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Publisher: Emerald   (Total: 312 journals)

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Journal Cover Studies in Economics and Finance
  [SJR: 0.289]   [H-I: 9]   [3 followers]  Follow
    
   Hybrid Journal Hybrid journal (It can contain Open Access articles)
   ISSN (Print) 1086-7376
   Published by Emerald Homepage  [312 journals]
  • A review of angel investing research: analysis of data and returns in the
           US and abroad
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose Research on angel investors is sparse because data are sparse. Most comprehensive studies of angel investors have focused on the US and UK. In these studies, definitions of angel investors and estimates of returns on angel investments vary dramatically. What can we make of this wide range of reported returns? Design/methodology/approach We examine the literature and find that the calculations of reported results are vague. Findings Most researchers do not explicitly report if their estimates are equal-weighted or value-weighted, nor do they say whether the results are weighted by the duration of the investment. We show that the unit of analysis – investment, project, or angel – affects interpretations. Practical implications Limitations on the comparability between various studies of angel investing returns leave the current literature incomplete. They also offer opportunities for future study in the area. Originality/value We are the first to examine the angel investing literature in a comprehensive fashion comparing between various returns found across all major studies of the subject done to date.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:20Z
      DOI: 10.1108/SEF-11-2014-0210
       
  • The effects of securitized asset portfolio specialization on bank Holding
           company‚Äôs return, and risk
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose The purpose of this paper is to examine the effect of specialization of the securitized assets portfolio on banks performance and securitization risk. In doing so, the paper addresses two important issues. First, whether the efficient risk-return trade-off for securitized asset portfolios is consistent with the principles of diversification. Second, whether the relationship between bank-level returns and securitized assets portfolio specialization is non-linear in securitization risk. Design/methodology/approach This paper used fixed effects panel regression model on U.S. bank holding company data for the period 2001:Q2 to 2014:Q1. Findings The results show that securitized assets portfolio specialization increases returns and also reduces securitization default risk; banks return and securitized assets specialization are dependent in a non-linear manner on bank’s securitization risk. Additionally, we also find that lower bank performance leads to higher securitization risk. Originality/value This paper is of value by demonstrating that diversification (specialization) of securitized assets portfolio would achieve better bank performance in low (high) risk scenarios.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:16Z
      DOI: 10.1108/SEF-11-2015-0267
       
  • Risk tolerance and rationality in the case of retirement savings
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose This research examines the decision-making process involved in saving for retirement and compares it with decision-making processes regarding other financial products (such as loans and savings plans) as well as real products (such as a car or a home). Design/methodology/approach This research is based on the distribution of 107 questionnaires. The questionnaire is composed of two parts: 1. questions examining and focusing on the individual's decision-making process, and 2. questions regarding socio-economic factors. The average level of risk tolerance is calculated for each respondent with respect to the first four chapters. (These chapters include buying a car or a home, opening a savings plan, and taking a loan). Afterwards, the consistency (rationality) of the respondents is examined with regard to their decision-making concerning retirement savings plans. Then, an econometric model is used to further test the consistency of the respondents Findings The results suggest that the level of risk tolerance associated with a retirement savings plan is consistent with that associated with the other financial products but not with the real products. The majority of respondents demonstrate high risk tolerance with respect to retirement savings and their decision-making process is similar to a random thinking process. The level of deliberation and information gathering regarding retirement savings is the lowest when compared with the other financial and real products examined in this paper. The majority of respondents are less risk tolerant towards the other financial and real products. Originality/value In this research, we examine how different individuals with different characteristics get different decisions about their personal retirement savings. We also examine these decisions' deviation from the rational model, and compare it with decision-making processes regarding other financial products as well as real products.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:15Z
      DOI: 10.1108/SEF-10-2015-0240
       
