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Publisher: Emerald   (Total: 312 journals)

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Journal Cover Studies in Economics and Finance
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   Hybrid Journal Hybrid journal (It can contain Open Access articles)
   ISSN (Print) 1086-7376
   Published by Emerald Homepage  [312 journals]
  • Labor income risk and households' risky asset holdings
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 2, June 2016.
      Purpose Financial theory suggests that with increasing labor income risk, the reluctance of households to hold stocks increases. We therefore investigate the determinants of a household's decision on whether to invest in risky financial assets. Design/methodology/approach Income risk is measured as the observed variation of household income over a five-year period. We use both the time and the cross-sectional dimension of the German Socio-Economic Panel in order to control for unobserved heterogeneity. Findings We find that indeed higher variation, i.e. higher income risk, reduces the propensity to invest in risky assets. However, when controlling for household heterogeneity, as well as subjective measures of a household's financial situation (income satisfaction, worries about financial situation), the impact of observed labor income variation vanishes. We therefore conclude that in particular the perception of investment risk and of the riskiness of the environment determines the investment decision to a great extent. Originality/value The paper contributes to a better understanding of a household's investment decision making process. To the best of the authors' knowledge it is the first to fully exploit the panel structure of the data to control for unobserved heterogeneity which leads to novel conclusions with respect to the effect of labor income.
      Citation: Studies in Economics and Finance
      PubDate: 2016-04-26T01:34:28Z
      DOI: 10.1108/SEF-09-2014-0168
       
  • Assessing foreign funds geographical focus timing skill
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 2, June 2016.
      Purpose To study the market timing skill of United States-based foreign open-end mutual funds in their geographical focus market. Design/methodology/approach We use daily fund data and two multi-factor extensions of the Treynor-Mazuy (1966) and Henriksson-Merton (1981) timing models to measure United States-based foreign funds’ market timing skill during 1999 to 2010. In particular, we study fund managers’ skill to time their geographical focus market. Findings We report that, in general, foreign funds do not accurately time their geographical focus market. However, during January 2008 to December 2010, the sub period that includes the 2008 global financial crisis, most foreign funds in our sample not only focused on their domestic market, the United States, but also demonstrated statistically significant, good timing skill. Originality/value Although United States-based foreign funds’ market-timing skill is not an unexplored topic, this study is the first to consider these funds’ skill to time their geographical focus market, a skill that has been studied in the context of hedge funds.
      Citation: Studies in Economics and Finance
      PubDate: 2016-04-26T01:34:26Z
      DOI: 10.1108/SEF-11-2013-0168
       
  • Household micro-data, regulation and financial stability: The case of
           Denmark in the 1950s
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 2, June 2016.
      Purpose The 1950s was characterised by pronounced stability of the banking sector in many countries, which the existing literature has attributed to tight regulation. However, other factors than regulation are important for financial stability. This paper considers the case of Denmark and investigates whether the absence of banking crises was due to robustness of the banking sector's customers rather than tight regulation. Design/methodology/approach The paper analyses the resilience of Danish wage and salary earners to adverse economic shocks in the 1950s based on household-level data on income, consumption, savings and wealth from the Danish Expenditure and Saving Survey of 1955. Findings The paper finds that the Danish household sector in the 1950s had a high debt payment ability and was very robust to even large income shocks. The results indicate that the stability of the Danish financial sector was not only due to tight regulation but also reflected a high credit quality of the banking sector's loan portfolio. Originality/value During the last decade or so, a micro-data-based framework has become the "state of the art" approach among central banks to analyse the financial robustness of the household sector. However, such an approach has so far not been applied in studies on historical financial-stability issues. The paper adds to the literature by using granular household-level data to assess the financial resilience of the Danish household sector in the 1950s.
      Citation: Studies in Economics and Finance
      PubDate: 2016-04-26T01:34:24Z
      DOI: 10.1108/SEF-07-2015-0176
       
