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Articles 1081 - 1110 of 1293

Full-Text Articles in Finance and Financial Management

How Liquid Are Liquid Hedge Funds?, Melvyn Teo Jun 2009

How Liquid Are Liquid Hedge Funds?, Melvyn Teo

Research Collection BNP Paribas Hedge Fund Centre

Many hedge funds impose minimal share restrictions and allow investors to redeem on a monthly basis or better. We find that there is significant variation in the liquidity risk exposure of these “liquid” funds. Within this group of funds, those that embrace liquidity risk outperform those that eschew liquidity risk by 4.86 percent per year. As a consequence of the liquidity risk exposure, funds experiencing outflows subsequently earn lower returns than funds receiving inflows. The effects of flows are more pronounced for funds employing leverage, for funds with high liquidity risk exposure, and during a liquidity crunch. These results underscore …

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Market-Based Capabilities And Financial Performance Of Firms: Insights Into Marketing's Contribution To Firm Value, Sridhar N. Ramaswami, Rajendra K. Srivastava, Mukesh Bhargava Jun 2009

Market-Based Capabilities And Financial Performance Of Firms: Insights Into Marketing's Contribution To Firm Value, Sridhar N. Ramaswami, Rajendra K. Srivastava, Mukesh Bhargava

Research Collection Lee Kong Chian School Of Business

While there is recognition that market-based capabilities contribute to a firm’s financial performance, the exposition is largely conceptual (Srivastava et al. Journal of Marketing 62:2–18, 1998; Journal of Marketing 63:168–179, 1999). Using a resource based view of the firm, the present study proposes that (1) market-based assets and capabilities of a firm impacts (2) performance in three market-facing business processes (new product development, supply-chain and customer management), which in turn, influence (3) the firm’s financial performance. It develops related hypotheses and tests the framework empirically. The study also examines for the first time the interrelationship among the three business processes …

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An Elusive Search For The Holy Grail Via Japan’S Lost Decade, Knowledge@Smu May 2009

An Elusive Search For The Holy Grail Via Japan’S Lost Decade, Knowledge@Smu

Knowledge@SMU

Why did the Wall Street crash of October 1929 cause the global economy to decline and stagnate over a long time? Till today, macroeconomists are still trying to answer what Ben Bernanke describes as the “Holy Grail” – an enlightened understanding of what went wrong. Richard Koo, author of “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession”, attempts an explanation with the “balance sheet recession” concept, based on his observations in Japan, where companies try to pay down their debt on time, if not earlier.

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Using High-Frequency Transaction Data To Estimate The Probability Of Informed Trading, Anthony S. Tay, Christopher Ting, Yiu Kuen Tse, Mitchell Warachka May 2009

Using High-Frequency Transaction Data To Estimate The Probability Of Informed Trading, Anthony S. Tay, Christopher Ting, Yiu Kuen Tse, Mitchell Warachka

Research Collection School Of Economics

This paper applies the asymmetric autoregressive conditional duration (AACD) model of Bauwens and Giot (2003) to estimate the probability of informed trading (PIN) using irregularly spaced transaction data. We model trade direction (buy versus sell orders) and the duration between trades jointly. Unlike the Easley, Hvidkjaer, and O'Hara (2002) approach, which uses the aggregate numbers of daily buy and sell orders to estimate PIN, our methodology allows for interactions between consecutive buy-sell orders and accounts for the duration between trades and the volume of trade. We extend the Easley–Hvidkjaer–O'Hara framework by allowing the probabilities of good news and bad news …

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Hype My Stock: Do Firms Really Want Biased Research?, Roger Loh May 2009

Hype My Stock: Do Firms Really Want Biased Research?, Roger Loh

Research Collection Lee Kong Chian School Of Business

Analyst research is alleged to be biased because of conflicts of interest when analysts’ employers underwrite securities for the firms covered. I posit that affiliated analyst optimism should be the strongest for offering firms with a desire to over-inflate stock prices. I hypothesize that a firm’s corporate governance and its CEO incentives are related to the affiliation bias. Using stock recommendations data, I find evidence that the affiliation bias is indeed more pervasive for firms with high CEO wealth sensitivity to stock price (i.e., high CEO delta). The larger affiliation bias for high delta firms remains even after the introduction …

