Finance and Financial Management Commons^™

Assessing The Dynamic Relationship Between Small And Large Cap Stock Prices, K. Ho, B. Ernst, Zhaoyong Zhang

Research outputs 2011

The historical long-run return on small capitalization stocks has unquestionably outperformed large capitalization stocks since 1926. The phenomenon of small capitalization stocks having higher risk- adjusted returns compared with large capitalization stocks is an equity market anomaly first discovered in 1981. Since then, many academics and investors have strongly argued that “size is dead”. This paper argues that far from being dead, the phenomenon of size effect appears alive and well and it could be exploited effectively over long-term investment horizons. To analyze this phenomenon, we focus specifically on the dynamics of small cap and large cap prices. We test …

Modeling The Fractional Integration In Volatility Between The Greater China Financial Markets, K. Ho, Zhaoyong Zhang

Research outputs 2011

The dynamics of the interrelationships among the financial markets in the Greater China area including Mainland China, Taiwan, and Hong Kong, is a noteworthy issue of economic research. This is not only because the financial markets in this region have grown rapidly over the past decade, but also because of the arguably asymmetric integration of the emerging Chinese economy with advanced countries in the real side of the economy and tight control over financial market. Since its establishment in the early 1990s, the Mainland Chinese stock market has expanded rapidly in terms of capitalization, turnover, and the new listings. Even …

Modeling The Conditional Volatility Asymmetry Of Business Cycles In Four Oecd Countries: A Multivariate Garch Approach, K Ho, A Tsui, Zhaoyong Zhang

Research outputs 2011

There are many studies on the business cycle indicators in the past decades, but mostly focusing on the asymmetric and non-linear features of business cycles incorporated into the conditional mean equation rather than the conditional variance formulation. Recently, the hypothesis of volatility asymmetry in business cycle indicators has been re-examined by, for instance, Ho and Tsui (2003 and 2004) using univariate asymmetric power ARCH (APARCH) and EGARCH models. However, the main drawback of univariate GARCH analysis is that it fails to capture the co-movement of macroeconomic variables. These co-movement relationships are important issues emphasised by the business cycle researchers, yet …

Are Credit Ratings A Good Measure Of Capital Adequacy?, David Allen, Akhmad Kramadibrata, Robert Powell, Abhay Singh

Research outputs 2011

Focus on capital adequacy intensified since the onset of the Global Financ ial Crisis (GFC), with many US and other global banks experiencing capital shortages over this time. The Basel standardised approach uses credit ratings as a determinant for corporate capital adequacy requirements. A problem with credit ratings is that they were designed to be a measure of relative, as opposed to absolute credit risk, and do not ratchet up or down with changes in economic circumstances. This paper examines how credit risk as indicated by credit ratings (and thei r associated capital requirement) changed pre and post Global Financial …

Modeling Information Linkages In The Stock And Options Markets, K Ho, L Zheng, Zhaoyong Zhang

Research outputs 2011

When markets are assumed to be complete, option trading should not contain new information for market participants, as options derive their prices from the underlying stocks. However, if markets are incomplete, then this unidirectional relationship may not be true, because informed traders may prefer to trade options instead of the underlying stocks for several reasons: one, option trading involves lower transaction costs and higher financial leverage; and two, investors who have private information about stock price volatility can only make their bet on volatility in the option market. Compared with the research on the relationship between options trading activity and …

Credit Risk Measurement Methodologies, David Allen, Robert Powell

Research outputs 2011

The significant problems experienced by banks during the Global Financial Crisis have highlighted the critical importance of measuring and providing for credit risk. This paper will examine four popular methods used in the measurement of credit risk and provide an analysis of the relative shortcomings and advantages of each method. The study includes external ratings approaches, financial statement analysis models, the Merton / KMV structural model, and the transition based models of CreditMetrics and CreditPortfolioView. Each model assesses different cr iteria, and an understanding of the merits and disadvantages of the various models can assist banks and other credit modellers …

Alexander Hamilton And Asian Capitalism, Ian Austin

Research outputs 2011

Alexander Hamilton (1755-1804), extensive essayist (including The Federalist), long-serving aide de camp to George Washington (1732-1799), the first Secretary to the Treasury (1789-1795), and author of a series of Reports to Congress, takes his rightful place as one of theUnited States ofAmerica’s founding fathers. Like all members of Washington administrations (1789-1797), Hamilton on taking office was acutely aware of the highly precarious nature of the new nation’s future.What was to replace British rule was far fromcertain, and at the time the construction of a functioning republic beyond a small geographical area was considered by political orthodoxy to be dubious. In …

Measuring Real Capital Adequacy In Extreme Economic Conditions: An Examination Of Swiss Banking Sector, David E. Allen, Robert Powell