  • Arbitrage opportunities, efficiency, and the role of risk preferences in
           the Hong Kong property market
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose This paper aims at investigating how a prospective buyer’s optimal home-size purchase can be determined by means of a stochastic-dominance (SD) analysis of historical data of Hong Kong. Design/methodology/approach By means of SD analysis, the paper employs monthly property yields in Hong Kong over a 15-year period to illustrate how buyers of different risk preference may optimize their home-size purchase. Findings Regardless of whether the buyer eschews risk, embraces risk, or indifference to it, in any adjacent pairing of five well-defined housing classes, the smaller class provides the optimal purchase. In addition, risk averters focusing on total yield would prefer to invest in the smallest and second- smallest classes than in the largest class. Research limitations/implications As the smaller class provides the optimal purchase, the smallest class affords the buyer the optimal purchase over all classes in this important housing market – at least where rental yields are of primary concern. Practical implications The findings suggest that in the Hong Kong housing market, long-term investors may be better off purchasing smaller homes. For other type of investors, it depends on their risk preference. Originality/value There is a very small body of empirical literature on housing investment, especially if focuses on the optimal home-size purchase.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:14Z
      DOI: 10.1108/SEF-03-2015-0079
       
  • Growth options, dividend payout ratios and stock returns
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose This paper examines the impact of the dividend payout ratio on future stock returns and momentum strategies. Design/methodology/approach We use the portfolio sorting approach used in the momentum literature to examine this impact. Findings First, we show that the returns for the winner stocks tend to be the largest if no dividends are paid, and then decrease with the dividend payout ratio; the returns for the loser stocks tend to have an inverted U-shaped relationship with the dividend payout ratio, but the zero-dividend loser stocks have the smallest return; the returns for the stocks between the winners and the losers tend to remain similar, regardless of the dividend payout ratio. Second, we show that momentum profit is the largest for the stocks that don’t make dividend payment, but appear similar for the stocks that pay dividends. Our empirical findings imply that stock price momentum is a function of the dividend payout ratio, growth stock momentum tends to be much stronger than value stock momentum, and no-dividend stock momentum beats dividend stock momentum. In fact, when the dividend payout ratio is considered, momentum profit can be improved by up to 63 percent. Originality/value This paper is the first one to examine the impact of dividend payout ratios on future stock returns and momentum profit, and obtained many interesting empirical results. In addition, unlike the most studies in the momentum literature that use behavioral theory to explain empirical finding, this paper uses the growth option idea to present a rational explanation for the empirical results in this paper.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:13Z
      DOI: 10.1108/SEF-08-2015-0195
       
  • Market liberalizations and efficiency in Latin America
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose This investigation tries to examine the impact of stock market liberalization on efficiency of the stock markets in Latin America. Design/methodology/approach Daily stock indices from Latin America countries including Brazil, Mexico, Chile, Peru, Jamaica and Trinidad & Tobago are used in our analysis. To examine the impact of stock market liberalization on efficiency, we employ several approaches including the runs test, Chow-Denning multiple variation ratio test, Wright variance ratio test, the Martingale Hypothesis test and the SD test on the above Latin America stock market indices. Findings We find that stock market liberalization does not improved stock market efficiency in Latin America. Originality/value This investigation is among the first to examine the impact of stock market liberalization on efficiency of the stock markets. It is among the first to examine the impact of stock market liberalization on efficiency of the Latin America stock markets. It is also among the first to apply the martingale hypothesis test and a stochastic dominance approach on issue about efficient market.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:12Z
      DOI: 10.1108/SEF-01-2015-0014
       
  • Classifying Chinese bull and bear markets: indices and individual stocks
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose The paper aims to investigate Chinese bull and bear markets. The Chinese stock market has experienced a long period bear cycle from early 2000 until 2006 and then it fluctuated greatly until 2010. However, the cyclical behaviour of stock markets during this period is less well-established. This paper aims to answer the question why the Chinese stock market experienced a long duration of bear market, and what factors would have impact on this cyclical behaviour. Design/methodology/approach By comparing the intervals of bull and bear markets between stocks and indices based on a Markov-switching model, this paper examines whether different industries or A- and B-share markets could lead to different stock market cyclical behaviour, and whether firm size can determine the relationship between the firm stock cycles on the market cycles Findings This paper finds a high degree of overlapping of bear cycles between stocks and indices and a high level of overlapping between the bear market and a fraction of stock with increasing stock prices. This leads to the conclusion that the stock performance and trading behaviour are widely diversified. Furthermore, the paper finds that the same industry may have different overlapping intervals of bull or bear cycles in the Shanghai and Shenzhen stock markets. Firms with different sizes could have different overlapping intervals with bull or bear cycles. Originality/value This paper fills the literature gap for establishing the cyclical behaviour of stock markets.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:11Z
      DOI: 10.1108/SEF-01-2015-0036
       
