Finance and Financial Management Commons^™

The Effects Of Local And Global Risk Factors On Industry Stock Returns: Across Country Analysis, Mahdy Farag Elhossiny

Theses and Dissertations in Business Administration

This dissertation studies the local and global sources of risk and industries stock returns across national equity markets. We examine several local and global economic risk factors and ask whether and to what extent these risk factors can explain the variation in the industries' stock returns of five countries, namely Canada, Germany, Japan, the U.K., and the U.S. Specifically, the main objective of this dissertation is to find answers for three main questions: First, whether and to what extent do returns on local industries respond to changes in local macroeconomic risk factors? Second, whether and to what extent do returns …

Essays On Currency Risk Management, Nehad Elsawaf

Theses and Dissertations in Business Administration

In recent years a growing number of corporations have committed considerable resources to risk management, indicating the potential for risk management to protect and increase firm value. One can argue that most prior attempts to directly link the value of the firm to its hedging strategies are rather scant. Moreover, several questions with regards to firms' risk management activities remain unanswered. This study consists of two essays dealing with a series of questions regarding corporate risk management in modern U.S. multinational corporations.

In the first essay we first, test the valuation effects of currency hedging policies of firms around extraordinary …

Valuation Effects Of Earnings Restatements Due To Accounting Irregularities, Tan Xu

Theses and Dissertations in Business Administration

This dissertation studies three financial topics using earnings restatement data. In the first topic, we discriminate between the market efficiency hypothesis and the underreaction hypothesis by examining their predictions on the stock performance of restating firms in the post-announcement period. Three approaches are used, namely, the cumulative abnormal return (CAR), buy-and-hold abnormal return (BHAR), and calendar time portfolio approaches. Consistent with the market efficiency hypothesis, we do not find significant abnormal performance in the post-restatement period. In the second topic, we test the extrapolation model (LSV, 1994) by examining the relationship between stock price reaction to earnings restatement and the …

Overreaction, Seasonality And Relationship Among Middle East And North Africa National Stock Markets, Yaser A. Al-Kulaib

Theses and Dissertations in Business Administration

This dissertation examines overreaction, seasonality, and relationship among Middle East and North Africa (MENA) stock markets. The dissertation is organized in five chapters. The first chapter is introduction to the dissertation and its importance. The second chapter will discuss the MENA capital market developments in the last few years, examine the human and economic development for countries in MENA, and try to find similarities and differences between them. Then the discussion will shift to an overview of the GCC, Levant, and NA regions. Finally, there will be a discussion about economic reform and development in MENA capital markets.

Then, the …

China Financial Research: A Review And Synthesis, Kam C. Chan, Hung-Gay Fung Dr., Samanta Thapa

GFCB Working Paper Series

We review the financial research on China as a transitional economy over the past fifteen years or so. This review sheds light on several important issues that are pertinent for an emerging financial market - how regulation can affect the prices of different financial assets; how and why markets are segmented; corporate governance effects between major and minor shareholders in an emerging market; the importance of a bank-based financial system; interactions between the financial market and the goods market; how market participants can complete the market; and how an emerging financial market emulates established markets and evolves over time. Many …

Uncovered Interest-Rate Parity Over The Past Two Centuries, James R. Lothian, Liuren Wu

CRIF Working Paper series

We study the validity of uncovered interest-rate parity (UIP) by constructing ultra long time series that span two centuries. The forward-premium regressions yield positive slope estimates over the whole sample period and become negative only when the sample is dominated by the period of 1980s. We also find that large interest-rate differentials have significantly stronger forecasting powers for currency movements than small interest-rate differentials. Furthermore, when we regress domestic currency returns on foreign bonds against returns on domestic bonds as an alternative test for UIP, the null hypotheses of zero intercept and unit slope cannot be rejected in most cases. …

A Note On The Preferred Hedge Instrument, Arthur Hau

Hong Kong Institute of Business Studies Working Paper Series

Contrary to Battermann et al.'s (2000) claims, this paper shows that risk-averse exporters may produce less with fair commodity futures than with fair put options; moreover, they may prefer the latter instrument for hedging against its exchange rate risk.

