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Publisher: Emerald   (Total: 335 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  [335 journals]
  • Short selling regulation, return volatility and market volatility in the
           Athens Exchange
    • Abstract: Studies in Economics and Finance, Volume 34, Issue 1, March 2017.
      Purpose The relationship between short selling, market volatility and liquidity remains an object of intensive research. However, empirical evidence has yet to provide a conclusive elucidation of this relationship by examining aspects of market fragmentation in the form of different market settings, different timing, and different stocks under coverage, among others. This paper contributes to the debate by investigating the impact of short selling on market volatility and liquidity in the Athens Exchange under three different periods of short sales restrictions. Design/methodology/approach Two hypotheses are tested using econometric methodologies (co-integration and Granger-causality tools). Findings The empirical results indicate that when short selling is allowed, aggregate stock returns are in the short-term more volatile, but the liquidity of the market is not significantly affected. This might be the result of significant imbalances between supply and demand of stock caused by short selling restrictions, leading to market price fluctuations Research limitations/implications The analysis of empirical evidence needs further expansion and association with institutional firm-level and country-level elements to provide a more comprehensive understanding of the impact of short selling on market volatility and liquidity Practical implications Stock market regulation involving short selling restrictions have different implications according to extent and degree of stringency of the restrictions as well as the market on which they are imposed. That is especially important for the assessment of the market impact of the recent European Union regulation on short selling that has been imposed upon all EU member-States alike. Originality/value First-time empirical evidence is provided on the impact of short selling regulations on market volatility and liquidity of ATHEX highlighting the potential effectiveness of regulation policy
      Citation: Studies in Economics and Finance
      PubDate: 2017-01-23T12:26:50Z
      DOI: 10.1108/SEF-06-2015-0157
       
  • Determination of China’s Foreign Exchange Intervention: Evidence
           from the yuan/dollar market
    • Abstract: Studies in Economics and Finance, Volume 34, Issue 1, March 2017.
      Purpose The paper investigates the determinants of China’s daily intervention in the foreign exchange market since the 2005 reform aimed at moving the RMB exchange rate regime towards greater flexibility. Design/methodology/approach The paper uses bivariate probit models to test whether China’s intervention decision is driven by three sets of factors, comprising Model I (basic model), Model II and Model III. Findings Evidence from the models suggests that medium-term Chinese interventions tend to be leaning-against-the-wind, while long-term interventions are leaning-with-the-wind. Furthermore, by analysing exchange rate volatility this paper finds that intervention is used by the Chinese central bank to ensure that there are no big swings in the RMB exchange rate. Originality/value The paper will be of value to other researchers attempting to understand the policy of the central bank and, in particular, the factors that can lead to interventions during periods of financial crisis.
      Citation: Studies in Economics and Finance
      PubDate: 2017-01-23T12:26:48Z
      DOI: 10.1108/SEF-10-2015-0249
       
  • The Effect of Holding Company Affiliation on Bank Risk and the 2008
           Financial Crisis
    • Abstract: Studies in Economics and Finance, Volume 34, Issue 1, March 2017.
      Purpose Purpose: The organizational form of financial institutions is related to their level of risk, leverage, liquidity and capitalization. High level of risk and leverage and lower levels of liquidity and capitalization are considered to be the root causes of the 2008 financial crisis. The purpose of this paper is to investigate, if banks affiliated to holding company structure contributed more to the root causes of crisis than unaffiliated banks. Design/methodology/approach Design/methodology/approach: The paper isolates the effect of holding company association by restricting sample to one bank holding companies and individual banks. A comparative analysis of independent and holding company affiliated banks is performed. Univariate analysis and multivariate regressions are used to compare the risk, leverage, liquidity and capitalization of affiliated and independent banks. Findings Findings: The paper finds that holding company affiliation is linked to several root causes of the 2008 financial crisis. Specifically, holding company affiliation results in higher levels of home mortgage loans underwritten and under-performing, higher leverage, lower liquidity and lower capitalization for the subsidiary bank. Practical implications Practical Implications: The paper demonstrates that affiliated banks use their higher leveraged positions to engage in riskier home mortgage lending, sacrificing both liquidity and capital adequacy. These findings can help policy makers to focus on the group of banks that are part of holding company affiliation and implement such policies and regulations so as to avoid any re-occurrence of financial crisis. Originality/value This paper is the first to link the structural differences in banks to the root causes of financial crisis and to isolate the effect of holding company affiliation through sample selection. The paper will be valued to other researchers who try to isolate the effect of holding company affiliation and those studying the causes of the financial crisis of 2008.
      Citation: Studies in Economics and Finance
      PubDate: 2017-01-23T12:26:48Z
      DOI: 10.1108/SEF-05-2016-0104
       
