Showing papers on "Market capitalization published in 2018"

A hybrid volatility forecasting framework integrating GARCH, artificial neural network, technical analysis and principal components analysis

Abstract: Measurement, prediction, and modeling of currency price volatility constitutes an important area of research at both the national and corporate level. Countries attempt to understand currency volatility to set national economic policies and firms to best manage exchange rate risk and leverage assets. A relatively new technological invention that the corporate treasurer has to turn to as part of the overall financial strategy is cryptocurrency. One estimate values the total market capitalization of cryptocurrencies at $557 billion USD at the beginning of 2018. While the overall size of the market for cryptocurrency is significant, our understanding of the behavior of this instrument is only beginning. In this article, we propose a hybrid Artificial Neural Network-Generalized AutoRegressive Conditional Heteroskedasticity (ANN-GARCH) model with preprocessing to forecast the price volatility of bitcoin, the most traded and largest by market capitalization of the cryptocurrencies.

Some stylized facts of the cryptocurrency market

Abstract: We examine the stylized facts of eight forms of cryptocurrencies representing almost 70% of cryptocurrency market capitalization. In particular, the empirical results show that (1) there ex...

Cryptocurrency-Portfolios in a Mean-Variance Framework

Abstract: By the end of 2017, 27 cryptocurrencies topped a market capitalization of one billion USD. Bitcoin is still shaping market and media coverage, however, recently we faced a vibrant rise of other currencies. As a result, 2017 has also witnessed the advent of a large number of cryptocurrency-funds. In this paper, we use Markowitz' mean-variance framework in order to assess risk-return-benefits of cryptocurrency-portfolios. We relate risk and return of different portfolio strategies to single cryptocurrency investments. In an out-of-sample analysis accounting for transaction cost we find that combining cryptocurrencies in a portfolio enriches the set of 'low'-risk cryptocurrency investment opportunities.

Initial Coin Offerings: The Top 25 Jurisdictions and Their Comparative Regulatory Responses

Abstract: This article provides an overview of the evolving ICO market It evaluates hand-selected data for the top 25 ICO jurisdictions by market capitalization The author codes the regulatory responses of the top 25 ICO jurisdictions and provides a comparative analysis of their respective regulatory actions

Big data analytics-application of artificial neural network in forecasting stock price trends in India

Abstract: The world has become data driven, which highly accentuated the utilization of information technology The movements of stock markets are influenced, by both the micro as well as macro economic variables including the legal framework and taxation policies of the respective economies The crux of the issue lies in exactly forecasting the future stock price movements of individual firms and stock indices, based on historical past prices The accuracy, in forecasting the market trend, has become difficult due to the prevalence of stochastic behaviour and volatility in the stock prices and index movements This paper analyses the non- linear movement pattern of the most volatile, top three stocks in terms of market capitalization, listed in the Bombay Stock Exchange (BSE) in India, namely Reliance Industries Limited (RIL), Tata Consultancy Services (TCS) Limited and HDFC Bank Limited, using the Artificial Neural Network (ANN) for the study period from 2008 to 2017 The findings of the study would help the investors, to make rational, well informed investment decisions, to optimize the stock returns by investing in the most valuable stocks

Corporate governance and firm value: a comparative analysis of state and non-state owned companies in the context of Pakistan

Abstract: The purpose of this paper is to examine how corporate governance instruments impact firm value in the context of Pakistan. This paper considers state- and non-state-owned enterprises and examines whether the influence of corporate governance on firm value varies across firms having different nature of ownership.,This study opts for an unbalanced sample of state- and non-state-owned enterprises for the period 2010-2014. Panel data regression is adopted for estimation of main results. The suitable model, i.e. fixed and random effect model, is selected using Hausman specification test.,The notable findings show that board independence has a significant and positive relationship with firm value only for state-owned companies. Furthermore, the results show that market capitalization and return on assets have a significant and positive association with firm value for both state- and non-state-owned enterprises. All other variables are found insignificant for both state- and non-state-owned companies, but the results are consistent with those reported in previous studies.,The findings of the study suggest that fair induction of independent directors, appropriate board size and cost-benefit analysis to conduct frequent meetings can help corporations to improve their performance.,This study is adding to the current literature by providing new insights and shows that the impact of corporate governance on firm value varies across firms of different types of ownership, i.e. state- and non-state-owned enterprises.