  • SME lending decisions - the case of UK and German banks: an international
           comparison
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose In this paper we use five German and five UK bank case studies to test and extend a conceptual model of risk assessment in bank lending to SMEs. Derived from research in Germany and the UK the model postulates that factors in the external, operating and internal environments of individual banks can influence credit risk assessment decisions. Design/methodology/approach The empirical data for this paper was collected during face-to-face interviews with five UK lending bankers in June 2006 and five German bankers in February 2007. The timing is important as these were unaffected by credit-crunch considerations. The sample banks were similar in size and operating in the retail environment in their respective countries. The interviewees comprised lending officers and managers in loan departments. All interviews were conducted using a questionnaire format designed to elicit a commentary on the loan process in a reasonably unstructured way. Findings Notable differences emerged from these findings compared to the scene painted by existing research. The findings argue that changes in the law and banking regulation have reshaped both German and UK banking institutions. German bank employees are facing ever increasing pressure as their employers strive to become efficient, streamlined banks with a high orientation towards their shareholders in a highly competitive market. This has a consequence for the emphasis placed on local and community factors. These findings further argue that German banks have moved their value orientations towards the British banking model in order to simulate the high returns achieved by British banks. German banking culture and state values are deeply embedded into the societal structure (Llewellyn, 2002; Lane and Quack, 2001). The deregulation of German banks has manifested in an adjustment of institutional behaviour, steering towards a shareholder orientation. However, even whilst German banks readjust their strategies, they continue to struggle to ‘shake off’ their original roots and a cultural identity of stakeholder orientation. Originality/value This study provides historical context for recent developments in public sector reporting and accountability in the financial banking sector in both the United Kingdom and Germany. The paper provided an insight into the determination and interpretation of European regulations.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:10Z
      DOI: 10.1108/SEF-12-2014-0243
       
  • The “Backus-Smith" puzzle, non-tradable output, and international
           business cycles
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose In this paper, I examine the effects of adding non-tradable sector and trade in intermediate goods sector, and their impact on the 'Backus-Smith' (BS) puzzle and the features of the non-tradable output. Conventional IRBC models show that the real exchange rate and the terms of trade is positively correlated to the relative consumption movement between the home and foreign economies when there is a total factor productivity shock, while the correlation in the data is negative. I develop a two-country, dynamic, stochastic, general equilibrium (DSGE) model with staggered price setting in non-tradable sector and international trade in intermediate goods sector due to product differentiation in a high asset market frictions situation. When the world economy has positive country-specific productivity shock, the benchmark model successfully solves the BS puzzle and is able to match several features of the data. The dynamic responses to productivity shock show that integrating product differentiation is necessary to generate a more volatile and counter-cyclical non-tradable output. Design/methodology/approach Dynamic Stochastic General Equilibrium Simulation and Calibration using Matlab with Dynare Findings I develop a two-country, dynamic, stochastic, general equilibrium (DSGE) model with staggered price setting in non-tradable sector and international trade in intermediate goods sector due to product differentiation in a high asset market frictions situation. When the world economy has positive country-specific productivity shock, the benchmark model successfully solves the 'Backus-Smith' (BS) puzzle and is able to match several features of the data. The dynamic responses to productivity shock show that integrating product differentiation is necessary to generate a more volatile and counter-cyclical non-tradable output. Originality/value 2014 World Finance SEF Special Issue
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:09Z
      DOI: 10.1108/SEF-01-2015-0033
       
