Bird, R & Casavecchia, L 2007, 'Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience', The European Journal of Finance, vol. 13, no. 8, pp. 769-793.
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The well-documented market underperformance of the majority of value and growth stocks over a 12-month holding period reflects that traditional valuation metrics might tell us whether a stock is potentially cheap or expensive but little about when, or even if, it will experience a market correction. Two indicators have come to the fore in recent years that provide useful insights: sentiment/momentum and accounting fundamentals/financial health.We examine their single and combined impact on value and growth stocks and find that (i) they are effective in introducing a timing element into the selection of both value and growth stocks, (ii) the sentiment indicator completely dominates the financial health indicator and, (iii) both indictors contribute to the performance of the good and bad growth stocks. The size and significance of the investment profits that potentially can be generated using the two indicators in combination questions of the efficiency of the European equity markets.We conclude that our findings are consistent with the pricing cycle for a stock proposed by Lee and Swaminathan (Lee, C. and Swaminathan, B. (2000) Price momentum and trading volume, Journal of Finance, 55, pp. 20172069.) and the under- and over-reaction in pricing inherent in models proposed by Barberis et al. (Barberis, N., Shleifer A., and Vishny, R. (1998) A model of investor sentiment, Journal of Financial Economics, 49, pp. 307343.) and Hong and Stein (Hong, H. and Stein, J.C. (1999) A unified theory of underreaction, momentum trading and overreaction in asset markets, Journal of Finance, 54, pp. 2143-2184.).
Bird, R & Casavecchia, L 2007, 'Value enhancement using momentum indicators: the European experience', International Journal of Managerial Finance, vol. 3, no. 3, pp. 229-262.
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Abstract: Purpose The purpose of this research is to study the extent to which various price and earnings momentum measures can be used to enhance portfolio performance by better timing entry into value stocks (and isolating those growth stocks that still have some period to run). Design/methodology/approach The paper uses the traditional methodology of ranking stocks on the basis of certain value and momentum measures (e.g. book-to-market, market return over some prior period), forming portfolios based on these rankings which are held for a specific period of time. The portfolios are formed on the basis of a single measure of multiple measures and the returns and associated p-values are calculated with the objective of determining how these portfolios perform relative to a benchmark portfolio composed of all the companies in the universe. The analysis is conducted on a database consisting of approximately 8,000 companies drawn from 15 European countries over the period from January 1989 to May 2004.
Carpenter, A & Wang, J-X 2007, 'Herding and the Information Content of Trades in the Australian Dollar Market', Pacific-Basin Finance Journal, vol. 15, no. 2, pp. 173-194.
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This study shows that the information content of FX transactions depends on the identity of market participants. Using spot FX transactions of a major Australian bank, we find that central banks have the greatest price impact, followed by non-bank financial institutions (NBFIs) such as hedge funds and mutual funds. Trades by non-financial corporations have the least impact on dealer pricing. In the interbank market, dealers with greater private information tend to choose direct trading which has lower post-trade transparency. Indirect trading via brokers is partially revealed to the market and has little price impact. The price impact largely comes from institutions in the top quartile of the trading volume. Furthermore, NBFIs have the greatest propensity for herding, followed by interbank dealers. Non-financial corporations do not herd in their trades. Except for central banks, the differential impact of market participants can largely be explained by their propensity for herding
Chiarella, C, Nikitopoulos Sklibosios, C & Schlogl, E 2007, 'A Control Variate Method for Monte Carlo Simulations of Heath-Jarrow-Morton Models with Jumps', Applied Mathematical Finance, vol. 14, no. 5, pp. 365-399.
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This paper examines the pricing of interest rate derivatives when the interest rate dynamics experience infrequent jump shocks modelled as a Poisson process. The pricing framework adapted was developed by Chiarella and Nikitopoulos to provide an extension of the Heath, Jarrow and Morton model to jump-diffusions and achieves Markovian structures under certain volatility specifications. Fourier Transform solutions for the price of a bond option under deterministic volatility specifications are derived and a control variate numerical method is developed under a more general state dependent volatility structure, a case in which closed form solutions are generally not possible. In doing so, a novel perspective is provided on control variate methods by going outside a given complex model to a simpler more tractable setting to provide the control variates.
CHIARELLA, CARL, SKLIBOSIOS, CHRISTINANIKITOPOULOS & SCHLÖGL, ERIK 2007, 'A MARKOVIAN DEFAULTABLE TERM STRUCTURE MODEL WITH STATE DEPENDENT VOLATILITIES', International Journal of Theoretical and Applied Finance, vol. 10, no. 01, pp. 155-202.