Research outputs 2011

The global financial crisis (GFC) has placed the creditworthiness of banks under intense scrutiny. In particular, capital adequacy has been called into question. Current capital requirements make no allowance for capital erosion caused by movements in the market value of assets. This paper examines default probabilities of Swiss banks under extreme conditions using structural modeling techniques. Conditional Value at Risk (CVaR) and Conditional Probability of Default (CPD) techniques are used to measure capital erosion. Significant increase in Probability of Default (PD) is found during the GFC period. The market asset value based approach indicates a much higher PD than external …

A Participatory Teaching Strategy Developing A Timeline Of The Global Financial Crisis, Margaret J. Giles

Research outputs 2011

The rapid pace of change of ideas and events in economics places pressure on teachers of university economics to stay abreast of developments in their field and to reflect these developments appropriately in their classes. The Global Financial Crisis (GFC) was an excellent example of this phenomenon with a great deal of material written on this subject over a relatively short space of time. Under certain circumstances, one way of coping with such developments may be for teachers and students to acquire emerging knowledge and information jointly rather than sequentially. This paper describes a teaching strategy where students constructed a …

Japanese Banks: Tail Risk And Capital Buffers, David E. Allen, Akhmad R. Kramadibrata, Robert Powell, Abhay Singh

Research outputs 2011

This paper applies quantile regression to a structural credit model to investigate the impact of extreme bank asset value fluctuations on capital adequacy and default probabilities (PD) of Japanese Banks. Quantile regression allows modelling of the extreme quantiles of a distribution which allows measurement of capital and PDs at the most extreme points of an economic downturn, when banks are most likely to fail. Outcomes are compared to traditional structural measures. We find highly significant variances in capital adequacy and default probabilities between quantiles, and show how these variances can assist banks and regulators in calculating capital buffers to sustain …

East Asian Financial Crisis Revisited: What Does A Copula Tell?, Pei Fei, Albert Tsui, Zhaoyong Zhang

Research outputs 2011

We construct a regime-switching model of copulas to capture observed asymmetric dependence in daily changes of exchange rates in five selected East Asian economies during the 1997 financial crisis era. In particular, we investigate the effects of the financial crisis on asymmetric dependence in exchange rates returns and assess the asymmetric relationships between five currencies, including the Singapore Dollar, Japanese Yen, South Korea Won, Thailand Baht and Indonesia Rupiah. Various time-varying copula models will also be applied to examine the possible structural breaks. The results confirm significant changes at the dependence level, tail behaviour and asymmetry structures between returns of …

Common Currency In East Asia: An Analysis Of Currency Convergence, Lee K. Lim

Research outputs 2011

The recent global financial crisis of 2007-2009 and fears of a sovereign debt crisis in some European countries have fuelled the debates among economic analysts and policy makers on the future directions of monetary and exchange rate arrangements in the East Asian region. This paper applies both the cluster analysis and time series tests to determine whether increased trade and financial integration has led to currency convergence in the region over the period January 1990 to June 2010. The countries included in this study are the high-performing East Asian economies, namely China, Hong Kong, Japan, South Korea, Taiwan and the …

Insurance Theory And Challenges Facing The Development Of Microinsurance Markets, James C. Brau, Craig B. Merrill, Kim B. Staking

Faculty Publications

Microinsurance institutions and instruments have developed rapidly over the last decade, with policies covering tens of millions at the base of the economic pyramid. Ranging from simple policies providing life or health insurance to complex policies covering catastrophic risks for small landholders, it is a market with proven potential that demands closer attention. This paper provides a review of the nascent academic literature and then suggests some critical elements of insurance theory that may help us understand the challenges facing microinsurance markets and how these markets can better serve the needs of their customers. Although the basic theory is well …

An Investigation Into The Use Of Neural Networks For The Prediction Of The Stock Exchange Of Thailand, Suchira Chaigusin

Theses: Doctorates and Masters

Stock markets are affected by many interrelated factors such as economics and politics at both national and international levels. Predicting stock indices and determining the set of relevant factors for making accurate predictions are complicated tasks. Neural networks are one of the popular approaches used for research on stock market forecast. This study developed neural networks to predict the movement direction of the next trading day of the Stock Exchange of Thailand (SET) index. The SET has yet to be studied extensively and research focused on the SET will contribute to understanding its unique characteristics and will lead to identifying …

Economic Development Incentives And The Legal And Economic Issues Of Open Versus Sealed Bids, Sherry L. Jarrell, J. Neal Robbins, Gary L. Shoesmith, Brendan A. Fox

South Carolina Journal of International Law and Business

No abstract provided.

