Finance and Financial Management Commons^™

Scaled Pca: A New Approach To Dimension Reduction, Dashan Huang, Fuwei Jiang, Guoshi Tong, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

The notion that bond risk premium varies with business cycles is challenged once real time macro data are used. In this paper, we argue that the macro factors extracted by using the standard PCA are not the most relevant for forecasting bond risk premium, because the PCA factors are designed to explain the most variation of macro data instead of the variation of bond risk premium. With the latter objective in mind, we propose a scaled PCA (sPCA) approach, which incorporates the information in bond risk premium in the factor extraction procedure. The real time macro sPCA factors have much …

Establishing An Asia-Pacific Cryptocurrency Hub, Arnat Leemakdej, Chiyachantana N. Chiraphol

Research Collection Lee Kong Chian School Of Business

Asia is leading the way in digital asset markets, but individual countries are taking markedly different paths toward regulation and management in establishing themselves as cryptocurrency hubs, balancing innovation and regulation. Investors should be vigilant about the risks associated with alternative capital-raising methods.

Picking Flowers In An Ico Garden, Fam Guo Teng, Paul R. Griffin, Andrew Koh

Research Collection School Of Computing and Information Systems

The rise of Initial Coin Offerings (ICO) in recent times and their potential for investment opportunities have investors spending a lot of time researching ICOs or having to follow the crowd. This paper aims to explore four broad factors of ICOs: identity, credibility, investor sentiment, and price movement to develop a framework that is useful in determining ICO quality. Research is shown using data sources including public forums, chat groups, web sites, white papers as well as smart contract details. Finally, a system, based on the framework, is proposed that can be used to detect and regulate ICO activities and …

Risk Pooling, Supply Chain Hierarchy, And Analysts' Forecasts, Nan Hu, Jian-Yu Ke, Ling Liu, Yue Zhang

Research Collection School Of Computing and Information Systems

We investigate whether a firm's risk pooling affects its analysts' forecasts, specifically in terms of forecast accuracy and their use of public vs. private information, and how risk pooling interacts with a firm's position in the supply chain to affect analysts' forecasts. We use a social network analysis method to operationalize risk pooling and supply chain hierarchy, and find that risk pooling significantly reduces analysts' forecast errors and increases (decreases) their use of public (private) information. We also find that the positive (negative) relationships between risk pooling and analyst forecast accuracy and analysts' use of public (private) information are more …

Overseas Listing Location And Cost Of Capital: Evidence From Chinese Firms Listed In Hong Kong, Singapore, And The United States, Warrington College Of Business, Frank Weikai Li, Central University Of Finance And Economics

Research Collection Lee Kong Chian School Of Business

As at the end of 2012, more than 600 nonstate-owned Chinese firms were listed in overseas stock markets. We find that Chinese firms listed in the US have the lowest cost of capital when compared to those listed in Hong Kong and Singapore, and these results hold when controlling for firm characteristics and the endogeneity of listing locations. Cross-sectional tests indicate that listing in the US is more beneficial to those firms which face higher information asymmetry and agency costs. Overall, our evidence supports the view that the institutional environment has a first-order impact on a firm’s cost of capital.

The Geography Of Csr, David K. Ding, Christo Ferreira, Udomsak Wongchoti

Research Collection Lee Kong Chian School Of Business

We regress socio-economic indicators against firm level CSR scores using a sample of over 26,000 firm year observations from 1991 through 2009. We find that a firm's CSR profile is linked to the socio-economic conditions of the firm's geographic headquarters (HQ) location. The study documents that the legal, cultural, economic, and demographic differences across geography significantly explain the variation in CSR means between metropolitan statistical areas, states, and regions. We also find that the relation between CSR and firm performance is conditional on socio-economic factors, which highlight the endogeneity concerns inherent in CSR studies. Lastly, we show that firms that …

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

Research Collection School Of Economics

This chapter reviews the financial development strategies adopted by the Singapore government as it navigates internal and external changes to build a vibrant center of finance in the Asia Pacific region. Sections 2 and 3 provide an overview of the structure of the financial system and the financial governance framework respectively. This is followed by a discussion, in Section 4, on the outward looking development strategy that underpinned the successful development of Singapore’s financial sector. Section 5 highlights the reforms undertaken in the aftermath of the Asian financial crisis that led to the building of a well-diversified and thriving international …

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.