  • Business lending and bank profitability in the UK
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 2, June 2016.
      Purpose The purpose of this paper is to investigate the importance of business lending as a source of bank profits in the UK banking system. The paper also examines whether the profitability of business lending is mostly driven by heterogeneous characteristics of individual banks or whether it is affected by systematic characteristics such as bank size and ownership structure. Design/methodology/approach The study uses bank level data from BankScope for a total sample of 83 UK banks and building societies. The period under consideration extends from 2005 to 2009. Econometric estimation is by panel fixed effects. Findings Our empirical results show that business lending is a statistically significant determinant of bank profits. However, this average effect masks important systematic differences among banks. In particular, we find strong size effects: the profitability of business lending is considerable for small banks but negligible for large banks. In contrast, we could not detect any ownership effects for domestic and foreign banks. These findings persist when the occurrence of the financial crisis is accounted for. Research limitations/implications Interestingly, our study relates these findings to the process of financialisation. Yet, the extent of the latter and its impact on various groups of banks (i.e., large, small, domestic and foreign banks) have not been examined. Further research in this area would make an important contribution to the literature.. Practical implications Our findings suggest that business lending is not a driving factor of profitability for large banks. One possible policy implication – which may be of interest especially to regulators and policy makers – is that capital injections into the larger banks per se are unlikely to lead to an expansion of credit to business. Originality/value There is very little research in the literature on the questions addressed in this paper, especially for the UK banking system. Moreover, the process of financialisation, which motivates the enquiry of this paper, is a growing area of research. Thus, the contribution of this paper is twofold.
      Citation: Studies in Economics and Finance
      PubDate: 2016-04-26T01:34:20Z
      DOI: 10.1108/SEF-04-2015-0097
       
  • Quality investing and the cross-section of country returns
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 2, June 2016.
      Purpose The main objective of this study is to examine the role of quality as a determinant of a cross-sectional variation in country-level stock returns. The study attempts to address the question: Is there any special premium for top-quality stock markets with decent profitability, indebtedness and liquidity ratios? Design/methodology/approach The computations are based on the listings of 66 country portfolios over the period between 2000 and 2013. Long/short country portfolios from sorts on characteristics related to quality are examined with asset pricing models. Findings The inter-market variation in returns may be explained with profitability and debt ratios: the more profitable and the less indebted is stock market, the better is its performance. Moreover, the performance of country-level value, size and momentum strategies may be improved by double-sorting on quality characteristics. Practical implications The practical implications include such issues as the global asset allocation, the development of investment products, asset pricing and investment performance measurement. The country selection strategies based on leverage and profitability prove a useful tool for investors with global investment mandate. Furthermore, additional sorting on quality metrics may markedly improve the performance of inter-market value, size and momentum strategies. Originality/value This paper examines the role of quality metrics related to financial leverage, profitability and liquidity in explaining the cross-sectional variation in country returns.
      Citation: Studies in Economics and Finance
      PubDate: 2016-04-26T01:34:16Z
      DOI: 10.1108/SEF-06-2014-0119
       
  • Analysis of the factors impacting ETFs net fund flow changes
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 2, June 2016.
      Purpose The purpose of this study is to identify the factors that impact the exchange traded funds net fund flow changes on daily basis. Design/methodology/approach We study 1,212 different exchange traded funds with a proprietary daily net fund flow data and logistic regressions because the majority of the 1,212 exchange traded funds have mostly zero daily net fund flow changes. Findings We document that in the period December 22, 2005 to July 28, 2010 autocorrelation at the daily frequency is not universally present for the 1,212 exchange traded funds that we study, despite the fact that this is the case in the monthly data documented in prior studies. We also fail to find support for the feedback trading hypothesis but find some support for the contrarian investor hypothesis on daily basis, even though the opposite is ascertained for both in the prior literature monthly data. Also, we cannot conclude that tracking error prompts net fund flow changes and thus arbitrage activity. Originality/value The paper contributes to the ongoing analysis of the factors influencing investment companies fund flow changes, which has mostly focused on open-end funds and monthly data so far. Considering the increased scope and relevance of exchange traded funds in today’s financial markets this study fills a void in the fund flow changes literature.
      Citation: Studies in Economics and Finance
      PubDate: 2016-04-26T01:34:12Z
      DOI: 10.1108/SEF-06-2014-0114
       
