Finance and Financial Management Commons^™

Internal Debt And Private Investment: Evidence From Pakistan, Muhammad Ramzan Sheikh, Muhammad Zahir Faridi, Shoukat Malik

Business Review

In most of the developing countries financial sectors are characterized by limited availability of loanable funds. Public sector borrowing leads to crowding out of the private sector as well as high interest rates and inflation. In Pakistan, government has relied more on borrowing from the domestic sources as well. The study explores the impacts of internal debt on private investment in Pakistan applying the OLS technique for the period of 1972 to 2009. The study indicates that the stock of internal debt and debt servicing affects the private investment negatively in Pakistan. This implies that internal debt and internal debt …

Delayed-Bang Approach Towards More Sustainable Critical Infrastructure Risk Management, C. Ariel Pinto, Michael K. Mcshane, Abhishek S. Pathak

Finance Faculty Publications

This article describes the Delayed Bang Approach for determining the value of risk management alternatives in critical infrastructure security. The discussion includes (1) the need for sustainable risk management (2) the importance of time valuation in evaluating competing loss prevention and loss reduction alternatives, (3) the convergence of deterministic engineering economics, survivability analysis, and probabilistic analysis, and (4) hypothetical examples of the Delayed-Bang Approach and significance towards more sustainable risk management.

The Implied Volatility Of Etf And Index Options., Stoyu Ivanov, Jeff Whitworth, Yi Zhang

Faculty Publications

We examine the option-implied volatility of the three most liquid ETFs (Diamonds, Spiders, and Cubes) and their respective tracking indices (Dow 30, S&P 500, and NASDAQ 100). We find that volatility smiles for ETF options are more pronounced than for index options, primarily because deep-in-the money ETF options have considerably higher implied volatility than deep-in-the-money index options. The observed difference in implied volatility is not due to a difference between the realized return distributions of the underlying ETFs and indices. Differences in implied volatility for ETF and index options also do not appear to be explained by discrepancies in net …

Cross-Sectional Analysis Of Index And Commodity Markets Price Discovery., Stoyu Ivanov

Faculty Publications

This study examines the determinants of relative price discovery between the futures and cash prices in 30 index and commodity markets based on the Gonzalo and Granger (1995) permanent-transitory decomposition methodology. Twenty-eight indexes and commodities have proportional futures market information shares greater than 60%. Two commodities are the only exception: Feeders Cattle and Wheat-Minneapolis have price discovery occurring predominantly in the cash markets with information shares of their futures contracts of 33% and 40%, respectively. The research documents a significant cross-sectional variability of the information shares across the 30 indexes and commodities and finds that the information shares of the …

Etf Volatility Around The New York Stock Exchange Close., Stoyu Ivanov

Faculty Publications

In this study we extend the work of Chang, Jain and Locke (1995) who study the Standard and Poor’s 500 (S&P 500) Index futures contract volatility around NYSE close by examining three ETFs, the Spider, the Diamonds and the Cubes price volatilities after market close. Similar to the S&P 500 Index futures contract ETFs continue trading until 16:15, which is 15 minutes after their underlying indexes are reported. This is the first study to the best of our knowledge to examine the volatility of ETFs around the NYSE close. We document that similar to the findings of Chang, Jain and …

Peas In A Pod: Canadian And Australian Banks Before And During A Global Financial Crisis, David Allen, Ray Boffey, Robert Powell

Research outputs 2011

In the aftermath of the Global Financial Crisis (GFC), the Canadian and Australian banking systems have been singled out by some commentators as having performed better than many other banking systems, particularly those in Europe, America and the United Kingdom. Banks in both Canada and Australia, for instance, have continued to report enviable earnings, sound capital levels, and high credit ratings both before and during the GFC. The G-20 and the European Union have tried to identify the features of the Canadian and Australian financial systems which have underpinned this success in order to use them in shaping a revised …

Modeling Exchange Rate Exposure In The Japanese Industrial Sectors, P. Jayasinghe, A Tsui, Zhaoyong Zhang

Research outputs 2011

In recent years the volatility of exchange rate exposure and its associated risk have become a hot issue in international financial management. It is often assumed that a firm’s future operating cash flows is proxied by its market value, and the exposure coe fficient would be able to ef ficiently measure the impact of exchange rate changes on a firm’s return and its se nsitivity to the changes. Recen tly, some studies begin to investigate whether exchange rate exposure is asymmetric between currency appreciations and depreciations. By far most existing studies on exchange rate exposure assume that the variances of …

