How to allocate resources and select the type of investment is very important . The optimal allocation, especially in the financial markets of countries that are paced growth factor, is very significance. In this research toward optimizing resource allocation, an innovative learning algorithm will used to select and optimize portfolio in Tehran Stock Exchange. a new method is proposed based on the combination of ICA (Imperial Competitive Algorithm) and GA (Genetic Algorithm) which improves the convergence speed and accuracy of the optimization results. The new algorithm, which is named R-ICGA (Recursive- ICA-GA), runs ICA and GA consecutively. It is shown that a fast decrease occurs while the proposed algorithm switches from ICA to GA. The main goal of the new proposed algorithm is to achieve a faster optimization technique by applying this fast decrease. Moreover, the simple combination of ICA and GA, which is named ICA-GA, is presented in this study. These two combination schemes of ICA and GA are used for comparing with other conventional algorithms. Finally, three fitness functions are used for comparing the suggested algorithms. The obtained results show that compared with the previous method, the proposed algorithms are at least 32% faster in optimization processes; also the variance convergence speed is smaller than the ICA and GA.
{"title":"Stock Portfolio Optimization with Using a New Hybrid Evolutionary Algorithm Based on ICA and GA: Recursive-ICA-GA (Case Study of Tehran Stock Exchange)","authors":"M. Emami, A. Amini, A. Emami","doi":"10.2139/ssrn.2067126","DOIUrl":"https://doi.org/10.2139/ssrn.2067126","url":null,"abstract":"How to allocate resources and select the type of investment is very important . The optimal allocation, especially in the financial markets of countries that are paced growth factor, is very significance. In this research toward optimizing resource allocation, an innovative learning algorithm will used to select and optimize portfolio in Tehran Stock Exchange. a new method is proposed based on the combination of ICA (Imperial Competitive Algorithm) and GA (Genetic Algorithm) which improves the convergence speed and accuracy of the optimization results. The new algorithm, which is named R-ICGA (Recursive- ICA-GA), runs ICA and GA consecutively. It is shown that a fast decrease occurs while the proposed algorithm switches from ICA to GA. The main goal of the new proposed algorithm is to achieve a faster optimization technique by applying this fast decrease. Moreover, the simple combination of ICA and GA, which is named ICA-GA, is presented in this study. These two combination schemes of ICA and GA are used for comparing with other conventional algorithms. Finally, three fitness functions are used for comparing the suggested algorithms. The obtained results show that compared with the previous method, the proposed algorithms are at least 32% faster in optimization processes; also the variance convergence speed is smaller than the ICA and GA.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128940068","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}
While the risk return trade-off theory suggests a positive relationship between the expected return and the conditional volatility, the volatility feedback theory implies a channel that allows the conditional volatility to negatively affect the expected return. We examine the effects of the risk return trade-off and the volatility feedback in a model where both the return and its volatility are influenced by news arrivals. Our empirical analysis shows that the two effects have approximately the same size with opposite signs for the daily excess returns of seven major developed markets. For the same data set, we also find that a linear relationship between the expected return and the conditional standard deviation is preferable to polynomial-type nonlinear specifications.
{"title":"On the Risk Return Relationship","authors":"Jian-xin Wang, Minxian Yang","doi":"10.2139/ssrn.2049079","DOIUrl":"https://doi.org/10.2139/ssrn.2049079","url":null,"abstract":"While the risk return trade-off theory suggests a positive relationship between the expected return and the conditional volatility, the volatility feedback theory implies a channel that allows the conditional volatility to negatively affect the expected return. We examine the effects of the risk return trade-off and the volatility feedback in a model where both the return and its volatility are influenced by news arrivals. Our empirical analysis shows that the two effects have approximately the same size with opposite signs for the daily excess returns of seven major developed markets. For the same data set, we also find that a linear relationship between the expected return and the conditional standard deviation is preferable to polynomial-type nonlinear specifications.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133314951","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}
Popular contention is that trading in futures markets by investors without a physical position (that is, non-hedgers) has lifted commodity prices. This contradicts the standard finance assumption that futures markets shadow the physical market by providing liquidity for hedgers, and at most accelerate inevitable price change. This divergence of opinion is unresolved. We test for the possibility of a link between futures market trading and physical prices by examining monthly data in 22 commodity futures markets as they grew after the 1980s. We introduce a new variable termed scaled open interest (OI) which is open interest in a commodity’s futures market divided by its global physical production. This is analogous to the hedge ratio and so deviations from its trend point to trading activity by non-hedgers. We find a cointegrating relationship in larger markets between scaled open interest and real spot price, where it is usually the price that adjusts to deviations from long run equilibrium. We use cross sections of the dataset to examine this cointegrating relationship, and suggest factors that could contribute to our findings. The most satisfactory explanation is that tax-incentivized savings have thrown up a wall of money that leads investors to seek a long exposure to commodities, which lifts their price irrespective of fundamentals.