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Institutional Trading Frictions, Chiraphol New Chiyachantana, Pankaj K. Jain May 2009

Institutional Trading Frictions, Chiraphol New Chiyachantana, Pankaj K. Jain

Research Collection Lee Kong Chian School Of Business

We propose and empirically examine a comprehensive measure of institutional trading frictions to include the dimensions of price impact, quantity of execution, return dynamics, speed of execution or order splitting, and trading commissions. Our empirical analysis reveals that various hidden components of institutional trading frictions such as adverse selection and clean-up costs are persistent and could add significantly to previously measured directly observable components of transaction costs. Our simultaneous system of equations accounts for the endogeniety in institutional order aggressiveness based on potentially superior information as well as order splitting strategies in the implementation stage to reduce transaction costs. Order …

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Residual State Ownership, Policy Stability And Financial Performance Following Strategic Decisions By Privatizing Telecoms, Paul M. Vaaler, Burkhard N. Schrage May 2009

Residual State Ownership, Policy Stability And Financial Performance Following Strategic Decisions By Privatizing Telecoms, Paul M. Vaaler, Burkhard N. Schrage

Research Collection Lee Kong Chian School Of Business

We question previous research assuming that privatizing firm performance generally benefits from decreasing state ownership and the passage of time, both of which purportedly align principal-agent incentives promoting organizational decision-making that increases shareholder value. When state ownership shifts from majority and controlling to minority and non-controlling, the performance impact may be positive in the short run, particularly where there is instability in the local investment policy environment. Consistent with this proposition, we develop and test hypotheses derived from a minority and non-controlling or residual state ownership framework, grounded in credible privatization and institutional theory. We propose that: (1) residual state …

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Liquidity And Hedge Funds, Melvyn Teo Apr 2009

Liquidity And Hedge Funds, Melvyn Teo

Research Collection BNP Paribas Hedge Fund Centre

Market liquidity profoundly impacts hedge funds. Funds trading illiquid securities earns significant risk premium, report smoother returns, can better leverage on information asymmetries, and grapple with stronger capacity constraints. Importantly, the funding liquidity of hedge funds, or their ease of obtaining financing, can have a significant effect on the market liquidity of the securities they trade in, creating a downward liquidity spiral during economic downturns. We review the academic literature and deliver insights that resonate with recent market events.

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Extreme Events And The Copula Pricing Of Commercial Mortgage-Backed Securities, Zhanyong Liu, Gang-Zhi Fan, Kian Guan Lim Apr 2009

Extreme Events And The Copula Pricing Of Commercial Mortgage-Backed Securities, Zhanyong Liu, Gang-Zhi Fan, Kian Guan Lim

Research Collection Lee Kong Chian School Of Business

Commercial mortgage-backed securities (CMBS), as a portfolio-based financial product, have gained great popularity in financial markets. This paper extends Childs, Ott and Riddiough’s (J Financ Quant Anal, 31(4), 581–603, 1996) model by proposing a copula-based methodology for pricing CMBS bonds. Default on underlying commercial mortgages within a pool is a crucial risk associated with CMBS transactions. Two important issues associated with such default—extreme events and default dependencies among the mortgages—have been identified to play crucial roles in determining credit risk in the pooled commercial mortgage portfolios. This article pays particular attention to these two issues in pricing CMBS bonds. Our …

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House Of Cards, M. Thulasidas Mar 2009

House Of Cards, M. Thulasidas

Research Collection School Of Computing and Information Systems

We are in dire straits - no doubt about it. Our banks and financial edifices are collapsing. Those left standing also look shaky. The financial industry as a whole is battling to survive. And, as its frontline warriors, we will bear the brunt of the blood- bath sure to ensue any minute now. A good opportunity to play solitaire?

