Finance and Financial Management Commons^™

Threshold Effects In Volatility Spillovers: The Case Of Equity, Bond And Foreign Exchange Markets, Arun Prasath Narayanasamy

Finance and Real Estate Dissertations - Archive

Most research on volatility spillovers across countries and various asset class returns model volatility as conditional variance and assume a linear relationship in spillovers. The risk measured as conditional variance is modeled as a function of own past innovations and own past conditional variances and fails to include lagged conditional variances from other assets. In this dissertation, for a bivariate set up, I estimate the conditional variance of the second country either as a GARCH (1, 1) or DCC (1, 1) type process. Using the estimated conditional variances, the non-linear or threshold parameter is computed by maximizing the log likelihood …

Measurement Issues In The Capital Asset Pricing Model & Size Effect And Duration, Yongho Seo

Finance and Real Estate Dissertations - Archive

It has been observed that the value of an asset's beta varies with the frequency of the data used to generate the value, a phenomenon hereafter referred to as "time scale", or simply "scale". If the scale effect is strong enough, then ignoring this phenomenon calls into question studies that rely on comparing beta values. The most notable of these studies is the classification of stocks as "aggressive" or "defensive". I show that such a categorization varies substantially when comparing betas estimated using monthly data versus annual data. Contrary to other studies, betas do not vary monotonically as data scale …

Penny Stocks, Market Microstructure, And Analyst Forecasts, Julio AndréS Rivas-Aguilar

Finance and Real Estate Dissertations - Archive

The first essay of this dissertation deals with the relationship between previous earnings, earnings forecasts, and future returns. I found that stocks with the worst previous earnings and the worst earnings forecasts outperform the ones with more optimistic outlooks. Value stocks also tend to outperform glamour stocks. I also found that previous earnings are the dominating factor in determining subsequent returns. The second essay deals with the Bid-Ask Spread (BAS) behavior of penny stocks throughout trading sessions. I ran the analysis by using different days of the week, months of the year, and analyst coverage. Finally, I regressed the minute-to-minute …

Hedging Effectiveness Under Conditions Of Asymmetry, Jim Hanly, John Cotter

Articles

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 GARCH 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.

Financial Literacy And Numerical Ability: Keys To Better Mortgage Outcomes, Knowledge@Smu

Knowledge@SMU

The US mortgage crisis and its dire after effects have highlighted the criticality of financial literacy. And while most people would have picked up fundamental mathematical principles in schools, not everyone appreciates how arithmetic translates within the complex world of finance. Yet, given what has transpired with the subprime crisis, is it important for borrowers to appreciate complicated financial concepts before taking up a loan? A study of the US mortgage market, presented at a SMU School of Economics Seminar Series, provides some clues as it uncovers links between basic numerical skills and financial fate.

Study Of Volatility Structures In Geophysics And Finance Using Garch Models, Francis Biney

Open Access Theses & Dissertations

This work investigates the underlying volatility processes in earthquake series, explosive series, high frequency (tick) data and financial indices. Furthermore it examines the applicability of a range of GARCH specifications for modeling volatility of these series in order to identify similarities and differences in the volatility structures. The GARCH

variants considered include the basic GARCH, IGARCH, ARFIMA (0,d,0)-GARCH and FIGARCH specifications. In all the applications the methodology provides insight into features of these series volatility.

Analysis Of Intermittence And Log-Periodicity Of Foreign Exchange Rates Near A Crash, Arturo Casillas

Open Access Theses & Dissertations

Many believe that financial indices near a crash exhibit a type of critical point characterized by log-periodic signatures. Models have been developed based on these ideas in an attempt to mathematically characterize financial data about to crash. Few of these models consider the property of intermittency. Intermittency is a concept borrowed from fluid dynamics that essentially implies that a system alternates between a stable, or predictable, state and unstable state. One model that attempts to characterize crashes incorporates intermittency in the form of log-stationary intervals. It models the asset price as a step function that follows an underlying power law. …

Risk Allocation Across The Enterprise: Evidence From The Insurance Industry, Michael K. Mcshane, Tao Zhang, Larry A. Cox

