Alexeev, V & Maynard, A 2012, 'Localized level crossing random walk test robust to the presence of structural breaks', COMPUTATIONAL STATISTICS & DATA ANALYSIS, vol. 56, no. 11, pp. 3322-3344.
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Baur, DG & Glover, KJ 2012, 'The Destruction of a Safe Haven Asset?', Applied Finance Letters, vol. 1, no. 1, pp. 8-15.
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Gold has been a store of value for centuries and a safe haven for investors in the past decades. However, the increased investment in gold for speculative or hedging purposes has changed the safe haven property. We demonstrate theoretically and empirically that investor behaviour has the potential to destroy the safe haven property of gold. The results suggest that an asset cannot be both an investment asset and an effective safe haven asset. This finding has important implications for financial stability since assets are more likely to exhibit excess comovement and volatility in the absence of a safe haven.
Bird, R & Yeung, D 2012, 'How do investors react under uncertainty?', Pacific-Basin Finance Journal, vol. 20, no. 2, pp. 310-327.
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It has long been accepted that risk plays an important role in determining valuation where risk reflects that investors are unsure of future returns but are able to express their prior expectations by a probability distribution of these returns. Knight (1921) introduced the concept of uncertainty where investors possess incomplete knowledge about this distribution and so are unable to formulate priors over all possible outcomes. One common approach for making uncertainty tractable is to assume that investors faced with uncertainty will base their decisions on the worst case scenario (i.e. follow maxmin expected utility). As a consequence it is postulated that investors will become more pessimistic as uncertainty increases, upgrading bad news and downgrading good news. Using Australian data, we find evidence that investors react to bad news at times of high market uncertainty but largely ignore good news which is consistent with them taking on a pessimistic bias. However, we also find evidence of the reverse when market uncertainty is low with investors taking on an optimistic stance by ignoring bad news but reacting to good news. We also find that the impact that market uncertainty has on the reaction of investors to new information is modified by the prevailing market sentiment at the time of the announcement. Besides throwing light on the question of how uncertainty impacts on investor behaviour, our findings seriously challenge the common assumption made that investors consistently deal with uncertainty by applying maxmin expected utility.
Comerton-Forde, C & Putniņš, TJ 2012, 'Stock Price Manipulation: Prevalence and Determinants', REVIEW OF FINANCE, vol. 18, no. 1, pp. 23-66.
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We empirically analyze the prevalence and economic underpinnings of closing price manipulation and its detection. We estimate that ~1% of closing prices are manipulated, of which only a small fraction is detected and prosecuted. We find that stocks with high levels of information asymmetry and mid to low levels of liquidity are most likely to be manipulated. A significant proportion of manipulation occurs on month/quarter-end days. Manipulation on these days is more likely in stocks with high levels of institutional ownership. Government regulatory budget has a strong effect on both manipulation and detection.
Fu, R, Navone, M, Pagani, M & Pantos, TD 2012, 'The Determinants of the Convexity in the Flow-Performance Relationship', The Journal of Index Investing, vol. 3, no. 2, pp. 81-95.
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There is substantial evidence that the flow-performance relationship of mutual funds is convex. The authors empirically investigate the determinants of such convexity. In particular, they study how fund fees (for example, marketing and nonmarketing fees) and the uncertainty related to the replacement option of fund production factors (investment strategies and managerial ability) impact the convexity of the flow-performance relationship. The evidence suggests that marketing fees are positively related to the convexity of the flow-performance relationship. Nonmarketing fees appear to have a negative impact on this convexity. Consistent with investment restrictions being relevant in explaining investors allocation decisions, sector and index funds exhibit lower convexity in their flow-performance relationship than respectively diversified and non-index funds. Finally, the dispersion of managerial abilities within a mutual fund segment is associated with higher convexity in the flow-performance relationship
Hulley, H & Platen, E 2012, 'Hedging for the long run', Mathematics and Financial Economics, vol. 6, no. 2, pp. 105-124.
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In the years following the publication of Black and Scholes (J Political Econ, 81(3), 637-654, 1973), numerous alternative models have been proposed for pricing and hedging equity derivatives. Prominent examples include stochastic volatility models, jump-diffusion models, and models based on Lévy processes. These all have their own shortcomings, and evidence suggests that none is up to the task of satisfactorily pricing and hedging extremely long-dated claims. Since they all fall within the ambit of risk-neutral valuation, it is natural to speculate that the deficiencies of these models are (at least in part) attributable to the constraints imposed by the risk-neutral approach itself. To investigate this idea, we present a simple two-parameter model for a diversified equity accumulation index. Although our model does not admit an equivalent risk-neutral probability measure, it nevertheless fulfils a minimal no-arbitrage condition for an economically viable financial market. Furthermore, we demonstrate that contingent claims can be priced and hedged, without the need for an equivalent change of probability measure. Convenient formulae for the prices and hedge ratios of a number of standard European claims are derived, and a series of hedge experiments for extremely long-dated claims on the S&P 500 total return index are conducted. Our model serves also as a convenient medium for illustrating and clarifying several points on asset price bubbles and the economics of arbitrage.
