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Full-Text Articles in Business

Financial Risk Management: Lessons From The Current Crisis ... So Far, Knowledge@Smu Dec 2008

Financial Risk Management: Lessons From The Current Crisis ... So Far, Knowledge@Smu

Knowledge@SMU

The current economic recovery looks long and difficult, and makes providing for an ageing population an even greater challenge. Will economies rebound to provide for the health care needs of retirees? At a conference organised in November 2008 by the Sim Kee Boon Institute’s newly launched Center for Silver Security at the Singapore Management University, Todd Groome of the International Monetary Fund spoke on how the ongoing financial crisis could shape retirement risk.


How Surprising Are Returns In 2008? A Review Of Hedge Fund Risks, Melvyn Teo Dec 2008

How Surprising Are Returns In 2008? A Review Of Hedge Fund Risks, Melvyn Teo

Research Collection BNP Paribas Hedge Fund Centre

Many investors, expecting absolute returns, were shocked by the dismal performance of various hedge fund investment strategies in 2008. In this issue of the statistical digest, I review the academic literature on hedge fund risks and conduct some simple analyses. I find that many hedge funds, even those without directional equity exposure, have payoffs that resemble those from writing put options on equity indices. A central theme is that their strategies all involve being short liquidity. Therefore, these hedge funds tend to underperform during liquidity crises, which coincide with extreme bear markets.


Style Investing And Institutional Investors, Kenneth Froot, Melvyn Teo Dec 2008

Style Investing And Institutional Investors, Kenneth Froot, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

This paper explores the importance and price implications of style investing by institutional investors in the stock market. To analyze styles, we assign stocks to deciles or segments across three style dimensions: size, value/growth, and sector. We find strong evidence that institutional investors reallocate across style groupings more intensively than across random stock groupings. In addition, we show that own segment style inflows and returns positively forecast future stock returns, while distant segment style inflows and returns forecast negatively. We argue that behavioral theories play a role in explaining these results.


Thierry Apoteker On The Threat Of Global Stagflation, Knowledge@Smu Nov 2008

Thierry Apoteker On The Threat Of Global Stagflation, Knowledge@Smu

Knowledge@SMU

Managing director Thierry Apoteker and his team at French company T-A-C (Thierry Apoteker Consulting) have correctly predicted many of the economic shocks that the world has seen in the past three months. In a recent presentation hosted by the International Trading Institute, Singapore Management University, Apoteker made a convincing case for worldwide inflation and recession, known as stagflation.


Fair-Value Accounting Provides Much Needed Transparency In Dislocated Markets, Knowledge@Smu Nov 2008

Fair-Value Accounting Provides Much Needed Transparency In Dislocated Markets, Knowledge@Smu

Knowledge@SMU

In the current global financial turmoil, more transparency is needed, not less, say Singapore Management University professor of accounting Andrew Lee and accounting lecturer Lim Chu Yeong. While some critics argue that fair-value accounting is partly to blame and should be suspended, in a recent commentary Lee and Lim made the case for fair-value accounting as having an important role to play in providing timely and relevant information to investors.


Retail Investors And Structured Products: A Case Of 'Buyer Beware'!, Knowledge@Smu Nov 2008

Retail Investors And Structured Products: A Case Of 'Buyer Beware'!, Knowledge@Smu

Knowledge@SMU

Across the globe, buyers of structured products linked to Lehman Brothers have seen their investments wiped out. In Singapore, the MAS (Monetary Authority of Singapore) has appointed an independent committee to oversee the review and resolution of customer complaints. Tan Chong Hui, professor of quantitative finance at Singapore Management University, has this advice especially for retail investors of structured products: caveat emptor or ‘buyer beware’.


Market Segmentation, Liquidity Spillover, And Closed-End Country Fund Discounts, Sai Pang (Justin) Chan, Ravi Jain, Yihong Xia Nov 2008

Market Segmentation, Liquidity Spillover, And Closed-End Country Fund Discounts, Sai Pang (Justin) Chan, Ravi Jain, Yihong Xia

Research Collection Lee Kong Chian School Of Business

In a segmented international capital market, the illiquidity of a country fund in the market in which its shares are traded affects only the share price of the fund (S), while the illiquidity of its underlying assets in the market in which these are traded affects only the fund net asset value (NAV). In an integrated market, illiquidity in one market can easily spill over to another and affect both the fund share price and its underlying asset value. It follows that the closed-end country fund premium, P[reverse not equivalent]ln(S)-ln(NAV), is negatively (positively) affected by the fund (underlying asset) illiquidity …