  • Comparison of methods for estimating the uncertainty of value at risk
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose Value at risk (VaR) is a market risk measure widely used by risk managers and market regulatory authorities, and various methods are proposed in the literature for its estimation. However, limited studies discuss its distribution or its confidence intervals. The purpose of this study is to compare different techniques for computing such intervals in order to identify the scenarios under which such confidence interval techniques perform properly. Design/methodology/approach The methods that are included in the comparison are based on asymptotic normality, extreme value theory, and subsample bootstrap. The evaluation is done by computing the coverage rates for each method through Monte Carlo simulations under certain scenarios. The scenarios consider different persistence degrees in mean and variance, sample sizes, VaR probability levels, confidence levels of the intervals, and distributions of the standardized errors. Additionally, an empirical application for the stock market index returns of G7 countries is presented. Findings The simulation exercises show that the methods that were considered in the study are only valid for high quantiles. In particular, in terms of coverage rates, there is a good performance for VaR(99%) and bad performance for VaR(95%) and VaR(90%). The results are confirmed by an empirical application for the stock market index returns of G7 countries. Practical implications The findings of the study suggest that the methods that were considered to estimate VaR confidence interval are appropriated when considering high quantiles such as VaR(99%). However, using these methods for smaller quantiles, such as VaR(95%) and VaR(90%), is not recommended. Originality/value This study is the first one, as far as it is known, to identify the scenarios under which the methods for estimating the VaR confidence intervals perform properly. The findings are supported by simulation and empirical exercises.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:08Z
      DOI: 10.1108/SEF-03-2016-0055
       
  • On the non-neutrality of the financing policy and the capital regulation
           of banking firms
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose The paper investigates whether the value of banks is affected by their financing policies. Higher capital requirements have been invoked by exploiting a renewed edition of the Modigliani-Miller theorem. This paper shows the limits of this claim by highlighting that the general statement that “bank equity is not expensive” can be misleading. We argue that market prices should play an important role in bank supervision. Expectations of future profits in prices supply timely information on the viability of a bank. Design/methodology/approach We use the Merton model to show the inapplicability of M&M theorem to banks. The long-run viability of a bank is analysed with a Dividend Discount Model (DDM) which allows to compare a bank’s long term profitability with its overall cost of capital implicit in market prices. Findings We show that the M&M framework cannot be applied to banks neither ex-ante, nor ex-post. Ex-ante we focus on government guarantees, ex-post we emphasize the risk-shifting phenomena that may increase the overall risk of the bank. We show that a bank’s stability cannot be achieved if the market expectations of its future profits stay below the cost of funding. Research limitations/implications We use simple analytical models. In a future study some key peculiarities of banks, such as the monetary nature of deposits, should be analytically modelled. Practical implications The paper contributes to the debate on capital regulation on: a) the level of capital requirements; b) the instruments to assess the viability/stability of banks. Originality/value This paper uses simple models to assess analytically the key issues in the debate on banks' capital regulation.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:07Z
      DOI: 10.1108/SEF-09-2014-0179
       
  • Market participation in a two-sector Diamond-Dybvig economy
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose Reconsider the role of asset-market participation in Diamond-Dybvig economies, to reconcile the existence of asset markets as a channel for financial integration with the distortions that they might impose on the banking system. Design/methodology/approach A two-sector Diamond-Dybvig model of financial intermediation, with comparative advantages in the investment technologies and the possibility for the depositors to participate in an economy-wide asset market, when they can trade a bond without being observed by their banks. Findings The two-sector competitive banking equilibrium with hidden trades (i) is not equivalent to autarky, (ii) is the unique Nash equilibrium of a "participation game", and (iii) is constrained efficient. Originality/value This paper is the first to characterize the equilibrium of a two-sector Diamond-Dybvig economy with hidden trading in the asset market, and produces novel results, in contrast to the existing literature, with respect to the rationale for the existence of a financial system, its coexistence with asset markets, and its efficiency. These conclusions also have important implications in terms of policy, in particular regarding the case for the introduction of financial regulation.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:44:06Z
      DOI: 10.1108/SEF-06-2015-0160
       
