Showing papers in "Managerial Finance in 2007"
TL;DR: In this paper, the differences in terms of performance between Islamic and conventional mutual fund in the context of Malaysian capital market were observed. But, the main aim of this research is to observe the differences between the two types of mutual funds.
Abstract: Purpose – One of the implications of Islamic investment principles is the availability of Islamic financial instruments in the financial market. The main aim of this research is to observe the differences in terms of performance between Islamic and conventional mutual fund in the context of Malaysian capital market.Design/methodology/approach – To achieve the major objectives of this paper standard methods wereused for evaluating the mutual funds performance, for example, Sharpe index and adjusted Sharpe index, Jensen Alpha, Timing and selectivity ability. The scope of the paper is to measure the relative quantitative performance of funds which was managed based on two different approaches.Findings – The basic finding of the paper is that Islamic funds performed better than the conventional funds during bearish economic trends while, conventional funds showed better performance than Islamic funds during bullish economic conditions. In addition to that finding, both conventional and Islamic funds were unab...
306 citations
TL;DR: In this article, the authors analyzed the firm characteristics that affect the capital structure of 129 Greek companies listed on the Athens Stock Exchange during 1997-2001 and found that there is a negative relation between the debt ratio of the firms and their growth, their quick ratio and their interest coverage ratio.
Abstract: Purpose – The aim of this study is to isolate the firm characteristics that affect capital structure.Design/methodology/approach – The investigation has been performed using panel data procedure for a sample of 129 Greek companies listed on the Athens Stock Exchange during 1997‐2001. The number of the companies in the sample corresponds to the 63 per cent of the listed firms in 1996. The firm characteristics are analyzed as determinants of capital structure according to different explanatory theories. The hypothesis that is tested in this paper is that the debt ratio at time t depends on the size of the firm at time t, the growth of the firm at time t, its quick ratio at time t and its interest coverage ratio at time t. The firms that maintain a debt ratio above 50 per cent using a dummy variable are also distinguished.Findings – The findings of this study justify the hypothesis that there is a negative relation between the debt ratio of the firms and their growth, their quick ratio and their interest cov...
280 citations
TL;DR: In this paper, the authors investigated the role of stock markets in economic growth and shed some light on the macroeconomic determinants which must have an important influence on stock markets development.
Abstract: Purpose – The purpose of this study is to investigate the role of stock markets in economic growth and to shed some light on the macroeconomic determinants which must have an important influence on stock markets development.Design/methodology/approach – The empirical study is conducted using an unbalanced panel data from 12 Middle Eastern and North African (MENA) region countries. Econometric issues are based on estimation of some fixed and random effects specifications.Findings – It is found that saving rate, financial intermediary, stock market liquidity and the stabilization variable are the important determinants of stock market development. In addition, it is found that financial intermediaries and stock markets are complements rather than substitutes in the growth process.Practical implications – This paper has some policy implications to MENA region countries. In order to promote stock market development in the region, it is important to encourage savings by appropriate incentives, to improve stock...
164 citations
TL;DR: In this article, the authors examined the linkages between oil prices and stock market in Gulf Cooperation Council (GCC) countries and found that oil price impact the stock price indices in GCC countries in a nonlinear fashion.
Abstract: Purpose – The purpose of this research is to examine the linkages between oil prices and stock market in Gulf Cooperation Council (GCC) countries. Prior work argues that oil prices and the GCC stock markets are not related. This conclusion could be due to the fact that only linear linkages have been examined.Design/methodology/approach – This study employs newly developed techniques of rank tests of nonlinear cointegration analysis proposed by Breitung and Gourieroux and Breitung. The Breitung's method is selected in this study due its potential superiority at detecting cointegration when the error‐correction mechanism is nonlinear.Findings – The empirical analysis of the paper supports that oil price impact the stock price indices in GCC countries in a nonlinear fashion. Thus, the statistical analysis in this paper obviously supports a nonlinear modeling of the relationship between oil and the economy.Research limitations/implications – The paper contains the normal limitations associated with the econom...
158 citations
TL;DR: In this article, the authors examined the evolution of competitive conditions in the banking industries of 14 Central and Eastern European (CEE) transition economies for the period 1993-2000 and found that large banks in transition countries are found to be operating in a relatively more competitive environment.