Money Largely Accounts For Increased Unemployment During Stagflation, Shows A Recent Study, Knowledge@Smu Oct 2008

Money Largely Accounts For Increased Unemployment During Stagflation, Shows A Recent Study, Knowledge@Smu

Knowledge@SMU

Is there a relation between money, measured by inflation or interest rates, and unemployment? According to Aleksander Berensten, Guido Menzio and Randall Wright -- co-authors of a recent paper on “Inflation and Unemployment in the Long Run” -- there is a strong positive relation. Wright, who is professor of economics at Wharton, presented a seminar based on their paper at the Singapore Management University’s School of Economics.


Ceo Characteristics, Ceo-Firm Match And Corporate Refocus Value, Sheng Huang Oct 2008

Ceo Characteristics, Ceo-Firm Match And Corporate Refocus Value, Sheng Huang

Research Collection Lee Kong Chian School Of Business

This paper investigates how CEO characteristics affect firm value through divestiture. Using a novel dataset tracking CEO’s career path, from which CEO’s talent and expertise are reasonably inferred, I find when CEOs have differing abilities across divisions of conglomerates, they more likely divest divisions that they are less qualified to manage, and focus on divisions of better match with their talents and expertise. The better match of their talents with firms’ retained assets is the source of value creation from refocusing divestiture. Divestitures that increase corporate focus but not improve the talent-asset match do not create value in long run. …


Digital Storytelling Engages Tech-Savvy Accounting Students, Knowledge@Smu Sep 2008

Digital Storytelling Engages Tech-Savvy Accounting Students, Knowledge@Smu

Knowledge@SMU

Singapore has ambitions to become a global hub for `digital economy’ services. In September 2008, Singapore’s National Library Board, National Book Development Council and The Arts House are hosting the inaugural Asian Digital Storytelling Congress, Beyond Words 2008. Themin Suwardy, accountancy professor and associate dean at Singapore Management University, is one of the key speakers at the congress. His topic: Academic Learning through Digital Storytelling.


Home Biased Analysts In Emerging Markets, Sandy Lai, Melvyn Teo Sep 2008

Home Biased Analysts In Emerging Markets, Sandy Lai, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

We find that local analyst recommendations are systematically more optimistic than foreign analyst recommendations in emerging markets. The effects of this novel home bias among local analysts overwhelm any information asymmetry between foreign and local analysts. Consequently, local analyst upgrades underperform foreign analyst upgrades, while local analyst downgrades outperform foreign analyst downgrades. Neither foreign investors, local institutions, nor retail investors appear to be fully cognizant of this bias. Trade reactions suggest that foreign investors overestimate the bias in foreign analyst recommendations while local institutions underestimate the bias in local analyst recommendations. These results are pervasive across countries, time periods, and …


Software Nightmares, Manoj Thulasidas Sep 2008

Software Nightmares, Manoj Thulasidas

Research Collection School Of Computing and Information Systems

To err is human, but to really foul things up, you need a computer. So states the remarkably insightful Murphy’s Law. And nowhere else does this ring truer than in our financial workplace. After all, it is the financial sector that drove the rapid progress in the computing industry – which is why the first computing giant had the word “business” in its name. The financial industry keeps up with the developments in the computer industry for one simple reason. Stronger computers and smarter programs mean more money — a concept we readily grasp. As we use the latest and …


The Asian Banker: From Trade Journal To Industry Benchmark Setter, Knowledge@Smu Aug 2008

The Asian Banker: From Trade Journal To Industry Benchmark Setter, Knowledge@Smu

Knowledge@SMU

Emmanuel Daniel is founding president and editor-in-chief of The Asian Banker, one of the region’s leading consultancies in financial services research, benchmarking and intelligence. A trade publisher should provide leadership and not be a follower of the industry that it covers, believes Daniel, who spoke recently at a Masters Seminar on benchmarking and measuring IT performance in banks organised by the School of Information Systems, Singapore Management University.


Momentum And Informed Trading, A. Hameed, Dong Hong, Mitchell Craig Warachka Aug 2008

Momentum And Informed Trading, A. Hameed, Dong Hong, Mitchell Craig Warachka

Research Collection Lee Kong Chian School Of Business

Consistent with the predictions of Wang (1994), we document that firm-specific informed trading is an important determinant of price momentum. The stronger return continuation in stocks with more informed trading cannot be explained by cross-sectional differences in uncertainty proxies such as analyst forecast dispersion, analyst coverage, idiosyncratic return volatility, and size. The relationship between informed trading and return continuation is also not attributable to cross-sectional differences in liquidity. Instead, our evidence emphasizes the role of price discovery in generating short-term price momentum.