A Dynamic Look At Subprime Loan Performance, Michelle A. Danis, Anthony Pennington-Cross

Finance Faculty Research and Publications

Does delinquency have any predictive power for the future performance of a mortgage? Analysis of a sample of subprime mortgages from the Loanperformance database on securitized private-label pool collateral using a two-step estimation procedure to control for the endogeneity of delinquency reveals strong support for the distressed prepayment theory that very delinquent loans are more likely to prepay than to default and that prepayment rates increase substantially as delinquency intensity increases. While delinquency leads predominantly to termination of a loan through prepayment, negative equity leads to termination through default. Does delinquency have any predictive power for the future performance of …

The Sarbanes-Oxley Act Of 2002 And Its Effects On American Business, Lara Bergen

Financial Services Forum Publications

In the wake of the 2001-2002 Arthur Andersen accounting scandal and collapse of Enron and WorldCom, the government, the investors and the American public demanded corporate reforms to prevent similar future occurrences. Viewed to be largely a result of failed or poor governance, insufficient disclosure practices, and a lack of satisfactory internal controls, in 2002 Congress passed the Sarbanes-Oxley Act seeking to set standards and guarantee the accuracy of financial reports.

The Sarbanes-Oxley Act (known as SARBOX or SOX) sought to address these concerns through making executives responsible for company accounting statements, redefining the relationships between corporations and their auditors, …

Seek Ways To Minimize The Mushrooming Alternative Minimum Tax, James Trebby, George Kutner

Accounting Faculty Research and Publications

The alternative minimum tax (AMT) is reaching a broader segment of individuals. Yet, many of these taxpayers are not aware of the implications of this tax. Even worse, some of their tax advisors are not as informed as they should be. By identifying items that trigger the individual AMT, taxpayers and their advisors have greater opportunities to develop strategies to avoid the special tax. The AMT is essentially a parallel tax system that involves a separate tax calculation from the regular income tax. The AMT calculation is then compared to the income tax figured under the normal manner. The taxpayer …

A Two-Stage Realized Volatility Approach To The Estimation For Diffusion Processes From Discrete Observations, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

This paper motivates and introduces a two-stage method for estimating diffusion processes based on discretely sampled observations. In the first stage we make use of the feasible central limit theory for realized volatility, as recently developed in Barndorff-Nielsen and Shephard (2002), to provide a regression model for estimating the parameters in the diffusion function. In the second stage the in-fill likelihood function is derived by means of the Girsanov theorem and then used to estimate the parameters in the drift function. Consistency and asymptotic distribution theory for these estimates are established in various contexts. The finite sample performance of the …

Jackknifing Bond Option Prices, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

Prices of interest rate derivative securities depend crucially on the mean reversion parameters of the underlying diffusions. These parameters are subject to estimation bias when standard methods are used. The estimation bias can be substantial even in very large samples and much more serious than the discretization bias, and it translates into a bias in pricing bond options and other derivative securities that is important in practical work. This article proposes a very general and computationally inexpensive method of bias reduction that is based on Quenouille's (1956; Biometrika, 43, 353-360) jackknife. We show how the method can be applied directly …

Stormwater Utility Fees: Considerations & Options For Interlocal Stormwater Working Group (Iswg), New England Environmental Finance Center

Water

Stormwater utilities are a concept whose time seems to have arrived. Established by relatively few communities in the 1970s as a method of funding flood control measures, stormwater utilities now exist in over 400 municipalities and counties throughout the United States. During the next 10 years, their numbers are expected to swell dramatically – by one estimate to over 2,000 by the year 2014.

The reasons for this growth are multifold. Federal stormwater regulations passed in the 1980s (Phase I of the National Pollutant Discharge Elimination System Program, or NPDES), motivated many larger communities to seek alternative funding sources and …

Institutions, Capital Flows And Financial Integration, James R. Lothian

CRIF Working Paper series

The central focus of this paper is on capital flows from developed to less developed countries and in particular on the question of why such flows are not much larger. I first outline the theoretical arguments with regard to such flows and then go on to review the historical evidence on international financial integration more generally. I then turn to the related literature on economic development, which over the past decade has shifted its emphasis from technology and capital accumulation per se to the underlying institutional factors that affect investment. I present evidence that such factors also affect to rich-to-poor …

Institutions, Capital Flows And Financial Integration, James R. Lothian

CRIF Seminar series

The central focus of this paper is on capital flows from developed to less developed countries and in particular on the question of why such flows are not much larger. I first outline the theoretical arguments with regard to such flows and then go on to review the historical evidence on international financial integration more generally. I then turn to the related literature on economic development, which over the past decade has shifted its emphasis from technology and capital accumulation per se to the underlying institutional factors that affect investment. I present evidence that such factors also affect to rich-to-poor …