Abstract: Purpose – This study sets out to examine the evolution of competitive conditions in the banking industries of 14 Central and Eastern European (CEE) transition economies for the period 1993‐2000.Design/methodology/approach – The basis for the evaluation of competitive conditions is the extant oligopoly theory in the new industrial organization literature, specifically, the competition model developed by Panzar and Rosse.Findings – The results of the competition analysis suggest that the banking markets of CEE countries cannot be characterized by the bipolar cases of either perfect competition or monopoly over 1993‐2000 except for FYR of Macedonia and Slovakia. That is, banks earned their revenues as if operating under conditions of monopolistic competition in that period. An analysis of changes in competitive structure shows a higher degree of competition in the later years of the sample period. Large banks in transition countries are found to be operating in a relatively more competitive environment compa...
153 citations
TL;DR: In this paper, a survey of the existing research on the exposure phenomenon for non-financial firms is provided, and a simple model of exposure elasticity is also used to demonstrate the substantial impact of operational hedging on exposure elasticities.
Abstract: Purpose – Based on basic financial models and reports in the business press, exchange rate movements are generally believed to affect the value of nonfinancial firms. In contrast, the empirical research on nonfinancial firms typically produces fewer significant exposures estimates than researchers expect, independent of the sample studied and the methodology used, giving rise to a situation known as “the exposure puzzle”. To this end, this paper aims to systematically analyze the existing empirical evidence of the exposure phenomenon and to attempt to understand the possible source of the exposure puzzle.Design/methodology/approach – The paper provides a survey of the existing research on the exposure phenomenon for nonfinancial firms. A simple model of exposure elasticity is also used to demonstrate the substantial impact of operational hedging on exposure elasticities. Furthermore, the evidence on the nature of firms’ financial derivative usage is considered.Findings – It is suggested that the exposure ...
124 citations
TL;DR: In this article, the authors briefly review principal theories of dividend policy and summarize empirical evidences on these theories and give the reader a comprehensive understanding of the dividend puzzle and the major paradigms of dividend policies.
Abstract: Purpose – This paper aims to briefly review principal theories of dividend policy and to summarize empirical evidences on these theories.Design/methodology/approach – Major theoretical and empirical papers on dividend policy are identified and reviewed.Findings – It is found that the famous dividend puzzle is still unsolved. Empirical evidence is equivocal and the search for new explanation for dividends continues. Also a number of stylized empirical facts about dividends discovered by researchers are noted.Research limitations/implications – As with any review paper, the major limitation is that necessarily some papers will be left out. Also as newer research is published the review paper will become more dated.Originality/value – This paper will give the reader a comprehensive understanding of the dividend puzzle and the major paradigms of dividend policy. The paper will also give the reader the major stylized facts about dividend policy.
101 citations
TL;DR: In this article, the authors examined whether or not divident policy is influenced by the firm's corporate control structure, investigating the relationship between the dynamics of earnings payout and the voting power enjoyed by different types of shareholders.
Abstract: Purpose – This paper seeks to examine whether or not divident policy is influenced by the firm's corporate control structure, investigating the relationship between the dynamics of earnings payout and the voting power enjoyed by different types of shareholders. This allows one to test a set of hypotheses derived from agency and pecking order theories.Design/methodology/approach – A large panel of UK firms for the 1990s and is analyzed that the payout policy is significantly related to control concentration. The problem of control measurement is addressed and the use of Banzhaf indices advocated as a relevant measure of voting power in the analysis of corporate policy choices. The traditional framework proposed by Linter is extended and an econometrically sound approach to modeling the dynamics of the total payout suggested. Where most – even recent – studies on payout policy show some methodological flaws, state‐of‐the‐art dynamic panel data estimation procedures are applied.Findings – Expectedly, profita...
91 citations
TL;DR: In this article, the authors studied the long-run underperformance of UK IPOs by relating it to the pre-IPO financial performance of the firm as well as the managerial decisions taken before the IPO.
Abstract: Purpose – The aim of the paper is to study the long‐run under‐performance of UK initial public offerings (IPOs) by relating it to the pre‐IPO financial performance of the firm as well as the managerial decisions taken before the IPO.Design/methodology/approach – The three‐year share returns of UK IPOs is studied using various methodologies such as buy and hold returns, cumulative abnormal returns and Fama and French three‐factor returns.Findings – It was found that the percentage of equity issued and the degree of multinationality of a firm are the key predictors of its performance after the IPO. It is also found that small firms behave differently from large firms and suffer from worse long‐run performance than large firms.Research limitations/implications – There is a great need for future research to focus on ownership structure and long‐run returns. Further, a focus on the level of debt and venture capital financing in the pre‐IPO period may also uncover important relationships with the long‐run perfo...
