We reassess influences of trading volume on stock and currency return distribution while allowing... more We reassess influences of trading volume on stock and currency return distribution while allowing the possibility of interactions among return higher moments. Given the evidence of the higher moments’ inter-relationship, we extend our analysis by exploring how trading volume affects the dynamic structure of higher moments’ inter-relationship. Our reassessment of volume – volatility interaction supports a complementary property among information theories and further contributes evidence of cross – market relations between volume and volatility. The result for the volume – skewness relationship in conjunction with previous studies leads to a hypothesis that direct impact of volume on the level of negative skewness is less significant for a better diversified portfolio. We further find that the negative interaction between volume and kurtosis can be explained by the differences of opinion hypothesis. Although behavior of the inter-relationship towards significant events and new policie...
ABSTRACT We investigate the effects of S&P's sovereign re-ratings on the higher m... more ABSTRACT We investigate the effects of S&P's sovereign re-ratings on the higher moments of equity market returns over recent financial crises. Using a set of intraday stock market index prices and sovereign credit ratings for a sample of 36 countries which experienced sovereign rating changes over the period from 1996 - 2013, we find that the higher moments of stock market returns are significantly more responsive to sovereign re-ratings during financial crises but the effects on stock markets are not the same across different financial crises. The effects during crises are however magnified for large downgrades and those that are associated with a loss of investment grade status. We find that there are asymmetric effects during financial crises in that downgrades are consistently more significant than upgrades in increasing realized volatility and realized kurtosis. Both upgrades and downgrades affect realized skewness in times of crises in the expected direction.This article is protected by copyright. All rights reserved
... Sirimon Treepongkarunaa Eliza Wub ,∗ ... they are indirectly linked via portfolio rebalancing... more ... Sirimon Treepongkarunaa Eliza Wub ,∗ ... they are indirectly linked via portfolio rebalancing effects. Sovereign credit ratings provide publicly available information on a national ... test rejects the existence of a unit root in the time series of daily realized measures for ...
ABSTRACT This paper proposes a model for credit default swap (CDS) spreads under heterogeneous ex... more ABSTRACT This paper proposes a model for credit default swap (CDS) spreads under heterogeneous expectations to explain the escalation in sovereign European CDS spreads and the widening variations across European sovereigns following the Global Financial Crisis (GFC). In our model, investors believe that sovereign CDS spreads are determined by country-specific fundamentals and momentum. By estimating the model we find evidence that, whilst some of the recent movements in sovereign CDS spreads can be explained by deteriorating fundamentals for core European Union (EU) countries, momentum has also played a destabilizing role since the GFC in all sovereign credit markets studied.
This paper evaluates the tactical asset allocation (TAA) capabilities, strategies and behaviour o... more This paper evaluates the tactical asset allocation (TAA) capabilities, strategies and behaviour of Australian investment managers who invest assets across multiple asset classes. Specifically, we analyse the behaviour of balanced, growth and capital-stable fund managers with regard to their asset allocation activity across defensive (cash, domestic bonds, overseas bonds) and growth (domestic equities, international equities, property) asset classes, over the
... (1997), Chamberlain et al. (1997) and Martin and Mauer, 2003)) and far less attention has ...... more ... (1997), Chamberlain et al. (1997) and Martin and Mauer, 2003)) and far less attention has ... exposure between financial and non-financial firms (see Allayannis and Weston (2001) and Koutmos and Martin (2003)). Furthermore, the demand for insurance products is also ...
ABSTRACT This paper examines the influence of regional economic development on mutual funds inves... more ABSTRACT This paper examines the influence of regional economic development on mutual funds investment decisions. Using fund holdings from 2003 to 2008, we find that Chinese mutual funds that collectively reside in the developed coastal region have the ability to select 'star' firms from neighboring inland areas and overweight them in their portfolios. However, they present a clear local bias within the coastal region. Such investment behavior is robust to political interventions. In particular, changes in political climate make mutual funds seek fundamentals like growth prospects and diversification benefits. Overall, economic and political factors significantly influence mutual funds investment decisions in emerging China.