Implications Of Executive Succession Upon Financial Risk And Performance, Susan F. Weiss

Walden Dissertations and Doctoral Studies

Executive replacements have historically created fluctuations in the market value of a company and precipitated inappropriate investor reaction. However, the direction and statistical significance of relationships between executive turnover, market value, financial risk, and investor reaction among a census of highly performing firms was previously unexplored. The purpose of this study was to determine the extent of the relationship between CEO turnover and indicators of company performance. Theoretical foundation for this study was the efficient markets hypothesis. Hypotheses tests were designed to support an ex-post facto research methodology for pre-post comparison of volatility of financial metrics, which are indicators of …

Quality Of Work Life: A Review Of Literature, Maynard R. Bagtasos

DLSU Business & Economics Review

The Quality of Work Life (QWL) is a multi-faceted concept, having multi-dimensional constructs brought about by the variation of interest of the researchers and/or its users. The issue of QWL has become critical due to the increasing demands of today’s business environment and of the family structure. This gave rise to an increased interest in QWL not only in business but also for many professions and fields. Determining QWL always involves the interplay between and among the worker, job content, and job context. Furthermore, the determination of the extent of QWL in an organization is a perceptual undertaking. As such, …

Empirical Comparison Of Extreme Value Theory Vis-À-Vis Other Methods Of Var Estimation Using Asean+3 Exchange Rates, Cesar C. Rufino, Emmanuel G. De Guia

DLSU Business & Economics Review

This study applies Extreme Value Theory in calculating Value-at-Risk (VaR) of portfolios consisting of foreign exchange exposures of ASEAN+3 countries. This paper addresses the issue that traditional VaR models assume normality of the return distribution. Empirical evidence confirms the stylized facts that financial asset returns are typically negatively skewed and fat-tailed. Moreover, risk management concerns itself with the distribution of the tails, or events in the extremes of the distribution. Estimation of magnitude and the likelihood of extreme events should be given greater attention than central tendency characteristics. Thus, this paper proposes the application of Extreme Value Theory in computing …

Correlates Of Poverty: Evidence From The Community-Based Monitoring System (Cbms) Data, Rechel G. Arcilla, Frumencio F. Co, Shirlee R. Ocampo

DLSU Business & Economics Review

This study identified correlates of poverty for Pasay City and Mogpog, Marinduque representing an urban and a rural area in the Philippines, respectively, by utilizing the 2005 census data from its Community-Based Monitoring System. Regression models with the arcsine of the square root of barangay level poverty incidence as dependent variable were investigated which allowed the identification of the correlates of poverty at the barangay level. Results showed that the significant correlates of barangay poverty incidence were average household size, proportion of households whose housing units/lot are not owned and proportion of households who own telephone/cellphone. Furthermore, lower poverty incidences …

The Geographic Profiling Of Poverty And Accessibility: The Case Of Two Provinces In The Philippines, Alexis M. Fillone, Nicanor Roxas Jr., Cristela G. Dakila

DLSU Business & Economics Review

This study attempts to relate the poverty problem in the Philippines using spatial accessibility measures. Spatial accessibility is the ease with which one could avail of the social services and economic opportunities laid in geographic space to the individual. Using the provinces of Eastern Samar and Siquijor Island as case studies, a Social Composite Index (SCI) value for the household was derived from the 13+1 CBMS core indicators of poverty, which represents the unmet needs of the household and which was then aggregated at the barangay level. The spatial accessibility values were estimated by measuring how each barangay, specifically households, …

Audit Committee Observation/Recommendations Versus Practices As A Compliance Of Corporate Governance In India, Debabrata Chatterjee

DLSU Business & Economics Review

The series of accounting scandals have intensified pressure from stakeholders and regulators on the audit committees to do the jobs for which they are hired. Though most companies have audit committees, their role has been limited due to the lack of expertise and time. An active audit committee is important because it indicate the commitment to the issues of interest because of the reports it release about the activities undertaken during the financial year and the efforts made to ensure adequate internal control. Audit committees must be given the role to approve and review audit fees, thus neutralizing the bias …

Empirical Analysis Of Impact Of Capital Market Development On Nigeria’S Economic Growth (1981 – 2008) (Case Study: Nigerian Stock Exchange), Rowland T. Obiakor, Andy T. Okwu

DLSU Business & Economics Review

This study empirically examined the impact of capital market development on economic growth in Nigeria for the period 1981-2008. The major tool we employed for empirical analysis is a multiple regression analysis model specified on the basis of hypothesized functional relationship between capital market development and economic growth. For capital market development indicators, we considered ratios of value of shares traded, market capitalization, gross capital formation and foreign private investment, to gross domestic product, as explanatory variables, while we used growth rate of gross domestic product as the dependent variable. We introduced an error correction term to capture the flexibility …

Behavioral Economics Perspectives On Public Sector Pension Plans, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

