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Full-Text Articles in Finance and Financial Management

Index-Exciting Caviar: A New Empirical Time-Varying Risk Model, Dashan Huang, Baimin Yu, Zudi Lu, Sergio Focardi, Frank Fabozzi, Masao Fukushima Mar 2010

Index-Exciting Caviar: A New Empirical Time-Varying Risk Model, Dashan Huang, Baimin Yu, Zudi Lu, Sergio Focardi, Frank Fabozzi, Masao Fukushima

Research Collection Lee Kong Chian School Of Business

Instead of assuming the distribution of return series, Engle and Manganelli (2004) propose a new Value-at-Risk (VaR) modeling approach, Conditional Autoregressive Value-at-Risk (CAViaR), to directly compute the quantile of an individual asset's returns which performs better in many cases than those that invert a return distribution. In this paper we explore more flexible CAViaR models that allow VaR prediction to depend upon a richer information set involving returns on an index. Specifically, we formulate a time-varying CAViaR model whose parameters vary according to the evolution of the index. The empirical evidence reported in this paper suggests that our time-varying CAViaR …

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With The Financial Crisis Over, Banks Are Hiring Again – But With A Different Job Description, Knowledge@Smu Feb 2010

With The Financial Crisis Over, Banks Are Hiring Again – But With A Different Job Description, Knowledge@Smu

Knowledge@SMU

The massive blood-letting that was supposed to happen with the recent financial crisis went by, without much of hoopla – at least in this part of the world – and many financial institutions are hiring again. However, with new market reforms, human resource managers are mulling over job descriptions. The mindset to maximise profits may be important, but according to the experts, professionals in the industry will be expected to bring more onto the table – to be accountable to a wider circle of stakeholders and to demonstrate a different set of values.

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Warding Off Longevity Risks: Ensuring Sustainable Income For Retirement, Knowledge@Smu Feb 2010

Warding Off Longevity Risks: Ensuring Sustainable Income For Retirement, Knowledge@Smu

Knowledge@SMU

Greying populations are no longer a challenge reserved just for developed economies. The “silver tsunami” is starting to make its way towards developing nations too. But are governments, insurance companies, banks and individuals preparing themselves sufficiently? Buying annuities is one means to which people can plan for their retirement needs. Yet, take-up rates remain low. As the "tsunami" approaches, should regulators take forceful action to kick start the take-up of such instruments to prepare their economies for the impending economic mayhem?

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An Economist's Take On The Opportunities And Threats That Lie Ahead For Asia, Knowledge@Smu Feb 2010

An Economist's Take On The Opportunities And Threats That Lie Ahead For Asia, Knowledge@Smu

Knowledge@SMU

Say you have the ability to foresee the ups and downs of the economy; what would you do with that power? Stephen Roach's answer: Become a celebrated economist, columnist and author! His latest book, The Next Asia, is a 2006 to 2009 greatest hits collection of essays on what, he believes, are the region's shortfalls and opportunities. There is plenty to chew upon – from what Roach believes are the factors that led to the recent financial crisis to the various issues that will plague the continent's rapidly developing economies.

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An Analysis Of Extreme Price Shocks And Illiquidity Among Systematic Trend Followers, Wing Bernard Lee, Shih-Fen Cheng, Annie Koh Feb 2010

An Analysis Of Extreme Price Shocks And Illiquidity Among Systematic Trend Followers, Wing Bernard Lee, Shih-Fen Cheng, Annie Koh

Research Collection Lee Kong Chian School Of Business

We construct an agent-based model to study the interplay between extreme price shocks and illiquidity in the presence of systematic traders known as trend followers. The agent-based approach is particularly attractive in modeling commodity markets because the approach allows for the explicit modeling of production, capacities, and storage constraints. Our study begins by using the price stream from a market simulation involving human participants and studies the behavior of various trend-following strategies, assuming initially that their participation will not impact the market. We notice an incremental deterioration in strategy performance as and when strategies deviate further and further from the …

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An Analysis Of Extreme Price Shocks And Illiquidity Among Trend Followers, Bernard Lee, Shih-Fen Cheng, Annie Koh Feb 2010

An Analysis Of Extreme Price Shocks And Illiquidity Among Trend Followers, Bernard Lee, Shih-Fen Cheng, Annie Koh