75 citations
TL;DR: In this article, the authors examined the factors which affect loss provision for loans and investment in Murabaha, Musharka, and Mudarabah for banks in the Gulf Cooperation Council (GCC) region.
Abstract: Purpose – The purpose of this study is to examine the factors which affect loss provision for loans and investment in Murabaha, Musharka, and Mudarabah for banks in the Gulf Cooperation Council (GCC) region. The effect of prior period earnings, legal and statutory reserves, size of the bank, level of debt, and loan and investment to deposit ratio on the loss provisions of banks are examined for the period 2000‐2003.Design/methodology/approach – To test the factors that explain the loan loss provision and to test the income smoothing hypothesis, debt to equity hypothesis, and reserve hypothesis, a single stage regression model was developed and tested.Findings – The results indicate that when return on assets (ROA) before tax and loss provisions for the current year is higher than the prior year ROA and the actual capital reserve is below the legal required reserve, then management is expected to increase loss provisions for the current year. This result is robust for all the years of this study.Originalit...
74 citations
TL;DR: This article examined the role of firm characteristics and insider private information in affecting Canadian firms' repurchase decision and the associated announcement period stock return and found that firms are more likely to buy back shares if they have greater free cash flows, lower market-to-book ratios, poor prior stock performance, and their insiders have large shareholdings.
Abstract: Purpose – This study seeks to examine the role of firm characteristics and insider private information in affecting Canadian firms’ repurchase decision and the associated announcement period stock return.Design/methodology/approach – Past studies of announcement returns employ a standard event‐study methodology, which produces biased parameter estimates when the corporate event is voluntary. This study employs the conditional event study methodology, which is free of self‐selection bias. The conditional model also provides a direct test of whether private information is conveyed through the announcement.Findings – It is found that firms are more likely to buy back shares if they have greater free cash flows, lower market‐to‐book ratios, poor prior stock performance, and their insiders have large shareholdings. It is shown that the announcement period returns are strongly and positively related to the private information possessed by company insiders. The market reacts to the reason given for the repurchas...
TL;DR: In this paper, the authors developed a theory of intertemporal stewardship that incorporates stewardship, based on a foundation of spirituality, into financial decision-making models, arguing that stewardship must become an integral component of financial decisionmaking.
Abstract: Purpose – The purpose of this paper is to develop a theory of intertemporal stewardship that incorporates stewardship, based on a foundation of spirituality, into financial decision‐making models.Design/methodology/approach – Argues that stewardship, which shares some common ground with sustainable development, must become an integral component of financial decision‐making. Using agency theory as a point of departure, discusses the Anglo‐American and Continental European‐Japanese models of financial decision‐making, and how they can be reformulated to embrace stewardship and the spiritual foundation upon which stewardship is based. The key to linking spirituality and stewardship is our concept of self‐fullness – the simultaneous pursuit of reasonable self‐interest and reasonable concern for the common good of all human beings. The reformulated model of financial decision‐making is labeled intertemporal stewardship theory.Findings – The merger of spirituality, stewardship, and financial decision‐making is ...
TL;DR: In this paper, the authors investigated the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy, and the UK.
Abstract: Purpose – This study seeks to investigate the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy, and the UK.Design/methodology/approach – The paper utilises the methodology of Campbell and Mei (1993) to decompose systematic risks into components attributable to news about future dividends (cash flows), real interest rates and excess returns.Findings – In addition to significant market risk, the paper finds significant levels of exposure to exchange rate risk in industries in all four markets. Significant levels of interest rate risk are only identified in Germany and France. All three sources of risk contain significant information about future cash flows and excess returns.Research limitations/implications – Future research could investigate the extent of exposure in other markets, or investigate whether the findings change at the firm level. Additionally it could be investigated whether recent...
TL;DR: In this paper, a broad-based study was conducted to examine unit trust performance in Malaysia over the period 1991 to 2001, and the results showed that on average the performance of Malaysian unit trust falls below market portfolio and risk free returns, but the variance of unit trust monthly returns is less than the market.
