As the strength of the Japanese economy grew during the 1980s, many studies examined the integration between currencies in the region. Several studies found evidence for a "yen bloc", a significant and strengthening relationship between the Japanese yen and other regional currencies due to trade, direct and indirect investment by Japan in the region. However, few studies compared the role of Japan with another influential regional economy, Australia. On closer investigation it appears that the Australian dollar has a similar role in the East Asian region, and the linkages between the dollar and the Asian currencies show as much support for a "koala bloc" as a "yen bloc". In fact, as the 20th Century drew to a close, the Australian dollar appears to be a regional currency of at least equal importance to the yen. With the ever-increasing economic participation of Australia in Asia, and considering the economic difficulties facing Japan, it is a trend that can be expected to continue.
{"title":"Yen Bloc or Koala Bloc? Evidence of the Relevance of Australia to East Asian Economies","authors":"Chakriya Bowman","doi":"10.2139/ssrn.391691","DOIUrl":"https://doi.org/10.2139/ssrn.391691","url":null,"abstract":"As the strength of the Japanese economy grew during the 1980s, many studies examined the integration between currencies in the region. Several studies found evidence for a \"yen bloc\", a significant and strengthening relationship between the Japanese yen and other regional currencies due to trade, direct and indirect investment by Japan in the region. However, few studies compared the role of Japan with another influential regional economy, Australia. On closer investigation it appears that the Australian dollar has a similar role in the East Asian region, and the linkages between the dollar and the Asian currencies show as much support for a \"koala bloc\" as a \"yen bloc\". In fact, as the 20th Century drew to a close, the Australian dollar appears to be a regional currency of at least equal importance to the yen. With the ever-increasing economic participation of Australia in Asia, and considering the economic difficulties facing Japan, it is a trend that can be expected to continue.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2003-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121849414","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We provide direct empirical evidence that share overvaluation is an important motive for firms to make stock acquisitions. We find that more overvalued firms are more likely to acquire with stock, and acquirers are more overvalued in successful stock mergers than in withdrawn mergers. Acquirers' overvaluation, on average, exceeds the targets' premium-adjusted overvaluation. Shareholders of stock acquirers, whose overvaluation is greater than their targets' premium-adjusted overvaluation, realize sustained wealth gains from one day before the merger announcement up to three years after the merger completion, as compared with a matching sample of similarly overvalued but nonacquiring firms.
{"title":"Direct Evidence on the Market-Driven Acquisitions Theory","authors":"James S. Ang, Yingmei Cheng","doi":"10.2139/ssrn.391569","DOIUrl":"https://doi.org/10.2139/ssrn.391569","url":null,"abstract":"We provide direct empirical evidence that share overvaluation is an important motive for firms to make stock acquisitions. We find that more overvalued firms are more likely to acquire with stock, and acquirers are more overvalued in successful stock mergers than in withdrawn mergers. Acquirers' overvaluation, on average, exceeds the targets' premium-adjusted overvaluation. Shareholders of stock acquirers, whose overvaluation is greater than their targets' premium-adjusted overvaluation, realize sustained wealth gains from one day before the merger announcement up to three years after the merger completion, as compared with a matching sample of similarly overvalued but nonacquiring firms.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2003-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130243633","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we provide an accurate and efficient method for valuing Asian options that works well for the low and medium volatility as well as longer average time window. Numerical results show that our method significantly outperforms the other analytic approximation methods in the literature. The pricing errors in terms of mean square errors for calculating a bundle of Asian options are less than one percent. Our method is fast and efficient compared to the Monte Carlo benchmark method adopted as well.
{"title":"An Accurate and Efficient Method for Pricing Asian Options","authors":"Chuang-Chang Chang, Chueh-Yung Tsao","doi":"10.2139/ssrn.392020","DOIUrl":"https://doi.org/10.2139/ssrn.392020","url":null,"abstract":"In this paper we provide an accurate and efficient method for valuing Asian options that works well for the low and medium volatility as well as longer average time window. Numerical results show that our method significantly outperforms the other analytic approximation methods in the literature. The pricing errors in terms of mean square errors for calculating a bundle of Asian options are less than one percent. Our method is fast and efficient compared to the Monte Carlo benchmark method adopted as well.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2003-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121208375","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Liquid stocks on the London Stock Exchange are essentially traded in a hybrid market where an order book and dealers co-exist. While early studies reveal that dealers play an important role in providing liquidity to the market, this paper provides evidence that the price discovery process is largely driven by the trades from the order book.