Finance Faculty Publications

Financial researchers initially regarded hedging activities as a means to reduce total firm risk, which often is defined in terms of cash flow volatility. More recently, researchers have focused on the strategic allocation of risk. Direct tests of risk allocation have been problematic, however, because hedging data are rarely available and, when available, are specific only to a single operation of the firm, such as bank lending. In this study, we exploit unique data from the insurance industry that allows us to observe hedging proxies for both investment and insurance underwriting risks and test the risk allocation hypothesis developed in …

Creditor Rights And R&D Expenditures, Bruce Seifert, Halit Gonenc

Finance Faculty Publications

Manuscript Type: Empirical

Research Question?Issue: This study examines the impact of creditor rights on R&D intensity (R&D/total assets). We argue that managers in countries with strong creditor rights have more incentives to reduce cash flow risk and therefore limit expenditures on R&D more than managers located in countries with weak creditor rights.

Research Findings/Insights: Using a sample of over 21,000 firms from 41 countries, our research is one of the first to document that strong creditor rights are indeed associated with reduced R&D intensity. This negative relationship is observed in market‐based countries, but not in bank‐based countries. Moreover, the results …

Club Good Influence On Residential Transaction Prices, J. Andrew Hansz, Darren K. Hayunga

Finance Faculty Publications

We examine residential real estate transactions in a market where an additional property right to a club good may have an influence on prices. We find that for single-family property, the market capitalizes approximately 50% of the full value of the extra property right. For condominiums, the amount reduces to approximately 25%. While these amounts are positive, they clearly are significantly lower than full value.

Risk Allocation Across The Enterprise: Evidence From The Insurance Industry, Michael K. Mcshane, Tao Zhang, Larry A. Cox

Finance Faculty Publications

Financial researchers initially regarded hedging activities as a means to reduce total firm risk, which often is defined in terms of cash flow volatility. More recently, researchers have focused on the strategic allocation of risk. Direct tests of risk allocation have been problematic, however, because hedging data are rarely available and, when available, are specific only to a single operation of the firm, such as bank lending. In this study, we exploit unique data from the insurance industry that allows us to observe hedging proxies for both investment and insurance underwriting risks and test the risk allocation hypothesis developed in …

Causality And Volatility Spillover Effects On Sub-Sector Energy Portfolios, N. Alper Gormus

Finance and Real Estate Dissertations - Archive

During a time of extensive crises related to energy sources, in particular fossil fuels, IPOs for alternative energy-related companies are a common occurrence. As new industries are created or old ones are revised, investors, who constantly are trying to update their portfolios for hedging their risk, face new challenges. The purpose of this study is to aid investors in market anticipation, forecasting, and portfolio diversification through shedding some light on the inner dynamics of the select asset markets versus sector-specific energy companies. Although energy companies related to fossil fuels such as oil, coal, and natural gas are previously studied, alternative …

The Impact Of Institutional Arrangements On Educational Efficiency, Trevor Collier

Economics and Finance Faculty Publications

Per-pupil expenditures on education in the United States have grown immensely in recent decades, yet student achievement has been stagnant. An abundance of research has sought to solve this enigma, much of it centered on the incentive structure facing administrators. Some recent papers use TIMSS data to analyze the relationship between institutional arrangements—that typically do not vary within a single country—and student achievement. Similarly, we utilize TIMSS 1999 to determine if there is an indirect relationship between institutional arrangements and student achievement, via a relationship with school efficiency. Our results show that the specified link between institutional arrangements and student …

Dispersed Ownership: The Theories, The Evidence, And The Enduring Tension Between "Lumpers" And "Splitters", John C. Coffee Jr.