Abstract: Purpose – This paper seeks to focus on examining unit trust performance in Malaysia over the period 1991‐2001.Design/methodology/approach – The broad based study covers full economic cycles using 7 different performance measures: raw return, market adjusted return, Jensen's alpha, adjusted Jensen's alpha, Sharpe Index, adjusted Sharpe Index, and Treynor Index.Findings – The results show that on average the performance of Malaysian unit trust falls below market portfolio and risk free returns. However, the variance of unit trust monthly returns is less than the market. Performance by type of funds indicates that bond funds show relatively superior performance, over and above the market and equity unit trusts. This is due to the high interest rate kept during the crisis period. Findings also suggest that there is no persistency in performance as there is no significant inter‐temporal correlation between past and current performance.Research limitations/implications – The issue of inferior performance needs ...
Abstract: Purpose – The objective of this study is to investigate the long‐run performance of initial public offerings (IPOs) in Germany for the period from 1977 to 1995. The paper studies why some IPO firms have substantial positive and others have substantial negative long‐run buy‐and‐hold abnormal returns.Design/methodology/approach – The paper approaches this problem by differentiating the abnormal return patterns by the following criteria: benchmark, year of going public, security design, money raised, market value and magnitude of underpricing.Findings – The empirical findings suggest that the subsequent financing activity in the equity market is the most important factor for determining the future performance of an IPO. This variable separates the out‐performers from the under‐performers. Thus, only successful firms have the opportunity to raise additional funds in the equity market through a seasoned equity offering.Research limitations/implications – Future research should concentrate on investigating whet...
TL;DR: In this paper, the authors explored the dynamics of stock price movements of an emerging market, Bangladesh with that of USA, Japan and India using the Johansen and Juselius multivariate cointegration approach.
Abstract: Purpose – The purpose of this paper is to explore dynamics of stock price movements of an emerging market, Bangladesh with that of USA, Japan and India.Design/methodology/approach – The long‐term relationships among the markets are analyzed using the Johansen and Juselius multivariate cointegration approach. Short‐run dynamics are captured through vector error correction models. Further investigation on short‐run dynamics is carried out through impulse response analysis.Findings – There is evidence of cointegration among the markets demonstrating that stock prices in the countries studied here share a common stochastic trend. Impulse response analysis shows that shocks to the US market do have an impact on the Bangladesh market. The evidence of Bangladesh stock market responding to shocks in the Indian market is weak. Shocks to the Japanese market do not generate a response in the Bangladesh market.Research limitations/implications – As these markets share a common stochastic trend no diversification bene...
TL;DR: In this article, the authors employed Jensen's model and Henriksson and Merton's model to separate the fund manager's investment performance into the selectivity and market timing components and found that, on average, the funds display negative overall performance with either the KLCI or the EMAS Index.
Abstract: Purpose – The paper seeks to examine whether selectivity and timing performance of fund manager is sensitive to the choice of market benchmarks. The two benchmarks used are the Kuala Lumpur Composite Index (KLCI) and the Exchange Main Board All‐Share (EMAS) Index.Design/methodology/approach – The paper seeks to employed Jensen's model to estimate the overall fund performance and Henriksson and Merton's model to separate the fund manager's investment performance into the selectivity and market‐timing components.Findings – The findings indicate that, on average, the funds display negative overall performance with either the KLCI or the EMAS Index. In addition, there is little variation in the manager's market‐timing and selectivity performance across alternative market benchmarks. It is also reported that a manager's poor timing ability contributes significantly to the fund's negative overall performance.Research limitations/implications – The paper employed just two market benchmarks. Inclusion of more mar...
TL;DR: In this article, the authors investigate whether the analysts make systematic errors when forecasting the performance of the firm undergoing the IPO by comparing analysts' ex-ante expectations to actual ex-post figures.
Abstract: Purpose – The purpose of this paper is to contribute to the literature on the valuation of initial public offerings (IPOs). In particular, it tests the presence of over‐optimism when pricing IPOs on the Italian Nuovo Mercato.Design/methodology/approach – The paper investigates whether the analysts make systematic errors when forecasting the performance of the firm undergoing the IPO by comparing analysts’ ex‐ante expectations to actual ex‐post figures. Using a sample of pre‐IPO analysts’ reports, the paper performs a regression analysis using the forecast errors (FE) of post‐issue sales as dependent variable in order to find out the determinants of mis‐valuation.Findings – It is found that the Nuovo Mercato has been essentially a “market for projects” in which young enterprises endowed with a few tangible assets sold their business plans to the market exploiting high‐growth opportunities. In the aftermarket, stock and operating performances are found to be declining, falling short of initial expectations....