Innovative Transition Matrix Techniques For Measuring Extreme Risk: An Australian And U.S. Comparison, David Allen, Akhmad Kramadibrata, Robert Powell, Abhay Singh

Research outputs 2011

Comparing Australia and the U.S. both prior to and during the Global Financial Crisis (GFC), using a dataset which includes more than six hundred companies, this paper modifies traditional transition matrix credit risk modelling to address two important issues. Firstly, extreme credit risk can have a devastating impact on financial institutions, economies and markets as highlighted by the GFC. It is therefore essential that extreme credit risk is accurately measured and understood. Transition matrix methodology, which measur es the probability of a borrower transitioning from one credit rating to another, is traditionally used to m easure Value at Risk (VaR), …

East Asian Financial Crisis Revisited: What Does A Copula Tell?, Pei Fei, Albert Tsui, Zhaoyong Zhang

Research outputs 2011

We construct a regime-switching model of copulas to capture observed asymmetric dependence in daily changes of exchange rates in five selected East Asian economies during the 1997 financial crisis era. In particular, we investigate the effects of the financial crisis on asymmetric dependence in exchange rates returns and assess the asymmetric relationships between five currencies, including the Singapore Dollar, Japanese Yen, South Korea Won, Thailand Baht and Indonesia Rupiah. Various time-varying copula models will also be applied to examine the possible structural breaks. The results confirm significant changes at the dependence level, tail behaviour and asymmetry structures between returns of …

Modeling Information Linkages In The Stock And Options Markets, K Ho, L Zheng, Zhaoyong Zhang

Research outputs 2011

When markets are assumed to be complete, option trading should not contain new information for market participants, as options derive their prices from the underlying stocks. However, if markets are incomplete, then this unidirectional relationship may not be true, because informed traders may prefer to trade options instead of the underlying stocks for several reasons: one, option trading involves lower transaction costs and higher financial leverage; and two, investors who have private information about stock price volatility can only make their bet on volatility in the option market. Compared with the research on the relationship between options trading activity and …

Credit Risk Measurement Methodologies, David Allen, Robert Powell

Research outputs 2011

The significant problems experienced by banks during the Global Financial Crisis have highlighted the critical importance of measuring and providing for credit risk. This paper will examine four popular methods used in the measurement of credit risk and provide an analysis of the relative shortcomings and advantages of each method. The study includes external ratings approaches, financial statement analysis models, the Merton / KMV structural model, and the transition based models of CreditMetrics and CreditPortfolioView. Each model assesses different cr iteria, and an understanding of the merits and disadvantages of the various models can assist banks and other credit modellers …

An Analysis Of The Effects Of The Probability Of Informed Trading (Pin) On Corporate Diversification Discount And Ceo Pay-Performance Sensitivity : Evidence From China, Man Jin

Theses & Dissertations

This thesis includes estimating the probability of informed trading, PIN, developed by Easley, Kiefer and O’Hara (1996, 1997a, 1997b), for a large sample of listed firms in China from 2002 to 2008, and I use PIN to explore two independent research questions in corporate finance.

First, the probability of informed trading is applied to explain the discount in value for firms with diversified business operations. Although aiming to increase firm value, the corporate diversification decision usually results in a firm value discount, for a variety of reasons, one of which is the transparency problem. My study directly tests the relation …

Measuring Real Capital Adequacy In Extreme Economic Conditions: An Examination Of Swiss Banking Sector, David E. Allen, Robert Powell

Research outputs 2011

The global financial crisis (GFC) has placed the creditworthiness of banks under intense scrutiny. In particular, capital adequacy has been called into question. Current capital requirements make no allowance for capital erosion caused by movements in the market value of assets. This paper examines default probabilities of Swiss banks under extreme conditions using structural modeling techniques. Conditional Value at Risk (CVaR) and Conditional Probability of Default (CPD) techniques are used to measure capital erosion. Significant increase in Probability of Default (PD) is found during the GFC period. The market asset value based approach indicates a much higher PD than external …

Modeling The Conditional Heteroscedasticity And Leverage Effect In The Chinese Stock Markets, Zhihui Yin, Albert Tsui, Zhaoyong Zhang

Research outputs 2011

The Chinese stock market has experienced an astonishing growth and unprecedented development since its inception in the early 1990s, emerged to be the world's second-largest by market value by the end of 2009. The Chinese stock market is also one of the most volatile markets, which has been called by many observers a “casino”. In the recent years there are several far-reaching events that have reshaped the Chinese stock markets. The most notable events include the “dot-com bubble” in 2000, China’s non-tradable shares reform in 2005 and the global financial crisis in 2008. It is noted that the “dot-com bubble” …