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The defaultable forward rate is modelled as a jump diffusion process within the Schönbucher [26,27] general Heath, Jarrow and Morton [20] framework where jumps in the defaultable term structure fd(t,T) cause jumps and defaults to the defaultable bond prices Pd(t,T). Within this framework, we investigate an appropriate forward rate volatility structure that results in Markovian defaultable spot rate dynamics. In particular, we consider state dependent Wiener volatility functions and time dependent Poisson volatility functions. The corresponding term structures of interest rates are expressed as finite dimensional affine realizations in terms of benchmark defaultable forward rates. In addition, we extend this model to incorporate stochastic spreads by allowing jump intensities to follow a square-root diffusion process. In that case the dynamics become non-Markovian and to restore path independence we propose either an approximate Markovian scheme or, alternatively, constant Poisson volatility functions. We also conduct some numerical simulations to gauge the effect of the stochastic intensity and the distributional implications of various volatility specifications.
Milunovich, G, Stegman, A & Cotton, DJ 2007, 'Carbon Trading: Theory and Practice', JASSA, vol. 2007, no. 3, pp. 3-9.
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We present a summary of current initiatives to climate change management including a review of existing carbon trading schemes and the economic arguments supporting those schemes. We also outline conditions under which the existing carbon market structures are optimal as well as those under which improvements upon the current schemes can be made.
Roesch, D & Scheule, HH 2007, 'Stress-Testing Credit Risk Parameters: An Application to Retail Loan Portfolios', Journal of Risk Model Validation, vol. 1, no. 1, pp. 55-75.
Rösch, D & Scheule, H 2007, 'Multi-year dynamics for forecasting economic and regulatory capital in banking', The Journal of Credit Risk, vol. 3, no. 4, pp. 113-134.
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Van de Venter, G & Michayluk, D 2007, 'Subjectivity in Judgments', The Journal of Wealth Management, vol. 10, no. 3, pp. 17-24.
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Asset allocation is a critical component of portfolio performance and is a significant component of the advice provided by financial plan-ners. The fiduciary obligation of financial planners is to provide investment advice that is appropriate to a client's personal circumstances. Academic research has found evidence of inconsistencies in advice provided by financial advisors. Using a survey of 352 Australian financial planners, the article also finds inconsistencies in a hypothetical asset allocation decision. These inconsistencies may be attributed to the presence of subjective judgment in the decision-making process due to the presence of various psychological factors such as expectations, traits, and biases, the lack of any standardized method for collecting information from clients, and different assumptions, perceptions, and interpretations based on the financial planner's own knowledge, experience, intuitions, and skill sets. The choice of financial planners influences the asset allocation and ultimately the investment returns and outcome.
Wang, J-X 2007, 'Foreign Equity Trading and Emerging Market Volatility: Evidence from Indonesia and Thailand', Journal of Development Economics, vol. 84, no. 2, pp. 798-811.
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This paper documents a strong contemporaneous relationship between foreign equity trading and market volatility in Indonesia and Thailand. Although foreign selling accounts for only a small portion of daily trading, it has the highest explanatory power for market volatility in both countries. Trading within foreign and local investor groups is often negatively related to volatility. The findings are robust to different sub-periods and different measures for volatility and trading activities. We explore two economic explanations for the asymmetric effects of foreign and local investors. © 2006 Elsevier B.V. All rights reserved.
Wang, J-X 2007, 'Foreign Ownership and Volatility Dynamics of Indonesian Stocks', Asia Pacific Financial Markets, vol. 14, no. 3, pp. 201-210.
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This note explores how foreign ownership and participation affect the volatility dynamics of individual stocks in Indonesia. After controlling for size and turnover, we show that stocks with high foreign holdings have greater volatility persistence and lead other stocks in the daily volatility changes. The finding holds during and after the Asian financial crisis, and is consistent with domestic investors mimicking foreign trading.
Armanious, A 1970, 'Globalization Effect on Stock Exchange Integration', International Young Research Meeting around the Mediterranean, Tarragona, Spain.
Bird, R & Casavecchia, L 1970, 'Insights into the market impact of different investment styles', Trading Strategies and Financial Market Inefficiency, London, UK.
Bird, R & Casavecchia, L 1970, 'Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience', The European Journal of Finance, Annual Conference of the Multinational Finance Society, Informa UK Limited, Edinburgh, UK, pp. 769-793.
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Bird, R & Casavecchia, L 1970, 'The profitability of style rotation for value and growth stocks along their earnings and momentum life cycle', European Financial Management Association Conference, Vienna, Australia.
Bird, R, Casavecchia, L & Reggiani, F 1970, 'Corporate social responsibility and corporate performance: Where to begin?', European Financial Management Association Conference, Vienna, Australia.