Research Collection School Of Computing and Information Systems

We construct an agent-based model to study the interplay between extreme price shocks and illiquidity in the presence of systematic traders known as trend followers. The agent-based approach is particularly attractive in modeling commodity markets because the approach allows for the explicit modeling of production, capacities, and storage constraints. Our study begins by using the price stream from a market simulation involving human participants and studies the behavior of various trend-following strategies, assuming initially that their participation will not impact the market. We notice an incremental deterioration in strategy performance as and when strategies deviate further and further from the …

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Investing Into The Abyss: The Continued Misclassification Of Multi-Sector Managed Funds, N. Allen, Kok Fai Phoon, J. Watson, J. Wickramanayake Feb 2010

Investing Into The Abyss: The Continued Misclassification Of Multi-Sector Managed Funds, N. Allen, Kok Fai Phoon, J. Watson, J. Wickramanayake

Research Collection Lee Kong Chian School Of Business

The rapid expansion in assets managed by the Australian managed fund industry has resulted in it becoming a major sector of the financial system, second only to that of the banking industry. With more than A$550 billion invested in the industry investors should be concerned about the lack of reliable information available in regard to equity style management. In particular investors should be concerned about the probable mis-match between stated objectives and the actual objectives pursued by fund managers. In this study, we apply return-based style analysis (Sharpe 1988, 1992) to investigate the style and asset allocation strategies of 50 …

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Indian Microfinance: Swimming Fully Clothed!, Eric Savage, Abhijit Ray, Abhishek Fogla Jan 2010

Indian Microfinance: Swimming Fully Clothed!, Eric Savage, Abhijit Ray, Abhishek Fogla

Social Space

Along with the growth of social enterprises, India has seen its microfinance industry flourish. No longer merely dependent on donor and aid money, poor borrowers have begun demonstrating their creditworthiness, attracting commercial funders encouraged by this sea-change. The authors explore the world of Indian microfinance and the benefits of swimming fully clothed.

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Microfinance For Migrant Workers: Asia's Next New Market Opportunity?, Patsian Low Jan 2010

Microfinance For Migrant Workers: Asia's Next New Market Opportunity?, Patsian Low

Social Space

Employment in developed countries is often the main source of income for many people at the bottom of the pyramid in developing countries and has led to the growth of an industry based on remittances. Patsian Low studies the ramifications this has for developing microfinance in host countries and the potential for cross-border collaboration in Singapore and Asia.

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Discounts And Termination Of Close-End Funds, Chen Chen Jan 2010

Discounts And Termination Of Close-End Funds, Chen Chen

Dissertations and Theses Collection (Open Access)

Based on an extensive sample of U.S. closed end funds undergoing termination, this study offers a comprehensive analysis of closed end fund exiting behaviors. There are four ways for a fund to exit: merger into other closed-end fund, liquidation, conversion to open-end mutual fund and merger into open-end mutual fund. Closed-end funds that exit must choose the most efficient and optimal mechanisms corresponding to funds‟ characteristics and organizational forms. In this study, I find that closed-end funds exit optimally. First, funds with persistently larger discount and smaller size are more likely to exit and consistent with rational expectation, market incorporates …

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Short-Selling Prior To Analyst Recommendations, Can Qu Jan 2010

Short-Selling Prior To Analyst Recommendations, Can Qu

Dissertations and Theses Collection (Open Access)

This paper investigates short-selling five days prior to analyst recommendations by using a complete data set from Reg SHO database during January, 2005 to July, 2007. Empirical tests uncover the evidence that short-sellers significantly increase their short positions prior to negative analyst recommendations, which is consistent with the informed trading hypothesis. This finding is robust to model specification. Further, this paper also examines which of the two competing hypotheses-prediction and tipping-could better explain short-sellers’ informative front-running. The tests indicate that short-sellers use book-to-market ratio as a filter to narrow down their pool of candidates, while market capitalization doesn’t play a …

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Tunneling As An Incentive For Earnings Management During The Ipo Process In China, Jiwei Wang, Joseph Aharony, Hongqi Yuan Jan 2010

Tunneling As An Incentive For Earnings Management During The Ipo Process In China, Jiwei Wang, Joseph Aharony, Hongqi Yuan

