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Full-Text Articles in Social and Behavioral Sciences

Estimating The Benefits And Costs Of Forming Business Partnerships, Jungho Lee Jun 2020

Estimating The Benefits And Costs Of Forming Business Partnerships, Jungho Lee

Research Collection School Of Economics

I estimate a matching model of business‐partnership formation to quantify the relative importance of productivity gains, financing gains, and the coordination failure of effort provision (moral hazard) among partners. Productivity gains account for 61% of the gain from the observed partnerships. For partners in the first quartile of the wealth distribution, however, financing accounts for 93% of the gain. The cost of moral hazard corresponds to 42% of the entire gain from partnerships. A loan policy specifically targeting partnerships is less effective in improving welfare than a conventional loan policy that provides loans to individual entrepreneurs.


Time-Series Momentum: Is It There?, Dashan Huang, Jiangyuan Li, Liyao Wang, Guofu Zhou Mar 2020

Time-Series Momentum: Is It There?, Dashan Huang, Jiangyuan Li, Liyao Wang, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

Time-series momentum (TSM) refers to the predictability of the past 12-month return on the next one-month return, and is the focus of several recent influential studies. This paper shows, however, that asset-by-asset time-series regressions reveal little evidence of TSM, both in- and out-of-sample. While the t-statistic in a pooled regression appears large, it is not statistically reliable as it is less than the critical values of parametric and non-parametric bootstraps. From an investment perspective, the TSM strategy is profitable, but its performance is virtually the same as that of a similar strategy that is based on historical sample mean and ...


A Behavioral Signaling Explanation For Stock Splits: Evidence From China, Chenyu Cui, Frank Weikai Li, Jiaren Pang, Deren Xie Mar 2020

A Behavioral Signaling Explanation For Stock Splits: Evidence From China, Chenyu Cui, Frank Weikai Li, Jiaren Pang, Deren Xie

Research Collection Lee Kong Chian School Of Business

We propose a behavioral signaling explanation for the positive announcement effects of stock splits. There are two key behavioral ingredients in our model. First, (retail) investors have misconceptions about stock splits that make them view stock splits as good news. Second, investors are loss-averse and will be particularly disappointed if a splitting firm’s ex-post performance falls short of expectation. In a separating equilibrium, only managers with favorable private information use stock splits to signal. Using a comprehensive sample of stock splits in China over the period of 1998 to 2017, we find supporting evidence: (1) stock splits elicit positive ...


Why Commonality Persists?, Raja Velu, Zhaoque Zhou, Chyng Wen Tee Mar 2020

Why Commonality Persists?, Raja Velu, Zhaoque Zhou, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

Studies on commonality in returns, order flows and liquidity find that the first principal component is closely aligned with the market factor. With the increasing presence of high-frequency trading, commonality in returns, order flows, and liquidity can potentially arise from the commonality in the interpretation of real-time signals. In this paper, we go beyond the first factor and show that the other dominant principal components consistently reflects investors' herding behavior, demonstrating the multi-dimensional aspect of commonality. Instead of relating the asset returns to order flows, we take both as endogenous, and provide empirical evidence showing that returns commonality is driven ...


Time Series Momentum: Is It There?, Dashan Huang, Jiangyuan Li, Liyao Wang, Guofu Zhou Mar 2020

Time Series Momentum: Is It There?, Dashan Huang, Jiangyuan Li, Liyao Wang, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

Time series momentum (TSM) refers to the predictability of the past 12-month return on the next one-month return and is the focus of several recent influential studies. This paper shows that asset-by-asset time series regressions reveal little evidence of TSM, both in- and out-of-sample. While the t-statistic in a pooled regression appears large, it is not statistically reliable as it is less than the critical values of parametric and nonparametric bootstraps. From an investment perspective, the TSM strategy is profitable, but its performance is virtually the same as that of a similar strategy that is based on historical sample mean ...


Commentary: Where Does The Talent Pools Of Smes Come From?, T. Mandy Tham Mar 2020

Commentary: Where Does The Talent Pools Of Smes Come From?, T. Mandy Tham

Research Collection Lee Kong Chian School Of Business

In a commentary, SMU Assistant Professor of Finance Mandy Tham explored how ‘family members’ is defined could affect the size of talent pool for SMEs and family businesses, and suggested some criteria for the selection of family members to be nurtured for the SMEs and family businesses.