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The Impact Of The Options Backdating Scandal On Shareholders, Gennaro Bernile, Gregg Jarrell Mar 2009

The Impact Of The Options Backdating Scandal On Shareholders, Gennaro Bernile, Gregg Jarrell

Research Collection Lee Kong Chian School Of Business

The revelation that scores of firms engaged in the illegal manipulation of stock options’ grant dates (i.e. “backdating”) captured much public attention. The evidence indicates that the consequences stemming from management misconduct and misrepresentation are of first-order importance in this context as shareholders of firms accused of backdating experience large negative, statistically significant abnormal returns. Furthermore, shareholders’ losses are directly related to firms’ likely culpability and the magnitude of the resulting restatements, despite the limited cash flow implications. And, tellingly, the losses are attenuated when tainted management of less successful firms is more likely to be replaced and relatively many …

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Longevity The Ultimate Risk For Ageing Populations, Says John Piggott, Knowledge@Smu Feb 2009

Longevity The Ultimate Risk For Ageing Populations, Says John Piggott, Knowledge@Smu

Knowledge@SMU

The proportion of elderly people in the population is increasing with Japan leading the field globally. The long-run effect is to put an increased burden on the young to support them. John Piggott, research dean at the Australian School of Business, University of New South Wales, spoke on longevity as the ultimate risk in the 21st Century at a seminar organised by the Sim Kee Boon Institute for Financial Economics at the Singapore Management University at the end of last year.

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Institutional Investors And Equity Returns: Are Short-Term Institutions Better Informed?, Xuemin (Sterling) Yan, Zhe Zhang Feb 2009

Institutional Investors And Equity Returns: Are Short-Term Institutions Better Informed?, Xuemin (Sterling) Yan, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

We show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick (2001) is driven by short-term institutions. Furthermore, short-term institutions' trading forecasts future stock returns. This predictability does not reverse in the long run and is stronger for small and growth stocks. Short-term institutions' trading is also positively related to future earnings surprises. By contrast, long-term institutions' trading does not forecast future returns, nor is it related to future earnings news. Our results are consistent with the view that short-term institutions are better informed and they trade actively to exploit their informational advantage.

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Institutional Investors, Past Performance, And Dynamic Loss Aversion, Paul G. J. O'Connell, Melvyn Teo Feb 2009

Institutional Investors, Past Performance, And Dynamic Loss Aversion, Paul G. J. O'Connell, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

Using a proprietary database of currency trades, this paper explores the effects of trading gains and losses on risk-taking among large institutional investors. We find that institutional investors, unlike individuals, are not prone to the disposition effect. Instead, institutions aggressively reduce risk following losses and mildly increase risk following gains. This asymmetry is more pronounced later in the calendar year and among older and more experienced funds. We show that such performance dependence is consistent with dynamic loss aversion (Barberis, Huang, and Santos (2001)) and overconfidence. In addition, prior institutional gains and losses have palpable implications for future prices.

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Using High-Frequency Transaction Data To Estimate The Probability Of Informed Trading, Anthony S. Tay, Christopher Ting, Yiu Kuen Tse, Mitchell Craig Warachka Feb 2009

Using High-Frequency Transaction Data To Estimate The Probability Of Informed Trading, Anthony S. Tay, Christopher Ting, Yiu Kuen Tse, Mitchell Craig Warachka

Research Collection Lee Kong Chian School Of Business

This paper applies the asymmetric autoregressive conditional duration (AACD) model of Bauwens and Giot (2003) to estimate the probability of informed trading (PIN) using irregularly spaced transaction data. We model trade direction (buy versus sell orders) and the duration between trades jointly. Unlike the Easley, Hvidkjaer, and O'Hara(2002) approach, which uses the aggregate numbers of daily buy and sell orders to estimate PIN, our methodology allows for interactions between consecutive buy-sell orders and accounts for the duration between trades and the volume of trade. We extend the Easley-Hvidkjaer-O'Hara framework by allowing the probabilities of good news and bad news to …

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The Performance Of Reverse Leveraged Buyouts, Jerry Cao, Josh Lerner Feb 2009

The Performance Of Reverse Leveraged Buyouts, Jerry Cao, Josh Lerner

Research Collection Lee Kong Chian School Of Business

Reverse leveraged buyouts (RLBOs) have received increased public scrutiny but attracted little systematic study. We collect a comprehensive sample of 526 RLBOs between 1981 and 2003 and examine the three-year and five-year stock performance of these offerings. RLBOs appear to perform as well as or better than other initial public offerings and the stock market as a whole, depending on the specification. Evidence exists of a deterioration of returns over time.

