-First: Christian
Author-X-Name-Last: Ewerhart
Author-Name: Nuno Cassola
Author-X-Name-First: Nuno
Author-X-Name-Last: Cassola
Author-Name: Steen Ejerskov
Author-X-Name-First: Steen
Author-X-Name-Last: Ejerskov
Author-Name: Natacha Valla
Author-X-Name-First: Natacha
Author-X-Name-Last: Valla
Title: Optimal allotment policy in central bank open market operations
Abstract:
This article derives a central bank's optimal liquidity supply towards a
money market with an unrestricted lending facility. We show that when the
effect of liquidity on market rates is not too small, and the monetary
authority is concerned with both interest rates and liquidity conditions,
then the optimal allotment policy may entail a 'discontinuous' reaction to
initial conditions. In particular, the model predicts a threshold level of
liquidity below which the central bank will not bail out the banking
system. An estimation of the liquidity effect for the euro area suggests
that the discontinuity might have contributed to the Eurosystem's tight
response to occurrences of underbidding during the period June 2000
through March 2004.
Journal: The European Journal of Finance
Pages: 405-420
Issue: 4
Volume: 15
Year: 2009
Keywords: open market operations, liquidity effect, standing facilities, underbidding,
X-DOI: 10.1080/13518470802560857
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802560857
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:4:p:405-420
Template-Type: ReDIF-Article 1.0
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: Leon Hadass
Author-X-Name-First: Leon
Author-X-Name-Last: Hadass
Author-Name: Andrew Wood
Author-X-Name-First: Andrew
Author-X-Name-Last: Wood
Title: UK IPO underpricing and venture capitalists
Abstract:
We analyze the nature and causes of short-run underpricing for a unique
sample of 591 Initial Public Offers (IPOs) issued on the London Stock
Exchange for the period 1985-2003. We find significant differences between
the 1998-2000 bubble years and the rest of the sample. Venture capitalists
and reputable underwriters played a certification role in the latter
period but not during the bubble years. These years featured significant
increases in underpricing, money left on the table, and a decline in
operating quality. The combination of venture capitalists and prestigious
underwriters was increasingly associated with the highest underpricing
witnessed during 1998-2000, which provides indirect support for the
spinning hypothesis.
Journal: The European Journal of Finance
Pages: 421-435
Issue: 4
Volume: 15
Year: 2009
Keywords: IPO underpricing, venture capital, certification hypothesis, spinning,
X-DOI: 10.1080/13518470802560915
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802560915
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:4:p:421-435
Template-Type: ReDIF-Article 1.0
Author-Name: Taufiq Choudhry
Author-X-Name-First: Taufiq
Author-X-Name-Last: Choudhry
Author-Name: Hao Wu
Author-X-Name-First: Hao
Author-X-Name-Last: Wu
Title: Forecasting the weekly time-varying beta of UK firms: GARCH models vs. Kalman filter method
Abstract:
This paper investigates the forecasting ability of three different
Generalised Autoregressive Conditional Heteroscedasticity (GARCH) models
and the Kalman filter method. The three GARCH models applied are:
bivariate GARCH, BEKK GARCH, and GARCH-GJR. Forecast errors based on 20 UK
company's weekly stock return (based on time-varying beta) forecasts are
employed to evaluate the out-of-sample forecasting ability of both the
GARCH models and the Kalman method. Measures of forecast errors
overwhelmingly support the Kalman filter approach. Among the GARCH models,
GJR appears to provide somewhat more accurate forecasts than the two other
GARCH models.
Journal: The European Journal of Finance
Pages: 437-444
Issue: 4
Volume: 15
Year: 2009
Keywords: forecasting, Kalman filter, GARCH, volatility,
X-DOI: 10.1080/13518470802604499
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802604499
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:4:p:437-444
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Abstract:
Journal: The European Journal of Finance
Pages: 445-445
Issue: 5-6
Volume: 15
Year: 2009
X-DOI: 10.1080/13518470903194788
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903194788
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:445-445
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Bessler
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Bessler
Author-Name: Wolfgang Drobetz
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Drobetz
Title: Editorial
Abstract:
Journal: The European Journal of Finance
Pages: 447-449
Issue: 5-6
Volume: 15
Year: 2009
X-DOI: 10.1080/13518470903037466
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903037466
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:447-449
Template-Type: ReDIF-Article 1.0
Author-Name: Gordon Alexander
Author-X-Name-First: Gordon
Author-X-Name-Last: Alexander
Title: From Markowitz to modern risk management
Abstract:
Nobel Laureate Harry Markowitz is often referred to as the 'founder of
Modern portfolio theory' and deservedly so given his enormous influence on
the money management industry.1 However, it is my contention that he
should also be referred to as the 'founder of Modern Risk Management'
since his contributions to portfolio theory formed the basis for how risk
is currently viewed and managed. More specifically, Markowitz argued that
a portfolio of securities should be viewed through the lens of statistics
where the probability distribution of its rate of return is evaluated in
terms of its expected value and standard deviation. Since the ultimate
selection of a portfolio involves the evaluation and management of risk as
measured by standard deviation, it is clear that Markowitz's process of
portfolio selection represents the birth of modern risk management whereby
risk is quantified and controlled. In this paper, I will first, introduce
value-at-risk as a measure of risk and how it relates to standard
deviation, the risk measure at the heart of the model of Markowitz.
Second, I will similarly introduce conditional value-at-risk (also known
as expected shortfall) as a measure of risk and compare it with VaR.
Third, I will briefly introduce stress testing as a supplemental means of
controlling risk and will then present my conclusions.2
Journal: The European Journal of Finance
Pages: 451-461
Issue: 5-6
Volume: 15
Year: 2009
Keywords: risk management, value-at-risk, conditional value-at-risk, stress testing,
X-DOI: 10.1080/13518470902853566
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902853566
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:451-461
Template-Type: ReDIF-Article 1.0
Author-Name: Alexandros Kostakis
Author-X-Name-First: Alexandros
Author-X-Name-Last: Kostakis
Title: Performance measures and incentives: loading negative coskewness to outperform the CAPM
Abstract:
This study examines the incentives in fund management due to the adoption
of specific performance measures. A mean-variance measure such as Jensen's
alpha incentivizes fund managers to load negative coskewness risk. This
risk is shown to be priced in the UK stock market during the period
January 1991- December 2005, bearing a premium of 2.09% p.a. Hence, a new
performance measure, the intercept of the Harvey-Siddique two-factor asset
pricing model is proposed to be more appropriate for prudent investors.
Using this model, the performance of UK equity unit trusts is examined for
the same period. Though most of the managers significantly underperformed
their benchmark, they correctly responded to their incentives, loading
negative coskewness and reaping part of the corresponding premium.
Journal: The European Journal of Finance
Pages: 463-486
Issue: 5-6
Volume: 15
Year: 2009
Keywords: performance measures, negative coskewness, mutual funds, managerial incentives,
X-DOI: 10.1080/13518470902872327
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902872327
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:463-486
Template-Type: ReDIF-Article 1.0
Author-Name: Aymen Karoui
Author-X-Name-First: Aymen
Author-X-Name-Last: Karoui
Author-Name: Iwan Meier
Author-X-Name-First: Iwan
Author-X-Name-Last: Meier
Title: Performance and characteristics of mutual fund starts
Abstract:
We study the performance and portfolio characteristics of 828 newly
launched US equity mutual funds over the period 1991-2005. These fund
starts initially earn, on average, higher excess returns and higher
abnormal returns. Their risk-adjusted performance is also superior to
existing funds. Furthermore, we provide evidence for short-term
persistence among top-performing fund starts, however, a substantial
fraction of funds drop from the top to the bottom decile over two
subsequent periods. Analyzing portfolio characteristics, we find that
returns of fund starts exhibit higher ratios of unsystematic to total
risk. Portfolios of new funds are typically also less diversified in terms
of number of stocks and industry concentration and are invested in smaller
and less liquid stocks.
Journal: The European Journal of Finance
Pages: 487-509
Issue: 5-6
Volume: 15
Year: 2009
Keywords: mutual funds, fund starts, performance evaluation, performance persistence,
X-DOI: 10.1080/13518470902872319
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902872319
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:487-509
Template-Type: ReDIF-Article 1.0
Author-Name: Joachim Grammig
Author-X-Name-First: Joachim
Author-X-Name-Last: Grammig
Author-Name: Andreas Schrimpf
Author-X-Name-First: Andreas
Author-X-Name-Last: Schrimpf
Author-Name: Michael Schuppli
Author-X-Name-First: Michael
Author-X-Name-Last: Schuppli
Title: Long-horizon consumption risk and the cross-section of returns: new tests and international evidence
Abstract:
This paper investigates whether measuring consumption risk over long
horizons can improve the empirical performance of the consumption-based
capital asset pricing model (CCAPM) for size and value premia in
international stock markets (USA, UK, and Germany). In order to account
for commonalities in size and book-to-market sorted portfolios, we also
include industry portfolios in our set of test assets. Our results show
that, contrary to the findings of Parker and Julliard [2005. Consumption
risk and the cross- section of expected returns. Journal of Political
Economy 113, no. 1: 185-222], the model falls short of providing an
accurate description of the cross-section of returns under our modified
empirical approach. At the same time, however, measuring consumption risk
over longer horizons typically yields lower risk-aversion estimates. Thus,
our results suggest that more plausible parameter estimates - as opposed
to lower pricing errors - can be regarded as the main achievement of the
long-horizon CCAPM.
Journal: The European Journal of Finance
Pages: 511-532
Issue: 5-6
Volume: 15
Year: 2009
Keywords: consumption-based asset pricing, long-run consumption risk, value puzzle, international stock markets,
X-DOI: 10.1080/13518470902872285
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902872285
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:511-532
Template-Type: ReDIF-Article 1.0
Author-Name: Wassim Dbouk
Author-X-Name-First: Wassim
Author-X-Name-Last: Dbouk
Author-Name: Lawrence Kryzanowski
Author-X-Name-First: Lawrence
Author-X-Name-Last: Kryzanowski
Title: Diversification benefits for bond portfolios
Abstract:
Finance research has focused primarily on the diversification of stock
portfolios. Various metrics are used herein to assess the diversification
benefits, and the optimal bond portfolio sizes (PSs) for investment
opportunity (IO) sets differentiated by issuer type, credit ratings and
term-to-maturity. While PSs of 25-40 bonds appear optimal for the marginal
reduction of dispersion with increasing PS, larger (smaller) PSs are
optimal if the investor is concerned about left tail weight (positive
skewness or reward-to-downside risk). Although the marginal reduction of
dispersion is less than 1% beyond these optimal PSs, much potential
diversification benefits still remain unrealized for many of the IO sets
studied herein.
Journal: The European Journal of Finance
Pages: 533-553
Issue: 5-6
Volume: 15
Year: 2009
Keywords: diversification benefits, portfolio size, derived and realized dispersion, skewness, Sortino ratio, tail shape,
X-DOI: 10.1080/13518470902890758
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902890758
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:533-553
Template-Type: ReDIF-Article 1.0
Author-Name: Mats Hansson
Author-X-Name-First: Mats
Author-X-Name-Last: Hansson
Author-Name: Eva Liljeblom
Author-X-Name-First: Eva
Author-X-Name-Last: Liljeblom
Author-Name: Anders Loflund
Author-X-Name-First: Anders
Author-X-Name-Last: Loflund
Title: International bond diversification strategies: the impact of currency, country, and credit risk
Abstract:
We investigate the incremental role of emerging market debt and corporate
bonds in internationally diversified government bond portfolios. Contrary
to earlier results, we find that international diversification among
government bonds does not yield significant diversification benefits. This
result is obtained using mean-variance spanning and intersection tests,
with restrictions for short sales, both for currency unhedged and hedged
internationally developed market government bonds. Currency hedged
international corporate bonds in turn do offer some diversification
benefits, and emerging market debt, in particular, significantly shifts
the mean-variance frontier for a developed market investor. Since
especially unconstrained mean-variance spanning and intersection tests can
indicate significant diversification benefits, but lead to frontier
portfolios with extreme weights, we also consider some ex-ante global
government bond portfolio strategies. We find that passive global
benchmarks such as GDP-weighed government bond portfolios perform quite
well within developed countries.
Journal: The European Journal of Finance
Pages: 555-583
Issue: 5-6
Volume: 15
Year: 2009
Keywords: international bond diversification, mean-variance spanning and intersection, emerging market debt, corporate bond,
X-DOI: 10.1080/13518470902872376
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902872376
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:555-583
Template-Type: ReDIF-Article 1.0
Author-Name: Paulo Armada Leite
Author-X-Name-First: Paulo Armada
Author-X-Name-Last: Leite
Author-Name: Maria Ceu Cortez
Author-X-Name-First: Maria Ceu
Author-X-Name-Last: Cortez
Title: Conditioning information in mutual fund performance evaluation: Portuguese evidence
Abstract:
We estimate and compare the performance of Portuguese-based mutual funds
that invest in the domestic market and in the European market using
unconditional and conditional models of performance evaluation. Besides
applying both partial and full conditional models, we use European
information variables, instead of the most common local ones, and consider
stochastically detrended conditional variables in order to avoid spurious
regressions. The results suggest that mutual fund managers are not able to
outperform the market, presenting negative or neutral performance. The
incorporation of conditioning information in performance evaluation models
is supported by our findings, as it improves the explanatory power of the
models and there is evidence of both time-varying betas and alphas related
to the public information variables. It is also shown that the number of
lags to be used in the stochastic detrending procedure is a critical
choice, as it will impact the significance of the conditioning
information. In addition, we observe a distance effect, since managers who
invest locally seem to outperform those who invest in the European market.
However, after controlling for public information, this effect is slightly
reduced. Furthermore, the results suggest that survivorship bias has a
small impact on performance estimates.
Journal: The European Journal of Finance
Pages: 585-605
Issue: 5-6
Volume: 15
Year: 2009
Keywords: mutual funds, conditional performance evaluation, spurious regressions, survivorship bias, distance effect,
X-DOI: 10.1080/13518470802697378
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802697378
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:5-6:p:585-605
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Abstract:
Journal: The European Journal of Finance
Pages: 607-607
Issue: 7-8
Volume: 15
Year: 2009
X-DOI: 10.1080/13518470903492430
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903492430
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:607-607
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Genest
Author-X-Name-First: Christian
Author-X-Name-Last: Genest
Author-Name: Michel Gendron
Author-X-Name-First: Michel
Author-X-Name-Last: Gendron
Author-Name: Michaël Bourdeau-Brien
Author-X-Name-First: Michaël
Author-X-Name-Last: Bourdeau-Brien
Title: The Advent of Copulas in Finance
Abstract:
The authors provide bibliometric evidence to illustrate the development
of copula theory in mathematics, statistics, actuarial science and
finance. They identify the main contributors to the field, and the most
important areas of application in finance. They also describe some of the
remaining methodological challenges.
Journal: The European Journal of Finance
Pages: 609-618
Issue: 7-8
Volume: 15
Year: 2009
Keywords: bibliometry, copula, derivative pricing, portfolio management, risk management,
X-DOI: 10.1080/13518470802604457
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802604457
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:609-618
Template-Type: ReDIF-Article 1.0
Author-Name: Alexandra Dias
Author-X-Name-First: Alexandra
Author-X-Name-Last: Dias
Author-Name: Paul Embrechts
Author-X-Name-First: Paul
Author-X-Name-Last: Embrechts
Title: Testing for structural changes in exchange rates' dependence beyond linear correlation
Abstract:
In this paper, we test for structural changes in the conditional
dependence of two-dimensional foreign exchange data. We show that by
modeling the conditional dependence structure using copulae, we can detect
changes in the dependence beyond linear correlation, such as changes in
the tail of the joint distribution. This methodology is relevant for
estimating risk-management measures, such as portfolio value-at-risk,
pricing multi-name financial instruments, and portfolio asset allocation.
Our results include evidence of the existence of changes in the
correlation as well as in the fatness of the tail of the dependence
between Deutsche mark and Japanese yen.
Journal: The European Journal of Finance
Pages: 619-637
Issue: 7-8
Volume: 15
Year: 2009
Keywords: Change-point tests, conditional dependence, copula, GARCH, risk management,
X-DOI: 10.1080/13518470701705579
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701705579
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:619-637
Template-Type: ReDIF-Article 1.0
Author-Name: Kjersti Aas
Author-X-Name-First: Kjersti
Author-X-Name-Last: Aas
Author-Name: Daniel Berg
Author-X-Name-First: Daniel
Author-X-Name-Last: Berg
Title: Models for construction of multivariate dependence - a comparison study
Abstract:
A multivariate data set, which exhibit complex patterns of dependence,
particularly in the tails, can be modelled using a cascade of
lower-dimensional copulae. In this paper, we compare two such models that
differ in their representation of the dependency structure, namely the
nested Archimedean construction (NAC) and the pair-copula construction
(PCC). The NAC is much more restrictive than the PCC in two respects.
There are strong limitations on the degree of dependence in each level of
the NAC, and all the bivariate copulas in this construction has to be
Archimedean. Based on an empirical study with two different
four-dimensional data sets; precipitation values and equity returns, we
show that the PCC provides a better fit than the NAC and that it is
computationally more efficient. Hence, we claim that the PCC is more
suitable than the NAC for hich-dimensional modelling.
Journal: The European Journal of Finance
Pages: 639-659
Issue: 7-8
Volume: 15
Year: 2009
Keywords: nested Archimedean copulas, pair-copula constructions, equity returns, precipitation values, goodness-of-fit, out-of-sample validation,
X-DOI: 10.1080/13518470802588767
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802588767
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:639-659
Template-Type: ReDIF-Article 1.0
Author-Name: William Shaw
Author-X-Name-First: William
Author-X-Name-Last: Shaw
Author-Name: Asad Munir
Author-X-Name-First: Asad
Author-X-Name-Last: Munir
Title: Dependency without copulas or ellipticity
Abstract:
The generation of multivariate probability distributions follows several
approaches. Within financial applications the emphasis has mostly been on
two methodologies. The first is the elliptical methodology, where the leap
from univariate to multivariate has taken place by constructing density
functions that are functions of quadratic forms of the marginals. The
second is the copula philosophy, where the dependency structure is treated
entirely separately from marginals. In financial applications one often
needs to work with combinations of marginals of various distributional
types, and the copula philosophy is very attractive as it copes well with
heterogeneous marginals. However, with some notable exceptions, the copula
approach does not normally correspond to any natural or canonical
multivariate structure arising from some underlying dynamic. This paper
presents an approach to multivariate distribution theory that allows for
heterogeneous marginals but without the limitations of the elliptical
ansatz or the arbitrariness of the copula approach. The approach is to
consider multivariate distributions as arising naturally from coupled
stochastic differential equations (SDEs), and in this paper we consider a
first step based on the equilibrium situation. The scope of this paper is
where the marginals are one of the classic Pearson family of
distributions, allowing for great diversity among the marginals. For
simplicity we present details for the bivariate case. Using a recently
developed quantile form of the Fokker-Planck equation it is first shown
how the members of the Pearson family are associated with various types of
one-dimensional SDE in a transparent manner. Then appropriate
two-dimensional SDEs and the associated Fokker-Planck equations are
considered. In the equilibrium limit these give solutions that are natural
bivariate structures. Some examples with marginals drawn from Gaussian,
Student and one-sided exponential are explored. Some possible
generalizations are outlined.
Journal: The European Journal of Finance
Pages: 661-674
Issue: 7-8
Volume: 15
Year: 2009
Keywords: copula, elliptic, dependency, Stochastic Differential Equation, Pearson distribution, Fokker-Planck equation, quantile mechanics, normal, Gaussian, student, exponential, bivariate, multivariate, student-normal, exponential-normal,
X-DOI: 10.1080/13518470802697402
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802697402
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:661-674
Template-Type: ReDIF-Article 1.0
Author-Name: Daniel Berg
Author-X-Name-First: Daniel
Author-X-Name-Last: Berg
Title: Copula goodness-of-fit testing: an overview and power comparison
Abstract:
Several copula goodness-of-fit approaches are examined, three of which
are proposed in this paper. Results are presented from an extensive Monte
Carlo study, where we examine the effect of dimension, sample size and
strength of dependence on the nominal level and power of the different
approaches. While no approach is always the best, some stand out and
conclusions and recommendations are made. A novel study of p-value
variation due to permutation order, for approaches based on Rosenblatt's
transformation is also carried out. Results show significant variation due
to permutation order for some of the approaches based on this transform.
However, when approaching rejection regions, the additional variation is
negligible.
Journal: The European Journal of Finance
Pages: 675-701
Issue: 7-8
Volume: 15
Year: 2009
Keywords: copula, cramer-von Mises statistic, empirical copula, goodness-of-fit, parametric bootstrap, pseudo-samples, Rosenblatt's transformation,
X-DOI: 10.1080/13518470802697428
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802697428
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:675-701
Template-Type: ReDIF-Article 1.0
Author-Name: Manuel Ammann
Author-X-Name-First: Manuel
Author-X-Name-Last: Ammann
Author-Name: Stephan Suss
Author-X-Name-First: Stephan
Author-X-Name-Last: Suss
Title: Asymmetric dependence patterns in financial time series
Abstract:
This article proposes a new copula-based approach to test for asymmetries
in the dependence structure of financial time series. Simply splitting
observations into subsamples and comparing conditional correlations lead
to spurious results due to the well-known conditioning bias. Our suggested
framework is able to circumvent these problems. Applying our test to
market data, we statistically confirm the widespread notion of significant
asymmetric dependence structures between daily changes of the VIX, VXN,
VDAXnew, and VSTOXX volatility indices and their corresponding equity
index returns. A maximum likelihood method is used to perform a likelihood
ratio test between the ordinary t-copula and its asymmetric extension. To
the best of our knowledge, our study is the first empirical implementation
of the skewed t-copula to generate meta-skewed Student's t-distributions.
Its asymmetry leads to significant improvements in the description of the
dependence structure between equity returns and implied volatility
changes.
Journal: The European Journal of Finance
Pages: 703-719
Issue: 7-8
Volume: 15
Year: 2009
Keywords: copulae, asymmetric dependence concepts,
X-DOI: 10.1080/13518470902853368
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902853368
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:703-719
Template-Type: ReDIF-Article 1.0
Author-Name: Eric Bouye
Author-X-Name-First: Eric
Author-X-Name-Last: Bouye
Author-Name: Mark Salmon
Author-X-Name-First: Mark
Author-X-Name-Last: Salmon
Title: Dynamic copula quantile regressions and tail area dynamic dependence in Forex markets
Abstract:
We introduce a general approach to nonlinear quantile regression
modelling based on the copula function that defines the dependency
structure between the variables of interest. Hence, we extend Koenker and
Bassett's (1978. Regression quantiles. Econometrica, 46, no. 1: 33-50.)
original statement of the quantile regression problem by determining a
distribution for the dependent variable Y conditional on the regressors X,
and hence the specification of the quantile regression functions. The
approach exploits the fact that the joint distribution function can be
split into two parts: the marginals and the dependence function (or
copula). We then deduce the form of the (invariably nonlinear) conditional
quantile relationship implied by the copula. This can be achieved with
arbitrary distributions assumed for the marginals. Some properties of the
copula-based quantiles or c-quantiles are derived. Finally, we examine the
conditional quantile dependency in the foreign exchange market and compare
our quantile approach with standard tail area dependency measures.
Journal: The European Journal of Finance
Pages: 721-750
Issue: 7-8
Volume: 15
Year: 2009
Keywords: Copula, Quantile, Regression, dependence, foreign exchange markets,
X-DOI: 10.1080/13518470902853491
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902853491
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:721-750
Template-Type: ReDIF-Article 1.0
Author-Name: Martin Eling
Author-X-Name-First: Martin
Author-X-Name-Last: Eling
Author-Name: Denis Toplek
Author-X-Name-First: Denis
Author-X-Name-Last: Toplek
Title: Risk and return of reinsurance contracts under copula models
Abstract:
The aim of this article is to study the influence of nonlinear
dependencies on the payoff of reinsurance contracts and the resulting
effects on a non-life insurer's risk and return profile. To achieve this,
we integrate several copula models and reinsurance contracts in a dynamic
financial analysis framework and conduct numerical tests within a
simulation study. Depending on the reinsurance contract and the copula
concept employed, we find large differences in risk assessment for the
ruin probability and for the expected policyholder deficit. This has
important implications for management decisions, as well as for regulators
and rating agencies that use these risk measures for deriving capital
standards and ratings.
Journal: The European Journal of Finance
Pages: 751-775
Issue: 7-8
Volume: 15
Year: 2009
Keywords: enterprise risk management, asset liability management, dynamic risk modeling, dynamic financial analysis, solvency analysis, reinsurance, performance measurement, simulation, copulas,
X-DOI: 10.1080/13518470902864092
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902864092
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:751-775
Template-Type: ReDIF-Article 1.0
Author-Name: Dominique Guegan
Author-X-Name-First: Dominique
Author-X-Name-Last: Guegan
Author-Name: Jing Zang
Author-X-Name-First: Jing
Author-X-Name-Last: Zang
Title: Pricing bivariate option under GARCH-GH model with dynamic copula: application for Chinese market
Abstract:
This paper develops the method for pricing bivariate contingent claims
under general autoregressive conditionally heteroskedastic (GARCH)
process. In order to provide a general framework being able to accommodate
skewness, leptokurtosis, fat tails as well as the time-varying volatility
that are often found in financial data, generalized hyperbolic (GH)
distribution is used for innovations. As the association between the
underlying assets may vary over time, the dynamic copula approach is
considered. Therefore, the proposed method proves to play an important
role in pricing bivariate option. The approach is illustrated for Chinese
market with one type of better-of-two markets claims: call option on the
better performer of Shanghai Stock Composite Index and Shenzhen Stock
Composite Index. Results show that the option prices obtained by the
GARCH-GH model with time-varying copula differ substantially from the
prices implied by the GARCH-Gaussian dynamic copula model. Moreover, the
empirical work displays the advantage of the suggested method.
Journal: The European Journal of Finance
Pages: 777-795
Issue: 7-8
Volume: 15
Year: 2009
Keywords: call-on-max option, GARCH process, generalized hyperbolic (GH) distribution, normal inverse Gaussian (NIG) distribution, copula, dynamic copula,
X-DOI: 10.1080/13518470902895344
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902895344
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:15:y:2009:i:7-8:p:777-795
Template-Type: ReDIF-Article 1.0
Author-Name: Ken Bechmann
Author-X-Name-First: Ken
Author-X-Name-Last: Bechmann
Author-Name: Johannes Raaballe
Author-X-Name-First: Johannes
Author-X-Name-Last: Raaballe
Title: Taxable cash dividends - A money-burning signal
Abstract:
Firms pay out cash to shareholders using both dividends and share
repurchases despite the fact that dividends are generally taxed more
heavily than share repurchases. This paper provides a general explanation
for this dividend puzzle by developing a class of signaling models where
the most efficient signal for a firm of sufficiently high quality always
involves payout of taxable cash dividends. If the high type is not of much
higher quality than the low type, the cheapest way to deter imitation from
the low type is to increase share repurchases financed by a cut in
investments. However, when the high type is of much higher quality than
the low type, the cut in investments on the margin becomes more costly to
the high type than to the low type. Hence, the most efficient signal
becomes a money-burning signal, which is equally costly for both types of
firms. The crucial assumption leading to this result is that a marginal
cut in investments eventually becomes more costly to the high-quality firm
than to the low-quality imitator. Taxable cash dividends financed by the
issuance of new shares/reduced share repurchases, which only gives rise to
increased taxes, is the money-burning signal.
Journal: The European Journal of Finance
Pages: 1-26
Issue: 1
Volume: 16
Year: 2010
Keywords: dividends, share repurchases, signaling, single-crossing property, money burning,
X-DOI: 10.1080/13518470802604432
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802604432
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:1:p:1-26
Template-Type: ReDIF-Article 1.0
Author-Name: Daniel Djupsjobacka
Author-X-Name-First: Daniel
Author-X-Name-Last: Djupsjobacka
Title: Implications of market microstructure for realized variance measurement
Abstract:
Volatility measuring and estimation based on intra-day high-frequency
data has grown in popularity during the last few years. A significant part
of the research uses volatility and variance measures based on the sum of
squared high-frequency returns. These volatility measures, introduced and
mathematically justified in a series of papers by Andersen et al. [1999.
(Understanding, optimizing, using and forecasting) realized volatility and
correlation. Leonard N. Stern School Finance Department Working Paper
Series, 99-061, New York University; 2000a. The distribution of realized
exchange rate volatility. Journal of the American Statistical Association
96, no. 453: 42-55; 2000b. Exchange rate returns standardized by realized
volatility are (nearly) Gaussian. Multinational Finance Journal 4, no.
3/4: 159-179; 2003. Modeling and forecasting realized volatility. NBER
Working Paper Series 8160.] and Andersen et al. 2001a. Modeling and
forecasting realized volatility. NBER Working Paper Series 8160., are
referred to as 'realized variance'. From the theory of quadratic
variations of diffusions, it is possible to show that realized variance
measures, based on sufficiently frequently sampled returns, are error-free
volatility estimates. Our objective here is to examine realized variance
measures, where well-documented market microstructure effects, such as
return autocorrelation and volatility clustering, are included in the
return generating process. Our findings are that the use of squared
returns as a measure for realized variance will lead to estimation errors
on sampling frequencies adopted in the literature. In the case of return
autocorrelation, there will be systematic biases. Further, we establish
increased standard deviation in the error between measured and real
variance as sampling frequency decreases and when volatility is
non-constant.
Journal: The European Journal of Finance
Pages: 27-43
Issue: 1
Volume: 16
Year: 2010
Keywords: realized variance, realized volatility, high-frequency data, Monte Carlo simulation, market microstructure, autocorrelation, sampling frequency,
X-DOI: 10.1080/13518470902853376
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902853376
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:1:p:27-43
Template-Type: ReDIF-Article 1.0
Author-Name: Astrid Matthey
Author-X-Name-First: Astrid
Author-X-Name-Last: Matthey
Title: Do public banks have a competitive advantage?
Abstract:
Public banks are often blamed to possess an unfair competitive advantage
in the form of lower funding costs due to a state guarantee on their
deposits. However, public and private banks tend to differ not only in
their funding costs, but also in the way they deal with borrowers in
financial distress. The model presented in this paper shows that if banks
differ in these two characteristics, a separation of borrowers may result,
with public banks lending to risky firms and private banks lending to safe
firms. This separation can explain differences in the lending behavior and
performance of public and private banks as observed in the market.
Interestingly, the separation may persist even when funding costs are
equal, implying that an abolition of state guarantees will not necessarily
lead to identical performance of the two types of banks.
Journal: The European Journal of Finance
Pages: 45-55
Issue: 1
Volume: 16
Year: 2010
Keywords: public banks, state guarantee, self-selection,
X-DOI: 10.1080/13518470902853475
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902853475
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:1:p:45-55
Template-Type: ReDIF-Article 1.0
Author-Name: Luis Gonzalez Jimenez
Author-X-Name-First: Luis Gonzalez
Author-X-Name-Last: Jimenez
Author-Name: Luis Blanco Pascual
Author-X-Name-First: Luis Blanco
Author-X-Name-Last: Pascual
Title: Enterprise valuation with track-record ratios and rates of change
Abstract:
This paper proposes and tests a variant of the standard discounted
cash-flow model for enterprise valuation. The cash-flow (C/F) stream to be
discounted is projected as the product of the sales and the free C/F to
the enterprise (FCFE)-to-sales ratio and their respective rates of change.
The C/F timespan is divided into three intervals. In the first, sales and
ratio change according to the company's track record. On the assumption
that both industry and firm abnormal earnings disappear at a certain
point, marking the beginning of the third interval, the ratio evolves over
the second interval to reach the Industry's average and thereafter remains
constant. On the same basis, sales grow in the third interval in
accordance with the economy's long-term trend, i.e. at the long-term
nominal GDP growth rate, and within the second at an average of the latter
and the track-record year-on-year growth rate. The proposed variant is
tested for the four largest telecommunications companies in continental
Europe over a 2.5-year period. The results, together with those of the
standard model, are then compared with enterprise market values to test
relative performance. Examination of their respective bias (signed
valuation errors) and inaccuracy (ditto unsigned) seems to indicate that
the proposed variant outperforms the standard model from which it is
derived, even for different assumptions about the valuation horizon and
for alternative ways to estimate the values of the variables.
Journal: The European Journal of Finance
Pages: 57-78
Issue: 1
Volume: 16
Year: 2010
Keywords: company valuation, discounted cash flow, cash-flow forecasting, ratios, relative valuation,
X-DOI: 10.1080/13518470902853343
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902853343
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:1:p:57-78
Template-Type: ReDIF-Article 1.0
Author-Name: Michail Karoglou
Author-X-Name-First: Michail
Author-X-Name-Last: Karoglou
Title: Breaking down the non-normality of stock returns
Abstract:
This paper investigates whether the non-normality typically observed in
daily stock-market returns could arise because of the joint existence of
breaks and GARCH effects. It proposes a data-driven procedure to credibly
identify the number and timing of breaks and applies it on the benchmark
stock-market indices of 27 OECD countries. The findings suggest that a
substantial element of the observed deviations from normality might indeed
be due to the co-existence of breaks and GARCH effects. However, the
presence of structural changes is found to be the primary reason for the
non-normality and not the GARCH effects. Also, there is still some
remaining excess kurtosis that is unlikely to be linked to the
specification of the conditional volatility or the presence of breaks.
Finally, an interesting sideline result implies that GARCH models have
limited capacity in forecasting stock-market volatility.
Journal: The European Journal of Finance
Pages: 79-95
Issue: 1
Volume: 16
Year: 2010
Keywords: stock returns, OECD countries, non-normality, breaks, GARCH,
X-DOI: 10.1080/13518470902872343
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902872343
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:1:p:79-95
Template-Type: ReDIF-Article 1.0
Author-Name: R. J. Louth
Author-X-Name-First: R. J.
Author-X-Name-Last: Louth
Author-Name: P. Joos
Author-X-Name-First: P.
Author-X-Name-Last: Joos
Author-Name: S. E. Satchell
Author-X-Name-First: S. E.
Author-X-Name-Last: Satchell
Author-Name: G. Weyns
Author-X-Name-First: G.
Author-X-Name-Last: Weyns
Title: Understanding analysts forecasts
Abstract:
The purpose of this paper is to model analysts' forecasts. The paper
differs from the previous research in that we do not focus on how accurate
these predictions may be. Accuracy may indeed be an important quality but
we argue instead that another equally important aspect of the analysts'
job is to predict and describe the impact of jump events. In effect, the
analysts' role is one of scenario prediction. Using a Bayesian-inspired
generalised method of moments estimation procedure, we use this notion of
scenario prediction combined with the structure of the Morgan Stanley
analysts' forecasting database to model normal (base), optimistic (bull)
and pessimistic (bear) forecast scenarios for a set of reports from Asia
(excluding Japan) for 2007-2008. Since the estimation procedure is unique
to this paper, a rigorous derivation of the asymptotic properties of the
resulting estimator is also provided.
Journal: The European Journal of Finance
Pages: 97-118
Issue: 2
Volume: 16
Year: 2010
Keywords: analysts' reports, price forecasts, scenario prediction, jump diffusions, risk management,
X-DOI: 10.1080/13518470902853582
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902853582
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:2:p:97-118
Template-Type: ReDIF-Article 1.0
Author-Name: Hossein Asgharian
Author-X-Name-First: Hossein
Author-X-Name-Last: Asgharian
Author-Name: Bjorn Hansson
Author-X-Name-First: Bjorn
Author-X-Name-Last: Hansson
Title: Book-to-market and size effects: compensations for risks or outcomes of market inefficiencies?
Abstract:
We employ the optimal orthogonal portfolio approach to investigate if the
size and book-to-market effects in US data are related to risk factors
beside the market risk. This method enables us to estimate the upper limit
of the risk premium, due to observed as well as all possible unobserved
factors, which can be derived from a linear asset pricing model. As a
corollary, it is possible to divide the observed average asset return into
three parts: one explained by the market factor, one due to the unobserved
factors, and finally the non-risk-based (NRB) component. Our empirical
results confirm the existence of latent risk factors, which cannot be
captured by the market index. In particular, the size effect is related to
some other background risk factors than the market portfolio, but a large
part of observed book-to-market effect has a NRB explanation.
Journal: The European Journal of Finance
Pages: 119-136
Issue: 2
Volume: 16
Year: 2010
Keywords: orthogonal portfolio, asset pricing, CAPM anomalies, size effect, value effect,
X-DOI: 10.1080/13518470802697279
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470802697279
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:2:p:119-136
Template-Type: ReDIF-Article 1.0
Author-Name: Nicole Branger
Author-X-Name-First: Nicole
Author-X-Name-Last: Branger
Author-Name: Beate Breuer
Author-X-Name-First: Beate
Author-X-Name-Last: Breuer
Author-Name: Christian Schlag
Author-X-Name-First: Christian
Author-X-Name-Last: Schlag
Title: Discrete-time implementation of continuous-time portfolio strategies
Abstract:
Optimal portfolio strategies are easy to compute in continuous-time
models. In reality trading is discrete, so that these optimal strategies
cannot be implemented properly. When the investor follows a naive
discretization strategy, i.e. when he implements the optimal
continuous-time strategy in discrete time, he will suffer a utility loss.
For a variety of models, we analyze this discretization error in a
simulation study. We find that time discreteness can be neglected when
only the stock and the money market account are traded, even in models
with stochastic volatility and jumps. On the other hand, when derivatives
are traded the utility loss due to discrete trading can be much larger
than the utility gain from having access to derivatives. To benefit from
derivatives, the investor has to rebalance his portfolio at least daily.
Journal: The European Journal of Finance
Pages: 137-152
Issue: 2
Volume: 16
Year: 2010
Keywords: asset allocation, discrete trading, use of derivatives,
X-DOI: 10.1080/13518470903075854
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903075854
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:2:p:137-152
Template-Type: ReDIF-Article 1.0
Author-Name: Rozalia Pal
Author-X-Name-First: Rozalia
Author-X-Name-Last: Pal
Author-Name: Annalisa Ferrando
Author-X-Name-First: Annalisa
Author-X-Name-Last: Ferrando
Title: Financing constraints and firms' cash policy in the euro area
Abstract:
This paper investigates the financing conditions of non-financial
corporations in the euro area. We develop a new firm classification based
on micro-data by distinguishing between three groups of firms:
unconstrained, relatively and absolutely constrained firms. We also
provide further evidence on the sources of the correlation between
corporate cash flow and cash savings by conducting the analysis in a
dynamic framework. Our results suggest that the propensity to save cash
out of cash flows is significantly positive regardless of firms' financing
conditions. This implies that even for firms with favourable external
financing conditions, the internal cash flow is used in a systematic
pattern for inter-temporal allocation of capital. The results also
indicate that the cash flow sensitivity of cash holdings cannot be used
for testing financing constraints of euro area firms.
Journal: The European Journal of Finance
Pages: 153-171
Issue: 2
Volume: 16
Year: 2010
Keywords: financing conditions, cash policy decisions,
X-DOI: 10.1080/13518470903075748
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903075748
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:2:p:153-171
Template-Type: ReDIF-Article 1.0
Author-Name: Martin Bohl
Author-X-Name-First: Martin
Author-X-Name-Last: Bohl
Author-Name: Christian Salm
Author-X-Name-First: Christian
Author-X-Name-Last: Salm
Title: The Other January Effect: international evidence
Abstract:
This paper investigates the predictive power of stock market returns in
January for the subsequent 11 months' returns across 19 countries, thereby
contributing to the literature on stock market seasonalities. Only 2 out
of 19 countries' stock markets exhibit a robust Other January Effect. In
the light of this evidence, we conclude that the Other January Effect is
not an international phenomenon.
Journal: The European Journal of Finance
Pages: 173-182
Issue: 2
Volume: 16
Year: 2010
Keywords: stock market efficiency, other January effect, stock market anomalies,
X-DOI: 10.1080/13518470903037953
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903037953
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:2:p:173-182
Template-Type: ReDIF-Article 1.0
Author-Name: Ronan Gallagher
Author-X-Name-First: Ronan
Author-X-Name-Last: Gallagher
Author-Name: Donal McKillop
Author-X-Name-First: Donal
Author-X-Name-Last: McKillop
Title: Unfunded pension liabilities and sponsoring firm credit risk: an international analysis of corporate bond spreads
Abstract:
This paper tests empirically whether pension information derived by
corporate pension accounting disclosures is priced in corporate bond
spreads. The model represents a hybrid of more traditional accounting
ratio-based models of credit risk and structural models of bond spreads
initiated by Merton (1974). The model is fitted to 5 years of data from
2002 to 2006 featuring companies from the US and Europe. The paper finds
that while unfunded pension liabilities are priced in the overall sample,
they are not priced as aggressively as traditional leverage. Furthermore,
an extended model shows that the pension-credit risk relation is most
evident in the US and Germany, where unfunded pension liabilities are
priced more aggressively than traditional forms of leverage. No
pension-credit risk relation is found in the other countries sampled,
notably the UK, Netherlands and France.
Journal: The European Journal of Finance
Pages: 183-200
Issue: 3
Volume: 16
Year: 2010
Keywords: defined benefit pension scheme, pension funding, credit risk, corporate bond spreads,
X-DOI: 10.1080/13518470903211665
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903211665
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:3:p:183-200
Template-Type: ReDIF-Article 1.0
Author-Name: Bruce Burton
Author-X-Name-First: Bruce
Author-X-Name-Last: Burton
Title: Corporate collaborative activity: exploratory evidence on the determinants of vehicle choice
Abstract:
This exploratory study analyses the factors that affect the selection of
a contract, alliance or joint venture for collaborative activity. The
findings, based on a sample of 441 announcements made by UK firms, reveal
that although no unequivocal support exists for either the agency- or
transaction cost economics-based explanations of vehicle choice, the
decision does appear to have a strategic element. In addition, the results
suggest that while the three forms of inter-firm arrangement are often
viewed as points on a continuum, the key decision relates to whether or
not to establish a joint venture. In the light of these initial findings,
future research might most usefully investigate decision-making of this
type on a case-by-case basis, rather than attempting to induce pervasive
explanations of the process.
Journal: The European Journal of Finance
Pages: 201-225
Issue: 3
Volume: 16
Year: 2010
Keywords: joint venture, alliance, contract, collaboration, agency, transaction cost economics,
X-DOI: 10.1080/13518470902872350
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902872350
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:3:p:201-225
Template-Type: ReDIF-Article 1.0
Author-Name: Michail Koubouros
Author-X-Name-First: Michail
Author-X-Name-Last: Koubouros
Author-Name: Dimitrios Malliaropulos
Author-X-Name-First: Dimitrios
Author-X-Name-Last: Malliaropulos
Author-Name: Ekaterini Panopoulou
Author-X-Name-First: Ekaterini
Author-X-Name-Last: Panopoulou
Title: Long-run cash flow and discount-rate risks in the cross-section of US returns
Abstract:
This paper decomposes the overall market beta of common stocks into four
parts reflecting uncertainty related to the long-run dynamics of
stock-specific and market-wide cash flows and discount rates. We employ a
discrete time version of Merton's intertemporal capital asset pricing
model to test whether these four sources of risk command different risk
prices. The model performs well in pricing average returns on single- and
double-sorted portfolios according to size, book-to-market, dividend-price
ratios and past risk. It generates high estimates for the explained
cross-sectional variation in average returns, lower average pricing errors
than the Fama-French three-factor model and economically and statistically
acceptable estimates for the coefficient of relative risk aversion.
Journal: The European Journal of Finance
Pages: 227-244
Issue: 3
Volume: 16
Year: 2010
Keywords: CAPM, cash-flow risk, discount-rate risk, asset pricing,
X-DOI: 10.1080/13518470903102419
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903102419
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:3:p:227-244
Template-Type: ReDIF-Article 1.0
Author-Name: Gil Cohen
Author-X-Name-First: Gil
Author-X-Name-Last: Cohen
Author-Name: Joseph Yagil
Author-X-Name-First: Joseph
Author-X-Name-Last: Yagil
Title: Sectorial differences in corporate financial behavior: an international survey
Abstract:
This survey-based research deals with sectorial differences in terms of
three main corporate finance policies: investment, financing and dividend.
We used a multinational survey that was distributed to the chief financial
officers in five countries: the US, the UK, Germany, Canada and Japan. We
found statistically significant differences between the nine sectors
examined in terms of all the three major financial policies. These
differences may be due to the following: (1) the unique financial needs
and operating conditions of each sector and (2) the imitation effect
according to which firms imitate the financial behavior of other firms in
their sector. We found that the use of established investment appraisal
techniques is most common in the construction sector and least common in
the technology sector. The IRR is the most frequently used investment
appraisal technique for the entire survey sample, especially in the
communication sector; however, it is rarely used in the technology sector.
The technology sector has the lowest level of financial leveraging, while
the finance sector has the highest level. A constant sum per share is the
most common dividend policy in the following sectors: retail and
wholesale, services, manufacturing and transport. On the other hand,
construction, energy, communication and technology sectors are
characterized by a high percentage of firms that do not pay dividends at
all.
Journal: The European Journal of Finance
Pages: 245-262
Issue: 3
Volume: 16
Year: 2010
Keywords: investment policy, financing policy, dividend policy, corporate finance, sectorial differences, multinational survey,
X-DOI: 10.1080/13518470903211632
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903211632
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:3:p:245-262
Template-Type: ReDIF-Article 1.0
Author-Name: Vineet Agarwal
Author-X-Name-First: Vineet
Author-X-Name-Last: Agarwal
Author-Name: Sunil Poshakwale
Author-X-Name-First: Sunil
Author-X-Name-Last: Poshakwale
Title: Size and book-to-market anomalies and omitted leverage risk
Abstract:
Ferguson and Shockley (2003. Equilibrium 'anomalies'. Journal of Finance
58: 2549-2580) develop a theoretical model and argue that size and
book-to-market (B/M) effects in stock returns derive their cross-sectional
explanatory power because they proxy for leverage and financial distress.
Using UK data from 1979 to 2006, we provide evidence that the size factor
of Fama and French (1993. Common risk factors in the returns on stocks and
bonds. Journal of Financial Economics 33: 3-56) is indeed proxying for
distress risk, while their distress factor is capturing leverage risk.
However, anomalously low returns and higher exposure of small size and
value stocks to the distress factor reduces the expected returns on these
stocks and results in larger pricing errors. This leads to poor
performance of the Ferguson and Shockley (2003. Equilibrium 'anomalies'.
Journal of Finance 58: 2549-2580) model in the time series.
Underperformance of distressed stocks casts doubt on the hypothesis that
the explanatory power of size and B/M factors is due to the omitted debt
claims in equity only proxy for market portfolio.
Journal: The European Journal of Finance
Pages: 263-279
Issue: 3
Volume: 16
Year: 2010
X-DOI: 10.1080/13518470903314402
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903314402
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:3:p:263-279
Template-Type: ReDIF-Article 1.0
Author-Name: Julia Henker
Author-X-Name-First: Julia
Author-X-Name-Last: Henker
Author-Name: Thomas Henker
Author-X-Name-First: Thomas
Author-X-Name-Last: Henker
Title: Are retail investors the culprits? Evidence from Australian individual stock price bubbles
Abstract:
We address the question of whether the trading of retail investors causes
stock price anomalies. Our intent is to study settings in which retail
investors are most likely to have influence on market prices. Previous
research suggests that retail investors have more influence in small
capitalization stocks, and argues that retail investors are most likely to
be irrational. Most theories of stock price anomalies hypothesize the
presence of irrational traders. Consequently, we focus on stock price
anomalies in primarily small capitalization stocks. Our data are from the
Australian Stock Exchange Clearinghouse. The Australian stock market is
characterized by a high level of direct stock holdings by individual
investors, further enhancing the likelihood of retail investors'
influence. We investigate the Granger causality between investor category
trading and stock prices, and display the relative trading volume of the
investor categories. We conclude that retail investors are not responsible
for stock mispricing. Since retail investors do not affect prices in this
carefully selected environment, we infer that their trading is unlikely to
influence stock market prices. Our conclusion has important implications
for theories, particularly behavioral finance theories, that are dependent
on the influence of retail investor trading in stock markets.
Journal: The European Journal of Finance
Pages: 281-304
Issue: 4
Volume: 16
Year: 2010
Keywords: retail investor, individual investor, asset pricing, behavioral finance,
X-DOI: 10.1080/13518470902872335
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902872335
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:4:p:281-304
Template-Type: ReDIF-Article 1.0
Author-Name: Andreas Kolbe
Author-X-Name-First: Andreas
Author-X-Name-Last: Kolbe
Author-Name: Rudi Zagst
Author-X-Name-First: Rudi
Author-X-Name-Last: Zagst
Title: Valuation of reverse mortgages under (limited) default risk
Abstract:
In this paper, we develop a consistent valuation framework for reverse
mortgages based on reduced-form intensity models as used in credit risk
modelling. Within our modelling framework, we explicitly calculate the
probability that the total loan amount exceeds the house value at
termination of the contract and derive the maximum payment(s) which can be
made to the homeowner under certain constraints. We apply our results to
data from the German market and discuss implications for the design of
reverse mortgages from a lender's perspective.
Journal: The European Journal of Finance
Pages: 305-327
Issue: 4
Volume: 16
Year: 2010
Keywords: reverse mortgage, reduced-form modelling, intensity, risk-neutral pricing, default risk,
X-DOI: 10.1080/13518470903211640
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903211640
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:4:p:305-327
Template-Type: ReDIF-Article 1.0
Author-Name: Lars Norden
Author-X-Name-First: Lars
Author-X-Name-Last: Norden
Title: Individual home bias, portfolio churning and performance
Abstract:
This study investigates economic consequences of individual investors'
home bias and portfolio churning in their personal pension accounts. The
empirical analysis is carried out within a Heckman style two-stage
framework to account for selection bias with respect to individuals'
investment activity, and to allow for an endogenously determined home
bias, portfolio churning and performance. Results indicate that home bias
induces a worse risk-adjusted performance. Home-biased individuals'
relatively bad performance originates in insufficient risk-reduction, due
to a lack of international diversification. A higher degree of portfolio
churning also deteriorates performance, despite the fact that churning is
not associated with any direct transaction costs. However, home-biased
individuals do not churn portfolios as often as individuals with a larger
share of international asset holdings, which diminishes the negative
effects of home bias on performance. Overconfidence is driven by a
return-chasing behavior, where overconfident individuals favor
international assets with high historical returns. Individuals with actual
skill are more often men than women, are not tempted by high historical
returns, and use international assets for the right reason -
diversification.
Journal: The European Journal of Finance
Pages: 329-351
Issue: 4
Volume: 16
Year: 2010
Keywords: home bias, individual investors, portfolio churning, performance,
X-DOI: 10.1080/13518470903037813
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903037813
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:4:p:329-351
Template-Type: ReDIF-Article 1.0
Author-Name: Jose Luiz Barros Fernandes
Author-X-Name-First: Jose Luiz Barros
Author-X-Name-Last: Fernandes
Author-Name: Juan Ignacio Pena
Author-X-Name-First: Juan Ignacio
Author-X-Name-Last: Pena
Author-Name: Benjamin Miranda Tabak
Author-X-Name-First: Benjamin Miranda
Author-X-Name-Last: Tabak
Title: Delegated portfolio management and risk-taking behavior
Abstract:
Standard models of moral hazard predict a negative relationship between
risk and incentives; however, empirical studies on mutual funds present
mixed results. In this article, we propose a behavioral principal-agent
model in the context of professional managers, focusing on active and
passive investment strategies. Using this general framework, we evaluate
how incentives affect the risk-taking behavior of managers, considering
the standard moral hazard model as a special case, and solve the previous
contradiction. Empirical evidence, based on a comprehensive world sample
of 4584 mutual funds, gives support to our theoretical model.
Journal: The European Journal of Finance
Pages: 353-372
Issue: 4
Volume: 16
Year: 2010
Keywords: agency model, prospect theory, mutual funds,
X-DOI: 10.1080/13518470903314444
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903314444
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:4:p:353-372
Template-Type: ReDIF-Article 1.0
Author-Name: Nelson Areal
Author-X-Name-First: Nelson
Author-X-Name-Last: Areal
Author-Name: Artur Rodrigues
Author-X-Name-First: Artur
Author-X-Name-Last: Rodrigues
Title: On the dangers of a simplistic American option simulation valuation method
Abstract:
Chen and Shen [Chen, A.-S., and P.-F. Shen. 2003. Computational
complexity analysis of least-squares Monte Carlo (LSM) for pricing US
derivatives. Applied Economics Letters 10: 223-9] argue that we can
improve the least squares Monte Carlo method (LSMC) to value American
options by removing the least squares regression module. This would make
it not only faster but also more accurate. We demonstrate, using a large
sample of 2500 put options, that the proposed algorithm - the perfect
foresight method (PFM) - is, as argued by the authors, faster than the
LSMC algorithm but, contrary to what they state, it is not more accurate
than the LSMC. In fact, the PFM algorithm incorrectly prices American
options. We therefore, do not recommend the use of the PFM.
Journal: The European Journal of Finance
Pages: 373-379
Issue: 4
Volume: 16
Year: 2010
Keywords: American option valuation, numerical methods,
X-DOI: 10.1080/13518470903314428
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903314428
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:4:p:373-379
Template-Type: ReDIF-Article 1.0
Author-Name: Stefano Caselli
Author-X-Name-First: Stefano
Author-X-Name-Last: Caselli
Author-Name: Alberta Di Giuli
Author-X-Name-First: Alberta
Author-X-Name-Last: Di Giuli
Title: Does the CFO matter in family firms? Evidence from Italy
Abstract:
Using data from 708 small and medium Italian firms during the period of
2002-2004, we find that in family firms (FFs) a nonfamily Chief Financial
Officer (CFO) drives firm performance in a positive direction. FFs with a
nonfamily CFO perform better than both FFs with a family CFO and nonfamily
firms. The best performance is achieved when the Chief Executive Officer
(CEO) is a family member and the CFO is an outsider (nonfamily). An
examination of FFs across generations shows that a nonfamily CFO has
always a positive effect on firm performance. Our study contributes to the
literature on FFs by determining how the presence of a nonfamily CFO has
an impact on firm performance. We also contribute to the literature on
agency theory by showing that in small FFs: (a) having a family as
majority shareholder is not detrimental to firm performance and (b) a
nonfamily CFO might serve to mitigate any ineptness of descendant CEOs
while retaining ownership and management in the hands of family heirs,
thus avoiding the conflict of interest between family ownership and
management.
Journal: The European Journal of Finance
Pages: 381-411
Issue: 5
Volume: 16
Year: 2010
Keywords: small business, family firm, CFO, CEO, Italy,
X-DOI: 10.1080/13518470903211657
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903211657
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:5:p:381-411
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Theobald
Author-X-Name-First: Michael
Author-X-Name-Last: Theobald
Author-Name: Peter Yallup
Author-X-Name-First: Peter
Author-X-Name-Last: Yallup
Title: Liability-driven investment: multiple liabilities and the question of the number of moments
Abstract:
The selection of investments held in dedicated pension or insurance asset
portfolios should be liability-driven. Techniques have been developed to
hedge or immunize single liabilities from the effects of a variety of
yield curve changes. In this paper, we extend these results to a more
relevant practical problem, to immunize multiple liabilities occurring at
different times in the future. This immunization approach can accommodate
a variety of non-parallel yield curve behaviours. In a practical
application, we demonstrate that our approach is effective in selecting
index tracking portfolios in the UK Gilt (government bond) market.
Journal: The European Journal of Finance
Pages: 413-435
Issue: 5
Volume: 16
Year: 2010
Keywords: liability-driven investment, immunization, duration, multiple liabilities, index tracking,
X-DOI: 10.1080/13518470903211681
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903211681
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:5:p:413-435
Template-Type: ReDIF-Article 1.0
Author-Name: Yener Altunbas
Author-X-Name-First: Yener
Author-X-Name-Last: Altunbas
Author-Name: Alper Kara
Author-X-Name-First: Alper
Author-X-Name-Last: Kara
Author-Name: David Marques-Ibanez
Author-X-Name-First: David
Author-X-Name-Last: Marques-Ibanez
Title: Large debt financing: syndicated loans versus corporate bonds
Abstract:
Following the introduction of the euro, the markets for large debt
financing experienced a historical expansion. We investigate the financial
factors behind the issuance of syndicated loans for an extensive sample of
euro area non-financial corporations. For the first time, we compare these
factors to those of its major competitor: the corporate bond market. We
find that large firms, with greater financial leverage, more (verifiable)
profits and higher liquidation values tend to choose syndicated loans. In
contrast, firms with more short-term debt and those perceived by markets
as having more growth opportunities favour financing through corporate
bonds. Syndicated loans are the preferred instrument at the extreme where
firms are very large, profitable but have less growth opportunities.
Journal: The European Journal of Finance
Pages: 437-458
Issue: 5
Volume: 16
Year: 2010
Keywords: syndicated loans, corporate bonds, debt choice, the euro area,
X-DOI: 10.1080/13518470903314394
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903314394
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:5:p:437-458
Template-Type: ReDIF-Article 1.0
Author-Name: Fabian Gleisner
Author-X-Name-First: Fabian
Author-X-Name-Last: Gleisner
Author-Name: Andreas Hackethal
Author-X-Name-First: Andreas
Author-X-Name-Last: Hackethal
Author-Name: Christian Rauch
Author-X-Name-First: Christian
Author-X-Name-Last: Rauch
Title: Migration and the retail banking industry: an examination of immigrants' bank nationality choice in Germany
Abstract:
We study the choice of bank nationality by foreign-born retail banking
customers in the context of bank globalization. We argue theoretically
that banks enter foreign markets to follow their non-corporate customers
and thereby are able to exploit competitive advantages over domestic
banks. Using detailed survey data on more than 1000 Turkish immigrants in
Germany, we find that product differentiation explains the choice of a
home nation bank and that ethnic origin in itself provides the strongest
comparative advantage for foreign banks. We find evidence for a persistent
'home-bias' of customers with an immigration background even with
increasing integration into the host country's culture. This result may be
surprising given that a systematic difference in the choice of bank
nationality should not be observable with more integrated immigrants. Our
results contribute to the existing economic research on multinational bank
expansion by providing insights into bank globalization as an
accompaniment to labor market internationalization.
Journal: The European Journal of Finance
Pages: 459-480
Issue: 5
Volume: 16
Year: 2010
Keywords: retail banking, bank globalization, migration,
X-DOI: 10.1080/13518470903314410
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903314410
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:5:p:459-480
Template-Type: ReDIF-Article 1.0
Author-Name: Marianna Brunetti
Author-X-Name-First: Marianna
Author-X-Name-Last: Brunetti
Author-Name: Costanza Torricelli
Author-X-Name-First: Costanza
Author-X-Name-Last: Torricelli
Title: Population age structure and household portfolio choices in Italy
Abstract:
Based on the exceptional ageing of the Italian population, this paper
aims to contribute to the current debate on population ageing and
financial markets. To this end, we use the data taken by the Bank of Italy
Survey of Household Income and Wealth over the period 1995-2006, and we
analyse the average household portfolios in relation to age and net wealth
(NW). Our analysis rests on a clustering of assets according to risk,
which is different from the one used in Guiso and Jappelli (Guiso, L., and
T. Jappelli. 2002. The portfolio of Italian households. In Household
portfolios, eds. L. Guiso, M. Haliassos, and T. Jappelli. Cambridge: MIT
Press). We find that age has affected financial choices of Italian
households over the whole decade, but the portfolio age profile has
significantly evolved over time with important differences across wealth
quartiles. Overall, our analysis highlights a tendency towards a
hump-shaped age profile of the allocation in risky assets for the most NW
levels.
Journal: The European Journal of Finance
Pages: 481-502
Issue: 6
Volume: 16
Year: 2010
Keywords: population ageing, financial assets, household portfolio, survey data,
X-DOI: 10.1080/13518470903075961
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903075961
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:6:p:481-502
Template-Type: ReDIF-Article 1.0
Author-Name: Helene Hamisultane
Author-X-Name-First: Helene
Author-X-Name-Last: Hamisultane
Title: Utility-based pricing of weather derivatives
Abstract:
Since the underlying of the weather derivatives is not a traded asset,
these contracts cannot be evaluated by the traditional financial theory.
Cao and Wei [2004. Weather derivatives valuation and market price of
weather risk. The Journal of Futures Markets 24, no. 11: 1065-89] price
them by using the consumption-based asset pricing model of Lucas [1978.
Asset prices in an exchange economy. Econometrica 46, no. 6: 1429-45] and
by assuming different values for the constant relative risk aversion
coefficient. Instead of taking this coefficient as given, we suggest in
this article to estimate it by using the consumption data and the
quotations of one of the most transacted weather contracts which is the
New York weather futures on the Chicago Mercantile Exchange. We apply the
well-known generalized method of moments introduced by Hansen [1982. Large
sample properties of generalized method of moments estimators.
Econometrica 50, no. 4: 1029-54] to estimate it as well as the simulated
method of moments (SMM) attributed to Lee and Ingram [1991. Simulation
estimation of time-series models. Journal of Econometrics 47, no. 2-3:
197-205] and Duffie and Singleton [1993. Simulated moments estimation of
Markov models of asset prices. Econometrica 61, no. 4: 929-52]. This last
method is studied since it is presumed to give satisfactory results in the
case of the weather derivatives for which the prices are simulated. We
find that the estimated coefficient from the SMM approach must have
improbably high values in order to have the calculated weather futures
prices matching the observations.
Journal: The European Journal of Finance
Pages: 503-525
Issue: 6
Volume: 16
Year: 2010
Keywords: weather derivatives, consumption-based asset pricing model, generalized method of moments, simulated method of moments, Monte-Carlo simulations, periodic variance,
X-DOI: 10.1080/13518470902853392
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470902853392
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:6:p:503-525
Template-Type: ReDIF-Article 1.0
Author-Name: Yusho Kagraoka
Author-X-Name-First: Yusho
Author-X-Name-Last: Kagraoka
Title: A time-varying common risk factor affecting corporate yield spreads
Abstract:
A time-varying common risk factor affecting corporate yield spreads is
modelled by extending a panel data model. The panel data model
accommodates a common factor, which is associated with time-varying
individual effects. The factor multiplied by a bond-specific unobservable
is identified as a systematic risk premium. In disentangling the
systematic risk premium, both credit and liquidity risks are evaluated;
the credit risk is assessed by bond rating, and the liquidity risk is
indirectly measured by discrepancy in quoted yields by brokerage firms.
Parameters are estimated by the generalized method of moments procedure.
The model is tested on the corporate bond market in Japan. Empirical
results show that the time-varying common risk factor is successfully
estimated together with credit and liquidity risks.
Journal: The European Journal of Finance
Pages: 527-539
Issue: 6
Volume: 16
Year: 2010
Keywords: yield spread, systematic risk premium, panel data analysis,
X-DOI: 10.1080/13518470903037615
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903037615
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:6:p:527-539
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Dunis
Author-X-Name-First: Christian
Author-X-Name-Last: Dunis
Author-Name: Jason Laws
Author-X-Name-First: Jason
Author-X-Name-Last: Laws
Author-Name: Georgios Sermpinis
Author-X-Name-First: Georgios
Author-X-Name-Last: Sermpinis
Title: Modelling and trading the EUR/USD exchange rate at the ECB fixing
Abstract:
The motivation for this paper is to investigate the use of alternative
novel neural network (NN) architectures when applied to the task of
forecasting and trading the euro/dollar (EUR/USD) exchange rate, using the
European Central Bank (ECB) fixing series with only auto-regressive terms
as inputs. This is done by benchmarking four different NN designs
representing a higher-order neural network (HONN), a Psi Sigma Network and
a recurrent neural network with the classic multilayer perception (MLP)
and some traditional techniques, either statistical such as an
auto-regressive moving average model, or technical such as a moving
average convergence/divergence model, plus a naive strategy. More
specifically, the trading performance of all models is investigated in a
forecast and trading simulation on the EUR/USD ECB fixing time series over
the period 1999-2007 using the last one and half years for out-of-sample
testing, an original feature of this paper. We use the EUR/USD daily
fixing by the ECB as many financial institutions are ready to trade at
this level and it is therefore possible to leave orders with a bank for
business to be transacted on that basis. As it turns out, the MLP does
remarkably well and outperforms all other models in a simple trading
simulation exercise. However, when more sophisticated trading strategies
using confirmation filters and leverage are applied, the HONN network
produces better results and outperforms all other NN and traditional
statistical models in terms of annualized return.
Journal: The European Journal of Finance
Pages: 541-560
Issue: 6
Volume: 16
Year: 2010
Keywords: confirmation filters, higher-order neural networks, Psi Sigma networks, recurrent neural networks, leverage, multi-layer perception networks, quantitative trading strategies,
X-DOI: 10.1080/13518470903037771
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903037771
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:6:p:541-560
Template-Type: ReDIF-Article 1.0
Author-Name: S. Muzzioli
Author-X-Name-First: S.
Author-X-Name-Last: Muzzioli
Title: Option-based forecasts of volatility: an empirical study in the DAX-index options market
Abstract:
Volatility estimation and forecasting are essential for both the pricing
and the risk management of derivative securities. Volatility forecasting
methods can be divided into option-based ones, which use prices of traded
options in order to unlock volatility expectations, and time series
volatility models, which use historical information in order to predict
future volatility. Among option-based volatility forecasts, we distinguish
between the 'model-dependent' Black-Scholes implied volatility and the
'model-free' implied volatility, proposed by Britten-Jones and Neuberger
[Option prices, implied price processes and stochastic volatility. Journal
of Finance 55: 839-66], that does not rely on a particular option pricing
model. The aim of this paper is to investigate the unbiasedness and
efficiency, with respect to past realised volatility, of the two
option-based volatility forecasts. The comparison is pursued by using
intra-daily data on the DAX-index options market. Our results suggest that
Black-Scholes implied volatility subsumes all the information contained in
past realised volatility and is a better predictor for future realised
volatility than model-free implied volatility.
Journal: The European Journal of Finance
Pages: 561-586
Issue: 6
Volume: 16
Year: 2010
Keywords: Black-Scholes implied volatility, model-free implied volatility, volatility forecasting,
X-DOI: 10.1080/13518471003640134
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003640134
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:6:p:561-586
Template-Type: ReDIF-Article 1.0
Author-Name: Florian Ielpo
Author-X-Name-First: Florian
Author-X-Name-Last: Ielpo
Author-Name: Guillaume Simon
Author-X-Name-First: Guillaume
Author-X-Name-Last: Simon
Title: Mean-reversion properties of implied volatilities
Abstract:
In this paper, we present a new stylized fact for options whose
underlying asset is a stock index. Extracting implied volatility time
series from call and put options on the Deutscher Aktien index (DAX) and
financial times stock exchange index (FTSE), we show that the persistence
of these volatilities depends on the moneyness of the options used for its
computation. Using a functional autoregressive model, we show that this
effect is statistically significant. Surprisingly, we show that the
diffusion-based stochastic volatility models are not consistent with this
stylized fact. Finally, we argue that adding jumps to a diffusion-based
volatility model help recovering this volatility pattern. This suggests
that the persistence of implied volatilities can be related to the tails
of the underlying volatility process: this corroborates the intuition that
the liquidity of the options across moneynesses introduces an additional
risk factor to the one usually considered.
Journal: The European Journal of Finance
Pages: 587-610
Issue: 6
Volume: 16
Year: 2010
Keywords: implied volatility, stylized fact, stocahstic volatility models, volatility surface dynamics, autoregressive models,
X-DOI: 10.1080/1351847X.2010.481463
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481463
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:6:p:587-610
Template-Type: ReDIF-Article 1.0
Author-Name: Helder Sebastiao
Author-X-Name-First: Helder
Author-X-Name-Last: Sebastiao
Title: The informational impact of electronic trading systems on the FTSE 100 stock index and its futures contracts
Abstract:
This article examines the partial adjustment factors of Financial Times
Stock Exchange (FTSE) 100 stock index and stock index futures. Using high
frequency data from 15 January 1997 to 17 March 2000, it aims to assess
the informational impact of the electronic trading systems implemented at
the London Stock Exchange and London International Financial Futures
Exchange (LIFFE). The results suggest that information runs mainly from
the futures market to the spot market. We find that the introduction of
stock exchange trading system, in October 1997, has increased the FTSE 100
index's absolute efficiency; however, it reduced the informational
feedback to the futures market. The implementation of LIFFE CONNECT at
LIFFE, in May 1999, has reduced the absolute and relative efficiency of
FTSE 100 futures. These findings seem to imply that during the period
under scrutiny electronic trading increased the level of microstructural
noise, probably due to the bid-ask bounce and order flow imbalances.
Journal: The European Journal of Finance
Pages: 611-640
Issue: 7
Volume: 16
Year: 2010
Keywords: partial adjustments, price discovery, high frequency data, FTSE 100, stock index futures, market microstructure, electronic trading, LIFFE, London stock exchange,
X-DOI: 10.1080/13518470903345729
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903345729
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:7:p:611-640
Template-Type: ReDIF-Article 1.0
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Author-Name: Mark Wohar
Author-X-Name-First: Mark
Author-X-Name-Last: Wohar
Title: UK stock price effects of permanent and transitory shocks
Abstract:
This paper examines the dynamic relationship between stock prices and
dividends using a structural cointegrated vector autoregression. The
approach adopted fully identifies the system without imposing arbitrary
restrictions and decomposes innovations into permanent and transitory
components. Prior research indicates that transitory price shocks could
lead to stock price predictability. Our key new empirical finding is that
permanent dividend shocks could also lead to aggregate stock price
predictability in the UK.
Journal: The European Journal of Finance
Pages: 641-656
Issue: 7
Volume: 16
Year: 2010
Keywords: stock prices, permanent dividend shock, cointegrated VAR,
X-DOI: 10.1080/13518471003638682
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003638682
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:7:p:641-656
Template-Type: ReDIF-Article 1.0
Author-Name: Csaba Csavas
Author-X-Name-First: Csaba
Author-X-Name-Last: Csavas
Title: The information content of risk-neutral densities: tests based on Hungarian currency option-implied densities
Abstract:
In this paper we test the information content of risk-neutral density
functions estimated by the method of Malz [1997. Estimating the
probability distribution of the future exchange rate from options prices.
Journal of Derivatives 5, no. 2: 18-36]. The main question is whether
risk-neutral densities coincide with the subjective densities. We find
that the forecasting ability of 1-month EUR/HUF risk-neutral densities can
be rejected for the period 2003-2007. Higher moments are responsible for
the poor forecasting ability. Our interpretation is that the standard
deviation, the skewness and the kurtosis of the risk-neutral densities are
significantly above the respective central moments of subjective
densities. We also find that delta-hedged gains on purchased options are
negative, and can be considered high compared with the transaction costs
of delta hedging.
Journal: The European Journal of Finance
Pages: 657-676
Issue: 7
Volume: 16
Year: 2010
Keywords: currency option, implied risk-neutral density function, density forecasting, delta-hedged gains, GMM,
X-DOI: 10.1080/1351847X.2010.481451
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481451
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:7:p:657-676
Template-Type: ReDIF-Article 1.0
Author-Name: Luis Otero Gonzalez
Author-X-Name-First: Luis Otero
Author-X-Name-Last: Gonzalez
Author-Name: Milagros Vivel Bua
Author-X-Name-First: Milagros Vivel
Author-X-Name-Last: Bua
Author-Name: Sara Fernandez Lopez
Author-X-Name-First: Sara Fernandez
Author-X-Name-Last: Lopez
Author-Name: Pablo Duran Santomil
Author-X-Name-First: Pablo Duran
Author-X-Name-Last: Santomil
Title: Foreign debt as a hedging instrument of exchange rate risk: a new perspective
Abstract:
This paper analyzes the factors that determine the use of foreign
currency debt to hedge currency exposure for a sample of 96 Spanish
non-financial companies listed in 2004. Unlike previous empirical studies,
which have attempted to explain the use of foreign currency debt using
arguments stemming exclusively from hedging theory, we have complemented
the analysis with hypotheses from capital structure theory. In particular,
we analyze the variables that determine the decision to hedge with foreign
currency debt and hedging volume. On the one hand, we found that the
decision to hedge with foreign debt is positively related to the level of
foreign currency exposure, size, tax loss carry-forwards, managerial risk
aversion and the building, R&D and other services sector; and on the other
hand, the extent of hedging is related positively to the foreign currency
exposure, size, managerial risk aversion and negatively to the costs of
financial distress. We also analyze the interaction between foreign
currency debt and derivatives in the hedging decision. Moreover, after
controlling for the existence and type of currency swaps, we found that
this consideration did not have an effect on the determinants of hedging
with foreign currency debt.
Journal: The European Journal of Finance
Pages: 677-710
Issue: 7
Volume: 16
Year: 2010
Keywords: foreign currency debt, exchange rate risk, hedging theories, capital theories,
X-DOI: 10.1080/1351847X.2010.481455
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481455
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:7:p:677-710
Template-Type: ReDIF-Article 1.0
Author-Name: Maria Rosa Borges
Author-X-Name-First: Maria Rosa
Author-X-Name-Last: Borges
Title: Efficient market hypothesis in European stock markets
Abstract:
This paper reports the results of tests on the weak-form market
efficiency applied to stock market indexes of UK, France, Germany, Spain,
Greece and Portugal, from January 1993 to December 2007. We use a runs
test, and joint variance ratio tests, which are performed using daily and
weekly data for the period 1993-2007 and for a subset, 2003-2007. Daily
and weekly returns are not normally distributed, because they are
negatively skewed and leptokurtic, and also display conditional
heteroscedasticity. Overall, we find mixed evidence on the efficient
market hypothesis (EMH). The hypothesis is rejected on daily data for
Portugal and Greece, due to first-order positive autocorrelation in the
returns. However, the empirical tests show that these two countries have
been approaching a martingale behavior after 2003. France and UK data
rejects EMH, due to the presence of mean reversion in weekly data, and
stronger in recent years. Taken together, the tests for Germany and Spain
do not allow the rejection of EMH, this last market being the most
efficient.
Journal: The European Journal of Finance
Pages: 711-726
Issue: 7
Volume: 16
Year: 2010
Keywords: market efficiency, martingale, European stock markets, variance ratio test,
X-DOI: 10.1080/1351847X.2010.495477
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495477
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:7:p:711-726
Template-Type: ReDIF-Article 1.0
Author-Name: Jose Soares da Fonseca
Author-X-Name-First: Jose Soares
Author-X-Name-Last: da Fonseca
Title: The performance of the European stock markets: a time-varying Sharpe ratio approach
Abstract:
This article studies the performance of the national stock markets of 16
European countries (Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Holland, Ireland, Italy, Norway, Portugal, Spain, Sweden,
Switzerland and the UK), using daily data covering the period between 2
January 2001 and 30 May 2009. Daily expected returns, and the conditional
volatility of each index, were calculated using a model combining the
market model and an implicit long-term relation between the index prices.
Finally, time-varying (conditional) Sharpe ratios were calculated for each
index. These were used as the basis for a statistical comparison of the
performance of the stock indexes of this group of countries, throughout
different sub-periods corresponding to different conditions (of expansion
and depression) in the stock markets.
Journal: The European Journal of Finance
Pages: 727-741
Issue: 7
Volume: 16
Year: 2010
Keywords: expected return, Sharpe ratio, market model, conditional volatility,
X-DOI: 10.1080/1351847X.2010.495479
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495479
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:7:p:727-741
Template-Type: ReDIF-Article 1.0
Author-Name: R. H. Berry
Author-X-Name-First: R. H.
Author-X-Name-Last: Berry
Author-Name: S. X. Zuo
Author-X-Name-First: S. X.
Author-X-Name-Last: Zuo
Title: Numerical solution of the sequential investment model: a note on Dixit and Pindyck's (1994) analysis
Abstract:
This paper discusses the model and solution approach adopted by Majd and
Pindyck (1987. Time to build, option value, and investment decisions.
Journal of Financial Economics 18, March: 7-27) and Dixit and Pindyck
(1994. Investment under uncertainty. Princeton, NJ: Princeton University
Press), when considering the sequential investment decision. It is shown
that specific results presented in these two sources are based on invalid
solutions to the relevant partial differential equation. The problem stems
from the possibility that economically feasible parameter values and
apparently acceptable step sizes for the explicit finite difference
approach used can combine to generate non-convergent, invalid solutions.
Journal: The European Journal of Finance
Pages: 743-752
Issue: 8
Volume: 16
Year: 2010
Keywords: real options, sequential investment, time to build, stability and convergence, explicit finite difference, sensitivity analysis,
X-DOI: 10.1080/13518470903314469
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903314469
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:8:p:743-752
Template-Type: ReDIF-Article 1.0
Author-Name: David McMillan
Author-X-Name-First: David
Author-X-Name-Last: McMillan
Author-Name: Isabel Ruiz
Author-X-Name-First: Isabel
Author-X-Name-Last: Ruiz
Author-Name: Alan Speight
Author-X-Name-First: Alan
Author-X-Name-Last: Speight
Title: Correlations and spillovers among three euro rates: evidence using realised variance
Abstract:
This paper uses three euro exchange rates - the US dollar, sterling and
yen - to test for the presence of volatility spillovers and time-varying
correlations using the realised variance approach, which has significant
advantages over the multivariate-GARCH methodology. Our results suggest
that the three currencies do exhibit some degree of volatility spillover
and hence commonality in the driving force behind volatility movement.
With regard to the nature of time-variation within the correlation
coefficients, there is substantial evidence that correlations are
time-varying but that the strength of correlation coefficients has not
increased over the sample period. Furthermore, there is evidence that
correlations themselves are predictable and interrelated. These results
support the view that the three rates do exhibit interrelationships,
commonality and time-varying correlation, factors that are important to
portfolio managers. This latter point is illustrated by using the realised
variances and covariances to determine portfolio weights, the portfolio
variance of which is lower than constructing portfolios using (rolling)
unconditional values.
Journal: The European Journal of Finance
Pages: 753-767
Issue: 8
Volume: 16
Year: 2010
Keywords: exchange rates, spillovers, correlation, realised variance,
X-DOI: 10.1080/13518470903448424
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903448424
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:8:p:753-767
Template-Type: ReDIF-Article 1.0
Author-Name: Jerome Coffinet
Author-X-Name-First: Jerome
Author-X-Name-Last: Coffinet
Author-Name: Sebastien Frappa
Author-X-Name-First: Sebastien
Author-X-Name-Last: Frappa
Title: Determinants of the inflation compensation curve in the euro area
Abstract:
In this study, we analyse the effect of macroeconomic surprises on
inflation compensation data - the sum of inflation expectation, risk and
liquidity premia - in the euro area. The empirical analysis is based on a
daily data set, which covers a wide spectrum of maturities, stemming from
inflation-indexed markets between 2 January 2004 and 31 December 2007. Our
results suggest that when gauging short- and medium-term inflation
compensations, market operators are sensitive to surprises related to real
activity and prices. Notwithstanding, long-term inflation compensations
remain generally unresponsive to macroeconomic surprises, attesting the
European Central Bank's high credibility on the sample under
consideration. The study also cross-checks the results from two different
euro area inflation-indexed instruments (bonds and swaps) which differ
slightly regarding medium-term horizon but give a similar picture
regarding long-term horizons.
Journal: The European Journal of Finance
Pages: 769-783
Issue: 8
Volume: 16
Year: 2010
Keywords: inflation compensation, macroeconomic surprises, euro area,
X-DOI: 10.1080/1351847X.2010.481460
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481460
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:16:y:2010:i:8:p:769-783
Template-Type: ReDIF-Article 1.0
Author-Name: Jo Danbolt
Author-X-Name-First: Jo
Author-X-Name-Last: Danbolt
Author-Name: Ian Hirst
Author-X-Name-First: Ian
Author-X-Name-Last: Hirst
Author-Name: Eddie Jones
Author-X-Name-First: Eddie
Author-X-Name-Last: Jones
Title: The growth companies puzzle: can growth opportunities measures predict firm growth?
Abstract:
While numerous empirical studies include proxies for growth opportunities
in their analyses, there is limited evidence as to the validity of the
various growth proxies used. Based on a sample of 1942 firm-years for
listed UK companies over the 1990-2004 period, we assess the performance
of eight growth opportunities measures. Our results show that while all
the growth measures show some ability to predict growth in company sales,
total assets, or equity, there are substantial differences between the
various models. In particular, Tobin's Q performs poorly while
dividend-based measures generally perform best. However, none of the
measures has any success in predicting earnings per share growth, even
when controlling for mean reversion and other time-series patterns in
earnings. We term this the 'growth companies puzzle'. Growth companies do
grow, but they do not grow in the key dimension (earnings) theory
predicts. Whether the failure of 'growth companies' to deliver superior
earnings growth is attributable to increased competition, poor
investments, or behavioural biases, it is still a puzzle why growth
companies on average fail to deliver superior earnings growth.
Journal: The European Journal of Finance
Pages: 1-25
Issue: 1
Volume: 17
Year: 2011
Keywords: growth opportunities, growth proxies, firm growth,
X-DOI: 10.1080/13518470903448432
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903448432
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:1:p:1-25
Template-Type: ReDIF-Article 1.0
Author-Name: Julien Idier
Author-X-Name-First: Julien
Author-X-Name-Last: Idier
Title: Long-term vs. short-term comovements in stock markets: the use of Markov-switching multifractal models
Abstract:
During financial crises, interest is strong for analysing market
comovements. However, a majority of these analyses is based only on
correlations. This article uses Markov switching multifractal models to
derive new indicators by considering different horizons for dependency
among four stock indices (NYSE FTSE DAX CAC) between 1996 and 2008. The
detection of crises, extreme volatility comovements or the co-cycle
lengths are derived. In this context, September 2008 appears to be an
unprecedented example of global crisis, extended to all horizons and
markets.
Journal: The European Journal of Finance
Pages: 27-48
Issue: 1
Volume: 17
Year: 2011
Keywords: multivariate volatility models, Markov switching multifractal model, transmission, comovements,
X-DOI: 10.1080/13518470903448440
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903448440
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:1:p:27-48
Template-Type: ReDIF-Article 1.0
Author-Name: David Abad
Author-X-Name-First: David
Author-X-Name-Last: Abad
Author-Name: Belen Nieto
Author-X-Name-First: Belen
Author-X-Name-Last: Nieto
Title: Analysing bank-issued option pricing
Abstract:
This paper investigates whether Spanish bank-issued options (warrants)
trade under a fair price. The analysis is twofold. Price differences
between traditional options and equivalent bank-issued options are
analysed. The results show that bank-issued options are systematically
overpriced with respect to options and that an important portion of such
overpricing is related to market design. We also compare the prices of
bank-issued options that have the same payoff functions but different
issuers. Strikingly, relative price differences between bank-issued
options are also found. Moreover, the analysis of the temporal evolution
of the price differences between equivalent bank-issued options reveals
that they are not decreasing over time.
Journal: The European Journal of Finance
Pages: 49-65
Issue: 1
Volume: 17
Year: 2011
Keywords: options, bank-issued options, market design,
X-DOI: 10.1080/13518471003638591
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003638591
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:1:p:49-65
Template-Type: ReDIF-Article 1.0
Author-Name: Greg Anderson
Author-X-Name-First: Greg
Author-X-Name-Last: Anderson
Author-Name: Jonathan Fletcher
Author-X-Name-First: Jonathan
Author-X-Name-Last: Fletcher
Author-Name: Andrew Marshall
Author-X-Name-First: Andrew
Author-X-Name-Last: Marshall
Title: Performance evaluation of dynamic trading strategies in UK stock returns incorporating lagged conditioning information
Abstract:
This paper evaluates the performance of the optimal mean-variance
portfolio decision when lagged conditioning information is included in the
investment universe. Motivated by the dynamic trading literature, we
evaluate the performance of eight conditioned information portfolios
against an unconditional portfolio and various benchmark strategies. We
find with that including lagged conditioning information into the optimal
mean-variance portfolio decision can add economic wealth. A number of the
conditioning information variables used are significantly effective at
improving the portfolio performance in terms of the Sharpe [1966. Mutual
fund performance. Journal of Business 39, no. 2: 119-38] ratio, certainty
equivalent return, and Jensen [1968. The performance of mutual funds in
the period 1945-1964. Journal of Finance 23, no.2: 389-416] performance.
We find that the lagged market excess returns instrument has the greatest
impact on the portfolio decision.
Journal: The European Journal of Finance
Pages: 67-82
Issue: 1
Volume: 17
Year: 2011
Keywords: mean-variance analysis, dynamic trading strategies,
X-DOI: 10.1080/13518471003638641
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003638641
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:1:p:67-82
Template-Type: ReDIF-Article 1.0
Author-Name: Kevin Evans
Author-X-Name-First: Kevin
Author-X-Name-Last: Evans
Author-Name: Alan Speight
Author-X-Name-First: Alan
Author-X-Name-Last: Speight
Title: Intraday euro exchange rates and international macroeconomic announcements
Abstract:
This paper considers a 19-month sample of 5-min returns for three euro
exchange rates, and provides an analysis of the news impact effects
associated with the unexpected component of a wide range of international
macroeconomic announcements. Our findings reveal that US news relating to
leading indicators causes the most pronounced reactions in euro exchange
rate returns. The few statistically significant non-US announcements
identified relate primarily to Eurozone labour costs and German business
expectations. However, the unexpected elements of interest rate
announcements are not significant determinants of euro exchange rate
volatility, indicating that it is the announcements of interest rates that
cause jumps in exchange rates, quite apart from any actual information
surprise delivered by those announcements. The analysis also shows
evidence of asymmetric responses of exchange rates to good and bad news,
indicating that positive surprises in poor economic climates are strong
influences on short-term returns. Furthermore, impact response
coefficients and the contribution of news announcement effects on daily
price variation are found to vary across the sample and to depend on three
factors: the magnitude of news surprises; the underlying economic
conditions conveyed by news announcements; business cycle turning points
as represented by switches from bad news to good news (and vice versa).
Journal: The European Journal of Finance
Pages: 83-110
Issue: 2
Volume: 17
Year: 2011
Keywords: high frequency data, exchange rates, macroeconomic news announcements, asymmetry, realised volatility,
X-DOI: 10.1080/13518470903448457
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903448457
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:2:p:83-110
Template-Type: ReDIF-Article 1.0
Author-Name: Giuliano Iannotta
Author-X-Name-First: Giuliano
Author-X-Name-Last: Iannotta
Title: Market discipline in the banking industry: evidence from spread dispersion
Abstract:
Do bond investors price hidden information? To address this question, we
use a heteroscedastic regression model to empirically examine the factors
affecting the spread dispersion unexplained by easy-to-observe issue
characteristics (such as credit ratings, size, maturity, etc.). Two main
results emerge from the empirical analysis. First, variables that
accurately predict the spread of the typical bond lose their explanatory
power for worse-rated, subordinated bonds with longer maturity and smaller
face value. This result suggests that investors price hidden information.
Secondly, unexplained spread dispersion increases for open-priced offers
and decreases with the number of banks involved in the syndicate,
indicating that primary market characteristics affect the investors'
ability to uncover hidden information.
Journal: The European Journal of Finance
Pages: 111-131
Issue: 2
Volume: 17
Year: 2011
Keywords: banks, market discipline, opaqueness, credit ratings,
X-DOI: 10.1080/13518471003638625
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003638625
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:2:p:111-131
Template-Type: ReDIF-Article 1.0
Author-Name: Arif Khurshed
Author-X-Name-First: Arif
Author-X-Name-Last: Khurshed
Author-Name: Stephen Lin
Author-X-Name-First: Stephen
Author-X-Name-Last: Lin
Author-Name: Mingzhu Wang
Author-X-Name-First: Mingzhu
Author-X-Name-Last: Wang
Title: Institutional block-holdings of UK firms: do corporate governance mechanisms matter?
Abstract:
Using a sample of UK firms, we find that institutional block-holding is
negatively associated with directors' ownership and is positively
associated with board composition, suggesting that institutional
block-holders regard directors' ownership and board composition as
substitute and complementary control mechanisms, respectively. We also
show that UK institutional block-holders prefer smaller firms and firms
with a shorter listing history. The presence of institutional
block-holders is associated with smaller boards and lower trading
liquidity. Finally, our results indicate that the investment preference of
UK institutional block-holders varies with the level of their
shareholding.
Journal: The European Journal of Finance
Pages: 133-152
Issue: 2
Volume: 17
Year: 2011
Keywords: institutional block-holding, directors' ownership, board structure, corporate governance,
X-DOI: 10.1080/13518471003638658
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003638658
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:2:p:133-152
Template-Type: ReDIF-Article 1.0
Author-Name: Stefan Reitz
Author-X-Name-First: Stefan
Author-X-Name-Last: Reitz
Author-Name: Markus Schmidt
Author-X-Name-First: Markus
Author-X-Name-Last: Schmidt
Author-Name: Mark Taylor
Author-X-Name-First: Mark
Author-X-Name-Last: Taylor
Title: End-user order flow and exchange rate dynamics - a dealer's perspective
Abstract:
This paper empirically investigates the Evans and Lyons' [2002.
Understanding order flow. International Journal of Finance and Economics
11: 3-23] model of the foreign exchange market from a dealer's
perspective. We provide evidence of the suggested information aggregation
process using a rich database on a German bank's end-user order flow from
2002 to 2003. Although customer order flow is unambiguously the vehicle
incorporating non-public information into exchange rates over time, our
empirical analysis does not support the idea that customer order flow is a
high-powered source of information easily exploitable for short-run
speculation.
Journal: The European Journal of Finance
Pages: 153-168
Issue: 2
Volume: 17
Year: 2011
Keywords: foreign exchange, market microstructure, end-user order flow,
X-DOI: 10.1080/13518471003651925
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003651925
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:2:p:153-168
Template-Type: ReDIF-Article 1.0
Author-Name: Carole Bernard
Author-X-Name-First: Carole
Author-X-Name-Last: Bernard
Author-Name: Phelim Boyle
Author-X-Name-First: Phelim
Author-X-Name-Last: Boyle
Title: Monte Carlo methods for pricing discrete Parisian options
Abstract:
The paper develops an efficient Monte Carlo method to price discretely
monitored Parisian options based on a control variate approach. The paper
also modifies the Parisian option design by assuming the option is
exercised when the barrier condition is met rather than at maturity. We
obtain formulas for this new design when the underlying is continuously
monitored and develop an efficient Monte Carlo method for the discrete
case. Our method can also be used for the case of multiple barriers. We
use numerical examples to illustrate the approach and reveal important
features of the different types of options considered. Some
performance-based executive stock options include different tranches of
discretely monitored Parisian options and we illustrate this with a
practical example.
Journal: The European Journal of Finance
Pages: 169-196
Issue: 3
Volume: 17
Year: 2011
Keywords: Parisian options, Monte Carlo, discrete monitoring, control variate, early exercise, executive stock options,
X-DOI: 10.1080/13518470903448473
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903448473
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:3:p:169-196
Template-Type: ReDIF-Article 1.0
Author-Name: Alistair Bruce
Author-X-Name-First: Alistair
Author-X-Name-Last: Bruce
Author-Name: Johnnie Johnson
Author-X-Name-First: Johnnie
Author-X-Name-Last: Johnson
Author-Name: Leilei Tang
Author-X-Name-First: Leilei
Author-X-Name-Last: Tang
Title: The explanatory power of trading volume and insider activity in a pari-mutuel betting market
Abstract:
In this paper, we examine the role played by the holders of privileged
information (insiders) in stimulating trading volume which adds
explanatory power to a price-based model of returns in a market where the
actions of insiders can be isolated - a pari-mutuel betting market. We
conduct conditional logit analyses based on data relating to 19,164 horses
running in 2078 races (49 racetracks) staged across the UK between 1 June
and 31 August 1996. These analyses indicate that prices generally fail to
incorporate fully information contained in trading volumes. However, the
betting public fully discounts volume information in markets most commonly
viewed as attracting bets from insiders. Isolation of the actual degree of
insider activity sheds light on the variation in volume effects.
Journal: The European Journal of Finance
Pages: 197-216
Issue: 3
Volume: 17
Year: 2011
Keywords: markets, volume, insiders, betting, herding,
X-DOI: 10.1080/1351847X.2010.481468
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481468
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:3:p:197-216
Template-Type: ReDIF-Article 1.0
Author-Name: Ann-Kristin Achleitner
Author-X-Name-First: Ann-Kristin
Author-X-Name-Last: Achleitner
Author-Name: Christian Andres
Author-X-Name-First: Christian
Author-X-Name-Last: Andres
Author-Name: Andre Betzer
Author-X-Name-First: Andre
Author-X-Name-Last: Betzer
Author-Name: Charlie Weir
Author-X-Name-First: Charlie
Author-X-Name-Last: Weir
Title: Wealth effects of private equity investments on the German stock market
Abstract:
This paper investigates the wealth effects of private equity (PE)
investor purchases of shares in German quoted companies. It is the first
study to analyse these effects for the German market, which is
particularly interesting due to its distinct characteristics with regard
to the ownership structure of publicly listed companies and the protection
of minority shareholders. We find that PE investors generate positive
wealth effects for target shareholders of 5.90% around the event day (t=-1
to t=0). In addition, we find that the wealth effects of PE investor
involvement in Germany are positively related to the target's tax
liabilities and degree of undervaluation and negatively related to the
target's leverage and the shareholding of the second largest ownership
block. The latter effect can be interpreted as a supplementary monitoring
effect of the management or a monitoring effect of the largest shareholder
through which private benefits of control are reduced.
Journal: The European Journal of Finance
Pages: 217-239
Issue: 3
Volume: 17
Year: 2011
Keywords: wealth effects, private equity, Germany,
X-DOI: 10.1080/13518470903448465
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518470903448465
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:3:p:217-239
Template-Type: ReDIF-Article 1.0
Author-Name: Carl Chiarella
Author-X-Name-First: Carl
Author-X-Name-Last: Chiarella
Author-Name: Roberto Dieci
Author-X-Name-First: Roberto
Author-X-Name-Last: Dieci
Author-Name: Xue-Zhong He
Author-X-Name-First: Xue-Zhong
Author-X-Name-Last: He
Title: Do heterogeneous beliefs diversify market risk?
Abstract:
It is believed that diversity is good for our society, but is it good for
financial markets? In particular, does the diversity with respect to
beliefs among investors reduce the market risk of risky assets? The
current paper aims to answer this question. Within the standard
mean-variance framework, we introduce heterogeneous beliefs not only in
risk preferences and expected payoffs but also in variances/covariances.
By aggregating heterogeneous beliefs into a market consensus belief, we
obtain capital asset pricing model-like equilibrium price and return
relationships under heterogeneous beliefs. We show that the market
aggregate behaviour is in principle a weighted average of heterogeneous
individual behaviours. The impact of heterogeneity on the market
equilibrium price and risk premium is examined in general. In particular,
we give a positive answer to the question in the title by considering some
special structure in heterogeneous beliefs. In addition, we provide an
explanation of Miller's long-standing hypothesis on the relation between a
stock's risk and the divergence of opinions.
Journal: The European Journal of Finance
Pages: 241-258
Issue: 3
Volume: 17
Year: 2011
Keywords: heterogeneous beliefs, CAPM, mean-variance analysis, diversification, Miller's hypothesis,
X-DOI: 10.1080/1351847X.2010.481457
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481457
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:3:p:241-258
Template-Type: ReDIF-Article 1.0
Author-Name: Tom Aabo
Author-X-Name-First: Tom
Author-X-Name-Last: Aabo
Author-Name: Christos Pantzalis
Author-X-Name-First: Christos
Author-X-Name-Last: Pantzalis
Title: In or out: the effect of euro membership on the exercise of real business options
Abstract:
This empirical study of manufacturing firms (NAICS 33) in the EU15
countries goes beyond the trade statistics that have indicated only a
small to negligible effect from the introduction of the Euro and shows
that the introduction of the Euro has made Euro firms (firms based in one
of the 12 Euro countries) more inclined than non-Euro firms (firms based
in one of the three non-Euro countries: UK, Sweden, and Denmark) to
undertake various forms of real actions (exercise real business options)
such as to establish alliances/partnerships, to enter new markets/market
segments, to switch suppliers, and to generally expand in the Euro-area.
The results are important in understanding the potential long-term effects
of Euro membership.
Journal: The European Journal of Finance
Pages: 259-284
Issue: 4
Volume: 17
Year: 2011
Keywords: Euro membership, real business options, long-term effects: manufacturing firms,
X-DOI: 10.1080/13518471003640142
File-URL: http://www.tandfonline.com/doi/abs/10.1080/13518471003640142
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:4:p:259-284
Template-Type: ReDIF-Article 1.0
Author-Name: Frank McGroarty
Author-X-Name-First: Frank
Author-X-Name-Last: McGroarty
Author-Name: Owain ap Gwilym
Author-X-Name-First: Owain
Author-X-Name-Last: ap Gwilym
Author-Name: Stephen Thomas
Author-X-Name-First: Stephen
Author-X-Name-Last: Thomas
Title: Structural changes, bid-ask spread composition and tick size in inter-bank futures trading
Abstract:
This paper studies a period containing three major structural changes,
which constitute a natural experiment in the NYSE.Euronext-LIFFE European
short-term interest rate (STIR) futures market. These changes comprise (1)
a 50% reduction in minimum tick size for the most heavily traded contract,
(2) European Monetary Union and (3) the transition from open outcry to
electronic trading. We analyse a number of microstructure features of the
four largest European interest rate futures contracts throughout this
period. In particular, we focus on bid-ask spread composition using a
recent model which is appropriate for this market structure. Our analysis
identifies the tick size as the largest bid-ask spread component in almost
every instance, which suggests that participants in this STIR future
market might benefit from a reduction in minimum tick sizes.
Journal: The European Journal of Finance
Pages: 285-306
Issue: 4
Volume: 17
Year: 2011
Keywords: bid-ask spreads, futures, market microstructure, price clustering, tick size,
X-DOI: 10.1080/1351847X.2010.481465
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481465
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:4:p:285-306
Template-Type: ReDIF-Article 1.0
Author-Name: Z. Landsman
Author-X-Name-First: Z.
Author-X-Name-Last: Landsman
Author-Name: U. Makov
Author-X-Name-First: U.
Author-X-Name-Last: Makov
Title: Translation-invariant and positive-homogeneous risk measures and optimal portfolio management
Abstract:
The problem of risk portfolio optimization with translation-invariant and
positive-homogeneous risk measures, which includes value-at-risk (VaR) and
tail conditional expectation (TCE), leads to the problem of minimizing a
combination of a linear functional and a square root of a quadratic
functional for the case of elliptical multivariate underlying
distributions. In this paper, we provide an explicit closed-form solution
of this minimization problem, and the condition under which this solution
exists. The results are illustrated using the data of 10 stocks from
NASDAQ/Computers. The distance between the VaR and TCE optimal portfolios
has been investigated.
Journal: The European Journal of Finance
Pages: 307-320
Issue: 4
Volume: 17
Year: 2011
Keywords: translation-invariant and positive-homogeneous risk measure, value-at-risk, tail condition expectation, minimization of root of quadratic functional, elliptical family,
X-DOI: 10.1080/1351847X.2010.481467
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481467
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:4:p:307-320
Template-Type: ReDIF-Article 1.0
Author-Name: Yuming Li
Author-X-Name-First: Yuming
Author-X-Name-Last: Li
Title: Time-varying stock returns and labor income risks in the US and UK
Abstract:
I propose and estimate conditional asset pricing models where the risk
premiums of the markets are related to the conditional covariance of the
markets with labor income growth within and across countries and the
volatility of the markets are related to the shocks and interactions of
stock returns and labor income growth. I document that the risk premiums
for the US and UK stock markets are more related to the conditional
covariance of returns with the labor income growth within countries than
across countries. I also find significant interactions of volatilities
between stock returns and labor income within countries but not across
countries. The results are consistent with the hypothesis that prices of
domestic stocks are determined to a greater extent by stochastic discount
factors of domestic investors than foreign investors and vice versa.
Journal: The European Journal of Finance
Pages: 321-336
Issue: 4
Volume: 17
Year: 2011
Keywords: international asset pricing, exchange rates, labor income,
X-DOI: 10.1080/1351847X.2010.481449
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481449
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:4:p:321-336
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Introduction and preface
Abstract:
Journal: The European Journal of Finance
Pages: 337-337
Issue: 5-6
Volume: 17
Year: 2011
X-DOI: 10.1080/1351847X.2011.574990
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2011.574990
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:337-337
Template-Type: ReDIF-Article 1.0
Author-Name: Mika Vaihekoski
Author-X-Name-First: Mika
Author-X-Name-Last: Vaihekoski
Title: History of financial research and education in Finland
Abstract:
This paper reviews the first 30 years of finance research and education
history in Finland from the publication of the first financial
dissertation in 1977. It was also the year when finance was first offered
as a major subject in Finland, among the first ones in the Nordic
countries. This review shows how Finnish financial education and research
have developed from a very humble beginning to an internationally
acclaimed one. This development can be attributed to a number of talented
and hard-working individuals but also to the decision to collaborate among
the Finnish universities to overcome some of the problems faced by a small
country.
Journal: The European Journal of Finance
Pages: 339-354
Issue: 5-6
Volume: 17
Year: 2011
Keywords: financial education, research, graduate school, Finland, history, professors, dissertation,
X-DOI: 10.1080/1351847X.2010.543829
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.543829
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:339-354
Template-Type: ReDIF-Article 1.0
Author-Name: Tor Brunzell
Author-X-Name-First: Tor
Author-X-Name-Last: Brunzell
Author-Name: Mats Hansson
Author-X-Name-First: Mats
Author-X-Name-Last: Hansson
Author-Name: Eva Liljeblom
Author-X-Name-First: Eva
Author-X-Name-Last: Liljeblom
Title: The use of derivatives in Nordic firms
Abstract:
We contribute to the previous literature on the use of derivatives by
studying separately the determinants of profit seeking versus those of
hedging. In our sample of listed firms from four Nordic countries, about
62% use derivatives. Although the hedging motive clearly dominates, over
half of the firms give some weight for additional income as a motive for
the use of derivatives. Combining survey data on the use of derivatives
with financial variables, data on management and blockholder ownership,
and data on firm-level diversification, we find that very different
determinants drive the use of derivatives for these two motives.
Firm-level diversification is negatively related to hedging, but is
positively related to the use of derivatives for additional income.
Financial firms use derivatives more for profit than for hedging. We also
find weak support for a value-increasing effect of the use of derivatives.
Journal: The European Journal of Finance
Pages: 355-376
Issue: 5-6
Volume: 17
Year: 2011
Keywords: derivatives, risk management, hedging, degree of diversification, impact of ownership,
X-DOI: 10.1080/1351847X.2010.543836
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.543836
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:355-376
Template-Type: ReDIF-Article 1.0
Author-Name: Kenneth Hogholm
Author-X-Name-First: Kenneth
Author-X-Name-Last: Hogholm
Author-Name: Johan Knif
Author-X-Name-First: Johan
Author-X-Name-Last: Knif
Author-Name: Seppo Pynnonen
Author-X-Name-First: Seppo
Author-X-Name-Last: Pynnonen
Title: Cross-distributional robustness of conditional weekday effects: evidence from European equity-index returns
Abstract:
The paper re-examines the issue of the robustness of the weekday effect.
Specifically, by utilizing a quantile regression approach, the homogeneity
of observed day-of-the-week anomalies is monitored and tested over
different parts of the conditional return distribution. The
day-of-the-week effects are measured for conditional returns as well as
for conditional volatilities. The model applied accounts for asymmetry in
first-order autocorrelation in both moments. The weekday patterns in the
returns on the European market index and 18 European country indexes are
analyzed for the time period from January 2000 through December 2006.
Generally, the sign of the estimated weekday effects in both the
conditional mean and volatility seems to be very robust over the return
distribution. However, about one half of the country-specific indexes
exhibit significant variation or asymmetry in the day-of-the-week
coefficients across the quantiles of the conditional return distribution.
Only in a few cases, the significant day-of-the-week effect is clearly
driven by extreme events.
Journal: The European Journal of Finance
Pages: 377-390
Issue: 5-6
Volume: 17
Year: 2011
Keywords: weekday effect, European equity markets, quantile regression,
X-DOI: 10.1080/1351847X.2010.544474
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.544474
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:377-390
Template-Type: ReDIF-Article 1.0
Author-Name: Mats Hansson
Author-X-Name-First: Mats
Author-X-Name-Last: Hansson
Author-Name: Eva Liljeblom
Author-X-Name-First: Eva
Author-X-Name-Last: Liljeblom
Author-Name: Minna Martikainen
Author-X-Name-First: Minna
Author-X-Name-Last: Martikainen
Title: Corporate governance and profitability in family SMEs
Abstract:
We analyze the determinants of performance in small unlisted family firms
and find, in line with previous studies, a positive effect associated with
a family CEO. We contribute by bringing in an additional variable, the
proportion of family members employed by the firm and find it to be
negatively related to firm performance. There is a significant tendency
for family CEOs to employ family members, which - given the negative
effect of these - should offset some of the positive performance effects
of a family CEO. We also analyze the effect of board size in these already
small family boards, where the maximum number of board members is six. We
find that even here, board size is significantly negatively associated
with firm performance.
Journal: The European Journal of Finance
Pages: 391-408
Issue: 5-6
Volume: 17
Year: 2011
Keywords: firm performance, family employees, family CEO, board size, family SMEs,
X-DOI: 10.1080/1351847X.2010.543842
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.543842
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:391-408
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Graham
Author-X-Name-First: Michael
Author-X-Name-Last: Graham
Author-Name: Jussi Nikkinen
Author-X-Name-First: Jussi
Author-X-Name-Last: Nikkinen
Title: Co-movement of the Finnish and international stock markets: a wavelet analysis
Abstract:
We use wavelet analysis to examine the short-term and long-term
co-movement of international stock markets from a European perspective.
First, we assess the co-movement of the Finnish stock market with stock
markets in both developed and emerging economies. Second, the co-movement
of five major European markets and a global equity portfolio is analysed.
Our results show that the co-movement of Finland and the emerging market
regions is confined to long-term fluctuations. We also find evidence of
co-movement between Finland and the developed regions in Europe, the
Pacific, and North America across all frequencies, with higher levels of
co-movement in higher frequencies toward the end of the return series.
Furthermore, the results suggest that little may be gained by diversifying
from a country stock portfolio from the perspective of investors in
France, Germany, Switzerland, and the UK into a global stock portfolio,
whereas diversifying into the Finnish market would be advantageous.
Journal: The European Journal of Finance
Pages: 409-425
Issue: 5-6
Volume: 17
Year: 2011
Keywords: co-movement, Finland, international stock markets, wavelets,
X-DOI: 10.1080/1351847X.2010.543839
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.543839
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:409-425
Template-Type: ReDIF-Article 1.0
Author-Name: Seppo Ikaheimo
Author-X-Name-First: Seppo
Author-X-Name-Last: Ikaheimo
Author-Name: Vesa Puttonen
Author-X-Name-First: Vesa
Author-X-Name-Last: Puttonen
Author-Name: Tuomas Ratilainen
Author-X-Name-First: Tuomas
Author-X-Name-Last: Ratilainen
Title: External corporate governance and performance: evidence from the Nordic countries
Abstract:
We examine the influence of anti-takeover provisions on valuation, stock
return and operating performance using data from an extensive sample of
publicly listed Nordic companies during the time period of 1999-2004
(similar to Gompers, Ishii, and Metrick 2003 [Corporate governance and
equity prices. The Quarterly Journal of Economics 118: 107-55] in the US).
We collected data from nine of the most commonly used provisions. The
results suggest that anti-takeover provisions have a negative impact on
valuation, no effect on stock return, and a positive influence on
operating performance. Analysing the influence of each reveals dual-class
stock to be the single most important provision dummy contributing to the
negative valuation, though the discount decreases over the years.
Journal: The European Journal of Finance
Pages: 427-450
Issue: 5-6
Volume: 17
Year: 2011
Keywords: corporate governance, anti-takeover provision, Nordic countries, dual-class share,
X-DOI: 10.1080/1351847X.2010.543832
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.543832
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:427-450
Template-Type: ReDIF-Article 1.0
Author-Name: Eemeli Rinne
Author-X-Name-First: Eemeli
Author-X-Name-Last: Rinne
Author-Name: Sami Vahamaa
Author-X-Name-First: Sami
Author-X-Name-Last: Vahamaa
Title: The 'Dogs of the Dow' strategy revisited: Finnish evidence
Abstract:
This paper re-examines the performance of the 'Dogs of the Dow' (DoD)
investment strategy in a different market setting and over a different
time period. In particular, we use Finnish data over the period 1988-2008
to examine whether the DoD strategy can be successfully replicated in
different types of markets and in different market conditions. Our
empirical findings suggest that the DoD investment strategy is profitable
in the Finnish stock market. The DoD strategy outperforms the market index
with an average (median) annual abnormal return of 4.5% (7.5%). The
outperformance of the DoD strategy appears particularly pronounced in
stock market downturns. Furthermore, our results indicate that the DoD
strategy outperforms the market index even after most risk adjustments and
thereby suggest that the outperformance of the strategy is not merely a
compensation for higher risk. Nevertheless, we also document that the
superior returns of the DoD strategy may be largely attributed to the
winner-loser effect.
Journal: The European Journal of Finance
Pages: 451-469
Issue: 5-6
Volume: 17
Year: 2011
Keywords: Dogs of the Dow strategy, investment strategy, portfolio management,
X-DOI: 10.1080/1351847X.2010.544951
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.544951
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:451-469
Template-Type: ReDIF-Article 1.0
Author-Name: Hon-Lun Chung
Author-X-Name-First: Hon-Lun
Author-X-Name-Last: Chung
Author-Name: Wai-Sum Chan
Author-X-Name-First: Wai-Sum
Author-X-Name-Last: Chan
Author-Name: Jonathan Batten
Author-X-Name-First: Jonathan
Author-X-Name-Last: Batten
Title: Threshold non-linear dynamics between Hang Seng stock index and futures returns
Abstract:
We test the joint dynamics between the Hong Kong Hang Seng Index futures
and the underlying cash index using a Bivariate Threshold AutoRegressive
model, which is better able to capture the complex return dynamics evident
in financial time series. The results are consistent with a three-regime
version of the model, where the lead-lag relation between the index and
futures returns is a non-linear threshold-type and the regime switching
process depends on the state of the threshold variable. This interaction
is symmetric rather than unidirectional, with the strength of the
interaction dependent on the regime. These three regimes are also
characterised by significant variation in volume, which is consistent with
liquidity-induced arbitrage trading.
Journal: The European Journal of Finance
Pages: 471-486
Issue: 7
Volume: 17
Year: 2011
Keywords: lead-lag relationship, threshold autoregression, non-linearity test, futures markets, Hang Seng index,
X-DOI: 10.1080/1351847X.2010.481469
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.481469
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:7:p:471-486
Template-Type: ReDIF-Article 1.0
Author-Name: Sara Martino
Author-X-Name-First: Sara
Author-X-Name-Last: Martino
Author-Name: Kjersti Aas
Author-X-Name-First: Kjersti
Author-X-Name-Last: Aas
Author-Name: Ola Lindqvist
Author-X-Name-First: Ola
Author-X-Name-Last: Lindqvist
Author-Name: Linda Neef
Author-X-Name-First: Linda
Author-X-Name-Last: Neef
Author-Name: Håvard Rue
Author-X-Name-First: Håvard
Author-X-Name-Last: Rue
Title: Estimating stochastic volatility models using integrated nested Laplace approximations
Abstract:
Volatility in financial time series is mainly analysed through two
classes of models; the generalized autoregressive conditional
heteroscedasticity (GARCH) models and the stochastic volatility (SV) ones.
GARCH models are straightforward to estimate using maximum-likelihood
techniques, while SV models require more complex inferential and
computational tools, such as Markov Chain Monte Carlo (MCMC). Hence,
although provided with a series of theoretical advantages, SV models are
in practice much less popular than GARCH ones. In this paper, we solve the
problem of inference for some SV models by applying a new inferential
tool, integrated nested Laplace approximations (INLAs). INLA substitutes
MCMC simulations with accurate deterministic approximations, making a full
Bayesian analysis of many kinds of SV models extremely fast and accurate.
Our hope is that the use of INLA will help SV models to become more
appealing to the financial industry, where, due to their complexity, they
are rarely used in practice.
Journal: The European Journal of Finance
Pages: 487-503
Issue: 7
Volume: 17
Year: 2011
Keywords: approximate Bayesian inference, Laplace approximation, latent Gaussian models, stochastic volatility model,
X-DOI: 10.1080/1351847X.2010.495475
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495475
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:7:p:487-503
Template-Type: ReDIF-Article 1.0
Author-Name: Baibing Li
Author-X-Name-First: Baibing
Author-X-Name-Last: Li
Author-Name: Xiangkang Yin
Author-X-Name-First: Xiangkang
Author-X-Name-Last: Yin
Title: Information and capital asset pricing
Abstract:
Investors in a market frequently update their diverse perceptions of the
values of risky assets, thus invalidating the classic capital asset
pricing model's (CAPM) assumption of complete agreement among investors.
To accommodate information asymmetry and belief updating, we have
developed an empirically testable information-adjusted CAPM, which states
that the expected excess return of a risky asset/portfolio is solely
determined by the information-adjusted beta rather than the market beta.
The model is then used to analyze empirical anomalies of the classic CAPM,
including a flatter relation between average return and the market beta
than the CAPM predicts, a non-zero Jensen's alpha, insignificant
explanatory power of the market beta, and size effect.
Journal: The European Journal of Finance
Pages: 505-523
Issue: 7
Volume: 17
Year: 2011
Keywords: asset pricing, asymmetric information, CAPM anomaly, rational expectations equilibrium,
X-DOI: 10.1080/1351847X.2010.495476
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495476
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:7:p:505-523
Template-Type: ReDIF-Article 1.0
Author-Name: Tobias Brunner
Author-X-Name-First: Tobias
Author-X-Name-Last: Brunner
Author-Name: Rene Levinsky
Author-X-Name-First: Rene
Author-X-Name-Last: Levinsky
Author-Name: Jianying Qiu
Author-X-Name-First: Jianying
Author-X-Name-Last: Qiu
Title: Preferences for skewness: evidence from a binary choice experiment
Abstract:
In this paper, we experimentally test skewness preferences at the
individual level. Several prospects that can be ordered with respect to
the third-degree stochastic dominance criterion are ranked by the
participants of the experiment. We find that the skewness of a
distribution has a significant impact on the decisions. Yet, while
skewness has an impact, its direction differs substantially across
subjects: 39% of our subjects demonstrate a statistically significant
preference for skewness and 10% seem to avoid skewness (at 5% level). On
the level of individual decisions we find that the variances of the
prospects and subjects' experience increase the probability of choosing
the lottery with greater skewness.
Journal: The European Journal of Finance
Pages: 525-538
Issue: 7
Volume: 17
Year: 2011
Keywords: skewness, stochastic dominance, decision-making under uncertainty,
X-DOI: 10.1080/1351847X.2010.495478
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495478
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:7:p:525-538
Template-Type: ReDIF-Article 1.0
Author-Name: Snorre Lindset
Author-X-Name-First: Snorre
Author-X-Name-Last: Lindset
Author-Name: Egil Matsen
Author-X-Name-First: Egil
Author-X-Name-Last: Matsen
Title: Human capital investment and optimal portfolio choice
Abstract:
We analyze how an individual should optimally invest in human capital
when he also has financial wealth. We treat the individual's possibilities
to take more education as expansion options and apply real option
analysis. In addition, we characterize the individual's optimal
consumption strategy and portfolio weights. The individual has a demand
for hedging financial risk, labor income risk, and also wage level risk.
Journal: The European Journal of Finance
Pages: 539-552
Issue: 7
Volume: 17
Year: 2011
Keywords: optimal portfolio choice, investment in human capital, hedging demand,
X-DOI: 10.1080/1351847X.2010.495480
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495480
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:7:p:539-552
Template-Type: ReDIF-Article 1.0
Author-Name: Robert Durand
Author-X-Name-First: Robert
Author-X-Name-Last: Durand
Author-Name: John Gould
Author-X-Name-First: John
Author-X-Name-Last: Gould
Author-Name: Ross Maller
Author-X-Name-First: Ross
Author-X-Name-Last: Maller
Title: On the performance of the minimum VaR portfolio
Abstract:
Alexander and Baptista [2002. Economic implications of using a
mean-value-at-risk (VaR) model for portfolio selection: A comparison with
mean-variance analysis. Journal of Economic Dynamics and Control 26:
1159-93] develop the concept of mean-VaR efficiency for portfolios and
demonstrate its very close connection with mean-variance efficiency. In
particular, they identify the minimum VaR portfolio as a special type of
mean-variance efficient portfolio. Our empirical analysis finds that, for
commonly used VaR breach probabilities, minimum VaR portfolios yield ex
post returns that conform well with the specified VaR breach probabilities
and with return/risk expectations. These results provide a considerable
extension of evidence supporting the empirical validity and tractability
of the mean-VaR efficiency concept.
Journal: The European Journal of Finance
Pages: 553-576
Issue: 7
Volume: 17
Year: 2011
Keywords: portfolio optimization, mean-variance efficiency, value-at-risk, Fama-French portfolios, iShares,
X-DOI: 10.1080/1351847X.2010.495484
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.495484
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:7:p:553-576
Template-Type: ReDIF-Article 1.0
Author-Name: Peter Dunne
Author-X-Name-First: Peter
Author-X-Name-Last: Dunne
Author-Name: Michael Moore
Author-X-Name-First: Michael
Author-X-Name-Last: Moore
Author-Name: Vasileios Papavassiliou
Author-X-Name-First: Vasileios
Author-X-Name-Last: Papavassiliou
Title: Commonality in returns, order flows, and liquidity in the Greek stock market
Abstract:
Using a unique high-frequency data-set on a comprehensive sample of Greek
blue-chip stocks, spanning from September 2003 through March 2006, this
note assesses the extent and role of commonality in returns, order flows
(OFs), and liquidity. It also formally models aggregate equity returns in
terms of aggregate equity OF, in an effort to clarify OF's importance in
explaining returns for the Athens Exchange market. Almost a quarter of the
daily returns in the FTSE/ATHEX20 index is explained by aggregate own OF.
In a second step, using principal components and canonical correlation
analyses, we document substantial common movements in returns, OFs, and
liquidity, both on a market-wide basis and on an individual security
basis. These results emphasize that asset pricing and liquidity cannot be
analyzed in isolation from each other.
Journal: The European Journal of Finance
Pages: 577-587
Issue: 7
Volume: 17
Year: 2011
Keywords: market microstructure, common factors, order flow, liquidity,
X-DOI: 10.1080/1351847X.2010.505725
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.505725
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:7:p:577-587
Template-Type: ReDIF-Article 1.0
Author-Name: Ali Ataullah
Author-X-Name-First: Ali
Author-X-Name-Last: Ataullah
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Title: A modified Corrado test for assessing abnormal security returns
Abstract:
Event studies typically use the methodology developed by Fama et al.
[1969. The adjustment of stock prices to new information. International
Economic Review 10, no. 1: 1-21] to segregate a stock's return into
expected and unexpected components. Moreover, conventional practice
assumes that abnormal returns evolve in terms of a normal distribution.
There is, however, an increasing tendency for event studies to employ
non-parametric testing procedures due to the mounting empirical evidence
which shows that stock returns are incompatible with the normal
distribution. This paper focuses on the widely used non-parametric ranking
procedure developed by Corrado [1989. A nonparametric test for abnormal
security price performance in event studies. Journal of Financial
Economics 23, no. 2: 385-95] for assessing the significance of abnormal
security returns. In particular, we develop a consistent estimator for the
variance of the sum of ranks of the abnormal returns, and show how this
leads to a more efficient test statistic (as well as to less cumbersome
computational procedures) than the test originally proposed by Corrado
(1989). We also use the theorem of Berry [1941. The accuracy of the
Gaussian approximation to the sum of independent variates. Transactions of
the American Mathematical Society 49, no. 1: 122-36] and Esseen [1945.
Fourier analysis of distribution functions: A mathematical study of the
Laplace-Gaussian law. Acta Mathematica 77, no. 1: 1-125] to demonstrate
how the distribution of the modified Corrado test statistic developed here
asymptotically converges towards the normal distribution. This shows that
describing the distributional properties of the sum of the ranks in terms
of the normal distribution is highly problematic for small sample sizes
and small event windows. In these circumstances, we show that a
second-order Edgeworth expansion provides a good approximation to the
actual probability distribution of the modified Corrado test statistic.
The application of the modified Corrado test developed here is illustrated
using data for the purchase and sale by UK directors of shares in their
own companies.
Journal: The European Journal of Finance
Pages: 589-601
Issue: 7
Volume: 17
Year: 2011
Keywords: abnormal return, Corrado test, Edgeworth expansion, normal distribution, rank,
X-DOI: 10.1080/1351847X.2011.554294
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2011.554294
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:7:p:589-601
Template-Type: ReDIF-Article 1.0
Author-Name: Dimitris Chronopoulos
Author-X-Name-First: Dimitris
Author-X-Name-Last: Chronopoulos
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Author-Name: John Nankervis
Author-X-Name-First: John
Author-X-Name-Last: Nankervis
Title: Are there any cost and profit efficiency gains in financial conglomeration? Evidence from the accession countries
Abstract:
Diversified banks should benefit from an efficient allocation of
resources, debt coinsurance and scope economies. At the same time, critics
of diversification question these advantages pointing to agency problems
such as managerial entrenchment and empire building that could also lead
to diversification but for the 'wrong' reasons. This paper sheds further
light on the issue of bank diversification by taking a direct look into
how efficiently financial conglomerates operate and by measuring to what
extent size and other bank- and market-specific factors matter in
evaluating the relationship between diversification and efficiency. We
focus on banks operating in the accession countries over the period
2001-2007 and estimate their cost and alternative profit efficiencies
using a data envelopment analysis estimator. The results indicate that
banks suffer from relatively high cost and profit inefficiencies and that
there are noticeable differences in the efficiency levels across
countries. Concerning banks' degree of diversification, we find strong
evidence to suggest that more diversified institutions are more likely to
be cost- and profit-efficient and that size is a key factor in explaining
best practice, particularly on the profit side.
Journal: The European Journal of Finance
Pages: 603-621
Issue: 8
Volume: 17
Year: 2011
Keywords: financial conglomerates, efficiency, accession countries, DEA, two-stage approach,
X-DOI: 10.1080/1351847X.2010.538300
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.538300
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:8:p:603-621
Template-Type: ReDIF-Article 1.0
Author-Name: Mariarosaria Agostino
Author-X-Name-First: Mariarosaria
Author-X-Name-Last: Agostino
Author-Name: Maria Mazzuca
Author-X-Name-First: Maria
Author-X-Name-Last: Mazzuca
Title: Empirical investigation of securitisation drivers: the case of Italian banks
Abstract:
This paper explores the determinants of securitisation by Italian banks
over the period 1999-2006, investigating the funding, specialisation, and
regulatory capital arbitrage hypotheses. According to our evidence, when
we consider all securitisation types together, Italian banks seem to have
securitised out of funding motives, to diversify and optimise their
available funding channels. When we separately consider securitisations
backed by residential mortgages and those backed by non-performing loans,
we find that the main factors affecting the former type of securitisation
are the need for funding and capital arbitrage motivation, whereas the
latter appear to have been affected to a lesser extent by a need for
funding and to have also been slightly conditioned by a desire to
specialise.
Journal: The European Journal of Finance
Pages: 623-648
Issue: 8
Volume: 17
Year: 2011
Keywords: securitisation, determinants of securitisation, Italian banks, banks' funding, banks' specialisation, regulatory capital arbitrage,
X-DOI: 10.1080/1351847X.2010.505727
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.505727
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:8:p:623-648
Template-Type: ReDIF-Article 1.0
Author-Name: Umberto Cherubini
Author-X-Name-First: Umberto
Author-X-Name-Last: Cherubini
Author-Name: Silvia Romagnoli
Author-X-Name-First: Silvia
Author-X-Name-Last: Romagnoli
Title: Multivariate digital options with memory
Abstract:
We study a class of multivariate digital products called Altiplanos.
These products may be structured according to two general features: (i)
they may be univariate or multivariate; (ii) they may be European or with
barrier. In addition to that, they may be endowed with exotic
characteristics. One of these is the so-called memory feature, which
prescribes that the first time when the underlying event takes place,
coupons are paid for all the previous periods in which it had not
occurred. The task of this paper is to provide new results for the
evaluation of this clause. We show that the memory features provide the
products with the presence of a digital option paying all coupons in the
final date, and that this option plays a dominant role in the evaluation.
Concerning sensitivity, the value of digital products with memory are
positively sensitive to an increase in cross-section correlation and to a
decrease in temporal correlation.
Journal: The European Journal of Finance
Pages: 649-660
Issue: 8
Volume: 17
Year: 2011
Keywords: copula functions, Markov processes, multivariate options, memory feature, correlation products,
X-DOI: 10.1080/1351847X.2010.505728
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.505728
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:8:p:649-660
Template-Type: ReDIF-Article 1.0
Author-Name: Gregory Koutmos
Author-X-Name-First: Gregory
Author-X-Name-Last: Koutmos
Author-Name: Johan Knif
Author-X-Name-First: Johan
Author-X-Name-Last: Knif
Title: Exchange rate exposure in the pre- and post-Euro periods: evidence from Finland
Abstract:
This paper investigates asymmetric as well as first- and second-moment
exchange rate exposure of the Finnish stock exchange (FSE) during the pre-
and post-Euro periods. There is evidence of significant market-level and
residual exchange rate exposure in the pre-Euro period. In the period,
following the introduction of the Euro, however, exchange rate exposure
becomes insignificant both at the market level and at the individual
portfolio level with minor exceptions. Obviously, the introduction of the
Euro has had a profound impact on the exchange rate exposure of the FSE.
Journal: The European Journal of Finance
Pages: 661-674
Issue: 8
Volume: 17
Year: 2011
Keywords: exchange rate exposure, post-Euro exposure, asymmetric exposure, exchange rate volatility,
X-DOI: 10.1080/1351847X.2010.543843
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2010.543843
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:8:p:661-674
Template-Type: ReDIF-Article 1.0
Author-Name: Joy Yihui Jia
Author-X-Name-First: Joy Yihui
Author-X-Name-Last: Jia
Author-Name: Mike Adams
Author-X-Name-First: Mike
Author-X-Name-Last: Adams
Author-Name: Mike Buckle
Author-X-Name-First: Mike
Author-X-Name-Last: Buckle
Title: The strategic use of corporate insurance in China
Abstract:
We use the agency theory to conduct a novel test of the strategic use of
property insurance in China's corporate sector. With regard to our main
test hypotheses, we find that the incidence of property insurance
purchased is directly related to the degree of product-market
competitiveness, and positively related to market liquidity and firms'
growth opportunities. However, the homogeneity of market operations is not
statistically significant. In our second-stage Cragg regression, market
liquidity becomes insignificant while firms' growth opportunities are now
inversely related to the amount of insurance purchased. Additionally, the
homogeneity of market operations becomes significantly related to the
corporate purchase of property insurance. Therefore, different factors
(e.g. cost considerations) may influence the decisions to purchase
property insurance and subsequently, the level of coverage provided. We
argue that our results are relevant for companies in other emerging
markets such as Eastern Europe and companies operating in more developed
Western economies such as the European Union (EU).
Journal: The European Journal of Finance
Pages: 675-694
Issue: 8
Volume: 17
Year: 2011
Keywords: insurance, strategy, agency theory, emerging markets, China,
X-DOI: 10.1080/1351847X.2011.554281
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2011.554281
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:8:p:675-694
Template-Type: ReDIF-Article 1.0
Author-Name: Helena Chulia
Author-X-Name-First: Helena
Author-X-Name-Last: Chulia
Author-Name: Hipolit Torro
Author-X-Name-First: Hipolit
Author-X-Name-Last: Torro
Title: Firm size and volatility analysis in the Spanish stock market
Abstract:
Using Spanish stock market data, this paper examines volatility
spillovers between large and small firms and their impact on expected
returns. By using a conditional capital asset pricing model (CAPM) with an
asymmetric multivariate GARCH-M covariance structure, it is shown that
there exist bidirectional volatility spillovers between both types of
companies, especially after bad news. After estimating the model, a
positive and significant price of risk is obtained. This result is
consistent with the volatility feedback effect, one of the most popular
explanations of the asymmetric volatility phenomenon, and explains why
risk premiums are much more sensitive to negative return shocks coming
from the whole market or other related markets.
Journal: The European Journal of Finance
Pages: 695-715
Issue: 8
Volume: 17
Year: 2011
Keywords: volatility spillovers, GARCH, large and small firms, risk premium,
X-DOI: 10.1080/1351847X.2011.554286
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2011.554286
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:8:p:695-715
Template-Type: ReDIF-Article 1.0
Author-Name: Ludwig Reinhard
Author-X-Name-First: Ludwig
Author-X-Name-Last: Reinhard
Author-Name: Steven Li
Author-X-Name-First: Steven
Author-X-Name-Last: Li
Title: The influence of taxes on corporate financing and investment decisions against the background of the German tax reforms
Abstract:
This paper analyses the influence of taxes and the 2000 tax
reform-induced tax changes on the financing and investment decisions of a
sample of German listed companies over the years from 1996 to 2005. In
contrast to the perception of the German government, our results do not
support the notion that companies deliberately adjust their financial
structures in order to reduce their corporate tax payments. Moreover, this
study finds that market opportunities and market pressures have a far
larger influence on investment decisions than on tax considerations. In
this context, no evidence is found for the notion that tax cuts result in
a higher investment activity that might stimulate economic growth and
reduce the high unemployment rate in Germany. Against the background of
these findings, it seems thus doubtful whether the recent tax reform will
be able to reach its objectives.
Journal: The European Journal of Finance
Pages: 717-737
Issue: 8
Volume: 17
Year: 2011
Keywords: taxes, tax reform, corporate financing decisions, corporate investment decisions, Germany,
X-DOI: 10.1080/1351847X.2011.554291
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2011.554291
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:8:p:717-737
Template-Type: ReDIF-Article 1.0
Author-Name: Juan Fernandez de Guevara
Author-X-Name-First: Juan Fernandez
Author-X-Name-Last: de Guevara
Author-Name: Joaquin Maudos
Author-X-Name-First: Joaquin
Author-X-Name-Last: Maudos
Title: Banking competition and economic growth: cross-country evidence
Abstract:
The aim of this paper is to analyse the effect of banking competition on
industry economic growth using both structural measures of competition and
measures based on the new empirical industrial organisation perspective.
The evidence obtained in the period 1993-2003 for a sample of 53 sectors
in 21 countries indicates that financial development promotes economic
growth. The results also show that bank monopoly power has an
inverted-U-shaped effect on economic growth, suggesting that bank market
power has its highest growth effect at intermediate values. The latter
result is consistent with the literature on relationship lending, which
argues that bank competition can have a negative effect on the
availability of finance for companies that are informationally more
opaque.
Journal: The European Journal of Finance
Pages: 739-764
Issue: 8
Volume: 17
Year: 2011
Keywords: economic growth, banking competition, financial development,
X-DOI: 10.1080/1351847X.2011.554300
File-URL: http://www.tandfonline.com/doi/abs/10.1080/1351847X.2011.554300
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:8:p:739-764
Template-Type: ReDIF-Article 1.0
Author-Name: John O.S. Wilson
Author-X-Name-First: John O.S.
Author-X-Name-Last: Wilson
Author-Name: David G. McMillan
Author-X-Name-First: David G.
Author-X-Name-Last: McMillan
Author-Name: Barbara Casu
Author-X-Name-First: Barbara
Author-X-Name-Last: Casu
Title: Contemporary issues in financial institutions and markets
Journal: The European Journal of Finance
Pages: 765-768
Issue: 9-10
Volume: 17
Year: 2011
Month: 11
X-DOI: 10.1080/1351847X.2010.546684
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.546684
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:9-10:p:765-768
Template-Type: ReDIF-Article 1.0
Author-Name: Barbara Casu
Author-X-Name-First: Barbara
Author-X-Name-Last: Casu
Author-Name: Andrew Clare
Author-X-Name-First: Andrew
Author-X-Name-Last: Clare
Author-Name: Anna Sarkisyan
Author-X-Name-First: Anna
Author-X-Name-Last: Sarkisyan
Author-Name: Stephen Thomas
Author-X-Name-First: Stephen
Author-X-Name-Last: Thomas
Title: Does securitization reduce credit risk taking? Empirical evidence from US bank holding companies
Abstract:
This study investigates the impact of securitization on the credit
risk-taking behavior of banks. Using US Bank Holding Company data from
2001 to 2007, we find that banks with a greater balance of outstanding
securitized assets choose asset portfolios of lower credit risks.
Examining securitizations by the type of underlying assets, we find that
the negative relationship between outstanding securitization and risk
taking is primarily driven by securitizations of mortgages, home equity
lines of credit, and other consumer loans. Securitizations of all other
types of assets, on the other hand, seem to have no significant impact on
bank credit risk-taking behavior. We attribute these results to the
recourse commonly provided in securitization transactions, as it might
alter the risk-taking appetite of the issuing banks across asset classes.
Therefore, we conclude that the net impact of securitization on the
risk-taking behavior of issuing banks, and consequently on the soundness
of the banking system, is ambiguous and will depend on the transactions
structure. In particular, it will depend on the relative magnitude of
credit support provided by banks. This leads us to suggest that banks have
typically viewed securitization as a financing rather than a risk
management mechanism.
Journal: The European Journal of Finance
Pages: 769-788
Issue: 9-10
Volume: 17
Year: 2011
Month: 11
X-DOI: 10.1080/1351847X.2010.538526
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.538526
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:9-10:p:769-788
Template-Type: ReDIF-Article 1.0
Author-Name: Franco Fiordelisi
Author-X-Name-First: Franco
Author-X-Name-Last: Fiordelisi
Author-Name: Ornella Ricci
Author-X-Name-First: Ornella
Author-X-Name-Last: Ricci
Title: Bancassurance efficiency gains: evidence from the Italian banking and insurance industries
Abstract:
Bancassurance has rapidly grown in Europe over the past 20 years catching
the attention of managers and academia. Most dedicated studies have only
been descriptive in nature, while the number of empirical studies is very
limited. Potential efficiency gains are a poorly investigated issue, even
though cost and revenue synergies are commonly recognised among the main
economic rationales for conglomeration. Our paper aims to assess
bancassurance performance gains (from both the banking and the insurance
standpoints) in the Italian banking and insurance sectors over the period
2005--2006 by estimating cost and profit efficiency using stochastic
frontier analysis. With regard to the banking industry, we do not show any
strong evidence in favour of entering the life insurance business. The
investigation into the insurance industry highlights the competitive
viability of bancassurance as a distribution channel, especially in terms
of cost efficiency. In terms of profitability, our findings suggest that
the mix of products should be continuously revised to adapt to customer
needs and the evolution of financial markets. As a consequence, ownership
links are not necessarily the best bancassurance strategy, and the parties
involved should also consider more flexible forms of cooperation, such as
cross-selling agreements and non-equity strategic alliances.
Journal: The European Journal of Finance
Pages: 789-810
Issue: 9-10
Volume: 17
Year: 2011
Month: 11
X-DOI: 10.1080/1351847X.2010.538519
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.538519
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:9-10:p:789-810
Template-Type: ReDIF-Article 1.0
Author-Name: Georgios E. Chortareas
Author-X-Name-First: Georgios E.
Author-X-Name-Last: Chortareas
Author-Name: Jesús G. Garza-García
Author-X-Name-First: Jesús G.
Author-X-Name-Last: Garza-García
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Title: Financial deepening and bank productivity in Latin America
Abstract:
Financial intermediation in Latin America has experienced profound
changes due to financial liberalization, which also resulted in further
financial deepening. The bulk of the literature on financial deepening
focuses on its macroeconomic dimension and its implications for growth. In
this paper, we shift our attention to its microeconomic implications by
shaping the environment within which banks operate. In particular, we
examine the possible effects of financial deepening on bank productivity
changes as well as the possibility of a two-way causality. We obtain bank
productivity estimates using the non-parametric Malmquist methodology. We
find strong evidence of causality from financial deepening to bank
productivity and also evidence of reverse causality. Our results suggest
that a virtuous circle between financial deepening and financial
institutions’ productivity may exist.
Journal: The European Journal of Finance
Pages: 811-827
Issue: 9-10
Volume: 17
Year: 2011
Month: 11
X-DOI: 10.1080/1351847X.2010.538512
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.538512
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:9-10:p:811-827
Template-Type: ReDIF-Article 1.0
Author-Name: Andreas G.F. Hoepner
Author-X-Name-First: Andreas G.F.
Author-X-Name-Last: Hoepner
Author-Name: Hussain G. Rammal
Author-X-Name-First: Hussain G.
Author-X-Name-Last: Rammal
Author-Name: Michael Rezec
Author-X-Name-First: Michael
Author-X-Name-Last: Rezec
Title: Islamic mutual funds’ financial performance and international investment style: evidence from 20 countries
Abstract:
We pursue the first large-scale investigation of a strongly growing
mutual fund type: Islamic funds. Based on an unexplored, survivorship
bias-adjusted data set, we analyse the financial performance and
investment style of 265 Islamic equity funds from 20 countries. As Islamic
funds often have diverse investment regions, we develop a (conditional)
three-level Carhart model to simultaneously control for exposure to
different national, regional and global equity markets and investment
styles. Consistent with recent evidence for conventional funds, we find
Islamic funds to display superior learning in more developed Islamic
financial markets. While Islamic funds from these markets are competitive
to international equity benchmarks, funds from especially Western nations
with less Islamic assets tend to significantly underperform. Islamic
funds’ investment style is somewhat tilted towards growth stocks.
Funds from predominantly Muslim economies also show a clear small cap
preference. These results are consistent over time and robust to time
varying market exposures and capital market restrictions.
Journal: The European Journal of Finance
Pages: 829-850
Issue: 9-10
Volume: 17
Year: 2011
Month: 11
X-DOI: 10.1080/1351847X.2010.538521
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.538521
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:9-10:p:829-850
Template-Type: ReDIF-Article 1.0
Author-Name: Sergio Mayordomo
Author-X-Name-First: Sergio
Author-X-Name-Last: Mayordomo
Author-Name: Juan Ignacio Peña
Author-X-Name-First: Juan Ignacio
Author-X-Name-Last: Peña
Author-Name: Juan Romo
Author-X-Name-First: Juan
Author-X-Name-Last: Romo
Title: The effect of liquidity on the price discovery process in credit derivatives markets in times of financial distress
Abstract:
This paper analyses the role of liquidity in the price discovery process.
Specifically, we focus on the credit derivatives markets in the context of
the subprime crisis. We present a theoretical price discovery model for
the asset swap packages (ASPs), bond and credit default swap (CDS) markets
and then we test the model with data from 2005 to 2009 on Euro-denominated
non-financial firms. Our empirical results show that the ASP market
clearly leads the bond market in the price discovery process in all cases,
while the leadership between ASPs and CDSs is very sensitive to the
appearance of the subprime crisis. Before the crisis, the CDSs market
leads the ASP market, but during the crisis, the ASP market leads the CDS
market. The liquidity, measured as the relative number of market
participants, helps to explain these results.
Journal: The European Journal of Finance
Pages: 851-881
Issue: 9-10
Volume: 17
Year: 2011
Month: 11
X-DOI: 10.1080/1351847X.2010.538529
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.538529
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:9-10:p:851-881
Template-Type: ReDIF-Article 1.0
Author-Name: Thanos Verousis
Author-X-Name-First: Thanos
Author-X-Name-Last: Verousis
Author-Name: Owain ap Gwilym
Author-X-Name-First: Owain
Author-X-Name-Last: ap Gwilym
Title: Return reversals and the compass rose: insights from high frequency options data
Abstract:
We study the occurrence and visibility of the compass rose pattern in
high frequency data from individual equity options contracts. We show that
the compass rose pattern in options contracts is more complex than
portrayed in prior work with other asset classes. We find that the
tick/volatility ratio proposed in prior studies gives inconclusive results
on the pattern's visibility. A major contribution arises from linking the
compass rose pattern with return reversals, which gives new insights into
the pattern's predictability. We show that return reversals are revealed
as an element of the compass rose pattern and are particularly evident at
higher sampling frequencies. We study the determinants of these reversals
and report that return reversals are primarily associated with high
transaction frequency and decrease with the presence of additional market
makers. Also, the hypothesis that there is a reaction to overnight events
which is reflected in prices at the market open is not supported.
Reversals are less prevalent for larger firms and when trade sizes are
larger.
Journal: The European Journal of Finance
Pages: 883-896
Issue: 9-10
Volume: 17
Year: 2011
Month: 11
X-DOI: 10.1080/1351847X.2010.538524
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.538524
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:17:y:2011:i:9-10:p:883-896
Template-Type: ReDIF-Article 1.0
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Sydney Howell
Author-X-Name-First: Sydney
Author-X-Name-Last: Howell
Title: Trading constraints and illiquidity discounts
Abstract:
Acting as the source of exogenous illiquidity, trading constraints
prevent free trading of shares and discount their value relative to freely
traded counterparts with identical dividends and voting rights. This paper
numerically solves the theoretical illiquidity discounts for the
restricted shares with long constraint horizon and then reconciles the
contradictions in the results of various theoretical models. With control
of leveraged positions, illiquidity discounts increase with the
volatility, and their size is greatly diminished. We also empirically test
the theories within the unique setting of China, which has the largest
population of restricted shares worldwide. Large discounts are documented
in two forms of occasional transactions in restricted shares: namely
auctions and transfers. The results empirically verify the theoretical
findings by showing that illiquidity discounts in auctions increase with
both the volatility and constraint horizons. The results from transfers,
however, are not always significant as the transfers are made privately
and may be subject to price manipulation when the involved parties are
related.
Journal: The European Journal of Finance
Pages: 1-27
Issue: 1
Volume: 18
Year: 2012
Month: 1
X-DOI: 10.1080/1351847X.2011.574972
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.574972
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:1:p:1-27
Template-Type: ReDIF-Article 1.0
Author-Name: Torben W. Hendricks
Author-X-Name-First: Torben W.
Author-X-Name-Last: Hendricks
Author-Name: Bernd Kempa
Author-X-Name-First: Bernd
Author-X-Name-Last: Kempa
Author-Name: Christian Pierdzioch
Author-X-Name-First: Christian
Author-X-Name-Last: Pierdzioch
Title: Do banks’ buy and sell recommendations influence stock market volatility? Evidence from the German DAX30
Abstract:
We investigate the impact of good and bad news on stock market
volatility. To this end, we utilize a novel data set of banks’ buy
and sell recommendations for the German DAX30 stock market index and
estimate an EGARCH(1,1) model which features these recommendations as well
as several other pertinent explanatory variables in the mean and variance
equations. We find that in a rising market, buy recommendations lower the
level of volatility and sell recommendations raise volatility, whereas the
impact of news on stock market volatility is less clear-cut in a falling
market.
Journal: The European Journal of Finance
Pages: 29-39
Issue: 1
Volume: 18
Year: 2012
Month: 1
X-DOI: 10.1080/1351847X.2010.495474
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.495474
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:1:p:29-39
Template-Type: ReDIF-Article 1.0
Author-Name: Jens Hagendorff
Author-X-Name-First: Jens
Author-X-Name-Last: Hagendorff
Author-Name: Kevin Keasey
Author-X-Name-First: Kevin
Author-X-Name-Last: Keasey
Title: The value of board diversity in banking: evidence from the market for corporate control
Abstract:
We examine the value of board diversity in the US banking industry as a
mechanism to enhance the decision-making capabilities of a board. We
employ a sample of mergers to assess if measures of diversity as displayed
by the bidding bank's board are linked to the market performance of
acquisitions. We find positive announcement returns to mergers approved by
boards whose members are diverse in terms of their occupational
background. By contrast, age and tenure diversity are associated with
wealth losses surrounding acquisition announcements, while gender
diversity does not lead to measurable value effects. Interestingly, boards
with more banking expertise are not more effective at monitoring bank
managers. Our results do not support calls for more representation of
industry-specific expertise on bank boards and, instead, show that
occupational diversity may play an important role in protecting
shareholder wealth.
Journal: The European Journal of Finance
Pages: 41-58
Issue: 1
Volume: 18
Year: 2012
Month: 1
X-DOI: 10.1080/1351847X.2010.481471
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.481471
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:1:p:41-58
Template-Type: ReDIF-Article 1.0
Author-Name: Raphael Paschke
Author-X-Name-First: Raphael
Author-X-Name-Last: Paschke
Author-Name: Marcel Prokopczuk
Author-X-Name-First: Marcel
Author-X-Name-Last: Prokopczuk
Title: Investing in commodity futures markets: can pricing models help?
Abstract:
This article empirically investigates whether continuous time pricing
models are able to help reveal mispriced commodity futures contracts.
Mispricings are identified based on the difference between model and
observed prices, using four different pricing models for four different
commodity markets, namely crude oil, copper, silver, and gold. Pricing
errors are found to carry informational content for future price movements
in excess of the overall market. Investment strategies based on these
pricing errors yield significant excess returns, particularly for the
relatively small copper and silver markets.
Journal: The European Journal of Finance
Pages: 59-87
Issue: 1
Volume: 18
Year: 2012
Month: 1
X-DOI: 10.1080/1351847X.2011.601658
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601658
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:1:p:59-87
Template-Type: ReDIF-Article 1.0
Author-Name: Carlos P. Barros
Author-X-Name-First: Carlos P.
Author-X-Name-Last: Barros
Author-Name: Luis Gil-Alana
Author-X-Name-First: Luis
Author-X-Name-Last: Gil-Alana
Author-Name: Roman Matousek
Author-X-Name-First: Roman
Author-X-Name-Last: Matousek
Title: Mean reversion of short-run interest rates: empirical evidence from new EU countries
Abstract:
This article deals with the analysis of the mean reversion property of
short-term interest rates in Central and Eastern European countries, using
daily data from January 2000 to December 2008. For this purpose, we use
long memory (fractionally integrated) models, and employ non-parametric,
semi-parametric and parametric techniques to check if our results are
robust across different methods. The results indicate that the mean
reversion only takes place in the case of Hungary. For the remaining
countries, the short-term interest rates are clearly non-stationary and
non-mean reverting. Allowing for one break in the data, the break date
takes place about 2001/2003 in all the series except in Lithuania, where
the break occurs in 2007. In general, we observe an increase in the degree
of dependence after the break in the majority of the series.
Journal: The European Journal of Finance
Pages: 89-107
Issue: 2
Volume: 18
Year: 2012
Month: 2
X-DOI: 10.1080/1351847X.2011.601659
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601659
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:2:p:89-107
Template-Type: ReDIF-Article 1.0
Author-Name: C. José García
Author-X-Name-First: C. José
Author-X-Name-Last: García
Author-Name: Begoña Herrero
Author-X-Name-First: Begoña
Author-X-Name-Last: Herrero
Author-Name: Ana M. Ibáñez
Author-X-Name-First: Ana M.
Author-X-Name-Last: Ibáñez
Title: Information processing in the stock market around anticipated accounting information: earnings release
Abstract:
Earnings announcements are anticipated events with significant price
impacts. This fact can motivate informed traders to trade on private
information and liquidity providers to reduce liquidity in order to be
careful about insider trading. In this paper, we examine the effect of
earnings announcements on information asymmetry. Specifically, we
investigate whether liquidity suppliers value the possibility of trading
with informed agents and whether market behaviour reflects this. To
achieve this objective, we take into account the sign of the surprise, the
quarter of the announcement, the quantity of previous information and the
quality of the information released. One of the main results of the paper
is the support of market efficiency. This result is important nowadays
since this hypothesis is being questioned after the irruption of the
financial crisis.
Journal: The European Journal of Finance
Pages: 109-133
Issue: 2
Volume: 18
Year: 2012
Month: 2
X-DOI: 10.1080/1351847X.2010.495473
File-URL: http://hdl.handle.net/10.1080/1351847X.2010.495473
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:2:p:109-133
Template-Type: ReDIF-Article 1.0
Author-Name: John Cotter
Author-X-Name-First: John
Author-X-Name-Last: Cotter
Author-Name: Jim Hanly
Author-X-Name-First: Jim
Author-X-Name-Last: Hanly
Title: Hedging effectiveness under conditions of asymmetry
Abstract:
We examine whether hedging effectiveness is affected by asymmetry in the
return distribution by applying tail-specific metrics, for example, value
at risk, to compare the hedging effectiveness of short and long hedgers.
Comparisons are applied to a number of hedging strategies including OLS
and both symmetric and asymmetric generalised autoregressive conditional
heteroskedastic models. We apply our analysis to a dataset consisting of
S&P500 index cash and futures containing symmetric and asymmetric return
distributions chosen ex post. Our findings show that
asymmetry reduces out-of-sample hedging performance and that significant
differences occur in hedging performance between short and long hedgers.
Journal: The European Journal of Finance
Pages: 135-147
Issue: 2
Volume: 18
Year: 2012
Month: 2
X-DOI: 10.1080/1351847X.2011.574977
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.574977
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:2:p:135-147
Template-Type: ReDIF-Article 1.0
Author-Name: Raymond Haga
Author-X-Name-First: Raymond
Author-X-Name-Last: Haga
Author-Name: Snorre Lindset
Author-X-Name-First: Snorre
Author-X-Name-Last: Lindset
Title: Understanding bull and bear ETFs
Abstract:
This paper analyzes leveraged exchange-traded funds (ETFs) with a
particular focus on some of the early Norwegian ETFs. The funds use the
futures markets to provide investors with 2 and−2 times the daily
returns on the OBX index. First, we found that positive risk-free interest
rates make the fund returns deviate from what is pictured by the
providers. Secondly, we found that volatility can harm the investor
returns. Thirdly, we found that the funds have fallen somewhat short of
providing the pictured returns. Finally, we found that the positions taken
in the futures markets are too small to obtain the pictured returns.
Journal: The European Journal of Finance
Pages: 149-165
Issue: 2
Volume: 18
Year: 2012
Month: 2
X-DOI: 10.1080/1351847X.2011.574980
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.574980
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:2:p:149-165
Template-Type: ReDIF-Article 1.0
Author-Name: Pedro Miguel Pimentel
Author-X-Name-First: Pedro Miguel
Author-X-Name-Last: Pimentel
Author-Name: Jos� Azevedo-Pereira
Author-X-Name-First: Jos�
Author-X-Name-Last: Azevedo-Pereira
Author-Name: Gualter Couto
Author-X-Name-First: Gualter
Author-X-Name-Last: Couto
Title: High-speed rail transport valuation
Abstract:
In this paper, the optimal timing for investing in high-speed rail
projects under uncertainty in relation to the utility provided to railway
users was investigated. To accomplish this, a continuous time real options
analysis framework using a stochastic demand model was developed to
determine the optimal time to invest. Uncertainty upon investment
expenditures was also added in an extended framework. The value of the
option to defer and the investment opportunity value were also assessed.
Journal: The European Journal of Finance
Pages: 167-183
Issue: 2
Volume: 18
Year: 2012
Month: 2
X-DOI: 10.1080/1351847X.2011.574984
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.574984
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:2:p:167-183
Template-Type: ReDIF-Article 1.0
Author-Name: Robert Cressy
Author-X-Name-First: Robert
Author-X-Name-Last: Cressy
Author-Name: Douglas Cumming
Author-X-Name-First: Douglas
Author-X-Name-Last: Cumming
Author-Name: Christine Mallin
Author-X-Name-First: Christine
Author-X-Name-Last: Mallin
Title: Law, ethics and finance: implications for international investment and portfolio management
Abstract:
‘Without integrity, nothing works!’ Michael Jensen, Jesse
Isidor Straus Emeritus Professor of Business Administration, Keynote
Remarks at the Conference on Law, Ethics and Finance at York University
Schulich School of Business, September 2010.
Journal: The European Journal of Finance
Pages: 185-189
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.605899
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.605899
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:185-189
Template-Type: ReDIF-Article 1.0
Author-Name: Sanjai Bhagat
Author-X-Name-First: Sanjai
Author-X-Name-Last: Bhagat
Author-Name: Heather Tookes
Author-X-Name-First: Heather
Author-X-Name-Last: Tookes
Title: Voluntary and mandatory skin in the game: understanding outside directors’ stock holdings
Abstract:
We examine the determinants of equity ownership by outside directors as
well as the relationship between ownership and operating performance.
Unlike previous studies of equity ownership by directors, we use
hand-collected data on firm-level policies requiring director ownership
for S&P 500 firms during the years 2003 and 2005. Ownership requirements
allow us to shed further light on the determinants of director holdings
and to separate voluntary from mandatory holdings of directors. If
ownership requirements reflect optimal ownership levels (from the firm's
perspective), they provide a useful identification tool in the examination
of ownership--performance relationships. Our primary findings are that
mandatory holdings are unrelated to future performance; this is consistent
with the theory that ownership requirements reflect optimal ownership
levels. By contrast, voluntary holdings are positively and significantly
related to future performance, suggesting that they perform an
incentivizing role for directors.
Journal: The European Journal of Finance
Pages: 191-207
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.579739
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.579739
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:191-207
Template-Type: ReDIF-Article 1.0
Author-Name: April Knill
Author-X-Name-First: April
Author-X-Name-Last: Knill
Title: The value of country-level perceived ethics to entrepreneurs around the world
Abstract:
The actions behind the ‘Great Recession’ have done a lot of
damage to the ability of the average investor to trust both corporate
executives and Wall Street. Given the riskiness of investing in private
equity, private firms are particularly vulnerable to the risk aversion of
investors. For this reason, maintaining trust may be particularly useful
to private firms. Using a dataset that spans 33 countries from 1998 to
2004, this paper examines the impact of the perception of ethical behavior
at the country level on the performance and outcome of private firms.
Using two separate sources for country-level perception of ethics, this
paper finds that both the performance and the outcome of the private firm
are positively influenced by the level of perceived ethics in their
country. The paper further finds that these benefits come without adding
cost to the entrepreneurial firm (as well as its pre-issue investors) when
it goes public.
Journal: The European Journal of Finance
Pages: 209-237
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.579768
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.579768
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:209-237
Template-Type: ReDIF-Article 1.0
Author-Name: Robert Cressy
Author-X-Name-First: Robert
Author-X-Name-Last: Cressy
Author-Name: Hisham Farag
Author-X-Name-First: Hisham
Author-X-Name-Last: Farag
Title: Do private equity-backed buyouts respond better to financial distress than PLCs?
Abstract:
The paper uses a new, hand-collected data set of 93 private equity
(PE)-backed buyouts and 96 PLCs that became financially distressed over
the period 1995--2008 to investigate empirically whether PE-owned
companies (buyouts) in financial distress (Receivership/Administration)
have better recovery rates (RRs) for secured debt (SD) than their
publicly-owned (PLC) counterparts and, if so, why. We find that the RRs of
buyouts (amount recovered in proportion to SD outstanding) are in fact
about twice that of PLCs during this period. Administration, surprisingly,
has no effect on debt-RRs but seems significantly to reduce the time to
recovery. A larger number of creditors which in theory should reduce RRs,
again has no impact, nor does company size. Intriguingly, however, higher
leverage consistently reduces the RR as (we hypothesise) more leveraged
buyouts need to have recourse to lower quality assets for security.
Finally, the time in recovery is negatively related to the date of
distress onset (later years have shorter durations) and to the size of the
firm (a concave relationship).
Journal: The European Journal of Finance
Pages: 239-259
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.579742
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.579742
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:239-259
Template-Type: ReDIF-Article 1.0
Author-Name: Douglas Cumming
Author-X-Name-First: Douglas
Author-X-Name-Last: Cumming
Author-Name: Gael Imad'Eddine
Author-X-Name-First: Gael
Author-X-Name-Last: Imad'Eddine
Author-Name: Armin Schwienbacher
Author-X-Name-First: Armin
Author-X-Name-Last: Schwienbacher
Title: Harmonized regulatory standards, international distribution of investment funds and the recent financial crisis
Abstract:
In this paper, we consider for the first time the impact of fund
regulation on the international distribution of investment funds. We study
the 2001 Undertakings for Collective Investment in Transferable Securities
(UCITS) Directive of the European Union, which was put in place to
mitigate fraud and promote investor confidence throughout Europe. We
examine the impact of UCITS on international distributions of European
investment funds over the 2002--2009 period. We show that the UCITS
regulatory structure has significantly facilitated cross-border fund
distributions, albeit UCITS has had less success in facilitating
distributions among smaller fund promoters. Also, UCITS funds, especially
UCITS equity funds, have lost some of their advantage in terms of
cross-border distribution during the period of the recent financial
crisis. Further, we show there has been a growing interest in UCITS over
time outside Europe, notably in Asia.
Journal: The European Journal of Finance
Pages: 261-292
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.579743
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.579743
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:261-292
Template-Type: ReDIF-Article 1.0
Author-Name: A. Fabretti
Author-X-Name-First: A.
Author-X-Name-Last: Fabretti
Author-Name: S. Herzel
Author-X-Name-First: S.
Author-X-Name-Last: Herzel
Title: Delegated portfolio management with socially responsible investment constraints
Abstract:
We consider the problem of how to establish compensation for a portfolio
manager who is required to restrict the investment set, for example,
because of socially responsible screening. This is a problem of delegated
portfolio management, where the reduction of investment opportunities to
the subset of sustainable assets involves a loss in expected earnings for
the portfolio manager, compensated by the investor through an extra bonus
on the realized return. Under simple assumptions on the investor, manager
and market, we compute the optimal bonus as a function of the manager's
risk aversion and expertise, and of the impact of portfolio restriction on
the mean-variance efficient frontier.
Journal: The European Journal of Finance
Pages: 293-309
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.579746
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.579746
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:293-309
Template-Type: ReDIF-Article 1.0
Author-Name: Raj Aggarwal
Author-X-Name-First: Raj
Author-X-Name-Last: Aggarwal
Author-Name: Sandra Dow
Author-X-Name-First: Sandra
Author-X-Name-Last: Dow
Title: Corporate governance and business strategies for climate change and environmental mitigation
Abstract:
Strategic corporate responses to climate change and environmental
challenges do not seem to be the primary domain of corporate management.
In the short run, such decisions are generally not consistent with
executive incentives and often not seen as profit maximizing.
Nevertheless, as some climate change responses may indeed be firm value
maximizing, such decisions can be expected to reflect the nature of a
firm's corporate governance. Based on an analysis of 500 of the largest US
firms, we show empirically that this is indeed the case. Specifically,
this study documents that institutional ownership and board entrenchment
seem to significantly influence climate change and environmental impact
mitigation policies of large firms.
Journal: The European Journal of Finance
Pages: 311-331
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.579745
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.579745
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:311-331
Template-Type: ReDIF-Article 1.0
Author-Name: Stefano Herzel
Author-X-Name-First: Stefano
Author-X-Name-Last: Herzel
Author-Name: Marco Nicolosi
Author-X-Name-First: Marco
Author-X-Name-Last: Nicolosi
Author-Name: Cătălin Stărică
Author-X-Name-First: Cătălin
Author-X-Name-Last: Stărică
Title: The cost of sustainability in optimal portfolio decisions
Abstract:
We examined the impact of including sustainability-related constraints in
optimal portfolio decision-making. Our analysis covered an investment set
containing the components of the S&P500 index from 1993 to 2008.
Optimizations were performed according to the classic mean--variance
approach, while sustainability constraints were introduced by eliminating,
from the investment pool, those assets that do not comply with the given
social responsibility criteria (screening). We compared the efficient
frontiers with and without screening. The analysis focused on the three
main dimensions of sustainability, namely the environmental, social and
governance ones. We found that socially responsible screening gives rise
to a small loss in terms of the Sharpe ratio even though it has a great
impact on the market capitalization of the optimal portfolio. The spanning
test showed that the ex-post differences between the two frontiers, when
short selling is not allowed, are significant only in the case of
environmental screening.
Journal: The European Journal of Finance
Pages: 333-349
Issue: 3-4
Volume: 18
Year: 2012
Month: 5
X-DOI: 10.1080/1351847X.2011.587521
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.587521
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:333-349
Template-Type: ReDIF-Article 1.0
Author-Name: Hisham Farag
Author-X-Name-First: Hisham
Author-X-Name-Last: Farag
Author-Name: Robert Cressy
Author-X-Name-First: Robert
Author-X-Name-Last: Cressy
Title: Stock market regulation and news dissemination: evidence from an emerging market
Abstract:
Stock market efficiency is associated with news being spread immediately
in the market. The literature, however, offers two competing theories to
explain this phenomenon. One theory, the mixture of distributions
hypothesis (MDH) claims immediate dissemination, while the other, the
sequential information arrival hypothesis (SIAH) argues for sequential
dissemination, or effectively market inefficiency. The present paper
provides a critical test of the two theories using emerging market data,
specifically from Egypt, and finds evidence to validate both hypotheses,
conditional on the regulatory regime (price limit versus circuit breaker).
Using generalized method of moments estimation on 10 years of daily data
on the EXG 30 market index, our results show that within the price limit
window, news proxied by trading volume, spreads instantaneously to all
market participants, consistently with the MDH. Within subsequent circuit
breaker window, however, new information leaks out to all market
participants only over a period of several days, consistently with the
SIAH. We find this switch is moreover associated with an increase in price
volatility. Thus, not only is the market less-efficient after the switch,
it is also more volatile.
Journal: The European Journal of Finance
Pages: 351-368
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.579740
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.579740
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:351-368
Template-Type: ReDIF-Article 1.0
Author-Name: Huaili Lv
Author-X-Name-First: Huaili
Author-X-Name-Last: Lv
Author-Name: Wanli Li
Author-X-Name-First: Wanli
Author-X-Name-Last: Li
Author-Name: Simon Gao
Author-X-Name-First: Simon
Author-X-Name-Last: Gao
Title: Dividend tunneling and joint expropriation: empirical evidence from China's capital market
Abstract:
This paper examines the association between cash dividends and the
shareholders balancing mechanism (SBM) using the exogeneity and
endogeneity assumptions of corporate ownership structure. This paper
identifies, in the case of China, whether paying cash dividends is a means
of protection or expropriation of minority shareholders’ interests.
With 4810 observations from companies listed on the Shanghai Stock
Exchange over the period 2004--2008, the authors find significant negative
associations between cash dividend payments and the SBM of non-controlling
large shareholders under the exogeneity assumption and the SBM of tradable
shareholders under the endogeneity assumption. The findings suggest that
cash dividends are used as a manner of tunneling by the controlling
shareholder. This paper also shows that the SBM of non-controlling
shareholders has a significant positive effect on cash dividends,
especially for companies paying high and abnormal dividends. The results
imply that in China's capital market, cash dividend payments are not only
expropriations of minority shareholders’ interests by the
controlling shareholder but also coalitions of controlling and
non-controlling large shareholders. The findings confirm the tunneling and
joint expropriation incentive of corporate dividend policy.
Journal: The European Journal of Finance
Pages: 369-392
Issue: 3-4
Volume: 18
Year: 2012
Month: 4
X-DOI: 10.1080/1351847X.2011.579741
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.579741
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:3-4:p:369-392
Template-Type: ReDIF-Article 1.0
Author-Name: Seth Armitage
Author-X-Name-First: Seth
Author-X-Name-Last: Armitage
Title: The calculation of returns during seasoned equity offers
Abstract:
The article analyses how the returns to a shareholder and the returns for
an event study are calculated during the three types of seasoned equity
offer (SEO) in use in the UK, namely rights issues, open offers and
placings. The calculations differ across the two types of return and the
three types of offer. Evidence from a sample of SEOs shows the large
impact that the choice of calculation method has on returns. An unresolved
question is whether to use discount-adjusted returns in event studies of
placings.
Journal: The European Journal of Finance
Pages: 393-417
Issue: 5
Volume: 18
Year: 2012
Month: 5
X-DOI: 10.1080/1351847X.2011.601665
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601665
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:5:p:393-417
Template-Type: ReDIF-Article 1.0
Author-Name: John Goddard
Author-X-Name-First: John
Author-X-Name-Last: Goddard
Author-Name: Philip Molyneux
Author-X-Name-First: Philip
Author-X-Name-Last: Molyneux
Author-Name: Tim Zhou
Author-X-Name-First: Tim
Author-X-Name-Last: Zhou
Title: Bank mergers and acquisitions in emerging markets: evidence from Asia and Latin America
Abstract:
Following a global wave of consolidation in the banking industry, this
study analyses 132 mergers and acquisitions (M&As) involving banks in
emerging markets in Asia and Latin America between 1998 and 2009. An event
study measures the change in shareholder value for acquirers and targets;
and a multivariate regression identifies the drivers of the change in
shareholder value for acquirers. On average M&As create shareholder value
for target firms, while acquirer firms do not lose shareholder value.
Geographical diversification creates shareholder value for acquirers.
Acquirer shareholders benefit from the acquisition of underperforming
targets; from transactions settled by cash rather than exchange of equity;
and from government-instigated M&A transactions.
Journal: The European Journal of Finance
Pages: 419-438
Issue: 5
Volume: 18
Year: 2012
Month: 5
X-DOI: 10.1080/1351847X.2011.601668
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601668
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:5:p:419-438
Template-Type: ReDIF-Article 1.0
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Title: Did expected returns fall? Evidence from UK size portfolios
Abstract:
Ex post equity returns were extremely high during the
latter part of the twentieth century and in particular during the 1990s.
Many observers suggest ex post returns have been higher
than expected returns. This article suggests, in the case of the UK, that
the largest firms primarily cause the appearance of a shift in expected
returns during the 1990s. The article presents some novel evidence
consistent with an earlier shift in expected returns for small- and
medium-sized firms in the early 1980s. However, evidence from structural
break tests on valuation ratios is consistent with either moderate changes
in long-term expected fundamental growth or long-term expected returns; it
is difficult to distinguish statistically between these two competing
explanations.
Journal: The European Journal of Finance
Pages: 439-468
Issue: 5
Volume: 18
Year: 2012
Month: 5
X-DOI: 10.1080/1351847X.2011.601662
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601662
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:5:p:439-468
Template-Type: ReDIF-Article 1.0
Author-Name: Manuel J. Rocha Armada
Author-X-Name-First: Manuel J.
Author-X-Name-Last: Rocha Armada
Author-Name: Paulo J. Pereira
Author-X-Name-First: Paulo J.
Author-X-Name-Last: Pereira
Author-Name: Artur Rodrigues
Author-X-Name-First: Artur
Author-X-Name-Last: Rodrigues
Title: Optimal subsidies and guarantees in public--private partnerships
Abstract:
In this paper, we analyse how certain subsidies and guarantees given to
private firms in public--private partnerships should be optimally arranged
to promote immediate investment in a real options framework. We show how
an investment subsidy, a revenue subsidy, a minimum demand guarantee, and
a rescue option could be optimally arranged to induce immediate
investment, compensating for the value of the option to defer. These four
types of incentives produce significantly different results when we
compare the value of the project after the incentive structure is devised
and also when we compare the timing of the resulting cash flows.
