Alexeev, V & Tapon, F 2014, 'Diversification, Canadian Style: How many stocks are enough for diversifying Canadian institutional portfolios?', Canadian Investment Review, pp. 1-12.
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Portfolio risk is a function of the number of stocks held in portfolios. We simulate portfolios using daily observations for all traded and delisted equities in Canada from 1975 to 2011 and we calculate several measures of risk, including heavy-tailed to account for black swan events. For each risk measure, we calculate the average number of portfolio holdings and the upper limits of these holdings to assure investors of a specific reduction in diversifiable risk. In contrast to previous literature that suggests 10-15 stocks are enough to provide adequate diversification for an average investor, we find that in fact more than 50 stocks are needed to achieve the same level of diversification most of the time instead of on average.
Alexeev, V & Tapon, F 2014, 'The number of stocks in your portfolio should be larger than you think: diversification evidence from five developed markets', Journal of Investment Strategies, vol. 4, no. 1, pp. 43-82.
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In this study of five developed markets, we analyze the sizes of portfolios required to achieve the most diversification benefits. We compute several widely accepted measures of risk and use an extreme risk measure to account for black swan events. In addition to providing portfolio size recommendations for an average investor, we estimate confidence bands around central measures of risk and offer recommendations for attaining the most diversification benefits 90% of the time, instead of on average. In contrast to previous literature that suggests between 10 and 15 stocks are enough to provide adequate diversification for an average investor, we find that in fact more than 73 stocks are needed to achieve the same level of diversification most of the time, instead of on average.
Baur, DG & Glover, KJ 2014, 'Heterogeneous expectations in the gold market: Specification and estimation', JOURNAL OF ECONOMIC DYNAMICS & CONTROL, vol. 40, no. 1, pp. 116-133.
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The increase in the price of gold between 2002 and 2011 appears to be a candidate for a potential asset price 'bubble', suggesting that chartists (feedback traders) were highly active in the gold market during this period. Hence, this paper develops and tests empirically several models incorporating heterogeneous expectations of agents, specifically fundamentalists and chartists, for the gold market. The empirical results show that both agent types are important in explaining historical gold prices but that the 10-year bull run of gold in the early 2000s is consistent with the presence of agents extrapolating long-term trends. Technically this paper is a further step toward providing an empirical foundation for certain assumptions used in the heterogeneous agents literature. For example, the empirical results presented in this paper compare the economical and statistical significance of numerous switching variable specifications that are generally only introduced ad hoc. © 2014 Elsevier B.V.
Bird, R, Choi, DFS & Yeung, D 2014, 'Market uncertainty, market sentiment, and the post-earnings announcement drift', Review of Quantitative Finance and Accounting, vol. 43, no. 1, pp. 45-73.
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Post-earnings announcement drift (PEAD) which was first identified over
40 years ago seems to be as much alive today as it ever was. Numerous attempts have been
made to explain its continued existence. In this paper we provide evidence to support a new
explanation: that the PEAD is a reflection of the level of market uncertainty and sentiment
that prevails during the post-announcement period. The overriding conclusion from our
analysis is that both uncertainty and sentiment play a central role in determining investor
behaviour and it is this behaviour that ultimately determines the pricing that is observed in
financial markets.
Bird, R, Reddy, K & Yeung, DC 2014, 'The relationship between uncertainty and the market reaction to information: Is it influenced by stock-specific characteristics?', International Journal of Behavioural Accounting and Finance, vol. 4, no. 2, pp. 113-132.
Cardinale, M, Navone, M & Pioch, A 2014, 'The Power of Dynamic Asset Allocation', JOURNAL OF PORTFOLIO MANAGEMENT, vol. 40, no. 3, pp. 47-+.
Cotton, D & De Mello, L 2014, 'Econometric analysis of Australian emissions markets and electricity prices', Energy Policy, vol. 74, no. C, pp. 475-485.