Faculty Scholarship

This article argues that dispersed ownership resulted less from inexorable forces and more from private ordering. Neither legal nor political conditions mandated or prevented the appearance of dispersed ownership. Rather, entrepreneurs, investment bankers, and investors — all seeking to maximize value — sometimes saw reasons why selling control into the public market would maximize value for them. But when and why? That is the article's focus. It argues that law played less of a role than specialized intermediaries — investment banks, securities exchanges, and other agents — who found it to be in their self-interest to foster dispersed ownership and …

What Are Analysts Really Good At?, Ohad Kadan, Leonardo Madureira, Rong Wang, Tzachi. Zach

Research Collection Lee Kong Chian School Of Business

Sell-side analysts employ different benchmarks when defining their stock recommendations. Forexample, a ‘buy’ for some brokers means the stock is expected to outperform its peers in the same sector(“industry benchmarkers”), while for other brokers it means the stock is expected to outperform themarket (“market benchmarkers”), or just some absolute return (“total benchmarkers”). We use thesebenchmarks to analyze the role of stock picking, industry picking and market timing in contributing to theperformance of stock recommendations. We are able to do so given that different benchmarks suggest theuse of different sets of abilities. Analysis of the relation between analysts’ recommendations and theirlong-term …

Size And Return: A New Perspective, Fangjian Fu, Wei Yang

Research Collection Lee Kong Chian School Of Business

We document robust empirical evidence that, after controlling for idiosyncratic volatility, large stocks earn significantly higher returns than small stocks. Our empirical results indicate that idiosyncratic volatility is positively related to return, but negatively related to size. Hence, failure to control for idiosyncratic volatility generates a downward omitted variable bias and leads to the widely documented negative relation between size and return. We explain the two contrasting size-return relations, with and without the control for idiosyncratic volatility, in a parsimonious equilibrium model that incorporates three empirical regularities: some individual investors are under-diversified; small stocks have higher idiosyncratic volatilities than large …

The Impact Of The Anti-Predatory Lending Laws On Mortgage Volume, Hyun Soo Choi

Research Collection Lee Kong Chian School Of Business

In this paper, I test the hypothesis that anti-predatory lending laws inhibited the volume of mortgage lending during the housing-bubble period. I use cross-state variation in the strictness of these laws and their application only to mortgage refinancing as opposed to home purchases to develop a difference-in-difference estimate of the impact of these laws on mortgage volume. Consistent with my hypothesis, I find that states with stricter laws had lower mortgage refinancing volume but exhibited no difference in home purchase mortgage volume. I also test whether by restricting mortgage refinancing, these laws impacted household expenditures and find that the laws …

Frog In The Pan: Continuous Information And Momentum, Zhi Da, G. Gurun, Mitchell Craig Warachka

Research Collection Lee Kong Chian School Of Business

We develop and test a frog-in-the-pan hypothesis that predicts investors are less attentive to information arriving continuously in small amounts than to information with the same cumulative stock price implications arriving in large amounts at discrete timepoints. Intuitively, we hypothesize that a series of gradual frequent changes attracts less attention than infrequent dramatic changes. Consistent with our frog-in-the-pan hypothesis, we find strong evidence that continuous information induces stronger and more persistent return continuation. Over a six-month holding period, momentum decreases monotonically from 8.86% for stocks with continuous information during their formation period to 2.91% for stocks with discrete information. Higher …

Individual Retirement Savings Behaviour : Evidence From Malaysia, Nurasyikin Jamaludin

Theses: Doctorates and Masters

This thesis investigates factors that influence individuals‟ investment choice decisions within the context of retirement savings in Malaysia. The focus is on individuals‟ likelihood of investing part of their retirement savings in approved unit trusts (also known as mutual funds). In addition, individuals‟ choice of fund and mutual fund selection criteria are also explored. This thesis utilised questionnaire-based surveys to solicit responses from members of the Employees Provident Fund (EPF), as well as from unit trust consultants. Data collected from 440 EPF members and 561 unit trust consultants were analysed using statistical procedures of SPSS version 18.0 (also known as …

Credit Gap In Small Businesses: Some New Evidence, Atreya Chakraborty

Accounting and Finance Faculty Publication Series

What is the magnitude of credit constraint affecting small businesses? This paper provides estimate of the credit gap – defined as the difference between the desired and actual levels of debt for credit constrained small businesses. The estimated credit gap is approximately 20 percent, i.e., credit constrained small business on the average would desire 20 percent more debt. This credit gap varies considerably across industries, with manufacturing firms facing a significantly larger gap than firms in the wholesale or service industries.