We describe the pension plan features of the states and the largest cities and counties in the U.S. Unlike in the private sector, defined benefit (DB) pensions are still the norm in the public sector. However, a few jurisdictions have shifted towards defined contribution (DC) plans as their primary savings plan, and fiscal pressures are likely to generate more movement in this direction. Holding fixed a public employee‘s work and salary history, we show that DB retirement income replacement ratios vary greatly across jurisdictions. This creates large variation in workers‘ need to save for retirement in other accounts. There is …

Would Price Limits Have Made Any Difference To The 'Flash Crash' On May 6, 2010, Wing Bernard Lee, Shih-Fen Cheng, Annie Koh

Research Collection School Of Computing and Information Systems

On May 6, 2010, the U.S. equity markets experienced a brief but highly unusual drop in prices across a number of stocks and indices. The Dow Jones Industrial Average (see Figure 1) fell by approximately 9% in a matter of minutes, and several stocks were traded down sharply before recovering a short time later. The authors contend that the events of May 6, 2010 exhibit patterns consistent with the type of "flash crash" observed in their earlier study (2010). This paper describes the results of nine different simulations created by using a large-scale computer model to reconstruct the critical elements …

Reit Going Private Decisions, James C. Brau, J. Troy Carpenter, Mauricio Rodriguez, C. F. Sirmans

Faculty Publications

Over the recent decade there was a wave of REITs going private, from an average of about three per year to 40 between 2005 and 2007. Standard corporate finance theory posits that firms go private when there is no longer a positive tradeoff between the expected benefits and the costs of being public, and it provides empirical evidence that going private decisions are motivated by potential gains from leverage, tax benefits, and expected improvements in corporate governance. Given the unique institutional environment for the REIT industry, this paper sheds new light on the going-private decision. Specifically, we examine the determinants …

Forecasting Multivariate Realized Stock Market Volatility, Gregory H. Bauer, Keith Vorkink

Faculty Publications

We present a new matrix-logarithm model of the realized covariance matrix of stock returns. The model uses latent factors which are functions of lagged volatility, lagged returns and other forecasting variables. The model has several advantages: it is parsimonious; it does not require imposing parameter restrictions; and, it results in a positive-definite estimated covariance matrix. We apply the model to the covariance matrix of size-sorted stock returns and find that two factors are sufficient to capture most of the dynamics.

Why Did U.S. Banks Invest In Highly-Rated Securitization Tranches?, Isil Erel, Taylor Nadauld, René M. Stulz

Faculty Publications

We estimate holdings of highly-rated tranches of mortgage securitizations of American deposit-taking banks ahead of the credit crisis and evaluate hypotheses that have been advanced to explain these holdings. We find that holdings of highly-rated tranches were economically trivial for the typical bank, but banks with greater holdings performed more poorly during the crisis. Though univariate comparisons show that banks with large trading books had greater holdings, the holdings of highly-rated tranches are not higher for banks with large trading books in regressions that control for bank size. The ratio of highly-rated tranches holdings to assets increases with bank assets, …

$100 Bills On The Sidewalk: Violations Of No-Arbitrage In 401(K) Accounts, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

We identify employees at seven companies whose 401(k) investment choices are dominated because they are contributing less than the employer matching contribution threshold despite being vested in their match and being able to make penalty-free 401(k) withdrawals for any reason because they are older than 59½. At the average firm, 36% of match-eligible employees over age 59½ forgo arbitrage profits that average 1.6% of their annual pay, or $507. A survey educating employees about the free lunch they are forgoing raised contribution rates by a statistically insignificant 0.67% of income among those completing the survey.

An Analysis Of The Effects Of The Probability Of Informed Trading (Pin) On Corporate Diversification Discount And Ceo Pay-Performance Sensitivity : Evidence From China, Man Jin

Lingnan Theses

This thesis includes estimating the probability of informed trading, PIN, developed by Easley, Kiefer and O’Hara (1996, 1997a, 1997b), for a large sample of listed firms in China from 2002 to 2008, and I use PIN to explore two independent research questions in corporate finance.

First, the probability of informed trading is applied to explain the discount in value for firms with diversified business operations. Although aiming to increase firm value, the corporate diversification decision usually results in a firm value discount, for a variety of reasons, one of which is the transparency problem. My study directly tests the relation …

The Role Of Income And Employment On School Participation Rate In Pasay City And Eastern Samarthe Role Of Income And Employment On School Participation Rate In Pasay City And Eastern Samar¹, Tereso S. Tullao Jr, John Paolo R. Rivera

DLSU Business & Economics Review

The Philippines committed itself to the United Nations’ Millennium Development Goals (MDG), one of which is the universal access to primary education by 2015. To address the goal, supply factors and demand factors must be considered. Supply factors refer to the ability of the government to provide resources to finance elementary education. Demand factors refer to the variables affecting household’s decision to demand educational services such as income, education cost, and demographic characteristics of the households: age structure and family characteristics. This study explored the extent to which household income and household head employment status influence elementary school participation rate …