Corporate distress prediction in China: a machine learning approach

Abstract: Rapid growth and transformation of the Chinese economy and financial markets coupled with escalating default rates, rising corporate debt and poor regulatory oversight motivates the need for more accurate distress prediction modelling in China. Given China's historical, social and cultural intolerance towards corporate failure, this study examines the Special Treatment system introduced by Chinese regulators in 1998. Regulators can assign Special Treatment status to listed Chinese companies for poor financial performance, financial abnormality and other events. Using an advanced machine learning model known as TreeNet® we model more than 90 predictor variables, including financial ratios, market returns, macro‐economic indicators, valuation multiples, audit quality factors, shareholder ownership/control, executive compensation variables, corporate social responsibility metrics and other variables. Based on out‐of‐sample tests, our TreeNet® model is 93.74 percent accurate in predicting distress (a Type I error rate of 6.26 percent) and 94.81 percent accurate in predicting active/healthy companies (a Type II error rate of 5.19 percent). Variables with the strongest predictive value in the TreeNet® model includes market capitalization and annual market returns, macro‐economic variables such as gross domestic product growth, financial ratios such as retained earnings to total assets and return on assets; and certain non‐traditional variables such as executive compensation.

Service innovation in times of economic crisis: the strategic adaptation activities of the top E.U. service firms

Abstract: This article examines the long-term strategic adaptation activities top service firms use to respond to economic crisis. Based on a longitudinal dataset of 97 leading European service firms, it empirically conceptualizes three clusters or strategic types of organizational response to overcome long-term financial strain experienced during 2008–2011, it tests the survivability of their strategic orientation and it assesses their relationship with organizational performance during the crisis (2008–2011) and in the post-crisis period (2014–2016). Leading E.U. service firms that attempt to maximize adaptation by ‘Commitment-to-expansion’ (i.e., increase in R&D investment, strategic M&A and recruitment) ensure the long-term survivability of their strategic orientation and generate growth in their operating profits, sales and market capitalization in contrast to service firms that implement cost-oriented actions (layoffs and cutting back on R&D investment). These results extend the limited knowledge available on strategic adaptation in top E.U. service firms and provide insight into the role that different responses play in fostering recovery from ongoing economic and financial crisis, which have thus far remained empirically under-researched.

The evolution of digital dominance: how and why we got to GAFA

Abstract: Apple, Alphabet (Google), Microsoft, Amazon, and Facebook are now the five most valuable public companies in the world by market capitalization. This is the first time ever that technology (“tech”) companies have so dominated the stock market -- even more than at the end of the 1990s’ Internet bubble. They are a large part of everyday life in developed economies and increasingly elsewhere. They wield enormous power, raising difficult questions about their governance, regulation, and accountability. This chapter is about how and why this came about.

The Big Bang: Stock Market Capitalization in the Long Run

Abstract: This paper presents annual stock market capitalization data for 17 advanced economies from 1870 to today. Extending our knowledge beyond individual benchmark years in the seminal work of Rajan and Zingales (2003) reveals a striking new time series pattern: over the long run, the evolution of stock market size resembles a hockey stick. The stock market cap to GDP ratio was stable for more than a century, then tripled in the 1980s and 1990s and remains high to this day. This trend is common across countries and mirrors increases in other financial and price indicators, but happens at a much faster pace. We term this sudden structural shift “the big bang” and use novel data on equity returns, prices and cashflows to explore its underlying drivers. Our first key finding is that the big bang is driven almost entirely by rising equity prices, rather than quantities. Net equity issuance is sizeable but relatively constant over time, and plays very little role in the short, medium and long run swings in stock market cap. Second, much of this price increase cannot be explained by more favourable fundamentals such as profits and taxes. Rather, it is driven by lower equity risk premia – a factor that is linked to subjective beliefs and can be quite fickle, and easily reversible. Third, consistent with this risk premium view of stock market size, the market cap to GDP ratio is a reliable indicator of booms and busts in the equity market. High stock market capitalization – the “Buffet indicator” – forecasts low subsequent equity returns, and low – rather than high – cashflow growth, outperforming standard predictors such as the dividend-price ratio.