{"title":"Price Discovery in Hybrid Markets: Further Evidence from the London Stock Exchange","authors":"Hung-Neng Lai","doi":"10.2139/ssrn.410180","DOIUrl":"https://doi.org/10.2139/ssrn.410180","url":null,"abstract":"Liquid stocks on the London Stock Exchange are essentially traded in a hybrid market where an order book and dealers co-exist. While early studies reveal that dealers play an important role in providing liquidity to the market, this paper provides evidence that the price discovery process is largely driven by the trades from the order book.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2003-01-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128820857","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In general, index and commodity futures markets are considered to be highly liquid. Yet these markets can quickly become illiquid in periods of high uncertainty. So far, there exists no theoretical explanation as to why liquid futures markets can become illiquid in these periods of high uncertainty. This paper shows how illiquidity creates theoretically an endogenous transaction cost increasing with the variance of the spot price and the volume of trades in the futures market generated by hedging pressures. High uncertainty represented by high volatility in the spot market drives out liquidity in the futures market the larger the trades. This transaction cost comes from the trader's inability to share risk freely with the rest of the futures market. Even in its absence, futures markets will be illiquid if its mechanism allows for multiple prices. This suggests that a single price mechanism increases liquidity in the futures markets by forcing the sharing of risks, abstracting from traditional trading costs that would create effectively a bid-ask spread.
{"title":"Endogenous Illiquidity Trading Costs from Risk Sharing","authors":"S. Galy","doi":"10.2139/ssrn.364861","DOIUrl":"https://doi.org/10.2139/ssrn.364861","url":null,"abstract":"In general, index and commodity futures markets are considered to be highly liquid. Yet these markets can quickly become illiquid in periods of high uncertainty. So far, there exists no theoretical explanation as to why liquid futures markets can become illiquid in these periods of high uncertainty. This paper shows how illiquidity creates theoretically an endogenous transaction cost increasing with the variance of the spot price and the volume of trades in the futures market generated by hedging pressures. High uncertainty represented by high volatility in the spot market drives out liquidity in the futures market the larger the trades. This transaction cost comes from the trader's inability to share risk freely with the rest of the futures market. Even in its absence, futures markets will be illiquid if its mechanism allows for multiple prices. This suggests that a single price mechanism increases liquidity in the futures markets by forcing the sharing of risks, abstracting from traditional trading costs that would create effectively a bid-ask spread.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116352071","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper examines real and financial links simultaneously at the regional and global level for a group of Pacific-Basin countries by analysing the covariance of excess returns on national stock markets over the period 1980–1998. We find overwhelming evidence at the regional and global level and for all sub-periods that financial integration is accompanied by economic integration. This seems to suggest that economic integration provides a channel for financial integration, which explains, at least partly, the high degree of financial integration found in this study and in other studies for this region even in the presence of foreign exchange controls. This result has important implications for the use of restrictions to isolate capital markets from world influences.