Being Naive About Naive Diversification: Can Investment Theory Be Consistently Useful?, Jun Tu, Guofu Zhou Aug 2008

Being Naive About Naive Diversification: Can Investment Theory Be Consistently Useful?, Jun Tu, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

The modern portfolio theory pioneered by Markowitz (1952) is widely used in practice and taught in MBA texts. DeMiguel, Garlappi and Uppal (2007), however, show that, due to estimation errors, existing theory-based portfolio strategies are not as good as we once thought, and the estimation window needed for them to beat the naive $1/N$ strategy (that invests equally across N risky assets) is 'around 3000 months for a portfolio with 25 assets and about 6000 months for a portfolio with 50 assets.' In this paper, we modify the modern portfolio theory to account for estimation errors, so that the theory …


Hedge Funds In A Volatile Market, Melvyn Teo Jul 2008

Hedge Funds In A Volatile Market, Melvyn Teo

Research Collection BNP Paribas Hedge Fund Centre

We show that relative to the first half of 2007, the volatility of hedge fund returns has doubled during the September 2007 to April 2008 period. At the same time, aggregate hedge fund returns have declined while exit rates have tripled. Commodity, macro, and, to a lesser extent, arbitrage funds outperformed during this period, while bottom-up funds underperformed. In Asia, funds engaging in less traditional strategies like arbitrage, event driven, fixed income, and distressed debt have emerged relatively unscathed. Our results also suggest that around the world, funds with headquarters near their investment markets, fewer assets under management, and higher …


Herd Behaviour In Financial Markets: Do Traders Follow The Crowd Or Do Their Own Thing?, Knowledge@Smu Jul 2008

Herd Behaviour In Financial Markets: Do Traders Follow The Crowd Or Do Their Own Thing?, Knowledge@Smu

Knowledge@SMU

In financial markets, what part of a trader’s action is simply “following the crowd” or herding, and how much is based on the trader’s own information? Herding has been shown to decrease the stability and efficiency of markets, hence the interest in these behaviours. Marco Cipriani (Asian Division, IMF Institute) and Antonio Guarino (University College London) studied herd behaviour in a laboratory setting involving financial market professionals. Cipriani presented a co-authored IMF working paper on herd behaviour in financial markets at a recent seminar at the Singapore Management University. --------------------------------------------------------------------------------


The Disparity Between Long-Term And Short-Term Forecasted Earnings Growth, Zhi Da, Mitchell Craig Warachka Jul 2008

The Disparity Between Long-Term And Short-Term Forecasted Earnings Growth, Zhi Da, Mitchell Craig Warachka

Research Collection Lee Kong Chian School Of Business

We find the disparity between long-term and short-term analyst forecasted earnings growth is a robust predictor of future returns and revisions in long-term forecasted earnings growth. After adjusting for industry characteristics, stocks whose long-term earnings growth forecasts are far above or far below their implied short-term forecasts for earnings growth have negative and positive subsequent risk-adjusted returns, respectively. Despite the importance of conditioning on short-term forecasted earnings growth, these returns are not driven by earnings momentum. Instead, consistent with investors having limited attention, predictable revisions in long-term analyst forecasts appear to induce return predictability.


Earnings Asymmetric Timeliness And Shareholder Distributions, Richard M. Frankel, Yan Sun, Rong Wang Jul 2008

Earnings Asymmetric Timeliness And Shareholder Distributions, Richard M. Frankel, Yan Sun, Rong Wang

Research Collection Lee Kong Chian School Of Business

We study whether more asymmetrically timely earnings constrain payouts to shareholders in the presence of bad news. Our goal is to provide evidence on the ex post contracting benefits of accounting conservatism. We distinguish between cash flow asymmetric timeliness and accrual asymmetric timeliness to examine how each relates to asymmetric sensitivity of shareholder payouts. We find that only the asymmetric timeliness of cash flows is significantly related to the asymmetric sensitivity of shareholder payouts. Other measures of conservatism (earnings skewness and accumulated nonoperating accruals) are also not significantly related to the sensitivity of shareholder payouts given bad news. These results …


Can Monetary Policy Help To Stabilise Asset Prices?, Knowledge@Smu Jun 2008

Can Monetary Policy Help To Stabilise Asset Prices?, Knowledge@Smu

Knowledge@SMU

Should central banks use monetary policy to stabilise asset prices, particularly home and equity prices? Stefan Gerlach, professor of monetary economics, Johann Wolfgang Goethe University of Frankfurt, points out that no central bank has had lowering home prices as one of its policy goals. Gerlach spoke recently at an Economics and Statistics Seminar at the Singapore Management University on how residential property and equity prices, inflation and economic activity responded to monetary policy shocks in 17 countries from 1986 to 2006.