The Functions of the Stock Market and the Fallacies of Shareholder Value

Abstract: Conventional wisdom has it that the primary function of the stock market is to raise cash for companies for the purpose of investing in productive capabilities. The conventional wisdom is wrong. Academic research on sources of corporate finance shows that, compared with other sources of funds, stock markets in advanced countries have been insignificant suppliers of capital for corporations. The purpose of this essay is to build a rigorous and relevant conception of the evolving role of the stock market in the U.S. corporate economy. In fact, the functions of the stock market go well beyond “cash” to include four other functions, which can be summarized as “control,” “creation,” “combination,” and “compensation.” In this paper, I argue, based on historical evidence, that in the growth of the U.S. economy the key function of the stock market was control. Specifically, the stock market enabled the separation of managerial control over the allocation of corporate resources from the ownership of the company’s shares. Yet, assuming that the key function of the stock market is cash, economists known as agency theorists see this separation of control from ownership as the “original sin” of American capitalism, and argue that the evils of managerial control can be overcome by compelling corporate managers as “agents” to maximize the value of corporate shareholders as “principals.” What is missing from the agency-theory argument is a theory of the value-creating firm, or what I call a “theory of innovative enterprise.” The value-creation process requires three social conditions of innovative enterprise: strategic control, organizational integration, and financial commitment. The functions of the stock market may support the types of strategic control, organizational integration, and financial commitment that can result in the generation of high-quality products at low unit costs—the economic definition of innovative enterprise. It is possible, however, that the functions of the stock market may undermine the types of strategic control, organizational integration, and financial commitment that the innovation process requires. In this paper, I provide a brief overview of the role of the control function of the stock market in supporting innovative enterprise in the historical rise to dominance of U.S. managerial capitalism from the early decades of the twentieth century. Then I elaborate the five functions of the stock market—control, cash, creation, combination, and compensation—in terms of the ways in which, from the perspective of the theory of innovative enterprise, each function can support value creation or, alternatively, empower value extraction. I then turn to a discussion of the evolving roles of the five functions of the stock market in major U.S. business corporations over the past century. The concluding section draws on the history of the actual functions of U.S. stock markets to critique the dominant ideology that, for the sake of superior economic performance, a company should be run to “maximize shareholder value” (MSV). I indicate how MSV undermines the social conditions of innovative enterprise: strategic control, organizational integration, and financial commitment.

A sliding windows approach to analyse the evolution of bank shares in the European Union

Abstract: Both sub-prime and Eurozone debt crisis problems caused severe financial crisis, which affected European markets in general, but particularly the banking sector. The continuous devaluation of bank shares in the financial sector caused a great decrease in market capitalization, and in citizen and investor confidence. Panic among investors led them to sell shares, while other agents took the opportunity to buy them. Therefore, the study of bank shares is important, particularly of their efficiency. In this paper, adopting a sliding windows detrended fluctuation approach, we analyse the efficiency concept dynamically with 63 European banks (both in and outside the Eurozone). The main results show that the crisis had an effect on changing the efficiency pattern.

Prediction of stock performance by using logistic regression model: evidence from Pakistan Stock Exchange (PSX)

Abstract: The key purpose behind the study is to use logistic regression model to predict stock performance. For this purpose different financial and accounting ratios were used as independent variables and stock performance (either “good” or “poor”) as dependent variable. The result shows that financial and accounting ratios significantly predict the stock performance. Our study consists on the sample period of annual data from 2011-2015 and comprises of 109 listed non-financial firms of Pakistan’s Stock Exchange (PSX). Our sample was shortlisted on the basis of available data of Market Capitalization. Our research examines sales growth, debt to equity ratio, book to price ratio, earning per share, return on equity and current ratio for the prediction of stock performance. The findings indicate that our prediction was 89.77 percent accurate for prediction good as well as bad performance of stock. Although we did not consider macroeconomic variable to forecast stock return performance but our six firm specific accounting and financial ratios were good enough to predict stock performance. This study shows that Logistic regression model can be used by investors, individual as well as institutions or fund managers to enhance their ability to predict “good or poor” stock.