Bird, R, Casavecchia, L & Reggiani, F 1970, 'Corporate social responsibility and corporate performance: Where to begin?', European Academy of Management Conference, Paris, France.
Bruti Liberati, N, Nikitopoulos Sklibosios, C, Platen, E & Schlogl, E 1970, 'Defaultable term structure models under the benchmark approach', Quantitative Methods in Finance 2007 Conference, Sydney, Australia.
Bruti Liberati, N, Nikitopoulos Sklibosios, C, Platen, E & Schlogl, E 1970, 'Real-World Pricing for Defaultable Term Structure Models', CREDIT 2007, Venice, Italy.
CHIARELLA, C, SKLIBOSIOS, CN & SCHLÖGL, E 1970, 'A MARKOVIAN DEFAULTABLE TERM STRUCTURE MODEL WITH STATE DEPENDENT VOLATILITIES', Quantitative Methods in Finance 2003 Conference, Quantitative Methods in Finance 2003 Conference, --, Sydney, Australia, pp. 155-202.
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The defaultable forward rate is modelled as a jump diffusion process within the Schönbucher [26,27] general Heath, Jarrow and Morton [20] framework where jumps in the defaultable term structure fd(t,T) cause jumps and defaults to the defaultable bond prices Pd(t,T). Within this framework, we investigate an appropriate forward rate volatility structure that results in Markovian defaultable spot rate dynamics. In particular, we consider state dependent Wiener volatility functions and time dependent Poisson volatility functions. The corresponding term structures of interest rates are expressed as finite dimensional affine realizations in terms of benchmark defaultable forward rates. In addition, we extend this model to incorporate stochastic spreads by allowing jump intensities to follow a square-root diffusion process. In that case the dynamics become non-Markovian and to restore path independence we propose either an approximate Markovian scheme or, alternatively, constant Poisson volatility functions. We also conduct some numerical simulations to gauge the effect of the stochastic intensity and the distributional implications of various volatility specifications.
Lam, D, Lin, B & Michayluk, D 1970, 'Downward-sloping demand curves and liquidity: Evidence from the S&P 500 change to free float', Financial Management Association Annual Meeting, Orlando, Florida.
Michayluk, D & Zhao, L 1970, 'Risk changes subsequent to stock splits', 43rd Annual Meeting of the Eastern Finance Association, 43rd Annual Meeting of the Eastern Finance Association, Eastern Finance Association, New Orleans, USA, pp. 1-32.
Michayluk, D & Zhao, L 1970, 'Risk changes subsequent to stock splits', 43rd Annual Meeting of the Eastern Finance Association, New Orleans, USA.
Professor Ronald Geoffrey Bird, R & Casavecchia, L 1970, 'The probability of style rotation for value and growth stocks along their earnings and momentum life cycle', 2007 Financial Management Association Annual Meeting, Financial Management Association Annual Meeting, Financial Management Association, Orlando, Florida, pp. 1-27.
Professor Ronald Geoffrey Bird, R, Casavecchia, L & Woolley, PK 1970, 'The impact of the interaction of managers and clients on market price', Investing Strategies and Financial Market Inefficiency Conference, Investing Strategies and Financial Market Inefficiency Conference, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney, Sydney, Australia, pp. 1-27.
Bruti-Liberati, N, Nikitopoulos-Sklibosios, C & Platen, E 2007, 'Pricing under the Real-World Probability Measure for Jump-Diffusion Term Structure Models', Quantitative Finance Research Paper Series.
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This paper considers interest rate term structure models in a market attracting both continuous and discrete types of uncertainty. The event driven noise is modelled by a Poisson random measure. Using as numeraire the growth optimal portfolio, interest rate derivatives are priced under the real-world probability measure. In particular, the real-world dynamics of the forward rates are derived and, for specific volatility structures, finite dimensional Markovian representations are obtained. Furthermore, allowing for a stochastic short rate, a class of tractable affine term structures is derived where an equivalent risk-neutral probability measure does not exist.
Hulley, H & Platen, E 2007, 'Laplace Transform Identities for Diffusions, with Applications to Rebates and Barrier Options', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
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Using a simple integral identity, we derive general expressions for the Laplace transform of the transition density of the process, if killing or reflecting boundaries are specified. We also obtain a number of useful expressions for the Laplace transforms of some functions of first-passage times for the diffusion. These results are applied to the special case of squared Bessel processes with killing or reflecting boundaries. In particular, we demonstrate how the above-mentioned integral identity enables us to derive the transition density of a squared Bessel process killed at the origin, without the need to invert a Laplace transform. Finally, as an application, we consider the problem of pricing barrier options on an index described by the minimal market model.