Research Collection School Of Accountancy

Using a sample of 185 Chinese IPO firms listed on the Shanghai Stock Exchange during the period 1999-2001, we show that related-party (RP) sales of goods and services could be used opportunistically to manage earnings upwards in the pre-IPO period. We also provide evidence that such behavior may be motivated by the prospect of tunneling opportunities in the post-IPO period, i.e., exploiting economic resources from minority shareholders for the benefit of the parent company. We provide evidence of one such opportunistic tunneling tool: non-repayment by Chinese parent companies of net outstanding corporate loans made to them by their newly listed …

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Operational Risk In Trading Platforms, M. Thulasidas Jan 2010

Operational Risk In Trading Platforms, M. Thulasidas

Research Collection School Of Computing and Information Systems

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. A trading platform is a system, and therefore comes under the umbrella definition of operational risk.

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Do Analyst Earnings Beta Explain Growth Anomaly?, Sophie Phuong Thanh Doan Jan 2010

Do Analyst Earnings Beta Explain Growth Anomaly?, Sophie Phuong Thanh Doan

Dissertations and Theses Collection (Open Access)

Using a measure of cashflow risk derived from analyst forecasts, I find that cashflow risk offers a partial explanation for the value – growth anomaly. In particular, the lowest asset growth portfolio has a higher earnings beta than the highest asset growth portfolio. Approximately cashflow risk measured by earnings beta carries a significant positive risk premium of 1.24% with a t-value of 3.51.

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What's On The Menu? Included Versus Excluded Funds For Singapore's Central Provident Fund Investors, Seng Kee, Benedict Koh, Olivia S. Mitchell Jan 2010

What's On The Menu? Included Versus Excluded Funds For Singapore's Central Provident Fund Investors, Seng Kee, Benedict Koh, Olivia S. Mitchell

Research Collection Lee Kong Chian School Of Business

As one of the oldest and largest national mandatory defined contribution pension systems, Singapore's Central Provident Fund (CPF) permits employees to invest their retirement accumulations in a variety of investment instruments rather than leaving them in a government-managed investment fund. Many plan participants avail themselves of this opportunity, selecting from a menu of more than 200 `included' funds that satisfy specific admission criteria set by the CPF Board. Nevertheless, many other funds are excluded from the list of eligible retirement system investments. This article shows that the `included/non-included' screening criteria have been effective, in that included fund managers earned higher …

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Long-Term Earnings Growth Forecasts, Limited Attention, And Return Predictability, Zhi Da, Mitchell Craig Warachka Jan 2010

Long-Term Earnings Growth Forecasts, Limited Attention, And Return Predictability, Zhi Da, Mitchell Craig Warachka

Research Collection Lee Kong Chian School Of Business

Long-term earnings expectations are critically important to stock price valuations. We identify relative optimism and relative pessimism in long-term analyst forecasts by comparing these forecasts with implied short-term earnings growth forecasts across rms within the same industry. Stocks with relatively optimistic and relatively pessimistic long-term analyst forecasts have negative and positive risk-adjusted returns, respectively. This return predictability depends critically on short-term forecasts since relative optimism and relative pessimism originate from the slow diffusion of information from short-term to long-term analyst forecasts. Our results indicate that market participants have limited attention regarding the long-term earnings implications of information.

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Strategic Financial Management: Evidence From Seasoned Equity Offerings, Michael Barclay, Fangjian Fu, Clifford Smith Jan 2010

Strategic Financial Management: Evidence From Seasoned Equity Offerings, Michael Barclay, Fangjian Fu, Clifford Smith

Research Collection Lee Kong Chian School Of Business

Extant theories of capital structure assume myopic financial managers. So they have hard time to explain the financing behavior of seasoned equity offering (SEO) firms. In contrast with the pecking order theory, SEO firms typically are financially healthy companies with significant cash balances, low leverage, and unused debt capacity. At odds with the tradeoff theory, SEOs often move firms away from, rather than closer to, their target leverage ratios. SEOs appear to be driven by capital needs associated with large investment projects rather than by market timing considerations. Firms issue debt following the SEO to finance investment further and to …