Financial Development and Economic Growth: A Study for OECD Countries in the Context of Crisis

Abstract: We revisit the relationship between economic growth and financial development in OECD countries during the period 1990-2016, paying special attention to the recent economic crisis. Using a random effects model, we find that an increase in domestic credit provided by the financial-sector, in market capitalization and in the turnover ratio of domestic shares entails a significant positive effect on per capita GDP. We also find different effects during the period of the crisis on domestic credit provided by the financial-sector and on market capitalization. Among other socioeconomic determinants related to economic growth, expenditure in education, inflation and unemployment rates appear highly significant for economic growth of the analysed countries.

Financial constraints and investment decisions of listed Indian manufacturing firms

Abstract: The purpose of the study is to understand the role of cash flow sensitivity to investment as a measure of financial constraints among listed Indian manufacturing firms. It also analyses the role of tangibility in alleviating financial constraints. Further, the role of other financial factors in investment decisions is explored. The study is conducted using the generalized method of moments (GMM) estimator on dynamic panel data for the period of (2009–2015) on 768 listed manufacturing firms. The analysis finds that cash flow sensitivity is a valid measure of financial constraints in the Indian manufacturing sector. Results according to splitting criteria found that investment decisions of standalone firms are more sensitive to cash flow than group affiliated firms. Further, splitting the firms according to market capitalization and tangible net worth reveals a higher degree of cash flow sensitivity by firms with lower market capitalization and asset tangibility. The results for the effects of tangibility of assets on easing financial constraint were found significant only in the case of firms with low tangible net worth and medium market capitalization. The study confirms cash flow sensitivity to investment as a valid measure of financial constraints. It will confirm pooling of internal funds by financially constrained firms to accept profitable investment opportunities in future. Further, it also reports that asset tangibility eases the financial constraints faced by firms.

Determinants of overconfidence bias in Indian stock market

Abstract: The purpose of this paper is to conduct an exploratory analysis of the demographic factors and investors’ characteristics, which cause changes in the extent of overconfidence level and its constituents among the individuals.,A survey has been conducted to explore the determinants of overconfidence and its constituents with the help of a well-structured close-ended questionnaire. The four constituents of overconfidence considered for the study are “better than average effect,” “planning fallacy,” “self-attribution” and “positive illusion.” The collected data are analyzed with the help of t-test, ANOVA and standard ordinary least square regression.,The results show that those who earn high, have more dependents, share the earning responsibility, have high investment frequency, less time horizon and more investment experience and invest in large cap stocks are more subject to the overconfidence. The study also concludes that gender, age and general education do not affect the level of overconfidence.,The results of the study are useful for the market regulators, financial educators, stock market advisors and individual investors in avoiding costly investment mistakes, especially when transiting from one category of demographic and investment characteristics to another category of demographic and investment characteristics.,The study is unique in itself, as it contributes an instrument to quantify the level of overconfidence among the individual investors. Moreover, the study attempts to explore the impact of all demographic and investment characteristics in one go, which makes it a valuable contribution in the existing literature.

An analysis of stock market impact from supply chain disruptions in Japan

Abstract: The purpose of this paper is to explore the stock market impact of supply chain disruptions for public companies in Japan. The impact in the USA and Japan are also compared.,Using event study on a data set comprising of disruptions announced by Japanese and US companies during year 2000-2013, the authors measure the stock price reaction to supply chain disruptions.,The study finds that the Japanese companies, in an 11-day window around disruption announcement, witness an average abnormal return of −0.61 percent, which is statistically significant. In comparison to the USA, this stock decline is qualitatively smaller, yet statistically indifferent. The abnormal return is found significant in the two days before disruption announcement. However, a follow-up study with a refined data set (where the event date is the earlier of the announcement or disruption date) does not find any significant abnormal return prior to the event date. This difference from US market suggests the possibility of insider trading. Factors such as book-to-market ratio, industry type, and market capitalization did not affect the stock decline.,The research is limited to a data set from Japan and the USA. Further generalization of findings may need studies focused on other countries.,The results are of interest for supply chain managers. The results should also help global investors in making investment decisions.,Most supply chain disruptions management research is focused on companies in western countries. The paper is the first to test the impact of supply chain disruptions in Japan.