  • Industry-specific determinants of shareholder value creation
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 2, June 2016.
      Purpose Prior studies on determinants of shareholder value creation have reported conflicting and sometimes confusing results. In this study, in order to obtain more refined and industry-specific results regarding variables determining shareholder value creation, an analysis was performed focusing on different categories of firms or industries. Design/methodology/approach Two dependent and 11 independent variables were applied to five different industries to obtain the best set of significant value drivers of shareholder value creation for a particular industry. Findings MVA is a better indicator of shareholder value created compared to a market adjusted return. Accounting-based variables (EPS, ROA and NOPAT) are superior to economic-based variables (EVA and ROCE) in explaining shareholder value creation, but results differ, depending on the dependent variable chosen as shareholder value creation measure. For each industry, there is a unique set of variables that determine shareholder value creation; the industrial goods industry has seven significant value drivers, namely EPS, NOPAT, ROCE, the Spread, EVA, EBEI and REVA, while for the food and beverages industry there were only two significant value drivers (EPS and ROA). Originality/value These findings imply that management, analysts and shareholders should, depending on the specific industry in which their firm operates, take into account a more specific set of variables when making their financial decisions, including compensation or reward structuring.
      Citation: Studies in Economics and Finance
      PubDate: 2016-04-26T01:34:09Z
      DOI: 10.1108/SEF-08-2014-0155
       
  • Foreign currency exposure within country exchange traded funds
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 2, June 2016.
      Purpose To consider the implicit effect of the underlying foreign currency exposure on the performance characteristics of country exchange traded funds. Design/methodology/approach To arrive at an overall estimation of the ETF’s tracking error, we calculate the mean of the three measures of tracking error for both the hedged (r_LC) and unhedged (r_NAV) return series. Since tracking error does not capture all the risk inherent in a country index fund, the study extends the analysis using the Sortino and Modified Sharpe ratios. Findings The decision to hedge currency risk should not be taken on the sole basis of historical volatilities. The investor must also factor in transactions costs, the possible roll of futures contracts, and prevailing interest rate differentials. If the rate on the foreign currency is greater than the dollar (euro) rate, the investor will pay for the hedge. If the rate on the foreign currency is less than the dollar (euro) rate, the investor will gain on the trade. Given that hedging entails additional costs, in cases where the neutralization of currency volatility only reduces risk modestly, it would be advisable to leave the exchange rate risk unhedged. We propose two metrics for ETF investors deciding whether to hedge a country ETF’s underlying currency risk. Originality/value The results highlight a key finding: while the majority of country funds accurately track the performance of the underlying foreign index when measured in the local currency, returns in the fund currency can be much more volatile. In breaking down the sources of country fund volatility, the paper demonstrates the impact of the underlying currency movements on overall fund risk. In cases where the currency impact has a significant impact on fund tracking errors, an index-oriented investor benefits from neutralizing the exchange rate effect. Additionally, as the Sortino and Modified Sharpe measures suggest that the underlying currency exposure offers in most cases a better risk-adjusted return for country ETFs in the listing currency, we also calculate the risk minimizing foreign currency exposure for each fund and propose a decision rule based on the net currency variance to decide whether to hedge the ETF’s currency risk. The optimal hedge ratio indicates that U.S.-based investors should only partially hedge the underlying currency risk while European-based investors are better off fully hedging currency risk.
      Citation: Studies in Economics and Finance
      PubDate: 2016-04-26T01:34:07Z
      DOI: 10.1108/SEF-10-2014-0196
       