{"title":"Measuring Financial and Economic Integration with Equity Prices in Emerging Markets","authors":"F. Ravazzolo, Kate Phylaktis","doi":"10.2139/ssrn.314833","DOIUrl":"https://doi.org/10.2139/ssrn.314833","url":null,"abstract":"Abstract This paper examines real and financial links simultaneously at the regional and global level for a group of Pacific-Basin countries by analysing the covariance of excess returns on national stock markets over the period 1980–1998. We find overwhelming evidence at the regional and global level and for all sub-periods that financial integration is accompanied by economic integration. This seems to suggest that economic integration provides a channel for financial integration, which explains, at least partly, the high degree of financial integration found in this study and in other studies for this region even in the presence of foreign exchange controls. This result has important implications for the use of restrictions to isolate capital markets from world influences.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125667440","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recent empirical studies seem to suggest that contrarian strategies make substantial profits that may be inconsistent with informationaly efficient markets. This paper examines whether the detection of contrarian profits is sensitive to the definition of abnormal returns and the duration of the formation and testing periods and investigates the effect of well-known monthly seasonals on the empirical results. Furthermore, in view of recent evidence that beta risk is not constant, the paper employs a procedure that allows for time-variation in systematic risk, and also examines whether abnormal returns of contrarian strategies are normal compensation for changes in risk between portfolio formation and portfolio testing period. No empirical evidence on contrarian profits exist so far for the Athens Stock Exchange, an emerging market for which one would expect more return predictability. To anticipate the results, we find that longer horizon contrarian strategies are more profitable than shorter horizon strategies. However, contrarian profits are very sensitive to the specification of abnormal returns, i.e. when we allow beta risk to vary over time most of the profits from contrarian strategies disappear. Furthermore, even for the case where we do detect arbitrage profits the results indicate that they may be due to changes in market risk.
{"title":"Does Time Variation in Systematic Risk Affect the Profitability of Contrarian Investment Strategies?","authors":"Antonios Antoniou, E. Galariotis, S. Spyrou","doi":"10.2139/ssrn.314876","DOIUrl":"https://doi.org/10.2139/ssrn.314876","url":null,"abstract":"Recent empirical studies seem to suggest that contrarian strategies make substantial profits that may be inconsistent with informationaly efficient markets. This paper examines whether the detection of contrarian profits is sensitive to the definition of abnormal returns and the duration of the formation and testing periods and investigates the effect of well-known monthly seasonals on the empirical results. Furthermore, in view of recent evidence that beta risk is not constant, the paper employs a procedure that allows for time-variation in systematic risk, and also examines whether abnormal returns of contrarian strategies are normal compensation for changes in risk between portfolio formation and portfolio testing period. No empirical evidence on contrarian profits exist so far for the Athens Stock Exchange, an emerging market for which one would expect more return predictability. To anticipate the results, we find that longer horizon contrarian strategies are more profitable than shorter horizon strategies. However, contrarian profits are very sensitive to the specification of abnormal returns, i.e. when we allow beta risk to vary over time most of the profits from contrarian strategies disappear. Furthermore, even for the case where we do detect arbitrage profits the results indicate that they may be due to changes in market risk.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123200412","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The extension of trade credit is considered to be a form of short term financing that many firms use from both the supply and demand sides. This paper focuses on testing the theoretical determinants on trade credit and examines whether 1) creditworthy firms that have access to both external and internal financing, 2) they experience growth in profits and sales, and 3) price discrimination can actually motivated the extension of trade credit. The paper uses a large sample of data from the UK. We identify whether the decision to offer trade credit as measured by the level of account receivables depends, on firm's size. We draw a distinction between small, medium and large firms, and find evidence that the decision to extend trade credit and the relationship to the firm's ability to access finance, intermediate, or price discriminate can to a large extent be determined by the size of the firm.
{"title":"The Supply of Trade Credits: Evidence from the UK","authors":"K. Soufani, P. Poutziouris","doi":"10.2139/ssrn.314874","DOIUrl":"https://doi.org/10.2139/ssrn.314874","url":null,"abstract":"The extension of trade credit is considered to be a form of short term financing that many firms use from both the supply and demand sides. This paper focuses on testing the theoretical determinants on trade credit and examines whether 1) creditworthy firms that have access to both external and internal financing, 2) they experience growth in profits and sales, and 3) price discrimination can actually motivated the extension of trade credit. The paper uses a large sample of data from the UK. We identify whether the decision to offer trade credit as measured by the level of account receivables depends, on firm's size. We draw a distinction between small, medium and large firms, and find evidence that the decision to extend trade credit and the relationship to the firm's ability to access finance, intermediate, or price discriminate can to a large extent be determined by the size of the firm.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129379430","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The present paper contains description of logic and probabilistic (LP) model of the credit risk and evidences of its high accuracy and stability based on using of groups of incompatible events (Bayes' formula) and the logically well organised probabilistic polynomial of risk. However the present paper pays basic attention to the following applied aspects of using credit risk LP-models, connected with acquisition of income: Evaluation of accuracy and stability of credit risk model, numerical evaluation of credit risk and set the price for the risk, choice of relation of incorrectly classified good and bad credits, risk analysis of a separate credit, bank credit activity analysis, choice of optimum variety of signs for credit description, choice of the grade number for each sign and intervals of values for grades. We state also an approach for development of dynamic risk LP-model and describe developed Software for evaluation and analysis of credit risk.