Iannotta, G & Navone, M 2012, 'The cross-section of mutual fund fee dispersion', JOURNAL OF BANKING & FINANCE, vol. 36, no. 3, pp. 846-856.
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In this paper, we empirically analyze the factors affecting the cross section of mutual fund fee dispersion. In the context of equity mutual funds, fee dispersion stems primarily from the heterogeneity of products, clienteles and production functions. However, the relevant theory predicts that search costs can also generate fee dispersion. By controlling for observable sources of heterogeneity, we find that fee dispersion decreases with fund size and age, as well as with the amount of assets under management of the investment company. In addition, we find lower levels of fee dispersion for funds that charge marketing and distribution fees. Although we cannot rule out the possibility that these factors are a proxy for some unobserved source of heterogeneity, our results are also consistent with the theoretical prediction that search costs positively affect fee dispersion. © 2011 Elsevier B.V.
Navone, M 2012, 'Investors' distraction and strategic repricing decisions', JOURNAL OF BANKING & FINANCE, vol. 36, no. 5, pp. 1291-1303.
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In this paper I analyze investors reactions to changes in the expense ratios of equity mutual funds. I show that investment ?ows response to fees cannot be fully explained by looking at investors performance sensitivity. While performance sensitivity monotonically increases with past performance, price sensitivity does not: investors who buy top past performers seem to be ``distracted by the funds previous return and pay relatively little attention to the expense ratios. Moreover price sensitivity increases with fund visibility while performance sensitivity decreases, and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity, price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds information for retail investors. Finally I show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities, and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior
Navone, M 2012, 'Reprint of Investors' distraction and strategic repricing decisions', JOURNAL OF BANKING & FINANCE, vol. 36, no. 10, pp. 2729-2741.
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Putniņš, TJ 2012, 'Market Manipulation: A Survey', Journal of Economic Surveys, vol. 26, no. 5, pp. 952-967.
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Despite the significant attention that market manipulation has received in recent years many aspects of it are poorly understood. This article identifies from the theoretical and empirical literature what we do and do not know about market manipulation, and suggests directions for future research. We know that manipulation is possible and that it occurs in a wide variety of markets and circumstances. In contrast, we know little about how often manipulation occurs, its effects and how it responds to regulation. Suggested approaches for future research on these issues include: (i) collecting more comprehensive datasets of manipulation cases; (ii) using detection controlled estimation methods to overcome sample selection and partial observability problems; and (iii) conducting controlled experiments. This article also constructs a novel and broad taxonomy of the different types of market manipulation and discusses approaches to defining manipulation.
Roesch, D & Scheule, H 2012, 'Capital incentives and adequacy for securitizations', JOURNAL OF BANKING & FINANCE, vol. 36, no. 3, pp. 733-748.
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This paper analyzes the capital incentives and adequacy of financial institutions for asset portfolio securitizations. The empirical analysis is based on US securitization rating and impairment data. The paper finds that regulatory capital rules for securitizations may be insufficient to cover implied losses during economic downturns such as the Global Financial Crisis. In addition, the rating process of securitizations provides capital arbitrage incentives for financial institutions and may further reduce regulatory capital requirements. These policy-relevant findings assume that the ratings assigned by rating agencies are correct and can be used to build a test for the ability of Basel capital regulations to cover downturn losses. © 2011 Elsevier B.V.
Schmidt, C, Zhao, L & Terry, C 2012, 'S&p/ASX 200: Does change in membership matter?', JASSA, vol. 3, no. 4, pp. 12-18.
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Studies over recent decades of the return effects for the stocks added to and deleted from the S&P 500 have documented the so-called 'S&P game', where traders could profit from stock price reactions to changes in the index's composition. Studies on the All Ordinaries Index covering the 1990s also found profitable trading opportunities over the pre-announcement period. Our study of the effects of changes in the composition of the S&P/ASX 200 from its introduction (in April 2000) to June 2009 found these pre-announcement opportunities were eliminated but that potential exists for the 'S&P/ASX 200 game' between announcement and implementation dates.