Behavioral Explanations Of Trading Volume And Short-Horizon Price Patterns: An Investigation Of Seven Asia-Pacific Markets, David K. Ding, Thomas H. Mclnish, Udomsak Wongchoti Jun 2008

Behavioral Explanations Of Trading Volume And Short-Horizon Price Patterns: An Investigation Of Seven Asia-Pacific Markets, David K. Ding, Thomas H. Mclnish, Udomsak Wongchoti

Research Collection Lee Kong Chian School Of Business

We investigate whether behavioral postulations offer any implicit explanation of the country-varying relation between trading volume and price pattern among short-horizon winners/losers in seven Pacific-Basin markets during the period 1990 to 2000. Our findings lend credence to the Lee and Swaminathan [Lee, C. and Swaminathan, B., 2000. Price momentum and trading volume, Journal of Finance 55, 2017-2069.] Momentum Life Cycle explanation that high (low) volume winners (losers) are more likely to experience price reversals, whereas high (low) volume losers (winners), price momentum, in the subsequent period. This observation is especially pronounced in Hong Kong. Other models such as those based …


A Tale Of Two Prices: Liquidity And Asset Prices In Multiple Markets, Justin Sai Pang Chan, Dong Hong, Marti G. Subrahmanyam Jun 2008

A Tale Of Two Prices: Liquidity And Asset Prices In Multiple Markets, Justin Sai Pang Chan, Dong Hong, Marti G. Subrahmanyam

Research Collection Lee Kong Chian School Of Business

This paper investigates the liquidity effect in asset pricing by studying the liquidity-premium relationship of an American depositary receipt (ADR) and its underlying share. Using the [Amihud, Yakov, 2002. Illiquidity and stock returns: cross-section and time series effects. Journal of Financial Markets 5, 31-56] measure, the turnover ratio and trading infrequency as proxies for liquidity, we show that a higher ADR premium is associated with higher ADR liquidity and lower home share liquidity, in terms of changes in these variables. We find that the liquidity effects remain strong after we control for firm size and a number of country characteristics, …


Corporate Governance, Shareholder Rights, And Shareholder Rights Plans: Poison, Placebo, Or Prescription?, Gary L. Caton, Jeremy C. Goh Jun 2008

Corporate Governance, Shareholder Rights, And Shareholder Rights Plans: Poison, Placebo, Or Prescription?, Gary L. Caton, Jeremy C. Goh

Research Collection Lee Kong Chian School Of Business

We examine the effect of poison pill adoptions on firm value, controlling for the adopting firm's preexisting corporate governance structure. We find that only companies with the most democratic governance structures, defined as those with the fewest preexisting protective governance provisions, experience significantly positive abnormal stock returns and significantly positive abnormal revisions in five-year earnings growth rate forecasts. Moreover, regression results indicate that abnormal returns and forecast revisions are significantly related to governance structure and not to board composition or subsequent merger activity.


Retirement Planning: Most People Don’T Know How Nor Even Think About It, Knowledge@Smu Apr 2008

Retirement Planning: Most People Don’T Know How Nor Even Think About It, Knowledge@Smu

Knowledge@SMU

Worldwide, individuals are being asked to make more of their own savings and investment decisions, especially for retirement. In the US and Europe, for example, company-managed pension plans are giving way to those where employees are in charge of their own retirement money. In Singapore too, the government is encouraging individuals to take a more active role in their own retirement planning. Research by Wharton insurance and risk management professor Olivia Mitchell and Singapore Management University finance professor Benedict Koh shows, however, that people are not well-equipped to handle such investment decisions.


Measuring Economic Value Added (Eva): How Corporate Governance Works For Shareholders, Knowledge@Smu Apr 2008

Measuring Economic Value Added (Eva): How Corporate Governance Works For Shareholders, Knowledge@Smu

Knowledge@SMU

Economic Value Added (EVA)” is a registered trademark of Stern Stewart & Co, a consulting firm which implements the EVA concept for large companies. Joel M. Stern, managing partner of Stern Stewart since its inception, is a recognised authority on corporate performance measurement and a pioneer and proponent of shareholder value. Stern recently delivered the Shaw Foundation Distinguished Faculty Lecture at the Singapore Management University on how to make corporate governance work for shareholders. This article explains why EVA as a way of measuring a firm's performance matters.