Governance has many dimensions -corporate governance pertains to the firm's management whilst sov... more Governance has many dimensions -corporate governance pertains to the firm's management whilst sovereign governance pertains to the firm's exposure to sovereign risk, corruption, and poor regulation. We show that both are important drivers of firm value and this has serious implications for the increasing number of Chinese firms choosing to cross-list in the US. Whilst the legal bonding hypothesis argues that firms from poor-corporate-governance environments can signal their quality by issuing stock in the US it is silent on the role of sovereign governance. Thus, we use a sample of cross-listed firms from 48 countries between 1996 and 2008 and find that the home country's sovereign governance quality, but not its corporate governance quality (as proxied by the anti-director rights index) continue to influence the market values of cross-listed firms. Furthermore, cross-listed firms from strong governance countries that have higher market values than non-cross-listed firms or firms from weak governance countries. These results highlight the importance of distinguishing between the myriad types of governance when analyzing the bonding hypothesis and the drivers of cross-listed stocks' valuations, and emphasize the continued importance of sovereign governance for cross-listed firms.
ABSTRACT We assess investors' reaction to new information arrivals in financial markets b... more ABSTRACT We assess investors' reaction to new information arrivals in financial markets by examining the relationships between trading volume and the higher moments of returns in 18 international equity and currency markets. Our volume-volatility results support extant information theories and further contribute new evidence of cross market relations between volume and volatility. We also find that the direct impact of volume on the level of negative skewness is less significant for more diversified regional portfolios. Furthermore, the negative interaction between volume and kurtosis can be explained by the differences of opinion in financial markets. We observe stronger interdependence among higher moments in reaction to significant events, but the strength is dampened by trading volume. This result is consistent with trading volume being a source of heteroskedasticity in asset returns.
We investigate firm attributes that set apart portfolio allocation preferences of foreign and dom... more We investigate firm attributes that set apart portfolio allocation preferences of foreign and domestic investors, using holdings data of investment funds in 48 markets. Controlling for market features, we find that visible and transparent target firms attract not only foreign funds, as already established in the literature, but also their domestic counterparts. Beyond visibility and transparency, foreign investment decisions are strongly motivated by specific bilateral linkages between investee firms and investors' countries of origin, while investment decisions of domestic funds are not. This difference in allocation preferences between foreign and domestic funds is in fact more observable in countries with low explicit market-wide barriers to foreign investments. Our findings imply that allocation strategies of foreign and domestic investors can deviate in the way that minimizes the former's information disadvantages and that the well-documented "familiarity bias" phenomenon reflects the complementary effects of both firm-and market-level barriers in foreign investment.
We reassess influences of trading volume on stock and currency return distribution while allowing... more We reassess influences of trading volume on stock and currency return distribution while allowing the possibility of interactions among return higher moments. Given the evidence of the higher moments’ inter-relationship, we extend our analysis by exploring how trading volume affects the dynamic structure of higher moments’ inter-relationship. Our reassessment of volume – volatility interaction supports a complementary property among information theories and further contributes evidence of cross – market relations between volume and volatility. The result for the volume – skewness relationship in conjunction with previous studies leads to a hypothesis that direct impact of volume on the level of negative skewness is less significant for a better diversified portfolio. We further find that the negative interaction between volume and kurtosis can be explained by the differences of opinion hypothesis. Although behavior of the inter-relationship towards significant events and new policie...
ABSTRACT We investigate the effects of S&P's sovereign re-ratings on the higher m... more ABSTRACT We investigate the effects of S&P's sovereign re-ratings on the higher moments of equity market returns over recent financial crises. Using a set of intraday stock market index prices and sovereign credit ratings for a sample of 36 countries which experienced sovereign rating changes over the period from 1996 - 2013, we find that the higher moments of stock market returns are significantly more responsive to sovereign re-ratings during financial crises but the effects on stock markets are not the same across different financial crises. The effects during crises are however magnified for large downgrades and those that are associated with a loss of investment grade status. We find that there are asymmetric effects during financial crises in that downgrades are consistently more significant than upgrades in increasing realized volatility and realized kurtosis. Both upgrades and downgrades affect realized skewness in times of crises in the expected direction.This article is protected by copyright. All rights reserved
... Sirimon Treepongkarunaa Eliza Wub ,∗ ... they are indirectly linked via portfolio rebalancing... more ... Sirimon Treepongkarunaa Eliza Wub ,∗ ... they are indirectly linked via portfolio rebalancing effects. Sovereign credit ratings provide publicly available information on a national ... test rejects the existence of a unit root in the time series of daily realized measures for ...