  • A new theory of innovation and growth: the role of banking intermediation
           and corruption
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose There has been an increased interest in the role of the financial sector and institutional quality in the development process. Design/methodology/approach This paper addresses the relationship between corruption and financial sector development by constructing a Schumpeterian endogenous growth model allowing for competitive firms’ entry and with an explicit role for politics and banking. Findings Assuming that technologically advanced firms are located in developed countries and backward firms in developing countries, our model suggests that low corruption are more growth-enhancing in the former group of countries. Better institutions stimulate entry by reducing banking screening costs and entry is more growth enhancing in sectors closer to the technological frontier. Research limitations/implications Our model is a partial equilibrium analysis and one should include a role for labour markets in order to address the household’s problem and, enrich the model’s conclusions. Secondly, the model specification rests on the fact that the degree of corruption is correlated with the level of institutions. Even though this might be subject to some criticism, this is a common practice across the literature and so it is clearly a matter of taste. Practical implications The main policy conclusion is that anti-corruption policy initiatives should prioritize corruption that distorts incentives with respect to productive investment that directly and negatively affects growth. Originality/value This paper addresses the relationship between corruption and financial sector development by constructing a Schumpeterian endogenous growth model allowing for competitive firms’ entry and with an explicit role for politics and banking.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:43:59Z
      DOI: 10.1108/SEF-01-2016-0017
       
  • Spillovers between output and stock prices: a wavelet approach
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose This paper seeks to examine the nature of spillovers between output and stock prices using both a long annual time series spanning 200 years and a shorter but quarterly observed data set. Design/methodology/approach Our particular interest is to examine both the time–varying nature of the spillovers as well as spillovers across frequency using wavelet analysis. Findings Our results reveal interesting detail that is missed when considering spillovers for the raw data. Using annual long run data, spillovers in the raw data are in the order of approximately 10% for stocks to output and 25 % for output to stocks. But this increase to 50% and above (in both directions) when considering the different frequencies. Similar results are reported with the quarterly data, although the differences between the raw data and the wavelets is smaller in nature. Finally, output explains more of the variation in stocks than stocks explain in output. Originality/value The nature of these results is important for policy-makers, market participants and academics alike, while the use of wavelets provides information across different frequencies.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:43:58Z
      DOI: 10.1108/SEF-07-2014-0125
       
  • Exploring exchange rate based policy coordination in SADC
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose This paper explores the possibilities for policy coordination in Southern African Development Community (SADC) as well as real effective exchange rate stability as a prerequisite towards sensible monetary integration. The underlying hypothesis goes with the assertion that countries meeting optimum currency area (OCA) conditions to a greater degree face more stable exchange rates. Design/methodology/approach The quantitative analysis encompasses 12 SADC member states over the period 1995-2012. Correlation matrixes, dynamic pooled mean group (PMG) and mean group (MG) estimators, and real effective exchange rate (REER) and real exchange rate (RER) equilibrium and misalignment analysis are carried out to arrive at the conclusions. Findings The study finds that the structural variables used in the PMG model show that there are common fiscal and monetary policy variables that determine REER/RER in the region. However, the exchange rate equilibrium misalignment analysis reveals that SADC economies are characterised by persistent overvaluation at least in the short term. This calls for further sustained policy coordination in the region. Practical implications The findings in this paper have important policy implications for economic stability and for the attempt of policy coordination in SADC region for the proposed monetary integration to proceed. Originality/value This study is the first attempt that relates exchange as a policy coordination instrument among SADC economies.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:43:57Z
      DOI: 10.1108/SEF-03-2015-0089
       