TL;DR: In this paper, the Lintner framework is extended to examine the impact of monetary policy restrictions on the dividend payout of firms in India and the results show that Indian firms have lower target ratios and higher adjustment factors.
Abstract: Purpose – The dividend payout behaviour of firms is a well‐studied subject in finance. In recent times, the influence of macro economic factors and understanding their implications far corporate financial decisions has assumed significant importance. The objective of this paper is to study the dividend payout behaviour of firms in India under monetary policy restrictions. Monetary policy restrictions are expected to affect the availability and cost of external fund relative to internal funds. The hypothesis is that during monetary policy restrictions the dividend payout policy changes and payouts reduce.Design/methodology/approach – The Lintner framework is extended to examine the impact of these restrictions on the dividend payout. Balanced panel data of 571 firms for years are used, from 1989 to 1997 together with, the GMM estimator, which is the most suitable methodology in a dynamic setting.Findings – The results show that Indian firms have lower target ratios and higher adjustment factors. The findin...
TL;DR: In this article, the authors examine whether blockholder ownership differentially affects the long-term performance of initial public offerings (IPOs), and verifies whether this effect differs between family and non-family IPOs.
Abstract: Purpose – While advantageous, the role of family control is under‐explored in finance. Family ownership can help guarantee stability of business and long‐term planning. The purpose of this study is to examine whether block‐holder ownership differentially affects the long‐term performance of initial public offerings (IPOs), and verifies whether this effect differs between family and non‐family IPOs.Design/methodology/approach – Using a sample of 163 French IPOs from 1996 to 2000, this paper examines the links between family control and the first‐year market performance. It focuses on IPOs where both families and Venture Capitalists (VCs) are engaged to lock‐in their shareholdings for a period of one year following the IPO date, and are thus expected, at least in the case of families, to provide an effective monitoring during this period.Findings – The main findings bring support to the entrenchment hypothesis and show a negative, but weak, relationship between block‐holder ownership and the first year mark...
TL;DR: In this paper, the authors investigate the exchange rate exposure of UK non-financial companies from January 1981 to December 2001, and find that a higher percentage of companies are exposed to exchange rate changes than those reported in previous studies.
Abstract: Purpose – The purpose of this paper is to investigate the exchange rate exposure of UK nonfinancial companies from January 1981 to December 2001. Design/methodology/approach – The study employs different exchange rate measures and adopts an equally weighted exchange rate. The analyses are conducted at the firm level. All analyses are conducted by regressing the firm’s exchange rate exposure coefficients on its size, foreign activity variables and financial hedging proxies over the whole sample period. Findings – The findings show that a higher percentage of UK non-financial companies are exposed to exchange rate changes than those reported in previous studies. Generally, the results provide a stronger support for the suggested equally weighted rate as an economic variable, which affects firms’ stock returns. The results also show a high proportion of positive exposure coefficients among firms with significant exchange rate exposure, indicating a higher proportion of firms benefiting from an appreciation of the pound. Finally, the results also indicate evidence that firms’ foreign operations and hedging variables affect their sensitivity to exchange rate exposure. Practical implications – This study provides important implications for public policymakers who wish to understand links between policies that affect exchange rates and relative wealth effects. Originality/value – The empirical results of this study should help investors to examine how common stock returns react to exchange rate fluctuations when making financial decisions, and prove useful for financial managers when measuring exposure to foreign exchange rate changes.
TL;DR: In this article, the authors evaluate the risk-adjusted performance of 50 large US-based international equity funds using risk adjusted returns during 1994-2003 and find that the funds with the highest average returns may lose their attractiveness to investors once the degree of risk embedded in the fund has been factored into the analysis.
Abstract: Purpose – This paper aims to evaluate the risk‐adjusted performance of US‐based international equity funds using objective statistical measures grounded in modern portfolio theory, and to present the results in a manner which is easily understood by the average investor.Design/methodology/approach – This study evaluates the performance of 50 large US‐based international equity funds using risk‐adjusted returns during 1994‐2003. In particular, a relatively new risk‐adjusted performance measure (M squared), first proposed by Franco Modigliani and Leah Modigliani in 1997, is used to evaluate these equity funds.Findings – The empirical results show that the funds with the highest average returns may lose their attractiveness to investors once the degree of risk embedded in the fund has been factored into the analysis. Conversely, some funds, whose average (unadjusted) returns do not stand out, may look very attractive once their low risk is factored into their performance.Research limitations/implications – I...