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Is Regime Switching In Stock Returns Important In Asset Allocations?, Jun Tu Jan 2010

Is Regime Switching In Stock Returns Important In Asset Allocations?, Jun Tu

Research Collection Lee Kong Chian School Of Business

The stock market displays regime switching between upturns and downturns. This paper provides a Bayesian framework for making portfolio decisions that takes this regime switching into account, together with asset pricing model uncertainty and parameter uncertainty. The findings reveal that the economic value of accounting for regimes is substantially independent of whether or not model and parameter uncertainties are incorporated: the certainty-equivalent losses associated with ignoring regime switching are generally above 2% per year, and can be as high as 10%. These results suggest that the more realistic regime switching model is fundamentally different from the commonly used single-state model, …

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Corporate Governance In China: No Quick Fix, No Fixed Solution, Knowledge@Smu Dec 2009

Corporate Governance In China: No Quick Fix, No Fixed Solution, Knowledge@Smu

Knowledge@SMU

China offers a multitude of business opportunities, but international investors often find themselves stumped with a range of issues, many of which boil down to the country's distinct system of corporate governance. Here, the lines between interests and relationships are less clear-cut, and links to the government seem to serve as a proxy to accountability. This is a system that exists for a reason, said TJ Wong at SMU's Ho Bee Professorship in Chinese Economy and Business lecture series. However, foreign investors, used to international norms of transparency, are calling this into question.

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Predicting Hedge Fund Performance With Style, Melvyn Teo Dec 2009

Predicting Hedge Fund Performance With Style, Melvyn Teo

Research Collection BNP Paribas Hedge Fund Centre

I apply the endogenous benchmark approach to the study of hedge funds. I find that including an investment style benchmark significantly reduces within style correlations in hedge fund residuals. Also, the performance spread between high past alpha t-statistic (a risk-adjusted information ratio) funds and low past alpha t-statistic funds increases dramatically when performance is measured relative to fund investment style. There appears to be valuable information in investment style performance that can aid in fund selection.

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Dating The Timeline Of Financial Bubbles During The Subprime Crisis, Peter C. B. Phillips, Jun Yu Nov 2009

Dating The Timeline Of Financial Bubbles During The Subprime Crisis, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods modify a technique proposed in Phillips, Wu, and Yu (2011) and provide a technology for identifying bubble behavior with consistent dating of their origination and collapse. The tests serve as an early warning diagnostic of bubble activity and a new procedure is introduced for testing bubble migration across markets. Three relevant financial series are investigated, including a financial asset price (a house price index), a commodity price (the crude oil price), and one bond price (the spread …

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Bayesian Analysis Of Structural Credit Risk Models With Microstructure Noises, Shirley J. Huang, Jun Yu Nov 2009

Bayesian Analysis Of Structural Credit Risk Models With Microstructure Noises, Shirley J. Huang, Jun Yu

Research Collection School Of Economics

In this paper a Markov chain Monte Carlo (MCMC) technique is developed for the Bayesian analysis of structural credit risk models with microstructure noises. The technique is based on the general Bayesian approach with posterior computations performed by Gibbs sampling. Simulations from the Markov chain, whose stationary distribution converges to the posterior distribution, enable exact ¯nite sample inferences of model parameters. The exact inferences can easily be extended to latent state variables and any nonlinear transformation of state variables and parameters, facilitating practical credit risk applications. In addition, the comparison of alternative models can be based on deviance information criterion …

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Monitoring State-Owned Versus State-Controlled Enterprises, Knowledge@Smu Oct 2009

Monitoring State-Owned Versus State-Controlled Enterprises, Knowledge@Smu

Knowledge@SMU

What’s the best way to monitor listed Chinese companies effectively? Should the Chinese government introduce more stringent corporate governance regulations to keep managers on their toes? Forget it. According to a research study by SMU accounting professor Wang Jiwei, the government is better off ditching its little black book of corporate governance reform and focusing on other ways to get results. --------------------------------------------------------------------------------

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The Geography Of Hedge Funds, Melvyn Teo Sep 2009