High Sex Ratios And Household Portfolio Choice In China, Wenchao Li, Changcheng Song, Shu Xu, Junjian Yi Jan 2020

High Sex Ratios And Household Portfolio Choice In China, Wenchao Li, Changcheng Song, Shu Xu, Junjian Yi

Research Collection Lee Kong Chian School Of Business

This paper studies how high sex ratios (more men than women) affect household portfolio choice. Using data from a nationally representative Chinese household finance survey, we find that a 1 standard deviation increase in the sex ratio would raise the stock market participation rate by 2.9 percentage points or 52.2 percent for families with a son relative to families with a daughter. Our estimates imply that rising sex ratios explain around 10 percent of the significant growth in China’s stock market size in recent decades.


Geography, Trade And Power-Law Phenomena, Pao-Li Chang, Wen-Tai Hsu Jan 2020

Geography, Trade And Power-Law Phenomena, Pao-Li Chang, Wen-Tai Hsu

Research Collection School Of Economics

This article reviews interrelated power-law phenomena in geography and trade. Given the empirical evidence on the gravity equation in trade flows across countries and regions, its theoretical underpinnings are reviewed. The gravity equation amounts to saying that trade flows follow a power law in distance (or geographic barriers). It is concluded that in the environment with firm heterogeneity, the power law in firm size is the key condition for the gravity equation to arise. A distribution is said to follow a power law if its tail probability follows a power function in the distribution’s right tail. The second part ...


Long-Term Index Fund Ownership And Stock Returns, Ekkehart Boehmer, Wanshan Song, Ashish Tiwari, Zhe Zhang Dec 2019

Long-Term Index Fund Ownership And Stock Returns, Ekkehart Boehmer, Wanshan Song, Ashish Tiwari, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

We examine the implications of stock ownership by index funds for shareholder value. Consistent with recent findings that stock ownership by passive funds contributes to improved governance, we document a strong positive relation between the duration of passive fund holdings and subsequent stock performance. This positive relation is more pronounced for firms with recent poor performance, and for smaller firms and firms with higher allocation weights in passive funds’ portfolios. Our results support the view that index funds, although passive in their investment decisions, successfully contribute to long-term value creation by actively engaging with firms on matters of governance.


Do Real Estate Agents Have Information Advantages In Housing Markets?, Sumit Agarwal, Jia He, Tien Foo Sing, Changcheng Song Dec 2019

Do Real Estate Agents Have Information Advantages In Housing Markets?, Sumit Agarwal, Jia He, Tien Foo Sing, Changcheng Song

Research Collection Lee Kong Chian School Of Business

We use a large housing transaction data set in Singapore to study whether real estate agents use information advantages to buy houses at bargain prices. Agents bought their own houses at prices that are 2.54% lower than comparable houses bought by other buyers. Consistent with information asymmetries, agent buyers have more information advantages in less informative environments, and agent buyers are more likely to buy houses from agent sellers. Agent discounts are from both “cherry picking” and bargaining power, and bargaining power contributes more to the agent discounts. Agents’ advantage consists in their information of available houses and previous ...


Surviving The Property Market In A Low-Interest And Low-Yield Environment, Singapore Management University Nov 2019

Surviving The Property Market In A Low-Interest And Low-Yield Environment, Singapore Management University

Perspectives@SMU

REITs should note current conditions that echo those leading up to the 2008 Global Financial Crisis and clean up their balance sheets


Irrational Exuberance: Panic Rooms And Flutters In Financial Markets, Vijay Fafat Nov 2019

Irrational Exuberance: Panic Rooms And Flutters In Financial Markets, Vijay Fafat

Asian Management Insights

As the memory of the 2008 financial crash fades, there are cautionary thoughts on why we tend to overshoot in our optimism, and why even genius comes to grief in the face of capricious, mercurial capital markets.