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© 2014 Elsevier Ltd. Emissions trading schemes aim to reduce the emissions in certain pollutants using a market based scheme where participants can buy and sell permits for these emissions. This paper analyses the efficiency of the two largest schemes in Australia, the NSW Greenhouse Gas Abatement Scheme and the Mandatory Renewable Energy Trading Scheme, through their effect on the electricity prices from 2004 to 2010. We use a long run structural modelling technique for thefirst time on this market. It provides a practical long-run approach to structural relationships which enable the determination of the effectiveness of the theoretical expectations of these schemes. The generalised forecast error variance decomposition analysisfinds that both schemes' emissions prices have little effect on electricity prices. Generalised impulse response function analysis support thisfinding indicating that when shocks are applied to electricity by the two schemes it returns to equilibrium very quickly. This indicates that these schemes are not having the effect anticipated in their legislation.
Cotton, D & Michayluk, DM 2014, 'Ambiguity in markets: A test in an Australian emissions market', ACRN Journal of Finance and Risk Perspectives, vol. 3, no. 4, pp. 99-119.
Glover, K & Hulley, H 2014, 'OPTIMAL PREDICTION OF THE LAST-PASSAGE TIME OF A TRANSIENT DIFFUSION', SIAM JOURNAL ON CONTROL AND OPTIMIZATION, vol. 52, no. 6, pp. 3833-3853.
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© 2014 Society for Industrial and Applied Mathematics We identify the integrable stopping time τ∗ with minimal L1-distance from the last-passage time γz associated with a given level z > 0, for an arbitrary nonnegative time-homogeneous transient diffusion X . We demonstrate that τ∗ is in fact the first time that X assumes a value outside a half-open interval [0, r∗). The upper boundary r∗ > z of this interval is characterized either as the solution for a one-dimensional optimization problem, or as part of the solution for a free-boundary problem. A number of concrete examples illustrate the result.
Gochoco-Bautista, MS, Sotocinal, NR & Wang, J 2014, 'Corporate Investments in Asian Markets: Financial Conditions, Financial Development, and Financial Constraints', WORLD DEVELOPMENT, vol. 57, pp. 63-78.
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In, F, Kim, M, Park, RJ, Kim, S & Kim, TS 2014, 'Competition of socially responsible and conventional mutual funds and its impact on fund performance', Journal of Banking & Finance, vol. 44, pp. 160-176.
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Kim, S, In, F, Ji, PI & Park, RJ 2014, 'False discoveries in the performance of Australian managed funds', Pacific-Basin Finance Journal, vol. 26, pp. 244-256.
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Michayluk, D, Neuhauser, K & Walker, S 2014, 'Are Certain Dividend Increases Predictable? The Effect of Repeated Dividend Increases on Market Returns', Journal of Applied Corporate Finance, vol. 26, no. 4, pp. 118-126.
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The authors report the findings of their study of over 400 stocks of public companies that announced at least 20 consecutive increases in their dividends during the period 1999 and 2009. With the assumption that the stock market learns to anticipate future dividend increases from current patterns, the study was designed to answer the question: How many increases does it take for the market to anticipate, and “price in,” the pattern of dividend increases? The authors report finding that abnormal returns around the first and second announcements of dividend increases are significant and positive, but are much less significant for the third and further increases. They also find that the size of the dividend increases tends to fall with more increases, and that the largest percentage dividend changes occur early in the sequence.
Nguyen, P, Rahman, N & Zhao, L 2014, 'Returns to Acquirers of Listed and Unlisted Targets: An Examination of Australian Bidders', Studies in Economics and Finance, vol. 34, no. 1, pp. 24-48.