Journal: The European Journal of Finance
Pages: 469-495
Issue: 5
Volume: 18
Year: 2012
Month: 11
X-DOI: 10.1080/1351847X.2011.639789
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.639789
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:5:p:469-495
Template-Type: ReDIF-Article 1.0
Author-Name: Hsiang-Chun Michael Lin
Author-X-Name-First: Hsiang-Chun Michael
Author-X-Name-Last: Lin
Author-Name: Hong Bo
Author-X-Name-First: Hong
Author-X-Name-Last: Bo
Title: State-ownership and financial constraints on investment of Chinese-listed firms: new evidence
Abstract:
We examine how state-ownership affects financial constraints on
investment of Chinese-listed firms during 1999--2008. We find that
although an average sample firm experiences some degree of financial
constraints, state-ownership does not necessarily help in reducing the
firm's financial constraints on investment. Further evidence shows that
state-ownership does not lead to more borrowing from the Chinese banking
sector, implying that state-ownership does not necessarily reduce the
firm's financial constraints via the state-controlled banking sector. We
consider not only the standard factors in the investment equation, but
also the firm's equity financing behaviour explicitly. The result is
robust to both the conventional proxy for financial constraints, i.e. the
investment--cash-flow sensitivity, and a recently developed proxy for
financial constraints, i.e. the KZ index. Our results suggest that China's
corporatisation movement is effective in that soft budget constraints once
enjoyed by former state-owned enterprises have been removed along with the
progress of corporatisation. These firms, although still state-involved,
can be seen as modern corporations operating in a market environment.
Journal: The European Journal of Finance
Pages: 497-513
Issue: 6
Volume: 18
Year: 2012
Month: 7
X-DOI: 10.1080/1351847X.2011.611523
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.611523
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:6:p:497-513
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Mallin
Author-X-Name-First: Chris
Author-X-Name-Last: Mallin
Author-Name: Kean Ow-Yong
Author-X-Name-First: Kean
Author-X-Name-Last: Ow-Yong
Title: Factors influencing corporate governance disclosures: evidence from Alternative Investment Market (AIM) companies in the UK
Abstract:
This study examines the relationship between company and ownership
characteristics and the disclosure level of compliance with Quoted
Companies Alliance (QCA) recommendations on corporate governance in
Alternative Investment Market (AIM) companies. We report clear evidence
that compliance increases with company size, board size, the proportion of
independent non-executive directors, the presence of turnover revenue, and
being formerly listed on the Main Market. However, we find that shell and
highly geared AIM companies disclose relatively lower levels of corporate
governance than recommended under QCA guidelines. Our findings suggest
that market regulators should review the potential impact of the quality
of corporate governance in these companies on the future vibrancy of AIM.
We find no evidence that ownership structure or the type of Nominated
Advisor is related to disclosure of compliance with QCA guidelines.
Overall, in a lightly regulated environment such as the AIM market, it
seems that companies will ultimately pursue a cost--benefit strategy in
voluntarily complying with good corporate governance practice.
Journal: The European Journal of Finance
Pages: 515-533
Issue: 6
Volume: 18
Year: 2012
Month: 7
X-DOI: 10.1080/1351847X.2011.601671
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601671
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:6:p:515-533
Template-Type: ReDIF-Article 1.0
Author-Name: Markus Leippold
Author-X-Name-First: Markus
Author-X-Name-Last: Leippold
Author-Name: Harald Lohre
Author-X-Name-First: Harald
Author-X-Name-Last: Lohre
Title: International price and earnings momentum
Abstract:
In this paper, we find that price and earnings momentum are pervasive
features of international equity markets even when controlling for
data-snooping biases. For Europe, we show price momentum to be subsumed by
earnings momentum on an aggregate level. However, this rationale can
hardly be sustained on a country level. Also, the above explanation is
confined to certain time periods in the USA. Since we cannot establish a
decent relation between momentum and macroeconomic risks, we suspect a
behavior-based explanation to be at work. In fact, we find momentum
profits to be more pronounced for portfolios characterized by higher
information uncertainty. Hence, the momentum anomaly may well be
rationalized in a model of investors underreacting to fundamental news.
Finally, we find that momentum works better when limited to stocks with
high idiosyncratic risk or higher illiquidity, suggesting that limits to
arbitrage deter rational investors from exploiting the anomaly.
Journal: The European Journal of Finance
Pages: 535-573
Issue: 6
Volume: 18
Year: 2012
Month: 7
X-DOI: 10.1080/1351847X.2011.628683
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.628683
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:6:p:535-573
Template-Type: ReDIF-Article 1.0
Author-Name: Fei Chen
Author-X-Name-First: Fei
Author-X-Name-Last: Chen
Author-Name: Charles Sutcliffe
Author-X-Name-First: Charles
Author-X-Name-Last: Sutcliffe
Title: Better cross hedges with composite hedging? Hedging equity portfolios using financial and commodity futures
Abstract:
Unless a direct hedge is available, cross hedging must be used. In such
circumstances portfolio theory implies that a composite hedge (the use of
two or more hedging instruments to hedge a single spot position) will be
beneficial. The study and use of composite hedging has been neglected;
possibly because it requires the estimation of two or more hedge ratios.
This paper demonstrates a statistically significant increase in
out-of-sample effectiveness from the composite hedging of the Amex Oil
Index using S&P500 and New York Mercantile Exchange crude oil futures.
This conclusion is robust to the technique used to estimate the hedge
ratios, and to allowance for transactions costs, dividends and the
maturity of the futures contracts.
Journal: The European Journal of Finance
Pages: 575-595
Issue: 6
Volume: 18
Year: 2012
Month: 8
X-DOI: 10.1080/1351847X.2011.620253
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.620253
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:6:p:575-595
Template-Type: ReDIF-Article 1.0
Author-Name: Mohammed S. Khaled
Author-X-Name-First: Mohammed S.
Author-X-Name-Last: Khaled
Author-Name: Stephen P. Keef
Author-X-Name-First: Stephen P.
Author-X-Name-Last: Keef
Title: A note on the turn of the month and year effects in international stock returns
Abstract:
This examination of the turn of the month (TOM) and turn of the year
(TOY) effects in 50 international stock indices, for the period
1994--2006, characterises the degree that the effects are influenced by:
(i) the gross domestic product of the economy, (ii) the sign of the return
on the prior day (called the prior day effect), (iii) a temporal indicator
and (iv) the Monday effect. These effects are assessed by the use of an
estimated generalised least squares (EGLS) panel regression model
incorporating panel-corrected standard errors. Three important results
relating to the TOM and TOY effects are observed. When the prior day
effect on control days is used as the reference and controls are made for
market development and year, we find that: (i) there is a relatively
enhanced return on all TOM days, (ii) there is a relatively enhanced
return on good TOY days and (iii) returns of bad TOY days are not
remarkable.
Journal: The European Journal of Finance
Pages: 597-602
Issue: 6
Volume: 18
Year: 2012
Month: 7
X-DOI: 10.1080/1351847X.2011.617379
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.617379
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:6:p:597-602
Template-Type: ReDIF-Article 1.0
Author-Name: Emilios C. Galariotis
Author-X-Name-First: Emilios C.
Author-X-Name-Last: Galariotis
Title: Recent evidence on the performance and riskiness of contrarian portfolios
Abstract:
The paper assesses the most recent performance, persistence and riskiness
of contrarian portfolios. Evidence from the major world and European
market of France shows that such portfolios appear profitable on average,
but their performance is not persistent from one holding period to the
next; hence there exist inherent risks, especially for investors that
remain in markets for up to two consecutive investment periods. These
risks, as measured by the CAPM (traditional, and less traditional versions
that are meant to capture timing) and the Fama--French model, are not
systematic and they are not related to market timing. Overall, taking only
long positions in normal markets and hedged positions following market
shocks seems to be the most promising route for contrarians in France.
Journal: The European Journal of Finance
Pages: 603-617
Issue: 7
Volume: 18
Year: 2012
Month: 9
X-DOI: 10.1080/1351847X.2011.628795
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.628795
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:7:p:603-617
Template-Type: ReDIF-Article 1.0
Author-Name: Nicos Koussis
Author-X-Name-First: Nicos
Author-X-Name-Last: Koussis
Author-Name: Spiros H. Martzoukos
Author-X-Name-First: Spiros H.
Author-X-Name-Last: Martzoukos
Title: Investment options with debt-financing constraints
Abstract:
A contingent claims model is used to study the impact of debt-financing
constraints on firm value, optimal capital structure, the timing of
investment and other variables, such as credit spreads. The optimal
investment trigger follows a U shape as a function of exogenously imposed
constraint. Risky, equity-financed R&D growth options increase firm value
by increasing the option value on unlevered assets, while their impact on
the net benefits of debt is small.
Journal: The European Journal of Finance
Pages: 619-637
Issue: 7
Volume: 18
Year: 2012
Month: 8
X-DOI: 10.1080/1351847X.2011.603347
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.603347
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:7:p:619-637
Template-Type: ReDIF-Article 1.0
Author-Name: Ettore Croci
Author-X-Name-First: Ettore
Author-X-Name-Last: Croci
Author-Name: Dimitris Petmezas
Author-X-Name-First: Dimitris
Author-X-Name-Last: Petmezas
Author-Name: Nickolaos Travlos
Author-X-Name-First: Nickolaos
Author-X-Name-Last: Travlos
Title: Asymmetric information and target firm returns
Abstract:
This article examines the relationship between asymmetric information and
target firm returns in mergers and acquisitions (M&As). We argue that if
managers possess favourable (unfavourable) asymmetric information, they
will offer, ceteris paribus, a high (low) premium,
affecting target firm returns accordingly. We propose several proxies of
asymmetric information. The empirical evidence strongly supports our
hypothesis as we find that target firm returns are significantly
negatively related to asymmetric information regarding synergy gains. Our
results are robust after controlling for several target and deal
characteristics.
Journal: The European Journal of Finance
Pages: 639-661
Issue: 7
Volume: 18
Year: 2012
Month: 6
X-DOI: 10.1080/1351847X.2011.599850
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.599850
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:7:p:639-661
Template-Type: ReDIF-Article 1.0
Author-Name: George Alexandridis
Author-X-Name-First: George
Author-X-Name-Last: Alexandridis
Author-Name: Christos F. Mavrovitis
Author-X-Name-First: Christos F.
Author-X-Name-Last: Mavrovitis
Author-Name: Nickolaos G. Travlos
Author-X-Name-First: Nickolaos G.
Author-X-Name-Last: Travlos
Title: How have M&As changed? Evidence from the sixth merger wave
Abstract:
We examine the characteristics of the sixth merger wave that started in
2003 and came to an end approximately in late 2007. The drivers of this
wave lie primarily in the availability of abundant liquidity, in line with
neoclassical explanations of merger waves. Acquirers were less overvalued
relative to targets, and merger proposals comprised higher cash elements.
Moreover, the market for corporate control was less competitive, acquirers
were less acquisitive, managers displayed less over-optimism and offers
involved significantly lower premiums, indicating more cautious and
rational acquisition decisions. Strikingly, however, deals destroyed at
least as much value for acquiring shareholders as in the 1990s.
Journal: The European Journal of Finance
Pages: 663-688
Issue: 8
Volume: 18
Year: 2012
Month: 9
X-DOI: 10.1080/1351847X.2011.628401
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.628401
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:8:p:663-688
Template-Type: ReDIF-Article 1.0
Author-Name: Graham Smith
Author-X-Name-First: Graham
Author-X-Name-Last: Smith
Title: The changing and relative efficiency of European emerging stock markets
Abstract:
The martingale hypothesis is tested for 15 European emerging stock
markets located in Croatia, the Czech Republic, Estonia, Hungary, Iceland,
Latvia, Lithuania, Malta, Poland, Romania, Russia, the Slovak Republic,
Slovenia, Turkey and the Ukraine. For comparative purposes, the developed
stock markets in Greece, Portugal and the UK are also included. Rolling
window variance ratio tests based on returns and signs and with wild
bootstrapped p-values are used with daily data over the
period beginning in February 2000 and ending in December 2009. The
fixed-length rolling sub-period window captures changes in efficiency and
is used to identify events which coincide with departures from weak-form
efficiency and to rank markets by relative efficiency. Overall, return
predictability varies widely. The most efficient are the Turkish, UK,
Hungarian and Polish markets; the least efficient are the Ukrainian,
Maltese and Estonian stock markets. The global financial market crisis of
2007--2008 coincides with return predictability in the Croatian,
Hungarian, Polish, Portuguese, Slovakian and UK stock markets. However,
not all markets were affected: the crisis had little effect on weak-form
efficiency in stock markets located in Greece, Latvia, Romania, Russia and
Turkey.
Journal: The European Journal of Finance
Pages: 689-708
Issue: 8
Volume: 18
Year: 2012
Month: 9
X-DOI: 10.1080/1351847X.2011.628682
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.628682
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:8:p:689-708
Template-Type: ReDIF-Article 1.0
Author-Name: Eleimon Gonis
Author-X-Name-First: Eleimon
Author-X-Name-Last: Gonis
Author-Name: Salima Paul
Author-X-Name-First: Salima
Author-X-Name-Last: Paul
Author-Name: Jon Tucker
Author-X-Name-First: Jon
Author-X-Name-Last: Tucker
Title: Rating or no rating? That is the question: an empirical examination of UK companies
Abstract:
The aim of this paper is to examine the main determinants of the rating
likelihood of UK companies. We use a binary probit specification to model
the main drivers of a firm's propensity to be rated. Using a sample of 245
non-financial UK companies over the period 1995--2006, representing up to
2872 firm years, the study establishes important differences in the
financial profiles of rated and non-rated firms. The results of the rating
likelihood models indicate that the decision to obtain a rating is driven
by a company's financial risk, solvency, default risk, public debt
issuance, R&D, and institutional ownership, thus identifying a wider range
of determinants and extending the current literature. The study also finds
that the rating decision can be modelled by means of a contemporaneous or
predictive specification without any loss of efficiency or classification
accuracy. This offers support to the argument that the rating process is
fundamentally forward-looking.
Journal: The European Journal of Finance
Pages: 709-735
Issue: 8
Volume: 18
Year: 2012
Month: 9
X-DOI: 10.1080/1351847X.2011.649215
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.649215
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:8:p:709-735
Template-Type: ReDIF-Article 1.0
Author-Name: H�lena Beltran-Lopez
Author-X-Name-First: H�lena
Author-X-Name-Last: Beltran-Lopez
Author-Name: Joachim Grammig
Author-X-Name-First: Joachim
Author-X-Name-Last: Grammig
Author-Name: Albert J. Menkveld
Author-X-Name-First: Albert J.
Author-X-Name-Last: Menkveld
Title: Limit order books and trade informativeness
Abstract:
In the microstructure literature, information asymmetry is an important
determinant of market liquidity. The classic setting is that uninformed
dedicated liquidity suppliers charge price concessions when incoming
market orders are likely to be informationally motivated. In limit order
book (LOB) markets, however, this relationship is less clear, as market
participants can switch roles, and freely choose to immediately demand or
patiently supply liquidity by submitting either market or limit orders. We
study the importance of information asymmetry in LOBs based on a recent
sample of 30 German Deutscher Aktienindex (DAX) stocks. We find that
Hasbrouck's (1991) measure of trade informativeness Granger causes book
liquidity, in particular that required to fill large market orders.
Picking-off risk due to public news-induced volatility is more important
for top-of-the book liquidity supply. In our multivariate analysis, we
control for volatility, trading volume, trading intensity and order
imbalance to isolate the effect of trade informativeness on book
liquidity.
Journal: The European Journal of Finance
Pages: 737-759
Issue: 9
Volume: 18
Year: 2012
Month: 10
X-DOI: 10.1080/1351847X.2011.601651
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601651
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:9:p:737-759
Template-Type: ReDIF-Article 1.0
Author-Name: M. Bonato
Author-X-Name-First: M.
Author-X-Name-Last: Bonato
Author-Name: M. Caporin
Author-X-Name-First: M.
Author-X-Name-Last: Caporin
Author-Name: A. Ranaldo
Author-X-Name-First: A.
Author-X-Name-Last: Ranaldo
Title: A forecast-based comparison of restricted Wishart autoregressive models for realized covariance matrices
Abstract:
Models for realized covariance matrices may suffer from the curse of
dimensionality as more traditional multivariate volatility models (such as
GARCH and stochastic volatility). Within the class of realized covariance
models, we focus on the Wishart specification introduced by C. Gourieroux,
J. Jasiak, and R. Sufana [2009. The Wishart autoregressive process of
multivariate stochastic volatility. Journal of
Econometrics 150, no. 2: 167--81] and analyze here the
forecasting performances of the parametric restrictions discussed in M.
Bonato [2009. Estimating the degrees of freedom of the realized volatility
Wishart autoregressive model. Manuscript available at http://ssrn.com/abstract=135
7044], which are motivated by asset features such as their
economic sector and book-to-market or price-to-earnings ratios, among
others. Our purpose is to verify if restricted model forecasts are
statistically equivalent to full-model specification, a result that would
support the use of restrictions when the problem cross-sectional dimension
is large.
Journal: The European Journal of Finance
Pages: 761-774
Issue: 9
Volume: 18
Year: 2012
Month: 10
X-DOI: 10.1080/1351847X.2011.601629
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601629
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:9:p:761-774
Template-Type: ReDIF-Article 1.0
Author-Name: Laura Coroneo
Author-X-Name-First: Laura
Author-X-Name-Last: Coroneo
Author-Name: David Veredas
Author-X-Name-First: David
Author-X-Name-Last: Veredas
Title: A simple two-component model for the distribution of intraday returns
Abstract:
We model the conditional distribution of high-frequency financial returns
by means of a two-component quantile regression model. Using three years
of 30 minute returns, we show that the conditional distribution depends on
past returns and on the time of the day. Two practical applications
illustrate the usefulness of the model. First, we provide quantile-based
measures of conditional volatility, asymmetry and kurtosis that do not
depend on the existence of moments. We find seasonal patterns and time
dependencies beyond volatility. Second, we estimate and forecast intraday
Value at Risk. The two-component model is able to provide good-risk
assessments and to outperform GARCH-based Value at Risk evaluations.
Journal: The European Journal of Finance
Pages: 775-797
Issue: 9
Volume: 18
Year: 2012
Month: 10
X-DOI: 10.1080/1351847X.2011.601649
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601649
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:9:p:775-797
Template-Type: ReDIF-Article 1.0
Author-Name: Jón Daníelsson
Author-X-Name-First: Jón
Author-X-Name-Last: Daníelsson
Author-Name: Richard Payne
Author-X-Name-First: Richard
Author-X-Name-Last: Payne
Title: Liquidity determination in an order-driven market
Abstract:
We exploit full order level information from an electronic FX broking
system to provide a comprehensive account of the determination of its
liquidity. We not only look at bid-ask spreads and trading volumes, but
also study the determination of order entry rates and depth measures
derived from the entire limit order book. We find strong predictability in
the arrival of liquidity supply/demand events. Further, in times of low
(high) liquidity, liquidity supply (demand) events are more common. In
times of high trading activity and volatility, the ratio of limit to
market order arrivals is high but order book spreads and depth
deteriorate. These results are consistent with market order traders having
better information than limit order traders.
Journal: The European Journal of Finance
Pages: 799-821
Issue: 9
Volume: 18
Year: 2012
Month: 10
X-DOI: 10.1080/1351847X.2011.601654
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601654
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:9:p:799-821
Template-Type: ReDIF-Article 1.0
Author-Name: Jón Daníelsson
Author-X-Name-First: Jón
Author-X-Name-Last: Daníelsson
Author-Name: Jinhui Luo
Author-X-Name-First: Jinhui
Author-X-Name-Last: Luo
Author-Name: Richard Payne
Author-X-Name-First: Richard
Author-X-Name-Last: Payne
Title: Exchange rate determination and inter-market order flow effects
Abstract:
The dependence of foreign exchange rates on order flow is investigated
for four major exchange rate pairs, EUR/USD, EUR/GBP, GBP/USD and USD/JPY,
across sampling frequencies ranging from 5 min to 1 week. Strong
explanatory power is discovered for all sampling frequencies. We also
uncover cross-market order flow effects, e.g. GBP exchange rates are very
strongly influenced by EUR/USD order flow. We proceed to investigate the
predictive power of order flow for exchange rate changes, and it is shown
that the order flow specifications reduce RMSEs relative to a random walk
for all exchange rates at high-frequencies and for EUR/USD and USD/JPY at
lower sampling frequencies.
Journal: The European Journal of Finance
Pages: 823-840
Issue: 9
Volume: 18
Year: 2012
Month: 10
X-DOI: 10.1080/1351847X.2011.601655
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601655
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:9:p:823-840
Template-Type: ReDIF-Article 1.0
Author-Name: Alfonso Dufour
Author-X-Name-First: Alfonso
Author-X-Name-Last: Dufour
Author-Name: Minh Nguyen
Author-X-Name-First: Minh
Author-X-Name-Last: Nguyen
Title: Permanent trading impacts and bond yields
Abstract:
We analyse four years of transaction data for euro-area sovereign bonds
traded on the MTS electronic platforms. In order to measure the
informational content of trading activity, we estimate the permanent price
response to trades. We not only find strong evidence of information
asymmetry in sovereign bond markets, but also show the relevance of
information asymmetry in explaining the cross-sectional variations of bond
yields across a wide range of bond maturities and countries. Our results
confirm that trades of more recently issued bonds and longer maturity
bonds have a greater permanent effect on prices. We compare the price
impact of trades for bonds across different maturity categories and find
that trades of French and German bonds have the highest long-term price
impact in the short maturity class, whereas trades of German bonds have
the highest permanent price impact in the long maturity class. More
importantly, we study the cross-section of bond yields and find that after
controlling for conventional factors, investors demand higher yields for
bonds with larger permanent trading impact. Interestingly, when investors
face increased market uncertainty, they require even higher compensation
for information asymmetry.
Journal: The European Journal of Finance
Pages: 841-864
Issue: 9
Volume: 18
Year: 2012
Month: 10
X-DOI: 10.1080/1351847X.2011.601639
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601639
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:9:p:841-864
Template-Type: ReDIF-Article 1.0
Author-Name: Ian W. Marsh
Author-X-Name-First: Ian W.
Author-X-Name-Last: Marsh
Author-Name: Teng Miao
Author-X-Name-First: Teng
Author-X-Name-Last: Miao
Title: High-frequency information content in end-user foreign exchange order flows
Abstract:
This article considers the impact of foreign exchange (FX) order flows on
contemporaneous and future stock market returns using a new database of
customer order flows in the euro-dollar exchange rate market as seen by a
leading European bank. We do not find clear contemporaneous relationships
between FX order flows and stock market changes at high frequencies, but
FX flows do appear to have significant power to forecast stock index
returns over 1--30 min horizons, after controlling for lagged
exchange rate and stock market returns. The effects of order flows from
financial customers on future stock market changes are negative, while the
effects of corporate orders are positive. The latter results are
consistent with the premise that corporate order flows contain dispersed,
passively acquired information about fundamentals. Thus, purchases of the
dollar by corporate customers represent good news about the state of the
US economy. Importantly, though, there also appears to be extra
information in corporate flows which is directly relevant to equity prices
over and above the impact derived from stock prices reacting to
(predicted) exchange rate changes. Our findings suggest that financial
customer flows only affect stock prices through their impact on the value
of the dollar.
Journal: The European Journal of Finance
Pages: 865-884
Issue: 9
Volume: 18
Year: 2012
Month: 10
X-DOI: 10.1080/1351847X.2011.601652
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601652
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:9:p:865-884
Template-Type: ReDIF-Article 1.0
Author-Name: Ingmar Nolte
Author-X-Name-First: Ingmar
Author-X-Name-Last: Nolte
Title: A detailed investigation of the disposition effect and individual trading behavior: a panel survival approach
Abstract:
This article uses a panel survival approach to analyze the trading
behavior of foreign exchange traders. We concentrate on a detailed
characterization of the shape of the disposition effect over the entire
profit and loss regions. In doing so, we investigate the influence of a
number of trading characteristics on the impact of the disposition effect.
These trading characteristics include: special limit order strategies,
trading success, size and the experience of our investors. Our main
findings are that (i) the disposition effect has a nonlinear shape. For
small profits and losses we find an inverted disposition effect, while for
larger ones, the usual positive disposition effect emerges. (ii) The
inverted disposition effect is driven to a great extend by patient and
cautious investors closing their positions with special limit orders
(take-profit and stop-loss). The normal positive disposition effect is
found to be intensified for impatient investors closing their positions
actively with market orders. (iii) We show that unsuccessful investors
reveal a stronger inverse disposition effect. (iv) Evidence that bigger
investors are less prone to the disposition effect than smaller investors
is also found.
Journal: The European Journal of Finance
Pages: 885-919
Issue: 10
Volume: 18
Year: 2012
Month: 11
X-DOI: 10.1080/1351847X.2011.601635
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601635
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:10:p:885-919
Template-Type: ReDIF-Article 1.0
Author-Name: Ingmar Nolte
Author-X-Name-First: Ingmar
Author-X-Name-Last: Nolte
Author-Name: Sandra Nolte
Author-X-Name-First: Sandra
Author-X-Name-Last: Nolte
Title: How do individual investors trade?
Abstract:
This paper examines how high-frequency trading decisions of individual
investors are influenced by past price changes. Specifically, we address
the question as to whether decisions to open or close a position are
different when investors already hold a position compared with when they
do not. Based on a unique data set from an electronic foreign exchange
trading platform, OANDA FXTrade, we find that investors’ future
order flow is (significantly) driven by past price movements and that
these predictive patterns last up to several hours. This observation
clearly shows that for high-frequency trading, investors rely on previous
price movements in making future investment decisions. We provide clear
evidence that market and limit orders flows are much more predictable if
those orders are submitted to close an existing position than if they are
used to open one. We interpret this finding as evidence for the existence
of a monitoring effect, which has implications for theoretical market
microstructure models and behavioral finance phenomena, such as the
endowment effect.
Journal: The European Journal of Finance
Pages: 921-947
Issue: 10
Volume: 18
Year: 2012
Month: 11
X-DOI: 10.1080/1351847X.2011.601647
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601647
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:10:p:921-947
Template-Type: ReDIF-Article 1.0
Author-Name: Angel Pardo
Author-X-Name-First: Angel
Author-X-Name-Last: Pardo
Author-Name: Roberto Pascual
Author-X-Name-First: Roberto
Author-X-Name-Last: Pascual
Title: On the hidden side of liquidity
Abstract:
This article deals with the informativeness of iceberg orders, also known
as hidden limit orders (HLOs). Namely, we analyze how the market reacts
when the presence of hidden volume in the limit order book is revealed by
the trading process. We use high-frequency book and transaction data from
the Spanish Stock Exchange, including a large sample of
executed HLOs. We show that just when hidden volume is
detected, traders on the opposite side of the market become more
aggressive, exploiting the opportunity to consume more than expected at
the best quotes. However, neither illiquidity nor volatility increases in
the short term. Furthermore, the detection of hidden volume has no
relevant price impact. Overall, our results suggest that market
participants do not attribute any relevant information content to the
hidden side of liquidity.
Journal: The European Journal of Finance
Pages: 949-967
Issue: 10
Volume: 18
Year: 2012
Month: 11
X-DOI: 10.1080/1351847X.2011.601641
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601641
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:10:p:949-967
Template-Type: ReDIF-Article 1.0
Author-Name: Erik Theissen
Author-X-Name-First: Erik
Author-X-Name-Last: Theissen
Title: Price discovery in spot and futures markets: a reconsideration
Abstract:
We reconsider the issue of price discovery in spot and futures markets.
We use a threshold error correction model to allow for arbitrage
opportunities to have an impact on the return dynamics. We estimate the
model using quote midpoints, and we modify the model to account for
time-varying transaction costs. We find that (a) the futures market leads
in the process of price discovery and (b) the presence of arbitrage
opportunities has a strong impact on the dynamics of the price discovery
process.
Journal: The European Journal of Finance
Pages: 969-987
Issue: 10
Volume: 18
Year: 2012
Month: 11
X-DOI: 10.1080/1351847X.2011.601643
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601643
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:10:p:969-987
Template-Type: ReDIF-Article 1.0
Author-Name: Paolo Vitale
Author-X-Name-First: Paolo
Author-X-Name-Last: Vitale
Title: Optimal informed trading in the foreign exchange market
Abstract:
We formulate a market microstructure model of exchange determination that
we employ to investigate the impact of informed trading on exchange rates
and on foreign exchange (FX) market conditions. With our formulation, we
show how strategic informed agents influence exchange rates via both the
portfolio-balance and information effects. We outline the connection which
exists between the private value of information, market efficiency,
liquidity and exchange rate volatility. Our model is also consistent with
recent empirical research on the micro-structure of FX markets.
Journal: The European Journal of Finance
Pages: 989-1013
Issue: 10
Volume: 18
Year: 2012
Month: 11
X-DOI: 10.1080/1351847X.2011.601650
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601650
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:10:p:989-1013
Template-Type: ReDIF-Article 1.0
Author-Name: Gunther Wuyts
Author-X-Name-First: Gunther
Author-X-Name-Last: Wuyts
Title: The impact of aggressive orders in an order-driven market: a simulation approach
Abstract:
This article investigates resiliency in an order-driven market. On basis
of a vector autoregressive model capturing various dimensions of liquidity
and their interactions, I simulate the effect of a large liquidity shock,
measured by a very aggressive market order. I show that, despite the
absence of market makers, the market is resilient. All dimensions of
liquidity (spread, depth at the best prices and order book imbalances)
revert to their steady-state values within 15 orders after the shock. For
prices, a long run effect is found. Furthermore, different dimensions of
liquidity interact. Immediately after a liquidity shock, the spread
becomes wider than in the steady state, implying that one dimension of
liquidity deteriorates, while at the same time, depth at the best prices
increases, meaning an improvement of another liquidity dimension. In
subsequent periods, the spread reverts back to the steady-state level but
also depth decreases. Also, I find evidence for asymmetries in the impact
of shocks on the ask and bid side. Shocks on the ask side have a stronger
impact than shocks on the bid side. Finally, resiliency is higher for
less-frequently traded stocks and stocks with a larger relative tick size.
Journal: The European Journal of Finance
Pages: 1015-1038
Issue: 10
Volume: 18
Year: 2012
Month: 11
X-DOI: 10.1080/1351847X.2011.601631
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601631
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:18:y:2012:i:10:p:1015-1038
Template-Type: ReDIF-Article 1.0
Author-Name: Hong Liu
Author-X-Name-First: Hong
Author-X-Name-Last: Liu
Author-Name: John O.S. Wilson
Author-X-Name-First: John O.S.
Author-X-Name-Last: Wilson
Title: Competition and risk in Japanese banking
Abstract:
We investigate whether the relationship between competition and risk
varies across different types of Japanese banks over the period
2000--2009. The results of our empirical investigation show that risk
varies across bank types. Specifically, nationwide (City and Trust) banks
are riskier on average than their counterparts (Regional, Tier 2 Regional,
Shinkin and Credit Cooperative banks) with a regional focus. The
relationship between competition and risk also varies across bank types
based on different initial levels of risk. Increasing competition appears
to reduce the risk of (City) banks with higher initial levels of risk, but
increase the risk of their (Regional, Tier 2 Regional, Shinkin and Credit
Cooperative) counterparts with lower initial levels of risk.
Journal: The European Journal of Finance
Pages: 1-18
Issue: 1
Volume: 19
Year: 2013
Month: 1
X-DOI: 10.1080/1351847X.2011.633614
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.633614
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:1:p:1-18
Template-Type: ReDIF-Article 1.0
Author-Name: Panagiotis Andrikopoulos
Author-X-Name-First: Panagiotis
Author-X-Name-Last: Andrikopoulos
Author-Name: James Clunie
Author-X-Name-First: James
Author-X-Name-Last: Clunie
Author-Name: Antonios Siganos
Author-X-Name-First: Antonios
Author-X-Name-Last: Siganos
Title: Short-selling constraints and ‘quantitative’ investment strategies
Abstract:
This study uses stock lending data from Data Explorers to assess the
impact of short-selling constraints on the profitability of eight
investment strategies. Returns from unconstrained long--short portfolios
are compared with those from ‘feasible’ portfolios,
constrained to short-selling only those shares that can be borrowed. We
find that only a small percentage of the firms identified by Datastream
for short-selling are available for lending, but our results suggest that
differences in profitability between unconstrained and feasible strategies
are statistically insignificant. We also find that the stock borrowing fee
for the majority of the strategies is normally less than 1% per annum,
showing that prior UK studies, which assumed that the short-selling fee is
flat at 1.50% per annum, have overestimated such cost. Overall, these
results indicate that stock loan unavailability and stock borrowing fees
do not explain the persistence of returns from anomaly-exploiting
quantitative investment strategies in the UK stock market.
Journal: The European Journal of Finance
Pages: 19-35
Issue: 1
Volume: 19
Year: 2013
Month: 1
X-DOI: 10.1080/1351847X.2011.634426
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.634426
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:1:p:19-35
Template-Type: ReDIF-Article 1.0
Author-Name: Nicholas Taylor
Author-X-Name-First: Nicholas
Author-X-Name-Last: Taylor
Title: A formula for the economic value of return predictability
Abstract:
This paper provides a formula for a commonly used measure of the economic
value of asset return predictability. In doing this, we find that there is
a strong connection between this measure and a traditional statistical
measure of predictive quality. In particular, we demonstrate that the
maximum amount an investor is willing to pay for predictability knowledge
(the performance fee) is a simple transformation of the R
-super-2 statistic associated with the predictor equation. We illustrate
the use of these results with an application to the Ibbotson US bond and
equity data (and a set of pertinent predictors), and via application to
the results published in Fama and French [1988. Dividend yields and
expected stock returns. Journal of Financial Economics
22: 3--25], Balvers, Cosimano, and McDonald [1990. Predicting stock
returns in an efficient market. Journal of Finance 45:
1109--28], Lettau and Ludvigson [2001. Consumption, aggregate wealth and
expected stock returns. Journal of Finance 56: 815--49],
and Santa-Clara and Yan [2010. Crashes, volatility, and the equity
premium: Lessons from S&P 500 options. Review of Economics and
Statistics 92: 435--51].
Journal: The European Journal of Finance
Pages: 37-53
Issue: 1
Volume: 19
Year: 2013
Month: 1
X-DOI: 10.1080/1351847X.2011.640340
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.640340
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:1:p:37-53
Template-Type: ReDIF-Article 1.0
Author-Name: Giampaolo Gabbi
Author-X-Name-First: Giampaolo
Author-X-Name-Last: Gabbi
Author-Name: Pietro Vozzella
Author-X-Name-First: Pietro
Author-X-Name-Last: Vozzella
Title: Asset correlations and bank capital adequacy
Abstract:
This paper addresses the estimation of confidence sets for asset
correlations used in credit risk portfolio models. Research on the
estimation of asset correlations using endogenous probabilities of default
estimations has focused on the impact of concentration risk factors, such
as firm size and industry. The empirical evidence from Italian small- and
medium-size companies show that the assumptions underlying the Basel
Committee regulatory capital risk weight function are not substantiated.
The regulatory impact is that the capital adequacy is significantly
compromised, driving an adverse selection, which favors the worst
companies, and transferring the procyclical effects from firms to banks.
Journal: The European Journal of Finance
Pages: 55-74
Issue: 1
Volume: 19
Year: 2013
Month: 1
X-DOI: 10.1080/1351847X.2012.659266
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.659266
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:1:p:55-74
Template-Type: ReDIF-Article 1.0
Author-Name: Sebastian Garmann
Author-X-Name-First: Sebastian
Author-X-Name-Last: Garmann
Author-Name: Peter Grundke
Author-X-Name-First: Peter
Author-X-Name-Last: Grundke
Title: On the influence of autocorrelation and GARCH-effects on goodness-of-fit tests for copulas
Abstract:
Knowing the multivariate stochastic dependence between random variables
is of crucial importance for many finance applications. To check the
adequacy of copula assumptions by which stochastic dependencies can be
described, goodness-of-fit (gof) tests have to be carried out. These tests
require (serially) independent and identically distributed (i.i.d.) data
as input. Due to autocorrelations and time-varying conditional
volatilities, this prerequisite is usually not fulfilled by financial
market returns. Within a simulation study, we analyze the influence of
these violations of the i.i.d.-prerequisite on the rejection rates of gof
tests. We find that in many cases the rejection rates are significantly
different for non-i.i.d. data input than for adequately filtered data
input. This finding questions the conclusions of early empirical studies
applying gof tests for copulas to data without adequately filtering it
before. Only in the majority of those constellations that in general yield
very low rejection rates, no significant differences have been revealed.
Journal: The European Journal of Finance
Pages: 75-88
Issue: 1
Volume: 19
Year: 2013
Month: 1
X-DOI: 10.1080/1351847X.2012.676558
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.676558
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:1:p:75-88
Template-Type: ReDIF-Article 1.0
Author-Name: Andrew Marshall
Author-X-Name-First: Andrew
Author-X-Name-Last: Marshall
Author-Name: Martin Kemmitt
Author-X-Name-First: Martin
Author-X-Name-Last: Kemmitt
Author-Name: Helena Pinto
Author-X-Name-First: Helena
Author-X-Name-Last: Pinto
Title: The determinants of foreign exchange hedging in Alternative Investment Market firms
Abstract:
This paper examines the foreign exchange (FX) hedging by firms listed on
the Alternative Investment Market (AIM) in the UK to contribute to the
empirical debate on the determinants of the FX hedging. Despite our
selection criteria that all our firms have exposure to FX risk, we find
that only around a third of our sample hedge their FX risk. Contrary to
expectations, we find a significant negative relation between hedging and
the extent of managerial ownership of the firm. This could be explained by
the particular agency relations in AIM firms, the significant managerial
ownership of these firms or managers’ overconfidence. We find that
the larger of the AIM firms in our sample hedge more, indicating that
despite the FX risks they face, some of the smaller AIM firms lack
financial knowledge or understanding to deal with their potential FX
risks. Finally, we find an industry effect in the decision to hedge as AIM
firms in the basic material and financial sectors are less likely to hedge
FX risk than other sectors Our results are robust to a number of further
checks.
Journal: The European Journal of Finance
Pages: 89-111
Issue: 2
Volume: 19
Year: 2013
Month: 2
X-DOI: 10.1080/1351847X.2012.659267
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.659267
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:2:p:89-111
Template-Type: ReDIF-Article 1.0
Author-Name: Montserrat Ferr�
Author-X-Name-First: Montserrat
Author-X-Name-Last: Ferr�
Author-Name: Carolina Manzano
Author-X-Name-First: Carolina
Author-X-Name-Last: Manzano
Title: Central bank coordinated intervention: a microstructure approach
Abstract:
In this article, we develop a theoretical microstructure model of
coordinated central bank intervention based on asymmetric information. We
also set up a game where central banks will choose whether to intervene
unilaterally or in a coordinated manner, and we study the conditions under
which they prefer to coordinate. Finally, we study the economic
implications of coordination on some measures of market quality and show
that the model predicts higher volatility and more significant exchange
rate changes when central banks coordinate compared to the case when they
intervene unilaterally. These predictions are in line with empirical
evidence. Further, the effects of coordinated intervention are, from a
social point of view, more desirable than those of unilateral
intervention.
Journal: The European Journal of Finance
Pages: 113-126
Issue: 2
Volume: 19
Year: 2013
Month: 2
X-DOI: 10.1080/1351847X.2012.660535
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.660535
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:2:p:113-126
Template-Type: ReDIF-Article 1.0
Author-Name: Stephan Jank
Author-X-Name-First: Stephan
Author-X-Name-Last: Jank
Author-Name: Michael Wedow
Author-X-Name-First: Michael
Author-X-Name-Last: Wedow
Title: Purchase and redemption decisions of mutual fund investors and the role of fund families
Abstract:
This paper investigates the purchases and redemptions of a large
cross-sectional sample of German equity funds. We find that investors not
only punish bad performance by selling their shares, but also have a
tendency to sell winners. Investors in large fund families show higher
sales and redemption rates. Furthermore, family size also affects the
flow-performance relationship: investors in large families punish bad
performance more. Last, we find that inner family rankings play an
important part for redemptions, with investors strongly redeeming their
shares from intra-family losers. This result provides a potential
reconciliation to the apparent contradiction between the low average
holding period of mutual fund investors and the lack of investor
discipline.
Journal: The European Journal of Finance
Pages: 127-144
Issue: 2
Volume: 19
Year: 2013
Month: 2
X-DOI: 10.1080/1351847X.2012.662908
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.662908
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:2:p:127-144
Template-Type: ReDIF-Article 1.0
Author-Name: Georges Dionne
Author-X-Name-First: Georges
Author-X-Name-Last: Dionne
Author-Name: Thouraya Triki
Author-X-Name-First: Thouraya
Author-X-Name-Last: Triki
Title: On risk management determinants: what really matters?
Abstract:
We develop a theoretical model in which debt and hedging decisions are
made simultaneously, and test its predictions empirically. To address
inefficiencies in current estimation methods for simultaneous equations
with censored dependent variables, we build an original estimation
technique based on the minimum distance estimator. Consistent with
predictions drawn from our theoretical model, we show that more hedging
does not always lead to a higher debt capacity. We also find that
financial distress costs, information asymmetry, the presence of financial
slack, corporate governance, and managerial risk aversion are important
determinants of corporate hedging. Overall, our evidence shows that
modeling hedging and leverage as simultaneous decisions makes a difference
in analyzing corporate hedging determinants.
Journal: The European Journal of Finance
Pages: 145-164
Issue: 2
Volume: 19
Year: 2013
Month: 2
X-DOI: 10.1080/1351847X.2012.664156
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.664156
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:2:p:145-164
Template-Type: ReDIF-Article 1.0
Author-Name: Georgios Sermpinis
Author-X-Name-First: Georgios
Author-X-Name-Last: Sermpinis
Author-Name: Jason Laws
Author-X-Name-First: Jason
Author-X-Name-Last: Laws
Author-Name: Christian L. Dunis
Author-X-Name-First: Christian L.
Author-X-Name-Last: Dunis
Title: Modelling and trading the realised volatility of the FTSE100 futures with higher order neural networks
Abstract:
The motivation for this article is the investigation of the
use of a promising class of neural network (NN) models, higher order
neural networks (HONNs), when applied to the task of forecasting and
trading the 21-day-ahead realised volatility of the FTSE 100 futures
index. This is done by benchmarking their results with those of two
different NN designs, the multi-layer perceptron (MLP) and the recurrent
neural network (RNN), along with a traditional technique, RiskMetrics.
More specifically, the forecasting and trading performance of all models
is examined over the eight FTSE 100 futures maturities of the period
2007--2008 using the realised volatility of the last 21 trading days of
each maturity as the out-of-sample target. The statistical evaluation of
our models is done by using a series of measures such as the mean absolute
error, the mean absolute percentage error, the root-mean-squared error and
the Theil U-statistic. Then we apply a simple trading
strategy to exploit our forecasts based on trading at-the-money call
options on FTSE 100 futures. As it turns out, HONNs demonstrate a
remarkable performance and outperform all other models not only in terms
of statistical accuracy but also in terms of trading efficiency. We also
note that both the RNNs and MLPs provide sufficient results in the trading
application in terms of cumulative profit and average profit per trade.
Journal: The European Journal of Finance
Pages: 165-179
Issue: 3
Volume: 19
Year: 2013
Month: 3
X-DOI: 10.1080/1351847X.2011.606990
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.606990
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:3:p:165-179
Template-Type: ReDIF-Article 1.0
Author-Name: Christian L. Dunis
Author-X-Name-First: Christian L.
Author-X-Name-Last: Dunis
Author-Name: Jason Laws
Author-X-Name-First: Jason
Author-X-Name-Last: Laws
Author-Name: Andreas Karathanasopoulos
Author-X-Name-First: Andreas
Author-X-Name-Last: Karathanasopoulos
Title: GP algorithm versus hybrid and mixed neural networks
Abstract:
In the current paper, we present an integrated genetic
programming (GP) environment called java GP modelling. The java GP
modelling environment is an implementation of the steady-state GP
algorithm. This algorithm evolves tree-based structures that represent
models of inputs and outputs. The motivation of this paper is to compare
the GP algorithm with neural network (NN) architectures when applied to
the task of forecasting and trading the ASE 20 Greek Index (using
autoregressive terms as inputs). This is done by benchmarking the
forecasting performance of the GP algorithm and six different
autoregressive moving average model (ARMA) NN combination designs
representing a Hybrid, Mixed Higher Order Neural Network (HONN), a Hybrid,
Mixed Recurrent Neural Network (RNN), a Hybrid, Mixed classic Multilayer
Perceptron with some traditional techniques, either statistical such as a
an ARMA or technical such as a moving average convergence/divergence
model, and a naïve trading strategy. More specifically, the trading
performance of all models is investigated in a forecast and trading
simulation on ASE 20 time-series closing prices over the period
2001--2008, using the last one and a half years for out-of-sample testing.
We use the ASE 20 daily series as many financial institutions are ready to
trade at this level, and it is therefore possible to leave orders with a
bank for business to be transacted on that basis. As it turns out, the GP
model does remarkably well and outperforms all other models in a simple
trading simulation exercise. This is also the case when more sophisticated
trading strategies using confirmation filters and leverage are applied, as
the GP model still produces better results and outperforms all other NN
and traditional statistical models in terms of annualized return.
Journal: The European Journal of Finance
Pages: 180-205
Issue: 3
Volume: 19
Year: 2013
Month: 3
X-DOI: 10.1080/1351847X.2012.679740
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.679740
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:3:p:180-205
Template-Type: ReDIF-Article 1.0
Author-Name: Hamad Alsayed
Author-X-Name-First: Hamad
Author-X-Name-Last: Alsayed
Author-Name: Frank McGroarty
Author-X-Name-First: Frank
Author-X-Name-Last: McGroarty
Title: Optimal portfolio selection in nonlinear arbitrage spreads
Abstract:
This paper analytically solves the portfolio optimization
problem of an investor faced with a risky arbitrage opportunity (e.g.
relative mispricing in equity pairs). Unlike the extant literature, which
typically models mispricings through the Ornstein--Uhlenbeck (OU) process,
we introduce a nonlinear generalization of OU which jointly captures
several important risk factors inherent in arbitrage trading. While these
factors are absent from the standard OU, we show that considering them
yields several new insights into the behavior of rational arbitrageurs:
Firstly, arbitrageurs recognizing these risk factors exhibit a diminishing
propensity to exploit large mispricings. Secondly, optimal investment
behavior in light of these risk factors precipitates the gradual unwinding
of losing trades far sooner than is entailed in existing approaches
including OU. Finally, an empirical application to daily FTSE100 pairs
data shows that incorporating these risks renders our model's
risk-management capabilities superior to both OU and a simple threshold
strategy popular in the literature. These observations are useful in
understanding the role of arbitrageurs in enforcing price efficiency.
Journal: The European Journal of Finance
Pages: 206-227
Issue: 3
Volume: 19
Year: 2013
Month: 3
X-DOI: 10.1080/1351847X.2012.659265
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.659265
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:3:p:206-227
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Hanke
Author-X-Name-First: Michael
Author-X-Name-Last: Hanke
Author-Name: Michael Kirchler
Author-X-Name-First: Michael
Author-X-Name-Last: Kirchler
Title: Football championships and jersey sponsors’ stock prices: an empirical investigation
Abstract:
Corporate sports sponsorship is an important part of many
companies’ corporate communication strategy. In this paper, we take
the example of major football tournaments to show that sponsorship indeed
affects the sponsor's (stock) market value. We find a statistically
significant impact of football results (at an individual match level) of
the seven most important football nations at European and World
Championships on the stock prices of jersey sponsors. In general, the more
important a match and the less expected its result, the higher its impact.
In addition, we find a form of ‘mere-exposure’ effect which
is difficult to reconcile with the efficient markets hypothesis.
Journal: The European Journal of Finance
Pages: 228-241
Issue: 3
Volume: 19
Year: 2013
Month: 3
X-DOI: 10.1080/1351847X.2012.659268
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.659268
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:3:p:228-241
Template-Type: ReDIF-Article 1.0
Author-Name: Szabolcs Blazsek
Author-X-Name-First: Szabolcs
Author-X-Name-Last: Blazsek
Author-Name: Anna Downarowicz
Author-X-Name-First: Anna
Author-X-Name-Last: Downarowicz
Title: Forecasting hedge fund volatility: a Markov regime-switching approach
Abstract:
The article addresses forecasting volatility of hedge fund
(HF) returns by using a non-linear Markov-Switching GARCH (MS-GARCH)
framework. The in- and out-of-sample, multi-step ahead volatility
forecasting performance of GARCH(1,1) and MS-GARCH(1,1) models is compared
when applied to 12 global HF indices over the period of January 1990 to
October 2010. The results identify different regimes with periods of high
and low volatility for most HF indices. In-sample estimation results
reveal a superior performance of the MS-GARCH model. The findings show
that regime switching is related to structural changes in the market
factor for most strategies. Out-of-sample forecasting shows that the
MS-GARCH formulation provides more accurate volatility forecasts for most
forecast horizons and for most HF strategies. Inclusion of MS dynamics in
the GARCH specification highly improves the volatility forecasts for those
strategies that are particularly sensitive to general macroeconomic
conditions, such as Distressed Restructuring and Merger Arbitrage.
Journal: The European Journal of Finance
Pages: 243-275
Issue: 4
Volume: 19
Year: 2013
Month: 4
X-DOI: 10.1080/1351847X.2011.653576
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.653576
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:4:p:243-275
Template-Type: ReDIF-Article 1.0
Author-Name: Chien-Chiang Lee
Author-X-Name-First: Chien-Chiang
Author-X-Name-Last: Lee
Author-Name: Ching-Chuan Tsong
Author-X-Name-First: Ching-Chuan
Author-X-Name-Last: Tsong
Author-Name: Shih-Jui Yang
Author-X-Name-First: Shih-Jui
Author-X-Name-Last: Yang
Author-Name: Chi-Hung Chang
Author-X-Name-First: Chi-Hung
Author-X-Name-Last: Chang
Title: Investigating the stationarity of insurance premiums: international evidence
Abstract:
This article explores whether there is support for the
stationarity hypotheses of life and non-life insurance premiums during the
period 1979--2007 for 40 heterogeneous countries. The stationarity of
insurance premiums affects insurance companies’ prediction on their
future inflow of premium income, which affects the liquidity of insurance
companies and their investment plans and thus is relevant to the
insurers’ operation. This article employs the advanced nonlinear
panel unit-root test with a sequential panel selection method to classify
the entire panel into two groups: stationary countries and non-stationary
countries. We apply Monte Carlo simulations to derive empirical
distributions of the test, which allows us to correct for the
finite-sample bias and to consider the cross-country effects. We find
relatively stationary life insurance premiums in countries from the
following groups: high-income, Europe, and common law origin; relatively
stationary non-life insurance premiums exist in the following groups:
low-income, Middle East and Africa, and common law origin. Evidence herein
shows that different classifications, including income levels, geographic
regions, regionally or economically integrated blocs, and legal system,
affect the stationarity of life and non-life insurance premiums.
Journal: The European Journal of Finance
Pages: 276-297
Issue: 4
Volume: 19
Year: 2013
Month: 4
X-DOI: 10.1080/1351847X.2011.653577
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.653577
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:4:p:276-297
Template-Type: ReDIF-Article 1.0
Author-Name: Ioulia D. Ioffe
Author-X-Name-First: Ioulia D.
Author-X-Name-Last: Ioffe
Author-Name: Eliezer Z. Prisman
Author-X-Name-First: Eliezer Z.
Author-X-Name-Last: Prisman
Title: Arbitrage violations and implied valuations: the option market
Abstract:
The ideas presented in this paper are those of the authors
and not necessarily reflect the views of the National bank of Canada. Both
authors thank the National Bank of Canada and the SSHRC of Canada for
their help. Thanks are also due to Professor Y. Tian for his comments, and
for participating, together with students of the Financial Engineering
program at York University, in the data preparation and the execution of
the Matlab programs. In this paper, we propose a necessary and sufficient
condition for bid and ask prices of European options to be free of
arbitrage, and derive from it an efficient numerical methodology to
determine its satisfaction by a given set of prices. If the bid and ask
prices satisfy the no-arbitrage (NA) condition, our methodology produces a
vector of NA prices that lie between the bid and ask prices. Otherwise,
our methodology generates a vector of arbitrage-free prices that is as
close as possible, in some sense, to the bid--ask strip. The
arbitrage-free prices detected by our methodology render the commonly used
practice of using mid-points and then ‘cleaning’ arbitrage
from them as unnecessary. Moreover, a vector of ‘cleaned’
prices obtained from mid-point prices may be outside the bid--ask spread
even in an arbitrage-free market and, hence, in this case will not be
representative of the current market. A new procedure of estimating
implied valuation operators is also suggested here. This procedure is
rooted in the economic properties of put and call prices and is based on
Phillips and Taylor's approximation of a convex function. This approach is
superior to common estimation techniques in that it produces an analytical
expression for the implied valuation operator and is not data intensive as
some other studies. Empirical findings for the new methods are documented
and their economic implications are discussed.
Journal: The European Journal of Finance
Pages: 298-317
Issue: 4
Volume: 19
Year: 2013
Month: 4
X-DOI: 10.1080/1351847X.2012.672440
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.672440
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:4:p:298-317
Template-Type: ReDIF-Article 1.0
Author-Name: Tom Aabo
Author-X-Name-First: Tom
Author-X-Name-Last: Aabo
Author-Name: Christos Pantzalis
Author-X-Name-First: Christos
Author-X-Name-Last: Pantzalis
Author-Name: Maja Stoholm S?rensen
Author-X-Name-First: Maja Stoholm
Author-X-Name-Last: S?rensen
Title: Game hoarding in Europe: stock-price consequences of local bias?
Abstract:
Local bias within a country and between countries is well
established in the empirical literature. However, the underlying reasons
are less well established. In a simple supply and demand framework, Hong,
Kubik, and Stein (hereafter HKS) [2008. The only game in town: Stock-price
consequences of local bias. Journal of Financial
Economics 90, no. 1: 20--37.] find an
‘only-game-in-town’ effect in the USA -- the stock price in
a region decreases in the ratio of aggregate book value of listed firms to
the aggregate personal income (‘RATIO’). We first replicate
the HKS (2008) study using European data and find an opposite effect, a
‘game-hoarding’ effect. We then investigate the underlying
factors of RATIO and find that after controlling for differences in origin
of law, investor rights, corruption and Euro adoption, neither a
game-hoarding effect nor an only-game-in-town effect is strongly supported
in the European case. The results are important in understanding the
concept of local bias in a cross-country framework.
Journal: The European Journal of Finance
Pages: 318-335
Issue: 4
Volume: 19
Year: 2013
Month: 4
X-DOI: 10.1080/1351847X.2012.689775
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.689775
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:4:p:318-335
Template-Type: ReDIF-Article 1.0
Author-Name: C. Kyrtsou
Author-X-Name-First: C.
Author-X-Name-Last: Kyrtsou
Author-Name: D. Sornette
Author-X-Name-First: D.
Author-X-Name-Last: Sornette
Title: Editorial introduction: ‘new facets of the economic complexity in modern financial markets’
Journal: The European Journal of Finance
Pages: 337-343
Issue: 5
Volume: 19
Year: 2013
Month: 5
X-DOI: 10.1080/1351847X.2012.723282
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.723282
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:5:p:337-343
Template-Type: ReDIF-Article 1.0
Author-Name: L. Lin
Author-X-Name-First: L.
Author-X-Name-Last: Lin
Author-Name: D. Sornette
Author-X-Name-First: D.
Author-X-Name-Last: Sornette
Title: Diagnostics of rational expectation financial bubbles with stochastic mean-reverting termination times
Abstract:
We propose two rational expectation models of transient
financial bubbles with heterogeneous arbitrageurs and positive feedbacks
leading to self-reinforcing transient stochastic faster-than-exponential
price dynamics. As a result of the nonlinear feedbacks, the termination of
a bubble is found to be characterized by a finite-time singularity in the
bubble price formation process ending at some potential critical time
[ttilde] c, which follows a
mean-reverting stationary dynamics. Because of the heterogeneity of the
rational agents’ expectations, there is a synchronization problem
for the optimal exit times determined by these arbitrageurs, which leads
to the survival of the bubble almost all the way to its theoretical end
time. The explicit exact analytical solutions of the two models provide
nonlinear transformations which allow us to develop novel tests for the
presence of bubbles in financial time series. Avoiding the difficult
problem of parameter estimation of the stochastic differential equation
describing the price dynamics, the derived operational procedures allow us
to diagnose bubbles that are in the making and to forecast their
termination time. The tests have been performed on four financial markets,
the US S&P500 index from 1 February 1980 to 31 October 2008, the US NASDAQ
Composite index from 1 January 1980 to 31 July 2008, the Hong Kong Hang
Seng index from 1 December 1986 to 30 November 2008 and the US Dow Jones
Industrial Average Index from 3 January 1920 to 31 December 1931. Our
results suggest the feasibility of advance bubble warning using stochastic
models that embody the mechanism of positive feedback.
Journal: The European Journal of Finance
Pages: 344-365
Issue: 5
Volume: 19
Year: 2013
Month: 5
X-DOI: 10.1080/1351847X.2011.607004
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.607004
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:5:p:344-365
Template-Type: ReDIF-Article 1.0
Author-Name: Petr Geraskin
Author-X-Name-First: Petr
Author-X-Name-Last: Geraskin
Author-Name: Dean Fantazzini
Author-X-Name-First: Dean
Author-X-Name-Last: Fantazzini
Title: Everything you always wanted to know about log-periodic power laws for bubble modeling but were afraid to ask
Abstract:
Sornette, Johansen, and Bouchaud (1996), Sornette and
Johansen (1997), Johansen, Ledoit, and Sornette (2000) and Sornette
(2003a) proposed that, prior to crashes, the mean function of a stock
index price time series is characterized by a power law decorated with
log-periodic oscillations, leading to a critical point that describes the
beginning of the market crash. This article reviews the original
log-periodic power law model for financial bubble modeling and discusses
early criticism and recent generalizations proposed to answer these
remarks. We show how to fit these models with alternative methodologies,
together with diagnostic tests and graphical tools, to diagnose financial
bubbles in the making in real time. An application of this methodology to
the gold bubble which burst in December 2009 is then presented.
Journal: The European Journal of Finance
Pages: 366-391
Issue: 5
Volume: 19
Year: 2013
Month: 5
X-DOI: 10.1080/1351847X.2011.601657
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601657
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:5:p:366-391
Template-Type: ReDIF-Article 1.0
Author-Name: Carl Chiarella
Author-X-Name-First: Carl
Author-X-Name-Last: Chiarella
Author-Name: Xue-Zhong He
Author-X-Name-First: Xue-Zhong
Author-X-Name-Last: He
Author-Name: Min Zheng
Author-X-Name-First: Min
Author-X-Name-Last: Zheng
Title: Heterogeneous expectations and exchange rate dynamics
Abstract:
This article presents a continuous-time model of exchange
rates not only relying on macroeconomic factors but also having an
investor heterogeneity component. The driving macroeconomic factor is the
domestic--foreign interest rate differential, while the investor
heterogeneity is described by the expectations of boundedly rational
portfolio managers who use a weighted average of the expectations of
fundamentalists and chartists. Within this framework, the different roles
of the macroeconomic factor and investor heterogeneity in the
determination of the exchange rate are examined explicitly. We show that
this simple model generates very complicated market behaviour, including
the existence of multiple steady-state equilibria, deviations of the
market exchange rate from the fundamental one and market fluctuations.
Numerical simulation of the corresponding stochastic version of the model
shows that the model is able to generate typical time series and
volatility clustering patterns observed in exchange rate markets.
Journal: The European Journal of Finance
Pages: 392-419
Issue: 5
Volume: 19
Year: 2013
Month: 5
X-DOI: 10.1080/1351847X.2011.601690
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601690
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:5:p:392-419
Template-Type: ReDIF-Article 1.0
Author-Name: Weihong Huang
Author-X-Name-First: Weihong
Author-X-Name-Last: Huang
Author-Name: Huanhuan Zheng
Author-X-Name-First: Huanhuan
Author-X-Name-Last: Zheng
Author-Name: Wai-Mun Chia
Author-X-Name-First: Wai-Mun
Author-X-Name-Last: Chia
Title: Asymmetric returns, gradual bubbles and sudden crashes
Abstract:
By applying the deterministic heterogenous agent model
developed by Huang et al. [Financial crises and interacting heterogeneous
agents. Journal of Economic Dynamics and Control 34, no.
6: 1105--22], this paper examines the phenomena of asymmetric returns,
gradual bubbles and sudden crashes. It shows that (i) returns are
asymmetric because the most positive returns initiated by fundamentalist
are attenuated by the selling force of chartists, while the most negative
return initiated by chartists is hardly affected by the buying force of
fundamentalists; (ii) bubbles arise gradually while crashes happen
suddenly as the upward price movements are counterbalanced while the
downward movements are enhanced by fundamentalists. It also shows for the
first time that deterministic dynamic model can simultaneously generate a
wide range of stylized facts common across financial markets, including
those hardly duplicated by current heterogeneous agent models, such as
long-range dependence.
Journal: The European Journal of Finance
Pages: 420-437
Issue: 5
Volume: 19
Year: 2013
Month: 5
X-DOI: 10.1080/1351847X.2011.606993
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.606993
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:5:p:420-437
Template-Type: ReDIF-Article 1.0
Author-Name: Kartik Anand
Author-X-Name-First: Kartik
Author-X-Name-Last: Anand
Author-Name: Alan Kirman
Author-X-Name-First: Alan
Author-X-Name-Last: Kirman
Author-Name: Matteo Marsili
Author-X-Name-First: Matteo
Author-X-Name-Last: Marsili
Title: Epidemics of rules, rational negligence and market crashes
Abstract:
Structural changes in an economy or in financial markets can
arise as a result of agents adopting rules that appear to be the norm
around them. Such rules are adopted by implicit consensus as they turn out
to be profitable for individuals. However, as rules develop and spread
they may have consequences at the aggregate level which are not
anticipated by individuals. To illustrate this, we develop a simple model,
motivated by the 2007--2008 crisis in credit derivatives markets. This
shows how coordination on simple and apparently profitable rules may
weaken regulatory constraints, rendering the whole system more fragile.
The rule, in the specific example, consists in deciding not to exercise
due diligence in the evaluation of complex credit derivative products,
free riding on information and operational costs. We show that such
"rational negligence", in the face of deteriorating
macro-economic conditions, can bring a market to a sudden collapse.
Journal: The European Journal of Finance
Pages: 438-447
Issue: 5
Volume: 19
Year: 2013
Month: 5
X-DOI: 10.1080/1351847X.2011.601872
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601872
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:5:p:438-447
Template-Type: ReDIF-Article 1.0
Author-Name: S. Alfarano
Author-X-Name-First: S.
Author-X-Name-Last: Alfarano
Author-Name: M. Milakovic
Author-X-Name-First: M.
Author-X-Name-Last: Milakovic
Author-Name: M. Raddant
Author-X-Name-First: M.
Author-X-Name-Last: Raddant
Title: A note on institutional hierarchy and volatility in financial markets
Abstract:
From a statistical point of view, the prevalence of
non-Gaussian distributions in financial returns and their volatilities
shows that the Central Limit Theorem (CLT) often does not apply in
financial markets. In this article, we take the position that the
independence assumption of the CLT is violated by herding tendencies among
market participants, and investigate whether a generic probabilistic
herding model can reproduce non-Gaussian statistics in systems with a
large number of agents. It is well known that the presence of a herding
mechanism in the model is not sufficient for non-Gaussian properties,
which crucially depend on the details of the communication network among
agents. The main contribution of this article is to show that certain
hierarchical networks, which portray the institutional structure of fund
investment, warrant non-Gaussian properties for any system size and even
lead to an increase in system-wide volatility. Viewed from this
perspective, the mere existence of financial institutions with socially
interacting managers contributes considerably to financial volatility.
Journal: The European Journal of Finance
Pages: 449-465
Issue: 6
Volume: 19
Year: 2013
Month: 7
X-DOI: 10.1080/1351847X.2011.601871
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601871
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:6:p:449-465
Template-Type: ReDIF-Article 1.0
Author-Name: David Brookfield
Author-X-Name-First: David
Author-X-Name-Last: Brookfield
Author-Name: Halim Boussabaine
Author-X-Name-First: Halim
Author-X-Name-Last: Boussabaine
Author-Name: Chen Su
Author-X-Name-First: Chen
Author-X-Name-Last: Su
Title: Identifying reference companies using the book-to-market ratio: a minimum spanning tree approach
Abstract:
There is substantial evidence to suggest that the
book-to-market (BM) ratio is an important factor in explaining stock
market returns. Its role has proved difficult to isolate, however, due to
statistical problems in its construction and to its observational
equivalence to a number of risk and behavioural explanations. In addition,
now widely recognised complex behaviour in financial markets has called
into question modelling approaches that are limited in their ability to
uncover relationships that are possibly masked during financial crises,
for example. As one response, our research explores the value of a newly
applied technique which examines the topological properties of minimum
spanning trees as applied to both the BM ratio and market returns. Our
intention is to identify and report investment signals as determined by
the BM ratio and to assess the relationships of these signals to returns
outcomes. The approach enables highly nonlinear behaviour to be addressed
and the relationships we set out to capture to be reported in novel ways.
We motivate and evidence a previously unreported role for BM as an
investment signal which is effective over varying stock market conditions,
including the financial crisis that began in 2008.
Journal: The European Journal of Finance
Pages: 466-490
Issue: 6
Volume: 19
Year: 2013
Month: 7
X-DOI: 10.1080/1351847X.2011.637571
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.637571
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:6:p:466-490
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Wenzelburger
Author-X-Name-First: Jan
Author-X-Name-Last: Wenzelburger
Title: Risk sharing in a financial market with endogenous option prices
Abstract:
This article investigates a financial market in which
investors may trade in risk-free bonds, stock and put options written on
the stock. In each period, stock and option prices are simultaneously
determined by market clearing. While the introduction of put options will
decrease the systematic risk in the financial market, it will increase the
price of risk. Investors with mean-variance preferences will generally
hold portfolios containing the primary asset and the put option and may
use the option to increase the risk in their wealth position in exchange
for higher returns. Aggregate wealth is unaffected by an option market
when there are no spillover effects on stock prices, and it is shown that
short selling of options will increase the volatility of individual wealth
positions. Investors with erroneous beliefs may on average be better off
not trading in put options.
Journal: The European Journal of Finance
Pages: 491-517
Issue: 6
Volume: 19
Year: 2013
Month: 7
X-DOI: 10.1080/1351847X.2011.606989
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.606989
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:6:p:491-517
Template-Type: ReDIF-Article 1.0
Author-Name: Shady Aboul-Enein
Author-X-Name-First: Shady
Author-X-Name-Last: Aboul-Enein
Author-Name: Georges Dionne
Author-X-Name-First: Georges
Author-X-Name-Last: Dionne
Author-Name: Nicolas Papageorgiou
Author-X-Name-First: Nicolas
Author-X-Name-Last: Papageorgiou
Title: Performance analysis of a collateralized fund obligation (CFO) equity tranche
Abstract:
This article examines the performance of the junior tranche
of a collateralized fund obligation (CFO), i.e. the residual claim
(equity) on a securitized portfolio of hedge funds. We use a polynomial
goal programming model to create optimal portfolios of hedge funds,
conditional to investor preferences and diversification constraints
(maximum allocation per strategy). For each portfolio, we build CFO
structures that have different levels of leverage, and analyze both the
stand-alone performance as well as potential diversification benefits (low
systematic risk exposures) of investing in the equity tranche of these
structures. We find that the unconstrained mean-variance portfolio yields
a high performance, but greater exposure to systematic risk. We observe
the exact opposite picture in the case of unconstrained optimization,
where a skewness bias is added, thus proving the existence of a trade-off
between stand-alone performance and low exposure to systematic risk
factors. We provide evidence that leveraged exposure to these hedge fund
portfolios through the structuring of CFOs creates value for the equity
tranche investor, even during the recent financial crisis.
Journal: The European Journal of Finance
Pages: 518-553
Issue: 6
Volume: 19
Year: 2013
Month: 7
X-DOI: 10.1080/1351847X.2011.601666
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601666
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:6:p:518-553
Template-Type: ReDIF-Article 1.0
Author-Name: Fabio Caccioli
Author-X-Name-First: Fabio
Author-X-Name-Last: Caccioli
Author-Name: Susanne Still
Author-X-Name-First: Susanne
Author-X-Name-Last: Still
Author-Name: Matteo Marsili
Author-X-Name-First: Matteo
Author-X-Name-Last: Marsili
Author-Name: Imre Kondor
Author-X-Name-First: Imre
Author-X-Name-Last: Kondor
Title: Optimal liquidation strategies regularize portfolio selection
Abstract:
We consider the problem of portfolio optimization in the
presence of market impact, and derive optimal liquidation strategies. We
discuss in detail the problem of finding the optimal portfolio under
expected shortfall (ES) in the case of linear market impact. We show that,
once market impact is taken into account, a regularized version of the
usual optimization problem naturally emerges. We characterize the typical
behavior of the optimal liquidation strategies, in the limit of large
portfolio sizes, and show how the market impact removes the instability of
ES in this context.
Journal: The European Journal of Finance
Pages: 554-571
Issue: 6
Volume: 19
Year: 2013
Month: 7
X-DOI: 10.1080/1351847X.2011.601661
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601661
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:6:p:554-571
Template-Type: ReDIF-Article 1.0
Author-Name: Efthymios G. Pavlidis
Author-X-Name-First: Efthymios G.
Author-X-Name-Last: Pavlidis
Author-Name: Ivan Paya
Author-X-Name-First: Ivan
Author-X-Name-Last: Paya
Author-Name: David A. Peel
Author-X-Name-First: David A.
Author-X-Name-Last: Peel
Author-Name: Costas Siriopoulos
Author-X-Name-First: Costas
Author-X-Name-Last: Siriopoulos
Title: Nonlinear dynamics in economics and finance and unit root testing
Abstract:
The recent financial crisis exposed the inability of
traditional theoretical and empirical models to parsimoniously capture the
rich dynamics of the economic environment. This has stimulated the
interest of both academics and practitioners in the development and
application of more sophisticated models. By allowing for the presence of
nonlinearities, complex dynamics, multiple equilibria, structural breaks
and spurious trends, these latter models resemble more closely the
properties of economic and financial time series. In this article, we
illustrate the flexibility of a family of econometric models, namely the
exponential smooth transition autoregressive (ESTAR), to encompass several
of the above characteristics. We then re-assess the power of the ESTAR
unit root test developed by Kapetanios, Shin and Snell ((2003)) in the
presence of nuisance parameters typically encountered in the literature
and compare its performance with that of the augmented Dickey-Fuller and
the Enders and Granger ((1998)) tests. Our results show the lack of
dominance of any particular test and that the power is not independent to
priors about the nuisance parameters. Finally, we examine several asset
price deviations from fundamentals and one hyper-inflation series and find
contradictory results between the nonlinear fitted models and unit root
tests. The findings highlight that new testing procedures with higher
power are desirable in order to shed light on the behavior of financial
and economic series.
Journal: The European Journal of Finance
Pages: 572-588
Issue: 6
Volume: 19
Year: 2013
Month: 7
X-DOI: 10.1080/1351847X.2011.607006
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.607006
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:6:p:572-588
Template-Type: ReDIF-Article 1.0
Author-Name: Artur Rodrigues
Author-X-Name-First: Artur
Author-X-Name-Last: Rodrigues
Title: Real options - introduction to the state of the art
Journal: The European Journal of Finance
Pages: 589-590
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2013.830868
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.830868
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:589-590
Template-Type: ReDIF-Article 1.0
Author-Name: Octavio Augusto Fontes Tourinho
Author-X-Name-First: Octavio Augusto Fontes
Author-X-Name-Last: Tourinho
Title: Revisiting the Tourinho real options model: outstanding issues 30 years later
Abstract:
This article presents and extends the first known model in
real options, proposed in Tourinho (1979), and provides thoughts on
addressing issues that are still outstanding 30 years later. It discusses
the need to ensure the existence of market equilibrium when applying real
options valuation to price assets, once all agents behave as suggested by
the solution to the pricing equation. It argues that this can be achieved
by using a stochastic process for the price that is sufficiently general
to respond to supply and demand imbalances in the market for the resource.
Once the individual decision rules are derived, the parameters of the
process must be determined to ensure market equilibrium exists. For
reserves of natural resources, this can be done by using a mean-reverting
process for the price of the commodity and ensuring that the long-term
price to which it reverts equals the trigger price for development of the
marginal reserve.
Journal: The European Journal of Finance
Pages: 591-603
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2011.601686
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601686
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:591-603
Template-Type: ReDIF-Article 1.0
Author-Name: Roger Adkins
Author-X-Name-First: Roger
Author-X-Name-Last: Adkins
Author-Name: Dean Paxson
Author-X-Name-First: Dean
Author-X-Name-Last: Paxson
Title: The Tourinho model: neglected nugget or a receding relic?
Abstract:
This article evaluates Tourinho's (1979b) work as one of the
earliest contributors to the real options literature. His model pioneered
the application of risk neutrality to uncertain investments, but his
originality of introducing an option-holding cost albeit to overcome the
extraction paradox is rarely imitated. We claim that the combination of a
convenience yield and an option-holding cost produces a more satisfying
representation. Moreover, variations in the holding cost give rise to a
host of investment decisions ranging from the standard real option
solution for a zero-holding cost to a net present value solution for an
infinite-holding cost. Not only does the holding cost mediate between
these two poles, but it provides the option seller (usually a landowner or
a government) with a policy instrument for influencing the extraction
timing and thus the extraction profit of the option buyer. We derive the
holding cost that optimizes the landowner's combined value of the option
premium, holding costs and eventual royalties.
Journal: The European Journal of Finance
Pages: 604-624
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2011.601873
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601873
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:604-624
Template-Type: ReDIF-Article 1.0
Author-Name: Sebastian Jaimungal
Author-X-Name-First: Sebastian
Author-X-Name-Last: Jaimungal
Author-Name: Max O. de Souza
Author-X-Name-First: Max O.
Author-X-Name-Last: de Souza
Author-Name: Jorge P. Zubelli
Author-X-Name-First: Jorge P.
Author-X-Name-Last: Zubelli
Title: Real option pricing with mean-reverting investment and project value
Abstract:
Journal: The European Journal of Finance
Pages: 625-644
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2011.601660
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601660
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:625-644
Template-Type: ReDIF-Article 1.0
Author-Name: J�rg Dockendorf
Author-X-Name-First: J�rg
Author-X-Name-Last: Dockendorf
Author-Name: Dean Paxson
Author-X-Name-First: Dean
Author-X-Name-Last: Paxson
Title: Continuous rainbow options on commodity outputs: what is the real value of switching facilities?
Abstract:
We develop real rainbow option models to value an operating
asset with the flexibility to choose between two commodity outputs. We
provide a quasi-analytical solution and a numerical lattice solution to a
model with continuous switching opportunities between two commodity
outputs, taking into account operating and switching costs. The models are
applied to an illustrative case, demonstrating that the quasi-analytical
solution and the lattice approach provide near identical results for the
asset valuation and optimal switching boundaries. We find that the
switching boundaries generally narrow as prices decline. In the presence
of operating costs and temporary suspension, however, the thresholds
diverge for low enough prices. A fertilizer plant with flexibility between
selling ammonia and urea is valued in an empirical section using our real
option models. Despite the high correlation between the two alternative
commodities, ammonia and urea, there is significant value in the
flexibility to choose between the two. Both strategic and policy
implications for stakeholders in flexible assets are discussed, with some
generalisations outside the fertilizer industry.
Journal: The European Journal of Finance
Pages: 645-673
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2011.601663
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.601663
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:645-673
Template-Type: ReDIF-Article 1.0
Author-Name: Luiz Eduardo T. Brandão
Author-X-Name-First: Luiz Eduardo T.
Author-X-Name-Last: Brandão
Author-Name: Gilberto Master Penedo
Author-X-Name-First: Gilberto Master
Author-X-Name-Last: Penedo
Author-Name: Carlos Bastian-Pinto
Author-X-Name-First: Carlos
Author-X-Name-Last: Bastian-Pinto
Title: The value of switching inputs in a biodiesel production plant
Abstract:
There has been a growing concern in recent years about the
quality of the environment and dependence on fossil fuels to supply the
world's energy needs, which has created an interest in the development of
renewable and less polluting energy sources. One of these alternatives is
the biodiesel fuel, which has many advantages over the fossil based
diesel, or petro diesel. In this paper we use the real options approach to
determine the value of the managerial flexibility embedded in a biodiesel
plant that has the option to switch inputs among two different grain
commodities. Our results indicate that the option to choose inputs has
significant value if we assume that future prices follow stochastic
processes such as Geometric Brownian Motion and Mean Reversion Models, and
can be sufficient to recommend the use of input commodities that would not
be optimal under traditional valuation methods. We also show that the
choice of model and parameters has a significant impact on the valuation
of this class of projects.
Journal: The European Journal of Finance
Pages: 674-688
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2011.607005
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.607005
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:674-688
Template-Type: ReDIF-Article 1.0
Author-Name: Mark Cassano
Author-X-Name-First: Mark
Author-X-Name-Last: Cassano
Author-Name: Gordon Sick
Author-X-Name-First: Gordon
Author-X-Name-Last: Sick
Title: Valuation of a spark spread: an LM6000 power plant
Abstract:
This paper analyzes a power plant powered by two General
Electric LM6000 gas turbines combined with a steam generator that allows
combined cycle operations. We consider four distinct operating modes for
the plant. Such a plant can be characterized as a real option on a spark
spread: optimally converting natural gas to electricity. We use a Margrabe
approach by using the market heat rate (the ratio of the electricity price
to the natural gas price) as our underlying stochastic variable. We
estimate a stochastic model for market heat rates that incorporates time
of day, day of week, month, and the incidence or otherwise of a spike in
heat rates. We use the model and its residuals in a bootstrap process
simulating future market heat rates, and use a least-squares Monte Carlo
approach to determine the optimal operating policy. We find that the
annual average market heat rate is a good explanatory variable for the
time integral of the plant operating margin, denominated in the natural
gas numeraire. This allows us to express plant values in terms of the
numeraire and convert to dollars by multiplying this by the natural gas
forward curve and a forward curve of riskless discount rates. We also
provide information about the optimal operating modes selected, the number
of transitions between modes and how they relate to transition costs and
the average heat rate for the year.
Journal: The European Journal of Finance
Pages: 689-714
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2011.617763
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.617763
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:689-714
Template-Type: ReDIF-Article 1.0
Author-Name: Bastian Felix
Author-X-Name-First: Bastian
Author-X-Name-Last: Felix
Author-Name: Oliver Woll
Author-X-Name-First: Oliver
Author-X-Name-Last: Woll
Author-Name: Christoph Weber
Author-X-Name-First: Christoph
Author-X-Name-Last: Weber
Title: Gas storage valuation under limited market liquidity: an application in Germany
Abstract:
Natural gas storages may be valued by applying real options
theory. However, it is crucial to take into account that most evolving gas
markets, like the German spot market, lack liquidity. This implies that
large-scale operation of storages reduces the achievable operating margin
since storage operators will pay higher prices for injected gas and earn
less on withdrawn gas. Optimal storage operation will take this into
account. In this context, considering storage operators as price takers
does not account for interdependencies of storage operations and market
prices. This paper offers a novel approach to storage valuation taking
into account the effect of management decisions on market prices. The
methodology proposed within this paper determines the optimal production
schedule and value by determining the stochastic differential equation
describing the storage value and then applying a finite difference scheme.
We find that limited liquidity lowers the storage value and reduces
withdrawal and injection amounts. Further, we observe decreasing
reservation prices for injection and withdrawing for growing illiquidity
resulting in a left shift of injection and withdrawing threshold prices.
Journal: The European Journal of Finance
Pages: 715-733
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2012.681793
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.681793
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:715-733
Template-Type: ReDIF-Article 1.0
Author-Name: Lenos Trigeorgis
Author-X-Name-First: Lenos
Author-X-Name-Last: Trigeorgis
Author-Name: Sophocles Ioulianou
Author-X-Name-First: Sophocles
Author-X-Name-Last: Ioulianou
Title: Valuing a high-tech growth company: the case of EchoStar Communications Corporation
Abstract:
This article uses real options to value a high-tech company
with significant growth option potential. The case of EchoStar
Communications Corporation is used as an illustration. The company's
growth opportunities are modeled and valued as a portfolio of growth
options, namely options to expand its pay television, equipment, and
internet services. Expansion of the main business can occur geographically
(in the USA, internationally, and through partnerships) or through
cross-selling of new products and services to its customer base. The
internet business can expand via switching to digital subscriber line and
through partnerships. The underlying asset (business) for the expansion
options is the 'base' discounted cash flow (DCF), after removing the
constant growth rate in the terminal-value DCF assumption. The
options-based estimate of present value of growth opportunities (PVGO)
value substitutes for the terminal growth DCF estimate. We show that our
options-based portfolio PVGO provides a better estimate of the firm's
growth prospects than the terminal growth DCF assumption.
Journal: The European Journal of Finance
Pages: 734-759
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2011.640343
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.640343
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:734-759
Template-Type: ReDIF-Article 1.0
Author-Name: Benjamin Avanzi
Author-X-Name-First: Benjamin
Author-X-Name-Last: Avanzi
Author-Name: Isik Bicer
Author-X-Name-First: Isik
Author-X-Name-Last: Bicer
Author-Name: Suzanne de Treville
Author-X-Name-First: Suzanne
Author-X-Name-Last: de Treville
Author-Name: Lenos Trigeorgis
Author-X-Name-First: Lenos
Author-X-Name-Last: Trigeorgis
Title: Real options at the interface of finance and operations: exploiting embedded supply-chain real options to gain competitiveness
Abstract:
Exploiting embedded supply-chain real options creates
powerful opportunities for competitive manufacturing in high-cost
environments. Rather than seeking competitiveness through standardization
as is common to lean production, real-options reasoning explores
opportunities to use supply-chain variability as a strategic weapon. We
present an illustrative case study of a Swiss manufacturer of cable
extrusion equipment supported by a formal real-options model that aids in
valuing the embedded options that make up supply-chain flexibility:
postponement, contraction, expansion, switching, and abandonment.
Real-options reasoning provides a plausible retrospective rationale for
the case firm's use of supply-chain flexibility that provided protection
against competition from low cost, but less responsive competitors. Their
intuitive real-options reasoning facilitated incorporating fuller
information concerning volatility, flexibility, and control into choosing
what products to make, in what quantity, and with work allocated to which
supplier. The case study also highlights how competing through exploiting
embedded real options requires a different managerial skill set than does
competing through cost reduction. Skills such as customer communication,
supplier management, and ability to ensure a smooth flow of production
join the ability to reduce and control lead times as key sources of
competitive advantage.
Journal: The European Journal of Finance
Pages: 760-778
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2012.681792
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.681792
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:760-778
Template-Type: ReDIF-Article 1.0
Author-Name: Jos� Azevedo-Pereira
Author-X-Name-First: Jos�
Author-X-Name-Last: Azevedo-Pereira
Author-Name: Gualter Couto
Author-X-Name-First: Gualter
Author-X-Name-Last: Couto
Author-Name: Cl�udia Nunes
Author-X-Name-First: Cl�udia
Author-X-Name-Last: Nunes
Title: Some results on relocation policies
Abstract:
In this paper, we derive general results concerning optimal
relocation policy under some assumptions. We consider a firm that is
located in a specific location, producing at a certain level of
efficiency. With time, the firm can decide to change its location to a new
and more efficient site, paying relocation costs. Moreover, we assume that
these new sites become available according to a Poisson process, and that
the levels of efficiency improvement inherent to each one of these sites
are random variables. With this framework, we characterise certain
parameters of the optimal relocation policy. In particular, we
characterise the expected relocation time and we prove that it depends on
the distribution of the level of efficiency improvement only through an
expected value. Therefore, the optimal policy shows a kind of robustness
in terms of the stochastic assumptions of the problem, which has a major
impact in the application of relocation policies. In addition, we also
characterise the optimal relocation time. Impacts on the final results
driven by the characteristics of the firm's original location site, the
market environment and the way in which risk is modelled are studied
numerically. The overall results are in line with economic intuition.
Journal: The European Journal of Finance
Pages: 779-790
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2011.606991
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.606991
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:779-790
Template-Type: ReDIF-Article 1.0
Author-Name: Bernadette Power
Author-X-Name-First: Bernadette
Author-X-Name-Last: Power
Author-Name: Gavin C. Reid
Author-X-Name-First: Gavin C.
Author-X-Name-Last: Reid
Title: Organisational change and performance in long-lived small firms: a real options approach
Abstract:
This paper supports two key principles of real options
reasoning: (a) the value of waiting and (b) the value of staging. It tests
whether real options logic applies to small firms implementing significant
changes (e.g. in technology) in a model of small firm performance,
estimated on data collected by interviews with entrepreneurs. We found
that to achieve a higher value by waiting, a delicate balance of
precipitators of change against time until exercise is necessary (e.g. if
there were just one or two precipitators, then waiting would certainly
raise the value). Similarly, to achieve a higher value by staging, the
entrepreneur needs to balance embedding against investment time. Thus,
provided that investment time is less than 1¼ years, we found that
embedding will raise the value. Overall, this implies that strategic
flexibility in investment decisions is necessary for good long-run
performance of small firms.
Journal: The European Journal of Finance
Pages: 791-809
Issue: 7-8
Volume: 19
Year: 2013
Month: 9
X-DOI: 10.1080/1351847X.2012.670124
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.670124
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:791-809
Template-Type: ReDIF-Article 1.0
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Author-Name: Philip A. Hamill
Author-X-Name-First: Philip A.
Author-X-Name-Last: Hamill
Author-Name: John Wilson
Author-X-Name-First: John
Author-X-Name-Last: Wilson
Title: Contemporary issues in financial markets and institutions
Journal: The European Journal of Finance
Pages: 811-814
Issue: 9
Volume: 19
Year: 2013
Month: 10
X-DOI: 10.1080/1351847X.2012.696550
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.696550
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:9:p:811-814
Template-Type: ReDIF-Article 1.0
Author-Name: Giovanni Calice
Author-X-Name-First: Giovanni
Author-X-Name-Last: Calice
Author-Name: Jing Chen
Author-X-Name-First: Jing
Author-X-Name-Last: Chen
Author-Name: Julian M. Williams
Author-X-Name-First: Julian M.
Author-X-Name-Last: Williams
Title: Are there benefits to being naked? The returns and diversification impact of capital structure arbitrage
Abstract:
In a naked credit default swap (CDS) position, a party pays an income
stream to a seller of protection to swap away default risk on an
underlying defaultable security without actually holding this reference
instrument. Using mark-to-market returns on a large cross section of CDS
positions, held independent from their reference entity, we implement a
novel test to establish whether their inclusion in an optimised portfolio
is replicable by a large set of alternative assets. Overall, we find
significant excess returns of over 28% per annum against an optimised
benchmark, we speculate that it is these characteristics that could be
driving a bubble in the CDS market.
Journal: The European Journal of Finance
Pages: 815-840
Issue: 9
Volume: 19
Year: 2013
Month: 10
X-DOI: 10.1080/1351847X.2011.637115
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.637115
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:9:p:815-840
Template-Type: ReDIF-Article 1.0
Author-Name: Matthias Bodenstedt
Author-X-Name-First: Matthias
Author-X-Name-Last: Bodenstedt
Author-Name: Daniel R�sch
Author-X-Name-First: Daniel
Author-X-Name-Last: R�sch
Author-Name: Harald Scheule
Author-X-Name-First: Harald
Author-X-Name-Last: Scheule
Title: The path to impairment: do credit-rating agencies anticipate default events of structured finance transactions?
Abstract:
The global financial crisis (GFC) has led to a general discussion of the
accuracy and declining standards of credit-rating agency ratings.
Substantial criticism has been directed towards the securitisation market,
which has been identified as one of the main sources of the crisis. This
study focuses on the ability of rating agencies to adjust their ratings
prior to impairments of structured finance transactions. We develop a new
measure that quantifies a rating agency's performance in advance of
defaults. By analysing a large number of impaired transactions rated by
Moody's Investors Service, we find that rating quality deteriorated during
the GFC. Furthermore, we identify tranche-specific and macroeconomic
factors that explain differences in Moody's performance.
Journal: The European Journal of Finance
Pages: 841-860
Issue: 9
Volume: 19
Year: 2013
Month: 10
X-DOI: 10.1080/1351847X.2011.636831
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.636831
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:9:p:841-860
Template-Type: ReDIF-Article 1.0
Author-Name: Laura Chiaramonte
Author-X-Name-First: Laura
Author-X-Name-Last: Chiaramonte
Author-Name: Barbara Casu
Author-X-Name-First: Barbara
Author-X-Name-Last: Casu
Title: The determinants of bank CDS spreads: evidence from the financial crisis
Abstract:
Based on a sample of mid-tier and top-tier internationally active banks
with 5-year senior CDS, this paper investigates the determinants of credit
default swaps (CDS) spreads and whether CDS spreads can be considered a
good proxy of bank performance. The analysis encompasses three time
periods: a pre-crisis period (1 January 2005-30 June 2007), a crisis
period (1 July 2007-31 March 2009) and a post-crisis period (1 April
2009-30 June 2011) and focuses exclusively on bank-specific balance sheet
ratios. The results of the empirical analysis indicate that bank CDS
spreads, both in the pre-crisis period, but especially in the crisis
period, reflect the risk captured by bank balance sheet ratios. We find
that the determinants of bank CDS spreads vary strongly across time, as
economic and financial conditions vary. TIER 1 ratio and leverage appear
insignificant in all of the three periods considered, while liquidity
indicators become significant only during the crisis and post crisis
period.
Journal: The European Journal of Finance
Pages: 861-887
Issue: 9
Volume: 19
Year: 2013
Month: 10
X-DOI: 10.1080/1351847X.2011.636832
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.636832
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:9:p:861-887
Template-Type: ReDIF-Article 1.0
Author-Name: Mohammed Amidu
Author-X-Name-First: Mohammed
Author-X-Name-Last: Amidu
Author-Name: Simon Wolfe
Author-X-Name-First: Simon
Author-X-Name-Last: Wolfe
Title: The impact of market power and funding strategy on bank-interest margins
Abstract:
This paper investigates the implications of market power and funding
strategies for bank-interest margins, using a sample of 978 banks in 55
emerging and developing countries over an eight-year period, 2000-2007. We
provide additional insight by examining the complex interlocking of three
key variables that are important for regulators: the degree of market
power, funding sources and bank performance. The results show that market
power increases when banks use internal funding to diversify into
non-interest income-generating activities. We also find that the high
net-interest margins of banks in emerging and developing countries can be
explained by the degree of market power, credit risk, and implicit
interest payments. In addition, our results suggest that interest margins
among banks with market power are significantly more sensitive to
internally generated funds than they are to deposit and wholesale funding.
Journal: The European Journal of Finance
Pages: 888-908
Issue: 9
Volume: 19
Year: 2013
Month: 10
X-DOI: 10.1080/1351847X.2011.636833
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.636833
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:9:p:888-908
Template-Type: ReDIF-Article 1.0
Author-Name: Deven Bathia
Author-X-Name-First: Deven
Author-X-Name-Last: Bathia
Author-Name: Don Bredin
Author-X-Name-First: Don
Author-X-Name-Last: Bredin
Title: An examination of investor sentiment effect on G7 stock market returns
Abstract:
This paper examines the relationship between investor sentiment and G7
stock market returns. Using a range of investor sentiment proxies,
including investor survey, equity fund flow, closed-end equity fund (CEEF)
discount and equity put-call ratio, we examine if investor sentiment has a
significant influence on value and growth stock returns as well as
aggregate market returns. Using monthly data for the period January
1995-December 2007, our results depict a negative relationship between
investor sentiment and future returns. We find results that are consistent
with previous studies in that when investor sentiment is high (low),
future returns are low (high). Our panel results display evidence of
commonality across all the sentiment measures with the value stocks having
a particularly strong effect relative to growth stocks. Furthermore, the
effect of survey sentiment on future returns gradually decreases beyond
the one-month forecast horizon. We observe evidence of price pressure on
value stocks and the overall market due to increases in concurrent equity
fund flow. Finally, the discount of CEEFs is also found to proxy for
investor sentiment, with a narrower discount being associated with an
increase (decrease) in value (growth) stocks.
Journal: The European Journal of Finance
Pages: 909-937
Issue: 9
Volume: 19
Year: 2013
Month: 10
X-DOI: 10.1080/1351847X.2011.636834
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.636834
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:9:p:909-937
Template-Type: ReDIF-Article 1.0
Author-Name: Go Tamakoshi
Author-X-Name-First: Go
Author-X-Name-Last: Tamakoshi
Author-Name: Shigeyuki Hamori
Author-X-Name-First: Shigeyuki
Author-X-Name-Last: Hamori
Title: An asymmetric dynamic conditional correlation analysis of linkages of European financial institutions during the Greek sovereign debt crisis
Abstract:
This article employs the asymmetric dynamic conditional correlation (DCC)
model to assess impacts of the recent sovereign debt crisis on the
time-varying correlations of five European financial institutions holding
large amounts of Greek sovereign bonds (National Bank of Greece, BNP
Paribas, Dexia, Generali, and Commerzbank). Contrary to the results of
preceding studies, we find significant increases in the correlations
between several combinations of the financial institutions' stock returns
after the inception of the sovereign debt crisis, indicating contagion
effects. Moreover, our findings show that the parameter of the
standardized negative residuals is statistically significant in the case
of DCC estimates between two specific institutions. This suggests that the
conditional correlation of stock returns between the two institutions is
more significantly influenced by negative shocks than by positive
innovations to return.
Journal: The European Journal of Finance
Pages: 939-950
Issue: 10
Volume: 19
Year: 2013
Month: 11
X-DOI: 10.1080/1351847X.2012.712921
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.712921
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:10:p:939-950
Template-Type: ReDIF-Article 1.0
Author-Name: Keith Cuthbertson
Author-X-Name-First: Keith
Author-X-Name-Last: Cuthbertson
Author-Name: Dirk Nitzsche
Author-X-Name-First: Dirk
Author-X-Name-Last: Nitzsche
Title: Winners and losers: German equity mutual funds
Abstract:
We investigate the performance of winners and losers for German equity
mutual funds (1990-2009), using empirical order statistics. When using
gross returns and the Fama-French three-factor model, the number of
statistically significant positive alpha funds is zero but increases
markedly when market timing variables are added. However, when using a
'total performance' measure (which incorporates both alpha and the
contribution of market timing), the number of statistically significant
winner funds falls to zero. The latter is consistent with the bias in
estimated alphas in the presence of market timing. We also find that many
poorly performing funds are unskilled rather than unlucky.
Journal: The European Journal of Finance
Pages: 951-963
Issue: 10
Volume: 19
Year: 2013
Month: 11
X-DOI: 10.1080/1351847X.2012.684098
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.684098
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:10:p:951-963
Template-Type: ReDIF-Article 1.0
Author-Name: Taufiq Choudhry
Author-X-Name-First: Taufiq
Author-X-Name-Last: Choudhry
Title: The long memory of the forward premium during the 1920s' float: evidence from the European foreign exchange market
Abstract:
This paper investigates the fractional dynamics of the foreign exchange
forward premium during the floating period of the 1920s. We apply weekly
exchange rates of the currencies from Belgium, France, Germany, Holland,
Italy and the USA against the British pound from February 1921 to May 1925
and employ two different definitions of the forward premium. The German
data are for the period ranging from February 1921 to December 1922. This
period includes the German hyperinflation era. The empirical investigation
is conducted by means of two different fractional integration methods: the
Geweke and Porter-Hudak and the Robinson tests. The results provide some
evidence of long memory, mostly in the case of Belgium, Holland and Italy.
Many of the forward premiums during the 1920s may have become
non-stationary as markets began to anticipate the UK's return to gold at
its pre-war parity. In the case of Germany, it may have been due to market
failure. The varying results presented could be due to the wide
differences in the microeconomic and macroeconomic fundamentals and
political setups of the countries during the 1920s.
Journal: The European Journal of Finance
Pages: 964-977
Issue: 10
Volume: 19
Year: 2013
Month: 11
X-DOI: 10.1080/1351847X.2012.703142
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.703142
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:10:p:964-977
Template-Type: ReDIF-Article 1.0
Author-Name: Sonia Baños-Caballero
Author-X-Name-First: Sonia
Author-X-Name-Last: Baños-Caballero
Author-Name: Pedro J. García-Teruel
Author-X-Name-First: Pedro J.
Author-X-Name-Last: García-Teruel
Author-Name: Pedro Martínez-Solano
Author-X-Name-First: Pedro
Author-X-Name-Last: Martínez-Solano
Title: The speed of adjustment in working capital requirement
Abstract:
This paper analyzes the determinants of working capital requirement (WCR)
and examines the speed with which firms adjust toward their target WCR.
The findings indicate that firms adjust relatively quickly, which supports
the hypothesis that current balance sheet items are easier to manipulate
and could be changed quite easily, even in the short run. Moreover, we
find that the speed of adjustment is not equal across all firms and varies
according to their external finance constraints and their bargaining
power. Firms with better access to external capital markets and greater
bargaining power adjust faster due to their lower costs of adjustment.
Journal: The European Journal of Finance
Pages: 978-992
Issue: 10
Volume: 19
Year: 2013
Month: 11
X-DOI: 10.1080/1351847X.2012.691889
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.691889
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:19:y:2013:i:10:p:978-992
Template-Type: ReDIF-Article 1.0
Author-Name: Roberto Savona
Author-X-Name-First: Roberto
Author-X-Name-Last: Savona
Title: Risk and beta anatomy in the hedge fund industry
Abstract:
Based on a Bayesian time-varying beta model, we explore how the systematic
risk exposures of hedge funds vary over time conditional on some exogenous
variables that managers are assumed to use in changing their trading
strategies. Using data from CSFB/Tremont indices over the period January
1994-September 2008, we found that (1) volatility, changes in T-bill, term
spread and shocks in liquidity significantly impact the time variation of
hedge fund betas; (2) when mean reversion and instruments in beta become
predominant, hedge funds tend to be more risky, more dynamic and less
dependent by their own style benchmark; (3) if risk exposure is assumed to
be constant while it is time-varying, performance appraisal can be
seriously distorted and overestimated.
Journal: The European Journal of Finance
Pages: 1-32
Issue: 1
Volume: 20
Year: 2014
Month: 1
X-DOI: 10.1080/1351847X.2011.649216
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.649216
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:1:p:1-32
Template-Type: ReDIF-Article 1.0
Author-Name: Georgios Chalamandaris
Author-X-Name-First: Georgios
Author-X-Name-Last: Chalamandaris
Author-Name: Andrianos E. Tsekrekos
Author-X-Name-First: Andrianos E.
Author-X-Name-Last: Tsekrekos
Title: Predictability in implied volatility surfaces: evidence from the Euro OTC FX market
Abstract:
Recent general equilibrium models prescribe predictable dynamics in the
volatility surfaces that are implied by observed option prices. In this
paper, we investigate the predictability of surfaces, using extensive time
series of implied volatilities from over-the-counter options on eight
different currencies, quoted against the Euro. We examine implied
volatility surfaces in the context of predictability through three
different models, two that employ parametric specifications to describe
the surface and one that decomposes it into latent statistical factors.
All examined models are shown to (a) accurately describe the surfaces
in-sample, and (b) produce forecasts that are superior to hard-to-beat
benchmarks that ignore information about the shape of the surface, in
medium- to long-term horizons. We show that these forecasts can support
profitable volatility trading strategies in the absence of transaction
costs. Comparing across competing models, our results suggest that
parametric models, that allow for a more structured description of the
surface, are more successful in terms of forecasts' accuracy and
significance of trading profits.
Journal: The European Journal of Finance
Pages: 33-58
Issue: 1
Volume: 20
Year: 2014
Month: 1
X-DOI: 10.1080/1351847X.2012.670123
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.670123
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:1:p:33-58
Template-Type: ReDIF-Article 1.0
Author-Name: David G. McMillan
Author-X-Name-First: David G.
Author-X-Name-Last: McMillan
Author-Name: Manouchehr Tavakoli
Author-X-Name-First: Manouchehr
Author-X-Name-Last: Tavakoli
Author-Name: Phillip J. McKnight
Author-X-Name-First: Phillip J.
Author-X-Name-Last: McKnight
Title: Insider employee stock option trading and stock prices
Abstract:
We examine the information content of insider employee stock option
trading and its value to market investors using a US dataset. There should
be no presumption that option trading would not convey valuable
information and indeed, the exercise of option rights is likely to signal
insider knowledge. Our results from Granger-causality tests suggest that
the actions of directors, officers (senior management) and the other
groups, such as company lawyers, do indeed have predictive power for
future returns. However, the actions of large shareholders have no
additional information content over that which is publicly available.
Evidence from predictive regressions largely supports these results, but
is often weaker in significance. This seems to arise as the
Granger-causality approach utilises a longer lag length and suggests that
it takes time for the market to assimilate the information from insider
actions. Overall, the results suggest that any outsider who can mimic the
behaviour of certain insider groups could benefit in predicting future
returns. Finally, the results confirm the belief that the market is
unlikely to be strong-form efficient and that this is particularly true
with smaller firms. In contrast, larger firms appear to be priced more
efficiently than smaller ones.
Journal: The European Journal of Finance
Pages: 59-79
Issue: 1
Volume: 20
Year: 2014
Month: 1
X-DOI: 10.1080/1351847X.2012.670122
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.670122
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:1:p:59-79
Template-Type: ReDIF-Article 1.0
Author-Name: Yi-Mien Lin
Author-X-Name-First: Yi-Mien
Author-X-Name-Last: Lin
Author-Name: Chin-Fang Chao
Author-X-Name-First: Chin-Fang
Author-X-Name-Last: Chao
Author-Name: Chih-Liang Liu
Author-X-Name-First: Chih-Liang
Author-X-Name-Last: Liu
Title: Transparency, idiosyncratic risk, and convertible bonds
Abstract:
We first investigate the relationship among a company's information
transparency, idiosyncratic risk, and return of its convertible bonds. The
effects of a company's idiosyncratic risk on its equity's value volatility
and its credit risk are also examined. The findings indicate that when a
company discloses a significant amount of information, it is likely to
have a higher idiosyncratic risk and a lower credit risk, with no impact
on returns on convertible bonds. The volatility of stock returns is
positively related to returns on convertible bonds, and it is found that
diversified strategies and returns on a company's equity help to improve
its credit rating and that a better credit rating triggers an increase in
returns on convertible bonds and idiosyncratic risk, indicating that
evaluations of the value of convertible bonds must take pure bonds and
equity (option) values into account. After excluding conversion values and
estimating the idiosyncratic risk on daily, weekly, and monthly bases,
this study suggests that there is a positive relation between returns on
convertible bonds and information transparency when estimating
idiosyncratic risk on a monthly basis and that a positive association also
exists between credit rating, idiosyncratic risk, and returns on bonds.
Journal: The European Journal of Finance
Pages: 80-103
Issue: 1
Volume: 20
Year: 2014
Month: 1
X-DOI: 10.1080/1351847X.2012.681791
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.681791
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:1:p:80-103
Template-Type: ReDIF-Article 1.0
Author-Name: Franco Fiordelisi
Author-X-Name-First: Franco
Author-X-Name-Last: Fiordelisi
Author-Name: Maria-Gaia Soana
Author-X-Name-First: Maria-Gaia
Author-X-Name-Last: Soana
Author-Name: Paola Schwizer
Author-X-Name-First: Paola
Author-X-Name-Last: Schwizer
Title: Reputational losses and operational risk in banking
Abstract:
Reputation is a key asset for any company whose affairs, like those of
banks, are based on trust. Despite its importance, the number of studies
dealing with reputational risk in the financial industry is still limited.
We estimate the reputational impact of announced operational losses for a
large sample of banks (both commercial and investment) in Europe and the
USA between 1994 and 2008. By conducting an event study, we show that
substantial reputational losses occur following announcements of 'pure'
operational losses. We provide evidence that 'fraud' is the event type
that generates the greatest reputational damage. 'Trading and sales' and
'payment and settlement' are the two business lines determining
considerable reputational losses. We also found that losses are higher in
Europe than in North America.
Journal: The European Journal of Finance
Pages: 105-124
Issue: 2
Volume: 20
Year: 2014
Month: 2
X-DOI: 10.1080/1351847X.2012.684218
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.684218
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:2:p:105-124
Template-Type: ReDIF-Article 1.0
Author-Name: Romain Boissin
Author-X-Name-First: Romain
Author-X-Name-Last: Boissin
Author-Name: Patrick Sentis
Author-X-Name-First: Patrick
Author-X-Name-Last: Sentis
Title: Long-run performance of IPOs and the role of financial analysts: some French evidence
Abstract:
This paper examines the long-run performance of French initial public
offerings (IPOs) carried out between 1991 and 2005. Using various
methodologies, we found that IPOs in our sample performed poorly relative
to the comparison portfolios over the 1991-2005 horizon in contrast to
that reported by prior studies of the French market. This abnormal
long-run performance is more severe for orphan IPOs (those without
financial analysts' recommendations) than for non-orphan IPOs the first
year following the offerings (a statistically significant difference). In
contrast to the widely held belief, this evidence suggests that analyst
coverage is indeed not important to the issuing firm. Investors pay more
attention to non-orphan IPOs when they are not book built, venture capital
backed, underwritten by a large syndicate and less underpriced. Over the
1991-2005 period, an analyst's affiliation does not appear to matter. This
result is inconsistent with the conflict of interest hypothesis. During
the first year of issuance, analysts' recommendations are associated with
the success of a newly public firm. However, once we extend the horizon to
3 or 5 years after the issuance, we can find that analysts'
recommendations are not significantly related to the long-run performance
of IPOs.
Journal: The European Journal of Finance
Pages: 125-149
Issue: 2
Volume: 20
Year: 2014
Month: 2
X-DOI: 10.1080/1351847X.2012.689773
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.689773
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:2:p:125-149
Template-Type: ReDIF-Article 1.0
Author-Name: John Crosby
Author-X-Name-First: John
Author-X-Name-Last: Crosby
Title: Optimal hedging of variance derivatives
Abstract:
We examine the optimal hedging of derivatives written on realised
variance, focussing principally on variance swaps (VS) (but, en route,
also considering skewness swaps), when the underlying stock price has
discontinuous sample paths, i.e. jumps. In general, with jumps in the
underlying, the market is incomplete and perfect hedging is not possible.
We derive easily implementable formulae which give optimal (or nearly
optimal) hedges for VS under very general dynamics for the underlying
stock which allow for multiple jump processes and stochastic volatility.
We illustrate how, for parameters which are realistic for options on the
S&P 500 and Nikkei-225 stock indices, our methodology gives significantly
better hedges than the standard log-contract replication approach of
Neuberger and Dupire which assumes continuous sample paths. Our analysis
seeks to emphasise practical implications for financial institutions
trading variance derivatives.
Journal: The European Journal of Finance
Pages: 150-180
Issue: 2
Volume: 20
Year: 2014
Month: 2
X-DOI: 10.1080/1351847X.2012.689774
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.689774
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:2:p:150-180
Template-Type: ReDIF-Article 1.0
Author-Name: Lawrence Kryzanowski
Author-X-Name-First: Lawrence
Author-X-Name-Last: Kryzanowski
Author-Name: Sana Mohsni
Author-X-Name-First: Sana
Author-X-Name-Last: Mohsni
Title: Persistence and current determinants of the future earnings growth rates of firms
Abstract:
Consistent with economic intuition, short- and long-term growth rates of
both accrual earnings (AE) and cash flows (CF) exhibit mean-reversion at
the firm level that is stronger when their base-year counterpart is
negative. Firm attributes such as size, firm's age, earnings volatility,
and past returns exhibit predictive power for growth rates for individual
firms. Short- and long-term IBES earnings growth rate forecasts, when
orthogonalized with respect to contemporaneous and past actual earnings
growth rates, exhibit predictive power for, respectively, short- and
long-term AE (but not CF) growth rates for both positive and negative
base-year growth rates.
Journal: The European Journal of Finance
Pages: 181-200
Issue: 2
Volume: 20
Year: 2014
Month: 2
X-DOI: 10.1080/1351847X.2013.769891
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.769891
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:2:p:181-200
Template-Type: ReDIF-Article 1.0
Author-Name: Boulis Maher Ibrahim
Author-X-Name-First: Boulis Maher
Author-X-Name-Last: Ibrahim
Author-Name: Janusz Brzeszczynski
Author-X-Name-First: Janusz
Author-X-Name-Last: Brzeszczynski
Title: How beneficial is international stock market information in domestic stock market trading?
Abstract:
This paper uses the foreign information transmission (FIT) model of
Ibrahim and Brzeszczynski [Inter-regional and region-specific transmission
of international stock market returns: The role of foreign information.
Journal of International Money and Finance 28, no. 2:
322-43] to quantify the incremental benefits of foreign overnight
international stock market information over domestic market momentum
information. The main objective is to answer the question: how much more
(or less) returns will a day trader earn by using various combinations of
different interpretations of foreign news signals and domestic market
momentum than the latter alone? Trading strategies are constructed with
added features that take advantage of better modelling of changes over
time in the return equivalent of the meteor shower of Engle, Ito, and Lin
[Meteor showers or heat waves? Heteroscedastic intra-daily volatility in
the foreign exchange market. Econometrica 58, no. 3:
525-42]. The results show that overnight international information is more
economically beneficial than previous-day's domestic information.
Moreover, better modelling of the time variation in the impact of this
overnight information has substantial benefits to stock market investors.
Journal: The European Journal of Finance
Pages: 201-231
Issue: 3
Volume: 20
Year: 2014
Month: 3
X-DOI: 10.1080/1351847X.2012.690773
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.690773
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:3:p:201-231
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Bessler
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Bessler
Author-Name: Wolfgang Drobetz
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Drobetz
Author-Name: Martin Seim
Author-X-Name-First: Martin
Author-X-Name-Last: Seim
Title: Share repurchases of initial public offerings: motives, valuation effects, and the impact of market regulation
Abstract:
This study investigates the motives and valuation effects of share
repurchase announcements of German firms during the 1998-2008 period,
addressing the question why initial public offering (IPO) firms repurchase
shares soon after going public. While our focus is on IPO firms, we also
examine the impact of firm size by differentiating between IPO and
established DAX/MDAX firms and by analyzing the source of surplus cash
holdings, that is, either from equity issuances or from operating cash
flows. We further explore the impact of the regulatory environment. Our
empirical analysis reveals significant differences between the IPO and
DAX/MDAX subsamples regarding their repurchase motives, stock price
performance, and explanatory factors. Standard corporate payout theories
are essential in explaining the different valuation effects. Our empirical
analysis suggests agency costs of free cash flow as the main reason for
the observed valuation effects of both IPO and DAX/MDAX firms, yet for
different reasons. While DAX/MDAX firms continuously generate high
operating cash flows before and after repurchasing shares, IPO firms
exhibit low operating cash flows during the entire period but large
surplus cash holdings due to the mandatory equity issuance at their public
offering. Overall, the repurchase decisions of IPO firms are best
explained by the agency costs of cash holdings and the unique rules and
regulations of the German stock exchange.
Journal: The European Journal of Finance
Pages: 232-263
Issue: 3
Volume: 20
Year: 2014
Month: 3
X-DOI: 10.1080/1351847X.2012.698991
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.698991
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:3:p:232-263
Template-Type: ReDIF-Article 1.0
Author-Name: KiHoon Jimmy Hong
Author-X-Name-First: KiHoon Jimmy
Author-X-Name-Last: Hong
Author-Name: Steve Satchell
Author-X-Name-First: Steve
Author-X-Name-Last: Satchell
Title: The sensitivity of beta to the time horizon when log prices follow an Ornstein-Uhlenbeck process
Abstract:
This paper provides a new theoretical approach to investigate the
sensitivity of the familiar beta of the capital asset pricing model to the
length of the return measurement interval; a phenomenon known as the
intervalling effect. By setting the problem in a continuous time setting,
and using exact results, we are able to generalize existing results in the
literature. We derive an expression for beta as a function of the time
horizon h, conditional on current time
t. We show that beta is monotonic in h
and derive conditions for it to be increasing or decreasing.
Journal: The European Journal of Finance
Pages: 264-290
Issue: 3
Volume: 20
Year: 2014
Month: 3
X-DOI: 10.1080/1351847X.2012.698992
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.698992
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:3:p:264-290
Template-Type: ReDIF-Article 1.0
Author-Name: J. Colin Glass
Author-X-Name-First: J. Colin
Author-X-Name-Last: Glass
Author-Name: Donal G. McKillop
Author-X-Name-First: Donal G.
Author-X-Name-Last: McKillop
Author-Name: Barry Quinn
Author-X-Name-First: Barry
Author-X-Name-Last: Quinn
Author-Name: John Wilson
Author-X-Name-First: John
Author-X-Name-Last: Wilson
Title: Cooperative bank efficiency in Japan: a parametric distance function analysis
Abstract:
This study examines the relative performance of Japanese cooperative banks
between 1998 and 2009, explicitly modelling non-performing loans as an
undesirable output. Three key findings emerge. First, the sector is
characterized by increasing returns to scale which supports the ongoing
amalgamation process within the sector. Second, although restricted in
product offerings, markets and their membership base, Japanese
cooperatives secured both technical progress (a positive shift in the
frontier) and a decrease in technical inefficiency (distance from the
frontier). Third, the analysis highlighted that regulatory pressure to
reduce non-performing loans will have an adverse impact on both output and
performance.
Journal: The European Journal of Finance
Pages: 291-317
Issue: 3
Volume: 20
Year: 2014
Month: 3
X-DOI: 10.1080/1351847X.2012.698993
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.698993
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:3:p:291-317
Template-Type: ReDIF-Article 1.0
Author-Name: Martin Holmén
Author-X-Name-First: Martin
Author-X-Name-Last: Holmén
Author-Name: Eugene Nivorozhkin
Author-X-Name-First: Eugene
Author-X-Name-Last: Nivorozhkin
Author-Name: Rakesh Rana
Author-X-Name-First: Rakesh
Author-X-Name-Last: Rana
Title: Do anti-takeover devices affect the takeover likelihood or the takeover premium?
Abstract:
In this paper, we use Heckman selection models to analyse the relation
between the likelihood of the firm becoming a takeover target, the
takeover premium, and the use of anti-takeover devices. Ordinary least
squares regressions suggest that anti-takeover devices, especially dual
class shares, are associated with a higher takeover premium. However, we
also document that anti-takeover devices reduce the likelihood that the
firm will be taken over. When we control for the fact that takeover
targets are selected, we do not find a significant relation between the
takeover premium and dual class shares. Hence, our results suggest that
the takeover premium is indeed influenced by private information about the
likelihood of takeover.
Journal: The European Journal of Finance
Pages: 319-340
Issue: 4
Volume: 20
Year: 2014
Month: 4
X-DOI: 10.1080/1351847X.2012.703141
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.703141
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:4:p:319-340
Template-Type: ReDIF-Article 1.0
Author-Name: Beat Reber
Author-X-Name-First: Beat
Author-X-Name-Last: Reber
Title: Estimating the risk-return profile of new venture investments using a risk-neutral framework and 'thick' models
Abstract:
This study proposes cascade neural networks to estimate the model
parameters of the Cox-Ross-Rubinstein risk-neutral approach, which, in
turn, explain the risk-return profile of firms at venture capital and
initial public offering (IPO)financing rounds. Combining the two methods
provides better estimation accuracy than risk-adjusted valuation
approaches, conventional neural networks, and linear benchmark models. The
findings are persistent across in-sample and out-of-sample tests using
3926 venture capital and 1360 US IPO financing rounds between January 1989
and December 2008. More accurate estimates of the risk-return profile are
due to less heterogeneous risk-free rates of return from the risk-neutral
framework. Cascade neural networks nest both the linear and nonlinear
functional estimation form in addition to taking account of variable
interaction effects. Better estimation accuracy of the risk-return profile
is desirable for investors so they can make a more informed judgement
before committing capital at different stages of development and various
financing rounds.
Journal: The European Journal of Finance
Pages: 341-360
Issue: 4
Volume: 20
Year: 2014
Month: 4
X-DOI: 10.1080/1351847X.2012.708471
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.708471
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:4:p:341-360
Template-Type: ReDIF-Article 1.0
Author-Name: Eberhard Feess
Author-X-Name-First: Eberhard
Author-X-Name-Last: Feess
Author-Name: Axel Halfmeier
Author-X-Name-First: Axel
Author-X-Name-Last: Halfmeier
Title: The German Capital Markets Model Case Act (KapMuG): a European role model for increasing the efficiency of capital markets? Analysis and suggestions for reform
Abstract:
In this paper, we analyze the German Capital Markets Model Case Law
(KapMuG) enacted to reduce transaction costs in securities mass
litigation. The KapMuG is often seen as a European role model trying to
enhance investor rights without running the risk of frivolous claims known
from the US class actions. We show that the current legislation is
insufficient due to two main obstacles: first, shareholders need to file
individual lawsuits before being eligible for participation in the model
case, which leads to a rational ignorance of small shareholders. Second,
for wrong and omitted capital market information beyond prospectus
liability, it is unclear if shareholders need to prove the causal link
between the wrong information and the investment decision, which is hardly
possible. We suggest two major changes for the reform due in November
2012: a simplified opt-in mechanism without the prerequisite of individual
lawsuits and extension of the reversal of the burden of proof for
causation from prospectus liability to wrong or omitted ad
hoc information. Besides, we argue that gross negligence is the
appropriate liability rule in the substantive law underlying the KapMuG.
Journal: The European Journal of Finance
Pages: 361-379
Issue: 4
Volume: 20
Year: 2014
Month: 4
X-DOI: 10.1080/1351847X.2012.709469
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.709469
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:4:p:361-379
Template-Type: ReDIF-Article 1.0
Author-Name: Norhuda Abdul Rahim
Author-X-Name-First: Norhuda Abdul
Author-X-Name-Last: Rahim
Author-Name: Alan Goodacre
Author-X-Name-First: Alan
Author-X-Name-Last: Goodacre
Author-Name: Chris Veld
Author-X-Name-First: Chris
Author-X-Name-Last: Veld
Title: Wealth effects of convertible-bond and warrant-bond offerings: a meta-analysis
Abstract:
The literature on wealth effects associated with the announcements of
convertible-bond and warrant-bond offerings is reviewed. The findings of
35 event studies, which include 84 sub-samples and 6310 announcements, are
analysed using meta-analysis. We find a mean cumulative abnormal return of
- 1.14% for convertibles compared with - 0.02% for warrant bonds, the
significant difference confirming a relative advantage for warrant bonds.
Abnormal returns for hybrid securities issued in the USA are significantly
more negative than those issued in other countries. In addition, issuing
hybrid securities to refund debt does not seem to be favoured by
investors. Finally, several factors identified as important by theory or
in prior research are not significant within our cross-study models,
suggesting that more evidence is needed to confirm whether they are
robust.
Journal: The European Journal of Finance
Pages: 380-398
Issue: 4
Volume: 20
Year: 2014
Month: 4
X-DOI: 10.1080/1351847X.2012.712920
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.712920
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:4:p:380-398
Template-Type: ReDIF-Article 1.0
Author-Name: Thomas Mazzoni
Author-X-Name-First: Thomas
Author-X-Name-Last: Mazzoni
Title: A functional approach to pricing complex barrier options
Abstract:
In this article, a new method for pricing contingent claims, which is
particularly well suited for options with complex barrier and volatility
structures, is introduced. The approach is based on a high-precision
approximation of the Feynman-Kac equation with
distributed approximating functionals. The method is particularly well
suited for long maturity valuation problems, and it is shown to be faster
and more accurate than conventional solution schemes.
Journal: The European Journal of Finance
Pages: 399-418
Issue: 5
Volume: 20
Year: 2014
Month: 5
X-DOI: 10.1080/1351847X.2012.713174
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.713174
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:5:p:399-418
Template-Type: ReDIF-Article 1.0
Author-Name: Ricardo Correia
Author-X-Name-First: Ricardo
Author-X-Name-Last: Correia
Author-Name: Sydney Howell
Author-X-Name-First: Sydney
Author-X-Name-Last: Howell
Author-Name: Peter Duck
Author-X-Name-First: Peter
Author-X-Name-Last: Duck
Title: Patent now or later? Corporate financing decisions, agency costs and social benefits
Abstract:
We analyze the incentives of firms to delay patenting a product they
intend to commercialize to maximize the period they can exploit the market
under patent protection. We model the patenting and market-launching
decisions and consider partial financing of these costs with debt. Agency
conflicts between equityholders and debtholders arise concerning the
optimal patenting and market-launch timing and represent a classical moral
hazard problem. We show that delaying patenting increases the value of the
firm significantly in the absence of preemption risk. In the presence of
preemption risk, the firm that aims to maximize the market exploitation
period under patent protection accelerates the market-launch of the
product. The use of debt financing reduces the incentives to delay
patenting, but generates significant agency costs in terms of loss of firm
value, debt capacity and increases in the fair credit spreads. When
considered in terms of social effects, the impact of the agency conflicts
is overall positive, as it accelerates patenting and market-launching the
product and delays default.
Journal: The European Journal of Finance
Pages: 419-445
Issue: 5
Volume: 20
Year: 2014
Month: 5
X-DOI: 10.1080/1351847X.2012.714393
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.714393
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:5:p:419-445
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Breuer
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Breuer
Author-Name: Michael Riesener
Author-X-Name-First: Michael
Author-X-Name-Last: Riesener
Author-Name: Astrid Juliane Salzmann
Author-X-Name-First: Astrid Juliane
Author-X-Name-Last: Salzmann
Title: Risk aversion vs. individualism: what drives risk taking in household finance?
Abstract:
Despite a considerable premium on equity with respect to risk-free assets,
many households do not own stocks. We ask why the prevalence of
stockholding is so limited. We focus on individuals' attitudes toward risk
and identify relevant factors that affect the willingness to take
financial risks. Our empirical evidence contradicts standard portfolio
theory, as it does not indicate a significant relationship between risk
aversion and financial risk taking. However, our analysis supports the
behavioral view that psychological factors rooted in national culture
affect portfolio choice. Individualism, which is linked to overconfidence
and overoptimism, has a significantly positive effect on financial risk
taking. In microdata from Germany and Singapore, as well as in
cross-country data, we find evidence consistent with low levels of
individualism being an important factor in explaining the limited
participation puzzle.
Journal: The European Journal of Finance
Pages: 446-462
Issue: 5
Volume: 20
Year: 2014
Month: 5
X-DOI: 10.1080/1351847X.2012.714792
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.714792
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:5:p:446-462
Template-Type: ReDIF-Article 1.0
Author-Name: Soosung Hwang
Author-X-Name-First: Soosung
Author-X-Name-Last: Hwang
Author-Name: Stephen E. Satchell
Author-X-Name-First: Stephen E.
Author-X-Name-Last: Satchell
Title: Testing linear factor models on individual stocks using the average F-test
Abstract:
In this paper, we propose the average F-statistic for
testing linear asset pricing models. The average pricing error, captured
in the statistic, is of more interest than the ex post
maximum pricing error of the multivariate F-statistic
that is associated with extreme long and short positions and excessively
sensitive to small perturbations in the estimates of asset means and
covariances. The average F-test can be applied to
thousands of individual stocks and thus is free from the information loss
or the data-snooping biases from grouping. This test is robust to
ellipticity, and more importantly, our simulation and bootstrapping
results show that the power of the average F-test
continues to increase as the number of stocks increases. Empirical tests
using individual stocks from 1967 to 2006 demonstrate that the popular
four-factor model (i.e. Fama-French three factors and momentum) is
rejected in two sub-periods from 1967 to 1971 and from 1982 to 1986.
Journal: The European Journal of Finance
Pages: 463-498
Issue: 5
Volume: 20
Year: 2014
Month: 5
X-DOI: 10.1080/1351847X.2012.717097
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.717097
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:5:p:463-498
Template-Type: ReDIF-Article 1.0
Author-Name: Ana-Maria Fuertes
Author-X-Name-First: Ana-Maria
Author-X-Name-Last: Fuertes
Author-Name: Gulnur Muradoglu
Author-X-Name-First: Gulnur
Author-X-Name-Last: Muradoglu
Author-Name: Belma Ozturkkal
Author-X-Name-First: Belma
Author-X-Name-Last: Ozturkkal
Title: A behavioral analysis of investor diversification
Abstract:
This paper studies the link between individual investors' portfolio
diversification levels and various personal traits that proxy
informational advantages and overconfidence. The analysis is based on
objective data from the largest Turkish brokerage house tracking 59,951
individual investors' accounts with a total of 3,248,654 million
transactions over the period 2008-2010. Wealthier, highly educated, older
investors working in the finance sector and those trading relatively often
show higher diversification levels possibly because they are better
equipped to obtain and process information. Finance professionals, married
investors, and those placing high-volume orders through investment centers
show poorer diversification possibly as a reflection of overconfidence.
Our analysis reveals important nonlinear effects, implying that the
marginal impact of overconfidence on diversification is not uniform across
investors but varies according to the investor's information gathering and
processing abilities.
Journal: The European Journal of Finance
Pages: 499-523
Issue: 6
Volume: 20
Year: 2014
Month: 6
X-DOI: 10.1080/1351847X.2012.719829
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.719829
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:6:p:499-523
Template-Type: ReDIF-Article 1.0
Author-Name: Chau Duong
Author-X-Name-First: Chau
Author-X-Name-Last: Duong
Author-Name: Gioia Pescetto
Author-X-Name-First: Gioia
Author-X-Name-Last: Pescetto
Author-Name: Daniel Santamaria
Author-X-Name-First: Daniel
Author-X-Name-Last: Santamaria
Title: How value-glamour investors use financial information: UK evidence of investors' confirmation bias
Abstract:
This paper investigates how investors in value and glamour stocks use
financial information. The empirical evidence presented is in line with a
model of investors' asymmetric reaction to good and bad news due to
confirmation bias. Pessimistic value investors typically under-react to
good financial information, while they process bad information rationally
or over-confidently. On the contrary, glamour investors are often too
optimistic to timely update prices following bad financial information,
while they are likely to fairly price or even over-react when receiving
good information.
Journal: The European Journal of Finance
Pages: 524-549
Issue: 6
Volume: 20
Year: 2014
Month: 6
X-DOI: 10.1080/1351847X.2012.722117
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.722117
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:6:p:524-549
Template-Type: ReDIF-Article 1.0
Author-Name: David Gray
Author-X-Name-First: David
Author-X-Name-Last: Gray
Title: Central European foreign exchange markets: a cross-spectral analysis of the 2007 financial crisis
Abstract:
This article investigates co-movements between currency markets of Czech
Republic, Poland, Hungary, Slovakia and the Euro in the year following the
drying up of money markets in August 2007. The article shows that
assessing the degree of foreign currency co-movement by correlation can
lead to concluding, erroneously, that financial contagion has not
occurred. Using cross-spectral methods, the article shows that defining
contagion as changes in the structure of co-movements of asset prices
encompasses more of the complex nature of exchange rate dynamics. What is
shown is that, following August 2007, there is increase in the intensity
of co-movements, but non-linearly. Focusing on the activities of a mix of
banks and currency managers, it is suggested that changes in the structure
of currency interaction present an unfavourable view of the contagion
experienced by at least three of these currencies.
Journal: The European Journal of Finance
Pages: 550-567
Issue: 6
Volume: 20
Year: 2014
Month: 6
X-DOI: 10.1080/1351847X.2012.733314
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.733314
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:6:p:550-567
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Breuer
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Breuer
Author-Name: Daniel Fuchs
Author-X-Name-First: Daniel
Author-X-Name-Last: Fuchs
Author-Name: Klaus Mark
Author-X-Name-First: Klaus
Author-X-Name-Last: Mark
Title: Estimating cost of capital in firm valuations with arithmetic or geometric mean - or better use the Cooper estimator?
Abstract:
We test the extent and determinants of bias effects of the arithmetic as
well as the geometric mean estimator and the estimator of Cooper [1996.
Arithmetic versus geometric mean estimators: Setting discount rates for
capital budgeting. European Financial Management 2
(July): 157-67] regarding discount rate estimation for firm valuation by
way of a bootstrap approach for 13 different countries. The Cooper
estimator is superior to both the geometric and the (conventional)
arithmetic mean estimator. However, a 'truncated' version of the
arithmetic mean estimator leads generally to better estimation outcomes
than the Cooper estimator. This means that, in order to reduce problems of
upward-biased firm value estimates, expected cash flows beyond a certain
time horizon are completely neglected in terminal value estimation. Such
an approach seems particularly reasonable for the valuation of young
growth companies as well as for companies from quickly developing
countries such as Brazil, China, or Thailand, because the bias in terminal
value estimation is increasing in the growth rate of future expected cash
flows.
Journal: The European Journal of Finance
Pages: 568-594
Issue: 6
Volume: 20
Year: 2014
Month: 6
X-DOI: 10.1080/1351847X.2012.733717
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.733717
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:6:p:568-594
Template-Type: ReDIF-Article 1.0
Author-Name: Douglas Cumming
Author-X-Name-First: Douglas
Author-X-Name-Last: Cumming
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Edward Lee
Author-X-Name-First: Edward
Author-X-Name-Last: Lee
Title: The experiences and challenges in the development of the Chinese capital market
Journal: The European Journal of Finance
Pages: 595-598
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.672001
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.672001
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:595-598
Template-Type: ReDIF-Article 1.0
Author-Name: Franklin Allen
Author-X-Name-First: Franklin
Author-X-Name-Last: Allen
Author-Name: Jun 'QJ' Qian
Author-X-Name-First: Jun 'QJ'
Author-X-Name-Last: Qian
Author-Name: Susan Chenyu Shan
Author-X-Name-First: Susan Chenyu
Author-X-Name-Last: Shan
Author-Name: Mengxin Zhao
Author-X-Name-First: Mengxin
Author-X-Name-Last: Zhao
Title: The IPO of Industrial and Commercial Bank of China and the 'Chinese Model' of privatizing large financial institutions
Abstract:
We examine the privatization process of the Industrial and Commercial Bank
of China (ICBC), the largest bank in the world by market capitalization,
and its dual initial public offerings (IPOs) in the Hong Kong and Shanghai
Stock exchanges in 2006. The Chinese government retains majority equity
ownership of ICBC while foreign institutional investors hold minority
equity stakes. Other large financial institutions went through the same
reform process and have similar, post-IPO ownership structures. The
largest Chinese banks, as a group, outperformed their counterparts from
other emerging and developed markets before and during the 2007-2009
financial crisis. We argue that the 'Chinese model' of privatizing and
managing large financial institutions can be advantageously used in other
countries.
Journal: The European Journal of Finance
Pages: 599-624
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671780
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671780
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:599-624
Template-Type: ReDIF-Article 1.0
Author-Name: Huiyao Wang
Author-X-Name-First: Huiyao
Author-X-Name-Last: Wang
Title: Ten Chinese going global models: emerging patterns and analysis
Abstract:
For the past 10 years, since joining the World Trade Organization, China's
global investment has increased 60-fold. Yet this increasingly emerged
international business phenomenon has been under-studied. This paper
examines the strategies of Chinese companies going global. It initially
proposes and describes 10 models most frequently used by Chinese firms
going global, and subsequently outlines and analyses the emerging trends
and patterns of Chinese companies going global.
Journal: The European Journal of Finance
Pages: 625-636
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671786
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671786
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:625-636
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Firth
Author-X-Name-First: Michael
Author-X-Name-Last: Firth
Author-Name: Man Jin
Author-X-Name-First: Man
Author-X-Name-Last: Jin
Author-Name: Yuanyuan Zhang
Author-X-Name-First: Yuanyuan
Author-X-Name-Last: Zhang
Title: Information-based stock trading and managerial incentives: evidence from China's stock market
Abstract:
This paper uses stock price informativeness, or information-based stock
trading, to help explain the pay-performance sensitivity (PPS) of chief
executive officer (CEO) compensation in China's listed firms. We argue
that higher stock price informativeness, which we measure by the
probability of informed trading, helps and encourages shareholders to
incentivize the top management team based on stock market performance. The
regression results support our argument and show that a higher level of
stock price informativeness is associated with higher CEO PPSs. Moreover,
the impact of stock price informativeness on CEO incentives is stronger
for privately controlled listed firms than it is for state-controlled
listed firms. The results also hold when information asymmetry is
approximated by the accuracy and dispersion of the earnings forecasts made
by financial analysts.
Journal: The European Journal of Finance
Pages: 637-656
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.672441
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.672441
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:637-656
Template-Type: ReDIF-Article 1.0
Author-Name: Martin J. Conyon
Author-X-Name-First: Martin J.
Author-X-Name-Last: Conyon
Author-Name: Lerong He
Author-X-Name-First: Lerong
Author-X-Name-Last: He
Title: CEO turnover in China: the role of market-based and accounting performance measures
Abstract:
We investigate the relationship between chief executive officer (CEO)
turnover and firm performance in China's publicly traded firms. We provide
evidence on the use of accounting and market-based performance measures in
CEO turnover decision. We also investigate the moderating roles of noise
in performance measures, firm growth opportunities, state-owned
enterprises, and corporate governance reform on the weights attached to
these performance measures. We observe that Chinese listed firms rely more
on accounting performance than on stock market performance when
determining CEO turnover. Firms with noisier performance measures and
larger growth opportunities rely less on both accounting performance and
stock market performance in CEO replacement decision. State-controlled
firms are more likely to use accounting performance to determine CEO
turnover. Finally, we observe that the weight attached to the accounting
performance measure is significantly reduced and the weight attached to
the stock market performance measure is significantly increased after the
governance reform. We also observe that the reform has different impact on
state-owned firms and private firms in terms of the sensitivity of CEO
turnover to firm performance.
Journal: The European Journal of Finance
Pages: 657-680
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.676559
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.676559
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:657-680
Template-Type: ReDIF-Article 1.0
Author-Name: David Greenaway
Author-X-Name-First: David
Author-X-Name-Last: Greenaway
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Author-Name: Zhihong Yu
Author-X-Name-First: Zhihong
Author-X-Name-Last: Yu
Title: The more the better? Foreign ownership and corporate performance in China
Abstract:
We examine the relationship between the degree of foreign ownership and
performance of recipient firms, using a panel of 21,582 Chinese firms over
the period 2000-2005. We find that joint-ventures perform better than
wholly foreign-owned and purely domestic firms. Although productivity and
profitability initially rise with foreign ownership, they start declining
once it reaches a certain point. This suggests that some domestic
ownership is necessary to ensure optimal performance. We referred these
findings to a model of a joint-venture, where strategic interactions
between a foreign and a domestic owner's inputs may lead to an inverted
U-shaped ownership-performance relationship.
Journal: The European Journal of Finance
Pages: 681-702
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671785
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671785
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:681-702
Template-Type: ReDIF-Article 1.0
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Edward Lee
Author-X-Name-First: Edward
Author-X-Name-Last: Lee
Title: Split Share Structure Reform, corporate governance, and the foreign share discount puzzle in China
Abstract:
We examine the impact of the Split Share Structure Reform on the
well-known foreign share discount puzzle in China. Existing literature
confirms that foreign investors are more concerned about insider
expropriation because of their information disadvantage relative to
domestic investors. The split share structure of the ownership of Chinese
listed firms created a conflict of interests between state and private
shareholders. Since, before the reform, state shareholders held restricted
shares that denied them any wealth effect from share price movements, they
had a limited incentive to work with private shareholders to ensure that
managers maximized the stock market value of the firm. By abolishing the
trading restrictions for state shareholders, this reform has increased the
incentive alignment between state and private shareholders, encouraging
them to monitor managers. If foreign investors' concerns over the
corporate governance implications of the split share structure at least
partly contributed to their discounting of Chinese listed firms, then this
discount should be reduced following the reform. Indeed, our evidence
confirms this prediction, especially among Chinese listed firms with more
state ownership or restricted shares. Our findings imply that this
significant institutional reform of the Chinese stock market has
benefitted minority investors.
Journal: The European Journal of Finance
Pages: 703-727
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671781
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671781
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:703-727
Template-Type: ReDIF-Article 1.0
Author-Name: Ningyue Liu
Author-X-Name-First: Ningyue
Author-X-Name-Last: Liu
Author-Name: Don Bredin
Author-X-Name-First: Don
Author-X-Name-Last: Bredin
Author-Name: Liming Wang
Author-X-Name-First: Liming
Author-X-Name-Last: Wang
Author-Name: Zhihong Yi
Author-X-Name-First: Zhihong
Author-X-Name-Last: Yi
Title: Domestic and foreign institutional investors' behavior in China
Abstract:
This paper compares the investment characteristics between foreign funds
operating under Qualified Foreign Institutional Investors (QFIIs) in China
and domestic Chinese funds and analyzes the firm-level drivers that
influence their allocation choices. The analysis reveals that foreign
funds have a preference for a range of sectors such as transportation,
metals and non-metals, and machinery, as opposed to industries with a
requirement for local knowledge. The portfolios of domestic Chinese funds
are distributed more evenly than those of the foreign funds. The
comparative analysis indicates that foreign funds invest in firms that are
significantly different from those favored by domestic funds in terms of
size, profit, and compensation of management. Finally, we find that when
making investment decisions, foreign funds tend to rely on some corporate
governance indicators, which is not consistent with the results obtained
from previous studies examining developed markets. In particular, foreign
funds have a preference for firms with a high percentage of state-owned
shares, while the reverse is the case for domestic funds. These empirical
findings highlight the differences between QFII and domestic fund
investment preferences and will be of value to policy-makers in emerging
markets, and China, in particular, in gauging the important drivers of
foreign investment.
Journal: The European Journal of Finance
Pages: 728-751
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671778
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671778
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:728-751
Template-Type: ReDIF-Article 1.0
Author-Name: Henk Berkman
Author-X-Name-First: Henk
Author-X-Name-Last: Berkman
Author-Name: Rebel A. Cole
Author-X-Name-First: Rebel A.
Author-X-Name-Last: Cole
Author-Name: Lawrence J. Fu
Author-X-Name-First: Lawrence J.
Author-X-Name-Last: Fu
Title: Improving corporate governance where the State is the controlling block holder: evidence from China
Abstract:
This paper examines changes in values and returns for Chinese firms around
announcements of block-share transfers among government agencies,
State-owned enterprises and private investors. We find that transfers to
all three types of investors result in positive abnormal returns around
transfer announcements, even when the transfers do not create a new
controlling block holder and when transfers are between State entities. We
also find that transfers from State entities to private entities result in
larger increases in value and returns than transfers between
State-controlled entities - consistent with the superior incentives and
expertise of private investors. We conclude that corporate governance can
be improved at State-controlled firms by improving incentives and
expertise of controlling block holders.
Journal: The European Journal of Finance
Pages: 752-777
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671784
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671784
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:752-777
Template-Type: ReDIF-Article 1.0
Author-Name: Douglas Cumming
Author-X-Name-First: Douglas
Author-X-Name-Last: Cumming
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Title: Valuation of restricted shares by conflicting shareholders in the Split Share Structure Reform
Abstract:
The recent Split Share Structure Reform launched by the government in the
Chinese stock market terminates trading constraints on restricted shares.
In exchange for the consent of freely traded shareholders, restricted
shareholders offer them consideration mainly in the form of restricted
shares. We estimate the implied discount of restricted shares to be 38.22%
on average, which is in line with the empirical and theoretical findings
in the literature, suggesting that the consideration is not systematically
underpaid and the reform is fair at the market level. At the firm level,
however, freely traded shareholders receive less consideration when their
bargaining power is weaker. The impact of state shareholders on the size
of consideration has been found to be non-monotonic. Consistent with the
literature that state shareholders exaggerate the agency problem, they
tend to exploit freely traded shareholders by offering less consideration
when the latter's bargaining power is weaker. Meanwhile, state
shareholders are under political pressure to carry out the reform as
quickly as possible and to set a good example for other firms. They
therefore refrain from offering underpaid consideration when their freely
traded counterparts have strong bargaining power and are more capable of
rejecting unfair schemes and substantially delaying the progress of the
reform.
Journal: The European Journal of Finance
Pages: 778-802
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671782
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671782
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:778-802
Template-Type: ReDIF-Article 1.0
Author-Name: Sheng Xiao
Author-X-Name-First: Sheng
Author-X-Name-Last: Xiao
Author-Name: Shan Zhao
Author-X-Name-First: Shan
Author-X-Name-Last: Zhao
Title: How do agency problems affect firm value? - Evidence from China
Abstract:
Using newly available data, we examine the effects of the agency conflicts
between ultimate controlling shareholders and minority shareholders in
China's publicly listed firms between 2004 and 2009. We measure the
severity of these agency problems by the excess control rights of the
ultimate controlling shareholders. We show that higher excess control
rights are associated with significantly lower firm value. We identify two
channels through which the excess control rights affect firm value: (1)
related-party loan guarantees, and (2) legal violations. We find that
higher excess control rights are associated with significantly larger
amounts of related-party loan guarantees (scaled by assets) for non-state
and private firms, but not for state-owned firms. We find that, for
non-state and private firms, the excess controls rights are associated
with (1) significantly higher probability that the firm will issue
value-destroying related-party loan guarantees and (2) significantly worse
stock market reactions to the announcements of related-party loan
guarantees. However, these results do not hold for state-owned firms. We
also find that higher excess control rights are associated with
significantly higher probability, frequency and severity of legal
violations for non-state and private firms, but not for state-owned firms.
Journal: The European Journal of Finance
Pages: 803-828
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671783
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671783
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:803-828
Template-Type: ReDIF-Article 1.0
Author-Name: Zhenhua Su
Author-X-Name-First: Zhenhua
Author-X-Name-Last: Su
Author-Name: Jun Ma
Author-X-Name-First: Jun
Author-X-Name-Last: Ma
Author-Name: Mark E. Wohar
Author-X-Name-First: Mark E.
Author-X-Name-Last: Wohar
Title: Sources of the stock price fluctuations in Chinese equity market
Abstract:
This paper proposes a latent factor approach based on a state-space
framework in order to identify which factor, if any, dominates price
fluctuations in the Chinese stock markets. We also illustrate the
connection of such stock price decomposition with several general
equilibrium asset pricing models and show that the decomposition results
can potentially offer useful insights with regard to the empirical
relevance of asset pricing models. We use quarterly data of the Chinese
A-Share equity market over the period 1995Q3-2011Q1 and find that the
estimates of the state-space model suggest that the expected return is the
primary driving force behind price fluctuations in the Chinese stock
market. We show that the time-varying expected returns appear to be
counter-cyclical and this result seems to be consistent with the habit
formation model of Campbell and Cochrane [1999. By force of habit: A
consumption-based explanation of aggregate stock market behavior.
Journal of Political Economy 107, no. 2: 205-51.].
However, we also note that there is a great deal of uncertainty with
respect to this variance decomposition due to the resulting small
signal-to-noise ratio in the estimated state-space model.
Journal: The European Journal of Finance
Pages: 829-846
Issue: 7-9
Volume: 20
Year: 2014
Month: 9
X-DOI: 10.1080/1351847X.2012.671779
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671779
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:7-9:p:829-846
Template-Type: ReDIF-Article 1.0
Author-Name: Barbara Casu
Author-X-Name-First: Barbara
Author-X-Name-Last: Casu
Author-Name: Daniela Fabbri
Author-X-Name-First: Daniela
Author-X-Name-Last: Fabbri
Author-Name: John O.S. Wilson
Author-X-Name-First: John O.S.
Author-X-Name-Last: Wilson
Title: Emerging issues in financial institutions and markets
Journal: The European Journal of Finance
Pages: 847-849
Issue: 10
Volume: 20
Year: 2014
Month: 10
X-DOI: 10.1080/1351847X.2013.833531
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.833531
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:10:p:847-849
Template-Type: ReDIF-Article 1.0
Author-Name: Saskia E. van Ewijk
Author-X-Name-First: Saskia E.
Author-X-Name-Last: van Ewijk
Author-Name: Ivo J.M. Arnold
Author-X-Name-First: Ivo J.M.
Author-X-Name-Last: Arnold
Title: How bank business models drive interest margins: evidence from US bank-level data
Abstract:
The two decades prior to the credit crisis witnessed a strategic shift
from a traditional, relationships-oriented model (ROM) to a
transactions-oriented model (TOM) of financial intermediation in developed
countries. A concurrent trend has been a persistent decline in average
bank interest margins. In the literature, these phenomena are often
explained using a causality that runs from increased competition in
traditional segments to lower margins to new activities. Using a
comprehensive data set with bank-level data on over 16,000 Federal Deposit
Insurance Corporation-insured US commercial banks for a period ranging
from 1992 to 2010, this paper qualifies this chain of causality. We find
that a bank's business model, measured using a multi-dimensional proxy of
relationship banking activity, exerts a strong, positive effect on
interest margins. Our results suggest that the strategic shift from ROM to
TOM has transformed banks' balance sheets and reduced interest rate
margins as a by-product.
Journal: The European Journal of Finance
Pages: 850-873
Issue: 10
Volume: 20
Year: 2014
Month: 10
X-DOI: 10.1080/1351847X.2013.833532
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.833532
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:10:p:850-873
Template-Type: ReDIF-Article 1.0
Author-Name: Ka Kei Chan
Author-X-Name-First: Ka Kei
Author-X-Name-Last: Chan
Author-Name: Alistair Milne
Author-X-Name-First: Alistair
Author-X-Name-Last: Milne
Title: Bank competition, fire-sales and financial stability
Abstract:
This paper applies a simple liquidity modelling framework and shows that
forced asset sales ('fire-sale') provide an alternative theoretical
support to the traditional view that bank competition can lead to
financial instability. This arises from the fact that in a multi-bank
economy, a bank can take advantage of other banks in fire-sale by choosing
a riskier funding structure, and the incentive to do so increases as the
number of banks in the economy increases. We also discuss the
effectiveness of some possible policies to restrain the incentives for
excessive risk-taking.
Journal: The European Journal of Finance
Pages: 874-891
Issue: 10
Volume: 20
Year: 2014
Month: 10
X-DOI: 10.1080/1351847X.2013.836552
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.836552
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:10:p:874-891
Template-Type: ReDIF-Article 1.0
Author-Name: José Liñ ares-Zegarra
Author-X-Name-First: José
Author-X-Name-Last: Liñ ares-Zegarra
Author-Name: John O.S. Wilson
Author-X-Name-First: John O.S.
Author-X-Name-Last: Wilson
Title: Credit card interest rates and risk: new evidence from US survey data
Abstract:
This study uses survey data and instrumental variables' methods to assess
whether in the USA the prices of credit cards (annual percentage rates,
APRs) reflect the short- and long-term risks of cardholders (measured as
unpaid credit card debt in the previous year, outstanding debt and Fair
Issac Corporation score). We find a negative relationship between APRs and
long-term risk. This effect is pronounced for sub-prime cardholders. This
suggests that higher risk consumers shop around more intensively for
credit cards offering the best terms and conditions. However, under
stressed economic conditions, issuer banks increase APRs to account for
short-term risk. Credit card characteristics, including network
affiliation and issuer brand, play an important role in the pricing
decisions of issuer banks.
Journal: The European Journal of Finance
Pages: 892-914
Issue: 10
Volume: 20
Year: 2014
Month: 10
X-DOI: 10.1080/1351847X.2013.839461
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.839461
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:10:p:892-914
Template-Type: ReDIF-Article 1.0
Author-Name: Daniel Kapp
Author-X-Name-First: Daniel
Author-X-Name-Last: Kapp
Title: The optimal size of the European Stability Mechanism: a cost-benefit analysis
Abstract:
This study presents a core-periphery model to determine the optimal size
of the European Stability Mechanism (ESM), building on Jeanne and Ranciere
[2011. "The Optimal Level of International Reserves for Emerging Market
Countries: A New Formula and Some Applications." The Economic
Journal 121: 905-930]. While the periphery is subject to a
probability of losing access to external credit, the core's incentive for
setting up an ESM stems exclusively from the spillover effects present in
the case of periphery default. The model develops regional best response
functions, determining a set of feasible ranges for the total ESM size,
given optimal regional contributions. The model is then calibrated to the
European Economic and Monetary Union. If costs from default are reasonably
high, the probability of the periphery not having access to external
credit is sufficiently large, and spillover effects to the core are
present, both the core and the periphery have an interest in contributing
to the ESM. Calibration and sensitivity analysis suggest that the optimal
ESM size is between the current and twice the size of the agreed-upon ESM.
Journal: The European Journal of Finance
Pages: 915-933
Issue: 10
Volume: 20
Year: 2014
Month: 10
X-DOI: 10.1080/1351847X.2014.880998
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.880998
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:10:p:915-933
Template-Type: ReDIF-Article 1.0
Author-Name: Paweł Niszczota
Author-X-Name-First: Paweł
Author-X-Name-Last: Niszczota
Title: Cross-country differences in personality and the foreign bias in international equity portfolios
Abstract:
In this study, we investigate whether cross-country variation in
investors' mean openness to experience - one of the traits of the
Five-Factor Model of personality - has an effect on the level of foreign
bias present in international equity portfolios. Building on extant
research showing a strong relationship between openness to experience and
the attitude towards other cultures and risk, we argue that this
personality trait is a construct that aggregates aspects of the psyche
that influence the propensity to invest abroad. We find support for this
hypothesis, showing that the more 'open' the country, the smaller the
underrepresentation of foreign assets in its equity portfolio. Our
analysis reveals that the impact of openness to experience is the most
pronounced while making investments in countries with a weak information
environment, or those that culturally or economically differ from the
country the investor comes from, and suggests that international asset
allocation is to some extent affected by psychological biases.
Journal: The European Journal of Finance
Pages: 934-956
Issue: 10
Volume: 20
Year: 2014
Month: 10
X-DOI: 10.1080/1351847X.2013.856332
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.856332
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:10:p:934-956
Template-Type: ReDIF-Article 1.0
Author-Name: Panos Xidonas
Author-X-Name-First: Panos
Author-X-Name-Last: Xidonas
Author-Name: George Mavrotas
Author-X-Name-First: George
Author-X-Name-Last: Mavrotas
Title: Multiobjective portfolio optimization with non-convex policy constraints: Evidence from the Eurostoxx 50
Abstract:
Our purpose in this paper is to depart from the intrinsic pathology of the
typical mean-variance formalism, due to both the restriction of its
assumptions and difficulty of implementation. We manage to co-assess a set
of sophisticated real-world non-convex investment policy limitations, such
as cardinality constraints, buy-in thresholds, transaction costs,
particular normative rules, etc., within the frame of complex scenarios,
which demand for simultaneous optimization of multiple investment
objectives. In such a case, the portfolio selection process reflects a
mixed-integer multiobjective portfolio optimization problem. On this
basis, we meticulously develop all the corresponding modeling procedures
and then solve the underlying problem by use of a new, fast and very
effective algorithm. The value of the suggested framework is integrated
with the introduction of two novel concepts in the field of multiobjective
portfolio optimization, i.e. the security impact plane
and the barycentric portfolio. The first represents a
measure of each security's impact in the efficient surface of Pareto
optimal portfolios. The second serves as the vehicle for implementing a
balanced strategy of iterative portfolio tuning. Moreover, a couple of
some very informative graphs provide thorough visualization of all
empirical testing results. The validity of the attempt is verified through
an illustrative application on the Eurostoxx 50. The results obtained are
characterized as very encouraging, since a sufficient number of efficient
or Pareto optimal portfolios produced by the model, appear to possess
superior out-of-sample returns with respect to the underlying benchmark.
Journal: The European Journal of Finance
Pages: 957-977
Issue: 11
Volume: 20
Year: 2014
Month: 11
X-DOI: 10.1080/1351847X.2012.733718
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.733718
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:11:p:957-977
Template-Type: ReDIF-Article 1.0
Author-Name: G. Rubbaniy
Author-X-Name-First: G.
Author-X-Name-Last: Rubbaniy
Author-Name: I. P.P. van Lelyveld
Author-X-Name-First: I. P.P.
Author-X-Name-Last: van Lelyveld
Author-Name: W. F.C. Verschoor
Author-X-Name-First: W. F.C.
Author-X-Name-Last: Verschoor
Title: Home bias and Dutch pension funds' investment behavior
Abstract:
Using a panel data set of more than 600 Dutch pension funds (PFs) between
1992 and 2006, we investigate asset allocation behavior of Dutch PFs
across multiple asset classes. We find that domestic investments, also
known as home bias, in portfolio choices of Dutch institutional investors
have fallen. We also find that the introduction of the euro, the dot-com
crisis (1999-2001) and individual PF's characteristics are significant
determinants of home bias. Overall, mature PFs' portfolios are diversified
internationally, whereas large PFs seem to prefer to only scale up their
foreign, less-risky positions at the expense of domestic fixed-income
positions. The effect of the dot-com crisis is more pronounced for
domestic bonds, whereas the introduction of the euro was more important
for domestic equities.
Journal: The European Journal of Finance
Pages: 978-993
Issue: 11
Volume: 20
Year: 2014
Month: 11
X-DOI: 10.1080/1351847X.2013.784206
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.784206
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:11:p:978-993
Template-Type: ReDIF-Article 1.0
Author-Name: José Soares da Fonseca
Author-X-Name-First: José
Author-X-Name-Last: Soares da Fonseca
Title: Stochastic durations, the convexity effect, and the impact of interest rate changes
Abstract:
This article shows that the equilibrium models of bond pricing do not
preclude arbitrage opportunities caused by convexity. Consequently,
stochastic durations derived from these models are limited in their
ability to act as interest rate risk measures. The research of the present
article makes use of an intertemporal utility maximization framework to
determine the conditions under which duration is an adequate interest rate
risk measure. Additionally, we show that zero coupon bonds satisfy those
equilibrium conditions, whereas coupon bonds or bond portfolios do not as
a result of the convexity effect. The results are supported by empirical
evidence, which confirms the influence of convexity on the deviation of
coupon bond returns from equilibrium.
Journal: The European Journal of Finance
Pages: 994-1007
Issue: 11
Volume: 20
Year: 2014
Month: 11
X-DOI: 10.1080/1351847X.2013.791631
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.791631
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:11:p:994-1007
Template-Type: ReDIF-Article 1.0
Author-Name: Jérôme Hubler
Author-X-Name-First: Jérôme
Author-X-Name-Last: Hubler
Author-Name: Christine Louargant
Author-X-Name-First: Christine
Author-X-Name-Last: Louargant
Author-Name: Jean-Noël Ory
Author-X-Name-First: Jean-Noël
Author-X-Name-Last: Ory
Author-Name: Philippe Raimbourg
Author-X-Name-First: Philippe
Author-X-Name-Last: Raimbourg
Title: Do rating agencies' decisions impact stock risks? Evidence from European markets
Abstract:
This article analyses the effect of rating agencies' decisions on stock
risks for European issuers concerning five kinds of events. Our approach
is an extension of dummy variable regression event study methodology,
using a GARCH(1,1) estimation to capture simultaneously the impact on both
systematic and specific stock risks. This new methodology allows us to
obtain both global results by categories of rating decisions and
individual results, event by event. We document, globally, a positive
impact of upgrading on systematic risk, a negative impact of rating
confirmation on specific risk, and no significant impact in all other
cases. Regarding event-by-event results, the proportion of rating actions
exhibiting a significant effect on risk is almost always observed between
20% and 30%. The weak evidence of a global effect on systematic risk may
be due to the lack of informational content of the rating decisions on the
stocks' risk, or the existence of rebalancing effects between systematic
and idiosyncratic risks. Furthermore, it should be noticed that the
decline in volatility in case of a rating affirmed is an insight of the
certification role played by the agencies.
Journal: The European Journal of Finance
Pages: 1008-1036
Issue: 11
Volume: 20
Year: 2014
Month: 11
X-DOI: 10.1080/1351847X.2013.815125
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.815125
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:11:p:1008-1036
Template-Type: ReDIF-Article 1.0
Author-Name: Alexander Schulz
Author-X-Name-First: Alexander
Author-X-Name-Last: Schulz
Author-Name: Jelena Stapf
Author-X-Name-First: Jelena
Author-X-Name-Last: Stapf
Title: Price discovery on traded inflation expectations: does the financial crisis matter?
Abstract:
We analyze contributions of different markets, related by an approximate
arbitrage relationship, to price discovery on traded inflation
expectations and how it changed during the financial crisis. We use a new
high-frequency data-set on inflation-indexed and nominal government bonds
as well as inflation swaps to calculate information shares of break-even
inflation rates in the euro area and the USA. In the euro area, for
maturities up to 5 years new information comes from both the swap and the
bond markets. For longer maturities, the swap market provides less and
less information in the euro area. In the USA, the bond market dominates
the price discovery process for all maturities. The severe financial
crisis that spread out in Autumn 2008 drove a wedge between bond and swap
break-even inflation rates in both currencies. Price discovery ceased to
take place on the swap market. Disruptions coming from the short-end of
the market even separated price formation on both segments for maturities
of up to 6 years in the USA. Against the backdrop of the most severe
financial crisis in decades, contributions to price formation concentrated
a lot more on the presumably safest financial instrument: government
bonds.
Journal: The European Journal of Finance
Pages: 1037-1063
Issue: 11
Volume: 20
Year: 2014
Month: 11
X-DOI: 10.1080/1351847X.2012.736872
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.736872
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:11:p:1037-1063
Template-Type: ReDIF-Article 1.0
Author-Name: P. Simmons
Author-X-Name-First: P.
Author-X-Name-Last: Simmons
Author-Name: N. Tantisantiwong
Author-X-Name-First: N.
Author-X-Name-Last: Tantisantiwong
Title: Equilibrium moment restrictions on asset returns: normal and crisis periods
Abstract:
Empirically, the covariance between stock returns varies with their
volatility. We seek a robust theoretical explanation of this. With minimal
assumptions, we model stochastic properties of equilibrium returns which
result from the interaction between inter-temporal traders and noisy,
price-sensitive short-term traders. The inter-temporal traders can have
arbitrary investment rules, preferences and information. In all cases we
find a set of restrictions between second moments of equilibrium returns.
With two assets there is also a bound on the correlation between asset
returns. Estimation with second moments of global stock returns supports
our theoretical framework. Higher volatility in at least one market can
increase comovement among markets. With globalization, covariances between
two stock markets can also affect covariances between two other stock
markets. We also find that the changes in trader behavior between normal
and crisis periods lead to changes in the moment restrictions between
asset returns.
Journal: The European Journal of Finance
Pages: 1064-1089
Issue: 11
Volume: 20
Year: 2014
Month: 11
X-DOI: 10.1080/1351847X.2012.742024
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.742024
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:11:p:1064-1089
Template-Type: ReDIF-Article 1.0
Author-Name: John Doukas
Author-X-Name-First: John
Author-X-Name-Last: Doukas
Author-Name: Halit Gonenc
Author-X-Name-First: Halit
Author-X-Name-Last: Gonenc
Author-Name: Auke Plantinga
Author-X-Name-First: Auke
Author-X-Name-Last: Plantinga
Title: Private acquisition gains: A contingent claims explanation
Abstract:
This paper studies announcement returns of Western European acquisitions
of private and public targets. It uses a contingent claims perspective to
offer a new explanation for the difference in abnormal returns between
acquirers of private and public targets. In this context, an acquisition
is analogous to buying a call option and the value of the acquirer
increases with uncertainty about its growth prospects (options). We test
this idea by studying the relation between announcement returns and
acquirer's characteristics that proxy for the existence of growth options.
Consistent with the contingent claims hypothesis, the private acquisition
gains are associated with the combined effects of growth options (having
higher runup before the acquisition announcement) with low level of
leverage (near-all equity capital) and with uncertainty (measured by age
and analyst coverage of acquirers).
Journal: The European Journal of Finance
Pages: 1090-1113
Issue: 12
Volume: 20
Year: 2014
Month: 12
X-DOI: 10.1080/1351847X.2012.742025
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.742025
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:12:p:1090-1113
Template-Type: ReDIF-Article 1.0
Author-Name: Sok Gee Chan
Author-X-Name-First: Sok Gee
Author-X-Name-Last: Chan
Author-Name: Mohd Zaini Abd Karim
Author-X-Name-First: Mohd Zaini Abd
Author-X-Name-Last: Karim
Author-Name: Bruce Burton
Author-X-Name-First: Bruce
Author-X-Name-Last: Burton
Author-Name: Bora Aktan
Author-X-Name-First: Bora
Author-X-Name-Last: Aktan
Title: Efficiency and risk in commercial banking: empirical evidence from East Asian countries
Abstract:
This paper analyses the effects of off-balance sheet (OBS) activities and
various types of risks on the cost and profit efficiencies of banks in
seven East Asian countries between 2001 and 2008. Cost and profit
efficiency scores are estimated using the data envelopment analysis
approach. The results of this analysis are then used to identify the
impact of OBS activities and risk exposures on cost and profit
efficiencies using a Tobit regression. Bank insolvency risk (as measured
by z-scores) is positively related to profit efficiency,
while interest sensitivity, size, equity to total assets and OBS exposures
all impact on cost efficiency. The analysis of the impact of input and
output slacks illustrates that in around 1 in 5 cases banks' cost
efficiency can be improved by adjusting the former variables, whereas in
only around 1 in 100 cases a similar outcome is possible for profit
efficiency.
Journal: The European Journal of Finance
Pages: 1114-1132
Issue: 12
Volume: 20
Year: 2014
Month: 12
X-DOI: 10.1080/1351847X.2012.745008
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.745008
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:12:p:1114-1132
Template-Type: ReDIF-Article 1.0
Author-Name: Hato Schmeiser
Author-X-Name-First: Hato
Author-X-Name-Last: Schmeiser
Author-Name: Joël Wagner
Author-X-Name-First: Joël
Author-X-Name-Last: Wagner
Author-Name: Alexandra Zemp
Author-X-Name-First: Alexandra
Author-X-Name-Last: Zemp
Title: Proposal for a capital market-based guaranty scheme for the financial industry
Abstract:
In this paper, we introduce a capital market-based financial guaranty
system as an alternative to current insurance guaranty funds and deposit
insurance systems. The guaranty system secures clients' claims for the
event of default by the financial company using a special purpose vehicle
which issues bonds to investors. The proposed system, analogous to a
credit-linked note, consists of one guaranty vehicle for each financial
company. In a first step, we present equations in order to derive the two
main input parameters of the special purpose vehicle: the premium and the
principal. Subsequently, we analyze the impact of different investment
actions taken by the financial companies protected by the guaranty vehicle
on various shortfall measures. We find that it will be necessary to
restrict the investment volume of investors from the financial industry in
order to avoid systematic risk within the proposed guaranty scheme. By
deriving practical implications, we show that the capital market-based
solution has some key benefits compared to current deposit insurance and
insurance guaranty schemes.
Journal: The European Journal of Finance
Pages: 1133-1160
Issue: 12
Volume: 20
Year: 2014
Month: 12
X-DOI: 10.1080/1351847X.2012.745007
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.745007
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:12:p:1133-1160
Template-Type: ReDIF-Article 1.0
Author-Name: Argyro Panaretou
Author-X-Name-First: Argyro
Author-X-Name-Last: Panaretou
Title: Corporate risk management and firm value: evidence from the UK market
Abstract:
The paper evaluates the effect of corporate risk management activities on
firm value, using a sample of large UK non-financial firms. Following
recent changes in financial reporting standards, we are able to collect
detailed information on risk management activities from audited financial
reports. This enables us to gain a better understanding of risk management
practices and to investigate value implications of different types of
hedging. Overall 86.88% of the firms in the sample use derivatives to
manage at least one type of price risk. The hedging premium is
statistically and economically significant for foreign currency derivative
users, while we provide weak evidence that interest rate hedging increases
firm value. The extent of hedging and the hedging horizon have an impact
on the hedging premium, whereas operational risk management activities do
not significantly influence the market value of the firm.
Journal: The European Journal of Finance
Pages: 1161-1186
Issue: 12
Volume: 20
Year: 2014
Month: 12
X-DOI: 10.1080/1351847X.2013.766625
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.766625
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:12:p:1161-1186
Template-Type: ReDIF-Article 1.0
Author-Name: Tsangyao Chang
Author-X-Name-First: Tsangyao
Author-X-Name-Last: Chang
Author-Name: Chien-Chiang Lee
Author-X-Name-First: Chien-Chiang
Author-X-Name-Last: Lee
Author-Name: Chi-Hung Chang
Author-X-Name-First: Chi-Hung
Author-X-Name-Last: Chang
Title: Does insurance activity promote economic growth? Further evidence based on bootstrap panel Granger causality test
Abstract:
This study applies the bootstrap panel Granger causality test to test
whether insurance activity promotes economic growth, using data from 10
OECD countries over the period of 1979-2006. Empirical results indicate
that one-way Granger causality running from all insurance activities to
economic growth for France, Japan, Netherlands, Switzerland, and the UK,
and economic growth Granger causes insurance activities in Canada (for
life insurance), Italy (for total and life insurance) and the USA (for
total and non-life insurance). There is a two-way Granger causality
between life insurance activity and economic growth in the USA, while no
causality between insurance activities and economic growth is found in
Belgium (for all insurance), Canada (for total and non-life insurance),
Italy (for non-life insurance) and Sweden (for life insurance). Our
results also confirm the finding of Ward and Zurbruegg [Does insurance
promote economic growth? Evidence from OECD economies. Journal of
Risk and Insurance 67, no. 4: 489-506] showing that the
insurance-growth nexus varies across countries, since their paper have
previously demonstrated heterogeneity in this vein. In an analysis of a
broader, though overlapping 17-country sample and taking into account
banking activities, the results suggest the importance of including
banking activities when investigating the insurance-growth relationship.
Journal: The European Journal of Finance
Pages: 1187-1210
Issue: 12
Volume: 20
Year: 2014
Month: 12
X-DOI: 10.1080/1351847X.2012.757555
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.757555
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:12:p:1187-1210
Template-Type: ReDIF-Article 1.0
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: George Dotsis
Author-X-Name-First: George
Author-X-Name-Last: Dotsis
Author-Name: Xiaoquan Liu
Author-X-Name-First: Xiaoquan
Author-X-Name-Last: Liu
Author-Name: Jia Zhai
Author-X-Name-First: Jia
Author-X-Name-Last: Zhai
Title: Investor sentiment and value and growth stock index options
Abstract:
The paper examines the relationship between both individual and
institutional investor sentiment measures and the risk-neutral skewness
(RNS) of seven stock index options comprising either growth or value
stocks. It provides novel evidence that growth index option prices are
affected by sentiment measures. The regression results indicate a
significantly positive relationship between sentiment measures and the RNS
estimated from four growth index options and a negative relationship with
two value index options. The results are economically significant since an
associated long-short trading strategy yields high abnormal returns with a
Sharpe ratio of up to 1.1 and zero exposure to systematic risk. These high
abnormal returns provide evidence of a value premium type anomaly in the
index options markets.