The Role Of Social Trust In Times Of Crisis, Singapore Management University Oct 2019

The Role Of Social Trust In Times Of Crisis, Singapore Management University

Perspectives@SMU

Research shows social trust improves the resilience of firms to banking crises


Understanding The Fundamentals Of Freight Markets Volatility, Kian Guan Lim, Nikos K. Nomikos, Nelson Yap Oct 2019

Understanding The Fundamentals Of Freight Markets Volatility, Kian Guan Lim, Nikos K. Nomikos, Nelson Yap

Research Collection Lee Kong Chian School Of Business

We analyse empirically the drivers of freight market volatility. We use several macroeconomic and shipping-related factors that are known to affect the supply and demand for shipping and examine their impact on the term structure of freight options implied volatilities (IV). We find that the level of IVs is affected by the level of the spot rate, the slope of the forward curve, as well as by both demand and supply factors, especially the former. We demonstrate that the relation between the volatility of futures prices and the slope of the forward curve is non-monotonic and convex, that is, it ...


Show Me The (Value Of) Money!, Singapore Management University Sep 2019

Show Me The (Value Of) Money!, Singapore Management University

Perspectives@SMU

Plenty of adults are not financially literate. Teaching children early can make a big difference


The Information In Asset Fire Sales, Sheng Huang, Matthew Ringgenberg, Zhe Zhang Sep 2019

The Information In Asset Fire Sales, Sheng Huang, Matthew Ringgenberg, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

Asset prices remain depressed for several years following mutual fund fire sales. We show that this price pressure is partly due to asymmetric information which leads to an adverse selection problem for arbitrageurs. After a flow shock, fund managers do not scale down their portfolio, rather, they choose to sell a subset of low-quality stocks that subsequently underperform. In other words, fund managers have stock selling ability. Our findings suggest an explanation for the tendency of asset prices to remain depressed following fire sales: information asymmetries make it difficult for arbitrageurs to disentangle pure price pressure from negative information.


Volatility Timing Under Low-Volatility Strategy, Poh Ling Neo, Chyng Wen Tee Sep 2019

Volatility Timing Under Low-Volatility Strategy, Poh Ling Neo, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

The authors devise a volatility timing strategy based on statistical tests on the slope of the volatility decile portfolio return profile. Superior performance is obtained, with a 30% increase in Sharpe ratio and an order of magnitude improvement on cumulated wealth. The profitability of the volatility timing strategy can be attributed to holding a diversified portfolio during bear markets, while holding a concentrated growth portfolio during bull markets.


Forecasting Realized Volatility Using A Nonnegative Semiparametric Model, Anders Eriksson, Daniel P. A. Preve, Jun Yu Sep 2019

Forecasting Realized Volatility Using A Nonnegative Semiparametric Model, Anders Eriksson, Daniel P. A. Preve, Jun Yu

Research Collection School Of Economics

This paper introduces a parsimonious and yet flexible semiparametric model to forecastfinancial volatility. The new model extends a related linear nonnegative autoregressive modelpreviously used in the volatility literature by way of a power transformation. It is semiparametric inthe sense that the distributional and functional form of its error component is partially unspecified.The statistical properties of the model are discussed and a novel estimation method is proposed.Simulation studies validate the new method and suggest that it works reasonably well in finitesamples. The out-of-sample forecasting performance of the proposed model is evaluated against anumber of standard models, using data on ...


The World Predictive Power Of U.S. Equity Market Skewness Risk, Jian Chen, Fuwei Jiang, Shuyu Xue, Jiaquan Yao Sep 2019

The World Predictive Power Of U.S. Equity Market Skewness Risk, Jian Chen, Fuwei Jiang, Shuyu Xue, Jiaquan Yao

Research Collection Lee Kong Chian School Of Business

This study investigates the cross-country impact of U.S. equity market skewness risk. We find that a large decrease in the U.S. market skewness significantly predicts higher future returns on international equity markets. The predictability remains significant after controlling for a set of U.S. and local forecasting variables. Furthermore, we find strong predictability in- an out-of-sample setting and the predictability delivers a large economic value. The U.S. market skewness also forecasts U.S. economic recessions and international market conditions, consistent with the international three-moment capital asset pricing model (three-moment CAPM) and the intertemporal capital asset pricing model ...