  • The Impact of Global Financial Market Uncertainty on the Risk-Return
           Relation in the Stock Markets of G7 Countries
    • Abstract: Studies in Economics and Finance, Volume 34, Issue 1, March 2017.
      Purpose To investigate the effect of global financial market uncertainty on the relation between risk and return in G7 stock markets. Design/methodology/approach Market uncertainty is quantified using a probability based measure derived from a regime-switching model in which the state transition probabilities are time-varying in response to leading economic indicators. Time variation in the risk return relation is estimated using a GARCH-M model. Findings While the regime-switching model successfully distinguishes between crisis and normal states, there remains substantial variability through time in the level of uncertainty about which state prevails. Results show a strong negative relation exists between this uncertainty and the reward-to-variability ratio across all G7 stock markets. This finding is qualitatively consistent at both monthly and weekly horizons. Originality/value Extant evidence on the risk-return relation is conflicting. Most papers assume the relation is time constant. Allowing the reward-to-variability ratio to vary through time in response to return regime uncertainty increases our understanding of asset pricing. It also has important implications for asset allocation decisions by investors.
      Citation: Studies in Economics and Finance
      PubDate: 2017-01-23T12:26:46Z
      DOI: 10.1108/SEF-05-2013-0069
       
  • Returns to acquirers of listed and unlisted targets: An empirical study of
           Australian bidders
    • Abstract: Studies in Economics and Finance, Volume 34, Issue 1, March 2017.
      Purpose The paper evaluates the robustness of the listing effect in Australia, that is, whether acquisitions of private firms create more value to the bidding firm’s shareholders than acquisitions of publicly-listed firms. Design/methodology/approach We analyze the market reaction to the announcement of takeover bids initiated by Australian public firms on private and public targets over the period 1990-2011. Our analysis controls for a wide range of bidder, deal and target country characteristics that are likely to correlate with the target’s listing status and acquirer abnormal returns. We also use a selection model to address the endogenous choice of the target’s listing status. Findings The results indicate that bidders experience significantly higher abnormal returns of about 1.7% in the 11-day event window when the target is a private firm. We show that this result is broad-based and persistent. It does not appear to depend on whether the target is small or large; whether it is related or unrelated to the bidder’s industry; whether it is in the resources sector or not; and whether the transaction is domestic or cross-border. We find some evidence that bidder returns might be stronger for larger acquisitions, for unrelated targets, and in poor market conditions such as in the wake of the recent global financial crisis. Research limitations/implications The research would benefit from the inclusion of the bidding firm’s ownership and governance characteristics. Practical implications The results support the view that market frictions contribute to make private firms attractive targets. Originality/value The analysis confirms the pervasiveness of the listing effect in a market characterized by a lesser degree of competition, higher search costs, and the significance of the natural resources sector.
      Citation: Studies in Economics and Finance
      PubDate: 2017-01-23T12:26:45Z
      DOI: 10.1108/SEF-10-2015-0234
       
  • Credit Ratings, Relationship Lending, and Loan Market Efficiency
    • Abstract: Studies in Economics and Finance, Volume 34, Issue 1, March 2017.
      Purpose Using the small-business loan market, this paper tests whether a structural shift in access to borrowers’ financial information (i.e. credit ratings) improves market efficiency, thereby improving entrepreneurs’ access to external capital. Design/methodology/approach This research employs the National Survey of Small Business Finance in a conditional logistic regression framework to tease out the marginal propensity to grant lines of credit given the firm’s credit rating – treating both of the events, line of credit and credit ratings, as endogenous variables. This methodology overcomes potential reverse causality issues. Findings Results show that information brokers have allowed small firms to break away from long-term monopolistic lending relationships, hence contributing to more informationally efficient markets. Small businesses benefit from better informed lenders by having better access to capital. Also, women appear less likely to receive a line of credit even after adjusting for credit ratings. Practical implications This research highlights the importance of credit report awareness/monitoring by entrepreneurs as the small-business credit rating grows rapidly. Relationship lending is not enough to reach optimal financing costs. These paper calls for a more regulated credit rating industry to reduce potential moral hazards. Originality/value This paper tests whether bank lending relationships (soft information) still matter after accounting for credit ratings (hard information). Additionally, this study measures the extent to which information sharing by data services bureaus, a proxy for informational efficiency, has increased allocation efficiency in the small-business loan market.
      Citation: Studies in Economics and Finance
      PubDate: 2017-01-23T12:26:44Z
      DOI: 10.1108/SEF-06-2016-0149
       