Journal: The European Journal of Finance
Pages: 1211-1229
Issue: 12
Volume: 20
Year: 2014
Month: 12
X-DOI: 10.1080/1351847X.2013.779290
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.779290
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:12:p:1211-1229
Template-Type: ReDIF-Article 1.0
Author-Name: Daniella Acker
Author-X-Name-First: Daniella
Author-X-Name-Last: Acker
Author-Name: Nigel Duck
Author-X-Name-First: Nigel
Author-X-Name-Last: Duck
Title: Inflation illusion and the dividend yield: evidence from the UK
Abstract:
We report evidence that the UK dividend yield and expected inflation are
positively correlated from 1962 to 1997, but negatively correlated
subsequently. Using a commonly used VAR (vector auto-regression)-based
procedure we find strong evidence that the positive correlation is caused
both by inflation illusion and the effect of inflation on required rates
of return. We also find some evidence that it is caused by inflation
rationally reducing expected real dividend growth. We find that Chen and
Zhao's (2009. "Return Decomposition." Review of Financial
Studies 22 (12): 5213-5249) criticism of the VAR-based procedure
has little empirical relevance but that the procedure can be highly
sensitive to the choice of data period.
Journal: The European Journal of Finance
Pages: 1230-1245
Issue: 12
Volume: 20
Year: 2014
Month: 12
X-DOI: 10.1080/1351847X.2013.784207
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.784207
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:20:y:2014:i:12:p:1230-1245
Template-Type: ReDIF-Article 1.0
Author-Name: Bert D'Espallier
Author-X-Name-First: Bert
Author-X-Name-Last: D'Espallier
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Title: Does the investment opportunities bias affect the investment-cash flow sensitivities of unlisted SMEs?
Abstract:
Using a panel of 5999 Belgian small- and medium-sized enterprises (SMEs)
over the period 2002-2008, we employ a Bayesian approach to derive
firm-varying investment-cash flow sensitivities (ICFS) from reduced-form
investment equations which include different measures of investment
opportunities suitable for unlisted firms. We find that all our models
yield similar ICFS, which are significantly related to a wide set of
proxies for financing constraints and orthogonal to our measures of
investment opportunities. These findings suggest that the ICFS of SMEs do
not simply reflect investment opportunities. The investment opportunities
bias may therefore have been overstated in previous literature.
Journal: The European Journal of Finance
Pages: 1-25
Issue: 1
Volume: 21
Year: 2015
Month: 1
X-DOI: 10.1080/1351847X.2012.752398
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.752398
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:1:p:1-25
Template-Type: ReDIF-Article 1.0
Author-Name: Domenico Curcio
Author-X-Name-First: Domenico
Author-X-Name-Last: Curcio
Author-Name: Iftekhar Hasan
Author-X-Name-First: Iftekhar
Author-X-Name-Last: Hasan
Title: Earnings and capital management and signaling: the use of loan-loss provisions by European banks
Abstract:
This paper investigates the relationship between loan-loss provisions
(LLPs) and earnings management in the context of the capital adequacy of
Euro Area (EA) banks versus non-EA credit institutions. This paper also
examines whether LLPs signal managements' expectations concerning future
bank profits to investors. Additionally, this paper traces the role of
bank regulations and creditor protection systems in explaining income
smoothing. Evidence drawn from the 1996 to 2006 period indicates that LLPs
do reflect changes in the expected quality of a bank's loan portfolio for
both groups of banks, and that earnings management is an important
determinant of LLPs for EA intermediaries, whereas non-EA credit
institutions use LLPs to signal private information to outsiders. The
paper also finds that higher protection of creditors' rights significantly
reduces the incentives to smooth earnings for EA banks. During the recent
financial crisis, EA bank managers are much more concerned with their
credit portfolio quality and do not use LLPs for discretionary purposes,
whereas LLPs at non-EA banks are used to smooth income more than for the
purposes of managing capital ratios or conveying private information about
future performance to the market.
Journal: The European Journal of Finance
Pages: 26-50
Issue: 1
Volume: 21
Year: 2015
Month: 1
X-DOI: 10.1080/1351847X.2012.762408
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.762408
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:1:p:26-50
Template-Type: ReDIF-Article 1.0
Author-Name: Lieven De Moor
Author-X-Name-First: Lieven
Author-X-Name-Last: De Moor
Author-Name: Piet Sercu
Author-X-Name-First: Piet
Author-X-Name-Last: Sercu
Title: The smallest stocks are not just smaller: global evidence
Abstract:
Using an international Thomson Reuters Datastream database, where size
coverage is unusually wide and data errors have been reduced to a low
level, we show that some specification decisions, and especially those
related to size, may have a significant impact on asset-pricing test
results. We also show that, in data with wider coverage with respect to
size, the Fama and French factor portfolios need to be adjusted and their
number increased. Specifically, (i) standard asset-pricing models leave
pricing errors for the 10% smallest stocks, and (ii) two additional risk
factors (i.e. one micro-stock factor and one extreme book-to-market
factor) are needed to capture this mispricing. This holds both in USA and
international data. Further research is needed to measure the separate
relevance of the possible economic interpretations and to identify more
economic explanations for the additional risks associated with the
smallest stocks.
Journal: The European Journal of Finance
Pages: 51-70
Issue: 1
Volume: 21
Year: 2015
Month: 1
X-DOI: 10.1080/1351847X.2013.769889
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.769889
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:1:p:51-70
Template-Type: ReDIF-Article 1.0
Author-Name: Nida Abdioglu
Author-X-Name-First: Nida
Author-X-Name-Last: Abdioglu
Author-Name: Arif Khurshed
Author-X-Name-First: Arif
Author-X-Name-Last: Khurshed
Author-Name: Konstantinos Stathopoulos
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Stathopoulos
Title: Firm innovation and institutional investment: the role of the Sarbanes-Oxley Act
Abstract:
This paper investigates the effect of the Sarbanes-Oxley Act (SOX) on the
relation between institutional ownership (IO) and firm innovation. We find
that US firms investing in innovation attract more institutional capital
post-SOX. Prior literature identifies two SOX effects on the average US
firm that could drive this relation, that is, a decreased level of
information asymmetry (direct effect) and the consequent increased market
liquidity (indirect effect). Our findings overwhelmingly support the
direct effect. In particular, we find that the positive relation between
IO and innovation post-SOX is mainly driven by passive and dedicated
institutional investors. These investors benefit greatly from a reduction
in the firm's information asymmetry but receive little gain from
improvements in market liquidity, given their long-term trading horizon.
Our results are robust to different model specifications, including
difference-in-differences tests, which alleviate concerns about the impact
of confounding effects on our conclusions. Taken together, our findings
indicate an important policy effect of SOX, namely, the strengthening of
institutional investor support for firm innovation.
Journal: The European Journal of Finance
Pages: 71-92
Issue: 1
Volume: 21
Year: 2015
Month: 1
X-DOI: 10.1080/1351847X.2013.769890
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.769890
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:1:p:71-92
Template-Type: ReDIF-Article 1.0
Author-Name: Xiaoquan Liu
Author-X-Name-First: Xiaoquan
Author-X-Name-Last: Liu
Author-Name: Jing-Ming Kuo
Author-X-Name-First: Jing-Ming
Author-X-Name-Last: Kuo
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Title: A pricing kernel approach to valuing options on interest rate futures
Abstract:
This paper builds on existing asset pricing models in an intertemporal
capital asset pricing model framework to investigate the pricing of
options on interest rate futures. It addresses the issues of selecting the
preferred pricing kernel model by employing the second Hansen-Jagannathan
distance criterion. This criterion restricts the set of admissible models
to those with a positive stochastic discount factor that ensures the model
is arbitrage-free. The results indicate that the three-term polynomial
pricing kernel with three non-wealth-related state variables, namely the
real interest rate, maximum Sharpe ratio, and implied volatility, clearly
dominates the other candidates. This pricing kernel is always strictly
positive and everywhere monotonically decreasing in market returns in
conformity with economic theory.
Journal: The European Journal of Finance
Pages: 93-110
Issue: 2
Volume: 21
Year: 2015
Month: 1
X-DOI: 10.1080/1351847X.2013.779289
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.779289
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:2:p:93-110
Template-Type: ReDIF-Article 1.0
Author-Name: Andrea Cipollini
Author-X-Name-First: Andrea
Author-X-Name-Last: Cipollini
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: Hyunchul Lee
Author-X-Name-First: Hyunchul
Author-X-Name-Last: Lee
Title: The European sovereign debt market: from integration to segmentation
Abstract:
This paper investigates the impact of European Monetary Union (EMU) and of
the recent financial and fiscal crisis on the integration of the European
sovereign debt market using annual data 1992-2010. The panel regression
dependent variable is time-varying market linkages computed from daily
realised correlations between sovereign bond returns for 13 European
economies and Germany. The results indicate that the elimination of
currency risk following the implementation of EMU led to a fundamental and
significant one-off increase in integration. The net impact of fiscal
fundamentals was negligible up until 2009 as the markets seemed to be
pricing in a potential bailout for member states in crisis and not fully
pricing default risk. However, by 2010 the parlous situation of the
peripheral economies lead the markets to price default risk and heralded a
return to segmentation. The related increase in peripheral economy
sovereign spreads has exacerbated the problem of fiscal imbalances which
pose a major challenge for policy-makers.
Journal: The European Journal of Finance
Pages: 111-128
Issue: 2
Volume: 21
Year: 2015
Month: 1
X-DOI: 10.1080/1351847X.2013.788535
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.788535
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:2:p:111-128
Template-Type: ReDIF-Article 1.0
Author-Name: Ian Davidson
Author-X-Name-First: Ian
Author-X-Name-Last: Davidson
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Title: Time varying costs of capital and the expected present value of future cash flows
Abstract:
The use of an inter-temporally constant discount rate or cost of capital
is a strong assumption in many ex ante models of finance
and in applied procedures such as capital budgeting. We investigate how
robust this assumption is by analysing the implications of allowing the
cost of capital to vary stochastically over time. We use the Feynman-Kac
functional to demonstrate how there will, in general, be systematic
differences between present values computed on the assumption that the
currently prevailing cost of capital will last indefinitely into the
future and present values determined by discounting cash flows at the
expected costs of capital that apply up until the point in time at which
cash flows are to be received. Our analysis is based on three
interpretations of the Feynman-Kac functional. The first assumes that the
cost of capital evolves in terms of a state variable characterised by an
Uhlenbeck and Ornstein ("On the Theory of the Brownian Motion."
Physical Review 36(5): 823-841) process. The second and
third interpretations of the Feynman-Kac functional are based on the
continuous time branching process. The first of these assumes that the
state variable tends to drift upwards over time, whilst the second assumes
that there is no drift in the state variable. Our analysis shows that for
all three stochastic processes there are significant differences between
present values computed under the assumption that the currently prevailing
cost of capital will last indefinitely into the future and present values
determined by discounting cash flows at the expected costs of capital that
apply up until the point in time at which cash flows are to be received.
Comparisons are also made with the environmental economics literature
where similar problems have been addressed by invoking a 'gamma
discounting' methodology.
Journal: The European Journal of Finance
Pages: 129-146
Issue: 2
Volume: 21
Year: 2015
Month: 1
X-DOI: 10.1080/1351847X.2013.802248
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.802248
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:2:p:129-146
Template-Type: ReDIF-Article 1.0
Author-Name: Xiuping Hua
Author-X-Name-First: Xiuping
Author-X-Name-Last: Hua
Author-Name: Laixiang Sun
Author-X-Name-First: Laixiang
Author-X-Name-Last: Sun
Author-Name: Tianyi Wang
Author-X-Name-First: Tianyi
Author-X-Name-Last: Wang
Title: Impact of exchange rate regime reform on asset returns in China
Abstract:
Employing monthly data over the period 1999-2010, this paper examines the
impact of China's exchange rate regime reform in July 2005 on three major
asset markets: house, land, and stocks. We test whether the reform, which
switches from a fixed exchange rate regime to a managed floating one, has
brought forward structural changes to asset return dynamics. The results
suggest that the exchange rate regime switch exerted the most significant
impact on house and land returns at the national level, in terms of both
returns and their volatilities. In contrast, its impact on China's stock
market was moderate, with no structural change being detected in its
returns and only weak structural change being found in the dynamics of its
volatility. We also find that in comparison with other popular explanatory
variables, broad money supply and inflation have the largest explanatory
power on housing and land returns in China after the policy reform.
Journal: The European Journal of Finance
Pages: 147-171
Issue: 2
Volume: 21
Year: 2015
Month: 1
X-DOI: 10.1080/1351847X.2013.838183
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.838183
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:2:p:147-171
Template-Type: ReDIF-Article 1.0
Author-Name: Frank J. Fabozzi
Author-X-Name-First: Frank J.
Author-X-Name-Last: Fabozzi
Author-Name: Dennis Vink
Author-X-Name-First: Dennis
Author-X-Name-Last: Vink
Title: The information content of three credit ratings: the case of European residential mortgage-backed securities
Abstract:
We assess the information content of three credit ratings for tranches of
newly issued European residential mortgage-backed securities. We find that
tranches rated by three credit rating agencies where the rating by
Standard & Poor's (S&P's) Ratings Service or Fitch is inferior to Moody's
lead to higher funding costs and reflects what we refer to as rating risk.
Our results suggest that market participants do not view credit ratings by
Fitch and S&P's as redundant despite the fact that both employ the same
rating approach.
Journal: The European Journal of Finance
Pages: 172-194
Issue: 3
Volume: 21
Year: 2015
Month: 2
X-DOI: 10.1080/1351847X.2013.862838
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.862838
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:3:p:172-194
Template-Type: ReDIF-Article 1.0
Author-Name: Marti Sagarra
Author-X-Name-First: Marti
Author-X-Name-Last: Sagarra
Author-Name: Cecilio Mar-Molinero
Author-X-Name-First: Cecilio
Author-X-Name-Last: Mar-Molinero
Author-Name: Miguel García-Cestona
Author-X-Name-First: Miguel
Author-X-Name-Last: García-Cestona
Title: Spanish savings banks in the credit crunch: could distress have been predicted before the crisis? A multivariate statistical analysis
Abstract:
Spanish savings banks (Cajas de Ahorro) have had a long
and distinguished history over more than 100 years of existence. They have
served well the community and small businesses. However, they have been
heavily affected by the 2007 banking crisis and they are on the verge of
disappearing. Some of them had to merge with other institutions or had to
be rescued, while others became banks. We show that there was statistical
evidence to identify, before the crisis, structural differences between
successful Cajas and those that had to be rescued. The
technical approach is based on multidimensional scaling (MDS) analysis.
MDS has the advantage that the main characteristics of the study can be
presented in a visual form, and thus facilitate communication of the
results with regulators, politicians, and the community at large. We
complete the study with the time path of four institutions: two that
survived and two that had to be rescued.
Journal: The European Journal of Finance
Pages: 195-214
Issue: 3
Volume: 21
Year: 2015
Month: 2
X-DOI: 10.1080/1351847X.2013.784208
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.784208
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:3:p:195-214
Template-Type: ReDIF-Article 1.0
Author-Name: Guy Kaplanski
Author-X-Name-First: Guy
Author-X-Name-Last: Kaplanski
Author-Name: Haim Levy
Author-X-Name-First: Haim
Author-X-Name-Last: Levy
Title: Value-at-risk capital requirement regulation, risk taking and asset allocation: a mean-variance analysis
Abstract:
In this study, the mean-variance framework is employed to analyze the
impact of the Basel value-at-risk (VaR) market risk regulation on the
institution's optimal investment policy, the stockholders' welfare, as
well as the tendency of the institution to change the risk profile of the
held portfolio. It is shown that with the VaR regulation, the institution
faces a new regulated capital market line, which induces resource
allocation distortion in the economy. Surprisingly, only when a riskless
asset is available does VaR regulation induce the institution to reduce
risk. Otherwise, the regulation may induce higher risk, accompanied by
asset allocation distortion. On the positive side, the regulation implies
an upper bound on the risk the institution takes and it never induces the
firm to select an inefficient portfolio. Moreover, when the riskless asset
is available, tightening the regulation always increases the amount of
maintained eligible capital and decreases risk.
Journal: The European Journal of Finance
Pages: 215-241
Issue: 3
Volume: 21
Year: 2015
Month: 2
X-DOI: 10.1080/1351847X.2013.802249
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.802249
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:3:p:215-241
Template-Type: ReDIF-Article 1.0
Author-Name: Elena Beccalli
Author-X-Name-First: Elena
Author-X-Name-Last: Beccalli
Author-Name: Saverio Bozzolan
Author-X-Name-First: Saverio
Author-X-Name-Last: Bozzolan
Author-Name: Andrea Menini
Author-X-Name-First: Andrea
Author-X-Name-Last: Menini
Author-Name: Philip Molyneux
Author-X-Name-First: Philip
Author-X-Name-Last: Molyneux
Title: Earnings management, forecast guidance and the banking crisis
Abstract:
This paper studies earnings management (EM) and forecast guidance (FG)
activities of European banks between 2004 and 2008. Using 22,564 analyst
forecasts for 55 banks, we find that the proportion of banks hitting or
beating analyst consensus fell from 68.22% pre-crisis to 28.13% during the
crisis. Banks enjoy higher cumulative adjusted returns (CARs) when they
hit analyst consensus only in the crisis. EM is evident pre- but not
during the crisis - it has no CAR effects. FG increases the probability of
hitting benchmark earnings and during the crisis yields higher CARs. EM
and FG act as complements in the crisis period.
Journal: The European Journal of Finance
Pages: 242-268
Issue: 3
Volume: 21
Year: 2015
Month: 2
X-DOI: 10.1080/1351847X.2013.809548
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.809548
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:3:p:242-268
Template-Type: ReDIF-Article 1.0
Author-Name: Franziska Becker
Author-X-Name-First: Franziska
Author-X-Name-Last: Becker
Author-Name: Marc Gürtler
Author-X-Name-First: Marc
Author-X-Name-Last: Gürtler
Author-Name: Martin Hibbeln
Author-X-Name-First: Martin
Author-X-Name-Last: Hibbeln
Title: Markowitz versus Michaud: portfolio optimization strategies reconsidered
Abstract:
Several attempts have been made to reduce the impact of estimation errors
on the optimal portfolio composition. On the one hand, improved estimators
of the necessary moments have been developed, and on the other hand,
heuristic methods have been generated to enhance the portfolio
performance, for instance, the 'resampled efficiency' of Michaud [1998.
Efficient Asset Management: A Practical Guide to Stock Portfolio
Optimization and Asset Allocation. Boston: Harvard Business
School Press]. We compare the out-of-sample performance of traditional
mean-variance optimization by Markowitz [1952. "Portfolio Selection."
Journal of Finance 7 (1): 77-91] with Michaud's resampled
efficiency in a comprehensive simulation study for a large number of
relevant estimators appearing in the literature. In addition, we perform
an empirical study to confirm the simulation results. Within the framework
of the analyses we consider different estimation periods as well as
unconstrained and constrained portfolio optimization problems. The main
findings are that Markowitz outperforms Michaud on average but the impact
of different estimators and constraints is significantly larger.
Precisely, in most situations, the estimator of Frost and Savarino [1988.
"For Better Performance: Constrain Portfolio Weights." Journal of
Portfolio Management 15 (1): 29-34] proves to work excellent.
However, if the variance of estimators is large, for example, for short
observation periods or large samples, it is recommendable to additionally
implement constraints or to use the estimator of Ledoit and Wolf [2003.
"Improved Estimation of the Covariance Matrix of Stock Returns with an
Application to Portfolio Selection." Journal of Empirical
Finance 10 (5): 603-622].
Journal: The European Journal of Finance
Pages: 269-291
Issue: 4
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2013.830138
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.830138
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:4:p:269-291
Template-Type: ReDIF-Article 1.0
Author-Name: Klaus Mayer
Author-X-Name-First: Klaus
Author-X-Name-Last: Mayer
Author-Name: Thomas Schmid
Author-X-Name-First: Thomas
Author-X-Name-Last: Schmid
Author-Name: Florian Weber
Author-X-Name-First: Florian
Author-X-Name-Last: Weber
Title: Modeling electricity spot prices: combining mean reversion, spikes, and stochastic volatility
Abstract:
With the liberalization of electricity trading, the electricity market has
grown rapidly over the last decade. However, while spot and future markets
are currently rather liquid, option trading is still limited. One of the
potential reasons for this is that the electricity spot price process
remains a puzzle to researchers and practitioners. In this paper, we
propose an approach to model electricity spot prices that combines mean
reversion, spikes, negative prices, and stochastic volatility. Thereby, we
use different mean reversion rates for 'normal' and 'extreme' (spike)
periods. Furthermore, all model parameters can easily be estimated using
historical data. Consequently, we argue that this model does not only
extend the academic literature on electricity spot price modeling, but is
also suitable for practical purposes, such as an underlying price model
for option pricing.
Journal: The European Journal of Finance
Pages: 292-315
Issue: 4
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2012.716775
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.716775
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:4:p:292-315
Template-Type: ReDIF-Article 1.0
Author-Name: Georgios Sermpinis
Author-X-Name-First: Georgios
Author-X-Name-Last: Sermpinis
Author-Name: Jason Laws
Author-X-Name-First: Jason
Author-X-Name-Last: Laws
Author-Name: Christian L. Dunis
Author-X-Name-First: Christian L.
Author-X-Name-Last: Dunis
Title: Modelling commodity value at risk with Psi Sigma neural networks using open-high-low-close data
Abstract:
The motivation for this paper is to investigate the use of a promising
class of neural network models, Psi Sigma (PSI), when applied to the task
of forecasting the one-day ahead value at risk (VaR) of the oil Brent and
gold bullion series using open-high-low-close data. In order to benchmark
our results, we also consider VaR forecasts from two different neural
network designs, the multilayer perceptron and the recurrent neural
network, a genetic programming algorithm, an extreme value theory model
along with some traditional techniques such as an ARMA-Glosten,
Jagannathan, and Runkle (1,1) model and the RiskMetrics volatility. The
forecasting performance of all models for computing the VaR of the Brent
oil and the gold bullion is examined over the period September 2001-August
2010 using the last year and half of data for out-of-sample testing. The
evaluation of our models is done by using a series of backtesting
algorithms such as the Christoffersen tests, the violation ratio and our
proposed loss function that considers not only the number of violations
but also their magnitude. Our results show that the PSI outperforms all
other models in forecasting the VaR of gold and oil at both the 5% and 1%
confidence levels, providing an accurate number of independent violations
with small magnitude.
Journal: The European Journal of Finance
Pages: 316-336
Issue: 4
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2012.744763
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.744763
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:4:p:316-336
Template-Type: ReDIF-Article 1.0
Author-Name: Patrick O'Sullivan
Author-X-Name-First: Patrick
Author-X-Name-Last: O'Sullivan
Author-Name: David Edelman
Author-X-Name-First: David
Author-X-Name-Last: Edelman
Title: Adaptive universal portfolios
Abstract:
In this article, we consider Cover's universal portfolio and the problem
of multi-period investment in a nonparametric setting. We show that
Cover's universal portfolio is equivalent to a Bayes estimator of the
optimal growth portfolio. However, as noted by Cover, it can take a long
time for the universal portfolio to produce significant growth. Therefore,
we propose the adaptive universal portfolio, which retains much of the
qualitative nature of Cover's universal portfolio while enhancing early
performance. An empirical study is carried out over a range of exchange
traded funds over a 5 year period, which exhibits the enhanced early
performance generated by the adaptive universal portfolio.
Journal: The European Journal of Finance
Pages: 337-351
Issue: 4
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2013.788534
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.788534
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:4:p:337-351
Template-Type: ReDIF-Article 1.0
Author-Name: Christian L. Dunis
Author-X-Name-First: Christian L.
Author-X-Name-Last: Dunis
Author-Name: Jason Laws
Author-X-Name-First: Jason
Author-X-Name-Last: Laws
Author-Name: Peter W. Middleton
Author-X-Name-First: Peter W.
Author-X-Name-Last: Middleton
Author-Name: Andreas Karathanasopoulos
Author-X-Name-First: Andreas
Author-X-Name-Last: Karathanasopoulos
Title: Trading and hedging the corn/ethanol crush spread using time-varying leverage and nonlinear models
Abstract:
In contribution to Dunis et al. [Modelling and Trading the
Corn/Ethanol Crush Spread with Neural Networks. CIBEF Working
Paper. Liverpool Business School. www.cibef.com], this
investigation endeavours to expand the selection of forecasting
applications by delving further into the realm of artificial intelligence
and nonlinear modelling. The performances of a multilayer perceptron (MLP)
neural network and higher order neural network (HONN) are gauged against a
genetic programming algorithm (GPA). Further to this, a time-varying
volatility filter is applied by leveraging during lower volatility regimes
in order to enhance the trading performance of the spread while avoiding
trading completely during times of high volatility. This paper models the
corn/ethanol crush spread over a six-year period commencing on 23 March
2005 (when the ethanol futures contract was first traded on Chicago Board
of Trade) through to 31 December 2010. The spread acts as a good indicator
of an ethanol producer's profit margin, with corn being the principal raw
ingredient used in a process called 'corn crushing' to produce ethanol as
a means for alternative energy. Without leveraging, the GPA achieves the
highest risk-adjusted returns followed by the HONN model. Once a
time-varying leverage strategy is introduced, the ranking is maintained as
GPA continues to be the most profitable model with the HONN registering
the second best risk-adjusted returns, followed by the MLP neural network.
On that basis, and without the benefit of hindsight as in the real world,
a fund manager would have selected the GPA model regardless of whether he
decides to leverage or not. Furthermore, it is also observed that the
time-varying leveraging strategy significantly improves annualised returns
as well as reducing maximum drawdowns, two desirable outcomes for trading
and hedging.
Journal: The European Journal of Finance
Pages: 352-375
Issue: 4
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2013.830140
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.830140
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:4:p:352-375
Template-Type: ReDIF-Article 1.0
Author-Name: Yuanyuan Zhang
Author-X-Name-First: Yuanyuan
Author-X-Name-Last: Zhang
Author-Name: Taufiq Choudhry
Author-X-Name-First: Taufiq
Author-X-Name-Last: Choudhry
Title: Forecasting the daily dynamic hedge ratios by GARCH models: evidence from the agricultural futures markets
Abstract:
This paper investigates the forecasting ability of six different
generalized autoregressive conditional heteroskedasticity (GARCH) models;
bivariate GARCH, BEKK GARCH, GARCH-X, BEKK-X, Q-GARCH and GARCH-GJR based
on two different distributions (normal and student-t).
Forecast errors based on four agricultural commodities' futures portfolio
return forecasts (based on forecasted hedge ratio) are employed to
evaluate the out-of-sample forecasting ability of the six GARCH models.
The four commodities under investigation are two storable commodities:
wheat and soybean, and two non-storable commodities: live cattle and live
hogs. We apply the rolling forecasting method and the Model Confidence Set
approach to evaluate and compare the forecasting ability of the six GARCH
models. Our results show that the forecasting performances of the six
GARCH models are different for storable and non-storable agricultural
commodities. We find that the BEKK-type models perform the best in the
case of storable products, while the asymmetric GARCH models dominate in
the case of non-storable commodities. These results are regardless of the
forecast horizon and residual distributions.
Journal: The European Journal of Finance
Pages: 376-399
Issue: 4
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2013.794744
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.794744
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:4:p:376-399
Template-Type: ReDIF-Article 1.0
Author-Name: Sovan Mitra
Author-X-Name-First: Sovan
Author-X-Name-Last: Mitra
Title: The relationship between conditional value at risk and option prices with a closed-form solution
Abstract:
Options and CVaR (conditional value at risk) are significant areas of
research in their own right; moreover, both are important to risk
management and understanding of risk. Despite the importance and the
overlap of interests in CVaR and options, the literature relating the two
is virtually non-existent. In this paper we derive a model-free, simple
and closed-form analytic equation that determines the CVaR associated with
a put option. This relation is model free and is applicable in complete
and incomplete markets. We show that we can account for implied volatility
effects using the CVaR risk of options. We show how the relation between
options and CVaR has important risk management implications, particularly
in terms of integrated risk management and preventing arbitrage
opportunities. We conduct numerical experiments to demonstrate obtaining
CVaR from empirical options data.
Journal: The European Journal of Finance
Pages: 400-425
Issue: 5
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2013.830141
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.830141
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:5:p:400-425
Template-Type: ReDIF-Article 1.0
Author-Name: Dimitris K. Chronopoulos
Author-X-Name-First: Dimitris K.
Author-X-Name-Last: Chronopoulos
Author-Name: Hong Liu
Author-X-Name-First: Hong
Author-X-Name-Last: Liu
Author-Name: Fiona J. McMillan
Author-X-Name-First: Fiona J.
Author-X-Name-Last: McMillan
Author-Name: John O.S. Wilson
Author-X-Name-First: John O.S.
Author-X-Name-Last: Wilson
Title: The dynamics of US bank profitability
Abstract:
We examine the determinants of profitability for a large sample of US
banks over the period 1984-2010. Specifically, we assess the extent to
which short-run profits persist, and whether such persistence is affected
by changes in regulation and the recent financial crisis. Our findings
suggest that the competitive process reduces positions of abnormal
profitability, albeit this is not immediate. There is also evidence that
changes in regulation enacted during the 1990s affected both the level and
persistence of bank profitability. The financial crisis of 2007-2010
appears to have resulted in an increase in the persistence of bank
profitability.
Journal: The European Journal of Finance
Pages: 426-443
Issue: 5
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2013.838184
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.838184
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:5:p:426-443
Template-Type: ReDIF-Article 1.0
Author-Name: Andi Duqi
Author-X-Name-First: Andi
Author-X-Name-Last: Duqi
Author-Name: Aziz Jaafar
Author-X-Name-First: Aziz
Author-X-Name-Last: Jaafar
Author-Name: Giuseppe Torluccio
Author-X-Name-First: Giuseppe
Author-X-Name-Last: Torluccio
Title: Mispricing and risk of R&D investment in European firms
Abstract:
We study whether R&D-intensive firms earn superior stock returns compared
to matched size and book-to-market portfolios across several financial
markets in Europe. Mispricing can arise if investors are not able to
correctly estimate the long-term benefits of R&D investment or whether R&D
firms are more risky than others. The results confirm that more innovative
firms can earn future excess returns. Stocks listed on continental Europe
markets and operating in high-tech sectors are more prone to
undervaluation. This can be caused in the first case by information
asymmetries that are more severe in bank-based countries. No evidence is
found for a different risk pattern of R&D-intensive stocks.
Journal: The European Journal of Finance
Pages: 444-465
Issue: 5
Volume: 21
Year: 2015
Month: 3
X-DOI: 10.1080/1351847X.2013.838185
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.838185
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:5:p:444-465
Template-Type: ReDIF-Article 1.0
Author-Name: Andros Gregoriou
Author-X-Name-First: Andros
Author-X-Name-Last: Gregoriou
Title: Market quality of dealer versus hybrid markets for illiquid securities: new evidence from the FTSE AIM Index
Abstract:
This paper explores liquidity effects following the introduction of
electronic limit-order trading for 48 illiquid stocks listed on the FTSE
AIM Index. We find evidence of a sustained increase in the liquidity of
the stocks as a result of limit-order trading. Furthermore, the
enhancement in the liquidity of the stocks is due to a decrease in the
direct cost of trading as opposed to a reduction in the asymmetric
information cost of transacting. The empirical findings suggest that a
hybrid market with a limit-order book and voluntary dealers outperforms a
dealership market with obligatory market makers for illiquid stocks.
Journal: The European Journal of Finance
Pages: 466-485
Issue: 6
Volume: 21
Year: 2015
Month: 4
X-DOI: 10.1080/1351847X.2013.838186
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.838186
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:6:p:466-485
Template-Type: ReDIF-Article 1.0
Author-Name: Jung-Bin Su
Author-X-Name-First: Jung-Bin
Author-X-Name-Last: Su
Title: How candlestick features affect the performance of volatility forecasts: evidence from the stock market
Abstract:
In this study, we used asymmetric GJR-X models to investigate how the
return and volatility estimates in the stock market on any given day are
affected by the features of the preceding day's candlestick. Empirical
results show that, first, for symmetric volatility specification, the
upper and lower shadows of yesterday can, respectively, lower and raise
the return today, whereas both upper and lower shadows of yesterday can
increase today's volatility. Notably, the upper and lower shadows elicited
asymmetric responses in the sizes of the volatility and return increments.
Conversely, for asymmetric volatility specification, leverage effect may
affect the asymmetric response and prevent the upper shadow from
influencing the return and volatility. Second, for symmetric volatility
specification, the black and white real bodies of yesterday can,
respectively, augment and abate today's return and volatility, indicating
that the black real body produces a distinct type of leverage effect to
influence volatility. Importantly, for asymmetric specification, the
effects of the black and white real bodies appear the same as for the
symmetric specification, but are less significant. Lastly, the real bodies
(or, respectively, asymmetric volatility specification) influenced the
accuracy of volatility forecasts more strongly than the upper and lower
shadows (or, respectively, symmetric volatility specification).
Journal: The European Journal of Finance
Pages: 486-506
Issue: 6
Volume: 21
Year: 2015
Month: 4
X-DOI: 10.1080/1351847X.2013.850440
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.850440
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:6:p:486-506
Template-Type: ReDIF-Article 1.0
Author-Name: Nelson Areal
Author-X-Name-First: Nelson
Author-X-Name-Last: Areal
Author-Name: Benilde Oliveira
Author-X-Name-First: Benilde
Author-X-Name-Last: Oliveira
Author-Name: Raquel Sampaio
Author-X-Name-First: Raquel
Author-X-Name-Last: Sampaio
Title: When times get tough, gold is golden
Abstract:
We investigate the dynamic behaviour of conditional correlations between
the US market, gold and two gold financial proxies using a multivariate
dynamic conditional correlation model over different market regimes. A
comprehensive period of time is analysed covering approximately 37 years
of daily data, from August 1976 to March 2013, as well as a shorter
period, of about 15 years, from September 1998 to March 2013. Both periods
include the recent sub-prime financial crisis. Market regimes are defined
using bull/bear states and alternatively using volatility regimes from a
three-state Markov-switching variance model. An index of US mining
companies and a value-weighted portfolio of US gold mutual funds are
treated as potential proxies for an investment in gold. Two important
conclusions emerge from our study. The first is that, even in the context
of a dynamic correlation analysis, gold is always a safe haven; negatively
correlated with the stock market under adverse market conditions. The
second is that, although the gold proxies considered here exhibit a low
correlation with the stock market and therefore offer diversification
benefits, they cannot be considered perfect substitutes of gold due to
their lack of negative correlations with the market in times of turmoil.
Journal: The European Journal of Finance
Pages: 507-526
Issue: 6
Volume: 21
Year: 2015
Month: 4
X-DOI: 10.1080/1351847X.2013.854821
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.854821
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:6:p:507-526
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Breuer
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Breuer
Author-Name: Moritz Felde
Author-X-Name-First: Moritz
Author-X-Name-Last: Felde
Title: Wealth effects of the Securities and Exchange Commission's 'terror tool'
Abstract:
In summer 2007, the Securities and Exchange Commission published an online
tool with information on firms doing business in State Sponsor of
Terrorism countries. We take sides with those arguing that for moral
reasons, investors will have traded on the information provided in the
tool by selling stocks of mentioned firms. Contrary to our expectation, we
find no evidence of a negative stock price reaction during the time the
tool was posted online but do find such reaction subsequent to the tool's
publication. Additionally, we provide evidence for the notion that
stigmatisation is not transitory.
Journal: The European Journal of Finance
Pages: 527-547
Issue: 7
Volume: 21
Year: 2015
Month: 5
X-DOI: 10.1080/1351847X.2013.856331
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.856331
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:7:p:527-547
Template-Type: ReDIF-Article 1.0
Author-Name: Kostas Andriosopoulos
Author-X-Name-First: Kostas
Author-X-Name-Last: Andriosopoulos
Author-Name: Nikos Nomikos
Author-X-Name-First: Nikos
Author-X-Name-Last: Nomikos
Title: Risk management in the energy markets and Value-at-Risk modelling: a hybrid approach
Abstract:
This paper proposes a set of Value-at-Risk (VaR) models appropriate to
capture the dynamics of energy prices and subsequently quantify energy
price risk by calculating VaR and expected shortfall measures. Amongst the
competing VaR methodologies evaluated in this paper, besides the commonly
used benchmark models, a Monte Carlo (MC) simulation approach and a hybrid
MC with historical simulation approach, both assuming various processes
for the underlying spot prices, are also being employed. All VaR models
are empirically tested on eight spot energy commodities that trade futures
contracts on the New York Mercantile Exchange (NYMEX) and the constructed
Spot Energy Index. A two-stage evaluation and selection process is
applied, combining statistical and economic measures, to choose amongst
the competing VaR models. Finally, both long and short trading positions
are considered as it is of utmost importance for energy traders and risk
managers to be able to capture efficiently the characteristics of both
tails of the distributions.
Journal: The European Journal of Finance
Pages: 548-574
Issue: 7
Volume: 21
Year: 2015
Month: 5
X-DOI: 10.1080/1351847X.2013.862173
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.862173
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:7:p:548-574
Template-Type: ReDIF-Article 1.0
Author-Name: Ivo J.M. Arnold
Author-X-Name-First: Ivo J.M.
Author-X-Name-Last: Arnold
Title: One index fits none: the conundrum of euro area inflation-linked bonds
Abstract:
Recent empirical research has questioned the added value of
inflation-linked bonds (ILBs) in a diversified portfolio, especially in
the euro area. This paper relates this finding to the choice of price
index. Euro area issuers of ILBs can choose between linking to a euro area
or a national price index. We theoretically show that bonds linked to euro
area inflation are less useful for diversification purposes than
nationally ILBs. We also show that bonds linked to national price indices
are imperfect hedges for national inflation. The latter finding is
counterintuitive and arises because of monetary union. Our findings
suggest that euro area governments may better service international
investors with ILBs linked to their national price indices.
Journal: The European Journal of Finance
Pages: 575-583
Issue: 7
Volume: 21
Year: 2015
Month: 5
X-DOI: 10.1080/1351847X.2013.865102
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.865102
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:7:p:575-583
Template-Type: ReDIF-Article 1.0
Author-Name: Soosung Hwang
Author-X-Name-First: Soosung
Author-X-Name-Last: Hwang
Author-Name: Alexandre Rubesam
Author-X-Name-First: Alexandre
Author-X-Name-Last: Rubesam
Title: The disappearance of momentum
Abstract:
We investigate the dynamics of the momentum premium in the USA. The
momentum premium is significantly positive only during certain periods,
notably from the 1940s to the mid-1960s and from the mid-1970s to the late
1990s, and it has disappeared since the late 1990s. Our results further
suggest that momentum profits have slowly disappeared since the early
1990s, in a process which was delayed by the occurrence of the high-tech
and telecom stock bubble of the late 1990s. In particular, we estimate
that the bubble accounted for at least 50% of momentum profits during the
period from 1994 to 2000.
Journal: The European Journal of Finance
Pages: 584-607
Issue: 7
Volume: 21
Year: 2015
Month: 5
X-DOI: 10.1080/1351847X.2013.865654
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.865654
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:7:p:584-607
Template-Type: ReDIF-Article 1.0
Author-Name: Susanne Espenlaub
Author-X-Name-First: Susanne
Author-X-Name-Last: Espenlaub
Author-Name: Arif Khurshed
Author-X-Name-First: Arif
Author-X-Name-Last: Khurshed
Author-Name: Abdulkadir Mohamed
Author-X-Name-First: Abdulkadir
Author-X-Name-Last: Mohamed
Title: VC investments and global exits
Abstract:
This paper examines exits of UK venture capital backers (VCs) from
portfolio companies around the world. Mergers and acquisitions (M&A) are
the most frequently used exit route for all investments, both in the UK
and abroad. Exit through M&A is particularly common for investments in the
UK while the probability of an exit through an initial public offering
(IPO) is substantially lower for investments made in the UK than abroad.
We are able to explain these country differences in terms of variations in
the characteristics of VCs, portfolio companies, legal systems and market
conditions. Portfolio companies backed by experienced VCs have high
probabilities of exits through M&A or IPO. A successful exit is more
likely when a VC syndicate includes an experienced member. The likelihood
of a successful exit through M&A, IPO or management buyouts is high in
countries with, and at times of, high stock market liquidity. Legal
systems that provide more investor protection facilitate exits through IPO
or M&A.
Journal: The European Journal of Finance
Pages: 608-628
Issue: 7
Volume: 21
Year: 2015
Month: 5
X-DOI: 10.1080/1351847X.2013.871736
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.871736
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:7:p:608-628
Template-Type: ReDIF-Article 1.0
Author-Name: Stefan Reitz
Author-X-Name-First: Stefan
Author-X-Name-Last: Reitz
Author-Name: Markus A. Schmidt
Author-X-Name-First: Markus A.
Author-X-Name-Last: Schmidt
Author-Name: Mark P. Taylor
Author-X-Name-First: Mark P.
Author-X-Name-Last: Taylor
Title: Financial intermediation and the role of price discrimination in the foreign exchange market
Abstract:
Foreign exchange trading is performed in opaque and decentralized markets.
The two-tier market structure consisting of a customer segment and an
interdealer segment to which only market makers have access gives rise to
the possibility of price discrimination. We develop a theoretical pricing
model that accounts for market-power considerations and analyze a database
of the trades of a foreign exchange market maker. We find that the market
maker generally exerts low bargaining power vis-á-vis customers. The
dealer earns lower average spreads on trades with financial customers than
commercial customers, even though the former are perceived to convey
exchange-rate-relevant information.
Journal: The European Journal of Finance
Pages: 629-645
Issue: 8
Volume: 21
Year: 2015
Month: 6
X-DOI: 10.1080/1351847X.2013.830139
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.830139
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:8:p:629-645
Template-Type: ReDIF-Article 1.0
Author-Name: Dionysia Dionysiou
Author-X-Name-First: Dionysia
Author-X-Name-Last: Dionysiou
Title: Timing, earnings management and over-reaction around pure placings
Abstract:
This paper provides new evidence about firms conducting
pure placings in the UK. It examines their abnormal
performance (stock and operating), earnings management (accrual and real
activities) and abnormal growth prospects for up to three years
surrounding the event. It questions whether (i) timing, (ii) earnings
management and/or (iii) over-reaction hypotheses can explain these
performance, earnings quality and growth paths. The results document that
pure placing firms have high earnings quality and abnormally high growth
opportunities at the announcement. For this reason, the market is
overenthusiastic. It expects more than what is eventually fulfilled, in
line with the over-reaction hypothesis. Weak evidence that placing firms
may exploit market timing is noted, whilst there is no supportive evidence
of earnings management. These findings distinguish the earnings quality
and growth opportunities of pure placing firms from that of firms
conducting open offers, firm commitment offers and other seasoned equity
offerings (SEO) that are not private placements, for which prior evidence
reports mainly timing and/or earnings management prior to the event. This
paper facilitates a better understanding of UK SEO.
Journal: The European Journal of Finance
Pages: 646-671
Issue: 8
Volume: 21
Year: 2015
Month: 6
X-DOI: 10.1080/1351847X.2013.833128
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.833128
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:8:p:646-671
Template-Type: ReDIF-Article 1.0
Author-Name: Dimitris Andriosopoulos
Author-X-Name-First: Dimitris
Author-X-Name-Last: Andriosopoulos
Author-Name: Michael Steliaros
Author-X-Name-First: Michael
Author-X-Name-Last: Steliaros
Author-Name: Dylan C. Thomas
Author-X-Name-First: Dylan C.
Author-X-Name-Last: Thomas
Title: The short-term impact of director trading in UK closed-end funds
Abstract:
Most closed-end funds are transparent entities that hold securities that
are actively traded in liquid markets. In such a setting, the argument
that director transactions mitigate information asymmetry has very limited
applicability. Our results provide support for the theory of Barber and
Odean [2008. "All that Glitters: The Effect of Attention and News on the
Buying Behavior of Individual and Institutional Investors." Review
of Financial Studies 21: 785-818]: retail investor
decision-making is influenced by attention-grabbing events. Director
purchases are one such attention-grabbing event and are associated with
significant positive price returns - the magnitudes of which are linked to
the size of the purchase, the size of the fund, and the investment
mandate. Trading volumes increase at the time of the purchase but most of
the initial price responses and trading volumes dissipate over the
following 15 days.
Journal: The European Journal of Finance
Pages: 672-690
Issue: 8
Volume: 21
Year: 2015
Month: 6
X-DOI: 10.1080/1351847X.2013.867522
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.867522
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:8:p:672-690
Template-Type: ReDIF-Article 1.0
Author-Name: Otto Loistl
Author-X-Name-First: Otto
Author-X-Name-Last: Loistl
Title: Emergence of macro-variables by evaluation and clustering of micro- activities
Abstract:
Recent finance and economic forecasting and risk calculation failures made
obvious that macro-modelling without micro-foundation may be treacherous.
Reliable macro-modelling requires the consistent bundling of individual
actions into intermediate and macro-variables exploiting the individual
actions' coordination and its dynamics. The degree of coordination may
range from chaos - absence of coordination - to determined situations
caused by macro-level equilibrium dictating any agent's actions and
inhibiting interactions. Coordination clusters individual actions into
real decision units such as companies, political parties and unions. It
structures the emergent intermediate and macro-level situations
vitally.The paper presents first a centennial history of prominent
scholars' quotes questioning the equilibrium paradigm, a short survey of
prevailing paradigm's deficiencies laid bare once again by the latest
financial crises.It proposes second discrete choice (DC) - successfully
applied in different fields - to model the individual agent's decision.
DCs innovative integration into a Markov process provides a steady
foundation to model interactions of individual agents consistently.The
final section justifies the actions' proposed interactive bundling by
referring to recent advances in data processing and network topology. The
dynamic modelling of the actions' and interactions' coordination breaks
fresh grounds both with regards to mathematical, computational and
economic modeling requirements. The combination of latest developments in
data processing like Big Data and the recently (re)discovered network
topology capabilities may cope with these challenges.
Journal: The European Journal of Finance
Pages: 691-713
Issue: 9
Volume: 21
Year: 2015
Month: 7
X-DOI: 10.1080/1351847X.2013.871737
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.871737
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:9:p:691-713
Template-Type: ReDIF-Article 1.0
Author-Name: Emanuele Bajo
Author-X-Name-First: Emanuele
Author-X-Name-Last: Bajo
Author-Name: Massimiliano Barbi
Author-X-Name-First: Massimiliano
Author-X-Name-Last: Barbi
Author-Name: Silvia Romagnoli
Author-X-Name-First: Silvia
Author-X-Name-Last: Romagnoli
Title: A generalized approach to optimal hedging with option contracts
Abstract:
In this paper, we develop a theoretical model in which a firm hedges a
spot position using options in the presence of both quantity (production)
and basis risks. Our optimal hedge ratio is fairly general, in that the
dependence structure is modeled through a copula function representing the
quantiles of the hedged position, and hence any quantile risk measure can
be employed. We study the sensitivity of the exercise price which
minimizes the risk of the hedged portfolio to the relevant parameters, and
we find that the subjective risk aversion of the firm does not play any
role. The only trade-off is between the effectiveness and cost of the
hedging strategy.
Journal: The European Journal of Finance
Pages: 714-733
Issue: 9
Volume: 21
Year: 2015
Month: 7
X-DOI: 10.1080/1351847X.2013.875050
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.875050
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:9:p:714-733
Template-Type: ReDIF-Article 1.0
Author-Name: Markus Baltzer
Author-X-Name-First: Markus
Author-X-Name-Last: Baltzer
Author-Name: Oscar Stolper
Author-X-Name-First: Oscar
Author-X-Name-Last: Stolper
Author-Name: Andreas Walter
Author-X-Name-First: Andreas
Author-X-Name-Last: Walter
Title: Home-field advantage or a matter of ambiguity aversion? Local bias among German individual investors
Abstract:
This paper investigates whether familiarity induced by ambiguity aversion
can help explaining the local bias phenomenon among individual investors.
Using geographic closeness as a proxy for investor familiarity, we find
that investors pull out of (unfamiliar) remote stocks and pour into
(familiar) local stocks during times of increased market uncertainty.
Moreover, the magnitude of this 'flight to familiarity' increases in the
spread of an investor's ambiguity (about expected returns) between local
and remote stocks. Our results prove robust to a number of alternative
explanations of local bias. Specifically, we rule out a 'home-field
advantage', where investors are able to translate information advantages
about nearby companies into excess returns on their local stockholdings.
We conclude that individual investors' local bias is induced by ambiguity
aversion in the portfolio selection process rather than a trading strategy
based on superior information about local companies.
Journal: The European Journal of Finance
Pages: 734-754
Issue: 9
Volume: 21
Year: 2015
Month: 7
X-DOI: 10.1080/1351847X.2013.877514
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.877514
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:9:p:734-754
Template-Type: ReDIF-Article 1.0
Author-Name: André Betzer
Author-X-Name-First: André
Author-X-Name-Last: Betzer
Author-Name: Markus Doumet
Author-X-Name-First: Markus
Author-X-Name-Last: Doumet
Author-Name: Marc Goergen
Author-X-Name-First: Marc
Author-X-Name-Last: Goergen
Title: Disentangling the link between stock and accounting performance in acquisitions
Abstract:
We study the accounting and stock performance of 4547 US acquisitions
during 1989 and 2008. We categorise acquisitions into four types based on
the four possible combinations of positive or negative abnormal stock
performance and abnormal accounting performance. First, we compare the
bidder, bid and target characteristics across the four types of
acquisitions. We find significant differences. Second, with the help of
existing theories we explain these differences in bidder, bid and target
characteristics by differences in the acquisition motives.
Journal: The European Journal of Finance
Pages: 755-771
Issue: 9
Volume: 21
Year: 2015
Month: 7
X-DOI: 10.1080/1351847X.2014.890633
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.890633
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:9:p:755-771
Template-Type: ReDIF-Article 1.0
Author-Name: Chiara Coluzzi
Author-X-Name-First: Chiara
Author-X-Name-Last: Coluzzi
Author-Name: Annalisa Ferrando
Author-X-Name-First: Annalisa
Author-X-Name-Last: Ferrando
Author-Name: Carmen Martinez-Carrascal
Author-X-Name-First: Carmen
Author-X-Name-Last: Martinez-Carrascal
Title: Financing obstacles and growth: an analysis for euro area non-financial firms
Abstract:
This paper investigates the determinants of financing obstacles (FOs) and
their impact on firm growth. For this purpose, we rely on both balance
sheet data and survey data for a sample of non-financial firms in the euro
area. The latter allows us to devise a direct measure of the firms'
probability of facing FOs. First, our results indicate that FOs are linked
to characteristics such as the age of the firm, its size, its sales level
or the sector in which it operates. Second, we find that, though based on
few variables, our measure of FOs appears to be relevant in explaining
firm growth in four out of the five countries considered; likewise, growth
is found to be positively linked to cash flow.
Journal: The European Journal of Finance
Pages: 773-790
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2012.664154
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.664154
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:773-790
Template-Type: ReDIF-Article 1.0
Author-Name: Gualter Couto
Author-X-Name-First: Gualter
Author-X-Name-Last: Couto
Author-Name: Cláudia Nunes
Author-X-Name-First: Cláudia
Author-X-Name-Last: Nunes
Author-Name: Pedro Pimentel
Author-X-Name-First: Pedro
Author-X-Name-Last: Pimentel
Title: High-speed rail transport valuation and conjecture shocks
Abstract:
In this paper, we derive the optimal investment policy in a high-speed
rail transport (HSR) project. We assume that the source of uncertainty
comes from the annual demand, and that it follows a geometric Brownian
motion with jumps of random magnitude, occurring in random times,
according to a Poisson process. We assess the impact of these shocks on
the demand threshold, along with the investment opportunity value and
option to differ. We consider several distributions for these jumps, and
we compare with the no-jumps case. Numerical results are presented,
showing the importance of assumptions about the underlying stochastic
process.
Journal: The European Journal of Finance
Pages: 791-805
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2012.665377
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.665377
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:791-805
Template-Type: ReDIF-Article 1.0
Author-Name: Ricardo M. Sousa
Author-X-Name-First: Ricardo M.
Author-X-Name-Last: Sousa
Title: Linking wealth and labour income with stock returns and government bond yields
Abstract:
In this paper, I assess the predictive ability of the ratio of asset
wealth to labour income for both stock returns and government bond yields.
Using data for 16 Organization for Economic Co-operation and Development
(OECD) countries, I show that when the wealth-to-income ratio falls,
investors demand a higher stock risk premium. A similar link can be found
for government bond yields when agents behave in a non-Ricardian manner or
see government bonds as complements for stocks. In contrast, when
investors display a Ricardian behaviour or perceive stocks and government
bonds as good substitutes, a fall in the wealth-to-income ratio is
associated with a fall in future bond premium.
Journal: The European Journal of Finance
Pages: 806-825
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2012.676993
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.676993
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:806-825
Template-Type: ReDIF-Article 1.0
Author-Name: Xiaoxiang Zhang
Author-X-Name-First: Xiaoxiang
Author-X-Name-Last: Zhang
Author-Name: Jenifer Piesse
Author-X-Name-First: Jenifer
Author-X-Name-Last: Piesse
Author-Name: Igor Filatotchev
Author-X-Name-First: Igor
Author-X-Name-Last: Filatotchev
Title: Family control, multiple institutional block-holders, and informed trading
Abstract:
This paper investigates how large family shareholders and institutional
block-holders jointly influence informed trading and firm valuation in the
Hong Kong stock market. It combines market microstructure research with
studies on the governance roles of multiple block-holders and finds that
institutional block-holders rely on their relative controlling power
vis-à-vis family owners to mitigate problems associated
with informed trading. They also use their ownership rights to improve the
structure of informed trading. However, these governance roles are
predominantly exercised by pressure-resistant institutional block-holders.
Informed trading reduces firm valuation, while an improvement in its
structure increases valuation. Therefore, the governance roles of
controlling families and pressure-resistant institutional block-holders
may have different implications in terms of investors' perceptions of
private information risk.
Journal: The European Journal of Finance
Pages: 826-847
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2012.696549
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.696549
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:826-847
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Bartholdy
Author-X-Name-First: Jan
Author-X-Name-Last: Bartholdy
Author-Name: Cesario Mateus
Author-X-Name-First: Cesario
Author-X-Name-Last: Mateus
Author-Name: Dennis Olson
Author-X-Name-First: Dennis
Author-X-Name-Last: Olson
Title: Do Portuguese private firms follow pecking order financing?
Abstract:
This paper tests for pecking order behavior in medium-sized private
Portuguese firms. In contrast to the usual split between internal funds,
debt, and external equity, we separate debt into four components - cheap
trade credits (CTC), bank loans (BL), other loans, and expensive credits
(EC). We use breakpoint tests to identify when firms switch between
funding sources by examining the change in each funding source based on
the financing deficit remaining after the previous pecking order funding
source has been used. Our tests indicate that Portuguese companies
generally move from lower cost to higher cost financing sources, but they
do not exhaust each type of debt before moving on to the next funding
source in the pecking order. Such behavior is consistent with a loose
interpretation of pecking order financing, but not a strict interpretation
of the theory. Instead, Portuguese firms may be balancing pecking order
financing with a need to maintain some degree of financing flexibility.
Journal: The European Journal of Finance
Pages: 848-866
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2012.706815
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.706815
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:848-866
Template-Type: ReDIF-Article 1.0
Author-Name: Jörg Dockendorf
Author-X-Name-First: Jörg
Author-X-Name-Last: Dockendorf
Author-Name: Dean A. Paxson
Author-X-Name-First: Dean A.
Author-X-Name-Last: Paxson
Title: Sequential real rainbow options
Abstract:
We develop two models to value European sequential rainbow options. The
first model is a sequential option on the better of two stochastic assets,
where these assets follow correlated geometric Brownian motion processes.
The second model is a sequential option on the mean-reverting spread
between two assets, which is applicable if the assets are co-integrated.
We provide numerical solutions in the form of finite difference frameworks
and compare these with Monte Carlo simulations. For the sequential option
on a mean-reverting spread, we also provide a closed-form solution.
Sensitivity analysis provides the interesting results that in particular
circumstances, the sequential rainbow option value is negatively
correlated with the volatility of one of the two assets, and that the
sequential option on the spread does not necessarily increase in value
with a longer time to maturity. With given maturity dates, it is
preferable to have less time until expiry of the sequential option if the
current spread level is way above the long-run mean.
Journal: The European Journal of Finance
Pages: 867-892
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2012.719531
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.719531
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:867-892
Template-Type: ReDIF-Article 1.0
Author-Name: Crina Pungulescu
Author-X-Name-First: Crina
Author-X-Name-Last: Pungulescu
Title: Real effects of financial market integration: does lower home bias lead to welfare benefits?
Abstract:
This paper proposes equity home bias as a proxy for financial integration
in the ongoing empirical debate on the impact of financial integration on
economic growth. In integrated markets, investors are expected to take
full advantage of the potential for international diversification. The
extent of equity home bias (i.e. overinvesting in domestic stocks and
foregoing gains from international diversification) provides a relevant
quantity-based measure of financial integration. Using different
techniques to compute home bias, this paper investigates whether countries
with lower home bias experience faster economic growth. Additionally, the
analysis extends to the link between (decreasing) home bias and
international risk sharing and income inequality. The results suggest that
financial integration, proxied by the decreasing equity home bias, is
positively associated with economic growth and international risk sharing.
At the same time, it appears that higher financial integration pairs with
higher income inequality.
Journal: The European Journal of Finance
Pages: 893-911
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2012.744762
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.744762
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:893-911
Template-Type: ReDIF-Article 1.0
Author-Name: Milagros Vivel Búa
Author-X-Name-First: Milagros
Author-X-Name-Last: Vivel Búa
Author-Name: Luis Otero González
Author-X-Name-First: Luis
Author-X-Name-Last: Otero González
Author-Name: Sara Fernández López
Author-X-Name-First: Sara
Author-X-Name-Last: Fernández López
Author-Name: Pablo Durán Santomil
Author-X-Name-First: Pablo
Author-X-Name-Last: Durán Santomil
Title: Is value creation consistent with currency hedging?
Abstract:
This paper analyzes value creation through currency hedging in the Spanish
market. The results show that the hedging with derivatives generated an
average premium of 1.53% and that foreign currency debt generated 7.52%,
with respect to company value approximated by Tobin's Q,
while operational hedging does not affect company value. Moreover, in half
of the observations corresponding to companies that hedged with
derivatives, the value premium was between 0.08% and 0.99%. In the case of
foreign currency debt, the range was between 1.79% and 10.37%. It
demonstrates that the contribution of currency hedging to company value
fluctuates considerable according to the volume of financial hedging.
Thus, an empirical study of this aspect which only analyses the decision
to hedge through dummy variables to define financial hedging, as empirical
previous studies, can lead to biased results in terms of estimated premium
amounts, because it assumes a homogenous treatment of companies regardless
of hedging volumes.
Journal: The European Journal of Finance
Pages: 912-945
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2013.773262
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.773262
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:912-945
Template-Type: ReDIF-Article 1.0
Author-Name: David Brookfield
Author-X-Name-First: David
Author-X-Name-Last: Brookfield
Author-Name: Chen Su
Author-X-Name-First: Chen
Author-X-Name-Last: Su
Author-Name: Kenbata Bangassa
Author-X-Name-First: Kenbata
Author-X-Name-Last: Bangassa
Title: Investment style positioning of UK unit trusts
Abstract:
We investigate the investment style positioning of UK equity unit trusts
(mutual funds) over the 24-year period from 1987 to 2010 and assess if
fund manager claims to follow a particular style strategy are evidenced in
practice. Generally, UK unit trusts do not, in fact, consistently track
declared styles but subject their funds to style switching or rotation.
Nor do funds switch to become simple index trackers, as has widely been
reported, but exhibit a mix of behaviour that we refer to as
'market-momentum styling'. Our contribution is to offer a coherent,
end-to-end picture of the evolution of investment styles over an economic
cycle. In so doing we evidence that fund style positioning is subject to
rotation and becomes subordinated to past portfolio performance or style
momentum. Even this result is conditional as we go on to demonstrate that
style investment is very likely to be driven by broader economic
conditions, thereby creating market-momentum styling by default. This is
arguably not a style at all and calls into question the intent behind fund
'strategies'.
Journal: The European Journal of Finance
Pages: 946-970
Issue: 10-11
Volume: 21
Year: 2015
Month: 8
X-DOI: 10.1080/1351847X.2013.788533
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.788533
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:946-970
Template-Type: ReDIF-Article 1.0
Author-Name: Ruipeng Liu
Author-X-Name-First: Ruipeng
Author-X-Name-Last: Liu
Author-Name: Thomas Lux
Author-X-Name-First: Thomas
Author-X-Name-Last: Lux
Title: Non-homogeneous volatility correlations in the bivariate multifractal model
Abstract:
In this paper, we consider an extension of the recently proposed bivariate
Markov-switching multifractal model of Calvet, Fisher, and Thompson [2006.
"Volatility Comovement: A Multifrequency Approach." Journal of
Econometrics 131: 179-215]. In particular, we allow correlations
between volatility components to be non-homogeneous with two different
parameters governing the volatility correlations at high and low
frequencies. Specification tests confirm the added explanatory value of
this specification. In order to explore its practical performance, we
apply the model for computing value-at-risk statistics for different
classes of financial assets and compare the results with the baseline,
homogeneous bivariate multifractal model and the bivariate DCC-GARCH of
Engle [2002. "Dynamic Conditional Correlation: A Simple Class of
Multivariate Generalized Autoregressive Conditional Heteroskedasticity
Models." Journal of Business & Economic Statistics 20
(3): 339-350]. As it turns out, the multifractal model with heterogeneous
volatility correlations provides more reliable results than both the
homogeneous benchmark and the DCC-GARCH model.
Journal: The European Journal of Finance
Pages: 971-991
Issue: 12
Volume: 21
Year: 2015
Month: 9
X-DOI: 10.1080/1351847X.2014.897960
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.897960
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:12:p:971-991
Template-Type: ReDIF-Article 1.0
Author-Name: Sumon Kumar Bhaumik
Author-X-Name-First: Sumon Kumar
Author-X-Name-Last: Bhaumik
Author-Name: Subal C. Kumbhakar
Author-X-Name-First: Subal C.
Author-X-Name-Last: Kumbhakar
Author-Name: Kai Sun
Author-X-Name-First: Kai
Author-X-Name-Last: Sun
Title: A note on a semiparametric approach to estimating financing constraints in firms
Abstract:
In this paper, we present a novel approach to modeling financing
constraints of firms. Specifically, we adopt an approach in which
firm-level investment is a nonparametric function of some relevant firm
characteristics, cash flow in particular. This enables us to generate
firm-year specific measures of cash flow sensitivity of investment. We are
therefore able to draw conclusions about financing constraints of
individual firms as well as cohorts of firms without having to split our
sample on an ad hoc basis. This is a significant improvement over the
stylized approach that is based on comparison of point estimates of cash
flow sensitivity of investment of the average firm of ad hoc sub-samples
of firms. We use firm-level data from India to highlight the advantages of
our approach. Our results suggest that the estimates generated by this
approach are meaningful from an economic point of view and are consistent
with the literature.
Journal: The European Journal of Finance
Pages: 992-1004
Issue: 12
Volume: 21
Year: 2015
Month: 9
X-DOI: 10.1080/1351847X.2014.906068
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.906068
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:12:p:992-1004
Template-Type: ReDIF-Article 1.0
Author-Name: Sergio Mayordomo
Author-X-Name-First: Sergio
Author-X-Name-Last: Mayordomo
Author-Name: Juan Ignacio Peña
Author-X-Name-First: Juan Ignacio
Author-X-Name-Last: Peña
Author-Name: Eduardo S. Schwartz
Author-X-Name-First: Eduardo S.
Author-X-Name-Last: Schwartz
Title: Towards a common Eurozone risk free rate
Abstract:
We present a tentative estimate of a common risk free rate for the
Eurozone (EZ) countries from January 2004 to November 2009. In a first
stage, we analyse the determinants of EZ sovereign yield spreads and find
significant effects of the credit quality, macro, correlation, liquidity,
and interaction variables. Based on these results we estimate the yield a
common EZ bond would provide. Finally, we compute potential savings in
financing costs for countries participating in the scheme under a number
of different scenarios. Although positive on average, these savings are
dependent on market conditions and present substantial variation over time
and across countries.
Journal: The European Journal of Finance
Pages: 1005-1022
Issue: 12
Volume: 21
Year: 2015
Month: 9
X-DOI: 10.1080/1351847X.2014.912670
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.912670
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:12:p:1005-1022
Template-Type: ReDIF-Article 1.0
Author-Name: Ekaterini Panopoulou
Author-X-Name-First: Ekaterini
Author-X-Name-Last: Panopoulou
Author-Name: Theologos Pantelidis
Author-X-Name-First: Theologos
Author-X-Name-Last: Pantelidis
Title: Regime-switching models for exchange rates
Abstract:
This study provides evidence of periodically collapsing bubbles in the
British pound to US dollar exchange rate in the post-1973 period. We
develop two- and three-state regime-switching (RS) models that relate the
expected exchange rate return to the bubble size and to an additional
explanatory variable. Specifically, we consider six alternative
explanatory variables that have been proposed in the literature as early
warning indicators of a currency crisis. Our findings suggest that the RS
models are, in general, more accurate than the Random Walk model in terms
of both statistical and especially economic evaluation criteria for
exchange rate forecasts. Our three-state RS model outperforms the
two-state models and among the variables considered in our analysis, the
short-term interest rate is the optimal variable, closely followed by
imports. Results are more promising for one-month predictions and are
qualitatively robust over sample spans. However, various robustness checks
based on other exchange rates show that the optimal bubble measures and
optimal predictors critically depend on the exchange rate.
Journal: The European Journal of Finance
Pages: 1023-1069
Issue: 12
Volume: 21
Year: 2015
Month: 9
X-DOI: 10.1080/1351847X.2014.904240
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.904240
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:12:p:1023-1069
Template-Type: ReDIF-Article 1.0
Author-Name: Antonios Siganos
Author-X-Name-First: Antonios
Author-X-Name-Last: Siganos
Author-Name: Marco Papa
Author-X-Name-First: Marco
Author-X-Name-Last: Papa
Title: FT coverage and UK target price run-ups
Abstract:
We focus on the market expectation hypothesis to explain the increase in
share prices and trading volume of target firms before their merger
announcements that have conventionally been attributed to either insider
trading or market expectation. We use Financial Times
(FT) coverage as a proxy of merger expectation and search for relevant
articles for 783 UK target firms between 1998 and 2010. We identify a
total of 1049 rumour articles and find that the FT market expectation
proxy explains a small percentage of the target price run-ups. Results are
strong during the sample period, even though the magnitude for both
returns and trading volume tends to decrease within recent years. There is
also a strong contemporaneous relation between abnormal returns and
trading volume. Unexplained increases in target prices and trading volume
may be attributed to insider trading.
Journal: The European Journal of Finance
Pages: 1070-1089
Issue: 12
Volume: 21
Year: 2015
Month: 9
X-DOI: 10.1080/1351847X.2014.924077
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.924077
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:12:p:1070-1089
Template-Type: ReDIF-Article 1.0
Author-Name: Masanobu Taniguchi
Author-X-Name-First: Masanobu
Author-X-Name-Last: Taniguchi
Author-Name: Alexandre Petkovic
Author-X-Name-First: Alexandre
Author-X-Name-Last: Petkovic
Author-Name: Takehiro Kase
Author-X-Name-First: Takehiro
Author-X-Name-Last: Kase
Author-Name: Thomas DiCiccio
Author-X-Name-First: Thomas
Author-X-Name-Last: DiCiccio
Author-Name: Anna Clara Monti
Author-X-Name-First: Anna Clara
Author-X-Name-Last: Monti
Title: Robust portfolio estimation under skew-normal return processes
Abstract:
In this paper, we study issues related to the optimal portfolio estimators
and the local asymptotic normality (LAN) of the return process under the
assumption that the return process has an infinite moving average (MA)
(∞) representation with skew-normal innovations. The paper consists
of two parts. In the first part, we discuss the influence of the skewness
parameter δ of the skew-normal distribution on the
optimal portfolio estimators. Based on the asymptotic distribution of the
portfolio estimator ĝ for a non-Gaussian dependent
return process, we evaluate the influence of δ on the
asymptotic variance V(δ) of
ĝ. We also investigate the robustness of the
estimators of a standard optimal portfolio via numerical computations. In
the second part of the paper, we assume that the MA coefficients and the
mean vector of the return process depend on a lower-dimensional set of
parameters. Based on this assumption, we discuss the LAN property of the
return's distribution when the innovations follow a skew-normal law. The
influence of δ on the central sequence of LAN is
evaluated both theoretically and numerically.
Journal: The European Journal of Finance
Pages: 1091-1112
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2011.640341
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.640341
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1091-1112
Template-Type: ReDIF-Article 1.0
Author-Name: Giovanni De Luca
Author-X-Name-First: Giovanni
Author-X-Name-Last: De Luca
Author-Name: Nicola Loperfido
Author-X-Name-First: Nicola
Author-X-Name-Last: Loperfido
Title: Modelling multivariate skewness in financial returns: a SGARCH approach
Abstract:
Skewness of financial time series is a relevant topic, due to its
implications for portfolio theory and for statistical inference. In the
univariate case, its default measure is the third cumulant of the
standardized random variable. It can be generalized to the third
multivariate cumulant that is a matrix containing all centered moments of
order three which can be obtained from a random vector. The present paper
examines some properties of the third cumulant under the assumptions of
the multivariate SGARCH model introduced by De Luca, Genton, and Loperfido
[2006. A multivariate skew-GARCH model. Advances in
Econometrics 20: 33-57]. In the first place, it allows for
parsimonious modelling of multivariate skewness. In the second place, all
its elements are either null or negative, consistently with previous
empirical and theoretical findings. A numerical example with financial
returns of France, Spain and Netherlands illustrates the theoretical
results in the paper.
Journal: The European Journal of Finance
Pages: 1113-1131
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2011.640342
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.640342
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1113-1131
Template-Type: ReDIF-Article 1.0
Author-Name: Donald Lien
Author-X-Name-First: Donald
Author-X-Name-Last: Lien
Author-Name: Yaqin Wang
Author-X-Name-First: Yaqin
Author-X-Name-Last: Wang
Title: Effects of skewness and kurtosis on production and hedging decisions: a skewed t distribution approach
Abstract:
This paper assumes that the spot price follows a skewed Student
t distribution to analyze the effects of skewness and
kurtosis on production and hedging decisions for a competitive firm. Under
a negative exponential utility function, the firm will not over-hedge
(under-hedge) when the spot price is positively (negatively) skewed. The
extent of under-hedge (over-hedge) decreases as the forward price
increases. Compared with the mean-variance hedger, the producer will hedge
more (less) when negative (positive) skewness prevails. In addition, an
increase in the skewness reduces the demand for hedging. The effect of the
kurtosis, however, depends on the sign of the skewness. When the spot
price is positively (negatively) skewed, an increase in kurtosis leads to
a smaller (larger) futures position.
Journal: The European Journal of Finance
Pages: 1132-1143
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2011.644858
File-URL: http://hdl.handle.net/10.1080/1351847X.2011.644858
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1132-1143
Template-Type: ReDIF-Article 1.0
Author-Name: Lei Wu
Author-X-Name-First: Lei
Author-X-Name-Last: Wu
Author-Name: Qingbin Meng
Author-X-Name-First: Qingbin
Author-X-Name-Last: Meng
Author-Name: Julio C. Velazquez
Author-X-Name-First: Julio C.
Author-X-Name-Last: Velazquez
Title: The role of multivariate skew-Student density in the estimation of stock market crashes
Abstract:
By combining the multivariate skew-Student density with a time-varying
correlation GARCH (TVC-GARCH) model, this paper investigates the spread of
crashes in the regional stock markets. The regional index series of
European, USA, Latin American and Asian markets are modeled jointly, and
the maximum likelihood estimates show that a TVC-GARCH model with
multivariate skew-Student density outperforms that with multivariate
normal density substantially. Depending on the past information set, the
conditional 1-day crash probabilities are computed, and the forecast
performances of the TVC-GARCH model with both multivariate skew-Student
and normal densities are evaluated. In both bilateral and global
environments, multivariate skew-Student density has better predictive
accuracy than normal density. In global crash probability forecasts,
multivariate skew-Student density attains much higher hit rate and Kuipers
score than multivariate normal density, thus it can be used to improve
early-warning systems.
Journal: The European Journal of Finance
Pages: 1144-1160
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2012.659748
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.659748
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1144-1160
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Pierdzioch
Author-X-Name-First: Christian
Author-X-Name-Last: Pierdzioch
Author-Name: Georg Stadtmann
Author-X-Name-First: Georg
Author-X-Name-Last: Stadtmann
Title: Skewed exchange-rate forecasts
Abstract:
We used survey data on exchange-rate forecasts of the dollar/euro exchange
rate and the yen/dollar exchange rate to analyze the correlation of the
skewness of the distribution of heterogeneous forecasts with movements of
the exchange rate. Using various measures of skewness, we found a negative
correlation of skewness of 1-month-ahead forecasts with exchange-rate
movements. In contrast, the correlation of skewness of 12-months-ahead
forecast with exchange-rate movements is positive. The negative
correlation arising in the case of 1-month-ahead forecasts is consistent
with expected mean reversion in exchange rates. The positive correlation
arising in the case of longer term forecasts, in turn, is consistent with
longer term bandwagon effects.
Journal: The European Journal of Finance
Pages: 1161-1175
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2012.671777
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.671777
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1161-1175
Template-Type: ReDIF-Article 1.0
Author-Name: Taras Bodnar
Author-X-Name-First: Taras
Author-X-Name-Last: Bodnar
Author-Name: Arjun K. Gupta
Author-X-Name-First: Arjun K.
Author-X-Name-Last: Gupta
Title: Robustness of the inference procedures for the global minimum variance portfolio weights in a skew-normal model
Abstract:
In this paper, we study the influence of skewness on the distributional
properties of the estimated weights of optimal portfolios and on the
corresponding inference procedures derived for the optimal portfolio
weights assuming that the asset returns are normally distributed. It is
shown that even a simple form of skewness in the asset returns can
dramatically influence the performance of the test on the structure of the
global minimum variance portfolio. The results obtained can be applied in
the small sample case as well. Moreover, we introduce an estimation
procedure for the parameters of the skew-normal distribution that is based
on the modified method of moments. A goodness-of-fit test for the matrix
variate closed skew-normal distribution has also been derived. In the
empirical study, we apply our results to real data of several stocks
included in the Dow Jones index.
Journal: The European Journal of Finance
Pages: 1176-1194
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2012.696073
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.696073
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1176-1194
Template-Type: ReDIF-Article 1.0
Author-Name: J. Miguel Marin
Author-X-Name-First: J. Miguel
Author-X-Name-Last: Marin
Author-Name: Genaro Sucarrat
Author-X-Name-First: Genaro
Author-X-Name-Last: Sucarrat
Title: Financial density selection
Abstract:
We propose and study simple but flexible methods for density selection of
skewed versions of the two most popular density classes in finance, the
exponential power distribution and the t distribution.
For the first type of method, which simply consists of selecting a density
by means of an information criterion, the Schwarz criterion stands out
since it performs well across density categories, and in particular when
the DGP is normal. For the second type of method, general-to-specific
density selection, the simulations suggest that it can improve the
recovery rate in predictable ways by changing the significance level. This
is useful because it enables us to increase (reduce) the recovery rate of
non-normal densities by increasing (reducing) the significance level, if
one wishes to do so. The third type of method is a generalisation of the
second type, such that it can be applied across an arbitrary number of
density classes, nested or non-nested. Finally, the methods are
illustrated in an empirical application.
Journal: The European Journal of Finance
Pages: 1195-1213
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2012.706906
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.706906
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1195-1213
Template-Type: ReDIF-Article 1.0
Author-Name: Marc S. Paolella
Author-X-Name-First: Marc S.
Author-X-Name-Last: Paolella
Title: Multivariate asset return prediction with mixture models
Abstract:
The use of mixture distributions for modeling asset returns has a long
history in finance. New methods of demonstrating support for the presence
of mixtures in the multivariate case are provided. The use of a
two-component multivariate normal mixture distribution, coupled with
shrinkage via a quasi-Bayesian prior, is motivated, and shown to be
numerically simple and reliable to estimate, unlike the majority of
multivariate GARCH models in existence. Equally important, it provides a
clear improvement over use of GARCH models feasible for use with a large
number of assets, such as constant conditional correlation, dynamic
conditional correlation, and their extensions, with respect to
out-of-sample density forecasting. A generalization to a mixture of
multivariate Laplace distributions is motivated via univariate and
multivariate analysis of the data, and an expectation-maximization
algorithm is developed for its estimation in conjunction with a
quasi-Bayesian prior. It is shown to deliver significantly better
forecasts than the mixed normal, with fast and numerically reliable
estimation. Crucially, the distribution theory required for portfolio
theory and risk assessment is developed.
Journal: The European Journal of Finance
Pages: 1214-1252
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2012.760167
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.760167
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1214-1252
Template-Type: ReDIF-Article 1.0
Author-Name: Christopher Adcock
Author-X-Name-First: Christopher
Author-X-Name-Last: Adcock
Author-Name: Martin Eling
Author-X-Name-First: Martin
Author-X-Name-Last: Eling
Author-Name: Nicola Loperfido
Author-X-Name-First: Nicola
Author-X-Name-Last: Loperfido
Title: Skewed distributions in finance and actuarial science: a review
Abstract:
That the returns on financial assets and insurance claims are not well
described by the multivariate normal distribution is generally
acknowledged in the literature. This paper presents a review of the use of
the skew-normal distribution and its extensions in finance and actuarial
science, highlighting known results as well as potential directions for
future research. When skewness and kurtosis are present in asset returns,
the skew-normal and skew-Student distributions are natural candidates in
both theoretical and empirical work. Their parameterization is
parsimonious and they are mathematically tractable. In finance, the
distributions are interpretable in terms of the efficient markets
hypothesis. Furthermore, they lead to theoretical results that are useful
for portfolio selection and asset pricing. In actuarial science, the
presence of skewness and kurtosis in insurance claims data is the main
motivation for using the skew-normal distribution and its extensions. The
skew-normal has been used in studies on risk measurement and capital
allocation, which are two important research fields in actuarial science.
Empirical studies consider the skew-normal distribution because of its
flexibility, interpretability, and tractability. This paper comprises four
main sections: an overview of skew-normal distributions; a review of
skewness in finance, including asset pricing, portfolio selection, time
series modeling, and a review of its applications in insurance, in which
the use of alternative distribution functions is widespread. The final
section summarizes some of the challenges associated with the use of
skew-elliptical distributions and points out some directions for future
research.
Journal: The European Journal of Finance
Pages: 1253-1281
Issue: 13-14
Volume: 21
Year: 2015
Month: 11
X-DOI: 10.1080/1351847X.2012.720269
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.720269
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:13-14:p:1253-1281
Template-Type: ReDIF-Article 1.0
Author-Name: Thorben Manfred Lubnau
Author-X-Name-First: Thorben Manfred
Author-X-Name-Last: Lubnau
Author-Name: Neda Todorova
Author-X-Name-First: Neda
Author-X-Name-Last: Todorova
Title: The calm after the storm: implied volatility and future stock index returns
Abstract:
This article explores the predictive power of five implied volatility
indices for subsequent returns on the corresponding underlying stock
indices from January 2000 through October 2013. Contrary to previous
research, very low volatility levels appear to be followed by
significantly positive average returns over the next 20, 40 or 60 trading
days. Rolling trading simulations show that positive adjusted excess
returns can be achieved when long positions in the stock indices are taken
on days of very low implied volatility. This may be a hint that market
inefficiencies exist in some markets, especially outside the USA. The
excess returns measured against a buy and hold benchmark are significant
for the German and Japanese market when tested with a bootstrap
methodology. The results are robust against a broad spectrum of
specifications.
Journal: The European Journal of Finance
Pages: 1282-1296
Issue: 15
Volume: 21
Year: 2015
Month: 12
X-DOI: 10.1080/1351847X.2014.935872
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.935872
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:15:p:1282-1296
Template-Type: ReDIF-Article 1.0
Author-Name: Patrick Kampkötter
Author-X-Name-First: Patrick
Author-X-Name-Last: Kampkötter
Title: Non-executive compensation in German and Swiss banks before and after the financial crisis
Abstract:
We provide an extensive overview of the determinants of compensation
schemes for non-executive employees in the German and Swiss financial
services industry. We analyze how pay systems adjust in the aftermath of
the financial crisis and find that the crisis had a deep impact on
short-term bonus payments. Our results indicate that restrictions on bonus
payments may lead to higher fixed salaries and, hence, to a lower
performance sensitivity of compensation. We also show that fixed
compensation packages are highly standardized between banks, whereas bonus
payments are more strongly related to differences between individuals. In
Germany, bonuses vary to a higher extent across companies, whereas in
Swiss banks, the differences are almost negligible when adding firm
controls.
Journal: The European Journal of Finance
Pages: 1297-1316
Issue: 15
Volume: 21
Year: 2015
Month: 12
X-DOI: 10.1080/1351847X.2014.947002
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.947002
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:15:p:1297-1316
Template-Type: ReDIF-Article 1.0
Author-Name: Joakim Westerlund
Author-X-Name-First: Joakim
Author-X-Name-Last: Westerlund
Author-Name: Paresh Narayan
Author-X-Name-First: Paresh
Author-X-Name-Last: Narayan
Title: A sequential purchasing power parity test for panels of large cross-sections and implications for investors
Abstract:
In this paper we use monthly time series data for not less than 64
countries and a new sequential approach to test for purchasing power
parity (PPP). The results are strong in that the evidence in favor of PPP
is very weak. In fact, for the US-dollar-based exchange rates the evidence
is basically non-existent. In order to eliminate the effect of the base
currency, we also apply the sequential PPP test to all pairs of exchange
rates, and find similarly weak evidence of PPP. However, for those rates
where evidence is found, using a technical trading rule, we find evidence
of significant profits. The predictability of the stationary pairs is
therefore important for investors.
Journal: The European Journal of Finance
Pages: 1317-1333
Issue: 15
Volume: 21
Year: 2015
Month: 12
X-DOI: 10.1080/1351847X.2014.948216
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.948216
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:15:p:1317-1333
Template-Type: ReDIF-Article 1.0
Author-Name: Juan Carlos Matallín-Sáez
Author-X-Name-First: Juan Carlos
Author-X-Name-Last: Matallín-Sáez
Author-Name: David Moreno
Author-X-Name-First: David
Author-X-Name-Last: Moreno
Author-Name: Rosa Rodríguez
Author-X-Name-First: Rosa
Author-X-Name-Last: Rodríguez
Title: Why is timing perverse?
Abstract:
The existence of negative market timing, even for passive portfolios,
poses a relevant puzzle when assessing portfolio management. In this
paper, we develop a simple theoretical model so as to explain why such
perverse market timing might occur and why those stocks with the lowest
beta in upward markets exhibit pronounced negative timing. Our explanation
is based on the existence of higher correlations of stocks in down markets
than in up markets. We find that changes in beta, which drives timing, has
four components; however, just two of these, mean covariance
shift and covariances dispersion map, serve to
explain the asymmetric behavior across stocks. We find that a high
percentage of the negative market timing ability identified for mutual
funds in the literature could be explained by this bias.
Journal: The European Journal of Finance
Pages: 1334-1356
Issue: 15
Volume: 21
Year: 2015
Month: 12
X-DOI: 10.1080/1351847X.2014.935870
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.935870
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:15:p:1334-1356
Template-Type: ReDIF-Article 1.0
Author-Name: Pierre Chaigneau
Author-X-Name-First: Pierre
Author-X-Name-Last: Chaigneau
Title: Risk aversion, prudence, and compensation
Abstract:
In a standard principal-agent setting, we use a comparative approach to
study the incentives provided by different types of compensation
contracts, and their valuation by managers with utility function
u who are risk averse (u′>0) and
prudent (u′′>0). We show that concave
contracts tend to provide more incentives to risk averse managers, while
convex contracts tend to be more valued by prudent managers. This is
because concave contracts concentrate incentives where the marginal
utility of risk averse managers is highest, while convex contracts protect
against downside risk. Thus, managerial prudence can contribute to explain
the prevalence of stock-options in executive compensation. However, convex
contracts are not optimal when the principal is sufficiently prudent
relative to the manager.
Journal: The European Journal of Finance
Pages: 1357-1373
Issue: 15
Volume: 21
Year: 2015
Month: 12
X-DOI: 10.1080/1351847X.2014.954049
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.954049
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:21:y:2015:i:15:p:1357-1373
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Bessler
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Bessler
Author-Name: Lawrence Kryzanowski
Author-X-Name-First: Lawrence
Author-X-Name-Last: Kryzanowski
Author-Name: Philipp Kurmann
Author-X-Name-First: Philipp
Author-X-Name-Last: Kurmann
Author-Name: Peter Lückoff
Author-X-Name-First: Peter
Author-X-Name-Last: Lückoff
Title: Capacity effects and winner fund performance: the relevance and interactions of fund size and family characteristics
Abstract:
This study analyzes the existence of capacity effects and performance
persistence for US equity mutual funds for the period from 1992 to 2007.
We focus on winner funds and distinguish between capacity effects from
both size and inflows and explore their interactions with two measures of
family size, i.e. family total net assets under management (family TNA)
and the number of funds at the family level (family breadth). The
differentiation of family size allows us to analyze competing effects at
the family level such as economies of scale as well as organizational
complexity costs and conflicts of interest. Our empirical results confirm
diseconomies of scale at the winner fund level and indicate that only
small winner funds with low inflows significantly outperform the
four-factor benchmark on a net return basis. There are no universal
benefits from economies of scale at the family level, but our findings
suggest the existence of conflicts of interest in families offering a
relatively large number of funds. Small winner funds in families offering
a small number of funds significantly outperform while economies of scale
only materialize among extremely small winner funds. We provide detailed
robustness checks for our empirical results. Overall, simply conditioning
on fund size is not sufficient for selecting future outperforming funds.
The results indicate that fund investors may earn positive abnormal
returns when combining information on fund size with information on fund
flows or fund family affiliations in their asset allocation decisions.
Journal: The European Journal of Finance
Pages: 1-27
Issue: 1
Volume: 22
Year: 2016
Month: 1
X-DOI: 10.1080/1351847X.2014.899732
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.899732
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:1:p:1-27
Template-Type: ReDIF-Article 1.0
Author-Name: Lidija Lovreta
Author-X-Name-First: Lidija
Author-X-Name-Last: Lovreta
Title: Demand-supply imbalances in the credit default swap market: empirical evidence
Abstract:
This paper empirically examines demand-supply imbalances in the credit
default swap (CDS) market and provides evidence of its effect on the CDS
spread dynamics. Analysis is conducted on a large and homogenous data set
of the 92 non-financial European companies with the most quoted
Euro-denominated CDS contracts during the 2002-2008 period. Main findings
indicate that short-term CDS price movements, not related to fundamentals,
are positively affected by demand-supply imbalances when protection buyers
outstrip protection sellers. Results illustrate that CDS spreads reflect
not only the price of credit protection, but also a liquidity premium for
the anticipated cost of unwinding the position of protection sellers,
especially during stress periods.
Journal: The European Journal of Finance
Pages: 28-58
Issue: 1
Volume: 22
Year: 2016
Month: 1
X-DOI: 10.1080/1351847X.2014.935868
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.935868
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:1:p:28-58
Template-Type: ReDIF-Article 1.0
Author-Name: Zélia Serrasqueiro
Author-X-Name-First: Zélia
Author-X-Name-Last: Serrasqueiro
Author-Name: Paulo Ma çãs Nunes
Author-X-Name-First: Paulo Ma çãs
Author-X-Name-Last: Nunes
Author-Name: Manuel da Rocha Armada
Author-X-Name-First: Manuel
Author-X-Name-Last: da Rocha Armada
Title: Capital structure decisions: old issues, new insights from high-tech small- and medium-sized enterprises
Abstract:
Using panel data models and this study analyses the capital structure
decisions of high-tech small- and medium-sized enterprises (SMEs) and
non-high-tech SMEs. The results suggest that the capital structure
decisions of high-tech SMEs are closer to what is predicted by the Pecking
Order Theory. However, the results also suggest a modified version of the
Pecking Order Theory for high-tech SMEs that have relied on venture
capital. These firms prefer equity issues to debt, when internal finance
is exhausted. The empirical evidence suggests that problems relating to
information asymmetry as well as technological and market uncertainty
influence the capital structure decisions of high-tech SMEs.
Journal: The European Journal of Finance
Pages: 59-79
Issue: 1
Volume: 22
Year: 2016
Month: 1
X-DOI: 10.1080/1351847X.2014.946068
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.946068
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:1:p:59-79
Template-Type: ReDIF-Article 1.0
Author-Name: Ingmar Nolte
Author-X-Name-First: Ingmar
Author-X-Name-Last: Nolte
Author-Name: Sandra Nolte
Author-X-Name-First: Sandra
Author-X-Name-Last: Nolte
Title: The information content of retail investors' order flow
Abstract:
In this paper, we provide evidence that the trading activity of small
retail investors carries significant genuine information that can be
exploited for the short-term out-of-sample forecasting of foreign exchange
rates. Our findings are based on a unique dataset of around 2000 retail
investors from the OANDA FXTrade electronic trading platform. Our results
are consistent with the view that in the foreign exchange market private
information is highly dispersed, but can be extracted by observing
customer order flow. Previous studies, however, focused on the information
content of costumer order flow of dealers in the interbank market, whose
clients are themselves large institutional and professional investors. Our
study is the first that analyzes a crowd of small retail investors and
shows that even the trading activity of these investors contains, on
aggregate, important non-public information that can be exploited for
short-term exchange rate forecasting. Our findings lead us to conjecture
that retail investors (on aggregate) are not pure noise traders but
process dispersed information at least partially in a similar way as large
institutional investors and hence place their orders accordingly.
Journal: The European Journal of Finance
Pages: 80-104
Issue: 2
Volume: 22
Year: 2016
Month: 1
X-DOI: 10.1080/1351847X.2014.963633
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.963633
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:2:p:80-104
Template-Type: ReDIF-Article 1.0
Author-Name: Alasdair Brown
Author-X-Name-First: Alasdair
Author-X-Name-Last: Brown
Title: The distribution of information in speculative markets: a natural experiment
Abstract:
We use a unique natural experiment to shed light on the distribution of
information in speculative markets. In June 2011, Betfair - a UK betting
exchange - levied a tax of up to 60% on all future profits accrued by the
top 0.1% of profitable traders. Such a move appears to have driven at
least some of these traders off the exchange, taking their information
with them. We investigate the effect of the new tax on the forecasting
capacity of the exchange (our measure of the market's incorporation of
information into the price). We find that there was scant decline in the
forecasting capacity of the exchange - relative to a control market -
suggesting that the bulk of information had hitherto been held by the
majority of traders, rather than the select few affected by the rule
change. This result is robust to the choice of forecasting measure, the
choice of forecasting interval, and the choice of race type. This provides
evidence that more than a few traders are typically involved in the price
discovery process in speculative markets.
Journal: The European Journal of Finance
Pages: 105-119
Issue: 2
Volume: 22
Year: 2016
Month: 1
X-DOI: 10.1080/1351847X.2014.972423
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.972423
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:2:p:105-119
Template-Type: ReDIF-Article 1.0
Author-Name: Gbenga Ibikunle
Author-X-Name-First: Gbenga
Author-X-Name-Last: Ibikunle
Author-Name: Andros Gregoriou
Author-X-Name-First: Andros
Author-X-Name-Last: Gregoriou
Author-Name: Naresh R. Pandit
Author-X-Name-First: Naresh R.
Author-X-Name-Last: Pandit
Title: Price impact of block trades: the curious case of downstairs trading in the EU emissions futures market
Abstract:
Using high-frequency data from the European Climate Exchange (ECX), we
examine the determinants of price impact of €21 billion worth of
block trades during 2008-2011 in the European carbon market. We find that
wider bid-ask spreads and volatility are characterised by a smaller price
impact. Larger levels of price impact are more likely to occur during the
middle of the trading day, specifically the four-hour period between 11
a.m. and 3 p.m., than during the first or final hours. Purchase block
trades induce a relatively smaller price impact on price run-up, while
sell block trades exhibit a larger price impact on price run-up. We
conclude that block trades on the ECX induce less price impact than in
equity or conventional futures markets, and that a significant proportion
of the effects contradict findings on block trades in those markets; thus,
we provide the first evidence of the curious bent to block trading in the
European Union emissions trading scheme.
Journal: The European Journal of Finance
Pages: 120-142
Issue: 2
Volume: 22
Year: 2016
Month: 1
X-DOI: 10.1080/1351847X.2014.935871
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.935871
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:2:p:120-142
Template-Type: ReDIF-Article 1.0
Author-Name: Andreja Bandelj
Author-X-Name-First: Andreja
Author-X-Name-Last: Bandelj
Title: Should banks be geographically diversified? Empirical evidence from cross-country diversification of European banks
Abstract:
Using a sample of European bank, this paper investigates the impact of
banks' geographic diversification on their cost of equity capital.
Examining the geographic diversification of European banks gives an
insight on the value of cross-border banking. To measure diversification
between major geographic areas in which the bank operates, the
Herfindahl-Hirschman Index, based on revenues generated at home and abroad
is constructed for each bank. To address the problem of endogeneity,
system generalized method of moments estimator is used. The main finding
of the analysis is that, other things equal, more geographic diversified
banks have higher cost of equity capital than geographically focused ones.
This result implies that the adverse market valuation effect of geographic
diversification (increase in agency problem) dominates the positive ones
(increase in efficiency and reduction in risk).
Journal: The European Journal of Finance
Pages: 143-166
Issue: 2
Volume: 22
Year: 2016
Month: 1
X-DOI: 10.1080/1351847X.2014.960978
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.960978
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:2:p:143-166
Template-Type: ReDIF-Article 1.0
Author-Name: George J. Jiang
Author-X-Name-First: George J.
Author-X-Name-Last: Jiang
Author-Name: Woojin Kim
Author-X-Name-First: Woojin
Author-X-Name-Last: Kim
Title: Evaluating analysts' value: evidence from recommendation revisions around stock price jumps
Abstract:
Recent studies document that analyst recommendation revisions tend to
coincide with important corporate events, but offer mixed evidence on
whether these revisions still contain significant information content. In
this paper, we use large discontinuous changes, known as
jumps, in stock prices as proxy for significant events
and examine the information content of analyst revisions. We find that
although recommendation revisions are more likely to be clustered around
stock price jumps, they still contain significant information, especially
those issued prior to jumps.
Journal: The European Journal of Finance
Pages: 167-194
Issue: 3
Volume: 22
Year: 2016
Month: 2
X-DOI: 10.1080/1351847X.2014.960979
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.960979
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:3:p:167-194
Template-Type: ReDIF-Article 1.0
Author-Name: Elena Ferrer
Author-X-Name-First: Elena
Author-X-Name-Last: Ferrer
Author-Name: Julie Salaber
Author-X-Name-First: Julie
Author-X-Name-Last: Salaber
Author-Name: Anna Zalewska
Author-X-Name-First: Anna
Author-X-Name-Last: Zalewska
Title: Consumer confidence indices and stock markets' meltdowns
Abstract:
Consumer confidence indices (CCIs) are a closely monitored barometer of
countries' economic health and an informative forecasting tool. Using
European and US data, we provide a case study of the two recent stock
market meltdowns (the post-dotcom bubble correction of 2000-2002 and the
2007-2009 decline at the beginning of the financial crisis) to contribute
to the discussion on their appropriateness as proxies for stock markets'
investor sentiment. Investor sentiment should positively covary with stock
market movements [DeLong, Shleifer, Summers, and Waldmann. 1990. "Noise
Trader Risk in Financial Markets." Journal of Political
Economy 98 (4): 703-738]; however, we find that the CCI-stock
market relationship is not universally positive. We also do not find
support for the information effect documented in the previous literature,
but identify a more subtle relationship between consumer expectations
about future household finances and stock market fluctuations.
Journal: The European Journal of Finance
Pages: 195-220
Issue: 3
Volume: 22
Year: 2016
Month: 2
X-DOI: 10.1080/1351847X.2014.963634
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.963634
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:3:p:195-220
Template-Type: ReDIF-Article 1.0
Author-Name: Pekka Levi�kangas
Author-X-Name-First: Pekka
Author-X-Name-Last: Levi�kangas
Author-Name: Tuomo Kinnunen
Author-X-Name-First: Tuomo
Author-X-Name-Last: Kinnunen
Author-Name: Aki Aapaoja
Author-X-Name-First: Aki
Author-X-Name-Last: Aapaoja
Title: Infrastructure public-private partnership project ecosystem - financial and economic positioning of stakeholders
Abstract:
The purpose of this paper is to construct an analytical cash flow-based
project model to facilitate project appraisal of both private investors
and public sector. With the help of the model that focuses on ecosystem
and its stakeholders, it is simpler to identify potential conflicts
usually encountered in public-private partnership (PPP) projects. The
model construct is based on classical cash flow accounting and
cost-benefit analysis. In the model, the flows of cash (private investors)
and the flows of costs and benefits (public investors) are integrated in a
single framework. The model shows that within the ecosystem the investors'
(public vs. private) social, economic and financial targets are not
necessarily coinciding. Prospecting of common ground and win-win
situations becomes a crucial success factor for any PPP project. The paper
discusses the policy and investment strategy implications for successful
PPPs.
Journal: The European Journal of Finance
Pages: 221-236
Issue: 3
Volume: 22
Year: 2016
Month: 2
X-DOI: 10.1080/1351847X.2014.972424
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.972424
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:3:p:221-236
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Willem Van den End
Author-X-Name-First: Jan Willem
Author-X-Name-Last: Van den End
Title: A macroprudential approach to address liquidity risk with the loan-to-deposit ratio
Abstract:
This paper maps the empirical features of the loan-to-deposit (LTD) ratio
with an eye on using it in macroprudential policy to mitigate liquidity
risk. We examine the LTD trends and cycles of 11 euro area countries by
filtering methods and analyse the interaction between loans and deposits.
We propose macroprudential policy to prevent an unsustainable level of the
LTD ratio and policy measures to counter destabilizing cyclical
developments.
Journal: The European Journal of Finance
Pages: 237-253
Issue: 3
Volume: 22
Year: 2016
Month: 2
X-DOI: 10.1080/1351847X.2014.983137
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.983137
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:3:p:237-253
Template-Type: ReDIF-Article 1.0
Author-Name: Douglas Cumming
Author-X-Name-First: Douglas
Author-X-Name-Last: Cumming
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Edward Lee
Author-X-Name-First: Edward
Author-X-Name-Last: Lee
Title: Chinese style capitalism: current development and future implications
Journal: The European Journal of Finance
Pages: 255-258
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2016.1090051
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1090051
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:255-258
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Firth
Author-X-Name-First: Michael
Author-X-Name-Last: Firth
Author-Name: Wei Li
Author-X-Name-First: Wei
Author-X-Name-Last: Li
Author-Name: Steven Shuye Wang
Author-X-Name-First: Steven
Author-X-Name-Last: Shuye Wang
Title: The growth, determinants, and profitability of nontraditional activities of Chinese commercial banks
Abstract:
Using a panel data set for China's commercial banks between 1998 and 2007,
we investigate the relation between a bank's nontraditional income ratio
and its operational and financial characteristics after controlling for
ownership type, government policy changes, and cross-regional
institutional environment differences. We find that banks with narrow net
interest margins have stronger incentives to develop nontraditional
activities. Moreover, banks located in regions with less local government
intervention have fewer nontraditional banking activities. We find
evidence that the ownership type of the bank has some influence on the
pursuit of nontraditional activities. Nontraditional income has not led to
improved bank profitability and we present some conjectures on why this is
so. In contrast to the results reported in prior research, we find that
the financial performance of the big-four state-owned banks is not
inferior to the performance of other banks.
Journal: The European Journal of Finance
Pages: 259-287
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2013.791632
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.791632
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:259-287
Template-Type: ReDIF-Article 1.0
Author-Name: Nancy Huyghebaert
Author-X-Name-First: Nancy
Author-X-Name-Last: Huyghebaert
Author-Name: Lihong Wang
Author-X-Name-First: Lihong
Author-X-Name-Last: Wang
Title: Institutional development and financing decisions: evidence from a cross-regional study on Chinese listed firms
Abstract:
In this paper, we empirically investigate how differences in the
development of legal and financial institutions across Chinese provinces
and municipalities affect the financing decisions of Chinese listed firms.
Our results indicate that a stronger regional enforcement of property
rights reduces firms’ reliance on bank loans. Conversely, in
regions with a larger government expropriation risk, firms raise more and
shorter-term bank debt. Active regional bank lending positively impacts
the debt ratio and the fraction of bank loans, but shortens loan
maturities. The size of the local banking sector, the market
capitalization as well as the liquidity of local stocks bear no relation
with the capital structure. Overall, these relations do not depend upon
the identity of the firm's controlling shareholder. Nonetheless, our
results do suggest that state-controlled firms benefit from easier stock
market access.
Journal: The European Journal of Finance
Pages: 288-318
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2013.773263
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.773263
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:288-318
Template-Type: ReDIF-Article 1.0
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Author-Name: Simona Mateut
Author-X-Name-First: Simona
Author-X-Name-Last: Mateut
Title: External finance and trade credit extension in China: does political affiliation make a difference?
Abstract:
Using a dataset of 65,706 Chinese firms over the period 2000--2007, we
show that politically affiliated firms benefit from easier access to
short-term external finance and extend more trade credit than their
non-affiliated counterparts. Furthermore, we observe that the sensitivity
of trade credit extension to short-term liabilities, which is largest for
private firms producing differentiated goods, decreases with the degree of
political affiliation. This suggests that gaining political affiliation
contributes not only to alleviating individual firms’ financing
constraints, but also to reducing the overall level of constraints in the
economy through the additional trade credit being made available.
Journal: The European Journal of Finance
Pages: 319-344
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2012.762030
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.762030
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:319-344
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Author-Name: Xiuping Hua
Author-X-Name-First: Xiuping
Author-X-Name-Last: Hua
Author-Name: Yiping Huang
Author-X-Name-First: Yiping
Author-X-Name-Last: Huang
Title: Are Chinese stock and property markets integrated or segmented?
Abstract:
This paper explores the empirical question of whether Chinese stock and
property markets are integrated or segmented. We find that, at the
national level, investment returns in property and the A-share markets
were co-integrated in the long run. In the short run, property price
Granger caused A-share prices, but not vice versa. However, the B-share
prices were negatively correlated with property prices. Furthermore, the
linkage between city-level property prices and stock prices showed
significant variations across the country. These findings reveal that
property and stock markets were integrated at the national level but the
property markets were reasonably segmented among cities. They suggest that
investment portfolios pursuing risk diversification should include both A
and B shares and properties from different cities.
Journal: The European Journal of Finance
Pages: 345-370
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2013.788537
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.788537
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:345-370
Template-Type: ReDIF-Article 1.0
Author-Name: Zhenyu Wu
Author-X-Name-First: Zhenyu
Author-X-Name-Last: Wu
Author-Name: Yuanshun Li
Author-X-Name-First: Yuanshun
Author-X-Name-Last: Li
Author-Name: Shujun Ding
Author-X-Name-First: Shujun
Author-X-Name-Last: Ding
Author-Name: Chunxin Jia
Author-X-Name-First: Chunxin
Author-X-Name-Last: Jia
Title: A separate monitoring organ and disclosure of firm-specific information
Abstract:
As the economy is recovering from the recent financial crisis, we explore
the appropriateness of a corporate monitoring organ, which is a component
separate from the board of directors, to enhance firm-specific information
disclosure. Findings of this study, rooted in the evidence from China's
stock markets, confirm that having a separate and effective monitoring
organ results in a higher level of idiosyncratic risk, as long as the
legal environment is sufficiently strong and the functionality of this
separate monitoring organ is clearly defined. Effects of regulatory
changes and ownership characteristics are addressed to help better
understand the corporate governance--idiosyncratic risk relationship.
Moreover, this study sheds light on timely global issues about information
transparency and supervision, the lack of which becomes one of the major
causes of the ongoing financial crisis, and presents an important
challenge before corporate governance.
Journal: The European Journal of Finance
Pages: 371-392
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2012.762410
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.762410
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:371-392
Template-Type: ReDIF-Article 1.0
Author-Name: Douglas Cumming
Author-X-Name-First: Douglas
Author-X-Name-Last: Cumming
Author-Name: Robert Dixon
Author-X-Name-First: Robert
Author-X-Name-Last: Dixon
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Edward Lee
Author-X-Name-First: Edward
Author-X-Name-Last: Lee
Title: Media coverage and foreign share discount puzzle in China
Abstract:
There is growing evidence in the finance literature that media coverage
can influence security pricing by facilitating news dissemination and
reducing informational frictions even if it does not provide new
information. This study examines the role of media coverage in the
well-known foreign share discount puzzle in China. We show that
differential level of news coverage for the same firm by Chinese and
English media is significantly associated with the foreign share discount.
Specifically, the discount is greater among firms with relatively more
Chinese than English press coverage. We also find this effect more
pronounced among firms with less analyst following and less institutional
ownership. This implies that media coverage compensates for limitations in
analyst coverage and is more influential among less sophisticated
investors. Our evidence is robust to controls of other determinants of
Chinese foreign share discount documented by previous literature. Despite
the widespread belief that the Chinese media is tightly controlled, our
study reveals that it still plays an influential role in the capital
market.
Journal: The European Journal of Finance
Pages: 393-412
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2012.762031
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.762031
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:393-412
Template-Type: ReDIF-Article 1.0
Author-Name: Chen Li
Author-X-Name-First: Chen
Author-X-Name-Last: Li
Author-Name: Yaping Wang
Author-X-Name-First: Yaping
Author-X-Name-Last: Wang
Author-Name: Liansheng Wu
Author-X-Name-First: Liansheng
Author-X-Name-Last: Wu
Author-Name: Jason Zezhong Xiao
Author-X-Name-First: Jason Zezhong
Author-X-Name-Last: Xiao
Title: Political connections and tax-induced earnings management: evidence from China
Abstract:
We use the occasion of a change in tax policy that raised the tax rate for
many of the listed companies in China to examine tax-induced earnings
management (TEM) from the perspective of political connections. We find
that when the tax rate increased, only those affected firms with
politically connected management engaged in TEM. This suggests that, in
addition to motivation for managing earnings, capability of influencing
tax authorities is also an important determinant of TEM. We also find that
TEM helped the firms with politically connected management to reduce their
tax burden.
Journal: The European Journal of Finance
Pages: 413-431
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2012.753465
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.753465
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:413-431
Template-Type: ReDIF-Article 1.0
Author-Name: Hong Bo
Author-X-Name-First: Hong
Author-X-Name-Last: Bo
Author-Name: Tao Li
Author-X-Name-First: Tao
Author-X-Name-Last: Li
Author-Name: Yanmei Sun
Author-X-Name-First: Yanmei
Author-X-Name-Last: Sun
Title: Board attributes and herding in corporate investment: evidence from Chinese-listed firms
Abstract:
We examine whether board attributes, including board age, gender
diversity, board independence, CEO duality, and board size, explain
investment herding by using a panel of 1155 Chinese-listed non-financial
firms during 1999--2004. Investment herding is measured by the absolute
value of the difference between the investment ratio of firm
i in year t and the average investment
ratio of other firms in the same industry excluding firm
i in year (t−1). We find that
corporate boards that have more young directors, more female directors,
more independent directors, a CEO who is not the chairman of the board,
and a larger board are more likely to make investment decisions closer to
their peers in the same industry. We also provide evidence that investment
herding is positively related to firm performance, suggesting that
investment herding does not necessarily hurt shareholders in the Chinese
context. We identify that herding in making investment decisions is a
possible channel through which some board attributes, such as board age
diversity, gender diversity, and board independence, contribute to firm
performance.
Journal: The European Journal of Finance
Pages: 432-462
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2013.788536
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.788536
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:432-462
Template-Type: ReDIF-Article 1.0
Author-Name: Zhenzhen Sun
Author-X-Name-First: Zhenzhen
Author-X-Name-Last: Sun
Author-Name: Yaping Wang
Author-X-Name-First: Yaping
Author-X-Name-Last: Wang
Title: Does ownership structure matter? Evidence from firms’ excess cash in China
Abstract:
We examine the effect of corporate ownership structure on the market value
of excess cash in Chinese listed firms. We find that state ownership has a
positive effect, as the market value of excess cash is greater in
state-owned firms (SOEs) than in privately controlled firms. Furthermore,
we show that expropriation by controlling shareholders is significantly
higher in privately controlled firms than in SOEs and increases with
excess cash. The evidence is consistent with the view that the market
believes private controlling shareholders are more likely to extract the
private benefits associated with cash reserves.
Journal: The European Journal of Finance
Pages: 463-483
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2012.762409
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.762409
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:463-483
Template-Type: ReDIF-Article 1.0
Author-Name: James Cordeiro
Author-X-Name-First: James
Author-X-Name-Last: Cordeiro
Author-Name: Lerong He
Author-X-Name-First: Lerong
Author-X-Name-Last: He
Author-Name: Martin Conyon
Author-X-Name-First: Martin
Author-X-Name-Last: Conyon
Author-Name: Tara Shaw
Author-X-Name-First: Tara
Author-X-Name-Last: Shaw
Title: Chinese executive compensation: the role of asymmetric performance benchmarks
Abstract:
We study asymmetric performance benchmarking in Chinese executive
compensation contracts between 2000 and 2010. We predict that while
relative performance evaluation criteria are important in executive pay
contracts, managerial power and influence will result in a decoupling
between pay and performance. We predict that Chinese managers are rewarded
for superior performance but not penalized for inferior performance. We
test this asymmetric pay-for-performance hypothesis using three
performance benchmarks: whether firm performance is positive/negative,
above/below industry average, and above/below regional average. We find
the sensitivity between executive compensation and firm accounting
performance is asymmetric. It is significantly stronger when firm
accounting performance is positive or firm performance exceeds industry or
regional median benchmarks compared to cases when firm accounting
performance is negative or is below industry or regional median
benchmarks. We find little evidence that ownership structure and internal
governance mechanisms moderate the asymmetric pay-for-performance
relationship.
Journal: The European Journal of Finance
Pages: 484-505
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2013.769892
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.769892
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:484-505
Template-Type: ReDIF-Article 1.0
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Edward Lee
Author-X-Name-First: Edward
Author-X-Name-Last: Lee
Author-Name: Konstantinos Stathopoulos
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Stathopoulos
Author-Name: Zhenxu Tong
Author-X-Name-First: Zhenxu
Author-X-Name-Last: Tong
Title: Executive compensation and the split share structure reform in China
Abstract:
The split share structure reform in China enables state shareholders of
listed firms to trade their restricted shares. This renders the wealth of
state shareholders more strongly related to share price movements. We
predict that this reform will create remuneration arrangements that
strengthen the relationship between Chinese firms’ executive pay
and stock market performance. We confirm this prediction by showing that
there is such an effect among state-controlled firms, and especially those
where the dominant shareholders have a greater incentive to improve share
return performance. Our results indicate that this reform strengthens the
accountability of executives to external monitoring by the stock market,
and therefore benefits minority shareholders in China.
Journal: The European Journal of Finance
Pages: 506-528
Issue: 4-6
Volume: 22
Year: 2016
Month: 4
X-DOI: 10.1080/1351847X.2013.802250
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.802250
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:506-528
Template-Type: ReDIF-Article 1.0
Author-Name: Laura Andreu
Author-X-Name-First: Laura
Author-X-Name-Last: Andreu
Author-Name: José Luis Sarto
Author-X-Name-First: José Luis
Author-X-Name-Last: Sarto
Title: Financial consequences of mutual fund mergers
Abstract:
This study examines the impact of mutual fund mergers on performance and
investment flows of target and acquiring funds. Results indicate some
improvements in the post-merger performance for target funds shareholders.
Results also confirm prior evidence of negative net asset flows in target
funds in the pre-merger period as well as negative, but not significant,
net asset flows in the years following the merger. However, a more
detailed analysis allows us to observe that this lack of significance in
the negative reaction of investors to mutual fund mergers is explained by
the compensation of abnormally high inflows and outflows in the resultant
funds. These substantial flows are significantly above the average in
their market segment, especially regarding money flows. This finding
provides evidence that investors pay attention to mutual fund mergers,
especially institutional investors who are concentrated on the market
possibilities resulting from these organizational processes.
Journal: The European Journal of Finance
Pages: 529-550
Issue: 7
Volume: 22
Year: 2016
Month: 5
X-DOI: 10.1080/1351847X.2013.858055
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.858055
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:7:p:529-550
Template-Type: ReDIF-Article 1.0
Author-Name: Rehez Ahlip
Author-X-Name-First: Rehez
Author-X-Name-Last: Ahlip
Author-Name: Marek Rutkowski
Author-X-Name-First: Marek
Author-X-Name-Last: Rutkowski
Title: Pricing of foreign exchange options under the MPT stochastic volatility model and the CIR interest rates
Abstract:
We consider an extension of the model proposed by Moretto, Pasquali, and
Trivellato [2010. “Derivative Evaluation Using Recombining Trees
under Stochastic Volatility.” Advances and Applications in
Statistical Sciences 1 (2): 453--480] (referred to as the MPT
model) for pricing foreign exchange (FX) options to the case of stochastic
domestic and foreign interest rates driven by the Cox, Ingersoll, and Ross
dynamics introduced in Cox, Ingersoll, and Ross [1985. “A Theory of
Term Structure of Interest Rates.” Econometrica
53(2): 385--408]. The advantage of the MPT model is that it retains some
crucial features of Heston's stochastic volatility model but, as
demonstrated in Moretto, Pasquali, and Trivellato [2010.
“Derivative Evaluation Using Recombining Trees under Stochastic
Volatility.” Advances and Applications in Statistical
Sciences 1 (2): 453--480], it is better suited for discretization
through recombining lattices, and thus it can also be used to value and
hedge exotic FX products. In the model examined in this paper, the
instantaneous volatility is correlated with the exchange rate dynamics,
but the domestic and foreign short-term rates are assumed to be mutually
independent and independent of the dynamics of the exchange rate. The main
result furnishes a semi-analytical formula for the price of the FX
European call option, which hinges on explicit expressions for conditional
characteristic functions.
Journal: The European Journal of Finance
Pages: 551-571
Issue: 7
Volume: 22
Year: 2016
Month: 5
X-DOI: 10.1080/1351847X.2014.912671
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.912671
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:7:p:551-571
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Aussenegg
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Aussenegg
Author-Name: Lukas Götz
Author-X-Name-First: Lukas
Author-X-Name-Last: Götz
Author-Name: Ranko Jelic
Author-X-Name-First: Ranko
Author-X-Name-Last: Jelic
Title: European asset swap spreads and the credit crisis
Abstract:
We examine time-varying behaviour and determinants of asset swap (ASW)
spreads for 23 iBoxx European corporate bond indexes from January 2006 to
January 2009. The results of a Markov switching model suggest that ASW
spreads exhibit regime-dependent behaviour. The evidence is particularly
strong for Financial and Corporates Subordinated indexes. Stock market
volatility determines ASW spread changes in turbulent periods, whereas
stock returns tend to affect spread changes in calm periods. While market
liquidity affects spreads only in turbulent regimes the level of interest
rates is an important determinant of spread changes in both regimes.
Finally, we identify stock returns, lagged ASW spread levels, and lagged
volatility of ASW spreads as major drivers of the regime shifts. The
results are robust in the extended sample (January 2006 to October 2013)
that includes a post-crisis period.
Journal: The European Journal of Finance
Pages: 572-600
Issue: 7
Volume: 22
Year: 2016
Month: 5
X-DOI: 10.1080/1351847X.2014.935869
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.935869
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:7:p:572-600
Template-Type: ReDIF-Article 1.0
Author-Name: Gonçalo Faria
Author-X-Name-First: Gonçalo
Author-X-Name-Last: Faria
Author-Name: João Correia-da-Silva
Author-X-Name-First: João
Author-X-Name-Last: Correia-da-Silva
Title: Is stochastic volatility relevant for dynamic portfolio choice under ambiguity?
Abstract:
Literature on dynamic portfolio choice has been finding that volatility
risk has low impact on portfolio choice. For example, using long-run US
data, Chacko and Viceira [2005. “Dynamic Consumption and Portfolio
Choice with Stochastic Volatility in Incomplete Markets.”
The Review of Financial Studies 18 (4): 1369--1402] found
that intertemporal hedging demand (required by investors for protection
against adverse changes in volatility) is empirically small even for
highly risk-averse investors. We want to assess if this continues to be
true in the presence of ambiguity. Adopting robust control and
perturbation theory techniques, we study the problem of a long-horizon
investor with recursive preferences that faces ambiguity about the
stochastic processes that generate the investment opportunity set. We find
that ambiguity impacts portfolio choice, with the relevant channel being
the return process. Ambiguity about the volatility process is only
relevant if, through a specific correlation structure, it also induces
ambiguity about the return process. Using the same long-run US data, we
find that ambiguity about the return process may be empirically relevant,
much more than ambiguity about the volatility process. Anyway,
intertemporal hedging demand is still very low: investors are essentially
focused on the short-term risk--return characteristics of the risky asset.
Journal: The European Journal of Finance
Pages: 601-626
Issue: 7
Volume: 22
Year: 2016
Month: 5
X-DOI: 10.1080/1351847X.2014.958511
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.958511
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:7:p:601-626
Template-Type: ReDIF-Article 1.0
Author-Name: Warren Bailey
Author-X-Name-First: Warren
Author-X-Name-Last: Bailey
Title: Behavioral finance and me, or how I came to see the light
Journal: The European Journal of Finance
Pages: 627-636
Issue: 8-9
Volume: 22
Year: 2016
Month: 7
X-DOI: 10.1080/1351847X.2012.712922
File-URL: http://hdl.handle.net/10.1080/1351847X.2012.712922
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:8-9:p:627-636
Template-Type: ReDIF-Article 1.0
Author-Name: Mimi Lord
Author-X-Name-First: Mimi
Author-X-Name-Last: Lord
Title: University endowment committees: how a learning orientation and knowledge factors contribute to portfolio diversification and performance
Abstract:
Institutional investment portfolios with broad portfolio diversification
have been correlated with superior performance, but antecedents to
investment committees’ asset allocation decisions have received
little attention. This research examines the effect of a set of group
norms called learning orientation on university endowment
committees’ knowledge acquisition and implementation. Greater
knowledge implementation, in turn, is found to contribute to greater
portfolio diversification and higher risk-adjusted returns over a 5-year
period. In addition, committee members’ expertise in diverse asset
classes is found to contribute to greater portfolio diversification,
having both a direct effect and also an indirect effect via knowledge
implementation.
Journal: The European Journal of Finance
Pages: 637-661
Issue: 8-9
Volume: 22
Year: 2016
Month: 7
X-DOI: 10.1080/1351847X.2013.879536
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.879536
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:8-9:p:637-661
Template-Type: ReDIF-Article 1.0
Author-Name: Vikash Ramiah
Author-X-Name-First: Vikash
Author-X-Name-Last: Ramiah
Author-Name: Yilang Zhao
Author-X-Name-First: Yilang
Author-X-Name-Last: Zhao
Author-Name: Imad Moosa
Author-X-Name-First: Imad
Author-X-Name-Last: Moosa
Author-Name: Michael Graham
Author-X-Name-First: Michael
Author-X-Name-Last: Graham
Title: A behavioural finance approach to working capital management
Abstract:
This paper documents the behaviour of corporate treasurers who are
involved in the decision-making process in the areas of cash, inventory,
accounts receivable, accounts payable and risk management during the
global financial crisis. Using a survey questionnaire, we attempt to find
out if working capital managers are prone to certain heuristic-driven
biases, such as loss aversion, high confidence level, anchoring and
self-serving biases. Our findings show that these professionals exhibit
signs of behavioural biases. Although the biases lead to sub-optimal
decisions in certain areas of working capital management (WCM), they can
also be desirable attributes in other aspects of WCM. We propose a profile
of a good working capital manager.
Journal: The European Journal of Finance
Pages: 662-687
Issue: 8-9
Volume: 22
Year: 2016
Month: 7
X-DOI: 10.1080/1351847X.2014.883549
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.883549
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:8-9:p:662-687
Template-Type: ReDIF-Article 1.0
Author-Name: Emre Tarim
Author-X-Name-First: Emre
Author-X-Name-Last: Tarim
Title: Situated cognition and narrative heuristic: evidence from retail investors and their brokers
Abstract:
In this paper, I discuss how a situated cognition perspective can reveal
the socially constructed nature of seemingly psychological heuristics and
errors in market actors’ judgements and decisions in financial
markets. In doing so, I present a complementary approach to the heuristics
and biases research in psychology and behavioural finance. More
specifically, I draw on the narrative mode of knowing and explanation in
real market settings as a framework to understand the content and the
process of socially constructed knowledge in financial markets. Here,
narratives of market actors and their underlying frames and causal schemas
are assumed to function as a judgement heuristic in processing information
flows. I then discuss an application of this approach to a sample of
brokerage firms and investment advisers serving retail investors in the
Istanbul Stock Exchange (ISE). My findings focus on a shared frame and the
associated causal schema about the ISE and global financial markets. This
observed interpretive model underpinned my interlocutors’ narrative
judgements and forecasts about the ISE's movements and constituted a form
of representativeness heuristic and anchoring.
Journal: The European Journal of Finance
Pages: 688-711
Issue: 8-9
Volume: 22
Year: 2016
Month: 7
X-DOI: 10.1080/1351847X.2013.858054
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.858054
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:8-9:p:688-711
Template-Type: ReDIF-Article 1.0
Author-Name: William Patrick Forbes
Author-X-Name-First: William Patrick
Author-X-Name-Last: Forbes
Author-Name: Michael Pogue
Author-X-Name-First: Michael
Author-X-Name-Last: Pogue
Author-Name: Lynn Hodgkinson
Author-X-Name-First: Lynn
Author-X-Name-Last: Hodgkinson
Title: CEO pay in UK FTSE 100: pay inequality, board size and performance
Abstract:
In this paper we examine the costs of seemingly excessive pay awards to
CEOs within the UK FTSE 100 in the last decade and the consequent growth
in executive pay inequality. In presenting this evidence we describe
variations in the whole distribution of executive pay, rather than
invoking some arbitrary cut-off point, to determine how changes in
shareholder value match with concurrent changes in the distribution of
executive pay. We ask whether the impact of executive pay inequality is a
function of board size, rendering the CEO pay slice measure problematic in
this context? We then question whether the interaction of board size and
corporate performance, as measured by shareholder returns, explain
variations in the sensitivity of the pay--performance relationship for UK
FTSE 100 executives. We advance the Gini coefficient as a preferable
measure of executive pay inequality in order to capture the impact of
perceived inequality upon corporate performance.
Journal: The European Journal of Finance
Pages: 712-731
Issue: 8-9
Volume: 22
Year: 2016
Month: 7
X-DOI: 10.1080/1351847X.2014.885457
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.885457
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:8-9:p:712-731
Template-Type: ReDIF-Article 1.0
Author-Name: Naaguesh Appadu
Author-X-Name-First: Naaguesh
Author-X-Name-Last: Appadu
Author-Name: Anna Faelten
Author-X-Name-First: Anna
Author-X-Name-Last: Faelten
Author-Name: Scott Moeller
Author-X-Name-First: Scott
Author-X-Name-Last: Moeller
Author-Name: Valeriya Vitkova
Author-X-Name-First: Valeriya
Author-X-Name-Last: Vitkova
Title: Assessing market attractiveness for mergers and acquisitions: the M&A Attractiveness Index Score
Abstract:
This paper presents a new scoring methodology designed to measure a
country's capability to attract and sustain business investment activity
in the forms of cross-border inflow and domestic mergers and acquisitions
(M&A). We compute a theoretically grounded Index of Attractiveness for M&A
purposes based on groups of country development factors which have been
identified as key drivers of corporate investment activity in economics,
finance and management literature. By using the Index, which has been
successfully tested against country-level M&A activity in a time series
analysis, we show that the drivers of M&A activity differ significantly at
different stages of country maturity. Specifically, for mature countries,
the quality of their regulatory systems, political stability,
socio-economic environment and the sophistication of their physical
infrastructure as well as the availability of sizeable assets all
determine differences in country-level M&A volume and value activity. For
countries at the transitional stage, it is instead their economic and
financial health, socio-economic environment, technological developments
and the quality of their infrastructure and the availability of sizeable
assets which drive M&A activity. We also prove the predictability power of
the Index, by a set of Granger causality tests, showing not only how
country-level development drives future M&A activity but also how, to some
extent, the inverse relationship is also true, i.e. that M&A activity can
contribute to country development.
Journal: The European Journal of Finance
Pages: 732-755
Issue: 8-9
Volume: 22
Year: 2016
Month: 7
X-DOI: 10.1080/1351847X.2014.888362
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.888362
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:8-9:p:732-755
Template-Type: ReDIF-Article 1.0
Author-Name: Maela Giofré
Author-X-Name-First: Maela
Author-X-Name-Last: Giofré
Title: Comparative corporate governance and international portfolios
Abstract:
The impact of foreign investor protection on portfolio choices negatively
depends on the degree of domestic investor protection enjoyed by the
investor. The coefficient of foreign countries’ investor protection
scaled by world average is therefore not constant across investing
countries. The ratio foreign to domestic investor protection rights index
is shown instead to be a plausible common driver of international
portfolios. Phrased differently, domestic investor protection replaces the
world average corporate governance in the construction of the relevant
measure driving international portfolio choice. If the weight attached to
the domestic factor in the construction of the average measure is large
enough it can determine, almost completely, the world average corporate
governance. This outcome is consistent with a setting in which the
investor, strongly hit by information constraints, places a
disproportionally large weight on domestic information considered as more
reliable because observed at a higher precision.
Journal: The European Journal of Finance
Pages: 756-781
Issue: 8-9
Volume: 22
Year: 2016
Month: 7
X-DOI: 10.1080/1351847X.2014.902857
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.902857
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:8-9:p:756-781
Template-Type: ReDIF-Article 1.0
Author-Name: Mario Levis
Author-X-Name-First: Mario
Author-X-Name-Last: Levis
Author-Name: Yaz Gülnur Muradoǧlu
Author-X-Name-First: Yaz Gülnur
Author-X-Name-Last: Muradoǧlu
Author-Name: Kristina Vasileva
Author-X-Name-First: Kristina
Author-X-Name-Last: Vasileva
Title: Home bias persistence in foreign direct investments
Abstract:
The purpose of this paper is to analyse the issues related to home bias
and foreign direct investments (FDIs). We study the role of physical,
cultural, and institutional distances from home on FDI decisions taken by
corporations to assess whether the globalization of the past two decades
has reduced their influence. Using the ‘home bias’ framework
from the finance literature and the gravity model from the economics
literature, we utilize a large sample of both developed and emerging
markets, using FDI flows of 6263 unique bilateral country pairs over a
30-year period. We find strong empirical evidence of persistent home bias
in FDI outflows, and we show that not only physical distance but also
cultural and institutional similarities between host and source countries
remain a decisive factor in foreign corporate investment decisions. We
also show that such home bias is persistent over time and is observed
around the world.
Journal: The European Journal of Finance
Pages: 782-802
Issue: 8-9
Volume: 22
Year: 2016
Month: 7
X-DOI: 10.1080/1351847X.2015.1019640
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1019640
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:8-9:p:782-802
Template-Type: ReDIF-Article 1.0
Author-Name: Ji-Eun Choi
Author-X-Name-First: Ji-Eun
Author-X-Name-Last: Choi
Author-Name: Dong Wan Shin
Author-X-Name-First: Dong Wan
Author-X-Name-Last: Shin
Title: Three regime bivariate normal distribution: a new estimation method for co-value-at-risk, CoVaR
Abstract:
We propose a new distribution for estimation of co-value-at-risk, CoVaR, a financial system risk measure conditional on an institution in a financial distress: a three regime bivariate normal (3RN) distribution which is composed of three bivariate normal distributions with asymmetric variance matrices for the right-tail, left-tail and mid-part corresponding to the return of an institution. The distribution captures explicitly the asymmetric correlation of system return and institution return: usually stronger for bad times than for good times. The 3RN distribution allows simple evaluations of the CoVaR taking full advantage of asymmetric correlation. An implementation for the quasi maximum likelihood estimator (QMLE) is provided. The proposed estimation method is applied to stock price data sets consisting of one financial system and four financial institutions: the US S&P 500 index, Bank of America Corporation, JP Morgan Chase & Co., Goldman Sachs Group, Inc. and Citigroup Inc. The data analysis shows that the proposed method has better in-sample and out-of-sample violation performance than existing methods and some other possible candidates.
Journal: The European Journal of Finance
Pages: 1817-1833
Issue: 18
Volume: 25
Year: 2019
Month: 12
X-DOI: 10.1080/1351847X.2019.1639208
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1639208
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:18:p:1817-1833
Template-Type: ReDIF-Article 1.0
Author-Name: Wenqiong Liu
Author-X-Name-First: Wenqiong
Author-X-Name-Last: Liu
Author-Name: Wenli Huang
Author-X-Name-First: Wenli
Author-X-Name-Last: Huang
Author-Name: Bo Liu
Author-X-Name-First: Bo
Author-X-Name-Last: Liu
Author-Name: Congming Mu
Author-X-Name-First: Congming
Author-X-Name-Last: Mu
Title: Optimal mortgage contracts with time-inconsistent preferences
Abstract:
This paper integrates a time-inconsistent preference into the mortgage design problem and studies the corresponding effects on the optimal contract. By assuming exogenous time inconsistency in borrower's preference, we find that the time-inconsistent preference increases the loss in the lender's value and the compensation boundary. We implement the optimal contract using standard securities and option adjustable-rate mortgages (ARMs). The findings show that the time-inconsistent preference increases the default rate, and relative to standard securities, option ARMs increase the total debt capacity, but the borrower's time inconsistency can lead to sudden jumps in the total debt capacity. We also consider the endogenous time inconsistency in the borrower's preference and derive the corresponding mortgage contract; we find that a lender can perfectly offset the effect of a borrower's time inconsistency on the value function and compensation strategy. The liquidation boundary at the low interest rate varies with the degree of time inconsistency, explaining the heterogeneity in mortgage default behaviors observed in practice.
Journal: The European Journal of Finance
Pages: 1834-1855
Issue: 18
Volume: 25
Year: 2019
Month: 12
X-DOI: 10.1080/1351847X.2019.1649290
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1649290
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:18:p:1834-1855
Template-Type: ReDIF-Article 1.0
Author-Name: Antonella Francesca Cicchiello
Author-X-Name-First: Antonella Francesca
Author-X-Name-Last: Cicchiello
Author-Name: Francesca Battaglia
Author-X-Name-First: Francesca
Author-X-Name-Last: Battaglia
Author-Name: Stefano Monferrà
Author-X-Name-First: Stefano
Author-X-Name-Last: Monferrà
Title: Crowdfunding tax incentives in Europe: a comparative analysis
Abstract:
Some European countries offer tax incentive schemes to investors and companies in crowdfunding. On one hand, they could be seen as a tool to reduce the system’s dependence on banks and increase the availability of credit for start-ups and Small and Medium Enterprises (SMEs). On the other hand, there is the counterweight of disadvantages that investors may face by investing in crowdfunding (i.e. complex and incomplete laws, and weak protection). This paper is primarily intended as a primer on the use of tax incentives for crowdfunding in Europe. In this study, we first examine the implementation of tax incentive schemes in the United Kingdom, France, Italy, Spain, and Belgium. Then, we analyse and compare the characteristics of such schemes along three dimensions: the incentives structure; the business characteristics; and the type of investor. We find that tax incentive schemes for crowdfunding vary widely in their form and other features of their design. Moreover, the most used forms of tax incentives are those that provide for an up-front tax credit on the amount invested in early-stage ventures. These incentives have an immediate effect on the annual income tax of the investor. A central implication is that the more tax incentive schemes are properly designed and tailored for crowdfunders, the more investors, start-ups and other firms with low liquidity could use crowdfunding as a source of funding.
Journal: The European Journal of Finance
Pages: 1856-1882
Issue: 18
Volume: 25
Year: 2019
Month: 12
X-DOI: 10.1080/1351847X.2019.1610783
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1610783
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:18:p:1856-1882
Template-Type: ReDIF-Article 1.0
Author-Name: Andrew Marshall
Author-X-Name-First: Andrew
Author-X-Name-Last: Marshall
Author-Name: Helena Pinto
Author-X-Name-First: Helena
Author-X-Name-Last: Pinto
Author-Name: Leilei Tang
Author-X-Name-First: Leilei
Author-X-Name-Last: Tang
Title: Executive compensation in less regulated markets: the impact of debt monitoring
Abstract:
This paper shows that in the lightly regulated Alternative Investment Market (AIM) voluntary corporate board structures might not reduce agency costs between shareholder and executive directors. In this less regulated market, we find that the extent of debt affects executive pay. In addition, the theoretical determinants of executive pay affect CEO and other executives’ pay and incentives differently in this market. We find no evidence that debt levels affect CEO pay in a matched sample of Main Market firms. Our results suggest that debtholders could be better monitors of executive directors’ actions, in comparison to voluntary governance committees in less regulated markets.
Journal: The European Journal of Finance
Pages: 1883-1918
Issue: 18
Volume: 25
Year: 2019
Month: 12
X-DOI: 10.1080/1351847X.2019.1668448
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1668448
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:18:p:1883-1918
Template-Type: ReDIF-Article 1.0
Author-Name: Demetris Christodoulou
Author-X-Name-First: Demetris
Author-X-Name-Last: Christodoulou
Author-Name: Stuart McLeay
Author-X-Name-First: Stuart
Author-X-Name-Last: McLeay
Title: The double entry structural constraint on the econometric estimation of accounting variables
Abstract:
This paper develops a structural system for estimating accounting variables, within which the deterministic relationships inherent in financial statement articulation are clearly defined in the econometric model. The key proposition of the paper lies in the treatment of the financial statements as a matrix of codetermined information constrained by double entry, where the expected value of each of the individual items that comprise the financial statements will be mirrored elsewhere in the system with a different sign. Given that the change in net operating assets shares the same variation as the change in net financial claims, it is shown, by formally identifying the articulation, that empirical application will yield increased precision and improved efficiency by comparison to the more traditional methods that fail to specify the structural double entry property.
Journal: The European Journal of Finance
Pages: 1919-1935
Issue: 18
Volume: 25
Year: 2019
Month: 12
X-DOI: 10.1080/1351847X.2019.1667847
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1667847
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:18:p:1919-1935
Template-Type: ReDIF-Article 1.0
Author-Name: Laura Ballotta
Author-X-Name-First: Laura
Author-X-Name-Last: Ballotta
Author-Name: Efrem Bonfiglioli
Author-X-Name-First: Efrem
Author-X-Name-Last: Bonfiglioli
Title: Multivariate asset models using Lévy processes and applications
Abstract:
In this paper, we propose a multivariate asset model based on Lévy processes for pricing of products written on more than one underlying asset. Our construction is based on a two-factor representation of the dynamics of the asset log-returns. We investigate the properties of the model and introduce a multivariate generalization of some processes which are quite common in financial applications, such as subordinated Brownian motions, jump-diffusion processes and time-changed Lévy processes. Finally, we explore the issue of model calibration for the proposed setting and illustrate its robustness on a number of numerical examples.
Journal: The European Journal of Finance
Pages: 1320-1350
Issue: 13
Volume: 22
Year: 2016
Month: 10
X-DOI: 10.1080/1351847X.2013.870917
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.870917
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:13:p:1320-1350
Template-Type: ReDIF-Article 1.0
Author-Name: Stefano Bonini
Author-X-Name-First: Stefano
Author-X-Name-Last: Bonini
Author-Name: Giuliana Caivano
Author-X-Name-First: Giuliana
Author-X-Name-Last: Caivano
Title: Estimating loss-given default through advanced credibility theory
Abstract:
The New Basel Accord allows internationally active banking organizations to calculate their credit risk capital requirements using an internal ratings based approach, subject to supervisory review. One of the modeling components is the loss-given default (LGD): it represents the credit loss for a bank when extreme events occur that influence the obligor ability to repay his debts to the bank. Among researchers and practitioners the use of statistical models such as linear regression, Tobit or decision trees is quite common in order to compute LGDs as a forecasting of historical losses. However, these statistical techniques do not seem to provide robust estimation and show low performance. These results could be driven by some factors that make differences in LGD, such as the presence and quality of collateral, timing of the business cycle, workout process management and M&A activity among banks. This paper evaluates an alternative method of modeling LGD using a technique based on advanced credibility theory typically used in actuarial modeling. This technique provides a statistical component to the credit and workout experts’ opinion embedded in the collateral and workout management process and improve the predictive power of forecasting. The model has been applied to an Italian Bank Retail portfolio represented by Overdrafts; the application of credibility theory provides a higher predictive power of LGD estimation and an out-of-time sample backtesting has shown a stable accuracy of estimates with respect to the traditional LGD model.
Journal: The European Journal of Finance
Pages: 1351-1362
Issue: 13
Volume: 22
Year: 2016
Month: 10
X-DOI: 10.1080/1351847X.2013.870918
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.870918
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:13:p:1351-1362
Template-Type: ReDIF-Article 1.0
Author-Name: Bruno Feunou
Author-X-Name-First: Bruno
Author-X-Name-Last: Feunou
Author-Name: Mohammad R. Jahan-Parvar
Author-X-Name-First: Mohammad R.
Author-X-Name-Last: Jahan-Parvar
Author-Name: Roméo Tédongap
Author-X-Name-First: Roméo
Author-X-Name-Last: Tédongap
Title: Which parametric model for conditional skewness?
Abstract:
This paper addresses an existing gap in the developing literature on conditional skewness. We develop a simple procedure to evaluate parametric conditional skewness models. This procedure is based on regressing the realized skewness measures on model-implied conditional skewness values. We find that an asymmetric generalized autoregressive conditional heteroscedasticity specification on shape parameters with a skewed generalized error distribution provides the best in-sample fit for the data, as well as reasonable predictions of the realized skewness measure. Our empirical findings imply significant asymmetry with respect to positive and negative news in both conditional asymmetry and kurtosis processes.
Journal: The European Journal of Finance
Pages: 1237-1271
Issue: 13
Volume: 22
Year: 2016
Month: 10
X-DOI: 10.1080/1351847X.2013.877515
File-URL: http://hdl.handle.net/10.1080/1351847X.2013.877515
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:13:p:1237-1271
Template-Type: ReDIF-Article 1.0
Author-Name: Mike Buckle
Author-X-Name-First: Mike
Author-X-Name-Last: Buckle
Author-Name: Jing Chen
Author-X-Name-First: Jing
Author-X-Name-Last: Chen
Author-Name: Julian M. Williams
Author-X-Name-First: Julian M.
Author-X-Name-Last: Williams
Title: Realised higher moments: theory and practice
Abstract:
This paper examines the incorporation of higher moments in portfolio selection problems utilising high-frequency data. Our approach combines innovations from the realised volatility literature with a portfolio selection methodology utilising higher moments. We provide an empirical study of the measurement of higher moments from tick by tick data and implement the model for a selection of stocks from the DOW 30 over the time period 2005–2011. We demonstrate a novel estimator for moments and co-moments in the presence of microstructure noise.
Journal: The European Journal of Finance
Pages: 1272-1291
Issue: 13
Volume: 22
Year: 2016
Month: 10
X-DOI: 10.1080/1351847X.2014.885456
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.885456
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:13:p:1272-1291
Template-Type: ReDIF-Article 1.0
Author-Name: Niloufar Abourashchi
Author-X-Name-First: Niloufar
Author-X-Name-Last: Abourashchi
Author-Name: Iain Clacher
Author-X-Name-First: Iain
Author-X-Name-Last: Clacher
Author-Name: Mark C. Freeman
Author-X-Name-First: Mark C.
Author-X-Name-Last: Freeman
Author-Name: David Hillier
Author-X-Name-First: David
Author-X-Name-Last: Hillier
Author-Name: Malcolm Kemp
Author-X-Name-First: Malcolm
Author-X-Name-Last: Kemp
Author-Name: Qi Zhang
Author-X-Name-First: Qi
Author-X-Name-Last: Zhang
Title: Pension plan solvency and extreme market movements: a regime switching approach
Abstract:
We develop and test a new approach to assess defined benefit (DB) pension plan solvency risk in the presence of extreme market movements. Our method captures both the ‘fat-tailed’ nature of asset returns and their correlation with discount rate changes. We show that the standard assumption of constant discount rates leads to dramatic underestimation of future projections of pension plan solvency risk. Failing to incorporate leptokurtosis into asset returns also leads to downward biased estimates of risk, but this is less pronounced than the time-varying discount rate effect. Further modifying the model to capture the correlation between asset returns and the discount rate provides additional improvements in the projection of future pension plan solvency. This reduces the perceived future risk of underfunding because of the negative correlation between interest rate changes and asset returns. These results have important implications for those with responsibility for balancing risk against expected return when seeking to improve the current poor funding positions of DB pension schemes.
Journal: The European Journal of Finance
Pages: 1292-1319
Issue: 13
Volume: 22
Year: 2016
Month: 10
X-DOI: 10.1080/1351847X.2014.946528
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.946528
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:13:p:1292-1319
Template-Type: ReDIF-Article 1.0
Author-Name: Qun Zhang
Author-X-Name-First: Qun
Author-X-Name-Last: Zhang
Author-Name: Didier Sornette
Author-X-Name-First: Didier
Author-X-Name-Last: Sornette
Author-Name: Hao Zhang
Author-X-Name-First: Hao
Author-X-Name-Last: Zhang
Title: Anticipating critical transitions of the housing market: new evidence from China
Abstract:
We introduce a novel quantitative methodology to detect real estate bubbles and forecast their critical end time, which we apply to the housing markets of China's metropolises. Building on the Log-Periodic Power Law Singularity (LPPLS) model of self-reinforcing feedback loops, we use the quantile regression calibration approach recently introduced by two of us to build confidence intervals and explore possible distinct scenarios. We propose to consolidate the quantile regressions into the arithmetic average of the quantile-based LPPLS Confidence indicator, which accounts for the robustness of the calibration with respect to bootstrapped residuals. We make three main contributions to the literature of real estate bubbles. First, we verify the validity of the arithmetic average of the quantile-based LPPLS Confidence indicator by studying the critical times of historical housing price bubbles in the U.S., Hong Kong, U.K. and Canada. Second, the LPPLS detection methods are applied to provide early warning signals of the housing markets in some metropolises in China. Third, we determine the possible turning points of the markets in Beijing, Shanghai, Shenzhen, Guangzhou, Tianjin and Chengdu and anticipate critical transitions of China's housing markets via our multi-scales and multi-quantiles analyses. Finally, given these projections performed in February 2017, the price trajectories from March 2017 to January 2018 that became available from the time of submission to the time of revision of the present article offer quite unique genuine out-of-sample tests of the performances of our indicators.
Journal: The European Journal of Finance
Pages: 1251-1276
Issue: 14
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1588763
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1588763
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:14:p:1251-1276
Template-Type: ReDIF-Article 1.0
Author-Name: Alireza Zarei
Author-X-Name-First: Alireza
Author-X-Name-Last: Zarei
Author-Name: Mohamed Ariff
Author-X-Name-First: Mohamed
Author-X-Name-Last: Ariff
Author-Name: M. Ishaq Bhatti
Author-X-Name-First: M. Ishaq
Author-X-Name-Last: Bhatti
Title: The impact of exchange rates on stock market returns: new evidence from seven free-floating currencies
Abstract:
This paper provides evidence of a significant exchange rate effect on stock index returns using data from seven selected countries practicing free-floating exchange rate regimes. This research uses parity and asset pricing theories, thus placing it within the monetary-cum-economics framework for international asset pricing. In this study, we apply a system of seemingly unrelated regression to control for unobserved heterogeneity and cross-sectional dependence. The findings constitute evidence of a statistically significant exchange rate impact on stock index returns across selected countries. These findings can be considered as falling under the arbitrage pricing approach of the international capital asset pricing model of Solnik who also used the parity-theoretical framework on exchange rate determination.
Journal: The European Journal of Finance
Pages: 1277-1288
Issue: 14
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1589550
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1589550
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:14:p:1277-1288
Template-Type: ReDIF-Article 1.0
Author-Name: Kaiguo Zhou
Author-X-Name-First: Kaiguo
Author-X-Name-Last: Zhou
Author-Name: Runyu Yan
Author-X-Name-First: Runyu
Author-X-Name-Last: Yan
Author-Name: Yanchu Liu
Author-X-Name-First: Yanchu
Author-X-Name-Last: Liu
Title: Vertical merger, R&D collaboration and innovation
Abstract:
This paper studies the effects of vertical merger and R&D collaboration activities on firms' innovation decisions and stock returns based on a continuous-time real option model under market and technological uncertainties. Our analysis confirms vertical merger's benefit in amplifying the potential gain from innovation through eliminating inefficiencies. We show that vertical merger boosts innovation incentives in two ways: it reduces the optimal innovation threshold when firms suspend the project and increases R&D investment when firms launch the project. If vertical merger is not possible, R&D collaboration can improve firms' innovation levels as an alternative decision, but inefficiencies still exist which implies less pronounced stimulation effects. Both vertical merger and R&D collaboration can reduce firms' risk when conducting innovation project and weaken the positive R&D-returns relation and financial constraints-returns relation, while these effects of vertical merger are stronger than those of R&D collaboration.
Journal: The European Journal of Finance
Pages: 1289-1308
Issue: 14
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1589551
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1589551
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:14:p:1289-1308
Template-Type: ReDIF-Article 1.0
Author-Name: Eric J. Pentecost
Author-X-Name-First: Eric J.
Author-X-Name-Last: Pentecost
Author-Name: Wenti Du
Author-X-Name-First: Wenti
Author-X-Name-Last: Du
Author-Name: Graham Bird
Author-X-Name-First: Graham
Author-X-Name-Last: Bird
Author-Name: Thomas Willett
Author-X-Name-First: Thomas
Author-X-Name-Last: Willett
Title: Contagion from the crises in the Euro-zone: where, when and why?
Abstract:
The prevalence of contagion between the Euro-zone countries and other European countries since the Greek crisis of 2009 is now well – known, but the factors that influence the pattern of this contagion are not well understood. We investigate this question both within Europe and beyond to the USA and Japan, using an asymmetric M-GARCH model that focuses on extreme values of the risk premia on government bonds. We compare these extreme values with news of major events and find that they are highly correlated. We find a different pattern of contagion emanating from Ireland compared to the other crisis countries of Greece, Italy, Portugal and Spain. We also examine the factors that have made countries vulnerable to contagion and find that financial factors are more important than trade ones. However, intra-Euro-zone trade has also been a significant factor between the major Euro-zone economies. There is little evidence that global factors affect contagion between EU member states, but some evidence that nominal exchange rate movements offer a degree of insulation from contagion for the non-Euro zone states.
Journal: The European Journal of Finance
Pages: 1309-1327
Issue: 14
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1589552
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1589552
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:14:p:1309-1327
Template-Type: ReDIF-Article 1.0
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: Boonlert Jitmaneeroj
Author-X-Name-First: Boonlert
Author-X-Name-Last: Jitmaneeroj
Author-Name: Andrew Wood
Author-X-Name-First: Andrew
Author-X-Name-Last: Wood
Title: Credit default swaps and the UK 2008–09 short sales ban
Abstract:
Most studies of the short sales ban of UK financial stocks from September 2008 to January 2009 fail to control for the UK’s worst ever banking crisis and the underlying increase in risk. This paper studies the ban’s impact on the 13 large financials with credit default swaps (CDS) and 20 smaller stocks without CDS. The results reveal that returns of banned stocks Granger cause CDS returns in the pre- and post-ban periods, but causality runs from CDS to stock returns during the ban period. Underlying risk proxied by the CDS probability of default increased during the ban and the immediate pre- and post-ban periods which highlights an endogeneity problem ignored in some studies. This increased risk provides a plausible rationale for why CDS and related equity bid-ask spreads - which increased during the ban period – failed to fall significantly in the post-ban period. Panel regression results indicate that probability of default was an important economic determinant of stock bid-ask spreads during the ban period. Finally, our results suggest that the ban offered direct price support for the smaller non-CDS stocks during the ban period and indirect support for CDS stocks from their pre-ban to their post-ban levels.
Journal: The European Journal of Finance
Pages: 1328-1349
Issue: 14
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1591477
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1591477
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:14:p:1328-1349
Template-Type: ReDIF-Article 1.0
Author-Name: James M. Steeley
Author-X-Name-First: James M.
Author-X-Name-Last: Steeley
Title: The effects of quantitative easing on the integration of UK capital markets
Abstract:
We examine the effects of quantitative easing (QE) on the volatility of and correlation between stocks, short-term bonds and long-term bonds in the UK. Using a multivariate dynamic conditional correlation generalised autoregressive conditional heteroscedasticity model, we find that volatility in each of the markets experiences a significant increase during the financial crisis that is reversed during the first phase of QE. We find limited effects of the specific occurrence or intensity of QE activity on either the volatility or correlations for these asset classes, but some evidence that volatility persistence experienced temporary shifts during the sample period. We find short-term variability in the correlations between the markets during the crisis and QE periods, but cannot reject the hypothesis that correlations were constant throughout the sample period.
Journal: The European Journal of Finance
Pages: 999-1024
Issue: 11
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2015.1067635
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1067635
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:11:p:999-1024
Template-Type: ReDIF-Article 1.0
Author-Name: Lin Huang
Author-X-Name-First: Lin
Author-X-Name-Last: Huang
Author-Name: Chenghu Ma
Author-X-Name-First: Chenghu
Author-X-Name-Last: Ma
Author-Name: Hiroyuki Nakata
Author-X-Name-First: Hiroyuki
Author-X-Name-Last: Nakata
Title: w-MPS risk aversion and the shadow CAPM: theory and empirical evidence
Abstract:
This paper presents the shadow capital asset pricing model (CAPM) of Ma [2011a. Advanced Asset Pricing Theory. London: Imperial College Press] as an intertemporal equilibrium asset pricing model, and tests it empirically. In contrast to the classical CAPM – a single-factor model based on a strong behavioral or distributional assumption – the shadow CAPM can be represented as a two-factor model, and only requires a modest behavioral assumption of weak form mean-preserving spread risk aversion. The empirical tests provide support in favor of the shadow CAPM over the classical CAPM, the consumption CAPM, or the Epstein and Zin [1991. “Substitution, Risk Aversion and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis”. Journal of Political Economy 99, 263–286] model. Moreover, the shadow CAPM provides a consistent explanation for the cross-sectional variations of expected returns on the stocks and for the time-varying equity premium.
Journal: The European Journal of Finance
Pages: 947-973
Issue: 11
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2015.1082495
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1082495
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:11:p:947-973
Template-Type: ReDIF-Article 1.0
Author-Name: Stefan Graf
Author-X-Name-First: Stefan
Author-X-Name-Last: Graf
Title: Life-cycle funds: Much Ado about Nothing?
Abstract:
The core idea of life-cycle funds or target-date funds is to decrease the fund's equity exposure and conversely increase its bond exposure towards the fund's target date. Such funds have been gaining significant market share and were recently set as default choice of asset allocation in numerous defined contribution schemes or related old-age provision products in several countries. Hence, an assessment of life-cycle funds’ risk-return profiles – that is, the probability distribution of returns – is essential for sustainable financial planning of a large group of investors. This paper studies the risk-return profile of life-cycle funds in particular compared to simple balanced or lifestyle funds that apply a constant equity portion throughout the fund's term instead. In a Black–Scholes model, we derive balanced funds that reproduce the risk-return profile of an arbitrary life-cycle fund for single and regular contributions. We then analyze the accuracy of our results under more complex asset models with stochastic interest rates, stochastic equity volatility and jumps. We further show that frequently used ‘rule of thumb approximations’ that only take into account the life-cycle fund's average equity portion are not suitable to approximate a life-cycle fund's risk-return profile. Our results on the one hand facilitate sustainable financial planning and on the other hand challenge the very existence of life-cycle funds since appropriately calibrated balanced funds can offer a similar (often dominating) risk-return profile.
Journal: The European Journal of Finance
Pages: 974-998
Issue: 11
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2016.1151805
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151805
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:11:p:974-998
Template-Type: ReDIF-Article 1.0
Author-Name: Sanjay Sehgal
Author-X-Name-First: Sanjay
Author-X-Name-Last: Sehgal
Author-Name: Priyanshi Gupta
Author-X-Name-First: Priyanshi
Author-X-Name-Last: Gupta
Author-Name: Florent Deisting
Author-X-Name-First: Florent
Author-X-Name-Last: Deisting
Title: Assessing time-varying stock market integration in Economic and Monetary Union for normal and crisis periods
Abstract:
In this paper, we examine the stock market integration process amongst 17 Economic and Monetary Union (EMU) countries from January 2002 to June 2013 over a normal period as well as for the Global Financial Crisis (GFC) and Eurozone Debt Crisis (EDC) periods. We classify the economies in three groups (A, B and C) based on their GDP to examine whether the economic size influences financial integration. Seven indicators are used for the purpose, namely, beta convergence, sigma convergence, variance ratio, asymmetric DCC, dynamic cointegration, market synchronisation measure and common components approach. The results suggest that large-sized EMU economies (termed as Group A) exhibit strong stock market integration. Moderate integration is observed for middle-sized EMU economies with old membership (termed as Group B). Small-sized economies (termed as Group C) economies seemed to be least integrated within the EMU stock market system. The findings further suggest presence of contagion effects as one moves from normal to crisis periods, which are specifically stronger for more integrated economies of Group A. We recommend institutional, regulatory and other policy reforms for Group B and especially Group C to achieve higher level of integration.
Journal: The European Journal of Finance
Pages: 1025-1058
Issue: 11
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2016.1158727
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1158727
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:11:p:1025-1058
Template-Type: ReDIF-Article 1.0
Author-Name: Roman Kräussl
Author-X-Name-First: Roman
Author-X-Name-Last: Kräussl
Author-Name: Elizaveta Mirgorodskaya
Author-X-Name-First: Elizaveta
Author-X-Name-Last: Mirgorodskaya
Title: Media, sentiment and market performance in the long run
Abstract:
This paper investigates the impact of media pessimism on financial market returns and volatility in the long run. We hypothesize that media sentiment translates into investor sentiment. Based on the underreaction and overreaction hypotheses [Barberis, N., A. Shleifer, and R. Vishny. 1998. “A Model of Investor Sentiment.” Journal of Empirical Economics 49 (3): 307–343], we suggest that media pessimism has an effect on market performance after a lag of several months. We construct a monthly media pessimism indicator by taking the ratio of the number of newspaper articles that contain predetermined negative words to the number of newspaper articles that contain predetermined positive words in the headline and in the lead paragraph. Our results indicate that media pessimism is associated with negative (positive) market returns 14–17 (24–25) months in advance and positive market volatilities 1–20 months in advance. Our results are statistically and economically significant. We find evidence for Granger causality of media pessimism on market performance. Our media pessimism indicator possesses additional predictive power for the Baker and Wurgler [2006. “Investor Sentiment and the Cross-section of Stock Returns.” Journal of Finance 61 (4): 1645–1680] investor sentiment index and the Chicago Board Options Exchange Market Volatility Index.
Journal: The European Journal of Finance
Pages: 1059-1082
Issue: 11
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2016.1226188
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1226188
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:11:p:1059-1082
Template-Type: ReDIF-Article 1.0
Author-Name: Fernando V. Cerezetti
Author-X-Name-First: Fernando V.
Author-X-Name-Last: Cerezetti
Author-Name: Emmanouil N. Karimalis
Author-X-Name-First: Emmanouil N.
Author-X-Name-Last: Karimalis
Author-Name: Ujwal Shreyas
Author-X-Name-First: Ujwal
Author-X-Name-Last: Shreyas
Author-Name: Anannit Sumawong
Author-X-Name-First: Anannit
Author-X-Name-Last: Sumawong
Title: Market liquidity, closeout procedures and initial margin for CCPs
Abstract:
Closeout procedures enable central counterparties (CCPs) to respond to events that challenge the continuity of their normal operations, most frequently triggered by the default of one or more clearing members. The procedures typically entail three main phases: splitting, hedging, and liquidation. Together, these ensure the regularity of the settlement process through the prudent and orderly liquidation of the defaulters’ portfolios. Traditional approaches to CCPs’ margin requirements typically assume a simple closeout profile, not accounting for the ‘real life’ constraints embedded in the management of a default. The paper proposes an approach to assess how distinct closeout strategies may expose a CCP to different sets of risks and costs taking into account real-life frictions. The proposed approach enables the evaluation of a full spectrum of hedging strategies and the assessment of the trade-offs between the risk-reducing benefits of hedging and the transaction costs associated with it. Using an unexplored set of transactional level data, the proposed framework is evaluated assuming the hypothetical default of a real CCP clearing member. We consider the worst-case loss of a large interest rate swap portfolio observed over the past 10 years (i.e. 2005–2015) and show that an efficient hedging strategy which minimises risk may not be optimal when transaction costs are taken into account. The empirical analysis suggests that transaction costs are a significant factor and should be accounted for when designing a hedging strategy. Specifically, it is shown that the risk-reducing benefits arising from more tailored hedging strategies may introduce higher transaction costs, and therefore may change the effectiveness of the strategies.
Journal: The European Journal of Finance
Pages: 599-631
Issue: 7
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1496944
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1496944
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:7:p:599-631
Template-Type: ReDIF-Article 1.0
Author-Name: Olga Kolokolova
Author-X-Name-First: Olga
Author-X-Name-Last: Kolokolova
Author-Name: Ming-Tsung Lin
Author-X-Name-First: Ming-Tsung
Author-X-Name-Last: Lin
Author-Name: Ser-Huang Poon
Author-X-Name-First: Ser-Huang
Author-X-Name-Last: Poon
Title: Rating-based CDS curves
Abstract:
This paper explores the extent to which term structure of individual credit default swap (CDS) spreads can be explained by the firm's rating. Using the Nelson–Siegel model, we construct, for each day, CDS curves from a cross-section of CDS spreads for each rating class. We find that individual CDS deviations from the curve tend to diminish over time and CDS spreads converge towards the fitted curves. The likelihood of convergence increases with the absolute size of the deviation. The convergence is especially stable if CDS spreads are lower relative to the rating-based curve. Trading strategies exploiting the convergence generate an average return of 3.7% (5-day holding period) and 9% (20-day holding period).
Journal: The European Journal of Finance
Pages: 689-723
Issue: 7
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1511441
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1511441
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:7:p:689-723
Template-Type: ReDIF-Article 1.0
Author-Name: Hossein Jahanshahloo
Author-X-Name-First: Hossein
Author-X-Name-Last: Jahanshahloo
Author-Name: Charlie X. Cai
Author-X-Name-First: Charlie X.
Author-X-Name-Last: Cai
Title: Monitoring the foreign exchange rate benchmark fix
Abstract:
We develop a Manipulation Index (ManIx) that captures the potential manipulation intention of dealers during the World Markets/Reuters (WMR) benchmark (London Close) period at 4 pm London time through a unique algorithm and simulation. The application of this model (using a dataset with dealers’ identities) can identify banks that are prone to potential manipulative behavior. The results concerning the identified banks are validated by the regulatory investigations. Implementation of this algorithm allows regulators better direct their limited resources towards more targeted in-depth investigation.
Journal: The European Journal of Finance
Pages: 670-688
Issue: 7
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1518847
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1518847
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:7:p:670-688
Template-Type: ReDIF-Article 1.0
Author-Name: Dimitrios Gounopoulos
Author-X-Name-First: Dimitrios
Author-X-Name-Last: Gounopoulos
Author-Name: Kyriaki Kosmidou
Author-X-Name-First: Kyriaki
Author-X-Name-Last: Kosmidou
Author-Name: Dimitrios Kousenidis
Author-X-Name-First: Dimitrios
Author-X-Name-Last: Kousenidis
Author-Name: Victoria Patsika
Author-X-Name-First: Victoria
Author-X-Name-Last: Patsika
Title: The investigation of the dynamic linkages between real estate market and stock market in Greece
Abstract:
We use quarterly data from Greece over the period 1997:1–2015:2 and investigate the dynamic linkages between the price of the real estate market and the price of the stock market focusing on two transmission mechanisms, namely the wealth and credit-price effects. The empirical analysis employs advanced methodological techniques and presents evidence supporting the existence of both the wealth effect and the credit effect in the long-run while in the short-run there is a one-way causal effect running from stock market towards house market. Results reveal asymmetric adjustment to equilibrium process and considerably stronger for positive deviations from the equilibrium.
Journal: The European Journal of Finance
Pages: 647-669
Issue: 7
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1532443
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1532443
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:7:p:647-669
Template-Type: ReDIF-Article 1.0
Author-Name: Samer Adra
Author-X-Name-First: Samer
Author-X-Name-Last: Adra
Author-Name: Leonidas G. Barbopoulos
Author-X-Name-First: Leonidas G.
Author-X-Name-Last: Barbopoulos
Title: Liquidity and information asymmetry considerations in corporate takeovers
Abstract:
We examine how stock market liquidity and information asymmetry considerations influence the wealth effects of Mergers and Acquisitions (M&As). We present a simple model predicting that M&As of listed targets that have relatively illiquid stocks are profitable for acquirers due to (a) the weak bargaining power of the targets’ shareholders, and (b) the limited information asymmetry concerns when evaluating takeover synergies. Our results show that cash-financed M&As of listed targets that have relatively illiquid stocks are associated with an increase in acquirer risk-adjusted returns. These gains are equivalent to those realized from comparable private target M&As. When engaging in stock-financed listed-target M&As, acquirers with liquid stocks enjoy significant gains when the targets have relatively illiquid stocks. This result holds especially when the deal is announced during periods of deterioration in the overall stock market liquidity. Lastly, we find that liquidity considerations affect the acquirer’s choice of the target firm’s listing status, as well as the M&A method of payment.
Journal: The European Journal of Finance
Pages: 724-743
Issue: 7
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1543202
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1543202
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:7:p:724-743
Template-Type: ReDIF-Article 1.0
Author-Name: Kyriaki Kosmidou
Author-X-Name-First: Kyriaki
Author-X-Name-Last: Kosmidou
Author-Name: Dimitrios Kousenidis
Author-X-Name-First: Dimitrios
Author-X-Name-Last: Kousenidis
Author-Name: Anestis Ladas
Author-X-Name-First: Anestis
Author-X-Name-Last: Ladas
Author-Name: Christos Negkakis
Author-X-Name-First: Christos
Author-X-Name-Last: Negkakis
Title: Do institutions prevent contagion in financial markets? Evidence from the European debt crisis
Abstract:
The recent European Sovereign Debt Crisis brought in attention a number of structural problems in the European Union. Part of the effort to correct these problems in the countries that were mostly affected by the crisis were a number of policy responses from the European Union, the European Central Bank, the International Monetary Fund and the Local Governments. In this study, we attempt to assess the success of these responses to constrain the contagion of the crisis from the banking sector to the real economy sectors of the Eurozone countries. Our results show that policy announcements from the EU/ECB/IMF affect the transmission of shocks generated in the banking sector to the market. Moreover, policy responses of the national governments also seem to play a role in the contagion of the crisis.
Journal: The European Journal of Finance
Pages: 632-646
Issue: 7
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1552171
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1552171
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:7:p:632-646
Template-Type: ReDIF-Article 1.0
Author-Name: Dimitris Andriosopoulos
Author-X-Name-First: Dimitris
Author-X-Name-Last: Andriosopoulos
Author-Name: Robert Faff
Author-X-Name-First: Robert
Author-X-Name-Last: Faff
Author-Name: Krishna Paudyal
Author-X-Name-First: Krishna
Author-X-Name-Last: Paudyal
Title: Financial markets, innovation and regulation
Journal: The European Journal of Finance
Pages: 595-598
Issue: 7
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2019.1571727
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1571727
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:7:p:595-598
Template-Type: ReDIF-Article 1.0
Author-Name: Gerhard Kling
Author-X-Name-First: Gerhard
Author-X-Name-Last: Kling
Title: A theory of operational cash holding, endogenous financial constraints, and credit rationing
Abstract:
This paper develops a theory of operational cash holding. Liquidity shocks due to delayed payments must be financed using cash or short-term debt. Debt holders provide an irrevocable credit line given a firm's expected insolvency risk, and equity holders select optimum cash holding. The model demonstrates the trade-off between cash holding and investing in fixed assets. Introducing uncertain cash flows leads to precautionary cash holding if debt holders impose financial constraints. Precautionary cash holding, in turn, reduces insolvency risk enhancing access to short-term finance. The theory shows that credit rationing can occur in the absence of market frictions. Using U.S. data from 1998 to 2012, empirical findings suggest that the decline in credit lines has contributed to the increase in cash holding in line with theoretical predictions.
Journal: The European Journal of Finance
Pages: 59-75
Issue: 1
Volume: 24
Year: 2018
Month: 1
X-DOI: 10.1080/1351847X.2016.1225590
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1225590
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:1:p:59-75
Template-Type: ReDIF-Article 1.0
Author-Name: Mercedes Alda
Author-X-Name-First: Mercedes
Author-X-Name-Last: Alda
Title: Pension fund manager skills over the economic cycle: the (non-)specialization cost
Abstract:
We study whether pension fund managers, as professionals of important social and financial products, are able to add value for their clients and adapt to economic changes. To this end, we analyze the performance and skills (market timing and stock picking) over the economic cycle from both pension fund and manager perspectives. This double analysis allows examining whether skills reside in managers and/or funds and control for manager substitutions. Despite the long-term nature of pension funds, we find that both fund and manager skills vary with market conditions, showing better evidence of stock-picking in booms, and of market timing in recessions. Nonetheless, top (bottom) funds and managers exhibit both (incorrect) skills in booms and in recessions. Some of the top (bottom) funds and managers are the best (worst) in both abilities in the same periods, but not in different periods, showing that not all managers have the ability to adapt to market conditions. Additionally, managers with limited skills tend to specialize because diversification requires multi-task skills and the non-specialization of these managers usually results in incorrect skills.