Institutional Management And Institutional Trading, Jingi Ha Jun 2019

Institutional Management And Institutional Trading, Jingi Ha

Dissertations and Theses Collection (Open Access)

This dissertation consists of three papers in mutual fund governance or market microstructure that analyze the causal effect of board independence on mutual fund performance or the trading behavior of institutional trading and informed trading.

Chapter I studies how board independence affects fund performance, in relation to investment experience of independent directors. Using the SEC amendment in 2001 as an exogenous shock, I find that board independence does not improve or damage fund performance on average. When a fund board has independent directors with investment experience, however, it boosts fund performance. I also find that a fund manager is less ...


Three Essays On Information Diffusion And Market Friction, Li Guo May 2019

Three Essays On Information Diffusion And Market Friction, Li Guo

Dissertations and Theses Collection (Open Access)

How markets impound information into asset prices is one of the most important concerns of financial economics. Due to behavioural bias and transaction friction, information could be mispriced in the real world, thus driving market anomalies and return predictability of behavioural factors. My dissertation contributes to the literature by investigating how information can be quantified, acquired, disseminated and priced in the financial market with the existence of market frictions.

In Chapter 2, we propose an efficient method based on machine learning and textual analysis to quantify cross industry news and shed light on how news travels across different industries. The ...


Sources Of Financing For Real Estate In Singapore, Francis Koh, Karen Gan Apr 2019

Sources Of Financing For Real Estate In Singapore, Francis Koh, Karen Gan

Research Collection Lee Kong Chian School Of Business

Real Estate Investments and Financing may be depicted by the four quadrants model: public equity, private equity, public debt and private debt. This paper discusses the various methods of financing available to real estate companies in Singapore. We showed that the availability of financing for real estate is affected by supply and demand of capital and underlying market conditions. Thus, it is imperative for real estate companies to use a variety of sources to finance their projects. We also provide a discussion of two large property companies in Singapore to illustrate the use of debt and equity for financing real ...


Robust Measures Of Earnings Surprises, Chin-Han Chiang, Wei Dai, Jianqing Fan, Harrison Hong, Jun Tu Apr 2019

Robust Measures Of Earnings Surprises, Chin-Han Chiang, Wei Dai, Jianqing Fan, Harrison Hong, Jun Tu

Research Collection Lee Kong Chian School Of Business

Event studies of market efficiency measure an earnings surprise with the consensuserror (CE), defined as earnings minus the average of professional forecasts. Even if asubset of forecasts can be biased, the ideal but difficult to estimate parameter-dependentalternative to CE is a nonlinear filter of individual errors that adjusts for bias. We showthat CE is a poor parameter-free approximation for this ideal measure. The fractionof misses on the same side (FOM), by discarding the magnitude of misses, offers a farbetterapproximation. FOM performs particularly well against CE in predicting thereturns of US stocks, where bias is potentially large, than that of international ...


Does Foreign Direct Investment Lead To Industrial Agglomeration?, Wen-Tai Hsu, Yi Lu, Xuan Luo, Lianming Zhu Mar 2019

Does Foreign Direct Investment Lead To Industrial Agglomeration?, Wen-Tai Hsu, Yi Lu, Xuan Luo, Lianming Zhu

Research Collection School Of Economics

This paper studies the effect of foreign direct investment (FDI) on industrial agglomeration.Using the differential effects of FDI deregulation in 2002 in China on different industries, we find that FDI actually affects industrial agglomeration negatively. This result is somewhat counter-intuitive, as the conventional wisdom tends to suggest that FDI attracts domestic firms to cluster for various agglomeration benefits, in particular technology spillovers. To reconcile our empirical findings and the conventional wisdom, we develop a theory of FDI and agglomeration based on two counter-veiling forces. Technology diffusion from FDI attracts domestic firms to cluster, but fiercer competition drives firms away ...


Trading Regularity And Fund Performance, Jeffrey Busse, Lin Tong, Qing Tong, Zhe Zhang Jan 2019

Trading Regularity And Fund Performance, Jeffrey Busse, Lin Tong, Qing Tong, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

We construct a new measure of trading regularity, capturing the extent to which investors trade on a regular basis. Institutional investors that regularly trade outperform those that trade less regularly. The performance of funds that regularly trade persists for at least a year. Among those who trade most regularly, larger funds perform relatively worse, because they incur higher transaction costs associated with their larger trades. Institutions that regularly trade generate superior performance, in part, by behaving as contrarians and by trading more aggressively on information. By contrast, we find no relation between trading regularity and performance among index funds.