  • Option replication and the performance of a market timer
    • First page: 2
      Abstract: Studies in Economics and Finance, Volume 33, Issue 1, March 2016.
      Purpose The Treynor and Mazuy framework is a widely used return-based model of market timing. However, existing corrections to the regression intercept can be manipulated through derivatives trading. Because they are conceptually flawed, these corrections produce biased performance measures. We get back to Henriksson and Merton's initial idea of option replication in order to overcome this issue and adapt the market timing model to various kinds of trading strategies and return generating processes. Design/methodology/approach We propose an theoretical adjustment based on Merton's option replication approach adapted to the Treynor and Mazuy specification. The linear and quadratic coefficients of the regression are exploited to assess the cost of the replicating option that yields similar convexity for a passive portfolio. A similar reasoning applies for various timing patterns and in multi-factor models. Findings The proposed framework induces a potential rebalancing risk and involves the delicate issue of choosing the cheapest option. We show that these issues can be overcome for reasonable tolerance levels. The option replication approach is a workable approach for practical applications. Originality/value The adaptation of Merton's reasoning to the Treynor and Mazuy model has surprisingly never been proposed so far. This paper has the potential to correct for a pervasive bias in the estimation of the performance of a market timer in the context of this very popular quadratic regression setup. Because of the power of the option replication approach, the reasoning is shown to be applicble to multi-factor models, negative timing, and market neutral strategies. This paper could fuel empirical studies that would shed new light on the genuine market timing skills of active portfolio managers.
      Citation: Studies in Economics and Finance
      PubDate: 2016-01-25T04:09:50Z
      DOI: 10.1108/SEF-01-2015-0012
       
  • Dependence and extreme correlation among US industry sectors
    • Authors: Kunlapath Sukcharoen, David J. Leatham
      First page: 26
      Abstract: Studies in Economics and Finance, Volume 33, Issue 1, March 2016.
      Purpose The purpose of this paper is to examine the degree of dependence and extreme correlation (i.e., tail dependence) among US industry sectors. Design/methodology/approach This paper makes use of both conventional measures of dependence (the Pearson’s correlation coefficient, Spearman’s rho, and Kendall’s tau) and copula measures of extreme correlations (including the same-direction and cross tail dependence coefficients) to explore sector diversification opportunities. The paper splits the full sample in three periods: 1995 to 2000, 2001 to 2006, and 2007 to 2012, to access the extent to which the dependence results change through time. Findings Our research provides three important findings. First, the degree of dependence and same-direction extreme correlations are high, whereas the cross extreme correlations are considerably low. Second, the sector pairs offering the best and worst tail diversification change across sample periods. Third, the traditional dependence measures suggest that benefits for sector diversification have decreased over all sample periods, while the potential for sector diversification during extreme events has just started to disappear in the most recent period. Practical implications An investor should consider both the normal comovements and extreme comovements among sector indices to maximize diversification benefits. Originality/value Given the limited empirical investigations of the degree of dependence and extreme correlation at a sector level, the results from this research should provide additional and valuable information for both investors and empirical researchers about portfolio diversification and risk management.
      Citation: Studies in Economics and Finance
      PubDate: 2016-01-25T04:09:48Z
      DOI: 10.1108/SEF-01-2015-0021
       
  • A hybrid approach to exchange rates: how do macro news and order flow
           affect exchange rate volatility?
    • Authors: Guangfeng Zhang, Ian Marsh, Ronald MacDonald
      First page: 50
      Abstract: Studies in Economics and Finance, Volume 33, Issue 1, March 2016.
      Purpose This study aims to investigate the impact of information, both public macro news and private information, on exchange rate volatility in an integrated framework. Design/methodology/approach We apply real-time data of macro announcements and high frequency trading data (German Deutsche Mark to US Dollar, DEM/USD, from May 1 to August 31, 1996) to GARCH models and we examine various model specifications. Findings Our data analysis demonstrates real-time macro news and market makers’ private information both have a significant impact on exchange rate volatility, but there is no interaction between macro and micro information in the information transmission process. Originality/value This study contributes to empirical hybrid studies of examining exchange rates volatility, which is in line with literature that combine both macro and micro fundamentals in examining exchange rates variation. Particularly, a key element of this study is to use a microstructure fundamental variable, namely order flow, to capture private information in an exchange rate volatility study.
      Citation: Studies in Economics and Finance
      PubDate: 2016-01-25T04:09:46Z
      DOI: 10.1108/SEF-10-2014-0185
       