  • Why is insider trading law ineffective? Three antitrust suggestions
    • Abstract: Studies in Economics and Finance, Volume 33, Issue 4, October 2016.
      Purpose The purpose of this paper is to uncover the essence of insider trading, explain why insider trading law is ineffective, and provide implications of the effectiveness of the law. Design/methodology/approach This conceptual paper offers three propositions. The first two are based on a literature review of 62 articles in empirical research to develop understanding of the essence of insider trading and identify the areas in which insider trading is ineffective. This analysis is used in the third proposition to provide a direction in suggesting effective measures to improve insider trading law. Findings The essence of insider trading is that corporate insiders exercise informational monopoly power over their trades. This understanding explains why insider trading law is ineffective because it has not taken away the monopoly power that corporate insiders possess and exercise. This understanding also leads to three antitrust suggestions aimed at improving insider trading law. Practical implications The findings may provide assistance to the lawmakers and regulators to make insider trading law more effective and enforcement more simplified. Originality/value This paper is of value to other researchers attempting to understand the essence of insider trading and to policymakers concerned about the existence of monopolistic behavior in the equity market and income inequality due to corporate insiders’ trading profit.
      Citation: Studies in Economics and Finance
      PubDate: 2016-08-22T11:43:54Z
      DOI: 10.1108/SEF-03-2016-0074
       
  • Noisy information and stock market returns
    • First page: 338
      Abstract: Studies in Economics and Finance, Volume 33, Issue 3, August 2016.
      Purpose This paper studies whether noisy public information that investors receive about the expected aggregate dividend growth rate can help better understand the large average equity premium and stock return volatility in the US financial market. Design/methodology/approach We consider a dynamic asset pricing model with a representative agent, who cannot observe the expected growth rate of dividends and must learn its value by using noisy information. In addition, we present a simple model for noisy information calibration. Findings With a coefficient of relative risk aversion below 10 and the time impatience parameter between 0 and 1, our calibrated model is able to yield an average risk-free interest rate, equity premium and stock return volatility that are close to the stylized facts in the US financial market. Originality/value First, we present a different equilibrium model with a simple "catching up with the Joneses" preference and noisy information. Second, we develop a simple calibration procedure to calibrate the information process to study whether the calibrated model can help explain the large average equity premium and stock return volatility in the US financial market data.
      Citation: Studies in Economics and Finance
      PubDate: 2016-06-17T11:32:54Z
      DOI: 10.1108/SEF-04-2015-0101
       
  • Equity fund performance: can momentum be explained by the pricing of
           idiosyncratic volatility?
    • First page: 359
      Abstract: Studies in Economics and Finance, Volume 33, Issue 3, August 2016.
      Purpose This paper investigates whether idiosyncratic volatility is priced in returns of equity funds while controlling for fund size and return momentum. Design/methodology/approach Following Fama and French (1993), an idiosyncratic volatility mimicking factor and a fund-size factor are constructed. The pricing ability of this idiosyncratic volatility mimicking factor is investigated in the context of Carhart (1997). Findings Idiosyncratic volatility is an important pricing factor even when controlling for fund size and momentum. In addition, idiosyncratic volatility is strongly and positively associated with the momentum effect. Further, when controlling for the association between the momentum effect and idiosyncratic volatility, the explanatory power of the momentum factor almost disappears, which suggests the pricing of idiosyncratic volatility mediates momentum and returns. Originality/value These findings imply that both the idiosyncratic volatility factor and the fund-size factor should not be ignored by fund managers when evaluating performance of the equity funds.
      Citation: Studies in Economics and Finance
      PubDate: 2016-06-17T11:32:31Z
      DOI: 10.1108/SEF-04-2016-0081
       