Journal: The European Journal of Finance
Pages: 36-58
Issue: 1
Volume: 24
Year: 2018
Month: 1
X-DOI: 10.1080/1351847X.2016.1239585
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1239585
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:1:p:36-58
Template-Type: ReDIF-Article 1.0
Author-Name: Fearghal Kearney
Author-X-Name-First: Fearghal
Author-X-Name-Last: Kearney
Author-Name: Mark Cummins
Author-X-Name-First: Mark
Author-X-Name-Last: Cummins
Author-Name: Finbarr Murphy
Author-X-Name-First: Finbarr
Author-X-Name-Last: Murphy
Title: Forecasting implied volatility in foreign exchange markets: a functional time series approach
Abstract:
We utilise novel functional time series (FTS) techniques to characterise and forecast implied volatility in foreign exchange markets. In particular, we examine the daily implied volatility curves of FX options, namely; Euro/United States Dollar, Euro/British Pound, and Euro/Japanese Yen. The FTS model is shown to produce both realistic and plausible implied volatility shapes that closely match empirical data during the volatile 2006–2013 period. Furthermore, the FTS model significantly outperforms implied volatility forecasts produced by traditionally employed parametric models. The evaluation is performed under both in-sample and out-of-sample testing frameworks with our findings shown to be robust across various currencies, moneyness segments, contract maturities, forecasting horizons, and out-of-sample window lengths. The economic significance of the results is highlighted through the implementation of a simple trading strategy.
Journal: The European Journal of Finance
Pages: 1-18
Issue: 1
Volume: 24
Year: 2018
Month: 1
X-DOI: 10.1080/1351847X.2016.1271441
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1271441
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:1:p:1-18
Template-Type: ReDIF-Article 1.0
Author-Name: Yasheng Huang
Author-X-Name-First: Yasheng
Author-X-Name-Last: Huang
Author-Name: Meijun Qian
Author-X-Name-First: Meijun
Author-X-Name-Last: Qian
Title: How gradualist are Chinese reforms? Evidence from rural income determinants
Abstract:
Gradualist reform (GR) is a strategy that implements partial and incremental reforms at the beginning but gradually deepens the reforms over time. Using income determinants in rural China as the measure of the GR hypothesis, this paper provides a direct test of the widely accepted claim that China has followed a GR strategy. In the sense that reform deepens, production factors should become more important income determinants over time. Our difference-in-difference analysis, based on a large panel dataset from fixed-site rural surveys conducted between 1986 and 2002, shows that the efficiency of return to production factors deteriorated over time instead. Households that had more production resources, such as land and labor, or that devoted more labor and time to entrepreneurial activities experienced better income growth in the 1980s, but households with better political status did so in the 1990s. Further difference-in-difference analyses show that these income patterns are related to an inefficient credit allocation due to government interference in the 1990s compared to market mechanisms in the 1980s. Overall, the empirical evidence on the income determinants and on rural finance does not support the GR hypothesis on China's reform path.
Journal: The European Journal of Finance
Pages: 19-35
Issue: 1
Volume: 24
Year: 2018
Month: 1
X-DOI: 10.1080/1351847X.2017.1290669
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1290669
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:1:p:19-35
Template-Type: ReDIF-Article 1.0
Author-Name: John van der Burg
Author-X-Name-First: John
Author-X-Name-Last: van der Burg
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Title: A hyperbolic model of optimal cash balances
Abstract:
We develop a hyperbolic cash management model based on the Pearson Type IV probability density which minimises extreme variations in firm cash balances. Since the moments for the Type IV probability density are in general undefined and maximum likelihood estimation is compromised by the non-algebraic nature of the Type IV normalising constant, parameter estimation is implemented using the $ {\chi ^2} $ χ2 minimum method. Empirical analysis shows that the Type IV density is highly compatible with the quarterly cash flow data of a randomly selected sample of 100 large U.S. corporations. In contrast, around 60% of the 100 corporations return Jarque–Bera test statistics which are incompatible with the Gaussian probability density.
Journal: The European Journal of Finance
Pages: 101-115
Issue: 2
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1482834
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1482834
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:2:p:101-115
Template-Type: ReDIF-Article 1.0
Author-Name: Yunfeng Fan
Author-X-Name-First: Yunfeng
Author-X-Name-Last: Fan
Author-Name: Sudipto Sarkar
Author-X-Name-First: Sudipto
Author-X-Name-Last: Sarkar
Author-Name: Chuanqian Zhang
Author-X-Name-First: Chuanqian
Author-X-Name-Last: Zhang
Title: The investment decision with technological and market uncertainties
Abstract:
This paper examines how technological uncertainty affects current investment; specifically, what is the impact on a firm’s investment in an existing technology when an improved technology might arrive in the future. The firm can invest in the current technology and upgrade to the new technology after its arrival (sequential investing), or it can bypass the current technology and invest directly in the new technology (leapfrogging). The main result is that, in the presence of market risk, future technological uncertainty has a non-monotonic effect on investment, with the investment trigger being a U-shaped function of the expected speed of arrival of the new technology. In this U-shaped relationship, the investment trigger starts rising later if the new technology is more attractive and also when volatility and interest rate are high and growth rate low; thus, technological uncertainty is more likely to have a positive effect on investment under these conditions. Finally, we apply the model to the sequential versus leapfrog investment decision, and find that leapfrogging becomes more attractive relative to sequential investment when interest rate and new technology earnings enhancement are higher, and when market volatility, growth rate and new technology investment cost are lower.
Journal: The European Journal of Finance
Pages: 116-138
Issue: 2
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1486865
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1486865
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:2:p:116-138
Template-Type: ReDIF-Article 1.0
Author-Name: Dimitris K. Chronopoulos
Author-X-Name-First: Dimitris K.
Author-X-Name-Last: Chronopoulos
Author-Name: David G. McMillan
Author-X-Name-First: David G.
Author-X-Name-Last: McMillan
Author-Name: Fotios I. Papadimitriou
Author-X-Name-First: Fotios I.
Author-X-Name-Last: Papadimitriou
Author-Name: Manouchehr Tavakoli
Author-X-Name-First: Manouchehr
Author-X-Name-Last: Tavakoli
Title: Insider trading and future stock returns in firms with concentrated ownership levels
Abstract:
We investigate the relationship between insider trading and stock returns in firms with concentrated ownership. To this end, we employ data from East Asian countries which span the period January 2003 to May 2012. Consistent with the previous literature, we find a significantly negative relation between the selling activity of insiders and stock returns. However, contrary to studies which focus on highly developed markets, we find that the buying activity of insiders is also inversely related to future stock returns. Our analysis shows that top directors with higher ownership levels drive this result, suggesting that the trading activity of insiders is not always associated with profit-making motives and can be explained by their level of ownership. Furthermore, we demonstrate that a trading strategy which focuses solely on purchases made by top directors with high ownership levels yields negative returns. The paper has important implications for outside investors who mimic the trading activity of insiders with the aim to realise profits.
Journal: The European Journal of Finance
Pages: 139-154
Issue: 2
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1487312
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1487312
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:2:p:139-154
Template-Type: ReDIF-Article 1.0
Author-Name: Carmen López-Andión
Author-X-Name-First: Carmen
Author-X-Name-Last: López-Andión
Author-Name: Ana Iglesias-Casal
Author-X-Name-First: Ana
Author-X-Name-Last: Iglesias-Casal
Author-Name: Maria Celia López-Penabad
Author-X-Name-First: Maria Celia
Author-X-Name-Last: López-Penabad
Author-Name: Jose Manuel Maside-Sanfiz
Author-X-Name-First: Jose Manuel
Author-X-Name-Last: Maside-Sanfiz
Title: Securitization and financial solvency: empirical evidence from Portugal
Abstract:
This paper analyses the effect of securitization issues on the solvency of Portuguese financial institutions. For this purpose, we use an unbalanced panel model estimated using GMM methods and find that securitization has a slightly positive impact on the soundness of the issuing entity. We study 35 financial entities and 60 traditional securitizations issued by 9 originators between 2001 and 2013. The analysis reveals that the financial entities’ soundness improved slightly, showing that securitization enhanced the quality of the originators’ portfolios and increased the regulatory capital requirements. We also found that efficiency and profitability improve the risk-adjusted ROAA and that efficiency increases regulatory capital requirements. The robustness analysis confirms the positive effect of securitization on solvency, where both credit quality and liquidity are shown to be significant variables.
Journal: The European Journal of Finance
Pages: 155-166
Issue: 2
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1492948
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1492948
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:2:p:155-166
Template-Type: ReDIF-Article 1.0
Author-Name: Miguel Á. Peña-Cerezo
Author-X-Name-First: Miguel Á.
Author-X-Name-Last: Peña-Cerezo
Author-Name: Arturo Rodríguez-Castellanos
Author-X-Name-First: Arturo
Author-X-Name-Last: Rodríguez-Castellanos
Author-Name: Francisco J. Ibáñez-Hernández
Author-X-Name-First: Francisco J.
Author-X-Name-Last: Ibáñez-Hernández
Title: Multi-tranche securitisation structures: more than just a zero-sum game?
Abstract:
This paper explains multi-tranche structuring and the yield that securitisation bonds offer by incorporating several factors into a comprehensive model. Results indicate that the degree of complexity of multi-tranche securitisation structures is related to market completeness and solving information asymmetry problems. We also find that the complexity of multi-tranche structure enables the yield offered by triple-A bonds to be reduced but not the average yield, concluding that tranching is a zero-sum game. This research uses a database comprising of all the MBS and ABS issues (1993–2011) in Spain, one of the world’s main securitisation markets. Analysing this long period has allowed us, for the first time, to contrast the Great Financial Crisis (GFC) disruptive effect on the analysed relationships in the securitisation market.
Journal: The European Journal of Finance
Pages: 167-189
Issue: 2
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1505648
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1505648
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:2:p:167-189
Template-Type: ReDIF-Article 1.0
Author-Name: Rangan Gupta
Author-X-Name-First: Rangan
Author-X-Name-Last: Gupta
Author-Name: Tahir Suleman
Author-X-Name-First: Tahir
Author-X-Name-Last: Suleman
Author-Name: Mark E. Wohar
Author-X-Name-First: Mark E.
Author-X-Name-Last: Wohar
Title: Exchange rate returns and volatility: the role of time-varying rare disaster risks
Abstract:
This paper provides empirical evidence to the theoretical claim that rare disaster risks have predictability for exchange rate returns and volatility using a nonparametric quantile-based methodology. Using dollar-based exchange rates for Brazil, Russia, India, China, and South Africa, the quantile-causality test shows that indeed rare disaster-risks affects both returns and volatility over the majority of their respective conditional distributions. In addition, these effects are much stronger when compared to those using the British pound, especially in terms of currency returns.
Journal: The European Journal of Finance
Pages: 190-203
Issue: 2
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1534750
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1534750
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:2:p:190-203
Template-Type: ReDIF-Article 1.0
Author-Name: Genaro Sucarrat
Author-X-Name-First: Genaro
Author-X-Name-Last: Sucarrat
Author-Name: Alvaro Escribano
Author-X-Name-First: Alvaro
Author-X-Name-Last: Escribano
Title: Estimation of log-GARCH models in the presence of zero returns
Abstract:
A critique that has been directed towards the log-GARCH model is that its log-volatility specification does not exist in the presence of zero returns. A common ‘remedy’ is to replace the zeros with a small (in the absolute sense) non-zero value. However, this renders estimation asymptotically biased if the true return is equal to zero with probability zero. Here, we propose a solution. If the zero probability is zero, then zero returns may be observed because of non-trading, measurement error (e.g. due to rounding), missing values and other data issues. The algorithm we propose treats the zeros as missing values and handles these by estimation via the ARMA representation. An extensive number of simulations verify the conjectured properties of the bias-correcting algorithm, and several empirical applications illustrate that it can make a substantial difference in practice.
Journal: The European Journal of Finance
Pages: 809-827
Issue: 10
Volume: 24
Year: 2018
Month: 7
X-DOI: 10.1080/1351847X.2017.1336452
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1336452
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:10:p:809-827
Template-Type: ReDIF-Article 1.0
Author-Name: Eva Ferreira
Author-X-Name-First: Eva
Author-X-Name-Last: Ferreira
Author-Name: Susan Orbe
Author-X-Name-First: Susan
Author-X-Name-Last: Orbe
Title: Why are there time-varying comovements in the European stock market?
Abstract:
This paper analyzes the dynamics of pair comovements between different domestic European stock market returns (Spain, France, Germany, Switzerland and the United Kingdom) seeking to check whether there is a unique source of risk driving those dynamics. Once it is shown that the comovements are time-varying, the question is to find whether a global index such as the Euro Stoxx can be considered the main source of risk. To that end we estimate and test for time-varying global pair covariances and for time-varying remaining pair covariances once the effect of the Euro Stoxx is removed. The empirical results are obtained considering locally stationary variables, a family that includes variables with first and second time-varying moments. Under that framework time-varying means and covariances can be estimated using a spline-based procedure and Wald-type statistics can be computed to test for time-variations. A simulation study shows that the role of the mean estimation part is crucial to the good performance of the tests for second moments. The empirical results evidence that all global pair covariances for the European countries analyzed are time-varying, but also that the Euro Stoxx can be considered as the driving source of risk for these time-varying dynamics. This conclusion is very useful for modeling purpose and financial strategies. Finally, we repeat the analysis considering the Nasdaq as an alternative global index and find that it explains only a small part of the dynamics in the European pair comovements.
Journal: The European Journal of Finance
Pages: 828-848
Issue: 10
Volume: 24
Year: 2018
Month: 7
X-DOI: 10.1080/1351847X.2017.1339622
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1339622
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:10:p:828-848
Template-Type: ReDIF-Article 1.0
Author-Name: Konstantinos Tolikas
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Tolikas
Title: The lead-lag relation between the stock and the bond markets
Abstract:
I examine the relative informational efficiency of bonds and the underlying stocks through the lead-lag relation between their daily returns. I find that stock returns lead the returns of high yield bonds but not those of investment grade bonds, which indicates that the stock market is relatively more informational efficient than the bond market. The findings imply trading opportunities for the bonds that are highly sensitive to the release of new information. I also find that stocks detect impending defaults earlier than bonds, which implies that bond holders may have enough time to protect their capital.
Journal: The European Journal of Finance
Pages: 849-866
Issue: 10
Volume: 24
Year: 2018
Month: 7
X-DOI: 10.1080/1351847X.2017.1340320
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1340320
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:10:p:849-866
Template-Type: ReDIF-Article 1.0
Author-Name: Philipp Lechner
Author-X-Name-First: Philipp
Author-X-Name-Last: Lechner
Author-Name: Nadine Gatzert
Author-X-Name-First: Nadine
Author-X-Name-Last: Gatzert
Title: Determinants and value of enterprise risk management: empirical evidence from Germany
Abstract:
Enterprise risk management (ERM) has become increasingly relevant in recent years, especially due to an increasing complexity of risks and the further development of regulatory frameworks. The aim of this paper is to empirically analyze firm characteristics that determine the implementation of an ERM system and to study the impact of ERM on firm value. We focus on companies listed at the German stock exchange, which to the best of our knowledge is the first empirical study with a cross-sectional analysis for Germany and one of the first for a European country. Our findings show that size, international diversification and the industry sector (banking, insurance, energy) positively impact the implementation of an ERM system, and financial leverage is negatively related to ERM engagement. In addition, our results confirm a significant positive impact of ERM on shareholder value.
Journal: The European Journal of Finance
Pages: 867-887
Issue: 10
Volume: 24
Year: 2018
Month: 7
X-DOI: 10.1080/1351847X.2017.1347100
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1347100
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:10:p:867-887
Template-Type: ReDIF-Article 1.0
Author-Name: Laura Ballotta
Author-X-Name-First: Laura
Author-X-Name-Last: Ballotta
Author-Name: Russell Gerrard
Author-X-Name-First: Russell
Author-X-Name-Last: Gerrard
Author-Name: Ioannis Kyriakou
Author-X-Name-First: Ioannis
Author-X-Name-Last: Kyriakou
Title: Hedging of Asian options under exponential Lévy models: computation and performance
Abstract:
In this paper we consider the problem of hedging an arithmetic Asian option with discrete monitoring in an exponential Lévy model by deriving backward recursive integrals for the price sensitivities of the option. The procedure is applied to the analysis of the performance of the delta and delta–gamma hedges in an incomplete market; particular attention is paid to the hedging error and the impact of model error on the quality of the chosen hedging strategy. The numerical analysis shows the impact of jump risk on the hedging error of the option position, and the importance of including traded options in the hedging portfolio for the reduction of this risk.
Journal: The European Journal of Finance
Pages: 297-323
Issue: 4
Volume: 23
Year: 2017
Month: 3
X-DOI: 10.1080/1351847X.2015.1066694
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1066694
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:4:p:297-323
Template-Type: ReDIF-Article 1.0
Author-Name: Emmanouil Platanakis
Author-X-Name-First: Emmanouil
Author-X-Name-Last: Platanakis
Author-Name: Charles Sutcliffe
Author-X-Name-First: Charles
Author-X-Name-Last: Sutcliffe
Title: Asset–liability modelling and pension schemes: the application of robust optimization to USS
Abstract:
This paper uses a novel numerical optimization technique – robust optimization – that is well suited to solving the asset–liability management (ALM) problem for pension schemes. It requires the estimation of fewer stochastic parameters, reduces estimation risk and adopts a prudent approach to asset allocation. This study is the first to apply it to a real-world pension scheme, and the first ALM model of a pension scheme to maximize the Sharpe ratio. We disaggregate pension liabilities into three components – active members, deferred members and pensioners, and transform the optimal asset allocation into the scheme's projected contribution rate. The robust optimization model is extended to include liabilities and used to derive optimal investment policies for the Universities Superannuation Scheme (USS), benchmarked against the Sharpe and Tint, Bayes–Stein and Black–Litterman models as well as the actual USS investment decisions. Over a 144-month out-of-sample period, robust optimization is superior to the four benchmarks across 20 performance criteria and has a remarkably stable asset allocation – essentially fix-mix. These conclusions are supported by six robustness checks.
Journal: The European Journal of Finance
Pages: 324-352
Issue: 4
Volume: 23
Year: 2017
Month: 3
X-DOI: 10.1080/1351847X.2015.1071714
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1071714
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:4:p:324-352
Template-Type: ReDIF-Article 1.0
Author-Name: Jacinto Marabel Romo
Author-X-Name-First: Jacinto
Author-X-Name-Last: Marabel Romo
Title: Pricing volatility options under stochastic skew with application to the VIX index
Abstract:
In recent years, there has been a remarkable growth of volatility options. In particular, VIX options are among the most actively trading contracts at Chicago Board Options Exchange. These options exhibit upward sloping volatility skew and the shape of the skew is largely independent of the volatility level. To take into account these stylized facts, this article introduces a novel two-factor stochastic volatility model with mean reversion that accounts for stochastic skew consistent with empirical evidence. Importantly, the model is analytically tractable. In this sense, I solve the pricing problem corresponding to standard-start, as well as to forward-start European options through the Fast Fourier Transform. To illustrate the practical performance of the model, I calibrate the model parameters to the quoted prices of European options on the VIX index. The calibration results are fairly good indicating the ability of the model to capture the shape of the implied volatility skew associated with VIX options.
Journal: The European Journal of Finance
Pages: 353-374
Issue: 4
Volume: 23
Year: 2017
Month: 3
X-DOI: 10.1080/1351847X.2015.1092165
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1092165
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:4:p:353-374
Template-Type: ReDIF-Article 1.0
Author-Name: Thanos Verousis
Author-X-Name-First: Thanos
Author-X-Name-Last: Verousis
Author-Name: Owain ap Gwilym
Author-X-Name-First: Owain
Author-X-Name-Last: ap Gwilym
Author-Name: XiaoHua Chen
Author-X-Name-First: XiaoHua
Author-X-Name-Last: Chen
Title: The intraday determination of liquidity in the NYSE LIFFE equity option markets
Abstract:
We exploit an extensive high-frequency data set of all individual equity options trading at New York Stock Exchange London International Financial Futures and Options Exchange (Amsterdam, London and Paris) in order to study the determination of liquidity during the trading day. In particular, we focus on two main aspects of option liquidity: (i) the intraday behaviour of equity option liquidity and its determinants and (ii) the influence of macroeconomic events and commonality on intraday equity option liquidity. Inventory management models cannot explain the intraday variation in option spreads and depths. Instead, we show that the option liquidity measures are strongly correlated with option volatility. Increases in volatility are associated with decreases in liquidity, a finding that is in line with information asymmetry models and the derivatives hedging theory. However, the relationship between spreads and volume varies across the three markets. Option liquidity reacts strongly to macroeconomic news announcements, especially US events. The average systematic liquidity component is 12% for Amsterdam, 14% for London and 16% for Paris.
Journal: The European Journal of Finance
Pages: 1164-1188
Issue: 12
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2015.1019642
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1019642
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:12:p:1164-1188
Template-Type: ReDIF-Article 1.0
Author-Name: Andreas Karathanasopoulos
Author-X-Name-First: Andreas
Author-X-Name-Last: Karathanasopoulos
Author-Name: Konstantinos Athanasios Theofilatos
Author-X-Name-First: Konstantinos Athanasios
Author-X-Name-Last: Theofilatos
Author-Name: Georgios Sermpinis
Author-X-Name-First: Georgios
Author-X-Name-Last: Sermpinis
Author-Name: Christian Dunis
Author-X-Name-First: Christian
Author-X-Name-Last: Dunis
Author-Name: Sovan Mitra
Author-X-Name-First: Sovan
Author-X-Name-Last: Mitra
Author-Name: Charalampos Stasinakis
Author-X-Name-First: Charalampos
Author-X-Name-Last: Stasinakis
Title: Stock market prediction using evolutionary support vector machines: an application to the ASE20 index
Abstract:
The main motivation for this paper is to introduce a novel hybrid method for the prediction of the directional movement of financial assets with an application to the ASE20 Greek stock index. Specifically, we use an alternative computational methodology named evolutionary support vector machine (ESVM) stock predictor for modeling and trading the ASE20 Greek stock index extending the universe of the examined inputs to include autoregressive inputs and moving averages of the ASE20 index and other four financial indices. The proposed hybrid method consists of a combination of genetic algorithms with support vector machines modified to uncover effective short-term trading models and overcome the limitations of existing methods. For comparison purposes, the trading performance of the ESVM stock predictor is benchmarked with four traditional strategies (a naïve strategy, a buy and hold strategy, a moving average convergence/divergence and an autoregressive moving average model), and a multilayer perceptron neural network model. As it turns out, the proposed methodology produces a higher trading performance, even during the financial crisis period, in terms of annualized return and information ratio, while providing information about the relationship between the ASE20 index and DAX30, NIKKEI225, FTSE100 and S&P500 indices.
Journal: The European Journal of Finance
Pages: 1145-1163
Issue: 12
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2015.1040167
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1040167
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:12:p:1145-1163
Template-Type: ReDIF-Article 1.0
Author-Name: Patrick OSullivan
Author-X-Name-First: Patrick
Author-X-Name-Last: OSullivan
Author-Name: David Edelman
Author-X-Name-First: David
Author-X-Name-Last: Edelman
Title: Optimal derivatives: portfolios, payoffs and preferences
Abstract:
This article presents an extension to the growth optimal derivative that can accommodate risk preferences differing from those of logarithmic utility. Analysis of the optimal derivative provides interesting insights into the behaviour of power investors. We show that power investors under the real-world probability can be viewed as logarithmic investors under the myopic probability of Guasoni and Robertson [(2012). “Portfolios and Risk Premia for the Long Run.” Annals of Applied Probability, 22 (1), 239–284]. Furthermore, this intuition provides criteria for establishing whether fractional Kelly betting is optimal for power investors. Finally, the Black–Scholes model is used to demonstrate how the optimal derivative can be implemented and we show that our approach is consistent with classical techniques.
Journal: The European Journal of Finance
Pages: 1224-1236
Issue: 12
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2016.1151807
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151807
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:12:p:1224-1236
Template-Type: ReDIF-Article 1.0
Author-Name: Thanos Verousis
Author-X-Name-First: Thanos
Author-X-Name-Last: Verousis
Author-Name: Owain ap Gwilym
Author-X-Name-First: Owain
Author-X-Name-Last: ap Gwilym
Author-Name: Nikolaos Voukelatos
Author-X-Name-First: Nikolaos
Author-X-Name-Last: Voukelatos
Title: Commonality in equity options liquidity: evidence from European Markets
Abstract:
This paper examines commonality in liquidity for individual equity options trading in European markets. We use high-frequency data to construct a novel index of liquidity commonality. The approach is able to explain a substantial proportion of the liquidity variation across individual options. The explanatory power of the common liquidity factor is more pronounced during periods of higher market-wide implied volatility. The common factor's impact on individual options' liquidity depends on options' idiosyncratic characteristics. There is some evidence of systematic liquidity spillover effects across these European exchanges.
Journal: The European Journal of Finance
Pages: 1204-1223
Issue: 12
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2016.1188836
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1188836
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:12:p:1204-1223
Template-Type: ReDIF-Article 1.0
Author-Name: Csaba Csávás
Author-X-Name-First: Csaba
Author-X-Name-Last: Csávás
Title: Covered interest parity with default risk
Abstract:
In this paper we derive a simple model of covered interest parity (CIP) with the assumption that interbank money market rates are risky. The model assumes that the default risk of uncollateralised loans can be hedged perfectly by credit default swap contracts. We show that the no-arbitrage condition is satisfied by a band. The location of this no-arbitrage band depends on the relative riskiness of the two counterparties in the CIP trade. We present evidence on the performance of the model for developed currency pairs in 2008–2011. We find that FX swap spreads (CIP deviations calculated from interbank interest rates of two countries) either fluctuated within the no-arbitrage bands or were close to the edges of the no-arbitrage bands.
Journal: The European Journal of Finance
Pages: 1130-1144
Issue: 12
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2014.924076
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.924076
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:12:p:1130-1144
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang K. Härdle
Author-X-Name-First: Wolfgang K.
Author-X-Name-Last: Härdle
Author-Name: Piotr Majer
Author-X-Name-First: Piotr
Author-X-Name-Last: Majer
Title: Yield curve modeling and forecasting using semiparametric factor dynamics
Abstract:
Using a dynamic semiparametric factor model (DSFM) we investigate the term structure of interest rates. The proposed methodology is applied to monthly interest rates for four southern European countries: Greece, Italy, Portugal and Spain from the introduction of the Euro to the recent European sovereign-debt crisis. Analyzing this extraordinary period, we compare our approach with the standard market method – dynamic Nelson–Siegel model. Our findings show that two nonparametric factors capture the spatial structure of the yield curve for each of the bond markets separately. We attributed both factors to the slope of the yield curve. For panel term structure data, three nonparametric factors are necessary to explain 95% variation. The estimated factor loadings are unit root processes and reveal high persistency. In comparison with the benchmark model, the DSFM technique shows superior short-term forecasting in times of financial distress.
Journal: The European Journal of Finance
Pages: 1109-1129
Issue: 12
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2014.926281
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.926281
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:12:p:1109-1129
Template-Type: ReDIF-Article 1.0
Author-Name: Yuxin Xie
Author-X-Name-First: Yuxin
Author-X-Name-Last: Xie
Author-Name: Athanasios A. Pantelous
Author-X-Name-First: Athanasios A.
Author-X-Name-Last: Pantelous
Author-Name: Chris Florackis
Author-X-Name-First: Chris
Author-X-Name-Last: Florackis
Title: Disappointment aversion and the equity premium puzzle: new international evidence
Abstract:
Drawing upon the seminal study of Ang, Bekaert, and Liu [2005. “Why Stock May Disappoint?” Journal of Financial Economics 76 (3): 471–508], we incorporate disappointment aversion (DA, that is, aversion to outcomes that are worse than prior expectations) within a simple theoretical portfolio-choice model. Based on the results of this model, we then empirically address the portfolio allocation problem of an investor who chooses between a risky and a risk-free asset using international data from 19 countries. Our findings strongly support the view that DA leads investors to reduce their exposure to the stock market (i.e. DA significantly depresses the portfolio weights on equities in all cases considered). Overall, our study shows that in addition to risk aversion, DA plays an important role in explaining the equity premium puzzle around the world.
Journal: The European Journal of Finance
Pages: 1189-1203
Issue: 12
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2014.946529
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.946529
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:12:p:1189-1203
Template-Type: ReDIF-Article 1.0
Author-Name: Oscar Stålnacke
Author-X-Name-First: Oscar
Author-X-Name-Last: Stålnacke
Title: Individual investors’ information use, subjective expectations, and portfolio risk and return
Abstract:
What information do individual investors use when making their financial decisions and how is it related to their stock market expectations, their confidence in these expectations, and the risk and return of their stock portfolios? I study these questions by combining survey data on the information usage among individual investors in Sweden with detailed registry data on their stock portfolios. I find that investors use filtered financial information (e.g. information packaged by a professional intermediary) more frequently than they use unfiltered financial information (e.g. information from annual reports and financial statements). Investors who frequently use filtered financial information are, however, more confident in their stock market expectations and take larger risks in their stock portfolios. Investors that instead use unfiltered financial information take lower portfolio risks and obtain higher portfolio returns. The findings in this paper thus suggest that investors can improve their financial decisions by using more unfiltered financial information rather than filtered financial information when they make their financial decisions.
Journal: The European Journal of Finance
Pages: 1351-1376
Issue: 15
Volume: 25
Year: 2019
Month: 10
X-DOI: 10.1080/1351847X.2019.1592769
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1592769
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:15:p:1351-1376
Template-Type: ReDIF-Article 1.0
Author-Name: Marco Lamieri
Author-X-Name-First: Marco
Author-X-Name-Last: Lamieri
Author-Name: Ilaria Sangalli
Author-X-Name-First: Ilaria
Author-X-Name-Last: Sangalli
Title: The propagation of liquidity imbalances in manufacturing supply chains: evidence from a spatial auto-regressive approach
Abstract:
The number of distressed firms increased sharply during the last recessionary phase. The scope of the paper is to analyze determinants of distress by focusing the attention on trade-credit chains as the key source of contagion effects in 2009–2013. Financial and liquidity imbalances propagate along the supply chain: firms respond to late payments from customers by defaulting on payments to suppliers. The novelty of our approach consists of applying spatial econometric techniques to assess spillover effects of trade debt. We employ a representative sample of around 12,000 Italian manufacturing firms that combines balance sheet items with information collected in the Credit Register of the Italian central bank. Our proxy for supply-chain interconnections is a matrix of firm-to firm transactions which mirrors the networked structure of the industrial system. Estimates show that trade debt has been affected by spillover effects during the great crisis of 2009–2013. Moreover, trade debt and financial indebtedness exerted an impact of almost identical magnitude on firms' distress likelihoods. This evidence sheds light on the importance to move away from a static view of the trade-credit phenomenon, and to integrate solvency models with detailed information on firm-to-firm transactions which is increasingly available through big data collection.
Journal: The European Journal of Finance
Pages: 1377-1401
Issue: 15
Volume: 25
Year: 2019
Month: 10
X-DOI: 10.1080/1351847X.2019.1596962
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1596962
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:15:p:1377-1401
Template-Type: ReDIF-Article 1.0
Author-Name: Catherine Kyrtsou
Author-X-Name-First: Catherine
Author-X-Name-Last: Kyrtsou
Author-Name: Dimitris Kugiumtzis
Author-X-Name-First: Dimitris
Author-X-Name-Last: Kugiumtzis
Author-Name: Angeliki Papana
Author-X-Name-First: Angeliki
Author-X-Name-Last: Papana
Title: Further insights on the relationship between SP500, VIX and volume: a new asymmetric causality test
Abstract:
In the aim to explore the complex relationships between S&P500, VIX and volume we introduce a Granger causality test using the nonlinear statistic of Asymmetric Partial Transfer Entropy (APTE). Through a simulation exercise, it arises that the APTE offers precise information on the nature of the connectivity. Our empirical findings concretize the information flow that links volume, S&P500 and VIX, and merge the leverage effect and the asymmetric stock return-volume relationship into a unified framework of analysis. More specifically, when we condition on the tails, the detected causal channel provides empirical validation of the noise trading contribution to large swings in financial markets, because of the increase of trading volume and the subsequent worsening ability of market prices to adjust to new information.
Journal: The European Journal of Finance
Pages: 1402-1419
Issue: 15
Volume: 25
Year: 2019
Month: 10
X-DOI: 10.1080/1351847X.2019.1599406
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1599406
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:15:p:1402-1419
Template-Type: ReDIF-Article 1.0
Author-Name: Hang Zhou
Author-X-Name-First: Hang
Author-X-Name-Last: Zhou
Author-Name: Seth Armitage
Author-X-Name-First: Seth
Author-X-Name-Last: Armitage
Author-Name: Maria Michou
Author-X-Name-First: Maria
Author-X-Name-Last: Michou
Title: Net equity issuance effect in the UK
Abstract:
Net equity issuance (NEI) by firms has predictive power for US stock returns. This paper examines the NEI anomaly for UK stocks, using regression on firm characteristics and sorted portfolios with several factor models. The anomaly generalises to the UK only in part. We confirm the existence of a large NEI effect for small and midsize stocks, but not for large stocks. The repurchase effect, of positive abnormal returns following repurchases, is absent in the UK. We also find that the NEI effect in smaller stocks is not exploitable by investors, allowing for transaction costs.
Journal: The European Journal of Finance
Pages: 1420-1439
Issue: 15
Volume: 25
Year: 2019
Month: 10
X-DOI: 10.1080/1351847X.2019.1601119
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1601119
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:15:p:1420-1439
Template-Type: ReDIF-Article 1.0
Author-Name: Hang Li
Author-X-Name-First: Hang
Author-X-Name-Last: Li
Author-Name: Dan Zhou
Author-X-Name-First: Dan
Author-X-Name-Last: Zhou
Title: The impact of possible-offer announcements on the wealth effect of target firms
Abstract:
The stock market materially and positively responds to released information on possible offers, likely because such announcements signal the high probability that formal bids will be offered. If potential takeover discussions are revealed earlier, then target shareholders will gain significantly lower abnormal returns around the time of when formal offers are announced. Financial bidders are less likely to approach targets with earlier possible offers; however, if they do offer possible takeovers, they need to pay incrementally higher bid premiums in their formal offers. The reform inherent in the U.K. Takeover Code of 2011 weakens a bidder’s willingness to offer possible takeovers. The pre-reform effects of possible offers on the wealth effect of targets differ from those seen after the reform.
Journal: The European Journal of Finance
Pages: 1440-1461
Issue: 15
Volume: 25
Year: 2019
Month: 10
X-DOI: 10.1080/1351847X.2019.1601120
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1601120
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:15:p:1440-1461
Template-Type: ReDIF-Article 1.0
Author-Name: Rui Zhou
Author-X-Name-First: Rui
Author-X-Name-Last: Zhou
Author-Name: Johnny Siu-Hang Li
Author-X-Name-First: Johnny Siu-Hang
Author-X-Name-Last: Li
Author-Name: Jeffrey Pai
Author-X-Name-First: Jeffrey
Author-X-Name-Last: Pai
Title: Pricing temperature derivatives with a filtered historical simulation approach
Abstract:
In this paper, we propose pricing temperature derivatives using a filtered historical simulation (FHS) approach that amalgamates model-based treatment of volatility and empirical innovation density. The FHS approach implicitly captures the risk premium with the entire risk-neutral model (except the innovation distribution), thereby providing significantly more flexibility than existing methods that use only one designated parameter to capture the risk premium. Additionally, instead of relying on the fitted innovation distribution, the FHS approach uses empirical innovations to capture excess skewness, excess kurtosis, and other non-standard features in the temperature data, all of which are important for the correct pricing of temperature derivatives. We apply the FHS approach to pricing derivatives written on the temperature of Chicago, and demonstrate that this approach yields better in-sample and out-of-sample pricing performance than the constant market price of risk method and the consumption-based method.
Journal: The European Journal of Finance
Pages: 1462-1484
Issue: 15
Volume: 25
Year: 2019
Month: 10
X-DOI: 10.1080/1351847X.2019.1602068
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1602068
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:15:p:1462-1484
Template-Type: ReDIF-Article 1.0
Author-Name: André Dorsman
Author-X-Name-First: André
Author-X-Name-Last: Dorsman
Author-Name: Henk Langendijk
Author-X-Name-First: Henk
Author-X-Name-Last: Langendijk
Author-Name: Bart Van Praag
Author-X-Name-First: Bart Van
Author-X-Name-Last: Praag
Title: The association between qualitative management earnings forecasts and discretionary accounting in the Netherlands
Abstract: This paper examines whether there is an association between discretionary accounting and the accuracy of long-run forecasts of annual earnings disclosed voluntarily by Dutch companies in the directors’ report. In particular, investigations were made of the consistency in the sign and direction of discretionary accounting techniques and qualitative earnings forecasts. Long-run forecasts are defined, for the purposes of this paper, as forecasts made at least seven months before the year-end. Although not mandatory, qualitative forecasts are released by well over 60% of the listed companies in the Netherlands. Empirical results indicate that there is consistency in the sign and direction of qualitative earnings forecasts and discretionary accounting. After adopting discretionary accounting, the forecast errors are reduced if the company can reach the management earnings forecast (target). In the event that reserves are insufficient to accomplish this goal, managers choose their next best option and take an earnings bath in order to maximize reserves available for future use. By partitioning the sample in various sub-sets it is shown that earnings management and forecast errors occur most in the extreme ranges of financial performance. Overall, the study shows that management engages in discretionary accounting to present results in line with the disclosed qualitative earnings forecasts in their directors’ reports. Whilst discretionary accounting may clearly improve the consistency of companies’ earnings forecasts released via the directors’ reports and the actual earnings, managers’ earnings forecasts are sometimes disclosed in anticipation of planned discretionary accounting actions.
Journal: The European Journal of Finance
Pages: 19-40
Issue: 1
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470110099696
File-URL: http://hdl.handle.net/10.1080/13518470110099696
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:1:p:19-40
Template-Type: ReDIF-Article 1.0
Author-Name: Gülnur Muradoğlu
Author-X-Name-First: Gülnur
Author-X-Name-Last: Muradoğlu
Author-Name: Kürsat Aydoğan
Author-X-Name-First: Kürsat
Author-X-Name-Last: Aydoğan
Title: Trends in market reactions: stock dividends and rights offerings at Istanbul stock exchange
Abstract: This paper examines the existence of different price reactions to the implementation of stock dividends and rights offerings as the stock market matures over time and the investor mix changes. For that purpose market reactions at the Istanbul Stock Exchange (ISE) are Investigated during three sub-periods displaying different developmental phases of the market defined in terms of institutional framework, transactions volumes and related investor profiles. Differences in price reactions and the accompanying trading volumes are tested as the investor mix changes and small investors enter ISE due to the cultivating of awareness about the stock market. Other possible causes of excess returns such as prior knowledge about the stocks being traded or a preferred trading range are also tested. Considering the characteristics of thinly traded emerging markets, non-parametric tests are employed besides traditional event study methodology and results are immune to the choice of relevant test statistics. The results indicate that the changing mix of investors shift the timing of market reaction from announcement to implementation of stock dividends and rights offerings. Since individual investors, who are attracted by lower relative prices, are not expected to be prompt in timing, excess returns persist over longer event windows and are accompanied by increasing trading volumes.
Journal: The European Journal of Finance
Pages: 41-60
Issue: 1
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470110047611
File-URL: http://hdl.handle.net/10.1080/13518470110047611
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:1:p:41-60
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Veld
Author-X-Name-First: Chris
Author-X-Name-Last: Veld
Title: Warrant pricing: a review of empirical research
Abstract: Recently, several warrant pricing studies have become available for different models as well as for different countries. The most important conclusions that can be drawn from reviewing these studies are: (1) it is not necessary to make a correction on option valuation models for the dilution effect; (2) the only model that systematically outperforms the Black-Scholes (1973) type models is the Square Root model; (3) US and German warrants seem to be priced correctly, while deviations are found for English and Japanese warrants (underpriced by the market) and Swiss and Dutch warrants (overpriced by the market).
Journal: The European Journal of Finance
Pages: 61-91
Issue: 1
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470110047648
File-URL: http://hdl.handle.net/10.1080/13518470110047648
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:1:p:61-91
Template-Type: ReDIF-Article 1.0
Author-Name: Georges Darbellay
Author-X-Name-First: Georges
Author-X-Name-Last: Darbellay
Title: The volatility term structure in a lognormal process for the short rate
Abstract: One-factor Markov models are widely used by practitioners for pricing financial options. Their simplicity facilitates their calibration to the intial conditions and permits fast computer Implementations. Nevertheless, the danger remains that such models behave unrealistically, if the calibration of the volatility is not properly done. Here, we study a lognormal process and investigate how to specify the volatility constraints in such a way that the term structure of volatility at future times, as implied by the short rate process, has a realistic and stable shape. However, the drifting down of the volatility term structure is unavoidable. As a result, there is a tendency to underestimate option prices.
Journal: The European Journal of Finance
Pages: 92-103
Issue: 1
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470010011233
File-URL: http://hdl.handle.net/10.1080/13518470010011233
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:1:p:92-103
Template-Type: ReDIF-Article 1.0
Author-Name: Moez Bennouri
Author-X-Name-First: Moez
Author-X-Name-Last: Bennouri
Author-Name: Sonia Falconieri
Author-X-Name-First: Sonia
Author-X-Name-Last: Falconieri
Author-Name: Maher Kooli
Author-X-Name-First: Maher
Author-X-Name-Last: Kooli
Title: Single versus multiple banking: lessons from initial public offerings
Abstract:
A vast research in banking addresses the question of the costs and benefits of multiple bank relationships versus a single bank relationship. Although no clear-cutting conclusion is reached, several contributions suggest that multiple bank relationships might lead to a sub-optimal level of monitoring, compared to a single bank relationship, as a result of free riding and coordination problems. We take a novel approach to tackle this research question, by looking at the role, if any, played by the number of lending relationships in initial public offerings (IPOs). We look at the short-term performances of IPOs as measured by underpricing and find that firms that go public with multiple bank relationships exhibit more underpricing than those that go public with a single bank relationship. This finding is independent of the number of bank relationships and/or whether any of the lending banks also acts as underwriter in the offering. We interpret our results as suggesting that the market attributes a weaker certification role to multiple bank relationships because of their less effective monitoring of IPO firms.
Journal: The European Journal of Finance
Pages: 841-858
Issue: 10
Volume: 23
Year: 2017
Month: 8
X-DOI: 10.1080/1351847X.2015.1053149
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1053149
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:10:p:841-858
Template-Type: ReDIF-Article 1.0
Author-Name: Charlie X. Cai
Author-X-Name-First: Charlie X.
Author-X-Name-Last: Cai
Author-Name: Paul B. McGuinness
Author-X-Name-First: Paul B.
Author-X-Name-Last: McGuinness
Author-Name: Qi Zhang
Author-X-Name-First: Qi
Author-X-Name-Last: Zhang
Title: Capital account reform and short- and long-run stock price leadership
Abstract:
This paper studies the effect of capital account liberalization policies on the price discovery of cross-listings in Chinese stocks. We construct a non-linear causality framework that decomposes short- and long-run dimensions of price leadership. Our analysis shows that capital account liberalization has had a profound effect on long-run A- and H-price leadership traits. Specifically, increased inward capital movement from Qualified Foreign Institutional Investors strengthens long-term leadership in the mainland A-market. Similarly, increased capital outflow from the Chinese mainland galvanizes long-term price discovery processes in the Hong Kong H-market. We thus offer strong evidence that capital account liberalization promotes stock market efficiency in the long-run. The present study's empirical account also suggests that such capital flows inhibit short-term lead-lag effects.
Journal: The European Journal of Finance
Pages: 916-945
Issue: 10
Volume: 23
Year: 2017
Month: 8
X-DOI: 10.1080/1351847X.2015.1105272
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1105272
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:10:p:916-945
Template-Type: ReDIF-Article 1.0
Author-Name: Fabian T. Lutzenberger
Author-X-Name-First: Fabian T.
Author-X-Name-Last: Lutzenberger
Title: Industry cost of equity capital: European evidence for multifactor models
Abstract:
We estimate the costs of equity capital for 117 industries from 16 European countries employing the CAPM and 8 multifactor asset pricing models as well as a variety of different econometric techniques. In doing so, we extend previous research on cost of equity estimation in mainly two ways. First, our study involves European instead of US or UK industries, which are investigated in previous research, and we find that cost of equity estimates obtained from the CAPM or multifactor asset pricing models are as imprecise for European industries as for US and UK industries. Second, in addition to the CAPM, the Fama and French [1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56] three-factor model, and the Carhart [1997. “On Persistence in Mutual Fund Performance.” The Journal of Finance 52 (1): 57–82] four-factor model, which are usually employed, our study includes six multifactor models that have not yet been examined on their ability to provide precise estimates of the costs of equity: the five-factor model of Fama and French [1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56] as well as the multifactor models of Pástor and Stambaugh [2003. “Liquidity Risk and Expected Stock Returns.” Journal of Political Economy 111 (3): 642–685]; Campbell and Vuolteenaho [2004. “Bad Beta, Good Beta.” American Economic Review 94 (5): 1249–1275]; Hahn and Lee [2006. “Yield Spreads as Alternative Risk Factors for Size and Book-To-Market.” Journal of Financial & Quantitative Analysis 41 (2): 245–269]; Petkova [2006. “Do the Fama–French Factors Proxy for Innovations in Predictive Variables?” The Journal of Finance 61 (2): 581–612]; and Koijen, Lustig, and van Nieuwerburgh [2010. “The Cross-Section and Time-Series of Stock and Bond Returns.” Working Paper, University of Chicago, University of California at Los Angeles, New York University]. Our results suggest that these models provide even more imprecise cost of equity estimates. One main reason for these inaccurate estimates is the large temporal variation of the risk loadings on the non-traded factors in these models.
Journal: The European Journal of Finance
Pages: 885-915
Issue: 10
Volume: 23
Year: 2017
Month: 8
X-DOI: 10.1080/1351847X.2015.1113193
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1113193
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:10:p:885-915
Template-Type: ReDIF-Article 1.0
Author-Name: Rasha Alsakka
Author-X-Name-First: Rasha
Author-X-Name-Last: Alsakka
Author-Name: Owain ap Gwilym
Author-X-Name-First: Owain
Author-X-Name-Last: ap Gwilym
Author-Name: Huong Vu
Author-X-Name-First: Huong
Author-X-Name-Last: Vu
Title: Differences of opinion in sovereign credit signals during the European crisis
Abstract:
Motivated by the European debt crisis and the new European Union regulatory regime for the credit rating industry, we analyse differences of opinion in sovereign credit signals and their influence on European stock markets. Rating disagreements have a significant connection with subsequent negative credit actions by each agency. However, links among Moody’s/Fitch actions and their rating disagreements with other agencies have weakened in the post-regulation period. We also find that only S&P’s negative credit signals affect the own-country stock market and spill over to other European markets, but this is concentrated in the pre-regulation period. Stronger stock market reactions occur when S&P has already assigned a lower rating than Moody’s/Fitch prior to taking a further negative action.
Journal: The European Journal of Finance
Pages: 859-884
Issue: 10
Volume: 23
Year: 2017
Month: 8
X-DOI: 10.1080/1351847X.2016.1177565
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1177565
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:10:p:859-884
Template-Type: ReDIF-Article 1.0
Author-Name: Huamao Wang
Author-X-Name-First: Huamao
Author-X-Name-Last: Wang
Author-Name: Qing Xu
Author-X-Name-First: Qing
Author-X-Name-Last: Xu
Author-Name: Jinqiang Yang
Author-X-Name-First: Jinqiang
Author-X-Name-Last: Yang
Title: Investment timing and optimal capital structure under liquidity risk
Abstract:
Deterioration in debt market liquidity reduces debt values and affects firms' decisions. Considering such risk, we develop an investment timing model and obtain analytic solutions. We carry out a comprehensive analysis in optimal financing, default, and investment strategies, and stockholder–bondholder conflicts. Our model explains stylized facts and replicates empirical findings in credit spreads. We obtain six new insights for decision makers. We propose a ‘new trade-off theory’ for optimal capital structure, a new tax effect, and new explanations of ‘debt conservatism puzzle’ and ‘zero-leverage puzzle’. Failure in recognizing liquidity risk results in substantially over-leveraging, early bankruptcy or investment, overpriced options, and undervalued coupons and credit spreads. In addition, agency costs are surprisingly small for a high liquidity risk or a low project risk. Interestingly, the risk shifting incentive and debt overhang problem decrease with liquidity risk under moderate tax rates while they increase under high tax rates.
Journal: The European Journal of Finance
Pages: 889-908
Issue: 11
Volume: 24
Year: 2018
Month: 7
X-DOI: 10.1080/1351847X.2017.1356342
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1356342
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:11:p:889-908
Template-Type: ReDIF-Article 1.0
Author-Name: Ming-Che Chuang
Author-X-Name-First: Ming-Che
Author-X-Name-Last: Chuang
Author-Name: Wan-Ru Yang
Author-X-Name-First: Wan-Ru
Author-X-Name-Last: Yang
Author-Name: Ming-Chi Chen
Author-X-Name-First: Ming-Chi
Author-X-Name-Last: Chen
Author-Name: Shih-Kuei Lin
Author-X-Name-First: Shih-Kuei
Author-X-Name-Last: Lin
Title: Pricing mortgage insurance contracts under housing price cycles with jump risk: evidence from the U.K. housing market
Abstract:
Previous studies have investigated the determinants of housing price cycles in the housing market; however, we observed the phenomenon of housing price jumps in the 2007 subprime crisis. This paper presents a discussion on the housing price cycle and abnormal price jumps to describe the behavior of housing prices in the United Kingdom. The empirical results show that the impact factors of housing cycles are market risk and the switching factor. Furthermore, the impact factors of jump risks include the bursting of the housing bubble and financial crises. Therefore, in this paper, we employ the Markov switching model with jump risks to value the MI contracts and analyze the influences of housing price cycles, jump risks, risks of market interest rate, and the prepayment risks on MI premiums. The results of sensitivity analysis show that more volatile housing price index returns, as well as longer periods of higher volatility in housing prices, raise MI premiums. Moreover, the MI premium is positively related to the absolute value of the average jump amplitude and the shock frequency of abnormal events. There is the tradeoff between the market interest rate and the prepayment risk. The influences of market interest rate are different on MI premium with/without prepayment risks.
Journal: The European Journal of Finance
Pages: 909-943
Issue: 11
Volume: 24
Year: 2018
Month: 7
X-DOI: 10.1080/1351847X.2017.1359199
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1359199
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:11:p:909-943
Template-Type: ReDIF-Article 1.0
Author-Name: Emmanouil N. Karimalis
Author-X-Name-First: Emmanouil N.
Author-X-Name-Last: Karimalis
Author-Name: Nikos K. Nomikos
Author-X-Name-First: Nikos K.
Author-X-Name-Last: Nomikos
Title: Measuring systemic risk in the European banking sector: a copula CoVaR approach
Abstract:
We propose a new methodology based on copula functions to estimate CoVaR, the Value-at-Risk (VaR) of the financial system conditional on an institution being under financial distress. Our Copula CoVaR approach provides simple, closed-form expressions for various definitions of CoVaR for a broad range of copula families and allows the CoVaR of an institution to have time-varying exposure to its VaR. We extend this approach to estimate other ‘co-risk’ measures such as Conditional Expected Shortfall (CoES). We focus on a portfolio of large European banks and examine the existence of common market factors triggering systemic risk episodes. Further, we analyse the extent to which bank-specific characteristics such as size, leverage, and equity beta are associated with institutions' contribution to systemic risk and highlight the importance of liquidity risk at the outset of the financial crisis in summer 2007. Finally, we investigate the link between macroeconomy and systemic risk and find that changes in major macroeconomic variables can contribute significantly to systemic risk.
Journal: The European Journal of Finance
Pages: 944-975
Issue: 11
Volume: 24
Year: 2018
Month: 7
X-DOI: 10.1080/1351847X.2017.1366350
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1366350
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:11:p:944-975
Template-Type: ReDIF-Article 1.0
Author-Name: Cristiana Cerqueira Leal
Author-X-Name-First: Cristiana Cerqueira
Author-X-Name-Last: Leal
Author-Name: Manuel J. Rocha Armada
Author-X-Name-First: Manuel J. Rocha
Author-X-Name-Last: Armada
Author-Name: Gilberto Loureiro
Author-X-Name-First: Gilberto
Author-X-Name-Last: Loureiro
Title: Individual investors repurchasing behaviour: evidence from the Portuguese stock market
Abstract:
We study the repurchasing behaviour of individual investors and identify-related stock- and investor-specific attributes that affect the preference to repurchase stocks previously owned. Using a unique database of Portuguese individual investors, we find that investors prefer to repurchase stocks that were associated with a gain during their previous roundtrip (i.e. prior winners) and have suffered price declines subsequent to their last sale. Consistent with the extant literature based on the US market, our results suggest that different market characteristics do not seem to affect investors’ preference regarding stock repurchases. Moreover, we find that this preference increases with the magnitude of the prior gain or the decline in price following the last sale. We also demonstrate that larger and more visible domestic stocks are more likely to be repurchased and that less active, under-diversified and home-biased investors are more likely to engage in such behaviour. Finally, we find that repurchased stocks yield poor post-performance – approximately 267 basis points less than newly purchased stocks. Our main conclusion is that repurchases are essentially emotionally driven and penalize investor’s performance.
Journal: The European Journal of Finance
Pages: 976-999
Issue: 11
Volume: 24
Year: 2018
Month: 7
X-DOI: 10.1080/1351847X.2017.1368681
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1368681
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:11:p:976-999
Template-Type: ReDIF-Article 1.0
Author-Name: Peter Grundke
Author-X-Name-First: Peter
Author-X-Name-Last: Grundke
Author-Name: Michael Tuchscherer
Author-X-Name-First: Michael
Author-X-Name-Last: Tuchscherer
Title: Global systemic risk measures and their forecasting power for systemic events
Abstract:
Since the financial crisis of 2007–2009, many market-based systemic risk measures have been proposed. Prominent examples are MES, SRISK or ΔCoVaR. Based on a simulation study in an extended banking network model that incorporates several sources of systemic risk, we analyze how well these systemic risk measures perform in indicating the risk of a systemic event. For this analysis, the systemic risk measures of the banks that default and whose default is followed by a systemic event are compared with the systemic risk measures of those defaulting banks for which no subsequent systemic event can be observed. Within the simulation study, we find that many bank-individual systemic risk measures are statistically significant in explaining the likelihood of a systemic event after a bank’s default. However, the economic significance of the bank-individual systemic risk measures is relatively low.
Journal: The European Journal of Finance
Pages: 205-233
Issue: 3
Volume: 25
Year: 2019
Month: 2
X-DOI: 10.1080/1351847X.2018.1509102
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1509102
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:3:p:205-233
Template-Type: ReDIF-Article 1.0
Author-Name: Alexander Bohnert
Author-X-Name-First: Alexander
Author-X-Name-Last: Bohnert
Author-Name: Nadine Gatzert
Author-X-Name-First: Nadine
Author-X-Name-Last: Gatzert
Author-Name: Robert E. Hoyt
Author-X-Name-First: Robert E.
Author-X-Name-Last: Hoyt
Author-Name: Philipp Lechner
Author-X-Name-First: Philipp
Author-X-Name-Last: Lechner
Title: The drivers and value of enterprise risk management: evidence from ERM ratings
Abstract:
In the course of recent regulatory developments, holistic enterprise-wide risk management (ERM) frameworks have become increasingly relevant for insurance companies. The aim of this paper is to contribute to the literature by analyzing determinants (firm characteristics) as well as the impact of ERM on the shareholder value of European insurers using the Standard & Poor’s ERM rating to identify ERM activities. This has not been done so far, even though it is of high relevance against the background of the introduction of Solvency II, which requires a holistic approach to risk management. Results show a significant positive impact of ERM on firm value for the case of European insurers. In particular, we find that insurers with a high quality risk management (RM) system exhibit a Tobin’s Q that on average is about 6.5% higher than for insurers with less high quality RM after controlling for covariates and endogeneity bias.
Journal: The European Journal of Finance
Pages: 234-255
Issue: 3
Volume: 25
Year: 2019
Month: 2
X-DOI: 10.1080/1351847X.2018.1514314
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1514314
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:3:p:234-255
Template-Type: ReDIF-Article 1.0
Author-Name: Kam C. Chan
Author-X-Name-First: Kam C.
Author-X-Name-Last: Chan
Author-Name: Xunan Feng
Author-X-Name-First: Xunan
Author-X-Name-Last: Feng
Title: Corporate philanthropy in a politically uncertain environment: does it bring tangible benefits to a firm? Evidence from China
Abstract:
We examine the impact of political uncertainty on a firm’s corporate philanthropy (CP) contribution and the associated direct tangible benefits of CP to a firm. Specifically, we examine two testable hypotheses. (1) When facing political uncertainty, a firm makes more CP, and (2) after a firm makes CP contributions during a period of uncertainty, it will obtain future tangible benefits. Using a sample of Chinese listed firms, we document that a firm, on average, increases its CP significantly during a period of political uncertainty (e.g. when there is a new local communist party secretary or mayor). In addition, we report that, on average, a firm’s donation in year t is positively correlated with its amount of government subsidies, corporate income tax reduction, and short- and long-term bank loan amounts in year t + 1. The findings are robust compared to those of placebo tests and fixed effect models, as well as when using an alternative measure of political uncertainty. We observe that the results are more pronounced among non-state-owned enterprises (non-SOEs) than those among SOEs, corroborating the notion that during a period of political uncertainty, non-SOEs are more willing to build political connections with new city leaders through CP than are SOEs.
Journal: The European Journal of Finance
Pages: 256-278
Issue: 3
Volume: 25
Year: 2019
Month: 2
X-DOI: 10.1080/1351847X.2018.1518252
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1518252
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:3:p:256-278
Template-Type: ReDIF-Article 1.0
Author-Name: Karl Ludwig Keiber
Author-X-Name-First: Karl Ludwig
Author-X-Name-Last: Keiber
Author-Name: Helene Samyschew
Author-X-Name-First: Helene
Author-X-Name-Last: Samyschew
Title: The pricing of sentiment risk in European stock markets
Abstract:
This paper studies whether sentiment is rewarded with a significant risk premium in the European stock markets. We examine several sentiment proxies and identify the Economic Sentiment Indicator from the EU Commission as the most relevant sentiment proxy for our sample. The analysis is performed for the contemporaneous excess returns of EA-11 stock markets in the period from February 1999 to September 2015. We apply a conditional multi-beta pricing model in order to track the variation of the sentiment risk premium over time. The results demonstrate a positive significant relationship between sentiment and contemporaneous excess returns which is consistent with previous studies. The calculated sentiment risk premium is significant as well but negative implying that an investment in EA-11 countries over the examined time period – that is bearing sentiment risk – would have been unattractive to the investors on average.
Journal: The European Journal of Finance
Pages: 279-302
Issue: 3
Volume: 25
Year: 2019
Month: 2
X-DOI: 10.1080/1351847X.2018.1521340
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1521340
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:3:p:279-302
Template-Type: ReDIF-Article 1.0
Author-Name: Barbara Alemanni
Author-X-Name-First: Barbara
Author-X-Name-Last: Alemanni
Author-Name: Caterina Lucarelli
Author-X-Name-First: Caterina
Author-X-Name-Last: Lucarelli
Title: Individual behaviour and long-range planning attitude
Abstract:
Declining welfare systems increase the importance of self-determination in pension decisions. Thus, the stability of long-life consumption markedly relies on individual long-range planning attitude. Our paper investigates how behavioural traits affect this attitude and influence the probability of holding voluntary integrative pension schemes (VIPS). We find that psychophysiological heterogeneity plays a role in predicting demand for VIPS, together with saving/indebtedness style and conventional sociodemographic characteristics. Specifically, individuals who have a high degree of non-planning impulsiveness, and who are inclined to intense psychophysiological arousals, are less likely to demand VIPS. Our results imply that behavioural individualities might prompt individuals to postpone, or even neglect, decisions necessary to maintain stable lifestyles in the long range.
Journal: The European Journal of Finance
Pages: 407-426
Issue: 5
Volume: 23
Year: 2017
Month: 4
X-DOI: 10.1080/1351847X.2014.1003313
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.1003313
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:5:p:407-426
Template-Type: ReDIF-Article 1.0
Author-Name: Aydin Ozkan
Author-X-Name-First: Aydin
Author-X-Name-Last: Ozkan
Author-Name: Jannine Poletti-Hughes
Author-X-Name-First: Jannine
Author-X-Name-Last: Poletti-Hughes
Author-Name: Agnieszka Trzeciakiewicz
Author-X-Name-First: Agnieszka
Author-X-Name-Last: Trzeciakiewicz
Title: Directors’ share dealings and corporate insolvencies: evidence from the UK
Abstract:
This paper investigates the relation between insider trading and the likelihood of insolvency with a specific focus on the directors’ sale and purchase transactions preceding insolvency. We use a unique data set on directors’ dealings in 474 non-financial UK firms, of which 117 filed for insolvency, over the period 2000–2010. We show that the directors of insolvent firms increase their purchase transactions significantly as the insolvency approaches. The results also reveal a significant relation between three different measures of insider trading activity and the likelihood of insolvency, which is observed to be positive only during the last six-month trading period. The relation is negative for the earlier trading periods. While the earlier purchase transactions appear to be motivated by superior information held by insiders, the purchase trades closer to the insolvency date are possibly initiated by directors’ motives to influence the market's perception of the firm in an attempt to avert or delay insolvency.
Journal: The European Journal of Finance
Pages: 427-455
Issue: 5
Volume: 23
Year: 2017
Month: 4
X-DOI: 10.1080/1351847X.2015.1040168
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1040168
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:5:p:427-455
Template-Type: ReDIF-Article 1.0
Author-Name: Keith Anderson
Author-X-Name-First: Keith
Author-X-Name-Last: Anderson
Author-Name: Tomasz Zastawniak
Author-X-Name-First: Tomasz
Author-X-Name-Last: Zastawniak
Title: Glamour, value and anchoring on the changing /
Abstract:
The fact that value shares outperform glamour shares in the long term has been known for over 50 years. Why then do glamour shares remain popular? The price-earnings (P/E) ratio was the first statistic documented to discriminate between the two. Using data for all US stocks since 1983, we find that glamour shares have a much greater tendency to change P/E decile than value shares. We use TreeAge decision tree software, which has not been applied to problems in finance before, to show that glamour investors cannot rationally expect any windfall as their company's P/E decile changes, whatever their horizon. We infer that glamour investors anchor on the initially high P/E value, underestimate the likelihood of change and are continually surprised. We also seek theoretical justification for why value shares tend to outperform glamour shares. No convincing arguments based on the efficient market hypothesis have been put forward to show that the outperformance of value shares might be due to their being fundamentally riskier. Here, we apply equations from option theory to show that value shares can indeed be expected to outperform glamour shares.
Journal: The European Journal of Finance
Pages: 375-406
Issue: 5
Volume: 23
Year: 2017
Month: 4
X-DOI: 10.1080/1351847X.2015.1113192
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1113192
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:5:p:375-406
Template-Type: ReDIF-Article 1.0
Author-Name: John K. Ashton
Author-X-Name-First: John K.
Author-X-Name-Last: Ashton
Author-Name: Andros Gregoriou
Author-X-Name-First: Andros
Author-X-Name-Last: Gregoriou
Author-Name: Jerome V. Healy
Author-X-Name-First: Jerome V.
Author-X-Name-Last: Healy
Title: The relative influence of price and non-price factors on short-term retail deposit quantities?
Abstract:
This study explores how price and non-price factors influence change in the quantity of short-term retail deposits held by depository institutions. The analysis is undertaken for a sample of UK building societies over 23 years using a disaggregated data set with a two-stage econometric procedure involving system estimators in a panel framework using seemingly unrelated regression, generalised method of moments and an ordinary least-squares fixed effects estimators to control for contemporaneous correlation and endogeneity concerns. Price factors examined include the policy or base rate and retail deposit interest rates set by individual building societies and non-price factors including the branch network and the number of deposit accounts offered by individual building societies. The cost of funds, one non-price factor and occurrence of mergers are consistently significant influences of retail deposit quantities. We conclude risk assessment of retail deposit quantity and monetary policy transmission would benefit from considering both price and non-price factors, rather than only price factors.
Journal: The European Journal of Finance
Pages: 1086-1108
Issue: 11
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2015.1019643
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1019643
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:11:p:1086-1108
Template-Type: ReDIF-Article 1.0
Author-Name: Sebastian Schroff
Author-X-Name-First: Sebastian
Author-X-Name-Last: Schroff
Author-Name: Stephan Meyer
Author-X-Name-First: Stephan
Author-X-Name-Last: Meyer
Author-Name: Hans-Peter Burghof
Author-X-Name-First: Hans-Peter
Author-X-Name-Last: Burghof
Title: Retail investor information demand – speculating and investing in structured products
Abstract:
We study the impact of retail investor information demand on trading in bank-issued investment and leverage structured products, which are specifically designed for retail investors. Stock-specific information demand positively predicts speculative trading activity. Furthermore, we find a positive relationship between market-wide information demand and order aggressiveness and order uncertainty for speculating and investing activity. Whereas information supply is associated with speculative long positions, information demand does not induce investors to be predominantly long or short. Finally, we do not find retail investor information demand to contribute to an upward price pressure on security prices. In contrast, information supply exerts negative price pressure. Overall, retail investor trading in individual stocks is much more strongly influenced by market-wide information demand instead of firm-specific information demand. This implies a low informational efficiency of retail investor speculation and investing activity.
Journal: The European Journal of Finance
Pages: 1063-1085
Issue: 11
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2015.1020392
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1020392
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:11:p:1063-1085
Template-Type: ReDIF-Article 1.0
Author-Name: John Holland
Author-X-Name-First: John
Author-X-Name-Last: Holland
Title: A behavioural theory of the fund management firm
Abstract:
The paper outlines a behavioural theory of the fund manager (FM) firm comprising investment decisions (at stock and portfolio levels) by teams and individuals, and of an organisation process and contextual resource factors affecting decisions. FM organisational processes interacted with resources to enhance investment team decision conditions, costs and processes. Enhanced conditions and reduced decision costs were expected to improve the chances of FM success via new information production and better-quality decisions. These dynamic elements to FM firms can be interpreted as tentative organisational means to deal with major problems of behaviour, uncertainty and information asymmetry at the heart of the valuation, investment and performance problems facing FMs. Field research was conducted in 15 FM firms during 2004–2011. A grounded theory approach was employed in processing the data. This led to improvements in empirical understanding of behaviour within FM firms and markets. The results were discussed relative to relevant literature and previous grounded theory. This created a new conceptual tool to investigate FM underperformance and variety in FM styles. The paper demonstrated an empirically rich model of hierarchy, information production, capital allocation and other resource usage in financial institutions and discussed how this created further opportunities for research.
Journal: The European Journal of Finance
Pages: 1004-1039
Issue: 11
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2014.924078
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.924078
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:11:p:1004-1039
Template-Type: ReDIF-Article 1.0
Author-Name: Donatien Hainaut
Author-X-Name-First: Donatien
Author-X-Name-Last: Hainaut
Author-Name: David B. Colwell
Author-X-Name-First: David B.
Author-X-Name-Last: Colwell
Title: A structural model for credit risk with switching processes and synchronous jumps
Abstract:
This paper studies a switching regime version of Merton's structural model for the pricing of default risk. The default event depends on the total value of the firm's asset modeled by a switching Lévy process. The novelty of this approach is to consider that firm's asset jumps synchronously with a change in the regime. After a discussion of dynamics under the risk neutral measure, two models are presented. In the first one, the default happens at bond maturity, when the firm's value falls below a predetermined barrier. In the second version, the firm can enter bankruptcy at multiple predetermined discrete times. The use of a Markov chain to model switches in hidden external factors makes it possible to capture the effects of changes in trends and volatilities exhibited by default probabilities. With synchronous jumps, the firm's asset and state processes are no longer uncorrelated. Finally, some econometric evidence that switching Lévy processes, with synchronous jumps, fit well historical time series is provided.
Journal: The European Journal of Finance
Pages: 1040-1062
Issue: 11
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2014.924079
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.924079
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:11:p:1040-1062
Template-Type: ReDIF-Article 1.0
Author-Name: Małgorzata Olszak
Author-X-Name-First: Małgorzata
Author-X-Name-Last: Olszak
Author-Name: Mateusz Pipień
Author-X-Name-First: Mateusz
Author-X-Name-Last: Pipień
Title: Cross-country linkages as determinants of procyclicality of loan loss provisions
Abstract:
Procyclicality in banking may result in financial instability and therefore be destructive to economic growth. The sensitivity of different banking balance sheet and income statement variables to the business cycle is diversified and may be prone to increasing integration of financial markets. In this paper, we address the problem of the influence of financial integration on the transmission of economic shocks from one country to another and consequently on the sensitivity of loan loss provisions (LLPs) to the business cycle. The application of the seemingly unrelated regression equations (SURE) approach to 13 OECD countries in 1995–2009 shows that the procyclicality of LLPs is statistically significant almost in the whole sample of countries. Regardless of the econometric specification, the income-smoothing, capital management and risk management hypotheses are hardly supported by the data. However, in SURE specification, the relationship of bank-specific variables is of higher statistical significance than in the country regression approach. Hence, cross-country interconnectedness is not only economically, but also empirically important when analyzing cross-country diversifications of LLPs.
Journal: The European Journal of Finance
Pages: 965-984
Issue: 11
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2014.983138
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.983138
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:11:p:965-984
Template-Type: ReDIF-Article 1.0
Author-Name: Malick Fall
Author-X-Name-First: Malick
Author-X-Name-Last: Fall
Author-Name: Jean-Laurent Viviani
Author-X-Name-First: Jean-Laurent
Author-X-Name-Last: Viviani
Title: A new multi-factor risk model to evaluate funding liquidity risk of banks
Abstract:
The present paper investigates funding liquidity risk of banks. We present a new statistical multi-factor risk model leading to three new funding liquidity risk metrics, thanks to liquidity gap's probability distribution analysis. We test our model on a large sample composed of 593 US banking companies, this allows us to identify some stylized facts regarding the evolution of liquidity risk and its relationship with the size of banking companies. Our main motivation is to develop ‘the contractual maturity mismatch’ monitoring tool proposed within the Basel III reform.
Journal: The European Journal of Finance
Pages: 985-1003
Issue: 11
Volume: 22
Year: 2016
Month: 9
X-DOI: 10.1080/1351847X.2014.996656
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.996656
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:11:p:985-1003
Template-Type: ReDIF-Article 1.0
Author-Name: Eric Bentzen
Author-X-Name-First: Eric
Author-X-Name-Last: Bentzen
Author-Name: Peter Sellin
Author-X-Name-First: Peter
Author-X-Name-Last: Sellin
Title: The Intertemporal Capital Asset Pricing Model with returns that follow Poisson jump–diffusion processes
Abstract: Capital market equilibrium is derived in a model where asset returns follow a mixed Poisson jump–diffusion process. In the resulting modified Capital Asset Pricing Model (CAPM) expected returns are still linear in beta, but in addition premia have to be paid to compensate the investor for taking on jump risk. When jump risk is diversifiable in the market portfolio the model is reduced to the standard CAPM. Jumps are found to be prevalent in the daily returns of the market indices in the 18 countries investigated. A continuous return process does not give an adequate description of the market returns in any of the countries investigated.
Journal: The European Journal of Finance
Pages: 105-124
Issue: 2
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470110099704
File-URL: http://hdl.handle.net/10.1080/13518470110099704
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:2:p:105-124
Template-Type: ReDIF-Article 1.0
Author-Name: Marcelo Fernandes
Author-X-Name-First: Marcelo
Author-X-Name-Last: Fernandes
Title: Testing for a flexible non-linear link between short-term Eurorates and spreads
Abstract: This paper investigates the relationship between short-term interest rates and spreads in the Euromarket. Specifically, five Eurocurrency deposit rates are analyzed: the Belgian and French francs, the German mark, the Danish crown, and the British pound. A multivariate test for unit roots is performed and strongly rejects the null hypothesis of integration in the 1-month and 12-months rates of these Eurocurrencies, indicating that the spread cannot be seen as a cointegration vector. Notwithstanding, a codependence analysis shows that the spread can still be interpreted as a long-run relationship between the short- and long-term Eurorates. A flexible non-linear error correction model is then proposed for the short-term rate to take both the short- and long-run adjustments into account. The model fits the data quite well, and seems to provide a slightly better forecast accuracy than the random walk benchmark.
Journal: The European Journal of Finance
Pages: 125-145
Issue: 2
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470110074855
File-URL: http://hdl.handle.net/10.1080/13518470110074855
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:2:p:125-145
Template-Type: ReDIF-Article 1.0
Author-Name: Fernando Fernández-Rodríguez
Author-X-Name-First: Fernando
Author-X-Name-Last: Fernández-Rodríguez
Author-Name: Simón Sosvilla-Rivero
Author-X-Name-First: Simón
Author-X-Name-Last: Sosvilla-Rivero
Author-Name: Juan Martín-González
Author-X-Name-First: Juan
Author-X-Name-Last: Martín-González
Title: Credibility in the EMS: new evidence using nonlinear forecastability tests
Abstract: This paper develops a test for target-zone credibility that makes use of nonlinear forecastable dependences in time series. The test procedure, based on nearest-neighbour forecasting methods, is applied to nine EMS currencies. The results suggest credibility for most of the EMS countries before the 1992 crisis, credibility losses in all countries (except Belgium and the Netherlands) after such crisis, and some credibility gains after the widening of the fluctuation bands in 1993.
Journal: The European Journal of Finance
Pages: 146-168
Issue: 2
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470110073685
File-URL: http://hdl.handle.net/10.1080/13518470110073685
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:2:p:146-168
Template-Type: ReDIF-Article 1.0
Author-Name: Nicholas Bailly
Author-X-Name-First: Nicholas
Author-X-Name-Last: Bailly
Author-Name: David Browne
Author-X-Name-First: David
Author-X-Name-Last: Browne
Author-Name: Eve Hicks
Author-X-Name-First: Eve
Author-X-Name-Last: Hicks
Author-Name: Len Skerrat
Author-X-Name-First: Len
Author-X-Name-Last: Skerrat
Title: UK corporate use of derivatives
Abstract: The recent, and ongoing, large losses on derivatives transactions announced by UK corporates and the ensuing fears for systemic risk, highlight the need for focused research on derivative practices and corporate risk management activity in particular. This paper provides a descriptive analysis of the derivative practices of UK non-financial institutions, and attempts to evaluate whether these practices are consistent with value maximizing behaviour. Starting from the basic Modigliani and Miller Capital Structure proposition, more recent academic works on the subject are reviewed and analysed in the light of market Imperfections. Unlike previously published UK based research, this study encompasses a broad spectrum of both derivative instruments and companies surveyed, and offers a wider picture of derivative activity. The paper starts with an analysis of potential benefits and pitfalls of derivative instruments in risk management. The results of a survey, sent to 629 of the 637 corporates listed in the FTSE actuaries as of 1 April 1998 are discussed and compared to existing surveys which report mainly from North American markets. As a whole, the derivatives activity of UK corporates appears to be fairly similar to that of Canadian and US firms, but is still limited in view of the potential benefits that can be derived from their use in risk management. Small firms in particular do not seem to take advantage of the products available to manage their exposure to financial price risks, and initial findings suggest that this is because of a lack of knowledge in derivatives. The results support a positive relationship between derivative usage and firm size and a strong positive correlation between interest rate derivatives usage and firm size. Results also confirm that a significant proportion of firms appear to take unnecessary chances on financial markets using derivatives, although as expected, UK corporates do not use equity derivatives. Finally, although large firms seem to have adopted fairly consistent practices towards derivatives’ risk management; smaller firms have a far less consistent approach. Indeed, a significant number of them also do not appear to report their activity to the board of directors, and/or do not have a policy covering the use of these instruments.
Journal: The European Journal of Finance
Pages: 169-193
Issue: 2
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470110071218a
File-URL: http://hdl.handle.net/10.1080/13518470110071218a
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:2:p:169-193
Template-Type: ReDIF-Article 1.0
Author-Name: Joao Neves
Author-X-Name-First: Joao
Author-X-Name-Last: Neves
Author-Name: K. Ben Nowman
Author-X-Name-First: K. Ben
Author-X-Name-Last: Nowman
Title: The ECU term structure of interest rates
Abstract: This paper provides one of the few applications to the ECU curve of a Gaussian multifactor model of the term structure of interest rates. We estimate one, two and three factor Generalized Vaslcek models using panel data accounting for both the cross-sectional and dynamic implications of the yield curve to be taken into account. Our empirical results indicate that the model provides a good description of the ECU yield curve.
Journal: The European Journal of Finance
Pages: 194-197
Issue: 2
Volume: 9
Year: 2003
X-DOI: 10.1080/13518470110072046
File-URL: http://hdl.handle.net/10.1080/13518470110072046
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:9:y:2003:i:2:p:194-197
Template-Type: ReDIF-Article 1.0
Author-Name: Garen Markarian
Author-X-Name-First: Garen
Author-X-Name-Last: Markarian
Author-Name: Sebastien Michenaud
Author-X-Name-First: Sebastien
Author-X-Name-Last: Michenaud
Title: Corporate investment and earnings surprises
Abstract:
We find that firm-level investment is negatively related to the likelihood of meeting or beating analysts’ short-term EPS forecasts. In a 35-year panel dataset of US based companies, we find evidence that suggests firms with the best growth opportunities, opaque firms, and firms with higher than usual bonus compensation, are the ones to alter investment in order to beat benchmarks. Utilizing the passage of Sarbanes-Oxley as a natural experiment we find that firms trade off accruals-based earnings management in lieu of investment cuts. Results are robust to a number of covariates, and endogeneity or reverse causality does not seem to drive our inferences. This study suggests that, consistent with survey results from Graham, Harvey, and Rajgopal [2005. “The Economic Implications of Corporate Financial Reporting.” Journal of Accounting and Economics 40: 3–73], managers may reduce or delay corporate investment to meet or beat short-term earnings benchmarks.
Journal: The European Journal of Finance
Pages: 1485-1509
Issue: 16
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1618361
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1618361
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:16:p:1485-1509
Template-Type: ReDIF-Article 1.0
Author-Name: Richard Fairchild
Author-X-Name-First: Richard
Author-X-Name-Last: Fairchild
Author-Name: Ian Crawford
Author-X-Name-First: Ian
Author-X-Name-Last: Crawford
Author-Name: Adil El-Fakir
Author-X-Name-First: Adil
Author-X-Name-Last: El-Fakir
Title: A development bank’s choice of private equity partner: a behavioural game-theoretic approach
Abstract:
We develop a formal game-theoretic analysis of the economic (value-adding abilities) and behavioural factors (empathy, emotional excitement, passion) affecting a development bank’s choice of private-equity partner when investing into emerging market entrepreneurship. Triple-sided moral hazard (TSMH) problems occur in the form of effort-shirking, since the bank, the PE-manager, and the entrepreneur all contribute to value-creation. The bank’s investment choices are crucially affected by a) the relative abilities and the potential level of empathy, excitement and passion that may be generated between a PE-manager and an entrepreneur, and b) the personal emotional attachment that the bank develops towards a PE. The severity of TSMH increases inefficiencies in decision-making. Finally, we consider, in addition to political risk mitigation, an additional impact that the bank may have on PE/E value-creation: the bank may have a coaching/mentoring role. Our analysis has implications for academics and practitioners alike.
Journal: The European Journal of Finance
Pages: 1510-1526
Issue: 16
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1647863
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1647863
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:16:p:1510-1526
Template-Type: ReDIF-Article 1.0
Author-Name: Monika Bucher
Author-X-Name-First: Monika
Author-X-Name-Last: Bucher
Author-Name: Diemo Dietrich
Author-X-Name-First: Diemo
Author-X-Name-Last: Dietrich
Author-Name: Achim Hauck
Author-X-Name-First: Achim
Author-X-Name-Last: Hauck
Title: Implications of bank regulation for loan supply and bank stability: a dynamic perspective
Abstract:
We show that internal funds play a particular role in the regulation of bank capital, which has not received much attention, yet. A bank's decision on loan supply and capital structure determines its immediate bankruptcy risk as well as the future availability of internal funds. These internal funds in turn determine a bank's future costs of external finance and its future vulnerability to bankruptcy risks. Using a partial equilibrium model, we study how internal funds affect these intra- and intertemporal links. Moreover, our positive analysis identifies the effects of risk-weighted capital-to-asset ratios, liquidity coverage ratios and regulatory margin calls on the dynamics of internal funds and thus loan supply and bank stability. Only regulatory margin calls or large liquidity coverage ratios achieve bank stability for all risk levels, but for large risks a bank will stop credit intermediation.
Journal: The European Journal of Finance
Pages: 1527-1550
Issue: 16
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1614084
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1614084
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:16:p:1527-1550
Template-Type: ReDIF-Article 1.0
Author-Name: George Diacogiannis
Author-X-Name-First: George
Author-X-Name-Last: Diacogiannis
Author-Name: Christos Ioannidis
Author-X-Name-First: Christos
Author-X-Name-Last: Ioannidis
Title: Linear beta pricing with inefficient benchmarks in a given factor structure
Abstract:
We show the equivalence between the zero-beta version of a multi-factor arbitrage pricing model and a linear pricing model utilizing undiversified inefficient benchmarks in a given factor structure. The resulting linear model is a two-beta model, with one beta related to the inefficient benchmark and another adjusting for its inefficiency. This linear model shows that there are only two distinctive and computable sources of risk, affecting security expected returns, despite the existence of several risk factors. In a short empirical example we demonstrate that the model can be employed to provide guidance and allow researchers to test for the validity of their selection of the underlying risk factors driving variations in security returns.
Journal: The European Journal of Finance
Pages: 1551-1571
Issue: 16
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1639207
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1639207
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:16:p:1551-1571
Template-Type: ReDIF-Article 1.0
Author-Name: Kamran Malikov
Author-X-Name-First: Kamran
Author-X-Name-Last: Malikov
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: Stuart Manson
Author-X-Name-First: Stuart
Author-X-Name-Last: Manson
Title: The effect of the interest coverage covenants on classification shifting of revenues
Abstract:
While prior studies focus on real/accrual-based earnings management and expense misclassification to investigate earnings manipulation in avoiding covenant violations, this paper extends such research in a new direction. In particular, it examines whether firms employ classification shifting of revenues when they are subject to interest coverage EBITDA-based covenants close to their threshold values or limits. This earnings management tool allows firms to increase reported EBITDA by misclassifying non-operating revenues as operating revenues to remain within covenant limits that include EBITDA. Using a sample of 559 UK listed firm-years for the period 2005–2014, it establishes that the use of classification shifting of revenues is high when interest coverage covenants are close to their limits. Further analysis suggests that firms also employ revenue shifting when all their loan covenants are EBITDA-related.
Journal: The European Journal of Finance
Pages: 1572-1590
Issue: 16
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1618888
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1618888
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:16:p:1572-1590
Template-Type: ReDIF-Article 1.0
Author-Name: Alfredo Grau
Author-X-Name-First: Alfredo
Author-X-Name-Last: Grau
Author-Name: Araceli Reig
Author-X-Name-First: Araceli
Author-X-Name-Last: Reig
Title: The industry effect and the decision to integrate vertically in a crisis context
Abstract:
The objective of this work is twofold: firstly, to study if the characteristics of the industry affect certain financial and strategic decisions of manufacturing firms and, secondly, to determine if the strategy of diversifying the activity through vertical integration generates good financial results in times of crisis, depending on the industry. To this end, an analysis is carried out with panel data from 9,523 firms in the period between 2008 and 2013. The results show that there are different strategies that firms must follow, depending on the industry to which they belong. In sectors with lower operational risk, those firms characterized by greater specificity and better product quality obtained higher profitability. However, in riskier sectors, firms with more specific assets assumed too many risks and in times of crisis have seen their profitability fall. Likewise, it is observed that the decision to integrate vertically has mitigated the weak points of each sector, allowing firms to better weather the economic–financial crisis in which this research is framed.
Journal: The European Journal of Finance
Pages: 1591-1605
Issue: 16
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1628795
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1628795
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:16:p:1591-1605
Template-Type: ReDIF-Article 1.0
Author-Name: Andrej Cupák
Author-X-Name-First: Andrej
Author-X-Name-Last: Cupák
Author-Name: Gueorgui I. Kolev
Author-X-Name-First: Gueorgui I.
Author-X-Name-Last: Kolev
Author-Name: Zuzana Brokešová
Author-X-Name-First: Zuzana
Author-X-Name-Last: Brokešová
Title: Financial literacy and voluntary savings for retirement: novel causal evidence
Abstract:
We utilise recent Household Finance and Consumption Survey microdata to report first causal effects of financial literacy on voluntary private pension schemes participation for a Central and Eastern European (CEE) country, namely Slovakia. Savings for retirement in the supplementary pension schemes are positively associated with financial literacy after controlling for a set of relevant socio-economic variables. One additional correctly answered financial literacy question leads to a 5.6 percentage points increase in the probability of having a voluntary pension savings plan in our ordinary least squares estimates. The causal impact of financial literacy increases to 19.5 percentage points when we address potential endogeneity problems by novel to the literature instrumental variables.
Journal: The European Journal of Finance
Pages: 1606-1625
Issue: 16
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1641123
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1641123
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:16:p:1606-1625
Template-Type: ReDIF-Article 1.0
Author-Name: Yi Zhou
Author-X-Name-First: Yi
Author-X-Name-Last: Zhou
Title: Narcissism and the art market performance
Abstract:
Using a unique auction dataset from artinfo.com, we find that narcissism measured by the signatures of artists is positively associated with the market performance of artworks. The artworks of more narcissistic artists have higher market prices, higher estimates from auction houses, and higher outperformance compared to the art market index. In support of this narcissistic view of the market performance of art works, we find that the higher recognition by art experts lead to more narcissistic artists having a greater number of solo and group exhibitions, more museum and gallery holdings, and higher art history rankings. More narcissistic artists also tend to make larger paintings and date their works more frequently.
Journal: The European Journal of Finance
Pages: 1197-1218
Issue: 13
Volume: 23
Year: 2017
Month: 10
X-DOI: 10.1080/1351847X.2016.1151804
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151804
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:13:p:1197-1218
Template-Type: ReDIF-Article 1.0
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: Heba Gazzaz
Author-X-Name-First: Heba
Author-X-Name-Last: Gazzaz
Author-Name: Hardy Thomas
Author-X-Name-First: Hardy
Author-X-Name-Last: Thomas
Title: The impact of mispricing and growth on UK M&As
Abstract:
This paper investigates the impact of mispricing and growth on salient aspects of 434 UK merger and acquisition (M&A) deals over the 1990–2009 period. Mispricing is proxied by both the 26-week high price and misvaluation given by the deviation of target price from its estimated fundamental value. One or both of these variables has a significantly pervasive influence on all aspects of M&As studied. The target 26-week high price, misvaluation and growth all have a significant effect on both the offer premium and whether bidders pay with cash or stock for the full sample. The 26-week high price is the main driver for the overvalued (price exceeds value) target sub-sample and growth prospects for the undervalued target sub-sample. Short run abnormal returns around the announcement are driven by misvaluation only while offers in excess of the 26-week high and of fundamental value increase the probability of deal success.
Journal: The European Journal of Finance
Pages: 1219-1237
Issue: 13
Volume: 23
Year: 2017
Month: 10
X-DOI: 10.1080/1351847X.2016.1206585
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1206585
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:13:p:1219-1237
Template-Type: ReDIF-Article 1.0
Author-Name: Indrajeet Mohite
Author-X-Name-First: Indrajeet
Author-X-Name-Last: Mohite
Title: The value of target’s acquisition experience in M&A
Abstract:
Organisational learning theory predicts that firms should get better in Merger and Acquisition (M&A) deals with experience. Yet, existing studies on acquisition learning document decline in acquirer gains with acquisition experience. The lower gains in subsequent acquisition deals are likely induced by exogenous factors which can conceal the acquirer’s potential to learn with experience. To tackle this issue, this study examines the value of M&A experience by concentrating on the target firms’ prior acquisitions and investigates whether experienced deal-makers learn to negotiate the deal in favour of their shareholders when they are taken over by other firms. I find that the value created by the acquirer is inversely related to the deal-making experience of the target firm and the premium received by the target shareholders is positively related to the target’s deal-making experience. Our findings offer valuable contributions to the M&A learning literature as they suggest that deal-making skills improve with experience resulting in target firms securing more benefits for their shareholders at the expense of acquirers.
Journal: The European Journal of Finance
Pages: 1238-1266
Issue: 13
Volume: 23
Year: 2017
Month: 10
X-DOI: 10.1080/1351847X.2016.1212719
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1212719
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:13:p:1238-1266
Template-Type: ReDIF-Article 1.0
Author-Name: Ky-Hyang Yuhn
Author-X-Name-First: Ky-Hyang
Author-X-Name-Last: Yuhn
Author-Name: Sang Bong Kim
Author-X-Name-First: Sang Bong
Author-X-Name-Last: Kim
Author-Name: James Ross McCown
Author-X-Name-First: James Ross
Author-X-Name-Last: McCown
Title: Stock returns, velocity dynamics and inflation volatility
Abstract:
Our model relates the variability of stock returns to the variability of consumption velocity and shows that real stock returns tend to co-vary negatively with expected inflation in a period (or regime) of low and stable inflation and to co-vary positively with expected inflation in a period (or regime) of high and volatile inflation. Long-run real stock returns are shown to be positively related to expected inflation. Our empirical results for 20 countries provide consistent support for our propositions, indicating that the standard deviation of the annual inflation rate roughly equal to 10% is the dividing line between negative and positive return-inflation relations.
Journal: The European Journal of Finance
Pages: 1755-1771
Issue: 18
Volume: 24
Year: 2018
Month: 12
X-DOI: 10.1080/1351847X.2018.1425731
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1425731
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1755-1771
Template-Type: ReDIF-Article 1.0
Author-Name: Justin Chircop
Author-X-Name-First: Justin
Author-X-Name-Last: Chircop
Author-Name: Michele Fabrizi
Author-X-Name-First: Michele
Author-X-Name-Last: Fabrizi
Author-Name: Antonio Parbonetti
Author-X-Name-First: Antonio
Author-X-Name-Last: Parbonetti
Title: The impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 repo ‘safe harbor’ provisions on investors
Abstract:
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 significantly expanded the exemptions from the normal workings of the U.S. Bankruptcy Code. Using a large sample of U.S. banks, we study investors’ reaction to news about the promulgation of the BAPCPA repo ‘safe harbor’ provisions and the influence extending such exemptions to repos collateralized by riskier collateral had on equity market information asymmetry. We find a negative market reaction to news events about the promulgation of BAPCPA, which subsequent cross-sectional analysis suggests is at least partly driven by repo exposure. This finding suggests that investors perceived the increase in finance risk from the extension of the ‘safe harbor’ provisions as dominating the perceived gain from accessing cheaper finance. Further, we find that the promulgation of BAPCPA gave rise to increased information asymmetry for banks with repo exposure.
Journal: The European Journal of Finance
Pages: 1772-1798
Issue: 18
Volume: 24
Year: 2018
Month: 12
X-DOI: 10.1080/1351847X.2018.1427608
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1427608
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1772-1798
Template-Type: ReDIF-Article 1.0
Author-Name: Andrew Grant
Author-X-Name-First: Andrew
Author-X-Name-Last: Grant
Author-Name: Anastasios Oikonomidis
Author-X-Name-First: Anastasios
Author-X-Name-Last: Oikonomidis
Author-Name: Alistair C. Bruce
Author-X-Name-First: Alistair C.
Author-X-Name-Last: Bruce
Author-Name: Johnnie E. V. Johnson
Author-X-Name-First: Johnnie E. V.
Author-X-Name-Last: Johnson
Title: New entry, strategic diversity and efficiency in soccer betting markets: the creation and suppression of arbitrage opportunities
Abstract:
We find that prices offered by competing bookmakers within the same quote-driven soccer (football) betting market provide arbitrage opportunities. However, the management practices of bookmakers prevent informed bettors exploiting these in practice. We identify two groups of bookmakers, ‘position-takers’ and ‘book-balancers’. Position-takers alter their odds infrequently, while actively restricting informed traders. Book-balancers actively manage inventory by adjusting odds, and place few restrictions on their customers. We identify 545 arbitrage portfolios, and find that around 50% would require a bet on the favourite at the position-taking bookmaker. The management practices of position-takers generally prevent these opportunities being exploited in practice.
Journal: The European Journal of Finance
Pages: 1799-1816
Issue: 18
Volume: 24
Year: 2018
Month: 12
X-DOI: 10.1080/1351847X.2018.1443148
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1443148
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1799-1816
Template-Type: ReDIF-Article 1.0
Author-Name: Franco Fiordelisi
Author-X-Name-First: Franco
Author-X-Name-Last: Fiordelisi
Author-Name: Giuseppe Galloppo
Author-X-Name-First: Giuseppe
Author-X-Name-Last: Galloppo
Title: Stock market reaction to policy interventions
Abstract:
We analyse stock price reactions to the announcements of monetary and fiscal policy actions in 12 stock exchanges worldwide between 1 June 2007 and 30 June 2012. While past papers have analysed the effect of policy interventions focusing on monetary policy actions (e.g. Ricci 2015), our paper focuses on stock indices either capturing the whole stock market or various industries. By estimating abnormal stock reactions around the announcement date, we show that (1) stock industry indices react to policy interventions in a different manner than the broad stock index does; (2) stock returns react negatively to restriction measures for general and non-banking sector indices; and (3) stock reaction to expansionary measures was stronger at the beginning of the financial crisis.
Journal: The European Journal of Finance
Pages: 1817-1834
Issue: 18
Volume: 24
Year: 2018
Month: 12
X-DOI: 10.1080/1351847X.2018.1450278
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1450278
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1817-1834
Template-Type: ReDIF-Article 1.0
Author-Name: Astrid Ayala
Author-X-Name-First: Astrid
Author-X-Name-Last: Ayala
Author-Name: Szabolcs Blazsek
Author-X-Name-First: Szabolcs
Author-X-Name-Last: Blazsek
Title: Score-driven copula models for portfolios of two risky assets
Abstract:
The precise measurement of the association between asset returns is important for financial investors and risk managers. In this paper, we focus on a recent class of association models: Dynamic Conditional Score (DCS) copula models. Our contributions are the following: (i) We compare the statistical performance of several DCS copulas for several portfolios. We study the Clayton, rotated Clayton, Frank, Gaussian, Gumbel, rotated Gumbel, Plackett and Student's t copulas. We find that the DCS model with the Student's t copula is the most parsimonious model. (ii) We demonstrate that the copula score function discounts extreme observations. (iii) We jointly estimate the marginal distributions and the copula, by using the Maximum Likelihood method. We use DCS models for mean, volatility and association of asset returns. (iv) We estimate robust DCS copula models, for which the probability of a zero return observation is not necessarily zero. (v) We compare different patterns of association in different regions of the distribution for different DCS copulas, by using density contour plots and Monte Carlo (MC) experiments. (vi) We undertake a portfolio performance study with the estimation and backtesting of MC Value-at-Risk for the DCS model with the Student's t copula.
Journal: The European Journal of Finance
Pages: 1861-1884
Issue: 18
Volume: 24
Year: 2018
Month: 12
X-DOI: 10.1080/1351847X.2018.1464488
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1464488
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1861-1884
Template-Type: ReDIF-Article 1.0
Author-Name: Samuel Xin Liang
Author-X-Name-First: Samuel Xin
Author-X-Name-Last: Liang
Title: The systematic pricing of market sentiment shock
Abstract:
We show that market sentiment shocks create demand shocks for risky assets and a systematic risk for assets. We measure a market sentiment shock as the unexpected portion of the University of Michigan Consumer Sentiment Index’s growth. This shock prices stock returns in arbitrage pricing theory framework at 1% after controlling for market, size, value, momentum, and liquidity risk factors. Its premium lowered the implied risk aversion by 97.9% to 11.46 between 1978 and 2009 in our sentiment consumption-based capital-asset-pricing model. Merton’s [1973. “An Intertemporal Capital Asset Pricing Model.” Econometrica 41: 867–887]. intertemporal capital-asset-pricing model reconfirms our finding that this market sentiment shock is a systematic risk factor that provides investment opportunities.
Journal: The European Journal of Finance
Pages: 1835-1860
Issue: 18
Volume: 24
Year: 2018
Month: 12
X-DOI: 10.1080/1351847X.2018.1491875
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1491875
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1835-1860
Template-Type: ReDIF-Article 1.0
Author-Name: The Editors
Title: Referees January 2014–December 2017
Journal: The European Journal of Finance
Pages: 1902-1924
Issue: 18
Volume: 24
Year: 2018
Month: 12
X-DOI: 10.1080/1351847X.2018.1496569
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1496569
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1902-1924
Template-Type: ReDIF-Article 1.0
Author-Name: Athanasios P. Fassas
Author-X-Name-First: Athanasios P.
Author-X-Name-Last: Fassas
Author-Name: Stephanos Papadamou
Author-X-Name-First: Stephanos
Author-X-Name-Last: Papadamou
Title: Unconventional monetary policy announcements and risk aversion: evidence from the U.S. and European equity markets
Abstract:
This paper examines the role of unconventional monetary policy announcements on risk aversion – as proxied by the variance premium – by using panel data analysis. The objective of this empirical analysis is to investigate the risk-taking channel of monetary policy for the major European and U.S. equity markets by studying the impact that the announcements of an unconventional monetary policy has on market uncertainty and risk perception. By measuring the difference between risk-neutral and realised and conditional variance, we estimate the variance premium, which captures the impact that pricing concerns have on the prices of options. The empirical analysis indicates that easing monetary policies can significantly reduce the variance premium. In addition, we examine the risk premium structure across markets to determine the potential differences in investors’ risk aversion.
Journal: The European Journal of Finance
Pages: 1885-1901
Issue: 18
Volume: 24
Year: 2018
Month: 12
X-DOI: 10.1080/1351847X.2018.1496943
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1496943
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:18:p:1885-1901
Template-Type: ReDIF-Article 1.0
Author-Name: Adrian Melia
Author-X-Name-First: Adrian
Author-X-Name-Last: Melia
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Title: Subtle is the Lord, but malicious He is not: the calculation of abnormal stock returns in applied research
Abstract:
We use the expected logarithmic returns formula for the Geometric Brownian Motion (GBM) in conjunction with the expected logarithmic returns formula for the Feller diffusion to illustrate the nature and magnitude of errors which arise in computed abnormal returns when one applies an expected logarithmic returns formula which is incompatible with the stochastic process that generates a stock’s returns. Empirical analysis based on FTSE 100 stock price data for the five year period ending in 2017 shows that the scale of the errors in computed abnormal returns will hinge on the volatility of the returns generating process but will be particularly pronounced for relatively low stock prices. Although our principal focus is with comparing abnormal returns on the GBM and Feller diffusion, we also simulate logarithmic returns for the Uhlenbeck and Ornstein (1930) process, several interpretations of the Constant Elasticity of Variance (CEV) process and the scaled ‘t’ process of Praetz (1972) and Blattberg and Gonedes (1974). Taken in conjunction with the GBM and the Feller diffusion, these processes underpin virtually every equilibrium based asset pricing model which appears in the literature. However, computing abnormal returns for any of these processes using the expected logarithmic returns formula for the GBM inevitably leads to errors in the abnormal returns. Hence, an important principle which emerges from our analysis is that it is crucially important for researchers and others to test the compatibility of empirically observed returns with the distributional assumptions on which the empirical analysis is based if the complications arising from mis-specified modelling procedures are to be avoided.
Journal: The European Journal of Finance
Pages: 835-855
Issue: 9
Volume: 25
Year: 2019
Month: 6
X-DOI: 10.1080/1351847X.2018.1537981
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1537981
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:9:p:835-855
Template-Type: ReDIF-Article 1.0
Author-Name: Nikolaos I. Papanikolaou
Author-X-Name-First: Nikolaos I.
Author-X-Name-Last: Papanikolaou
Title: How changes in market conditions affect screening activity, credit risk, and the lending behaviour of banks
Abstract:
The global financial crisis dramatically transformed the market conditions in the banking industry. We construct a theoretical model of spatial competition that considers the differential information between lenders and loan applicants to explore how changes in the market structure affect the lending behaviour of banks and their incentives to invest in screening and how this, in turn, affects the level of credit risk in the economy. Our findings reveal that enhanced competition reduces lending cost thus encouraging the entry of new customers in credit markets. Also, that the transportation cost that loan applicants are required to pay to reach the bank of their interest shrinks with respect to the degree of competition. We further lend support to the view that stiffer competition has an increasing impact on the level of credit risk. Notably, we find that competition strengthens the incentives of banks to engage in screening activity and that screening serves as a protection mechanism that can provide banks with a shield against bad loans. Overall, when market conditions are substantially distorted, this has a dilutive impact on the incentives mechanism of banks to screen their applicants. We provide empirical evidence which is consistent with the conceptual underpinnings of our theoretical model and the obtained findings.
Journal: The European Journal of Finance
Pages: 856-875
Issue: 9
Volume: 25
Year: 2019
Month: 6
X-DOI: 10.1080/1351847X.2018.1548367
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1548367
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:9:p:856-875
Template-Type: ReDIF-Article 1.0
Author-Name: Yerzhan Tokbolat
Author-X-Name-First: Yerzhan
Author-X-Name-Last: Tokbolat
Author-Name: Steve Thompson
Author-X-Name-First: Steve
Author-X-Name-Last: Thompson
Author-Name: Hang Le
Author-X-Name-First: Hang
Author-X-Name-Last: Le
Title: Shareholder voting in mergers and acquisitions: evidence from the UK
Abstract:
This paper examines the determinants and consequences of shareholder voting on mergers and acquisitions using a sample of resolutions approved by shareholders of UK publicly listed firms from 1997 to 2015. We find that dissent on M&A resolutions is negatively related to bidder announcement returns and positively related to shareholders’ general dissatisfaction towards the management. Shareholder dissent is an important predictor of the announcement returns of subsequent M&A deals. We also report an increase in shareholder dissent after the 2007–2008 financial crisis.
Journal: The European Journal of Finance
Pages: 815-834
Issue: 9
Volume: 25
Year: 2019
Month: 6
X-DOI: 10.1080/1351847X.2018.1552602
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1552602
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:9:p:815-834
Template-Type: ReDIF-Article 1.0
Author-Name: The Editors
Title: Referees 2018
Journal: The European Journal of Finance
Pages: 876-880
Issue: 9
Volume: 25
Year: 2019
Month: 6
X-DOI: 10.1080/1351847X.2019.1586154
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1586154
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:9:p:876-880
Template-Type: ReDIF-Article 1.0
Author-Name: Fabio Bellini
Author-X-Name-First: Fabio
Author-X-Name-Last: Bellini
Author-Name: Elena Di Bernardino
Author-X-Name-First: Elena
Author-X-Name-Last: Di Bernardino
Title: Risk management with expectiles
Abstract:
Expectiles (EVaR) are a one-parameter family of coherent risk measures that have been recently suggested as an alternative to quantiles (VaR) and to expected shortfall (ES). In this work we review their known properties, we discuss their financial meaning, we compare them with VaR and ES and we study their asymptotic behaviour, refining some of the results in Bellini et al. [(2014). “Generalized Quantiles as Risk Measures.” Insurance: Mathematics and Economics, 54:41–48]. Moreover, we present a real-data example for the computation of expectiles by means of simple Garch(1,1) models and we assess the accuracy of the forecasts by means of a consistent loss function as suggested by Gneiting [(2011). “Making and Evaluating Point Forecast.” Journal of the American Statistical Association, 106 (494): 746–762]. Theoretical and numerical results indicate that expectiles are perfectly reasonable alternatives to VaR and ES risk measures.
Journal: The European Journal of Finance
Pages: 487-506
Issue: 6
Volume: 23
Year: 2017
Month: 5
X-DOI: 10.1080/1351847X.2015.1052150
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1052150
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:6:p:487-506
Template-Type: ReDIF-Article 1.0
Author-Name: Tomasz Rólczyński
Author-X-Name-First: Tomasz
Author-X-Name-Last: Rólczyński
Author-Name: Maria Forlicz
Author-X-Name-First: Maria
Author-X-Name-Last: Forlicz
Author-Name: Łukasz Kuźmiński
Author-X-Name-First: Łukasz
Author-X-Name-Last: Kuźmiński
Title: Risk attitude in case of losses or gains – an experimental study
Abstract:
In order to verify some hypotheses concerning decision-making in risky choice, we conducted two experiments with real payoffs (although nonmonetary). The purpose of the article was answering following questions: does the present status influence behavior in risky choice? Does the difference in scenarios (gain/loss) influence behavior? Are people willing to pay more for insurance than an expected value of a loss (paying for transferring risk)? Is there any relationship between ability to earn and risk attitude? Our experiments show that it is possible that people taking decisions involving risk not always act the way to maximize wealth (in our case points), sometimes they are happy enough when they achieve some level of wealth. We also found that people act in a different way when they know how much is missing to achieve their goal and when they do not. Based on the obtained results, we can also say that most people are risk averse. Even in the gain scenario, people were ready to give back so many points to get the rest for sure, that what remained was less than the expected value. It is possible that there is some relationship between risk attitude and ability to get (earn) wealth in another way than lottery.
Journal: The European Journal of Finance
Pages: 474-486
Issue: 6
Volume: 23
Year: 2017
Month: 5
X-DOI: 10.1080/1351847X.2015.1062789
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1062789
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:6:p:474-486
Template-Type: ReDIF-Article 1.0
Author-Name: Carole Bernard
Author-X-Name-First: Carole
Author-X-Name-Last: Bernard
Author-Name: Ludger Rüschendorf
Author-X-Name-First: Ludger
Author-X-Name-Last: Rüschendorf
Author-Name: Steven Vanduffel
Author-X-Name-First: Steven
Author-X-Name-Last: Vanduffel
Author-Name: Jing Yao
Author-X-Name-First: Jing
Author-X-Name-Last: Yao
Title: How robust is the value-at-risk of credit risk portfolios?
Abstract:
In this paper, we assess the magnitude of model uncertainty of credit risk portfolio models, that is, what is the maximum and minimum value-at-risk (VaR) of a portfolio of risky loans that can be justified given a certain amount of available information. Puccetti and Rüschendorf [2012a. “Computation of Sharp Bounds on the Distribution of a Function of Dependent Risks”. Journal of Computational and Applied Maths 236, 1833–1840] and Embrechts, Puccetti, and Rüschendorf [2013. “Model Uncertainty and VaR Aggregation”. Journal of Banking and Finance 37, 2750–2764] propose the rearrangement algorithm (RA) as a general method to approximate VaR bounds when the loss distributions of the different loans are known but not their interdependence (unconstrained bounds). Their numerical results show that the gap between worst-case and best-case VaR is typically very high, a feature that can only be explained by lack of using dependence information. We propose a modification of the RA that makes it possible to approximate sharp VaR bounds when besides the marginal distributions also higher order moments of the aggregate portfolio such as variance and skewness are available as sources of dependence information. A numerical study shows that the use of moment information makes it possible to significantly improve the (unconstrained) VaR bounds. However, VaR assessments of credit portfolios that are performed at high confidence levels (as it is the case in Solvency II and Basel III) remain subject to significant model uncertainty and are not robust.
Journal: The European Journal of Finance
Pages: 507-534
Issue: 6
Volume: 23
Year: 2017
Month: 5
X-DOI: 10.1080/1351847X.2015.1104370
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1104370
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:6:p:507-534
Template-Type: ReDIF-Article 1.0
Author-Name: Mauro Bernardi
Author-X-Name-First: Mauro
Author-X-Name-Last: Bernardi
Author-Name: Leopoldo Catania
Author-X-Name-First: Leopoldo
Author-X-Name-Last: Catania
Author-Name: Lea Petrella
Author-X-Name-First: Lea
Author-X-Name-Last: Petrella
Title: Are news important to predict the Value-at-Risk?
Abstract:
In this paper, we investigate the impact of news to predict extreme financial returns using high-frequency data. We consider several model specifications differing for the dynamic property of the underlying stochastic process as well as for the innovation process. Since news are essentially qualitative measures, they are firstly transformed into quantitative measures which are subsequently introduced as exogenous regressors into the conditional volatility dynamics. Three basic sentiment indexes are constructed starting from three lists of words defined by historical market news response and by a discriminant analysis. Models are evaluated in terms of their predictive accuracy to forecast out-of-sample Value-at-Risk of the STOXX Europe 600 sectors at different confidence levels using several statistic tests and the model confidence set procedure of Hansen, Lunde, Nason [(2011). “The Model Confidence Set”. Econometrica, 79, pp. 453–497]. Moreover, since Hansen's procedure usually delivers a set of models having the same VaR predictive ability, we propose a new forecasting combination technique that dynamically weights the VaR predictions obtained by the models belonging to the optimal final set. Our results confirm that the inclusion of exogenous information as well as the right specification of the returns' conditional distribution significantly decreases the number of actual versus expected VaR violations towards one, and this is especially true for higher confidence levels.
Journal: The European Journal of Finance
Pages: 535-572
Issue: 6
Volume: 23
Year: 2017
Month: 5
X-DOI: 10.1080/1351847X.2015.1106959
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1106959
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:6:p:535-572
Template-Type: ReDIF-Article 1.0
Author-Name: Antonella Basso
Author-X-Name-First: Antonella
Author-X-Name-Last: Basso
Author-Name: Stefania Funari
Author-X-Name-First: Stefania
Author-X-Name-Last: Funari
Title: The role of fund size in the performance of mutual funds assessed with DEA models
Abstract:
This contribution studies the role of the size of mutual funds in the evaluation of the fund performance with a data envelopment analysis (DEA) approach, with the aim of studying the issue from different angles and with different statistical tools and investigating the presence of a positive or negative size effect in mutual funds market. Firstly, we discuss the role of fund size in the performance evaluation and wonder whether it is appropriate to include size information among the variables of DEA models. Secondly, we analyse the presence of a relationship between the performance scores and the size of mutual funds using different statistical tests and carry out an empirical investigation on a set of European equity mutual funds. Thirdly, we study scale efficiency and investigate whether the European mutual funds analysed exhibit constant, increasing or decreasing returns to scale.
Journal: The European Journal of Finance
Pages: 457-473
Issue: 6
Volume: 23
Year: 2017
Month: 5
X-DOI: 10.1080/1351847X.2016.1164209
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1164209
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:6:p:457-473
Template-Type: ReDIF-Article 1.0
Author-Name: Andrea Moro
Author-X-Name-First: Andrea
Author-X-Name-Last: Moro
Author-Name: Daniela Maresch
Author-X-Name-First: Daniela
Author-X-Name-Last: Maresch
Author-Name: Annalisa Ferrando
Author-X-Name-First: Annalisa
Author-X-Name-Last: Ferrando
Title: Creditor protection, judicial enforcement and credit access
Abstract:
We investigate the impact of the legal system on whether firms obtain the credit they apply for or not. Data comprise unique information provided directly by 48,590 firms from 11 European countries. We look at the strength of creditor protection, the strength of property rights, the time taken to resolve a dispute, the dispute resolution process’s costs and the number of procedures the plaintiff faces using data provided by the World Bank and the Heritage Foundation. The results suggest that the more efficient the judicial enforcement system is, and the higher the creditor protection is, the lower the probability that the firms are partially or totally denied credit. Our results are robust to selection bias (Heckman selection) as well as different controls and different estimation techniques. We find that these variables have considerable economic impact: the probability of obtaining credit is up to 40% higher in countries with more robust legal systems.
Journal: The European Journal of Finance
Pages: 250-281
Issue: 3
Volume: 24
Year: 2018
Month: 2
X-DOI: 10.1080/1351847X.2016.1216871
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1216871
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:3:p:250-281
Template-Type: ReDIF-Article 1.0
Author-Name: Umut Gökçen
Author-X-Name-First: Umut
Author-X-Name-Last: Gökçen
Author-Name: Thierry Post
Author-X-Name-First: Thierry
Author-X-Name-Last: Post
Title: Trading volume, return variability and short-term momentum
Abstract:
We propose short-term averages of daily stock-level trading volume and return variability as proxies for latent corporate news flow. Conditioning momentum strategies on these two proxies give a significant boost to winner-minus-loser alphas. Regardless of the portfolio formation and holding periods, price drift is larger after elevated levels of volume and variability, supporting the view that prices underreact to news. This pattern is not driven by micro-cap stocks and it is robust to corrections for systematic risk factors and stock characteristics such as liquidity and credit quality.
Journal: The European Journal of Finance
Pages: 231-249
Issue: 3
Volume: 24
Year: 2018
Month: 2
X-DOI: 10.1080/1351847X.2016.1256828
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1256828
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:3:p:231-249
Template-Type: ReDIF-Article 1.0
Author-Name: Antonio Figueiredo
Author-X-Name-First: Antonio
Author-X-Name-Last: Figueiredo
Author-Name: A.M. Parhizgari
Author-X-Name-First: A.M.
Author-X-Name-Last: Parhizgari
Title: Contemporaneous ADR pricing: intraday dynamics during overlapping trading hours
Abstract:
We contribute to the literature by identifying and accurately measuring the drivers of American depositary receipt (ADR) returns contemporaneously across various global time zones. We consider ADRs as two inherently distinct asset classes – stocks and currencies – bundled into one. Throughout, we use a relatively refined, focused, and synchronized minute-by-minute data set on ADRs and all other variables. ADRs from all countries with regular trading hours that overlap with those of the US are considered individually and in clusters. We analyze the interplay of several factors that influence ADRs pricing patterns. Further, we investigate whether such patterns vary by currency, ADR, industry, and emerging/developed market classifications. Our findings indicate that synchronized returns on underlying shares comprise 68.5–74% of the explained returns in ADRs. The remaining 31.5–26% of returns are generated by movements in currency rates. These results are robust across the several models and estimation methods employed. Our findings also show persistent small price discrepancies between ADRs and dollar-adjusted underlying shares on a minute-by-minute basis, implying possible arbitrage opportunities. However, we conclude that trading and ADR conversion costs render such opportunities unattractive.
Journal: The European Journal of Finance
Pages: 183-207
Issue: 3
Volume: 24
Year: 2018
Month: 2
X-DOI: 10.1080/1351847X.2017.1292935
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1292935
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:3:p:183-207
Template-Type: ReDIF-Article 1.0
Author-Name: Marta Degl’Innocenti
Author-X-Name-First: Marta
Author-X-Name-Last: Degl’Innocenti
Author-Name: Tapas Mishra
Author-X-Name-First: Tapas
Author-X-Name-Last: Mishra
Author-Name: Simon Wolfe
Author-X-Name-First: Simon
Author-X-Name-Last: Wolfe
Title: Branching, lending and competition in Italian banking
Abstract:
With the liberalization of legal barriers to the opening of bank branches in 1990, both market structure and competitive conditions in Italy changed profoundly as banks expanded their branching networks. This paper provides novel empirical evidence on how changes of the branch network structure at the province level affect the performance and lending activity of banks across the period 1993–2011. In particular, we adopt two modes of analysis. The first focuses on the impact of diversification strategies on performance, lending and funding strategies at the province level. The second one examines how the increase of big banks' local presence affects single-market bank performance and lending strategies. Our results show that geographical diversification strategies can reduce performance, the adjusted Lerner Index of banks and lending activities, but increase the Lerner Index in deposit markets. Furthermore, we find that the expansion of branches by large-medium sized banks in concentrated markets can reduce the Lerner Index for the deposit market and the amount of loans offered by single-market banks.
Journal: The European Journal of Finance
Pages: 208-230
Issue: 3
Volume: 24
Year: 2018
Month: 2
X-DOI: 10.1080/1351847X.2017.1303526
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1303526
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:3:p:208-230
Template-Type: ReDIF-Article 1.0
Author-Name: Song-Ping Zhu
Author-X-Name-First: Song-Ping
Author-X-Name-Last: Zhu
Author-Name: Xin-Jiang He
Author-X-Name-First: Xin-Jiang
Author-X-Name-Last: He
Title: A new closed-form formula for pricing European options under a skew Brownian motion
Abstract:
In this paper, we present a new pricing formula based on a modified Black–Scholes (B-S) model with the standard Brownian motion being replaced by a particular process constructed with a special type of skew Brownian motions. Although Corns and Satchell [2007. “Skew Brownian Motion and Pricing European Options.” The European Journal of Finance 13 (6): 523–544] have worked on this model, the results they obtained are incorrect. In this paper, not only do we identify precisely where the errors in Although Corns and Satchell [2007. “Skew Brownian Motion and Pricing European Options”. The European Journal of Finance 13 (6): 523–544] are, we also present a new closed-form pricing formula based on a newly proposed equivalent martingale measure, called ‘endogenous risk neutral measure’, by which only endogenous risks should and can be fully hedged. The newly derived option pricing formula takes the B-S formula as a special case and it does not induce any significant additional burden in terms of numerically computing option values, compared with the effort involved in computing the B-S formula.
Journal: The European Journal of Finance
Pages: 1063-1074
Issue: 12
Volume: 24
Year: 2018
Month: 8
X-DOI: 10.1080/1351847X.2017.1339104
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1339104
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:12:p:1063-1074
Template-Type: ReDIF-Article 1.0
Author-Name: Keehwan Park
Author-X-Name-First: Keehwan
Author-X-Name-Last: Park
Author-Name: Mookwon Jung
Author-X-Name-First: Mookwon
Author-X-Name-Last: Jung
Author-Name: Sangki Lee
Author-X-Name-First: Sangki
Author-X-Name-Last: Lee
Title: Credit ratings and convertible bond prices: a simulation-based valuation
Abstract:
This study presents a simulation-based model of convertible bond prices under the assumption of stochastic interest rates. The model is developed such that the convertible bond price explicitly depends on the credit rating at the time of issuance. Key ideas explored in this study include terminating the simulated sample path immediately when the issuer defaults on the bond at time t, which is the same as the investor and the issuer optimally exercising their options and discounting the resulting cash flows at a risk-free rate. In turn, the defaulted group of sample paths belongs to the bottom xth percentile of the realized stock prices at each time, which is exogenously given by the cumulative or marginal default probability of a firm that has the same rating as the issuer. Upon calibrating the model, we can see that the moneyness of convertible bonds is strongly responsible for influencing the convertible bond price when the rating changes. Furthermore, the effects of stochastic interest rates are shown to be possibly significant when the interest rate risk’s market price is not zero.
Journal: The European Journal of Finance
Pages: 1001-1025
Issue: 12
Volume: 24
Year: 2018
Month: 8
X-DOI: 10.1080/1351847X.2017.1368682
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1368682
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:12:p:1001-1025
Template-Type: ReDIF-Article 1.0
Author-Name: Nataliya Barasinska
Author-X-Name-First: Nataliya
Author-X-Name-Last: Barasinska
Author-Name: Dorothea Schäfer
Author-X-Name-First: Dorothea
Author-X-Name-Last: Schäfer
Title: Gender role asymmetry and stock market participation – evidence from four European household surveys
Abstract:
This study investigates the importance of social norms for shaping women's and men's decision to participate in the stock market, aiming to disentangle the different channels playing a role in this decision. Gender role asymmetry is indicated by the country's rank in the gender equality index of the World Economic Forum. Using data from four national household surveys, we find that in Italy – the country with highly asymmetric gender role prescriptions – women's risk-taking behavior responds to this non-supportive environment. Consistent with the theory of social identity, Italian women refrain from stock market participation more than their self-reported risk tolerance levels would suggest. In contrast, in the three countries with a lower asymmetry in gender role prescriptions, no exaggerated female backing off from investing in stocks is observable. The result is robust to separately analyzing sub-samples of singles and couples. However, women who self-select into stock market participation invest the same portfolio share in stocks as do their male peers – independent of the society's degree of gender role divergence.
Journal: The European Journal of Finance
Pages: 1026-1046
Issue: 12
Volume: 24
Year: 2018
Month: 8
X-DOI: 10.1080/1351847X.2017.1371622
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1371622
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:12:p:1026-1046
Template-Type: ReDIF-Article 1.0
Author-Name: Sumon Kumar Bhaumik
Author-X-Name-First: Sumon Kumar
Author-X-Name-Last: Bhaumik
Author-Name: Ali M. Kutan
Author-X-Name-First: Ali M.
Author-X-Name-Last: Kutan
Author-Name: Sudipa Majumdar
Author-X-Name-First: Sudipa
Author-X-Name-Last: Majumdar
Title: How successful are banking sector reforms in emerging market economies? Evidence from impact of monetary policy on levels and structures of firm debt in India
Abstract:
Many emerging markets have undertaken significant financial sector reforms, especially in their banking sectors, that are critical for both financial development and real economic activity. In this paper, we investigate the success of banking reforms in India where significant banking reforms were implemented during the 1990s. Using the argument that well-functioning credit markets would reflect a credit channel for monetary policy at work, we test whether a change in monetary policy has a predictable impact on borrowing behaviour of several types of firms, including business group affiliated, unaffiliated private firms, state-owned firms and foreign firms. The empirical results suggest that unaffiliated private firms have the most vulnerable to monetary policy stance during tight policy regimes. We also find that during tight monetary policy regimes, bank credit of smaller firms is more sensitive to changes in the interest rate than that of large firms. In an easy money regime, monetary policy and the associated change in interest rate does not affect change in bank credit, change in total debt and the proportion of bank credit in total debt for any of the firms. We discuss the policy implications of the findings.
Journal: The European Journal of Finance
Pages: 1047-1062
Issue: 12
Volume: 24
Year: 2018
Month: 8
X-DOI: 10.1080/1351847X.2017.1391857
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1391857
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:12:p:1047-1062
Template-Type: ReDIF-Article 1.0
Author-Name: Solomon Y. Deku
Author-X-Name-First: Solomon Y.
Author-X-Name-Last: Deku
Author-Name: Alper Kara
Author-X-Name-First: Alper
Author-X-Name-Last: Kara
Author-Name: Philip Molyneux
Author-X-Name-First: Philip
Author-X-Name-Last: Molyneux
Title: Access to consumer credit in the UK
Abstract:
This paper investigates household access to consumer credit in the UK using information on 58,642 households between 2001 and 2009. Employing a treatment-effects model and propensity score matching, we find that non-white households are less likely to have financing compared to white households. We also find that even if they obtain financing, the intensity of borrowing is lower than for white households. Overall, non-white households seem to be in a weaker position to access consumer credit in the UK.
Journal: The European Journal of Finance
Pages: 941-964
Issue: 10
Volume: 22
Year: 2016
Month: 8
X-DOI: 10.1080/1351847X.2015.1019641
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1019641
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:10:p:941-964
Template-Type: ReDIF-Article 1.0
Author-Name: Jie Cheng
Author-X-Name-First: Jie
Author-X-Name-Last: Cheng
Author-Name: Yi Hong
Author-X-Name-First: Yi
Author-X-Name-Last: Hong
Author-Name: Juan Tao
Author-X-Name-First: Juan
Author-X-Name-Last: Tao
Title: How do risk attitudes of clearing firms matter for managing default exposure in futures markets?
Abstract:
This article proposes a theoretical framework that is built upon extreme value theory to study three instruments (i.e. margin, capital requirement and price limits) for managing default risk in futures markets. Specifically, the exceedances over a price threshold are modeled using a generalized Pareto distribution, and the models are static (one-period). We incorporate the risk attitudes of clearing firms into the framework to investigate the efficacy of these instruments under several risk measures, including value-at-risk measures, expected-shortfall measures and spectral risk measures. An empirical study on the VIX futures (or VX) data shows that the effectiveness of these market instruments rests not only on clearing firms' risk attitudes, but also on the tail fatness of the futures price distribution. Moreover, the shift in the risk attitudes of clearing firms may cause interactions among these instruments, which casts new light on the economic rationale of price limits.
Journal: The European Journal of Finance
Pages: 909-940
Issue: 10
Volume: 22
Year: 2016
Month: 8
X-DOI: 10.1080/1351847X.2015.1041148
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1041148
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:10:p:909-940
Template-Type: ReDIF-Article 1.0
Author-Name: Chang-Yi Li
Author-X-Name-First: Chang-Yi
Author-X-Name-Last: Li
Author-Name: Son-Nan Chen
Author-X-Name-First: Son-Nan
Author-X-Name-Last: Chen
Author-Name: Shih-Kuei Lin
Author-X-Name-First: Shih-Kuei
Author-X-Name-Last: Lin
Title: Pricing derivatives with modeling CO emission allowance using a regime-switching jump diffusion model: with regime-switching risk premium
Abstract:
Carbon markets trade the spot European Union Allowance (EUA), with one EUA providing the right to emit one tone of carbon dioxide (CO2). We examine the spot EUA returns in BlueNext that exhibit jumps and a volatility clustering feature. We propose a regime-switching jump diffusion model (RSJM) with a hidden Markov chain to capture not only a volatility clustering feature, but also the dynamics of the spot EUA returns that are influenced by change in the CO2 emission economic conditions. In addition, the switching jump intensities of the RSJM are shown to be affected by change in the carbon-market macroeconomic environment. We further derive the theoretical futures-option prices with a constant convenience yield under the RSJM via the generalized Esscher transform where regime-switching risk is priced with a risk premium. The empirical study shows that the derived futures-option pricing model under the RSJM with regime-switching risk is a more complete model than a jump diffusion model for pricing CO2 options.
Journal: The European Journal of Finance
Pages: 887-908
Issue: 10
Volume: 22
Year: 2016
Month: 8
X-DOI: 10.1080/1351847X.2015.1050526
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1050526
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:10:p:887-908
Template-Type: ReDIF-Article 1.0
Author-Name: Fabio Rumler
Author-X-Name-First: Fabio
Author-X-Name-Last: Rumler
Author-Name: Walter Waschiczek
Author-X-Name-First: Walter
Author-X-Name-Last: Waschiczek
Title: Have changes in the financial structure affected bank profitability? Evidence for Austria
Abstract:
We examine the impact of changes in the financial structure of the Austrian banking sector over the past 15 years, such as disintermediation, internationalization and privatization, on the profitability of banks. Several proxies based on bank balance sheet data at the micro-level as well as macroeconomic variables are used to capture these changes. The case of Austria is particularly interesting because the opening up of the Austrian banking sector due to EU accession and the strong engagement of Austrian banks in Eastern Europe coincided with the global trend toward deregulation of banking activities. Our estimation results, which are based on dynamic panel regression methods, indicate that disintermediation (a lower percentage of loans over total assets) and higher market concentration in the banking sector had a positive effect on bank profitability, while changes in the ownership structure (privatization and increased foreign ownership) as well as more foreign lending by Austrian banks did not have a clear-cut or significant impact on bank profits.
Journal: The European Journal of Finance
Pages: 803-824
Issue: 10
Volume: 22
Year: 2016
Month: 8
X-DOI: 10.1080/1351847X.2014.984815
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.984815
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:10:p:803-824
Template-Type: ReDIF-Article 1.0
Author-Name: Saad Badaoui
Author-X-Name-First: Saad
Author-X-Name-Last: Badaoui
Author-Name: Lara Cathcart
Author-X-Name-First: Lara
Author-X-Name-Last: Cathcart
Author-Name: Lina El-Jahel
Author-X-Name-First: Lina
Author-X-Name-Last: El-Jahel
Title: Implied liquidity risk premium in the term structure of sovereign credit default swap and bond spreads
Abstract:
In this study, we focus on the dynamic properties of the risk-neutral liquidity risk premium specific to the sovereign credit default swap (CDS) and bond markets. We show that liquidity risk has a non-trivial role and participates directly to the variation over time of the term structure of sovereign CDS and bond spreads for both the pre- and crisis periods. Secondly, our results indicate that the time-varying bond and CDS liquidity risk premium move in opposite directions which imply that when bond liquidity risk is high, CDS liquidity risk is low (and vice versa), which may in turn be consistent with the substitution effect between CDS and bond markets. Finally, our Granger causality analysis reveals that, although the magnitude of bond and CDS liquidity risk is substantially different, there is a strong liquidity flow between the CDS and the bond markets, however, no market seems to consistently lead the other.
Journal: The European Journal of Finance
Pages: 825-853
Issue: 10
Volume: 22
Year: 2016
Month: 8
X-DOI: 10.1080/1351847X.2014.996297
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.996297
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:10:p:825-853
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Jaap Hazenberg
Author-X-Name-First: Jan Jaap
Author-X-Name-Last: Hazenberg
Author-Name: Edwin Terink
Author-X-Name-First: Edwin
Author-X-Name-Last: Terink
Title: Effectiveness of independent boards of UCITS funds
Abstract:
In order to protect fund investors against conflicts of interest with fund management companies, US funds have mandatory independent directors, but this obligation is not required under the European Union Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. Nevertheless, a considerable number of UCITS funds do have independent directors. Whether independent directors should also be mandatory in Europe has been a topic of ongoing debate. Using a sample of Luxembourg UCITS, we test the hypothesis that more independent boards add value for investors through lower costs and/or better investment performance, but we fail to find supporting evidence, even for funds with a higher risk of conflicts of interest. Oversight by independent depositaries and institutional shareholders does not seem to be effective either. It appears that board attitude and the sponsor distribution model are more important since we find evidence that boards that prioritise cost monitoring have lower costs and that independent sponsor funds have better performance. These results question the effectiveness of self-regulation or formal regulation requiring independent board members.
Journal: The European Journal of Finance
Pages: 854-886
Issue: 10
Volume: 22
Year: 2016
Month: 8
X-DOI: 10.1080/1351847X.2014.996655
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.996655
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:10:p:854-886
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Brooks
Author-X-Name-First: Chris
Author-X-Name-Last: Brooks
Author-Name: Andreas G. F. Hoepner
Author-X-Name-First: Andreas G. F.
Author-X-Name-Last: Hoepner
Author-Name: David McMillan
Author-X-Name-First: David
Author-X-Name-Last: McMillan
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Author-Name: Chardin Wese Simen
Author-X-Name-First: Chardin
Author-X-Name-Last: Wese Simen
Title: Financial data science: the birth of a new financial research paradigm complementing econometrics?
Abstract:
Financial data science and econometrics are highly complementary. They share an equivalent research process with the former’s intellectual point of departure being statistical inference and the latter’s being the data sets themselves. Two challenges arise, however, from digitalisation. First, the ever-increasing computational power allows researchers to experiment with an extremely large number of generated test subjects (i.e. p-hacking). We argue that p-hacking can be mitigated through adjustments for multiple hypothesis testing where appropriate. However, it can only truly be addressed via a strong focus on integrity (e.g. pre-registration, actual out-of-sample periods). Second, the extremely large number of observations available in big data set provides magnitudes of statistical power at which common statistical significance levels are barely relevant. This challenge can be addressed twofold. First, researchers can use more stringent statistical significance levels such as 0.1% and 0.5% instead of 1% and 5%, respectively. Second, and more importantly, researchers can use criteria such as economic significance, economic relevance and statistical relevance to assess the robustness of statistically significant coefficients. Especially statistical relevance seems crucial, as it appears far from impossible for an individual coefficient to be considered statistically significant when its actual statistical relevance (i.e. incremental explanatory power) is extremely small.
Journal: The European Journal of Finance
Pages: 1627-1636
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1662822
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1662822
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1627-1636
Template-Type: ReDIF-Article 1.0
Author-Name: Irina Goloshchapova
Author-X-Name-First: Irina
Author-X-Name-Last: Goloshchapova
Author-Name: Ser-Huang Poon
Author-X-Name-First: Ser-Huang
Author-X-Name-Last: Poon
Author-Name: Matthew Pritchard
Author-X-Name-First: Matthew
Author-X-Name-Last: Pritchard
Author-Name: Phil Reed
Author-X-Name-First: Phil
Author-X-Name-Last: Reed
Title: Corporate social responsibility reports: topic analysis and big data approach
Abstract:
This paper performs topic modeling using all publicly available CSR (Corporate Social Responsibility) reports for all constituent firms of the major stock market indices of 15 industrialized countries included in MSCI Europe for the sample period from 1999 to 2016. Our text mining results and LDA analyses indicate that ‘employees safety’, ‘employees training support’, ‘carbon emission’, ‘human right’, ‘efficient power’, and ‘healthcare medicines’ are the common topics reported by publicly listed companies in Europe and the UK. There is a clear sector bias with industrial firms emphasizing ‘employee safety’, Utilities concentrating on ‘efficient power’ while consumer discretionary and consumer staples highlighting ‘food waste’ and ‘food packaging.’ To produce these results, we used a battery of python code to organize the hundreds of reports downloaded from Bloomberg and the internet, the latest R-algorithm to estimate LDA (Latent Dirichlet Allocation) model and the LDAvis interactive tool to visualize and refine the LDA model.
Journal: The European Journal of Finance
Pages: 1637-1654
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1572637
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1572637
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1637-1654
Template-Type: ReDIF-Article 1.0
Author-Name: Tiffany Thng
Author-X-Name-First: Tiffany
Author-X-Name-Last: Thng
Title: Do VC-backed IPOs manage tone?
Abstract:
This paper examines how and why VC-backed firms manage their tone during initial public offerings (IPO) and seasoned equity offerings (SEO). Analysis conducted using the Management Discussion and Analysis section of the prospectuses from 1997 to 2011 show that VC-funded firms are less optimistic in tone. VC-financed firms do so to reduce litigation risks and protect their reputational capital; the effect of conservative tone management is more pronounced when they hire large auditors, receive more analyst coverage, operate in high-tech sectors and in industries with high litigation risk. Further, tone is not related to the conveying of private information as IPO firms that received VC funding experience larger surprise unexpected returns and perform better than non-VC-backed offers in the long run.
Journal: The European Journal of Finance
Pages: 1655-1682
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2018.1561482
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1561482
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1655-1682
Template-Type: ReDIF-Article 1.0
Author-Name: Gaurav Kumar
Author-X-Name-First: Gaurav
Author-X-Name-Last: Kumar
Author-Name: Cal B. Muckley
Author-X-Name-First: Cal B.
Author-X-Name-Last: Muckley
Author-Name: Linh Pham
Author-X-Name-First: Linh
Author-X-Name-Last: Pham
Author-Name: Darragh Ryan
Author-X-Name-First: Darragh
Author-X-Name-Last: Ryan
Title: Can alert models for fraud protect the elderly clients of a financial institution?
Abstract:
Using account-level transaction data at a major financial institution, we predict the incidence of suspicious activity that can be related to the external financial fraud of its elderly clients. The data consists of over 5 million accounts of clients aged 70 years and older, and over 250 million transactions extending from January 2015 to August 2016. Our main focus is to improve the detection of alerts within a proprietorial transaction monitoring system. Using logistic regression, random forest and support vector machine learning techniques, together with corrections for imbalanced alert samples, we provide a new alert model for the protection of elderly clients at a financial institution, with out-of-sample predictive accuracy. Our findings show the relative influence of client traits and account activity in our select external fraud alert models.
Journal: The European Journal of Finance
Pages: 1683-1707
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2018.1552603
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1552603
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1683-1707
Template-Type: ReDIF-Article 1.0
Author-Name: Panagiotis Asimakopoulos
Author-X-Name-First: Panagiotis
Author-X-Name-Last: Asimakopoulos
Author-Name: Stylianos Asimakopoulos
Author-X-Name-First: Stylianos
Author-X-Name-Last: Asimakopoulos
Author-Name: Filipa Da Silva Fernandes
Author-X-Name-First: Filipa Da Silva
Author-X-Name-Last: Fernandes
Title: Cash holdings of listed and unlisted firms: new evidence from the euro area
Abstract:
This paper examines the cash holdings behavior of listed and unlisted firms. We argue that unlisted firms, which are smaller, face a greater wedge between the cost of external and internal finance and as a result they need to rely more on the later. Relying on internal funds means that firms have a precautionary motive to hold cash. We test our theory using an unbalanced panel of mainly small medium enterprises within the euro area over the period 2003–2017 paying special attention to the role of financial pressure, financial constraints and the recent financial crisis. Our findings reveal that unlisted firms hold more cash than their listed counterparts due to precautionary motives. In addition, when considering the effect of financial pressure, the results show that the difference in cash holdings between listed and unlisted firms exhibit a ‘U-shaped’ relationship. Finally, unlisted firms have a higher sensitivity to save cash out of cash flow than listed firms. Our results are robust to using different specifications and different financial pressure measures.
Journal: The European Journal of Finance
Pages: 1708-1729
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1652197
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1652197
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1708-1729
Template-Type: ReDIF-Article 1.0
Author-Name: Richard H. G. Jackson
Author-X-Name-First: Richard H. G.
Author-X-Name-Last: Jackson
Title: Sub-sequence incidence analysis within series of Bernoulli trials: application in characterisation of time series dynamics
Abstract:
This paper presents a new and widely applicable nonparametric approach to the characterisation of time series dynamics. The approach involves analysis of the incidence of occurrence of patterns in the direction of movement of the series, and may readily be applied to time series data measured on any scale. The paper includes derivations of analytic forms for two (infinite) families of distributions under the null hypothesis of random behaviour, and of a useful analytic form for the generation of the moments of these distributions. The distributions are asymptotically normal, so allowing for straightforward application of the approach presented in the paper too long series of high frequency and/or extended time period data. Areas of application in finance and accounting are suggested.
Journal: The European Journal of Finance
Pages: 1730-1745
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1583117
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1583117
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1730-1745
Template-Type: ReDIF-Article 1.0
Author-Name: Esther B. Del Brio
Author-X-Name-First: Esther B.
Author-X-Name-Last: Del Brio
Author-Name: Andrés Mora-Valencia
Author-X-Name-First: Andrés
Author-X-Name-Last: Mora-Valencia
Author-Name: Javier Perote
Author-X-Name-First: Javier
Author-X-Name-Last: Perote
Title: Expected shortfall assessment in commodity (L)ETF portfolios with semi-nonparametric specifications
Abstract:
This paper studies the risk assessment of semi-nonparametric (SNP) distributions for leveraged exchange trade funds, (L)ETFs. We applied the SNP model with dynamic conditional correlations (DCC) and EGARCH innovations, and implement recent techniques to backtest Expected Shortfall (ES) to portfolios formed by bivariate combinations of major (L)ETFs on metal (Gold and Silver) and energy (Oil and Gas) commodities. Results support that multivariate SNP-DCC model outperforms the Gaussian-DCC and provides accurate risk measures for commodity (L)ETFs.
Journal: The European Journal of Finance
Pages: 1746-1764
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2018.1559213
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1559213
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1746-1764
Template-Type: ReDIF-Article 1.0
Author-Name: John Cotter
Author-X-Name-First: John
Author-X-Name-Last: Cotter
Author-Name: Anita Suurlaht
Author-X-Name-First: Anita
Author-X-Name-Last: Suurlaht
Title: Spillovers in risk of financial institutions
Abstract:
We analyse the total and directional spillovers across a set of financial institution systemic risk state variables: credit risk, real estate market risk, interest rate risk, interbank liquidity risk and overall market risk. We examine the response of the spillover levels, within the set of systemic risk state variables, to a number of events in the financial markets and to initiatives undertaken by the European Central Bank and the Bank of England. The relationship between the time-varying spillovers and policy-related events is analysed using a multiple structural break estimation procedure and looking at the temporary increases in the spillover indices. Our sample includes five European Union countries: core countries France and Germany, periphery countries Spain and Italy, and a reference country, the UK. We show that national stock markets and real estate markets have a leading role in shock transmission across selected state variables. However, the role of the other variables reverses over the course of the crisis. We document that the total and net spillover indices react strongly to the events relating to financial assistance packages in Europe.
Journal: The European Journal of Finance
Pages: 1765-1792
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2019.1635897
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1635897
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1765-1792
Template-Type: ReDIF-Article 1.0
Author-Name: Ioannis Psaradellis
Author-X-Name-First: Ioannis
Author-X-Name-Last: Psaradellis
Author-Name: Jason Laws
Author-X-Name-First: Jason
Author-X-Name-Last: Laws
Author-Name: Athanasios A. Pantelous
Author-X-Name-First: Athanasios A.
Author-X-Name-Last: Pantelous
Author-Name: Georgios Sermpinis
Author-X-Name-First: Georgios
Author-X-Name-Last: Sermpinis
Title: Performance of technical trading rules: evidence from the crude oil market
Abstract:
This study investigates the debatable success of technical trading rules, through the years, on the trending energy market of crude oil. In particular, the large universe of 7846 trading rules proposed by Sullivan, Timmermann, and White (1999. “Data-Snooping, Technical Trading Rule Performance, and the Bootstrap.” The Journal of Finance 54 (5): 1647–1691. doi:10.1111/0022-1082.00163), divided into five families (filter rules, moving averages, support and resistance rules, channel breakouts, and on-balance volume averages), is applied to the daily prices of West Texas Intermediate (WTI) light, sweet crude oil futures as well as the United States Oil (USO) fund, from 2006 onwards. We employ the k-familywise error rate (k-FWER) and false discovery rate (FDR) techniques proposed by Romano, J. P., and M. Wolf. (2007. “Control of Generalized Error Rates in Multiple Testing.” The Annals of Statistics 35 (4): 1378–1408. doi:10.1214/009053606000001622) and Bajgrowicz, P., and O. Scaillet. (2012. “Technical Trading Revisited: False Discoveries, Persistence Tests, and Transaction Costs.” Journal of Financial Economics 106 (3): 473–491. doi:10.1016/j.jfineco.2012.06.001) respectively, accounting for data snooping in order to identify significantly profitable trading strategies. Our findings explain that there is no persistent nature in rules performance, contrary to the in-sample outstanding results, although tiny profits can be achieved in some periods. Overall, our results seem to be in favor of interim market inefficiencies.
Journal: The European Journal of Finance
Pages: 1793-1815
Issue: 17
Volume: 25
Year: 2019
Month: 11
X-DOI: 10.1080/1351847X.2018.1552172
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1552172
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:17:p:1793-1815
Template-Type: ReDIF-Article 1.0
Author-Name: Styliani-Iris Krokida
Author-X-Name-First: Styliani-Iris
Author-X-Name-Last: Krokida
Author-Name: Neophytos Lambertides
Author-X-Name-First: Neophytos
Author-X-Name-Last: Lambertides
Author-Name: Christos S. Savva
Author-X-Name-First: Christos S.
Author-X-Name-Last: Savva
Author-Name: Dimitris A. Tsouknidis
Author-X-Name-First: Dimitris A.
Author-X-Name-Last: Tsouknidis
Title: The effects of oil price shocks on the prices of EU emission trading system and European stock returns
Abstract:
This paper examines whether oil price shocks of different origin affect the price of carbon emission allowance traded under the European Union's Emissions Trading System; leading to changes in aggregate and sector-specific European equity returns. The results show that an unexpected oil-supply disruption has an imminent but weak positive effect on carbon emission price, while a positive aggregate demand shock has a strong positive effect on carbon emission price. By contrast, a positive oil-specific (precautionary) demand shock has a negative but weak effect on carbon emission price. These findings are economically important as positive shocks on the ${\rm CO}_{2} $CO2 emission allowance price trigger a decrease on the aggregate stock return of the European equity market, albeit they trigger a large and persistent increase on European equity returns of oil-related industries with the exception of the Energy sector.
Journal: The European Journal of Finance
Pages: 1-13
Issue: 1
Volume: 26
Year: 2020
Month: 1
X-DOI: 10.1080/1351847X.2019.1637358
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1637358
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:1:p:1-13
Template-Type: ReDIF-Article 1.0
Author-Name: Ioannis Oikonomou
Author-X-Name-First: Ioannis
Author-X-Name-Last: Oikonomou
Author-Name: Chao Yin
Author-X-Name-First: Chao
Author-X-Name-Last: Yin
Author-Name: Lei Zhao
Author-X-Name-First: Lei
Author-X-Name-Last: Zhao
Title: Investment horizon and corporate social performance: the virtuous circle of long-term institutional ownership and responsible firm conduct
Abstract:
We investigate the relationship between corporate social performance and institutional ownership. We distinguish between long-term and short-term institutional investors using holdings-based measures which directly capture the investment horizon of each institution. Our analysis shows that long term institutional investment is positively related to corporate social performance (mainly by an avoidance of investing in firms with significant controversies) whereas short-term institutional investment is negatively related to corporate social performance. Further investigation reveals that increased holdings of a firm by long-term investors are positively associated with its future corporate social performance. Hence, we provide evidence of a ‘virtuous circle’ between long term investment and social responsibility.
Journal: The European Journal of Finance
Pages: 14-40
Issue: 1
Volume: 26
Year: 2020
Month: 1
X-DOI: 10.1080/1351847X.2019.1660197
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1660197
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:1:p:14-40
Template-Type: ReDIF-Article 1.0
Author-Name: Chi-Hsiou D. Hung
Author-X-Name-First: Chi-Hsiou D.
Author-X-Name-Last: Hung
Author-Name: Shammyla Naeem
Author-X-Name-First: Shammyla
Author-X-Name-Last: Naeem
Author-Name: K.C. John Wei
Author-X-Name-First: K.C.
Author-X-Name-Last: John Wei
Title: Peer firms’ credit rating changes and corporate financing
Abstract:
We find that firms reduce net debt issuance (NDI, hereafter) when industry peers with the same credit rating were downgraded in the previous year, as opposed to an average NDI increase among all firms. This finding is consistent with the considerations of competition and contagion associated with relative strengths and weaknesses in credit quality. The peer effect on NDI reduction is ubiquitous across both speculative- and investment-grade firms, but is particularly strong for small size firms with speculative-grade ratings, and firms operating in concentrated industries, and in times when the economy is in expansion or outside financial crises. We also find that firms reduce leverage when their ratings are lower than the industry average, and that peer firms’ rating effects remain strong even when controlling for the lower-than-average effect.
Journal: The European Journal of Finance
Pages: 41-63
Issue: 1
Volume: 26
Year: 2020
Month: 1
X-DOI: 10.1080/1351847X.2019.1683874
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1683874
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:1:p:41-63
Template-Type: ReDIF-Article 1.0
Author-Name: Jie (Michael) Guo
Author-X-Name-First: Jie (Michael)
Author-X-Name-Last: Guo
Author-Name: Krishna Paudyal
Author-X-Name-First: Krishna
Author-X-Name-Last: Paudyal
Author-Name: Vinay Utham
Author-X-Name-First: Vinay
Author-X-Name-Last: Utham
Author-Name: Xiaofei Xing
Author-X-Name-First: Xiaofei
Author-X-Name-Last: Xing
Title: Investors’ activism and the gains from takeover deals
Abstract:
We examine whether activists add value to the shareholders of targets and their acquirers. Several findings emerge. First, acquirers of targets that have activists outperform acquirers of other targets in both the short and long term. Second, the premium received by the shareholders of targets is not affected by activism. Third, superior gains achieved by the acquirers of targets with activists are driven by non-cash deals, while the average target benefits more from cash deals.
Journal: The European Journal of Finance
Pages: 64-83
Issue: 1
Volume: 26
Year: 2020
Month: 1
X-DOI: 10.1080/1351847X.2019.1680407
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1680407
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:1:p:64-83
Template-Type: ReDIF-Article 1.0
Author-Name: Laurens Defau
Author-X-Name-First: Laurens
Author-X-Name-Last: Defau
Author-Name: Lieven De Moor
Author-X-Name-First: Lieven
Author-X-Name-Last: De Moor
Title: The investment costs of occupational pension funds in the European Union: a cross-country analysis
Abstract:
This paper evaluates which market characteristics influence pension funds’ investment costs on country level. The study builds on public statistics from EIOPA and includes information from fourteen countries for the period 2004–2015. The results indicate that economies of scale play an essential role in the level of investment costs and that pension funds pay less investment costs in mature markets. Furthermore, we show that inactive participants are an extra burden for pension funds and generate additional costs. In conclusion, this article proofs that there are still significant optimization opportunities to reduce pension funds’ investment costs in the European Union.
Journal: The European Journal of Finance
Pages: 84-94
Issue: 1
Volume: 26
Year: 2020
Month: 1
X-DOI: 10.1080/1351847X.2019.1656094
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1656094
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:1:p:84-94
Template-Type: ReDIF-Article 1.0
Author-Name: Roger Adkins
Author-X-Name-First: Roger
Author-X-Name-Last: Adkins
Author-Name: Dean Paxson
Author-X-Name-First: Dean
Author-X-Name-Last: Paxson
Title: The effects of an uncertain abandonment value on the investment decision
Abstract:
Using a three-factor stochastic real option model framework, this paper examines the effects of abandonment on the investment decision. Abandonment is classified according to whether the opportunity arises for an active operating asset post-investment, or for holding the project opportunity pre-investment. Separate analytical models are developed for the alternative forms of abandonment optionality. Numerical sensitivity analysis shows that the presence of a post-investment abandonment opportunity makes the investment opportunity appear to be more attractive because of the abandonment option value, but not by a considerable amount. Also, in contrast to the standard real option finding, an abandonment value volatility increase produces a project value threshold fall owing to the increase in the abandonment option value.
Journal: The European Journal of Finance
Pages: 1083-1106
Issue: 12
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2015.1113195
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1113195
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:12:p:1083-1106
Template-Type: ReDIF-Article 1.0
Author-Name: Leire Alcaniz
Author-X-Name-First: Leire
Author-X-Name-Last: Alcaniz
Author-Name: Fernando Gomez-Bezares
Author-X-Name-First: Fernando
Author-X-Name-Last: Gomez-Bezares
Author-Name: Jose Vicente Ugarte
Author-X-Name-First: Jose Vicente
Author-X-Name-Last: Ugarte
Title: Efficiency in initial public offerings and intellectual capital disclosure
Abstract:
The returns of initial public offerings (IPOs) on the first trading day, or the underpricing of IPOs, are a puzzle according to the Efficient Market Hypothesis. Many studies have attempted to relate these returns to different variables. We studied the relationship between underpricing and information about intellectual capital (IC), source of competitive advantage, disclosed in IPO prospectuses as well as other control variables. Our conclusion is contrary to certain literature, as IC information does not have any influence on underpricing but is consistent with the semi-strong efficient market hypothesis defended by Eugene Fama (Nobel in Economics 2013).
Journal: The European Journal of Finance
Pages: 1129-1149
Issue: 12
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2016.1151806
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151806
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:12:p:1129-1149
Template-Type: ReDIF-Article 1.0
Author-Name: Roger Adkins
Author-X-Name-First: Roger
Author-X-Name-Last: Adkins
Author-Name: Dean Paxson
Author-X-Name-First: Dean
Author-X-Name-Last: Paxson
Title: Sequential investments with stage-specific risks and drifts
Abstract:
We provide a generalized analytical methodology for evaluating a real sequential investment opportunity, which does not rely on a multivariate distribution function, but which allows for stage-specific risks and drifts. This model may be a useful capital budgeting and valuation tool for exploration and development projects, where risks change over the stages. We construct a stage threshold pattern whereby the final stage threshold exceeds the early stage threshold due to drift differentials between the project values at the various stages, value volatility differences, and correlation differentials, implying a rich menu of parameter values that may be suitable for a variety of projects. Governments seeking to motivate early final stage investments might lower final stage project volatility or specify project value decline over time, unless prospective owners are willing to pay the real option value (ROV) for concessions. In contrast, concession owners, more interested in ROV than thresholds that motivate early investments, may welcome final stage value escalation, or guarantees that reduce the correlation between project value and construction cost.
Journal: The European Journal of Finance
Pages: 1150-1175
Issue: 12
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2016.1158728
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1158728
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:12:p:1150-1175
Template-Type: ReDIF-Article 1.0
Author-Name: Marcelo Pereira
Author-X-Name-First: Marcelo
Author-X-Name-Last: Pereira
Author-Name: Sofia B. Ramos
Author-X-Name-First: Sofia B.
Author-X-Name-Last: Ramos
Author-Name: José G. Dias
Author-X-Name-First: José G.
Author-X-Name-Last: Dias
Title: The cyclical behaviour of commodities
Abstract:
Commodities are known to exhibit cyclical behaviour. This paper studies the dynamics of commodities regimes and their implications for portfolio diversification. Using an extension of the regime-switching model, we find that the 12 commodities studied can be clustered into four groups with different regime dynamics, demonstrating that the asset class behaviour of commodities is far from homogeneous. The existence of two regimes is transversal to the assets studied. One regime is marked by high volatility and the other by low volatility. In both regimes, most of the commodities exhibit returns that are not statistically significantly different from those of the stock market regime. The exceptions are oil and natural gas during the low-volatility regime. The analysis of regime synchronization shows that our stock market proxy has low synchronization with commodities, which suggests potential diversification value from adding commodities to an equity portfolio. Based on portfolio optimization, we find that commodities are included in the optimal portfolios in the bull and bear regime of the Standard & Poor’s 500 index. The benefits of diversifying into commodities are particularly strong in the bear stock market regime.
Journal: The European Journal of Finance
Pages: 1107-1128
Issue: 12
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2016.1205505
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1205505
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:12:p:1107-1128
Template-Type: ReDIF-Article 1.0
Author-Name: Dieter Gramlich
Author-X-Name-First: Dieter
Author-X-Name-Last: Gramlich
Author-Name: Mikhail V. Oet
Author-X-Name-First: Mikhail V.
Author-X-Name-Last: Oet
Author-Name: Stephen J. Ong
Author-X-Name-First: Stephen J.
Author-X-Name-Last: Ong
Title: The contributions to systemic stress of financial interactions between the US and Europe
Abstract:
Understanding the connectivity of international financial markets is critical to understanding the origination and propagation of financial crises. This study investigates the contribution of US and European exchange rate interactions to overall stress in the US financial system from 1992 to 2013. The impacts of these interactions are assessed using a financial stress index that aggregates measures of national and international stresses. There are three main findings for the sample period. First, we find that European influences on US financial stress have increased. Second, observing several structural breaks with changing correlation and Granger causality patterns, we find that the euro and the British pound have contributed varying levels of stress. Third, we find that stress in US markets tends to spill over into European markets, while the reverse influences are of lesser importance. These findings have important implications for supervisors in international markets. Understanding the amplifying or attenuating feedback effects from international connectivity provides valuable insight into the development of macroprudential policies.
Journal: The European Journal of Finance
Pages: 1176-1196
Issue: 12
Volume: 23
Year: 2017
Month: 9
X-DOI: 10.1080/1351847X.2016.1276023
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1276023
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:12:p:1176-1196
Template-Type: ReDIF-Article 1.0
Author-Name: Moonsoo Kang
Author-X-Name-First: Moonsoo
Author-X-Name-Last: Kang
Author-Name: Joshua Krausz
Author-X-Name-First: Joshua
Author-X-Name-Last: Krausz
Author-Name: Kiseok Nam
Author-X-Name-First: Kiseok
Author-X-Name-Last: Nam
Title: The intertemporal risk-Return relation, investor behavior, and technical trading profits: evidence from the G-7 countries
Abstract:
The intertemporal risk-return relation and investor behavior are both important pricing factors that jointly determine the expected market risk premium. Using the price adjustment process as a control variable, we find that the intertemporal risk-return relation is positive conditional on bad market news, but is non-positive conditional on good market news. This implies that good (bad) market news weakens (strengthens) the positive risk-return relation. The pattern in the distortion of the risk-return relation is consistent with short-term mispricing in which investors overvalue (undervalue) the stock market in reaction to good (bad) market news. We also show that ignoring the price adjustment process in the estimation of the risk-return relation leads to model misspecification and induces an upward (downward) bias in estimates of the relative risk aversion parameter conditional on good (bad) news. Our model of the asymmetric risk-return relation along with the price adjustment process is capable of generating the return dynamics that is attributable to technical trading profits. We suggest that the profitability of technical trading rules is not a violation of market efficiency, but a consequence of trading rules exploiting the asymmetric effect of price changes on the risk-return relation, along with the persistence property of price changes.
Journal: The European Journal of Finance
Pages: 780-798
Issue: 8
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1537980
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1537980
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:8:p:780-798
Template-Type: ReDIF-Article 1.0
Author-Name: Son-Nan Chen
Author-X-Name-First: Son-Nan
Author-X-Name-Last: Chen
Author-Name: Pao-Peng Hsu
Author-X-Name-First: Pao-Peng
Author-X-Name-Last: Hsu
Author-Name: Kuo-Yuan Liang
Author-X-Name-First: Kuo-Yuan
Author-X-Name-Last: Liang
Title: Option pricing and hedging in different cyclical structures: a two-dimensional Markov-modulated model
Abstract:
The critical role of interest rate risk and associated regime-switching risk in pricing and hedging options is examined using a closed-form valuation model. Equity call options are valued under the proposed 2-dimensional Markov-modulated model in which asset prices and interest rates exhibit Markov regime-switching features. In addition, the relationship between cyclical structures and option prices are analyzed using a time-varying transition probability matrix. The proposed model can enhance the forecast transition probabilities in an out-sample period. The cycle-stylized effect of an economy exhibits different impacts on option prices and hedging strategies in a short- and a long-cycle economy. Our closed-form formula based on more realistic specifications with respect to business-cyclical structures in various financial markets is more appropriate for pricing and hedging options.
Journal: The European Journal of Finance
Pages: 762-779
Issue: 8
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1538895
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1538895
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:8:p:762-779
Template-Type: ReDIF-Article 1.0
Author-Name: Jurij-Andrei Reichenecker
Author-X-Name-First: Jurij-Andrei
Author-X-Name-Last: Reichenecker
Title: Diversification effect of standard and optimized carry trades
Abstract:
Standard carry trades, which consist of purchasing high- and selling low-yield currencies, provide an economic diversification effect. However, the diversification effect is not robust, and is not borne out by much statistical evidence. We introduce optimized carry trades, which incorporate risk components such as currency volatility or currency skewness in the selection process. These optimized carry trades provide a robust economic diversification effect observed by a larger Sharpe ratio, a reduced portfolio volatility, a smaller drawdown, or a reduced tail risk with respect to a benchmark portfolio. Moreover, a significant improvement of the mean-efficient frontier is observable, with the result that minimum-variance and tangency portfolio are enhanced. The empirical results reveal that optimized carry trades have a larger diversification effect than standard carry trades and their modifications.
Journal: The European Journal of Finance
Pages: 745-761
Issue: 8
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1539023
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1539023
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:8:p:745-761
Template-Type: ReDIF-Article 1.0
Author-Name: Sturla Lyngnes Fjesme
Author-X-Name-First: Sturla Lyngnes
Author-X-Name-Last: Fjesme
Title: Laddering IPO shares
Abstract:
Regulators, investors, and the financial media argue that underwriters tie Initial Public Offering (IPO) allocations to investor post-listing purchases in the issuer shares. Using unique data from the Oslo Stock Exchange (OSE) I investigate if these tie-in agreements are driven by price stabilization (reducing price falls below the offer price) or laddering (inflating prices above the offer price). I find that both stabilizing and laddering investors are rewarded with increased allocations for their service. However, only laddering investors increase allocations in very oversubscribed future issues. Secondary investors also lose from falling returns following laddering. I conclude that underwriters use both price stabilization and laddering across different IPOs. However, the rewards for cooperating investors and the economic consequences for secondary investors are much greater following laddering.
Journal: The European Journal of Finance
Pages: 799-813
Issue: 8
Volume: 25
Year: 2019
Month: 5
X-DOI: 10.1080/1351847X.2018.1541327
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1541327
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:8:p:799-813
Template-Type: ReDIF-Article 1.0
Author-Name: Jacopo Corbetta
Author-X-Name-First: Jacopo
Author-X-Name-Last: Corbetta
Author-Name: Ilaria Peri
Author-X-Name-First: Ilaria
Author-X-Name-Last: Peri
Title: Backtesting lambda value at risk
Abstract:
A new risk measure, lambda value at risk ( $ \Lambda {\rm VaR} $ ΛVaR), has been recently proposed as a generalization of value at risk (VaR). $ \Lambda {\rm VaR} $ ΛVaR appears attractive for its potential ability to solve several problems of VaR. This paper provides the first study on the backtesting of $ \Lambda {\rm VaR} $ ΛVaR. We propose three nonparametric tests which exploit different features. Two tests are based on simple results of probability theory. One test is unilateral and is more suitable for small samples of observations. A second test is bilateral and provides an asymptotic result. A third test is based on simulations and allows for a more accurate comparison among $ \Lambda {\rm VaR}s $ ΛVaRs computed with different assumptions on the asset return distribution. Finally, we perform a backtesting exercise that confirms a higher performance of $ \Lambda {\rm VaR} $ ΛVaR in respect to VaR especially when it is estimated with distributions that better capture tail behavior.
Journal: The European Journal of Finance
Pages: 1075-1087
Issue: 13
Volume: 24
Year: 2018
Month: 9
X-DOI: 10.1080/1351847X.2017.1339105
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1339105
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:13:p:1075-1087
Template-Type: ReDIF-Article 1.0
Author-Name: Manuel Franco
Author-X-Name-First: Manuel
Author-X-Name-Last: Franco
Author-Name: Juana-María Vivo
Author-X-Name-First: Juana-María
Author-X-Name-Last: Vivo
Title: Genetic algorithms for parameter estimation in modelling of index returns
Abstract:
The main aim for this paper is motivated by the usefulness of genetic algorithms (GAs) for the fitting of distribution models to financial market data. In detail, we use a GA along with the least squares method in order to achieve a more relatively accurate and robust approach for optimizing non-linear objective functions. The combination of these two methods is applied for fitting parametric distributions to a dataset of market index returns, improving the methodology of cumulative returns prediction. The process of extrapolation plays a fundamental role in this area of analysis, being essential to empirically fit a convenient distribution that describes the available data as closely as possible. For comparison and illustrative purpose, we analyse distribution models used in the financial literature for modelling such dataset, and then the practical application is carried out again on a more updated dataset from the same financial index. In addition, a brief simulation study is developed to illustrate the usefulness of the proposal procedure.
Journal: The European Journal of Finance
Pages: 1088-1099
Issue: 13
Volume: 24
Year: 2018
Month: 9
X-DOI: 10.1080/1351847X.2017.1392332
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1392332
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:13:p:1088-1099
Template-Type: ReDIF-Article 1.0
Author-Name: Jennifer Alonso-García
Author-X-Name-First: Jennifer
Author-X-Name-Last: Alonso-García
Author-Name: María del Carmen Boado-Penas
Author-X-Name-First: María del Carmen
Author-X-Name-Last: Boado-Penas
Author-Name: Pierre Devolder
Author-X-Name-First: Pierre
Author-X-Name-Last: Devolder
Title: Adequacy, fairness and sustainability of pay-as-you-go-pension-systems: defined benefit versus defined contribution
Abstract:
There are three main challenges facing pay-as-you-go public pension systems. First, pension systems need to provide an adequate income for pensioners in the retirement phase. Second, participants wish a fair level of benefits in relation to the contributions paid. Last but not least, the pension system needs to be financially sustainable in the long run. In this paper, we jointly analyse the adequacy, fairness and sustainability of both defined benefit and defined contribution schemes. Finally, risk sharing mechanisms, that involve changes in the key variables of the system, are designed to restore the financial sustainability while we study their consequences on the adequacy and fairness of the system.
Journal: The European Journal of Finance
Pages: 1100-1122
Issue: 13
Volume: 24
Year: 2018
Month: 9
X-DOI: 10.1080/1351847X.2017.1399429
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1399429
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:13:p:1100-1122
Template-Type: ReDIF-Article 1.0
Author-Name: Matthias Pelster
Author-X-Name-First: Matthias
Author-X-Name-Last: Pelster
Author-Name: Felix Irresberger
Author-X-Name-First: Felix
Author-X-Name-Last: Irresberger
Author-Name: Gregor N.F. Weiß
Author-X-Name-First: Gregor N.F.
Author-X-Name-Last: Weiß
Title: Bank stock performance and bank regulation around the globe
Abstract:
We analyze the effect of bank capital, regulation, and supervision on the annual stock performance of global banks during the period of 1999–2012. We study a large comprehensive panel of international banks and find that higher Tier 1 capital decreases a bank's stock performance over the whole sample period. However, during turbulent times stocks of more highly capitalized banks perform significantly better. Additionally, we find strong evidence that banks that are more likely to receive government bailout during financial distress realize smaller stock performance. In contrast, we find no convincing evidence that banks that generate higher non-interest income have a higher performance.
Journal: The European Journal of Finance
Pages: 77-113
Issue: 2
Volume: 24
Year: 2018
Month: 1
X-DOI: 10.1080/1351847X.2016.1226189
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1226189
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:2:p:77-113
Template-Type: ReDIF-Article 1.0
Author-Name: Ali Ataullah
Author-X-Name-First: Ali
Author-X-Name-Last: Ataullah
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Author-Name: Bin Xu
Author-X-Name-First: Bin
Author-X-Name-Last: Xu
Title: Time-varying managerial overconfidence and corporate debt maturity structure
Abstract:
We examine the impact of managerial overconfidence on corporate debt maturity. We build upon the argument that managerial overconfidence is likely to mitigate the underinvestment problem, which is often the major concern for long-term debt investors. Within this context, we hypothesise that managerial overconfidence increases debt maturity. Our empirical evidence, based on time-varying measures of overconfidence derived from computational linguistic analysis and directors’ dealings in their own companies’ shares, supports this hypothesis. Specifically, we find that the changes in both first person singular pronouns and optimistic tone are positively related to the change in debt maturity. Moreover, we find that the insider trading-based overconfidence of CEO, who is most likely to influence investment decision and thus the underinvestment problem, has a stronger impact on debt maturity than the overconfidence of other directors (e.g. CFO). Overall, our study provides initial evidence for a positive overconfidence-debt maturity relation via overconfidence mitigating the agency cost of long-term debt.
Journal: The European Journal of Finance
Pages: 157-181
Issue: 2
Volume: 24
Year: 2018
Month: 1
X-DOI: 10.1080/1351847X.2016.1274266
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1274266
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:2:p:157-181
Template-Type: ReDIF-Article 1.0
Author-Name: Guglielmo Maria Caporale
Author-X-Name-First: Guglielmo Maria
Author-X-Name-Last: Caporale
Author-Name: Fabio Spagnolo
Author-X-Name-First: Fabio
Author-X-Name-Last: Spagnolo
Author-Name: Nicola Spagnolo
Author-X-Name-First: Nicola
Author-X-Name-Last: Spagnolo
Title: Macro news and bond yield spreads in the euro area
Abstract:
This paper analyses the effects of newspaper coverage of macro news on the spread between the yield on the 10-year German Bund and on sovereign bonds in eight countries belonging to the euro area (Belgium, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain) using daily data for the period 1999–2014. The econometric analysis is based on the estimation of a VAR-GARCH model. The results can be summarized as follows. Negative news have significant positive effects on yield spreads in all GIIPS (Greece, Ireland, Italy, Portugal and Spain) countries but Italy before September 2008; markets respond more to negative news, and their reaction has increased during the recent financial crisis. News volatility has a significant impact on yield spread volatility, the effects being more pronounced in the case of negative news and bigger in the most recent crisis period, especially in the GIIPS countries. Further, the conditional correlations between yield spreads and negative news increase in absolute value during the financial crisis (especially in the GIIPS countries), indicating a higher sensitivity of the former to the latter.