Van de Venter, G, Michayluk, D & Davey, G 2012, 'A longitudinal study of financial risk tolerance', JOURNAL OF ECONOMIC PSYCHOLOGY, vol. 33, no. 4, pp. 794-800.
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Academics are divided as to whether financial risk tolerance is an enduring psychological trait and as a consequence is less likely to change over the life of an individual, or a variable psychological state which varies readily in response to internal and external influences. In this study we report the findings of a longitudinal study that investigates the annual change in financial risk tolerance scores of individuals over a 5. year period and the factors that influence such change. Our results indicate a relatively small annual change in individuals' financial risk tolerance. Although our regression model is ineffective in providing a clarification for a change in the financial risk tolerance scores of individual respondents, we find a slight decrease in financial risk tolerance associated with a decrease in household size and an increase in financial risk tolerance after terminating the services of a financial planner. From our results we propose that financial risk tolerance is a stable personality trait and is unlikely to change substantially over the life of an individual. © 2012 Elsevier B.V.
Bugeja, M, Patel, VG & Walter, T 1970, 'The microstructure of Australian takeover announcements', World Finance Conference, Rio de Janeiro, Brazil.
Chiarella, C, Kang, B & Nikitopoulos Sklibosios, C 1970, 'Humps in the volatility structure of the crude oil futures market: New evidence'', Seminar Presentation, School of Commerce and the Centre for Applied Financial Studies, University of South Australia, Adelaide, Australia.
Chiarella, C, Kang, B, Nikitopoulos Sklibosios, C & To, T 1970, 'Humps in the volatility structure of the crude oil futures market: New evidence', 29th Spring International Conference of the French Finance Association, Strasbourg, France.
Chiarella, C, Kang, B, Nikitopoulos Sklibosios, C & To, T 1970, 'Humps in the volatility structure of the crude oil futures market: New evidence', Seminar Presentation, University of Cyprus, Cyprus.
Chiarella, C, Kang, B, Nikitopoulos Sklibosios, C & To, T 1970, 'Humps in the volatility structure of the crude oil futures market: New evidence', Asian Finance Association and Taiwan Finance Association 2012 Joint International Conference, Taipei, Taiwan.
Chiarella, C, Kang, B, Sklibosios Nikitopoulos, C & To, TD 1970, 'Humps in the Volatility Structure of the Crude Oil Futures Market: New Evidence', Seminar presentation, Manchester Business School, Manchester, UK.
Cotton, DJ 1970, 'Ambiguity in emissions markets', Behavioural Finance Working Group/Mergers and Acquisitions Research Centre Conference, London, UK.
Cotton, DJ 1970, 'Econometric analysis of Australian emissions market efficiency', 9th Conference on Applied Financial Economics, Samos, Greece.
Evatt, G, Johnson, P, Cheng, M & Glover, K 1970, 'Optimal bank and regulatory capital reserve strategies under loan-loss uncertainty', Proceedings of the 25th Australasian Finance and Banking Conference 2012, Australasian Finance and Banking Conference, University of NSW, Sydney, Australia, pp. 1-25.
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We formulate a general model of a commercial bank and its regulator where the bank's loans are exposed to default risk. The bank's objective is to maximise equity value by appropriately controlling the rate at which new loans are issued, early clo- sure, and dividend payments. The regulator's objective is to reduce the probability of the bank's early closure, which they achieve by appropriately controlling the bank's minimum capital requirements. We show that the regulator can in fact minimise this probability of closure, which is achieved via suitably balancing the risk of insolvency (associated with lower capital requirements) and the risk of endogenous closure (as- sociated with higher capital requirements). Both analytic and numerical results are presented, thus allowing for the full non-linearity of the model to be understood.
Fernandez, L & Michayluk, D 1970, 'Information content of analyst recommendation revisions under continuous disclosure requirements', 2012 FMA Annual Meeting, Atlanta, USA.
Roesch, D & Scheule, H 1970, 'Systematic risk and credit ratings', The Seventh Annual Conference on AsiaâPacific Financial Markets (CAFM) of the Korean Securities Association (KSA), Seoul, South Korea.
Scheule, H 1970, 'Systematic risk and credit ratings', Methods in International Finance Network (MIFN) Conference, Sydney, Australia.
Sklibosios Nikitopoulos, C & Platen, E 1970, 'Alternative Term Structure Models for Reviewing Expectations Puzzles', Research Paper Number, World Finance Conference, Rhodes, Greece.
Van de Venter, G, Michayluk, D & Davey, G 1970, 'A longitudinal study of financial risk tolerance', JOURNAL OF ECONOMIC PSYCHOLOGY, Financial Management Association Annual Meeting, ELSEVIER, Reno, Nevada, USA, pp. 794-800.
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