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© 2017, © Emerald Publishing Limited. Purpose: This paper aims to evaluate the robustness of the listing effect in Australia, that is whether acquisitions of private firms create more value to the bidding firm’s shareholders than acquisitions of publicly listed firms. Design/methodology/approach: The authors analyze the market reaction to the announcement of takeover bids initiated by Australian public firms on private and public targets over the period 1990-2011. The analysis controls for a wide range of bidder, deal and target country characteristics that are likely to correlate with the target’s listing status and acquirer abnormal returns. The authors also use a selection model to address the endogenous choice of the target’s listing status. Findings: The results indicate that bidders experience significantly higher abnormal returns of about 1.7 per cent in the 11-day event window when the target is a private firm. The authors show that this result is broad-based and persistent. It does not appear to depend on whether the target is small or large; whether it is related or unrelated to the bidder’s industry; whether it is in the resources sector; and whether the transaction is domestic or cross-border. They find some evidence that bidder returns might be stronger for larger acquisitions, for unrelated targets, and in poor market conditions such as in the wake of the recent global financial crisis. Research limitations/implications: The research would benefit from the inclusion of the bidding firm’s ownership and governance characteristics. Practical implications: The results support the view that market frictions contribute to make private firms attractive targets. Originality/value: The analysis confirms the pervasiveness of the listing effect in a market characterized by a lesser degree of competition, higher search costs and the significance of the natural resources sector.
Putniņš, TJ 2014, 'Economics of State-Owned Enterprises', International Journal of Public Administration, vol. 38, no. 11, pp. 814-832.
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State-owned enterprises (SOEs) account for a substantial proportion of GDP, employment and assets in many countries. This article reviews the theory relating to SOEs: their economic rationale, the circumstances in which SOEs are the preferred form of government intervention, and their efficiency and welfare consequences. Based on the theory and empirical evidence, we develop a novel five-step framework that can guide policymakers and economic advisors in making decisions about maintaining and/or creating SOEs. The framework suggests that the use of SOEs should be limited to circumstances in which a market failure exists, less invasive forms of intervention such as regulation/taxes/subsidies and private sector contracting are ineffective or not possible, and the welfare loss of the market failure exceeds the costs, distortions and inefficiencies of SOEs.
Putniņš, TJ & Sauka, A 2014, 'Measuring the Shadow Economy Using Company Managers', Journal of Comparative Economics, vol. 43, no. 2, pp. 471-490.
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© 2014 Association for Comparative Economic Studies. This study develops a method that uses surveys of company managers to measure the size of a shadow economy. Our method is based on the premise that company managers are the most likely to know how much business income and wages go unreported due to their unique position in dealing with both of these types of income. We use a range of survey design features to maximize the truthfulness of responses. Our method combines estimates of misreported business income, unregistered or hidden employees, and unreported wages, to arrive at an estimate of the size of a shadow economy as a percentage of GDP. This approach differs from most other studies of shadow economies, which largely focus on using macroindicators. We illustrate the application of our method to three new EU member countries. We also analyze the factors that influence companies' participation in the shadow economy.
Roesch, D & Scheule, H 2014, 'FORECASTING MORTGAGE SECURITIZATION RISK UNDER SYSTEMATIC RISK AND PARAMETER UNCERTAINTY', JOURNAL OF RISK AND INSURANCE, vol. 81, no. 3, pp. 563-586.
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The global financial crisis exposed financial institutions to severe unexpected losses in relation to mortgage securitizations and derivatives. This article finds that risk models such as ratings are exposed to a large degree of systematic risk and parameter uncertainty. An out-of-sample forecasting exercise of the financial crisis shows that a simple approach addressing both issues is able to produce ranges for risk measures consistent with realized losses. This explains how financial markets were taken by surprise in relation to realized losses. © The Journal of Risk and Insurance, 2013.
Roesch, D & Scheule, H 2014, 'Forecasting probabilities of default and loss rates given default in the presence of selection', JOURNAL OF THE OPERATIONAL RESEARCH SOCIETY, vol. 65, no. 3, pp. 393-407.
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This paper offers a joint estimation approach for forecasting probabilities of default and loss rates given default in the presence of selection. The approach accommodates fixed and random risk factors. An empirical analysis identifies bond ratings, borrower characteristics and macroeconomic information as important risk factors. A portfolio-level analysis finds evidence that common risk measurement approaches may underestimate bank capital by up to 17% relative to the presented model. © 2014 Operational Research Society Ltd. All rights reserved.