Volatility Spillovers Among Oil And Stock Markets In The Us And Saudi Arabia, Marinela Adriana Finta, Bart Frijns, Alireza Tourani-Rad

Research Collection Lee Kong Chian School Of Business

In this article, we use high frequency data and an identification via changes in volatility approach to assess the volatility spillovers among oil and the US and Saudi Arabian stock markets. We document the existence of asymmetry in contemporaneous spillover effects. Particularly, during the times when oil’s trading hours overlap with the US and Saudi Arabian stock markets, the volatility spillover from oil to the stock markets is higher than the other way around. We highlight the importance of taking into consideration the information present during continuous trading hours of oil, especially during simultaneous trading hours with the stock markets. …

Sustainable Digital Finance In Asia: Creating Environmental Impact Through Bank Transformation, Ryan Knowles Merrill, Simon J.D. Schillebeeckx, Sofie Blakstad

Research Collection Lee Kong Chian School Of Business

Data is arguably the most valuable resource in the digital economy. Used effectively and responsibly it has the potential to serve as a driving force in creating a more sustainable world. The potential is especially potent in the financial sector given its central place in the financial system, and its access to and use of data.Using technologies such as blockchain, artificial intelligence (AI), mobile technology, internet of things (IoT), and the cloud, data can be captured by sensors in the environment and structured to integrate sustainability into existing financial products and services. These can be creatively combined into entirely new …

Option Implied Volatility, Skewness, And Kurtosis And The Cross-Section Of Expected Stock Returns, Turan Bali, Jianfeng Hu, Murray Scott

Research Collection Lee Kong Chian School Of Business

We develop an ex-ante measure of expected stock returns based on analyst price targets. We then show that ex-ante measures of volatility, skewness, and kurtosis implied from stock option prices are positively related to the cross section of ex-ante expected stock returns. While expected returns are related to both the systematic and unsystematic components of volatility, only the unsystematic components of skewness and kurtosis are related to the cross section of expected stock returns after controlling for other variables known to be related to the cross section of expected stock returns or analyst forecast bias.

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

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.

Essays On The Information Role Of Credit Default Swaps, Hao Cheng

Dissertations and Theses Collection (Open Access)

Chapter 1: Credit Default Swaps Pricing Errors and Related Stock Returns

This article investigates the impacts of Credit Default Swaps (CDS) pricing errors on related stock returns. Using a parsimonious CDS valuation model, which produces an above average adjusted R2 of 90%, I find that its pricing errors significantly predict cross-section stock returns. Further investigation reveals that the cross-market return predictability channels via Merton (1974)'s structural prediction and primary dealers' capital risk. This paper provides a novel view of the complex interactions of capital markets and offers insights on the relative market efficiencies.

Chapter 2: CDS Markets Informativeness and Related …

Sensation Seeking And Hedge Funds, Stephen Brown, Yan Lu, Sugata Ray, Song Wee Melvyn Teo

Research Collection Lee Kong Chian School Of Business

We show that motivated by sensation seeking, hedge fund managers who own powerful sports cars take on more investment risk but do not deliver higher returns, resulting in lower Sharpe ratios, information ratios, and alphas. Moreover, sensation-seeking managers trade more frequently, actively, and unconventionally, and prefer lottery-like stocks. We show further that some investors are themselves susceptible to sensation seeking and that sensation-seeking investors fuel the demand for sensation-seeking managers. While investors perceive sensation seekers to be less competent, they do not fully appreciate the superior investment skills of sensation-avoiding fund managers.

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.