  • Does idiosyncratic volatility predict future growth of the Australian
           economy?
    • Authors: Bin Liu, Amalia Di Iorio
      First page: 69
      Abstract: Studies in Economics and Finance, Volume 33, Issue 1, March 2016.
      Purpose We examine whether idiosyncratic volatility and other asset pricing factors predict growth rates of the ten Australian economic indicators. Design/methodology/approach We use the Liew and Vassalou (2000) model augmented with an idiosyncratic volatility factor to investigate the issue. Findings Using regression analysis, we find that the asset pricing factors can be used to predict the growth rates for eight out of the ten economic indicators. Moreover, using portfolio performance analysis, we find that high returns of SMB and HML portfolios precede periods of good macroeconomic states, whereas high returns of HIMLI portfolios precede periods of bad macroeconomic states. Originality/value To our knowledge, the relationship between idiosyncratic volatility and Australian economic growth has not been investigated explicitly in the literature.
      Citation: Studies in Economics and Finance
      PubDate: 2016-01-25T04:09:43Z
      DOI: 10.1108/SEF-08-2014-0160
       
  • The inverse of a terror event? Stock market response to pro-active
           action
    • Authors: Zvika Afik, Yaron Lahav, Lior Mandelzweig
      First page: 91
      Abstract: Studies in Economics and Finance, Volume 33, Issue 1, March 2016.
      Purpose This paper studies and documents the effect of counter-terrorism on stock returns. We select a sample of pro-active defense operations, performed by the Israeli military and government agencies, with significant media coverage, including leading international channels. Design/methodology/approach We use the event study methodology to assess the effect of each operation on the Israeli equity market. The theoretical background of this work is the recent behavioral literature on anomalies in the formation of asset pricing and in investors’ decision-making. Findings We find generally a statistically significant positive equity market reaction, on average, to prominent successful operations. The initial market response is usually negative and then changes according to the type of event, its specific circumstances, and expected ramifications. Originality/value Unlike the vast prior literature on terror effects, we believe that this is the first paper to study the market reaction to prominent counter-terrorism operations.
      Citation: Studies in Economics and Finance
      PubDate: 2016-01-25T04:09:49Z
      DOI: 10.1108/SEF-04-2014-0081
       
  • The manipulation of LIBOR and related interest rates
    • Authors: Harald Braml
      First page: 106
      Abstract: Studies in Economics and Finance, Volume 33, Issue 1, March 2016.
      Purpose The ‘London InterBank Offered Rate’ (LIBOR) is one of the most important short term interest rates with trillions of US dollar in financial products tied to it. Due to recent allegations of manipulation of the LIBOR this paper investigates the integrity of this rate. Design/methodology/approach The paper analyzes the LIBOR and its rate fixing process using different screens to detect potential manipulative behavior on the macro and micro level. As main frameworks an interest rate parity approach and the construction of a theoretical LIBOR using CDSs are applied. A simulation on the potential impact from one through four banks manipulating the LIBOR is performed as well. Findings The results on the macro level show that the LIBOR deviates heavily from other short term interest rates from mid-2007 onwards, reaching its peak in September 2008 with the collapse of Lehman Brother. On the micro level, the individual submissions of the panel banks are investigated, finding inconsistencies for Barclays and HSBC. Furthermore, a simulation on the influence from potential manipulation under the current calculation method reveals substantial effects on the LIBOR fixing. Even one bank trying to manipulate the fixing has a strong influence on the rate setting. Originality/value This paper contributes to the academic landscape in that it investigates the LIBOR rate setting process and if irregular behavior can be detected given the screens used. Due to the findings of conspicuous behavior in the fixing during certain periods the integrity of the rate setting process is more than questionable.
      Citation: Studies in Economics and Finance
      PubDate: 2016-01-25T04:09:47Z
      DOI: 10.1108/SEF-10-2014-0203
       