  • Determinants of Stock Market Development: A Review of the Literature
    • Abstract: Studies in Economics and Finance, Volume 34, Issue 1, March 2017.
      Purpose The paper provides a comprehensive review of the literature on the determinants of stock market development. Design/methodology/approach The paper divides the existing studies into theoretical and the empirical literature. Then it analyses these studies in turn. Findings Based on the theoretical literature, the determinants of stock market development can be broadly classified into two groups: macroeconomic factors and institutional factors. The theory and the empirics predict different ways in which macroeconomic factors affect stock market development. The real income and its growth rate foster stock market development, while the banking sector, interest rate, and private capital flows can foster or inhibit it. Inflation and exchange rates have adverse effects on stock market development. In terms of the institutional factors, the literature indicates that different legal origins and stock market integration can have positive or negative impact on stock market development. In addition, factors such as legal protection of investors, corporate governance, financial liberalisation and trade openness contribute positively to the development of the stock market. Research limitations/implications From the survey, it is imperative that policies which aim at enhancing institutional quality, financial integration, real income growth, macroeconomic stability, capital inflows, among others, will certainly promote stock market development within and across countries. Although the empirical studies have incorporated a large set of variables in their models, the theoretical studies do not contain rich models of stock market development. It is understandable that a theoretical model which contains a large set of the determinants of stock market development may be difficult to solve. However, such a model seems very appealing and will provide a unification of the existing literature. Originality/value The originality of the paper lies in the fact that it is the first to undertake a survey of the determinants of stock of stock market development in the literature. Our hope is that this paper will spur further theoretical and empirical research on the determinants of stock market development.
      Citation: Studies in Economics and Finance
      PubDate: 2017-01-23T12:26:43Z
      DOI: 10.1108/SEF-05-2016-0111
       
  • Taxation in a mixed economy: The case of China
    • Abstract: Studies in Economics and Finance, Volume 34, Issue 1, March 2017.
      Purpose The purpose of this paper is to investigate how Chinese firms’ ownership structure is related to their effective tax rate. The People’s Republic of China provides an interesting environment to examine the corporate income tax. Government has significant ownership stakes in the for-profit economy and State-owned Enterprises are liable to the corporate income tax. This is very different to most other economies where State-Owned Enterprise tends to dominate the not-for-profit economy and pays no corporate income tax. Government ownership also varies between the central government and local government in addition to State Asset Management Bureaus. This provides a rich institutional background to examining the corporate income tax. Design/methodology/approach A panel data analysis approach is employed to examine relationship between ownership structure and effective tax rates of all public firms in China from 1999-2009. Findings We report that effective tax rates do appear to vary across the ownership types, but that SOEs pay a statistically higher effective tax rate than to non-State-owned. In addition, Local government owned State-owned Enterprise pay higher effective tax rates than central government and SAMB owned State-owned Enterprise. We also investigate Zimmerman’s (1983) political cost hypothesis. Unfortunately these results are econometrically fragile with the statistical significance of those results varying by empirical technique. Originality/value This paper provides insight into government ownership and taxation in China.
      Citation: Studies in Economics and Finance
      PubDate: 2017-01-23T12:26:42Z
      DOI: 10.1108/SEF-08-2015-0183
       
  • On the non-neutrality of the financing policy and the capital regulation
           of banking firms
    • First page: 466
      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
       
  • A new theory of innovation and growth: the role of banking intermediation
           and corruption
    • First page: 488
      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
       
  • SME lending decisions - the case of UK and German banks: an international
           comparison
    • First page: 501
      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
       
  • Classifying Chinese bull and bear markets: indices and individual stocks
    • First page: 509
      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
       
  • The “Backus-Smith" puzzle, non-tradable output, and international
           business cycles
    • First page: 532
      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
       
  • Market liberalizations and efficiency in Latin America
    • First page: 553
      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
       
  • Exploring exchange rate based policy coordination in SADC
    • First page: 576
      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
       
  • Comparison of methods for estimating the uncertainty of value at risk
    • First page: 595
      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
       
  • Spillovers between output and stock prices: a wavelet approach
    • First page: 625
      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
       
  • Growth options, dividend payout ratios and stock returns
    • First page: 638
      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 participation in a two-sector Diamond-Dybvig economy
    • First page: 660
      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
       
  • The effects of securitized asset portfolio specialization on bank Holding
           company‚Äôs return, and risk
    • First page: 679
      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
    • First page: 688
      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
       
  • Why is insider trading law ineffective? Three antitrust suggestions
    • First page: 704
      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
       
  • A review of angel investing research: analysis of data and returns in the
           US and abroad
    • First page: 716
      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
       
  • Arbitrage opportunities, efficiency, and the role of risk preferences in
           the Hong Kong property market
    • First page: 735
      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
       
 
 
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