Journal: The European Journal of Finance
Pages: 114-134
Issue: 2
Volume: 24
Year: 2018
Month: 1
X-DOI: 10.1080/1351847X.2017.1285797
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1285797
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:2:p:114-134
Template-Type: ReDIF-Article 1.0
Author-Name: Hidemichi Fujii
Author-X-Name-First: Hidemichi
Author-X-Name-Last: Fujii
Author-Name: Shunsuke Managi
Author-X-Name-First: Shunsuke
Author-X-Name-Last: Managi
Author-Name: Roman Matousek
Author-X-Name-First: Roman
Author-X-Name-Last: Matousek
Author-Name: Aarti Rughoo
Author-X-Name-First: Aarti
Author-X-Name-Last: Rughoo
Title: Bank efficiency, productivity, and convergence in EU countries: a weighted Russell directional distance model
Abstract:
The objective of this study is three-fold. First we estimate and analyse bank efficiency and productivity changes in the EU28 countries with the application of a novel approach, a weighted Russell directional distance model. Second, we take a disaggregated approach and analyse the contribution of the individual bank inputs on bank efficiency and productivity growth. Third, we test for convergence in EU28 bank productivity as well as in the inefficiency of individual bank inputs. We find that bank efficiency has been undermined by the financial crisis in banks notably from the EU15 countries. We also argue that bank efficiency and productivity in EU countries vary across the banking sector with banks from the ‘old’ EU showing higher efficiency levels. Nonetheless, a noticeable catching up process is observed for banks from the ‘new’ EU countries. Consequently, we do not find evidence of group convergence for bank productivity but there is evidence of convergence in bank efficiency change and technical change among the EU28 countries throughout the period 2005–2014. The driving force seems to be convergent technical change from the old EU member states’ banks. On the other hand, almost no convergence is detected for the banks’ individual inputs while the transition paths show heightened diversity during the crisis years.
Journal: The European Journal of Finance
Pages: 135-156
Issue: 2
Volume: 24
Year: 2018
Month: 1
X-DOI: 10.1080/1351847X.2017.1303527
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1303527
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:2:p:135-156
Template-Type: ReDIF-Article 1.0
Author-Name: Ozlem Arikan
Author-X-Name-First: Ozlem
Author-X-Name-Last: Arikan
Author-Name: Arie E. Gozluklu
Author-X-Name-First: Arie E.
Author-X-Name-Last: Gozluklu
Author-Name: Gi H. Kim
Author-X-Name-First: Gi H.
Author-X-Name-Last: Kim
Author-Name: Hiroaki Sakaguchi
Author-X-Name-First: Hiroaki
Author-X-Name-Last: Sakaguchi
Title: Primacy in stock market participation: the effect of initial returns on market re-entry decisions
Abstract:
We examine whether initial returns influence investors’ decisions to return to the stock market following withdrawal. Using a survival analysis technique to estimate Finnish retail investors’ likelihood of stock market re-entry reveals that investors who experience lower initial returns are less likely to return, even after controlling for returns in the last month and average monthly returns for the duration of investing. This primacy effect is robust to accounting for endogeneity in investors’ exit decisions, and other behavioural biases such as recency and saliency of investment experience. Individual investors appear to be subject to primacy bias and tend to put a significant weight on initial experiences in re-entry decisions.
Journal: The European Journal of Finance
Pages: 883-909
Issue: 10
Volume: 25
Year: 2019
Month: 7
X-DOI: 10.1080/1351847X.2018.1459764
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1459764
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:10:p:883-909
Template-Type: ReDIF-Article 1.0
Author-Name: Marco Realdon
Author-X-Name-First: Marco
Author-X-Name-Last: Realdon
Title: Discounting earnings with stochastic discount rates
Abstract:
This paper presents new equity valuation formulae in closed form that extend the abnormal earnings growth (AEG) valuation of Ohlson [2005. “On Accounting-Based Valuation Formulae.” Review of Accounting Studies 10: 323–347] to the cases of time-varying or stochastic cost of capital as in Ang and Liu [2004. “How to Discount Cash Flows with Time-Varying Expected Returns.” Journal of Finance 59 (6): 2745–2783] or to cases of stochastic interest rates as in Ang and Liu [2001. “A General Affine Earnings Valuation Model.” Review of Accounting Studies 6: 397–425]. Interest rates are modelled by quadratic term structure models, which are not hindered by restrictions to factors correlation or by other shortcomings of affine term structure models in discounting long-term earnings. This is crucial since valuation can be very sensitive to the correlation between the factors driving earnings and interest rates. Positive correlation reduces price-earnings ratios according to US data. Valuation is also sensitive to the ‘volatility’ of abnormal earnings growth. The residual earnings risk-neutral valuation of Ang and Liu (2001) is adapted to quadratic term structure models.
Journal: The European Journal of Finance
Pages: 910-936
Issue: 10
Volume: 25
Year: 2019
Month: 7
X-DOI: 10.1080/1351847X.2018.1548368
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1548368
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:10:p:910-936
Template-Type: ReDIF-Article 1.0
Author-Name: Fabian Hollstein
Author-X-Name-First: Fabian
Author-X-Name-Last: Hollstein
Author-Name: Marcel Prokopczuk
Author-X-Name-First: Marcel
Author-X-Name-Last: Prokopczuk
Author-Name: Björn Tharann
Author-X-Name-First: Björn
Author-X-Name-Last: Tharann
Author-Name: Chardin Wese Simen
Author-X-Name-First: Chardin
Author-X-Name-Last: Wese Simen
Title: Predicting the equity market with option-implied variables
Abstract:
We comprehensively analyze the predictive power of several option-implied variables for monthly S&P 500 excess returns and realized variance. The correlation risk premium (CRP) and the variance risk premium (VRP) emerge as strong predictors of both excess returns and realized variance. This is true both in- and out-of-sample. Our results also reveal that statistical evidence of predictability does not necessarily lead to economic gains. However, a timing strategy based on the CRP leads to utility gains of more than 5.03% per annum. Forecast combinations provide stable forecasts for both excess returns and realized variance, and add economic value.
Journal: The European Journal of Finance
Pages: 937-965
Issue: 10
Volume: 25
Year: 2019
Month: 7
X-DOI: 10.1080/1351847X.2018.1556176
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1556176
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:10:p:937-965
Template-Type: ReDIF-Article 1.0
Author-Name: Christopher Coyle
Author-X-Name-First: Christopher
Author-X-Name-Last: Coyle
Author-Name: Fabian Gogolin
Author-X-Name-First: Fabian
Author-X-Name-Last: Gogolin
Author-Name: Fearghal Kearney
Author-X-Name-First: Fearghal
Author-X-Name-Last: Kearney
Title: Modelling gold futures: should the level of speculation inform our choice of variables?
Abstract:
Prior literature provides conflicting evidence about the impact of speculation on gold futures returns, volatility, and the relationship between market fundamentals and prices. In this paper, we exploit trade volume information to determine the most appropriate family of factors to adopt when modelling gold futures. Using the Disaggregated Commitment of Traders report, we find that extreme levels of speculation are informative in that they signify a shift in the relative modelling accuracy of macroeconomic and latent factors. A simple composite prediction framework, incorporating the changing level of speculation, empirically demonstrates the uncovered phenomenon and offers improved predictive accuracy for gold futures prices. Furthermore, our findings are shown to be robust to alternative latent and macroeconomic model specifications.
Journal: The European Journal of Finance
Pages: 966-977
Issue: 10
Volume: 25
Year: 2019
Month: 7
X-DOI: 10.1080/1351847X.2018.1559212
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1559212
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:10:p:966-977
Template-Type: ReDIF-Article 1.0
Author-Name: Douglas Cumming
Author-X-Name-First: Douglas
Author-X-Name-Last: Cumming
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Edward Lee
Author-X-Name-First: Edward
Author-X-Name-Last: Lee
Title: Chinese capital markets: institutional reforms and growing global links
Journal: The European Journal of Finance
Pages: 573-580
Issue: 7-9
Volume: 23
Year: 2017
Month: 7
X-DOI: 10.1080/1351847X.2017.1345051
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1345051
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:7-9:p:573-580
Template-Type: ReDIF-Article 1.0
Author-Name: Inés Pérez-Soba
Author-X-Name-First: Inés
Author-X-Name-Last: Pérez-Soba
Author-Name: Elena Márquez-de-la-Cruz
Author-X-Name-First: Elena
Author-X-Name-Last: Márquez-de-la-Cruz
Author-Name: Ana R. Martínez-Cañete
Author-X-Name-First: Ana R.
Author-X-Name-Last: Martínez-Cañete
Title: Further empirical evidence on block transactions below the MBR: the Spanish market
Abstract:
There is a relatively unknown market for partial control or corporate influence in Spanish listed firms, where the control transaction size is below the legal threshold that triggers a mandatory tender offer, as this kind of deal looks for exercising some degree of control, but not a full control. The goal of this paper is to go further in its empirical analysis by exploring its distinguishing features, using as the criterion to define its transactions obtaining a seat in the board of directors. We find that these deals are mainly located in the segment of the market of large trades where the rules for private negotiations are easier to implement; the size of the block is relatively large and it is negotiated as a whole block. Besides, the most common buyer has no previous stake in the firm. We find no evidence that the buyers pay, in median, for a seat on the board of directors, but the variability of the premiums for those blocks is higher and shows that buyers that had no control position in the target firm pay more for being among largest shareholders (partial control) and less for not being among them (influence).
Journal: The European Journal of Finance
Pages: 1224-1251
Issue: 14
Volume: 24
Year: 2018
Month: 9
X-DOI: 10.1080/1351847X.2017.1359197
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1359197
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:14:p:1224-1251
Template-Type: ReDIF-Article 1.0
Author-Name: Mawuli Segnon
Author-X-Name-First: Mawuli
Author-X-Name-Last: Segnon
Author-Name: Mark Trede
Author-X-Name-First: Mark
Author-X-Name-Last: Trede
Title: Forecasting market risk of portfolios: copula-Markov switching multifractal approach
Abstract:
This paper proposes a new methodology for modeling and forecasting market risks of portfolios. It is based on a combination of copula functions and Markov switching multifractal (MSM) processes. We assess the performance of the copula-MSM model by computing the value at risk of a portfolio composed of the NASDAQ composite index and the S&P 500. Using the likelihood ratio (LR) test by Christoffersen [1998. “Evaluating Interval Forecasts.” International Economic Review 39: 841–862], the GMM duration-based test by Candelon et al. [2011. “Backtesting Value at Risk: A GMM Duration-based Test.” Journal of Financial Econometrics 9: 314–343] and the superior predictive ability (SPA) test by Hansen [2005. “A Test for Superior Predictive Ability.” Journal of Business and Economic Statistics 23, 365–380] we evaluate the predictive ability of the copula-MSM model and compare it to other common approaches such as historical simulation, variance–covariance, RiskMetrics, copula-GARCH and constant conditional correlation GARCH (CCC-GARCH) models. We find that the copula-MSM model is more robust, provides the best fit and outperforms the other models in terms of forecasting accuracy and VaR prediction.
Journal: The European Journal of Finance
Pages: 1123-1143
Issue: 14
Volume: 24
Year: 2018
Month: 9
X-DOI: 10.1080/1351847X.2017.1400453
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1400453
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:14:p:1123-1143
Template-Type: ReDIF-Article 1.0
Author-Name: Roland Gemayel
Author-X-Name-First: Roland
Author-X-Name-Last: Gemayel
Author-Name: Alex Preda
Author-X-Name-First: Alex
Author-X-Name-Last: Preda
Title: Does a scopic regime produce conformism? Herding behavior among trade leaders on social trading platforms
Abstract:
Social trading platforms (STPs) are transparent online markets governed by a scopic regime, where order flow is publicly disclosed and participants are subject to constant reciprocal scrutiny. Participants on STPs can be categorized into trade leaders and copiers, where the former execute unique trades and manage the funds allocated to them by the latter in return for compensation. Given limited individual capacity and the competition to attract copiers, we investigate whether the scopic regime produces excess and perpetual conformism among trade leaders. Using data from a popular STP, and from an anonymous traditional foreign exchange broker, we show that the scopic regime produces excess levels of herding. Under the scopic environment, we find that herding is high when market information is scarce, which is evidence of herding due to informational cascades. We find herding to be relatively low among risk-seeking trade leaders, which may be a sign of overconfidence. Herding is high for larger trades, suggesting that traders herd to avoid the disappointment associated with underperforming on large positions. Finally, we show that herding in the scopic environment persists at much higher levels compared to traditional environments. Our findings indicate that exposure to a scopic information-rich environment augments the limitations and personal biases of individual traders, thus producing excess and perpetual herding.
Journal: The European Journal of Finance
Pages: 1144-1175
Issue: 14
Volume: 24
Year: 2018
Month: 9
X-DOI: 10.1080/1351847X.2017.1405832
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1405832
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:14:p:1144-1175
Template-Type: ReDIF-Article 1.0
Author-Name: Georgios Chortareas
Author-X-Name-First: Georgios
Author-X-Name-Last: Chortareas
Author-Name: George Kapetanios
Author-X-Name-First: George
Author-X-Name-Last: Kapetanios
Author-Name: Georgios Magkonis
Author-X-Name-First: Georgios
Author-X-Name-Last: Magkonis
Title: Resuscitating real interest rate parity: new evidence from panels
Abstract:
This paper considers the real interest rate parity (RIRP) in OECD countries applying a sequential panel selection (SPS) method on alternative panel unit-root tests. Our approach exploits the enhanced power of panels to uncover evidence of stationarity, but also identifies the exact countries for which the RIRP holds in a panel. Moreover, we construct real interest rate measures using alternative approaches, including a Markov regime-switching procedure, which is consistent with the forward-looking nature of inflation expectations formation. Considering US as the benchmark economy, we produce strong evidence of stationarity in real interest rate differentials, which resuscitates RIRP, especially given the inconclusive results in the related literature. Our results are robust to different panel unit-root tests, measures of inflation expectations, and interest rate maturities. The RIRP appears quite resilient in the face of the global financial crisis and the low real interest rate environment after the great recession. The SPS allows to calculate half-lives, which avoid the pitfalls of over/underestimating the speed of adjustment and are lower as compared to the typical estimates in the literature.
Journal: The European Journal of Finance
Pages: 1176-1189
Issue: 14
Volume: 24
Year: 2018
Month: 9
X-DOI: 10.1080/1351847X.2017.1406383
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1406383
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:14:p:1176-1189
Template-Type: ReDIF-Article 1.0
Author-Name: Cheng Yan
Author-X-Name-First: Cheng
Author-X-Name-Last: Yan
Title: Hot money in disaggregated capital flows
Abstract:
We explore the possible existence and behavior of hot money in six categories of disaggregated bilateral capital flows (equity inflows, equity outflows, bond inflows, bond outflows, banking credit inflows, and banking credit outflows) for 12 emerging markets vis-à-vis the US from 1995 to 2012 and provides several new findings. First, we identify the existence of hot money in all six categories above and conclude that both gross inflows and gross outflows can be the sources of hot money. Second, hot money in equity inflows (outflows) engages in positive (negative) feedback trading regarding local stock market returns. Third, some categories of hot money have a temporary influence on local stock market returns while the others have a permanent influence, supporting the explanations of both price pressures and information advantage. Finally, local stock market returns in half of our sample countries, which have tightened capital controls during the late 2000s global financial crisis (GFC), are more affected by hot money than in the other half. Our findings confirm several popular conjectures of hot money, and endorse the use of capital controls to limit financial vulnerability in the run-up to and during the GFC.
Journal: The European Journal of Finance
Pages: 1190-1223
Issue: 14
Volume: 24
Year: 2018
Month: 9
X-DOI: 10.1080/1351847X.2017.1411821
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1411821
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:14:p:1190-1223
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Journal: The European Journal of Finance
Pages: 459-459
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2019.1571723
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1571723
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:459-459
Template-Type: ReDIF-Article 1.0
Author-Name: Doulgas Cumming
Author-X-Name-First: Doulgas
Author-X-Name-Last: Cumming
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Zhenyu Wu
Author-X-Name-First: Zhenyu
Author-X-Name-Last: Wu
Title: Chinese capital markets: challenges to the China model
Journal: The European Journal of Finance
Pages: 460-464
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2019.1571725
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1571725
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:460-464
Template-Type: ReDIF-Article 1.0
Author-Name: Nancy Huyghebaert
Author-X-Name-First: Nancy
Author-X-Name-Last: Huyghebaert
Author-Name: Lihong Wang
Author-X-Name-First: Lihong
Author-X-Name-Last: Wang
Title: Value creation and value distribution in Chinese listed firms: the role of ownership structure, board characteristics, and control
Abstract:
We investigate how ownership structure and board characteristics affect the value creation and value distribution in Chinese listed firms. Our results reveal that value creation – captured by firm profitability, labor productivity, and asset utilization efficiency – is superior when the firm’s largest ultimate shareholder controls a larger fraction of voting rights. Ownership by managers and by countervailing shareholders both improve value creation, yet only in privately controlled firms. In state-controlled firms, value creation is better when independent directors occupy a larger fraction of board seats. As to the proportional distribution of the generated value, operationalized by related-party transactions (RPT) and by cash dividends, we note that RPT are more extensive when the government controls a larger fraction of voting rights. In state-controlled firms, the wedge between the government’s voting rights and cash-flow rights is also positively associated with RPT, while negatively associated with the firm’s disbursement of cash dividends. Ownership by managers helps curb RPT in state-controlled firms, while it stimulates cash dividends in privately controlled firms. Regardless of who controls the listed firm, ownership by countervailing shareholders contributes to the proportional distribution of the firm’s generated value. Finally, independent directors have a positive influence on the distribution of cash dividends in Chinese listed firms. Overall, companies that generate more value trade at a larger market-to-book ratio. The effects of our measures of value distribution on a firm’s stock market valuation are generally insignificant, except for the negative impact of RPT in privately controlled firms.
Journal: The European Journal of Finance
Pages: 465-488
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2017.1386704
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1386704
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:465-488
Template-Type: ReDIF-Article 1.0
Author-Name: Sai Ding
Author-X-Name-First: Sai
Author-X-Name-Last: Ding
Author-Name: John Knight
Author-X-Name-First: John
Author-X-Name-Last: Knight
Author-Name: Xiao Zhang
Author-X-Name-First: Xiao
Author-X-Name-Last: Zhang
Title: Does China overinvest? Evidence from a panel of Chinese firms
Abstract:
This paper uses a dataset of more than 100,000 firms over the period of 2000–2007 to assess whether and why Chinese firms overinvest. We find that corporate investment is more efficient in the non-state sector. Within all ownership categories, we uncover evidence indicating a degree of overinvestment among firms that invest more than their industry median or more than their predicted optimal investment. The free cash flow hypothesis provides a good explanation for China’s overinvestment in the non-state sectors, whereas in the state sector, overinvestment is attributable to the poor screening and monitoring of enterprises by banks.
Journal: The European Journal of Finance
Pages: 489-507
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2016.1211546
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1211546
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:489-507
Template-Type: ReDIF-Article 1.0
Author-Name: Gady Jacoby
Author-X-Name-First: Gady
Author-X-Name-Last: Jacoby
Author-Name: Jialong Li
Author-X-Name-First: Jialong
Author-X-Name-Last: Li
Author-Name: Mingzhi Liu
Author-X-Name-First: Mingzhi
Author-X-Name-Last: Liu
Title: Financial distress, political affiliation and earnings management: the case of politically affiliated private firms
Abstract:
Using a sample of politically affiliated private firms in China, we explore the relation between corporate financial distress and earnings management. We further examine the joint moderating effects of political affiliation and regional development on this relation. The findings suggest that financially distressed firms engage more in reporting small positive earnings relative to financially healthy firms. In addition, political affiliation weakens the association between financial distress and small positive earnings management. A three-way interaction analysis indicates that the moderating effect of political affiliation is influenced by regional development.
Journal: The European Journal of Finance
Pages: 508-523
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2016.1233126
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1233126
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:508-523
Template-Type: ReDIF-Article 1.0
Author-Name: Hisham Farag
Author-X-Name-First: Hisham
Author-X-Name-Last: Farag
Author-Name: Chris Mallin
Author-X-Name-First: Chris
Author-X-Name-Last: Mallin
Title: Monitoring corporate boards: evidence from China
Abstract:
China’s listed companies have two-tier boards comprising of a supervisory board and a board of directors. The supervisory board has the responsibility to oversee and monitor the board of directors. Similarly, the role of the independent non-executive directors (INEDs) is to advise and monitor directors. In this paper, we investigate the main board structure hypotheses namely the scope of operations, monitoring and negotiation hypotheses for a sample of Chinese Initial Public Offerings floated on both the Shanghai and Shenzhen stock exchanges. Our results provide evidence to support the three hypotheses. Interestingly, we find that the larger the size of the board of directors, the larger the supervisory board size. Moreover, we find that the higher the proportion of INEDs, the smaller the supervisory board size and this implies that INEDs are perhaps a substituting mechanism for the supervisors’ monitoring role. Finally, we argue that as the Chinese governance structure combines both the German and the Anglo-Saxon models, this creates a conflict between the two boards with respect to the monitoring role. Our results, therefore call for a comprehensive reform in the Chinese governance mechanism.
Journal: The European Journal of Finance
Pages: 524-549
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2017.1369138
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1369138
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:524-549
Template-Type: ReDIF-Article 1.0
Author-Name: Lars Helge Haß
Author-X-Name-First: Lars Helge
Author-X-Name-Last: Haß
Author-Name: Skrålan Vergauwe
Author-X-Name-First: Skrålan
Author-X-Name-Last: Vergauwe
Author-Name: Zhifang Zhang
Author-X-Name-First: Zhifang
Author-X-Name-Last: Zhang
Title: State-ownership and bank loan contracting: evidence from corporate fraud
Abstract:
This paper explores the effect of borrower and lender state-ownership on the consequences of corporate fraud in the debt market. Fraud revelations can increase a firm’s information and credit risk, and are therefore expected to significantly affect future bank loan conditions. The Chinese economy provides a unique setting from which to study the influence of state-ownership on debt contracting because it is dominated by state-owned banks (SBs) and firms. Using a sample of bank loans and enforcement actions announced between 2001 and 2012, we find that, after fraud announcements, the cost of private debt increases significantly, but not for loans issued by SBs to state-owned enterprises (SOEs). Moreover, we find evidence that SBs grant, and SOEs receive, lower interest rates. Additional tests show that SOEs that received a more favorable interest rate after the announcement of fraud from a SB perform worse than other firms. These results indicate that despite the bank reforms SBs continue to favor SOEs and this could lead to sub-optimal lending.
Journal: The European Journal of Finance
Pages: 550-567
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2017.1328454
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1328454
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:550-567
Template-Type: ReDIF-Article 1.0
Author-Name: Bo Liu
Author-X-Name-First: Bo
Author-X-Name-Last: Liu
Author-Name: Jerry Cao
Author-X-Name-First: Jerry
Author-X-Name-Last: Cao
Author-Name: Sofia Johan
Author-X-Name-First: Sofia
Author-X-Name-Last: Johan
Author-Name: Tiecheng Leng
Author-X-Name-First: Tiecheng
Author-X-Name-Last: Leng
Title: The real effect of liquidity provision on entrepreneurial financing: evidence from a natural experiment in China
Abstract:
This paper utilizes a natural experiment – the establishment of the Shenzhen Small and Medium Enterprises Board (SME Board) – as an exogenous shock of liquidity provision to venture capital (VC) investment in China. The establishing of the SME Board has enabled the disentangling of the supply side from the demand side of entrepreneurial financing. The results show that the establishment of the SME Board had a strong positive impact on VC investment activities. The impact, however, occurs mainly through the supply side channel, in the form of an influx of first-time VC funds and new government-sponsored VC funds. Such supply shocks, created by inexperienced – but politically connected – VCs, tend to overheat the VC market in the short-run. The results are robust against various regression specifications and endogeneity concerns. This research highlights the importance of liquidity provision, institutional factors and government policies on the development of entrepreneurial financing.
Journal: The European Journal of Finance
Pages: 568-593
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2017.1307771
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1307771
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:568-593
Template-Type: ReDIF-Article 1.0
Author-Name: The Editors
Title: Corrigendum
Journal: The European Journal of Finance
Pages: 594-594
Issue: 6
Volume: 25
Year: 2019
Month: 4
X-DOI: 10.1080/1351847X.2017.1379929
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1379929
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:594-594
Template-Type: ReDIF-Article 1.0
Author-Name: Hugh M.J. Colaco
Author-X-Name-First: Hugh M.J.
Author-X-Name-Last: Colaco
Author-Name: Amedeo De Cesari
Author-X-Name-First: Amedeo
Author-X-Name-Last: De Cesari
Author-Name: Shantaram P. Hegde
Author-X-Name-First: Shantaram P.
Author-X-Name-Last: Hegde
Title: The waiting period of initial public offerings
Abstract:
The length of time it takes an IPO firm to go public (called ‘waiting period’) reflects multiple layers of scrutiny from underwriters, auditors, venture capitalists, institutional investors, and regulators. Accordingly, we show that the waiting period is a good barometer of ex ante uncertainty about future cash flows and that it has predictive power after the firm goes public. We find that firms marked by short waiting periods experience lower underpricing and less uncertainty and superior stock/operating performance in the aftermarket. We also report that smaller firms are taking longer to go public after SOX Act, thus providing justification for the 2012 JOBS Act.
Journal: The European Journal of Finance
Pages: 363-390
Issue: 5
Volume: 24
Year: 2018
Month: 3
X-DOI: 10.1080/1351847X.2017.1307770
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1307770
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:5:p:363-390
Template-Type: ReDIF-Article 1.0
Author-Name: Roman Horváth
Author-X-Name-First: Roman
Author-X-Name-Last: Horváth
Author-Name: Štefan Lyócsa
Author-X-Name-First: Štefan
Author-X-Name-Last: Lyócsa
Author-Name: Eduard Baumöhl
Author-X-Name-First: Eduard
Author-X-Name-Last: Baumöhl
Title: Stock market contagion in Central and Eastern Europe: unexpected volatility and extreme co-exceedance
Abstract:
We examine whether there is contagion from the US stock market to six Central and Eastern European stock markets. We use a novel measure of contagion that examines whether volatility shocks in the US stock market coupled with negative returns are followed by higher co-exceedance between US and emerging stock markets. Using our approach and controlling for a set of market-related variables, we show that during the period from 1998 to 2014, financial contagion occurred, that is, unexpected negative events in the US market are followed by higher co-exceedance between US and Central and Eastern European stock markets. Even though contagion is stronger during the financial crisis, it also occurs in tranquil times.
Journal: The European Journal of Finance
Pages: 391-412
Issue: 5
Volume: 24
Year: 2018
Month: 3
X-DOI: 10.1080/1351847X.2017.1307773
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1307773
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:5:p:391-412
Template-Type: ReDIF-Article 1.0
Author-Name: Giovanni Barone-Adesi
Author-X-Name-First: Giovanni
Author-X-Name-Last: Barone-Adesi
Author-Name: Kostas Giannopoulos
Author-X-Name-First: Kostas
Author-X-Name-Last: Giannopoulos
Author-Name: Les Vosper
Author-X-Name-First: Les
Author-X-Name-Last: Vosper
Title: Estimating the joint tail risk under the filtered historical simulation: An application to the CCP’s default and waterfall fund
Abstract:
The estimation of joint tail risk is necessary to evaluate the size of portfolio margins and default funds of central counterparties. The ability of filtered historical simulation to satisfy new regulatory requirements in this area is examined at the very high confidence levels, necessary to ensure market integrity over time.
Journal: The European Journal of Finance
Pages: 413-425
Issue: 5
Volume: 24
Year: 2018
Month: 3
X-DOI: 10.1080/1351847X.2017.1308876
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1308876
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:5:p:413-425
Template-Type: ReDIF-Article 1.0
Author-Name: Paul Docherty
Author-X-Name-First: Paul
Author-X-Name-Last: Docherty
Author-Name: Yizhe Dong
Author-X-Name-First: Yizhe
Author-X-Name-Last: Dong
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Title: The Feller diffusion, filter rules and abnormal stock returns
Abstract:
We determine the conditional expected logarithmic (i.e. continuously compounded) return on a stock whose price evolves in terms of the Feller diffusion and then use it to demonstrate how one must know the exact probability density that describes a stock’s return before one can determine the correct way to calculate the abnormal returns that accrue on the stock. We show in particular that misspecification of the stochastic process which generates a stock’s price will lead to systematic biases in the abnormal returns calculated on the stock. We examine the implications this has for the proper conduct of empirical work and for the evaluation of stock and portfolio performance.
Journal: The European Journal of Finance
Pages: 426-438
Issue: 5
Volume: 24
Year: 2018
Month: 3
X-DOI: 10.1080/1351847X.2017.1309328
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1309328
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:5:p:426-438
Template-Type: ReDIF-Article 1.0
Author-Name: Jing Chen
Author-X-Name-First: Jing
Author-X-Name-Last: Chen
Author-Name: Diandian Ma
Author-X-Name-First: Diandian
Author-X-Name-Last: Ma
Author-Name: Xiaojong Song
Author-X-Name-First: Xiaojong
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Title: Negative real interest rates
Abstract:
Standard textbook general equilibrium term structure models such as that developed by Cox, Ingersoll, and Ross [1985b. “A Theory of the Term Structure of Interest Rates.” Econometrica 53 (2): 385–407], do not accommodate negative real interest rates. Given this, the Cox, Ingersoll, and Ross [1985b. “A Theory of the Term Structure of Interest Rates.” Econometrica 53 (2): 385–407] ‘technological uncertainty variable’ is formulated in terms of the Pearson Type IV probability density. The Pearson Type IV encompasses mean-reverting sample paths, time-varying volatility and also allows for negative real interest rates. The Fokker–Planck (i.e. the Chapman–Kolmogorov) equation is then used to determine the conditional moments of the instantaneous real rate of interest. These enable one to determine the mean and variance of the accumulated (i.e. integrated) real rate of interest on a bank (or loan) account when interest accumulates at the instantaneous real rate of interest defined by the Pearson Type IV probability density. A pricing formula for pure discount bonds is also developed. Our empirical analysis of short-dated Treasury bills shows that real interest rates in the UK and the USA are strongly compatible with a general equilibrium term structure model based on the Pearson Type IV probability density.
Journal: The European Journal of Finance
Pages: 1447-1467
Issue: 15
Volume: 23
Year: 2017
Month: 12
X-DOI: 10.1080/1351847X.2016.1158729
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1158729
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:15:p:1447-1467
Template-Type: ReDIF-Article 1.0
Author-Name: Marco Realdon
Author-X-Name-First: Marco
Author-X-Name-Last: Realdon
Title: Gaussian models for Euro high grade government yields
Abstract:
This paper tests affine, quadratic and Black-type Gaussian models on Euro area triple A Government bond yields for maturities up to 30 years. Quadratic Gaussian models beat affine Gaussian models both in-sample and out-of-sample. A Black-type model best fits the shortest maturities and the extremely low yields since 2013, but worst fits the longest maturities. Even for quadratic models we can infer the latent factors from some yields observed without errors, which makes quasi-maximum likelihood (QML) estimation feasible. New specifications of quadratic models fit the longest maturities better than does the ‘classic’ specification of Ahn et al. [2002. ‘Quadratic Term Structure Models: Theory and Evidence.’ The Review of Financial Studies 15 (1): 243–288], but the opposite is true for the shortest maturities. These new specifications are more suitable to QML estimation. Overall quadratic models seem preferable to affine Gaussian models, because of superior empirical performance, and to Black-type models, because of superior tractability. This paper also proposes the vertical method of lines (MOL) to solve numerically partial differential equations (PDEs) for pricing bonds under multiple non-independent stochastic factors. ‘Splitting’ the PDE drastically reduces computations. Vertical MOL can be considerably faster and more accurate than finite difference methods.
Journal: The European Journal of Finance
Pages: 1468-1511
Issue: 15
Volume: 23
Year: 2017
Month: 12
X-DOI: 10.1080/1351847X.2016.1173082
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1173082
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:15:p:1468-1511
Template-Type: ReDIF-Article 1.0
Author-Name: Barbara Casu
Author-X-Name-First: Barbara
Author-X-Name-Last: Casu
Author-Name: Bimei Deng
Author-X-Name-First: Bimei
Author-X-Name-Last: Deng
Author-Name: Alessandra Ferrari
Author-X-Name-First: Alessandra
Author-X-Name-Last: Ferrari
Title: Post-crisis regulatory reforms and bank performance: lessons from Asia
Abstract:
Based on a large dataset from eight Asian economies, we test the impact of post-crisis regulatory reforms on the performance of depository institutions in countries at different levels of financial development. We allow for technological heterogeneity and estimate a set of country-level stochastic cost frontiers followed by a deterministic bootstrapped meta-frontier to evaluate cost efficiency and cost technology. Our results support the view that liberalization policies have a positive impact on bank performance, while the reverse is true for prudential regulation policies. The removal of activities restrictions, bank privatization and foreign bank entry has a positive and significant impact on technological progress and cost efficiency. In contrast, prudential policies, which aim to protect the banking sector from excessive risk-taking, tend to adversely affect banks’ cost efficiency but not cost technology.
Journal: The European Journal of Finance
Pages: 1544-1571
Issue: 15
Volume: 23
Year: 2017
Month: 12
X-DOI: 10.1080/1351847X.2016.1177566
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1177566
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:15:p:1544-1571
Template-Type: ReDIF-Article 1.0
Author-Name: David Aristei
Author-X-Name-First: David
Author-X-Name-Last: Aristei
Author-Name: Manuela Gallo
Author-X-Name-First: Manuela
Author-X-Name-Last: Gallo
Title: The determinants of firm–bank relationships in Italy: bank ownership type, diversification and multiple banking relationships
Abstract:
This paper investigates the main features of the relationships between banks and non-financial firms in Italy. Based on detailed firm-level data, we analyse the role of firm-level characteristics, decision-making factors and local credit market indicators in shaping various aspects of corporate banking choices. Empirical results show that young and small firms have a higher probability of relationships with local banks, confirming the advantage of local credit institutions in dealing with informationally opaque firms. Large and internationally active firms tend to establish relationships with national and foreign banks, as they are able to provide more complex banking services that are crucial to access foreign markets. Moreover, firms that are more dependent on external financing are more likely to use multiple and differentiated banking relationships, as a way to diversify external financing sources and alleviate credit constraints.
Journal: The European Journal of Finance
Pages: 1512-1543
Issue: 15
Volume: 23
Year: 2017
Month: 12
X-DOI: 10.1080/1351847X.2016.1186712
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1186712
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:15:p:1512-1543
Template-Type: ReDIF-Article 1.0
Author-Name: Chulwoo Han
Author-X-Name-First: Chulwoo
Author-X-Name-Last: Han
Title: Modeling severity risk under PD–LGD correlation
Abstract:
In this article, a generic severity risk framework in which loss given default (LGD) is dependent upon probability of default (PD) in an intuitive manner is developed. By modeling the conditional mean of LGD as a function of PD, which also varies with systemic risk factors, this model allows an arbitrary functional relationship between PD and LGD. Based on this framework, several specifications of stochastic LGD are proposed with detailed calibration methods. By combining these models with an extension of CreditRisk+, a versatile mixed Poisson credit risk model that is capable of handling both risk factor correlation and PD–LGD dependency is developed. An efficient simulation algorithm based on importance sampling is also introduced for risk calculation. Empirical studies suggest that ignoring or incorrectly specifying severity risk can significantly underestimate credit risk and a properly defined severity risk model is critical for credit risk measurement as well as downturn LGD estimation.
Journal: The European Journal of Finance
Pages: 1572-1588
Issue: 15
Volume: 23
Year: 2017
Month: 12
X-DOI: 10.1080/1351847X.2016.1212385
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1212385
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:15:p:1572-1588
Template-Type: ReDIF-Article 1.0
Author-Name: Haluk Yener
Author-X-Name-First: Haluk
Author-X-Name-Last: Yener
Author-Name: Thanasis Stengos
Author-X-Name-First: Thanasis
Author-X-Name-Last: Stengos
Author-Name: M. Ege Yazgan
Author-X-Name-First: M. Ege
Author-X-Name-Last: Yazgan
Title: Analysis of the seeds of the debt crisis in Europe
Abstract:
This paper presents an analysis of the seeds of the recent debt crisis that occurred in the Eurozone area using a variant of Fleming and Stein [2004. “Stochastic Optimal Control, International Finance and Debt.” Journal of Banking and Finance, 28: 979–996] model. This model has two risk drivers arising from uncertainties in the return on capital and the effective rate of return on net foreign assets. Given the risk drivers, we model the net worth value process of an economy under a stochastic setting and show that opening to the rest of the world by pursuing the growth maximizing leverage strategy is better than remaining closed, as that strategy enhances the growth of the net worth process. Second, we provide an extra condition to show when the excessive leverage poses a threat to the sustainable growth of an economy. In this way, we improve the model introduced by Fleming and Stein as a signal of possible debt crises. Finally, we conduct an econometric analysis for the group of countries considered under this study, and show that there is a long-run relationship between the capital stock and the total external debt justifying the use of the structural model we employ.
Journal: The European Journal of Finance
Pages: 1589-1610
Issue: 15
Volume: 23
Year: 2017
Month: 12
X-DOI: 10.1080/1351847X.2016.1272474
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1272474
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:15:p:1589-1610
Template-Type: ReDIF-Article 1.0
Author-Name: Darren Duxbury
Author-X-Name-First: Darren
Author-X-Name-Last: Duxbury
Author-Name: Barbara Summers
Author-X-Name-First: Barbara
Author-X-Name-Last: Summers
Title: On perceptions of financial volatility in price sequences
Abstract:
Stock prices in financial markets rise and fall, sometimes dramatically, thus asset returns exhibit volatility. In finance theory, volatility is synonymous with risk and as such represents the dispersion of asset returns about their central tendency (i.e. mean), measured by the standard deviation of returns. When individuals make investment decisions, influenced by perceptions of risk and volatility, they commonly do so by examining graphs of historic price sequences rather than returns. It is unclear, therefore, whether standard deviation of return is foremost in their mind when making such decisions. We conduct two experiments to examine the factors that may influence perceptions of financial volatility, including standard deviation along with a number of price-based factors. Also of interest is the influence of price sequence regularity on perceived volatility. While standard deviation may have a role to play in perception of volatility, we find evidence that other price-based factors play a far greater role. Furthermore, we report evidence to support the view that the extent to which prices appear irregular is a separate aspect of volatility, distinct from the extent to which prices deviate from central tendency. Also, while partially correlated, individuals do not perceive risk and volatility as synonymous, though they are more closely related in the presence of price sequence irregularity.
Journal: The European Journal of Finance
Pages: 521-543
Issue: 7-8
Volume: 24
Year: 2018
Month: 5
X-DOI: 10.1080/1351847X.2017.1282882
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1282882
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:7-8:p:521-543
Template-Type: ReDIF-Article 1.0
Author-Name: James Bowden
Author-X-Name-First: James
Author-X-Name-Last: Bowden
Author-Name: Bruce Burton
Author-X-Name-First: Bruce
Author-X-Name-Last: Burton
Author-Name: David Power
Author-X-Name-First: David
Author-X-Name-Last: Power
Title: Rumours built on quicksand: evidence on the nature and impact of message board postings in modern equity markets
Abstract:
It is argued that internet-based short-sellers take advantage of asymmetric information, publishing research online which often values shares in a target company at a large discount to their current price. The increasing popularity of online dissemination of information, coupled with evidence that individuals are prone to behave in a herd-like fashion suggests the potential for significant volatility in the share price of a company. In this paper, a dataset of 12,616 financial message board postings is employed to examine patterns in online activity following the publication of a research note targeting a specific firm by an internet-based short-seller. Identifiable trends in investor behaviour, indicative of community contagion, are shown with group sentiment shifting over time. The findings have implications for regulators’ attempts to adapt to an online environment in which information – and misinformation – can be rapidly incorporated into share prices.
Journal: The European Journal of Finance
Pages: 544-564
Issue: 7-8
Volume: 24
Year: 2018
Month: 5
X-DOI: 10.1080/1351847X.2017.1288647
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1288647
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:7-8:p:544-564
Template-Type: ReDIF-Article 1.0
Author-Name: Florian El Mouaaouy
Author-X-Name-First: Florian
Author-X-Name-Last: El Mouaaouy
Title: Financial crime ‘hot spots’ – empirical evidence from the foreign exchange market
Abstract:
This paper uses a natural experiment to investigate the effects of collusive benchmark manipulation on foreign exchange (FX) market characteristics. Constructing digit-based measures, the empirical analysis detects anomalies throughout different digit positions of currency pairs in prosecuted FX data. The findings contribute to the understanding of suspicious patterns during the World Markets Company and Reuters benchmark window around the London close and suggest a simple, practical, and useful approach to screening other financial benchmarks, markets, and time periods.
Journal: The European Journal of Finance
Pages: 565-583
Issue: 7-8
Volume: 24
Year: 2018
Month: 5
X-DOI: 10.1080/1351847X.2017.1303528
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1303528
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:7-8:p:565-583
Template-Type: ReDIF-Article 1.0
Author-Name: Marianne Gogstad
Author-X-Name-First: Marianne
Author-X-Name-Last: Gogstad
Author-Name: Ali M. Kutan
Author-X-Name-First: Ali M.
Author-X-Name-Last: Kutan
Author-Name: Yaz Gulnur Muradoglu
Author-X-Name-First: Yaz Gulnur
Author-X-Name-Last: Muradoglu
Title: Do international institutions affect financial markets?: evidence from the Greek Sovereign Debt Crisis
Abstract:
This paper investigates the effects of the policy announcements from the International Monetary Fund, and European Union (EU) offices including the European Commission, the European Central Bank, the Euro Area ministers on financial and real sectors during the recent Greek Sovereign Debt Crisis. We also include the reactions of financial and real sectors to Rating Agencies, Greek government and Greek public that were actively involved. We find that financial sectors have stronger reactions to international institutions and Greek government policy action announcements than the real sectors. Banking and financial sectors react predominantly negatively to unfavorable announcements, while real sector responses are mixed. The immediate reaction to EU offices and troika policy announcements are the highest in banking with negative abnormal returns of more than 1.5% per day. Public riots following unfavorable EU announcements also generate high falls in banking and financial sectors. The results show that favorable effects of an announcement from an international organization can be offset by negative effects arising from protests from the public and negative responses of the local government to announcements from international organizations.
Journal: The European Journal of Finance
Pages: 584-605
Issue: 7-8
Volume: 24
Year: 2018
Month: 5
X-DOI: 10.1080/1351847X.2017.1335223
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1335223
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:7-8:p:584-605
Template-Type: ReDIF-Article 1.0
Author-Name: Bibek Bhatta
Author-X-Name-First: Bibek
Author-X-Name-Last: Bhatta
Author-Name: Andrew Marshall
Author-X-Name-First: Andrew
Author-X-Name-Last: Marshall
Author-Name: Chandra Thapa
Author-X-Name-First: Chandra
Author-X-Name-Last: Thapa
Title: Foreign bias in bond portfolio investments: the role of economic and non-economic factors and the impact of the global financial and sovereign debt crises
Abstract:
In this study we examine whether theoretically inconsistent foreign bond allocations are associated with economic fundamentals and/or non-economic behavioural factors. Using panel data for 54 developed and emerging markets spanning a temporal period of 12 years, the results show that non-economic factors, that is, familiarity with foreign markets and behavioural characteristics of source markets, are the stronger drivers of biases in foreign bond allocations. Further, using the recent 2009–2011 European sovereign debt crisis as an experimental set-up, we find that investors reduce their foreign bond allocations during the debt crisis, with the withdrawals being more severe from the most affected countries. We also find that the relevance of familiarity with foreign markets becomes more pronounced during the European debt crisis. However, in case of the recent 2007–2009 global financial crisis, we find no evidence of change in foreign bias by international bond investors.
Journal: The European Journal of Finance
Pages: 654-681
Issue: 7-8
Volume: 24
Year: 2018
Month: 5
X-DOI: 10.1080/1351847X.2017.1343199
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1343199
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:7-8:p:654-681
Template-Type: ReDIF-Article 1.0
Author-Name: Richard Fairchild
Author-X-Name-First: Richard
Author-X-Name-Last: Fairchild
Title: A behavioural game-theoretic analysis of hedge fund regulation
Abstract:
We analyse the efficacy of hedge fund regulation in a behavioural game-theoretic model consisting of two players: a hedge fund manager and a regulator. The regulator decides whether or not to regulate hedge fund strategies, and location of key service providers (KSPs). The manager then decides (a) which KSP to choose, (b) whether to choose a safe or risky strategy, and (c) how much effort to exert in affecting the strategy’s success probability. We consider the effect of expected future fund flows on the manager’s incentives. Furthermore, we consider economic and behavioural factors affecting the regulator’s decision-making. Finally, we discuss how our two cases (myopic versus far-sighted managerial behaviour) may inform the debate over regulation over the entire financial market-cycle. Overall, our analysis contributes to the debate on hedge fund regulation.
Journal: The European Journal of Finance
Pages: 606-629
Issue: 7-8
Volume: 24
Year: 2018
Month: 5
X-DOI: 10.1080/1351847X.2017.1359198
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1359198
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:7-8:p:606-629
Template-Type: ReDIF-Article 1.0
Author-Name: Richard Taffler
Author-X-Name-First: Richard
Author-X-Name-Last: Taffler
Title: Emotional finance: investment and the unconscious
Abstract:
Unconscious mental processes are ubiquitous. However, little attention has been paid in the finance literature to date to how people’s unconscious fantasies, needs and desires help drive their investment decisions, and markets more generally. Emotional finance which is informed by the psychoanalytic understanding of the human mind sets out to explore such issues directly. This paper first describes the underlying theory and then examines some of its potential insights and empirical applications. How emotional finance more generally may help explain asset pricing bubbles and the Global Financial Crisis is also discussed, as well as the paradox the asset management industry represents. Recognising that investors are often driven by not-always conscious emotions of excitement, anxiety and denial, and markets by parallel collusive group-wide processes, this paper concludes by suggesting that the key role unconscious mental processes play in all human activity is worthy of greater attention in finance. Appropriate research methodologies and the way forward in terms of future work are also outlined.
Journal: The European Journal of Finance
Pages: 630-653
Issue: 7-8
Volume: 24
Year: 2018
Month: 5
X-DOI: 10.1080/1351847X.2017.1369445
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1369445
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:7-8:p:630-653
Template-Type: ReDIF-Article 1.0
Author-Name: C. A. E. Goodhart
Author-X-Name-First: C. A. E.
Author-X-Name-Last: Goodhart
Title: Behavioural perspectives on bank misdeeds
Journal: The European Journal of Finance
Pages: 517-520
Issue: 7-8
Volume: 24
Year: 2018
Month: 5
X-DOI: 10.1080/1351847X.2017.1416917
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1416917
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:7-8:p:517-520
Template-Type: ReDIF-Article 1.0
Author-Name: Jun Wen
Author-X-Name-First: Jun
Author-X-Name-Last: Wen
Author-Name: Gen-Fu Feng
Author-X-Name-First: Gen-Fu
Author-X-Name-Last: Feng
Author-Name: Chun-Ping Chang
Author-X-Name-First: Chun-Ping
Author-X-Name-Last: Chang
Author-Name: Zhao-Zhen Feng
Author-X-Name-First: Zhao-Zhen
Author-X-Name-Last: Feng
Title: Stock liquidity and enterprise innovation: new evidence from China
Abstract:
We employ data of 6194 firm-year observations for 1058 listed companies in the period 2006–2013 to investigate the interaction between stock liquidity and enterprise innovation in China and confirm that an increase in stock liquidity raises the number of patents granted, R&D investment, and the innovation efficiency of state-owned enterprises, while it decreases innovation significantly in private firms. These findings are also supported by quasi-natural experiments under the split-share structure policy reform and the adjustment of the stamp duty rate using propensity score matching and difference-in-difference methods. We then identify two possible mechanisms through which liquidity increases innovation: the entry of long-term and strategic institutional investors and the gradual privatization of SOEs. Several policy implications are provided in accordance with our findings.
Journal: The European Journal of Finance
Pages: 683-713
Issue: 9
Volume: 24
Year: 2018
Month: 6
X-DOI: 10.1080/1351847X.2017.1347573
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1347573
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:9:p:683-713
Template-Type: ReDIF-Article 1.0
Author-Name: Daniel Maul
Author-X-Name-First: Daniel
Author-X-Name-Last: Maul
Author-Name: Dirk Schiereck
Author-X-Name-First: Dirk
Author-X-Name-Last: Schiereck
Title: The market timing of corporate bond reopenings
Abstract:
The objective of this paper is to test whether companies use corporate bond reopenings to exploit overvalued debt. Reopenings represent new debt offerings, which are characterized through identical configurations as an already outstanding bond, but with a market-adjusted price. Their advantage lies with the fact that fewer preparations are required compared to a new regular offering. For a set of European companies our results suggest that stockholders respond less positively to the announcements of reopenings than to regular offerings. This effect is stronger, the higher the pre-issue bond price run-up, and the stock price reaction is directly linked to the change in the firm’s debt value. Additionally, the prices of the reopened bonds drop on the announcement day. Therefore, in line with the window of opportunity theory, the firm’s management appears to use reopenings as a fast and inexpensive way to raise debt capital, which leads stockholders and bondholders to suspect an overvaluation and therefore to adjust their price expectations. The analysis also reveals that the redistribution of wealth from bondholders to stockholders is a major determinant for the observed price changes.
Journal: The European Journal of Finance
Pages: 714-734
Issue: 9
Volume: 24
Year: 2018
Month: 6
X-DOI: 10.1080/1351847X.2017.1354053
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1354053
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:9:p:714-734
Template-Type: ReDIF-Article 1.0
Author-Name: Michal Wojewodzki
Author-X-Name-First: Michal
Author-X-Name-Last: Wojewodzki
Author-Name: Winnie P.H. Poon
Author-X-Name-First: Winnie P.H.
Author-X-Name-Last: Poon
Author-Name: Jianfu Shen
Author-X-Name-First: Jianfu
Author-X-Name-Last: Shen
Title: The role of credit ratings on capital structure and its speed of adjustment: an international study
Abstract:
Using an international dataset, we examine the role of issuers’ credit ratings in explaining corporate leverage and the speed with which firms adjust toward their optimal level of leverage. We find that, in countries with a more market-oriented financial system, the impact of credit ratings on firms’ capital structure is more significant and that firms with a poorer credit rating adjust more rapidly. Furthermore, our results show some striking differences in the speed of adjusting capital structure between firms rated as speculative and investment grade, with the former adjusting much more rapidly. As hypothesized, those differences are statistically significant only for firms based in a more market-oriented economy.
Journal: The European Journal of Finance
Pages: 735-760
Issue: 9
Volume: 24
Year: 2018
Month: 6
X-DOI: 10.1080/1351847X.2017.1354900
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1354900
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:9:p:735-760
Template-Type: ReDIF-Article 1.0
Author-Name: Chih-Liang Liu
Author-X-Name-First: Chih-Liang
Author-X-Name-Last: Liu
Author-Name: Yin-Hua Yeh
Author-X-Name-First: Yin-Hua
Author-X-Name-Last: Yeh
Title: Ownership concentration and bank risk: international study on acquisitions
Abstract:
This paper explores the effects of different types of bank ownership concentration on changes in bank risk during acquisition years. Using multi-country data from 2000 to 2006, during which market failures caused by various crises and government interventions are less influential to acquisition decisions, we collect 505 banking acquisition deals from 23 countries to examine which type of ownership concentration (such as financial intermediary, capital investor, non-financial, and state ownership) brings larger changes to an acquirer’s risk from pre-acquisition year to post-acquisition year (including non-performing loans, capital adequacy ratio, loan loss reserve, and credit rating). The empirical analyses show that acquirer banks with a concentration of shares owned by financial intermediaries and non-financial firms experience larger risk changes during acquisition years. In contrast, the risk changes of acquirer banks with a concentration of capital investors and state ownership are lower. Robustness checks from the random effect estimation, instrumental variables model, reverse causality, and different subsamples of (non-)U.S. or different levels of regulation enforcement confirm these results.
Journal: The European Journal of Finance
Pages: 761-808
Issue: 9
Volume: 24
Year: 2018
Month: 6
X-DOI: 10.1080/1351847X.2017.1354901
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1354901
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:9:p:761-808
Template-Type: ReDIF-Article 1.0
Author-Name: Sonia Falconieri
Author-X-Name-First: Sonia
Author-X-Name-Last: Falconieri
Author-Name: Igor Filatotchev
Author-X-Name-First: Igor
Author-X-Name-Last: Filatotchev
Author-Name: Mesut Tastan
Author-X-Name-First: Mesut
Author-X-Name-Last: Tastan
Title: Size and diversity in VC syndicates and their impact on IPO performance
Abstract:
This paper investigates the impact of venture capital (VC) syndicate size and composition on the IPO and post-IPO performances of investee companies in an attempt to shed some light on the extent to which larger and more diverse syndicates are more likely to suffer from internal agency problems which might hinder the decision-making process and lead to less value added for their portfolio companies. The question is of great relevance because, while the vast majority of the empirical literature compares VC backed IPOs with non-VC backed ones, most VC funding is provided by syndicates of two or more financiers. We construct alternative measures of size as well as diversity based on several VC characteristics such as age, geographic location, type and affiliation of VC firms and find that larger and more diverse syndicates are associated with higher underpricing and lower valuation at the IPO date. Furthermore, we provide evidence that that diversity and size are negatively correlated to the long-term performance of the IPO firms and this finding is robust to several alternative measures of long-term performance.
Journal: The European Journal of Finance
Pages: 1032-1053
Issue: 11
Volume: 25
Year: 2019
Month: 7
X-DOI: 10.1080/1351847X.2018.1560345
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1560345
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:11:p:1032-1053
Template-Type: ReDIF-Article 1.0
Author-Name: Ceyda Aktan
Author-X-Name-First: Ceyda
Author-X-Name-Last: Aktan
Author-Name: Perihan Iren
Author-X-Name-First: Perihan
Author-X-Name-Last: Iren
Author-Name: Tolga Omay
Author-X-Name-First: Tolga
Author-X-Name-Last: Omay
Title: Market development and market efficiency: evidence based on nonlinear panel unit root tests
Abstract:
This study tests the weak form market efficiency of 32 European stock markets. Utilizing monthly data from June 2006 to June 2017, six different, newly developed nonlinear panel root tests were applied in three different groups of European markets: Frontier, Emerging and Developed. The results show that there is a meaningful relationship between different levels of economic development and the weak form market efficiency. Considering the nonlinear structure of the stock market indices, use of linear models might lead to wrong conclusions regarding market efficiency. Using several nonlinear panel root tests, the results of this study shed more light on the true data generating process of the stock market indices and more appropriately model market efficiency.
Journal: The European Journal of Finance
Pages: 979-993
Issue: 11
Volume: 25
Year: 2019
Month: 7
X-DOI: 10.1080/1351847X.2018.1560346
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1560346
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:11:p:979-993
Template-Type: ReDIF-Article 1.0
Author-Name: Zaghum Umar
Author-X-Name-First: Zaghum
Author-X-Name-Last: Umar
Author-Name: Choudhry Tanveer Shehzad
Author-X-Name-First: Choudhry Tanveer
Author-X-Name-Last: Shehzad
Author-Name: Aristeidis Samitas
Author-X-Name-First: Aristeidis
Author-X-Name-Last: Samitas
Title: The demand for eurozone stocks and bonds in a time-varying asset allocation framework
Abstract:
This paper analyzes the short and long-run demand for traditional financial asset classes in eleven founding eurozone members. Our sample period starts from the introduction of euro till 2017. We calculate the welfare losses stemming from ignoring the demand for domestic and eurozone equities and bonds, for various levels of risk aversion. Our results show that the bonds of eurozone countries are, in general, desirable for short-run only. However, in Ireland, Portugal and Spain the bonds are desirable for both short-run and long-run investment horizons. Stocks exhibit both short-run and long-run desirability for all countries except Greece. The Greek stocks are desirable for short- run only.
Journal: The European Journal of Finance
Pages: 994-1011
Issue: 11
Volume: 25
Year: 2019
Month: 7
X-DOI: 10.1080/1351847X.2018.1564690
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1564690
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:11:p:994-1011
Template-Type: ReDIF-Article 1.0
Author-Name: Mike Adams
Author-X-Name-First: Mike
Author-X-Name-Last: Adams
Author-Name: Vineet Upreti
Author-X-Name-First: Vineet
Author-X-Name-Last: Upreti
Author-Name: Jing Chen
Author-X-Name-First: Jing
Author-X-Name-Last: Chen
Title: Product-market strategy and underwriting performance in the United Kingdom’s property–casualty insurance market
Abstract:
Drawing on a framework from the organizational economics literature, we utilize a panel data design to examine empirically the effect of motor insurance and liability insurance business on the overall underwriting performance of insurers operating in the United Kingdom’s (UK) property–casualty insurance market. We find that participation in liability insurance contributes positively to underwriting performance, whereas motor insurance is associated with inferior underwriting performance. Additionally, we find that higher reinsurance ratio is associated with better underwriting performance, but reduced profit margins. Our results show that higher leverage too is associated with better underwriting performance. We conclude that our results could have potentially important commercial and/or policy implications.
Journal: The European Journal of Finance
Pages: 1012-1031
Issue: 11
Volume: 25
Year: 2019
Month: 7
X-DOI: 10.1080/1351847X.2019.1578676
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1578676
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:11:p:1012-1031
Template-Type: ReDIF-Article 1.0
Author-Name: Debarati Bhattacharya
Author-X-Name-First: Debarati
Author-X-Name-Last: Bhattacharya
Author-Name: Gokhan Sonaer
Author-X-Name-First: Gokhan
Author-X-Name-Last: Sonaer
Title: Herding by mutual funds: impact on performance and investors’ response
Abstract:
In this paper we investigate whether herding by actively managed equity funds affects their performances and flows over the 1980–2013 period. We show that during the herding quarter, on average, funds that trade with the herd benefit from this behavior. Although this does not directly translate into a positive association between the extent to which funds herd and their subsequent performance, we find that the funds that follow the herd earn negative abnormal returns whereas the ones that lead earn no abnormal returns. Our results also indicate that investors react adversely to follower funds while they are neutral towards the leader funds.
Journal: The European Journal of Finance
Pages: 283-299
Issue: 4
Volume: 24
Year: 2018
Month: 3
X-DOI: 10.1080/1351847X.2016.1224194
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1224194
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:4:p:283-299
Template-Type: ReDIF-Article 1.0
Author-Name: Alfred Y.-T. Wong
Author-X-Name-First: Alfred Y.-T.
Author-X-Name-Last: Wong
Author-Name: Tom Pak Wing Fong
Author-X-Name-First: Tom Pak Wing
Author-X-Name-Last: Fong
Title: Safehavenness of currencies
Abstract:
This study assesses the ‘safehavenness’ of a number of currencies with a view to providing a better understanding of how capital flow tends to react to a sharp increase in global risk aversion in turbulent times. It focuses on how the currencies are perceived by international investors or, more specifically, whether they are seen as safe-haven or risky currencies. To assess the safehavenness of the currency, we use risk reversal, which is the price difference between the call and put options of a currency, as it reflects how disproportionately market participants are willing to pay to hedge against its appreciation or depreciation. The relationship between the risk reversal of the currency and global risk aversion is estimated by means of parametric and non-parametric regressions that allow us to capture currency behaviour in times of extreme adversity, that is, the tail risk. Our empirical results found the Japanese yen and, to a lesser extent, the Hong Kong dollar to be the only safe havens under stressful conditions among the 34 currencies vis-à-vis the US dollar.
Journal: The European Journal of Finance
Pages: 300-332
Issue: 4
Volume: 24
Year: 2018
Month: 3
X-DOI: 10.1080/1351847X.2016.1239584
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1239584
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:4:p:300-332
Template-Type: ReDIF-Article 1.0
Author-Name: Mehmet Balcilar
Author-X-Name-First: Mehmet
Author-X-Name-Last: Balcilar
Author-Name: Rangan Gupta
Author-X-Name-First: Rangan
Author-X-Name-Last: Gupta
Author-Name: Christian Pierdzioch
Author-X-Name-First: Christian
Author-X-Name-Last: Pierdzioch
Author-Name: Mark E. Wohar
Author-X-Name-First: Mark E.
Author-X-Name-Last: Wohar
Title: Terror attacks and stock-market fluctuations: evidence based on a nonparametric causality-in-quantiles test for the G7 countries
Abstract:
We use a novel nonparametric causality-in-quantiles test to study the effects of terror attacks on stock-market returns and volatility in G7 countries. We also use the novel test to study the international repercussions of terror attacks. Test results show that terror attacks often have significant effects on returns, whereas the effect on volatility is significant only for Japan and the UK for several quantiles above the median. The effects on returns in many cases become stronger in terms of significance for the upper and lower quantiles of the conditional distribution of stock-market returns. As for international repercussions, we find that terror attacks mainly affect the tails of the conditional distribution of stock-market returns. We find no evidence of a significant cross-border effects of terror attacks on stock-market volatility, where again Japan and the UK are exceptions as far as terror attacks on the US are concerned. Finally, our results continue to hold following various robustness checks involving model structure, lag-lengths and possible omitted variable bias.
Journal: The European Journal of Finance
Pages: 333-346
Issue: 4
Volume: 24
Year: 2018
Month: 3
X-DOI: 10.1080/1351847X.2016.1239586
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1239586
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:4:p:333-346
Template-Type: ReDIF-Article 1.0
Author-Name: Susheng Wang
Author-X-Name-First: Susheng
Author-X-Name-Last: Wang
Title: A theory of mandatory convertibles: distinct features for large repeated financing
Abstract:
In recent years, mandatory convertibles (MCs) have become a popular means of raising capital, especially for large projects. This paper is the first theoretical paper to investigate MCs using the incomplete-contract approach. We show that MCs can be an efficient instrument in sequential financing. MCs have some distinct features compared to other convertibles, such as mandatory conversion, a high dividend rate, and capped capital appreciation. We show in theory that these features are designed to achieve efficiency.
Journal: The European Journal of Finance
Pages: 347-362
Issue: 4
Volume: 24
Year: 2018
Month: 3
X-DOI: 10.1080/1351847X.2017.1285337
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1285337
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:4:p:347-362
Template-Type: ReDIF-Article 1.0
Author-Name: Zhisheng Li
Author-X-Name-First: Zhisheng
Author-X-Name-Last: Li
Author-Name: Bingxuan Lin
Author-X-Name-First: Bingxuan
Author-X-Name-Last: Lin
Author-Name: Ting Zhang
Author-X-Name-First: Ting
Author-X-Name-Last: Zhang
Author-Name: Chen Chen
Author-X-Name-First: Chen
Author-X-Name-Last: Chen
Title: Does short selling improve stock price efficiency and liquidity? Evidence from a natural experiment in China
Abstract:
China introduced short selling for designated stocks in March 2010. Using this important policy change as a natural experiment, we examine the effect of short selling on stock price efficiency and liquidity. We show that the introduction of short selling significantly improves price efficiency, as measured by the differences in individual stock responses to market returns and the delay in price adjustments. Short selling also enhances stock liquidity, as measured by bid-ask spread and Amihud [2002. ‘Illiquidity and Stock Returns: Cross-section and Time-series Effects.’ Journal of Financial Markets 5: 31–56] illiquidity measure; and reduces stock volatility. Overall, our results suggest that short selling helps to stabilize asset prices, provides additional liquidity and improves market quality, even in an emerging economy with a less developed stock market than that in the US and Europe.
Journal: The European Journal of Finance
Pages: 1350-1368
Issue: 15
Volume: 24
Year: 2018
Month: 10
X-DOI: 10.1080/1351847X.2017.1307772
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1307772
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:15:p:1350-1368
Template-Type: ReDIF-Article 1.0
Author-Name: Nadia Linciano
Author-X-Name-First: Nadia
Author-X-Name-Last: Linciano
Author-Name: Caterina Lucarelli
Author-X-Name-First: Caterina
Author-X-Name-Last: Lucarelli
Author-Name: Monica Gentile
Author-X-Name-First: Monica
Author-X-Name-Last: Gentile
Author-Name: Paola Soccorso
Author-X-Name-First: Paola
Author-X-Name-Last: Soccorso
Title: How financial information disclosure affects risk perception. Evidence from Italian investors’ behaviour
Abstract:
This paper investigates how different representations of financial information may be appraised in terms of complexity and usefulness, and how financial disclosure influences individuals’ risk perception. By using a consumer testing analytical approach, we run a survey on a sample of Italian investors: 254 bank customers were submitted 4 different templates, each combining a different typology of data (historical and prospective) and framing (words, numbers and charts) to indicate the same level of risk and return of four real-life financial instruments. Representation formats partially overlap with those mandated by regulators and used within the financial industry. Results show that the perceived riskiness of financial products is affected by the way information is disclosed. Perceived complexity of the financial information disclosure intensifies perception of riskiness of the product solicited. Gender, age, personal traits, behavioural biases and financial knowledge, do also play a role. Overall, given investors’ heterogeneity and behavioural biases, neither simplifying disclosure nor a ‘one-size-fits-all’ approach may be sufficient to ensure correct risk perception and to prevent unbiased investment choices.
Journal: The European Journal of Finance
Pages: 1311-1332
Issue: 15
Volume: 24
Year: 2018
Month: 10
X-DOI: 10.1080/1351847X.2017.1414069
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1414069
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:15:p:1311-1332
Template-Type: ReDIF-Article 1.0
Author-Name: Emilio Barucci
Author-X-Name-First: Emilio
Author-X-Name-Last: Barucci
Author-Name: Roberto Baviera
Author-X-Name-First: Roberto
Author-X-Name-Last: Baviera
Author-Name: Carlo Milani
Author-X-Name-First: Carlo
Author-X-Name-Last: Milani
Title: The Comprehensive Assessment: What lessons can be learned?
Abstract:
Analysing the database made available by the European Central Bank and by the European Banking Authority, we evaluate the Comprehensive Assessment (CA) (Asset Quality Review and Stress Test (ST)) of banks carried out in 2014. In a nutshell, the main results are: (i) risk-adjusted capital ratios are negatively related to the Asset Quality Review shortfall, but not to the ST shortfall, whereas the leverage ratio plays a significant role in both cases; (ii) the CA predominantly concentrated on traditional credit activity rather than on banks’ financial assets and (iii) the CA seems to be characterized by double standards. The Asset Quality Review was severe with banks operating in non-core countries, while medium-sized banks were either riskier or were treated severely in both exercises. The analysis leads to a puzzle: comparatively, the assessment per se led to significant adjustments for solid banks and large shortfalls for weak banks. The puzzle can be resolved by referring to the legacy of the country’s former supervisory activity and to the low level of capitalization of weak banks mostly in peripheral countries.Abbreviations: ADJ_AQR: adjustment due to the AQR; ADJ_ST: adjustment due to the ST adverse scenario; AQR: asset quality review; bps: basis points (1 bp is equal to 0.01%); bn: billion; CA: comprehensive assessment; CET1: common equity tier 1; CR: coverage ratio; CRD/CRR: capital requirements directive/capital requirements regulation; CVA: credit valuation adjustment; EBA: European Banking Authority; ECB: European Central Bank; LM test: Lagrange-multiplier test; NPE: Non-performing exposure; RWA: risk-weighted asset; SF_AQR: shortfall due to the AQR; SF_ST: shortfall due to the ST adverse scenario; SREP: supervisory review and evaluation process; SSM: single supervisory mechanism; ST: stress test; tr: trillion (one thousand of billions)
Journal: The European Journal of Finance
Pages: 1253-1271
Issue: 15
Volume: 24
Year: 2018
Month: 10
X-DOI: 10.1080/1351847X.2017.1414703
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1414703
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:15:p:1253-1271
Template-Type: ReDIF-Article 1.0
Author-Name: Son-Nan Chen
Author-X-Name-First: Son-Nan
Author-X-Name-Last: Chen
Author-Name: Pao-Peng Hsu
Author-X-Name-First: Pao-Peng
Author-X-Name-Last: Hsu
Title: Pricing inflation-indexed derivatives with default risk
Abstract:
Inflation-indexed derivatives with default risk are modeled using the jump-diffusion processes in the Heath–Jarrow–Morton’s (HJM) [(1992). “Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claim Valuation.” Econometrica 60: 77–105] framework. A four-factor HJM model is proposed by incorporating an exogenous intensity function into a foreign currency analogy under the three-factor HJM model proposed by Jarrow and Yildirim [(2003). “Pricing Treasury Inflation Protected Securities and Related Derivatives Using a HJM Model.” Journal of Financial and Quantitative Analysis 38: 337–358]. The proposed model improves the valuation accuracy of zero-coupon inflation-indexed swaps (IIS) through calibrating the model to swap market data. In addition, the valuation formulas of year-on-year IIS and caps with default risk are derived.
Journal: The European Journal of Finance
Pages: 1272-1287
Issue: 15
Volume: 24
Year: 2018
Month: 10
X-DOI: 10.1080/1351847X.2017.1415217
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1415217
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:15:p:1272-1287
Template-Type: ReDIF-Article 1.0
Author-Name: Moritz Maier
Author-X-Name-First: Moritz
Author-X-Name-Last: Maier
Author-Name: Hendrik Scholz
Author-X-Name-First: Hendrik
Author-X-Name-Last: Scholz
Title: A return-based approach to identify home bias of European equity funds
Abstract:
This paper introduces a return-based approach to studying a possible home bias of European equity funds by estimating their exposures to their domestic markets. We first confirm the robustness of our approach using simulated portfolios with different proportions of domestic and foreign stocks. The empirical analysis examines equity funds domiciled in 15 European countries that invest in European stocks. We examine individual funds as well as portfolios comprising funds that are all domiciled in a particular country. Our findings reveal that the portfolios of four domiciles show a significant home bias. Moreover, we observe that in seven domiciles more than a quarter of the individual funds are home-biased. These results are robust when controlling for fund-specific benchmarks or for the average country exposures of all funds in our final sample. Finally, a home bias of individual funds is not related to superior performance, but actually results in higher investment risk consistent with underdiversification.
Journal: The European Journal of Finance
Pages: 1288-1310
Issue: 15
Volume: 24
Year: 2018
Month: 10
X-DOI: 10.1080/1351847X.2017.1415946
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1415946
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:15:p:1288-1310
Template-Type: ReDIF-Article 1.0
Author-Name: Ylva Baeckström
Author-X-Name-First: Ylva
Author-X-Name-Last: Baeckström
Author-Name: Jo Silvester
Author-X-Name-First: Jo
Author-X-Name-Last: Silvester
Author-Name: Rachel A. J. Pownall
Author-X-Name-First: Rachel A. J.
Author-X-Name-Last: Pownall
Title: Millionaire investors: financial advisors, attribution theory and gender differences
Abstract:
To date little attention has been paid to how social cognitive bias can influence how financial advisors interpret and respond to the needs of millionaire investors, and if this varies depending on the gender of the investor. This research investigates whether experienced professional financial advisors who work with millionaire investors make different attributions for the control and knowledge that investors have of their investments, and if they make different investment portfolio recommendations to equivalent male and female investors. Using methodology novel to finance, this vignette-based study that controls for gender finds evidence that professional financial advisors judge millionaire female investors to have less control over their investment portfolios relative to men. Empirical results also show that female advisors judge women to be less knowledgeable about investments than men. Despite such perceptual differences, advisors recommend equally risky portfolios to male and female investors. These results have implications for wealth management institutions and the monitoring of financial advisors for millionaire individuals.
Journal: The European Journal of Finance
Pages: 1333-1349
Issue: 15
Volume: 24
Year: 2018
Month: 10
X-DOI: 10.1080/1351847X.2018.1438301
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1438301
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:15:p:1333-1349
Template-Type: ReDIF-Article 1.0
Author-Name: Hubert Dichtl
Author-X-Name-First: Hubert
Author-X-Name-Last: Dichtl
Author-Name: Wolfgang Drobetz
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Drobetz
Author-Name: Martin Wambach
Author-X-Name-First: Martin
Author-X-Name-Last: Wambach
Title: A bootstrap-based comparison of portfolio insurance strategies
Abstract:
This study presents a systematic comparison of portfolio insurance strategies. We implement a bootstrap-based hypothesis test to assess statistical significance of the differences in a variety of downside-oriented risk and performance measures for pairs of portfolio insurance strategies. Our comparison of different strategies considers the following distinguishing characteristics: static versus dynamic protection; initial wealth versus cumulated wealth protection; model-based versus model-free protection; and strong floor compliance versus probabilistic floor compliance. Our results indicate that the classical portfolio insurance strategies synthetic put and constant proportion portfolio insurance (CPPI) provide superior downside protection compared to a simple stop-loss trading rule and also exhibit a higher risk-adjusted performance in many cases (dependent on the applied performance measure). Analyzing recently developed strategies, neither the TIPP strategy (as an ‘improved’ CPPI strategy) nor the dynamic VaR-strategy provides significant improvements over the more traditional portfolio insurance strategies.
Journal: The European Journal of Finance
Pages: 31-59
Issue: 1
Volume: 23
Year: 2017
Month: 1
X-DOI: 10.1080/1351847X.2015.1029590
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1029590
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:1:p:31-59
Template-Type: ReDIF-Article 1.0
Author-Name: Seth Armitage
Author-X-Name-First: Seth
Author-X-Name-Last: Armitage
Title: Discount rates for long-term projects: the cost of capital and social discount rate compared
Abstract:
Research on the cost of capital and on the social discount rate (SDR) has developed largely along separate paths. This paper offers an overview and comparison of both concepts. The consumption-based theory of discount rates is common to both, but there are striking differences in how the cost of capital and SDR are estimated. A project's cost of capital is inferred in practice from market data, by a well-established package of techniques, and project risk makes a large difference. In contrast, the SDR is estimated by applying judgement about the welfare of future generations, in the setting of consumption-based theory. Project risk has tended to be ignored under the SDR approach.
Journal: The European Journal of Finance
Pages: 60-79
Issue: 1
Volume: 23
Year: 2017
Month: 1
X-DOI: 10.1080/1351847X.2015.1029591
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1029591
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:1:p:60-79
Template-Type: ReDIF-Article 1.0
Author-Name: Nikolaos Balafas
Author-X-Name-First: Nikolaos
Author-X-Name-Last: Balafas
Author-Name: Alexandros Kostakis
Author-X-Name-First: Alexandros
Author-X-Name-Last: Kostakis
Title: Financial constraints and asset pricing: comprehensive evidence from London Stock Exchange
Abstract:
This study provides comprehensive evidence on the pricing of financial constraints (FC) risk on London Stock Exchange during the period 1988–2013. Utilizing a large number of proxies for FC, we find that investors are not compensated with higher premia for holding shares of financially constrained firms. To the contrary, in most of the cases, the most constrained firms significantly underperform, both statistically and economically, the least constrained ones. Focussing on the Whited–Wu index to construct a zero-cost FC factor that goes long the most constrained firms and sells short the least constrained ones, we find that this factor carries a significantly negative premium and it is priced in the cross-section over and above the commonly used risk factors.
Journal: The European Journal of Finance
Pages: 80-110
Issue: 1
Volume: 23
Year: 2017
Month: 1
X-DOI: 10.1080/1351847X.2015.1115773
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1115773
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:1:p:80-110
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Bessler
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Bessler
Author-Name: Heiko Opfer
Author-X-Name-First: Heiko
Author-X-Name-Last: Opfer
Author-Name: Dominik Wolff
Author-X-Name-First: Dominik
Author-X-Name-Last: Wolff
Title: Multi-asset portfolio optimization and out-of-sample performance: an evaluation of Black–Litterman, mean-variance, and naïve diversification approaches
Abstract:
The Black–Litterman model aims to enhance asset allocation decisions by overcoming the problems of mean-variance portfolio optimization. We propose a sample-based version of the Black–Litterman model and implement it on a multi-asset portfolio consisting of global stocks, bonds, and commodity indices, covering the period from January 1993 to December 2011. We test its out-of-sample performance relative to other asset allocation models and find that Black–Litterman optimized portfolios significantly outperform naïve-diversified portfolios (1/N rule and strategic weights), and consistently perform better than mean-variance, Bayes–Stein, and minimum-variance strategies in terms of out-of-sample Sharpe ratios, even after controlling for different levels of risk aversion, investment constraints, and transaction costs. The BL model generates portfolios with lower risk, less extreme asset allocations, and higher diversification across asset classes. Sensitivity analyses indicate that these advantages are due to more stable mixed return estimates that incorporate the reliability of return predictions, smaller estimation errors, and lower turnover.
Journal: The European Journal of Finance
Pages: 1-30
Issue: 1
Volume: 23
Year: 2017
Month: 1
X-DOI: 10.1080/1351847X.2014.953699
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.953699
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:1:p:1-30
Template-Type: ReDIF-Article 1.0
Author-Name: Gordon Gemmill
Author-X-Name-First: Gordon
Author-X-Name-Last: Gemmill
Author-Name: Dylan C. Thomas
Author-X-Name-First: Dylan C.
Author-X-Name-Last: Thomas
Title: Are IPO investors rational? Evidence from closed-end funds
Abstract:
Why buy a closed-end fund at IPO, when it is likely to trade at a discount in a few months’ time? One theory suggests that buying a new fund is justified by an initial period of investment outperformance. A second theory is that new funds are launched to provide access to assets that are temporarily illiquid and to exploit the subsequent liquidity gain while a third theory asserts that buyers of new issues are not fully rational but are influenced by time-varying sentiment. This paper tests the three theories using data from UK-traded closed-end equity-fund IPOs over 1984–2006. The empirical results provide strong support for the influence of sentiment but provide little or no support for the two other theories.
Journal: The European Journal of Finance
Pages: 1311-1334
Issue: 14
Volume: 23
Year: 2017
Month: 11
X-DOI: 10.1080/1351847X.2015.1115774
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1115774
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:14:p:1311-1334
Template-Type: ReDIF-Article 1.0
Author-Name: Fabio Pizzutilo
Author-X-Name-First: Fabio
Author-X-Name-Last: Pizzutilo
Author-Name: Valeria Roncone
Author-X-Name-First: Valeria
Author-X-Name-Last: Roncone
Title: Red sky at night or in the morning, to the equity market neither a delight nor a warning: the weather effect re-examined using intraday stock data
Abstract:
Unlike most of the existing literature on the weather effect, we conducted our analysis by employing intraday weather and market data, examining a large set of stocks rather than indices only, including volume and volatility data in the study and inspecting a wide number of weather variables (temperature, humidity, pressure, visibility, wind, cloud, rain and snow). Our analysis covered the Italian stock market for the period August 2005–March 2014 for a total of 2201 trading days. We conclude that no systematic relationship seems to exist between the weather and the Italian stock market. Moreover, our results raise doubts that testing the weather effect by limiting the analysis to indices only can lead to spurious conclusions.
Journal: The European Journal of Finance
Pages: 1280-1310
Issue: 14
Volume: 23
Year: 2017
Month: 11
X-DOI: 10.1080/1351847X.2016.1151808
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151808
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:14:p:1280-1310
Template-Type: ReDIF-Article 1.0
Author-Name: Geert Van Campenhout
Author-X-Name-First: Geert
Author-X-Name-Last: Van Campenhout
Author-Name: Rosanne Vanpée
Author-X-Name-First: Rosanne
Author-X-Name-Last: Vanpée
Title: My global fund portfolio is not yours: the effect of home bias on European- and US-managed convertible bond fund exposures
Abstract:
This paper shows that global convertible bond funds (CBFs) and their resulting equity-bond exposures are regionally biased. Global bond fund managers display home bias, resulting in CBFs that are not only tilted towards the home market but also reflect the different bond-equity exposures of European and US convertibles. More specifically we find that global funds managed by a European asset management firm are more bond-like than global funds managed by a US-based asset manager. Hence, investors have to account for the asset management company's origin to avoid that the performance of the fund and its correlation with other assets is not in line with investor's ex ante expectations about globally managed portfolios. Our results also indicate that for investors of European-based CBFs this home bias has resulted in an ex post opportunity cost up to 1.38% per year, depending on the sample period.
Journal: The European Journal of Finance
Pages: 1335-1361
Issue: 14
Volume: 23
Year: 2017
Month: 11
X-DOI: 10.1080/1351847X.2016.1151809
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151809
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:14:p:1335-1361
Template-Type: ReDIF-Article 1.0
Author-Name: Paolo Vitale
Author-X-Name-First: Paolo
Author-X-Name-Last: Vitale
Title: Insider trading in sequential auction markets with risk-aversion and time-discounting
Abstract:
We extend Kyle's [Kyle, A. S. 1985. “Continuous Auctions and Insider Trading.”
Econometrica 53, 1315–1335] analysis of sequential auction markets to the case in which the insider is risk-averse and discounts her trading profits as her private information is long-lived. We see that time-discounting exacerbates the impact of risk-aversion on the optimal trading strategy of the insider. Ceteris paribus, a larger degree of risk-aversion or a smaller time-discount factor induces the informed agent to consume more rapidly her informational advantage increasing the liquidity and efficiency of the securities market.
Journal: The European Journal of Finance
Pages: 1267-1279
Issue: 14
Volume: 23
Year: 2017
Month: 11
X-DOI: 10.1080/1351847X.2016.1151810
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151810
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:14:p:1267-1279
Template-Type: ReDIF-Article 1.0
Author-Name: Emma L. Black
Author-X-Name-First: Emma L.
Author-X-Name-Last: Black
Author-Name: Jie (Michael) Guo
Author-X-Name-First: Jie (Michael)
Author-X-Name-Last: Guo
Author-Name: Nan Hu
Author-X-Name-First: Nan
Author-X-Name-Last: Hu
Author-Name: Evangelos Vagenas-Nanos
Author-X-Name-First: Evangelos
Author-X-Name-Last: Vagenas-Nanos
Title: Uncertainty triggers overreaction: evidence from corporate takeovers
Abstract:
Behavioural finance models suggest that under uncertainty, investors overweight their private information and overreact to it. We test this theoretical prediction in an M&A framework. We find that under high information uncertainty, when investors are more likely to possess firm-specific information, acquiring firms generate highly positive and significant gains following the announcement of private stock and private cash acquisitions (positive news) while the market heavily punishes public stock (negative news) deals. On the other hand, under conditions of low information uncertainty, when investors do not possess private information, the market reaction is complete (i.e. zero abnormal returns) irrespective of the type of acquisition. Overall, we provide empirical evidence that shows that information uncertainty plays a significant role in explaining short-run acquirer abnormal returns.
Journal: The European Journal of Finance
Pages: 1362-1389
Issue: 14
Volume: 23
Year: 2017
Month: 11
X-DOI: 10.1080/1351847X.2016.1202296
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1202296
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:14:p:1362-1389
Template-Type: ReDIF-Article 1.0
Author-Name: Steffen Hundt
Author-X-Name-First: Steffen
Author-X-Name-Last: Hundt
Author-Name: Björn Sprungk
Author-X-Name-First: Björn
Author-X-Name-Last: Sprungk
Author-Name: Andreas Horsch
Author-X-Name-First: Andreas
Author-X-Name-Last: Horsch
Title: The information content of credit ratings: evidence from European convertible bond markets
Abstract:
Prior research has investigated the information content of credit ratings for standard financing instruments such as stocks and corporate bonds, while this question has been neglected for convertible bonds (CBs) so far. CBs are simultaneously determined by the bond floor and the conversion value, which makes it more difficult to assess price effects following rating announcements. In this context, we compare price effects of CBs with those of stocks and corporate bonds of the same issuer using robust event study methods. Our findings indicate that rating changes convey new information for investors in European CBs. In terms of the direction of the expected price reaction, we find CBs to react in a more debt-like manner to the announcement of a rating change. Moreover, our results provide evidence that the magnitude of price reactions differs among different types of securities.
Journal: The European Journal of Finance
Pages: 1414-1445
Issue: 14
Volume: 23
Year: 2017
Month: 11
X-DOI: 10.1080/1351847X.2016.1204333
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1204333
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:14:p:1414-1445
Template-Type: ReDIF-Article 1.0
Author-Name: Andrew Urquhart
Author-X-Name-First: Andrew
Author-X-Name-Last: Urquhart
Title: How predictable are precious metal returns?
Abstract:
This paper provides strong evidence of time-varying return predictability of three precious metals from January 1987 to September 2014. We use three variations of the variance ratio test, the nonlinear Brock, Dechert and Schieinkman test as well as the Hurst exponent to evaluate the time-varying return predictability of precious metals to reduce the risk of spurious results. Our full sample results report mixed findings where some tests indicate significant predictability while some suggest no predictability. However through a time-varying procedure, we show that each precious metal market goes through periods of significant predictability as well as periods of unpredictability. Therefore this finding suggests that return predictability does vary over time and is not a static, all-or-nothing condition and therefore is consistent with the adaptive market hypothesis. We also show that platinum is the most predictable of the three precious metals and silver the least predictable, which may be of great to investors who include precious metals in their investment portfolios.
Journal: The European Journal of Finance
Pages: 1390-1413
Issue: 14
Volume: 23
Year: 2017
Month: 11
X-DOI: 10.1080/1351847X.2016.1204334
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1204334
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:14:p:1390-1413
Template-Type: ReDIF-Article 1.0
Author-Name: The Editors
Title: Corrigendum
Journal: The European Journal of Finance
Pages: x-x
Issue: 14
Volume: 23
Year: 2017
Month: 11
X-DOI: 10.1080/1351847X.2017.1325993
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1325993
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:14:p:x-x
Template-Type: ReDIF-Article 1.0
Author-Name: Yilmaz Yildiz
Author-X-Name-First: Yilmaz
Author-X-Name-Last: Yildiz
Author-Name: Mehmet Baha Karan
Author-X-Name-First: Mehmet Baha
Author-X-Name-Last: Karan
Author-Name: Aydin Ozkan
Author-X-Name-First: Aydin
Author-X-Name-Last: Ozkan
Title: Is conservative reporting attractive to foreign institutional investors? Evidence from an emerging market
Abstract:
This study investigates the relation between conservative reporting and foreign institutional ownership using a unique dataset of firms in Turkey. In doing so, we distinguish between foreign funds and corporations. Contrary to prior findings, our analysis shows that conservative reporting is not necessarily a desirable accounting feature for foreign institutional investors. We also find that the interplay between conservative reporting and ownership is significantly different between foreign funds and corporations. The estimated negative relation holds only for foreign funds. Further analysis reveals that foreign funds do not find conservative reporting desirable in low-asymmetric information firms and reduce ownership with greater accounting conservatism in such firms. The analysis sheds significant lights on the relevance of conservative reporting in alleviating the negative consequences of asymmetric information.
Journal: The European Journal of Finance
Pages: 1099-1121
Issue: 12
Volume: 25
Year: 2019
Month: 8
X-DOI: 10.1080/1351847X.2018.1561481
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1561481
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:12:p:1099-1121
Template-Type: ReDIF-Article 1.0
Author-Name: Wei Cui
Author-X-Name-First: Wei
Author-X-Name-Last: Cui
Author-Name: Juan Yao
Author-X-Name-First: Juan
Author-X-Name-Last: Yao
Author-Name: Stephen Satchell
Author-X-Name-First: Stephen
Author-X-Name-Last: Satchell
Title: Trapped in diversification – another look at the risk of fund of hedge funds
Abstract:
Recent literature implies that despite being more diversified, fund of hedge funds (FOFs) are exposed to tail risk. We propose an explanation for this phenomenon; tail risk is a systematic risk factor for hedge funds, which by construction, explains the higher portion of the returns in the diversified portfolios. Our study suggests that not only an additional tail risk factor improves the explanatory power of the factor model, the relative importance of tail risk factor increases with the number of underlying hedge funds in an FOF portfolio. Furthermore, we demonstrate that FOFs with a short history, higher management fees, leverage and requiring shorter lockup periods are more sensitive to tail risk.
Journal: The European Journal of Finance
Pages: 1055-1076
Issue: 12
Volume: 25
Year: 2019
Month: 8
X-DOI: 10.1080/1351847X.2019.1571524
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1571524
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:12:p:1055-1076
Template-Type: ReDIF-Article 1.0
Author-Name: Paul B. McGuinness
Author-X-Name-First: Paul B.
Author-X-Name-Last: McGuinness
Title: Risk factor and use of proceeds declarations and their effects on IPO subscription, price ‘fixings’, liquidity and after-market returns
Abstract:
This paper addresses two important areas of voluntary disclosure for Hong Kong IPOs: (1) The risk factors surrounding a listing entity’s business and offer and (2) an issuer’s planned use of proceeds. Issuers assigning a greater fraction of proceeds to investment (debt repayment) generate higher (lower) subscription rates, price ‘fixings’ and after-market liquidity levels, as well as more (less) robust initial and longer-run returns. Greater enumeration of issue-based risk factors inflates after-market volatility but exerts little influence on other initial pricing characteristics. In contrast, enumerations on business and global risk factors bear strong negative association with longer-run returns. Additionally, risk factor enumeration and debt repayments are increasing in underwriter quality. However, such disclosures exhibit weak connection with state ownership.
Journal: The European Journal of Finance
Pages: 1122-1146
Issue: 12
Volume: 25
Year: 2019
Month: 8
X-DOI: 10.1080/1351847X.2019.1572023
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1572023
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:12:p:1122-1146
Template-Type: ReDIF-Article 1.0
Author-Name: Irina B. Mateus
Author-X-Name-First: Irina B.
Author-X-Name-Last: Mateus
Author-Name: Cesario Mateus
Author-X-Name-First: Cesario
Author-X-Name-Last: Mateus
Author-Name: Natasa Todorovic
Author-X-Name-First: Natasa
Author-X-Name-Last: Todorovic
Title: Use of active peer benchmarks in assessing UK mutual fund performance and performance persistence
Abstract:
The majority of UK style-specific mutual funds either report a broad market index as their prospectus benchmark or give no benchmark at all – a practice that may be (a) strategic, or (b) cultural and attributable to the lack of UK style-specific indices (e.g. mid-cap-growth, small-cap-value). The choice of a broad market index as a benchmark can bias the inferences of a fund’s performance and performance persistence. This study is the first to provide an alternative to style-specific indices in the UK, and suggests the use style-specific peer group benchmarks, following [Hunter, D., E. Kandel, S. Kandel, and R. Wermers. 2014. “Mutual Fund Performance Evaluation with Active Peer Benchmarks.” Journal of Financial Economics 112 (1): 1–29]. Our sample comprises of 817 active UK long-only equity mutual funds allocated to nine Morningstar style categories (peer groups) during the period 1992–2016. We show that the funds with the most significant positive peer-group-adjusted alphas continue to perform well one year ahead, in terms of both parametric and non-parametric measures of persistence in performance. Moreover, persistence in performance is driven by both winner and loser funds. The results within each peer group are by and large consistent with these findings.
Journal: The European Journal of Finance
Pages: 1077-1098
Issue: 12
Volume: 25
Year: 2019
Month: 8
X-DOI: 10.1080/1351847X.2019.1581639
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1581639
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:12:p:1077-1098
Template-Type: ReDIF-Article 1.0
Author-Name: Chris Adcock
Author-X-Name-First: Chris
Author-X-Name-Last: Adcock
Title: Preface
Journal: The European Journal of Finance
Pages: 95-95
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2020.1701261
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1701261
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:95-95
Template-Type: ReDIF-Article 1.0
Author-Name: Martin Eling
Author-X-Name-First: Martin
Author-X-Name-Last: Eling
Author-Name: Nicola Loperfido
Author-X-Name-First: Nicola
Author-X-Name-Last: Loperfido
Title: New mathematical and statistical methods for actuarial science and finance
Journal: The European Journal of Finance
Pages: 96-99
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1707251
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1707251
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:96-99
Template-Type: ReDIF-Article 1.0
Author-Name: Leopoldo Catania
Author-X-Name-First: Leopoldo
Author-X-Name-Last: Catania
Author-Name: Nima Nonejad
Author-X-Name-First: Nima
Author-X-Name-Last: Nonejad
Title: Density forecasts and the leverage effect: Evidence from Observation and parameter-Driven volatility models
Abstract:
The leverage effect refers to the well-known relationship between returns and volatility for an equity. When returns fall, volatility increases. We evaluate the role of the leverage effect with regards to generating density forecasts of equity returns using well-known observation and parameter-driven conditional volatility models. These models differ in their assumptions regarding: The parametric specification, the evolution of the conditional volatility process and how the leverage effect is specified. The ability of a model to generate accurate density forecasts when the leverage effect is incorporated or not as well as a comparison between different model-types is analyzed using a large number of financial time series. For each model type, the specification with the leverage effect tends to generate more accurate density forecasts than its no-leverage counterpart. Among the specifications considered, the Beta-t-EGARCH model is the top performer, regardless of whether we attach the same weight to each region of the conditional distribution or emphasize the left tail.
Journal: The European Journal of Finance
Pages: 100-118
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1586744
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1586744
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:100-118
Template-Type: ReDIF-Article 1.0
Author-Name: Mauro Bernardi
Author-X-Name-First: Mauro
Author-X-Name-Last: Bernardi
Author-Name: Paola Stolfi
Author-X-Name-First: Paola
Author-X-Name-Last: Stolfi
Title: A dominance test for measuring financial connectedness
Abstract:
This paper introduces a dominance test that allows to determine whether or not a financial institution can be classified as being more systemically important than another in a multivariate framework. The dominance test relies on a new risk measure, the ΔNetCoVaR that is specifically tailored to capture the joint extreme co-movements between institutions belonging to a network. The asymptotic theory for the statistical test is provided under mild regularity conditions concerning the joint distribution of asset returns which is assumed to be elliptically contoured. The proposed risk measure and risk measurement framework is used to analyse the US financial system during the recent Global Financial Crises. In the empirical analysis, the returns are assumed to be Elliptically Stable distributed and the estimation is carried out through the Sparse Multivariate Method of Simulated Quantiles, handling both the lack of an analytic expression for the probability density function and the potential high-dimensionality of the problem.
Journal: The European Journal of Finance
Pages: 119-141
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1620819
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1620819
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:119-141
Template-Type: ReDIF-Article 1.0
Author-Name: Nicola Loperfido
Author-X-Name-First: Nicola
Author-X-Name-Last: Loperfido
Title: Kurtosis-based projection pursuit for outlier detection in financial time series
Abstract:
Outlier detection in financial time series is made difficult by serial dependence, volatility clustering and heavy tails. Projections achieving maximal kurtosis proved to be useful for outlier detection in multivariate datasets but their widespread application has been hampered by computational and inferential difficulties. This paper addresses both problems within the framework of univariate and multivariate financial time series. Computation of projections with maximal kurtoses in univariate financial time series is simplified to a eigenvalue problem. Projections with maximal kurtoses in multivariate financial time series best separate outliers from the bulk of the data, under a finite mixture model. The paper also addresses kurtosis optimization within the framework of portfolio selection. Practical relevance of these theoretical results is illustrated with univariate and multivariate time series from several financial markets. Empirical results also suggest that projections removing excess kurtosis could transform a univariate financial time series to a time series very similar to a Gaussian process, while the effect of outliers might be alleviated by projections achieving minimal kurtosis.
Journal: The European Journal of Finance
Pages: 142-164
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1647864
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1647864
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:142-164
Template-Type: ReDIF-Article 1.0
Author-Name: Zinoviy Landsman
Author-X-Name-First: Zinoviy
Author-X-Name-Last: Landsman
Author-Name: Udi Makov
Author-X-Name-First: Udi
Author-X-Name-Last: Makov
Author-Name: Tomer Shushi
Author-X-Name-First: Tomer
Author-X-Name-Last: Shushi
Title: Analytic solution to the portfolio optimization problem in a mean-variance-skewness model
Abstract:
In portfolio theory, it is well-known that the distributions of stock returns are often unimodal asymmetric distributions. Therefore, many researches have suggested considering the skew-normal distribution as an adequate model in quantitative finance. Such asymmetry explains why the celebrated mean-variance theory, which does not account to the skewness of distribution of returns, frequently fails to provide an optimal portfolio selection rule. In this paper, we provide a novel approach for solving the problem of optimal portfolio selection for asymmetric distributions of the stock returns, by putting it into a framework of a mean-variance-skewness measure. Moreover, our optimal solutions are explicit and are closed-form. In particular, we provide an analytical portfolio optimization solution to the exponential utility of the well-known skew-normal distribution. Our analytical solution can be investigated in comparison to other portfolio selection rules, such as the standard mean-variance model. The new methodology is illustrated numerically.
Journal: The European Journal of Finance
Pages: 165-178
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1618363
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1618363
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:165-178
Template-Type: ReDIF-Article 1.0
Author-Name: Gero Junike
Author-X-Name-First: Gero
Author-X-Name-Last: Junike
Author-Name: Argimiro Arratia
Author-X-Name-First: Argimiro
Author-X-Name-Last: Arratia
Author-Name: Alejandra Cabaña
Author-X-Name-First: Alejandra
Author-X-Name-Last: Cabaña
Author-Name: Wim Schoutens
Author-X-Name-First: Wim
Author-X-Name-Last: Schoutens
Title: American and exotic options in a market with frictions
Abstract:
In a market with frictions, bid and ask prices are described by sublinear pricing functionals, which can be defined recursively using coherent risk measures. We prove the convergence of bid and ask prices for various European and American possible path-dependent options, in particular plain vanilla, Asian, lookback and barrier options in a binomial model with transaction costs. We perform several numerical experiments to confirm the theoretical findings. We apply the results to real market data of American options and compute an implied liquidity to describe the bid–ask spread. This method describes liquidity over time very well, compared to the classical approach of describing bid and ask prices by quoting bid and ask implied volatilities.
Journal: The European Journal of Finance
Pages: 179-199
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1599407
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1599407
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:179-199
Template-Type: ReDIF-Article 1.0
Author-Name: Andres Algaba
Author-X-Name-First: Andres
Author-X-Name-Last: Algaba
Author-Name: Kris Boudt
Author-X-Name-First: Kris
Author-X-Name-Last: Boudt
Author-Name: Steven Vanduffel
Author-X-Name-First: Steven
Author-X-Name-Last: Vanduffel
Title: The variance implied conditional correlation
Abstract:
We apply univariate GARCH models to construct a computationally simple filter for estimating the conditional correlation matrix of asset returns. The proposed Variance Implied Conditional Correlation (VICC) exploits the polarization result that links the correlation between two standardized variables with the variances of linear combinations thereof. In a Monte Carlo study, we show that the VICC yields accurate correlation estimates for common choices of the correlation dynamics. We also provide an empirical application to cross hedging that confirms the effectiveness of the VICC.
Journal: The European Journal of Finance
Pages: 200-222
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1615524
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1615524
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:200-222
Template-Type: ReDIF-Article 1.0
Author-Name: Giovanni De Luca
Author-X-Name-First: Giovanni
Author-X-Name-Last: De Luca
Author-Name: Giorgia Rivieccio
Author-X-Name-First: Giorgia
Author-X-Name-Last: Rivieccio
Author-Name: Stefania Corsaro
Author-X-Name-First: Stefania
Author-X-Name-Last: Corsaro
Title: Value-at-Risk dynamics: a copula-VAR approach
Abstract:
In financial research and among risk management practitioners the estimation of a correct measure of the Value-at-Risk still proves interesting. A current approach, the multivariate CAViaR allows to provide an accurate measure of VaR modelling the joint dynamics in the Values-at-Risk by capturing the quantile conditional dependence structure to take into account financial contagion risk. The parameter estimates are based on multiple quantile regressions which assume linear combinations of sample quantiles. In this paper we argue that the analysis of multiple time-series aimed to model the time-varying quantile dependence can require non-linear and flexible estimation procedures. To this end, we examine the conditional quantile behaviour of some assets included in the Eurostoxx50 with respect to the quantile of a portfolio representing the market with a new copula-based quantile Vector AutoRegressive approach, and compare the results with the bivariate CAViaR model. Findings show that the copula approach is highly competitive, providing a time-varying model aimed to give a better specification of the Value-at-Risk, especially in terms of loss functions.
Journal: The European Journal of Finance
Pages: 223-237
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1652665
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1652665
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:223-237
Template-Type: ReDIF-Article 1.0
Author-Name: Massimo Costabile
Author-X-Name-First: Massimo
Author-X-Name-Last: Costabile
Author-Name: Ivar Massabó
Author-X-Name-First: Ivar
Author-X-Name-Last: Massabó
Author-Name: Emilio Russo
Author-X-Name-First: Emilio
Author-X-Name-Last: Russo
Title: Evaluating variable annuities with GMWB when exogenous factors influence the policy-holder's withdrawals
Abstract:
We propose an evaluation framework for variable annuities with guaranteed minimum withdrawal benefits aimed at considering a more realistic context where the policy-holder takes the decisions. In particular, in a rational context, where the policy-holder withdraws the optimal amounts maximizing the current policy value only with respect to the endogenous variables of the evaluation problem, we take into account the effect of exogenous factors that may lead the holder to withdraw sub-optimal amounts. For the sake of completeness, we propose an evaluation model based on a lattice approximation due to its flexibility and ease of implementation that is useful also for practitioners. We discretize the personal sub-account dynamics by a trinomial tree that, despite the presence of a downward jump due to the paid withdrawal at each anniversary of the contract, guarantees the reconnecting property. A backward induction scheme is used to compute the insurance fair fee paid for the guarantee.
Journal: The European Journal of Finance
Pages: 238-257
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1618362
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1618362
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:238-257
Template-Type: ReDIF-Article 1.0
Author-Name: Irene Albarrán
Author-X-Name-First: Irene
Author-X-Name-Last: Albarrán
Author-Name: Pablo J. Alonso-González
Author-X-Name-First: Pablo J.
Author-X-Name-Last: Alonso-González
Author-Name: Aurea Grané
Author-X-Name-First: Aurea
Author-X-Name-Last: Grané
Title: Long term care insurance pricing in Spanish population: a functional data approach
Abstract:
Developed and developing countries are experiencing the consequences of an ever-increasing elderly population, including the challenges of chronic illness, disability, dependency and long term care. All over the world, more people are surviving diseases that were fatal some decades ago. Dependency can be seen as a consequence of the process of gradual aging. In a health context, this contingency is defined as a lack of autonomy in performing basic activities of daily living that requires the care of another person or significant help. In this work we propose a stand-alone insurance, focused on the necessities of the eligible dependent people in Spain, taking into account their health evolution along their lives, in order to enhance the net premium calculation. We use information from the Spanish survey EDAD 2008. The main finding is that, a policyholder can choose to underwrite among three kinds of coverages, going from a minimum to a maximum level of protection, the latter's premium being more than twice the former's, regardless of the onset of dependency.
Journal: The European Journal of Finance
Pages: 258-276
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1678497
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1678497
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:258-276
Template-Type: ReDIF-Article 1.0
Author-Name: María del Carmen Boado-Penas
Author-X-Name-First: María del Carmen
Author-X-Name-Last: Boado-Penas
Author-Name: Humberto Godínez-Olivares
Author-X-Name-First: Humberto
Author-X-Name-Last: Godínez-Olivares
Author-Name: Steven Haberman
Author-X-Name-First: Steven
Author-X-Name-Last: Haberman
Author-Name: Pedro Serrano
Author-X-Name-First: Pedro
Author-X-Name-Last: Serrano
Title: Automatic balancing mechanisms for mixed pension systems under different investment strategies
Abstract:
State pension systems are usually pay-as-you-go financed, i.e. current contributions cover pension expenditure. However, some countries combine funding and pay-as-you-go (PAYG) elements within the first pillar. The aim of this paper is twofold. First, using nonlinear optimisation based on [Godínez-Olivares, H., M. C. Boado-Penas, and S. Haberman. 2016. “Optimal strategies for pay-as-you-go pension finance: A sustainability framework.” Insurance: Mathematics and Economics 69: 117–126], it seeks to assess the impact of a compulsory funded defined contribution (DC) pension scheme that complements the traditional defined benefit (DB) PAYG on the level of pension benefits. Future expected returns for both the funded part and the buffer fund of the PAYG are simulated through the non-overlapping block bootstrap technique. Second, in the case of partial financial sustainability, we design different optimal strategies, that involve variables such as the contribution rate, age of retirement and indexation of pensions, to restore the long-term financial equilibrium of the system. We show that the adjustments needed to ensure sustainability for the mixed pension systems are less severe than the pure DB PAYG but the total replacement rate for the former is lower in most of the cases studied. When calculating the return that the individuals would receive, we prove that some cohorts are better off under a mixed pension system.
Journal: The European Journal of Finance
Pages: 277-294
Issue: 2-3
Volume: 26
Year: 2020
Month: 2
X-DOI: 10.1080/1351847X.2019.1647260
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1647260
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:2-3:p:277-294
Template-Type: ReDIF-Article 1.0
Author-Name: Wissam Abdallah
Author-X-Name-First: Wissam
Author-X-Name-Last: Abdallah
Author-Name: Marc Goergen
Author-X-Name-First: Marc
Author-X-Name-Last: Goergen
Title: Evolution of control of cross-listed companies
Abstract:
There are two theories on the determinants of the control structure of the firm. The first theory postulates that the control structure is determined by company-specific characteristics. The second theory emphasises the importance of institutional characteristics in shaping this structure. In this paper, we test the validity of both theories in the context of a cross-listing, which causes a change to the company's legal environment. We find that the initial control structure, risk and size determine the control structure post cross-listing and that cross-listing on better quality markets facilitates the evolution of control towards more dispersed control. To conclude, company characteristics have a greater impact than country characteristics on the company's decision to cross-list and are also better at explaining the change in the control structure post cross-listing.
Journal: The European Journal of Finance
Pages: 1507-1533
Issue: 15
Volume: 22
Year: 2016
Month: 12
X-DOI: 10.1080/1351847X.2014.1003312
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.1003312
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:15:p:1507-1533
Template-Type: ReDIF-Article 1.0
Author-Name: Thomas Conlon
Author-X-Name-First: Thomas
Author-X-Name-Last: Conlon
Author-Name: John Cotter
Author-X-Name-First: John
Author-X-Name-Last: Cotter
Author-Name: Ramazan Gençay
Author-X-Name-First: Ramazan
Author-X-Name-Last: Gençay
Title: Commodity futures hedging, risk aversion and the hedging horizon
Abstract:
This paper examines the impact of management preferences on optimal futures hedging strategy and associated performance. Applying an expected utility hedging objective, the optimal futures hedge ratio is determined for a range of preferences on risk aversion, hedging horizon and expected returns. Empirical results reveal substantial hedge ratio variation across distinct management preferences and are supportive of the hedging policies of real firms. Hedging performance is further shown to be strongly dependent on underlying preferences. In particular, hedgers with high risk aversion and short horizon reduce hedge portfolio risk but achieve inferior utility in comparison to those with low aversion.
Journal: The European Journal of Finance
Pages: 1534-1560
Issue: 15
Volume: 22
Year: 2016
Month: 12
X-DOI: 10.1080/1351847X.2015.1031912
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1031912
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:15:p:1534-1560
Template-Type: ReDIF-Article 1.0
Author-Name: Jyh-Bang Jou
Author-X-Name-First: Jyh-Bang
Author-X-Name-Last: Jou
Author-Name: Tan (Charlene) Lee
Author-X-Name-First: Tan (Charlene)
Author-X-Name-Last: Lee
Title: How to design down-and-out barrier option contracts so that firms invest when it is socially efficient
Abstract:
This paper investigates how to design down-and-out barrier options contracts so as firms invest when it is socially efficient. A government initially offers a firm a privileged right to exercise an investment opportunity that exhibits external benefits to society, but will eliminate this opportunity if its prospects are sufficiently bleak. The firm will invest at the date further away from that is socially efficient if the firm either is less uncertain about the return of the investment or incurs lower investment costs, or the government owns a more valuable knock-out option. Consequently, under these three scenarios the government can efficiently either offer the firm a higher investment tax credit or impose the firm a higher lease fee for holding the option to invest.
Journal: The European Journal of Finance
Pages: 1561-1579
Issue: 15
Volume: 22
Year: 2016
Month: 12
X-DOI: 10.1080/1351847X.2015.1040169
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1040169
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:15:p:1561-1579
Template-Type: ReDIF-Article 1.0
Author-Name: Mahmoud Arayssi
Author-X-Name-First: Mahmoud
Author-X-Name-Last: Arayssi
Title: The effect of private investments on banks' capital requirements
Abstract:
A simple leverage ratio restriction is not efficient because it does not discriminate between risky and safe banks. We use a structural and comprehensive model of the firm's asset growth to describe the equity buy-out portfolios' stylized facts for two types of banks. We derive a leverage ratio that depends on the level of risky investments, and balances between the spread on such investments, the cost of capital and the overall power of the supervisor to enforce the capital requirements. This method is more transparent and requires fewer parameters than other commonly used methods. We obtain an incentive-compatible constraint on banks to carry the minimal adequate amount of capital. This constraint enhances the supervisors' ability to enforce the rules ex post, and provide banks with a further incentive to reveal their risk type truthfully.
Journal: The European Journal of Finance
Pages: 1580-1595
Issue: 15
Volume: 22
Year: 2016
Month: 12
X-DOI: 10.1080/1351847X.2015.1049283
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1049283
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:15:p:1580-1595
Template-Type: ReDIF-Article 1.0
Author-Name: The Editors
Title: Editorial Board
Journal: The European Journal of Finance
Pages: ebi-ebi
Issue: 15
Volume: 22
Year: 2016
Month: 12
X-DOI: 10.1080/1351847X.2016.1228271
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1228271
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:15:p:ebi-ebi
Template-Type: ReDIF-Article 1.0
Author-Name: Olaf Stotz
Author-X-Name-First: Olaf
Author-X-Name-Last: Stotz
Title: The relative pricing of European dividend futures and their predictive abilities for index returns
Abstract:
We use dividend futures prices to derive a dividend future discount model. Arbitrage arguments postulate that the sum of discounted dividend futures prices should equal the index price, i.e. the sum of discounted dividends. We analyze whether this relation holds and find that the two valuation approaches lead to a different valuation of expected dividends. These observations indicate that dividend futures and index prices seem to provide the investor with different information on future dividends. We further show that the difference in valuation can be used to forecast index returns and show how an investment strategy can exploit this predictability.
Journal: The European Journal of Finance
Pages: 1484-1506
Issue: 15
Volume: 22
Year: 2016
Month: 12
X-DOI: 10.1080/1351847X.2014.953701
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.953701
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:15:p:1484-1506
Template-Type: ReDIF-Article 1.0
Author-Name: Daniel W. Richards
Author-X-Name-First: Daniel W.
Author-X-Name-Last: Richards
Author-Name: Janette Rutterford
Author-X-Name-First: Janette
Author-X-Name-Last: Rutterford
Author-Name: Devendra Kodwani
Author-X-Name-First: Devendra
Author-X-Name-Last: Kodwani
Author-Name: Mark Fenton-O'Creevy
Author-X-Name-First: Mark
Author-X-Name-Last: Fenton-O'Creevy
Title: Stock market investors' use of stop losses and the disposition effect
Abstract:
The disposition effect is an investment bias where investors hold stocks at a loss longer than stocks at a gain. This bias is associated with poorer investment performance and exhibited to a greater extent by investors with less experience and less sophistication. A method of managing susceptibility to the bias is through use of stop losses. Using the trading records of UK stock market individual investors from 2006 to 2009, this paper shows that stop losses used as part of investment decisions are an effective tool for inoculating against the disposition effect. We also show that investors who use stop losses have less experience and that, when not using stop losses, these investors are more reluctant to realise losses than other investors.
Journal: The European Journal of Finance
Pages: 130-152
Issue: 2
Volume: 23
Year: 2017
Month: 1
X-DOI: 10.1080/1351847X.2015.1048375
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1048375
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:2:p:130-152
Template-Type: ReDIF-Article 1.0
Author-Name: Nurhan Davutyan
Author-X-Name-First: Nurhan
Author-X-Name-Last: Davutyan
Author-Name: Canan Yildirim
Author-X-Name-First: Canan
Author-X-Name-Last: Yildirim
Title: Efficiency in Turkish banking: post-restructuring evidence
Abstract:
Turkish banking sector went through a significant restructuring process in the aftermath of the country's financial crisis of 2000–2001. In this paper, we analyze the evolution of banking performance using a novel approach due to Ray [(2007). “Shadow Profit Maximization and a Measure of Overall Inefficiency.” Journal of Productivity Analysis 27, 231–236]. We derive ‘shadow unrealized profit scores’ as well as ‘shadow input–output prices’ for each year and bank in the sector from 2002 to 2011. We argue these scores operationalize the Hicksian concept of ‘monopolistic quiet life’. We provide some evidence the sector came closer to the ‘zero profit condition’ as well as displaying a closer approximation to the ‘law of one price’ over time. We show the variability of these ‘shadow prices’ essentially coincides with that of corresponding actual prices. We utilize shadow price information to show that business models and competitive choices of banks differ across ownership types with foreign banks competing on the broadest front compared to state-owned and privately owned Turkish banks.
Journal: The European Journal of Finance
Pages: 170-191
Issue: 2
Volume: 23
Year: 2017
Month: 1
X-DOI: 10.1080/1351847X.2015.1049282
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1049282
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:2:p:170-191
Template-Type: ReDIF-Article 1.0
Author-Name: Juan J. García-Machado
Author-X-Name-First: Juan J.
Author-X-Name-Last: García-Machado
Author-Name: Jarosław Rybczyński
Author-X-Name-First: Jarosław
Author-X-Name-Last: Rybczyński
Title: How Spanish options market smiles in summer: an empirical analysis for options on IBEX-35
Abstract:
This paper examines the behaviour of the smile in the Spanish Stock Exchange during 2011 and 2012 summers. In these periods, the value of the main index of the Spanish Stock Exchange market IBEX-35 had fallen down a maximum of 2103.60 points in summer 2011, which made a drop of 20.05% in this period. On the contrary, in summer 2012, it had raised a maximum of 2165.70 points. That means a rise of 26.31%, whereas the Spanish risk premium had raised dramatically. By linear interpolation, implied volatilities for moneyness points needed were calculated. Then, we construct 3288 smile curves and the same quantity of distortion levels. Thousand six hundred and forty-four smiles are for both call and put option contracts, and for all summer 2011 and 2012 maturities (June, July, August and September). Next, we compare all smile curves with 1 of the 17-typical shape patterns for calls, puts, different dates, etc. Afterwards, we take the value of the distortion level calculated before and include the smile in one A–E class of distortion. We can notice that the most popular types are only two, for both calls and puts, Left Smirk (LK) rather than Reversed Right Smirk (RRK); all smiles are formed in the same way, and they are all from ‘D’ class. The changes between LK and RRK occur only on, or one day after, expiring dates, thus are jumps in distortion. Afterwards, we make a comparison with 2013 and 2014 summers' smiles which are not marred by the short-selling ban imposed by the Spanish Securities Exchange Commission in 2011 and 2012.
Journal: The European Journal of Finance
Pages: 153-169
Issue: 2
Volume: 23
Year: 2017
Month: 1
X-DOI: 10.1080/1351847X.2015.1067634
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1067634
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:2:p:153-169
Template-Type: ReDIF-Article 1.0
Author-Name: Fabio Parlapiano
Author-X-Name-First: Fabio
Author-X-Name-Last: Parlapiano
Author-Name: Vitali Alexeev
Author-X-Name-First: Vitali
Author-X-Name-Last: Alexeev
Author-Name: Mardi Dungey
Author-X-Name-First: Mardi
Author-X-Name-Last: Dungey
Title: Exchange rate risk exposure and the value of European firms
Abstract:
This paper presents a new assessment of the exposure of European firms to exchange rate fluctuations which takes into account the potential common drivers of exchange rates and equity market conditions. Using monthly data for European firms from 1999 to 2011, we assess the impact of unexpected fluctuations in the USD, JPY, GBP and CHF against the Euro, and show that the proportion of firms subject to exchange rate risk is considerably larger when estimation accounts for potential common drivers and firm-specific factors than otherwise. Firm exposure to exchange rate risk is affected by the level of international involvement, industry, firm size and country of origin. European firms with largely domestic operations reveal the greatest vulnerability to unexpected exchange rate movements, suggesting an opportunity to improve risk management for these companies.
Journal: The European Journal of Finance
Pages: 111-129
Issue: 2
Volume: 23
Year: 2017
Month: 1
X-DOI: 10.1080/1351847X.2015.1072570
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1072570
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:2:p:111-129
Template-Type: ReDIF-Article 1.0
Author-Name: Surendranath Rakesh Jory
Author-X-Name-First: Surendranath Rakesh
Author-X-Name-Last: Jory
Author-Name: Tapas Mishra
Author-X-Name-First: Tapas
Author-X-Name-Last: Mishra
Author-Name: Thanh N. Ngo
Author-X-Name-First: Thanh N.
Author-X-Name-Last: Ngo
Title: Location-specific stock market indices: an exploration
Abstract:
This article develops an alternative location-specific stock market index driven by investors’ ‘attachment’ towards investment at a specific location. We evaluate the performance of hypothetical stock market indices that track companies based on their state of registration, taking the US stock market as our case. Using annual data since 1980 we present raw, risk-adjusted and value-weighted state portfolios’ returns to study the extent to which stock market performance varies by state-level demographics and economic factors. A dynamic panel data estimation – with and without spatial spillover effects – is employed to establish a strong association between stock price performance and the state-level (or geography-weighted) factors. We find that spatial effects are strong and that the ‘spatial attachment’ of companies in interaction with the various location-specific variables imparts an overarching influence on stock-price performance. Comparison of model performances further supports our claims.
Journal: The European Journal of Finance
Pages: 305-337
Issue: 4
Volume: 25
Year: 2019
Month: 3
X-DOI: 10.1080/1351847X.2018.1515095
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1515095
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:4:p:305-337
Template-Type: ReDIF-Article 1.0
Author-Name: Jerome Kreuser
Author-X-Name-First: Jerome
Author-X-Name-Last: Kreuser
Author-Name: Didier Sornette
Author-X-Name-First: Didier
Author-X-Name-Last: Sornette
Title: Super-Exponential RE bubble model with efficient crashes
Abstract:
We propose a dynamic Rational Expectations (RE) bubble model of prices, combining a geometric random walk with separate crash (and rally) discrete jump distributions associated with positive (and negative) bubbles. Crashes tend to efficiently bring back excess bubble prices close to a “normal” process. Then, the RE condition implies that the excess risk premium of the risky asset exposed to crashes is an increasing function of the amplitude of the expected crash, which itself grows with the bubble mispricing: hence, the larger the bubble price, the larger its subsequent growth rate. This positive feedback of price on return is the archetype of super-exponential price dynamics. We use the RE condition to estimate the real-time crash probability dynamically through an accelerating probability function depending on the increasing expected return. After showing how to estimate the model parameters, we obtain a closed-form approximation for the optimal investment that maximizes the expected log of wealth (Kelly criterion) for the risky bubbly asset and a risk-free asset. We demonstrate, on seven historical crashes, the promising outperformance of the method compared to a 60/40 portfolio, the classic Kelly allocation, and the risky asset, and how it mitigates jumps, both positive and negative.
Journal: The European Journal of Finance
Pages: 338-368
Issue: 4
Volume: 25
Year: 2019
Month: 3
X-DOI: 10.1080/1351847X.2018.1521342
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1521342
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:4:p:338-368
Template-Type: ReDIF-Article 1.0
Author-Name: S. Lleo
Author-X-Name-First: S.
Author-X-Name-Last: Lleo
Author-Name: W. T. Ziemba
Author-X-Name-First: W. T.
Author-X-Name-Last: Ziemba
Title: Can Warren Buffett forecast equity market corrections?
Abstract:
Warren Buffett suggested that the ratio of the market value of all publicly traded stocks to the Gross National Product could identify potential overvaluations and undervaluations in the US equity market when this ratio deviates above 120% or below 80%. We investigate whether this ratio is a statistically significant predictor of equity market corrections and rallies. We find that Buffett's decision rule does not deliver satisfactory forecasts. However, when we adopt a time-varying decision rule, the ratio becomes a statistically significant predictor of equity market corrections. The two time-varying decision rules are: (i) predict an equity market correction when the ratio exceeds a 95% one-tail confidence interval based on a normal distribution, and (ii) predict an equity market correction when the ratio exceeds a threshold computed using Cantelli's inequality. These new decision rules are robust to changes in the two key parameters: the confidence level and the forecasting horizon. This paper also shows that the MV/GNP ratio performs relatively well against the four most popular equity market correction models, but the ratio is not a particularly useful predictor of equity market rallies.
Journal: The European Journal of Finance
Pages: 369-393
Issue: 4
Volume: 25
Year: 2019
Month: 3
X-DOI: 10.1080/1351847X.2018.1521859
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1521859
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:4:p:369-393
Template-Type: ReDIF-Article 1.0
Author-Name: Qiwei Chen
Author-X-Name-First: Qiwei
Author-X-Name-Last: Chen
Author-Name: Xiuping Hua
Author-X-Name-First: Xiuping
Author-X-Name-Last: Hua
Author-Name: Ying Jiang
Author-X-Name-First: Ying
Author-X-Name-Last: Jiang
Title: Contrarian strategy and herding behaviour in the Chinese stock market
Abstract:
This paper investigates the profitability of several types of zero-cost price momentum and contrarian strategies in the Chinese stock market for the 1994–2013 period. Several distinct features of Chinese market are documented. We find that contrarian strategies that use Jegadeesh and Titman's (1993) method with weekly frequency are profitable. However, investment strategies based on the ‘nearness’ to of 52-week high or the recency of the 52-week high are not profitable. Our analysis also shows that contrarian profits are higher during the crisis period of 2008–2012. In addition, the return reversal of the winner and loser portfolios suggests that contrarian profits can be attributed to overreaction. Finally, we also find evidence of herding behaviour in the Chinese market; and the degree of herding behaviour is positively correlated with the profits of contrarian trading strategies.
Journal: The European Journal of Finance
Pages: 1552-1568
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2015.1071715
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1071715
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1552-1568
Template-Type: ReDIF-Article 1.0
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Author-Name: Junhong Yang
Author-X-Name-First: Junhong
Author-X-Name-Last: Yang
Title: Adjustment behavior of corporate cash holdings: the China experience
Abstract:
Using a panel of 1478 Chinese listed firms over the period 1998–2010, we examine the behavior of corporate cash holdings. Consistent with the trade-off theory, we document that Chinese firms tend to actively manage their cash balances toward a target level. We also observe a considerable heterogeneity in adjustment speeds of cash holdings across firms, due to the presence of different adjustment costs. Specifically, firms with a high level of excess cash, and firms that actively manage their cash balances through investment, dividend payments, and debt issuance, all display higher adjustment speeds. Finally, the institutional setting does not significantly affect adjustment speeds.
Journal: The European Journal of Finance
Pages: 1428-1452
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2015.1071716
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1071716
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1428-1452
Template-Type: ReDIF-Article 1.0
Author-Name: Douglas Cumming
Author-X-Name-First: Douglas
Author-X-Name-Last: Cumming
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Eliza Wu
Author-X-Name-First: Eliza
Author-X-Name-Last: Wu
Title: Exchange trading rules, governance, and trading location of cross-listed stocks
Abstract:
This paper shows that stock exchange trading rules are of central importance for the trading location of cross-listed stocks. We consider various measures of sovereign governance and shareholder rights across both developed and emerging countries to assess the complementary effects of other legal and institutional drivers of trading activity. The data indicate that the proportion of trades that occurs on an exchange increases at a decreasing rate with the strength of stock exchange trading rules. The effectiveness of stock exchange rules increases with the strength of regulatory institutions in the country hosting the stock exchange. Furthermore, corroborating with our full sample findings, difference-in-difference tests indicate that the promulgation of the Markets in Financial Instruments Directive, which strengthened trading rules within the European Union (EU), has increased the amount of trade in the EU.
Journal: The European Journal of Finance
Pages: 1453-1484
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2015.1089522
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1089522
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1453-1484
Template-Type: ReDIF-Article 1.0
Author-Name: Arif Khurshed
Author-X-Name-First: Arif
Author-X-Name-Last: Khurshed
Author-Name: Yan Tong
Author-X-Name-First: Yan
Author-X-Name-Last: Tong
Author-Name: Mingzhu Wang
Author-X-Name-First: Mingzhu
Author-X-Name-Last: Wang
Title: Split-share structure reform and the underpricing of Chinese initial public offerings
Abstract:
This paper analyses whether the extreme underpricing of initial public offerings (IPOs) in China has been alleviated by the split-share structure reform in 2005. As an external policy shock to IPO firms, this Reform was designed to convert non-tradable shares into tradable shares, with the potentials to restore the distorted supply–demand relationship of newly issued shares and reduce the information asymmetry in Chinese stock market. Analysing a sample of IPOs in China from 2000 to 2011, we find that the split-share structure reform significantly reduced the magnitude of IPO underpricing since 2005. It had different impacts on the IPO shares issued by state-owned enterprise (SOEs) and non-SOEs. While IPO shares issued by SOEs and non-SOEs had similar underpricing rates before the Reform, non-SOE IPOs show lower underpricing than those of SOEs after the Reform. Furthermore, compared with IPOs issued by SOEs controlled by the central government, those issued by local governments controlled SOEs are more underpriced after the Reform.
Journal: The European Journal of Finance
Pages: 1485-1505
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2015.1107603
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1107603
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1485-1505
Template-Type: ReDIF-Article 1.0
Author-Name: Weiying Zhang
Author-X-Name-First: Weiying
Author-X-Name-Last: Zhang
Title: Six understandings of corporate governance structure in the context of China
Abstract:
This paper discusses six misunderstandings about corporate governance in the context of China, particularly about the relationships between ownership and governance, between entrepreneurship and incentive, and between regulation and reputation. These misunderstandings exist not just in theoretical circles, but also in practice. The common characteristic of these misunderstandings is the distrust in the market mechanism and the neglect for the entrepreneurial spirit. Such distrust and neglect can be partly attributed to the misunderstanding of the market by the mainstream economic theories that do not take the entrepreneurs into consideration in their models. In order to have a more complete understanding of the market and corporate governance, we must transition from a manager-centered model towards an entrepreneur-centered model. We discuss the implications of this approach for public policy-making.
Journal: The European Journal of Finance
Pages: 1375-1387
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2015.1113194
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1113194
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1375-1387
Template-Type: ReDIF-Article 1.0
Author-Name: Hisham Farag
Author-X-Name-First: Hisham
Author-X-Name-Last: Farag
Author-Name: Chris Mallin
Author-X-Name-First: Chris
Author-X-Name-Last: Mallin
Title: The influence of CEO demographic characteristics on corporate risk-taking: evidence from Chinese IPOs
Abstract:
We investigate the influence of Chief Executive Officers’ (CEOs’) demographic characteristics (e.g. age, board experience, professional experience, education and gender) on corporate risk-taking for a sample of 892 IPOs floated in both the Shanghai and Shenzhen Stock Exchanges. Using fixed effects and system Generalized Method of Moments models we find that younger and shorter tenured CEOs and those with postgraduate qualifications are more likely to consider risky decisions. We also find a highly significant and positive relationship between CEO previous board experience and corporate risk-taking. Interestingly and consistent with the recent literature, we find that female CEOs are not risk averse compared with their male counterparts. Moreover, we find that corporate risk-taking is higher the greater the proportion of state ownership. Finally, our study may provide useful insights to shareholders as they generally seek to hire the most talented CEOs with the relevant set of skills to achieve shareholders’ objectives and improve the Chinese competitiveness in the global market.
Journal: The European Journal of Finance
Pages: 1528-1551
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2016.1151454
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151454
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1528-1551
Template-Type: ReDIF-Article 1.0
Author-Name: Dayong Zhang
Author-X-Name-First: Dayong
Author-X-Name-Last: Zhang
Author-Name: Jing Cai
Author-X-Name-First: Jing
Author-X-Name-Last: Cai
Author-Name: Jia Liu
Author-X-Name-First: Jia
Author-X-Name-Last: Liu
Author-Name: Ali M. Kutan
Author-X-Name-First: Ali M.
Author-X-Name-Last: Kutan
Title: Real estate investments and financial stability: evidence from regional commercial banks in China
Abstract:
The 2008 US subprime mortgage crisis demonstrated how developments in real estate markets can cause instability in the banking sector and raised concerns in many emerging economies with significant real estate development and a rapidly growing commercial banking sector, particularly in China. There is clear evidence that commercial banks in China, especially regional commercial banks, have lent significantly to the real estate sector. The recent slowdown in the housing market in China and the increase in nonperforming loans (NPLs) in China's commercial banking sector motivated us to investigate the connection between real estate markets and banking stability. This paper proposes three testable hypotheses linking the growth of investment in real estate and the stability of regional commercial banks in China, measured by NPLs. Our empirical results reveal a close connection between the growth of investment in real estate and the NPLs among regional commercial banks, and its sensitivity to real estate market cycles. When real estate market activity declines, our results suggest, regional commercial banks can find themselves in trouble if they have significant exposure to one type of (real estate) asset. In addition, we find that regional bank competition plays a critical role in defining the relationship between bank stability and real estate investment activity.
Journal: The European Journal of Finance
Pages: 1388-1408
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2016.1154083
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1154083
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1388-1408
Template-Type: ReDIF-Article 1.0
Author-Name: Qin Gou
Author-X-Name-First: Qin
Author-X-Name-Last: Gou
Author-Name: Yiping Huang
Author-X-Name-First: Yiping
Author-X-Name-Last: Huang
Author-Name: Jianguo Xu
Author-X-Name-First: Jianguo
Author-X-Name-Last: Xu
Title: Does ownership matter in access to bank credit in China?
Abstract:
Employing two World Bank survey datasets of small- and medium-sized enterprises (SMEs), we investigate whether ownership discrimination exists in Chinese banks’ credit allocation. By comparing firms’ credit demand and loan availability, we identify two types of credit-rationing, self- and bank-rationing. We find that more than half of potential borrowers are credit-rationed, most of which is due to self-rationing. While several firm characteristics and macro-financial factors are important in determining chances of credit-rationing, there is no evidence to support the popular assertion of ownership discrimination in credit allocation in China. This also suggests that ownership reform alone is not sufficient for alleviating SMEs’ funding difficulties.
Journal: The European Journal of Finance
Pages: 1409-1427
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2016.1190391
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1190391
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1409-1427
Template-Type: ReDIF-Article 1.0
Author-Name: Alfredo De Massis
Author-X-Name-First: Alfredo
Author-X-Name-Last: De Massis
Author-Name: Shujun Ding
Author-X-Name-First: Shujun
Author-X-Name-Last: Ding
Author-Name: Josip Kotlar
Author-X-Name-First: Josip
Author-X-Name-Last: Kotlar
Author-Name: Zhenyu Wu
Author-X-Name-First: Zhenyu
Author-X-Name-Last: Wu
Title: Family involvement and R&D expenses in the context of weak property rights protection: an examination of non-state-owned listed companies in China
Abstract:
The impact of family involvement on firm behaviour is an issue of global interest, yet paradoxically few studies examine the behaviour of family firms in the unique socio-political environment of China. We investigate the cross-institutional generalizability of the behavioural agency model, emphasizing the non-economic goals of controlling families as a driver of unique yet predictable behaviours in Chinese family firms and examine the relationship between family involvement and the R&D expenses reported by these firms. We propose that in a context of weak property rights protection such as China’s, the opportunity for family owners to attain transgenerational control is subject to the additional risk of state predation. We consequently expect economic goals to prevail over family-centred non-economic goals in Chinese family firms and hypothesize that their reported R&D expenses increase with family involvement due to severe Type II agency problems. Moreover, we examine the effect of positive and negative performance feedback on this relationship. Longitudinal data from non-state-owned listed companies in China provide overall support for these contentions. We discuss the theoretical and practical implications of these findings.
Journal: The European Journal of Finance
Pages: 1506-1527
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2016.1200994
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1200994
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1506-1527
Template-Type: ReDIF-Article 1.0
Author-Name: Alessandra Guariglia
Author-X-Name-First: Alessandra
Author-X-Name-Last: Guariglia
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Xiuping Hua
Author-X-Name-First: Xiuping
Author-X-Name-Last: Hua
Author-Name: Yiping Huang
Author-X-Name-First: Yiping
Author-X-Name-Last: Huang
Title: Chinese capital markets: the importance of history for modern development
Journal: The European Journal of Finance
Pages: 1369-1374
Issue: 16
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2018.1496571
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1496571
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1369-1374
Template-Type: ReDIF-Article 1.0
Author-Name: Jonathan Fletcher
Author-X-Name-First: Jonathan
Author-X-Name-Last: Fletcher
Author-Name: Krishna Paudyal
Author-X-Name-First: Krishna
Author-X-Name-Last: Paudyal
Author-Name: Timbul Santoso
Author-X-Name-First: Timbul
Author-X-Name-Last: Santoso
Title: Exploring the benefits of international government bond portfolio diversification strategies
Abstract:
We use the Bayesian approach of Wang (1998) to examine the diversification benefits of investing in international government bonds. We find that no short-selling constraints substantially reduce but do not eliminate the diversification benefits when only investing in G7 government bonds with different maturities. There are significant diversification benefits when using the G7 bonds, an inflation-linked bond index, and emerging market bonds even in the presence of no short-selling constraints. The superior performance is driven by the emerging markets bonds. We also find that the diversification benefits vary across different economic states.
Journal: The European Journal of Finance
Pages: 1-15
Issue: 1
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1450279
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1450279
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:1:p:1-15
Template-Type: ReDIF-Article 1.0
Author-Name: Yun Feng
Author-X-Name-First: Yun
Author-X-Name-Last: Feng
Author-Name: Binghua Huang
Author-X-Name-First: Binghua
Author-X-Name-Last: Huang
Author-Name: Hai Zhang
Author-X-Name-First: Hai
Author-X-Name-Last: Zhang
Title: Hedge fund seeding with fees-for-guarantee swaps
Abstract:
This paper introduces a new instrument in the context of hedge fund seeding, which we call fees-for-guarantee swap, with the aim of alleviating the early-stage funds (ESF) managers' financial constraint caused by severe asymmetric information between investors and managers. The swap plays a role in enhancing the ESFs manager's credibility by swapping part of her fees for an insurance on the behalf of seeding investors, whom would be fully refunded once the fund defaults. We set up a dynamic continuous-time framework within which closed-form prices for seed capital, guarantee costs and other claims have been derived. Our numerical findings indicate that incentive compensations, managerial ownership and hedge funds liquidation risks not only inhibit ESFs managers' risk-shifting incentive but align interests among ESFs manager, seeder and insurer as well.
Journal: The European Journal of Finance
Pages: 16-34
Issue: 1
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1456475
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1456475
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:1:p:16-34
Template-Type: ReDIF-Article 1.0
Author-Name: Andrea Eross
Author-X-Name-First: Andrea
Author-X-Name-Last: Eross
Author-Name: Andrew Urquhart
Author-X-Name-First: Andrew
Author-X-Name-Last: Urquhart
Author-Name: Simon Wolfe
Author-X-Name-First: Simon
Author-X-Name-Last: Wolfe
Title: Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank markets
Abstract:
This paper investigates liquidity spillovers between the US and European interbank markets during turbulent and tranquil periods. We show that an endogenous model with time-varying transition probabilities is effective in describing the propagation of liquidity shocks within the interbank market, while predicting liquidity crashes characterised by changed dynamics. We show that liquidity shocks, originating from movements of the spread between the Asset Backed Commercial Paper and T-bill, drive regime changes in the euro fixed-float OIS swap rate. Our results support the idea of endogenous contagion from the US money market to the eurozone money market during the global financial crisis.
Journal: The European Journal of Finance
Pages: 35-53
Issue: 1
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1462840
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1462840
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:1:p:35-53
Template-Type: ReDIF-Article 1.0
Author-Name: Gong Cheng
Author-X-Name-First: Gong
Author-X-Name-Last: Cheng
Author-Name: Dirk Mevis
Author-X-Name-First: Dirk
Author-X-Name-Last: Mevis
Title: What happened to profitability? Shocks, challenges and perspectives for euro area banks
Abstract:
This paper analyses the evolution of bank profitability from 2005 to 2016, with a focus on the period covering both the global financial crisis and the euro area crisis. To accomplish this, we constructed a dataset that includes financial statement information from 310 euro area banks. Using a dual approach – a ‘bottom-up’ approach as applied by bank analysts and macroeconomists' ‘top-down’ approach, we find that the profitability of euro area banks was hit by two shocks of different nature. The Lehman Brothers collapse affected mostly big banks with diversified portfolios via losses in their securities investment. The subsequent euro area debt crisis and economic recession hit more traditional banks specialising in retail lending activities, mainly through increasing impairment costs. If the first shock had a one-off impact on bank profitability, the second shock is far more long-lasting and is still depressing the profitability of banks in peripheral Europe.
Journal: The European Journal of Finance
Pages: 54-78
Issue: 1
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1470994
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1470994
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:1:p:54-78
Template-Type: ReDIF-Article 1.0
Author-Name: William C. Johnson
Author-X-Name-First: William C.
Author-X-Name-Last: Johnson
Author-Name: Sungwoo Nam
Author-X-Name-First: Sungwoo
Author-X-Name-Last: Nam
Author-Name: Sangho Yi
Author-X-Name-First: Sangho
Author-X-Name-Last: Yi
Title: The commitment value of takeover defenses
Abstract:
We investigate how takeover defenses can facilitate a firm’s value-increasing stakeholder relationships by bonding its commitment to respect stakeholders’ appropriable quasi-rents in the firm. For this purpose, we develop two variations of the B-index of takeover defenses which are specifically designed to capture the bonding benefit of takeover defenses. We find evidence that some takeover defenses, but not all, provide a bonding benefit in terms of facilitation of a firm’s value-increasing stakeholder relationships. This implies that a firm must selectively adopt the most effective takeover defenses to achieve the desired corporate goals.
Journal: The European Journal of Finance
Pages: 79-100
Issue: 1
Volume: 25
Year: 2019
Month: 1
X-DOI: 10.1080/1351847X.2018.1481444
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1481444
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:1:p:79-100
Template-Type: ReDIF-Article 1.0
Author-Name: Sheraz Ahmed
Author-X-Name-First: Sheraz
Author-X-Name-Last: Ahmed
Author-Name: Jani Hirvonen
Author-X-Name-First: Jani
Author-X-Name-Last: Hirvonen
Author-Name: Syed Mujahid Hussain
Author-X-Name-First: Syed Mujahid
Author-X-Name-Last: Hussain
Title: Pricing of time-varying liquidity risk in Finnish stock market: new evidence
Abstract:
Using two recently developed illiquidity measures, we estimate a conditional version of liquidity-adjusted capital asset pricing model (LCAPM), which allows for a time-varying decomposition of the total illiquidity premium into a level component and three risk components. The total estimated annualized illiquidity premium for the Finnish equities during 1997–2015 is 1.13–1.90% depending on the illiquidity measure. Of the three systematic liquidity risk components, risk arising from hedging of wealth shocks is the most important followed by commonality in liquidity risk, whereas flight to liquidity risk is not significantly priced in the Finnish stock market. Our results show that the liquidity risk is time varying, therefore the models estimating the risk-return relationship should address the issue of conditionality.
Journal: The European Journal of Finance
Pages: 1147-1165
Issue: 13
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1577746
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1577746
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:13:p:1147-1165
Template-Type: ReDIF-Article 1.0
Author-Name: Giovanni Barone-Adesi
Author-X-Name-First: Giovanni
Author-X-Name-Last: Barone-Adesi
Author-Name: Carlo Sala
Author-X-Name-First: Carlo
Author-X-Name-Last: Sala
Title: Testing market efficiency with the pricing kernel
Abstract:
Market efficiency and the pricing kernel are closely related. A non-monotonic decreasing pricing kernel implies the existence of a trading strategy in contingent claims that stochastically dominates a direct investment in the market. Moreover, a market is assumed to be efficient only if no dominating strategies exist. Empirically, many studies of the pricing kernel find non-monotonicity, apparently ruling out market efficiency. However, these results are often unreliable, because the pricing measures of the pricing kernel are estimated using differing filtration sets. We show this effect both theoretically and empirically, and we discuss recent approaches in the literature for achieving more reliable estimates of the pricing kernel, potentially leading to better tests of market efficiency.
Journal: The European Journal of Finance
Pages: 1166-1193
Issue: 13
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1581638
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1581638
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:13:p:1166-1193
Template-Type: ReDIF-Article 1.0
Author-Name: Tung Liang Liao
Author-X-Name-First: Tung Liang
Author-X-Name-Last: Liao
Author-Name: Li-Chueh Tsai
Author-X-Name-First: Li-Chueh
Author-X-Name-Last: Tsai
Author-Name: Mei-Chu Ke
Author-X-Name-First: Mei-Chu
Author-X-Name-Last: Ke
Author-Name: Yi-Chein Chiang
Author-X-Name-First: Yi-Chein
Author-X-Name-Last: Chiang
Author-Name: Chuan-Hao Hsu
Author-X-Name-First: Chuan-Hao
Author-X-Name-Last: Hsu
Title: Financial crisis and market efficiency: evidence from European stock markets
Abstract:
This study examines market efficiency levels for the 16 European major stock markets in response to the 2018 financial crisis. Stochastic dominance is used to investigate the existence of four popular value premium (VP) indicators, including book-to-market, earnings-to-price, cash earnings-to-price and dividend-to-price ratios, so a total of 64 $ (4 \times 16) $ (4×16) market-indicator observations are formed in the pre- and post-crisis periods, respectively. Stocks in the top (bottom) 30% of each indicator are defined as value (growth) portfolio, dubbed 30-40-30 splitting, and 20-60-20 and 10-80-10 partitions are also constructed in this study. Difference test shows that the ratio of the existence of the VP for each partition in the pre-crisis period is significantly higher than its corresponding partition in the post-crisis period, respectively, indicating that market efficiency levels are impacted by financial crisis. Next, difference test also shows that the ratio of the existence of the VP for 30-40-30 partition is significantly lower than that for 20-60-20 partition in the per- and post-crisis periods, respectively. However, the ratio of the existence of the VP between 20-60-20 and 10-80-10 partitions is not significantly different in the pre- and post-crisis periods, respectively.
Journal: The European Journal of Finance
Pages: 1194-1210
Issue: 13
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1584579
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1584579
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:13:p:1194-1210
Template-Type: ReDIF-Article 1.0
Author-Name: Vu Tran
Author-X-Name-First: Vu
Author-X-Name-Last: Tran
Author-Name: Rasha Alsakka
Author-X-Name-First: Rasha
Author-X-Name-Last: Alsakka
Author-Name: Owain ap Gwilym
Author-X-Name-First: Owain
Author-X-Name-Last: ap Gwilym
Title: Investors’ heterogeneous beliefs and the impact of sovereign credit ratings in foreign exchange and equity markets
Abstract:
We propose a model in which sovereign credit news from multiple rating agencies interacts with market heterogeneity. The model illustrates that the first messenger discloses new information while additional messengers play an important role of coordinating heterogeneous beliefs. Empirical investigations based on sovereign credit ratings, foreign exchange and equity markets confirm that rating news coordinates investors’ beliefs. Sovereign credit rating news from both types of messenger induces a significant impact on exchange rates and stock indices. Volatility measures increase in response to news from the first messenger while ex-post volatility reduces following news from an additional messenger.
Journal: The European Journal of Finance
Pages: 1211-1233
Issue: 13
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1586743
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1586743
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:13:p:1211-1233
Template-Type: ReDIF-Article 1.0
Author-Name: Jonathan Fletcher
Author-X-Name-First: Jonathan
Author-X-Name-Last: Fletcher
Title: How many factors are important in U.K. stock returns?
Abstract:
I use the sequential approach of Harvey and Liu ([2018]. Lucky factors (Working Paper). Duke University) to build linear factor models in U.K. stock returns among a set of 13 candidate factors using individual stocks and three groups of test portfolios between July 1983 and December 2017. My study finds that the Market factor is the dominant factor in reducing mispricing in individual stocks and test portfolios regardless of the pricing error metric used. The Market factor has a bigger impact when using a value weighting pricing error metric. Whether a second factor is used or not depends upon which metric is used for mispricing and the time period examined. My study finds support for a two-factor model for the whole sample period of the Market factor and the Conservative Minus Aggressive (CMA) factor of Fama and French ([2015]. “A five-factor asset pricing model.” Journal of Financial Economics 116: 1–22) when giving greater weight to the mispricing of larger companies.
Journal: The European Journal of Finance
Pages: 1234-1249
Issue: 13
Volume: 25
Year: 2019
Month: 9
X-DOI: 10.1080/1351847X.2019.1586745
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1586745
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:13:p:1234-1249
Template-Type: ReDIF-Article 1.0
Author-Name: Adri De Ridder
Author-X-Name-First: Adri
Author-X-Name-Last: De Ridder
Author-Name: David A. Burnie
Author-X-Name-First: David A.
Author-X-Name-Last: Burnie
Title: Managerial actions and nominal stock price levels
Abstract:
We examine nominal and real stock prices and the sequential price pattern of stock dividends and stock splits. We find that the average stock price has been fairly stable over time except for two decades in the beginning and end of the twentieth century. Inclusion of these periods yield a decline over time which is generally consistent with the drop in price levels found by Chittenden et al. [2010. “A Note on Affordability and the Optimal Share Price.” Financial Review 45: 205–216]. In a multivariate setting, the frequency of stock dividends and stock splits is positively related to the frequency for these events the prior year and recent market return. In further tests of the price change we find a positive relationship to the median price change for stock dividends/splits and negatively to labour income growth for stock splits. These findings indicate that stock price reduction via stock dividends and splits attracts individual investors as income grows. One key conclusion is that the primary reason for any stock action, dividend or split, is to fit the ‘norm’ stock price level of the market.
Journal: The European Journal of Finance
Pages: 1435-1456
Issue: 14
Volume: 22
Year: 2016
Month: 11
X-DOI: 10.1080/1351847X.2015.1019644
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1019644
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:14:p:1435-1456
Template-Type: ReDIF-Article 1.0
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: Neil Kellard
Author-X-Name-First: Neil
Author-X-Name-Last: Kellard
Author-Name: Jian Wang
Author-X-Name-First: Jian
Author-X-Name-Last: Wang
Title: Commodity futures returns: more memory than you might think!
Abstract:
This paper investigates long-range dependence in 14 commodity and 3 other financial futures returns series from 1993 to 2009 and shows that long memory is a pervasive phenomenon in contrast to the extant evidence. Utilizing a semi-parametric wavelet-based estimator with time windows, the results provide overwhelming evidence of time-varying long-range dependence in all futures returns series. Structural break tests indicate multiple regimes of dependence, in the majority of which the persistence parameter is statistically significant. The results also provide evidence of predominantly negative parameter values which are known as anti-persistence. The latter is consistent with investor overreaction to shocks and suggests temporary departures from market efficiency.
Journal: The European Journal of Finance
Pages: 1457-1483
Issue: 14
Volume: 22
Year: 2016
Month: 11
X-DOI: 10.1080/1351847X.2015.1025989
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1025989
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:14:p:1457-1483
Template-Type: ReDIF-Article 1.0
Author-Name: Januj Juneja
Author-X-Name-First: Januj
Author-X-Name-Last: Juneja
Author-Name: Kuntara Pukthuanthong
Author-X-Name-First: Kuntara
Author-X-Name-Last: Pukthuanthong
Title: Model-free jump measures and interest rates: common patterns in US and UK monetary policy around major economic events
Abstract:
We employ model-free jump measures to study monetary policy operations in the UK and USA around major economic events by exploiting the relationship between jumps, interest rates, and macroeconomic news releases related to monetary policy. In our analysis, we explicitly account for the timing of jumps in UK and US interest rates and the correlation across jumps in the same two interest rates and whether these match Federal Open Market Committee (FOMC)/Monetary Policy Committee news releases. We find that FOMC news releases lag jumps in US interest rates, but lead jumps in UK Gilt rates. Overall, our analysis suggests that US Treasury Bills react to information in the aforementioned news releases before their announcement while UK Gilt yields react after them and that the Fed and Bank of England react similarly around major economic events.
Journal: The European Journal of Finance
Pages: 1388-1413
Issue: 14
Volume: 22
Year: 2016
Month: 11
X-DOI: 10.1080/1351847X.2015.1092164
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1092164
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:14:p:1388-1413
Template-Type: ReDIF-Article 1.0
Author-Name: David A. Bowen
Author-X-Name-First: David A.
Author-X-Name-Last: Bowen
Author-Name: Mark C. Hutchinson
Author-X-Name-First: Mark C.
Author-X-Name-Last: Hutchinson
Title: Pairs trading in the UK equity market: risk and return
Abstract:
In this paper, we provide the first comprehensive UK evidence on the profitability of the pairs trading strategy. Evidence suggests that the strategy performs well in crisis periods, so we control for both risk and liquidity to assess performance. To evaluate the effect of market frictions on the strategy, we use several estimates of transaction costs. We also present evidence on the performance of the strategy in different economic and market states. Our results show that pairs trading portfolios typically have little exposure to known equity risk factors such as market, size, value, momentum and reversal. However, a model controlling for risk and liquidity explains a far larger proportion of returns. Incorporating different assumptions about bid-ask spreads leads to reductions in performance estimates. When we allow for time-varying risk exposures, conditioned on the contemporaneous equity market return, risk-adjusted returns are generally not significantly different from zero.
Journal: The European Journal of Finance
Pages: 1363-1387
Issue: 14
Volume: 22
Year: 2016
Month: 11
X-DOI: 10.1080/1351847X.2014.953698
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.953698
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:14:p:1363-1387
Template-Type: ReDIF-Article 1.0
Author-Name: Qian Guo
Author-X-Name-First: Qian
Author-X-Name-Last: Guo
Author-Name: Huw Rhys
Author-X-Name-First: Huw
Author-X-Name-Last: Rhys
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Title: The Friedman rule and inflation targeting
Abstract:
We use concepts from the financial economics discipline – and in particular the methods of continuous time finance – to develop a monetarist model under which the rate of inflation evolves in terms of a first-order mean reversion process based on a ‘white noise’ error structure. The Fokker–Planck (i.e. the Chapman–Kolmogorov) equation is then invoked to retrieve the steady-state (i.e. unconditional) probability distribution for the rate of inflation. Monthly data for the UK Consumer Price Index (CPI) covering the period from 1988 until 2012 are then used to estimate the parameters of the probability distribution for the UK inflation rate. The parameter estimates are compatible with the hypothesis that the UK inflation rate evolves in terms of a slightly skewed and highly leptokurtic probability distribution that encompasses non-convergent higher moments. We then determine the Hamilton–Jacobi–Bellman fundamental equation of optimality corresponding to a monetary policy loss function defined in terms of the squared difference between the targeted rate of inflation and the actual inflation rate. Optimising and then solving the Hamilton–Jacobi–Bellman equation shows that the optimal control for the rate of increase in the money supply will be a linear function of the difference between the current rate of inflation and the targeted inflation rate. The conditions under which the optimal control will lead to the Friedman rule are then determined. These conditions are used in conjunction with the Fokker–Planck equation and the mean reversion process describing the evolution of the inflation rate to determine the probability distribution for the inflation rate under the Friedman rule. This shows that whilst the empirically determined probability distribution for the UK inflation rate meets some of the conditions required for the application of the Friedman rule, it does not meet them all.
Journal: The European Journal of Finance
Pages: 1414-1434
Issue: 14
Volume: 22
Year: 2016
Month: 11
X-DOI: 10.1080/1351847X.2014.953700
File-URL: http://hdl.handle.net/10.1080/1351847X.2014.953700
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:22:y:2016:i:14:p:1414-1434
Template-Type: ReDIF-Article 1.0
Author-Name: Jonathan Fletcher
Author-X-Name-First: Jonathan
Author-X-Name-Last: Fletcher
Title: Exploring the benefits of using stock characteristics in optimal portfolio strategies
Abstract:
I examine the benefits of using stock characteristics to model optimal portfolio weights in stock selection strategies using the characteristic portfolio approach of Brandt, Santa-Clara, and Valkanov. [2009. “Parametric Portfolio Policies: Exploiting Characteristics in the Cross-section of Equity Returns.” Review of Financial Studies 22: 3411–3447]. I find that there are significant out-of-sample performance benefits in using characteristics in stock selection strategies even after adjusting for trading costs, when investors can invest in the largest 350 UK stocks. Imposing short selling restrictions on the characteristic portfolio strategy leads to more consistent performance. The performance benefits are concentrated in the earlier part of the sample period and have disappeared in recent years. I find that there no performance benefits in using stock characteristics when using random subsets of the largest 350 stocks.
Journal: The European Journal of Finance
Pages: 192-210
Issue: 3
Volume: 23
Year: 2017
Month: 2
X-DOI: 10.1080/1351847X.2015.1062036
File-URL: http://hdl.handle.net/10.1080/1351847X.2015.1062036
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:3:p:192-210
Template-Type: ReDIF-Article 1.0
Author-Name: Marina Balboa
Author-X-Name-First: Marina
Author-X-Name-Last: Balboa
Author-Name: José Martí
Author-X-Name-First: José
Author-X-Name-Last: Martí
Author-Name: Álvaro Tresierra-Tanaka
Author-X-Name-First: Álvaro
Author-X-Name-Last: Tresierra-Tanaka
Title: Are firms accessing venture funding more financially constrained? New evidence from capital structure adjustments
Abstract:
We analyze whether firms that receive venture capital (VC) at a later date face more financial constraints than a one-by-one matched sample of firms that did not receive VC funding (control group). The aim is to check whether their financial flexibility explains why they decide to seek external equity funding. In contrast with other papers, which focus on the sensitivity of investments to cash flow, we study this issue by applying a dynamic model to analyze the speed of adjustment to their target debt levels prior to receiving the first VC investment. We analyze a representative sample of 237 Spanish unlisted firms that received VC between 1995 and 2007 and its corresponding control group. We find that firms that receive VC funding show a significantly lower speed of adjustment than their matched peers before the initial VC round. It seems that the former are more concerned about funding the required investments than about adjusting the firm's debt ratio to a target level. Our results confirm the role of VC in filling the equity gap in constrained unlisted firms. From a capital structure perspective, VC may become a tool for these companies to balance their capital structure in a growth process.
Journal: The European Journal of Finance
Pages: 243-265
Issue: 3
Volume: 23
Year: 2017
Month: 2
X-DOI: 10.1080/1351847X.2016.1151803
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1151803
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:3:p:243-265
Template-Type: ReDIF-Article 1.0
Author-Name: M. Belén Lozano
Author-X-Name-First: M. Belén
Author-X-Name-Last: Lozano
Author-Name: Rodrigo F. Durán
Author-X-Name-First: Rodrigo F.
Author-X-Name-Last: Durán
Title: Family control and adjustment to the optimal level of cash holding
Abstract:
Given the predominance of family control in most European corporations, understanding how this type of ownership affects firms’ cash holding policy is important. The literature has yet to address this subject satisfactorily; therefore, we outline a way to model how family firms define their cash policy, specifically, the way in which they adjust their cash holding to an optimal level. We base our analysis on trade-off theory and the precautionary motive for holding cash. Our empirical results show that family firms adjust their cash holding level more aggressively than non-family firms, and, therefore, family firms are capable of achieving optimal cash holding faster and more efficiently than non-family firms. Further, we find that family firms have a heterogeneous cash policy; in particular, young family firms, financially constrained family firms, and family firms that operate in countries with strong investor protection adjust their cash holding more aggressively.
Journal: The European Journal of Finance
Pages: 266-295
Issue: 3
Volume: 23
Year: 2017
Month: 2
X-DOI: 10.1080/1351847X.2016.1168748
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1168748
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:3:p:266-295
Template-Type: ReDIF-Article 1.0
Author-Name: Tianna Yang
Author-X-Name-First: Tianna
Author-X-Name-Last: Yang
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Title: Venture capital trusts and the expiration of IPO lock-up provisions
Abstract:
Venture capital trusts (VCTs) were introduced to provide private equity capital for small expanding companies and to promote innovation. Investors in initial public offerings are rewarded with tax relief on the cost of lock-up provisions to stabilize the market. This paper examines the market reaction and trading activity around the expiration of lock-up provisions of 148 VCTs listed on the London Stock Exchange from 1995 to 2006. Downward-sloping demand curve theory suggests that an increased supply of VCT shares at the expiry date could shift their value to a new equilibrium at a lower price. Supporting this prediction, we document evidence of negative abnormal returns as well as permanent increases in the price discount relative to net asset value and trading volumes at and around the expiries of the required holding periods of VCTs. In addition, less negative abnormal returns, lower abnormal discounts and lower abnormal trading volumes are associated with VCTs that invest in AIM-listed companies due to lower information asymmetry, that experience lower prior performance due to a less pronounced disposition effect, and that are subject to a shorter lock-up horizon or are offering more generous tax benefits.
Journal: The European Journal of Finance
Pages: 211-242
Issue: 3
Volume: 23
Year: 2017
Month: 2
X-DOI: 10.1080/1351847X.2016.1169199
File-URL: http://hdl.handle.net/10.1080/1351847X.2016.1169199
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:23:y:2017:i:3:p:211-242
Template-Type: ReDIF-Article 1.0
Author-Name: Manzur Quader
Author-X-Name-First: Manzur
Author-X-Name-Last: Quader
Author-Name: Karl Taylor
Author-X-Name-First: Karl
Author-X-Name-Last: Taylor
Title: Corporate efficiency, credit status and investment
Abstract:
This paper considers the relationship between financial frictions and investment. In an effort to clarify the role of cash flow in examining the impact of capital market imperfections, endogenous switching regression models are estimated for a panel of 1122 UK firms listed on the London Stock Exchange over the period of 1981–2009. Not only is the financial regime which the firm faces endogenous, we also allow the regime to change over time via modeling efficiency using stochastic frontier analysis. The results reveal that a firm's constrained credit status changes with the improvement of its efficiency. Furthermore, the analysis reveals that financially constrained firm's investment is comparatively more sensitive to its cash flow. Moreover, this sensitivity is statistically significant and is negatively related with corporate efficiency.
Journal: The European Journal of Finance
Pages: 439-457
Issue: 6
Volume: 24
Year: 2018
Month: 4
X-DOI: 10.1080/1351847X.2017.1312475
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1312475
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:6:p:439-457
Template-Type: ReDIF-Article 1.0
Author-Name: Steven J. Jordan
Author-X-Name-First: Steven J.
Author-X-Name-Last: Jordan
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Author-Name: Mark E. Wohar
Author-X-Name-First: Mark E.
Author-X-Name-Last: Wohar
Title: Stock returns forecasting with metals: sentiment vs. fundamentals
Abstract:
Using six prominent metal commodities, we provide evidence on the out-of-sample forecasting of stock returns for the market indices of the G7 countries, for which there is little prior evidence in this context. We find precious metals (gold and silver) can improve forecast accuracy relative to the benchmark and performs well compared to forecast combinations. From an economic gains perspective, forecasting returns provides certainty equivalent gains in a market timing strategy for the G7 countries. These certainty equivalent gains are large enough to make active portfolio management attractive, even for individual investors. Gains remain after considering reasonable transaction costs.
Journal: The European Journal of Finance
Pages: 458-477
Issue: 6
Volume: 24
Year: 2018
Month: 4
X-DOI: 10.1080/1351847X.2017.1323770
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1323770
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:6:p:458-477
Template-Type: ReDIF-Article 1.0
Author-Name: Magnus Blomkvist
Author-X-Name-First: Magnus
Author-X-Name-Last: Blomkvist
Author-Name: Teemu Friman
Author-X-Name-First: Teemu
Author-X-Name-Last: Friman
Author-Name: Timo Korkeamäki
Author-X-Name-First: Timo
Author-X-Name-Last: Korkeamäki
Title: Bond market access and acquisitions: empirical evidence from the European market
Abstract:
We investigate whether access to bond markets affects acquisition activity of the European firms between 1999 and 2014. Our study provides insight into the effect that the growing European bond market has on corporate investment activity. We find that access to the bond markets, measured by the existence of a credit rating, has a significant effect on the tendency of firms to make acquisitions. The effect is strongest in Continental Europe and during times of high acquisition activity. We further find that consistent with prior U.S. evidence, bond market access has an inverse effect on abnormal returns generated by the acquisitions. That finding suggests that firms with superior access to financing pursue targets of lesser quality.
Journal: The European Journal of Finance
Pages: 478-498
Issue: 6
Volume: 24
Year: 2018
Month: 4
X-DOI: 10.1080/1351847X.2017.1323771
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1323771
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:6:p:478-498
Template-Type: ReDIF-Article 1.0
Author-Name: Dooruj Rambaccussing
Author-X-Name-First: Dooruj
Author-X-Name-Last: Rambaccussing
Author-Name: David Power
Author-X-Name-First: David
Author-X-Name-Last: Power
Title: Fluctuations in the UK equity market: what drives stock returns?
Abstract:
Present value parameters from a state-space model are estimated for the UK FT All-Share Index. The estimated parameters are used to construct a time series of expected future returns and expected future values of dividend growth, both of which are found to be time-varying with persistent components. Variations in the price-dividend ratio appear to be driven primarily by the variance in expected returns. A comparison with the findings from a present value-constrained vector autoregression model indicates that the latter forecasts future realized returns and dividend growth better than the series constructed using a state-space approach. Furthermore, when the model is estimated for monthly and quarterly data, expected dividend growth is found to be more persistent.
Journal: The European Journal of Finance
Pages: 499-516
Issue: 6
Volume: 24
Year: 2018
Month: 4
X-DOI: 10.1080/1351847X.2017.1335649
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1335649
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:6:p:499-516
Template-Type: ReDIF-Article 1.0
Author-Name: Mariya Gubareva
Author-X-Name-First: Mariya
Author-X-Name-Last: Gubareva
Author-Name: Maria Rosa Borges
Author-X-Name-First: Maria Rosa
Author-X-Name-Last: Borges
Title: Binary interest rate sensitivities of emerging market corporate bonds
Abstract:
We develop a framework to assess interest rate sensitivities of emerging market corporate debt. Our analysis, based on yield indexes, is applied to investment grade and high yield portfolios. We reach beyond correlation-based analyses of interest rate sensitivity and keep our scope centered at capital gains of emerging market corporates and U.S. government bonds portfolios. Our empirical analysis spans over the period 2002–2015. We address interest rate sensitivity of assets during the ignition, apogee, and the aftermath of the global financial crisis. Based on historical data series, we evidence that the emerging market corporate bonds exhibit two different regimes of sensitivity to interest rate changes. We observe switching from a positive sensitivity under the normal market conditions to a negative one during distressed phases of business cycles and provide economical explanations of such phenomena. We show that emerging market corporate bonds, which on average could appear rather insensitive to the interest rate risk, in fact, present binary interest rate sensitivities. This research sheds light on how financial institutions may approach interest rate risk management including the downside risk hedge. Our findings allow banks and financial institutions to optimize economic capital under Basel III regulatory capital rules.
Journal: The European Journal of Finance
Pages: 1569-1586
Issue: 17
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2017.1400452
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1400452
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:17:p:1569-1586
Template-Type: ReDIF-Article 1.0
Author-Name: Dalu Zhang
Author-X-Name-First: Dalu
Author-X-Name-Last: Zhang
Author-Name: Meilan Yan
Author-X-Name-First: Meilan
Author-X-Name-Last: Yan
Author-Name: Andreas Tsopanakis
Author-X-Name-First: Andreas
Author-X-Name-Last: Tsopanakis
Title: Financial stress relationships among Euro area countries: an R-vine copula approach
Abstract:
One of the biggest challenges of keeping Euro area financial stability is the negative co-movement between the vulnerability of public finance, the financial sector, security markets stresses as well as economic growth, especially in peripheral economies. This paper utilizes a ARMA-GARCH based R-vine copula method to explore tail dependance between the Financial Stress Indices of 11 euro area countries with an aim of understanding how financial stress are interacting with each other. We find larger economies in the Euro area tend to have closer upper tail dependence in terms of positive shocks, while smaller economies tend to have closer lower tail dependence with respect to negative shocks. The R-vine copula results underline the complex dynamics of financial stress relations existing between Euro Area economies. The estimated R-vine shows Spain, Italy, France and Belgium are the most inter-connected nodes which underlying they might be more efficient targets to treat in order to achieve a quicker stabilizing. Our results relate to the fact that Eurozone is not a unified policy making area, therefore, it needs to follow divergent policies for taming the effects of financial instability to different regions or groups of economies that are more interconnected.
Journal: The European Journal of Finance
Pages: 1587-1608
Issue: 17
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2017.1419273
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1419273
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:17:p:1587-1608
Template-Type: ReDIF-Article 1.0
Author-Name: Jörn Obermann
Author-X-Name-First: Jörn
Author-X-Name-Last: Obermann
Title: Can management-sponsored non-binding remuneration votes shape the executive compensation structure? Evidence from Say-on-Pay votes in Germany
Abstract:
In this paper, a hand-selected sample of 1676 annual general meetings with 268 management-sponsored Say-on-Pay votes in 164 different companies between 2010 and 2015 in the German two-tier system was analysed. The analysis focused on the structure, rather than the level, of executive compensation by applying a sample-selection model and panel data regression. Consistent with our hypotheses, shareholders favour long-term stock and stock option plans but oppose short-term cash-bonus payments. However, the positive effect of equity compensation decreases as the share of the total remuneration increases, suggesting that the alignment effect is limited. The negative effect of bonus payments on the voting results is stronger in cases in which the voting approval of the supervisory board is low. Thus, investors who are discontent with the bonus payments eventually punish the supervisory board in charge of negotiating the contract. The supervisory board reacts to such cases by reducing the bonuses and increasing the equity payments in the following year, but the total compensation or fixed annual salary is unaffected. Hence, Say-on-Pay in Germany affects the structure but not the level of compensation. The results show that shareholders assess the entire compensation structure and prefer a particular compensation mix. However, non-binding Say-on-Pay votes help to establish compensation schemes that are favoured by shareholders.
Journal: The European Journal of Finance
Pages: 1609-1630
Issue: 17
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2017.1419982
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1419982
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:17:p:1609-1630
Template-Type: ReDIF-Article 1.0
Author-Name: Jessica Y. Wang
Author-X-Name-First: Jessica Y.
Author-X-Name-Last: Wang
Author-Name: Raphael N. Markellos
Author-X-Name-First: Raphael N.
Author-X-Name-Last: Markellos
Title: Is there an Olympic gold medal rush in the stock market?
Abstract:
Investor sentiment and attention are often linked to the same non-economic events making it difficult to understand why and how asset prices are affected. We disentangle these two potential drivers of investment behaviour by analysing a new data-set of medals for the major participating countries and sponsor firms over four Summer Olympic Games. Our results show that trading volume and volatility are substantially reduced following Olympic success although returns appear to be largely unaffected. Analysis of data from online search volumes and surveys measuring investor sentiment also suggests that the market impact of the Olympics is linked to changes in attention.
Journal: The European Journal of Finance
Pages: 1631-1648
Issue: 17
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2017.1421245
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1421245
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:17:p:1631-1648
Template-Type: ReDIF-Article 1.0
Author-Name: Spiros Bougheas
Author-X-Name-First: Spiros
Author-X-Name-Last: Bougheas
Author-Name: Hosung Lim
Author-X-Name-First: Hosung
Author-X-Name-Last: Lim
Author-Name: Simona Mateut
Author-X-Name-First: Simona
Author-X-Name-Last: Mateut
Author-Name: Paul Mizen
Author-X-Name-First: Paul
Author-X-Name-Last: Mizen
Author-Name: Cihan Yalcin
Author-X-Name-First: Cihan
Author-X-Name-Last: Yalcin
Title: Foreign currency borrowing, exports and firm performance: evidence from a currency crisis
Abstract:
This paper develops a simple signaling model of foreign currency borrowing that yields predictions about firm survival and performance during a currency crisis. Using a large panel of firm level data for South Korea we offer empirical support for many of the predictions of our model, while others support predictions that cannot be tested using our data. Our paper demonstrates that although firms that borrow in foreign currency are more likely to exit after the currency collapses, those that continue to produce perform better. Among them, the best performers are exporters whose foreign sales are more competitively priced under a devalued currency.