  • Earnings surprises and the response of CDS markets
    • First page: 377
      Abstract: Studies in Economics and Finance, Volume 33, Issue 3, August 2016.
      Purpose This paper investigates the informational content of earnings surprises and accounting information in CDS markets. Design/methodology/approach I analyse a sample of 444 US firms and 6,907 earnings announcements. By means of parametric and non-parametric event study analysis, I assess the informational value and the timeliness in the assimilation of earnings surprises by CDS rates. Findings I show that earnings surprises contain material information and that CDS rates are affected by the disclosure of obligors’ financial statements. There is also supporting evidence that positive and negative surprises induce asymmetric reactions on CDS rates, especially after accounting for the credit risk of the obligor and the liquidity of the CDS contract. Finally, and perhaps the most interesting conclusion of the study, there is evidence that earnings disclosed during unstable periods lack informational value, in opposition to normal periods. Originality/value As compared to similar studies, this paper presents three novel contributions. The first concerns the use of non-parametric analysis in parallel with parametric tests to achieve robust conclusions. The second novel contribution resides in assessing whether the liquidity of the CDS contracts affects the information value of earnings surprises or the timeliness at which the information is assimilated into CDS rates. Finally, this paper also contributes to improve our understanding on the relationship between the business cycle and the informativeness of accounting information.
      Citation: Studies in Economics and Finance
      PubDate: 2016-06-17T11:32:56Z
      DOI: 10.1108/SEF-11-2014-0217
       
  • Does the sentiment of investors explain differences between predicted and
           realized stock prices?
    • First page: 403
      Abstract: Studies in Economics and Finance, Volume 33, Issue 3, August 2016.
      Purpose The objective of this paper is to use the Barberis et al. (1998) valuation model in order to calculate the fundamental value of a stock and examine whether the differences between predicted and realized stock prices are explained both by psychological factors (that affect investor reaction to information) and by key macroeconomic variables. Design/methodology/approach This paper adopts a time-series analysis as well as a panel data approach in order to examine whether the price deviations from fundamental values are due to macroeconomic and psychological factors, using data from the London Stock Exchange. Findings The results indicate that these differences are explained by important macroeconomic variables as well as by the sentiment of investors (that is used as a proxy of the psychological factors). Originality/value Based on the above results, this paper suggests that the price deviations from fundamental values are not treated as model estimation errors as proposed by Penman and Sougiannis (1998) but rather as deviations that are due to psychological factors as well as to macroeconomic conditions.
      Citation: Studies in Economics and Finance
      PubDate: 2016-06-17T11:32:57Z
      DOI: 10.1108/SEF-11-2014-0218
       
  • The relative term structure and the Australian-US exchange rate
    • First page: 417
      Abstract: Studies in Economics and Finance, Volume 33, Issue 3, August 2016.
      Purpose The purpose is to investigate whether the factors that summarise the information in the yield curves of Australia and the United States can predict changes in the Australian-US exchange rate (i.e. the AUD/USD rate) and Australian dollar excess returns. Design/methodology/approach The paper extracts the three Nelson-Siegel factors (level, slope and curvature) from the relative yield curve of Australia with the United States to predict changes in the bilateral exchange rate and excess returns on the Australian dollar. The full sample regressions allow for a shift in the coefficient on the relative curvature factor which can account for the impact of the Fed’s changed monetary policy to one of quantitative easing. Findings The paper finds that the relative curvature factor strongly predicts changes in the AUD/USD exchange rate and Australian dollar excess returns out to 12-months ahead in the sample that precedes the Fed’s policy of quantitative easing. The relative curvature factor retains its predictive power in the full sample regressions but anticipates smaller exchange rate changes and excess currency returns in in-sample predictions made from August 2007. Practical implications The yield curves of Australia and the US reliably reflect investor’s expectations about prospective monetary policies in each economy. Originality/value The paper investigates the predictive content of the relative Nelson-Siegel factors for changes in the AUD/USD exchange rate and for Australian dollar excess returns over various forecast horizons for a period that covers the Fed’s policy of quantitative easing.
      Citation: Studies in Economics and Finance
      PubDate: 2016-06-17T11:32:42Z
      DOI: 10.1108/SEF-05-2014-0089
       
  • Mergers and acquisitions: a review (part 2)
    • First page: 437
      Abstract: Studies in Economics and Finance, Volume 33, Issue 3, August 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: 2016-06-17T11:33:04Z
      DOI: 10.1108/SEF-07-2015-0165
       
 
 
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