Climate Risks And Market Efficiency, Harrison Hong, Frank Weikai Li, Jiangmin Xu Jan 2019

Climate Risks And Market Efficiency, Harrison Hong, Frank Weikai Li, Jiangmin Xu

Research Collection Lee Kong Chian School Of Business

Climate science finds that the trend towards higher global temperatures exacerbates the risks of droughts. We investigate whether the prices of food stocks efficiently discount these risks. Using data from thirty-one countries with publicly-traded food companies, we rank these countries each year based on their long-term trends toward droughts using the Palmer Drought Severity Index. A poor trend ranking for a country forecasts relatively poor profit growth for food companies in that country. It also forecasts relatively poor food stock returns in that country. This return predictability is consistent with food stock prices underreacting to climate change risks.


Intraday Information From S&P 500 Index Futures Options, Kian Guan Lim, Chen Ying, Kian Leong Nelson Yap Jan 2019

Intraday Information From S&P 500 Index Futures Options, Kian Guan Lim, Chen Ying, Kian Leong Nelson Yap

Research Collection Lee Kong Chian School Of Business

In this paper we employ intraday transaction prices of liquid E-mini S&P 500 index futuresoptions to form 10-minutes ahead risk-neutral skewness forecasts and show profitable optionstrading strategy net of transaction costs. We do not find profitable trading based on 10-minutesahead risk-neutral volatility and only very marginal cases of profitable trading using kurtosisforecasts. The skewness profitability anomaly may be an indication of informational marketinefficiency in intraday S&P 500 futures options markets, which is contrary to findings usinglonger-span daily and weekly moments. Our results lend credence to the persistence of intradaytrading activities in the markets.


Financial Sector In Singapore, Hwee Kwan Chow, Sai Fan Pei Jan 2019

Financial Sector In Singapore, Hwee Kwan Chow, Sai Fan Pei

Research Collection School Of Economics

The Routledge Handbook of Banking and Finance in Asia brings together leading scholars, policymakers, and practitioners to provide a comprehensive and cutting-edge guide to Asia’s financial institutions, markets, and systems.Part I provides a country-by-country overview of banking and finance in East, Southeast, and South Asia, including examples from China, Japan, Hong Kong, India, and Singapore.Part II contains thematic chapters, covering topics such as commercial banking, development banking, infrastructure finance, stock markets, insurance, and sovereign wealth funds. It also includes examinations of banking regulation and supervision, and analyses of macroprudential regulation, capital flow management measures, and monetary policy ...


Likely Trajectory Of Fed Policy Far From Settled, David G. Fernandez, Thomas Lam Dec 2018

Likely Trajectory Of Fed Policy Far From Settled, David G. Fernandez, Thomas Lam

Research Collection Lee Kong Chian School Of Business

Markets seem to be assuming an almost pre-set path of Fed policy normalization in 2019, including hiking rates and shrinking the balance sheet. In contrast, we see many uncertainties ahead.


Executive Overconfidence And Securities Class Actions, Suman Banerjee, Mark Humphery-Jenner, Vikram Nanda, T. Mandy Tham Dec 2018

Executive Overconfidence And Securities Class Actions, Suman Banerjee, Mark Humphery-Jenner, Vikram Nanda, T. Mandy Tham

Research Collection Lee Kong Chian School Of Business

Overconfident CEOs/senior executives tend to have excessively positive views of their own skills and their company’s future performance. We hypothesize that overconfident managers are more likely to engage in reckless or intentional actions/disclosures that give rise to securities class actions (SCAs). Empirical evidence is supportive: Overconfident CEOs/senior executives increase SCA likelihood, though litigation risk is ameliorated through improved governance, such as following the Sarbanes–Oxley Act of 2002. Post-SCA, companies are less likely to hire an overconfident CEO. Following an SCA, overconfident CEOs appear to moderate behavior and to reduce their litigation risk.