TL;DR: In this paper, currency forwards and currency options have been compared with currency options to control the foreign currency exposure risk for international diversified mixed-asset portfolios via two different hedge instruments.
Abstract: Purpose – This study seeks to examine the effectiveness of controlling the currency risk for international diversified mixed‐asset portfolios via two different hedge instruments, currency forwards and currency options. So far, currency forward has been the most common hedge tool, which will be compared here with currency options to control the foreign currency exposure risk. In this regard, several hedging strategies are evaluated and compared with one another.Design/methodology/approach – Owing to the highly skewed return distributions of options, the application of the traditional mean‐variance framework for portfolio optimization is doubtful. To account for this problem, a mean lower partial moment model is employed. An in‐the‐sample as well as an out‐of‐the sample context is used. With in‐sample analyses, a block bootstrap test has been used to statistically test the existence of any significant performance improvement. Following that, to investigate the consistency of the results, the out‐of‐sample e...
TL;DR: In this article, the authors examined the contemporary association between accounting information and a number of measures of systematic risk that incorporate dynamic market features, including thin trading, central tendency, leverage, and time variance.
Abstract: Purpose – This paper aims to examine the contemporary association between accounting information and a number of measures of systematic (beta) risk that incorporate dynamic market features. The goal is to determine the fundamental accounting drivers of beta and to assess whether their explanatory variable power has changed or declined over time.Design/methodology/approach – Beta estimates are calculated using adjustments for thin‐trading, central tendency, leverage, and time variance. Accounting risk variables are derived from theoretical foundations and prior empirical research, and classified as operating, financial or growth.Findings – Results show a strong association between accounting variables (operating and growth) and systematic risk that is consistent over time, but with some industry and size differences and possible country effects. Accounting variables are able to capture dynamic risk shifts and generally are able to outperform naive M‐GARCH and industry betas in predicting next year's system...
TL;DR: In this paper, the authors investigated the risk factors for A shares listed on both Shenzhen and Shanghai stock exchange in China using variables from Akgun and Gibson, and found strong evidence that size and book-to-market (BM) ratio could be well explained by these alternative risk variables.
Abstract: Purpose – The purpose of this paper is to investigate the risk factors for A‐shares listed on both Shenzhen and Shanghai Stock Exchange in China using variables from Akgun and Gibson.Design/methodology/approach – The paper applies cross‐sectional regression on the orthogonal components by rearranging these risk variables into several principal components.Findings – The results produced strong evidence that size and book‐to‐market (BM) ratio could be well explained by these alternative risk variables. Additionally, the alternative variables are better at explaining returns in terms of adjusted R‐squares.Practical implications – The practical implication of the study is that investors can improve both their pricing of the investment risk and their management of the risk factors with the alternatives identified in the study.Originality/value – The paper provides evidence in explaining the size and BM effects in China's stock markets.
TL;DR: In this article, the authors examined the effect of the unexpected changes in exchange rates on stock returns of UK non-financial companies and found that a higher percentage of UK firms are exposed to contemporaneous exchange rate changes than those reported in previous studies.
Abstract: Purpose – The purpose of this paper is to examine the effect of firm size and foreign operations on the exchange rate exposure of UK non-financial companies from January 1981 to December 2001. Design/methodology/approach – The impact of the unexpected changes in exchange rates on firms’ stock returns is examined. In addition, the movements in bilateral, equally weighted (EQW) and trade-weighted and exchange rate indices are considered. The sample is classified according to firm size and the extent of firms’ foreign operations. In addition, structural changes on the relationship between exchange rate changes and individual firms’ stock returns are examined over three sub-periods: before joining the exchange rate mechanism (pre-ERM), during joining the ERM (in-ERM), and after departure from the ERM (post-ERM). Findings – The findings indicate that a higher percentage of UK firms are exposed to contemporaneous exchange rate changes than those reported in previous studies. UK firms’ stock returns are more affected by changes in the EQW, and US$ European currency unit exchange rate, and respond less significantly to the basket of 20 countries’ currencies relative to the UK pound exchange rate. It is found that exchange rate exposure has a more significant impact on stock returns of the large firms compared with the small and medium-sized companies. The evidence is consistent across all specifications using different exchange rate. The results provide evidence that the proportion of significant foreign exchange rate exposure is higher for firms which generate a higher percentage of revenues from abroad. The sensitivities of firms’ stock returns to exchange rate fluctuations are most evident in the pre-ERM and post-ERM periods. Practical implications – This study provides important implications for public policymakers, financial managers and investors on how common stock returns of various sectors react to exchange rate fluctuations. Originality/value – The empirical evidence supports the view that UK firms’ stock returns are affected by foreign exchange rate exposure.