The Impact Of S&P Depository Receipts On The S&P Cash And Futures Market, Andrew J. Economopoulos

Business and Economics Faculty Publications

The introduction of the S&P Depository Receipt (SPDR) in 1993 was a financial innovation that produced several ripple effects in the financial markets. Not only did it allow the small investor to purchase a piece of the S&P 500 Cash Index, it would allow the large investor to utilize the security for arbitrage opportunities with the S&P 500 futures. A theoretical model of arbitrage opportunities utilizing SPDR is developed. The theoretical model provides two outcomes. First, the adoption of the SPDR as an arbitrage tool depends on transaction and liquidity costs and second, the innovation could potentially reduce the traditional …

Stormwater Utility Fees: Considerations & Options For Interlocal Stormwater Working Group (Iswg), New England Environmental Finance Center

Economics and Finance

Stormwater utilities are a concept whose time seems to have arrived. Established by relatively few communities in the 1970s as a method of funding flood control measures, stormwater utilities now exist in over 400 municipalities and counties throughout the United States. During the next 10 years, their numbers are expected to swell dramatically – by one estimate to over 2,000 by the year 2014.

The reasons for this growth are multifold. Federal stormwater regulations passed in the 1980s (Phase I of the National Pollutant Discharge Elimination System Program, or NPDES), motivated many larger communities to seek alternative funding sources and …

Changes In The Intertemporal Relation Between The U.S. And Japanese Stock Markets, Rustin Paul Diehl

Undergraduate Honors Capstone Projects

This paper finds a decreasing relationship between daytime trading in previous-day US equity markets and the Japanese market performance in the current period. On the other hand, the connection has increased between current US equity markets and current, after-hour Japanese markets. These changes have corrected a previous violation of the efficient market hypothesis, and suggest that as internet trading has increased volumes of off-hour trading, the Japanese equity markets have been better able to digest information from current US markets.

Service Industries Keep Employment Steady In Arkansas' Capital, Anthony Pennington-Cross

Finance Faculty Research and Publications

No abstract provided.

An Excel Application For Valuing European Options With Monte Carlo Analysis, Tom Arnold, Stephen C. Henry

Finance Faculty Publications

By developing the basic intuition of how Monte Carlo simulation works within an Excel spreadsheet framework, this paper allows the undergraduate student to use Monte Carlo simulation techniques to price European style options without additional sophisticated software. Further, the skills and intuition developed provide the basis for much more complex simulation techniques.

Aggregation Bias And The Repeat Sales Price Index, Anthony Pennington-Cross

Finance Faculty Research and Publications

No abstract provided.

Crummer Suntrust Portfolio Spring 2005, Leticia Gaglianone, T. J. Gillespie, Gabriel Ivan, Nick Karpinski, Richard Konkel, Jeremy Miller, Lauri Miller, Ben Munson, Jordan Nof, Brad Osleger, Robbie Riddle, Karl Rimfeldt, Eric Rolinson, Meghan Sheleg, Diego Vargas, Tim Videnka

Crummer Truist Portfolios

No abstract provided.

Operating Measures, Ipo Valuation, And After Market Performance-Perspective From Internet Bubble Period, Yuhong Fan

Theses and Dissertations in Business Administration

Internet related firms experienced an extremely high degree of underpricing in the year 1999 and 2000; 40 percent more than underpricing of Non-Internet firms. Two explanations for this phenomenon are examined: the changing-risk composition hypothesis and overreaction hypothesis. Empirical tests are conducted in three stages: first trading day, short-term, and long-term performances. The results are consistent with both hypotheses, and the high initial returns for Internet firms are explainable by investors' overreaction and the firm's high uncertainties.