Online Learning Tool On External Financing Needs, Yuanto Kusnadi

Research Collection School Of Accountancy

In collaboration with colleagues at the Centre ofTeaching Excellence (CTE), I have developed an innovative online learningobject on External Financing Needs. This tool is designed to introduce a noveland refreshing way in teaching accounting and finance concepts to students andto create a more interactive learning experience in the classroom. The online learning tool is used in the two courses:Accounting for Entrepreneurs and Financial Management, to explain the relevantconcepts related to financial forecasting and financial planning. One unique feature about the learning object is that itprovides instantaneousfeedback to students as they can learn whether the numbers theyprovide are correct/wrong (as indicated …

Robo-Advisors And Wealth Management, Kok Fai Phoon, Cher Chiew Francis Koh

Research Collection Lee Kong Chian School Of Business

The recent rise of robo-advisors (RAs) has threatened the traditional fund and wealth management industry. RAs' assets under management (AUM) have risen manyfold through competitiveness on pricing, transparency and services and better expected returns linked to the use of quantitative finance and technology with less subjective human intervention. This article examines the postulation that RAs have an edge over traditional wealth managers. RAs can combine the judgement and computing resources of both human and machine, or bionic power, to provide alternative wealth management services to meet the diverse needs of private wealth clients. However, the authors expect traditional wealth managers …

Commodity Return Predictability: Evidence From Implied Variance, Skewness And Their Risk Premia, Marinela Adriana Finta, Jose Renato Haas Ornelas

Research Collection Lee Kong Chian School Of Business

This paper investigates the role of realized and implied and their risk premia (variance and skewness) for commodities’ future returns. We estimate these moments from high frequency and commodity futures option data that results in forward-looking measures. Risk premia are computed as the difference between implied and realized moments. We highlight, from a cross-sectional and time series perspective, the strong positive relation between commodity returns and implied skewness. Moreover, we emphasize the high performance of skewness risk premium. Additionally, we show that their portfolios exhibit the best risk-return tradeoff. Most of our results are robust to other factors such as …

Commonality: A Longitudinal Study, Raja Velu, Zhaoque Zhou, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

The commonality in the asset characteristics such as returns, liquidity and other non-trade parameters attracted intense research interest in the literature. In this paper, we investigate the longitudinal trend in commonality for the duration 2000-2016, an extensive that include years of boom and bust in the financial market. Our results show that while market has become more fragmented, commonality in returns has doubled over this period. This observation holds across all exchanges, with a clear trend of convergence in exchange-wide commonality over time due to increased information efficiency. We develop a unified methodology to systematically accommodate all explanatory factors for …

Managing Swaption Portfolio Risk Under Different Interest Rate Regimes, Poh Ling Neo, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

Efficient risk managing of swaption portfolios is crucial in the hedging of interest rate exposure. This paper formulates a portfolio risk management framework under stochastic volatility models. The implication of using the right volatility backbone in the stochastic-alpha-beta-rho (SABR) model is analyzed. In order to handle negative interest rates, we derive a displaced-diffusion stochastic volatility (DDSV) model with closed-form analytical expression for swaption pricing. We demonstrate that the dynamics naturally allow for negative rates, and is also able to fit the market well. Finally, we show that choosing the right backbone in the DDSV model results in optimal hedging performance …

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

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.

Assessing The Effects Of Post-Crisis Regulatory Reforms On Liquidity In The Singapore Government Securities And Mas Bills Market, John M. Sequeira

Research Collection Lee Kong Chian School Of Business

The FSB initiated in 2017 an evaluation of the effects of post-crisis regulatory reforms, by developing a framework to assess whether the reforms are achieving their intended outcomes and identify any material unintended consequences. In tandem, MAS established an evaluation framework, which covers four broad impact areas, comprising FIs, financial markets, financial end-users and the broader financial landscape. Internationally, there have been particular concerns over whether post-crisis reforms may have impaired liquidity conditions in specific financial markets. We provide an assessment of the effects of the reforms on liquidity in a key market in Singapore, the SGS and MAS bills …

News Co-Occurrence, Attention Spillover, And Return Predictability, Li Guo, Lin Peng, Yubo Tao, Jun Tu