  • The impact of capital shocks on M & A transactions
    • Authors: Hongchao Zeng, Ying Huang
      First page: 126
      Abstract: Studies in Economics and Finance, Volume 33, Issue 1, March 2016.
      Purpose We examine whether an exogenous shock to the supply of financial capital mitigates agency conflict between managers and shareholders and incentivizes managers to channel available financial resources into value-increasing acquisitions. Design/methodology/approach We employ a difference-in-differences approach to mitigate endogeneity concerns. To address the concern that substantial differences between the treatment and control groups may violate the parallel-trend assumption of the D-in-D approach, we use a propensity score matching procedure and construct a matched sample for our empirical analysis. Findings We find that below-investment-grade firms are significantly less likely to make acquisitions relative to unrated firms following the collapse of the junk bond market in 1989. Conditional on initiating a successful acquisition, below-investment-grade acquirers are less likely to acquire diversifying targets and public targets, but more likely to acquire subsidiary targets. In addition, below-investment-grade acquirers experience higher post-merger operating and stock performance for acquisitions initiated in the post-shock period. Originality/value We demonstrate that capital shocks negatively impact managers' propensity to make acquisitions, which are considered a well-established outlet for agency conflict between managers and shareholders. In addition, managers who are subject to capital shocks tend to manage available financial resources more efficiently and make better acquisition decisions that lead to greater value creation.
      Citation: Studies in Economics and Finance
      PubDate: 2016-01-25T04:09:42Z
      DOI: 10.1108/SEF-11-2014-0224
       
  • Mergers and Acquisitions: A Review. Part 1.
    • Authors: Reza Yaghoubi, Mona Yaghoubi, Stuart Locke, Jenny Gibb
      First page: 147
      Abstract: Studies in Economics and Finance, Volume 33, Issue 1, March 2016.
      Purpose This paper reviews the relevant literature on mergers and acquisitions in an attempt to provide a comprehensive account of what we know about mergers and which parts of the puzzle are still incomplete. Design/methodology/approach This literature review consists of three key sections. The first part of this paper summarises the literature on the cyclical nature of mergers referred to in the literature as merger waves. The second section reviews the causes and consequences of takeovers; it first reviews the causes, or drivers, of acquisitions, while focusing on the fact that acquisitions happen in waves and then reviews the consequences of takeovers, with a predominant focus on the impacts of mergers on the economic performance of acquirers. The third part of the review summarises the theories as well as previous empirical studies on determinants of announcement returns and post-acquisition performance of combined firms. Findings Merger activity demonstrates a wavy pattern, i.e. mergers are clustered in industries through time.  The causes suggested for this fluctuating pattern include industry and economy-level shocks, mis-valuation, and managerial herding.  Market reaction to announcement of acquisitions is, on average, slightly negative for acquirer stocks and significantly positive for target stocks. The combined abnormal return is positive. These findings have been consistent over several decades of investigation.  The prior research also identifies a number of factors that are related to performance of acquisitions. These factors are categorised and reviewed in five different groups: (1) Acquirer characteristics, (2) Target characteristics, (3) Bid characteristics, (4) Industry characteristics, and (5) Macro-environment characteristics Originality/value This review illustrates a number of issues. Prior research is heavily biased towards gains to acquirers and factors that affect these gains. It is also biased towards finding sources of value creation through mergers despite the fact that several theories suggest that mergers can be value-destroying. In fact, value destruction is often attributed to managers’ self-interest (agency problem) and mistakes (hubris). However, the mechanisms through which mergers destroy value are rarely addressed. Aside from that, the possibility of simultaneous creation and destruction of value in acquisitions is not often considered. Finally, after several decades of investigation a key question is not completely answered yet: “what are the sources of value in mergers and acquisitions?”
      Citation: Studies in Economics and Finance
      PubDate: 2016-01-25T04:09:51Z
      DOI: 10.1108/SEF-03-2015-0078
       
 
 
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