{"title":"Assessment and Analysis of Credit Risk with Using of Logical and Probabilistic Model","authors":"V. Karassev, Andrey Roukine, E. Solojentsev","doi":"10.2139/ssrn.314380","DOIUrl":"https://doi.org/10.2139/ssrn.314380","url":null,"abstract":"The present paper contains description of logic and probabilistic (LP) model of the credit risk and evidences of its high accuracy and stability based on using of groups of incompatible events (Bayes' formula) and the logically well organised probabilistic polynomial of risk. However the present paper pays basic attention to the following applied aspects of using credit risk LP-models, connected with acquisition of income: Evaluation of accuracy and stability of credit risk model, numerical evaluation of credit risk and set the price for the risk, choice of relation of incorrectly classified good and bad credits, risk analysis of a separate credit, bank credit activity analysis, choice of optimum variety of signs for credit description, choice of the grade number for each sign and intervals of values for grades. We state also an approach for development of dynamic risk LP-model and describe developed Software for evaluation and analysis of credit risk.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133547628","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates three possible processes by which mutual fund betas may develop over time. The paper proposes the idea that the underlying structure of fund returns can be interpreted as an indicator of management style. Due to the pressures placed on fund managers to remain within certain risk guidelines, laid out in the funds prospectus, over time the beta of an actively managed fund should exhibit mean reversion. We impose three different time-varying models on mutual fund betas using the Kalman filter algorithm. The three processes are: Firstly a random coefficient with constant mean model where any disturbance or shock to the funds systematic risk in one period has no effect on future beta values, possibly indicating an immediate re-alignment of the funds risk profile by the manager. Secondly an AR(1) model where shocks would have some persistence, and finally a random walk process where shocks will persist indefinitely. Our findings, over all funds in the sample, show an equal split between the random coefficient model and the random walk model. Furthermore, when we split the sample into fund classifications we find that the random walk model dominates the small company funds, suggesting these funds have adopted a more passive management style, possibly due to the reduced liquidity of the underlying stocks. The random coefficient model on the other hand dominates growth funds and speciality funds, indicating a more active management style is being used to counteract any shocks to the underlying systematic risk of the fund.
{"title":"The Stochastic Properties of Systematic Risk for U.S. Mutual Funds","authors":"J. Hillier","doi":"10.2139/ssrn.314365","DOIUrl":"https://doi.org/10.2139/ssrn.314365","url":null,"abstract":"This paper investigates three possible processes by which mutual fund betas may develop over time. The paper proposes the idea that the underlying structure of fund returns can be interpreted as an indicator of management style. Due to the pressures placed on fund managers to remain within certain risk guidelines, laid out in the funds prospectus, over time the beta of an actively managed fund should exhibit mean reversion. We impose three different time-varying models on mutual fund betas using the Kalman filter algorithm. The three processes are: Firstly a random coefficient with constant mean model where any disturbance or shock to the funds systematic risk in one period has no effect on future beta values, possibly indicating an immediate re-alignment of the funds risk profile by the manager. Secondly an AR(1) model where shocks would have some persistence, and finally a random walk process where shocks will persist indefinitely. Our findings, over all funds in the sample, show an equal split between the random coefficient model and the random walk model. Furthermore, when we split the sample into fund classifications we find that the random walk model dominates the small company funds, suggesting these funds have adopted a more passive management style, possibly due to the reduced liquidity of the underlying stocks. The random coefficient model on the other hand dominates growth funds and speciality funds, indicating a more active management style is being used to counteract any shocks to the underlying systematic risk of the fund.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115153789","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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