Research Collection School Of Economics

We examine the effect of investor attention spillover on stock return predictability. Using a novel measure, the News Network Triggered Attention index (NNTA), we find that NNTA negatively predicts market returns with a monthly in(out)-of-sample R-square of 5.97% (5.80%). In the cross-section, a long-short portfolio based on news co-occurrence generates a significant monthly alpha of 68 basis points. The results are robust to the inclusion of alternative attention proxies, sentiment measures, other news- and information-based predictors, across recession and expansion periods. We further validate the attention spillover effect by showing that news co-mentioning leads to greater increases in Google and …

Partisan Conflict And Stock Price, Dashan Huang, Wang Liyao

Research Collection Lee Kong Chian School Of Business

Partisan conflict has been one dominant theme in U.S. politics in recent years. By using the textual index of Azzimonti (2018), this paper shows that partisan conflict positively predicts market returns, controlling for economic predictors and proxies for uncertainty, disagreement, geopolitical risk, and political sentiment. A one standard-deviation increase in partisan conflict is associated with a 0.58% increase in next month market return. The forecasting power concentrates in periods when the president is from the Republican Party or the majority of House is Republicans. Partisan conflict is positively related to downside risk, and makes investors more conservative when its value …

Disruptive Technology: Can The Banking Industry Harness Disruption For Competitive Edge?, Edgar Low

MITB Thought Leadership Series

Disruptive innovation was identified as a phenomenon more than two decades ago by prominent Harvard scholar Clayton Christensen. So you may wonder why established industries are only now waking up to the prospect of digital transformation - the banking industry in particular.

Build Your Own Nest: Singapore's First Study On Matched Savings Schemes For Lower Income, Older Women, David Chan, Benedict S. K. Koh

Research Collection School of Social Sciences

Matched Savings Scheme is a research study, commissioned by the International Longevity Centre – Singapore (ILC – Singapore) of the Tsao Foundation and funded by the Tote Board, found that a monthly matched savings scheme is effective in sustaining the retirement savings behaviour among a group of 377 elderly women from low-income households over the study period of 18 months. The research, conducted by principal investigator psychology professor David Chan and co-investigator finance professor Benedict Koh, used an experimental design and longitudinal tracking to examine the effects that different factors of a matched savings scheme have on the participants’ decision …

Comments On Discussion Paper "Financial Instruments With Characteristics Of Equity" (Fice), Pearl Hock-Neo Tan

Research Collection School Of Accountancy

Comments are given on the Discussion Paper issued by the International Accounting Standards Board in June 2018 on Financial Instruments with Characteristics of Equity. The comments are given in response to the Board's public invitation for feedback on the Discussion Paper. The comments convey the author's concerns about the Discussion Paper's proposals in the light of the conceptual framework of financial reporting and a fundamental understanding of what equity and liability is. The comments propose approaches that the Board may consider in its subsequent development of its proposals.

New Factors Wanted: Evidence From A Simple Specification Test, Ai He, Dashan Huang, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

In this paper, we examine the pricing errors (PEs) of three kinds of factor models: a) six well known ones– the CAPM, the Fama-French three-factor model, the Carhart four-factor model, the Fama-French five-factor model, the Hou-Xue-Zhang Q-factor model, and the Stambaugh-Yuan mispricing-factor model; b) principal component factors of sixty-two anomalies; c) extracted statistical factors. We find that there is a systematic PE reversal pattern. A spread portfolio that buys stocks in the bottom PE decile and sells stocks in the top PE decile earns significant abnormal returns across all the models, implying that none of them is adequate in explaining …

Leveling The Playing Field Between Large And Small Institutions: Evidence From The Sec’S Xbrl Mandate, Nilabhra Bhattacharya, Young Jun Cho, Jae B. Kim

Research Collection School Of Accountancy

We investigate how XBRL adoption affects smaller institutions’ access to financial statement information relative to their larger counterparts. We examine three aspects of trading responsiveness: abnormal trading volume, response speed to 10-K information, and decision to trade immediately following the 10-K filing. With regard to all three aspects of trading responsiveness, we find that small institutions’ responsiveness to 10-K news increases significantly more relative to the change experienced by large institutions from the pre- to post-XBRL periods. We further document that small institutions’ stock picking skills in the 10-K filing period increase more compared to those of large institutions following …