Determinants of foreign direct investment in Africa: An analysis of the impact of financial development

Abstract: This paper investigates the impact of financial development on Foreign Direct Investment (FDI) in 52 African countries under the OLI Dummy's paradigm from 1995 to 2015. The sample is made up of 35 countries without financial market and 17 countries with a financial market. The empirical methodology is based on the Generalized Method of Moments (GMM). Our empirical results show that, money and quasi money, banking credit to private sector and interest rate liberalisation play a positive role on FDI in countries without financial market. Money and quasi money, market capitalisation and financial market value traded positively influence FDI in countries with financial market. The study suggests, with regard to the low level of our estimated coefficients, that African countries need to reinforce their financial reforms.

The Influence of Macroeconomic Factors on Stock Price: The Case of Real Estate and Property Companies

Abstract: This research essentially aims to examine the extent to which macroeconomic factors (including interest rate, inflation rate, exchange rate, and GDP growth rate) have a positive influence on stock price and the level of significance for that influence. The researchers focused more on real estate and property companies that are listed on the Indonesian Stock Exchange, with consideration for the stock price of real estate and property companies listed on the Indonesia Stock Exchange (IDX) as the most volatile stock during those years (and its market capitalization was the largest during 2012). This study finds that interest rate, inflation rate, exchange rate, and GDP growth rate, as composite variables, have a significant influence on stock price. A partial test revealed that interest rate, inflation rate, and exchange rate have significance on stock price, while GDP growth rate is found to be nonsignificant.

Valuation of salmon farming companies

Abstract: Financial statement information is important for evaluating a firm’s performance, and for forecasting its future cash flows. This paper studies the relationship between financial accounting information and market valuation for publicly listed salmon farming companies. Of special interest is the impact on market valuation, of a requirement for salmon farmers to disclose the effect on their financial numbers of the fair-value adjustment of biomass. The results suggest that the fair-value adjustment results in higher volatility of profits, and lower value relevance for investors.

Corporate diversification and accrual and real earnings management: A non-linear relationship

Abstract: This study aims to examine the non-linear relationship between corporate diversification and real and accrual earnings management, using a sample of 5,659 US firm-year observations for 1,221 firms covering the period from 2001 to 2012.,The authors use various techniques and regressions to test the hypotheses. Following prior research, several proxies have been used to measure diversification, accrual earnings management and real earnings management.,The study produces several important findings. First, the study provides evidence that diversified firms engage in real and accrual earnings management to manage their reported earnings upward. These results are consistent with recent research (Farooqi et al., 2014; Jirapon et al., 2008) that finds that diversified firms engage in earnings manipulation. Second, and most importantly, the study contributes to the literature by providing the first evidence on a non-linear relationship between corporate diversification and earnings management. Specifically, the study provides evidence that diversified firms engage in accrual (real) earnings management, but this engagement is associated with level of diversification in a non-linear U-shaped (inverted U-shaped) relationship.,Like all other studies, the current study has some limitations. The study was conducted only on the largest firms in the USA that have market capitalization of more than US$10m; hence, the findings may not be generalizable to small publicly traded firms. Further, the findings may not be generalizable to other markets, given the unique characteristics of US markets such as the presence of very sophisticated investors.,This study provides some important implications for US regulators to revise their regulations to prevent diversified firms from using earnings management to manipulate reported earnings.,This study is the first in the USA to examine the non-linear relationship between corporate diversification and earnings management. The study focuses on one of the most active, most attractive and largest capital markets throughout the world, that of the USA. Also, this study is one of the few studies that examine whether diversified firms use real activities manipulation to manage their reported earnings.

Impact of Stock Market Development on Economic Growth in BRICS

Abstract: The study examines Stock Market development and economic growth in BRICS, Quarterly time series data for the period 1994QI to 2015Q4 were sourced from World Bank Indicator. The Panel Least Squares based on the fixed effect estimation was employed to determine how stock market development impacts on the economic growth of BRICS. Diagnostics tests were conducted to ascertain the robustness and stability of the regression results. The findings reveal that stock market development exerts significant impact on the economic growth. The study revealed that there is a positive correlation between stock market development indicators and BRICS’s economic growth. The study recommends that the weakness of each of the BRICS member country should be taken as policy focus and strategies necessary to strengthen them should be swiftly applied by the governments.