The Role Of Exchange Rates In The Intertemporal Risk-Return Relation In International Economies, Turan G. Bali, Liuren Wu

CRIF Seminar series

This paper investigates the role of currency denomination in the the intertemporal risk-return relation among G7 countries. Similar to the findings of previous studies, our estimation also shows that the financial markets of the G7 countries are integrated. We obtain significant pricing coefficient estimates on the global index, but insignificant estimates on country-specific risks. Different from the literature, however, we find that the intertemporal risk-return relation differ significantly under different currency denominations. The slope coefficient estimate is the largest at around seven when the returns are denominated in Japanese yen, smallest at around three to four when the returns are …

The Role Of Earnings And Book Values In Pricing Stocks: Evidence From Turkey, Asokan Anandarajan, Iftekhar Hasan, Ihsan Isik, Cornelia Mccarthy

CRIF Working Paper series

In this study, we examine factors associated with equity valuation in a newly emerging market, Turkey. In the United States and other developed countries, research indicates that both earnings and book value are important predictors of equity valuation. In Turkey, earnings appears to have information content but earnings, by itself, appears to be declining in importance over time. Book value adjusted for inflation has a stronger association with equity values. In the inflationary and risky environment of Turkey, where future value of earnings is quite uncertain, investors may be paying less attention to earnings and more attention to book values. …

Borrower Self-Selection, Underwriting Costs, And Subprime Mortgage Credit Supply, Joseph Nichols, Anthony Pennington-Cross, Anthony Yezer

Finance Faculty Research and Publications

In the U.S., households participate in two very different types of credit markets. Personal lending is characterized by continuous risk-based pricing in which lenders offer households a continuous distribution of borrowing possibilities based on estimates of their creditworthiness. This contrasts sharply with mortgage markets where lenders specialize in specific risk categories of borrowers and mortgage supply is stepwise linear. The contrast between continuous lending for personal loans and discrete lending by specialized lenders for mortgage credit has led to concerns regarding the efficiency and equity of mortgage lending. This paper sheds both theoretical and empirical light on the differences in …

Price Limit Performance: Evidence From Transactions Data And The Limit Order Book, Soon Huat Chan, Kenneth A. Kim, S. Ghon Rhee

Research Collection Lee Kong Chian School Of Business

In recent years, organized stock exchanges with daily price limits adopted wider limits as narrower limits were criticized for jeopardizing market efficiency. This study examines the impact of a wide price limit on price discovery processes, using data from the Kuala Lumpur Stock Exchange. Specifically, examined is the impact of daily price limits on (i) information asymmetry; (ii) arrival rates of informed traders; and (iii) order imbalance. Using both trade-to-trade transaction data and the limit order book, we compile evidence that price limits do not improve information asymmetry, delays the arrival of informed traders, and exacerbates order imbalance. These results …

Corporate Divestitures And Spinoffs In Singapore, Francis Koh, Winston T. H. Koh, Benedict S. K. Koh

Research Collection Lee Kong Chian School Of Business

This paper discusses the different forms of corporate divestitures, the motives for this corporate activity, and the empirical findings about their economic outcomes. A sample of corporate divestitures is also used to identify the main motivations in the Singapore context. We conclude that divestitures are carried out to achieve operational efficiency and gain incremental profitability and liquidity. Using share price data around the event-dates, we show that announcements of divestitures generally lead to significant increases in the returns of the parent company. The positive abnormal returns are related to the relative size of the divestitures and the computed accounting gains. …

The Performance Of Value And Growth Portfolios In East Asia Before The Asian Financial Crisis, David K. Ding, Jia-Leng Chua, Thomas A. Fetherston

Research Collection Lee Kong Chian School Of Business

We examine value and growth portfolios in seven East Asian countries just before the onslaught of the 1997 Asian Financial Crisis. The value premiums in these countries, except in Indonesia, Taiwan, and Thailand, are found to be mainly positive. After controlling for firm size, risk, liquidity, and growth potential, we find higher returns among value stocks with a small firm size and low growth potential in Hong Kong and Malaysia. In Japan and Singapore, higher returns are found in growth portfolios with a small firm size and low growth potential. Growth stocks in Taiwan with a small firm size, and …

The Effects Of Decimalization On Return Volatility Components, Serial Correlation And Trading Costs, Yan He, Chunchi Wu

Research Collection Lee Kong Chian School Of Business

We examine the composition of return volatility, serial correlation, and trading costs before and after decimalization on the New York Stock Exchange. We decompose the variance of price changes into components associated with public news, rounding errors, and market-making frictions. We find that when stocks move from a fractional to a decimal trading system, the variance components due to market-making frictions and rounding errors decline significantly, whereas the component due to public news remains unchanged. The serial correlation of price changes weakens substantially after decimalization. The uninformed component of bid-ask spreads decreases significantly whereas the informed component has no significant …