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Does Size Matter In The Hedge Fund Industry?, Melvyn Teo Jan 2009

Does Size Matter In The Hedge Fund Industry?, Melvyn Teo

Research Collection BNP Paribas Hedge Fund Centre

We document a negative and convex relationship between hedge fund size and future riskadjusted returns. Small hedge funds outperform large hedge funds by 2.75 percent per year after adjusting for risk. This over performance cannot be explained by fund age, leverage, serial correlation, backfill bias, or incubation bias. The capacity constraints are not confined to the smallest funds, and manifest across various investment styles and regions. In particular, they are strongest for funds managed by multiple principals that trade small, illiquid securities, suggesting that the observed diseconomies can be traced to price impact and hierarchy costs (Stein, 2002). Interestingly, these …

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A Funding Challenge For Charities: Getting The Right Mix, Yew Kee Ho, Gregory Tan Jan 2009

A Funding Challenge For Charities: Getting The Right Mix, Yew Kee Ho, Gregory Tan

Social Space

The current financial crisis has sparked many new challenges for charities with regards to the inflow of charity dollars. Ho Yew Kee and Gregory Tan examine current income sources of 37 institutions of public character (IPCs) in Singapore and urge charities to revisit their current funding mix.

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Exploring A New Financial Paradigm In Social Investment, Arthur R. Wood Jan 2009

Exploring A New Financial Paradigm In Social Investment, Arthur R. Wood

Social Space

The business sector can be more involved in financing the work of the social sector. Arthur R. Wood makes his case through the sanitation issue and shares Ashoka’s plans in paving the way for more collaboration between the social and business sectors.

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International Evidence On Analyst Monitoring And Earnings Management: The Roles Of Corporate Disclosure And National Culture, Soongsoo Han, Tony Kang, Gerald Lobo, Yong Keun Yoo Jan 2009

International Evidence On Analyst Monitoring And Earnings Management: The Roles Of Corporate Disclosure And National Culture, Soongsoo Han, Tony Kang, Gerald Lobo, Yong Keun Yoo

Research Collection School Of Accountancy

We examine country-level determinants of private information search incentives, and whether analysts’ role in constraining managers’ opportunistic earnings management varies across countries. In a sample of 31,312 firm-year observations originating from 30 countries, we document that: (1) analyst coverage is negatively (positively) related to the level of corporate disclosure (how secretive the national culture is); (2) the negative association between analyst coverage and earnings management is observed in stronger investor protection countries but not in weaker investor protection countries; and (3) analyst monitoring fails to mitigate culturedriven earnings manipulations in countries with more individualistic and uncertainty-tolerant cultures. Taken together, financial …

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Chaos And Uncertainty, M. Thulasidas Jan 2009

Chaos And Uncertainty, M. Thulasidas

Research Collection School Of Computing and Information Systems

The end of 2008 in the finance industry can be summarized in two words – chaos and uncertainty. The subprime crisis, where everybody lost; the dizzying commodity price movements; the pink slip syndrome; the spectacular bank busts; and the gargantuan bail-outs all vouch for it.

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Does Vc Reputation Affect Function Of Lockup Agreement?, Kejia He Jan 2009

Does Vc Reputation Affect Function Of Lockup Agreement?, Kejia He

Dissertations and Theses Collection (Open Access)

Instead of perceiving lockup agreement and VC-backing as exogenous variables, this paper employs the VC-backed IPO data and takes a closer examination on the specific effect of VC reputation, which impacts the choice of lockup length and return and volume abnormality around lockup expiry. Contrary to the commitment hypothesis proposed by previous literatures, the data suggests that less VC-backed companies tend to choose a longer lockup agreement as a compensation device and those companies backed by more reputable VC experience less negative abnormal return and less abnormal volume around lockup expiry.