Socorro Gochoco-Bautista, M, Wang, J & Yang, M 2014, 'Commodity Price, Carry Trade, and the Volatility and Liquidity of Asian Currencies', WORLD ECONOMY, vol. 37, no. 6, pp. 811-833.
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This study examines how the volatility and liquidity of 10 Asian exchange rates against the US dollar change with volatilities in commodity price and carry trade over the period of January 2000 to June 2010. We find that uncertainties in commodity markets and carry trades are significantly correlated with the volatilities and the bid-ask spreads of most Asian currencies. The correlation with carry trade is generally stronger and has been rising over the sample period. While high volatilities in carry trade are associated with high volatilities in many Asian currencies, high volatilities in commodity price do not coincide with excessive volatilities in Asian currencies. This suggests that investors and policymakers should be more concerned with the volatility in carry trade. © 2013 John Wiley & Sons Ltd.
Waller, DS, Freeman, LM, Hambusch, G, Waite, K, Neil, J & Wray-Bliss, E 2014, 'Embedding Ethics in the Business Curriculum: A Multi-Disciplinary Approach', Journal of Business Ethics Education, vol. 11, pp. 239-259.
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In response to recent corporate ethical and financial disasters there has been increased pressure on business schools to improve their teaching of corporate ethics. Accreditation bodies, such as the Association to Advance Collegiate Schools of Business (AACSB), now require member institutions to develop the ethical awareness of business students, either through a dedicated subject or an integrated coverage of ethics across the curriculum. This paper describes an institutional approach to the incorporation of a comprehensive multi-disciplinary ethics framework into the business curriculum. We discuss important implications for the assessment of ethics within institutional assurance practices, and address critical issues related to the support of academics when required to incorporate new ethics material within their subject which may be outside their field of expertise. As an example, the successful application of the framework within the marketing discipline is presented and discussed.
Wang, J 2014, 'Overnight price discovery and the internationalization of a currency: The case of the Korean won', PACIFIC-BASIN FINANCE JOURNAL, vol. 29, pp. 86-95.
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Armanious, A 1970, 'Fiscal Sustainability in Eurozone Sovereign Debt Members', Seventh Euro Mediterranean Dialogue on Public Management (MED7), Rome, Italy.
Armanious, A 1970, 'Social Network Analysis of European Financial Crisis Interconnectedness', 1st European Conference on Social Networks, Barcelona, Spain.
Bird, R, Reddy, K & Yeung, D 1970, 'The relationship between uncertainty and the market reaction to information: Is it influenced by stock-specific characteristics?', International Journal of Behavioural Accounting and Finance, Annual Conference of the Multinational Finance Society, Inderscience Publishers, Rome, Italy, pp. 113-113.
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Nikitopoulos Sklibosios, C, Squires, M, Thorp, S & Yeung, DC 1970, 'The spread seesaw: How consumption, inventory and expected volatility affect the oik forward curve', Frontiers in Financial Econometrics, Brisbane, Australia.
Patel, V, Putnins, T & Michayluk, DM 1970, 'Price Discovery in Stock and Option Markets', 2014 FMA Annual Meeting, Nashville, USA.
Patel, VG & Michayluk, D 1970, 'Disentangling the different sources of value creation for US divestitures', Second Paris Financial Management Conference, Paris, France.
Patel, VG, Putnins, T & Michayluk, D 1970, 'Price discovery in stock and options markets', AFFI EUROFIDAI International Meeting, Paris, France.
Thorp, S, Bird, R, Gray, J, Liem, H, Raftery, A & Yeung, DC 1970, 'Why Self-Managed Superannuation Funds?', Paul Woolley Centre for the Study of Capital Market Dysfunctionality Annual Conference, Sydney, Australia.