Which Shorts Are Informed?, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang Apr 2008

Which Shorts Are Informed?, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang

Research Collection Lee Kong Chian School Of Business

We construct a long daily panel of short sales using proprietary NYSE order data. From 2000 to 2004, shorting accounts for more than 12.9% of NYSE volume, suggesting that shorting constraints are not widespread. As a group, these short sellers are well informed. Heavily shorted stocks underperform lightly shorted stocks by a risk-adjusted average of 1.16% over the following 20 trading days (15.6% annualized). Institutional nonprogram short sales are the most informative; stocks heavily shorted by institutions underperform by 1.43% the next month (19.6% annualized). The results indicate that, on average, short sellers are important contributors to efficient stock prices.


Leverage Change, Debt Capacity, And Stock Prices, Jie Cai, Zhe (Joe) Zhang Apr 2008

Leverage Change, Debt Capacity, And Stock Prices, Jie Cai, Zhe (Joe) Zhang

Research Collection Lee Kong Chian School Of Business

We document a significantly negative effect of the change in a firm’s leverage ratio on its stock prices. This effect cannot be explained by popular asset pricing factors or firm characteristics. We find that the negative effect is stronger for firms with limited debt capacity. Moreover, firms with an increase in leverage ratio tend to have less future investment, even after controlling for growth option and target leverage. These findings are consistent with a dynamic view of the pecking-order theory that an increase in leverage reduces firms’ safe debt capacity and may lead to future underinvestment, thus reducing firm value. …


The Impact Of Investor Protection Law On Takeovers: The Case Of Leveraged Buyouts, Jerry Cao, Douglas J. Cumming, Jeremy Goh, Meijun Qian, Xiaoming Wang Mar 2008

The Impact Of Investor Protection Law On Takeovers: The Case Of Leveraged Buyouts, Jerry Cao, Douglas J. Cumming, Jeremy Goh, Meijun Qian, Xiaoming Wang

Research Collection Lee Kong Chian School Of Business

This paper examines the impact of investor protection on the value creation of LBOs. We find that target shareholders’ wealth gain is higher in countries with better investor protection. The impact of investor protection on takeover premium is larger for LBO than non-LBO transactions. We also find evidence suggesting that club LBOs are not priced lower than non-club deals after accounting for endogeneity problem. These results suggest that investor protection law may act as an important safeguard for minority shareholders in LBO transactions.


Investment Patterns In Singapore's Central Provident Fund System, Benedict S. K. Koh, Olivia S. Mitchell, Toto Tanuwidjaja, Joelle Fong Mar 2008

Investment Patterns In Singapore's Central Provident Fund System, Benedict S. K. Koh, Olivia S. Mitchell, Toto Tanuwidjaja, Joelle Fong

Research Collection Lee Kong Chian School Of Business

Rising elderly life expectancies imply the need to accumulate sufficient savings for retirement. This paper investigates the role of recent changes in the investment menu of the Singaporean Central Provident Fund (CPF) system. Our research explores the investment patterns of CPF participants and articulates their implications for policymakers. We find that most investors use their money for housing purchase and default the remainder to the CPF investment pool. The bulk of non-housing saving sits in bank accounts paying a low return. A fraction of workers does elect outside investment products, with high-income earners and males taking more risk than low-income …


Liquidity Distribution In The Limit Order Book On The Stock Exchange Of Thailand, Nuttawat Visaltanachoti, Charlie Charoenwong, David K. Ding Mar 2008

Liquidity Distribution In The Limit Order Book On The Stock Exchange Of Thailand, Nuttawat Visaltanachoti, Charlie Charoenwong, David K. Ding

Research Collection Lee Kong Chian School Of Business

The liquidity distribution, or the shape of the limit order book, influences trading behavior and choice of order submission by public liquidity suppliers. The present study seeks to discover whether liquidity providers are concerned about being picked off by informed traders, and whether they are less willing to supply liquidity at the market or demand higher price spreads. The results show that liquidity at the market is a small portion of total liquidity, and that firm size, minimum tick size, volatility, and trading volume play significant roles in determining the liquidity distribution within an order book.