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Illiquidity, Stock Return And Corporate Capital Structure: Evidence From Seasoned Equity Offering, Zhao Yu Jan 2009

Illiquidity, Stock Return And Corporate Capital Structure: Evidence From Seasoned Equity Offering, Zhao Yu

Dissertations and Theses Collection (Open Access)

The post-issue underperformance of seasoned equity offering (SEO) is generally explained by asymmetric information and deteriorating operating performance. We complement these traditional explanations with a new parameter, the liquidity, which results from the change of capital structure due to equity offering. The new issuing of equity lowers the debt to asset ratio, lowers the information asymmetry, thus increasing stock liquidity, which is in accordance with the hypotheses presented by Kyle(1985)'s model; Evidence that stocks become more liquid after SEO, thus lower the expected return, resulting to underperformance, combined with the high stock illiquidity before SEO, which coincides the high return, …

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The Effect Of Concentrated Institutional Portfolio On Stock Returns, Hao Li Zhang Jan 2009

The Effect Of Concentrated Institutional Portfolio On Stock Returns, Hao Li Zhang

Dissertations and Theses Collection (Open Access)

This paper examines whether stock return is related to the extent of portfolio concentration on the part of institutional fund managers. There is evidence that large firms are preferred for both concentrated and well-diversified funds. Also, a trading strategy based on concentrated ownership generates positive abnormal return. This implies that informational effect (implied in an increase in concentrated capital) has significant impacts and predictability on returns. Meanwhile, we do not find diversified ownership has predictability on future stock returns.

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Idiosyncratic Risk And The Cross-Section Of Expected Stock Returns, Fangjian Fu Jan 2009

Idiosyncratic Risk And The Cross-Section Of Expected Stock Returns, Fangjian Fu

Research Collection Lee Kong Chian School Of Business

Theories such as Merton (1987, Journal of Finance) predict a positive relation between idiosyncratic risk and expected return when investors do not diversify their portfolio. Ang, Hodrick, Xing, and Zhang (2006, Journal of Finance 61, 259-299) however find that monthly stock returns are negatively related to the one-month lagged idiosyncratic volatilities. I show that idiosyncratic volatilities are time-varying and thus their findings should not be used to imply the relation between idiosyncratic risk and expected return. Using the exponential GARCH models to estimate expected idiosyncratic volatilities, I find a significantly positive relation between the estimated conditional idiosyncratic volatilities and expected …

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Investor Reaction To Women Directors, E. Kang, David K. Ding, C. Charoenwong Jan 2009

Investor Reaction To Women Directors, E. Kang, David K. Ding, C. Charoenwong

Research Collection Lee Kong Chian School Of Business

Existing studies on women directorships present equivocal results on the association between appointing women directors and firm performance. These studies tend to focus on western countries and largely ignore investors' reactions to such appointments. This paper applies the financial event study method and finds that investors generally respond positively to the appointment of women directors in Singaporean firms. Regression analyses also reveal that investors are most receptive when the women are independent directors and are least receptive when the directors assume the CEO role. This study not only tests the theory of gender diversity in an Asian context but also …

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Business Aggression, Institutional Loans, And Credit Crisis: Evidence From Lending Practices In Leveraged Buyouts, Xiaping Jerry Cao, Wei-Ling Song, Joe Mason Jan 2009

Business Aggression, Institutional Loans, And Credit Crisis: Evidence From Lending Practices In Leveraged Buyouts, Xiaping Jerry Cao, Wei-Ling Song, Joe Mason

Research Collection Lee Kong Chian School Of Business

This paper investigates the lending practices related to leverage buyouts (LBOs) market between high and low write-down institutions. The write-downs, which are a proxy for business aggression of institutions, are mainly related to credit crisis from the beginning of 2007 to August 10, 2008. We find that high (low) write-down institutions increase (decrease) loan market share dramatically during the period of 2001-2006. The increase is mainly driven by the segment of loans sold to institutional investors, such as collateralized loan obligations vehicle, hedge fund, and insurance companies. Institutional loans originated by high write-down institutions carry significantly fewer covenants and higher …

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Does Size Matter In The Hedge Fund Industry?, Song Wee Melvyn Teo Jan 2009

Does Size Matter In The Hedge Fund Industry?, Song Wee Melvyn Teo

Research Collection Lee Kong Chian School Of Business

We document a negative and convex relationship between hedge fund size and future risk-adjusted returns. Small hedge funds outperform large hedge funds by 3.65 percent per year after adjusting for risk. This over performance is not driven by fund age, leverage, serial correlation, or self-selection biases. The capacity constraints manifest across various investment styles and regions. In particular, they are strongest for funds managed by multiple principals who trade small, illiquid securities, suggesting that the observed diseconomies can be traced to price impact and hierarchy costs (Stein, 2002). While investors direct disproportionately more capital to smaller funds, they do not …

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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.

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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.

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