Journal: The European Journal of Finance
Pages: 1649-1671
Issue: 17
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2017.1421246
File-URL: http://hdl.handle.net/10.1080/1351847X.2017.1421246
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:17:p:1649-1671
Template-Type: ReDIF-Article 1.0
Author-Name: Jiawen Luo
Author-X-Name-First: Jiawen
Author-X-Name-Last: Luo
Author-Name: Langnan Chen
Author-X-Name-First: Langnan
Author-X-Name-Last: Chen
Title: Volatility dependences of stock markets with structural breaks
Abstract:
We develop a Vector Heterogeneous Autoregression model with Continuous Volatility and Jumps (VHARCJ) where residuals follow a flexible dynamic heterogeneous covariance structure. We employ the Bayesian data augmentation approach to match the realised volatility series based on high-frequency data from six stock markets. The structural breaks in the covariance are captured by an exogenous stochastic component that follows a three-state Markov regime-switching process. We find that the stock markets have higher volatility dependence during turmoil periods and that breakdowns in volatility dependence can be attributed to the increase in market volatilities. We also find positive correlations between the Asian stock markets, the European stock market, and the UK stock market. The US stock market has positive correlations with all other markets for most of the sample periods, indicating the leading position of US stock market in the global stock markets. In addition, the proposed three-state VHARCJ model with Dynamic Conditional Correlation (DCC) and break structure under student-t distribution has a superior density forecast performance as compared to the competing models. The forecast models with structural breaks outperform those without structural breaks based on the log predicted likelihood, the log Bayesian factor, and the root mean square loss function.
Journal: The European Journal of Finance
Pages: 1727-1753
Issue: 17
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2018.1476394
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1476394
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:17:p:1727-1753
Template-Type: ReDIF-Article 1.0
Author-Name: Małgorzata Olszak
Author-X-Name-First: Małgorzata
Author-X-Name-Last: Olszak
Author-Name: Patrycja Chodnicka-Jaworska
Author-X-Name-First: Patrycja
Author-X-Name-Last: Chodnicka-Jaworska
Author-Name: Iwona Kowalska
Author-X-Name-First: Iwona
Author-X-Name-Last: Kowalska
Author-Name: Filip Świtała
Author-X-Name-First: Filip
Author-X-Name-Last: Świtała
Title: Bank-type specific determinants of sensitivity of loan-loss provisions to business cycle
Abstract:
In this paper, we explore several new factors which may affect the procyclicality of loan-loss provisions in all commercial and cooperative banks operating in Poland between 2000 and 2012. More specifically, we test whether there are visible differences between commercial and cooperative banks in the sensitivity of those provisions to the business cycle. Our results show that whereas loan-loss provisions are procyclical in both cases, the procyclicality is particularly prominent and stronger in the case of commercial banks, than of the cooperative banks. Additionally, in contrast to existing findings, we establish that the negative impact of the business cycle on loan-loss provisions is greater in the case of small banks than of medium or large ones, this feature being common for both commercial and cooperative banks. We have identified two factors which affect procyclicality of loan-loss provisions in different ways for commercial and cooperative banks. The first factor is the empirical importance of capital adequacy ratio size. In commercial banks, the capital ratio size exerts a statistically significant impact on the procyclicality regardless of capitalization. The other factor is discretionary income-smoothing, as we find that the statistically significant increase of procyclicality due to the high discretionary income-smoothing is present only in cooperative banks.
Journal: The European Journal of Finance
Pages: 1672-1698
Issue: 17
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2018.1501401
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1501401
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:17:p:1672-1698
Template-Type: ReDIF-Article 1.0
Author-Name: Lidija Lovreta
Author-X-Name-First: Lidija
Author-X-Name-Last: Lovreta
Author-Name: Zorica Mladenović
Author-X-Name-First: Zorica
Author-X-Name-Last: Mladenović
Title: Do the stock and CDS markets price credit risk equally in the long-run?
Abstract:
In this paper, we examine the existence and stability of the long-run equilibrium relation between the price of credit risk in the stock and CDS markets for a sample of non-financial iTraxx Europe companies during the 2004–2017 period. We show that standard cointegration tests with no breaks frequently fail to detect cointegration. Once we formally account for the breaks in the cointegrating vector, we are able to detect cointegration over the entire sample period for the vast majority of the companies considered. An application of these results to CDS-equity trading shows that the profitability of traditional trading strategies crucially depends on the presence of cointegration and on the stability of the cointegrating vector. Finally, we find that CDS illiquidity factors decrease the likelihood of the stock and CDS market cointegration.
Journal: The European Journal of Finance
Pages: 1699-1726
Issue: 17
Volume: 24
Year: 2018
Month: 11
X-DOI: 10.1080/1351847X.2018.1501402
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1501402
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:24:y:2018:i:17:p:1699-1726
Template-Type: ReDIF-Article 1.0
Author-Name: Majid Haghani Rizi
Author-X-Name-First: Majid
Author-X-Name-Last: Haghani Rizi
Author-Name: N. Kundan Kishor
Author-X-Name-First: N. Kundan
Author-X-Name-Last: Kishor
Author-Name: Hardik A. Marfatia
Author-X-Name-First: Hardik A.
Author-X-Name-Last: Marfatia
Title: The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market
Abstract:
In this paper, we present the short-run and the long-run relationships among the financial assets of the money market funds, the commercial paper market, and the repurchase agreement market by undertaking a cointegration analysis of quarterly data over the 1985–2017 period. This was based on the empirical observation that the commercial paper and repo markets account for 50 percent of the assets of money market funds. The evidence suggests that there exists a common long-term cointegrating trend among these three components of the shadow banking system. Any disequilibrium in this long-run relationship among these variables is corrected by movement in the financial assets of money market funds. The Beveridge-Nelson decomposition from the estimated cointegrating relationship shows that the cyclical component of money market funds is large and captures huge swings in these markets during the financial crisis. We also find evidence of change in these dynamic relationships in the post-crisis period, where in addition to the money market funds, the commercial paper market also exhibits a tendency to correct for the disequilbrium.
Journal: The European Journal of Finance
Pages: 395-414
Issue: 5
Volume: 25
Year: 2019
Month: 3
X-DOI: 10.1080/1351847X.2018.1522359
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1522359
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:5:p:395-414
Template-Type: ReDIF-Article 1.0
Author-Name: Anna Agapova
Author-X-Name-First: Anna
Author-X-Name-Last: Agapova
Author-Name: Robert Ferguson
Author-X-Name-First: Robert
Author-X-Name-Last: Ferguson
Author-Name: Dean Leistikow
Author-X-Name-First: Dean
Author-X-Name-Last: Leistikow
Title: Stochastic portfolio theory and the low beta anomaly
Abstract:
Many studies have found that portfolios of low beta stocks have higher growth rates than portfolios of high beta stocks and have concluded that low beta stocks have higher growth rates than high beta stocks. Since rational investor behavior is thought to imply that additional risk is rewarded with additional return, the alleged higher growth rates of low beta versus high beta stocks has been termed a ‘Low Beta Anomaly’ (LBA). However, it is premature to conclude that these observed LBAs are due to stocks’ differential growth rates, because the tested portfolios are traded. Stochastic Portfolio Theory (SPT) shows that traded portfolios’ growth rates can exceed the growth rates of their stocks. This paper presents several SPT models of an LBA that do not require investment constraints, irrational investor behavior, or that low beta stocks have higher growth rates than high beta stocks. These LBAs are due to reconstitution relative volatility capture that favors portfolios of low vs. high beta stocks. They result from trading profit, not differential growth rates between low and high beta stocks. Monte Carlo simulations demonstrate a reconstitution relative volatility capture LBA that is consistent with the models and the literature.
Journal: The European Journal of Finance
Pages: 415-434
Issue: 5
Volume: 25
Year: 2019
Month: 3
X-DOI: 10.1080/1351847X.2018.1531901
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1531901
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:5:p:415-434
Template-Type: ReDIF-Article 1.0
Author-Name: Seyoung Park
Author-X-Name-First: Seyoung
Author-X-Name-Last: Park
Author-Name: Hyunson Song
Author-X-Name-First: Hyunson
Author-X-Name-Last: Song
Author-Name: Sungchul Lee
Author-X-Name-First: Sungchul
Author-X-Name-Last: Lee
Title: Linear programing models for portfolio optimization using a benchmark
Abstract:
We consider the problem of constructing a perturbed portfolio by utilizing a benchmark portfolio. We propose two computationally efficient portfolio optimization models, the mean-absolute deviation risk and the Dantzig-type, which can be solved using linear programing. These portfolio models push the existing benchmark toward the efficient frontier through sparse and stable asset selection. We implement these models on two benchmarks, a market index and the equally-weighted portfolio. We carry out an extensive out-of-sample analysis with 11 empirical datasets and simulated data. The proposed portfolios outperform the benchmark portfolio in various performance measures, including the mean return and Sharpe ratio.
Journal: The European Journal of Finance
Pages: 435-457
Issue: 5
Volume: 25
Year: 2019
Month: 3
X-DOI: 10.1080/1351847X.2018.1536070
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1536070
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:25:y:2019:i:5:p:435-457
Template-Type: ReDIF-Article 1.0
Author-Name: Georgios A. Panos
Author-X-Name-First: Georgios A.
Author-X-Name-Last: Panos
Author-Name: John O. S. Wilson
Author-X-Name-First: John O. S.
Author-X-Name-Last: Wilson
Title: Financial literacy and responsible finance in the FinTech era: capabilities and challenges
Abstract:
A growing body of evidence suggests that financial literacy plays an important role in financial well-being, and that differences in financial knowledge acquired early in life can explain a significant part of financial and more general well-being in adult life. Financial technology (FinTech) is revolutionising the financial services industry at an unrivalled pace. Views differ regarding the likely impact that FinTech is likely to have on personal financial planning, well-being and societal welfare. In an era of mounting student debt, increased (digital) financial inclusion, and threats arising from instances of (online) financial fraud, financial education and enlightened financial advising appropriate policy interventions that enhance financial and overall well-being. This special issue engages in this important academic and policy agenda by presenting a set of seven new papers emanating from four parallel streams of literature related to financial literacy and responsible finance.
Journal: The European Journal of Finance
Pages: 297-301
Issue: 4-5
Volume: 26
Year: 2020
Month: 3
X-DOI: 10.1080/1351847X.2020.1717569
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1717569
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:297-301
Template-Type: ReDIF-Article 1.0
Author-Name: Declan French
Author-X-Name-First: Declan
Author-X-Name-Last: French
Author-Name: Donal McKillop
Author-X-Name-First: Donal
Author-X-Name-Last: McKillop
Author-Name: Elaine Stewart
Author-X-Name-First: Elaine
Author-X-Name-Last: Stewart
Title: The effectiveness of smartphone apps in improving financial capability
Abstract:
This study is the first to assess whether smartphone apps can be utilised to improve financially capable behaviours. In this study four smartphone apps, packaged together under the title ‘Money Matters’, were provided to working-age members (16–65 years) of the largest credit union in Northern Ireland (Derry Credit Union). The smartphone apps consisted of a loan interest comparison app, an expenditure comparison app, a cash calendar app, and a debt management app. The assessment methodology used was a Randomised Control Trial (RCT) with the U.K. Financial Capability Outcome Frameworks used to set the context for the assessment. For those receiving the apps (the treatment group) statistically significant improvements were found in a number of measures designed to gauge ‘financial knowledge, understanding and basic skills’ and ‘attitudes and motivations’. These improvements translated into better financially capable behaviours; those receiving the apps were more likely to keep track of their income and expenditure and proved to be more resilient when faced with a financial shock.
Journal: The European Journal of Finance
Pages: 302-318
Issue: 4-5
Volume: 26
Year: 2020
Month: 3
X-DOI: 10.1080/1351847X.2019.1639526
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1639526
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:302-318
Template-Type: ReDIF-Article 1.0
Author-Name: Mais Sha'ban
Author-X-Name-First: Mais
Author-X-Name-Last: Sha'ban
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Author-Name: Anna Sarkisyan
Author-X-Name-First: Anna
Author-X-Name-Last: Sarkisyan
Title: Cross-country variation in financial inclusion: a global perspective
Abstract:
Recent years have witnessed a global commitment to advancing financial inclusion as a key enabler for promoting equal opportunity and reducing poverty. In this paper, we use the IMF’s Financial Access Survey data and two different approaches to construct a multidimensional financial inclusion index for a global sample of 95 countries over 2004-15. Results reveal an overall progress in financial inclusion over the period under study, most markedly in the use and access dimensions. Financial inclusion appears to be positively and significantly associated with GDP per capita, employment, bank competition, human development, government integrity, and internet usage. Our evidence also points to the importance of considering the level of national income when designing policies to boost financial inclusion.
Journal: The European Journal of Finance
Pages: 319-340
Issue: 4-5
Volume: 26
Year: 2020
Month: 3
X-DOI: 10.1080/1351847X.2019.1686709
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1686709
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:319-340
Template-Type: ReDIF-Article 1.0
Author-Name: J. Michael Collins
Author-X-Name-First: J.
Author-X-Name-Last: Michael Collins
Author-Name: Carly Urban
Author-X-Name-First: Carly
Author-X-Name-Last: Urban
Title: Measuring financial well-being over the lifecourse
Abstract:
Financial well-being is a relatively new construct that attempts to measure subjective financial status and perceived future financial trajectory. Using a large public cross-sectional dataset, we find that a standardized financial well-being score generally tracks income, wealth, and participation in investment markets, as well as markers of positive and negative financial behavior. However, financial well-being measures attributes that are distinct from general subjective well-being and financial literacy measures, especially over the life course. Financial well-being can be a useful construct to include in new surveys but can also be proxied in existing public datasets, as we demonstrate using separate survey data.
Journal: The European Journal of Finance
Pages: 341-359
Issue: 4-5
Volume: 26
Year: 2020
Month: 3
X-DOI: 10.1080/1351847X.2019.1682631
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1682631
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:341-359
Template-Type: ReDIF-Article 1.0
Author-Name: Nikolaos D. Philippas
Author-X-Name-First: Nikolaos D.
Author-X-Name-Last: Philippas
Author-Name: Christos Avdoulas
Author-X-Name-First: Christos
Author-X-Name-Last: Avdoulas
Title: Financial literacy and financial well-being among generation-Z university students: Evidence from Greece
Abstract:
Financial knowledge has become an essential skill because of the instability of global markets, asymmetric information in those markets, increasing complexity of financial products, and the rapidly increasing growth in financial technology (Fintech). This study aims to be the first among its kind to evaluate the relation between financial literacy, financial fragility, and financial well-being in parallel with identifying their determinants. For this purpose, we design and distribute a questionnaire to a random sample of 456 university students in Greece. The university students represent Generation Z that experienced the effects of a unique in duration and consequences financial crisis. We analyze the data by using cross-tabulations, chi-square tests, logistic regressions, and a marginal effect analysis. The results show that male students, students who keep expense records, or their father is highly educated are more financially literate. We also examine the dimensions of financial fragility, and the results show that financially literate students are better able to cope with an unexpected financial shock. Thus, financial literacy can be a key driver of financial well-being among Greek university students. Furthermore, we discuss the likely policy prescriptions while accounting for related behavioral aspects and technological developments.
Journal: The European Journal of Finance
Pages: 360-381
Issue: 4-5
Volume: 26
Year: 2020
Month: 3
X-DOI: 10.1080/1351847X.2019.1701512
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1701512
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:360-381
Template-Type: ReDIF-Article 1.0
Author-Name: Nikolaos Artavanis
Author-X-Name-First: Nikolaos
Author-X-Name-Last: Artavanis
Author-Name: Soumya Karra
Author-X-Name-First: Soumya
Author-X-Name-Last: Karra
Title: Financial literacy and student debt
Abstract:
Using a large sample of over 1000 students from a major, land-grant, public university in Massachusetts, we examine the financial literacy level of college students, and its implications on the repayment of student debt. We find low levels of financial literacy (39.5%), particularly among female (26%), minority (24%) and first-generation (33%) students. Based on survey responses, we show that students with a deficit in financial literacy are more likely to underestimate future student loan payments; 38.2% of low-literacy students underestimate future payments by more than $1000 annually, while high financial literacy reduces the probability of significant payment underestimation by 17–18 percentage points. Furthermore, we find evidence of a financial literacy wage gap as students with low financial literacy expect significantly lower starting salaries than their high-literacy peers. As a result, low-literacy students are more vulnerable to unexpected, adverse shocks on their payment-to-income ratios that can impair their future creditworthiness and undermine their ability to service debt post-graduation.
Journal: The European Journal of Finance
Pages: 382-401
Issue: 4-5
Volume: 26
Year: 2020
Month: 3
X-DOI: 10.1080/1351847X.2019.1711435
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1711435
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:382-401
Template-Type: ReDIF-Article 1.0
Author-Name: Milena Migliavacca
Author-X-Name-First: Milena
Author-X-Name-Last: Migliavacca
Title: Keep your customer knowledgeable: financial advisors as educators
Abstract:
Educational programmes aimed at increasing financial literacy are typically scarcely effective or have relatively quick ‘decay’ periods. In this paper, I provide evidence that financial advisors are an effective way to increase investors’ financial awareness. I check this relationship using three measures of financial literacy: basic, advanced and overall; and also test different typologies of advisors. Results indicate that financial advisors have a significant educational role; in particular, the presence of independent financial advisors tends to increase the ‘advanced’ financial literacy of their clients. The study has potentially important policy implications, as it provides robust evidence that investors’ financial literacy can be increased in a gradual and stable way that does not directly affect public funds.
Journal: The European Journal of Finance
Pages: 402-419
Issue: 4-5
Volume: 26
Year: 2020
Month: 3
X-DOI: 10.1080/1351847X.2019.1700148
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1700148
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:402-419
Template-Type: ReDIF-Article 1.0
Author-Name: Christian Engels
Author-X-Name-First: Christian
Author-X-Name-Last: Engels
Author-Name: Kamlesh Kumar
Author-X-Name-First: Kamlesh
Author-X-Name-Last: Kumar
Author-Name: Dennis Philip
Author-X-Name-First: Dennis
Author-X-Name-Last: Philip
Title: Financial literacy and fraud detection
Abstract:
Who is better at detecting fraud? This paper finds that more financially knowledgeable individuals have a higher propensity to detect fraud: a one standard deviation increase in financial knowledge increases fraud detection probabilities by 3 percentage points. The result is not driven by individuals' higher financial product usage and is observed to be moderated by individuals' low subjective well-being, effectively depleting skills to detect fraud. Interestingly, prudent financial behavior relating to basic money management is found to have negligible effects for detecting fraud. The findings attest to the fact that fraud tactics are increasingly complex and it is greater financial knowledge rather than basic money management skills that provide the degree of sophistication necessary to detect fraud. The paper draws policy implications for consumer education programs to go beyond cultivating money management skills, and provide advanced financial knowledge necessary for tackling fraud.
Journal: The European Journal of Finance
Pages: 420-442
Issue: 4-5
Volume: 26
Year: 2020
Month: 3
X-DOI: 10.1080/1351847X.2019.1646666
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1646666
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:420-442
Template-Type: ReDIF-Article 1.0
Author-Name: Diogo Duarte
Author-X-Name-First: Diogo
Author-X-Name-Last: Duarte
Author-Name: Hamilton Galindo Gil
Author-X-Name-First: Hamilton
Author-X-Name-Last: Galindo Gil
Author-Name: Alexis Montecinos
Author-X-Name-First: Alexis
Author-X-Name-Last: Montecinos
Title: The effects of risk aversion and money illusion on the components of dividend growth rate
Abstract:
We evaluate the impact of risk aversion and money illusion in the equity and options markets when the expected dividend growth rate is endogenously determined as a function of the dividend-price ratio and expected inflation. The closed-form equilibrium expressions for the dividend-price ratio, expected inflation, and dividend growth rate allow us to perform comparative statics to understand their sensitivity relative to the agent's preference parameters. Our calibration exercise indicates that the sensitivity of the dividend-price ratio relative to risk aversion depends critically on the sign of the exposure of the expected dividend growth rate to the divided yield, while an increase in the degree of money illusion always raises the dividend-price ratio, irrespective of its exposure to the dividend yield. In addition, we show that expected inflation is much less sensitive to variations in risk aversion and money illusion than these parameters, while the price of a zero-coupon caplet is affected in the opposite direction by these parameters.
Journal: The European Journal of Finance
Pages: 443-460
Issue: 6
Volume: 26
Year: 2020
Month: 4
X-DOI: 10.1080/1351847X.2019.1687098
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1687098
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:6:p:443-460
Template-Type: ReDIF-Article 1.0
Author-Name: Yi Zhang
Author-X-Name-First: Yi
Author-X-Name-Last: Zhang
Author-Name: Guangzi Li
Author-X-Name-First: Guangzi
Author-X-Name-Last: Li
Author-Name: Yili Lian
Author-X-Name-First: Yili
Author-X-Name-Last: Lian
Title: Labor unions and loan contracts
Abstract:
This paper investigates the relation between labor unions and loan contracting. We find that firms in more unionized industries tend to have lower loan spreads, longer maturity, a lower likelihood of security requirement, fewer and less strict loan covenants, and fewer performance- based covenants. Additionally, using firm-level union election data, we do not find lower loan spreads or longer maturity in unionized firms, but we show that bank loans to unionized firms are less likely to require security, have fewer and less strict loan covenants, and fewer performance-based covenants. While the results on loan spreads are mixed, we find consistent evidence that unionization has significant effect on loan covenants with industry and firm level unionization data as well as the instrument variable analysis. Labor unions’ risk preference is similar to that of creditors. Therefore, it helps align the interests between banks and labor unions, thus reducing the cost of bank loans in terms of loan covenants.
Journal: The European Journal of Finance
Pages: 461-479
Issue: 6
Volume: 26
Year: 2020
Month: 4
X-DOI: 10.1080/1351847X.2019.1686044
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1686044
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:6:p:461-479
Template-Type: ReDIF-Article 1.0
Author-Name: Doojin Ryu
Author-X-Name-First: Doojin
Author-X-Name-Last: Ryu
Author-Name: Heejin Yang
Author-X-Name-First: Heejin
Author-X-Name-Last: Yang
Title: Noise traders, mispricing, and price adjustments in derivatives markets
Abstract:
This study examines disagreements between actual and options-implied futures prices and the corresponding adjustments in a sophisticated setting. We identify the market that triggers each type of price disagreement and find that the market in which the disagreement is initiated adjusts more to eliminate the mispricing. Futures prices adjust less for options-initiated price disagreements with out-of-the-money (OTM) options-implied prices than they do for disagreements with at-the-money (ATM) prices. Options markets adjust more when disagreements are initiated by OTM options than they do when disagreements are initiated by ATM options. Adjustments in both the futures and options markets consistently suggest that OTM options trading provides inferior information. Price disagreements are positively correlated with the participation of domestic investors, especially when they trade OTM options, implying that domestic investors are noisier and less informed than foreign investors are.Highlights
We examine disagreements between actual and options-implied futures prices and the corresponding adjustments.The market in which the disagreement is initiated adjusts more to eliminate the mispricing.Out-of-the-money options-initiated price disagreements are positively correlated with domestic investors’ trades.
Journal: The European Journal of Finance
Pages: 480-499
Issue: 6
Volume: 26
Year: 2020
Month: 4
X-DOI: 10.1080/1351847X.2019.1692887
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1692887
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:6:p:480-499
Template-Type: ReDIF-Article 1.0
Author-Name: Kyeong-Seop (KS) Choi
Author-X-Name-First: Kyeong-Seop (KS)
Author-X-Name-Last: Choi
Title: National culture and R&D investments
Abstract:
By using time-collapsed data for 12,362 firms from 40 countries, I document that national culture is significantly associated with R&D investments, controlling for other determinants including a country’s financial development. In a more individualistic, less masculine, and more indulgent culture, firms tend to make more R&D investments. These findings are robust to alternative proxy variables for financial development and remain unchanged regardless of whether tested by instrumented two-stage least squares or fixed effects panel regressions. Culture’s impact is different depending on firm size and age. Further, its limited impact on equity issues suggests that it relates to R&D directly rather than being mediated by other financial market channels.
Journal: The European Journal of Finance
Pages: 500-531
Issue: 6
Volume: 26
Year: 2020
Month: 4
X-DOI: 10.1080/1351847X.2019.1697324
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1697324
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:6:p:500-531
Template-Type: ReDIF-Article 1.0
Author-Name: Justin Chircop
Author-X-Name-First: Justin
Author-X-Name-Last: Chircop
Author-Name: Monika Tarsalewska
Author-X-Name-First: Monika
Author-X-Name-Last: Tarsalewska
Title: 10-K Filing length and M&A returns
Abstract:
This study examines the association between 10-K filing length and M&A returns. We posit that 10-K filing length influences shareholder information acquisition and processing costs. Longer 10-K filings reduce information acquisition costs by making more information about the target available to the shareholder, but may increase information processing costs by increasing the difficulty of extracting that information. Which effect dominates ultimately determines the association between 10-K filing length and M&A returns. We find that 10-K filing length is positively related to M&A returns, suggesting that the reduction in information acquisition costs dominates the increase in information processing costs. This relation is stronger when the acquirer has limited access to private information about the target, and when 10-K filings contain text denoting risk. The relation is weaker when 10-K filings contain complex text and financial statements exhibiting high accounting quality.
Journal: The European Journal of Finance
Pages: 532-553
Issue: 6
Volume: 26
Year: 2020
Month: 4
X-DOI: 10.1080/1351847X.2019.1694959
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1694959
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:6:p:532-553
Template-Type: ReDIF-Article 1.0
Author-Name: Julio Pindado
Author-X-Name-First: Julio
Author-X-Name-Last: Pindado
Author-Name: Ignacio Requejo
Author-X-Name-First: Ignacio
Author-X-Name-Last: Requejo
Author-Name: Juan C. Rivera
Author-X-Name-First: Juan C.
Author-X-Name-Last: Rivera
Title: Does money supply shape corporate capital structure? International evidence from a panel data analysis
Abstract:
We investigate how the growth rate of money supply, as a key dimension of the monetary policy, affects corporate debt decisions using a broad sample of companies from developed and emerging economies. Although expansionary measures increase market liquidity and encourage the use of debt, our results show that there is an optimal level of money supply beyond which additional liquidity discourages firms from using debt. However, the intensity of the effect of money growth on debt and the level of liquidity at which firms’ access to debt financing is maximized depends on the characteristics of the banking system. The effect is mitigated in countries where banks hold a higher fraction of liquid assets. By contrast, the relation between money supply and corporate leverage is more pronounced when a higher proportion of banks’ resources are allocated to private credit.
Journal: The European Journal of Finance
Pages: 554-584
Issue: 6
Volume: 26
Year: 2020
Month: 4
X-DOI: 10.1080/1351847X.2019.1695645
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1695645
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:6:p:554-584
Template-Type: ReDIF-Article 1.0
Author-Name: Philip Molyneux
Author-X-Name-First: Philip
Author-X-Name-Last: Molyneux
Author-Name: Ornella Ricci
Author-X-Name-First: Ornella
Author-X-Name-Last: Ricci
Title: Editorial for EJF special edition policy actions & stability
Journal: The European Journal of Finance
Pages: 585-588
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2020.1720263
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1720263
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:585-588
Template-Type: ReDIF-Article 1.0
Author-Name: Laura Chiaramonte
Author-X-Name-First: Laura
Author-X-Name-Last: Chiaramonte
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Author-Name: Milena Migliavacca
Author-X-Name-First: Milena
Author-X-Name-Last: Migliavacca
Author-Name: Federica Poli
Author-X-Name-First: Federica
Author-X-Name-Last: Poli
Title: Deposit insurance schemes and bank stability in Europe: how much does design matter?
Abstract:
Using a detailed set of deposit insurance schemes (DIS) features for 27 EU countries, we assess the impact of national deposit insurance features on bank stability and investigate the existence of non-linearities in the relationship between coverage and bank stability both in crisis and normal times. Our results suggest that more protective DIS do not necessarily lead to greater bank risk. However, during the crisis some features that generate moral hazard incentives can decrease bank stability. We find an inverse U-shaped relation with bank stability decreasing at high levels of coverage during the crisis period. However, our evidence also suggests that the introduction of temporary measures like blanket guarantees are crucial to avoid panic among depositors and restore stability. Finally, our results seem to imply that the stabilizing effect of deposit insurance can be different along the economic cycle, so regulators should consider that to be able to achieve an optimal DIS that minimizes moral hazard incentives a ‘dynamic’ approach may be necessary.
Journal: The European Journal of Finance
Pages: 589-615
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1607763
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1607763
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:589-615
Template-Type: ReDIF-Article 1.0
Author-Name: Margarita Rubio
Author-X-Name-First: Margarita
Author-X-Name-Last: Rubio
Author-Name: D. Filiz Unsal
Author-X-Name-First: D. Filiz
Author-X-Name-Last: Unsal
Title: Macroprudential policy under incomplete information
Abstract:
In this paper, we use a DSGE model to study the passive and time-varying implementation of macroprudential policy when policy-makers have noisy and lagged data. The model features an economy with two agents; households and entrepreneurs. Entrepreneurs are the borrowers in this economy and need capital as collateral to obtain loans. The macroprudential regulator uses the collateral requirement as the policy instrument. In this set-up, we compare policy performances of permanently increasing the collateral requirement (passive policy) versus a time-varying (active) policy which responds to credit developments. Results show that with perfect and timely information, an active approach is welfare superior, since it is more effective in providing financial stability with no long-run output cost. If the policy-maker is not able to observe the economic conditions perfectly or observe with a lag, a cautious (less aggressive) policy or even a passive approach may be preferred. However, the latter comes at the expense of increasing inequality and a long-run output cost, which could outweigh their macroeconomic and financial stability benefits.
Journal: The European Journal of Finance
Pages: 616-639
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1679209
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1679209
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:616-639
Template-Type: ReDIF-Article 1.0
Author-Name: Livia Pancotto
Author-X-Name-First: Livia
Author-X-Name-Last: Pancotto
Author-Name: Owain ap Gwilym
Author-X-Name-First: Owain
Author-X-Name-Last: ap Gwilym
Author-Name: Jonathan Williams
Author-X-Name-First: Jonathan
Author-X-Name-Last: Williams
Title: Market reactions to the implementation of the Banking Union in Europe
Abstract:
How did announcements about the implementation of the Banking Union (BU) in Europe impact on financial markets? This paper investigates the effect of the overall bank regulatory reform, considering each associated individual announcement, on Credit Default Swaps (CDS), bank stocks and stock futures during 2012–14. Announcements related to the implementation of the supervisory mechanism, as well as those on the new resolution framework, led to a surge in bank CDS spreads, while having a detrimental effect on the wealth of banks’ shareholders. The CDS market response to sub-events associated with the ECB’s 2014 Comprehensive Assessment (CA) was positive and reflected in a decrease in bank CDS spreads. Furthermore, CDS of Global Systemically Important Banks (G-SIBs) demonstrated a significant reaction to the implementation steps in the BU. Banks’ stock prices reacted in a consistent manner with the CDS market. The stock futures market did not reveal any strong reaction to the changes in the European regulatory landscape. Cross-sectional analysis reveals that bank capitalization is positively associated with responses of G-SIBs’ CDS spreads, but is inversely related to responses of CDS spreads for other bank groups. Weak underlying credit quality is also a relevant factor in explaining abnormal increases in CDS spreads. For the stock market, positive associations of the cumulative abnormal returns (CARs) with capital levels and with the business model orientation are revealed.
Journal: The European Journal of Finance
Pages: 640-665
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1661264
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1661264
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:640-665
Template-Type: ReDIF-Article 1.0
Author-Name: Zhehao Jia
Author-X-Name-First: Zhehao
Author-X-Name-Last: Jia
Author-Name: Yukun Shi
Author-X-Name-First: Yukun
Author-X-Name-Last: Shi
Author-Name: Cheng Yan
Author-X-Name-First: Cheng
Author-X-Name-Last: Yan
Author-Name: Meryem Duygun
Author-X-Name-First: Meryem
Author-X-Name-Last: Duygun
Title: Bankruptcy prediction with financial systemic risk
Abstract:
Financial systemic risk – defined as the risk of collapse of an entire financial system vis-à-vis any one individual financial institution – is making inroads into academic research in the aftermath of the late 2000s Global Financial Crisis. We shed light on this new concept by investigating the value of various systemic financial risk measures in the corporate failure predictions of listed nonfinancial firms. Our sample includes 225,813 firm-quarter observations covering 8,604 US firms from 2000 Q1 to 2016 Q4. We find that financial systemic risk is incrementally useful in forecasting corporate failure over and above the predictions of the traditional accounting-based and market-based factors. Our results are stronger when the firm in consideration has higher equity volatility relative to financial sector volatility, smaller size relative to the market, and more debts in current liabilities. The combined evidence suggests that systemic risk is a useful supplementary source of information in capital markets.
Journal: The European Journal of Finance
Pages: 666-690
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1656095
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1656095
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:666-690
Template-Type: ReDIF-Article 1.0
Author-Name: Peng Sui
Author-X-Name-First: Peng
Author-X-Name-Last: Sui
Author-Name: Sailesh Tanna
Author-X-Name-First: Sailesh
Author-X-Name-Last: Tanna
Author-Name: Dandan Zhou
Author-X-Name-First: Dandan
Author-X-Name-Last: Zhou
Title: Financial contagion in a core-periphery interbank network
Abstract:
This paper studies financial contagion in a core-periphery interbank network where core banks are large in balance sheet size while periphery banks are smaller and link only with the core banks. Core banks are all bilaterally linked and intermediate liquidity for periphery banks. We establish analytic conditions under which financial contagion propagates in the core-periphery network and examine the extent to which heterogeneity associated with size and number of banks affects these conditions. We show that the failure of core banks does not necessarily imply contagious failure of periphery banks; the core-periphery network structure exhibits a ‘robust-yet-fragile’ tendency with increased size of core banks; and the resilience of the network to contagion depends on the number of core banks, the number of periphery banks, and the level of interbank liquidity intermediated between the core banks. We also find that, under certain conditions, the core-periphery network is more resilient than the complete network with increased size of core banks.
Journal: The European Journal of Finance
Pages: 691-710
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1630460
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1630460
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:691-710
Template-Type: ReDIF-Article 1.0
Author-Name: Benno Kammann
Author-X-Name-First: Benno
Author-X-Name-Last: Kammann
Author-Name: Jörg Prokop
Author-X-Name-First: Jörg
Author-X-Name-Last: Prokop
Author-Name: Matthias Walting
Author-X-Name-First: Matthias
Author-X-Name-Last: Walting
Title: Informational effects of MiFID: the case of equity analysts
Abstract:
We conduct an event study spanning the period from 2004 to 2013 to examine the information content of financial analysts’ stock recommendation revisions before and after implementation of the European Markets in Financial Instruments Directive in 2007 (MiFID). We find that, compared to the pre-MiFID period, stock recommendations issued by investment bank analysts are more informative in the post-MiFID period. Further, exploiting a difference in how MiFID addresses analyst-specific conflicts of interest, we show that MiFID has widened the gap in informational content between recommendations issued by investment bank analysts and those issued by independent brokerage firm analysts, with the former having significantly higher stock price impact than the latter. Overall, our findings suggest that investors perceive MiFID as effective in mitigating biases in investment bank analysts’ research and that investors are well aware of remaining adverse incentives facing independent analysts, and discount their recommendations accordingly.
Journal: The European Journal of Finance
Pages: 711-727
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1697322
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1697322
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:711-727
Template-Type: ReDIF-Article 1.0
Author-Name: Andrea Mc Namara
Author-X-Name-First: Andrea
Author-X-Name-Last: Mc Namara
Author-Name: Sheila O'Donohoe
Author-X-Name-First: Sheila
Author-X-Name-Last: O'Donohoe
Author-Name: Pierluigi Murro
Author-X-Name-First: Pierluigi
Author-X-Name-Last: Murro
Title: Lending infrastructure and credit rationing of European SMEs
Abstract:
We examine the influence of countries’ lending infrastructure on credit rationing for European SMEs (small and medium sized enterprises). This lending infrastructure, conceptualised by Berger and Udell [2006] is comprised of a country’s information, legal, judicial, bankruptcy, social and regulatory environment. Using a sample of 13,957 SMEs from eleven European countries, we find that SMEs in countries with more efficient judicial systems, less efficient bankruptcy systems and with greater levels of trust are less likely to be credit rationed. The results are robust for different forms of credit rationing and different measures of lending infrastructure. The paper also shows some variation in the results across different sub-samples, considering firm size, age and riskiness. We also exploit the variation between core and periphery European countries and the peculiarity of the sovereign debt crisis period.
Journal: The European Journal of Finance
Pages: 728-745
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1637357
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1637357
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:728-745
Template-Type: ReDIF-Article 1.0
Author-Name: A. Baldini
Author-X-Name-First: A.
Author-X-Name-Last: Baldini
Author-Name: M. Causi
Author-X-Name-First: M.
Author-X-Name-Last: Causi
Title: Restoring credit market stability conditions in Italy: evidences on Loan and Bad Loan dynamics
Abstract:
In this paper we study the effect of credit deterioration on loan dynamics in the Italian non financial sector. The aim is to analyze, from a macroeconometric point of view, if credit growth rate is simply affected by bad loans stock variation or if there are other proxies of credit worsening that could have an influence on it. We use a factor model approach to capture all the pervasive factors that could affect the cyclical dynamics of the credit market, and we take into account the structural breaks induced by the Great Recession using quarterly data for the period 1998:4–2014:4. We reach the conclusion that new bad loans entry rate is the credit quality proxy that seems to express a significant and robust impact on lending dynamics. An increase of this ratio seems to cause a loans contraction after only 3 months and this evidence is useful in formulating some policy conclusions about banking system stability. We provide also results on new bad loans entry rate dynamics, finding a significant relation with GDP at infra-annual period (6 months).
Journal: The European Journal of Finance
Pages: 746-773
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1663229
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1663229
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:746-773
Template-Type: ReDIF-Article 1.0
Author-Name: Vu Quang Trinh
Author-X-Name-First: Vu Quang
Author-X-Name-Last: Trinh
Author-Name: Marwa Elnahass
Author-X-Name-First: Marwa
Author-X-Name-Last: Elnahass
Author-Name: Aly Salama
Author-X-Name-First: Aly
Author-X-Name-Last: Salama
Author-Name: Marwan Izzeldin
Author-X-Name-First: Marwan
Author-X-Name-Last: Izzeldin
Title: Board busyness, performance and financial stability: does bank type matter?
Abstract:
This study examines the impact of board busyness (i.e. multiple directorships of outside board members) on the performance and financial stability of banks in a dual banking system (Islamic and conventional). We consider banks from 14 countries for the period 2010–2015. The results provide strong evidence that conventional banks with busy boards exhibit high bank performance (i.e. high profitability and low cost to income) and greater financial stability (i.e. low insolvency risk, credit risk, liquidity risk, asset risk, and operational risk). These findings are in line with the reputation hypothesis, which asserts that the expertise and connections of busy outside directors lead to better decision making, more efficient resource utilisation and more effective monitoring. In contrast, Islamic banks’ performance and stability are adversely affected by the presence of busy board members, with Islamic banks show low profitability, high cost to income and high risk-taking. This result might be attributed to the complex governance structure of Islamic banks and the uniqueness of their financial products, which require additional effective monitoring.
Journal: The European Journal of Finance
Pages: 774-801
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1636842
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1636842
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:774-801
Template-Type: ReDIF-Article 1.0
Author-Name: Linh Nguyen
Author-X-Name-First: Linh
Author-X-Name-Last: Nguyen
Author-Name: John O. S. Wilson
Author-X-Name-First: John O. S.
Author-X-Name-Last: Wilson
Title: How does credit supply react to a natural disaster? Evidence from the Indian Ocean Tsunami
Abstract:
The supply of credit may increase or decrease following a natural disaster, depending on the extent to which banks can absorb risk, and the economic prospects and demand for finance by affected firms and households. In this paper, we assess the impact of a natural disaster (Indian Ocean Tsunami of 2004) on the aggregate supply of credit to provinces throughout Thailand. The results of our investigation suggest that the tsunami has long-lasting negative effects on bank lending, albeit the effects are spread unevenly across geographic areas with most of the reduction in aggregate lending occurring in severely affected provinces. We also find that the presence of bank branches in affected regions mitigates some of the adverse lending effects that follow the tsunami.
Journal: The European Journal of Finance
Pages: 802-819
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2018.1562952
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1562952
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:802-819
Template-Type: ReDIF-Article 1.0
Author-Name: Giampaolo Gabbi
Author-X-Name-First: Giampaolo
Author-X-Name-Last: Gabbi
Author-Name: Michele Giammarino
Author-X-Name-First: Michele
Author-X-Name-Last: Giammarino
Author-Name: Massimo Matthias
Author-X-Name-First: Massimo
Author-X-Name-Last: Matthias
Author-Name: Stefano Monferrà
Author-X-Name-First: Stefano
Author-X-Name-Last: Monferrà
Author-Name: Gabriele Sampagnaro
Author-X-Name-First: Gabriele
Author-X-Name-Last: Sampagnaro
Title: Does face-to-face contact matter? Evidence on loan pricing
Abstract:
This paper focuses on the economic impact of the lender–borrower relationship on loan interest rates and tests whether repeated bank-firm contact significantly reduces these rates. We find strong evidence of the ‘relationship intensity’ hypothesis, and we detect a contribution of physical contact between banks and firms to loan pricing, controlling for the location where contact occurs. Finally, we report new evidence on the hold-up problem; in particular, we find that under certain circumstances, a closer relationship may alleviate extra borrowing costs.
Journal: The European Journal of Finance
Pages: 820-836
Issue: 7-8
Volume: 26
Year: 2020
Month: 5
X-DOI: 10.1080/1351847X.2019.1703023
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1703023
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:820-836
Template-Type: ReDIF-Article 1.0
Author-Name: Siqi Liu
Author-X-Name-First: Siqi
Author-X-Name-Last: Liu
Author-Name: Adrian Melia
Author-X-Name-First: Adrian
Author-X-Name-Last: Melia
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Title: Singular diffusions, constant elasticity of variance processes and logarithmic rates of return
Abstract:
The singular diffusion processes developed by William Feller occupy a central role in a number of disciplines including economics and finance. We identify a fundamental inconsistency between the probability densities stated in the Feller papers for these singular diffusion processes. Moreover, we apply the method of group-invariance to resolve this inconsistency. Since logarithmic returns are of considerable importance in economics and finance, we also illustrate a procedure for determining the conditional expected logarithmic rate of return for state variables which evolve in terms of the singular diffusion processes on which the Feller papers are based.
Journal: The European Journal of Finance
Pages: 837-853
Issue: 9
Volume: 26
Year: 2020
Month: 6
X-DOI: 10.1080/1351847X.2019.1709526
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1709526
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:9:p:837-853
Template-Type: ReDIF-Article 1.0
Author-Name: Wolfgang Breuer
Author-X-Name-First: Wolfgang
Author-X-Name-Last: Breuer
Author-Name: Can K. Soypak
Author-X-Name-First: Can K.
Author-X-Name-Last: Soypak
Author-Name: Bertram I. Steininger
Author-X-Name-First: Bertram I.
Author-X-Name-Last: Steininger
Title: Magnitude effects in lending and borrowing: empirical evidence from a P2P platform
Abstract:
For varying borrowing and lending amounts, the corresponding subjective discount rates will also vary. A situation where high amounts correspond to lower discount rates is called a conventional magnitude effect, while the opposite is called a reverse magnitude effect. We present an overview of the theoretical arguments for both kinds of magnitude effects. Against this background, we then offer the first comprehensive empirical analysis of this issue based on real-life transaction data. To do so, we rely on more than 9,000 credit applications from the formerly largest German peer-to-peer (P2P) lending platform, Smava, between February 2007 and April 2013. We confirm that there is a conventional magnitude effect for lending money to others but a reverse magnitude effect for borrowing decisions. We suggest, as an explanation for our findings, the prevalence of cost-based determinants of magnitude effects in this special setting.
Journal: The European Journal of Finance
Pages: 854-873
Issue: 9
Volume: 26
Year: 2020
Month: 6
X-DOI: 10.1080/1351847X.2019.1709525
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1709525
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:9:p:854-873
Template-Type: ReDIF-Article 1.0
Author-Name: Amey Pramodkumar Kansara
Author-X-Name-First: Amey Pramodkumar
Author-X-Name-Last: Kansara
Author-Name: Ming-Chien Sung
Author-X-Name-First: Ming-Chien
Author-X-Name-Last: Sung
Author-Name: Tiejun Ma
Author-X-Name-First: Tiejun
Author-X-Name-Last: Ma
Author-Name: Johnnie E. V. Johnson
Author-X-Name-First: Johnnie E. V.
Author-X-Name-Last: Johnson
Title: Towards a better understanding of the full impact of the left digit effect on individual trading behaviour: unearthing a trading profit effect
Abstract:
Investors’ perceptions of price have been shown to be disproportionately affected by the left-most digit(s). However, a similar left digit effect (LDE) in relation to another important determinant of investors’ behaviour (i.e. trading profit) has not been explored. We examine over 7,314,570 trades made by 25,766 individuals and find a LDE in profit that is 1.71 times stronger than that related to closing price; suggesting that individuals focus more on left digits in profit than price when deciding when to close a trade. In addition, we observe a positive synergistic relationship between the LDE related to profit and price, suggesting that its total influence may result in losses of billions of dollars per financial year for investors. We suggest that these results make a strong case for educating investors against this bias.
Journal: The European Journal of Finance
Pages: 874-891
Issue: 9
Volume: 26
Year: 2020
Month: 6
X-DOI: 10.1080/1351847X.2020.1717976
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1717976
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:9:p:874-891
Template-Type: ReDIF-Article 1.0
Author-Name: Marco Realdon
Author-X-Name-First: Marco
Author-X-Name-Last: Realdon
Title: Affine and quadratic models with many factors and few parameters
Abstract:
‘Classic’ affine and quadratic term structure models in the literature usually have three or four factors and tens of parameters. However affine and quadratic term structure models with many factors and few parameters (MFFP), i.e. with up to twenty factors and with six to seven parameters, fit and predict U.S. and Euro sovereign yields better than ‘classic’ affine and quadratic models. MFFP models also fit the volatility of and the correlations between changes in yields of different maturities better than ‘classic’ models. MFFP models outperform because fewer parameters reduce in sample over-fitting and because more factors give models more flexibility to match yields of different maturities. Among MFFP models, a type of affine model with stochastic volatility is usually preferable to the homoschedastic affine model, but for U.S. yields the quadratic model seems preferable among five factor MFFP models.
Journal: The European Journal of Finance
Pages: 1019-1046
Issue: 11
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1701511
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1701511
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:11:p:1019-1046
Template-Type: ReDIF-Article 1.0
Author-Name: Jonatan Groba
Author-X-Name-First: Jonatan
Author-X-Name-Last: Groba
Author-Name: Pedro Serrano
Author-X-Name-First: Pedro
Author-X-Name-Last: Serrano
Title: Foreign monetary policy and firms' default risk
Abstract:
This study documents the relationship between foreign monetary policy and firms' ex-ante forward-looking default probability measures. We analyze market-based measures of default for large non-financial firms in the US and the EMU area. We propose two transmission mechanisms of foreign policy shocks: the foreign demand channel and the foreign debt channel. We show that foreign monetary policy influences firms' default probability largely through the foreign demand channel. We find that the foreign debt channel only played a role for European firms during the early 2000s due to the higher exposure to USD denominated obligations. These results highlight the need for macro-prudential authorities to pay more attention to the foreign demand channel in the struggle against large default events, as the results show that the foreign debt channel is less relevant.
Journal: The European Journal of Finance
Pages: 1047-1074
Issue: 11
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1710225
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1710225
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:11:p:1047-1074
Template-Type: ReDIF-Article 1.0
Author-Name: Suzanne G. M. Fifield
Author-X-Name-First: Suzanne G. M.
Author-X-Name-Last: Fifield
Author-Name: David G. McMillan
Author-X-Name-First: David G.
Author-X-Name-Last: McMillan
Author-Name: Fiona J. McMillan
Author-X-Name-First: Fiona J.
Author-X-Name-Last: McMillan
Title: Is there a risk and return relation?
Abstract:
Traditional finance theory posits that the relation between the risk and return of stocks is positive. Equally, investment practice is often based on the contention that high (low) beta stocks earn higher (lower) returns. However, this fundamental relation is questioned by several researchers, who present mixed evidence. The purpose of this paper is to shed further light on this question by examining both market- and firm-level price data; employing a battery of tests, including individual market, panel and quantile regressions; analysing the nature of the relation during periods of high and low volatility and in bull and bear markets. The results indicate that there is no single robust relation between risk and return. Notably, the results suggest a positive relation when returns are high and during bear markets. Further, the finding of a positive relation is stronger at the market-level than the firm-level and over long time periods. However, a negative relation exists at low return levels, during bull markets and, even more so, at the individual firm level. Overall, the results suggest that the risk-return relation is switching in nature and is primarily driven by changing risk preferences. A positive relation exists when macroeconomic risk plays a larger role.
Journal: The European Journal of Finance
Pages: 1075-1101
Issue: 11
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2020.1724551
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1724551
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:11:p:1075-1101
Template-Type: ReDIF-Article 1.0
Author-Name: Paula Cruz-García
Author-X-Name-First: Paula
Author-X-Name-Last: Cruz-García
Author-Name: Juan Fernández de Guevara
Author-X-Name-First: Juan
Author-X-Name-Last: Fernández de Guevara
Title: Determinants of net interest margin: the effect of capital requirements and deposit insurance scheme
Abstract:
This paper analyzes the determinants of net interest margin with a focus on the impact of capital regulation and deposit insurance. We extend the Ho and Saunders (1981) family of models to explicitly include both capital requirement and the deposit insurance premium as determinants of net interest margin. The model predicts that the higher the capital requirements and deposit insurance premium, the higher banks’ interest rates will be. We test the theoretical model using panel data for OECD countries between 2000 and 2014. Our results support the positive relationship between both the capital requirement and the deposit insurance premium on interest margins. The most important determinants of the net interest margin are implicit payments, efficiency, average operating costs, the intensity of competition, the deposit insurance premium and capital stringency.
Journal: The European Journal of Finance
Pages: 1102-1123
Issue: 11
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1700149
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1700149
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:11:p:1102-1123
Template-Type: ReDIF-Article 1.0
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Author-Name: Neil Kellard
Author-X-Name-First: Neil
Author-X-Name-Last: Kellard
Title: Banks and financial markets in times of uncertainty
Journal: The European Journal of Finance
Pages: 893-896
Issue: 10
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2020.1725084
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1725084
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:10:p:893-896
Template-Type: ReDIF-Article 1.0
Author-Name: F. Arnaboldi
Author-X-Name-First: F.
Author-X-Name-Last: Arnaboldi
Author-Name: B. Casu
Author-X-Name-First: B.
Author-X-Name-Last: Casu
Author-Name: E. Kalotychou
Author-X-Name-First: E.
Author-X-Name-Last: Kalotychou
Author-Name: A. Sarkisyan
Author-X-Name-First: A.
Author-X-Name-Last: Sarkisyan
Title: The performance effects of board heterogeneity: what works for EU banks?
Abstract:
We examine the impact of board heterogeneity on the performance of EU-listed banks in the wake of the global financial crisis. In a comprehensive set-up, we consider standard board features (type, tenure, size, and age of board members) as well as board diversity features (gender diversity, employee representation, internationalisation, and age diversity). We propose a diversity index, which summarises the different dimensions of diversity, and control for unobserved heterogeneity and reverse causality. Our analysis uncovers a complex relationship between board heterogeneity and bank performance, which is influenced by market conditions and by national culture. Overall board diversity does not seem to affect bank performance, but it does decrease performance variability during the Eurozone crisis and in countries culturally more open to diversity. Different board and diversity features have a positive impact on bank performance (size, tenure, and employee representation); the relationship is non-linear, with the effect of diversity being more relevant when there is a significant proportion of minority representatives. While substantial board internationalisation has a negative impact on bank performance, the presence of foreign directors appears to be less detrimental during the Eurozone crisis and in countries that are more welcoming towards diversity.
Journal: The European Journal of Finance
Pages: 897-924
Issue: 10
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2018.1479719
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1479719
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:10:p:897-924
Template-Type: ReDIF-Article 1.0
Author-Name: René Kumsta
Author-X-Name-First: René
Author-X-Name-Last: Kumsta
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Title: The financial strength anomaly in the UK: information uncertainty or liquidity?
Abstract:
This paper examines two potential key drivers of the financial strength (F-Score) investment strategy: information uncertainty and liquidity. We use novel, direct measures of information uncertainty related to the variability of financial strength signals themselves. However, financial strength strategy returns are not generally strongly related to these information uncertainty proxies. We also examine two proxies for liquidity. Financial strength strategy returns are generally substantially larger for illiquid firms. A zero-cost arbitrage strategy based on F-Score generates a 20% return in illiquid UK stocks and 12% in liquid UK stocks. The enhanced F-Score effect is driven by a flight from illiquidity amongst financially weak stocks. Overall, the profitability of the F-Score investment strategy appears more closely related to liquidity than to information uncertainty.
Journal: The European Journal of Finance
Pages: 925-957
Issue: 10
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1641532
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1641532
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:10:p:925-957
Template-Type: ReDIF-Article 1.0
Author-Name: Sebastian de-Ramon
Author-X-Name-First: Sebastian
Author-X-Name-Last: de-Ramon
Author-Name: Michael Straughan
Author-X-Name-First: Michael
Author-X-Name-Last: Straughan
Title: The evolution of competition in the UK deposit-taking sector, 1989–2013
Abstract:
Improving competition was one of the key objectives of the UK banking and building society deregulation that came into effect in the 1980s. We use data for banks and building societies for the period 1989–2013 and a number of measures of competition, to examine whether competition did improve over the longer term, and whether the financial crisis changed this trend. We find that following a period of heightened competition in the 1990s between banks and building societies in UK retail markets, consolidation in the sector in the late 1990s saw the emergence of large banking groups and a reduction in competition in the 2000s, ahead of the financial crisis. We also find no evidence that competition subsequently improved following the crisis. Lastly, we find that market power, as measured by the Lerner index, is likely to be considerably less for building societies than for other firms.
Journal: The European Journal of Finance
Pages: 958-977
Issue: 10
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1574270
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1574270
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:10:p:958-977
Template-Type: ReDIF-Article 1.0
Author-Name: R. Barrell
Author-X-Name-First: R.
Author-X-Name-Last: Barrell
Author-Name: D. Karim
Author-X-Name-First: D.
Author-X-Name-Last: Karim
Author-Name: C. Macchiarelli
Author-X-Name-First: C.
Author-X-Name-Last: Macchiarelli
Title: Towards an understanding of credit cycles: do all credit booms cause crises?
Abstract:
Macroprudential policy is now based around a countercyclical buffer, relating capital requirements for banks to the degree of excess credit in the economy. We consider the construction of the credit to GDP gap looking at different ways of extracting the cyclical indicator for excess credit. We compare different smoothing mechanisms for the credit gap, and demonstrate that some countries require an AR(2) smoother whilst other do not. We embed these different estimates of the credit gap in Logit models of financial crises, and show that the AR(2) cycle is a much better contributor to their explanation than is the HP filter suggested by the BIS and currently in use in policy making. We show that our results are robust to changes in assumptions, and we make criticisms of current policy settings.
Journal: The European Journal of Finance
Pages: 978-993
Issue: 10
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2018.1521341
File-URL: http://hdl.handle.net/10.1080/1351847X.2018.1521341
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:10:p:978-993
Template-Type: ReDIF-Article 1.0
Author-Name: Nikos Paltalidis
Author-X-Name-First: Nikos
Author-X-Name-Last: Paltalidis
Author-Name: Victoria Patsika
Author-X-Name-First: Victoria
Author-X-Name-Last: Patsika
Title: Asymmetric dependence in international currency markets
Abstract:
We find new channels for the transmission of shocks in international currencies, by developing a model in which shock propagations evolve from domestic stock markets, liquidity, credit risk and growth channels. We employ symmetric and asymmetric copulas to quantify joint downside risks and document that asset classes tend to experience concurrent extreme shocks. The time-varying spillover intensities cause a significant increase in cross-asset linkages during periods of high volatility, which is over and above any expected economic fundamentals, providing strong evidence of asymmetric investor induced contagion. The critical role of the credit crisis is amplified, as the beginning of an important reassessment of emerging currencies which lead to changes in the dependence structure, a revaluation and recalibration of their risk characteristics. By modelling tail risks, we also find patterns consistent with the domino effect.
Journal: The European Journal of Finance
Pages: 994-1017
Issue: 10
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1650089
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1650089
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:10:p:994-1017
Template-Type: ReDIF-Article 1.0
Author-Name: The Editors
Title: Annual thanks to referees
Journal: The European Journal of Finance
Pages: (i)-(v)
Issue: 10
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2020.1752042
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1752042
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:10:p:(i)-(v)
Template-Type: ReDIF-Article 1.0
Author-Name: Kim J. Heyden
Author-X-Name-First: Kim J.
Author-X-Name-Last: Heyden
Author-Name: Florian Röder
Author-X-Name-First: Florian
Author-X-Name-Last: Röder
Title: The smart money effect in Germany – do investment focus and bank-affiliation matter?
Abstract:
We investigate the smart money effect in the German mutual fund market from 2001 to 2016. Results show a positive relation between fund flows and subsequent performance for mutual funds with a European or international diversified investment focus. Funds that invest domestically, however, show no signs of a smart money effect. Moreover, evidence suggests that flows to funds managed by bank-affiliated investment companies are smart. We argue that less sophisticated investors rather invest domestically and that financial advice improves retail investors’ mutual fund investment decisions.
Journal: The European Journal of Finance
Pages: 1125-1145
Issue: 12
Volume: 26
Year: 2020
Month: 8
X-DOI: 10.1080/1351847X.2020.1720261
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1720261
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:12:p:1125-1145
Template-Type: ReDIF-Article 1.0
Author-Name: M. Karanasos
Author-X-Name-First: M.
Author-X-Name-Last: Karanasos
Author-Name: S. Yfanti
Author-X-Name-First: S.
Author-X-Name-Last: Yfanti
Title: On the macro-drivers of realized volatility: the destabilizing impact of UK policy uncertainty across Europe
Abstract:
This paper studies the bivariate HEAVY system of daily and intra-daily volatility equations and its macro-augmented asymmetric power extension. We focus on economic drivers that exacerbate stock market volatility and can be proved to be major threats for financial stability. Our study proves the inflammatory effects of UK Policy Uncertainty alongside global credit and commodity factors that spread across European financial markets. This UK-led spillover phenomenon should be considered by world market participants and recognized, monitored and mitigated by policymakers amid the Brexit fears and the associated highly probable harm for Europe. Other findings are as follows. First, once we allow for power transformations, asymmetries, and macro-effects in the benchmark specification, it is found that both powered conditional variances are significantly affected by the powers of squared negative returns and realized measure, further improving the HEAVY framework's forecasting accuracy. Second, the structural breaks applied to the bivariate system capture the time-varying behavior of the parameters, in particular during the global financial crisis of 2007/08. Third, higher UK uncertainty levels increase the leverage and global macro-effects from credit and commodity markets on all European stock markets' realized volatilities.
Journal: The European Journal of Finance
Pages: 1146-1183
Issue: 12
Volume: 26
Year: 2020
Month: 8
X-DOI: 10.1080/1351847X.2020.1732437
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1732437
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:12:p:1146-1183
Template-Type: ReDIF-Article 1.0
Author-Name: Shiyu Song
Author-X-Name-First: Shiyu
Author-X-Name-Last: Song
Author-Name: Guanying Wang
Author-X-Name-First: Guanying
Author-X-Name-Last: Wang
Author-Name: Yongjin Wang
Author-X-Name-First: Yongjin
Author-X-Name-Last: Wang
Title: Pricing European options under a diffusion model with psychological barriers and leverage effect
Abstract:
This paper derives closed-form formulae for European options under a diffusion model when there exist psychological barriers and leverage effect in underlying dynamics. The state space of the proposed model is divided into different subregions by psychological barriers, and in each subregion, the model behaves like a constant elasticity of variance process. Within this framework, we derive both Laplace transform- and spectral expansion-based analytical solutions, which allow fast and accurate calculation of option prices. Numerical results are presented to explore the nontrivial properties of our model.
Journal: The European Journal of Finance
Pages: 1184-1206
Issue: 12
Volume: 26
Year: 2020
Month: 8
X-DOI: 10.1080/1351847X.2020.1725083
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1725083
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:12:p:1184-1206
Template-Type: ReDIF-Article 1.0
Author-Name: Gema Fernández-Avilés
Author-X-Name-First: Gema
Author-X-Name-Last: Fernández-Avilés
Author-Name: José-María Montero
Author-X-Name-First: José-María
Author-X-Name-Last: Montero
Author-Name: Lidia Sanchis-Marco
Author-X-Name-First: Lidia
Author-X-Name-Last: Sanchis-Marco
Title: Extreme downside risk co-movement in commodity markets during distress periods: a multidimensional scaling approach
Abstract:
We analyze the co-movement of a number of commodity markets in extreme financial episodes worldwide. More specifically, we provide extreme downside risk co-movement maps of these markets during six recent distress periods. We follow an expected shortfall-multidimensional scaling approach, which allows for an easy classification of markets according to their dynamics in risky episodes. No clear risk co-movement patterns are observed, nor spillover effects are detected. Financialization and speculation might have played some role in the dynamics of price and risk only in food commodity markets during the oil price increase 2007–2008.
Journal: The European Journal of Finance
Pages: 1207-1237
Issue: 12
Volume: 26
Year: 2020
Month: 8
X-DOI: 10.1080/1351847X.2020.1724171
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1724171
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:12:p:1207-1237
Template-Type: ReDIF-Article 1.0
Author-Name: Flavio Bazzana
Author-X-Name-First: Flavio
Author-X-Name-Last: Bazzana
Author-Name: Giacomo De Laurentis
Author-X-Name-First: Giacomo
Author-X-Name-Last: De Laurentis
Author-Name: Raoul Pisani
Author-X-Name-First: Raoul
Author-X-Name-Last: Pisani
Author-Name: Renata Trinca Colonel
Author-X-Name-First: Renata
Author-X-Name-Last: Trinca Colonel
Title: Can domestic trade credit insurance contracts be effective collateral for banks? A quantitative study of the Italian market
Abstract:
A domestic credit insurance contract is a policy that covers the risk of the non-payment of future commercial credit as a result of the failure to pay within the agreed terms and conditions (protracted default) or the insolvency of the buyer. To evaluate the effective level of financial protection offered by trade credit policies, we collected a database of contracts issued between 2006 and 2013 by a number of Italian insurance companies, which account for 80-85% of the Italian market. We find that, to be considered as able to mitigate credit risk, the policies must have their contract clauses changed. In that case, such a policy, if accepted by the supervisory authority, could permit banks to reduce the capital requirement connected with the discount of trade credits. These results are particularly important for insurance companies.
Journal: The European Journal of Finance
Pages: 1239-1252
Issue: 13
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1627377
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1627377
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:13:p:1239-1252
Template-Type: ReDIF-Article 1.0
Author-Name: Margarida Abreu
Author-X-Name-First: Margarida
Author-X-Name-Last: Abreu
Author-Name: Victor Mendes
Author-X-Name-First: Victor
Author-X-Name-Last: Mendes
Title: Do individual investors trade differently in different financial markets?
Abstract:
We investigate the hypothesis that the same investors trade differently in different markets. More precisely, we discuss the hypothesis that the same investors trade derivatives differently than stocks. We use a proprietary database containing the transaction records of 129,461 investors over a 10-year period, and we select investors holding both stocks and warrants in their portfolios. We compare the trading behavior of these investors in the stock market and in the warrant market, controlling for investors’ sociodemographic characteristics and behavioral biases (overconfidence, the disposition effect and pursuit of the pleasure of gambling).Even though investors are the same in both markets, our results clearly show that the determinants of the trading activity in stocks and in warrants are not all the same, implying that investors trade stocks differently than warrants. More precisely, overconfident investors have higher warrant trading activity and lower domestic stock trading activity, and investors who are pursuing gambling pleasure or are prone to the disposition effect trade warrants more frequently (but do not more frequently trade stocks).
Journal: The European Journal of Finance
Pages: 1253-1270
Issue: 13
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1709524
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1709524
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:13:p:1253-1270
Template-Type: ReDIF-Article 1.0
Author-Name: João M. Pinto
Author-X-Name-First: João M.
Author-X-Name-Last: Pinto
Author-Name: Mário C. Santos
Author-X-Name-First: Mário C.
Author-X-Name-Last: Santos
Title: The choice between corporate and structured financing: evidence from new corporate borrowings
Abstract:
We examine the factors that influence nonfinancial firms’ choice of issuing standard corporate bonds vis-à-vis contracting structured finance, in the form of project finance or asset securitization arrangements. Using a data set of deals closed by 4,700 European borrowers between 2000 and 2016, we find that informational frictions and issuance costs affect public firms’ borrowing source choices. Findings suggest that borrowers choose structured finance when they are relatively smaller, less profitable, have lower asset tangibility, and seek long-term financing. Our findings also document that borrowers resorting to asset securitization tend to have larger growth opportunity sets. Borrowers resorting to project finance are less creditworthy than corporate bond issuers and, on average, asset securitization deals have an 87.6 basis points borrowing cost advantage over corporate bond deals for switchers.
Journal: The European Journal of Finance
Pages: 1271-1300
Issue: 13
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2019.1697323
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1697323
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:13:p:1271-1300
Template-Type: ReDIF-Article 1.0
Author-Name: Riccardo Bramante
Author-X-Name-First: Riccardo
Author-X-Name-Last: Bramante
Author-Name: Gimmi Dallago
Author-X-Name-First: Gimmi
Author-X-Name-Last: Dallago
Author-Name: Silvia Facchinetti
Author-X-Name-First: Silvia
Author-X-Name-Last: Facchinetti
Title: Nonlinear relative dynamics
Abstract:
Covariance and correlation are two widespread tools in statistics and finance to measure how two entities vary together. Correlation measures the linear relationship between two variables and is not an adequate measure when the two exhibit nonlinear relationships. In this paper, we extend linear correlation to an α-grade monomial one; α values that maximize correlation indicate which type of nonlinear relationship data exhibit. Lagrange representation allows us to define a contro-correlation measure to represent how two entities are not related and a measure of relative variability. Finally, a simulation study and a real-world data application are performed to assess the performance of the proposed methodology.
Journal: The European Journal of Finance
Pages: 1301-1314
Issue: 13
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2020.1742757
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1742757
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:13:p:1301-1314
Template-Type: ReDIF-Article 1.0
Author-Name: Guanying Wang
Author-X-Name-First: Guanying
Author-X-Name-Last: Wang
Author-Name: Xingchun Wang
Author-X-Name-First: Xingchun
Author-X-Name-Last: Wang
Author-Name: Xinjian Shao
Author-X-Name-First: Xinjian
Author-X-Name-Last: Shao
Title: The valuation of vulnerable European options with risky collateral
Abstract:
This paper presents a model for valuing vulnerable European options with risky collateral under the assumption that the holder of vulnerable options could recover a proportion of the option value using the collateral account when default occurs. We describe the underlying asset and the risky collateral using correlated geometric Brownian motions and consider default risk in a reduced form model. An integral pricing formula of call options is derived when the default intensity follows an Ornstein–Uhlenbeck process. For practical purposes, we work under the default intensity captured by Cox–Ingersoll–Ross and Ornstein–Uhlenbeck processes respectively, and numerical results show that the differences in the values of vulnerable options under these two intensity processes are tiny. The impacts of risky collateral and default risk on option prices are illustrated. Specially, the effect of wrong (right) way risk can be reflected by the correlation between the underlying asset and default intensity.
Journal: The European Journal of Finance
Pages: 1315-1331
Issue: 13
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2020.1730419
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1730419
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:13:p:1315-1331
Template-Type: ReDIF-Article 1.0
Author-Name: Lei Gao
Author-X-Name-First: Lei
Author-X-Name-Last: Gao
Author-Name: Zabihollah Rezaee
Author-X-Name-First: Zabihollah
Author-X-Name-Last: Rezaee
Author-Name: Ji Yu
Author-X-Name-First: Ji
Author-X-Name-Last: Yu
Title: Peer firms’ earnings predictability and pricing efficiency – evidence from IPOs*
Abstract:
We examine the effect of peer firms’ earnings predictability on initial public offering (IPO) underpricing by investigating whether peer firms’ financial characteristics affect IPO pricing and whether the information disseminated by the IPO firm changes product market competition. Analyzing 5,264 IPOs in the 1976–2012 period using data from multiple sources, we find that IPO firms whose peer firms have long-run earnings predictability tend to have lower underpricing compared to those with short-run earnings predictability. Our study makes three central contributions. First, it shows that investors do not consider IPO firms in isolation from their peer firms and that IPO underpricing is highly dependent on peer firms’ earnings characteristics. Second, it demonstrates that the market does not always consider earnings predictability to be a desirable attribute, which has practical implications for regulators and firms. Third, we find that product market competition from peer firms and managerial ability both affect IPO underpricing. These results suggest that investors might interpret short-run peer firms’ earnings predictability as evidence that a majority of the firms in the industry engage in myopic behaviors, while they might interpret long-run peer firms’ earnings predictability as a signal that the majority of firms in the industry have stable cash flows.
Journal: The European Journal of Finance
Pages: 1332-1353
Issue: 13
Volume: 26
Year: 2020
Month: 7
X-DOI: 10.1080/1351847X.2020.1732436
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1732436
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:13:p:1332-1353
Template-Type: ReDIF-Article 1.0
Author-Name: Imen Derouiche
Author-X-Name-First: Imen
Author-X-Name-Last: Derouiche
Author-Name: Anke Muessig
Author-X-Name-First: Anke
Author-X-Name-Last: Muessig
Author-Name: Véronique Weber
Author-X-Name-First: Véronique
Author-X-Name-Last: Weber
Title: The effect of risk disclosure on analyst following
Abstract:
Prior research shows that financial analysts play an important information intermediary role in France. This study extends earlier research to examine the effect of risk disclosure on the number of analysts following listed firms. Using a unique dataset of French firms on the 120 SBF index over 2007−2015, the results show a positive and significant relation between risk disclosure and analyst following, suggesting that firms having greater risk disclosure attract more financial analysts. These findings provide empirical support to the argument that analysts incur lower costs of information gathering in firms with greater risk disclosure. The demand for analyst services is also more valuable in these firms, given their potentially high exposure to risks, implying greater analyst following. Overall, our results are in line with prior literature highlighting that analysts’ activities complement annual report disclosures and, generally, corporate disclosures.
Journal: The European Journal of Finance
Pages: 1355-1376
Issue: 14
Volume: 26
Year: 2020
Month: 9
X-DOI: 10.1080/1351847X.2020.1726428
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1726428
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:14:p:1355-1376
Template-Type: ReDIF-Article 1.0
Author-Name: Alan J. Hanna
Author-X-Name-First: Alan J.
Author-X-Name-Last: Hanna
Author-Name: John D. Turner
Author-X-Name-First: John D.
Author-X-Name-Last: Turner
Author-Name: Clive B. Walker
Author-X-Name-First: Clive B.
Author-X-Name-Last: Walker
Title: News media and investor sentiment during bull and bear markets
Abstract:
The news media have been described by Shiller ([2000]. Irrational Exuberance. Princeton, NJ: Princeton University Press.) as fundamental propagators of speculative price movements. We test whether investors react differently to sentiment in bull and bear markets using the tone of reporting in the Financial Times as a proxy for sentiment. Our sentiment proxy is a daily measure covering the period from 1899 to 2010. We find that the tone of the Financial Times influences trading volume during bull markets. These findings are consistent with noise traders driving trade during speculative booms and Shiller’s press-as-propagators hypothesis.
Journal: The European Journal of Finance
Pages: 1377-1395
Issue: 14
Volume: 26
Year: 2020
Month: 9
X-DOI: 10.1080/1351847X.2020.1743734
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1743734
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:14:p:1377-1395
Template-Type: ReDIF-Article 1.0
Author-Name: Shaen Corbet
Author-X-Name-First: Shaen
Author-X-Name-Last: Corbet
Author-Name: Charles Larkin
Author-X-Name-First: Charles
Author-X-Name-Last: Larkin
Author-Name: Brian M. Lucey
Author-X-Name-First: Brian M.
Author-X-Name-Last: Lucey
Author-Name: Andrew Meegan
Author-X-Name-First: Andrew
Author-X-Name-Last: Meegan
Author-Name: Larisa Yarovaya
Author-X-Name-First: Larisa
Author-X-Name-Last: Yarovaya
Title: The impact of macroeconomic news on Bitcoin returns
Abstract:
This paper examines the relationship between news coverage and Bitcoin returns. Previous studies have provided evidence to suggest that macroeconomic news affects stock returns, commodity prices and interest rates. We construct a sentiment index based on news stories that follow the announcements of four macroeconomic indicators: GDP, unemployment, Consumer Price Index (CPI) and durable goods. By controlling for a number of potential biases we determine as to whether each of the series' have a significant impact on Bitcoin returns. While an increase in positive news surrounding unemployment rates and durable goods would typically result in a corresponding increase in equity returns, we observe the opposite to be true in the case of Bitcoin. Increases in positive news after unemployment and durable goods announcements result in a decrease in Bitcoin returns. Conversely, an increase in the percentage of negative news surrounding these announcements is linked with an increase in Bitcoin returns. News relating to GDP and CPI are found not to have any statistically significant relationships with Bitcoin returns. Our results indicate that this developing cryptocurrency market is further maturing through interactions with macroeconomic news.
Journal: The European Journal of Finance
Pages: 1396-1416
Issue: 14
Volume: 26
Year: 2020
Month: 9
X-DOI: 10.1080/1351847X.2020.1737168
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1737168
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:14:p:1396-1416
Template-Type: ReDIF-Article 1.0
Author-Name: Darren Duxbury
Author-X-Name-First: Darren
Author-X-Name-Last: Duxbury
Author-Name: Tommy Gärling
Author-X-Name-First: Tommy
Author-X-Name-Last: Gärling
Author-Name: Amelie Gamble
Author-X-Name-First: Amelie
Author-X-Name-Last: Gamble
Author-Name: Vian Klass
Author-X-Name-First: Vian
Author-X-Name-Last: Klass
Title: How emotions influence behavior in financial markets: a conceptual analysis and emotion-based account of buy-sell preferences
Abstract:
We develop a conceptual analysis and account of how emotions influence behavior in financial markets. To motivate our approach and to establish the need for such research, we first review the increasingly important literature on emotions in financial markets. While emotions influence investors in financial markets, there is a lack of precision concerning the exact nature of these influences. To remedy this, we identify and address a number of issues deriving from the current state of the finance literature. One issue concerns the lack of clarity in defining different emotion constructs. Another is the lack of a general emotion-based account of financial behavior. Our contribution is a classification of emotion-related phenomena and an emotion-based account of how anticipatory and anticipated emotions interact to determine investors’ buy and sell preferences in asset markets. Preliminary experimental results support our emotion-based account.
Journal: The European Journal of Finance
Pages: 1417-1438
Issue: 14
Volume: 26
Year: 2020
Month: 9
X-DOI: 10.1080/1351847X.2020.1742758
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1742758
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:14:p:1417-1438
Template-Type: ReDIF-Article 1.0
Author-Name: Gbenga Ibikunle
Author-X-Name-First: Gbenga
Author-X-Name-Last: Ibikunle
Author-Name: Davide Mare
Author-X-Name-First: Davide
Author-X-Name-Last: Mare
Author-Name: Yuxin Sun
Author-X-Name-First: Yuxin
Author-X-Name-Last: Sun
Title: The paradoxical effects of market fragmentation on adverse selection risk and market efficiency
Abstract:
Unlike the US’s Regulation National Market System (RNMS), the EU’s Markets in Financial Instruments Directive (MiFID) does not impose a formal exchange trading linkage or guarantee a best execution price. This raises concerns about consolidated market quality in increasingly fragmented European markets. We investigate the impact of visible trading fragmentation on the quality of the London equity market and find a non-linear relationship between fragmentation and adverse selection risk. At moderate levels of fragmentation, order flow competition reduces adverse selection risk and enhances market efficiency by reducing arbitrage opportunities. Contrarily, high levels of fragmentation heighten adverse selection issues.
Journal: The European Journal of Finance
Pages: 1439-1461
Issue: 14
Volume: 26
Year: 2020
Month: 9
X-DOI: 10.1080/1351847X.2020.1745861
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1745861
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:14:p:1439-1461
Template-Type: ReDIF-Article 1.0
Author-Name: Hüseyin Öztürk
Author-X-Name-First: Hüseyin
Author-X-Name-Last: Öztürk
Author-Name: Emili Tortosa-Ausina
Author-X-Name-First: Emili
Author-X-Name-Last: Tortosa-Ausina
Author-Name: Meryem Duygun
Author-X-Name-First: Meryem
Author-X-Name-Last: Duygun
Author-Name: Mohamed Shaban
Author-X-Name-First: Mohamed
Author-X-Name-Last: Shaban
Title: Quo Vadis, Raters? A frontier approach to identify overratings and underratings in sovereign credit risk
Abstract:
This study analyses overratings and underratings in sovereign credit risk. The analysis uses partial frontier methods, a technique rarely applied in this literature. By combining a robust variant of the free disposal hull (FDH) estimator, we measure both underratings and overratings for individual countries and groups of countries. Particular attention is paid to comparing pre-crisis and crisis years in order to assess possible changes in the magnitude of the deviations. Our findings indicate a remarkable degree of both overratings and underratings during the analysed period (1999–2010), which partially vanish during the last years of the sample (2008–2010) – corresponding to the financial crisis – when many downgrades took place, especially in Eurozone countries. The results allow us to emphasize the importance of monitoring these deviations for sustainable financial stability. Our results also show the potential benefits of using partial frontier methods for measuring both underratings and overratings.
Journal: The European Journal of Finance
Pages: 1463-1483
Issue: 15
Volume: 26
Year: 2020
Month: 10
X-DOI: 10.1080/1351847X.2020.1748678
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1748678
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:15:p:1463-1483
Template-Type: ReDIF-Article 1.0
Author-Name: Ahmed S. Alanazi
Author-X-Name-First: Ahmed S.
Author-X-Name-Last: Alanazi
Title: The bullish and the bearish engulfing patterns: beating the forex market or being beaten?
Abstract:
The paper investigates the bullish and the bearish engulfing patterns in the forex spot market. We scanned over 112,792 in-sample daily candles and 148,992 out-of-sample four-hour candles and used more than three million spot quote observations among 24 currency pairs from 2000 to 2018. The findings are of great interest. First, we document the significance of profitability of technical analysis in the forex market, particularly for the seven majors. This presumably lends support to the inefficiency of the forex market. Second, we document the significance importance of transactions costs. Third, we document the superiority of the American dollar over the other major currencies.
Journal: The European Journal of Finance
Pages: 1484-1505
Issue: 15
Volume: 26
Year: 2020
Month: 10
X-DOI: 10.1080/1351847X.2020.1748679
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1748679
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:15:p:1484-1505
Template-Type: ReDIF-Article 1.0
Author-Name: Ravel Sami Jabbour
Author-X-Name-First: Ravel Sami
Author-X-Name-Last: Jabbour
Author-Name: Nithya Sridharan
Author-X-Name-First: Nithya
Author-X-Name-Last: Sridharan
Title: The ECB's in-comprehensive SSM-ent: the higher they go, the harder they fall
Abstract:
The first ECB stress testing exercise took place in 2014 and aimed at forming a comprehensive assessment of the Eurozone banking sector resilience. The ECB's analysis of the outcome revealed that impairments and loan losses were the main causes behind the fall in participating banks' capital ratios. However, the assessment was incomprehensive in that, aside from bank size and country of origin, no further analysis was conducted to uncover other potential factors which could shed light on the predisposition of some banks to experience higher reductions in their capital ratios compared to peers. Based on the unique dataset provided by the ECB, our study reveals which characteristics of a bank's ex-ante balance-sheet position are helpful in understanding the fall in bank capital under stress. This is important for all market players to take into account when assessing banks' resilience on the basis of capital ratios. Our findings strengthen the case for combining different solvency ratios to promote financial stability as well as advocating for further international cooperation and disclosure of stress testing results.
Journal: The European Journal of Finance
Pages: 1506-1528
Issue: 15
Volume: 26
Year: 2020
Month: 10
X-DOI: 10.1080/1351847X.2020.1752276
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1752276
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:15:p:1506-1528
Template-Type: ReDIF-Article 1.0
Author-Name: Philippe Oster
Author-X-Name-First: Philippe
Author-X-Name-Last: Oster
Title: When all concern is gone: the impact of call provisions on gone-concern Tier 2 bond spreads in Europe
Abstract:
For the right to redeem a bond before its maturity date, an issuer usually has to pay a call premium to its investors. This article examines the effect of call provisions on callable versus non-callable Tier 2 Contingent Convertible (CoCo) bonds in the Eurozone, Norway and Switzerland on a spread to worst basis – hence, an investors’ perspective. Thereby, I consider seven types of Tier 2 security designs, while controlling for bond, issuer, regulatory and country specific variables. The empirical results for non-rated Tier 2 CoCos show statistically significant call premiums averaging 84.1 basis points (bp). Conversely, callable Tier 2 bonds with a credit rating trade at an average discount of 12.0 bp against their non-callable pendants, in an environment with low or negative yields and a low risk aversion of investors. Consistent with the signaling theory, the value of the call provision is on average lower for investment-grade Tier 2 bonds (−18.1 bp) than for non-investment-grade (8.1 bp) bail-in-able instruments.
Journal: The European Journal of Finance
Pages: 1529-1568
Issue: 15
Volume: 26
Year: 2020
Month: 10
X-DOI: 10.1080/1351847X.2020.1750449
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1750449
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:15:p:1529-1568
Template-Type: ReDIF-Article 1.0
Author-Name: Florian Schroeder
Author-X-Name-First: Florian
Author-X-Name-Last: Schroeder
Author-Name: Andrew Lepone
Author-X-Name-First: Andrew
Author-X-Name-Last: Lepone
Author-Name: Henry Leung
Author-X-Name-First: Henry
Author-X-Name-Last: Leung
Author-Name: Stephen Satchell
Author-X-Name-First: Stephen
Author-X-Name-Last: Satchell
Title: Flash crash in an OTC market: trading behaviour of agents in times of market stress
Abstract:
We examine the 21-minute flash crash in the spot rate for Pound Sterling (GBP/USD) in October 2016. During this period, the sterling price fell 9%. Proprietary data reported to the Financial Conduct Authority show that the round-trip costs of dealers are 60 times higher during the flash crash compared to normal times given liquidity constraints. Further, dealers reduce their trading volume to 1% of the level during normal times. This may be attributable to the collapse of the inter-dealer market during the crash, where dealers could only hedge 31% of their clients’ trades with each other.
Journal: The European Journal of Finance
Pages: 1569-1589
Issue: 15
Volume: 26
Year: 2020
Month: 10
X-DOI: 10.1080/1351847X.2020.1748893
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1748893
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:15:p:1569-1589
Template-Type: ReDIF-Article 1.0
Author-Name: R. Bhar
Author-X-Name-First: R.
Author-X-Name-Last: Bhar
Author-Name: C. Chiarella
Author-X-Name-First: C.
Author-X-Name-Last: Chiarella
Title: Transformation of Heath?Jarrow?Morton models to Markovian systems
Abstract:
A class of volatility functions for the forward rate process is considered, which allows the bond price dynamics in the Heath-Jarrow-Morton (HJM) framework to be reduced to a finite-dimensional Markovian system. The use of this Markovian system in estimation of parameters of the volatility function via use of the Kalman filter is discussed. Further, the Markovian system allows the link to be drawn between the HJM and the Vasicek/Cox-Ingersoll-Ross (CIR) frameworks for modelling the term structure of interest rates.
Journal: The European Journal of Finance
Pages: 1-26
Issue: 1
Volume: 3
Year: 1997
Month: 3
X-DOI: 10.1080/135184797337516
File-URL: http://hdl.handle.net/10.1080/135184797337516
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:1:p:1-26
Template-Type: ReDIF-Article 1.0
Author-Name: G. C. Reid
Author-X-Name-First: G. C.
Author-X-Name-Last: Reid
Author-Name: N. G Terry
Author-X-Name-First: N.
Author-X-Name-Last: G Terry
Author-Name: J. A. Smith
Author-X-Name-First: J. A.
Author-X-Name-Last: Smith
Title: Risk management in venture capital investor-investee relations
Abstract:
This paper provides an empirical analysis of risk handling arrangements adopted in the relationship between the venture capital investor and his investee. The theoretical framework adopted is principal-agent analysis, which views the investee as a risk averse agent entering into a risk sharing contract with the investor, a risk neutral Fully diversified) principal. The sample analysed is made up of twenty venture capital investors in the UK over the period 1992-93, and (where available) their corresponding investee(s). These investors accounted for about three-quarters of venture capital activity in the UK over this period. The paper reports on evidence gathered by semi-structured interviews with investors and investees, on expected returns, portfolio balance, screening and risk sharing.
Journal: The European Journal of Finance
Pages: 27-47
Issue: 1
Volume: 3
Year: 1997
Month: 3
X-DOI: 10.1080/135184797337525
File-URL: http://hdl.handle.net/10.1080/135184797337525
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:1:p:27-47
Template-Type: ReDIF-Article 1.0
Author-Name: P. L. Varson
Author-X-Name-First: P. L.
Author-X-Name-Last: Varson
Author-Name: M. J. P. Selby
Author-X-Name-First: M. J. P.
Author-X-Name-Last: Selby
Title: Option prices as predictors of stock prices: intraday adjustments to information releases
Abstract:
This study tests for intraday lead/lag relationships between a given stock price and the stock value implied by the prices of call options on that stock. The results indicate that throughout the five trading days preceding earnings announcements with significant unanticipated information content, implied stock values lead their corresponding observed stock prices by about fifteen minutes. On the announcement day itself, this lead lengthens to the point that call option prices usually adjust at least one hour before the public announcement. Under most circumstances, evidence of this lead disappears immediately after the announcement and prices remain synchronous between the two markets.
Journal: The European Journal of Finance
Pages: 49-72
Issue: 1
Volume: 3
Year: 1997
Month: 3
X-DOI: 10.1080/135184797337534
File-URL: http://hdl.handle.net/10.1080/135184797337534
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:1:p:49-72
Template-Type: ReDIF-Article 1.0
Author-Name: C. J. Corrado
Author-X-Name-First: C. J.
Author-X-Name-Last: Corrado
Author-Name: Tie Su
Author-X-Name-First: Tie
Author-X-Name-Last: Su
Title: Implied volatility skews and stock return skewness and kurtosis implied by stock option prices
Abstract:
The Black-Scholes* option pricing model is commonly applied to value a wide range of option contracts. However, the model often inconsistently prices deep in-the-money and deep out-of-the-money options. Options professionals refer to this well-known phenomenon as a volatility ‘skew’ or ‘smile’. In this paper, we examine an extension of the Black-Scholes model developed by Corrado and Su that suggests skewness and kurtosis in the option-implied distributions of stock returns as the source of volatility skews. Adapting their methodology, we estimate option-implied coefficients of skewness and kurtosis for four actively traded stock options. We find significantly nonnormal skewness and kurtosis in the option-implied distributions of stock returns.
Journal: The European Journal of Finance
Pages: 73-85
Issue: 1
Volume: 3
Year: 1997
Month: 3
X-DOI: 10.1080/135184797337543
File-URL: http://hdl.handle.net/10.1080/135184797337543
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:1:p:73-85
Template-Type: ReDIF-Article 1.0
Author-Name: C. D. Sinclair
Author-X-Name-First: C. D.
Author-X-Name-Last: Sinclair
Author-Name: D. M. Power
Author-X-Name-First: D. M.
Author-X-Name-Last: Power
Author-Name: A. A. Lonie
Author-X-Name-First: A. A.
Author-X-Name-Last: Lonie
Author-Name: C. V. Helliar
Author-X-Name-First: C. V.
Author-X-Name-Last: Helliar
Title: An investigation of the stability of returns in Western European equity markets
Abstract:
This paper investigates the temporal stability of various dimensions of the returns of 16 European stock markets that are relevant to an analysis of international portfolio diversification. The basic data consist of daily stock market price indices for these markets. This group of indices comprehends a wide range of stock markets differentiated by size, age and technological sophistication, but in each case located in Western Europe. Two main tests were conducted: (a) ANOVA to identify inter-temporal variability and inter-market variability over 24 three-month sub-periods from January 1989 to December 1994, and (b) cluster analysis to identify groups of markets that exhibit similar behaviour patterns. The findings suggest that, while the potential gains from an internationally diversified portfolio restricted to the equities of Western European markets appear to be substantial, the lack of inter-temporal stability in the composition of the optimal portfolio from one period to another makes these gains difficult to achieve in practice.
Journal: The European Journal of Finance
Pages: 87-106
Issue: 1
Volume: 3
Year: 1997
Month: 3
X-DOI: 10.1080/135184797337552
File-URL: http://hdl.handle.net/10.1080/135184797337552
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:3:y:1997:i:1:p:87-106
Template-Type: ReDIF-Article 1.0
Author-Name: Rashad Ahmed
Author-X-Name-First: Rashad
Author-X-Name-Last: Ahmed
Author-Name: Mohammad S. Hasan
Author-X-Name-First: Mohammad S.
Author-X-Name-Last: Hasan
Author-Name: Jahangir Sultan
Author-X-Name-First: Jahangir
Author-X-Name-Last: Sultan
Title: Meteor showers and global asset allocation
Abstract:
Cross-market linkages allow transmission of shocks among markets. Previous measures of such spillovers are based on broader stock market indexes, which cannot identify the industries that are the principal drivers of spillovers and the industries that are most exposed to the spillovers. Using investable equity indexes, we show that basic materials, financials, industrials, technologies, and telecommunication equity sectors were the primary exporters of volatility from the U.S. and that the magnitude of the spillovers increased primarily during and post-2008 financial crisis. There is evidence that Canada was most vulnerable to spillovers, while China’s exposure was the lowest among the countries in the sample. Based on the minimum variance portfolio optimization, we find that investing in foreign industries with low exposure to spillovers from the U.S. generates high Sharpe ratios for U.S. portfolio managers, especially during the financial crisis.
Journal: The European Journal of Finance
Pages: 1703-1724
Issue: 17
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1774406
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1774406
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:17:p:1703-1724
Template-Type: ReDIF-Article 1.0
Author-Name: See-Woo Kim
Author-X-Name-First: See-Woo
Author-X-Name-Last: Kim
Author-Name: Jeong-Hoon Kim
Author-X-Name-First: Jeong-Hoon
Author-X-Name-Last: Kim
Title: Volatility and variance swaps and options in the fractional SABR model
Abstract:
Appropriate capturing the nature of financial market volatility is a significant factor for the pricing of volatility derivatives. A recent study by Gatheral, Jaisson and Rosenbaum [2018. “Volatility is Rough.” Quantitative Finance 18 (6): 933–949] has found that log-volatility behaves as a fractional Brownian motion with a small Hurst exponent at any reasonable time scale. Also, there are several empirical works showing that a stochastic volatility model driven by the fractional Brownian motion well approximates at-the-money volatility skew near expiration. In this paper, we choose the log-normal SABR model with fractional stochastic volatility to valuate variance and volatility swaps. We derive a closed-form exact solution for the fair strike price of the variance swap by using fractional Ito calculus, while we obtain an approximate solution for the fair strike price of the volatility swap by exploiting the shifted log-normal approximation. Also, solution formulas for the variance and volatility option prices are derived. Their accuracy is confirmed through numerical studies. Calibration to market variance swap rates demonstrates the strength of fractional SABR model compared to the Heston and SABR models.
Journal: The European Journal of Finance
Pages: 1725-1745
Issue: 17
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1775671
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1775671
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:17:p:1725-1745
Template-Type: ReDIF-Article 1.0
Author-Name: Hany Ahmed
Author-X-Name-First: Hany
Author-X-Name-Last: Ahmed
Author-Name: Richard Fairchild
Author-X-Name-First: Richard
Author-X-Name-Last: Fairchild
Author-Name: Yilmaz Guney
Author-X-Name-First: Yilmaz
Author-X-Name-Last: Guney
Title: Is corporate hedging always beneficial? A theoretical and empirical analysis
Abstract:
This paper investigates, theoretically and empirically, the impact of corporate hedging activities on firm value/performance. In a perfect market, with self-less management, aiming to maximise shareholder wealth, it may be expected that hedging would improve firm performance and add value. Our major contribution in this paper is that we first demonstrate theoretically the conditions under which hedging can increase or decrease firm value. Our theoretic model demonstrates that the ambiguous relationship between hedging and firm value may be due to a subtle combination of economic (managerial self-interest, agency problems/moral hazard, managerial ability, managerial risk aversion) and behavioural factors (overconfidence). Our empirical analysis confirms the ambiguous effect of hedging on firm performance. Empirically, we focus on the use of derivatives in the corporate hedging of three types of financial risk (foreign currency, interest rate and commodity price risks), and examine the effect on value and performance of listed UK corporations during 2005–2017. We demonstrate that the positive or negative effects of the hedging strategies varies significantly across both the financial risk that is hedged and the type of derivatives contracts used in the hedging as well as the time period in consideration.
Journal: The European Journal of Finance
Pages: 1746-1780
Issue: 17
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1785909
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1785909
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:17:p:1746-1780
Template-Type: ReDIF-Article 1.0
Author-Name: Irene Pablos Nuevo
Author-X-Name-First: Irene
Author-X-Name-Last: Pablos Nuevo
Title: Has the new bail-in framework increased the yield spread between subordinated and senior bonds?
Abstract:
This paper investigates the impact of the introduction and implementation of the new EU bail-in framework on the banks' subordinated bond yield spreads over senior unsecured bonds, and links the bond yields developments with the characteristics of the issuing entities and the economic and financial environment. The analysis does not show evidence of a significant and generalized increase in the spreads as a result of a higher risk perception in the sample under review. The results reinforce the relevance of the Tier 1 capital ratio for making subordinated debt safer, while markets price the higher risk of banks with less stable sources of funding in their liability/capital structures. Market conditions and economic environment variables also play a key role in explaining bond spreads. Interestingly, after the introduction of the new bail-in framework, there is a convergence between the bond yields of the GSIBs and the non-GSIBs, which could point out to a reduction in the market perception of the so-called too big to fail public implicit guarantee. Nonetheless, this convergence is mostly driven by the reduction of the yields of bonds issued by banks not categorized as GSIBs, and not by significant increases in the GSIBs' bond yields.
Journal: The European Journal of Finance
Pages: 1781-1797
Issue: 17
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1776353
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1776353
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:17:p:1781-1797
Template-Type: ReDIF-Article 1.0
Author-Name: Yuxiang Bian
Author-X-Name-First: Yuxiang
Author-X-Name-Last: Bian
Author-Name: Xiong Xiong
Author-X-Name-First: Xiong
Author-X-Name-Last: Xiong
Author-Name: Jinqiang Yang
Author-X-Name-First: Jinqiang
Author-X-Name-Last: Yang
Title: Leverage and valuation of hedge funds under model uncertainty
Abstract:
We extend the model of dynamic leverage and valuation of hedge funds [Lan, Y., N. Wang, and J. Yang. 2013. The Economics of Hedge Funds.” Journal of Financial Economics 110: 300–323.] by incorporating model uncertainty. Our theoretical model predicts that concerns about model uncertainty induce risk-neutral managers to behave more endogenously risk-averse and to choose a more conservative leverage strategy. Moreover, it shows that model uncertainty may reduce the valuations of hedge funds, including incentive fees, and total fees for the manager as well as the investors' payoff, while model uncertainty has ambiguous effects on the valuations of managers' management fees. Finally, we find that model uncertainty significantly increases the break-even alpha at the founding of a hedge fund.
Journal: The European Journal of Finance
Pages: 1798-1816
Issue: 17
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1778054
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1778054
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:17:p:1798-1816
Template-Type: ReDIF-Article 1.0
Author-Name: Giovanni Cerulli
Author-X-Name-First: Giovanni
Author-X-Name-Last: Cerulli
Author-Name: Vincenzo D’Apice
Author-X-Name-First: Vincenzo
Author-X-Name-Last: D’Apice
Author-Name: Franco Fiordelisi
Author-X-Name-First: Franco
Author-X-Name-Last: Fiordelisi
Author-Name: Francesco Masala
Author-X-Name-First: Francesco
Author-X-Name-Last: Masala
Title: Benchmarking non-performing loans
Abstract:
This paper provides a new perspective to evaluate the economic role played by banks in non-performing loans (NPLs) accumulation. We estimate benchmark NPL levels on the judicial inefficiency dimension, controlling for country- and bank-specific factors. To this aim, we first empirically establish whether judicial inefficiency is a key determinant of NPLs in the European banking system for the period 2006–2017. Using the dynamic-Generalized Method of Moments estimations, we show that higher contract enforcement inefficiency increases NPLs. Then, we estimate NPLs benchmark levels using a dose response function based on judicial inefficiency. Our results show that Norway, Sweden, and Italy performed better than the European countries, while Austria, Germany, Spain, Ireland, Cyprus, and Greece performed worse than the European mean. Our results have several policy implications.
Journal: The European Journal of Finance
Pages: 1591-1605
Issue: 16
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1794923
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1794923
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:16:p:1591-1605
Template-Type: ReDIF-Article 1.0
Author-Name: Hyun Jin Jang
Author-X-Name-First: Hyun Jin
Author-X-Name-Last: Jang
Author-Name: Longjie Jia
Author-X-Name-First: Longjie
Author-X-Name-Last: Jia
Author-Name: Harry Zheng
Author-X-Name-First: Harry
Author-X-Name-Last: Zheng
Title: Why should we invest in CoCos than stocks? An optimal growth portfolio approach
Abstract:
We investigate an optimal growth portfolio problem with contingent convertible bonds (CoCos). As the conversion risk in CoCos is closely associated with the issuer's capital structure and the stock price at conversion, we model both equity and credit risk to frame this optimisation problem. This study aims to answer two questions that (i) how investors should optimally allocate their financial wealth between a CoCo and a risk-free bond; and (ii) which approach – investing in a CoCo or in a stock issued by the same bank – could result in higher expected returns. First, we derive the dynamic of a coupon-paying CoCo price under a reduced-form approach. We then decompose the problem into pre- and post-conversion regimes to obtain closed-form optimal strategies. A comparative simulation leads us to conclude that, under various market conditions, investing in a CoCo with a risk-free bond provides a higher expected growth than investing in stock.
Journal: The European Journal of Finance
Pages: 1606-1622
Issue: 16
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1770826
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1770826
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:16:p:1606-1622
Template-Type: ReDIF-Article 1.0
Author-Name: Dongcheol Kim
Author-X-Name-First: Dongcheol
Author-X-Name-Last: Kim
Author-Name: Ren-Raw Chen
Author-X-Name-First: Ren-Raw
Author-X-Name-Last: Chen
Author-Name: Tai-Yong Roh
Author-X-Name-First: Tai-Yong
Author-X-Name-Last: Roh
Author-Name: Durga Panda
Author-X-Name-First: Durga
Author-X-Name-Last: Panda
Title: An examination of ex ante risk and return in the cross-section using option-implied information
Abstract:
This paper examines cross-sectional relations between ex ante expected returns and betas. As a proxy for ex ante expected returns, we use implied returns obtained from the risk-adjusted option pricing model suggested in this paper. We find that implied returns have a positive and significant cross-sectional relation with implied betas in all maturity groups considered. This significant relation is maintained regardless of the inclusion of the well-known CAPM-anomaly variables such as firm size, book-to-market, past returns, earnings-to-price ratio, and liquidity. Ex ante market risk premium estimates have a statistical significance as well as an economic significance in that they contain significant forward-looking information on future macroeconomic conditions. Thus, market betas are priced on an ex ante basis.
Journal: The European Journal of Finance
Pages: 1623-1645
Issue: 16
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1767171
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1767171
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:16:p:1623-1645
Template-Type: ReDIF-Article 1.0
Author-Name: Andrea Landi
Author-X-Name-First: Andrea
Author-X-Name-Last: Landi
Author-Name: Alex Sclip
Author-X-Name-First: Alex
Author-X-Name-Last: Sclip
Author-Name: Valeria Venturelli
Author-X-Name-First: Valeria
Author-X-Name-Last: Venturelli
Title: The effect of the Fed zero-lower bound announcement on bank profitability and diversification
Abstract:
In this paper, we investigate the impact of the Federal Reserve's decision to maintain the zero-lower bound for at least two years on bank profitability and strategies. Using a difference in difference setting, we find that banks with lower reliance on deposit funding are more sensitive to the policy event. Our evidence suggests that, compared to high deposit banks, the reduction in net worth of low deposit banks, induced them to change their strategies toward an increase in fee income to maintain the targeted level of performance. This increase is mainly explained by fiduciary and insurance-related revenues that entail a lower threat for financial stability.
Journal: The European Journal of Finance
Pages: 1646-1672
Issue: 16
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1782961
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1782961
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:16:p:1646-1672
Template-Type: ReDIF-Article 1.0
Author-Name: George Chalamandaris
Author-X-Name-First: George
Author-X-Name-Last: Chalamandaris
Author-Name: Nikos E. Vlachogiannakis
Author-X-Name-First: Nikos E.
Author-X-Name-Last: Vlachogiannakis
Title: Adverse-selection considerations in the market-making of corporate bonds
Abstract:
We examine the effect of adverse selection considerations in the market-making of investment-grade corporate bonds. Our sample consists of bonds participating in the JP Morgan’s JULI index that represents the most traded subset of the market. We find that customer trades executed in the wholesale market segment are more informative than trades executed in the retail-market. However, this asymmetry is not reflected in transaction costs but only seems to affect the dealers’ learning process. Our evidence suggests that the dealers’ tendency to treat as more informative wholesale customer trades translates into statistically significant economic benefit. Moreover, when information asymmetry favors market-makers, we find that the latter perform better than usual. In particular, our evidence suggests that a significant portion of the dealers’ profits stems from their ability to exploit efficiently the arrival of public information.
Journal: The European Journal of Finance
Pages: 1673-1702
Issue: 16
Volume: 26
Year: 2020
Month: 11
X-DOI: 10.1080/1351847X.2020.1764995
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1764995
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:16:p:1673-1702
Template-Type: ReDIF-Article 1.0
Author-Name: Bruce Burton
Author-X-Name-First: Bruce
Author-X-Name-Last: Burton
Author-Name: Satish Kumar
Author-X-Name-First: Satish
Author-X-Name-Last: Kumar
Author-Name: Nitesh Pandey
Author-X-Name-First: Nitesh
Author-X-Name-Last: Pandey
Title: Twenty-five years of The European Journal of Finance (EJF): a retrospective analysis
Abstract:
This study commemorates the 25th anniversary of The European Journal of Finance (EJF) by providing a detailed retrospective analysis of the journal’s output using a range of bibliometric tools. The evidence demonstrates that since its inception the journal has grown consistently in terms of dimension, breadth, quality and reach. The major themes that have come to define the EJF over this time include portfolio management, stock return persistence, risk management, financing decisions, corporate governance, spillover effects, mutual fund performance, volatility measurement and international finance trends. Co-authorship analysis reveals that the journal has fostered a global network of scholars, reflecting the pervasive nature of collaboration that now extends across the world.
Journal: The European Journal of Finance
Pages: 1817-1841
Issue: 18
Volume: 26
Year: 2020
Month: 12
X-DOI: 10.1080/1351847X.2020.1754873
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1754873
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:18:p:1817-1841
Template-Type: ReDIF-Article 1.0
Author-Name: Gamze Ozturk Danisman
Author-X-Name-First: Gamze Ozturk
Author-X-Name-Last: Danisman
Author-Name: Amine Tarazi
Author-X-Name-First: Amine
Author-X-Name-Last: Tarazi
Title: Financial inclusion and bank stability: evidence from Europe
Abstract:
The Great Recession of 2007–2009 piqued the interest of policymakers worldwide, prompting various initiatives to stabilize the financial system and advance financial inclusion. However, few studies have considered their interconnectedness or whether any synergies or trade-offs exist between them. This paper investigates how financial inclusion affects the stability of the European banking system. The findings indicate that advancements in financial inclusion through more account ownership and digital payments have a stabilizing effect on the banking industry. A deeper investigation shows that such a stabilizing impact is mainly driven by the targeting of disadvantaged adults who are young, undereducated, unemployed, and who live in rural areas. Hence, along with its known benefits to society as a whole, financial inclusion has the additional benefit of improving the stability of the financial system. Such findings call for policy configurations that are specifically designed to achieve financial inclusion for disadvantaged individuals.
Journal: The European Journal of Finance
Pages: 1842-1855
Issue: 18
Volume: 26
Year: 2020
Month: 12
X-DOI: 10.1080/1351847X.2020.1782958
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1782958
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:18:p:1842-1855
Template-Type: ReDIF-Article 1.0
Author-Name: Rubén García-Céspedes
Author-X-Name-First: Rubén
Author-X-Name-Last: García-Céspedes
Author-Name: Manuel Moreno
Author-X-Name-First: Manuel
Author-X-Name-Last: Moreno
Title: Random LGD adjustments in the Vasicek credit risk model
Abstract:
This paper proposes an approximate formula to measure the credit risk of portfolios under random recoveries. This formula is based on a Taylor expansion and enables having recoveries that are correlated with the default rates over the business cycle. We show how to calibrate the corresponding models and the accuracy of the approximation using defaulted corporate bonds data for the period 1982–2014. Our results show that the proposed formula can be used to approximate the loss distribution of a portfolio under random correlated recoveries in a very satisfactory way. Moreover, this kind of recovery models could be easily implemented under the Basel capital requirements regulation to improve the credit risk measurement.
Journal: The European Journal of Finance
Pages: 1856-1875
Issue: 18
Volume: 26
Year: 2020
Month: 12
X-DOI: 10.1080/1351847X.2020.1789685
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1789685
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:18:p:1856-1875
Template-Type: ReDIF-Article 1.0
Author-Name: Theodoros Bratis
Author-X-Name-First: Theodoros
Author-X-Name-Last: Bratis
Author-Name: Nikiforos T. Laopodis
Author-X-Name-First: Nikiforos T.
Author-X-Name-Last: Laopodis
Author-Name: Georgios P. Kouretas
Author-X-Name-First: Georgios P.
Author-X-Name-Last: Kouretas
Title: Dynamics among global asset portfolios
Abstract:
We examine the dynamic correlations among several global financial assets with an eye to potential portfolio diversification benefits during the 2008 US financial crisis and EMU sovereign debt crisis of the 2010s. Our findings are summarized as follows: First, evidence for rigorous, dynamic cross-correlations among global equities around the 2008 crisis suggested a weak global diversification potential. Second, financial spillovers strengthened in the post-crisis period thus, exhibiting cycles of inter-linkages among various assets classes. Third, heterogeneous global portfolios (that is, portfolios formed by various asset classes) offered greater returns than homogeneous portfolios for the whole period and especially in the period preceding the 2008 crisis. Overall, we conclude that the US and EMU crisis periods did not affect assets in the same way and hence, risk managers should follow portfolio-construction strategies with risk-offsetting assets (such as commodities) with regard to their cyclical/countercyclical movements.
Journal: The European Journal of Finance
Pages: 1876-1899
Issue: 18
Volume: 26
Year: 2020
Month: 12
X-DOI: 10.1080/1351847X.2020.1791924
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1791924
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:18:p:1876-1899
Template-Type: ReDIF-Article 1.0
Author-Name: Matthew C. Chang
Author-X-Name-First: Matthew C.
Author-X-Name-Last: Chang
Title: Market sentiment, marketable transactions, and returns
Abstract:
Using unique data from the Taiwanese stock market, I explore the transaction aggressiveness of mutual funds, foreign institutions, dealers and retail investors during periods of different market sentiment. Retail investors’ marketable transaction ratios are positively related to stocks’ systematic risk. In contrast, mutual funds and foreign institutions’ marketable transaction ratios are negatively related. Although the marketable transaction ratios of all the four types of investors are higher when market sentiment is more fearful, mutual funds’ trades on the sell side can mitigate the marketable transaction ratios during market panics. Marketable transaction ratios of the four types of investors have significant impacts on stock prices, both directly and indirectly through the influence on order imbalances.
Journal: The European Journal of Finance
Pages: 1900-1925
Issue: 18
Volume: 26
Year: 2020
Month: 12
X-DOI: 10.1080/1351847X.2020.1792961
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1792961
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:18:p:1900-1925
Template-Type: ReDIF-Article 1.0
Author-Name: Cathy Yi-Hsuan Chen
Author-X-Name-First: Cathy Yi-Hsuan
Author-X-Name-Last: Chen
Author-Name: Sergey Nasekin
Author-X-Name-First: Sergey
Author-X-Name-Last: Nasekin
Title: Quantifying systemic risk with factor copulas
Abstract:
We propose a tail dependence based network approach to study systemic risk in a network of systemically important financial institutions (SIFIs). We utilize a flexible factor copula based method which allows to measure the level of extreme risk in a portfolio when dependence is driven by one or several factors. We identify the most ‘connected’ SIFIs based on an eigenvector centrality approach applied to copula-implied dependence structures as ‘central’ SIFIs. We then demonstrate that the level of systemic risk implied by such SIFIs chosen as conditioning factors in the factor copula setup exceeds that which is implied by non-central SIFIs in terms of portfolio Value-at-Risk and the portfolio return under stress. This study contributes to quantification and ranking of the systemic importance of SIFIs which is important for setting adequate capital requirements in particular and stability of financial markets in general.
Journal: The European Journal of Finance
Pages: 1926-1947
Issue: 18
Volume: 26
Year: 2020
Month: 12
X-DOI: 10.1080/1351847X.2020.1828961
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1828961
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:18:p:1926-1947
Template-Type: ReDIF-Article 1.0
Author-Name: Andreas G. F. Hoepner
Author-X-Name-First: Andreas G. F.
Author-X-Name-Last: Hoepner
Author-Name: David McMillan
Author-X-Name-First: David
Author-X-Name-Last: McMillan
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Author-Name: Chardin Wese Simen
Author-X-Name-First: Chardin
Author-X-Name-Last: Wese Simen
Title: Significance, relevance and explainability in the machine learning age: an econometrics and financial data science perspective
Abstract:
Although machine learning is frequently associated with neural networks, it also comprises econometric regression approaches and other statistical techniques whose accuracy enhances with increasing observation. What constitutes high quality machine learning is yet unclear though. Proponents of deep learning (i.e. neural networks) value computational efficiency over human interpretability and tolerate the ‘black box’ appeal of their algorithms, whereas proponents of explainable artificial intelligence (xai) employ traceable ‘white box’ methods (e.g. regressions) to enhance explainability to human decision makers. We extend Brooks et al.’s [2019. ‘Financial Data Science: The Birth of a New Financial Research Paradigm Complementing Econometrics?’ European Journal of Finance 25 (17): 1627–36.] work on significance and relevance as assessment critieria in econometrics and financial data science to contribute to this debate. Specifically, we identify explainability as the Achilles heel of classic machine learning approaches such as neural networks, which are not fully replicable, lack transparency and traceability and therefore do not permit any attempts to establish causal inference. We conclude by suggesting routes for future research to advance the design and efficiency of ‘white box’ algorithms.
Journal: The European Journal of Finance
Pages: 1-7
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2020.1847725
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1847725
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:1-7
Template-Type: ReDIF-Article 1.0
Author-Name: Alla A. Petukhina
Author-X-Name-First: Alla A.
Author-X-Name-Last: Petukhina
Author-Name: Raphael C. G. Reule
Author-X-Name-First: Raphael C. G.
Author-X-Name-Last: Reule
Author-Name: Wolfgang Karl Härdle
Author-X-Name-First: Wolfgang Karl
Author-X-Name-Last: Härdle
Title: Rise of the machines? Intraday high-frequency trading patterns of cryptocurrencies
Abstract:
This research analyses high-frequency data of the cryptocurrency market in regards to intraday trading patterns related to algorithmic trading and its impact on the European cryptocurrency market. We study trading quantitatives such as returns, traded volumes, volatility periodicity, and provide summary statistics of return correlations to CRIX (CRyptocurrency IndeX), as well as respective overall high-frequency based market statistics with respect to temporal aspects. Our results provide mandatory insight into a market, where the grand scale employment of automated trading algorithms and the extremely rapid execution of trades might seem to be a standard based on media reports. Our findings on intraday momentum of trading patterns lead to a new quantitative view on approaching the predictability of economic value in this new digital market.
Journal: The European Journal of Finance
Pages: 8-30
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2020.1789684
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1789684
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:8-30
Template-Type: ReDIF-Article 1.0
Author-Name: Antoine Dechezleprêtre
Author-X-Name-First: Antoine
Author-X-Name-Last: Dechezleprêtre
Author-Name: Cal B. Muckley
Author-X-Name-First: Cal B.
Author-X-Name-Last: Muckley
Author-Name: Parvati Neelakantan
Author-X-Name-First: Parvati
Author-X-Name-Last: Neelakantan
Title: Is firm-level clean or dirty innovation valued more?
Abstract:
We examine how Tobin's Q is linked to ‘clean’ and ‘dirty’ innovation and innovation efficiency at the firm level. Clean innovation relates to patented technologies in areas such as renewable energy generation and electric cars, whereas dirty innovation relates to fossil-based energy generation and combustion engines. We use a global patent data set, covering over 15,000 firms across 12 countries. We find strong and robust evidence that the stock market recognizes the value of clean innovation and innovation efficiency and accords higher valuations to those firms that engage in successful clean research and development activities. The results are substantively invariant across innovation measurement, model specifications, estimators adopted, select sub-samples of firms and United States and European patent offices.
Journal: The European Journal of Finance
Pages: 31-61
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2020.1785520
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1785520
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:31-61
Template-Type: ReDIF-Article 1.0
Author-Name: Panagiotis Asimakopoulos
Author-X-Name-First: Panagiotis
Author-X-Name-Last: Asimakopoulos
Author-Name: Stylianos Asimakopoulos
Author-X-Name-First: Stylianos
Author-X-Name-Last: Asimakopoulos
Author-Name: Aichen Zhang
Author-X-Name-First: Aichen
Author-X-Name-Last: Zhang
Title: Dividend smoothing and credit rating changes
Abstract:
This paper examines the impact of credit rating changes on firms' dividend smoothing behavior, considering for the first time the ‘big three’ credit rating agencies (Standard and Poor's, Fitch and Moody's). Using a hand-collected sample of credit rating changes for firms listed at the S&P500 that are involved in dividend payments, we implement the traditional Lintner's [1956. “Distribution of Incomes of Corporations Among dividends, Retained Earnings and Taxes.” American Economic Review 46: 97–113] model and we initially verify the fact that firms smooth their dividend payments. Then we consider the effect of credit rating changes on smoothing behavior and we show the presence of an asymmetric impact on credit rating changes to dividend smoothing behavior. In particular, on average, a credit rating downgrade among any of the three credit rating agencies forces firms to engage in less smoothing, whereas a credit rating upgrade has only a marginal positive effect on dividend smoothing. Finally, our key results remain valid for firms with high level of financial pressure and under various robustness checks.
Journal: The European Journal of Finance
Pages: 62-85
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2020.1739101
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1739101
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:62-85
Template-Type: ReDIF-Article 1.0
Author-Name: David G. McMillan
Author-X-Name-First: David G.
Author-X-Name-Last: McMillan
Title: Forecasting U.S. stock returns
Abstract:
We forecast quarterly US stock returns using a breadth of forecast variables, methods and metrics, including linear and non-linear regressions, rolling and recursive techniques, forecast combinations and statistical and economic evaluation. Thus, extending research in terms of the range of predictor series and the scope of analysis. Consistent with much of literature, a broad view over the full set of predictor variables indicates that such models are unable to beat the historical mean model. However, nuances reveal forecast success varies according to how the forecasts are evaluated and over time. Results reveal that the term structure of interest rates consistently provides the preferred forecast performance, especially when evaluated using the Sharpe ratio. The purchasing managers index also consistently provides a strong forecast performance. Further results reveal that forecast combinations over the full set of variables do not outperform the preferred single variable forecasts, while an interest rate forecast combination subset does perform well. The success of the term structure and the purchasing managers index highlights the importance of, respectively, investor and firm expectations of future economic performance in providing valuable stock return forecasts and is consistent with asset pricing models that indicate movements in returns are conditioned by such expectations.
Journal: The European Journal of Finance
Pages: 86-109
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2020.1719175
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1719175
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:86-109
Template-Type: ReDIF-Article 1.0
Author-Name: Loukia Meligkotsidou
Author-X-Name-First: Loukia
Author-X-Name-Last: Meligkotsidou
Author-Name: Ekaterini Panopoulou
Author-X-Name-First: Ekaterini
Author-X-Name-Last: Panopoulou
Author-Name: Ioannis D. Vrontos
Author-X-Name-First: Ioannis D.
Author-X-Name-Last: Vrontos
Author-Name: Spyridon D. Vrontos
Author-X-Name-First: Spyridon D.
Author-X-Name-Last: Vrontos
Title: Out-of-sample equity premium prediction: a complete subset quantile regression approach
Abstract:
This paper extends the complete subset linear regression framework to a quantile regression setting. We employ complete subset combinations of quantile forecasts in order to construct robust and accurate equity premium predictions. We show that our approach delivers statistically and economically significant out-of-sample forecasts relative to both the historical average benchmark, the complete subset mean regression approach and the single-variable quantile forecast combination approach. Our recursive algorithm that selects, in real time, the best complete subset for each predictive regression quantile succeeds in identifying the best subset in a time- and quantile-varying manner.
Journal: The European Journal of Finance
Pages: 110-135
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2019.1647866
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1647866
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:110-135
Template-Type: ReDIF-Article 1.0
Author-Name: Ming-Tsung Lin
Author-X-Name-First: Ming-Tsung
Author-X-Name-Last: Lin
Author-Name: Olga Kolokolova
Author-X-Name-First: Olga
Author-X-Name-Last: Kolokolova
Author-Name: Ser-Huang Poon
Author-X-Name-First: Ser-Huang
Author-X-Name-Last: Poon
Title: Slow- and fast-moving information content of CDS spreads: new endogenous systematic factors
Abstract:
This paper proposes two new Credit Default Swap (CDS) endogenous systematic factors constructed from peer-CDS information. The factors capture slow-moving credit risk information, as well as fast-moving newly arrived market information embedded in the most recent CDS quotes. Using a sample of U.S. non-financial listed firms from 2002 to 2011, we find that these two endogenous systematic factors dominate firm-specific factors and other widely known systematic factors in in-sample and out-of-sample CDS spread predictions.
Journal: The European Journal of Finance
Pages: 136-157
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2019.1667846
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1667846
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:136-157
Template-Type: ReDIF-Article 1.0
Author-Name: Richard J. McGee
Author-X-Name-First: Richard J.
Author-X-Name-Last: McGee
Author-Name: Jose Olmo
Author-X-Name-First: Jose
Author-X-Name-Last: Olmo
Title: The size premium as a lottery
Abstract:
We investigate empirically the dependence of the size effect on the top performing stocks in a cross-section of risky assets separated by industry. We propose a test for a lottery-style factor payoff based on a stochastic utility model for an under-diversified investor. The associated conditional logit model is used to rank different investment portfolios based on size and we assess the robustness of the ranking to the inclusion/exclusion of the best performing stocks in the cross-section. Our results show that the size premium has a lottery-style payoff and is spurious for most industries once we remove the single best returning stock in an industry from the sample each month. Analysis in an asset pricing framework shows that standard asset pricing models fail to correctly specify the size premium on risky assets when industry winners are excluded from the construction of the size factor. Our findings have implications for stock picking, investment management and risk factor analysis.
Journal: The European Journal of Finance
Pages: 158-177
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2019.1644360
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1644360
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:158-177
Template-Type: ReDIF-Article 1.0
Author-Name: Myeong Hyeon Kim
Author-X-Name-First: Myeong Hyeon
Author-X-Name-Last: Kim
Author-Name: Seyoung Park
Author-X-Name-First: Seyoung
Author-X-Name-Last: Park
Author-Name: Jong Mun Yoon
Author-X-Name-First: Jong Mun
Author-X-Name-Last: Yoon
Title: Industry portfolio allocation with asymmetric correlations
Abstract:
We develop a new framework of optimal consumption and portfolio choice at industry portfolio level under dynamic and asymmetric correlations between industry and market portfolios. We derive in closed form the optimal consumption and investment strategies under regime-dependent correlations environment. Overall, we find that ignoring time-varying and asymmetric correlations between portfolios can be costly to investors when applied to a construction of the optimal portfolio. Finally, we empirically test the performance of the model-based investment strategy.
Journal: The European Journal of Finance
Pages: 178-198
Issue: 1-2
Volume: 27
Year: 2021
Month: 1
X-DOI: 10.1080/1351847X.2020.1740287
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1740287
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:178-198
Template-Type: ReDIF-Article 1.0
Author-Name: Mohamed Janahi
Author-X-Name-First: Mohamed
Author-X-Name-Last: Janahi
Author-Name: Yuval Millo
Author-X-Name-First: Yuval
Author-X-Name-Last: Millo
Author-Name: Georgios Voulgaris
Author-X-Name-First: Georgios
Author-X-Name-Last: Voulgaris
Title: CFO gender and financial reporting transparency in banks
Abstract:
We investigate the effect of CFO gender on the timeliness of loan loss provision (LLP) reporting using a large sample of US banks from 2007 to 2016. Our findings show that women CFOs are associated with timelier forward-looking provisioning than men counterparts, suggesting that they follow a more transparent approach to financial reporting policies. Our results hold under different model specifications, including the use of bank and CEO fixed effects. We further address endogeneity concerns by showing that the timeliness of LLP reporting improves significantly for banks experiencing a man-followed-by-woman CFO transition. Overall, our study supports the notion that women CFOs are associated with higher financial reporting transparency and provides further insights into how CFO gender affects risk-aversion and ethics in banks, with wider implications about the importance of women’s representation in the finance-based industry.
Journal: The European Journal of Finance
Pages: 199-221
Issue: 3
Volume: 27
Year: 2021
Month: 02
X-DOI: 10.1080/1351847X.2020.1801481
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1801481
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:3:p:199-221
Template-Type: ReDIF-Article 1.0
Author-Name: Ebenezer Asem
Author-X-Name-First: Ebenezer
Author-X-Name-Last: Asem
Author-Name: Shamsul Alam
Author-X-Name-First: Shamsul
Author-X-Name-Last: Alam
Title: The abnormal return associated with consecutive dividend increases
Abstract:
Several studies conclude that dividend changes that are seemingly predictable on a calendar basis attract abnormal returns. We study the abnormal returns associated with consecutive dividend increases to understand this puzzle. We use regression techniques to study the relation between the number of consecutive dividend increases and the abnormal return associated with the events. Further, we study whether this relation is sensitive to firm characteristics by partitioning the regressions by the characteristics that influence the abnormal return. Our results show that the abnormal returns associated with consecutive dividend increases decline at a diminishing rate and they do not disappear, consistent with the puzzle. In addition, the decline in returns is slowest among firms that are unprofitable, small, or have high payouts. These findings suggest that the abnormal returns persist because firms that are not expected to continue a dividend-increase streak based on their characteristics do so, surprising the market and perpetuating the abnormal return.
Journal: The European Journal of Finance
Pages: 222-238
Issue: 3
Volume: 27
Year: 2021
Month: 02
X-DOI: 10.1080/1351847X.2020.1801482
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1801482
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:3:p:222-238
Template-Type: ReDIF-Article 1.0
Author-Name: Ke Wu
Author-X-Name-First: Ke
Author-X-Name-Last: Wu
Author-Name: Spencer Wheatley
Author-X-Name-First: Spencer
Author-X-Name-Last: Wheatley
Author-Name: Didier Sornette
Author-X-Name-First: Didier
Author-X-Name-Last: Sornette
Title: Inefficiency and predictability in the Brexit Pound market: a natural experiment
Abstract:
Exploiting the near-experimental conditions provided by the GBPUSD exchange rate during the Brexit vote of 2016, we quantify a significant delay of the market price in reflecting the increasing probability of a Brexit outcome over the vote counting period. We claim that the Brexit outcome could realistically have been predicted hours before the market adjusted to the outcome. This inefficiency is identified by comparing the market-implied probability of a Brexit outcome with a separate probability, estimated by a standard Monte-Carlo algorithm based on a simple linear regression model, representative of what should have been easily possible in real time. The core of the method is the real-time re-calibration of ex-ante ‘pollster’ predictions for the voting district outcomes by regressing the observed voting results onto them. For comparative purposes, a study of the MXNUSD exchange rate in the 2016 US Presidential Election was done, finding that the market-implied and model-estimated probabilities moved more consistently toward the Trump outcome. Put together, this identifies a somewhat anomalous breakdown in market efficiency in the case of the Brexit vote, which we attribute to its novelty as well as a kind of political bubble and subsequent crash, generated by confirmation bias and social herding.
Journal: The European Journal of Finance
Pages: 239-259
Issue: 3
Volume: 27
Year: 2021
Month: 02
X-DOI: 10.1080/1351847X.2020.1805781
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1805781
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:3:p:239-259
Template-Type: ReDIF-Article 1.0
Author-Name: Jieying Hong
Author-X-Name-First: Jieying
Author-X-Name-Last: Hong
Author-Name: Na Wang
Author-X-Name-First: Na
Author-X-Name-Last: Wang
Title: The effects of credit default swaps on corporate investment
Abstract:
This paper examines how credit default swaps (CDS) affect the corporate investment of the referenced entities. We document a significant reduction in corporate investment after CDS trading, a result that is robust to alternative model specifications and a set of endogeneity tests. Our findings of the increased firm risk and cost of capital support the costly external capital channel. The cross-sectional variations in CDS effects demonstrate that both reduced monitoring and the empty creditor problem might be the underlying forces driving the costly external capital channel. Our additional analysis implies that CDS trading is associated with an enhancement in investment efficiency for firms that are prone to overinvestment.
Journal: The European Journal of Finance
Pages: 260-277
Issue: 3
Volume: 27
Year: 2021
Month: 02
X-DOI: 10.1080/1351847X.2020.1806092
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1806092
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:3:p:260-277
Template-Type: ReDIF-Article 1.0
Author-Name: Savva Shanaev
Author-X-Name-First: Savva
Author-X-Name-Last: Shanaev
Author-Name: Binam Ghimire
Author-X-Name-First: Binam
Author-X-Name-Last: Ghimire
Title: Efficient scholars: academic attention and the disappearance of anomalies
Abstract:
This study examines the dynamics of ten most notable stock market anomalies through 1926–2018 and assesses the joint impact of academic attention, post-publication decay, data-snooping bias, institutional trading, and time trend on their disappearance. It proposes new and simple measures of academic attention attracted by stock market anomalies using the number of articles published on the relevant topic available via Google Scholar or respective citation counts. The study finds that academic attention is the most dominant factor explaining the diminishing abnormal returns of anomaly-exploiting strategies. The approach developed by this study can also be useful in determining whether a stock return regularity is a behavioural anomaly or a systematic risk factor.
Journal: The European Journal of Finance
Pages: 278-304
Issue: 3
Volume: 27
Year: 2021
Month: 02
X-DOI: 10.1080/1351847X.2020.1812684
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1812684
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:3:p:278-304
Template-Type: ReDIF-Article 1.0
Author-Name: Xiaoju Zhao
Author-X-Name-First: Xiaoju
Author-X-Name-Last: Zhao
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Jiafu An
Author-X-Name-First: Jiafu
Author-X-Name-Last: An
Author-Name: Xianda Liu
Author-X-Name-First: Xianda
Author-X-Name-Last: Liu
Author-Name: Yun Zhang
Author-X-Name-First: Yun
Author-X-Name-Last: Zhang
Title: Initial Coin offerings: what rights do investors have?
Abstract:
This paper reviews the growing literature on initial coin offerings (ICOs) and provides original evidence of the investor protection on ICOs from 37 countries. We show that the anti-director rights and anti-self-dealing index are positively associated with the country-level raised fund of ICOs after controlling for economic and culture factors. The disclosure quality and investor rights as specified in the Whitepapers are generally poor and they are found to be important to raise more funds in ICOs. We argue that the lack of (self-) discipline poses a threat to investor protections. Around 60% Whitepaper do not disclose information on the use of proceeds or management team. Around 80% ICOs do not entitle investors the rights for dividend or vote. Our findings suggest the needs of regulating ICOs to protect investors.
Journal: The European Journal of Finance
Pages: 305-320
Issue: 4-5
Volume: 27
Year: 2021
Month: 03
X-DOI: 10.1080/1351847X.2020.1858130
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1858130
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:305-320
Template-Type: ReDIF-Article 1.0
Author-Name: Xiuping Hua
Author-X-Name-First: Xiuping
Author-X-Name-Last: Hua
Author-Name: Yiping Huang
Author-X-Name-First: Yiping
Author-X-Name-Last: Huang
Title: Understanding China’s fintech sector: development, impacts and risks
Abstract:
Financial technology (fintech) is rapidly transforming the economy as well as the financial landscape in China. This paper attempts to shed light on its contributing factors, current state, economic impacts and potential risks. We identify three key drivers for China’s fintech development, namely shortage of supply in formal financial market, strong government support for promoting financial inclusion through digital technology, and more ‘tolerant’ regulatory environment. The greatest value of the Chinese fintech sector is promotion of financial inclusion, enabling a vast number of small- and medium-sized enterprises (SMEs) and low-income households to access to financial services. Existing studies unveil some strong evidences of fintech development improving efficiency, increasing employment and supporting entrepreneurship. In the meantime, there are also serious challenges facing this sector, such as regulatory uncertainties, illegal transactions, data abuse, etc. We conclude the paper by presenting some key takeaways, including several lessons for financial regulation.
Journal: The European Journal of Finance
Pages: 321-333
Issue: 4-5
Volume: 27
Year: 2021
Month: 03
X-DOI: 10.1080/1351847X.2020.1811131
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1811131
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:321-333
Template-Type: ReDIF-Article 1.0
Author-Name: Jiafu An
Author-X-Name-First: Jiafu
Author-X-Name-Last: An
Author-Name: Raghavendra Rau
Author-X-Name-First: Raghavendra
Author-X-Name-Last: Rau
Title: Finance, technology and disruption
Abstract:
In this paper, we assess how recent technology advances have changed the way we coordinate. After a brief discussion of the common challenges to effective coordination, we highlight some important implications of technology on addressing informational and behavioral frictions. We focus on discussing the effects of three specific technology developments including artificial intelligence (AI), automation, and blockchain, on the choice of coordination modes. We argue that technology is shifting the boundaries between firms and markets and is opening the door to new research directions.
Journal: The European Journal of Finance
Pages: 334-345
Issue: 4-5
Volume: 27
Year: 2021
Month: 3
X-DOI: 10.1080/1351847X.2019.1703024
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1703024
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:334-345
Template-Type: ReDIF-Article 1.0
Author-Name: Tong Wang
Author-X-Name-First: Tong
Author-X-Name-Last: Wang
Author-Name: Sheng Zhao
Author-X-Name-First: Sheng
Author-X-Name-Last: Zhao
Author-Name: Xin Shen
Author-X-Name-First: Xin
Author-X-Name-Last: Shen
Title: Why does regional information matter? evidence from peer-to-peer lending
Abstract:
In this paper, we study regional discrimination in a peer-to-peer lending scenario and provide novel empirical evidence for theories of soft information collection and information cost. We find that the regional information matters for borrowers' funding probabilities and that discrimination is profit-oriented or taste-oriented depending on the specific region. Moreover, using borrowers' birthplace as an instrumental variable, we find no evidence of genuine discrimination based purely on region in the peer-to-peer lending market.
Journal: The European Journal of Finance
Pages: 346-366
Issue: 4-5
Volume: 27
Year: 2021
Month: 3
X-DOI: 10.1080/1351847X.2020.1720262
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1720262
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:346-366
Template-Type: ReDIF-Article 1.0
Author-Name: Paul P. Momtaz
Author-X-Name-First: Paul P.
Author-X-Name-Last: Momtaz
Title: The Pricing and Performance of Cryptocurrency
Abstract:
This paper examines the performance of cryptocurrencies issued in initial coin offerings (ICOs) over a three-year period after the initial exchange listing. Average (median) ICO underpricing amounts to 15% (3%), even though 4 out of 10 ICOs destroy value on the first trading day. Liquidity, market capitalization, and high-low price ratios predict returns. Long-run buy-and-hold returns are positive for the mean and negative for the median. For holding periods between one and twenty-four months, the median ICO depreciates by 30%. Evidently, there is substantial positive skewness in the cryptocurrency market. Further, a size effect emerges from the data as an empirical regularity: Large ICOs are more often overpriced and underperform in the long run.
Journal: The European Journal of Finance
Pages: 367-380
Issue: 4-5
Volume: 27
Year: 2021
Month: 3
X-DOI: 10.1080/1351847X.2019.1647259
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1647259
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:367-380
Template-Type: ReDIF-Article 1.0
Author-Name: Shimeng Shi
Author-X-Name-First: Shimeng
Author-X-Name-Last: Shi
Author-Name: Yukun Shi
Author-X-Name-First: Yukun
Author-X-Name-Last: Shi
Title: Bitcoin futures: trade it or ban it?
Abstract:
This paper examines the impact of South Korea’s ban on Bitcoin futures on intraday spot volatility, liquidity and volatility–volume relationship. The results show that while reducing the permanent component of intraday spot volatility, the imposition of a ban on Bitcoin futures trading increases the transitory component. For intraday spot liquidity, different liquidity proxies indicate heterogeneous results. Moreover, we identify a positive and unidirectional effect of intraday spot volume on volatility. This effect appears to be stronger in the post-ban period. Overall, over the past few months, South Korea’s Bitcoin futures ban generally has had a significant impact on the intraday dynamics of the Bitcoin spot market.
Journal: The European Journal of Finance
Pages: 381-396
Issue: 4-5
Volume: 27
Year: 2021
Month: 3
X-DOI: 10.1080/1351847X.2019.1647865
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1647865
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:381-396
Template-Type: ReDIF-Article 1.0
Author-Name: Rui Wang
Author-X-Name-First: Rui
Author-X-Name-Last: Wang
Author-Name: Jiangtao Liu
Author-X-Name-First: Jiangtao
Author-X-Name-Last: Liu
Author-Name: Hang(Robin) Luo
Author-X-Name-First: Hang(Robin)
Author-X-Name-Last: Luo
Title: Fintech development and bank risk taking in China
Abstract:
This paper empirically tests the effect of FinTech development on bank risk taking using unbalanced bank-level panel data from China for the period from 2011 to 2018. We use the media's attention paid to FinTech-related information to gauge FinTech development. We find robust evidence that the development of FinTech exacerbates banks’ risk taking in general. The heterogeneity analysis further indicates that the asset quality deterioration effect brought about by prosperous FinTech is more salient in banks with larger sizes, lower efficiency, more shadow banking business and more interest-based income. Moreover, the nexus between FinTech and banks’ risk taking is a U-shaped trend, with FinTech initially intensifying and then weakening banks’ risk taking. Moreover, the banks’ responses regarding the U-shaped effect are heterogeneous among different ownership structures. The responses by state- and jointly owned banks are not notable, while those of city banks, foreign banks and rural banks are more sensitive.
Journal: The European Journal of Finance
Pages: 397-418
Issue: 4-5
Volume: 27
Year: 2021
Month: 03
X-DOI: 10.1080/1351847X.2020.1805782
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1805782
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:397-418
Template-Type: ReDIF-Article 1.0
Author-Name: Lan Di
Author-X-Name-First: Lan
Author-X-Name-Last: Di
Author-Name: George X. Yuan
Author-X-Name-First: George X.
Author-X-Name-Last: Yuan
Author-Name: Tu Zeng
Author-X-Name-First: Tu
Author-X-Name-Last: Zeng
Title: The consensus equilibria of mining gap games related to the stability of Blockchain Ecosystems
Abstract:
The equity and currency tokens are typically two kinds of initial coin offerings (ICOs) like Bitcoin or Ethereum based on the platform of Blockchains to provide a particular product or service, it is very important to study the mechanism of Blockchain Ecosystems. The goal of this paper is to explain the stable in the sense for the existence of consensus equilibria for mining gap games by using one new concept called ‘consensus games (CG)’ under the framework of Blockchain Ecosystems which mainly mean the economic activities by taking into the account of three types of different factors which are expenses, reward mechanism and mining power for the work on blockschain by applying consensuses including the ‘Proof of Work’ due to Nakamoto in 2008 as a special case.
Journal: The European Journal of Finance
Pages: 419-440
Issue: 4-5
Volume: 27
Year: 2021
Month: 03
X-DOI: 10.1080/1351847X.2020.1776352
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1776352
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:419-440
Template-Type: ReDIF-Article 1.0
Author-Name: Anton Golub
Author-X-Name-First: Anton
Author-X-Name-Last: Golub
Author-Name: Lidan Grossmass
Author-X-Name-First: Lidan
Author-X-Name-Last: Grossmass
Author-Name: Ser-Huang Poon
Author-X-Name-First: Ser-Huang
Author-X-Name-Last: Poon
Title: Ultra-short tenor yield curve for intraday trading and settlement
Abstract:
Due to the increasing prevalence of high-frequency algorithmic trading and fintech developments like blockchain, there is a shift towards very short trading horizons and immediate settlement. This creates a demand for an ultra-short tenor interest rate curve that is updated in real-time. Our paper develops a practical market model for the equilibrium intraday interest rates which provides market makers adequate incentives to attenuate flash crashes. Our model suggests that the intraday CHF interest rates should have been highly negative during the flash crash of EURCHF on 15 January 2015, which could potentially stop the long CHF short EUR strategy and reduce the severity of the crash.
Journal: The European Journal of Finance
Pages: 441-459
Issue: 4-5
Volume: 27
Year: 2021
Month: 3
X-DOI: 10.1080/1351847X.2019.1662821
File-URL: http://hdl.handle.net/10.1080/1351847X.2019.1662821
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:4-5:p:441-459
Template-Type: ReDIF-Article 1.0
Author-Name: Jerome Geyer-Klingeberg
Author-X-Name-First: Jerome
Author-X-Name-Last: Geyer-Klingeberg
Author-Name: Markus Hang
Author-X-Name-First: Markus
Author-X-Name-Last: Hang
Author-Name: Andreas Rathgeber
Author-X-Name-First: Andreas
Author-X-Name-Last: Rathgeber
Title: Corporate financial hedging and firm value: a meta-analysis
Abstract:
This study is a quantitative review of the empirical literature analyzing firm value effects of corporate financial hedging. Using meta-regression analysis to accumulate a hand-collected data set of 1016 estimates for the hedging premium reported in 71 previous studies, we find that reported firm value effects of hedging are systematically larger for foreign exchange hedgers as compared to interest rate and commodity price hedgers, for studies published in lower-ranked journals, and for models estimated without firm fixed effects and without controls for endogeneity. Our results also suggest that hedging premiums increase significantly when a study considers operational hedging strategies in addition to financial hedging. Moreover, we find evidence for a larger hedging premium in less developed financial markets and countries with higher tax rates. Aggregating the previous hedging literature and assuming a ‘best practice’ study design, we find an overall hedging premium of 1.8% for foreign currency hedgers and a firm value discount of −0.8% (−0.6%) for interest rate (commodity price) hedgers.
Journal: The European Journal of Finance
Pages: 461-485
Issue: 6
Volume: 27
Year: 2021
Month: 04
X-DOI: 10.1080/1351847X.2020.1816559
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1816559
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:6:p:461-485
Template-Type: ReDIF-Article 1.0
Author-Name: Hongkang Xu
Author-X-Name-First: Hongkang
Author-X-Name-Last: Xu
Author-Name: Duong Nguyen
Author-X-Name-First: Duong
Author-X-Name-Last: Nguyen
Author-Name: Mai Dao
Author-X-Name-First: Mai
Author-X-Name-Last: Dao
Title: Pilot CEOs and trade credit
Abstract:
By using a pilot license as a proxy for the sensation-seeking personality trait, we examine the relation between sensation-seeking CEOs and trade credit. With a sample of pilot CEOs and non-pilot CEOs from U.S. listed firms from 1993–2016, we find strong evidence that firms led by pilot CEOs are more likely to use trade credit than those led by non-pilot CEOs. The positive relation between pilot CEOs and trade credit is more pronounced for firms with high investment growth opportunities. The results are consistent with our conjecture that firms with pilot CEOs tend to have a higher level of trade credit, especially when they need capital to finance long-term investment activities to satisfy the CEOs’ desire for sensation. Our findings establish a link between a CEO personality trait and trade credit and suggest that this CEO personality trait might be a relevant factor in determining purchaser firms’ use of trade credit.
Journal: The European Journal of Finance
Pages: 486-509
Issue: 6
Volume: 27
Year: 2021
Month: 04
X-DOI: 10.1080/1351847X.2020.1816560
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1816560
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:6:p:486-509
Template-Type: ReDIF-Article 1.0
Author-Name: Oyakhilome Ibhagui
Author-X-Name-First: Oyakhilome
Author-X-Name-Last: Ibhagui
Title: Inflation differential as a driver of cross-currency basis swap spreads
Abstract:
Over the last decade, the foreign exchange derivatives market has witnessed a collapse of covered interest parity (CIP). Not only does this collapse give rise to large deviations from CIP, it has unlocked a stream of exploitable arbitrage opportunities across currencies. In this paper, we introduce two new factors – inflation differential and relative economic performance – as potential drivers of deviations from CIP. Employing data on G10 cross-currency basis swap spreads viz a viz the U.S. dollar, we document a striking new evidence that higher inflation differential and incremental improvement in relative economic performance drive the basis wider, and hence arbitrage profits higher for U.S. dollar-based investors, in the post crisis period. Our main empirical results in general are robust to an extended number of controls, variations in sampling frequency, and consideration of alternative specifications, but the additional explanatory power is low.
Journal: The European Journal of Finance
Pages: 510-536
Issue: 6
Volume: 27
Year: 2021
Month: 04
X-DOI: 10.1080/1351847X.2020.1824928
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1824928
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:6:p:510-536
Template-Type: ReDIF-Article 1.0
Author-Name: Mingchen Sun
Author-X-Name-First: Mingchen
Author-X-Name-Last: Sun
Author-Name: Raffaella Calabrese
Author-X-Name-First: Raffaella
Author-X-Name-Last: Calabrese
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Title: What affects bank debt rejections? Bank lending conditions for UK SMEs
Abstract:
Using the UK SMEs Finance Monitor data over 2011–2017, we explore the determinants of bank debt rejections for UK SMEs. In the wake of the global financial crisis, business overdrafts and term loans show slightly different trends although the factors affecting rejections are similar. We find that since 2014 rejection rates reduced for both facilities and they remained stable in the run-up to the Brexit referendum and its immediate aftermath, although export and import SMEs operating in industries with a high share of EU trade experienced tighter conditions. Further, we present robust evidence that firms with female owners, organised in partnerships, and with a higher initial credit balance are more likely to have their credit application approved. Finally, younger, smaller and more innovative SMEs are more likely to be rejected, while their chance of being successful in their credit applications increases substantially after 2014.
Journal: The European Journal of Finance
Pages: 537-563
Issue: 6
Volume: 27
Year: 2021
Month: 04
X-DOI: 10.1080/1351847X.2020.1799834
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1799834
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:6:p:537-563
Template-Type: ReDIF-Article 1.0
Author-Name: Tak Kuen Siu
Author-X-Name-First: Tak Kuen
Author-X-Name-Last: Siu
Author-Name: Robert J. Elliott
Author-X-Name-First: Robert J.
Author-X-Name-Last: Elliott
Title: Bitcoin option pricing with a SETAR-GARCH model
Abstract:
This paper aims to study the pricing of Bitcoin options with a view to incorporating both conditional heteroscedasticity and regime switching in Bitcoin returns. Specifically, a nonlinear time series model combining both the self-exciting threshold autoregressive (SETAR) model and the generalized autoregressive conditional heteroscedastic (GARCH) model is adopted for modeling Bitcoin return dynamics. Specifically, the SETAR model is used to model regime switching and the Heston-Nandi GARCH model is adopted to model conditional heteroscedasticity. Both the conditional Esscher transform and the variance-dependent pricing kernel are used to specify pricing kernels. Numerical studies on the Bitcoin option prices using real bitcoins data are presented.
Journal: The European Journal of Finance
Pages: 564-595
Issue: 6
Volume: 27
Year: 2021
Month: 04
X-DOI: 10.1080/1351847X.2020.1828962
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1828962
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:6:p:564-595
Template-Type: ReDIF-Article 1.0
Author-Name: Silke Rünger
Author-X-Name-First: Silke
Author-X-Name-Last: Rünger
Title: Personal taxation and individual stock ownership
Abstract:
Under a differential taxation system, portfolio allocation decisions are based not only on the risk-return relationship of assets but also on their tax characteristics. The higher the tax burden on equity securities, the lower the share of stock investment in a tax-optimal portfolio. I use a multitude of changes in personal tax rates to assess the impact of personal taxes on individual stock ownership among a sample of 9,055 listed European firms. I observe lower levels of individual stock ownership, if relative personal taxes on stock ownership are higher than personal taxes on bonds. Cross-sectional evidence further reveals that the relation between personal taxation and individual stock ownership is significantly moderated by firm-specific risk. I additionally provide single country evidence of a tax clientele effect. Following an increase in the personal capital gains tax rate in Austria, I find individual owners to rebalance stock ownership to maximize after-tax returns in light of the new tax rules.
Journal: The European Journal of Finance
Pages: 596-611
Issue: 6
Volume: 27
Year: 2021
Month: 04
X-DOI: 10.1080/1351847X.2020.1837899
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1837899
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:6:p:596-611
Template-Type: ReDIF-Article 1.0
Author-Name: Joseba Luzarraga-Goitia
Author-X-Name-First: Joseba
Author-X-Name-Last: Luzarraga-Goitia
Author-Name: Marta Regúlez-Castillo
Author-X-Name-First: Marta
Author-X-Name-Last: Regúlez-Castillo
Author-Name: Arturo Rodríguez-Castellanos
Author-X-Name-First: Arturo
Author-X-Name-Last: Rodríguez-Castellanos
Title: The dynamics between the stock market and exchange rates: Spain 1999–2015
Abstract:
Despite the significance of the subprime crisis, there are few studies of its impact on the dynamics between stock markets and exchange rates in Eurozone countries. This study helps to remedy that shortage by analysing the dynamics between the stock market and exchange rates for the Spanish economy in the period 1999–2015 with sub-periods 1999–2007 and 2008–2015, both before and after the financial crisis. We analyse the Granger causality between the Spanish stock market and real effective exchange rates and EUR/USD, EUR/JPY, EUR/CNY and EUR/GBP bilateral rates, through the Toda and Yamamoto procedure. To check robustness and sign in the direction of causality we use impulse-response analysis. On the one hand, the results show that the relationships analysed are significant only in the crisis sub-period (2008–2015), in which bilateral exchange rates lead fluctuations in the stock market while the latter leads the real effective exchange rate. On the other hand, for bilateral exchange rates the directions that show the impulse-response analysis are consistent with those shown in the Granger-causality analysis and the sign coincides with the data on the merchandise trade balance with the countries in question.
Journal: The European Journal of Finance
Pages: 655-678
Issue: 7
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1832024
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1832024
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:7:p:655-678
Template-Type: ReDIF-Article 1.0
Author-Name: Doriana Cucinelli
Author-X-Name-First: Doriana
Author-X-Name-Last: Cucinelli
Author-Name: Lorenzo Gai
Author-X-Name-First: Lorenzo
Author-X-Name-Last: Gai
Author-Name: Federica Ielasi
Author-X-Name-First: Federica
Author-X-Name-Last: Ielasi
Author-Name: Arturo Patarnello
Author-X-Name-First: Arturo
Author-X-Name-Last: Patarnello
Title: Preventing the deterioration of bank loan portfolio quality: a focus on unlikely-to-pay loans
Abstract:
This study examines determinants of: (a) new flows of unlikely-to-pay loans (UTPs), comparing them to determinants of bad loans; and (b) out-flows from UTPs to performing and bad loans. A novel panel data-set covering the period 2010–2016 is used to test hypotheses relating to lending policy, bank capitalization, bad management, and procyclical credit policy. Determinants identified by the existing literature on the wider category of all non-performing loans are in part confirmed for UTPs and in part rejected. The main findings show: (i) a positive relationship exists between bank capitalization and new flows of both UTPs and bad loans; (ii) reducing cost efficiency increases both new flows of UTPs and the worsening of UTPs towards bad loans; and (iii) having a specific unit/office to manage impaired loans increases flows from UTPs to performing loans, but does not decrease flows to bad loans. Our study is useful for banks seeking to prevent new impaired exposures, to accelerate the transition from UTPs to performing loans, and to prevent UTPs worsening to bad loans. The findings reveal the importance of sound and proactive UTP management, given the need for banks to increase provisions for covering UTPs in the near future.
Journal: The European Journal of Finance
Pages: 613-634
Issue: 7
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1830143
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1830143
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:7:p:613-634
Template-Type: ReDIF-Article 1.0
Author-Name: Antonio F. Miguel
Author-X-Name-First: Antonio F.
Author-X-Name-Last: Miguel
Title: Do fund flows moderate persistence? Evidence from a global study
Abstract:
We investigate whether fund flows eliminate future abnormal performance and persistence as in Berk and Green (2004. “Mutual Fund Flows and Performance in Rational Markets.” Journal of Political Economy 112: 1269–1295) using a sample of open-end domestic equity mutual funds from 32 countries. We show that flows have only a small moderating effect on persistence even in the United States, where fund industry conditions most closely resemble the Berk and Green assumptions. In fact, we find that most countries do not have decreasing returns to scale in fund management and, as a result, flows have limited impact on mutual fund performance persistence.
Journal: The European Journal of Finance
Pages: 635-654
Issue: 7
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1830820
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1830820
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:7:p:635-654
Template-Type: ReDIF-Article 1.0
Author-Name: Yingjie Niu
Author-X-Name-First: Yingjie
Author-X-Name-Last: Niu
Author-Name: Yaoyao Wu
Author-X-Name-First: Yaoyao
Author-X-Name-Last: Wu
Author-Name: Zhentao Zou
Author-X-Name-First: Zhentao
Author-X-Name-Last: Zou
Title: Irreversible investment, asset returns, and time-inconsistent preferences
Abstract:
This paper introduces time-inconsistent preferences into the standard model of capacity choice and investigates its influences on entrepreneurial firms' investment decisions and asset returns. With time-inconsistent preferences, the entrepreneurial firm's expansion decision becomes more conservative. In addition, we find the value reduction caused by time-inconsistent preferences is more substantial in growth opportunities than assets in place. For asset returns, we show that time inconsistency lowers the beta of the firm through the channel of growth opportunities since the beta of assets in place is not affected by time-inconsistent preferences. Finally, the impacts on the capacity choice, firm value and asset returns also depend on such factors as whether entrepreneurs are sophisticated or naive in their expectations regarding future time-inconsistent behavior.
Journal: The European Journal of Finance
Pages: 706-720
Issue: 7
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1863244
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1863244
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:7:p:706-720
Template-Type: ReDIF-Article 1.0
Author-Name: René Ferland
Author-X-Name-First: René
Author-X-Name-Last: Ferland
Author-Name: Simon Lalancette
Author-X-Name-First: Simon
Author-X-Name-Last: Lalancette
Title: Portfolio choices and hedge funds: a disappointment aversion analysis
Abstract:
The inclusion of hedge funds in large institutional portfolios is controversial. We use a disappointment aversion utility-based framework to investigate this issue. We empirically model the end-of-period wealth directly as opposed to the joint return distribution. This approach captures the interconnections between different asset categories without resorting to complex modeling. We observe that several hedge-fund strategies produce incremental economic benefits that generally weaken at higher levels of disappointment aversion. Portfolio weights are also constrained to match those of a generic pension fund. Results show that significant economic benefits are possible but only under restrictive conditions.
Journal: The European Journal of Finance
Pages: 679-705
Issue: 7
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1832552
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1832552
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:7:p:679-705
Template-Type: ReDIF-Article 1.0
Author-Name: Subhadip Mukherjee
Author-X-Name-First: Subhadip
Author-X-Name-Last: Mukherjee
Author-Name: Soumyatanu Mukherjee
Author-X-Name-First: Soumyatanu
Author-X-Name-Last: Mukherjee
Author-Name: Tapas Mishra
Author-X-Name-First: Tapas
Author-X-Name-Last: Mishra
Author-Name: Udo Broll
Author-X-Name-First: Udo
Author-X-Name-Last: Broll
Author-Name: Mamata Parhi
Author-X-Name-First: Mamata
Author-X-Name-Last: Parhi
Title: Spot exchange rate volatility, uncertain policies and export investment decision of firms: a mean-variance decision approach
Abstract:
This paper studies characteristics of optimal investment decisions of risk-averse firms who engage in exports under two types of risks: endogenous and background risks. While endogenous risk arises from the fluctuations in spot exchange rate and affects directly the profit of an exporting firm, background risk arises from uncertain changes in firm- and industry-specific domestic and foreign policies. We propose a mean-variance decision-theoretic model to trace out impact of perturbations in the distributions of these uncertainties on the optimal investment strategy. A testable empirical model is derived and applied to a panel of 840 exporting Indian manufacturing firms for the period 1995–2015. Our results suggest that Indian manufacturing exporters depict decreasing absolute risk aversion and that firms’ risk preferences are prone to variance vulnerability.
Journal: The European Journal of Finance
Pages: 752-773
Issue: 8
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1842785
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1842785
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:8:p:752-773
Template-Type: ReDIF-Article 1.0
Author-Name: Xiaodong Wang
Author-X-Name-First: Xiaodong
Author-X-Name-Last: Wang
Author-Name: Liang Han
Author-X-Name-First: Liang
Author-X-Name-Last: Han
Author-Name: Xing Huang
Author-X-Name-First: Xing
Author-X-Name-Last: Huang
Author-Name: Biao Mi
Author-X-Name-First: Biao
Author-X-Name-Last: Mi
Title: The financial and operational impacts of European SMEs’ use of trade credit as a substitute for bank credit
Abstract:
We study the impacts of the use of trade credit on SME financial performance and operational distress in a sample of 74,036 SMEs across 19 EU countries between 2006 and 2015. Under the premise that trade credit acts as a substitute for bank credit, our results show that supplying trade credit improves profitability, but we show little evidence that such an investment is more profitable for bank credit richer SMEs, although such firms did redistribute more bank fund through trade credit to their customers. For receivers, we show that the use of trade credit finance alleviates operational distress, especially for those SMEs facing liquidity constraints, such as those which have less access to bank credit or under credit tightened periods. This distress reduction effect is also reflected in their profitability indicators. However, the longer the average collection period and credit period, the less effective the trade credit effects respectively on improving SME profitability and reducing operational distress.
Journal: The European Journal of Finance
Pages: 796-825
Issue: 8
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1846576
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1846576
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:8:p:796-825
Template-Type: ReDIF-Article 1.0
Author-Name: Javier Rojo-Suárez
Author-X-Name-First: Javier
Author-X-Name-Last: Rojo-Suárez
Author-Name: Ana Belén Alonso-Conde
Author-X-Name-First: Ana Belén
Author-X-Name-Last: Alonso-Conde
Author-Name: Ricardo Ferrero-Pozo
Author-X-Name-First: Ricardo
Author-X-Name-Last: Ferrero-Pozo
Title: Can the seasonal pattern of consumption growth reproduce habits in the cross-section of stock returns? Evidence from the European equity market
Abstract:
This paper examines the prevalence for Europe of some well-documented seasonal patterns in consumption data, which allow classic consumption-based asset pricing models to omit an explicit habit specification. We use the Campbell-Cochrane habit model as a reference, proxying habit persistence by the serial correlation of consumer sentiment. Our results show that consumption data for the third and fourth quarters allow the classic power utility function to perform very similarly to the Campbell-Cochrane model, while the serial correlation of consumer sentiment helps improve the explanatory power of habits.
Journal: The European Journal of Finance
Pages: 721-739
Issue: 8
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1838936
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1838936
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:8:p:721-739
Template-Type: ReDIF-Article 1.0
Author-Name: Ran Tao
Author-X-Name-First: Ran
Author-X-Name-Last: Tao
Author-Name: Chris Brooks
Author-X-Name-First: Chris
Author-X-Name-Last: Brooks
Author-Name: Adrian Bell
Author-X-Name-First: Adrian
Author-X-Name-Last: Bell
Title: Tomorrow's fish and chip paper? Slowly incorporated news and the cross-section of stock returns
Abstract:
The link between news and investor decision making is widely discussed in the literature. Utilising unique U.S. firm-level news data between 1979 and 2016, we document a cross-sectional difference in the speed of the diffusion of information contained in news. We distinguish news articles as being either slowly or quickly incorporated into contemporaneous stock prices. The return spread between stocks classified according to these two types of news yields a statistically significant profit of 139 basis points per month. This abnormal return cannot be explained by other well-known risk factors and is robust when allowing for trading costs. Overall, our research refines the role of news regarding information dissemination in the financial markets.
Journal: The European Journal of Finance
Pages: 774-795
Issue: 8
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1846575
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1846575
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:8:p:774-795
Template-Type: ReDIF-Article 1.0
Author-Name: Bo Liu
Author-X-Name-First: Bo
Author-X-Name-Last: Liu
Author-Name: Hongli Wang
Author-X-Name-First: Hongli
Author-X-Name-Last: Wang
Author-Name: Jinqiang Yang
Author-X-Name-First: Jinqiang
Author-X-Name-Last: Yang
Title: Dynamic financing and hedging under model uncertainty
Abstract:
We extend the classic framework to investigate a firm's optimal financing, investment, payout and hedging strategies under model uncertainty (or ambiguity). It shows that model uncertainty has essentially different effects on liquidity policies compared to traditional business risk. A firm facing model uncertainty prefers refinancing less and payout earlier, and the marginal value may be increased when the refinancing option is in the money. Moreover, our model demonstrates that hedging tools play an important role in mitigating the negative impacts on firm value caused by model uncertainty, which illustrates an interesting result that traditional risk management method works well not only on business risk but also on model uncertainty.
Journal: The European Journal of Finance
Pages: 740-751
Issue: 8
Volume: 27
Year: 2021
Month: 05
X-DOI: 10.1080/1351847X.2020.1841665
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1841665
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:8:p:740-751
Template-Type: ReDIF-Article 1.0
Author-Name: Stefano Filomeni
Author-X-Name-First: Stefano
Author-X-Name-Last: Filomeni
Author-Name: Gregory F. Udell
Author-X-Name-First: Gregory F.
Author-X-Name-Last: Udell
Author-Name: Alberto Zazzaro
Author-X-Name-First: Alberto
Author-X-Name-Last: Zazzaro
Title: Hardening soft information: does organizational distance matter?
Abstract:
A large literature has developed on the distinction between hard and soft information with much of this literature focused on displacement of soft information with hard information. We investigate whether the propensity of loan officers at local branches to incorporate soft information in the credit scoring process is affected by the geographical distance between the branch and the bank’s headquarters. We find that hardening soft information is significantly sensitive to branch-to-headquarters distance. We also find that organizational distance affects time for loan approval, increasing approval time for applicants receiving a good credit score (i.e. low probability of default) originated at distant branches and reducing approval time for applicants with poor credit scores (i.e. high probability of default). Finally, we find that on average organizational distance has no direct impact on the likelihood of the occurrence of negative credit events. However, the final rating being equal, the hardening of soft information has an influence on loan performance that varies with organizational distance. Overall, our findings are consistent with the presence of spatially based communication frictions within banking organizations.
Journal: The European Journal of Finance
Pages: 897-927
Issue: 9
Volume: 27
Year: 2021
Month: 06
X-DOI: 10.1080/1351847X.2020.1857812
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1857812
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:9:p:897-927
Template-Type: ReDIF-Article 1.0
Author-Name: Zaghum Umar
Author-X-Name-First: Zaghum
Author-X-Name-Last: Umar
Author-Name: Francisco Jareño
Author-X-Name-First: Francisco
Author-X-Name-Last: Jareño
Author-Name: Ana Escribano
Author-X-Name-First: Ana
Author-X-Name-Last: Escribano
Title: Static and dynamic connectedness between oil price shocks and Spanish equities: a sector analysis
Abstract:
This paper explores the static and dynamic connectedness between oil price shocks (risk, demand and supply shocks) and Spanish sector equity indices from January-2000 to July-2019. We document sizable system-wide connectedness between the variables under study. Among the oil shocks, demand and risk shocks are the main transmitter (receiver) of shocks to (from) the system and are overall net receiver of shocks from the system. Among the equity indices, Industrials, Financials, Utilities and Telecommunications as the major net transmitters whereas; Consumer Goods, Technology, Retail and Telecommunications are the main net receivers. The dynamic connectedness changes over time and between sectors. We document important differences over time and between sectors, mainly during the recent global financial crisis and the European sovereign debt crisis. Overall, Financials, Telecommunications, Industrials and Utilities as the most influential sectors.
Journal: The European Journal of Finance
Pages: 880-896
Issue: 9
Volume: 27
Year: 2021
Month: 06
X-DOI: 10.1080/1351847X.2020.1854809
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1854809
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:9:p:880-896
Template-Type: ReDIF-Article 1.0
Author-Name: Paolo Coccorese
Author-X-Name-First: Paolo
Author-X-Name-Last: Coccorese
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Title: Bank capital and profitability: evidence from a global sample
Abstract:
This study employs bank-level data for a global sample of 125 countries to examine the relationship between capital and profitability for a period of 19 years (2000–2018) that includes both normal and crisis time. Our evidence suggests that bank capital is positively related to bank profitability, although the estimated impact is relatively weak. The relationship depends on environmental conditions as well as bank size. It is typically stronger in crisis periods, in lower and middle income countries and for larger banks (but not for Global Systemically Important Banks, or GSIBs). Finally, for banks operating in more corrupt environments, the same increase in capital is associated with more profitable institutions compared with banks based in countries with lower corruption levels. Our findings are robust to different specifications of the baseline model, and carry useful implications for policy reforms aimed at ensuring stability to the banking sector globally.
Journal: The European Journal of Finance
Pages: 827-856
Issue: 9
Volume: 27
Year: 2021
Month: 06
X-DOI: 10.1080/1351847X.2020.1832902
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1832902
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:9:p:827-856
Template-Type: ReDIF-Article 1.0
Author-Name: Mikica Drenovak
Author-X-Name-First: Mikica
Author-X-Name-Last: Drenovak
Author-Name: Vladimir Ranković
Author-X-Name-First: Vladimir
Author-X-Name-Last: Ranković
Author-Name: Branko Urošević
Author-X-Name-First: Branko
Author-X-Name-Last: Urošević
Author-Name: Ranko Jelic
Author-X-Name-First: Ranko
Author-X-Name-Last: Jelic
Title: Bond portfolio management under Solvency II regulation
Abstract:
We develop a novel approach to the bond portfolio optimization for insurance companies that are subject to the new Solvency II regulation. The regulatory efficient portfolios are determined using the Non-dominated Sorting Genetic Algorithm II (NSGA-II). The characteristics of the estimated efficient portfolios are examined in different market regimes. Our findings suggest low cardinality of all estimated efficient portfolios despite explicit regulatory penalties for highly concentrated portfolios. The efficient portfolios are dominated by short term and BBB rated bonds. The lack of diversification and over-exposure to bonds with higher credit risk in different market regimes represents a weakness of the Solvency II regulation with unintended consequences for management of insurance companies.
Journal: The European Journal of Finance
Pages: 857-879
Issue: 9
Volume: 27
Year: 2021
Month: 06
X-DOI: 10.1080/1351847X.2020.1850499
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1850499
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:9:p:857-879
Template-Type: ReDIF-Article 1.0
Author-Name: Konstantinos Gkillas
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Gkillas
Author-Name: Christos Floros
Author-X-Name-First: Christos
Author-X-Name-Last: Floros
Author-Name: Muhammad Tahir Suleman
Author-X-Name-First: Muhammad Tahir
Author-X-Name-Last: Suleman
Title: Quantile dependencies between discontinuities and time-varying rare disaster risks
Abstract:
We study the role of rare disaster risks in discontinuities (jumps) in the US equity market. To this end, we use data from Dow Jones Industrial Average and International Crisis Behavior database (as a proxy for rare disaster risks) over the period January 1918 – December 2013. We apply a quantile dependence approach in order to detect directional predictability from rare disaster risks to various types of jumps, realized skewness and realized kurtosis risks at different quantiles and lags. We find an asymmetric relationship between jumps and rare disaster risks, as we report a heterogenous dependency across different quantiles and lag orders. Although rare disaster risks can significantly help in the predictability of jumps, large jumps due to large price movements happened in the market do not associate with rare disasters.
Journal: The European Journal of Finance
Pages: 932-962
Issue: 10
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2020.1809487
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1809487
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:10:p:932-962
Template-Type: ReDIF-Article 1.0
Author-Name: Lukáš Pfeifer
Author-X-Name-First: Lukáš
Author-X-Name-Last: Pfeifer
Author-Name: Martin Hodula
Author-X-Name-First: Martin
Author-X-Name-Last: Hodula
Title: New kid on the block: leverage ratio and its implications for banking regulation
Abstract:
The capital regulation reform package (CRR2) proposed for the EU banking sector introduces a minimum leverage ratio as a (non-risk-weighted) prudential backstop. In this paper, we use Czech bank-level data to explore the implications of introducing a leverage ratio into the capital regulatory framework. Specifically, we create an artificial ‘laboratory’ environment where we study the relationship between the two regulatory tools and selected bank-specific variables. We identify channels through which the capital and leverage ratios might be affected and test the functionality of those channels. Our results confirm that the capital and leverage ratios complement each other and that the leverage ratio is far less procyclical than the capital ratio. We also demonstrate an over-the-cycle functionality of our proposed channels of interaction between the capital and leverage ratios. We show that the leverage ratio (or similar microprudential backstops, such as an output floor) could be an important tool for maintaining resilience, especially for banking sectors with a high share of banks using the internal rating-based approach to risk weight setting.