ABSTRACT This paper proposes a model for credit default swap (CDS) spreads under heterogeneous ex... more ABSTRACT This paper proposes a model for credit default swap (CDS) spreads under heterogeneous expectations to explain the escalation in sovereign European CDS spreads and the widening variations across European sovereigns following the Global Financial Crisis (GFC). In our model, investors believe that sovereign CDS spreads are determined by country-specific fundamentals and momentum. By estimating the model we find evidence that, whilst some of the recent movements in sovereign CDS spreads can be explained by deteriorating fundamentals for core European Union (EU) countries, momentum has also played a destabilizing role since the GFC in all sovereign credit markets studied.
This paper evaluates the tactical asset allocation (TAA) capabilities, strategies and behaviour o... more This paper evaluates the tactical asset allocation (TAA) capabilities, strategies and behaviour of Australian investment managers who invest assets across multiple asset classes. Specifically, we analyse the behaviour of balanced, growth and capital-stable fund managers with regard to their asset allocation activity across defensive (cash, domestic bonds, overseas bonds) and growth (domestic equities, international equities, property) asset classes, over the
... (1997), Chamberlain et al. (1997) and Martin and Mauer, 2003)) and far less attention has ...... more ... (1997), Chamberlain et al. (1997) and Martin and Mauer, 2003)) and far less attention has ... exposure between financial and non-financial firms (see Allayannis and Weston (2001) and Koutmos and Martin (2003)). Furthermore, the demand for insurance products is also ...
ABSTRACT This paper examines the influence of regional economic development on mutual funds inves... more ABSTRACT This paper examines the influence of regional economic development on mutual funds investment decisions. Using fund holdings from 2003 to 2008, we find that Chinese mutual funds that collectively reside in the developed coastal region have the ability to select 'star' firms from neighboring inland areas and overweight them in their portfolios. However, they present a clear local bias within the coastal region. Such investment behavior is robust to political interventions. In particular, changes in political climate make mutual funds seek fundamentals like growth prospects and diversification benefits. Overall, economic and political factors significantly influence mutual funds investment decisions in emerging China.
Governance has many dimensions -corporate governance pertains to the firm's management whilst sov... more Governance has many dimensions -corporate governance pertains to the firm's management whilst sovereign governance pertains to the firm's exposure to sovereign risk, corruption, and poor regulation. We show that both are important drivers of firm value and this has serious implications for the increasing number of Chinese firms choosing to cross-list in the US. Whilst the legal bonding hypothesis argues that firms from poor-corporate-governance environments can signal their quality by issuing stock in the US it is silent on the role of sovereign governance. Thus, we use a sample of cross-listed firms from 48 countries between 1996 and 2008 and find that the home country's sovereign governance quality, but not its corporate governance quality (as proxied by the anti-director rights index) continue to influence the market values of cross-listed firms. Furthermore, cross-listed firms from strong governance countries that have higher market values than non-cross-listed firms or firms from weak governance countries. These results highlight the importance of distinguishing between the myriad types of governance when analyzing the bonding hypothesis and the drivers of cross-listed stocks' valuations, and emphasize the continued importance of sovereign governance for cross-listed firms.
ABSTRACT We assess investors' reaction to new information arrivals in financial markets b... more ABSTRACT We assess investors' reaction to new information arrivals in financial markets by examining the relationships between trading volume and the higher moments of returns in 18 international equity and currency markets. Our volume-volatility results support extant information theories and further contribute new evidence of cross market relations between volume and volatility. We also find that the direct impact of volume on the level of negative skewness is less significant for more diversified regional portfolios. Furthermore, the negative interaction between volume and kurtosis can be explained by the differences of opinion in financial markets. We observe stronger interdependence among higher moments in reaction to significant events, but the strength is dampened by trading volume. This result is consistent with trading volume being a source of heteroskedasticity in asset returns.
We investigate firm attributes that set apart portfolio allocation preferences of foreign and dom... more We investigate firm attributes that set apart portfolio allocation preferences of foreign and domestic investors, using holdings data of investment funds in 48 markets. Controlling for market features, we find that visible and transparent target firms attract not only foreign funds, as already established in the literature, but also their domestic counterparts. Beyond visibility and transparency, foreign investment decisions are strongly motivated by specific bilateral linkages between investee firms and investors' countries of origin, while investment decisions of domestic funds are not. This difference in allocation preferences between foreign and domestic funds is in fact more observable in countries with low explicit market-wide barriers to foreign investments. Our findings imply that allocation strategies of foreign and domestic investors can deviate in the way that minimizes the former's information disadvantages and that the well-documented "familiarity bias" phenomenon reflects the complementary effects of both firm-and market-level barriers in foreign investment.
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