Modeling Time-Varying Currency Betas: New Evidence From The Selected Markets, P. Jayasinghe, A. Tsui, Zhaoyong Zhang

Research outputs 2011

In the past decade, studies of exchange rate exposure have mainly focused on three approaches. The first approach uses conventional methods such as sub-sampling, dummy variables, and overlapping moving window regression to capture exchange rate exposure. The second approach uses pre-specified determinants of exposure coefficients to analyze the time-variation of exchange rate exposure. For example, Allayannis (1997) suggests that currency beta is determined by export and import shares, and finds support for time-variation of exposure in some 4-digit level SIC industries. The third approach employs time-varying second moments to derive time-varying exchange rate exposure (see, for instance, Hunter, 2005; Lim, …

Modeling The Conditional Volatility Asymmetry Of Business Cycles In Four Oecd Countries: A Multivariate Garch Approach, K Ho, A Tsui, Zhaoyong Zhang

Research outputs 2011

There are many studies on the business cycle indicators in the past decades, but mostly focusing on the asymmetric and non-linear features of business cycles incorporated into the conditional mean equation rather than the conditional variance formulation. Recently, the hypothesis of volatility asymmetry in business cycle indicators has been re-examined by, for instance, Ho and Tsui (2003 and 2004) using univariate asymmetric power ARCH (APARCH) and EGARCH models. However, the main drawback of univariate GARCH analysis is that it fails to capture the co-movement of macroeconomic variables. These co-movement relationships are important issues emphasised by the business cycle researchers, yet …

Relative Pricing Of Publicly Traded U.S. Electric Utility Companies, Nicholas Stephen Jewczyn

Walden Dissertations and Doctoral Studies

In the financial turmoil of 2008, U.S. firms reported debt-ratios that differed from the debt-ratios calculated from balance sheets. The problem is that investors bought common stock expecting initial investment return and lost money when companies delisted. The purpose of this quantitative study was to determine sample securities pricing with the application of synthetic assets and debt accrued. Addressed in the research questions was whether those securities were (a) underpriced compared with return-on-assets (ROA), (b) overpriced compared with ROA, (c) a debt-ratio higher than 60% and also overpriced, (d) underpriced with a synthetic asset added, or (e) related by relative …

Credit Default Swaps Regulation And The Use Of Collateralized Mortgage Obligations In U.S. Financial Institutions, Jon Patraic Neill

Walden Dissertations and Doctoral Studies

The fast and easy global movement of capital throughout the financial system, from lenders to borrowers and through intermediaries and financial market participants, has been recognized as a source of instability associated with illiquidity and financial crises. The purpose of this research was to better understand how regulation either enables or constrains capital movement. The theoretical framework comprised 2 contrasting public policymaking models, Arrow's rational-comprehensive model and Kingdon's garbage can model, which were used to derive opposing hypotheses. The research question addressed the nature of the relationship between Credit Default Swaps (CDSs) regulations and the flow of capital into Collateralized …

Aligning Financial Strategy With Customer Categorization Based On Environmental Scanning, Timothy Osita Anyiwe

Walden Dissertations and Doctoral Studies

Inadequate environmental scanning, poor financial strategy, and misaligned customer focus are responsible for 79% of retail profitability losses. The purpose of the qualitative study using a multiple-case study design was to explore the strategies needed to align financial strategy with customer-oriented processes in the retail industry. The research question involved understanding trends and operational risks influencing the establishment of financial alignment strategies. Porter's five forces model of customer influence, Pearce's environmental and economic factors affecting society values, and Albright's strategic planning of environmental influence served as the theoretical foundations for the study. 30 executives, managers, and team leaders in 2 …

Church Leaders' Financial Coping Strategies During A Recession, Cecil Williams

Walden Dissertations and Doctoral Studies

An economic recession can disproportionately affect the financial stability of churches because their income relies primarily on voluntary contributions. The purpose of this phenomenological study, framed by servant leadership theory, was to explore lived experiences and perceptions related to church leaders' strategies for coping with the economic downturn in 2008. A purposive sample of 20 church leaders from Tennessee was recruited to explore the changes that have been made in church operational strategies in order to cope with the recession. The interview data were iteratively examined by using keywords, phrases, and concepts and were coded into categories, which led to …