Journal: The European Journal of Finance
Pages: 1009-1028
Issue: 10
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2020.1789185
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1789185
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:10:p:1009-1028
Template-Type: ReDIF-Article 1.0
Author-Name: Gaganis Chrysovalantis
Author-X-Name-First: Gaganis
Author-X-Name-Last: Chrysovalantis
Author-Name: Peter Molnár
Author-X-Name-First: Peter
Author-X-Name-Last: Molnár
Title: Economic policies and their effects on financial market
Journal: The European Journal of Finance
Pages: 929-931
Issue: 10
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2021.1899955
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1899955
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:10:p:929-931
Template-Type: ReDIF-Article 1.0
Author-Name: Olga Fullana
Author-X-Name-First: Olga
Author-X-Name-Last: Fullana
Author-Name: Javier Ruiz
Author-X-Name-First: Javier
Author-X-Name-Last: Ruiz
Author-Name: David Toscano
Author-X-Name-First: David
Author-X-Name-Last: Toscano
Title: Stock market bubbles and monetary policy effectiveness
Abstract:
In this paper, we provide evidence on the role of conventional monetary policy in the dynamics of stock market bubbles. We analyze the response of stock market returns to monetary policy shocks but condition the analysis on both the direction of monetary policy surprises and business conditions. Following a two-step approach, we first use a structural vector autoregressive (SVAR) model to identify a proxy variable of monetary policy shocks, and then we apply a conditional regression to contemporary stock market returns and these monetary policy shocks to extract the implicit relationship between these variables in different scenarios. Our results show that monetary policy does not impact on stock market returns in a significant form in the scenario defined by positive shocks and expansion periods, i.e. the lower effectiveness of restrictive monetary policy shocks coincides with the phase of the business cycle in which bubbles arise.
Journal: The European Journal of Finance
Pages: 963-975
Issue: 10
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2020.1782960
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1782960
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:10:p:963-975
Template-Type: ReDIF-Article 1.0
Author-Name: Emilios Galariotis
Author-X-Name-First: Emilios
Author-X-Name-Last: Galariotis
Author-Name: Konstantinos Karagiannis
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Karagiannis
Title: Cultural dimensions, economic policy uncertainty, and momentum investing: international evidence
Abstract:
Culture, i.e. our values, norms, beliefs, and expected behaviors, has a significant influence on all aspects of social behavior. In addition, the economic policy-making of governments has been shown to have a significant impact on financial markets. In this paper, for the first time, we combine these two findings to examine whether, and if so how, culture and economic policy uncertainty have an impact on style investing, and more specifically on the popular momentum investing. We also extend previous studies in that we employ additional cultural dimensions, rather than just individualism, such as power distance, uncertainty avoidance, masculinity, and long-term orientation
(Hofstede [1980]. Culture's Consequences: International Differences in Work-Related Values. Beverly Hills, CA: Sage, [1991]. Cultures and Organizations: Software of the Mind. London: McGraw-Hill, [2001]. Culture's Consequences. 2nd ed. Beverly Hills, CA: Sage, [2011]. “Dimensionalizing Cultures: The Hofstede Model in Context.” Online Readings in Psychology and Culture 2 (1): 1–26). Our results indicate a strong link between cultural dimensions, economic policy uncertainty, and momentum investing in international financial markets. We argue that this link is not affected by differences in the economic cycle, and/or global variables such as oil prices and global market-related uncertainty, and that apart from individualism, there are other cultural elements, which may influence momentum investing.
Journal: The European Journal of Finance
Pages: 976-993
Issue: 10
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2020.1782959
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1782959
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:10:p:976-993
Template-Type: ReDIF-Article 1.0
Author-Name: Athanasios P. Fassas
Author-X-Name-First: Athanasios P.
Author-X-Name-Last: Fassas
Author-Name: Dimitris Kenourgios
Author-X-Name-First: Dimitris
Author-X-Name-Last: Kenourgios
Author-Name: Stephanos Papadamou
Author-X-Name-First: Stephanos
Author-X-Name-Last: Papadamou
Title: U.S. unconventional monetary policy and risk tolerance in major currency markets
Abstract:
This paper studies the effects of U.S. unconventional monetary policy announcements on the implied volatility of three major currency pairs, Dollar/Euro, Dollar/British Pound and Dollar/Yen by using panel data analysis along with several model specifications and robustness tests. Monetary policy announcements not only have an effect on the realized behavior of asset prices, but also influence market participants’ expectations regarding future volatility. Our empirical findings show that Federal Reserve’s unconventional monetary policy announcements significantly reduce the market expectations about future realized volatility of exchange rates, suggesting that lax monetary policy leads to elevated risk-tolerance in currency markets. Furthermore, our findings indicate that market participants’ expectations respond differently to the different rounds of U.S. quantitative easing.
Journal: The European Journal of Finance
Pages: 994-1008
Issue: 10
Volume: 27
Year: 2021
Month: 7
X-DOI: 10.1080/1351847X.2020.1775105
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1775105
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:10:p:994-1008
Template-Type: ReDIF-Article 1.0
Author-Name: George N. Leledakis
Author-X-Name-First: George N.
Author-X-Name-Last: Leledakis
Author-Name: Emmanuel C. Mamatzakis
Author-X-Name-First: Emmanuel C.
Author-X-Name-Last: Mamatzakis
Author-Name: Emmanouil G. Pyrgiotakis
Author-X-Name-First: Emmanouil G.
Author-X-Name-Last: Pyrgiotakis
Author-Name: Nickolaos G. Travlos
Author-X-Name-First: Nickolaos G.
Author-X-Name-Last: Travlos
Title: Does it pay to acquire private firms? Evidence from the U.S. banking industry
Abstract:
We extend the U.S. bank M&As literature by examining bidder announcement abnormal returns in deals involving both public and private targets over a 32-years examination period. Our main findings document the existence of a listing effect in our sample. Banks gain when they acquire private firms and lose when they acquire public firms. Gains in private offers are even higher when bidders employ financial advisors, whereas the opposite is true for public deals. We argue that this adverse advisor effect relates to the different levels of information asymmetry between public and private targets. Our results remain robust when we control for usual determinants of bidder abnormal returns, such as the method of payment, size, or relative size and when we control for sample selection and endogeneity problems.
Journal: The European Journal of Finance
Pages: 1029-1051
Issue: 10
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2020.1799835
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1799835
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:10:p:1029-1051
Template-Type: ReDIF-Article 1.0
Author-Name: Jiafu An
Author-X-Name-First: Jiafu
Author-X-Name-Last: An
Author-Name: Jiaman Xu
Author-X-Name-First: Jiaman
Author-X-Name-Last: Xu
Title: International spillovers of corporate scandal: evidence from the Harvey Weinstein event
Abstract:
Exploiting a representative survey which overlapped with the revelation of the Harvey Weinstein scandal, we firstly discover that the scandal in the United States causally increased the preference for gender equality in Italy. Consistent with prospect theory, we then show that firms in the entertainment industry experienced excess loss in share value compared to their peers in other industries immediately following the revelation of the scandal. Further analyses suggest that this value impact is stronger for firms with a higher percentage of women executives. Our results are thus relevant for institutional investors holding a global portfolio.
Journal: The European Journal of Finance
Pages: 1053-1072
Issue: 11
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2021.1906729
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1906729
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:11:p:1053-1072
Template-Type: ReDIF-Article 1.0
Author-Name: Denisa Lleshaj
Author-X-Name-First: Denisa
Author-X-Name-Last: Lleshaj
Author-Name: Jannik Kocian
Author-X-Name-First: Jannik
Author-X-Name-Last: Kocian
Title: Short selling disclosure and its impact on CDS spreads
Abstract:
The European Union introduced Regulation 236/2012 in 2012 to address short selling and certain aspects of credit default swaps (CDS). Consequently, a uniform short position disclosure regime was developed, which is used in this paper to examine CDS spreads as a proxy for credit risk around public short sale announcements and evaluate the disclosure policy's relevance from the debtholder's perspective. Existing literature documents short selling regulations’ impacts on the stock market, but no evidence exists from the CDS market. Therefore, we first conduct an event study to examine the effects of different short sale events on corresponding firms’ CDS spreads between 2012 and 2018. Moreover, we use regression analyses to control for several credit risk determinants that may also affect CDS spreads. Our evidence suggests that opening and increasing short positions are perceived as negative information, and in this regard lead to higher CDS spreads. In contrast, CDS spreads tend to be lower if short positions decrease or close. Additionally, we find that negative information ceteris paribus more strongly affects CDS spreads than positive information. Finally, we investigate certain anticipatory reactions when negative news enters the CDS market.
Journal: The European Journal of Finance
Pages: 1117-1150
Issue: 11
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2020.1858129
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1858129
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:11:p:1117-1150
Template-Type: ReDIF-Article 1.0
Author-Name: Stefan Petry
Author-X-Name-First: Stefan
Author-X-Name-Last: Petry
Title: The effect of issuer leverage on issuer bid and ask quotes for structured retail products
Abstract:
The financial institution that issues a structured retail product (SRP) becomes the dealer for that security. Issuer–dealer funding constraints can directly impact price quotes for SRPs. The 2007–2009 financial crisis diminished issuer funding liquidity, and both bid and ask quotes declined, with the decrease in bids being significantly greater than that for the asks. A reduction in the bid (ask) discourages (encourages) investor selling (buying) and helps preserve dealer capital. The SRP’s intrinsic value places a bound on how far the ask needs to be reduced to induce investor buying. High-leverage (low-leverage) issuers are the most (least) financially constrained and decrease their bids by a significant 167% (nonsignificant 41%) compared to the pre-crisis average. The decrease in asks is nonsignificant for both groups.
Journal: The European Journal of Finance
Pages: 1073-1097
Issue: 11
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2020.1860108
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1860108
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:11:p:1073-1097
Template-Type: ReDIF-Article 1.0
Author-Name: G. Bonaccolto
Author-X-Name-First: G.
Author-X-Name-Last: Bonaccolto
Author-Name: M. Caporin
Author-X-Name-First: M.
Author-X-Name-Last: Caporin
Author-Name: N. Zambon
Author-X-Name-First: N.
Author-X-Name-Last: Zambon
Title: Multiple co-jumps in the cross-section of US equities and the identification of system(at)ic movements
Abstract:
By analyzing a very large dataset of high-frequency returns, we propose two indexes informative of the occurrence of multiple co-jumps in the cross-section of US equities. These indexes have important implications not only in asset allocation and hedging but also in asset pricing. Notably, the two diffusion indexes capture a part of the variation in stocks' returns which is not explained by the capital asset pricing model's traditional factors. Besides, the empirical results provide evidence of interesting relations between contemporaneous jumps, stock size and capitalization.
Journal: The European Journal of Finance
Pages: 1098-1116
Issue: 11
Volume: 27
Year: 2021
Month: 07
X-DOI: 10.1080/1351847X.2020.1856704
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1856704
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:11:p:1098-1116
Template-Type: ReDIF-Article 1.0
Author-Name: Jingsi Leng
Author-X-Name-First: Jingsi
Author-X-Name-Last: Leng
Author-Name: Aydin Ozkan
Author-X-Name-First: Aydin
Author-X-Name-Last: Ozkan
Author-Name: Neslihan Ozkan
Author-X-Name-First: Neslihan
Author-X-Name-Last: Ozkan
Author-Name: Agnieszka Trzeciakiewicz
Author-X-Name-First: Agnieszka
Author-X-Name-Last: Trzeciakiewicz
Title: CEO overconfidence and the probability of corporate failure: evidence from the United Kingdom
Abstract:
This paper investigates the impact of CEO overconfidence on the probability of corporate bankruptcy. Using a large dataset of UK firms, we find that firms with overconfident CEOs face a greater risk of failure. The presence of overconfident CEOs leads to a higher risk of bankruptcy in innovative environments, while the impact is insignificant in non-innovative environments. Moreover, overconfident CEOs can increase the bankruptcy risk of firms with less conservative accounting. We find that banks, as major creditors, seem to play an important role in constraining CEO overconfidence, and hence in reducing the likelihood of bankruptcy. Finally, the impact of overconfidence on the probability of bankruptcy is stronger in firms with generalist CEOs than specialist CEOs.
Journal: The European Journal of Finance
Pages: 1210-1234
Issue: 12
Volume: 27
Year: 2021
Month: 08
X-DOI: 10.1080/1351847X.2021.1876131
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1876131
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:12:p:1210-1234
Template-Type: ReDIF-Article 1.0
Author-Name: Jan Bartholdy
Author-X-Name-First: Jan
Author-X-Name-Last: Bartholdy
Author-Name: Lene Gilje Justesen
Author-X-Name-First: Lene Gilje
Author-X-Name-Last: Justesen
Title: Can strong capital regulation prevent risk-taking from deposit insurance?
Abstract:
Can strong capital regulation prevent risk-taking from deposit insurance? Denmark offers a unique setting providing solid identification for testing risk incentives from deposit insurance under strong capital regulation. The Danish system is a universal system without strong risk exposure regulation. Commercial banks and savings banks have different ownership structures but are subject to the same set of regulations, but savings banks have no incentive to increase risk after the implementation of a deposit insurance scheme. We show that commercial banks did not increase their risk at the introduction of deposit insurance compared to savings banks. We attribute this to strong capital requirements and a firm closure policy. The results also hold for large commercial banks, indicating that the systemic risk did not increase either. Finally, there is no evidence that commercial banks increase their risk by allowing their customers to increase their leverage (risk) compared with customers in savings banks.
Journal: The European Journal of Finance
Pages: 1164-1185
Issue: 12
Volume: 27
Year: 2021
Month: 08
X-DOI: 10.1080/1351847X.2020.1860107
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1860107
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:12:p:1164-1185
Template-Type: ReDIF-Article 1.0
Author-Name: Stephanie Titzck
Author-X-Name-First: Stephanie
Author-X-Name-Last: Titzck
Author-Name: Jan Willem van den End
Author-X-Name-First: Jan Willem
Author-X-Name-Last: van den End
Title: The impact of size, composition and duration of the central bank balance sheet on inflation expectations and market prices
Abstract:
We analyse the effects of announcements of changes in the Eurosystem’s balance sheet size, duration and composition on inflation expectations, the exchange rate, the 10-year euro area government bond yield and stock returns, using local projections. We explicitly take into account interaction effects between the three balance sheet dimensions. We provide evidence for the duration extraction channel of monetary policy transmission as we find that the bond yield is sensitive to the combined impact of shocks to balance sheet size and duration. The exchange rate is also affected by a joint size-duration shock. Moreover, the bond yield and exchange rate are sensitive to the joint effect of changes in size and composition. The results indicate that interactions between balance sheet dimensions matter.
Journal: The European Journal of Finance
Pages: 1186-1209
Issue: 12
Volume: 27
Year: 2021
Month: 08
X-DOI: 10.1080/1351847X.2020.1866051
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1866051
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:12:p:1186-1209
Template-Type: ReDIF-Article 1.0
Author-Name: Antonios Siganos
Author-X-Name-First: Antonios
Author-X-Name-Last: Siganos
Title: A novel measure of sleep based on Google: the case for financial markets
Abstract:
We address in this study the issue of how to proxy sleep and explore sleep’s significance for financial markets. We employ daily Google search activity on sleepiness terms (e.g. sleep deprivation) to develop an index and find that a one-day lagged sleepiness index is related negatively to US stock market returns. When investors lack sleep, stock market returns are relatively low. This pattern could be explained by sleep deprivation causing an increased level of investor anxiety and risk aversion. We find that this relation is most pronounced on days with high uncertainty in the market. Sleep is negatively related to stock market returns even after controlling for sentiment. Overall, our results highlight the application of Google Trend in a new field showing that investors’ sleep patterns influence their investment decisions.
Journal: The European Journal of Finance
Pages: 1151-1163
Issue: 12
Volume: 27
Year: 2021
Month: 08
X-DOI: 10.1080/1351847X.2020.1857289
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1857289
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:12:p:1151-1163
Template-Type: ReDIF-Article 1.0
Author-Name: Junhuan Zhang
Author-X-Name-First: Junhuan
Author-X-Name-Last: Zhang
Author-Name: Yuqian Xu
Author-X-Name-First: Yuqian
Author-X-Name-Last: Xu
Author-Name: Daniel Houser
Author-X-Name-First: Daniel
Author-X-Name-Last: Houser
Title: Vulnerability of scale-free cryptocurrency networks to double-spending attacks
Abstract:
Cryptocurrencies including Bitcoin are known to be vulnerable to so-called ‘double-spending’ attacks, where the same digital currency is used to execute multiple different transactions simultaneously. Little is known, however, about the underlying reasons for this vulnerability. Here we develop an agent-based model to study how features of cryptocurrency networks contribute to their vulnerability to double-spending attacks. Perhaps surprisingly, we find neither the number of network nodes nor its path length seem to influence the probability of successful attacks. We find robust evidence that the network's clustering coefficient has substantial influence. In particular, scale-free networks, with their small clustering coefficients, are more than twice as likely to succumb to double-spending attacks than are networks with larger coefficients, such as regular networks. The implication is that cryptocurrency networks, which are scale-free, may be uniquely susceptible to double-spending attacks.
Journal: The European Journal of Finance
Pages: 1235-1249
Issue: 12
Volume: 27
Year: 2021
Month: 08
X-DOI: 10.1080/1351847X.2021.1886964
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1886964
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:12:p:1235-1249
Template-Type: ReDIF-Article 1.0
Author-Name: Akanksha Jalan
Author-X-Name-First: Akanksha
Author-X-Name-Last: Jalan
Author-Name: Roman Matkovskyy
Author-X-Name-First: Roman
Author-X-Name-Last: Matkovskyy
Author-Name: Andrew Urquhart
Author-X-Name-First: Andrew
Author-X-Name-Last: Urquhart
Title: What effect did the introduction of Bitcoin futures have on the Bitcoin spot market?
Abstract:
Bitcoin futures were introduced in December 2017 and this was seen by some as a sign of the most popular cryptocurrency finally being accepted by the financial community. In this paper, we examine the impact of the introduction of Bitcoin futures on the Bitcoin spot market in terms of five characteristics – returns, volatility, skewness, kurtosis and liquidity, using a Bayesian diffusion-regression (state-space) structural time-series model. Our results indicate that the introduction of bitcoin futures potentially exerted a downward impact on the USD bitcoin spot market return and skewness and an upward one on volatility, kurtosis and liquidity, which became higher after futures were introduced. Therefore, our paper offers important insights for investors and regulators, while providing some guidance as to the potential impact of futures markets on other cryptocurrencies.
Journal: The European Journal of Finance
Pages: 1251-1281
Issue: 13
Volume: 27
Year: 2021
Month: 09
X-DOI: 10.1080/1351847X.2020.1869992
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1869992
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:13:p:1251-1281
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Bleaney
Author-X-Name-First: Michael
Author-X-Name-Last: Bleaney
Author-Name: Veronica Veleanu
Author-X-Name-First: Veronica
Author-X-Name-Last: Veleanu
Title: Redenomination risk in eurozone corporate bond spreads
Abstract:
We investigate the risk spillover from euro area government bond spreads (relative to a safe German government bond of similar maturity) to nonfinancial corporate bonds in France, the Netherlands (‘hard’ euro-area countries), and Italy, Portugal and Spain (‘soft’ euro-area countries). In addition to standard firm- and bond-specific determinants of corporate bonds (capturing liquidity and tax effects, and other euro area macroeconomic risks), we show that there is significant risk transfer from government bonds to the nonfinancial corporate sector. After decomposing the government bond spread into a default risk and a currency redenomination risk component, associated with a possible split in the euro, we find that redenomination risk has been a significant factor in the pricing of corporate bonds, particularly in the ‘soft’ euro-area countries.
Journal: The European Journal of Finance
Pages: 1303-1325
Issue: 13
Volume: 27
Year: 2021
Month: 09
X-DOI: 10.1080/1351847X.2021.1882524
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1882524
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:13:p:1303-1325
Template-Type: ReDIF-Article 1.0
Author-Name: Shima Amini
Author-X-Name-First: Shima
Author-X-Name-Last: Amini
Author-Name: Robert Hudson
Author-X-Name-First: Robert
Author-X-Name-Last: Hudson
Author-Name: Andrew Urquhart
Author-X-Name-First: Andrew
Author-X-Name-Last: Urquhart
Author-Name: Jian Wang
Author-X-Name-First: Jian
Author-X-Name-Last: Wang
Title: Nonlinearity everywhere: implications for empirical finance, technical analysis and value at risk
Abstract:
We show that expected returns on US stocks and all major global stock market indices have a particular form of non-linear dependence on previous returns. The expected sign of returns tends to reverse after large price movements and trends tend to continue after small movements. The observed market properties are consistent with various models of investor behaviour and can be captured by a simple polynomial model. We further discuss a number of important implications of our findings. Incorrectly fitting a simple linear model to the data leads to a substantial bias in coefficient estimates. We show through the polynomial model that well-known short-term technical trading rules may be substantially driven by the non-linear behaviour observed. The behaviour also has implications for the appropriate calculation of important risk measures such as value at risk.
Journal: The European Journal of Finance
Pages: 1326-1349
Issue: 13
Volume: 27
Year: 2021
Month: 09
X-DOI: 10.1080/1351847X.2021.1900888
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1900888
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:13:p:1326-1349
Template-Type: ReDIF-Article 1.0
Author-Name: Rui Li
Author-X-Name-First: Rui
Author-X-Name-Last: Li
Author-Name: Yanhong Qian
Author-X-Name-First: Yanhong
Author-X-Name-Last: Qian
Title: How does entrepreneurship influence the efficiency of household portfolios?
Abstract:
This paper examines the impact of entrepreneurship on the efficiency of household financial portfolios by constructing Sharpe ratios and Sortino ratios of seven kinds of financial assets, based on data from the 2013, 2015 and 2017 China Household Finance Survey (CHFS), in conjunction with the returns of the financial asset index of China from 2010 to 2018. Employing CRE regressions, Heckman two-stage models and PSM methods, we find that undertaking entrepreneurship helps to increase the efficiency of household portfolios significantly. This study also verifies that entrepreneurial households improve their portfolio efficiency through financial information by testing the moderating effects of social network, business experience and financial literacy. In addition, this study shows that entrepreneurial households generally adopt a less diversified strategy in asset allocation than do non-entrepreneurial households.
Journal: The European Journal of Finance
Pages: 1282-1302
Issue: 13
Volume: 27
Year: 2021
Month: 09
X-DOI: 10.1080/1351847X.2021.1883698
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1883698
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:13:p:1282-1302
Template-Type: ReDIF-Article 1.0
Author-Name: Keith Jakob
Author-X-Name-First: Keith
Author-X-Name-Last: Jakob
Author-Name: Augusto Castillo
Author-X-Name-First: Augusto
Author-X-Name-Last: Castillo
Author-Name: German Rubio
Author-X-Name-First: German
Author-X-Name-Last: Rubio
Title: Changing currencies and cognitive biases: evidence of the impact of introducing the Euro on dividend heaping in Europe
Abstract:
Heaping is defined as a cognitive bias to round numbers even if precise results are desired. This article targets on dividends in four key European markets (Germany, France, the UK, and Switzerland) over the 1981–2019 period. We hypothesize and report that the change of currency in Germany and France (they both adopted the Euro in January 1999) significantly influenced the characteristics of heaping observed in the dividends both in the short and in the long run. We also report that consistent with the prior literature, the probability of rounding of dividends in each country is significantly related to both information uncertainty and dividend size. In the UK and Switzerland heaping increases over time for the full 1981–2019 period for all designated rounding intervals. For Germany and France heaping increases for all rounding intervals during the 1981–1998 period, but the adoption of the Euro leads to a drastic reduction of heaping that lasts several years in both markets. In the long run, after the adoption of the Euro, the likelihood of heaping recovers for small rounding intervals, but remains well below the previous levels for larger rounding intervals.
Journal: The European Journal of Finance
Pages: 1438-1457
Issue: 14
Volume: 27
Year: 2021
Month: 09
X-DOI: 10.1080/1351847X.2021.1894196
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1894196
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:14:p:1438-1457
Template-Type: ReDIF-Article 1.0
Author-Name: Louise Gorman
Author-X-Name-First: Louise
Author-X-Name-Last: Gorman
Author-Name: Theo Lynn
Author-X-Name-First: Theo
Author-X-Name-Last: Lynn
Author-Name: Eleonora Monaco
Author-X-Name-First: Eleonora
Author-X-Name-Last: Monaco
Author-Name: Riccardo Palumbo
Author-X-Name-First: Riccardo
Author-X-Name-Last: Palumbo
Author-Name: Pierangelo Rosati
Author-X-Name-First: Pierangelo
Author-X-Name-Last: Rosati
Title: The effect of media coverage on target firms’ trading activity and liquidity around domestic acquisition announcements: evidence from UK
Abstract:
This study investigates the effect of news media coverage on trading activity in, and the liquidity of, target firms’ shares around acquisition announcements. We use the number of articles published in four of the UK's main newspapers as a proxy for media coverage. Our dataset includes 350 UK domestic acquisition deals between 1996 and 2014. The results of our analysis suggest that media coverage is positively associated with target firms’ trading activity and stock liquidity. This is consistent with the media playing a key role in mitigating information asymmetry in the financial markets. This study contributes to the literature on stock market reactions to acquisition announcements by investigating the effect of media coverage on trading activity and stock liquidity beyond the price run-up, and by providing additional insights into the UK market which traditionally attracts less attention than the US market.
Journal: The European Journal of Finance
Pages: 1392-1412
Issue: 14
Volume: 27
Year: 2021
Month: 09
X-DOI: 10.1080/1351847X.2021.1883081
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1883081
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:14:p:1392-1412
Template-Type: ReDIF-Article 1.0
Author-Name: Hurvashee Gya
Author-X-Name-First: Hurvashee
Author-X-Name-Last: Gya
Author-Name: Ahmed Barakat
Author-X-Name-First: Ahmed
Author-X-Name-Last: Barakat
Author-Name: Kevin Amess
Author-X-Name-First: Kevin
Author-X-Name-Last: Amess
Author-Name: Anna Chernobai
Author-X-Name-First: Anna
Author-X-Name-Last: Chernobai
Title: How do banking analysts behave around unanticipated news? Evidence from operational risk event announcements
Abstract:
We study earnings per share (EPS) forecast revision and accuracy of banking analysts around operational risk event announcements in U.S. banks. We find that first announcements of operational risk events are more informative than their settlement announcements. Optimistic banking analysts revise their forecasts downward more aggressively around operational risk disclosures, thereby improving forecast accuracy. Career concerns of banking analysts cause an upward bias in forecast revision and deterioration in forecast accuracy only if the potential employer is a systemically important bank (SIB). We find consistent evidence linking competition among banking analysts with optimistic and inaccurate forecasts, which is consistent with analysts seeking to use inflated forecasts to curry favour and attract businesses to their brokerage house around the time of operational risk disclosures. Global settlement has no favourable impact on analyst forecast accuracy around operational risk event announcements. We find evidence supporting a materiality threshold of $10 million for the informativeness of operational risk event announcements in SIBs. Overall, our results shed light on optimism bias in banking analyst behaviour upon the arrival of unanticipated news.
Journal: The European Journal of Finance
Pages: 1351-1391
Issue: 14
Volume: 27
Year: 2021
Month: 09
X-DOI: 10.1080/1351847X.2020.1870518
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1870518
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:14:p:1351-1391
Template-Type: ReDIF-Article 1.0
Author-Name: Ashrafee Tanvir Hossain
Author-X-Name-First: Ashrafee Tanvir
Author-X-Name-Last: Hossain
Author-Name: Takdir Hossain
Author-X-Name-First: Takdir
Author-X-Name-Last: Hossain
Author-Name: Lawrence Kryzanowski
Author-X-Name-First: Lawrence
Author-X-Name-Last: Kryzanowski
Title: Social environment and corporate payouts
Abstract:
We investigate if macro-level social capital, which captures the notions of trust and honesty, has any effects on corporate payout policy. We find that firms situated in U.S. states (or counties) with higher levels of social capital (SC) have higher dividend payouts (DP). These results survive a battery of robustness tests dealing with inference and various forms of endogeneity. We find that the positive SC-DP association is more prominent when monitoring is weak. We also find that the positive SC-DP association remains when we account for internal social capital, political corruption, federal and state income taxes, and other possible dividend clienteles such as in-state pension funds and pension-age populations. Our study contributes to the literatures that regional locations and social considerations constitute clienteles who affect important corporate strategic decisions such as corporate payouts.
Journal: The European Journal of Finance
Pages: 1413-1437
Issue: 14
Volume: 27
Year: 2021
Month: 09
X-DOI: 10.1080/1351847X.2021.1889631
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1889631
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:14:p:1413-1437
Template-Type: ReDIF-Article 1.0
Author-Name: Giulia Baschieri
Author-X-Name-First: Giulia
Author-X-Name-Last: Baschieri
Author-Name: Andrea Carosi
Author-X-Name-First: Andrea
Author-X-Name-Last: Carosi
Author-Name: Stefano Mengoli
Author-X-Name-First: Stefano
Author-X-Name-Last: Mengoli
Title: The decision to go public and the IPO underpricing with locally biased investors
Abstract:
We provide new evidence that local investors are peculiarly biased towards local IPO stocks. Taking the well-known investor preference for local stocks a step further, we contribute by showing that local IPOs boost stock market participation far more intensely than local listed firms. Interestingly, the effect is driven by individuals born and raised in the region, having zero effect for those who have moved to the area. Consistent with underwriters significantly under-estimating the local investors’ demand in local IPOs, the probability of a private firm to go public, the IPO underpricing and the cross-sectional volatility of IPO initial returns, increase in remote firms where the local investors’ demand in local IPOs is particularly high. Overall, our results suggest that local investors are crucial for the IPO decision.
Journal: The European Journal of Finance
Pages: 1489-1532
Issue: 15
Volume: 27
Year: 2021
Month: 10
X-DOI: 10.1080/1351847X.2021.1890632
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1890632
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:15:p:1489-1532
Template-Type: ReDIF-Article 1.0
Author-Name: Franco Fiordelisi
Author-X-Name-First: Franco
Author-X-Name-Last: Fiordelisi
Author-Name: Nemanja Radić
Author-X-Name-First: Nemanja
Author-X-Name-Last: Radić
Author-Name: Thomas Weyman-Jones
Author-X-Name-First: Thomas
Author-X-Name-Last: Weyman-Jones
Title: Detecting zombie banks
Abstract:
Capital adequacy has become the main regulatory tool to achieve financial stability in the last twenty years. While most papers analysed the effect of capital adequacy on risk taking, there is a lack of evidence on the relationship between deleveraging and the return on equity capital. In this paper, we examine the evolution of the banking system in Japan over the period 2000–16, where the re-capitalization issue has already played a major role in policy making. Specifically, we estimate the shadow return on equity capital for both listed and unlisted banks by measuring the loans-funding-equity technology through the dual cost function, controlling for risk exposure and bad loans, and accounting for both the standard asset-based model of bank outputs, and income-based model. Such an approach is likely to be important if the central bank permits banks with unsustainable balance sheets to continue in existence, and we refer to this as zombie banking. Overall, our results show that deleveraging did reduce the shadow return on equity for the City banks. We also find that that the presence of ‘zombie’ banks was concentrated and large among the smaller less diversified Regional Banks.
Journal: The European Journal of Finance
Pages: 1459-1488
Issue: 15
Volume: 27
Year: 2021
Month: 10
X-DOI: 10.1080/1351847X.2021.1893200
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1893200
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:15:p:1459-1488
Template-Type: ReDIF-Article 1.0
Author-Name: Bernardo P. Marques
Author-X-Name-First: Bernardo P.
Author-X-Name-Last: Marques
Author-Name: Carlos F. Alves
Author-X-Name-First: Carlos F.
Author-X-Name-Last: Alves
Title: The profitability and distance to distress of European banks: do business choices matter?
Abstract:
This paper examines which business choices are more likely to increase the profitability and distance to distress of banks, and whether changing business model pays off. We find that the profitability and distance to distress increase with the use of customer deposits and equity, and decrease with size; also, the top performers tend to have a high relationship banking orientation and/or operate a retail focused business model. Furthermore, we document that income diversification only bears a positive impact on the distance to distress of banks highly focused on relationship banking, and size only bears a negative effect on the profitability of these banks as well; additionally, only banks with a low relationship banking orientation significantly benefit from customer deposits. With respect to the effects of business model changes, we find that shifts from the retail diversified funding model to either the retail focused or the large diversified models improve profitability in the medium term. Finally, we find evidence that large diversified banks benefited from internal capital markets during the twin financial crisis by tapping into low-cost funding from subsidiaries. Our results are robust to changes to our baseline model that account for endogeneity and persistency issues.
Journal: The European Journal of Finance
Pages: 1553-1580
Issue: 15
Volume: 27
Year: 2021
Month: 10
X-DOI: 10.1080/1351847X.2021.1897638
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1897638
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:15:p:1553-1580
Template-Type: ReDIF-Article 1.0
Author-Name: Carlos de Lamare Bastian-Pinto
Author-X-Name-First: Carlos de Lamare
Author-X-Name-Last: Bastian-Pinto
Author-Name: Luiz Eduardo Teixeira Brandão
Author-X-Name-First: Luiz Eduardo Teixeira
Author-X-Name-Last: Brandão
Author-Name: Luiz de Magalhães Ozorio
Author-X-Name-First: Luiz de Magalhães
Author-X-Name-Last: Ozorio
Author-Name: Arthur Felipe Tavares do Poço
Author-X-Name-First: Arthur Felipe Tavares
Author-X-Name-Last: do Poço
Title: A parameter based approach to single factor stochastic process selection for real options applications
Abstract:
The single factor stochastic diffusion processes most commonly used for Real Options Valuation are the Geometric Brownian Motion and Mean Reversion Models. Nonetheless, the choice of process to model asset price dynamics is still one of the main challenges for researchers and practitioners in the field. Particularly, in investment projects where there is significant managerial flexibility, the project value and the investment rule may depend in large part on the process used to model the underlying uncertainties. In this article, we develop an approach based on the parameter values of the model, which has some advantages over the methods currently used for stochastic process selection. We use the half-life and normalized variance of the time series to be modeled to determine the optimal choice and discuss related theoretical as well as practical issues concerning the application of this approach to real options valuation. Numerical examples are used to illustrate the method, and a guideline for implementation of this approach is provided.
Journal: The European Journal of Finance
Pages: 1533-1552
Issue: 15
Volume: 27
Year: 2021
Month: 10
X-DOI: 10.1080/1351847X.2021.1895859
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1895859
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:15:p:1533-1552
Template-Type: ReDIF-Article 1.0
Author-Name: XiaoGang Bi
Author-X-Name-First: XiaoGang
Author-X-Name-Last: Bi
Title: Make a promise: the valuation adjustment mechanism in Chinese private target acquisitions
Abstract:
The valuation adjustment mechanism (VAM) is a contingent-payment contractual arrangement used in the Chinese mergers and acquisitions (M&As) market. The ‘two-direction payment’ design of Chinese VAMs can reduce deal uncertainty and generate value, especially for poorly performing companies that can use VAM contracts to boost short-term performance. I find in this empirical investigation that acquirers applying VAM terms have significantly higher market returns after addressing endogeneity. I also document that poorly performing bidders sign larger VAM contracts, pay higher bid premiums and achieve higher operating performance, and which types of firms are more likely to adopt a VAM in transactions.
Journal: The European Journal of Finance
Pages: 1645-1668
Issue: 16
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1903963
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1903963
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:16:p:1645-1668
Template-Type: ReDIF-Article 1.0
Author-Name: Sarah Brown
Author-X-Name-First: Sarah
Author-X-Name-Last: Brown
Author-Name: Pulak Ghosh
Author-X-Name-First: Pulak
Author-X-Name-Last: Ghosh
Author-Name: Daniel Gray
Author-X-Name-First: Daniel
Author-X-Name-Last: Gray
Author-Name: Bhuvanesh Pareek
Author-X-Name-First: Bhuvanesh
Author-X-Name-Last: Pareek
Author-Name: Jennifer Roberts
Author-X-Name-First: Jennifer
Author-X-Name-Last: Roberts
Title: Saving behaviour and health: A high-dimensional Bayesian analysis of British panel data
Abstract:
We develop a two-part high-dimensional Bayesian modelling approach to analyse the relationship between saving behaviour and health. In contrast to the existing literature, our approach allows different data-generating processes for the decision to save and the amount saved, and therefore unveils a more detailed picture of the relationship between financial behaviour and health than previous work. We explore different measures of saving, including monthly saving behaviour and the stock of financial assets held. Further, we exploit British panel data, which includes an extensive range of biomarkers. Our second contribution lies in comparing the effects of these objective measures of health with commonly used self-assessed health measures. We find that health is a significant determinant of saving behaviour and financial asset holding, and that biomarker measures have differential impacts on saving behaviour compared to self-reported health measures.
Journal: The European Journal of Finance
Pages: 1581-1603
Issue: 16
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1899953
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1899953
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:16:p:1581-1603
Template-Type: ReDIF-Article 1.0
Author-Name: Muhammad Farid Ahmed
Author-X-Name-First: Muhammad Farid
Author-X-Name-Last: Ahmed
Author-Name: Yang Gao
Author-X-Name-First: Yang
Author-X-Name-Last: Gao
Author-Name: Stephen Satchell
Author-X-Name-First: Stephen
Author-X-Name-Last: Satchell
Title: Modeling demand for ESG
Abstract:
Existing approaches have considered characteristics of Environmental, Social and Corporate Governance (ESG) focused investments from a return-oriented perspective without paying due consideration to investors’ utility and how ESG features impact utility. We contribute to this literature by providing a model that captures the implications for investment if ESG is valued by the investor as well as wealth. We first present the necessary theory and discuss the rather challenging problem of calibration of the various risk and preference parameters. Using Thomson Reuters ESG data from 2002 to 2018, we provide further empirical evidence that investors who value ESG factors have improved utility which does not come at the cost of return performance.
Journal: The European Journal of Finance
Pages: 1669-1683
Issue: 16
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1924216
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1924216
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:16:p:1669-1683
Template-Type: ReDIF-Article 1.0
Author-Name: Konstantinos Gkillas
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Gkillas
Author-Name: Rangan Gupta
Author-X-Name-First: Rangan
Author-X-Name-Last: Gupta
Author-Name: Christian Pierdzioch
Author-X-Name-First: Christian
Author-X-Name-Last: Pierdzioch
Title: Forecasting realized volatility of bitcoin returns: tail events and asymmetric loss
Abstract:
We use intraday data to construct measures of the realized volatility of bitcoin returns. We then construct measures that focus exclusively on relatively large realizations of returns to assess the tail shape of the return distribution, and use the heterogeneous autoregressive realized volatility (HAR-RV) model to study whether these measures help to forecast subsequent realized volatility. We find that mainly forecasters suffering a higher loss in case of an underprediction of realized volatility (than in case of an overprediction of the same absolute size) benefit from using the tail measures as predictors of realized volatility, especially at a short and intermediate forecast horizon. This result is robust controlling for jumps and realized skewness and kurtosis, and it also applies to downside (bad) and upside (good) realized volatility.
Journal: The European Journal of Finance
Pages: 1626-1644
Issue: 16
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1906728
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1906728
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:16:p:1626-1644
Template-Type: ReDIF-Article 1.0
Author-Name: Pedro Gurrola-Perez
Author-X-Name-First: Pedro
Author-X-Name-Last: Gurrola-Perez
Author-Name: Renata Herrerias
Author-X-Name-First: Renata
Author-X-Name-Last: Herrerias
Title: Volatility patterns of short-term interest rate futures
Abstract:
A general question in finance is whether the volatility of the price of futures contracts follows any particular trend over the contract’s life. In this study, we contribute to the debate by empirically analyzing the trend of the term structure of the volatility of short-term interest rates (STIR) futures prices. Using data on the Eurodollar, Euribor, and Short-Sterling futures contracts for the period between 2000 and 2018, we model the volatility of each individual contract considering time to expiration and trading activities. Furthermore, we investigate whether these trends change according to overall economic conditions. We find that STIR futures behave differently than futures on other underlying assets and that, most of the time, STIR futures price volatility declines as the contract approaches expiration. Moreover, the relation between volatility and time to maturity depends on market conditions and trading activities, and it is non-linearly related to the observation period.
Journal: The European Journal of Finance
Pages: 1604-1625
Issue: 16
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1899954
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1899954
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:16:p:1604-1625
Template-Type: ReDIF-Article 1.0
Author-Name: Miao Wang
Author-X-Name-First: Miao
Author-X-Name-Last: Wang
Author-Name: Agyenim Boateng
Author-X-Name-First: Agyenim
Author-X-Name-Last: Boateng
Author-Name: Xiuping Hua
Author-X-Name-First: Xiuping
Author-X-Name-Last: Hua
Title: More money, more honey? An examination of additionality of China’s government R&D subsidies
Abstract:
This study considers the interaction effects of government subsidies, financial constraints, and ownership structure on the firm’s net research & development (R&D) based on a sample of 3440 Chinese-listed firms during 2000-2019. Our results indicate that R&D subsidies reduce financial constraints irrespective of ownership type; however, the reduction appears more pronounced for private-owned enterprises (POEs) compared with state-owned enterprises (SOEs). Further analysis reveals that the impact of R&D subsidies on R&D investments depends on the interactive effect between financial constraint and ownership type. For financially constrained SOEs, subsidies spur net R&D investment whereas this is not the case for financially constrained POEs. We also examine the potential factors through which ownership types and financial constraints affect innovation input, namely, institutional development and industrial competition. Our evidence indicates that, in a more institutionally developed province, the effect of subsidies on net R&D input is negative for SOEs, but positive for POEs. In a more competitive industry, SOEs tend to face less agency risk and stronger monitoring, while POEs depend more on their financial slack. Our study challenges the ‘more money, more innovation investment’ story, suggesting that alleviating financial constraints does not necessarily stimulate more net R&D investments.
Journal: The European Journal of Finance
Pages: 1714-1739
Issue: 17
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1918202
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1918202
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:17:p:1714-1739
Template-Type: ReDIF-Article 1.0
Author-Name: Jean Canil
Author-X-Name-First: Jean
Author-X-Name-Last: Canil
Author-Name: Sigitas Karpavičius
Author-X-Name-First: Sigitas
Author-X-Name-Last: Karpavičius
Author-Name: Chia-Feng (Jeffrey) Yu
Author-X-Name-First: Chia-Feng (Jeffrey)
Author-X-Name-Last: Yu
Title: TMT gender diversity: implications for corporate tournaments and innovation
Abstract:
This study finds that even after controlling for board gender diversity, TMT gender diversity has a distinct and positive effect on corporate innovation. The study also finds that the joint interaction of tournament incentives and TMT gender diversity is detrimental to innovation, implying the two are substitutes. The substitution effect persists beyond the year of female transition and is concentrated on larger firms and firms in low-technology industries. Our results are robust across alternative measures of tournament incentives, female representation, and innovation and after accounting for the endogeneity of both tournament incentives and TMT gender diversity. Thus, for gender-diverse TMTs pursuing an active innovation policy, tournament incentives may not be appropriate.
Journal: The European Journal of Finance
Pages: 1765-1790
Issue: 17
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1913430
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1913430
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:17:p:1765-1790
Template-Type: ReDIF-Article 1.0
Author-Name: Nathan Lael Joseph
Author-X-Name-First: Nathan Lael
Author-X-Name-Last: Joseph
Author-Name: Chen Su
Author-X-Name-First: Chen
Author-X-Name-Last: Su
Author-Name: Winifred Huang
Author-X-Name-First: Winifred
Author-X-Name-Last: Huang
Author-Name: Baoying Lai
Author-X-Name-First: Baoying
Author-X-Name-Last: Lai
Title: Pricing of foreign exchange rate and interest rate risks using short to long horizon returns
Abstract:
In this paper, we test whether foreign exchange (FX) rate and interest rate (IR) risks are priced at short to long return horizons. We also test whether the associated risk premia relate to certain stock characteristics. Our new evidence indicates that risk premia increase with the length of the return horizon and that the risk premium signs depend on the sign of the corresponding exposure beta. Thus, for our longest return horizon of 950 days, positive (negative) FX rate premia increase in absolute value to 2.642% (–2.050%), whereas positive (negative) IR premia increase to 1.039% (–1.151%). Zero exposure betas have zero risk premia. We find that, depending on the level of profitability, Size, book-to-market-ratio (B/M) and sales-to-stock price ratio (S/P) explain most of the variation in exposure betas and risk premia. Our results imply that investors view exposure betas and risk premia as important factors affecting portfolio returns.
Journal: The European Journal of Finance
Pages: 1684-1713
Issue: 17
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1927127
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1927127
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:17:p:1684-1713
Template-Type: ReDIF-Article 1.0
Author-Name: Denis Davydov
Author-X-Name-First: Denis
Author-X-Name-Last: Davydov
Author-Name: Ian Khrashchevskyi
Author-X-Name-First: Ian
Author-X-Name-Last: Khrashchevskyi
Author-Name: Jarkko Peltomäki
Author-X-Name-First: Jarkko
Author-X-Name-Last: Peltomäki
Title: Investor attention and portfolio performance: what information does it pay to pay attention to?
Abstract:
We explore a unique dataset on individual investors’ online trading accounts to examine the determinants of their attention and its relation to portfolio performance. In particular, we investigate what individual characteristics affect investor attention and what type of information drives investment performance. We find distinct differences in investors’ attention and provide evidence that paying attention has a differential impact on performance depending on the type of information. Portfolio monitoring and attention to financial education are positively related to performance, while attention to analytical information is detrimental to performance. Attention to technical analysis is negatively related to the performance of actively trading investors but improves the performance of less frequent traders. Overall, our results provide additional evidence to the suggestion that attention to financial education is the key to investment success.
Journal: The European Journal of Finance
Pages: 1740-1764
Issue: 17
Volume: 27
Year: 2021
Month: 11
X-DOI: 10.1080/1351847X.2021.1911823
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1911823
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:17:p:1740-1764
Template-Type: ReDIF-Article 1.0
Author-Name: Santiago Carbó-Valverde
Author-X-Name-First: Santiago
Author-X-Name-Last: Carbó-Valverde
Author-Name: Pedro J. Cuadros-Solas
Author-X-Name-First: Pedro J.
Author-X-Name-Last: Cuadros-Solas
Author-Name: Francisco Rodríguez-Fernández
Author-X-Name-First: Francisco
Author-X-Name-Last: Rodríguez-Fernández
Title: The effects of negative interest rates: a literature review and additional evidence on the performance of the European banking sector
Abstract:
Reducing interest rates to below zero may be justified on theoretical grounds. However, in practice, it has been shown to create a number of distortions and malfunctions in several dimensions of banking system and the financial markets, which in turn may affect the whole economy. This paper surveys the theoretical grounds of unconventional monetary policy, focusing mostly on the available empirical evidence in order to provide a full picture of the impact of negative monetary policy rates. It also investigates the impact of negative interest rates on the European banking sector using a dataset of 3,155 banks from 36 European countries over the 2011–2018 period. Using a difference-in-differences methodology, we show that banks in negative interest rate environments experienced a 17.4% decrease in their net interest margins compared to banks operating in European countries that did not adopt negative interest rates. The results are found to be robust after combining propensity score matching with a difference-in-differences approach. Moreover, we find that banks that hold more liquid assets, that are highly capitalised, that have larger reserves at central banks and that take more customer deposits are more strongly affected by negative interest rates.
Journal: The European Journal of Finance
Pages: 1908-1938
Issue: 18
Volume: 27
Year: 2021
Month: 12
X-DOI: 10.1080/1351847X.2021.1927784
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1927784
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:18:p:1908-1938
Template-Type: ReDIF-Article 1.0
Author-Name: Rainer Baule
Author-X-Name-First: Rainer
Author-X-Name-Last: Baule
Author-Name: Christian Tallau
Author-X-Name-First: Christian
Author-X-Name-Last: Tallau
Title: The risk sensitivity of Basel risk weights and loan loss provisions: evidence from European banks
Abstract:
Recent literature suggests that regulatory risk measures do not adequately capture the actual economic risk of bank portfolios. We shed new light on this issue by analyzing both regulatory and accounting standards, i.e. capital requirements and loan loss provisions. Examining a sample of large European banks for the years 2002–2015, we show that regulatory risk sensitivity, i.e. the response of Basel risk weights to asset volatility as our measure of a bank's asset portfolio risk, is substantially higher than what has been shown so far in the literature. Despite the occasionally bad reputation that risk weights have, we provide new evidence that they are adequately calibrated for banks with low or medium levels of risk. For crisis periods and for high-risk banks, however, risk weights still do not adequately reflect the actual portfolio risk. This results in insufficient capital, even with the stricter Basel III minimum capital requirements. Regarding loan loss provisions, we establish a theoretical link between expected losses and asset volatility. We document a strong empirical association, which fits well to the theoretical model. Overall, we find no indication that the risk sensitivity of loan loss provisions has been insufficient, at least since the financial crisis.
Journal: The European Journal of Finance
Pages: 1855-1886
Issue: 18
Volume: 27
Year: 2021
Month: 12
X-DOI: 10.1080/1351847X.2021.1918207
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1918207
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:18:p:1855-1886
Template-Type: ReDIF-Article 1.0
Author-Name: Mustafa Onur Caglayan
Author-X-Name-First: Mustafa Onur
Author-X-Name-Last: Caglayan
Author-Name: Umut Celiker
Author-X-Name-First: Umut
Author-X-Name-Last: Celiker
Author-Name: Gokhan Sonaer
Author-X-Name-First: Gokhan
Author-X-Name-Last: Sonaer
Title: Industry herding by hedge funds
Abstract:
This paper investigates hedge fund herding at the industry level and its impact on industry returns. Although the level of industry herding on average is substantially weaker for hedge funds compared to non-hedge fund institutions, we find that industries that experience heavy herding by hedge funds experience return reversals in the long-run. We provide evidence that non-hedge funds especially follow hedge funds’ sell herding industries in following quarters, and the long-run return reversals observed in these industries are due to non-hedge funds’ failure to timely react to good news coming from these heavy hedge fund sell-herding industries in subsequent quarters.
Journal: The European Journal of Finance
Pages: 1887-1907
Issue: 18
Volume: 27
Year: 2021
Month: 12
X-DOI: 10.1080/1351847X.2021.1918206
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1918206
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:18:p:1887-1907
Template-Type: ReDIF-Article 1.0
Author-Name: Xu Feng
Author-X-Name-First: Xu
Author-X-Name-Last: Feng
Author-Name: Lin Huang
Author-X-Name-First: Lin
Author-X-Name-Last: Huang
Author-Name: Guanying Wang
Author-X-Name-First: Guanying
Author-X-Name-Last: Wang
Title: Shadow leverage risk and corporate bond pricing: evidence from China
Abstract:
This study investigates the effect of shadow bank leverage on corporate bond returns. Using a unique dataset of Wealth Management Products (WMPs), we construct a new measurement of shadow leverage in the Chinese banking system. We find that the sensitivity of bond returns to the risk of shadow leverage has a negative effect on corporate bond returns. We propose a new three-factor bond pricing model by adding the factor of shadow leverage risk into the traditional two-factor model of Fama and French (1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56). A comprehensive empirical analysis shows that the proposed model fits corporate bond returns well and outperforms the two-factor bond pricing model, both in- and out-of-samples. Specifically, the shadow leverage risk factor makes greater marginal contributions in lower credit rating groups and more shadow leverage-sensitive groups. Overall, we highlight the importance of shadow banks in the role of asset pricing.
Journal: The European Journal of Finance
Pages: 1834-1854
Issue: 18
Volume: 27
Year: 2021
Month: 12
X-DOI: 10.1080/1351847X.2021.1923548
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1923548
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:18:p:1834-1854
Template-Type: ReDIF-Article 1.0
Author-Name: Demir Bektić
Author-X-Name-First: Demir
Author-X-Name-Last: Bektić
Author-Name: Britta Hachenberg
Author-X-Name-First: Britta
Author-X-Name-Last: Hachenberg
Title: European arbitrage CLOs and risk retention
Abstract:
In this article, we empirically analyze European Collateralized Loan Obligations (CLOs) in the aftermath of the financial crisis. As Regulation introduced the so-called risk retention rule, originally designed to align interests between issuers and investors, we analyze the implications and effects of the risk retention rule on managed cash CLOs (arbitrage deals). Although the market suffered severely during the period after the rule was introduced, an alignment of interests between issuers and investors does not necessarily seem to have been attained. Here, we examine the implications of risk retention on asset pricing and find that CLO manager experience, credit rating and issuance amount are important factors that significantly influence pricing expectations of CLO investors. However, the form in which the CLO manager retains the risk does not seem to play a role.
Journal: The European Journal of Finance
Pages: 1791-1803
Issue: 18
Volume: 27
Year: 2021
Month: 12
X-DOI: 10.1080/1351847X.2021.1900887
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1900887
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:18:p:1791-1803
Template-Type: ReDIF-Article 1.0
Author-Name: Massimo Guidolin
Author-X-Name-First: Massimo
Author-X-Name-Last: Guidolin
Author-Name: Valentina Massagli
Author-X-Name-First: Valentina
Author-X-Name-Last: Massagli
Author-Name: Manuela Pedio
Author-X-Name-First: Manuela
Author-X-Name-Last: Pedio
Title: Does the cost of private debt respond to monetary policy? Heteroskedasticity-based identification in a model with regimes
Abstract:
We investigate the effects of the Federal Reserve's quantitative easing and maturity extension programs on the yields of US dollar-denominated corporate bonds using a multiple-regime heteroskedasticity-based VAR identification approach. Impulse response functions suggest that a traditional, rate-based expansionary policy may lead to an increase in yields while quantitative easing is linked to a general and persistent decrease in yields, particularly for long-term bonds. The responses generated by the maturity extension program are significant and of larger magnitude. A decomposition shows that the unconventional programs reduce the cost of private debt primarily through a reduction in risk premia that cannot be entirely accounted for by a reduction in corporate default risk.
Journal: The European Journal of Finance
Pages: 1804-1833
Issue: 18
Volume: 27
Year: 2021
Month: 12
X-DOI: 10.1080/1351847X.2021.1917442
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1917442
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:27:y:2021:i:18:p:1804-1833
Template-Type: ReDIF-Article 1.0
Author-Name: Shuai Shao
Author-X-Name-First: Shuai
Author-X-Name-Last: Shao
Author-Name: Hong Bo
Author-X-Name-First: Hong
Author-X-Name-Last: Bo
Title: Behavioural aspects of China's P2P lending
Abstract:
In this paper, we argue that China's P2P lending is influenced by the behavioural factors of P2P platforms. This is because severe information asymmetry results in high uncertainty surrounding China's P2P lending industry. Specifically, we examine three behavioural aspects of P2P lending: lending sentiments, herding, and speculation. Using a sample of 918 P2P platforms from October 2015-September 2019, we document that positive P2P news release in the media (sentiments) encourages P2P lending; P2P platforms herd on their peers in making lending decisions; and P2P lending contains speculative elements and is driven by real estate bubbles. Moreover, we find that these behavioural effects are less profound if P2P platforms adopt a fund custody mechanism in which commercial banks provide custodian services for investor funds used for P2P lending. This result suggests that behavioural factors are more important in explaining P2P lending when information asymmetry is more severe. We obtain these results by controlling for other usual factors that can explain P2P lending, including characteristics of P2P platforms, macroeconomic variables, and other variables reflecting features of P2P operating environment. Our results suggest that regulators should monitor risk management of P2P platforms and reduce asymmetric information faced by participants in China's P2P lending market.
Journal: The European Journal of Finance
Pages: 30-45
Issue: 1
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2021.1880459
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1880459
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:1:p:30-45
Template-Type: ReDIF-Article 1.0
Author-Name: Mustafa Caglayan
Author-X-Name-First: Mustafa
Author-X-Name-Last: Caglayan
Author-Name: Oleksandr Talavera
Author-X-Name-First: Oleksandr
Author-X-Name-Last: Talavera
Author-Name: Lin Xiong
Author-X-Name-First: Lin
Author-X-Name-Last: Xiong
Author-Name: Jing Zhang
Author-X-Name-First: Jing
Author-X-Name-Last: Zhang
Title: What does not kill us makes us stronger: the story of repetitive consumer loan applications
Abstract:
We investigate borrower and lender behaviours when the borrower has experienced a sequence of failed loan applications. Our analysis is based on half a million observations from an established peer-to-peer (P2P) loan platform in China from 2010 to 2018. We find that borrowers who have better credit scores and who accept to pay higher interest rates are likely to reapply for funds after experiencing an earlier failed attempt. However, women and applicants with more education are discouraged from re-applying compared to their male or less-educated counterparts, respectively. On the funding supply side, lenders strive to fund safe borrowers who have high credit ratings and high income, though not those who offer a high interest rate.
Journal: The European Journal of Finance
Pages: 46-65
Issue: 1
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2020.1793792
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1793792
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:1:p:46-65
Template-Type: ReDIF-Article 1.0
Author-Name: Désiré Kanga
Author-X-Name-First: Désiré
Author-X-Name-Last: Kanga
Author-Name: Christine Oughton
Author-X-Name-First: Christine
Author-X-Name-Last: Oughton
Author-Name: Laurence Harris
Author-X-Name-First: Laurence
Author-X-Name-Last: Harris
Author-Name: Victor Murinde
Author-X-Name-First: Victor
Author-X-Name-Last: Murinde
Title: The diffusion of fintech, financial inclusion and income per capita
Abstract:
Advances in information and communication technology (ICT) have provided a platform for the introduction and diffusion of a range of financial technologies that have transformed the financial sector. This study analyses the diffusion of financial technology (fintech) and its interaction with financial inclusion and living standards (GDP per capita). We consider the determinants and effects of technology diffusion in financial services and identify two possible transmission mechanisms from the financial sector to GDP per capita – a fintech diffusion channel and a financial inclusion channel. We specify the interactions between these two channels and their relationship with income per capita. Our empirical analysis focuses on the diffusion of two enabling fintech innovations: ATMs and associated digital networks; and mobile phones and payments systems. The relationships between fintech diffusion, financial inclusion and GDP per capita are estimated using a panel data set for up to 137 countries over the period 1991–2015 using both cross section and panel techniques, including an error correction model that distinguishes short- and long-run effects. A key finding is that fintech diffusion and financial inclusion have long-run effects on GDP per capita over and above their short-run impact and the effects of investment in fixed and human capital.
Journal: The European Journal of Finance
Pages: 108-136
Issue: 1
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2021.1945646
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1945646
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:1:p:108-136
Template-Type: ReDIF-Article 1.0
Author-Name: Lihui Tian
Author-X-Name-First: Lihui
Author-X-Name-Last: Tian
Author-Name: Gerhard Kling
Author-X-Name-First: Gerhard
Author-X-Name-Last: Kling
Title: Financial inclusion and financial technology: finance for everyone?
Journal: The European Journal of Finance
Pages: 1-2
Issue: 1
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2021.1981418
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1981418
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:1:p:1-2
Template-Type: ReDIF-Article 1.0
Author-Name: Gerhard Kling
Author-X-Name-First: Gerhard
Author-X-Name-Last: Kling
Author-Name: Vanesa Pesqué-Cela
Author-X-Name-First: Vanesa
Author-X-Name-Last: Pesqué-Cela
Author-Name: Lihui Tian
Author-X-Name-First: Lihui
Author-X-Name-Last: Tian
Author-Name: Deming Luo
Author-X-Name-First: Deming
Author-X-Name-Last: Luo
Title: A theory of financial inclusion and income inequality
Abstract:
We develop a theory linking financial inclusion, defined as access to formal loans and financial assets, to income inequality. Initial inequality of households is modeled by a random variable determining initial endowments. These initial endowments can be used to invest instantaneously in human capital and financial assets. Human capital translates into income based on a strictly concave production function, suggesting optimal levels of investment. Financial assets earn yields which do not depend on the amount invested by individuals. Theoretical predictions are tested using the China Household Finance Survey (CHFS) for 2011 and 2013. Initial conditions modeled by a random variable are replaced by an actual distribution of income or assets to derive theoretical predictions regarding the proportion of the population that might benefit from financial inclusion. Financial inclusion does mitigate under-investment in education – but formal loans do not contribute. Income inequality worsens if households rely on formal or informal loans, whereas access to bank accounts improves households' prospects in the future income distribution. However, households below the 40th percentile of household income do benefit from informal loans.
Journal: The European Journal of Finance
Pages: 137-157
Issue: 1
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2020.1792960
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1792960
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:1:p:137-157
Template-Type: ReDIF-Article 1.0
Author-Name: Sheri Markose
Author-X-Name-First: Sheri
Author-X-Name-Last: Markose
Author-Name: Thankom Arun
Author-X-Name-First: Thankom
Author-X-Name-Last: Arun
Author-Name: Peterson Ozili
Author-X-Name-First: Peterson
Author-X-Name-Last: Ozili
Title: Financial inclusion, at what cost? : Quantification of economic viability of a supply side roll out
Abstract:
The paper focuses on supply side funding gaps inherent to financial inclusion schemes that threaten their efficacy and sustainability. We model the double bind problem that providers of banking services for the poor face as they struggle to achieve economies of scale to drive down average fixed financial infrastructure costs, while average account balances are low due to insufficient income. This model is applied to the Prime Minister Jan-Dhan Yojna (PMJDY) financial inclusion scheme in India, that was started in 2014. An innovative approach based on cross sectional bank level data from 2014 till 2017 is used to quantify the incentives and costs involved in targeting unbanked households. This gives a monetary estimate of the economic shortfalls or surpluses for participating banks, measured as bank balances relative to outlay costs and subsidies per PMJDY beneficiary. A lack of economic viability of PMJDY accounts is found in the majority of Indian public sector banks, a matter which is problematic in view of their extant financial fragility. We provide evidence for cross subsidization of rural bank accounts by urban accounts. We use fixed effects panel methods to determine what cost public sector banks bear and also quantify the extent to which account ineffectiveness is ameliorated by exogenous factors, primarily the tie up of PMJDY accounts with bio-metric Aadhar cards and electronic direct benefit transfer of G2P payments.
Journal: The European Journal of Finance
Pages: 3-29
Issue: 1
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2020.1821740
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1821740
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:1:p:3-29
Template-Type: ReDIF-Article 1.0
Author-Name: Ayse Demir
Author-X-Name-First: Ayse
Author-X-Name-Last: Demir
Author-Name: Vanesa Pesqué-Cela
Author-X-Name-First: Vanesa
Author-X-Name-Last: Pesqué-Cela
Author-Name: Yener Altunbas
Author-X-Name-First: Yener
Author-X-Name-Last: Altunbas
Author-Name: Victor Murinde
Author-X-Name-First: Victor
Author-X-Name-Last: Murinde
Title: Fintech, financial inclusion and income inequality: a quantile regression approach
Abstract:
Although theory suggests that financial market imperfections – mainly information asymmetries, market segmentation and transaction costs – prevent poor people from escaping poverty by limiting their access to formal financial services, new financial technologies (FinTech) are seen as key enablers of financial inclusion. Indeed, the UN 2030 Agenda for Sustainable Development (UN-2030-ASD) and the G20 High-Level Principles for Digital Financial Inclusion (G20-HLP-DFI) highlight the importance of harnessing the potential of FinTech to reduce financial exclusion and income inequality. This paper investigates the interrelationship between FinTech, financial inclusion and income inequality for a panel of 140 countries using the Global Findex waves of survey data for 2011, 2014 and 2017. We posit that FinTech affects inequality directly and indirectly through financial inclusion. We invoke quantile regression analysis to investigate whether such effects differ across countries with different levels of income inequality. We uncover new evidence that financial inclusion is a key channel through which FinTech reduces income inequality. We also find that while financial inclusion significantly reduces inequality at all quantiles of the inequality distribution, these effects are primarily associated with higher-income countries. Overall, our results support the aspirations of the UN-2030-ASD and G20-HLP-DFI.Highlights
Harnessing the potential of FinTech to reduce financial exclusion and income inequality has been proposed by the UN and G20.We posit that FinTech affects income inequality directly and indirectly through financial inclusion.We invoke quantile regression analysis to investigate whether the effects of FinTech differ across countries with different levels of income inequality.We find that financial inclusion is a key channel through which FinTech reduces income inequality, at all quantile levels, primarily among higher-income countries.
Journal: The European Journal of Finance
Pages: 86-107
Issue: 1
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2020.1772335
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1772335
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:1:p:86-107
Template-Type: ReDIF-Article 1.0
Author-Name: Jeremy Eng-Tuck Cheah
Author-X-Name-First: Jeremy Eng-Tuck
Author-X-Name-Last: Cheah
Author-Name: Di Luo
Author-X-Name-First: Di
Author-X-Name-Last: Luo
Author-Name: Zhuang Zhang
Author-X-Name-First: Zhuang
Author-X-Name-Last: Zhang
Author-Name: Ming-Chien Sung
Author-X-Name-First: Ming-Chien
Author-X-Name-Last: Sung
Title: Predictability of bitcoin returns
Abstract:
This paper comprehensively examines the performance of a host of popular variables to predict Bitcoin returns. We show that time-series momentum, economic policy uncertainty, and financial uncertainty outperform other predictors in all in-sample, out-of-sample, and asset allocation tests. Bitcoin returns have no exposure to common stock and bond market factors but rather are affected by Bitcoin-specific and external uncertainty factors.
Journal: The European Journal of Finance
Pages: 66-85
Issue: 1
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2020.1835685
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1835685
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:1:p:66-85
Template-Type: ReDIF-Article 1.0
Author-Name: Jing Zhang
Author-X-Name-First: Jing
Author-X-Name-Last: Zhang
Author-Name: Wei Zhang
Author-X-Name-First: Wei
Author-X-Name-Last: Zhang
Author-Name: Youwei Li
Author-X-Name-First: Youwei
Author-X-Name-Last: Li
Author-Name: Xu Feng
Author-X-Name-First: Xu
Author-X-Name-Last: Feng
Title: The role of hedge funds in the asset pricing: evidence from China
Abstract:
We document that hedge funds nurture mispricing in the Chinese financial market. We examine the relationship between hedge fund holdings and the degree of mispricing, assuming that hedge funds’ stock holdings are mainly for arbitrage and not for hedging. We also examine this relationship with and without short-selling restrictions. Hedge funds intentionally hold overvalued stocks. Their trades, which generate an abnormal return of 1.78% per month, also impede the dissipation of stock mispricing. Furthermore, we find that trend-chasing may explain why hedge funds prefer to hold overvalued stocks. This research provides a new perspectives on the information content and potential investment value of hedge fund holdings in emerging markets.
Journal: The European Journal of Finance
Pages: 219-243
Issue: 2
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2021.1929373
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1929373
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:2:p:219-243
Template-Type: ReDIF-Article 1.0
Author-Name: Marco Cucculelli
Author-X-Name-First: Marco
Author-X-Name-Last: Cucculelli
Author-Name: Martino Recanatini
Author-X-Name-First: Martino
Author-X-Name-Last: Recanatini
Title: Distributed Ledger technology systems in securities post-trading services. Evidence from European global systemic banks
Abstract:
Building on the fast developing – yet not consolidated – literature on blockchain and the financial system, this paper aims to investigate how Distributed Ledger Technologies (DLTs) may affect the banking sector performance by influencing the efficiency of the securities post-trading process. Three different scenarios have been developed and used as a framework to assess the impact of the adoption of blockchain technologies on the cost reduction in a sample of 12 Global Systemic Banks in Europe. By using DLT systems, the expected savings in the post-trading processes are sizable and mainly concentrated in IT expenditures and wages associated with core post-trade functions. Moreover, DLT systems emerge as a catalyst for innovation in post-trade process, as they improve timing window and data quality.
Journal: The European Journal of Finance
Pages: 195-218
Issue: 2
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2021.1921002
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1921002
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:2:p:195-218
Template-Type: ReDIF-Article 1.0
Author-Name: Thomas David
Author-X-Name-First: Thomas
Author-X-Name-Last: David
Title: Customer risk and the choice between cash and bank credit lines
Abstract:
I use a matched buyer–supplier sample of U.S. industrial firms to investigate the impact of customer risk on suppliers' choice between cash and credit lines. I show that customer risk decreases the reliance on bank-managed liquidity insurance relative to cash. I also find evidence indicating that firms actively shy away from credit lines in response to customer risk to maximize the future availability of their liquidity reserves. Consistently, my findings suggest that high-customer-risk firms are particularly more likely to be subject to (stricter) borrowing base provisions, which tie the value of a credit line to that of some eligible collateral (notably accounts receivable). I also find that steeper credit line spreads alone cannot explain firms' response to customer risk. These results highlight how customer–supplier relationships affect the precautionary demand for liquidity, and significantly shape corporate financial decisions.
Journal: The European Journal of Finance
Pages: 159-194
Issue: 2
Volume: 28
Year: 2022
Month: 01
X-DOI: 10.1080/1351847X.2021.1913429
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1913429
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:2:p:159-194
Template-Type: ReDIF-Article 1.0
Author-Name: Mark C. Hutchinson
Author-X-Name-First: Mark C.
Author-X-Name-Last: Hutchinson
Author-Name: Quang Minh Nhi Nguyen
Author-X-Name-First: Quang Minh Nhi
Author-X-Name-Last: Nguyen
Author-Name: Mark Mulcahy
Author-X-Name-First: Mark
Author-X-Name-Last: Mulcahy
Title: Private hedge fund firms' incentives and performance: Evidence from audited filings
Abstract:
Using an entirely new dataset of audited filings from firms that manage hedge funds, this study examines whether the hedge fund compensation contract aligns managerial incentives and investor interests. Our novel dataset allows us to distinguish between firms focused exclusively on hedge fund management and diversified firms offering products in addition to hedge funds. Our results for compensation data of hedge fund only management firms confirm that compensation increases as assets under management increase, despite increased costs and performance diseconomies of scale. Hedge funds managed by diversified firms have significantly lower performance. A relatively small proportion of the compensation from these firms is generated from hedge funds. The results are consistent with diversified hedge fund firms having weaker alignment between managerial incentives and investment performance.
Journal: The European Journal of Finance
Pages: 291-306
Issue: 3
Volume: 28
Year: 2022
Month: 02
X-DOI: 10.1080/1351847X.2021.1954966
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1954966
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:3:p:291-306
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Abendschein
Author-X-Name-First: Michael
Author-X-Name-Last: Abendschein
Author-Name: Peter Grundke
Author-X-Name-First: Peter
Author-X-Name-Last: Grundke
Title: On the ranking consistency of systemic risk measures: empirical evidence*
Abstract:
We empirically analyze the extent to which popular systemic risk measures (SRMs) yield comparable results regarding the systemic importance of a financial institution. More important, we also examine determinants of the degree of consistency in the classification according to the various SRMs. In general, rank correlations tend to be more associated with macroeconomic variables such as the unemployment rate than with bank-individual variables. Our results also reveal that rank correlations are particularly sensitive to the overall market conditions. During more volatile market phases, rank correlations are slightly larger than during less volatile phases. Furthermore, their association with bank-individual and macroeconomic variables changes with the market conditions. The less volatile the market, the more relevant the bank-individual variables become in explaining the rank correlations. Contrary, during less volatile market phases, the relevance of macroeconomic variables decreases. Overall, the analyses reveal a difficulty in detecting specific explanatory factors for the consistency in systemic risk rankings across settings.
Journal: The European Journal of Finance
Pages: 261-290
Issue: 3
Volume: 28
Year: 2022
Month: 02
X-DOI: 10.1080/1351847X.2021.1946413
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1946413
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:3:p:261-290
Template-Type: ReDIF-Article 1.0
Author-Name: Wouter Vangeel
Author-X-Name-First: Wouter
Author-X-Name-Last: Vangeel
Author-Name: Laurens Defau
Author-X-Name-First: Laurens
Author-X-Name-Last: Defau
Author-Name: Lieven De Moor
Author-X-Name-First: Lieven
Author-X-Name-Last: De Moor
Title: The influence of a mortgage interest deduction on house prices: evidence across tax systems in Europe
Abstract:
In a large majority of European countries, a tax relief on mortgage interest payments is granted in order to enhance homeownership. Although there is a common belief stating that a mortgage interest deduction (MID) is capitalized into house prices, empirical evidence remains scarce. Therefore, our paper is about the influence of this fiscal relief on house prices. The scope of our analysis includes fourteen European countries, for which an unbalanced panel dataset over the period 1990–2015 is constructed. All our regression results support the hypothesis that a MID has had a significant price-increasing effect in the selected countries over the observed period. However, this result does not hold for a MID in the countries where a dual income tax (DIT) is applied, suggesting a significant difference between tax systems. These results are relevant for governments because there has been much debate about whether and to what extent countries should limit its MID over the last decades.
Journal: The European Journal of Finance
Pages: 245-260
Issue: 3
Volume: 28
Year: 2022
Month: 02
X-DOI: 10.1080/1351847X.2021.1941173
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1941173
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:3:p:245-260
Template-Type: ReDIF-Article 1.0
Author-Name: Zhiyang Lin
Author-X-Name-First: Zhiyang
Author-X-Name-Last: Lin
Author-Name: Danglun Luo
Author-X-Name-First: Danglun
Author-X-Name-Last: Luo
Author-Name: Feida (Frank) Zhang
Author-X-Name-First: Feida (Frank)
Author-X-Name-Last: Zhang
Title: Regional GDP Distortion and Analyst Forecast Accuracy: Evidence from China
Abstract:
The reliability of China’s GDP data has been questioned for a long time. Prior studies have discussed the causes of GDP distortion in China, but the evidence on the economic consequences is scant. This paper examines the economic consequences of regional GDP distortion from the perspective of analyst forecasts. We find that regional GDP distortion leads to lower analyst forecast accuracy, and this result is robust to potential endogeneity. Further investigations show that analysts with information advantages have the ability to resist the distorted GDP data and issue accurate forecasts. Political pressure is another factor leading to inaccurate analyst forecasts. Our paper contributes to the literature by highlighting the importance of the reliability of GDP figures as a determinant of analyst forecast accuracy.
Journal: The European Journal of Finance
Pages: 437-460
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2021.1918203
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1918203
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:437-460
Template-Type: ReDIF-Article 1.0
Author-Name: Qizhi Tao
Author-X-Name-First: Qizhi
Author-X-Name-Last: Tao
Author-Name: Ming Liu
Author-X-Name-First: Ming
Author-X-Name-Last: Liu
Author-Name: Shiman Hu
Author-X-Name-First: Shiman
Author-X-Name-Last: Hu
Author-Name: Yun Zhang
Author-X-Name-First: Yun
Author-X-Name-Last: Zhang
Title: Is a promise a promise? Analyzing performance commitment in acquisitions and target firm performance
Abstract:
Using the acquisition data in China from 2011 to 2019, we show that acquiring firms are more likely to provide target firms with performance commitment (PC) contracts when they (1) use stocks to pay acquisitions, (2) have low profits, (3) make cross-industry and domestic acquisitions, (4) are young, small, non-stated-owned enterprises and not related parties with target firms, and (5) deal value is high. Although PC increases the takeover premia, acquirers with PC experience high cumulative abnormal stock returns (CARs) during the announcement period. Double PC contracts drive acquirers' CARs even higher. Although target firms with double PC have better profitability than those with single PC during the commitment period, their profit starts to decrease sharply once the commitment period expires, and those with double PC deteriorate even further. Finally, we find that target firms with PC engage in earnings management during the commitment period to meet their promised performance. Overall, we do not support previous studies because PCs engender earnings management and impair the values of acquirers in the post-commitment period.
Journal: The European Journal of Finance
Pages: 487-513
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2020.1871050
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1871050
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:487-513
Template-Type: ReDIF-Article 1.0
Author-Name: Pei Liu
Author-X-Name-First: Pei
Author-X-Name-Last: Liu
Author-Name: Yuchao Peng
Author-X-Name-First: Yuchao
Author-X-Name-Last: Peng
Author-Name: Yukun Shi
Author-X-Name-First: Yukun
Author-X-Name-Last: Shi
Author-Name: Junhong Yang
Author-X-Name-First: Junhong
Author-X-Name-Last: Yang
Title: Financial structures, political risk and economic growth
Abstract:
Using a panel of 113 countries over the period from 1990 to 2013, this paper provides new empirical evidence to the intensive debate of whether financial structure is relevant for economic growth. Specifically, we evaluate the role of political risk, development stage and their interactions with the structure of the financial system. We find that on average a more market-based financial system is associated with a higher level of economic growth. This impact varies with different levels of political risk and different stages of economic development. Specifically, the comparative development of equity markets compared with banks appear to promote more economic growth in countries with lower political risk and at a better stage of economic development. Moreover, banks are more important to economic growth in over-market-based financial systems, whilst equity markets are more sensitive to economic growth in over-bank-based financial systems. Our paper provides new insights into the real effects of the mixture of banks and markets on the economy.
Journal: The European Journal of Finance
Pages: 356-376
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2021.1879888
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1879888
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:356-376
Template-Type: ReDIF-Article 1.0
Author-Name: Wei Cao
Author-X-Name-First: Wei
Author-X-Name-Last: Cao
Author-Name: Chunhua Chen
Author-X-Name-First: Chunhua
Author-X-Name-Last: Chen
Author-Name: Dequan Jiang
Author-X-Name-First: Dequan
Author-X-Name-Last: Jiang
Author-Name: Weiping Li
Author-X-Name-First: Weiping
Author-X-Name-Last: Li
Author-Name: Ying Zhang
Author-X-Name-First: Ying
Author-X-Name-Last: Zhang
Title: Industrial policy and non-financial corporations’ financialization: evidence from China
Abstract:
Using the Chinese listed firms from 2007 to 2015 as a sample, we examine how industrial policy affects the financialization of non-financial corporations (NFCs). We find that industrial policy reduces the level of the financialization of NFCs. Further evidence shows that industrial policy lowers firms’ motivation to ease financial constraints and mitigates operating risks. This effect becomes more substantial in the regions with a higher level of marketization and stronger government financial capacity. Our findings have important policy implications for the emerging countries to promote real economic growth and curb the ‘shifting from the real economy to the virtual economy'.
Journal: The European Journal of Finance
Pages: 397-415
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2021.1918204
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1918204
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:397-415
Template-Type: ReDIF-Article 1.0
Author-Name: Linyi Zhang
Author-X-Name-First: Linyi
Author-X-Name-Last: Zhang
Author-Name: Honghui Zhang
Author-X-Name-First: Honghui
Author-X-Name-Last: Zhang
Author-Name: Haiyan Jiang
Author-X-Name-First: Haiyan
Author-X-Name-Last: Jiang
Title: Tournament incentives, internal promotion and corporate social responsibility: evidence from China
Abstract:
The study investigates the effect of tournament incentives on corporate social responsibility (CSR). Using data from Chinese listed firms during the period from 2010 to 2019, we find that tournament incentives can encourage corporate executives to improve their CSR performance. The results also reveal that this positive association between tournament incentives and CSR is more pronounced in firms that have a tradition of recruiting a successor CEO from within the organization. However, in companies with CEOs recruited internally, shareholder monitoring can restrain the tournament effect on CSR. In addition, we also find that tournament incentives are more pronounced in State Owned Enterprises. The results remain robust to a batch of endogeneity tests to address potential self-selection bias and reverse causality between tournament incentives and CSR.
Journal: The European Journal of Finance
Pages: 416-436
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2021.1937258
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1937258
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:416-436
Template-Type: ReDIF-Article 1.0
Author-Name: Marco Trombetta
Author-X-Name-First: Marco
Author-X-Name-Last: Trombetta
Title: Financial reporting and macroeconomics
Abstract:
Financial Reporting (FR) is a fundamental source of information for the correct functioning of markets. Traditionally, FR is associated with the communication activity done by firms to inform stakeholders and the general public about their financial performance. In the first and second part of this essay, I revisit some of the channels through which firm-level FR affects the macroeconomic environment. However, companies are not the only economic actors that engage in an FR activity. Local and national governments produce financial reports as well. In the third part of this essay, I review how we can use the theoretical framework developed for firm-level FR to study government-level FR. I conclude by highlighting the importance of incentives as the fundamental mediator of the relationship between FR and Macroeconomics. I remark how they shape different FR environments during crisis and non-crisis periods and the importance of taking these differences into account while regulating and supervising markets.
Journal: The European Journal of Finance
Pages: 314-325
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2021.1877166
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1877166
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:314-325
Template-Type: ReDIF-Article 1.0
Author-Name: Yue Cao
Author-X-Name-First: Yue
Author-X-Name-Last: Cao
Author-Name: Yizhe Dong
Author-X-Name-First: Yizhe
Author-X-Name-Last: Dong
Author-Name: Tianxiao Guo
Author-X-Name-First: Tianxiao
Author-X-Name-Last: Guo
Author-Name: Diandian Ma
Author-X-Name-First: Diandian
Author-X-Name-Last: Ma
Title: Short-sale deregulation and corporate tax aggressiveness: evidence from the Chinese market
Abstract:
We study whether short selling affects corporate tax aggressiveness. Exploiting staggered short-sale deregulation in the Chinese stock market as a source of variation in market pressure and monitoring, our difference-in-differences estimates show that the introduction of a short-selling scheme significantly discourages pilot firms from engaging in aggressive tax avoidance, in contrast to the findings by Luo, Ni, and Tian (2020. “Short Selling and Corporate Tax Avoidance: Insights from a Financial Constraint View.” Pacific–Basin Finance Journal 61: 101323.). We also find that the negative effect of short selling on tax aggressiveness is more pronounced for firms that have high advertising costs, high institutional holdings, and CEO duality, and are located in regions with weak tax law enforcement. We further reveal that short selling has an indirect effect on tax aggressiveness through the additional external pressure exerted by auditors, media, and financial analysts, and lastly, challenge the main analysis by Luo, Ni, and Tian (2020). Our evidence highlights the monitoring and disciplinary roles that short sellers play in determining the level of corporate tax aggressiveness.
Journal: The European Journal of Finance
Pages: 326-355
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2021.1958890
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1958890
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:326-355
Template-Type: ReDIF-Article 1.0
Author-Name: Yizhe Dong
Author-X-Name-First: Yizhe
Author-X-Name-Last: Dong
Author-Name: Wenxuan Hou
Author-X-Name-First: Wenxuan
Author-X-Name-Last: Hou
Author-Name: Binxuan Lin
Author-X-Name-First: Binxuan
Author-X-Name-Last: Lin
Author-Name: Ting Zhang
Author-X-Name-First: Ting
Author-X-Name-Last: Zhang
Title: Recent advances and future directions in macro-finance: macroeconomic conditions and corporate decisions
Abstract:
A decade after the 2007–2009 financial crisis, the covid-19 pandemic causes disruptive economic conditions and its uncertain nature makes the formulation of macroeconomic policy response challenging. Meanwhile, extreme weather and natural disasters linked to climate change become more frequent and adversely affect the economy. These challenges highlight the importance of better understanding the effects of macroeconomic conditions on corporate decisions. This article reviews the related macro-finance literature and introduces articles included in this special issue on this theme. In the end, we suggest possible future research directions.
Journal: The European Journal of Finance
Pages: 307-313
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2021.2022509
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2022509
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:307-313
Template-Type: ReDIF-Article 1.0
Author-Name: Ming Fang
Author-X-Name-First: Ming
Author-X-Name-Last: Fang
Author-Name: Iftekhar Hasan
Author-X-Name-First: Iftekhar
Author-X-Name-Last: Hasan
Author-Name: Zenu Sharma
Author-X-Name-First: Zenu
Author-X-Name-Last: Sharma
Author-Name: An Yan
Author-X-Name-First: An
Author-X-Name-Last: Yan
Title: Firm social networks, trust, and security issuances
Abstract:
We observe that public firms are more likely to issue seasoned stocks rather than bonds when theirs boards are more socially-connected. These connected issuers experience better announcement-period stock returns and attract more institutional investors. This social-connection effect is stronger for firms with severe information asymmetry, higher risk of being undersubscribed, and more visible to investors. Our conjecture is this social-network effect is driven by trust in issuing firms. Given stocks are more sensitive to trust, these trusted firms are more likely to issue stocks than bonds. Trustworthiness plays an important role in firms’ security issuances in capital markets.
Journal: The European Journal of Finance
Pages: 514-549
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2020.1803095
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1803095
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:514-549
Template-Type: ReDIF-Article 1.0
Author-Name: Di Gao
Author-X-Name-First: Di
Author-X-Name-Last: Gao
Author-Name: Jihui Guo
Author-X-Name-First: Jihui
Author-X-Name-Last: Guo
Author-Name: Yu Shen
Author-X-Name-First: Yu
Author-X-Name-Last: Shen
Author-Name: Xian Xu
Author-X-Name-First: Xian
Author-X-Name-Last: Xu
Title: CEOs’ supply chain experience and firm innovation: evidence from China
Abstract:
Using manually collected data of Chinese listed companies, this study investigates the effect of CEOs’ supply chain experience on corporate innovation. We find that such experience is positively associated with corporate innovation inputs, outputs, and innovative efficiency. The main findings withstand checks for endogeneity, self-selection bias, and robustness tests. Additionally, CEOs’ supply chain experience improves corporate innovation performance through providing information more efficiently, reducing the financial constraints faced by firms, and improving the effectiveness of corporate governance. Further analyses indicate that the effect this experience on innovation varies in different environments. Overall, our results suggest that CEOs’ supply chain experience, as an essential component of social ties, contributes to corporate innovation.
Journal: The European Journal of Finance
Pages: 461-486
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2020.1856164
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1856164
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:461-486
Template-Type: ReDIF-Article 1.0
Author-Name: Sicen Chen
Author-X-Name-First: Sicen
Author-X-Name-Last: Chen
Author-Name: Shuping Lin
Author-X-Name-First: Shuping
Author-X-Name-Last: Lin
Author-Name: Jinli Xiao
Author-X-Name-First: Jinli
Author-X-Name-Last: Xiao
Author-Name: Pengdong Zhang
Author-X-Name-First: Pengdong
Author-X-Name-Last: Zhang
Title: Do managers learn from stock prices in emerging markets? Evidence from China
Abstract:
In this study, we examine whether managers learn from stock prices when making investment decisions in the context of emerging markets. Adopting the Shanghai-Hong Kong Stock Connect scheme launched by the Chinese government as a quasi-natural experiment, we determine that openness to global investors improves the investment efficiency of firms included in the scheme. We provide supporting evidence of managers’ learning behavior proving that the effect is strengthened (weakened) for stocks whose prices convey more (less) incremental information after the scheme launched. Furthermore, we observe a more pronounced effect in firms eager to obtain the information of technology frontier and product market from foreign investors. Alternative explanations, like improving corporate governance, mitigating financial constraints, increasing executive incentives, and attracting analyst coverage are empirically excluded. Overall, this study contributes to the literature by documenting whether the information role of stock prices succeeds in improving firms’ investment efficiency in emerging markets.
Journal: The European Journal of Finance
Pages: 377-396
Issue: 4-5
Volume: 28
Year: 2022
Month: 03
X-DOI: 10.1080/1351847X.2020.1850500
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1850500
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:4-5:p:377-396
Template-Type: ReDIF-Article 1.0
Author-Name: Oleg Badunenko
Author-X-Name-First: Oleg
Author-X-Name-Last: Badunenko
Author-Name: Aristeidis Dadoukis
Author-X-Name-First: Aristeidis
Author-X-Name-Last: Dadoukis
Author-Name: Giulia Fusi
Author-X-Name-First: Giulia
Author-X-Name-Last: Fusi
Author-Name: Richard Simper
Author-X-Name-First: Richard
Author-X-Name-Last: Simper
Title: The impact of efficiency on asset quality in banking
Abstract:
We investigate the impact of banks’ ability to minimise costs on asset quality, by assessing the temporal relationship between these variables in a sample of Italian banks over the period 2006–2015. We offer new insights into the channels through which bank efficiency affects non-performing loans by disentangling the short-term component of cost efficiency from its long-term component. We show that non-performing loans afflicting Italian banks can be explained by both efficiency components. A decrease in short-term cost efficiency precedes a worsening in banks’ asset quality, implying that regulators should consider adopting short-term efficiency as an early warning indicator of a deterioration in asset quality. We also present evidence of a trade-off between long-term efficiency and bank non-performing loans, which suggests that the removal of exogenous hindrances that prevent banks from allocating optimal levels of resources to the management of their loan portfolio should be a main policymakers’ objective.
Journal: The European Journal of Finance
Pages: 596-620
Issue: 6
Volume: 28
Year: 2022
Month: 04
X-DOI: 10.1080/1351847X.2021.1946117
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1946117
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:6:p:596-620
Template-Type: ReDIF-Article 1.0
Author-Name: Honghai Yu
Author-X-Name-First: Honghai
Author-X-Name-Last: Yu
Author-Name: Xianfeng Hao
Author-X-Name-First: Xianfeng
Author-X-Name-Last: Hao
Author-Name: Yudong Wang
Author-X-Name-First: Yudong
Author-X-Name-Last: Wang
Title: Good volatility, bad volatility, and time series return predictability
Abstract:
We propose a least squares estimator weighted by a combination of lagged realized semivariances related to positive and negative returns (WLS-CRS) and use univariate models alone and in combination to reveal significant return predictability. For an investor with a mean-variance preference who allocates a portfolio based on an equal-weighted combination of WLS-CRS model forecasts, the annual certainty equivalent return is 242.8 basis points higher than that received by an investor whose portfolio is allocated based on historical average forecasts. In forecasting stock returns, WLS-CRS estimates outperform the popular ordinary least squares estimates in both statistical and economic evaluation frameworks. WLS-CRS also outperforms estimators based on least squares weighted by lagged realized volatility. We further demonstrate the dominant role of negative return semivariance in improved forecasting performance. Our main findings hold through several robustness checks, including alternative validation samples, different risk aversion coefficients, and various forecast combinations.
Journal: The European Journal of Finance
Pages: 571-595
Issue: 6
Volume: 28
Year: 2022
Month: 04
X-DOI: 10.1080/1351847X.2021.1946119
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1946119
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:6:p:571-595
Template-Type: ReDIF-Article 1.0
Author-Name: Vineet Upreti
Author-X-Name-First: Vineet
Author-X-Name-Last: Upreti
Author-Name: Mike Adams
Author-X-Name-First: Mike
Author-X-Name-Last: Adams
Author-Name: Yihui Jia
Author-X-Name-First: Yihui
Author-X-Name-Last: Jia
Title: Risk management and the cost of equity: evidence from the United Kingdom’s non-life insurance market
Abstract:
We investigate the effect of risk management (reinsurance) on the corporate cost of equity using panel data drawn from the United Kingdom’s (UK) non-life insurance industry. Our results show that use of reinsurance lowers the cost of equity but that the relation is non-linear. We find that the rate of reduction declines as the level of premiums ceded relative to total gross premiums written increases. We also find that the reinsurance-cost of equity relation is moderated by the risk of financial distress/bankruptcy. This moderating relation is robust to the use of three alternative measures of financial distress and bankruptcy risk.
Journal: The European Journal of Finance
Pages: 551-570
Issue: 6
Volume: 28
Year: 2022
Month: 04
X-DOI: 10.1080/1351847X.2021.1936588
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1936588
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:6:p:551-570
Template-Type: ReDIF-Article 1.0
Author-Name: Yuzhi Cai
Author-X-Name-First: Yuzhi
Author-X-Name-Last: Cai
Title: Hawkes processes with hidden marks
Abstract:
We develop a novel Hawkes process (HP) model with hidden marks for financial event data, where the hidden marks are used to take account the effect of some extra random errors (ERE) caused by data collection mechanisms and some data cleaning procedures. We further propose a Bayesian method for parameter estimation. We use simulation studies and two data applications to evaluate the performance of the estimation method and the impact of ERE on the intensity of an underlying financial process and explain how to use the proposed model in practice. Our results show that the proposed estimation method works well, and they also confirm that when ERE cause information about the underlying process to be lost, the intensity function may be underestimated. We further find that the proposed model performs better in the presence of ERE compared with the standard HP model.
Journal: The European Journal of Finance
Pages: 679-704
Issue: 7
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2020.1820356
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1820356
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:679-704
Template-Type: ReDIF-Article 1.0
Author-Name: Fabrizio Ferriani
Author-X-Name-First: Fabrizio
Author-X-Name-Last: Ferriani
Author-Name: Patrick Zoi
Author-X-Name-First: Patrick
Author-X-Name-Last: Zoi
Title: The dynamics of price jumps in the stock market: an empirical study on Europe and U.S.
Abstract:
We study the bivariate jump process involving the S&P 500 and the Euro Stoxx 50, with jumps extracted from high-frequency data. In our analysis, based on Hawkes processes, we find no evidence of contagion across different markets. Nevertheless, we observe significant jump clustering effects though they are limited to intraday time scales. Moreover, we notice that the relative contribution of jumps to the total price variance is larger during tranquil market conditions rather than in periods of stress, providing empirical evidence of this result during the subprime mortgage crisis and the European sovereign debt crisis. Importantly, our results are robust under different jump detection methods.
Journal: The European Journal of Finance
Pages: 718-742
Issue: 7
Volume: 28
Year: 2022
Month: 5
X-DOI: 10.1080/1351847X.2020.1740288
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1740288
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:718-742
Template-Type: ReDIF-Article 1.0
Author-Name: Alan G. Hawkes
Author-X-Name-First: Alan G.
Author-X-Name-Last: Hawkes
Title: Hawkes jump-diffusions and finance: a brief history and review
Abstract:
A brief history of diffusions in Finance is presented, followed by an even briefer discussion of jump-diffusions that involve Poisson or Lévy jumps. The main purpose of the paper is then to discuss applications of self-exciting and mutually-exciting Hawkes point processes. After an outline of the basic properties of this class of processes, there is a review of some recent articles that show how incorporating them as contagious jumps into Financial diffusions may improve model fit, forecasting, pricing, hedging and portfolio management.
Journal: The European Journal of Finance
Pages: 627-641
Issue: 7
Volume: 28
Year: 2022
Month: 5
X-DOI: 10.1080/1351847X.2020.1755712
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1755712
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:627-641
Template-Type: ReDIF-Article 1.0
Author-Name: Xing Han
Author-X-Name-First: Xing
Author-X-Name-Last: Han
Author-Name: Youwei Li
Author-X-Name-First: Youwei
Author-X-Name-Last: Li
Author-Name: Olena Onishchenko
Author-X-Name-First: Olena
Author-X-Name-Last: Onishchenko
Title: Shunned stocks and market states
Abstract:
Hong and Kacperczyk (2009, The price of sin: The effects of social norms on markets. Journal of Financial Economics 93(1), 15–36) document that ‘sin stocks’ (alcohol, tobacco, and gambling) earn relatively high returns on a risk-adjusted basis. We revisit their original study with an updated sample. Contrary to the stylized facts that prominent anomalies attenuate out-of-sample or in the post-publication period (McLean and Pontiff 2016, Does academic research destroy stock return predictability? The Journal of Finance 71, 5–32), we document that the superior performance of sin stocks has persisted over the most recent decade (2009–2018). This is consistent with the increased popularity of socially responsible investing over recent decades, pushing more norm-constrained investors away from sin stocks. Further analyses suggest that sin stocks outperform in low-liquidity states and in high-uncertainty states and are recession-proof. Overall, our work supports the shunned stock hypothesis and indicates the price of sin stocks is alive and well.
Journal: The European Journal of Finance
Pages: 705-717
Issue: 7
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2021.2015699
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2015699
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:705-717
Template-Type: ReDIF-Article 1.0
Author-Name: Steve Y. Yang
Author-X-Name-First: Steve Y.
Author-X-Name-Last: Yang
Author-Name: Yunfeng Liu
Author-X-Name-First: Yunfeng
Author-X-Name-Last: Liu
Author-Name: Yangyang Yu
Author-X-Name-First: Yangyang
Author-X-Name-Last: Yu
Author-Name: Sheung Yin Kevin Mo
Author-X-Name-First: Sheung Yin Kevin
Author-X-Name-Last: Mo
Title: Energy ETF return jump contagion: a multivariate Hawkes process approach
Abstract:
Compared with investing in individual stocks, ETF investment is capable of diversifying the non-systematic risk or exposure to broad market or industry sectors. The aim of this paper is to develop a jump contagion modeling framework to understand the contagion effect of market jump events of energy sector ETFs using multivariate Hawkes process modeling approach. Through analyzing intraday high-frequency market data, we find that negative index jumps lead index price discovery processes, and their influences disappear faster than the positive index jumps in both the S&P500 and the crude oil futures. And on average, the self contagion in negative jumps is stronger than the self contagion in the positive jumps across all ETF groups. However, the ETFs focused on the master limited partnership (MLP) segment show less negative self contagion and relatively stronger positive self contagion than the other energy ETFs. Overall, the influence of negative jumps on ETFs from both the equity index and the energy future index is stronger than that of the positive jumps. And the influence of the equity index (S&P500) jump on ETFs lasts longer than that of the crude oil futures index (CLC1).
Journal: The European Journal of Finance
Pages: 761-783
Issue: 7
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2021.1903962
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1903962
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:761-783
Template-Type: ReDIF-Article 1.0
Author-Name: Michael Mark
Author-X-Name-First: Michael
Author-X-Name-Last: Mark
Author-Name: Jan Sila
Author-X-Name-First: Jan
Author-X-Name-Last: Sila
Author-Name: Thomas A. Weber
Author-X-Name-First: Thomas A.
Author-X-Name-Last: Weber
Title: Quantifying endogeneity of cryptocurrency markets
Abstract:
We construct a ‘reflexivity’ index to measure the activity generated endogenously within a market for cryptocurrencies. For this purpose, we fit a univariate self-exciting Hawkes process with two classes of parametric kernels to high-frequency trading data. A parsimonious model of both endogenous and exogenous dynamics enables a direct comparison with exchanges for traditional asset classes, in terms of identified branching ratios. We also formulate a ‘Hawkes disorder problem,’ as generalization of the established Poisson disorder problem, and provide a simulation-based approach to determining an optimal observation horizon. Our analysis suggests that Bitcoin mid-price dynamics feature long-memory properties, well explained by the power-law kernel, at a level of criticality similar to fiat-currency markets.
Journal: The European Journal of Finance
Pages: 784-799
Issue: 7
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2020.1791925
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1791925
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:784-799
Template-Type: ReDIF-Article 1.0
Author-Name: Alice Buccioli
Author-X-Name-First: Alice
Author-X-Name-Last: Buccioli
Author-Name: Thomas Kokholm
Author-X-Name-First: Thomas
Author-X-Name-Last: Kokholm
Title: Shock waves and golden shores: the asymmetric interaction between gold prices and the stock market
Abstract:
Gold is often considered a safe haven asset providing negative return correlation with the stock market in times of distress, while in more calm periods the correlation is close to zero. We study the dynamic inter-linkage of gold prices and the stock market. Specifically, we model the log-prices of gold and a stock index as jump-diffusive processes, with the jumps arriving with mutually exciting intensities. Hence, the occurrence of negative shocks to the stock index spill over into higher probabilities of positive shocks to the gold price and vice versa. For the empirical analysis, we consider daily prices on gold and the SPX index. Utilizing that the model's moment conditions are computed efficiently in closed form, we use the generalized method of moments to estimate the model parameters. We document the existence of cross-excitation between the stock index and gold prices, with the channel from the stock index to gold prices being the most pronounced. Moreover, we find that gold behaves as a safe haven asset for the stock index for around 20 days following a market crash. Finally, we study the power of the proposed model to predict future price jumps and benchmark the performance against more classical models.
Journal: The European Journal of Finance
Pages: 743-760
Issue: 7
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2021.1897026
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1897026
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:743-760
Template-Type: ReDIF-Article 1.0
Author-Name: Antoine Fosset
Author-X-Name-First: Antoine
Author-X-Name-Last: Fosset
Author-Name: Jean-Philippe Bouchaud
Author-X-Name-First: Jean-Philippe
Author-X-Name-Last: Bouchaud
Author-Name: Michael Benzaquen
Author-X-Name-First: Michael
Author-X-Name-Last: Benzaquen
Title: Non-parametric estimation of quadratic Hawkes processes for order book events
Abstract:
We propose an actionable calibration procedure for general Quadratic Hawkes models of order book events (market orders, limit orders, cancellations). One of the main features of such models is to encode not only the influence of past events on future events but also, crucially, the influence of past price changes on such events. We show that the empirically calibrated quadratic kernel is well described by a diagonal contribution (that captures past realised volatility), plus a rank-one ‘Zumbach’ contribution (that captures the effect of past trends). We find that the Zumbach kernel is a power-law of time, as are all other feedback kernels. As in many previous studies, the rate of truly exogenous events is found to be a small fraction of the total event rate. These two features suggest that the system is close to a critical point – in the sense that slightly stronger feedback kernels would lead to endogenous liquidity crises.
Journal: The European Journal of Finance
Pages: 663-678
Issue: 7
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2021.1917441
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1917441
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:663-678
Template-Type: ReDIF-Article 1.0
Author-Name: Jing Chen
Author-X-Name-First: Jing
Author-X-Name-Last: Chen
Author-Name: Nick Taylor
Author-X-Name-First: Nick
Author-X-Name-Last: Taylor
Author-Name: Steve Yang
Author-X-Name-First: Steve
Author-X-Name-Last: Yang
Author-Name: Qian Han
Author-X-Name-First: Qian
Author-X-Name-Last: Han
Title: Hawkes processes in finance: market structure and impact
Journal: The European Journal of Finance
Pages: 621-626
Issue: 7
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2022.2060755
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2060755
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:621-626
Template-Type: ReDIF-Article 1.0
Author-Name: Matthias Kirchner
Author-X-Name-First: Matthias
Author-X-Name-Last: Kirchner
Author-Name: Silvan Vetter
Author-X-Name-First: Silvan
Author-X-Name-Last: Vetter
Title: Hawkes model specification for limit order books
Abstract:
This paper discusses Hawkes modeling of order arrivals in limit order books. We model the flow of market orders, limit orders, and cancelations by a self- and crossexciting multitype marked Hawkes process with state-dependent baseline intensities. The marks carry the order sizes and the state of the book is summarized by the ‘limit-order-book imbalance’. We specify the model very carefully – with few a priori assumptions: we select the non-zero excitements (the ‘Hawkes skeleton’), the shape of the decay kernels, and the shape of the impact functions in a nonparametric manner. Furthermore, we show that our data exhibit perfect bid–ask symmetry. We observe that the imbalance of the order book explains the probability for a bid (ask) market order – given the occurrence of a market order – in a perfectly linear manner. Thus, we include a term involving the imbalance in the baseline intensity of the process. We calibrate the specified parametric model by maximum likelihood estimation and discuss the results. Finally, we apply the fitted model in order to estimate the conditional distribution of the next order type. This opens the door to order-type prediction.
Journal: The European Journal of Finance
Pages: 642-662
Issue: 7
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2020.1784974
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1784974
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:7:p:642-662
Template-Type: ReDIF-Article 1.0
Author-Name: Malika Chaudhuri
Author-X-Name-First: Malika
Author-X-Name-Last: Chaudhuri
Author-Name: Ranadeb Chaudhuri
Author-X-Name-First: Ranadeb
Author-X-Name-Last: Chaudhuri
Author-Name: Jay Janney
Author-X-Name-First: Jay
Author-X-Name-Last: Janney
Author-Name: Mohinder Parkash
Author-X-Name-First: Mohinder
Author-X-Name-Last: Parkash
Title: Things often get worse before they get better: using contest theory to explain the effect of informational risk around inclusion in S&P 500 on cost of capital
Abstract:
The link between cost of capital and information risk is one of the most fundamental and controversial issues in financial accounting. We need an exogenous shock to unequivocally tease out the link between information risk and cost of capital (CoC). In this study, we consider a firm’s listing with the S&P 500 index as the exogenous shock. Listing with the index is expected to bring the firm into the limelight, leading to increased scrutiny of the firm and its management performance by market participants and stock analysts. This may expose the firm to increased information risk, which may adversely affect its cost of capital in the short run. Empirical evidence in this study suggests firms that are added to the S&P 500 index exhibit higher cost of capital over the first year after inclusion compared to a carefully constructed matched sample of non-S&P 500 stocks. Results also indicate that the volume of information released and precision of information once a firm is listed with the index significantly impact its cost of capital.
Journal: The European Journal of Finance
Pages: 848-869
Issue: 8
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2021.1933119
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1933119
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:8:p:848-869
Template-Type: ReDIF-Article 1.0
Author-Name: Diogo Duarte
Author-X-Name-First: Diogo
Author-X-Name-Last: Duarte
Author-Name: Hamilton Galindo
Author-X-Name-First: Hamilton
Author-X-Name-Last: Galindo
Author-Name: Alexis Montecinos
Author-X-Name-First: Alexis
Author-X-Name-Last: Montecinos
Title: Leverage and capital utilization
Abstract:
Our paper documents that capital utilization and short-term debt are procyclical. We show that a strong positive relationship exists both at the aggregate and firm levels, and it persists even when we control the regressions for firm size, profits, growth, and business cycle effects. In addition, our DSGE model shows that in the presence of capital utilization, positive real and financial shocks cause the firm to change its financing of the equity payout policy from earnings to debt, resulting in an increase in short-term debt. Therefore, ignoring the firm's optimal decision on capital utilization may lead to misleading conclusions on how leverage is undertaken.
Journal: The European Journal of Finance
Pages: 801-824
Issue: 8
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2021.1924215
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1924215
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:8:p:801-824
Template-Type: ReDIF-Article 1.0
Author-Name: Panagiotis Karavitis
Author-X-Name-First: Panagiotis
Author-X-Name-Last: Karavitis
Author-Name: Michael S. Michael
Author-X-Name-First: Michael S.
Author-X-Name-Last: Michael
Title: International financial integration in the presence of an international duopoly
Abstract:
We revisit the debate on the benefits of international financial integration. We build a partial equilibrium imperfectly competitive model with two countries, where each country has one firm. Firms are Cournot competitors. Within this framework, we examine how the liberalization of international capital flows affects the welfare of each country and their joint welfare. Our results show that international capital flows' liberalization cannot guarantee the improvement in each country's welfare and their joint welfare. Overall, we find that international financial integration has very heterogeneous effects, depending on the market size, the initial level of capital stock and the degree of product competition.
Journal: The European Journal of Finance
Pages: 825-847
Issue: 8
Volume: 28
Year: 2022
Month: 05
X-DOI: 10.1080/1351847X.2021.1931389
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1931389
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:8:p:825-847
Template-Type: ReDIF-Article 1.0
Author-Name: Afees A. Salisu
Author-X-Name-First: Afees A.
Author-X-Name-Last: Salisu
Author-Name: Lukman Lasisi
Author-X-Name-First: Lukman
Author-X-Name-Last: Lasisi
Author-Name: Jean Paul Tchankam
Author-X-Name-First: Jean Paul
Author-X-Name-Last: Tchankam
Title: Historical geopolitical risk and the behaviour of stock returns in advanced economies
Abstract:
In this study, we investigate the impact of global geopolitical risk (GPR) of different forms on the economies of advanced countries (G7 and Switzerland). We construct a predictive model, following the approach of Lewellen (2004. “Predicting returns with financial ratios.” Journal of Financial Economics 74 (2): 209–235) and Westerlund and Narayan (2012. “Does the choice of estimator matter when forecasting returns?” Journal of Banking & Finance 36 (9): 2632–2640; 2015. “Testing for Predictability in Conditionally Heteroskedastic Stock Returns.” Journal of Financial Econometrics 13 (2): 342–375), to analyse over a century of GPR indices and stock returns. For robustness, we control for oil price given its strong connection with stock returns of advanced economies and further extend our analysis to out-of-sample predictability. Our findings reveal that GPR is a significant predictor of stock returns in advanced economies, although their stock markets are vulnerable to GPR and particularly suffer greater adverse effects from threats of GPR (such as threats of war and terrorism) than their actual occurrence. Meanwhile, our forecast evaluation results show that the predictive model that accommodates the GPR indices outperforms the benchmark model that ignores the same both in the in-sample and out-of-sample forecast estimates.
Journal: The European Journal of Finance
Pages: 889-906
Issue: 9
Volume: 28
Year: 2022
Month: 06
X-DOI: 10.1080/1351847X.2021.1968467
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1968467
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:9:p:889-906
Template-Type: ReDIF-Article 1.0
Author-Name: Ángel León
Author-X-Name-First: Ángel
Author-X-Name-Last: León
Author-Name: Trino-Manuel Ñíguez
Author-X-Name-First: Trino-Manuel
Author-X-Name-Last: Ñíguez
Title: Polynomial adjusted Student-t densities for modeling asset returns
Abstract:
We present a polynomial expansion of the standardized Student-t distribution. Our density, obtained through the polynomial adjusted method in Bagnato, Potí, and Zoia (2015. “The Role of Orthogonal Polynomials in Adjusting Hyperbolic Secant and Logistic Distributions to Analyse Financial Asset Returns.” Statistical Papers 56 (4): 1205–12340), is an extension of the Gram–Charlier density in Jondeau and Rockinger (2001. “Gram-Charlier Densities.” Journal of Economic Dynamics and Control 25 (10): 1457–1483). We derive the closed-form expressions of the moments, the distribution function and the skewness–kurtosis frontier for a well-defined density. An empirical application is also implemented for modeling heavy-tailed and skewed distributions for daily asset returns. Both in-sample and backtesting analysis show that this new density can be a good candidate for risk management.
Journal: The European Journal of Finance
Pages: 907-929
Issue: 9
Volume: 28
Year: 2022
Month: 06
X-DOI: 10.1080/1351847X.2021.1985561
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1985561
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:9:p:907-929
Template-Type: ReDIF-Article 1.0
Author-Name: Doojin Ryu
Author-X-Name-First: Doojin
Author-X-Name-Last: Ryu
Author-Name: Robert I. Webb
Author-X-Name-First: Robert I.
Author-X-Name-Last: Webb
Author-Name: Jinyoung Yu
Author-X-Name-First: Jinyoung
Author-X-Name-Last: Yu
Title: Liquidity-adjusted value-at-risk: a comprehensive extension with microstructural liquidity components
Abstract:
This study constructs an extended value-at-risk model that incorporates all microstructural liquidity components using a high-quality tick-by-tick index options market dataset. Out-of-sample backtesting and mean-difference analyses suggest that the traditional value-at-risk measure significantly underestimates investors’ potential losses relative to our new liquidity-adjusted measure. Logistic regressions reveal that ex-ante market illiquidity increases violations of liquidity-adjusted value-at-risk and that these violations are often driven by foreign institutional investors.
Journal: The European Journal of Finance
Pages: 871-888
Issue: 9
Volume: 28
Year: 2022
Month: 06
X-DOI: 10.1080/1351847X.2021.1946414
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1946414
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:9:p:871-888
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1949368_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Nima Zarrabi
Author-X-Name-First: Nima
Author-X-Name-Last: Zarrabi
Author-Name: Stuart Snaith
Author-X-Name-First: Stuart
Author-X-Name-Last: Snaith
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Title: Exchange rate forecasting using economic models and technical trading rules
Abstract:
The use of technical analysis by practitioners in the foreign exchange market contrasts with the ongoing debate among academics on the poor predictive ability of macroeconomic variables. This paper compares these two methods by constructing pools of economic models and technical trading rules and evaluates their in-sample and out-of-sample performance both locally and globally. Results suggest the presence of local forecastability that is overlooked when relying on global measures of predictability. The local predictability is captured using a rolling model selection approach to generate aggregate forecasts across separate pools of economic models and technical trading rules as well as both combined. The out-of-sample results for our aggregate forecasts using pools of economic models fail to beat the random walk as do pools of technical trading models. However combining the two pools of models results in forecasts that beat the random walk for four out of the six sample currencies. This result suggests that exchange rate forecasts can be improved by pooling both sets of models.
Journal: The European Journal of Finance
Pages: 997-1018
Issue: 10
Volume: 28
Year: 2022
Month: 07
X-DOI: 10.1080/1351847X.2021.1949368
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1949368
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:10:p:997-1018
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1939087_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Alin Marius Andrieş
Author-X-Name-First: Alin Marius
Author-X-Name-Last: Andrieş
Author-Name: Florentina Melnic
Author-X-Name-First: Florentina
Author-X-Name-Last: Melnic
Author-Name: Nicu Sprincean
Author-X-Name-First: Nicu
Author-X-Name-Last: Sprincean
Title: The effects of macroprudential policies on credit growth
Abstract:
In this paper, we assess the effectiveness of macroprudential policies in controlling short- and long-term credit growth. Using a sample of 414 banks located in 61 countries, we document that macroprudential policies manifest a stabilizing effect in the short run, reducing credit growth, with borrower-targeted macroprudential policies being the most effective in taming credit developments. However, in the long-term tight macroprudential policies enhance credit growth. In this case, country-level analysis shows that financial institution-targeted macroprudential policy is more effective than the instruments that target borrowers, whereas at the bank-level the opposite is true. In addition, using a difference-in-difference approach, we emphasize that there is heterogeneity in the relationship among macroprudential policy and credit growth across different types of countries, banking systems, policy regimes and banks. Our findings stress the importance of macroprudential instruments in limiting excessive lending, most notably borrower-based tools.
Journal: The European Journal of Finance
Pages: 964-996
Issue: 10
Volume: 28
Year: 2022
Month: 07
X-DOI: 10.1080/1351847X.2021.1939087
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1939087
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:10:p:964-996
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1957698_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Abdullah Yalaman
Author-X-Name-First: Abdullah
Author-X-Name-Last: Yalaman
Author-Name: Viktor Manahov
Author-X-Name-First: Viktor
Author-X-Name-Last: Manahov
Title: Analysing emerging market returns with high-frequency data during the global financial crisis of 2007–2009
Abstract:
Nowadays, the majority of stock market trading is performed electronically, based on pre-programmed computer algorithms. We obtain five-minute high-frequency data from the Turkish Stock Exchange to investigate the data-generating process of emerging market returns during the global financial crisis of 2007–2009. We test tail behaviour and how data-generating processes changed during the intraday trading period in both crisis and non-crisis periods. We also examine whether price asymmetry has a significant effect on the diffusion and jump characteristics of emerging market returns. The results identify a clear increase in jumps with infinite activity in crisis periods and a decreased identification of jumps with finite activity in non-crisis periods. In crisis periods, the proportion of large and small jumps increased and the proportion of Brownian motion decreased. We show that data-generating processes are not stable during the intraday trading period, which fluctuates slightly, particularly right after the market opening times in the morning and in the afternoon. Finally, we conclude that there are many more stressful days in crisis periods than in non-crisis periods in emerging markets returns.
Journal: The European Journal of Finance
Pages: 1019-1051
Issue: 10
Volume: 28
Year: 2022
Month: 07
X-DOI: 10.1080/1351847X.2021.1957698
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1957698
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:10:p:1019-1051
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1939753_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Guillaume Arnould
Author-X-Name-First: Guillaume
Author-X-Name-Last: Arnould
Author-Name: Giuseppe Avignone
Author-X-Name-First: Giuseppe
Author-X-Name-Last: Avignone
Author-Name: Cosimo Pancaro
Author-X-Name-First: Cosimo
Author-X-Name-Last: Pancaro
Author-Name: Dawid Żochowski
Author-X-Name-First: Dawid
Author-X-Name-Last: Żochowski
Title: Bank funding costs and solvency
Abstract:
This paper investigates the relationship between bank funding costs and solvency for a large sample of euro area banks using two proprietary ECB datasets for both wholesale funding costs and deposit rates. In particular, the paper studies the relationship between bank solvency, on the one hand, and senior bond yields, term deposit rates and overnight deposit rates, on the other. The analysis finds a significant negative relationship between bank solvency and the different types of funding costs. It also shows that this relationship is non-linear, namely convex, for senior bond yields and term deposit rates. It also identifies a positive realistic solvency threshold beyond which the effect of an increase in solvency on senior bond yields becomes positive. The paper also finds that senior bond yields are more sensitive to a change in solvency than deposit rates. Among the deposit rates, the interest rates of the overnight deposits are the least sensitive. Banks’ asset quality, profitability and liquidity seem to play only a minor role in driving funding costs while the ECB monetary policy stance, sovereign risk and financial markets uncertainty appear to be material drivers.
Journal: The European Journal of Finance
Pages: 931-963
Issue: 10
Volume: 28
Year: 2022
Month: 07
X-DOI: 10.1080/1351847X.2021.1939753
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1939753
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:10:p:931-963
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1960404_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Reza Bradrania
Author-X-Name-First: Reza
Author-X-Name-Last: Bradrania
Author-Name: Davood Pirayesh Neghab
Author-X-Name-First: Davood
Author-X-Name-Last: Pirayesh Neghab
Title: State-dependent asset allocation using neural networks
Abstract:
Changes in market conditions present challenges for investors as they cause performance to deviate from the ranges predicted by long-term averages of means and covariances. The aim of conditional asset allocation strategies is to overcome this issue by adjusting portfolio allocations to hedge changes in the investment opportunity set. This paper proposes a new approach to conditional asset allocation that is based on machine learning; it analyzes historical market states and asset returns and identifies the optimal portfolio choice in a new period when new observations become available. In this approach, we directly relate state variables to portfolio weights, rather than firstly modeling the return distribution and subsequently estimating the portfolio choice. The method captures nonlinearity among the state (predicting) variables and portfolio weights without assuming any particular distribution of returns and other data, without fitting a model with a fixed number of predicting variables to data and without estimating any parameters. The empirical results for a portfolio of stock and bond indices show the proposed approach generates a more efficient outcome compared to traditional methods and is robust in using different objective functions across different sample periods.
Journal: The European Journal of Finance
Pages: 1130-1156
Issue: 11
Volume: 28
Year: 2022
Month: 07
X-DOI: 10.1080/1351847X.2021.1960404
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1960404
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:11:p:1130-1156
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1958244_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Jie Cao
Author-X-Name-First: Jie
Author-X-Name-Last: Cao
Author-Name: Fenghua Wen
Author-X-Name-First: Fenghua
Author-X-Name-Last: Wen
Author-Name: H. Eugene Stanley
Author-X-Name-First: H.
Author-X-Name-Last: Eugene Stanley
Title: Measuring the systemic risk in indirect financial networks
Abstract:
In this study, we present a novel measurement approach for systemic risk by considering an indirect network structure. In a departure from previous studies, this measurement method captures spillovers arising from deleveraging and price impact in financial systems and calculates the amplification of losses during the contagion process. We show the relationship between a bank's vulnerability and its network connections. Applying the model to Chinese banks, we evaluate the fire-sale loss of each bank and quantify the impact of each asset in different simulated stress scenarios. Using both theoretical and empirical evidence, we show the ability of network centrality to explain systemic risk contribution: a bank with more network connections is systemically more important. We also present an optimal strategy to mitigate and govern systemic risk. Our result implies that the systemic importance of a bank is based not only on its size but also on the kinds of assets it holds; it provides useful systemic risk monitoring tools complementary to those currently used by supervisors.
Journal: The European Journal of Finance
Pages: 1053-1098
Issue: 11
Volume: 28
Year: 2022
Month: 07
X-DOI: 10.1080/1351847X.2021.1958244
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1958244
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:11:p:1053-1098
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2002381_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Bonnie G. Buchanan
Author-X-Name-First: Bonnie G.
Author-X-Name-Last: Buchanan
Author-Name: Eva Liljeblom
Author-X-Name-First: Eva
Author-X-Name-Last: Liljeblom
Author-Name: Minna Martikainen
Author-X-Name-First: Minna
Author-X-Name-Last: Martikainen
Author-Name: Jussi Nikkinnen
Author-X-Name-First: Jussi
Author-X-Name-Last: Nikkinnen
Title: Multiple owners and productivity: evidence from family firms
Abstract:
We investigate the productivity of family owned small- and medium-sized enterprises (SMEs). Specifically, we examine whether productivity is influenced by the number of family owners and by family member involvement in daily operations. We find that the productivity of family firms is non-monotonically associated with the number of family owners and with the number of family members who work in the firm. Although prior empirical research has often been associated with positive effects, we identify problematic cases, especially when a few owners are involved. We document a negative effect on productivity if the firm has few but more than one family owner, and if the firm has two or three owners who are involved in daily business operations. In these cases, an external (non-family) Chair (CEO) might mitigate these effects stemming from the family ownership (family working in the firm). The results of our study have practical relevance and policy implications when it comes to questions concerning optimal governance.
Journal: The European Journal of Finance
Pages: 1157-1171
Issue: 11
Volume: 28
Year: 2022
Month: 07
X-DOI: 10.1080/1351847X.2021.2002381
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2002381
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:11:p:1157-1171
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1959366_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Kun Duan
Author-X-Name-First: Kun
Author-X-Name-Last: Duan
Author-Name: Mamata Parhi
Author-X-Name-First: Mamata
Author-X-Name-Last: Parhi
Author-Name: Simon Wolfe
Author-X-Name-First: Simon
Author-X-Name-Last: Wolfe
Title: Credit composition and housing price dynamics: a disaggregation approach
Abstract:
While credit plays an instrumental role in housing price dynamics, existing work has produced conflicting evidence of its real impact. This paper reconciles various inconclusive findings via a disaggregation strategy to decompose aggregate credit into credit-to-the-real economy (cr) and credit-to-the-asset markets (cf ). We argue that these two credit components exert theoretically expected and distinct impacts on housing prices, identified separately through a housing demand and a housing supply credit-circulation channel. Using an international panel dataset and treating for periodic cycles, our panel VAR estimations show that cr and housing prices depict a mutually reinforcing positive relationship. However, cf exerts a negative but negligible impact on housing prices in the short-run; it has a strong and positive effect in the long-run. Further, controlling for effects of economic policy uncertainty strengthens the interactions between housing prices and the two credit components. Our results are robust and suggest that close monitoring of credit allocation to housing demand and supply sides, as well as the extent of pump-priming resource allocation to the real economy, should be of interest to policymakers.
Journal: The European Journal of Finance
Pages: 1099-1129
Issue: 11
Volume: 28
Year: 2022
Month: 07
X-DOI: 10.1080/1351847X.2021.1959366
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1959366
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:11:p:1099-1129
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1998176_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Paulo Pereira da Silva
Author-X-Name-First: Paulo Pereira
Author-X-Name-Last: da Silva
Author-Name: Victor Mendes
Author-X-Name-First: Victor
Author-X-Name-Last: Mendes
Author-Name: Margarida Abreu
Author-X-Name-First: Margarida
Author-X-Name-Last: Abreu
Title: The disposition effect among mutual fund participants: a re-examination
Abstract:
Based on the information gathered on mutual fund trades executed between 1998 and 2017 by 31,513 individual investor clients of a major Portuguese bank, we study the relationship between the disposition effect, financial literacy and trading experience. We find that mutual fund investors exhibit a strong disposition effect. The tendency to hold losers is partially offset with literacy: a university degree reduces the propensity to hold on to loser funds, in addition to greater financial knowledge and stronger math skills. Literacy also plays a role in shaping the way experience affects this bias. Evidence of the disposition effect remains after considering redemption fees, bad emotions, irrational beliefs, market sentiment and the existence of someone to blame. Given that the existence of the disposition effect entails substantial costs for investors, higher levels of literacy benefit investors. The implementation of measures that accommodate investor reaction to poor performances may also help to reduce the disposition effect.
Journal: The European Journal of Finance
Pages: 1237-1256
Issue: 12
Volume: 28
Year: 2022
Month: 08
X-DOI: 10.1080/1351847X.2021.1998176
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1998176
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:12:p:1237-1256
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1964556_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Laura Chiaramonte
Author-X-Name-First: Laura
Author-X-Name-Last: Chiaramonte
Author-Name: Alberto Dreassi
Author-X-Name-First: Alberto
Author-X-Name-Last: Dreassi
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Author-Name: Stefano Piserà
Author-X-Name-First: Stefano
Author-X-Name-Last: Piserà
Title: Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe
Abstract:
This paper investigates the joint and separate effects of Environmental (E), Social (S), and Governance (G) scores on bank stability. Using a sample of European banks operating in 21 countries over 2005–2017, we find that the total ESG score, as well as its sub-pillars, reduces bank fragility during periods of financial distress. This stabilizing effect holds strongly for banks with higher ESG ratings. These results are confirmed by a differences-in-differences (DID) analysis built around the introduction of the EU 2014 Non-Financial Reporting Directive (NFRD). Our evidence also reveals that, in times of financial turmoil, the longer the duration of ESG disclosures, the greater the benefits on stability. Finally, we show that the ESG–bank stability linkages vary significantly across banks’ characteristics and operating environments. Our findings are robust to selection bias and endogeneity concerns. Overall, they support the regulatory effort in requiring an enhanced disclosure of non–financial information.
Journal: The European Journal of Finance
Pages: 1173-1211
Issue: 12
Volume: 28
Year: 2022
Month: 08
X-DOI: 10.1080/1351847X.2021.1964556
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1964556
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:12:p:1173-1211
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1971100_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220804T044749 git hash: 24b08f8188
Author-Name: Alex Sclip
Author-X-Name-First: Alex
Author-X-Name-Last: Sclip
Title: Do SMEs benefit from the corporate sector purchase program? evidence from the eurozone
Abstract:
In this paper, we study the impact of the European Central Bank Corporate Sector Purchase Program on small and medium sized firms' financing using restricted data from the Survey of Access to Finance of Enterprises. We find that following the announcement, credit access improved through the reduction of both formal and informal credit constraints. Loans terms also improved as manifested by a reduction on loan application costs. The unconventional monetary policy intervention is also transmitted through trade credit in production networks as unconstrained borrowers extend more trade credit following the announcement of the program.
Journal: The European Journal of Finance
Pages: 1212-1236
Issue: 12
Volume: 28
Year: 2022
Month: 08
X-DOI: 10.1080/1351847X.2021.1971100
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1971100
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:12:p:1212-1236
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1994439_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Prajakta Desai
Author-X-Name-First: Prajakta
Author-X-Name-Last: Desai
Author-Name: Massimo Guidolin
Author-X-Name-First: Massimo
Author-X-Name-Last: Guidolin
Title: Performance persistence and optimal asset allocation strategies
Abstract:
This study explores whether optimal asset allocation strategies, defined by permutations and combinations of different predictor variables, produce consistently superior performance for investors. We extend the literature by exploring whether such strategies benefit investors over the entire investment period or whether investors are forced to switch among alternative strategies over time. As benchmarks, we employ the 1/N (equally weighted) and the myopic (no predictability) strategies. Persistence tests suggest that no single optimal strategy outperforms the remaining optimal and benchmark strategies over the entire sample. However, in two out of three subsample periods, some optimal strategies persistently outperform the benchmarks.
Journal: The European Journal of Finance
Pages: 1571-1598
Issue: 16
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.1994439
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1994439
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1571-1598
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1990977_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Benno Kammann
Author-X-Name-First: Benno
Author-X-Name-Last: Kammann
Author-Name: Jörg Prokop
Author-X-Name-First: Jörg
Author-X-Name-Last: Prokop
Title: A view to a deal: the effect of upcoming investment banking transactions on financial analysts’ target price estimates
Abstract:
This study investigates whether sell-side analysts issue inflated target price estimates to compete for investment banking mandates in the European Union (EU), and whether country-specific weaknesses in regulatory enforcement diminish the mitigating effects of stricter financial-market regulation. We find that, irrespective of previous business ties with the target firm, target prices become more optimistic (and, as a consequence, less accurate) in the run-up to an investment banking transaction for target firms located in countries with weaker enforcement regimes. In contrast, for firms in countries with stronger enforcement regimes, we observe the opposite to be the case. Furthermore, we find that analysts’ optimistic biases have been mitigated, but not fully eliminated, since the implementation of the European Markets in Financial Instruments Directive (MiFID) in 2007 in low-enforcement countries. Overall, our results demonstrate that reducing country-level differences in enforcement constitute a significant factor in effectively regulating analysts’ conflicts of interest, and in improving investor protection within the EU.
Journal: The European Journal of Finance
Pages: 1599-1620
Issue: 16
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.1990977
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1990977
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1599-1620
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1991421_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Zinoviy Landsman
Author-X-Name-First: Zinoviy
Author-X-Name-Last: Landsman
Author-Name: Udi Makov
Author-X-Name-First: Udi
Author-X-Name-Last: Makov
Author-Name: Jing Yao
Author-X-Name-First: Jing
Author-X-Name-Last: Yao
Author-Name: Ming Zhou
Author-X-Name-First: Ming
Author-X-Name-Last: Zhou
Title: Downside risk optimization with random targets and portfolio amplitude
Abstract:
In this paper, we discuss downside risk optimization in the context of portfolio selection. We derive explicit solutions to the optimal portfolios that minimize the downside risk with respect to constant targets and random targets. In doing so, we propose using portfolio amplitude, a new measure in the literature, to characterize the portfolio selection under the downside risk optimization. Particularly, we demonstrate a mechanism by which the random target inputs its impact into the system and alters the optimal solution. Our results underpin why investors prefer holding some specific assets in following random targets and provide explanations for some special investment strategies, such as constructing a stock portfolio following a bond index. We present numerical examples of stock portfolio management to support our theoretical results.
Journal: The European Journal of Finance
Pages: 1642-1663
Issue: 16
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.1991421
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1991421
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1642-1663
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1998175_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Siu Kai Choy
Author-X-Name-First: Siu Kai
Author-X-Name-Last: Choy
Author-Name: Gerald J. Lobo
Author-X-Name-First: Gerald J.
Author-X-Name-Last: Lobo
Author-Name: Yongxian Tan
Author-X-Name-First: Yongxian
Author-X-Name-Last: Tan
Title: Testing the accruals anomaly based on the speed of price adjustment
Abstract:
In this study, we investigate the nature of the accruals anomaly by analyzing the speed of price adjustment to accruals information. Consistent with the mispricing hypothesis, we find that a relatively larger proportion of accruals premium is distributed near the filing dates among low limits-to-arbitrage stocks and during periods of increased arbitrage activity. We also discuss our findings in the context of q-theory.
Journal: The European Journal of Finance
Pages: 1664-1684
Issue: 16
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.1998175
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1998175
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1664-1684
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1988670_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Mingfa Ding
Author-X-Name-First: Mingfa
Author-X-Name-Last: Ding
Author-Name: Sandy Suardi
Author-X-Name-First: Sandy
Author-X-Name-Last: Suardi
Author-Name: Caihong Xu
Author-X-Name-First: Caihong
Author-X-Name-Last: Xu
Author-Name: Dong Zhang
Author-X-Name-First: Dong
Author-X-Name-Last: Zhang
Title: Large-caps liquidity provision, market liquidity and high-frequency market makers’ trading behaviour
Abstract:
This paper exploits the introduction of the liquidity provision scheme (LPS) in NASDAQ Stockholm (NOMX) to assess how the implementation of LPS affects market liquidity and the trading behaviors of high-frequency market makers. Unlike the traditional designated market makers (DMM) that target the liquidity supply of small and less traded stocks, LPS is implemented for large-caps and liquid stocks. LPS requires participants to submit buy and sell orders at the European best bid and offer quotes with a size larger than 50,000 Swedish Krona on each trade side. LPS delivers liquidity improvements by reducing order processing costs in the large-cap and cross-listed stocks in the NOMX and Chi-X markets, with no evidence of market liquidity migration from Chi-X to NOMX. As market makers registered with LPS are likely high-frequency traders, LPS stabilizes market liquidity as market makers’ decisions to supply or demand liquidity become less sensitive to market conditions like the spread and order imbalance.
Journal: The European Journal of Finance
Pages: 1621-1641
Issue: 16
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.1988670
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1988670
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1621-1641
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1971731_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Man Dang
Author-X-Name-First: Man
Author-X-Name-Last: Dang
Author-Name: Viet Anh Hoang
Author-X-Name-First: Viet Anh
Author-X-Name-Last: Hoang
Author-Name: Edward Jones
Author-X-Name-First: Edward
Author-X-Name-Last: Jones
Author-Name: Darren Henry
Author-X-Name-First: Darren
Author-X-Name-Last: Henry
Author-Name: Phuong Uyen Le
Author-X-Name-First: Phuong Uyen
Author-X-Name-Last: Le
Author-Name: Premkanth Puwanenthiren
Author-X-Name-First: Premkanth
Author-X-Name-Last: Puwanenthiren
Title: Country uncertainty, power distance, and payment methods in acquisitions
Abstract:
This study examines the impact of country-specific uncertainty on the choice of payment method in international acquisitions. Our results show a negative association between the level of target country-specific uncertainty and cash transactions. Specifically, when the host country experiences a high level of country uncertainty, acquirers are more likely to choose non-cash transactions in which acquiring firms can issue their own equity to the target firm as part or all of the purchase consideration of the deal. The result is robust to alternative tests and analysis of subsamples. We also find that differences in uncertainty between host and home countries are informative of bidders’ payment choices. Further, we find that the negative relation between target country-specific uncertainty and cash payment weakens when there are larger differences in power distance between host and home countries. Our findings provide recommendations for policy-making bodies, and have implications for firm managers making corporate restructuring decisions.
Journal: The European Journal of Finance
Pages: 1541-1570
Issue: 16
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.1971731
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1971731
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1541-1570
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2007150_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Allan Hodgson
Author-X-Name-First: Allan
Author-X-Name-Last: Hodgson
Author-Name: John Okunev
Author-X-Name-First: John
Author-X-Name-Last: Okunev
Title: Long term equity risk premiums in the UK and US: A cautionary tale of weak mean reversion
Abstract:
It is well established in the literature the ex post risk premium is higher than the ex ante risk premium and can vary substantially, but little research has been conducted in modelling the dynamic process between the two. This paper contributes by providing a theoretical framework to model the long-term dynamic relationship between the two risk premia in the UK and US. Using an Ornstein-Uhlenbeck (OU) ex ante model, that dominates several competitive models, we reveal slow reversion toward a stable long term ex post mean of 4% in both the UK and US markets. Results extend prior research by using an extended data set (1923–2019), providing a more precise and flexible estimation model, confirming that inflation and interest rates provide additional explanatory power over the long term but significantly less so across several regime shocks, especially during high inflation and periods of negative risk premia. By highlighting potential mispricing through a flexible approach we provide financially useful information to investors and regulators, particularly when central banks are manipulating equity prices.
Journal: The European Journal of Finance
Pages: 1728-1744
Issue: 17
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.2007150
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2007150
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:17:p:1728-1744
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2007496_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Zhongfei Chen
Author-X-Name-First: Zhongfei
Author-X-Name-Last: Chen
Author-Name: Ming Jin
Author-X-Name-First: Ming
Author-X-Name-Last: Jin
Author-Name: Athanasios Andrikopoulos
Author-X-Name-First: Athanasios
Author-X-Name-Last: Andrikopoulos
Author-Name: Youwei Li
Author-X-Name-First: Youwei
Author-X-Name-Last: Li
Title: Cultural diversity and borrowers’ behavior: evidence from peer-to-peer lending
Abstract:
We study cultural diversity and borrowers’ behavior using data from peer-to-peer lending platform Renrendai. We proxy cultural diversity with the Linguistic Diversity Index, measured by the population-weighted number of dialects spoken in a region, and we show that it has a negative (positive) effect on the loan amount (default rate) of the borrowers. We address endogeneity using two novel instruments, the river length and land slope of Chinese cities, a Heckman two-stage model, and an IV-Heckit model. We also study areas where financial institutions’ loan balances are higher (lower) than average. In areas with low (high) loan balances, the amount borrowed (the default rate) is affected more (less). We argue that lenders’ behavior is a reason that borrowers in diverse cultures apply for smaller loans. Our results pass a number of robustness tests. Finally, we offer suggestions for improving risk management and inclusive financial development.
Journal: The European Journal of Finance
Pages: 1745-1769
Issue: 17
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.2007496
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2007496
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:17:p:1745-1769
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2007972_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Suman Banerjee
Author-X-Name-First: Suman
Author-X-Name-Last: Banerjee
Author-Name: Saul Estrin
Author-X-Name-First: Saul
Author-X-Name-Last: Estrin
Author-Name: Sarmistha Pal
Author-X-Name-First: Sarmistha
Author-X-Name-Last: Pal
Title: Corporate disclosure, compliance and consequences: evidence from Russia
Abstract:
Does the introduction of corporate transparency and disclosure rules in emerging economies affect compliance, and therefore earnings quality and firm performance? We explore these questions for an important emerging economy, Russia, using a natural experiment, the 2002 introduction of Russian corporate governance code. We exploit the exogenous variation in voluntary disclosure and find a significant increase in corporate disclosure among the domestic Russian firms over the period 2003–2007 when firms gradually adopted some but not all disclosure rules. The immediate effect of the introduction was a drop in reported earnings. Market valuation, however, only improved for domestic firms after 2007, when all domestic firms had complied. However, cross-listed firms, which were already satisfying international standards, remained largely unaffected. Though average compliance by domestic firms was only 53%, average firm value of treated domestic firms, relative to cross-listed ones, went up by about 10%. Results are robust, confirm external validity and offer important policy implications for other emerging/ transition economies.
Journal: The European Journal of Finance
Pages: 1770-1802
Issue: 17
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.2007972
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2007972
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:17:p:1770-1802
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2010782_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Yuan Li
Author-X-Name-First: Yuan
Author-X-Name-Last: Li
Author-Name: Jinqiang Yang
Author-X-Name-First: Jinqiang
Author-X-Name-Last: Yang
Author-Name: Siqi Zhao
Author-X-Name-First: Siqi
Author-X-Name-Last: Zhao
Title: Commitment, agency costs and dynamic capital structure
Abstract:
This paper studies leverage dynamics when shareholders commit to optimizing total enterprise value and face debt adjustment friction. Debt adjustment costs render the leverage commitment a double-edged sword. High-levered firms benefit from the commitment due to active debt repurchase. However, such debt buyback incurs a heavy burden and constrains financial flexibility. With high debt adjustment costs, it could be inefficient for the enterprise to maintain a firm-optimal debt policy. Interestingly, the incentive alignment effect from commitment makes shareholders act as if creditors in normal times. For instance, shareholders exhibit precautionary motives and overinvest. Finally, we show that dynamic risk management exacerbates the debt-equity conflicts and improves the commitment value. Highlights
The firm-optimal debt policy eliminates the leverage ratchet effect by accelerating debt repayment should the firm's fundamental deteriorates.The commitment to the firm-optimal debt policy hurts enterprise value when facing high debt adjustment costs and short-term debt.Incentive alignment effect from the firm-optimal commitment causes shareholders to overinvest and exhibit risk-aversion in normal times.
Journal: The European Journal of Finance
Pages: 1708-1727
Issue: 17
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.2010782
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2010782
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:17:p:1708-1727
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2002705_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Thu Phuong Truong
Author-X-Name-First: Thu Phuong
Author-X-Name-Last: Truong
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Author-Name: John van der Burg
Author-X-Name-First: John
Author-X-Name-Last: van der Burg
Title: The quantity theory of stock prices
Abstract:
We determine the implications of the Modern Quantity Theory of Money for the nominal pricing of equity stocks. Our analysis is compatible with the hypothesis that the ratio of the quantity of money in circulation to a comprehensive index of stock prices evolves in terms of an elastic (that is, mean reverting) random walk. Using annual U.S. data covering the period from 1871 until 2018 shows that the ‘half-life’ of the period it takes for the money to stock price ratio to converge towards its long-run mean, is around fifteen years. Our empirical analysis also shows that unexpected inflation has a disruptive impact on the output and investment decisions implemented by firms and leads to an increase in the money to stock price ratio (equivalently, the stock price index falls relative to the quantity of money in circulation). We also develop a framework for determining how economic agents can rebalance their investment portfolios in response to disequilibria in the money to stock price ratio and thereby maximise the expected discounted utility obtained from their future consumption.
Journal: The European Journal of Finance
Pages: 1685-1707
Issue: 17
Volume: 28
Year: 2022
Month: 11
X-DOI: 10.1080/1351847X.2021.2002705
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2002705
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:17:p:1685-1707
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1976664_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Andrea Gurgone
Author-X-Name-First: Andrea
Author-X-Name-Last: Gurgone
Author-Name: Giulia Iori
Author-X-Name-First: Giulia
Author-X-Name-Last: Iori
Title: Macroprudential capital buffers in heterogeneous banking networks: insights from an ABM with liquidity crises
Abstract:
We study how the effectiveness of macroprudential capital buffers conditional to the systemic-risk assessment of banks responds to the degree of heterogeneity of the financial system. A multi-agent model is employed to build an artificial economy with households, firms, and banks where occasional liquidity crises emerge. The systemic importance of banks is captured by a score-based mechanism reflecting banks' characteristics in terms of size or interconnectedness. We compare three degrees of heterogeneity in the configuration of financial networks related to different banking concentrations in the loan market. The main findings suggest that: (i) reducing the heterogeneity of the banking network stabilizes the economy by itself; (ii) the identification criteria of systemic-important institutions are affected by the heterogeneity of networks; it is preferable applying systemic capital surcharges to the largest banks under high heterogeneity and targeting those most interconnected under low heterogeneity; (iii) the effectiveness of systemic capital buffers is preserved under high heterogeneity when a common asset holding contagion channel is added. However, simple measures based on risk-weighted assets capital ratios appear to be more effective in low heterogeneous systems. Thus, we argue that prudential regulation should account for the characteristics of the banking networks and tune macroprudential tools accordingly.
Journal: The European Journal of Finance
Pages: 1399-1445
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2021.1976664
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1976664
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1399-1445
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1963301_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Christian Bongiorno
Author-X-Name-First: Christian
Author-X-Name-Last: Bongiorno
Author-Name: Damien Challet
Author-X-Name-First: Damien
Author-X-Name-Last: Challet
Title: Reactive global minimum variance portfolios with k-BAHC covariance cleaning
Abstract:
We introduce a covariance cleaning method which works well in the very high-dimensional regime, i.e. when there are many more assets than data points per asset. This opens the way to unconditional reactive portfolio optimization when there are not enough points to calibrate dynamical conditional covariance models, which happens, for example, when new assets appear in a market. The method is a k-fold boosted version of the Bootstrapped Average Hierarchical Clustering cleaning procedure for correlation and covariance matrices. We apply this method to global minimum variance portfolios and find that k should increase with the calibration window length. We compare the performance of k-BAHC with other state-of-the-art covariance cleaning methods, including dynamical conditional covariance (DCC) with non-linear shrinkage. Generally, we find that our method yields better Sharpe ratios after transaction costs than competing unconditional covariance filtering methods, despite requiring a larger turnover. Finally, k-BAHC yields better Global Minimum Variance portfolios with long–short positions than DCC in a non-stationary investment universe.
Journal: The European Journal of Finance
Pages: 1344-1360
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2021.1963301
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1963301
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1344-1360
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1963300_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Domenico Delli Gatti
Author-X-Name-First: Domenico
Author-X-Name-Last: Delli Gatti
Author-Name: Elisa Grugni
Author-X-Name-First: Elisa
Author-X-Name-Last: Grugni
Title: Breaking bad: supply chain disruptions in a streamlined agent-based model
Abstract:
We explore the macro-financial consequences of the disruption of a supply chain in an agent-based framework characterized by two networks, a credit network connecting banks and firms and a production network connecting upstream and downstream firms. We consider two scenarios. In the first one, because of the lockdown, all the upstream firms are forced to cut production. This generates a sizable downturn during the lockdown due to the indirect effects of the shock (network-based financial accelerator). In the second scenario, only those upstream firms located in the ‘red zone’ are forced to contract production. In this case, the recession is milder and the recovery begins earlier. Upstream firms hit by the shock, in fact, will be abandoned by their customers who will switch to suppliers who are located outside the red zone. In this way, firms endogenously reconstruct (at least in part) the supply chain after the disruption. This is the main determinant of the mitigated impact of the shock in the ‘red zone’ type of lockdown.
Journal: The European Journal of Finance
Pages: 1446-1473
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2021.1963300
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1963300
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1446-1473
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1947338_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Xing Gao
Author-X-Name-First: Xing
Author-X-Name-Last: Gao
Author-Name: Daniel Ladley
Author-X-Name-First: Daniel
Author-X-Name-Last: Ladley
Title: Noise trading and market stability
Abstract:
Noise traders are often thought to be detrimental to market stability, increasing volatility and the risk of bubbles and crashes. The effect of noise traders on the learning and development of informed traders, however, has received little attention. We consider a computational model of a derivatives market containing informed traders and noise traders with the former group having to learn to price the traded asset. We demonstrate that noise traders have a beneficial effect on market stability: an increase in the amount of noise traders makes the market more resilient to shocks. Noise traders by pushing the price away from fundamentals create opportunities for learning, increasing the proportion of informed traders possessing high levels of trading skills in turn protecting the market.
Journal: The European Journal of Finance
Pages: 1283-1301
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2021.1947338
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1947338
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1283-1301
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1828963_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Friederike Mengel
Author-X-Name-First: Friederike
Author-X-Name-Last: Mengel
Author-Name: Ronald Peeters
Author-X-Name-First: Ronald
Author-X-Name-Last: Peeters
Title: Do markets encourage risk-seeking behaviour?
Abstract:
Excessive risk-taking in markets can have devastating consequences as the latest financial crises have highlighted. In this paper, we ask whether markets as an institution encourages such excessive risk-taking. To establish causality, we isolate the effects of market interaction in a laboratory experiment keeping other possibly confounding factors constant. We find that the opposite is true. Markets decrease participants' willingness to take risks. This finding can be explained by social comparison utility in the presence of negatively correlated risks.
Journal: The European Journal of Finance
Pages: 1474-1480
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2020.1828963
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1828963
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1474-1480
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1835686_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Sudarshan Kumar
Author-X-Name-First: Sudarshan
Author-X-Name-Last: Kumar
Author-Name: Avijit Bansal
Author-X-Name-First: Avijit
Author-X-Name-Last: Bansal
Author-Name: Anindya S. Chakrabarti
Author-X-Name-First: Anindya S.
Author-X-Name-Last: Chakrabarti
Title: Ripples on financial networks
Abstract:
In the financial markets, asset returns exhibit collective dynamics masking individual impacts on the rest of the market. Hence, it is still an open problem to identify how shocks originating from one particular asset create spillover effects across other assets. The problem is more acute when there is a large number of simultaneously traded assets, making the identification of which asset affects which other assets even more difficult. In this paper, we construct a network of the conditional volatility series estimated from asset returns and estimate a many-dimensional VAR model with unique identification criteria based on the network topology. Because of the interlinkages across stocks, volatility shock to a particular asset propagates through the network creating a ripple effect. Our method allows us to find the exact path the ripple effect follows on the whole network of assets.
Journal: The European Journal of Finance
Pages: 1302-1323
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2020.1835686
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1835686
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1302-1323
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1911822_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Alba Ruiz-Buforn
Author-X-Name-First: Alba
Author-X-Name-Last: Ruiz-Buforn
Author-Name: Simone Alfarano
Author-X-Name-First: Simone
Author-X-Name-Last: Alfarano
Author-Name: Eva Camacho-Cuena
Author-X-Name-First: Eva
Author-X-Name-Last: Camacho-Cuena
Author-Name: Andrea Morone
Author-X-Name-First: Andrea
Author-X-Name-Last: Morone
Title: Single vs. multiple disclosures in an experimental asset market with information acquisition
Abstract:
We conduct laboratory experiments to study whether increasing the number of independent public signals in an economy with endogenous private information is an effective measure to promote the acquisition of information and to enhance price efficiency. We observe that the release of public information crowds out the traders' demand for private information under a single disclosure while favoring private information acquisition under multiple disclosures. The latter measure improves price accuracy in forecasting the asset fundamental value. However, multiple disclosures do not eliminate the adverse effect of market overreaction to public information, becoming a potential source of fragility for the financial system.
Journal: The European Journal of Finance
Pages: 1513-1539
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2021.1911822
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1911822
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1513-1539
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1832553_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Noemi Schmitt
Author-X-Name-First: Noemi
Author-X-Name-Last: Schmitt
Author-Name: Ivonne Schwartz
Author-X-Name-First: Ivonne
Author-X-Name-Last: Schwartz
Author-Name: Frank Westerhoff
Author-X-Name-First: Frank
Author-X-Name-Last: Westerhoff
Title: Heterogeneous speculators and stock market dynamics: a simple agent-based computational model
Abstract:
We propose a simple agent-based computational model in which speculators’ trading behavior may cause bubbles and crashes, excess volatility, serially uncorrelated returns, fat-tailed return distributions and volatility clustering, thereby replicating five important stylized facts of stock markets. Since each speculator bets on his own (technical and fundamental) trading signals, stock prices are excessively volatile and oscillate erratically around their fundamental value. However, speculators’ heterogeneity occasionally vanishes, e.g. due to panic-induced herding behavior, yielding extreme returns. Lasting regimes with high volatility originate from the fact that speculators extract stronger trading signals out of past stock price movements when stock prices fluctuate strongly. Simulations furthermore suggest that circuit breakers may be an effective tool to combat financial market turbulences.
Journal: The European Journal of Finance
Pages: 1263-1282
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2020.1832553
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1832553
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1263-1282
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1908391_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Giuseppe Brandi
Author-X-Name-First: Giuseppe
Author-X-Name-Last: Brandi
Author-Name: T. Di Matteo
Author-X-Name-First: T.
Author-X-Name-Last: Di Matteo
Title: On the statistics of scaling exponents and the multiscaling value at risk
Abstract:
Research on scaling analysis in finance is vast and still flourishing. We introduce a novel statistical procedure based on the generalized Hurst exponent, the Relative Normalized and Standardized Generalized Hurst Exponent (RNSGHE), to robustly estimate and test the multiscaling property. Furthermore, we introduce a new tool to estimate the optimal aggregation time used in our methodology which we name Autocororrelation Segmented Regression. We numerically validate this procedure on simulated time series by using the Multifractal Random Walk and we then apply it to real financial data. We present results for times series with and without anomalies and we compute the bias that such anomalies introduce in the measurement of the scaling exponents. We also show how the use of proper scaling and multiscaling can ameliorate the estimation of risk measures such as Value at Risk (VaR). Finally, we propose a methodology based on Monte Carlo simulation, which we name Multiscaling Value at Risk (MSVaR), that takes into account the statistical properties of multiscaling time series. We mainly show that by using this statistical procedure in combination with the robustly estimated multiscaling exponents, the one year forecasted MSVaR mimics the VaR on the annual data for the majority of the stocks.
Journal: The European Journal of Finance
Pages: 1361-1382
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2021.1908391
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1908391
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1361-1382
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2057808_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Giampaolo Gabbi
Author-X-Name-First: Giampaolo
Author-X-Name-Last: Gabbi
Author-Name: Giulia Iori
Author-X-Name-First: Giulia
Author-X-Name-Last: Iori
Title: New measures for a new normal in finance and risk management
Journal: The European Journal of Finance
Pages: 1257-1262
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2022.2057808
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2057808
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1257-1262
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1882523_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: M. Raddant
Author-X-Name-First: M.
Author-X-Name-Last: Raddant
Author-Name: F. Wagner
Author-X-Name-First: F.
Author-X-Name-Last: Wagner
Title: Multivariate GARCH with dynamic beta
Abstract:
We investigate a solution for the problems related to the application of multivariate GARCH models to markets with a large number of stocks by restricting the form of the conditional covariance matrix and by introducing a system of recursion formals. The model is based on a decomposition of the conditional covariance matrix into two components and requires only six parameters to be estimated. The first component can be interpreted as the market factor, all remaining components are assumed to be equal. This allow the analytical calculation of the inverse covariance matrix. The factors are dynamic and therefore enable to describe dynamic beta coefficients. We compare the estimated covariances for the S&P500 market with those of other GARCH models and find that they are competitive, despite the low number of parameters. As applications we use the daily values of beta coefficients to confirm a transition of the market in 2006. Furthermore we discuss the relationship of our model with the leverage effect.
Journal: The European Journal of Finance
Pages: 1324-1343
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2021.1882523
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1882523
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1324-1343
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1857290_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Pietro Vozzella
Author-X-Name-First: Pietro
Author-X-Name-Last: Vozzella
Author-Name: Giampaolo Gabbi
Author-X-Name-First: Giampaolo
Author-X-Name-Last: Gabbi
Title: Banking regulation, procyclicality, and asset correlations in the real economic environment
Abstract:
Banking regulations have often been viewed as possible sources of procyclicality. We aim to provide a critical assessment of the risk-weighted asset estimates through the relationship between asset correlation and the probability of default as stated by international regulators. Our findings show that the relationship between asset correlation and size is not linear and also changes with the economic cycle. A risk-weighted asset computed according to regulatory assumptions would not generate the required capital relief during the downturn phase, when banks should release credit resources to support firms’ resilience. Therefore, we propose to transform the regulatory approach to empower the procyclical issues that still remain in upturns and slowdowns in economic cycles.
Journal: The European Journal of Finance
Pages: 1383-1398
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2020.1857290
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1857290
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1383-1398
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1967180_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Gianluca Fusai
Author-X-Name-First: Gianluca
Author-X-Name-Last: Fusai
Author-Name: Giovanni Longo
Author-X-Name-First: Giovanni
Author-X-Name-Last: Longo
Author-Name: Giovanna Zanotti
Author-X-Name-First: Giovanna
Author-X-Name-Last: Zanotti
Title: Interest rate structured products: can they improve the risk–return profile?
Abstract:
In this paper, we investigate the contribution of interest rate structured bonds to portfolios of risk-averse retail investors. We conduct our analysis by simulating the term structure according to a multifactor no-arbitrage interest rate model and comparing the performance of a portfolio consisting of basic products (zero-coupon bonds, coupon bonds and floating rate notes) with a portfolio containing more sophisticated exotic products (like constant maturity swaps, collars, spread and volatility notes). Our analysis, performed under different market environments, as well as volatility and correlation levels, takes into account the combined effects of risk premiums required by investors and fees that they have to pay. Our results show that capital protected interest rate structured products allow investors to improve risk–return trade-off if no fees are considered. With fees, our simulations show that structured products add value to the basic portfolio in a very limited number of cases. We believe our paper contributes to understanding the role of structured products in investors portfolios also in light of the current regulatory debate on the use of complex financial products by retail investors.
Journal: The European Journal of Finance
Pages: 1481-1512
Issue: 13-15
Volume: 28
Year: 2022
Month: 10
X-DOI: 10.1080/1351847X.2021.1967180
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1967180
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:13-15:p:1481-1512
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2020146_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Christos Argyropoulos
Author-X-Name-First: Christos
Author-X-Name-Last: Argyropoulos
Author-Name: Ekaterini Panopoulou
Author-X-Name-First: Ekaterini
Author-X-Name-Last: Panopoulou
Author-Name: Nikolaos Voukelatos
Author-X-Name-First: Nikolaos
Author-X-Name-Last: Voukelatos
Author-Name: Teng Zheng
Author-X-Name-First: Teng
Author-X-Name-Last: Zheng
Title: Hedge fund return predictability in the presence of model risk*
Abstract:
Hedge funds implement elaborate investment strategies that include a variety of positions and assets. As a result, there is significant time variation in the set of risk factors and their respective loadings which in turn introduces severe model risk in any attempt to model and forecast hedge fund returns. In this study, we investigate the statistical and economic value of incorporating heteroscedasticity, non-normality, time-varying parameters, model selection risk and parameter estimation risk jointly in hedge fund return forecasting and fund of funds construction. Parameter estimation risk is dealt with a time-varying parameter structure, while model selection uncertainty is mitigated by model averaging or model selection. We adopt a dynamic model averaging approach along with the conventional Bayesian averaging technique. Our empirical results suggest that accounting for model risk can significantly improve the forecasting accuracy of hedge fund returns and consequently the performance of funds of hedge funds.
Journal: The European Journal of Finance
Pages: 1892-1916
Issue: 18
Volume: 28
Year: 2022
Month: 12
X-DOI: 10.1080/1351847X.2021.2020146
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2020146
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:18:p:1892-1916
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2007149_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Arthur Krebbers
Author-X-Name-First: Arthur
Author-X-Name-Last: Krebbers
Author-Name: Andrew Marshall
Author-X-Name-First: Andrew
Author-X-Name-Last: Marshall
Author-Name: Patrick McColgan
Author-X-Name-First: Patrick
Author-X-Name-Last: McColgan
Author-Name: Biwesh Neupane
Author-X-Name-First: Biwesh
Author-X-Name-Last: Neupane
Title: Home bias and the need to build a bond market track record
Abstract:
This paper examines home bias in the primary distribution process of the European corporate bond market. Our approach allows us to study the initial holdings of corporate bonds at a uniquely liquid point in their life cycle. We find that home bias is prevalent across our sample, but is highest amongst bonds issued by firms from both the highest-debt market size economies and lower-debt market sizes economies, who both benefit from relatively large domestic bond markets compared to their funding needs. We argue that international diversification can occur in this market through a life cycle effect where issuers outgrow investor home bias and build a reputation amongst international investors through regular bond market issuance. Our results provide some initial support for this life cycle effect, with repeat issues, issues off an EMTN programme, and highly subscribed issues being associated with lower home bias.
Journal: The European Journal of Finance
Pages: 1803-1818
Issue: 18
Volume: 28
Year: 2022
Month: 12
X-DOI: 10.1080/1351847X.2021.2007149
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2007149
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:18:p:1803-1818
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2020145_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Panagiotis G. Artikis
Author-X-Name-First: Panagiotis G.
Author-X-Name-Last: Artikis
Author-Name: Lydia Diamantopoulou
Author-X-Name-First: Lydia
Author-X-Name-Last: Diamantopoulou
Author-Name: Georgios A. Papanastasopoulos
Author-X-Name-First: Georgios A.
Author-X-Name-Last: Papanastasopoulos
Title: New insights on the asset growth anomaly: evidence from Europe*
Abstract:
This study provides insights into the well-documented asset growth anomaly using an integrated European stock market sample derived from 21 countries. We assess whether the anomaly in Europe is attributable to risk or mispricing. In doing so, we examine whether the asset growth effect on stock returns is dependent on the valuation signals contained in equity financing activities. Moreover, we determine whether it is derived from firms with existing market expectation errors. Finally, we explicitly test whether asset growth is a priced risk factor using the common two-stage cross-sectional regression (2SCSR) methodology. Overall, our evidence suggests that the underlying origins of the asset growth anomaly in Europe at the aggregate level are relatively consistent with a risk-based explanation.
Journal: The European Journal of Finance
Pages: 1867-1891
Issue: 18
Volume: 28
Year: 2022
Month: 12
X-DOI: 10.1080/1351847X.2021.2020145
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2020145
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:18:p:1867-1891
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2029523_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Laivi Laidroo
Author-X-Name-First: Laivi
Author-X-Name-Last: Laidroo
Title: Capturing the ‘true’ information content of supervisory announcements in Europe
Abstract:
We assess the information content of supervisory announcements related to stress tests and other supervisory exercises in the EU for 2010–2018. Our results show that compared to abnormal returns the use of absolute abnormal returns provides superior possibilities for detecting significant information content in almost all supervisory announcements in the EU from 2010 to 2018. In line with expectations, absolute abnormal returns surrounding announcements of the stress tests’ final results remain greater than those for the pre-results. We also find that the ‘surprise' contained in the results of the stress test is an important determinant of the magnitude of the price reaction. Contrary to expectations, we find no clear signs of a significant decline in the information content of supervisory announcements over time. This indicates that, despite decreased uncertainty levels, equity investors have continued to value the efforts put into the stress tests and transparency exercises by supervisory authorities and systemically important banks.
Journal: The European Journal of Finance
Pages: 1917-1939
Issue: 18
Volume: 28
Year: 2022
Month: 12
X-DOI: 10.1080/1351847X.2022.2029523
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2029523
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:18:p:1917-1939
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2037681_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20220907T060133 git hash: 85d61bd949
Author-Name: Radu-Dragomir Manac
Author-X-Name-First: Radu-Dragomir
Author-X-Name-Last: Manac
Author-Name: Jens Martin
Author-X-Name-First: Jens
Author-X-Name-Last: Martin
Author-Name: Geoffrey Wood
Author-X-Name-First: Geoffrey
Author-X-Name-Last: Wood
Title: Varieties of funds and performance: the case of private equity
Abstract:
Within the growing body of literature on private equity, there is intense controversy as to whether, and by how much, the industry really adds value. However, much of the diversity in results can be ascribed to a tendency to focus on a subset of private equity fund types of venture capital and buyout funds or combine very different fund types. This study identifies and explores variations in performance according to eleven different types of fund, providing a much more fine-grained picture than preceding studies. We evidence considerable heterogeneity in performance results between fund types, with funds typically associated with riskier areas of activity having divergent outcomes and generally underperforming compared to buyout funds. We also find that all eleven fund types outperform the stock market when evaluating PMEs. We explore why underperforming fund types continue to attract significant investment. We apply agency theory to help understand general partner behaviour in private equity partnerships and building on the literature on the economics of expectation and of systemic evolution to explain limited partner behaviour, draw out the implications for theory and practice.Highlights
An analysis of the relationship between a much wider range of PE fund types than preceding studies, and performance.Explanatory application of agency, expectations, and evolutionary theories.We evidence considerable heterogeneity in the performance of different types of fund. Funds typically associated with riskier areas of activity generally underperform buyout funds.We explore possible explanations behind mediocre or superior returns for specific fund types and why levels of return for some exhibit much more diversity than others.
Journal: The European Journal of Finance
Pages: 1819-1866
Issue: 18
Volume: 28
Year: 2022
Month: 12
X-DOI: 10.1080/1351847X.2022.2037681
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2037681
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:28:y:2022:i:18:p:1819-1866
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2146522_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Haiyan Jiang
Author-X-Name-First: Haiyan
Author-X-Name-Last: Jiang
Author-Name: Kun Su
Author-X-Name-First: Kun
Author-X-Name-Last: Su
Title: Why do firms purchase directors and officers liability insurance? – a perspective from short selling threats
Abstract:
This study examines the role of increased short selling threats in firms’ directors and officers liability insurance (D&O insurance) purchase decision against the backdrop of the Chinese deregulation of short sale. Using a difference-in-differences (DiD) research design, we demonstrate a positive effect of short selling threats on firms’ likelihood of purchasing D&O insurance policies after controlling for the known determinants of D&O insurance. We then perform tests to validate the DiD analysis result, including a test of the parallel trend assumption and placebo tests. To shed light on the mechanism through which the effect of short selling takes place, we perform a path analysis. The results reveal that firms’ litigation risk explains the effect of short selling pressure on D&O insurance purchase decision. Further cross-sectional analyses show that the positive effect of short selling threats on D&O insurance is ameliorated when firms have strong internal control or have great analyst coverage.
Journal: The European Journal of Finance
Pages: 111-133
Issue: 1
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2022.2146522
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2146522
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:1:p:111-133
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2097885_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Yi Li
Author-X-Name-First: Yi
Author-X-Name-Last: Li
Author-Name: Wei Zhang
Author-X-Name-First: Wei
Author-X-Name-Last: Zhang
Author-Name: Andrew Urquhart
Author-X-Name-First: Andrew
Author-X-Name-Last: Urquhart
Author-Name: Pengfei Wang
Author-X-Name-First: Pengfei
Author-X-Name-Last: Wang
Title: The unintended consequence of social media criticisms: an earnings management perspective
Abstract:
This paper investigates the impact of social media criticisms on financial reporting quality. Analyzing data from the leading Internet stock message board in China, we demonstrate that postings on stock message boards could promote earnings management, i.e. reducing financial transparency. This finding is further enhanced by employing the instrumental variable approach and the difference-in-differences approach and is explained by the cognitive evaluation theory. Additional analysis suggests that the positive relation between social media criticisms and earnings management cannot be attributed to a deterioration in operating performance or internal governance and is more pronounced in postings from senior users.
Journal: The European Journal of Finance
Pages: 33-57
Issue: 1
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2022.2097885
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2097885
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:1:p:33-57
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1957699_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Junhuan Zhang
Author-X-Name-First: Junhuan
Author-X-Name-Last: Zhang
Author-Name: Jiaqi Wen
Author-X-Name-First: Jiaqi
Author-X-Name-Last: Wen
Author-Name: Jing Chen
Author-X-Name-First: Jing
Author-X-Name-Last: Chen
Title: Modeling market fluctuations under investor sentiment with a Hawkes-Contact process
Abstract:
We present a new Hawkes-Contact model that combines a Hawkes process and a finite-range contact process to model the stock price movements, especially under the impact of news and other information flows that could lead to contagious effects. To fully capture the underlying price process, we take the Hawkes process to track the full pathway of historical prices on their future movements and the contact process to capture the impact from news/investment sentiment. We compare this full model to a univariate Hawkes process that works as a benchmark model through analyzing their statistical properties using both simulated returns and the real 5-min returns of the crude oil index (Wind CZCE-TA). The statistical properties include probability density function, complementary cumulative distribution function, and Lempel-Ziv Complex. Our results show that the real returns' distribution is often far from normal, but the simulated returns through the Hawkes or Hawke-Contact model can achieve close fit to the real returns and exhibit similar statistical properties. More importantly, the Hawkes-Contact model performs better than the simple Hawkes model in capturing characteristics in the return movements, which indicates that the price evolution is also driven by the news sentiment created after them.
Journal: The European Journal of Finance
Pages: 17-32
Issue: 1
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2021.1957699
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1957699
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:1:p:17-32
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2104127_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Panagiota Makrychoriti
Author-X-Name-First: Panagiota
Author-X-Name-Last: Makrychoriti
Author-Name: Spyros Spyrou
Author-X-Name-First: Spyros
Author-X-Name-Last: Spyrou
Title: To be or not to be in the EU: the international economic effects of Brexit uncertainty
Abstract:
This paper evaluates the impact of Brexit-related uncertainty on the economies of the UK, EU, and the US. We propose a measure of Brexit uncertainty that has not been employed before in the literature. We first construct a binary variable by selecting Brexit-related events. We subsequently employ the Qual VAR model of Dueker [2005. “Dynamic Forecasts of Qualitative Variables: A Qual VAR Model of US Recessions.” Journal of Business & Economic Statistics 23: 96–104] to transform this variable to a continuous latent variable that captures uncertainty on important economic and financial variables. Next, this latent variable enters a structural Factor-Augmented Vector AutoRegression model combined with 452 macro and financial variables for the sample countries. Overall, our results indicate that the prolonged period of uncertainty, had a positive effect on the economies of major EU countries and negative effects for the UK economy. Additionally, the UK is the most important net sender of uncertainty spillovers in the EU, while Germany and France are among the most important net receivers of uncertainty shocks.
Journal: The European Journal of Finance
Pages: 58-85
Issue: 1
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2022.2104127
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2104127
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:1:p:58-85
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2098046_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Philip Molyneux
Author-X-Name-First: Philip
Author-X-Name-Last: Molyneux
Author-Name: Qingwei Wang
Author-X-Name-First: Qingwei
Author-X-Name-Last: Wang
Author-Name: Ru Xie
Author-X-Name-First: Ru
Author-X-Name-Last: Xie
Author-Name: Binru Zhao
Author-X-Name-First: Binru
Author-X-Name-Last: Zhao
Title: Bank funding constraints and stock liquidity
Abstract:
This paper examines the relationship between bank marginal funding constraints and stock liquidity. Using bank credit default swap (CDS) spreads we show that increased funding constraints weaken bank stock liquidity (as measured by liquidity tightness, depth, and resilience). This effect strengthens during crises periods. Deteriorating bank stock liquidity is in turn priced into excess stock returns. In addition, we find that during liquidity crises, monetary expansion can break the relationship between funding costs and stock liquidity. Heightened monetary policy uncertainty, however, strengthens this relation.