Real estate as a common risk factor in bank stock returns

Abstract: This article investigates the potential role of real estate risk in the pricing of US bank stocks from February 1990 to December 2015. Generalized method of moments estimates of conditional multifactor models are provided. The real estate risk is proxied by the return of an investment strategy that is short on low-leverage real estate investment trust (REIT) assets and long on high-leverage REIT assets. We group banks into portfolios based on their market capitalization, real estate loans as a proportion of total assets, and book-to-market ratios. The results suggest that the real estate premium is a relevant risk factor in bank stocks returns. For instance, we find that a 100-basis-point increase to the real estate premium increases returns by 15.8 to 20.1 basis points for portfolios grouped by market capitalization. This conclusion remains when other oft-cited bank risk factors are considered, including small-minus-big, high-minus-low and the return on equity of the financial sector.

Toda-Yamamoto Granger No-causality Analysis of Stock Market Growth and Economic Growth in Ghana

Abstract: The paper aims at examining the causal nexus between stock market growth and economic growth in the context of Ghana for a sample period covering 1990 to 2016. Toda-Yamamoto (1995) Granger no-causality test which permits Granger causality test irrespective of the order of integration of the variables involved is employed in this study. Data used for the study is annual time series data covering the sample period. The study finds that GDP growth Granger causes stock price index (SPI) and stock value traded (SVT) but does not granger causes market capitalisation (MC). However, none of the stock market growth indicators (MC, STV, and SPI) Granger causes economic growth. Thus the findings of this study support economic growth-driven stock market growth. It is recommended that, in other to enhance the effect of stock market growth on economy, firms in the sectors of the economy that contribute significantly to GDP growth in the stock market should be encouraged, motivated and supported to participate in the stock market by listing on the stock market. Also, government should ensure stable macroeconomic and microeconomic environment for businesses that are listed on the stock market to flourish since stock market growth is found to be economy-driven.

Bitcoin and the World of Digital Currencies

Abstract: A peer-to-peer system of blockchain, originally started for a cryptocurrency Bitcoin, has caused major disruptions in the stock market. It has affected many businesses if not all, but its significance in the financial world is magnanimous. Historical data (daily rates) for the past 23 months are analyzed to understand the market size, market capitalization and price volatility for Bitcoin. Time series data and financial model are applied to realize the shocks. Monte Carlo simulation is applied to assess the dynamic structure of Bitcoin. With greater volume and activity, the banks and financial intermediaries may become outdated, and the middleman will have no place. It seems like a distant thought, but the facts are pointing toward its reality.

Quantity and Quality Measures of Financial Development: Implications for Macroeconomic Performance

Abstract: Financial development is often measured by financial depth such as the stock of private credit and market capitalization as a share of GDP. Such a measure focuses on the quantity aspect of financial development. In this paper, we propose measures that capture both the quantity and quality aspects of financial market development. For quantity measures, we construct a composite index with multiple variables which gauge the size and depth of the banking, equity, bond, and insurance markets. For quality measures, we create a composite index that reflects the degree of financial market diversity, liquidity and efficiency, and the institutional environment. The last factor captures the development of legal systems and institutions, human capital, and information and telecommunications infrastructure. We find that the quantity and quality measures are highly correlated with each another for advanced economies and Asian emerging market economies, but not for other economies. The disaggregated components of the quality measures suggest that it is the level of legal and institutional development that differentiates advanced economies from emerging and developing economies in terms of the quality measures. Compared to advanced economies, emerging and developing economies tend to have low levels of market diversity, liquidity, and efficiency. Our simple regression analysis shows that the quality measure of financial development has a positive effect on output growth and negative effects on output volatility and inflation for the sample of emerging and developing economies with relatively high-quality financial development. We also observe that a higher level of financial development, particularly in terms of quality, tends to lead to greater financial openness, and that greater financial openness tends to be associated with low growth, high growth volatility and high inflation for emerging and developing economies with low quality measures of financial development, while such undesirable impacts of financial openness can be mitigated by raising the quality of financial development.

Measuring the Immeasurable Corporate Reputation

Abstract: Research on any topic seems incomplete till the time a standardized measure for it is not evolved. Measuring intangible assets seems to be a challenging core for the financial academia. More specif...