The Geography Of Hedge Funds, Melvyn Teo

Research Collection BNP Paribas Hedge Fund Centre

This article analyzes the relationship between the risk-adjusted performance of hedge funds and their proximity to investments using data on Asian-focused hedge funds. We find, relative to an augmented Fung and Hsieh (2004) factor model, that hedge funds with a physical presence (head or research office) in their investment region outperform other hedge funds by 3.72 percent per year. The local information advantage is pervasive across all major geographical regions, but is strongest for Emerging Market funds and funds holding illiquid securities. These results are robust to adjustments for fund fees, serial correlation, backfill bias, and incubation bias. We show …

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Following The Financial Crisis: Risk And Opportunities For Singapore, Knowledge@Smu Sep 2009

Following The Financial Crisis: Risk And Opportunities For Singapore, Knowledge@Smu

Knowledge@SMU

Asian economies are showing signs of recovery, and the stock markets have rebounded, leading to optimism that the worst of the economic crisis is over. However, few are expecting a quick return to the boom years, for weakness still persists in major economies while uncertainties remain in others. Nevertheless, for those Singapore-based regional financial industry players speaking at a recent seminar organised by the Sim Kee Boon Institute of Financial Economics, they are picking up lessons learned, seeing beyond the near-term worries, and finding growth opportunities.

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Lessons From Hedge Fund Fraud, Melvyn Teo Sep 2009

Lessons From Hedge Fund Fraud, Melvyn Teo

Research Collection BNP Paribas Hedge Fund Centre

We examine two of the most fascinating fraud cases that rocked the hedge fund industry: Bernard L. Madoff Investment Securities and Bayou Management. From academic research and news reports, we distill important lessons for the hedge fund investor. Our key conclusions are (i) conflicts of interests are often symptomatic of more serious problems at hedge funds, (ii) auditing statements from obscure accounting firms should provide little assurance to investors, (iii) a comparison between the actual fund risk exposures based on realized returns with the theoretical risk exposures from the trading strategy serves as a useful cross-check for investors, and (iv) …

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Leave Some Breathing Room For Optimal Value Creation In Asian Family-Owned Firms, Knowledge@Smu Sep 2009

Leave Some Breathing Room For Optimal Value Creation In Asian Family-Owned Firms, Knowledge@Smu

Knowledge@SMU

Corporate governance, via the active monitoring of a company’s management by its board of directors, is an accepted practice. For publicly-listed companies controlled by families, the general perception is independent directors should actively take up the mantle of watching out for the interests and rights of minority shareholders. But, is there a possibility whereby over-zealous monitoring might crimp the growth of these family-run companies, thus, doing more harm than good? According to a new study: Yes, it does!

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Effects Of International Institutional Factors On Earnings Quality Of Banks, Chee Yeow Lim, Gerald Lobo, Kanagaretnam Kiridaran Sep 2009

Effects Of International Institutional Factors On Earnings Quality Of Banks, Chee Yeow Lim, Gerald Lobo, Kanagaretnam Kiridaran

Research Collection School Of Accountancy

No abstract provided.

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The Geography Of Hedge Funds, Melvyn Teo Sep 2009

The Geography Of Hedge Funds, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

This article analyzes the relationship between the risk-adjusted performance of hedge funds and their proximity to investments using data on Asia-focused hedge funds. I find, relative to an augmented Fung and Hsieh (2004) factor model, that hedge funds with a physical presence (head or research office) in their investment region outperform other hedge funds by 3.72% per year. The local information advantage is pervasive across all major geographical regions, but is strongest for emerging market funds and funds holding illiquid securities. These results are robust to adjustments for fund fees, serial correlation, backfill bias, and incubation bias. I show also …

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An Agent-Based Commodity Trading Simulation, Shih-Fen Cheng, Yee Pin Lim Jul 2009

An Agent-Based Commodity Trading Simulation, Shih-Fen Cheng, Yee Pin Lim

Research Collection School Of Computing and Information Systems

In this paper, an event-centric commodity trading simulation powered by the multiagent framework is presented. The purpose of this simulation platform is for training novice traders. The simulation is progressed by announcing news events that affect various aspects of the commodity supply chain. Upon receiving these events, market agents that play the roles of producers, consumers, and speculators would adjust their views on the market and act accordingly. Their actions would be based on their roles and also their private information, and collectively they shape the market dynamics. This simulation has been effectively deployed for several training sessions. We will …

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