TL;DR: In this paper, the authors investigated the profitability of momentum investment strategy and the predictive power of trading volume for equities listed in the Australian Stock Exchange and found that a strong momentum effect for the Australian market during the period 1988 through 2002 is observed.
Abstract: Purpose – The purpose of this paper is to investigate the profitability of momentum investment strategy and the predictive power of trading volume for equities listed in the Australian Stock Exchange.Design/methodology/approach – Following the Lee and Swaminathan's approach, portfolios on past returns and past trading volume is constructed. In this approach, all stocks are ranked independently on the basis of past returns and past trading volume. The stocks are then assigned to one of five portfolios based on past returns and one of three portfolios based on trading volume over the same period.Findings – A strong momentum effect for the Australian market during the period 1988 through 2002 is observed. Further, momentum plays an important role in providing information about stocks. Past trading volume appears to predict both the magnitude and persistence of price momentum.Research limitations/implications – Substantial momentum observed in monthly stock returns has investment implications. Abnormal return...
TL;DR: In this article, a simple earnings capitalization model is employed to investigate the association between price and earnings across profit and loss firms listed in the ASE, and a study verifies a negative price-earnings relation for those firms that report losses (loss firms) and a positive price-'earnings relations for those firm that report profits (profit firms).
Abstract: Purpose – This paper seeks to deal with the problem of the anomalous negative price‐earnings relation for firms listed in the Athens Stock Exchange (ASE).Design/methodology/approach – The simple earnings capitalization model is employed to investigate the association between price and earnings across profit and loss firms listed in the ASE.Findings – This study verifies a negative price‐earnings relation for those firms that report losses (loss firms) and a positive price‐earnings relation for those firms that report profits (profit firms).Practical implications – Regarding the usefulness of financial information to investors, the security price‐earnings relation is proved not to be homogeneous across firms that report losses and firms that report profits.Originality value – The paper provides evidence on the value relevance of publicly available information in a developing stock exchange which finally achieved its entrance to the world's developed markets.
TL;DR: In this paper, the authors examined the link between stock markets and economic growth in advanced and emerging economies in the Middle East and North Africa (mena) region and found that the link exists only in the group of high income countries but this relationship is rather weak for the low income MENA economies.
Abstract: Purpose – The purpose of this article is to examine is to the link between stock markets and economic growth in advanced and emerging economies in the Middle East and North Africa (mena) region.Design/methodology/approach – Indices measuring the degree of financial openness and market development are constructed and used to perform various Granger causality tests to identify predictors of current growth rates.Findings – It is found that the link exists only in the group of high income countries but this relationship is rather weak for the low income MENA economies. Privatization alone, although necessary, is not enough to spur economic growth. The establishment of sound institutions and well‐defined regulatory policies are needed to protect investors’ rights and entice them to invest in real and financial assets in the MENA region.Originality/value – The paper offers insights into financial integration, regulation and competitiveness in MENA countries.
TL;DR: In this paper, the authors demonstrate the use of weather derivatives to hedge firm exposure to previously unmanageable risk events caused by natural phenomenon such as excessive rainfall, and demonstrate that a firm can reduce its revenue volatility by up to 80 per cent.
Abstract: Purpose – The purpose of this study is to demonstrate the use of weather derivatives to hedge firm exposure to previously unmanageable risk events caused by natural phenomenon such as excessive rainfall.Design/methodology/approach – The paper adopts a case study approach to meet the objectives above, focusing on golf courses in the Midwest USA, which provide perfect examples of businesses with seasonal cash flows.Findings – It is shown that a firm can reduce its revenue volatility by up to 80 per cent. Weather derivatives are important additions to firm portfolios of risk management tools. Purchasing weather derivatives will improve the owner's ability to forecast revenues and assure expenditure coverage, both important goals for a small business owner.Practical implications – Many firms find the uneven revenue streams associated with their industry to be difficult to manage. One of the primary risks faced by firms is exposure to weather phenomena. With the introduction of weather derivatives, firms can n...