Journal: The European Journal of Finance
Pages: 1-16
Issue: 1
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2022.2098046
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2098046
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:1:p:1-16
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1955463_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Juan Carluccio
Author-X-Name-First: Juan
Author-X-Name-Last: Carluccio
Author-Name: Clément Mazet-Sonilhac
Author-X-Name-First: Clément
Author-X-Name-Last: Mazet-Sonilhac
Author-Name: Jean-Stéphane Mésonnier
Author-X-Name-First: Jean-Stéphane
Author-X-Name-Last: Mésonnier
Title: Private firms, corporate investment and the WACC: evidence from France
Abstract:
How is corporate investment affected by the weighted average cost of capital (WACC)? Since existing studies focus on listed firms, little is known of the case of private firms, in spite of their relevance in both developed and developing economies. In this paper, we attempt to fill this gap. We develop an empirical study on the impact of the WACC on private firms' investment rates. We exploit accounting information on a panel of around 1700 French private corporate groups in the non-farm, non-financial sectors, covering the period 2005–2015. We overcome the challenge posed by the lack of observable information about the cost of equity for private firms by developing a methodology that relies on estimates for comparable public firms. We find that a one-standard deviation increase in the WACC (2 percentage points) leads to a 0.7 percentage point decrease in the investment rate the following year. Increases in both components of the WACC, namely the cost of debt and the cost of equity, are associated with lower investment rates. A back-of-the-envelope calculation suggests that the heightened WACC following the euro area crises reduced the aggregate corporate investment rate of French private firms by a cumulative 1.6 percentage points over 2009–2015.
Journal: The European Journal of Finance
Pages: 86-110
Issue: 1
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2021.1955463
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1955463
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:1:p:86-110
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2030778_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: José Jorge
Author-X-Name-First: José
Author-X-Name-Last: Jorge
Title: Strategic complementarities, geographical agglomeration, and firm investment
Abstract:
We estimate the effect of strategic complementarities (measured by the geographical agglomeration of firms) on firm investment. Individual firm investment responds significantly to industry investment in agglomerated industries, whereas the response is null in dispersed industries. Industry-region sales do not explain the differential effect between these two types of industries. These results have been overlooked in the literature, provide a justification for regional and industry policies, and challenge the stable unit treatment value assumption (SUTVA) required in potential outcome analysis.
Journal: The European Journal of Finance
Pages: 135-154
Issue: 2
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2022.2030778
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2030778
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:2:p:135-154
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2029751_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Mostafa Monzur Hasan
Author-X-Name-First: Mostafa Monzur
Author-X-Name-Last: Hasan
Author-Name: Grantley Taylor
Author-X-Name-First: Grantley
Author-X-Name-Last: Taylor
Title: Brand capital and credit ratings
Abstract:
We examine the relationship between brand capital and firms’ credit ratings. Using a sample of 5,787 publicly listed U.S. firm-year observations over the 1994–2017 period, we provide evidence that firms with higher levels of brand capital are associated with more favorable credit ratings. In cross-sectional analyses, we find that this relationship is more salient for firms with higher levels of information asymmetry and more financial and distress risk, and for firms with weak governance. In additional analysis, we find a negative relationship between brand capital and the implied cost of equity capital. Our results are robust to alternative measures of brand capital, an alternative regression model and endogeneity tests. Overall, our findings suggest that brand capital captures important financial and non-financial information, and that credit rating agencies, sensibly, consider brand capital in their assessment of firms’ credit worthiness.
Journal: The European Journal of Finance
Pages: 228-254
Issue: 2
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2022.2029751
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2029751
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:2:p:228-254
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2022508_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Rong Ding
Author-X-Name-First: Rong
Author-X-Name-Last: Ding
Author-Name: Yukun Shi
Author-X-Name-First: Yukun
Author-X-Name-Last: Shi
Author-Name: Hang Zhou
Author-X-Name-First: Hang
Author-X-Name-Last: Zhou
Title: Social media coverage and post-earnings announcement drift: evidence from seeking alpha
Abstract:
In this study, we investigate how social media coverage mitigates the under-reaction to an earnings surprise captured by post-earnings announcement drift. Based on the analysis of data collected over a nine-year period from Seeking Alpha, the largest crowdsourced social media platform providing third-party-generated financial commentary and analysis in the United States, we find that the market response to an earnings surprise attenuates for firms with high coverage on Seeking Alpha prior to the earnings announcement. Furthermore, such an effect is more salient for firms with lower institutional ownership and lower press coverage. The findings are consistent with the view that higher social media coverage facilitates a timely absorption of earnings-based information by stock prices, leading to a weaker under-reaction of the market.
Journal: The European Journal of Finance
Pages: 207-227
Issue: 2
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2021.2022508
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2022508
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:2:p:207-227
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2032242_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Imtiaz Sifat
Author-X-Name-First: Imtiaz
Author-X-Name-Last: Sifat
Author-Name: Azhar Mohamad
Author-X-Name-First: Azhar
Author-X-Name-Last: Mohamad
Author-Name: Heng Chao Zhang
Author-X-Name-First: Heng Chao
Author-X-Name-Last: Zhang
Author-Name: Philip Molyneux
Author-X-Name-First: Philip
Author-X-Name-Last: Molyneux
Title: Reevaluating the risk minimization utility of Islamic stocks and bonds (Sukuk) in international financial markets
Abstract:
We examine the risk minimization utility of Islamic stock and Sukuk (bond) indices by studying their linkages against traditional global counterparts. We first employ an asymmetric power ARCH-based ADCC model on an extended dataset employed by Kenourgios et al. (2016). Our sample ranges from July 2007 to June 2021 covering the Global Financial Crisis (GFC), the European Sovereign Debt Crisis (ESDC), and the COVID-19 pandemic. Econometric tests suggest strong evidence of coupling in the bulk of Islamic equity indices. A handful of emerging market indices constitute exceptions. Qualitatively similar results emerge from time–frequency analysis via wavelet tools, revealing pervasive coupling in both returns and volatility series. The linkages are scale-dependent in only a few pairs. In contrast, Sukuk indices are uncoupled from their global fixed income counterparts and relevant risky debt portfolios. In sum, the risk-return characteristics of Islamic equities (especially in developed economies) remain coupled to major global benchmarks and therefore are unlikely to appeal as safe haven candidates. The converse applies to Sukuk, which promises potential portfolio diversification benefits and safe haven status in ‘normal’ and crisis periods.
Journal: The European Journal of Finance
Pages: 185-206
Issue: 2
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2022.2032242
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2032242
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:2:p:185-206
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2026440_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Sophie Carran
Author-X-Name-First: Sophie
Author-X-Name-Last: Carran
Author-Name: Allan Hodgson
Author-X-Name-First: Allan
Author-X-Name-Last: Hodgson
Author-Name: Shahrokh M. Saudagaran
Author-X-Name-First: Shahrokh M.
Author-X-Name-Last: Saudagaran
Author-Name: Zhengling Xiong
Author-X-Name-First: Zhengling
Author-X-Name-Last: Xiong
Title: Do CSR ethics dominate weak shareholder protection? The case of corporate insider trading in Europe
Abstract:
Corporate social responsibility (CSR) theoretically builds a positive brand for social and environmental commitment with ethical constraints imposed on corporate insider trading. We use a sample of ten European countries, clustered by French, German and Nordic sub-code law and U.K. common law to show high variability in the ethical influence of CSR components in constraining insider profitability. Moreover, in Continental Europe, the negative association between CSR commitment and insider profits, becomes significantly weaker when there is insufficient legislative protection afforded to minority shareholders. Results are robust to changes in CSR quality, trading around annual accounting reports, and when CSR commitment and insider control factors are adjusted. We reveal a complex intersection between innate predatory corporate trading, nurtured ethical governance and customised country legislative codes that provides a contrast to prior studies enacted under protective shareholder legislation in the U.S.
Journal: The European Journal of Finance
Pages: 155-184
Issue: 2
Volume: 29
Year: 2023
Month: 01
X-DOI: 10.1080/1351847X.2022.2026440
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2026440
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:2:p:155-184
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2032241_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Tobias Brünner
Author-X-Name-First: Tobias
Author-X-Name-Last: Brünner
Author-Name: René Levínský
Author-X-Name-First: René
Author-X-Name-Last: Levínský
Title: Price discovery and gains from trade in asset markets with insider trading
Abstract:
The present study contributes to the ongoing debate on possible costs and benefits of insider trading. We present a novel call auction model with insider information. Our model predicts that more insider information improves informational efficiency of prices, but this comes at the expense of reduced gains from trade. Testing these hypotheses in the lab, we find that insider information increases informational efficiency of call auction prices but does not decrease the realized gains from trade. We further find that the call auction does not perform worse than the continuous double auction. In fact, when the probability of insider information is high, the call auction has the most informative prices and highest realized gains from trade. Our experiment provides new evidence, from markets with very asymmetrically dispersed information, that lends support to the decision by many stock exchanges to use call auctions when information asymmetries are severe and the need for accurate prices is large, e.g. at the open or close of the trading day.
Journal: The European Journal of Finance
Pages: 255-277
Issue: 3
Volume: 29
Year: 2023
Month: 02
X-DOI: 10.1080/1351847X.2022.2032241
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2032241
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:3:p:255-277
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2041455_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Olga-Chara Pavlopoulou-Lelaki
Author-X-Name-First: Olga-Chara
Author-X-Name-Last: Pavlopoulou-Lelaki
Title: The macroeconomic content of analyst news during economic crises and bailouts
Abstract:
This study examines the macroeconomic content of financial analysts’ news conditional on the state of the economy. The study analyses data from major markets in the Eurozone from 2005 to 2018, a period that includes an economic exuberance phase, followed by a global crisis that led to the application of economic adjustment programmes for several countries. The empirical findings show that analysts incorporate a positive association between expected GDP growth and corporate earnings growth, primarily driven by the investment component of GDP growth. The informativeness of macro expectations for analysts’ news increases as macroeconomic revisions are released, except for the crisis-bailout period, when analysts respond to macro revisions earlier in the horizon but systematically overreact to them. Analysts’ news is value relevant during the crisis-bailout period, with increased relevance for timely forecasts.
Journal: The European Journal of Finance
Pages: 307-328
Issue: 3
Volume: 29
Year: 2023
Month: 02
X-DOI: 10.1080/1351847X.2022.2041455
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2041455
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:3:p:307-328
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2052140_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Stefano Filomeni
Author-X-Name-First: Stefano
Author-X-Name-Last: Filomeni
Author-Name: Konstantinos Baltas
Author-X-Name-First: Konstantinos
Author-X-Name-Last: Baltas
Title: Senior-subordinated structure: buffer or signal in securitisation?
Abstract:
By exploiting a unique and proprietary dataset comprising granular deal- and tranche-level data on a global portfolio of securitisation deals, we empirically test the buffer vs the signalling hypothesis of credit enhancements in securitisation. We do so by focusing on one internal credit enhancement associated with the design of financial securities in securitisation, i.e. subordination. This study provides novel evidence on the role played by subordination in securitisation, suggesting that a real dichotomy between the buffer and signalling effects does not hold. Our findings indeed highlight that subordination serves both as a buffer against observable risk and as a signal of unobservable credit quality to third-party investors in the market; moreover, our results are robust to a wide battery of robustness tests. Our findings, of international relevance, contribute to the literature on information asymmetries between originators and investors and offer new policy insights in light of the recent agreement reached by European lawmakers with national governments to revive the European securitisation market.
Journal: The European Journal of Finance
Pages: 329-362
Issue: 3
Volume: 29
Year: 2023
Month: 02
X-DOI: 10.1080/1351847X.2022.2052140
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2052140
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:3:p:329-362
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2040042_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Kun Su
Author-X-Name-First: Kun
Author-X-Name-Last: Su
Author-Name: Haiyan Jiang
Author-X-Name-First: Haiyan
Author-X-Name-Last: Jiang
Title: Does social trust restrict dual agency costs? Evidence from China
Abstract:
This study examines whether social trust mitigates both principal-agent and principal-principal agency costs. Using data from China, we find that those firms headquartered in regions with high levels of social trust have a lower level of perk consumption, a high asset turnover ratio, and a low level of financial tunneling. Thus, the findings provide strong evidence that social trust serves as an invisible hand mitigating agency costs. Additionally, the results demonstrate that social trust’s effect is attenuated when external monitoring is already in place, suggestive of a more pronounced monitoring effect of social trust when firms lack formal governance mechanisms. Additional analyses on State-Owned Enterprise (SOE) and non-SOE subsamples reveal that social trust has a more pronounced effect in reducing managerial perk consumption in SOEs than in non-SOEs, whereas the constraining effect of social trust on tunneling is stronger in non-SOEs than it in SOEs.
Journal: The European Journal of Finance
Pages: 278-306
Issue: 3
Volume: 29
Year: 2023
Month: 02
X-DOI: 10.1080/1351847X.2022.2040042
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2040042
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:3:p:278-306
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2053732_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Hiep N. Luu
Author-X-Name-First: Hiep N.
Author-X-Name-Last: Luu
Author-Name: Linh H. Nguyen
Author-X-Name-First: Linh H.
Author-X-Name-Last: Nguyen
Author-Name: John O. S. Wilson
Author-X-Name-First: John O. S.
Author-X-Name-Last: Wilson
Title: Organizational culture, competition and bank loan loss provisioning
Abstract:
This paper investigates how banks with different organizational cultures (defined as either control-dominant, collaborate-dominant, compete-dominant, create-dominant) manage their loan loss provisions (LLPs) in response to intensified industry competition. For identification, we utilize the change in state-level competition that followed the passage of the US Interstate Banking and Branching Efficiency Act (IBBEA) of 1994 as a quasi-natural experiment. We find that banks with a collaborate-dominant organizational culture are less likely to exercise discretion over LLPs. In contrast, banks with compete- and create-dominant organizational cultures are more likely to utilize discretionary LLPs when competition increases. Moreover, banks use discretionary LLPs to smooth income and signal private information to outsiders. Banks with collaborate-dominant organizational cultures exhibit less income smoothing. Counterparts with a create-dominant organizational culture use discretionary LLPs to signal information to outside stakeholders. Finally, banks with a create-dominant organizational culture are more likely to be subject to formal regulatory enforcement actions.
Journal: The European Journal of Finance
Pages: 393-418
Issue: 4
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2053732
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2053732
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:4:p:393-418
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2053180_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Luis Otero González
Author-X-Name-First: Luis Otero
Author-X-Name-Last: González
Author-Name: Pablo Durán Santomil
Author-X-Name-First: Pablo Durán
Author-X-Name-Last: Santomil
Author-Name: Robert E. Hoyt
Author-X-Name-First: Robert E.
Author-X-Name-Last: Hoyt
Title: The impact of ERM on insurer performance under the Solvency II regulatory framework
Abstract:
This paper analyzes whether the degree of Enterprise Risk Management (ERM) implementation affects the performance obtained by insurance companies in the context of Solvency II. We have constructed a composite ERM index of 76 variables based on the responses from the chief risk officers (CROs) of 44 insurance entities in one of the EU’s largest insurance markets, namely, Spain. The results show that the higher the degree and quality of ERM implementation there is, the better the return on equity (ROE) and risk-adjusted return on assets (ROAadj) there is. We find that risk governance makes performance standards higher and more stable. Finally, our results suggest that models that run on Solvency II penalize small companies, meaning that improvements in management can offset the costs involved in its implementation.
Journal: The European Journal of Finance
Pages: 419-443
Issue: 4
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2053180
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2053180
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:4:p:419-443
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2071629_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Cesario Mateus
Author-X-Name-First: Cesario
Author-X-Name-Last: Mateus
Author-Name: Sohan Sarwar
Author-X-Name-First: Sohan
Author-X-Name-Last: Sarwar
Author-Name: Natasa Todorovic
Author-X-Name-First: Natasa
Author-X-Name-Last: Todorovic
Title: Does equity mutual fund factor-risk-shifting pay off? Evidence from the US
Abstract:
In this paper, we assess the relationship between risk-shifting of mutual funds, measured as benchmark-adjusted factor-based investment style change following a structural break, and their risk-adjusted performance. We isolate only the breaks in style risk beyond those embedded in the funds’ benchmark index to eliminate any natural style risk changes resulting from varying company fundamentals over time. We group style risk changes into extreme (style rotation), moderate (style drifting), and weak (style-strengthening/weakening) and assess which investment style category is most profitable to shift in to and out of. Our findings show that funds that exhibit breaks generate overall better risk-adjusted performance than those that do not. Funds that are most successful in risk-shifting have both statistically and economically distinct risk-adjusted performance, make shifts towards small/large/value/growth style combinations rather than mid-cap and blend style, exhibit breaks less frequently and has more moderate risk-shifts than funds that are unsuccessful.
Journal: The European Journal of Finance
Pages: 444-465
Issue: 4
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2071629
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2071629
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:4:p:444-465
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2049448_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Xiaoyuan Hu
Author-X-Name-First: Xiaoyuan
Author-X-Name-Last: Hu
Author-Name: Danmo Lin
Author-X-Name-First: Danmo
Author-X-Name-Last: Lin
Author-Name: Onur Kemal Tosun
Author-X-Name-First: Onur Kemal
Author-X-Name-Last: Tosun
Title: The effect of board independence on firm performance – new evidence from product market conditions
Abstract:
We study the effect of corporate board independence on firm performance under different product market conditions. Using customer–supplier links to identify exogenous downstream demand shocks, we find that firm performance is positively associated with board independence when the firm-specific product demand drops. The results are stronger for smaller firms and firms with high growth and more volatile stock returns. The findings prevail if the firm faces a medium level of product market competition or a medium level of downstream demand shock. We provide suggestive evidence for the board's monitoring function driving the effectiveness of board independence in bad times of idiosyncratic risks, rather than its advisory function.
Journal: The European Journal of Finance
Pages: 363-392
Issue: 4
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2049448
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2049448
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:4:p:363-392
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2097883_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Afees A. Salisu
Author-X-Name-First: Afees A.
Author-X-Name-Last: Salisu
Author-Name: Rangan Gupta
Author-X-Name-First: Rangan
Author-X-Name-Last: Gupta
Author-Name: Ahamuefula E. Ogbonna
Author-X-Name-First: Ahamuefula E.
Author-X-Name-Last: Ogbonna
Title: Tail risks and forecastability of stock returns of advanced economies: evidence from centuries of data*
Abstract:
This study examines the out-of-sample predictability of market risks measured as tail risks for stock returns of eight advanced countries using a long-range monthly data of over a century. We follow the Conditional Autoregressive Value at Risk (CAViaR) of Engle and Manganelli (2004) to measure the tail risks and consequently, we produce results for both 1% and 5% VaRs across four variants (Adaptive, Symmetric absolute value, Asymmetric slope and Indirect GARCH) of the CAViaR. Thereafter, we use the “best” fit tail risks in the return predictability of the selected advanced stock markets. For the forecasting exercise, we construct three predictive models (one-predictor, two-predictor and three-predictor models) and examine their forecast performance in contrast with a driftless random walk model. Three findings are discernible from the empirical analysis. First, we find that the choice of VaR matters when determining the “best” fit CAViaR model for each return series as the outcome seems to differ between 1% and 5% VaRs. Second, the predictive model that incorporates both stock tail risk and oil tail risk produces better forecast outcomes than the one with own tail risk indicating the significance of both domestic and global risks in the return predictability of advanced countries.
Journal: The European Journal of Finance
Pages: 466-481
Issue: 4
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2097883
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2097883
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:4:p:466-481
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2075281_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Xing Huang
Author-X-Name-First: Xing
Author-X-Name-Last: Huang
Author-Name: Xiaodong Wang
Author-X-Name-First: Xiaodong
Author-X-Name-Last: Wang
Author-Name: Liang Han
Author-X-Name-First: Liang
Author-X-Name-Last: Han
Author-Name: Benjamin Laker
Author-X-Name-First: Benjamin
Author-X-Name-Last: Laker
Title: Does sound lending infrastructure foster better financial reporting quality of SMEs?
Abstract:
Using an unbalanced panel dataset that contains financial information of 46,340 small and medium-sized enterprises (SMEs) across 11 European countries over 2007–2015, this study examines the impacts of soundness of institutional factors on SME financial reporting quality as (inversely) reflected by the degree of earnings management. We consider a comprehensive framework of country-level lending infrastructure proxies which includes information, legal, social and regulatory environments and show that SME financial reporting quality is better in economies where there is greater availability, depth and quality of credit information sharing between lenders and credit reporting service providers, as empirically shown by a lower level of earnings management. We also show that a well-established legal system, i.e. better judicial and bankruptcy protection systems, is effective in restraining SME earnings management incentives and, earnings management is less prevalent in economies that are subject to a higher stock of social capital which increases SME borrowing capacity. Furthermore, we find that the stringent tax and regulatory systems can foster better financial reporting quality, as earnings management may be less effective. Overall, our robust findings suggest that the soundness of country-level lending infrastructure plays a vital role in improving SME financial reporting quality.
Journal: The European Journal of Finance
Pages: 542-566
Issue: 5
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2075281
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2075281
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:5:p:542-566
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2062250_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Jia Cao
Author-X-Name-First: Jia
Author-X-Name-Last: Cao
Author-Name: Laurence Copeland
Author-X-Name-First: Laurence
Author-X-Name-Last: Copeland
Title: Momentum and market volatility: a Bayesian regime-switching model
Abstract:
Our study finds that momentum is a persistent phenomenon that exhibits great variability in its strength in the UK stock market. Inspired by psychological evidence that cognitive biases can shift overtime, we conjecture that there may be two stock market states, namely, the calm and the turbulent market state, and that the switch between these two market states is governed by market volatility. Using Bayesian estimation methods, our results confirm the role of market volatility as the critical switching variable, which is also found to have additional predictive power for momentum returns in the turbulent market state. Somewhat contradictory to the findings in cross-sectional studies, we find that past returns have a negative impact on momentum profits. We also find that both winners and losers tend to perform better in the turbulent market state than in the calm market state and that losers’ outperformance is responsible for large momentum losses in the turbulent market state. Investment strategies that take advantage of the predictability of momentum dynamics outperform momentum strategies. Our findings are not readily reconciled with risk-based explanations but can be loosely explained in a behavioural framework.
Journal: The European Journal of Finance
Pages: 483-507
Issue: 5
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2062250
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2062250
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:5:p:483-507
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2075781_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Jyh-Bang Jou
Author-X-Name-First: Jyh-Bang
Author-X-Name-Last: Jou
Title: The design of first-price debt auction when the winning bidder can install capacity that can be expanded or contracted later
Abstract:
This paper investigates how a seller designs the down payment rate and a bidder’s strategy in equilibrium in a first-price debt auction in which the winning bidder can exercise an investment project that can be expanded or contracted later. I find that the seller should ask a higher rate and a bidder will bid more when the bidder suffers larger losses in bankruptcy. This finding also applies to the case in which the winning bidder resells the installed capital stock at a lower price provided that he maintains the same or expands capacity on the verge of bankruptcy. As compared to the case in which a seller optimally designs the down payment rate, the seller who sets a lower one will receive lower revenue and the winning bidder, who installs a smaller capacity, will bid less and thus gain more, but his probability of bankruptcy will remain unchanged.
Journal: The European Journal of Finance
Pages: 527-541
Issue: 5
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2075781
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2075781
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:5:p:527-541
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2068964_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Sungju Hong
Author-X-Name-First: Sungju
Author-X-Name-Last: Hong
Author-Name: Soosung Hwang
Author-X-Name-First: Soosung
Author-X-Name-Last: Hwang
Title: In search of pairs using firm fundamentals: is pairs trading profitable?
Abstract:
We investigate whether spurious pairs created by multiple hypothesis testing can be minimized when firm characteristics are used to identify pairs. The results show that the portfolios of pairs that have higher similarities in firm characteristics outperform those that are fundamentally less similar by minimizing the non-convergence risk. The cost of trading spurious pairs is significant despite the empirical results that the profitability of pairs trading has continued to decline since 2003 and is not significant anymore. Accounting information plays a crucial role in identifying pairs rather than market trading data, and the importance of firm fundamentals in pairs trading increases during market crises.
Journal: The European Journal of Finance
Pages: 508-526
Issue: 5
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2068964
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2068964
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:5:p:508-526
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2078666_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Ebrahim Bazrafshan
Author-X-Name-First: Ebrahim
Author-X-Name-Last: Bazrafshan
Author-Name: Amine Tarazi
Author-X-Name-First: Amine
Author-X-Name-Last: Tarazi
Title: Cash shortfall, SEO offer size, and SEO announcement returns
Abstract:
We examine the announcement returns of 3483 seasoned equity offerings (SEOs) during the 1996–2018 period. Although there is a significant decline in SEO announcement returns, we show that cash shortfall in the year before SEO has a positive impact on SEO announcement returns. By matching SEO offers sizes and cash shortfalls, we also find that negative announcement-period returns become positive when SEO offer size is determined in concert with cash shortfall. Patterns of long-run abnormal firm performance after SEO announcements are consistent with those we document for the announcement-period returns. Our results suggest that cash shortfall in the year before SEO as indication of funds needs mitigates agency spending of SEO proceeds, and thus, the market welcomes the SEO announcement with positive stock price reactions.
Journal: The European Journal of Finance
Pages: 567-582
Issue: 5
Volume: 29
Year: 2023
Month: 03
X-DOI: 10.1080/1351847X.2022.2078666
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2078666
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:5:p:567-582
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2082311_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Seyed Hossein Khatami
Author-X-Name-First: Seyed Hossein
Author-X-Name-Last: Khatami
Author-Name: Maria-Teresa Marchica
Author-X-Name-First: Maria-Teresa
Author-X-Name-Last: Marchica
Author-Name: Roberto Mura
Author-X-Name-First: Roberto
Author-X-Name-Last: Mura
Title: The effect of ‘underwriter–issuer’ personal connections on IPO underpricing
Abstract:
Using a large sample of US IPOs between 1999 and 2020, we show that personal connections between directors and top executives of issuers and those of underwriting banks result in significantly lower levels of IPO underpricing. We estimate the average effect to be about 13 percentage points. The results hold with several alternative robustness tests including non-random choice of underwriter, endogenous presence of venture capitalists, additional controls for managerial traits, matching exercises and doubly robust estimations. Our results indicate that the effect of connections is significantly stronger for companies that are more likely to suffer from asymmetric information problems. This corroborates the idea that the lower level of underpricing for connected companies reflects better flow of information with the underwriter.
Journal: The European Journal of Finance
Pages: 638-668
Issue: 6
Volume: 29
Year: 2023
Month: 04
X-DOI: 10.1080/1351847X.2022.2082311
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2082311
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:6:p:638-668
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2075280_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Guanming He
Author-X-Name-First: Guanming
Author-X-Name-Last: He
Author-Name: Helen Mengbing Ren
Author-X-Name-First: Helen Mengbing
Author-X-Name-Last: Ren
Title: Are financially constrained firms susceptible to a stock price crash?
Abstract:
This study investigates whether and how financial constraints on firms affect the risk of their stock price crashing. We find strong evidence that financial constraints increase future stock price crash risk. This finding is robust to using two quasi-natural experiments to control for potential endogeneity. We also provide evidence to suggest that bad news hoarding and default risk explain the crash risk of financially constrained firms. Cross-sectional analysis reveals that the positive relation between financial constraints and future crash risk is more prominent for firms with weak corporate governance. Our study is of interest to investors as well as other stakeholders concerned about firms’ creditworthiness and viability.
Journal: The European Journal of Finance
Pages: 612-637
Issue: 6
Volume: 29
Year: 2023
Month: 04
X-DOI: 10.1080/1351847X.2022.2075280
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2075280
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:6:p:612-637
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2084343_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Daniele Bianchi
Author-X-Name-First: Daniele
Author-X-Name-Last: Bianchi
Author-Name: Massimo Guidolin
Author-X-Name-First: Massimo
Author-X-Name-Last: Guidolin
Author-Name: Manuela Pedio
Author-X-Name-First: Manuela
Author-X-Name-Last: Pedio
Title: The dynamics of returns predictability in cryptocurrency markets
Abstract:
In this paper, we take a forecasting perspective and compare the information content of a set of market risk factors, cryptocurrency-specific predictors, and sentiment variables for the returns of cryptocurrencies vs traditional asset classes. To this aim, we rely on a flexible dynamic econometric model that not only features time-varying coefficients, but also allows for the entire forecasting model to change over time to capture the time variation in the exposures of major digital currencies to the predictive variables. Besides, we investigate whether the inclusion of cryptocurrencies in an already diversified portfolio leads to additional economic gains. The main empirical results suggest that cryptocurrencies are not systematically predicted by stock market factors, precious metal commodities or supply factors. On the contrary, they display a time-varying but significant exposure to investors' attention. In addition, also because of a lack of predictability compared to traditional asset classes, cryptocurrencies lead to realized expected utility gains for a power utility investor.
Journal: The European Journal of Finance
Pages: 583-611
Issue: 6
Volume: 29
Year: 2023
Month: 04
X-DOI: 10.1080/1351847X.2022.2084343
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2084343
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:6:p:583-611
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2090267_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Christian Eckert
Author-X-Name-First: Christian
Author-X-Name-Last: Eckert
Author-Name: Nadine Gatzert
Author-X-Name-First: Nadine
Author-X-Name-Last: Gatzert
Author-Name: Madeline Schubert
Author-X-Name-First: Madeline
Author-X-Name-Last: Schubert
Title: Analyzing spillover effects from data breaches to the US (cyber) insurance industry
Abstract:
As the US cyber insurance market is the largest worldwide, this paper presents an analysis of the effects of data breaches in the US financial services industry in relation to the stocks of US insurance companies. We conduct an event study, focusing on publicly announced data breaches that occurred between 2005 and 2018, and observe significant negative spillover effects for US insurers. However, in the subsample of non-announcing cyber insurers between 2015 and 2018, we not only find significant negative spillover effects especially for longer event windows, but also significant positive effects in case of ‘mega data breaches' with more than 1 million breached records, which may be due to an increasing demand for cyber insurance. To understand these findings in more detail, we further analyze event as well as firm characteristics and find that spillover effects are information-based rather than pure.
Journal: The European Journal of Finance
Pages: 669-692
Issue: 6
Volume: 29
Year: 2023
Month: 04
X-DOI: 10.1080/1351847X.2022.2090267
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2090267
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:6:p:669-692
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2058882_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Sascha Hahn
Author-X-Name-First: Sascha
Author-X-Name-Last: Hahn
Author-Name: Paul P. Momtaz
Author-X-Name-First: Paul P.
Author-X-Name-Last: Momtaz
Author-Name: Axel Wieandt
Author-X-Name-First: Axel
Author-X-Name-Last: Wieandt
Title: The economics of banking regulation in Europe: does the post-GFC bail-in regime effectively eliminate implicit government guarantees?
Abstract:
This paper assesses the market effects of regulatory events associated with the implementation of a bail-in regime for failing European banks. The bail-in regime was designed to make banks efficiently resolvable in order to abolish Implicit Government Guarantees (IGGs). We use a seemingly-unrelated-regressions framework to estimate the effects on Credit Default Swap (CDS) spreads and equity returns of key events associated with the two cornerstones of the European bail-in regime, the Bank Recovery & Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRM-R), and other relevant events. Contrary to the regulations’ objectives, we find that regulatory events associated with the implementation of BRRD and SRM-R led to tighter CDS spreads and higher equity returns over the 2009–2017 period. The pattern varies with bank heterogeneity and is particularly pronounced for global systemically important banks (G-SIBs), i.e. banks whose systemic risk profile is deemed to be of such importance that the bank's failure would trigger a wider financial crisis and threaten the global economy, suggesting that the regime does not effectively solve the systemic problem of bailout expectations in the European banking sector.
Journal: The European Journal of Finance
Pages: 700-725
Issue: 7
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2058882
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2058882
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:7:p:700-725
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2081091_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Vu Quang Trinh
Author-X-Name-First: Vu Quang
Author-X-Name-Last: Trinh
Author-Name: Ngan Duong Cao
Author-X-Name-First: Ngan Duong
Author-X-Name-Last: Cao
Author-Name: Marwa Elnahass
Author-X-Name-First: Marwa
Author-X-Name-Last: Elnahass
Title: Financial stability: a ‘vaccine’ for tail risk of the global banking sector in the shadow of the pandemic
Abstract:
This study examines the association between bank tail risk and the ongoing COVID-19 pandemic. We use a sample of 868 listed banks across 98 countries from 2002 to 2020, yielding a cross-country panel sample of 15,791 bank-year observations. We find that different components of bank tail risk (i.e. systematic and idiosyncratic) have increased during the health crisis but less so for stronger banks (i.e. more profitable, higher market valuation, lower stock volatility). The result implies that the pandemic results in a higher possibility of suffering extremely large losses in the stock prices of the global banking sector. However, banks with higher profitability and financial stability levels can better prepare themselves to tackle the crisis more effectively and hence are less likely to suffer extreme equity devaluations. Therefore, we contend that financial stability acts as a ‘vaccine’ for the bank tail risk in the shadow of the pandemic. We finally confine the results to some specific geographic settings; typically, they are more intensified in countries with more financial freedom, middle income-generating, and large banks.
Journal: The European Journal of Finance
Pages: 726-753
Issue: 7
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2081091
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2081091
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:7:p:726-753
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2055969_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Quynh Anh Do
Author-X-Name-First: Quynh Anh
Author-X-Name-Last: Do
Author-Name: Van Phan
Author-X-Name-First: Van
Author-X-Name-Last: Phan
Author-Name: Duc Tam Nguyen
Author-X-Name-First: Duc Tam
Author-X-Name-Last: Nguyen
Title: How do local banks respond to natural disasters?
Abstract:
The increasing frequency and intensity of catastrophic natural disasters have the potential to stress and imperil banks to the point of compromised viability or even bankruptcy. Using data of approximately 907 domestic/local banks and Spatial Hazard Events and Losses Database for the United States during the period 2010–2019, we explore how natural disasters impact bank stability. Our main findings support the aforementioned hypothesis that natural disasters decrease bank stability because total deposit and equity (capital) become more volatile and the bank is prone to increased lending margins, as well as a provision of loan loss. Thus, banks lose their competitiveness, ROA deteriorates, and Z-score becomes lower. Strong corporate governance and healthy financial strategy, nevertheless, assist bank recovery in the aftermath of these weather extreme events. Last but not least, we find a non-linear relationship between natural disasters and bank stability and posit the role of indemnity paid out from the Federal insurance programme (after natural hazards) in the high-damage group.
Journal: The European Journal of Finance
Pages: 754-779
Issue: 7
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2055969
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2055969
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:7:p:754-779
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2033806_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Xinyu Huang
Author-X-Name-First: Xinyu
Author-X-Name-Last: Huang
Author-Name: Weihao Han
Author-X-Name-First: Weihao
Author-X-Name-Last: Han
Author-Name: David Newton
Author-X-Name-First: David
Author-X-Name-Last: Newton
Author-Name: Emmanouil Platanakis
Author-X-Name-First: Emmanouil
Author-X-Name-Last: Platanakis
Author-Name: Dimitrios Stafylas
Author-X-Name-First: Dimitrios
Author-X-Name-Last: Stafylas
Author-Name: Charles Sutcliffe
Author-X-Name-First: Charles
Author-X-Name-Last: Sutcliffe
Title: The diversification benefits of cryptocurrency asset categories and estimation risk: pre and post Covid-19
Abstract:
We examine the diversification benefits of cryptocurrency asset categories. To mitigate the effects of estimation risk, we employ the Bayes-Stein model with no short-selling and variance-based constraints. We estimate the inputs using lasso regression and elastic net regression, employing the shrunk Wishart stochastic volatility model and Gaussian random projection. We consider nine cryptocurrency asset categories, and find that all but two provide significant out-of-sample diversification benefits. The lower is investor risk aversion, the more beneficial are cryptocurrencies as portfolio diversifiers. During uncertain economic environments, such as the post-Covid-19 period, cryptocurrencies provide the same diversification benefits as in more stable environments. Our results are robust to different portfolio benchmarks, regression technique, transaction cost, portfolio constraints, higher moments and Black–Litterman models.
Journal: The European Journal of Finance
Pages: 800-825
Issue: 7
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2033806
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2033806
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:7:p:800-825
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2200145_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Winifred Huang
Author-X-Name-First: Winifred
Author-X-Name-Last: Huang
Author-Name: Philip Molyneux
Author-X-Name-First: Philip
Author-X-Name-Last: Molyneux
Author-Name: Steven Ongena
Author-X-Name-First: Steven
Author-X-Name-Last: Ongena
Author-Name: Ru Xie
Author-X-Name-First: Ru
Author-X-Name-Last: Xie
Title: The new challenges of global banking and finance
Abstract:
The economic downturn caused by the Covid-19 pandemic has brought unprecedented uncertainty to the global banking system. Banks are facing critical market challenges driven by uncertain monetary policies, deterioration in credit quality, and regulation and compliance pressures. These challenges highlight the importance of better understanding the new role of financial intermediations in facilitating efficient capital allocations and economic development. This article reviews the related literature on monetary policy uncertainty, bank performance, digital finance, and introduces articles on these themes. Finally, we propose potential areas for future research.
Journal: The European Journal of Finance
Pages: 693-699
Issue: 7
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2023.2200145
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2200145
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:7:p:693-699
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2124120_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Luis Antonio Molinas
Author-X-Name-First: Luis Antonio
Author-X-Name-Last: Molinas
Author-Name: Jane M. Binner
Author-X-Name-First: Jane M.
Author-X-Name-Last: Binner
Author-Name: Meng Tong
Author-X-Name-First: Meng
Author-X-Name-Last: Tong
Title: Do Divisia monetary aggregates help forecast exchange rates in a negative interest rate environment?
Abstract:
This paper contributes to the literature as the first work of its kind to examine the role and importance of Divisia monetary aggregates and concomitant User Cost Price indices as superior monetary policy forecasting tools in a negative interest rate environment. We compare the performance of Divisia monetary aggregates with traditional simple-sum aggregates in several theoretical models and in a Bayesian VAR to forecast the exchange rates between the euro, the dollar and yuan at various horizons using quarterly data. We evaluate their performance against that of a random walk using two criteria: Root Mean Square Error ratios and the Clark-West statistic. We find that, under a free-floating exchange regime, superior Divisia monetary aggregates outperform their simple sum counterparts and the benchmark random walk in a negative interest rate environment, consistently.
Journal: The European Journal of Finance
Pages: 780-799
Issue: 7
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2124120
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2124120
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:7:p:780-799
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2075780_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Jennifer Thewissen
Author-X-Name-First: Jennifer
Author-X-Name-Last: Thewissen
Author-Name: James Thewissen
Author-X-Name-First: James
Author-X-Name-Last: Thewissen
Author-Name: Wouter Torsin
Author-X-Name-First: Wouter
Author-X-Name-Last: Torsin
Author-Name: Özgür Arslan-Ayaydin
Author-X-Name-First: Özgür
Author-X-Name-Last: Arslan-Ayaydin
Title: Linguistic errors and investment decisions: the case of ICO white papers
Abstract:
Drawing on language expectancy theory, we predict that linguistic errors in ICO white papers negatively impact investors’ willingness to financially contribute to ICO projects. We manually annotate a sample of 546 ICO white papers according to 13 different error subcategories related to spelling and grammar. The error-annotated data are subsequently submitted to regression analyses which confirm that linguistic errors discourage potential investments in ICOs. Specifically, our analyses reveal the presence of ‘high penalty’ vs. ‘low penalty’ errors which result in higher vs. lower financial investment losses for the ICOs. The negative impact of language errors is stronger when ICO white papers are (1) written in native English-speaking countries and (2) from countries without cryptocurrency regulation. Results from an experiment confirm that this relationship is not driven by the entrepreneur- or investor-specific characteristics. Overall, we highlight that the reader identifies linguistic errors as a major ‘red flag’ that ultimately affects financial decision-making.
Journal: The European Journal of Finance
Pages: 826-868
Issue: 7
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2075780
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2075780
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:7:p:826-868
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2057807_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Yunhao Dai
Author-X-Name-First: Yunhao
Author-X-Name-Last: Dai
Author-Name: Othar Kordsachia
Author-X-Name-First: Othar
Author-X-Name-Last: Kordsachia
Author-Name: Weiqiang Tan
Author-X-Name-First: Weiqiang
Author-X-Name-Last: Tan
Title: How does firm prestige affect the cost of bank loans?
Abstract:
Firm prestige reduces the cost of bank loans. Specifically, when borrowers are included in Fortune’s list of ‘America’s Most Admired Companies' (MAC), their loan costs decline by approximately 12.3 bps on average. The effect appears causal. The negative relation between prestige and loan costs is more pronounced for borrowers in more competitive industries and with higher information uncertainty. Banks with weaker bargaining power offer favorable loan terms to the MAC ranked borrowers when they face a high degree of competition from other banks. The MAC ranking appears to be used by these banks as a summary statistic for loan quality in the face of competition.
Journal: The European Journal of Finance
Pages: 888-918
Issue: 8
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2057807
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2057807
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:8:p:888-918
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2087533_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Qingfeng Wang
Author-X-Name-First: Qingfeng
Author-X-Name-Last: Wang
Author-Name: Xingyi Zhang
Author-X-Name-First: Xingyi
Author-X-Name-Last: Zhang
Title: Board Political Superiority and firm performance variability
Abstract:
This study provides empirical evidence that firms with a higher proportion of board directors who are politically more powerful than their CEOs can significantly reduce stock performance variability, but not on accounting performance variability. Our findings show that among independent (female, non-coopted) directors, only those who are politically more powerful than CEOs are effective in their monitoring role. In our additional tests, we show that our findings are not driven by an endogeneity bias. We find some mechanisms through which politically superior boards can mitigate stock performance variability.
Journal: The European Journal of Finance
Pages: 919-948
Issue: 8
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2087533
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2087533
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:8:p:919-948
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2035791_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Miguel Tavares-Gärtner
Author-X-Name-First: Miguel
Author-X-Name-Last: Tavares-Gärtner
Author-Name: Paulo J. Pereira
Author-X-Name-First: Paulo J.
Author-X-Name-Last: Pereira
Author-Name: Elísio Brandão
Author-X-Name-First: Elísio
Author-X-Name-Last: Brandão
Title: Designing a public-private co-investment mechanism to foster venture capital
Abstract:
In this paper we develop a co-investment mechanism for promoting early investment in Start-up Firms. Focusing on the (uncertain) payoffs earned by a Public Venture Capitalist (PVC) and an Independent Venture Capitalist (IVC), we model each of the alternative mechanisms as an investment timing real option and illustrate that co-investing might be the most effective mechanism to foster investment in Entrepreneurial Firms. Grounded on this theoretical framework, we list a set of both public policy and managerial implications.
Journal: The European Journal of Finance
Pages: 869-887
Issue: 8
Volume: 29
Year: 2023
Month: 05
X-DOI: 10.1080/1351847X.2022.2035791
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2035791
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:8:p:869-887
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2091946_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Chuangxia Huang
Author-X-Name-First: Chuangxia
Author-X-Name-Last: Huang
Author-Name: Yunke Deng
Author-X-Name-First: Yunke
Author-X-Name-Last: Deng
Author-Name: Xin Yang
Author-X-Name-First: Xin
Author-X-Name-Last: Yang
Author-Name: Xiaoguang Yang
Author-X-Name-First: Xiaoguang
Author-X-Name-Last: Yang
Author-Name: Jinde Cao
Author-X-Name-First: Jinde
Author-X-Name-Last: Cao
Title: Can financial crisis be detected? Laplacian energy measure
Abstract:
How to rapidly and accurately detect the financial crisis is one of the fundamental and challenging problems in the field of financial risk management. This paper aims to develop a novel network characteristic indicator to deal with this issue. Specifically, we select the daily closing price of stocks spanning from 2006 to 2020 in China’s A-share market to establish a series of complex networks, and extract Laplacian energy measure as a new network indicator. By employing the method of seasonal-trend decomposition procedure based on loess, the proposed indicator successfully detects the global financial crisis, the Eurozone debt crisis, the Chinese stock market crash, the Sino-US trade friction and the COVID-19 pandemic. Furthermore, compared with the traditional topological indicators (e.g. global efficiency, average clustering coefficient, characteristic path length and network density), the proposed indicator demonstrates the outstanding characteristics of higher identification accuracy, wider application range and faster response speed. Lastly, the robustness of the Laplacian energy measure in the financial crisis detection is further confirmed in the US, UK, German, French and Spanish stock markets.
Journal: The European Journal of Finance
Pages: 949-976
Issue: 9
Volume: 29
Year: 2023
Month: 06
X-DOI: 10.1080/1351847X.2022.2091946
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2091946
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:9:p:949-976
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2089048_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Jin Zou
Author-X-Name-First: Jin
Author-X-Name-Last: Zou
Author-Name: Shuxin Li
Author-X-Name-First: Shuxin
Author-X-Name-Last: Li
Author-Name: Zihan Xu
Author-X-Name-First: Zihan
Author-X-Name-Last: Xu
Author-Name: Guoying Deng
Author-X-Name-First: Guoying
Author-X-Name-Last: Deng
Title: Political uncertainty and bond defaults: evidence from the Chinese market
Abstract:
In this paper, we provide new evidence on how political uncertainty influences bond default, using China’s local officials’ turnover as a source of plausibly exogenous variation in uncertainty. We find that officials’ turnover increases bond defaults when political links are stronger, indicating that political turnover can destabilize government support for politically connected bonds. Additionally, off-budget resources have expanded China’s local government’s ability to bail out local bonds. Further results show that political connections create zombie bonds that ought to be out but instead to be in the market, reducing the allocative efficiency of financial resources. Our study suggests that, at least in some countries, political uncertainty influences financial risk through the mechanism of political connection.
Journal: The European Journal of Finance
Pages: 977-998
Issue: 9
Volume: 29
Year: 2023
Month: 06
X-DOI: 10.1080/1351847X.2022.2089048
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2089048
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:9:p:977-998
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1910529_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Angeliki Drousia
Author-X-Name-First: Angeliki
Author-X-Name-Last: Drousia
Author-Name: Athanasios Episcopos
Author-X-Name-First: Athanasios
Author-X-Name-Last: Episcopos
Author-Name: George N. Leledakis
Author-X-Name-First: George N.
Author-X-Name-Last: Leledakis
Author-Name: Emmanouil G. Pyrgiotakis
Author-X-Name-First: Emmanouil G.
Author-X-Name-Last: Pyrgiotakis
Title: EU Regulation and open market share repurchases: new evidence
Abstract:
This paper re-examines the impact of the EU Market Abuse Directive (MAD) on the market reaction around share repurchase announcements. We use a unique hand-collected dataset of firms listed on the Athens Stock Exchange, and we find evidence that contrasts with previous conclusions for large European economies. The implementation of the MAD is followed by a significant increase in announcement abnormal returns, which is more pronounced in initial repurchase programs. Our results remain robust to a series of robustness tests. We attribute our findings to cross-country differences in institutional framework and pre-MAD existing national laws. Collectively, our results support the notion that EU directives do not have a uniform effect across Member States. Thus, the impact of such reforms should also be examined in individual capital market studies.
Journal: The European Journal of Finance
Pages: 1022-1042
Issue: 9
Volume: 29
Year: 2023
Month: 06
X-DOI: 10.1080/1351847X.2021.1910529
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1910529
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:9:p:1022-1042
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2097886_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: An Chen
Author-X-Name-First: An
Author-X-Name-Last: Chen
Author-Name: Stefan Schelling
Author-X-Name-First: Stefan
Author-X-Name-Last: Schelling
Author-Name: Nils Sørensen
Author-X-Name-First: Nils
Author-X-Name-Last: Sørensen
Title: On the impact of low interest rates on common withdrawal rules in old age
Abstract:
Ensuring a desired standard of living in retirement has been strongly challenged by increasing life expectancy, and simultaneously by the current and possibly long-lasting low interest environment. In contrast to literature in this field which claims annuitization of wealth being a vital part of retirement planning, many people manage their retirement savings and withdrawal policy during the retirement period independently. To this end, several easily applicable self-managed withdrawal rules are commonly recommended by financial advisors. We cast doubt on the viability of these self-managed withdrawal rules, particularly in an environment with increasing life expectancies and low interest rates. Further, we show that a mixed rule which combines the fixed percentage and the remaining lifetime rule can significantly improve retirees' welfare in an expected utility framework compared to other simple self-managed withdrawal rules. The results provide important insights for revising common recommendations by financial advisors, designing retirement products, and regulation.
Journal: The European Journal of Finance
Pages: 999-1021
Issue: 9
Volume: 29
Year: 2023
Month: 06
X-DOI: 10.1080/1351847X.2022.2097886
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2097886
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:9:p:999-1021
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1960403_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Daniel Traian Pele
Author-X-Name-First: Daniel Traian
Author-X-Name-Last: Pele
Author-Name: Niels Wesselhöfft
Author-X-Name-First: Niels
Author-X-Name-Last: Wesselhöfft
Author-Name: Wolfgang Karl Härdle
Author-X-Name-First: Wolfgang Karl
Author-X-Name-Last: Härdle
Author-Name: Michalis Kolossiatis
Author-X-Name-First: Michalis
Author-X-Name-Last: Kolossiatis
Author-Name: Yannis G. Yatracos
Author-X-Name-First: Yannis G.
Author-X-Name-Last: Yatracos
Title: Are cryptos becoming alternative assets?
Abstract:
This research provides insights for the separation of cryptocurrencies from other assets. Using dimensionality reduction techniques, we show that most of the variation among cryptocurrencies, stocks, exchange rates, commodities, bonds, and real estate indexes can be explained by the tail, memory and moment factors of their log-returns. By applying various classification methods, cryptocurrencies are categorized as a separate asset class, mainly due to the tail factor. The main result is the complete separation of cryptocurrencies from the other asset types, using the Maximum Variance Components Split method. Additionally, we show that cryptocurrencies tend to exhibit similar characteristics over time and become more distinguished from other asset classes (synchronic evolution).
Journal: The European Journal of Finance
Pages: 1064-1105
Issue: 10
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2021.1960403
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1960403
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:10:p:1064-1105
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2100715_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Kei Nakagawa
Author-X-Name-First: Kei
Author-X-Name-Last: Nakagawa
Author-Name: Ryuta Sakemoto
Author-X-Name-First: Ryuta
Author-X-Name-Last: Sakemoto
Title: Dynamic allocations for currency investment strategies
Abstract:
This study conducts out-of-sample tests for returns on individual currency investment strategies and the weights on the universe of these strategies. We focus on five investment strategies: carry, momentum, value, dollar carry, and conditional FX correlation risk. The performances of our predictive models are evaluated using both statistical and economic measures. Within a dynamic asset allocation framework, an investor adjusts investment strategy weights based on the results of the prediction models. We find that our predictive model outperforms our benchmark, which uses historical average information in terms of statistical and economic measures. When the Sharpe ratio of the benchmark model is 0.52, our predictive model generates an economic gain of approximately 1.16% per annum over the benchmark. These findings are robust to the changes in investors’ risk aversion and target volatility for portfolio optimization.
Journal: The European Journal of Finance
Pages: 1207-1228
Issue: 10
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2100715
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2100715
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:10:p:1207-1228
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2097884_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Yuwei Liu
Author-X-Name-First: Yuwei
Author-X-Name-Last: Liu
Author-Name: Jiangyi Li
Author-X-Name-First: Jiangyi
Author-X-Name-Last: Li
Author-Name: Guoying Deng
Author-X-Name-First: Guoying
Author-X-Name-Last: Deng
Title: Reference-dependent preferences and stock market participation
Abstract:
Prospect theory was proposed mainly to explain irrational investment behaviour. However, empirical evidence has come mostly from controlled experiments, and evidence from real data is rare. This paper uses panel data from a nationally representative survey in China to test whether prospect theory can explain stock market participation. The empirical results show that individuals take expected income as a reference point when investing in stocks. After real income and other factors are controlled for, the relative loss between expected and real income increases by 10,000 RMB, the probability of holding stocks increases by 0.77% and stock investment increases by 11.78%. The mechanism behind this is that relative losses motivate individuals to take excessive risks to hedge losses, while relative gains increase risk aversion and the holding of safe assets. These results can explain the puzzle of limited stock market participation. Participation costs are the main factor that restricts the low-income group from participating in the stock market, while the high-income group often faces relative gains, which leads to increased risk aversion and unwillingness to hold stocks.
Journal: The European Journal of Finance
Pages: 1043-1063
Issue: 10
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2097884
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2097884
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:10:p:1043-1063
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2100269_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Panagiotis Panagiotou
Author-X-Name-First: Panagiotis
Author-X-Name-Last: Panagiotou
Author-Name: Xu Jiang
Author-X-Name-First: Xu
Author-X-Name-Last: Jiang
Author-Name: Angel Gavilan
Author-X-Name-First: Angel
Author-X-Name-Last: Gavilan
Title: The determinants of liquidity commonality in the Euro-area sovereign bond market
Abstract:
We examine time-series variation in liquidity commonality across sovereign benchmark bonds from 10 Euro-area countries, over a 7-year period using tick-by-tick data from the inter-dealer market and study how it is driven by supply determinants (funding constraints of financial intermediaries) and demand determinants (investor sentiment, uncertainty, and cross-market linkages with the equity market) of liquidity. Commonality in liquidity does change over time, tends to intensify in stress periods as well as around ECB policy meetings, and we find stronger evidence in favor of the supply side determinants.
Journal: The European Journal of Finance
Pages: 1144-1186
Issue: 10
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2100269
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2100269
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:10:p:1144-1186
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2098793_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Florian Schmid
Author-X-Name-First: Florian
Author-X-Name-Last: Schmid
Author-Name: Herbert Mayer
Author-X-Name-First: Herbert
Author-X-Name-Last: Mayer
Author-Name: Markus Wanner
Author-X-Name-First: Markus
Author-X-Name-Last: Wanner
Author-Name: Andreas W. Rathgeber
Author-X-Name-First: Andreas W.
Author-X-Name-Last: Rathgeber
Title: Rebalancing effects of commodity indices on open interest, volume and prices
Abstract:
The investment volume for commodity indices has increased rapidly over the past years. This financialization is intensively discussed in politics and science with mixed results because of several problems. We use a novel idea to measure the effect of the growing investment volume of index investors by looking at index rebalancing, in which only financial traders are forced to trade. Analyzing 289 rebalancing between 2006 and 2021 for the BCOM and the S&P GSCI, we observe significant results—with abnormal returns up to 14.1%—only for open interest and volume data. We cannot prove an effect on prices and, therefore, no effect of financialization on the real economy.
Journal: The European Journal of Finance
Pages: 1187-1206
Issue: 10
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2098793
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2098793
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:10:p:1187-1206
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2081090_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Massimiliano Barbi
Author-X-Name-First: Massimiliano
Author-X-Name-Last: Barbi
Author-Name: Ottorino Morresi
Author-X-Name-First: Ottorino
Author-X-Name-Last: Morresi
Title: Corporate hedging, family firms, and CEO identity
Abstract:
We study the propensity to hedge of closely-held family-managed firms. Family involvement in CEO positions positively affects the likelihood of hedging. The effect is stronger when the CEO belongs to the founding family, especially for long-tenured and founder CEOs. This evidence is consistent with the higher conservatism of family agents, aimed at protecting socioemotional wealth and avoiding loss of reputation and control. Information asymmetry and, more mildly, underdiversification increase the propensity to hedge. Corporate governance attributes proxying agency issues are not significant.
Journal: The European Journal of Finance
Pages: 1106-1143
Issue: 10
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2081090
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2081090
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:10:p:1106-1143
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2125818_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Diandian Ma
Author-X-Name-First: Diandian
Author-X-Name-Last: Ma
Author-Name: Adrian Melia
Author-X-Name-First: Adrian
Author-X-Name-Last: Melia
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Author-Name: John van der Burg
Author-X-Name-First: John
Author-X-Name-Last: van der Burg
Title: Distributional properties of the book to market ratio and their implications for empirical analysis
Abstract:
Financial accounting standards, government regulatory requirements and the capital market assumptions on which received asset pricing theory is based are used to develop a linear-quadratic diffusion process under which the unconditional probability density of the book to market ratio of equity will be either Gaussian (that is, normal) or the Pearson Type IV. Empirical analysis based on book to market ratios drawn from the Compustat North America Standard & Poor’s Fundamentals Quarterly Database shows the Pearson Type IV probability density provides a superior fit to firm book to market ratio sample distributions when compared to the Gaussian density with around two-thirds of firm sample book to market ratio distributions failing standard Gaussian goodness of fit tests. Moreover, around one in eight of the firm book to market ratio sample distributions return parameter estimates for the Pearson Type IV which are compatible with a non-convergent (that is, undefined) variance and higher moments. It is also shown how the inverse hyperbolic sine transformation can be used to mitigate the adverse consequences of heteroscedasticity and non-convergent moments in empirical work involving the book to market ratio.
Journal: The European Journal of Finance
Pages: 1330-1353
Issue: 11
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2125818
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2125818
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:11:p:1330-1353
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2116991_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Dimitris Andriosopoulos
Author-X-Name-First: Dimitris
Author-X-Name-Last: Andriosopoulos
Author-Name: Sheikh Tanzila Deepty
Author-X-Name-First: Sheikh
Author-X-Name-Last: Tanzila Deepty
Title: Can social capital and reputation mitigate political and market competition risk?
Abstract:
We assess whether social capital, captured by CSR, is an effective hedge against risks arising from political and market competition risk. Having a higher CSR score significantly reduces stock return volatility during political uncertainty, but not cash flow volatility. Meanwhile, CSR is also an effective hedge against stock return volatility that arises from peer competition. Finally, the hedging effect of CSR on stock return volatility is transient, but has a positive effect on firms’ future performance and growth opportunities.
Journal: The European Journal of Finance
Pages: 1229-1266
Issue: 11
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2116991
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2116991
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:11:p:1229-1266
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2124119_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Phong Minh Nguyen
Author-X-Name-First: Phong Minh
Author-X-Name-Last: Nguyen
Author-Name: Wei-Han Liu
Author-X-Name-First: Wei-Han
Author-X-Name-Last: Liu
Title: Portfolio management using time-varying vine copula: an application on the G7 equity market indices
Abstract:
We consider structural breaks and use vine copulas to hierarchically model the underlying assets’ dependence structure of the portfolio of G7 equity market indices (1998–2019). This framework is noticed for its flexibility in capturing asymmetry and non-linearity in a time-varying style. We compare the portfolio performance in terms of the minimum Conditional Value-at-risk (CVaR) and the maximum return-to-CVaR ratio criteria with the traditional mean-variance framework and the equal-weighted strategy. The outcomes show the outperformance of our method across subperiods. Canonical vine copula marginally outperforms drawable vine copula in terms of return-to-risk ratio. Our proposed vine copula models better capture the risk-return tradeoff especially during critical market moments.
Journal: The European Journal of Finance
Pages: 1303-1329
Issue: 11
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2124119
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2124119
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:11:p:1303-1329
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2111222_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Baohui Wu
Author-X-Name-First: Baohui
Author-X-Name-Last: Wu
Author-Name: Feng Min
Author-X-Name-First: Feng
Author-X-Name-Last: Min
Author-Name: Fenghua Wen
Author-X-Name-First: Fenghua
Author-X-Name-Last: Wen
Title: The stress contagion among financial markets and its determinants
Abstract:
The purpose of this paper is to study the spillover effects of financial stress among five important financial markets (bond, stock, foreign exchange, interbank, and real estate markets) in China, and explore the important determinants of financial stress spillover level among the markets and the impact of the Chinese stress spillover situation on the European markets. Our findings are as follows: First, there is a significant stress spillover effect among the five markets, and the total financial stress spillover index (TSSI) is very high during the global financial crisis. Generally, the stock and real estate markets are the major transmitters of stress spillover, and the interbank and bond markets are the major receivers. Second, the most macro factors have significant impacts on the financial stress spillover level among the markets, especially CPI index, the Chinese economic policy uncertainty index and VIX index. And the severity of the COVID-19 epidemic in China and the world has a significant impact on the TSSI, especially from March 2020 to August 2020. Finally, the TSSI can significantly increase the volatility of French stock market, Italian stock market and German government bond market, especially during the Sino-US trade war and the COVID-19 epidemic.
Journal: The European Journal of Finance
Pages: 1267-1302
Issue: 11
Volume: 29
Year: 2023
Month: 07
X-DOI: 10.1080/1351847X.2022.2111222
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2111222
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:11:p:1267-1302
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2134811_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Andreas Kick
Author-X-Name-First: Andreas
Author-X-Name-Last: Kick
Author-Name: Horst Rottmann
Author-X-Name-First: Horst
Author-X-Name-Last: Rottmann
Title: The relevance of banks to the European stock market
Abstract:
Banks have always played an ambivalent role in financial markets. On the one hand, they provide essential services for the market; on the other hand, problems in the banking sector can send shock waves through the entire economy. Given this prominent role, it is not surprising that Pereira and Rua [2018. “Asset Pricing with a Bank Risk Factor.” Journal of Money, Credit and Banking 50(5): 993–1032. doi:10.1111/jmcb.12473] found that the health of the banking sector exerts an influence on stock returns in the US. Understanding the relationship between banks and their impact on the asset prices of non-financials is essential to evaluate the risk emanating from an unhealthy banking sector and should be considered in new regulatory requirements. The aim of this study is to determine if the health of European banks is of such importance for the European stock market so that spillover effects are visible. Our results show that none of our banking-health variables have explanatory power on the cross-section of European stock returns. These findings contrast those for the US. The reasons may be manifold, from an unimportant liquidity provisioning channel over reduced room for actions due to regulatory requirements up to a moral hazard situation in Europe, where investors strongly rely on the governmental bailouts of distressed banks.
Journal: The European Journal of Finance
Pages: 1432-1459
Issue: 12
Volume: 29
Year: 2023
Month: 08
X-DOI: 10.1080/1351847X.2022.2134811
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2134811
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:12:p:1432-1459
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2124530_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Robert Mullings
Author-X-Name-First: Robert
Author-X-Name-Last: Mullings
Title: Do central bank sentiment shocks affect liquidity within the European Monetary Union? A computational linguistics approach
Abstract:
A common feature of recent financial crises has been the ‘drying up’ of financial market liquidity. Increased attention, therefore, has been directed to central bank policy tools which can affect liquidity, even as policy rates approach the zero lower bound. This study examines the role of the European Central Bank (ECB) Governing Council’s communication in influencing financial market liquidity. A specialized lexicon is used to extract sentiments on (i) monetary policy and (ii) economic outlook from ECB Governing Council statements between 2006 and 2016. The analysis reveals that ECB sentiments on ‘economic outlook’ are more consequential for money market (MM) liquidity than for currency, equity and bond (CEB) liquidity. Sentiments on ‘monetary policy’ produce a statistically significant effect on CEB liquidity; with more ‘hawkish’ sentiments leading to declines in liquidity. Volatility in global financial markets, however, plays a relatively more robust role than ECB sentiments in influencing market liquidity. The results are corroborated using an alternative and more generic quantifier called the Loughran and McDonald (LM) sentiment quantifier. The specialized lexicon provides richer inferences than the LM quantifier, however, since it captures the ‘hawkishness’ or ‘dovishness’ of monetary policy tone and the ‘positivity’ or ‘negativity’ of the Governing Council’s sentiments on economic outlook.
Journal: The European Journal of Finance
Pages: 1355-1381
Issue: 12
Volume: 29
Year: 2023
Month: 08
X-DOI: 10.1080/1351847X.2022.2124530
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2124530
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:12:p:1355-1381
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2129404_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Zelei Li
Author-X-Name-First: Zelei
Author-X-Name-Last: Li
Author-Name: Dan Tang
Author-X-Name-First: Dan
Author-X-Name-Last: Tang
Author-Name: Xingchun Wang
Author-X-Name-First: Xingchun
Author-X-Name-Last: Wang
Title: Valuing basket-spread options with default risk under Hawkes jump-diffusion processes
Abstract:
In this paper, we investigate the pricing of basket-spread options with default risk under Hawkes jump-diffusion processes. A self-exciting Hawkes process is employed to describe jump clustering, and jump amplitudes of different assets in baskets are all correlated. In addition, the diffusive components of assets are also assumed to be correlated with each other. We obtain option prices by approximating the arithmetic average of the underlying assets in the basket with their second moment-matched geometric average values, and numerical experiments show that our approximated prices are quite accurate, spanning different underlying asset numbers and alternative strike prices. Finally, we illustrate the effects of default risk and clustered jump risk on the prices of basket-spread options.
Journal: The European Journal of Finance
Pages: 1406-1431
Issue: 12
Volume: 29
Year: 2023
Month: 08
X-DOI: 10.1080/1351847X.2022.2129404
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2129404
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:12:p:1406-1431
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2131450_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Amedeo De Cesari
Author-X-Name-First: Amedeo
Author-X-Name-Last: De Cesari
Author-Name: Marie Dutordoir
Author-X-Name-First: Marie
Author-X-Name-Last: Dutordoir
Author-Name: Zainab Mehmood
Author-X-Name-First: Zainab
Author-X-Name-Last: Mehmood
Title: The impact of CEO education on convertible bond issuance
Abstract:
We examine the impact of managerial education on a firm’s decision to issue convertible bonds instead of standard, non-hybrid securities. Upper echelons theory argues that better managerial education attainment fosters a higher ability to process complex information and tolerate ambiguity. Exploiting convertible bonds’ higher degree of complexity, relative to seasoned equity and straight bonds, we hypothesise that Chief Executive Officers (CEOs) with higher education levels are more likely to issue convertible bonds instead of non-hybrid security types. A multinomial probit model analysing firms’ choice between convertibles, seasoned equity, and straight bonds provides evidence consistent with this hypothesis. A one-level increase in a CEO’s highest academic degree raises the likelihood of substituting convertibles for non-hybrid securities by 2.86%, after controlling for standard corporate security choice determinants. Chief Financial Officer (CFO) education levels, by contrast, have no significant impact on convertible bond issuance. Consistent with higher managerial education attainment being associated with a higher cognitive ability, we also find a positive association between CEO education levels and the level of complexity in convertible bond design. Our findings, which hold under a range of alternative specifications, illustrate the influence of CEOs’ personal characteristics on securities issuance and design.
Journal: The European Journal of Finance
Pages: 1382-1405
Issue: 12
Volume: 29
Year: 2023
Month: 08
X-DOI: 10.1080/1351847X.2022.2131450
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2131450
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:12:p:1382-1405
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2086478_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Fawad Ahmad
Author-X-Name-First: Fawad
Author-X-Name-Last: Ahmad
Author-Name: Raffaele Oriani
Author-X-Name-First: Raffaele
Author-X-Name-Last: Oriani
Title: Is the investor's reliance on cognition and emotional regulation predict preference for selecting value versus growth stocks?
Abstract:
Economic behavior highlights the importance of differences in individual characteristics like cognition and emotional regulation strategy in predicting the selection and performance of economic choices. However, the literature on value premium has overlooked the effect of cognition and emotional regulation strategy in assessing individual preference to select value versus growth stocks. We fill this gap by employing dual-process and emotional regulation theories to investigate the impact of intuitive cognition (Type 1), analytical cognition (Type 2), expressive suppression, and cognitive reappraisal on individual preferences for the selection of value versus growth stocks. Results confirm that individuals with higher reliance on Type 1 (or Type 2) and expressive suppression (or cognitive reappraisal) exhibit lower (or higher) preferences for the selection of value versus growth stocks. These results imply that emotion alters an individual's decision-making, and both emotion and cognition are inherently intertwined from inception to action. Our findings have implications for investors to avoid (or seek) investment in emotion-driven fundamentally weak overvalued firms (or fundamentally strong undervalued firms) via regulating emotional inhibitors to engage in thorough decision-making.
Journal: The European Journal of Finance
Pages: 1555-1578
Issue: 13
Volume: 29
Year: 2023
Month: 09
X-DOI: 10.1080/1351847X.2022.2086478
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2086478
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:13:p:1555-1578
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1842223_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Jerry Coakley
Author-X-Name-First: Jerry
Author-X-Name-Last: Coakley
Author-Name: Winifred Huang
Author-X-Name-First: Winifred
Author-X-Name-Last: Huang
Title: P2P lending and outside entrepreneurial finance
Abstract:
Later stage, unlisted SMEs are typically too old to attract equity crowdfunding, one of the two novel sources of outside entrepreneurial finance. The other source is peer-to-peer (P2P) business lending – sometimes called marketplace lending or debt crowdfunding – where unlisted SMEs raise medium term loans from a combination of the crowd of small investors and financial institutions via internet portals. The institutions benefit from the collective wisdom of the crowd while institutional investments reduce information asymmetries for other investors and may lead to herding by the crowd. This paper studies the incremental decision to choose P2P over bank debt by means of probit and logit regressions. It establishes that firms with relatively high credit ratings, smaller assets, lower levels of prior capital expenditures, and low leverage ratios are more likely to raise P2P rather than bank debt. The conclusion is that P2P debt plays a unique role in accommodating the outside entrepreneurial capital needs of these SMEs wanting medium term funding. The empirical work employs a sample 1,249 small, private SMEs that received P2P loans with maturities of up to five years 2013–2015 from Funding Circle, the leading UK P2P business lender.
Journal: The European Journal of Finance
Pages: 1520-1537
Issue: 13
Volume: 29
Year: 2023
Month: 9
X-DOI: 10.1080/1351847X.2020.1842223
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1842223
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:13:p:1520-1537
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2038648_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Kim Kaivanto
Author-X-Name-First: Kim
Author-X-Name-Last: Kaivanto
Author-Name: Peng Zhang
Author-X-Name-First: Peng
Author-X-Name-Last: Zhang
Title: Is business formation driven by sentiment or fundamentals?
Abstract:
The creation of a new business is an act of entrepreneurship. It is also a financial undertaking. Hence it is admissible to apply the apparatus of behavioral finance to study the determinants of business formation. Our results show that aggregate US business formation, nationally and regionally, is jointly predicted by economic fundamentals and sentiment. There is evidence of both ‘pull’ and ‘push’ motives for entrepreneurship. Yet this simple structure does not survive decomposition by payroll propensity. High-payroll-propensity entrepreneurs respond primarily to pull-motive fundamentals, with sentiment accounting for a small fraction of explained variance. Low-payroll-propensity entrepreneurs, on the other hand, respond to both sentiment and fundamentals, representing both pull and push motives, with sentiment accounting for a large fraction of explained variance. Low-payroll-propensity business formation is twice as volatile as high-payroll-propensity entrepreneurship, and similarly to noise-based decision making in behavioral finance, it is substantially driven by sentiment.
Journal: The European Journal of Finance
Pages: 1493-1519
Issue: 13
Volume: 29
Year: 2023
Month: 09
X-DOI: 10.1080/1351847X.2022.2038648
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2038648
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:13:p:1493-1519
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1841663_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Natalia Dobryagina
Author-X-Name-First: Natalia
Author-X-Name-Last: Dobryagina
Title: Agricultural entrepreneurship fostering from behavioral decision theory perspective. Celebrity branding impact on financial and non-financial motivation
Abstract:
Agricultural entrepreneurship fostering is an important part of the EU and US rural policies. Despite the fact that literature points attention to the issue of limited number of new entrants in agriculture, existing policies are mostly focused on support of existing entrepreneurs. Recent research describes such behavioral reasons of limited number of new entrants as low attractiveness and not appealing image of the agricultural sector. This paper considers the issue of attracting new entrepreneurs to agriculture from behavioral decision theory perspective and suggests celebrity branding as a tool of agricultural entrepreneurship fostering. Through the application of multi-criteria decision analysis, the paper proves that celebrity branding has a significant positive effect on attractiveness of entrepreneurship in agriculture and on expected financial and non-financial benefits from entrepreneurial career in the sector. Also, the paper reveals that financial motivation plays the most important role for individuals attracted to urban spheres of entrepreneurship and is the second most important factor (after self-realization) for individuals attracted to the agricultural sphere of entrepreneurship. The paper also demonstrates a debiasing effect of celebrity branding on the perception of entrepreneurial career in agriculture.
Journal: The European Journal of Finance
Pages: 1538-1554
Issue: 13
Volume: 29
Year: 2023
Month: 9
X-DOI: 10.1080/1351847X.2020.1841663
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1841663
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:13:p:1538-1554
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1977360_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Rexford Attah-Boakye
Author-X-Name-First: Rexford
Author-X-Name-Last: Attah-Boakye
Author-Name: Laura A. Costanzo
Author-X-Name-First: Laura A.
Author-X-Name-Last: Costanzo
Author-Name: Yilmaz Guney
Author-X-Name-First: Yilmaz
Author-X-Name-Last: Guney
Author-Name: Waymond Rodgers
Author-X-Name-First: Waymond
Author-X-Name-Last: Rodgers
Title: The effects of top management team strategic cognition on corporate financial health and value: an interactive multi-dimensional approach
Abstract:
The upper echelons theory posits that the values, personalities, experience and education background of the top management team (TMT) affect both executives’ strategic cognition and corporate outcomes. Since TMT members differ in their cognitive structures, as also acknowledged by the presence of managerial biases and irrationalities in the behavioural finance theories, policy makers and scholars are saddled with the problem of identifying specific cognitive elements that can secure optimum organisational outcomes. Conceptual approaches or linear relationships between TMT strategic cognition (TMT-SC) and outcomes are unable to capture the complex interdependencies among TMT-SC, TMT attributes and performance. We propose and empirically test a dynamic multi-dimensional TMT-SC model. Using handpicked UK company panel data, we provide robust empirical evidence that extends our understanding of the theory. Our PLS-SEM analyses show that heterogeneity in TMT academic and professional qualifications, and work experience alone cannot provide optimal benefits to organisations. However, when they are combined with other TMT cognitive factors such as social networking, innovativeness and risk-taking levels, these aspects appear to improve firm value and financial health.
Journal: The European Journal of Finance
Pages: 1461-1492
Issue: 13
Volume: 29
Year: 2023
Month: 09
X-DOI: 10.1080/1351847X.2021.1977360
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1977360
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:13:p:1461-1492
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2146521_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Aleksandra Baros
Author-X-Name-First: Aleksandra
Author-X-Name-Last: Baros
Author-Name: Ettore Croci
Author-X-Name-First: Ettore
Author-X-Name-Last: Croci
Author-Name: Viktor Elliot
Author-X-Name-First: Viktor
Author-X-Name-Last: Elliot
Author-Name: Magnus Willesson
Author-X-Name-First: Magnus
Author-X-Name-Last: Willesson
Title: Bank liquidity and capital shocks in unconventional times
Abstract:
This paper examines bank liquidity management following capital shocks under capital and liquidity regulation in a period of unconventional monetary policies. Studying European banks between 2010 and 2018, we find that bank liquidity is generally not affected by a negative capital shock. Capital shocks are nevertheless transmitted into liquidity positions through balance sheet adjustments. Addressing bank-level balance sheet policies, we find that the banks de-risk assets by replacing corporate loans with financial securities, especially if the shock takes place during periods of heightened central bank interventions. Moreover, asset-side-dominant risk-reducing behavior goes against regulatory intent and indicates that regulatory arbitrage considerations affect banks’ responses to shocks. Finally, we document heterogeneous responses by banks depending on their size, type, and country. These findings imply that compliance with regulation may lead to partial shortages in corporate lending, with banks prioritizing investment in government securities in event of a capital shock.
Journal: The European Journal of Finance
Pages: 1678-1703
Issue: 14
Volume: 29
Year: 2023
Month: 09
X-DOI: 10.1080/1351847X.2022.2146521
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2146521
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:14:p:1678-1703
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2144401_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Maher Khasawneh
Author-X-Name-First: Maher
Author-X-Name-Last: Khasawneh
Author-Name: David G. McMillan
Author-X-Name-First: David G.
Author-X-Name-Last: McMillan
Author-Name: Dimos Kambouroudis
Author-X-Name-First: Dimos
Author-X-Name-Last: Kambouroudis
Title: Expected profitability, the 52-week high and the idiosyncratic volatility puzzle
Abstract:
We investigate the joint ability of fundamental-based and market-based news to explain the anomalous underperformance of stocks with high idiosyncratic volatility (high IVOL). An out-of-sample prediction of future profitability is adopted as a proxy for fundamental–based news while market-based news is represented by the 52-week high price ratio. A sample of UK stocks over the period January 1996 to December 2017 is analysed. The empirical results indicate that both the fundamental-based projected profitability and the 52-week high price ratio are important in explaining the IVOL anomaly. In contrast, individually, neither variable fully accounts for the anomaly. This relation is more pronounced following a period of high sentiment and during an upmarket. Further results suggest that underreaction lies at the heart of this explanation.
Journal: The European Journal of Finance
Pages: 1621-1648
Issue: 14
Volume: 29
Year: 2023
Month: 09
X-DOI: 10.1080/1351847X.2022.2144401
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2144401
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:14:p:1621-1648
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2142060_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Bo Liu
Author-X-Name-First: Bo
Author-X-Name-Last: Liu
Author-Name: Yingjie Niu
Author-X-Name-First: Yingjie
Author-X-Name-Last: Niu
Author-Name: Yingjue Wang
Author-X-Name-First: Yingjue
Author-X-Name-Last: Wang
Title: The spirit of capitalism, investment, and consumption smoothing
Abstract:
We extend the standard real options approach to analyse the interdependence of investment and consumption decisions by incorporating the spirit of capitalism. For investment, when investment payoff is given as a lump-sum payment, the spirit of capitalism erodes the option value to invest and speeds up investment. However, for a flow investment payoff, the spirit of capitalism encourages the agent to postpone investing since the project value after investment is less than the option value before investment. The results on the investment timing are robust to alternative specifications of the payoff process. For consumption, the agent tends to consume less in the presence of the capitalist spirit. Finally, the time-series properties of consumption and welfare implications of the spirit of capitalism are analysed.
Journal: The European Journal of Finance
Pages: 1598-1620
Issue: 14
Volume: 29
Year: 2023
Month: 09
X-DOI: 10.1080/1351847X.2022.2142060
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2142060
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:14:p:1598-1620
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2137422_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Jiqian Wang
Author-X-Name-First: Jiqian
Author-X-Name-Last: Wang
Author-Name: Rangan Gupta
Author-X-Name-First: Rangan
Author-X-Name-Last: Gupta
Author-Name: Oğuzhan Çepni
Author-X-Name-First: Oğuzhan
Author-X-Name-Last: Çepni
Author-Name: Feng Ma
Author-X-Name-First: Feng
Author-X-Name-Last: Ma
Title: Forecasting international REITs volatility: the role of oil-price uncertainty
Abstract:
We forecast realized variance (RV) of Real Estate Investment Trusts for 10 leading markets and regions, derived from 5-minutes-interval intraday data, based on the information content of two alternative metrics of daily oil-price uncertainty. Based on the period of the analysis covering January 2008 to July 2020, and using variants of the popular MIDAS-RV model, augmented to include oil market uncertainties, captured by its RV (also derived from 5-minute intraday data) and implied volatility (i.e. the oil VIX), we report evidence of significant statistical and economic gains in the forecasting performance. The result is robust to the size of the forecasting samples, including that of the COVID-19 period, lag-length, nonlinearities, asymmetric effects, and forecast horizon. Our results have important implications for investors and policymakers.
Journal: The European Journal of Finance
Pages: 1579-1597
Issue: 14
Volume: 29
Year: 2023
Month: 09
X-DOI: 10.1080/1351847X.2022.2137422
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2137422
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:14:p:1579-1597
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2141130_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Shenglan Chen
Author-X-Name-First: Shenglan
Author-X-Name-Last: Chen
Author-Name: Jing Li
Author-X-Name-First: Jing
Author-X-Name-Last: Li
Author-Name: Xiaoling Liu
Author-X-Name-First: Xiaoling
Author-X-Name-Last: Liu
Author-Name: Cheng Yan
Author-X-Name-First: Cheng
Author-X-Name-Last: Yan
Title: Mutual fund centrality and the remote acquisitions of listed firms in China*
Abstract:
We empirically investigate the effect of the centrality of mutual funds (MFs) on the holding network of each listed firm in cross-province acquisitions in China using a unique dataset covering the 2010–2019 period. We find a positive association between the centrality of MFs and the likelihood and value of cross-province acquisitions made by the listed firm, especially when the central blockholder MF pays corporate site visits, when target firms are difficult for the acquirer to reach, and when the central blockholder MF is low-risk or high-performance. We also show that blockholder centrality improves the market valuation and post-acquisition performance of cross-province acquisitions. These results support the notion that a MF with the largest blockholder centrality increases the value of the listed firms it owns by alleviating information asymmetry in cross-province acquisitions. Collectively, our evidence highlights the advisory role of a blockholder network for listed firms.
Journal: The European Journal of Finance
Pages: 1649-1677
Issue: 14
Volume: 29
Year: 2023
Month: 09
X-DOI: 10.1080/1351847X.2022.2141130
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2141130
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:14:p:1649-1677
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2145230_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Nikolaos Daskalakis
Author-X-Name-First: Nikolaos
Author-X-Name-Last: Daskalakis
Author-Name: Angelos Kakavas
Author-X-Name-First: Angelos
Author-X-Name-Last: Kakavas
Author-Name: Spyros Missiakoulis
Author-X-Name-First: Spyros
Author-X-Name-Last: Missiakoulis
Title: Do industry differences affect firm-specific capital structure determinants?
Abstract:
The paper explores whether, and how, capital structure determinants differ across industries. Specifically, we investigate whether the typical capital structure determinants of size, profitability, asset tangibility, non-debt-tax-shields and liquidity affect, in a statistically different way, how capital structure is determined across four different industries: manufacturing, commerce, services, and tourism. We show that even though industry effects have been looked at in the various capital structure determination studies, they have not been thoroughly studied in capital structure literature. We apply an interaction effects methodological approach and show that capital structure determinants do differ in terms of magnitude and direction across industries, concluding that industry specifications should be investigated more thoroughly when exploring the capital structure determination puzzle.
Journal: The European Journal of Finance
Pages: 1705-1715
Issue: 15
Volume: 29
Year: 2023
Month: 10
X-DOI: 10.1080/1351847X.2022.2145230
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2145230
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:15:p:1705-1715
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2151371_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Christian Haddad
Author-X-Name-First: Christian
Author-X-Name-Last: Haddad
Author-Name: Lars Hornuf
Author-X-Name-First: Lars
Author-X-Name-Last: Hornuf
Title: How do fintech start-ups affect financial institutions’ performance and default risk?
Abstract:
We examine the impact of fintech start-ups on the performance and default risk of traditional financial institutions. We find a positive relationship between fintech start-up formations and incumbent institutions’ performance for the period 2005–2018 and a large sample of financial institutions from 87 countries. We further analyze the link between fintech start-up formations and the default risk of traditional financial institutions. Fintech start-up formations decrease stock return volatility of incumbent institutions and decrease the systemic risk exposure of financial institutions. The findings indicate that legislators and financial supervisory authorities should closely monitor the development of fintech start-ups, because fintechs not only have a positive effect on the financial sector’s performance but also can improve financial stability relative to the status quo.
Journal: The European Journal of Finance
Pages: 1761-1792
Issue: 15
Volume: 29
Year: 2023
Month: 10
X-DOI: 10.1080/1351847X.2022.2151371
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2151371
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:15:p:1761-1792
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2152719_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Caner Gerek
Author-X-Name-First: Caner
Author-X-Name-Last: Gerek
Title: The effects of bundling strategy on bank interest margins: theoretical and empirical evidence
Abstract:
This study theoretically categorizes bank non-interest income as compulsory and complementary parts of the loan transaction, and incorporates them into the [Ho, Thomas S. Y., and Anthony Saunders. 1981. “The Determinants of Bank Interest Margins: Theory and Empirical Evidence.” Journal of Financial and Quantitative Analysis 16: 581–600] bank model in the presence of bundling strategy, as a popular banking strategy. By also considering different information levels of customers, the study finds a negative relationship between interest income and these two non-interest income components. These negative relationships are tested by analyzing the determinants of banks' net interest margins for 14 European countries. The results and robustness tests confirm that the theoretical findings hold.
Journal: The European Journal of Finance
Pages: 1736-1760
Issue: 15
Volume: 29
Year: 2023
Month: 10
X-DOI: 10.1080/1351847X.2022.2152719
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2152719
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:15:p:1736-1760
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2156804_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Ilias Chondrogiannis
Author-X-Name-First: Ilias
Author-X-Name-Last: Chondrogiannis
Author-Name: Mark Freeman
Author-X-Name-First: Mark
Author-X-Name-Last: Freeman
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Title: Are fund managers incentivised to ignore stock market jumps?
Abstract:
In this paper, we show that the way in which fund managers are compensated can, under plausible conditions, lead them to act in a way that does not maximise the wellbeing of their clients. Due to performance bonuses in fund managers' rewards, there is a highly non-linear relationship between the wealth of the client and the fees that the manager receives. We demonstrate that jumps in equity returns can lead to a conflict of interest between the investor and the manager in such a setting. Specifically, the managers' option-type payment structure can incentivise them to not account for the downside risk induced by jumps, especially if the fund manager is only in post for a few years; thus managers may pursue a more aggressive asset allocation strategy than their clients desire. Our key policy recommendation is that regulators should consider imposing a negative fund fee in times of very poor absolute fund performance to mitigate against suboptimal fund management asset allocation decisions.
Journal: The European Journal of Finance
Pages: 1793-1823
Issue: 15
Volume: 29
Year: 2023
Month: 10
X-DOI: 10.1080/1351847X.2022.2156804
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2156804
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:15:p:1793-1823
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2158112_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Yifei Cao
Author-X-Name-First: Yifei
Author-X-Name-Last: Cao
Author-Name: Kemar Whyte
Author-X-Name-First: Kemar
Author-X-Name-Last: Whyte
Title: Corporate tax-shields and capital structure: leveling the playing field in debt vs equity finance
Abstract:
A common feature within most corporate income tax systems is that the cost of debt is deductible as an expenditure when calculating taxable profits. An unintended consequence of this tax distortion is the creation of under-capitalized firms – raising default risk in the process. Using a difference-in-differences approach, this paper shows that a reduction in tax discrimination between debt and equity finance leads to better capitalized banks. The paper exploits the exogenous variation in the tax treatment of debt and equity created by the introduction of an Allowance for Corporate Equity (ACE) system in Italy, to identify whether an ACE positively impacts banks' capital structure. The results demonstrate that a move to an unbiased corporate tax environment increases bank capital ratios, driven by an increase in equity rather than a reduction in lending activities. The change also leads to a reduction in risk taking for ex-ante low capitalized banks. Overall, these results suggest that the ACE could be a valuable policy instrument for prudential bank regulators.
Journal: The European Journal of Finance
Pages: 1716-1735
Issue: 15
Volume: 29
Year: 2023
Month: 10
X-DOI: 10.1080/1351847X.2022.2158112
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2158112
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:15:p:1716-1735
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2170755_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: William A. Barnett
Author-X-Name-First: William A.
Author-X-Name-Last: Barnett
Author-Name: Xue Wang
Author-X-Name-First: Xue
Author-X-Name-Last: Wang
Author-Name: Hai-Chuan Xu
Author-X-Name-First: Hai-Chuan
Author-X-Name-Last: Xu
Author-Name: Wei-Xing Zhou
Author-X-Name-First: Wei-Xing
Author-X-Name-Last: Zhou
Title: The stable tail dependence and influence among the European stock markets: a score-driven dynamic copula approach
Abstract:
This paper studies the time-varying tail dependence among the European stock markets and assesses the influence of individual financial markets. By utilizing two generalized autoregressive score (GAS) copulas, we compute the tail dependence for 11 European stock indexes and 1 American stock index over the last 16 years. Notably, it is found that the dependencies among European stock indexes are generally stable, even during the crisis periods. Then an influence measure is proposed for each individual market based on the tail dependence. Interestingly, the influence ranking is also stable for both the whole period and two big drawdown days in crisis periods. To be specific, AEX (Netherlands), FCHI (France), and GDAXI (Germany) always show the most significant influences, while SPX (USA) is always the least influential one. Finally, an equal-weighted portfolio is built to measure the systemic risk in the European stock markets. It is found that both patterns of risk (VaR) and expected shortfall (ES) are different from the time-varying tail dependence. There exist obvious inverted spikes on 16 October 2008 and 16 March 2020. The results indicate that the extreme portfolio risk does not come from the increase of dependence among European stock markets, but from the individual jumps.
Journal: The European Journal of Finance
Pages: 1933-1956
Issue: 16
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2023.2170755
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2170755
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:16:p:1933-1956
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2134812_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Xiaoqing An
Author-X-Name-First: Xiaoqing
Author-X-Name-Last: An
Author-Name: William A. Barnett
Author-X-Name-First: William A.
Author-X-Name-Last: Barnett
Author-Name: Xue Wang
Author-X-Name-First: Xue
Author-X-Name-Last: Wang
Author-Name: Qingyuan Wu
Author-X-Name-First: Qingyuan
Author-X-Name-Last: Wu
Title: Brexit spillovers: how economic policy uncertainty affects foreign direct investment and international trade
Abstract:
In recent years, the economic policy uncertainty in various countries has gradually increased with the increasing complexity of global economic situation, and foreign direct investment and trade have also been impacted. As a historic event, does Brexit affect the economic consequences of economic policy uncertainty? In this regard, we aim to examine the Brexit spillovers on five major EU member states and the UK through economic policy uncertainty. Cluster analysis and TVP-VAR model are used to analyze the impact of economic policy uncertainty (EPU) on foreign direct investment (FDI) and international trade (TRADE) during Brexit. The results at different time horizons show that, in addition to the Netherlands, impulse responses of foreign direct investment and international trade have the characteristics of positive and negative conversion. Despite all this, impulse responses of international trade are lower than those of foreign direct investment. Time points when foreign direct investment and international trade have the greatest impulse response vary from country to country. Overall, the impact of economic policy uncertainty on them is more reflected in the late Brexit period. Based on the above findings, we draw policy implications.
Journal: The European Journal of Finance
Pages: 1913-1932
Issue: 16
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2022.2134812
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2134812
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:16:p:1913-1932
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2083978_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Michael Ellington
Author-X-Name-First: Michael
Author-X-Name-Last: Ellington
Author-Name: Marcin Michalski
Author-X-Name-First: Marcin
Author-X-Name-Last: Michalski
Author-Name: Costas Milas
Author-X-Name-First: Costas
Author-X-Name-Last: Milas
Title: Of votes and viruses: the UK economy and economic policy uncertainty
Abstract:
This paper examines the relation between GDP growth, Divisia money growth, CPI inflation, financial stress, and the UK's economic policy uncertainty in the context of its departure from the European Union. We employ two Bayesian VAR models which account for the extreme observations in macroeconomic and financial time series resulting from the COVID-19 pandemic outbreak. We document a contractionary effect of an economic policy uncertainty shock on GDP growth, which is not present in a model which does not account for the COVID-19-related outliers. Additionally, we find that GDP growth is enhanced by Divisia monetary stimulus but hampered by increases in financial stress. The results from a stochastic volatility in the mean threshold model also uncover different dynamics of transmission of shocks between economic uncertainty and the indicators we study across high and low economic policy uncertainty regimes.
Journal: The European Journal of Finance
Pages: 1849-1865
Issue: 16
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2022.2083978
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2083978
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:16:p:1849-1865
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2249961_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Rakesh K. Bissoondeeal
Author-X-Name-First: Rakesh K.
Author-X-Name-Last: Bissoondeeal
Author-Name: Jane M. Binner
Author-X-Name-First: Jane M.
Author-X-Name-Last: Binner
Author-Name: Costas Milas
Author-X-Name-First: Costas
Author-X-Name-Last: Milas
Title: Brexit and coronavirus: financial perspectives and future prospects
Abstract:
The economic landscape of the UK has been significantly shaped by the intertwined issues of Brexit, COVID, and their interconnected impacts. The disruptions caused by Brexit and the COVID pandemic have created uncertainty and upheaval for both businesses and individuals. Whilst the effects of COVID are now receding, Brexit is still dominating headlines seven years after the referendum and is likely to do so for the foreseeable future. In this introduction, we provide an overview of the literature on Brexit. We review the reasons for leaving the European Union, as well examine the consequences of Brexit, with a focus on investment, economic growth, trade, unemployment, and financial markets. We then introduce the seven papers selected from the ‘Post Brexit: Uncertainty, Risk Measurement and Coronavirus Challenges Conference’ held at Birmingham Business School in June 2021, that advance the current literature on the effects of Brexit and COVID on the UK economy. Evidence in these papers suggests that Brexit and COVID are still clearly posing a severe strain on the UK’s economy. However, some papers suggest that not everything about Brexit has been detrimental, or at least certain sectors of the UK economy are displaying a marked resilience.
Journal: The European Journal of Finance
Pages: 1825-1834
Issue: 16
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2023.2249961
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2249961
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:16:p:1825-1834
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2204194_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Rakesh K. Bissoondeeal
Author-X-Name-First: Rakesh K.
Author-X-Name-Last: Bissoondeeal
Author-Name: Jane M. Binner
Author-X-Name-First: Jane M.
Author-X-Name-Last: Binner
Author-Name: Michail Karoglou
Author-X-Name-First: Michail
Author-X-Name-Last: Karoglou
Title: The impact of uncertainty on money demand in the UK, US and Euro area
Abstract:
We estimate money demand functions for the UK, the Euro area and the US using Divisia monetary aggregates and investigate the extent to which the uncertainty caused by Brexit and Covid have affected these relationships. Our cointegrated VAR analysis shows that for all three economies Brexit and/or Covid have had some impact on the stability of money demand functions. We find that including a measure of stock market volatility in the money demand specifications helps re-establish stability of the models, particularly for the UK and the Euro area. We also explore the uncertainty and money demand relationship in the context of a Markov-switching model. We find that the effect of uncertainty on the demand for money is more pronounced during periods of heightened uncertainty. The findings of this study lend support to studies calling for Divisia aggregates to be given a more prominent role in policymaking, especially when interest rates are in the zero lower bound environment and are less informative about the stance of monetary policy.
Journal: The European Journal of Finance
Pages: 1866-1884
Issue: 16
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2023.2204194
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2204194
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:16:p:1866-1884
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2092415_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Tianshu Zhao
Author-X-Name-First: Tianshu
Author-X-Name-Last: Zhao
Author-Name: Kent Matthews
Author-X-Name-First: Kent
Author-X-Name-Last: Matthews
Author-Name: Max Munday
Author-X-Name-First: Max
Author-X-Name-Last: Munday
Title: Neither true nor fairweather friend: relationship banking and SME borrowing under Covid-19
Abstract:
A growing literature addresses the costs and benefits associated with relationship banking, particularly for smaller firms, but with much of this work focused on normal trading conditions. Covid-19 provides an ideal testbed to explore the resilience of relationship banking. We examine whether the presence of closer pre-Covid ties between SMEs and their banks helps in accessing funds in the Covid-19 pandemic period. Then are ties between relationship bankers and SME borrowers a case of ‘true love’ or rather are the parties more akin to ‘fair-weather friends?’ Data from the UK SME Finance Monitor from 2018Q2-2020Q3 is used in this paper to examine this question. Our analysis suggests that relationship banking was important for the acquisition of bank credit pre-Covid-19 but was of limited influence in post-Covid-19 lending behaviour. Banks treated SMEs that had a good relationship with them in the same way as those that did not and with public interventions to support lenders material in this.
Journal: The European Journal of Finance
Pages: 1957-1974
Issue: 16
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2022.2092415
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2092415
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:16:p:1957-1974
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2216240_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Jane Binner
Author-X-Name-First: Jane
Author-X-Name-Last: Binner
Author-Name: Sajid M. Chaudhry
Author-X-Name-First: Sajid M.
Author-X-Name-Last: Chaudhry
Author-Name: James L. Swofford
Author-X-Name-First: James L.
Author-X-Name-Last: Swofford
Author-Name: Meng Tong
Author-X-Name-First: Meng
Author-X-Name-Last: Tong
Title: UK or the Eurozone: which common currency area can work for Northern Ireland after Brexit?
Abstract:
Brexit and the controversy concerning an Irish border makes the issue of whether Northern Ireland is a common currency area with the rest of UK or the Eurozone topical. We test the microeconomic foundations of a common currency area for Northern Ireland, UK, Great Britain and Northern Ireland in the Eurozone. We provide evidence that all areas meet the microeconomic criteria for a common currency area. Banking data suggest that lending in Northern Ireland is different from lending in the rest of the UK, raising doubt on whether or not the UK forms a common currency area including Northern Ireland.
Journal: The European Journal of Finance
Pages: 1835-1848
Issue: 16
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2023.2216240
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2216240
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:16:p:1835-1848
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2102432_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Adrian R. Fleissig
Author-X-Name-First: Adrian R.
Author-X-Name-Last: Fleissig
Author-Name: Barry E. Jones
Author-X-Name-First: Barry E.
Author-X-Name-Last: Jones
Author-Name: Zsolt Darvas
Author-X-Name-First: Zsolt
Author-X-Name-Last: Darvas
Title: Euro area monetary asset demand and Divisia aggregates**
Abstract:
Monetary asset user costs are functions of spreads between a benchmark rate of return and the own rates of return on the monetary assets. We analyze the impact of the benchmark rate on a Euro area Divisia M2 aggregate, on estimated elasticities of substitution, and on estimated impulse response functions. Substitution in response to changes in the user cost of M1 is generally elastic, but we find evidence of inelastic substitution along other dimensions. When a loan rate is used as the benchmark, substitution in response to changes in the user costs of the two components of M2-M1 is inelastic throughout the sample and the corresponding elasticity estimates are near their lowest levels during the pandemic. This is strong evidence that Divisia monetary aggregates are preferable to conventional monetary aggregates. Annual growth rates of simple sum and Divisia M2 monetary aggregates differ significantly in some periods, but not during the pandemic. Estimated impulse response functions using both Divisia and simple sum money measures indicate that money shocks have positive and statistically significant effects on real output. The response of the price level to a money shock tends to be more persistent when the models are estimated using Divisia aggregates. .
Journal: The European Journal of Finance
Pages: 1885-1912
Issue: 16
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2022.2102432
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2102432
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:16:p:1885-1912
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2157299_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Tianyi Ma
Author-X-Name-First: Tianyi
Author-X-Name-Last: Ma
Author-Name: Kai-Hong Tee
Author-X-Name-First: Kai-Hong
Author-X-Name-Last: Tee
Author-Name: Baibing Li
Author-X-Name-First: Baibing
Author-X-Name-Last: Li
Title: On hedge fund inceptions in a competitive market
Abstract:
This paper examines hedge fund inceptions in a competitive market. Using the recursive demeaning estimation method, we find hedge fund inceptions are positively related to market competition and market condition, but negatively related to investor sentiment and style performance. This implies hedge fund managers actively seek arbitrage and inception opportunities, when market conditions are recovering with competition heated up. We also find new hedge funds tend to open in a less popular investment area when investor sentiment is lower and/or it has greater potential to grow in the future. Furthermore, funds, launched in a more competitive market when market condition is poorer, tend to perform better in the subsequent months, with multi-strategies hedge funds showing strong results. Important determinants include minimum investment value, initial fund size and redemption fee. Our findings support private investors when selecting new hedge funds for investment.
Journal: The European Journal of Finance
Pages: 1975-2000
Issue: 17
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2022.2157299
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2157299
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:17:p:1975-2000
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2166864_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Sunny Kumar Singh
Author-X-Name-First: Sunny Kumar
Author-X-Name-Last: Singh
Author-Name: Chandan Kumar Jha
Author-X-Name-First: Chandan Kumar
Author-X-Name-Last: Jha
Title: Are financial development and financial stability complements or substitutes in poverty reduction?
Abstract:
This paper studies the association between financial development, financial stability, and poverty for a sample of 109 developed and developing countries from 1995 to 2018. Most of the existing studies in this literature have focused on financial development, and only a few recent studies have looked at the effects of financial stability on poverty. However, none of the existing studies has looked at the interaction effect of the two on poverty. Our contribution to this literature is manifold. First and foremost, we investigate whether financial development and financial stability are substitutes or complements in reducing poverty and find evidence in favor of the former: Financial development has greater effects on poverty alleviation in a more fragile financial system and vice-versa. Second, using two different measures of financial stability, we show that financial stability is associated with lower levels of poverty. And finally, while previous studies have presumed that the effect of financial development on poverty is homogeneous at various levels of poverty, we show that financial development and financial stability both exert heterogeneous effects on poverty depending on the level of poverty considered.
Journal: The European Journal of Finance
Pages: 2001-2031
Issue: 17
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2023.2166864
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2166864
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:17:p:2001-2031
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2190464_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Wenna Lu
Author-X-Name-First: Wenna
Author-X-Name-Last: Lu
Author-Name: Laurence Copeland
Author-X-Name-First: Laurence
Author-X-Name-Last: Copeland
Author-Name: Yongdeng Xu
Author-X-Name-First: Yongdeng
Author-X-Name-Last: Xu
Title: The pricing of unexpected volatility in the currency market
Abstract:
Many recent papers have investigated the role played by volatility in determining the cross-section of currency returns. This paper employs two time-varying factor models: a threshold model and a Markov-switching model to price the excess returns from the currency carry trade. We show that the importance of volatility depends on whether the currency markets are unexpectedly volatile. Volatility innovations during relatively tranquil periods are largely unrewarded in the market, whereas during the unexpected volatile period, this risk has a substantial impact on currency returns. The empirical results show that the two time-varying factor models fit the data better and generate a smaller pricing error than the linear model, while the Markov-switching model outperforms the threshold factor models not only by generating lower pricing errors but also distinguishes two regimes endogenously and without any predetermined state variables.
Journal: The European Journal of Finance
Pages: 2032-2046
Issue: 17
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2023.2190464
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2190464
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:17:p:2032-2046
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2175704_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Kun Su
Author-X-Name-First: Kun
Author-X-Name-Last: Su
Author-Name: Yue Lu
Author-X-Name-First: Yue
Author-X-Name-Last: Lu
Title: The impact of corporate social responsibility on corporate financialization
Abstract:
We examine the impact of corporate social responsibility (CSR) on corporate financialization. Corporate financialization refers to the phenomenon where managers divert corporate resources from the core business to financial assets. Using a sample of Chinese firms between 2010 and 2018, we find that firms with better CSR scores have higher levels of corporate financialization. This result remains valid after a series of tests for robustness and endogeneity issues, suggesting a casual effect of CSR on corporate financialization. We also find that this effect is mitigated in private firms and firms with better internal control, higher management shareholding, and more financial analyst followings. We further explore the economic channel through which CSR promotes corporate financialization and find that CSR relieves financial constraints and enables firms to invest more in financial assets. Finally, we show that both CSR and financialization have significantly negative impacts on firm value.
Journal: The European Journal of Finance
Pages: 2047-2073
Issue: 17
Volume: 29
Year: 2023
Month: 11
X-DOI: 10.1080/1351847X.2023.2175704
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2175704
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:17:p:2047-2073
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2189020_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Antonio Figueiredo
Author-X-Name-First: Antonio
Author-X-Name-Last: Figueiredo
Author-Name: Ali M. Parhizgari
Author-X-Name-First: Ali M.
Author-X-Name-Last: Parhizgari
Author-Name: Brice Dupoyet
Author-X-Name-First: Brice
Author-X-Name-Last: Dupoyet
Title: The information content of currency option-implied volatilities: implications for ex-ante forecasts of global equity correlations
Abstract:
We use existing currency models, global capital flows, international parity, the Taylor rule, and some simplifying assumptions to derive and empirically test a link between the information contained in currency option-implied volatilities and future global equity correlations. Using data from January 1999 to May 2020, we test our hypothesis and find that exchange rate option-implied volatilities — coupled with one-period ex-post correlations — more accurately predict subsequent world equity market correlations than other models. Our findings have implications for portfolio diversification, forecasts of overall equity portfolio volatility, and portfolio optimization.
Journal: The European Journal of Finance
Pages: 2128-2153
Issue: 18
Volume: 29
Year: 2023
Month: 12
X-DOI: 10.1080/1351847X.2023.2189020
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2189020
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:18:p:2128-2153
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2179414_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Kristoffer J. Glover
Author-X-Name-First: Kristoffer J.
Author-X-Name-Last: Glover
Author-Name: Paul V. Johnson
Author-X-Name-First: Paul V.
Author-X-Name-Last: Johnson
Author-Name: Geoffrey W. Evatt
Author-X-Name-First: Geoffrey W.
Author-X-Name-Last: Evatt
Author-Name: Mingliang Cheng
Author-X-Name-First: Mingliang
Author-X-Name-Last: Cheng
Title: Capital ideas: optimal capital accumulation strategies for a bank and its regulator
Abstract:
We formulate a continuous-time model of a deposit taking bank, operating subject to capital adequacy regulation, and where the bank's loans are exposed to default risk. The bank maximises its market value of equity by appropriately controlling loan and equity issuance, dividend payments, and endogenous closure. Of interest to regulators, we show how the bank responds to the span of capital adequacy requirements and to changes in default variance. We find a nonmonotonic response of bank lending to increased capital requirements (initially increasing and then decreasing). We also find that the probability of early closure (through either insolvency or endogenous closure) can be minimised for a well-chosen capital adequacy ratio. Moreover, the level of capital requirement that minimises the probability of early closure and maximises lending is fairly robust to changes in the bank's default variance/risk; contributing to the ongoing discussion on optimal bank capital.
Journal: The European Journal of Finance
Pages: 2075-2106
Issue: 18
Volume: 29
Year: 2023
Month: 12
X-DOI: 10.1080/1351847X.2023.2179414
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2179414
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:18:p:2075-2106
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2216754_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Mauro Aliano
Author-X-Name-First: Mauro
Author-X-Name-Last: Aliano
Author-Name: Giuseppe Galloppo
Author-X-Name-First: Giuseppe
Author-X-Name-Last: Galloppo
Author-Name: Viktoriia Paimanova
Author-X-Name-First: Viktoriia
Author-X-Name-Last: Paimanova
Title: People and investor attention to climate change
Abstract:
The paper analyses whether people’s attention to climate change emergency contributes to the stock market returns by accounting for the mitigation role of the corporate social performance proxied by ESG score. We address one research question: how does climate change attention affect the investors’ trading behavior and, consequently, the stock price returns of local firms? The Google Search Volume Index (GSVI) is used to evaluate the attention parameter. In a global setting, made by 2941 stocks in both advanced and emerging economies between 2006 and 2019, we revealed that attention to climate change helps investors to have a significantly positive effect on returns of stocks with high ESG scores compared to low sustainable stocks. Moreover, we observe an interesting changing in the relationship between corporate social performance and people attention, when deepening the analysis from the perspective of sectorial distribution. Our results are robust to different risk factor models, environmental policy stringency framework, sin industries focus, and when changing people’s attention indicator.
Journal: The European Journal of Finance
Pages: 2107-2127
Issue: 18
Volume: 29
Year: 2023
Month: 12
X-DOI: 10.1080/1351847X.2023.2216754
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2216754
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:18:p:2107-2127
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2189524_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20230119T200553 git hash: 724830af20
Author-Name: Azizjon Alimov
Author-X-Name-First: Azizjon
Author-X-Name-Last: Alimov
Title: The impact of government borrowing on corporate acquisitions: international evidence
Abstract:
This study examines how variation in government borrowing affects corporate acquisition activity around the world. Using a large sample of firms and deals from 50 countries between 1991 and 2017, the paper finds that government debt issuance is strongly negatively associated with acquisition activity at the firm and aggregate levels. An instrumental variable approach corroborates these findings, thus supporting their causal interpretation. In response to increases in government borrowing, firms appear to make more value-enhancing deals. These effects are stronger for cash-financed deals and for financially stronger firms. Collectively, these findings suggest that rising government debt leads to ‘real crowding out’ by affecting firms’ ability to make large investments.
Journal: The European Journal of Finance
Pages: 2154-2179
Issue: 18
Volume: 29
Year: 2023
Month: 12
X-DOI: 10.1080/1351847X.2023.2189524
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2189524
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:29:y:2023:i:18:p:2154-2179
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1841664_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Christopher Godfrey
Author-X-Name-First: Christopher
Author-X-Name-Last: Godfrey
Author-Name: Andreas G. F. Hoepner
Author-X-Name-First: Andreas G. F.
Author-X-Name-Last: Hoepner
Author-Name: Ming-Tsung Lin
Author-X-Name-First: Ming-Tsung
Author-X-Name-Last: Lin
Author-Name: Ser-Huang Poon
Author-X-Name-First: Ser-Huang
Author-X-Name-Last: Poon
Title: Women on boards and corporate social irresponsibility: evidence from a Granger style reverse causality minimisation procedure
Abstract:
We hypothesise bi-directional causality between gender diversity on boards and corporate social irresponsibility (CSI). Firms exposed to CSI incidents are likely to increase their board gender diversity for reputational purposes. Simultaneously, gender diversity adds skills and networks to boards which supports their monitoring function and should reduce CSI incidents. Econometrically, this relationship is plagued with reverse causality. Consequently, we propose a Granger-style reverse causality minimisation procedure. Our procedure involves three steps. Firstly, we regress board diversity (BD) on lagged CSI to separate diversity into two components, one driven by CSI (BDDCS) and another unrelated to CSI (BDUCS), with the latter being the sum of the intercept and the disturbance term. Secondly, we confirm that BDUCS experiences a near-zero correlation to CSI and that a Granger causality F-test for CSI affecting BDUCS is clearly insignificant. Thirdly, we regress CSI on lagged BDUCS, lagged CSI and its interaction term. Applying our procedure to 2,880 US firms between 2007 and 2016, we find that boards with higher diversity, for reasons other than CSI, were significantly better than their lower diversity counterparts in reducing CSI incidents once encountering them. This effect is economically stronger for diversity unrelated to CSI than for overall diversity.
Journal: The European Journal of Finance
Pages: 1-27
Issue: 1
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2020.1841664
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1841664
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:1:p:1-27
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1842784_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Bader Jawid Alsubaiei
Author-X-Name-First: Bader Jawid
Author-X-Name-Last: Alsubaiei
Author-Name: Giovanni Calice
Author-X-Name-First: Giovanni
Author-X-Name-Last: Calice
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Title: How does mutual fund flow respond to oil market volatility?
Abstract:
We comprehensively study the impact of oil market volatility on mutual fund flow. In particular, using an extensive dataset on Saudi Arabia covering virtually all equity funds over 2006–2017, this paper provides the first analysis of the linkages between fund flow and oil market volatility. Our main findings show that investors shift substantially their asset allocation to the equity mutual fund sector in periods of high volatility. Our further evidence suggests that flow to high oil-exposed funds is more sensitive to oil volatility than low oil-exposed funds. This is consistent with investors valuing professional management highly during risky periods in a setting where alternatives to equity investment are limited. Our study provides new evidence for a fast-growing market and reveals important implications for the mutual fund market which helps investors, academics and regulators to better understand the behaviour of this market.
Journal: The European Journal of Finance
Pages: 28-52
Issue: 1
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2020.1842784
File-URL: http://hdl.handle.net/10.1080/1351847X.2020.1842784
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:1:p:28-52
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_1908390_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Fan Fang
Author-X-Name-First: Fan
Author-X-Name-Last: Fang
Author-Name: Waichung Chung
Author-X-Name-First: Waichung
Author-X-Name-Last: Chung
Author-Name: Carmine Ventre
Author-X-Name-First: Carmine
Author-X-Name-Last: Ventre
Author-Name: Michail Basios
Author-X-Name-First: Michail
Author-X-Name-Last: Basios
Author-Name: Leslie Kanthan
Author-X-Name-First: Leslie
Author-X-Name-Last: Kanthan
Author-Name: Lingbo Li
Author-X-Name-First: Lingbo
Author-X-Name-Last: Li
Author-Name: Fan Wu
Author-X-Name-First: Fan
Author-X-Name-Last: Wu
Title: Ascertaining price formation in cryptocurrency markets with machine learning
Abstract:
The cryptocurrency market is amongst the fastest-growing of all the financial markets in the world. Unlike traditional markets, such as equities, foreign exchange and commodities, cryptocurrency market is considered to have larger volatility and illiquidity. This paper is inspired by the recent success of using machine learning for stock market prediction. In this work, we analyze and present the characteristics of the cryptocurrency market in a high-frequency setting. In particular, we applied a machine learning approach to predict the direction of the mid-price changes on the upcoming tick. We show that there are universal features amongst cryptocurrencies which lead to models outperforming asset-specific ones. We also show that there is little point in feeding machine learning models with long sequences of data points; predictions do not improve. Furthermore, we solve the technical challenge to design a lean predictor, which performs well on live data downloaded from crypto exchanges. A novel retraining method is defined and adopted towards this end. Finally, the trade-off between model accuracy and frequency of training is analyzed in the context of multi-label prediction. Overall, we demonstrate that promising results are possible for cryptocurrencies on live data, by achieving a consistent
$ 78\% $ 78% accuracy on the prediction of the mid-price movement on live exchange rate of Bitcoins vs. US dollars.
Journal: The European Journal of Finance
Pages: 78-100
Issue: 1
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2021.1908390
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.1908390
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:1:p:78-100
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2009892_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: P. Dłotko
Author-X-Name-First: P.
Author-X-Name-Last: Dłotko
Author-Name: W. Qiu
Author-X-Name-First: W.
Author-X-Name-Last: Qiu
Author-Name: S. T. Rudkin
Author-X-Name-First: S. T.
Author-X-Name-Last: Rudkin
Title: Financial ratios and stock returns reappraised through a topological data analysis lens
Abstract:
Firm financials are well-established predictors of stock returns, being the basis for both the traditional econometric, and growing Machine Learning, asset pricing literature. Employing topological data analysis ball mapper (TDABM), we revisit the association between seven of the most commonly studied financial ratios and stock returns. Upon outlining the methodology to the finance literature, this paper offers three key contributions to the study of asset pricing. Firstly, the characteristic space is visualised to showcase non-monotonic relationships in multiple dimensions that were as yet unseen. Secondly, the means through which neural networks and random forest regressions fit stock returns is also visualised, showing where Machine Learning is contributing to understanding. Finally, an initial application of TDABM for the segmentation of the cross-section is posited, with significant abnormal returns identified. Collectively these three expositions signpost the value of TDABM for financial researchers and practitioners alike. The scope for benefit is limited only by the availability of information to the analyst.
Journal: The European Journal of Finance
Pages: 53-77
Issue: 1
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2021.2009892
File-URL: http://hdl.handle.net/10.1080/1351847X.2021.2009892
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:1:p:53-77
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2190465_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Robinson Kruse-Becher
Author-X-Name-First: Robinson
Author-X-Name-Last: Kruse-Becher
Author-Name: Yuze Liu
Author-X-Name-First: Yuze
Author-X-Name-Last: Liu
Title: Improving financial volatility nowcasts*
Abstract:
Recently, a simple nowcasting model for volatility has been proposed by Breitung and Hafner [2016. A Simple Model for Now-Casting Volatility Series. International Journal of Forecasting 32 (4): 1247–1255. doi:10.1016/j.ijforecast.2016.04.007]. They suggest a model in which today's volatility is not only driven by past returns, but also by the current information from the same day. Empirical results demonstrate the relevance of the current squared return for volatility nowcasting. Their model obeys an ARMA representation estimable by maximum likelihood. However, their estimation approach builds on a number of simplifications and we suggest improvements. Rather than assuming normality of the innovations in the ARMA representation for highly skewed and leptokurtic log-squared returns, we take non-normality explicitly into account. Contrary to most situations regarding volatility estimation and forecasting, the distribution actually plays a crucial role in the construction of volatility nowcasts. We devise an exact maximum likelihood estimator which offers significant improvements in estimation efficiency and volatility nowcast accuracy in finite samples. In our empirical application, we investigate five major international stock markets from 2000 to 2019 (including sub-samples relating to the Great Financial Crisis). The results suggest that our estimation approach significantly outperforms the one by Breitung and Hafner [2016. A Simple Model for Now-Casting Volatility Series. International Journal of Forecasting 32 (4): 1247–1255. doi:10.1016/j.ijforecast.2016.04.007] in all cases. Financial volatility can be nowcasted more accurately by applying our suggested estimation approach.
Journal: The European Journal of Finance
Pages: 101-126
Issue: 2
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2023.2190465
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2190465
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:2:p:101-126
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2201470_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Huseyin Ozturk
Author-X-Name-First: Huseyin
Author-X-Name-Last: Ozturk
Author-Name: Yukihiro Yasuda
Author-X-Name-First: Yukihiro
Author-X-Name-Last: Yasuda
Title: Disentangling prefectural similarities in the capital structure of Japanese SMEs through pairwise testing
Abstract:
We investigate the capital structure of small- and medium-sized enterprises in Japan during 2007–2019 to identify whether firm-specific determinants of leverage exhibit locational differences among Japanese prefectures. To do so, we propose a testing scheme that disentangles potential similarities across prefecture pairs. When we apply the proposed testing scheme by creating 1081 prefecture pairs, we find that the impact of the firm-specific determinants of leverage does not greatly differ between prefecture pairs in terms of both sign and magnitude in contrast to the significant difference found by conventional hypothesis testing. As a convenient tool for other geographical research, we also discuss that the proposed testing scheme is helpful for regional policy-making, specifically during period of external shocks, the latest of which could be regarded as the COVID-19 pandemic.
Journal: The European Journal of Finance
Pages: 173-204
Issue: 2
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2023.2201470
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2201470
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:2:p:173-204
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2206972_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Moez Bennouri
Author-X-Name-First: Moez
Author-X-Name-Last: Bennouri
Author-Name: Sonia Falconieri
Author-X-Name-First: Sonia
Author-X-Name-Last: Falconieri
Author-Name: Daniel Weaver
Author-X-Name-First: Daniel
Author-X-Name-Last: Weaver
Title: The cost of fragmentation: lessons from initial public offerings
Abstract:
This paper investigates both theoretically and empirically the impact of market structure on the price discovery process at the opening of trading of IPOs. Some papers suggest that IPO value uncertainty is not fully resolved at the offering but continues into the aftermarket. Our model predicts that this ex-post uncertainty, i.e. the residual uncertainty about the firm value in the aftermarket, is related to the level of fragmentation in the aftermarket. Our model further predicts that consolidated markets are more efficient in resolving ex-post uncertainty than fragmented markets. Using the introduction of the opening IPO Cross on Nasdaq as a natural experiment, our empirical analysis provides compelling evidence that IPOs in fragmented markets exhibit larger levels of ex-post uncertainty and, consequently, larger underpricing than in consolidated markets.
Journal: The European Journal of Finance
Pages: 205-228
Issue: 2
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2023.2206972
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2206972
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:2:p:205-228
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2199938_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Huong Le
Author-X-Name-First: Huong
Author-X-Name-Last: Le
Author-Name: Tung Nguyen
Author-X-Name-First: Tung
Author-X-Name-Last: Nguyen
Author-Name: Andros Gregoriou
Author-X-Name-First: Andros
Author-X-Name-Last: Gregoriou
Author-Name: Jerome Healy
Author-X-Name-First: Jerome
Author-X-Name-Last: Healy
Title: Natural disasters and corporate innovation
Abstract:
We examine how natural disasters affect corporate innovation. Using a comprehensive sample of U.S. firms and inventors, we find that natural disasters significantly drop innovation quantity and quality. The results are robust to include a broad set of regional characteristics, matching analysis, and alternative proxies for innovation. These effects persist for up to three years after the disaster. We also provide suggestive evidence that financial constraints due to natural disasters give firms less incentive to innovate. Further analysis shows that natural disasters have impacts on inventor relocation, innovation productivity, and innovation risk.
Journal: The European Journal of Finance
Pages: 144-172
Issue: 2
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2023.2199938
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2199938
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:2:p:144-172
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2193703_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Son-Nan Chen
Author-X-Name-First: Son-Nan
Author-X-Name-Last: Chen
Author-Name: Pao-Peng Hsu
Author-X-Name-First: Pao-Peng
Author-X-Name-Last: Hsu
Author-Name: Kuo-Yuan Liang
Author-X-Name-First: Kuo-Yuan
Author-X-Name-Last: Liang
Title: Pricing credit-risky bonds using recovery rate uncertainty and macro-regime switching
Abstract:
A proposed model is used to account for both the recovery rate and regime-switching uncertainties for pricing credit-risky bonds. A two-factor hazard rate model (TFHRM) is also considered, where the dynamics of both instantaneous forward rates and asset values are modeled using Markov-modulated geometric Brownian motions (MMGBMs). Moreover, a macroeconomic factor is incorporated into the MMGBMs. The model complexity is resolved through the introduction of an endogenous intensity function and a recovery rate under the TFHRM. A semi-closed-form solution for pricing defaultable bonds is derived along with a pricing formula for credit spread. A credit cycle is constructed to reflect changes in industry characteristics and macroeconomic factors. The empirical study demonstrates that the inclusion of a stochastic recovery rate increases the model’s pricing accuracy, and the results indicate a close interaction among business cycles, recovery rates, and credit ratings.
Journal: The European Journal of Finance
Pages: 127-143
Issue: 2
Volume: 30
Year: 2024
Month: 01
X-DOI: 10.1080/1351847X.2023.2193703
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2193703
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:2:p:127-143
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2204195_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Benjamin Lynch
Author-X-Name-First: Benjamin
Author-X-Name-Last: Lynch
Author-Name: Martha O’Hagan-Luff
Author-X-Name-First: Martha
Author-X-Name-Last: O’Hagan-Luff
Title: Finally, it seems to be working – the evolving valuation effect of the European Union’s emissions trading system
Abstract:
This research examines the market reaction to the publication of firm-specific environmental news for participating firms in the European Union’s Emissions Trading System (EU ETS) during its third phase. Our sample of 123 publicly listed participating firms, located in 21 European countries, accounted for 45.43% of emissions in the EU ETS in 2020. Using an event study methodology during the period 2014–2021, we find that positive news was rewarded with increased returns for publication events related to the latter years of the phase (2017–2020) while it had an insignificant impact for earlier year (2013–2016). This indicates that the EU ETS is finally fulfilling its intended function of incentivising participating firms to reduce their emissions. Our study highlights the contextually contingent nature of the relationship between environmental and financial performance.
Journal: The European Journal of Finance
Pages: 229-248
Issue: 3
Volume: 30
Year: 2024
Month: 02
X-DOI: 10.1080/1351847X.2023.2204195
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2204195
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:3:p:229-248
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2201471_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Jerome Monne
Author-X-Name-First: Jerome
Author-X-Name-Last: Monne
Author-Name: Janette Rutterford
Author-X-Name-First: Janette
Author-X-Name-Last: Rutterford
Author-Name: Dimitris P. Sotiropoulos
Author-X-Name-First: Dimitris P.
Author-X-Name-Last: Sotiropoulos
Title: Risk taking in the context of financial advice: does gender interaction matter?
Abstract:
This study tests a gender threat hypothesis whereby having a financial advisor of the opposite gender results in gender stereotypical risk attitudes in portfolio choice. We employ a unique dataset of 1,621 advised UK investors, combined with information on the gender of their financial advisors. Confirming the hypothesis, our results show that men advised by a woman take more risk than when advised by a man. Women advised by a man adopt a more cautious approach than when advised by a woman. When the gender threat is alleviated, that is when women are advised by women, and men are advised by men, we found no gender gap in risk-taking.
Journal: The European Journal of Finance
Pages: 249-268
Issue: 3
Volume: 30
Year: 2024
Month: 02
X-DOI: 10.1080/1351847X.2023.2201471
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2201471
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:3:p:249-268
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2208168_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Konstantinos N. Baltas
Author-X-Name-First: Konstantinos N.
Author-X-Name-Last: Baltas
Author-Name: Robert Mann
Author-X-Name-First: Robert
Author-X-Name-Last: Mann
Title: What drives the performance and causality of green bond indices?
Abstract:
This paper empirically assesses the performance of green bond indices and the causality of that performance using a range of financial and commodity data. We present new insights from the novel application of datasets, neural networks and performance measurements. We find that green bond indices do not outperform the market when factors beyond market return are considered. We find that Brent crude oil has the most significant effect on certain indices, a finding that contrasts with other studies on green bonds. A greater sensitivity to oil prices and global green equities also evinces a negative impact on a green bond index’s ability to outperform the market. For the first time, a linear causal relationship is established between Title Transfer Facility (TTF) returns and green bond index returns. Additionally, a fundamental shift in causal relationships is observed over the COVID-19 period. In this way, we contribute to the literature on sustainable green bonds and the impact of COVID-19. These insights provide more clarity to market participants for navigating the uncertainties of both the global energy transition and the postpandemic period.
Journal: The European Journal of Finance
Pages: 269-287
Issue: 3
Volume: 30
Year: 2024
Month: 02
X-DOI: 10.1080/1351847X.2023.2208168
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2208168
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:3:p:269-287
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2224832_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Adrian Melia
Author-X-Name-First: Adrian
Author-X-Name-Last: Melia
Author-Name: Xiaojing Song
Author-X-Name-First: Xiaojing
Author-X-Name-Last: Song
Author-Name: Mark Tippett
Author-X-Name-First: Mark
Author-X-Name-Last: Tippett
Author-Name: John van der Burg
Author-X-Name-First: John
Author-X-Name-Last: van der Burg
Title: Hedging quantitative easing
Abstract:
Arguably the greatest concern surrounding quantitative easing is its potential for expanding the money supply at a rate which outstrips the rate of growth in national output. This will almost surely lead to greater uncertainty in inflationary expectations and this, in turn, can have adverse consequences for stock prices. Our analysis employs the hedging procedures which underscore the Fundamental Theorem of Asset Pricing in conjunction with stochastic processes for stock prices and the money supply to design hedging strategies against potential downside movements in stock prices caused by the uncertainty in inflationary expectations associated with rapid monetary growth.
Journal: The European Journal of Finance
Pages: 323-338
Issue: 3
Volume: 30
Year: 2024
Month: 02
X-DOI: 10.1080/1351847X.2023.2224832
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2224832
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:3:p:323-338
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2215836_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Antonios Siganos
Author-X-Name-First: Antonios
Author-X-Name-Last: Siganos
Title: International music preferences as a measure of culture: evidence from cross-border mergers
Abstract:
This paper introduces the significance of international music preferences as a determinant of cross-border mergers. We argue that international music preferences capture the distance in culture between nations. We find that country pairs whose citizens experience relatively small distance in their music preferences (listen to each other’s music) exhibit more cross-border mergers. Overall, this study highlights that music preferences can measure international similarities in culture.
Journal: The European Journal of Finance
Pages: 288-304
Issue: 3
Volume: 30
Year: 2024
Month: 02
X-DOI: 10.1080/1351847X.2023.2215836
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2215836
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:3:p:288-304
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2215827_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20231214T103247 git hash: d7a2cb0857
Author-Name: Kong-lin Ke
Author-X-Name-First: Kong-lin
Author-X-Name-Last: Ke
Author-Name: Xiaohui Hou
Author-X-Name-First: Xiaohui
Author-X-Name-Last: Hou
Author-Name: Chun Liu
Author-X-Name-First: Chun
Author-X-Name-Last: Liu
Title: Keeping it in the family: financial constraints and the succession intention of micro and small enterprises in China
Abstract:
Despite the significance of business succession in the family firm literature, few studies have paid attention to the role of financial constraints, a common feature of micro and small firms, in entrepreneurs’ succession intention. Using a nationally representative survey of micro and small firms in China, we find that a higher degree of financial constraints significantly strengthens the entrepreneur’s intention of passing the firm on to the next generation. Moreover, the effect of financial constraints works particularly for firms whose entrepreneurs possess lower levels of financial literacy and for firms in regions with less-developed financial markets. Our results still hold after addressing potential endogeneity problems and conducting a wide array of robustness checks.
Journal: The European Journal of Finance
Pages: 305-322
Issue: 3
Volume: 30
Year: 2024
Month: 02
X-DOI: 10.1080/1351847X.2023.2215827
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2215827
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:3:p:305-322
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2147443_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Conrado Diego García-Gómez
Author-X-Name-First: Conrado Diego
Author-X-Name-Last: García-Gómez
Author-Name: Ender Demir
Author-X-Name-First: Ender
Author-X-Name-Last: Demir
Author-Name: José María Díez-Esteban
Author-X-Name-First: José María
Author-X-Name-Last: Díez-Esteban
Author-Name: Edmundo Lizarzaburu Bolaños
Author-X-Name-First: Edmundo
Author-X-Name-Last: Lizarzaburu Bolaños
Title: Corruption, national culture and corporate investment: European evidence
Abstract:
In this paper, we provide further evidence about the influence of corruption on corporate investment. Using a large sample of the European region non-financial firms for the period 2011–2020, our results suggest that corruption in Europe negatively affects corporate investment, thus, supporting the ‘sanding the wheel' hypothesis. This relationship is moderated by all six dimensions of the national culture proposed by Hofstede. Using appropriate panel data methodology, namely GMM estimations, we find that a higher degree of uncertainty avoidance, power distance, masculinity, and indulgence exacerbate the adverse effects of corruption on corporate investment while a higher degree of long-term orientation and individualism alleviates this effect.
Journal: The European Journal of Finance
Pages: 411-429
Issue: 4
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2022.2147443
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2147443
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:4:p:411-429
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2175703_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Teresa Elvira-Lorilla
Author-X-Name-First: Teresa
Author-X-Name-Last: Elvira-Lorilla
Author-Name: Inigo Garcia-Rodriguez
Author-X-Name-First: Inigo
Author-X-Name-Last: Garcia-Rodriguez
Author-Name: M. Elena Romero-Merino
Author-X-Name-First: M. Elena
Author-X-Name-Last: Romero-Merino
Author-Name: Marcos Santamaria-Mariscal
Author-X-Name-First: Marcos
Author-X-Name-Last: Santamaria-Mariscal
Title: Country corruption and corporate cash holdings: the mediating effect of firm’s anti-bribery policy
Abstract:
The literature about the influence of country corruption on corporate cash holdings is not conclusive as there are studies supporting both a positive and negative relationship. To better explain this relationship, our study introduces a corporate-level mediating variable, i.e. the company's willingness to fight bribery as part of its CSR policy. Using a sample of 1,075 listed firms from 21 European Union countries for the period 2008–2019 (7,771 firm-year observations), we find a partial mediating effect of the corporate anti-bribery policy on the relationship between country corruption and corporate cash holdings. On the one hand, according to the shielding argument, country corruption negatively influences corporate cash holdings. And, on the other hand, there is a mediating effect such that firms in corrupt countries adopt less tough anti-bribery policies and, instead, they reduce their cash holdings both to protect themselves from expropriation and to signal their limit on bribe payments.
Journal: The European Journal of Finance
Pages: 385-410
Issue: 4
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2023.2175703
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2175703
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:4:p:385-410
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2240846_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Jorge Farinha
Author-X-Name-First: Jorge
Author-X-Name-Last: Farinha
Author-Name: Oscar López-de-Foronda
Author-X-Name-First: Oscar
Author-X-Name-Last: López-de-Foronda
Title: The impact of corruption on investment and financing in the European Union: new insights
Abstract:
Corruption is a phenomenon that is not just restricted to less developed nations, but also touches developed countries like those in the European Union, often seen as one of the least corrupt economic areas in the world. Corruption practices and perceptions can seriously hinder economic growth and innovation, This can be due to lower access to corporate funding, greater cost of capital, its effects on competition, misallocation of resources, and distortions in the composition of public spending and the effectiveness of government policies. This paper first provides a short discussion and an overview of some academic literature on the link between corruption, financing decisions and economic growth. It then summarizes the findings of the five papers in this special issue on the topic of Corruption in a European context, discusses some insights from their results and finally points out at some avenues for future research in related topics.
Journal: The European Journal of Finance
Pages: 339-344
Issue: 4
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2023.2240846
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2240846
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:4:p:339-344
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2112731_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Marta Alonso
Author-X-Name-First: Marta
Author-X-Name-Last: Alonso
Author-Name: Judith Arnal
Author-X-Name-First: Judith
Author-X-Name-Last: Arnal
Author-Name: Andrés Mesa-Toro
Author-X-Name-First: Andrés
Author-X-Name-Last: Mesa-Toro
Author-Name: Antonio Moreno
Author-X-Name-First: Antonio
Author-X-Name-Last: Moreno
Title: Do corruption perceptions impact the pricing and access of euro area corporations to bond markets?
Abstract:
Public sector corruption affects economic and financial outcomes, such as GDP growth, foreign direct investment, and government funding costs. Less is known about the spillovers from perceptions of public sector corruption on the private sector corporate bond market. In this paper, we assess the role of public sector corruption perception on corporate bond market variables in Europe using data of both country-level corporate bond indexes and firm-level corporate bond market issuances. At the aggregate country level, we find some evidence that country indices of corporate bonds' yields and coupons are higher in countries with more corruption. While we do not find effects of corruption on coupon rates at the individual firm level, we show that higher government corruption perception increases their yield to maturity and reduces the amounts raised by corporations through their bond issuances.
Journal: The European Journal of Finance
Pages: 370-384
Issue: 4
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2022.2112731
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2112731
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:4:p:370-384
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2102433_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: David Blanco-Alcántara
Author-X-Name-First: David
Author-X-Name-Last: Blanco-Alcántara
Author-Name: Jorge Gallud Cano
Author-X-Name-First: Jorge
Author-X-Name-Last: Gallud Cano
Author-Name: Florencio Lopez-de-Silanes
Author-X-Name-First: Florencio
Author-X-Name-Last: Lopez-de-Silanes
Title: Determinants of the use of European Structural and Investment Funds
Abstract:
We investigate the determinants of the effective use of European Structural and Investment Funds. We use a newly constructed database of the 1024 programmes from the last two programme periods that started in 2007 and 2014, respectively. Our results show that virtually all programmes fail to meet the initial deadline and need the extension period to be able to spend the funds initially allocated. About 45% of EU funds allocated are not used by the initial deadline and a tenth of the programmes end up not using over 10% of the funds. Our econometric analysis shows that beyond institutional framework measures of accountability, law and order, corruption and public officials’ attitudes, education and management capacity are key determinants in the efficient use of fund allocation. These findings are in line with previous work documenting that, as in the private sector, management capacity plays an important role in explaining government efficiency. In such circumstances, implementing measures that help bureaucracies deal with the lack of management skills and processing capacity – such as outsourcing fund management – may improve the efficient use of EU funds.
Journal: The European Journal of Finance
Pages: 430-455
Issue: 4
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2022.2102433
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2102433
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:4:p:430-455
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2153073_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Pablo de Andrés
Author-X-Name-First: Pablo
Author-X-Name-Last: de Andrés
Author-Name: Salvatore Polizzi
Author-X-Name-First: Salvatore
Author-X-Name-Last: Polizzi
Author-Name: Enzo Scannella
Author-X-Name-First: Enzo
Author-X-Name-Last: Scannella
Author-Name: Nuria Suárez
Author-X-Name-First: Nuria
Author-X-Name-Last: Suárez
Title: Corruption-related disclosure in the banking industry: evidence from GIPSI countries
Abstract:
This paper empirically investigates corruption-related disclosure in the banking industry, aiming to shed light on the reasons why financial institutions disclose corruption-related information in their annual financial reports. Using a total sample of 88 banks from the GIPSI countries during the period 2011-2019, our results reveal that, on average, banks involved in corruption issues disclose less on corruption-related matters than banks not involved in any corruption scandal. Moreover, banks not involved in corruption cases disclose even more information after other banks’ corruption events become public. These basic relationships, however, are shaped by the characteristics of each particular country in terms of control of corruption and the specific regulation on non-traditional banking activities. Our results are robust to different specifications of econometric models, to alternative empirical methods accounting for potential reverse causality and sample selection concerns and to the inclusion of internal corporate governance mechanisms.
Journal: The European Journal of Finance
Pages: 345-369
Issue: 4
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2022.2153073
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2153073
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:4:p:345-369
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2206523_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Jovana Cadenovic
Author-X-Name-First: Jovana
Author-X-Name-Last: Cadenovic
Author-Name: Marc Deloof
Author-X-Name-First: Marc
Author-X-Name-Last: Deloof
Author-Name: Ine Paeleman
Author-X-Name-First: Ine
Author-X-Name-Last: Paeleman
Title: Do dividend policies of privately held firms follow a life cycle?
Abstract:
We investigate whether the dividend policies of privately held firms follow a predictable pattern that parallels their life cycles. Our analyses are based on a large sample of 113,599 Belgian privately held firms with 666,135 firm-year observations that cover the period from 2005 to 2018. We find that as the retained earnings of privately held firms increase, they are more likely to pay dividends and to pay higher amounts. We find a significant effect of retained earnings on dividend policy in a subsample of established firms, but not in a subsample of young firms. Firms are also more likely to initiate (omit) a dividend as their retained earnings increase (decrease) over time. Overall, our results support the life cycle theory in the context of privately held firms.
Journal: The European Journal of Finance
Pages: 457-480
Issue: 5
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2023.2206523
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2206523
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:5:p:457-480
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2202821_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Shiyu Song
Author-X-Name-First: Shiyu
Author-X-Name-Last: Song
Author-Name: Xingchun Wang
Author-X-Name-First: Xingchun
Author-X-Name-Last: Wang
Author-Name: Xiaowen Zhang
Author-X-Name-First: Xiaowen
Author-X-Name-Last: Zhang
Title: Valuation of spread options under correlated skew Brownian motions
Abstract:
In this paper, we employ correlated skew Brownian motions to describe the dynamics of the two assets underlying the spread option. In the pricing model, the two underlying assets are exposed to exogenous risks captured by the same Brownian motion, and their endogenous risks are also assumed to be correlated with each other. We obtain an approximate pricing formula of spread options and calibrate model parameters to real data. In addition, we compare the results obtained from the approximate formula with those derived from the exact closed-form formula and from the Monte Carlo method. Finally, we analyze the impact of the skewness parameter on option prices after checking the accuracy of the approximations numerically.
Journal: The European Journal of Finance
Pages: 503-523
Issue: 5
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2023.2202821
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2202821
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:5:p:503-523
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2208621_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Zhi Wang
Author-X-Name-First: Zhi
Author-X-Name-Last: Wang
Author-Name: Gerhard Kling
Author-X-Name-First: Gerhard
Author-X-Name-Last: Kling
Author-Name: Peter Rejchrt
Author-X-Name-First: Peter
Author-X-Name-Last: Rejchrt
Title: Kindness or hypocrisy: political mindset and corporate social responsibility decoupling in Chinese firms
Abstract:
This study examines the effects of executives’ political mindsets on their Corporate Social Responsibility (CSR), which has corporate and societal implications. We focus on the Chinese market, where political connections shape business activities. We find that executives with a promotion or ideology-oriented mindset issue more substantive CSR reports than their peers. However, only executives with ideology-oriented mindsets contribute to society, whereas promotion-oriented executives are associated with lower societal impact. This ‘CSR decoupling' also manifests itself in firms’ CSR activities. Chairpersons with political connections are more likely to pursue financial performance at the expense of societal contributions than their unconnected peers. In contrast, chairpersons with party membership are less likely to do so than their unaffiliated peers. Lastly, this paper shows that executives’ political perception affects the relationship between political mindset and CSR.
Journal: The European Journal of Finance
Pages: 524-548
Issue: 5
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2023.2208621
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2208621
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:5:p:524-548
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2206040_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Shuning Chen
Author-X-Name-First: Shuning
Author-X-Name-Last: Chen
Author-Name: Jianxin Wang
Author-X-Name-First: Jianxin
Author-X-Name-Last: Wang
Title: A new channel for global volatility propagation
Abstract:
We compare two channels for global impact on local volatility: the direct channel in which global variables affect the expected value of local volatility, and a new channel in which they affect local volatility persistence. Using 21 equity indices in 17 developed economies, we show that (1) global variables are the main determinants of local volatility persistence; (2) the volatility-persistence channel contributes far more to local volatility variations than the direct channel; and (3) global average return contributes far more to local volatility variations than global average volatility. The global impact on local volatility persistence help explain the commonality in global volatility dynamics.
Journal: The European Journal of Finance
Pages: 481-502
Issue: 5
Volume: 30
Year: 2024
Month: 03
X-DOI: 10.1080/1351847X.2023.2206040
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2206040
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:5:p:481-502
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2217220_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Nader Virk
Author-X-Name-First: Nader
Author-X-Name-Last: Virk
Author-Name: Farrukh Javed
Author-X-Name-First: Farrukh
Author-X-Name-Last: Javed
Author-Name: Basel Awartani
Author-X-Name-First: Basel
Author-X-Name-Last: Awartani
Author-Name: Stuart Hyde
Author-X-Name-First: Stuart
Author-X-Name-Last: Hyde
Title: A reality check on the GARCH-MIDAS volatility models
Abstract:
We employ a battery of model evaluation tests for a broad set of GARCH-MIDAS models and account for data snooping bias. We document that inferences based on standard tests for GM variance components can be misleading. Our data mining free results show that the gain of macro-variables in forecasting total (long-run) variance by GM models is overstated (understated). Estimation of different components of volatility is crucial for designing differentiated investing strategies, risk management plans and pricing derivative securities. Therefore, researchers and practitioners should be wary of data-mining bias, which may contaminate a forecast that may appear statistically validated using robust evaluation tests.
Journal: The European Journal of Finance
Pages: 575-596
Issue: 6
Volume: 30
Year: 2024
Month: 04
X-DOI: 10.1080/1351847X.2023.2217220
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2217220
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:6:p:575-596
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2227228_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: María Rubio-Misas
Author-X-Name-First: María
Author-X-Name-Last: Rubio-Misas
Title: Culture and integration of Eurozone life insurance markets
Abstract:
This paper provides the first evidence on the role of national culture in the integration of Eurozone life insurance markets. It analyzes seven markets over a sixteen-year sample period that includes the financial crisis. We focus on three cultural values, which are individualism, trust, and hierarchy. The results indicate that collectivism culture increases cost and revenue performance and integration of Eurozone life insurance markets. Trust contributes to this integration, particularly in financial crisis, and egalitarian culture facilitates it in non-crisis time. We find that these relations prevail for unaffiliated single companies, but they weaken or do not even hold for groups of insurers. Our findings are robust with tests designed to alleviate endogeneity concerns.
Journal: The European Journal of Finance
Pages: 597-617
Issue: 6
Volume: 30
Year: 2024
Month: 04
X-DOI: 10.1080/1351847X.2023.2227228
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2227228
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:6:p:597-617
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2217225_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Shimeng Shi
Author-X-Name-First: Shimeng
Author-X-Name-Last: Shi
Author-Name: Jia Zhai
Author-X-Name-First: Jia
Author-X-Name-Last: Zhai
Author-Name: Yingying Wu
Author-X-Name-First: Yingying
Author-X-Name-Last: Wu
Title: Informational inefficiency on bitcoin futures
Abstract:
This paper investigates the dynamics and drivers of informational inefficiency in the Bitcoin futures market. To quantify the adaptive pattern of informational inefficiency, we leverage two groups of statistics which measure long memory and fractal dimension to construct a global-local market inefficiency index. Our findings validate the adaptive market hypothesis, and the global and local inefficiency exhibits different patterns and contributions. Regarding the driving factors of the time-varying inefficiency, our results suggest that trading activity of retailers (hedgers) increases (decreases) informational inefficiency. Compared to hedgers and retailers, the role played by speculators is more likely to be affected by the COVID-19 crisis. Extremely bullish and bearish investor sentiment has more significant impact on the local inefficiency. Arbitrage potential, funding liquidity, and the pandemic exert impacts on the global and local inefficiency differently. No significant evidence is found for market liquidity and policy uncertainty related to cryptocurrency.
Journal: The European Journal of Finance
Pages: 642-667
Issue: 6
Volume: 30
Year: 2024
Month: 04
X-DOI: 10.1080/1351847X.2023.2217225
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2217225
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:6:p:642-667
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2229866_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Dongyeol Lee
Author-X-Name-First: Dongyeol
Author-X-Name-Last: Lee
Author-Name: Woo Chang Kim
Author-X-Name-First: Woo Chang
Author-X-Name-Last: Kim
Title: Optimal intertemporal liquidation of institutional investors with cash requirements and viable loans
Abstract:
This study examines the optimal intertemporal liquidation strategies to meet the cash requirements of large institutional investors in the presence of permanent and temporary price impacts. We construct a two-period optimal liquidation problem tailored to investors with intertemporal cash requirements, such as pension funds that need to meet periodic payment obligations. We impose viable government loans that can be deployed by state-owned investors, thereby extending the existing literature, which has focused largely on the private sector. The optimal liquidation strategies from a broader perspective can be sorted into three types: preemptive, conventional, and deferred liquidation. The use of viable large-scale loans can be attractive as a buffer in intertemporal decisions. Proper consideration of the timing and amount for liquidation of institutional investors is necessary. This study has important implications for policy makers and can inform the design of strategies for managing the liquidity needs of large institutional investors.
Journal: The European Journal of Finance
Pages: 618-641
Issue: 6
Volume: 30
Year: 2024
Month: 04
X-DOI: 10.1080/1351847X.2023.2229866
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2229866
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:6:p:618-641
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2216730_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: S. Burcu Avci
Author-X-Name-First: S. Burcu
Author-X-Name-Last: Avci
Title: Profitability of insider trading in Turkey
Abstract:
This study presents the first comprehensive evidence of insider trading patterns and abnormal profits in the Turkish stock market using almost 65,000 insider transactions for the period of 2008–2019. Our findings show that insiders earn a significant 6.58% abnormal profit during the one year following insider trading. Officers, directors, and institutional investors earn even more. Both purchases and sales are profitable. Top executives, major shareholders, and institutional investors earn significant dollar profits. Additionally, uninformed investors can beat the market by mimicking the portfolios of insiders, while evidence shows that regulatory changes do not reduce insiders’ profits. Finally, this study provides important trading implications for investors and regulatory implications for policymakers everywhere.
Journal: The European Journal of Finance
Pages: 549-574
Issue: 6
Volume: 30
Year: 2024
Month: 04
X-DOI: 10.1080/1351847X.2023.2216730
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2216730
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:6:p:549-574
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2251532_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Stylianos Asimakopoulos
Author-X-Name-First: Stylianos
Author-X-Name-Last: Asimakopoulos
Author-Name: Chardin Wese Simen
Author-X-Name-First: Chardin Wese
Author-X-Name-Last: Simen
Author-Name: Andrew Vivian
Author-X-Name-First: Andrew
Author-X-Name-Last: Vivian
Title: Sustainable finance and governance: an overview
Abstract:
We are currently facing great challenges around balancing environmental and social issues with economic development. This article provides an overview and insight into these challenges from a Finance perspective. It then introduces contemporary research that address specific points of interest.
Journal: The European Journal of Finance
Pages: 669-672
Issue: 7
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2023.2251532
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2251532
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:7:p:669-672
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2137423_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Adam Blomqvist
Author-X-Name-First: Adam
Author-X-Name-Last: Blomqvist
Author-Name: Francesco Stradi
Author-X-Name-First: Francesco
Author-X-Name-Last: Stradi
Title: Responsible investments: an analysis of preference – the influence of local political views on the return on ESG portfolios
Abstract:
We analyse whether environmental, social, and governance (ESG) investments generate different abnormal returns depending on preferences towards responsible assets in the United States. To measure investor preferences for ESG assets, we consider whether the company’s headquarters is located in a Democratic or Republican state and how the state scored in an Environmental survey from Yale University. When investors strongly prefer responsible investments (Democrats), the abnormal returns on ESG investments in these states are negative. Since ESG-motivated investors gain additional utility by holding green assets, they are willing to sacrifice a portion of their returns to incorporate the ESG factor into their portfolio. Conversely, when investors do not value ESG factors to the same extent (Republicans), abnormal returns are not significantly different from zero. We also divide states according to their opinions on environmental issues using a survey and perform the same analysis, confirming the previous results. Our methodology gains validity since the U.S. is in a home bias context. As a result, people tend to invest more in their home state; thus, the returns will reflect their preferences. Furthermore, the results of our research agree with existing theories connecting preferences for ESG investments and expected excess returns.
Journal: The European Journal of Finance
Pages: 696-725
Issue: 7
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2022.2137423
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2137423
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:7:p:696-725
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2150559_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Panagiotis Asimakopoulos
Author-X-Name-First: Panagiotis
Author-X-Name-Last: Asimakopoulos
Author-Name: Stylianos Asimakopoulos
Author-X-Name-First: Stylianos
Author-X-Name-Last: Asimakopoulos
Author-Name: Xinyu Li
Author-X-Name-First: Xinyu
Author-X-Name-Last: Li
Title: The combined effects of economic policy uncertainty and environmental, social, and governance ratings on leverage
Abstract:
This paper examines the combined effects of Economic Policy Uncertainty (EPU) and Environmental, Social, and Governance (ESG) ratings on the level of leverage and its speed of adjustment (SOA). We find that both the EPU and ESG ratings are negatively associated with leverage when assessed separately. However, when EPU and ESG ratings are combined, we show that ESG ratings mitigate the detrimental impact of EPU on leverage. Our results also indicate that higher EPU levels force firms to increase their speed of adjustment due to tighter financing requirements, while ESG ratings overcome that issue and enable firms to maintain lower SOA. These results are robust to various robustness checks and are mainly driven by environmental and social factors. Our paper contributes to the growing ESG literature by showing that ESG ratings can alleviate the adverse effects of EPU on leverage and SOA.
Journal: The European Journal of Finance
Pages: 673-695
Issue: 7
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2022.2150559
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2150559
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:7:p:673-695
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2157300_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Meryem Duygun
Author-X-Name-First: Meryem
Author-X-Name-Last: Duygun
Author-Name: Stephen Hall
Author-X-Name-First: Stephen
Author-X-Name-Last: Hall
Author-Name: Aliya Kenjegalieva
Author-X-Name-First: Aliya
Author-X-Name-Last: Kenjegalieva
Author-Name: Amangeldi Kenjegaliev
Author-X-Name-First: Amangeldi
Author-X-Name-Last: Kenjegaliev
Title: ESG complementarities in the US economy
Abstract:
This paper investigates ESG from the perspective of changes in input elasticities of substitution and complementarity. Rather than compute these elasticities from the cost function, we compute them from the Input Distance Function (IDF). Our data are from Refinitiv Eikon Datastream database. We focus on the US economy due to her global role in the world economy and hence spillover effects of uncertainties on the rest of the world. The data consist of 5,798 companies comprising 38 US industries that span for 12 years from 2009 to 2020 and include: (i) financial data on sales, capital and employees; (ii) two financial ratios and (iii) three main ESG indicators. We compute Antonelli Elasticity of Complementarity (AEC) and Allen-Uzawa Elasticity of Substitution (AES) from the translog of IDF function. We find that the standard inputs have positive AEC elasticities; however, ESG cross-elasticities exhibit negative signs, classifying them as q-substitutes. Therefore, an increase in one of the ESG values leads to a decrease in the marginal value of the other. On the other hand, AES elasticities have a negative sign only for the Governance-Environment “doublet'; the rest of the pairs are positive implying that they are p-complements.
Journal: The European Journal of Finance
Pages: 753-771
Issue: 7
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2022.2157300
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2157300
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:7:p:753-771
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2113812_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Francesca Cuomo
Author-X-Name-First: Francesca
Author-X-Name-Last: Cuomo
Author-Name: Silvia Gaia
Author-X-Name-First: Silvia
Author-X-Name-Last: Gaia
Author-Name: Claudia Girardone
Author-X-Name-First: Claudia
Author-X-Name-Last: Girardone
Author-Name: Stefano Piserà
Author-X-Name-First: Stefano
Author-X-Name-Last: Piserà
Title: The effects of the EU non-financial reporting directive on corporate social responsibility
Abstract:
Using a large sample of EU non-financial firms over the period 2008–2018, this study examines the effect of the 2014 EU Non-Financial Reporting Directive on corporate social responsibility (CSR) and finds that the Directive has led to an increase in CSR transparency and performance. Further, it shows that the association between the Directive and CSR transparency is stronger for smaller firms, firms highly followed by analysts and firms headquartered in countries with strong legal systems. The adoption of CSR reporting after the Directive’s enactment, small firm size and investments in research and development strengthen the positive effects of the Directive on CSR performance. However, the mandating of CSR reporting assurance by some EU member states seems not to have any significant impact. Lastly, our study shows that after the Directive’s enactment, firms adopting CSR reporting experienced lower systematic risk and cost of equity. Our study contributes to the debate about whether and how non-financial disclosure should be regulated and shows the positive effects of the ‘comply or explain’ approach. It also provides insights for the EU in relation to the recently approved proposal to extend CSR reporting regulation to listed small and medium-sized enterprises and mandate CSR reporting assurance.
Journal: The European Journal of Finance
Pages: 726-752
Issue: 7
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2022.2113812
File-URL: http://hdl.handle.net/10.1080/1351847X.2022.2113812
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:7:p:726-752
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2244553_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Tinashe C. Bvirindi
Author-X-Name-First: Tinashe C.
Author-X-Name-Last: Bvirindi
Author-Name: Ode-Ichakpa Inalegwu
Author-X-Name-First: Ode-Ichakpa
Author-X-Name-Last: Inalegwu
Title: The impact of the global financial crisis and the European sovereign debt crisis on the capital structure of firms in Europe: do SMEs, and listed firms respond the same?
Abstract:
This study examines the evolution of the capital structure of European firms during the global financial crisis and European debt crisis. We compare the experiences of SMEs, listed firms and private firms in different industries and investigate the role of country and institutional factors in affecting capital structure. We find that SMEs, private firms, and non-listed firms experience lower declines in leverage relative to large firms during the global financial crisis and the European debt crisis. During these crises’ periods, SMEs experience steeper declines in debt maturity, which suggests reliance on short term debt that carries high roll over risks. This behaviour is protracted for firms in the agriculture industry. Both the global financial crisis and EU debt crisis have asymmetric effects on leverage, long term debt issuance and debt maturity across different industries, and across firms of different sizes. Moreover, in countries with more developed financial systems, stronger frameworks for insolvency, resolving firm insolvency, and strong systems for shareholder suits, and director liability, SMEs experience much lower reduction in leverage and debt maturity. This finding suggests that institutional factors help attenuate adverse capital supply shocks.
Journal: The European Journal of Finance
Pages: 889-913
Issue: 8
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2023.2244553
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2244553
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:8:p:889-913
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2220118_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Julia S. Mehlitz
Author-X-Name-First: Julia S.
Author-X-Name-Last: Mehlitz
Author-Name: Benjamin R. Auer
Author-X-Name-First: Benjamin R.
Author-X-Name-Last: Auer
Title: Memory-enhanced momentum in commodity futures markets
Abstract:
Motivated by the deteriorating performance of traditional cross-sectional momentum strategies in commodity futures markets, we propose to resurrect momentum by incorporating autocorrelation information into the asset selection process. Put differently, we introduce measures of short and long memory (variance ratios and Hurst coefficients, respectively) telling us whether past winners and losers are likely to persist or not. Our empirical findings suggest that a memory-enhanced momentum strategy based on variance ratios significantly outperforms traditional momentum in terms of reward and risk, effectively prevents momentum crashes and is not bound to the movement of the overall commodity market. The strategy returns cannot be explained by typical factor portfolios and macroeconomic variables. They are also robust to alternative data sets, transaction costs and data snooping. In comparison, Hurst coefficients carry less investment-relevant information and cannot outperform variance ratios in terms of risk premia and investment alpha.
Journal: The European Journal of Finance
Pages: 773-802
Issue: 8
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2023.2220118
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2220118
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:8:p:773-802
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2244008_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Maoxi Tian
Author-X-Name-First: Maoxi
Author-X-Name-Last: Tian
Author-Name: Rim El Khoury
Author-X-Name-First: Rim El
Author-X-Name-Last: Khoury
Author-Name: Nohade Nasrallah
Author-X-Name-First: Nohade
Author-X-Name-Last: Nasrallah
Author-Name: Muneer M. Alshater
Author-X-Name-First: Muneer M.
Author-X-Name-Last: Alshater
Title: Assessing systemic risk spillovers from FinTech to China’s financial system
Abstract:
Today, the potential of FinTech in China is immense. After a prolonged period of dormancy, a blazing trail in finance surges. This study estimates the extent to which risk is transmitted from FinTech to various sub-industries within the Chinese financial sector, employing the GARCH copula quantile regression model. Our empirical findings indicate that FinTech exerts significant risk spillover effects on these financial sub-industries. Notably, at lower risk levels of 0.1 and 0.05, the securities and state-owned commercial banks sub-industries demonstrate the most substantial and least significant risk spillovers, respectively. Conversely, at the highest risk level of 0.01, the joint-stock commercial banks and securities exhibit the largest and smallest risk spillovers, respectively. Additionally, our analysis reveals that the dynamic risk spillovers for each financial sub-industry differ and reflect the influences of the stock market crash that occurred during 2015–2016. The implications of our study extend to portfolio managers and financial authorities, highlighting the importance of enhancing supervision and regulation of FinTech companies to uphold financial stability.
Journal: The European Journal of Finance
Pages: 803-826
Issue: 8
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2023.2244008
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2244008
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:8:p:803-826
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2247440_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Sze Nie Ung
Author-X-Name-First: Sze Nie
Author-X-Name-Last: Ung
Author-Name: Bartosz Gebka
Author-X-Name-First: Bartosz
Author-X-Name-Last: Gebka
Author-Name: Robert D. J. Anderson
Author-X-Name-First: Robert D. J.
Author-X-Name-Last: Anderson
Title: An enhanced investor sentiment index*
Abstract:
We propose an enhancement to the well-known market-based investor sentiment index by Baker, M., and J. Wurgler. (2006. “Investor Sentiment and the Cross-Section of Stock Returns.” The Journal of Finance 61 (4): 1645–1680). The low forecasting power of that index for future aggregate stock market returns has long been a puzzle, and we demonstrate that its ability to empirically capture latent investor sentiment can be significantly improved by allowing contributions of its individual components to vary over time, rather than being fixed. Our enhanced index represents an improved measure of investor sentiment: empirically, we find that our sentiment index not only instils forecasting power to the original Baker and Wurgler (2006) index, it also outperforms competitor measures in empirically capturing unobservable sentiment. This superior empirical performance is demonstrated to be due to investors’ irrational expectations about future discount rates. Lastly, sentiment measured by our enhanced index contains useful and unique information about future market returns, as it outperforms fundamental economic predictors in forecasting, in both the statistical and economic sense.
Journal: The European Journal of Finance
Pages: 827-864
Issue: 8
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2023.2247440
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2247440
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:8:p:827-864
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2241539_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Haijie Huang
Author-X-Name-First: Haijie
Author-X-Name-Last: Huang
Author-Name: Steven Xianglong Chen
Author-X-Name-First: Steven Xianglong
Author-X-Name-Last: Chen
Author-Name: Edward Lee
Author-X-Name-First: Edward
Author-X-Name-Last: Lee
Author-Name: Dongdong Li
Author-X-Name-First: Dongdong
Author-X-Name-Last: Li
Title: Information search costs and trade credit: evidence from high-speed rail connections
Abstract:
We investigate the impact of information search costs on firms’ access to trade credit used as a major source of interfirm financing. Using the openings of high-speed rails (HSR) in China as exogenous shocks, we find that firms located in cities with HSR connections receive more trade credit from their suppliers. Further analyses show that the HSR effect on trade credit concentrates among customers with poor information transparency and that HSR openings improve the customers’ information environment, suggesting that a decline in information search costs promotes supplier financing. Our finding reveals a positive externality of HSR construction on interfirm financing.
Journal: The European Journal of Finance
Pages: 865-888
Issue: 8
Volume: 30
Year: 2024
Month: 05
X-DOI: 10.1080/1351847X.2023.2241539
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2241539
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:8:p:865-888
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2256799_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Marie Racine
Author-X-Name-First: Marie
Author-X-Name-Last: Racine
Title: Indigenous corporate responsibility and financial performance
Abstract:
The impact of Corporate Social Responsibility with respect to Indigenous (CSRI) initiatives and issues on financial performance was studied using several CSRI metrics, both innovated (where necessary) and pre-existing (where possible). We find that CSRI initiatives based on dollar expenditures and firm website scores are positively associated with financial performance while increase to reputation risk has a negative impact. We also find that a CSRI score can only be moderated by an overall ESG score that is substantially stronger than the CSRI metric. In a world that increasingly emphasizes the importance of ‘truth and reconciliation’ with its Indigenous populations while meeting environmental resource needs, we must seek a path that recognizes and respects Indigenous rights and cultural practices. Providing well developed, consistently measured and acceptable CSRI metrics and assessing their impact on firm financial performance is a crucial step in this reconciliation process. This paper makes important contributions to that goal.
Journal: The European Journal of Finance
Pages: 1008-1029
Issue: 9
Volume: 30
Year: 2024
Month: 06
X-DOI: 10.1080/1351847X.2023.2256799
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2256799
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:9:p:1008-1029
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2251531_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Jingbin Zhuo
Author-X-Name-First: Jingbin
Author-X-Name-Last: Zhuo
Author-Name: Yufan Chen
Author-X-Name-First: Yufan
Author-X-Name-Last: Chen
Author-Name: Bang Zhou
Author-X-Name-First: Bang
Author-X-Name-Last: Zhou
Author-Name: Baiming Lang
Author-X-Name-First: Baiming
Author-X-Name-Last: Lang
Author-Name: Lan Wu
Author-X-Name-First: Lan
Author-X-Name-Last: Wu
Author-Name: Ruixun Zhang
Author-X-Name-First: Ruixun
Author-X-Name-Last: Zhang
Title: A Hawkes process analysis of high-frequency price endogeneity and market efficiency
Abstract:
We use the Hawkes process to model the high-frequency price process of 108 stocks in the Chinese stock market, in order to understand the endogeneity of price changes and the mechanism of information processing. Using a piece-wise constant exogenous intensity, we employ non-parametric estimation, residual analysis, and Bayesian Information Criterion (BIC) to determine that a power-law kernel is the most appropriate for our data. We propose the internal branching ratio to represent endogeneity within a finite interval. The branching ratio tends to be higher after the market opens and before the market closes, with a mean value of around 0.81, suggesting significant endogeneity in price changes. In addition, we explore the relationship between branching ratios and stock characteristics using panel regression. Higher branching ratios are associated with lower levels of price efficiency at high, but not low, frequencies. Finally, the branching ratio increases over time without significant impact from COVID-19.
Journal: The European Journal of Finance
Pages: 949-979
Issue: 9
Volume: 30
Year: 2024
Month: 06
X-DOI: 10.1080/1351847X.2023.2251531
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2251531
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:9:p:949-979
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2241528_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Raslan Alzuabi
Author-X-Name-First: Raslan
Author-X-Name-Last: Alzuabi
Author-Name: Sarah Brown
Author-X-Name-First: Sarah
Author-X-Name-Last: Brown
Author-Name: Daniel Gray
Author-X-Name-First: Daniel
Author-X-Name-Last: Gray
Author-Name: Mark N. Harris
Author-X-Name-First: Mark N.
Author-X-Name-Last: Harris
Author-Name: Christopher Spencer
Author-X-Name-First: Christopher
Author-X-Name-Last: Spencer
Title: Portfolio allocation and borrowing constraints
Abstract:
Using the US Survey of Consumer Finances, we explore the empirical relationship between borrowing constraints and financial portfolio allocation by American households. To help motivate our empirical analysis we initially draw insights from a mean-variance model of optimal portfolio allocation with three tradable asset classes defined by increasing risk, and establish a link between borrowing restrictions and portfolio allocation in the presence of background risk. Our main contribution, however, lies in estimating the role that borrowing constraints play in shaping households' financial portfolio allocation. This is achieved using an ordered fractional probit model. In addition to revealing the significant empirical role played by household borrowing constraints in determining portfolio allocation, our analysis helps us to resolve ambiguity surrounding the behaviour of the medium-risk asset in our motivational theoretical framework. Further, the empirical distribution of medium-risk assets is found to be remarkably similar to that for high-risk assets, suggesting the presence of a more general ‘risk puzzle’, which our borrowing constraints measures partially explain.
Journal: The European Journal of Finance
Pages: 915-948
Issue: 9
Volume: 30
Year: 2024
Month: 06
X-DOI: 10.1080/1351847X.2023.2241528
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2241528
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:9:p:915-948
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2259438_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Guangzi Li
Author-X-Name-First: Guangzi
Author-X-Name-Last: Li
Author-Name: Yili Lian
Author-X-Name-First: Yili
Author-X-Name-Last: Lian
Author-Name: Yi Zhang
Author-X-Name-First: Yi
Author-X-Name-Last: Zhang
Title: Labor unions and debt covenant violations*
Abstract:
This study examines the relationship between labor unions and firms’ decisions to violate debt covenants. We find that firms with high unionization rates are more likely to violate debt covenants than firms with low unionization rates. This relationship is stronger for firms with larger cash reserves. Our analysis also reveals that debt covenant violations lead to a lower probability of a strike. Additionally, we find that high-unionization firms are in better financial condition prior to covenant violations than low-unionization firms. Our study confirms the existing literature by showing that long-term abnormal stock returns after covenant violations are significantly positive. However, our results also show that high-unionization firms experience smaller stock returns compared to low-unionization firms. Furthermore, we provide evidence that high-unionization firms tend to manipulate earnings downward before covenant violations. These findings suggest that firms may strategically violate debt covenants to gain bargaining flexibility and force labor unions to make concessions in subsequent negotiations.
Journal: The European Journal of Finance
Pages: 1030-1047
Issue: 9
Volume: 30
Year: 2024
Month: 06
X-DOI: 10.1080/1351847X.2023.2259438
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2259438
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:9:p:1030-1047
Template-Type: ReDIF-Article 1.0
# input file: REJF_A_2250379_J.xml processed with: repec_from_jats12.xsl darts-xml-transformations-20240209T083504 git hash: db97ba8e3a
Author-Name: Théo Nicolas
Author-X-Name-First: Théo
Author-X-Name-Last: Nicolas
Title: Bank market power and interest rate setting: why consolidated banking data matter
Abstract:
The literature on the effects of bank market power on access to credit has produced many results that are sometimes contradictory. Yet, all of these studies are based on unconsolidated data that ignore the national market power of banking groups. This results in an underestimation bias that this paper proposes to correct. Using a panel of more than 55,000 French firms covering the period 2006–2017, I consider a set of structural and non-structural measures of bank market power both at the unconsolidated and consolidated levels. My results strongly support the market power hypothesis which emphasizes the virtues of competition on interest rate setting. I find that bank market power increases the interest rate charged, but only when using my consolidated measures. This effect is stronger for small and risky firms and is concentrated on long-term loans. My findings highlight the need to take into account the capital linkages of subsidiaries within the same banking group in order to fully assess the implications of bank market power.
Journal: The European Journal of Finance
Pages: 980-1007
Issue: 9
Volume: 30
Year: 2024
Month: 06
X-DOI: 10.1080/1351847X.2023.2250379
File-URL: http://hdl.handle.net/10.1080/1351847X.2023.2250379
File-Format: text/html
File-Restriction: Access to full text is restricted to subscribers.
Handle: RePEc:taf:eurjfi:v:30:y:2024:i:9:p:980-1007