{"title":"Economic Significance of Non-Hedger Investment in Commodity Markets","authors":"L. Coleman, Jonathan Dark","doi":"10.2139/ssrn.2021919","DOIUrl":"https://doi.org/10.2139/ssrn.2021919","url":null,"abstract":"Popular contention is that trading in futures markets by investors without a physical position (that is, non-hedgers) has lifted commodity prices. This contradicts the standard finance assumption that futures markets shadow the physical market by providing liquidity for hedgers, and at most accelerate inevitable price change. This divergence of opinion is unresolved. We test for the possibility of a link between futures market trading and physical prices by examining monthly data in 22 commodity futures markets as they grew after the 1980s. We introduce a new variable termed scaled open interest (OI) which is open interest in a commodity’s futures market divided by its global physical production. This is analogous to the hedge ratio and so deviations from its trend point to trading activity by non-hedgers. We find a cointegrating relationship in larger markets between scaled open interest and real spot price, where it is usually the price that adjusts to deviations from long run equilibrium. We use cross sections of the dataset to examine this cointegrating relationship, and suggest factors that could contribute to our findings. The most satisfactory explanation is that tax-incentivized savings have thrown up a wall of money that leads investors to seek a long exposure to commodities, which lifts their price irrespective of fundamentals.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"83 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126156487","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 document the frequent use of lockup agreements in seasoned equity offerings (SEOs) and examine the determinants of their use, duration, and early release. We find that the likelihood of an SEO lockup and its duration are positively related to issuer information asymmetry measures. Lockup duration is negatively related to underwriter spreads and underpricing, indicating that lockups lower expected flotation costs. Lockups are frequently released early following share prices rises. We conclude that lockups represent a contracting solution to asymmetric information and agency problems that plague equity issues by helping to insure SEO quality and deter opportunistic insider trading.
{"title":"Lockup Agreements in Seasoned Equity Offerings: Evidence of Optimal Contracting","authors":"Jonathan M. Karpoff, Gemma Lee, Ronald W. Masulis","doi":"10.2139/ssrn.1933995","DOIUrl":"https://doi.org/10.2139/ssrn.1933995","url":null,"abstract":"We document the frequent use of lockup agreements in seasoned equity offerings (SEOs) and examine the determinants of their use, duration, and early release. We find that the likelihood of an SEO lockup and its duration are positively related to issuer information asymmetry measures. Lockup duration is negatively related to underwriter spreads and underpricing, indicating that lockups lower expected flotation costs. Lockups are frequently released early following share prices rises. We conclude that lockups represent a contracting solution to asymmetric information and agency problems that plague equity issues by helping to insure SEO quality and deter opportunistic insider trading.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"77 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121495794","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}
There is little empirical evidence of company tax driving firm value in the finance literature though a change to Australian dividend imputation tax law in 1997 suggests the existence of dividend taxation induced tax clienteles. Recent changes to the regulation of the Australian dividend imputation system appears to have created two tax based shareholder clienteles determined by whether the shareholder is an Australian resident for tax purposes. A unique feature of this study is the focus on the value of franking credit balances, which have accumulated over time for many dividend paying Australian corporations. Analysis, using a sample of Australian listed companies over the period 2001 through 2006 (3071 firm-year observations), suggests that while Australian resident shareholders value franking credit balances, non-resident shareholders seem to attach little value to them and this has implications both for firm valuation.
{"title":"The Existence of Tax Clienteles: An Australian Setting","authors":"R. Heaney","doi":"10.2139/SSRN.1966835","DOIUrl":"https://doi.org/10.2139/SSRN.1966835","url":null,"abstract":"There is little empirical evidence of company tax driving firm value in the finance literature though a change to Australian dividend imputation tax law in 1997 suggests the existence of dividend taxation induced tax clienteles. Recent changes to the regulation of the Australian dividend imputation system appears to have created two tax based shareholder clienteles determined by whether the shareholder is an Australian resident for tax purposes. A unique feature of this study is the focus on the value of franking credit balances, which have accumulated over time for many dividend paying Australian corporations. Analysis, using a sample of Australian listed companies over the period 2001 through 2006 (3071 firm-year observations), suggests that while Australian resident shareholders value franking credit balances, non-resident shareholders seem to attach little value to them and this has implications both for firm valuation.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"70 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132858634","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}
R. Powell, A. Kramadibrata, D. Allen, Abhay K. Singh
The size of banks is examined as a determinant of bank risk. A wide range of banks are examined across four regions, including Australia, Canada, Europe and the USA. Four risk metrics are considered including Value at Risk (VaR), Conditional Value at Risk (CVaR, which measures risk beyond VaR), Probability of Default (PD) using Merton structural methodology, and Conditional Probability of Default (CPD, the author’s own model which measures risk based on extreme asset value fluctuations. Daily equity and asset value fluctuations are included in the analysis, including pre-GFC and GFC periods. In addition to examining size in isolation as a determinant of bank risk, the paper uses fixed effects panel data regression to examine the significance of size as a risk determinant in conjunction with a range of other independent variables. The study finds mixed results among the four regions with no conclusive evidence of significant association between size and risk.
{"title":"Bank Risk: Does Size Matter?","authors":"R. Powell, A. Kramadibrata, D. Allen, Abhay K. Singh","doi":"10.2139/ssrn.1965283","DOIUrl":"https://doi.org/10.2139/ssrn.1965283","url":null,"abstract":"The size of banks is examined as a determinant of bank risk. A wide range of banks are examined across four regions, including Australia, Canada, Europe and the USA. Four risk metrics are considered including Value at Risk (VaR), Conditional Value at Risk (CVaR, which measures risk beyond VaR), Probability of Default (PD) using Merton structural methodology, and Conditional Probability of Default (CPD, the author’s own model which measures risk based on extreme asset value fluctuations. Daily equity and asset value fluctuations are included in the analysis, including pre-GFC and GFC periods. In addition to examining size in isolation as a determinant of bank risk, the paper uses fixed effects panel data regression to examine the significance of size as a risk determinant in conjunction with a range of other independent variables. The study finds mixed results among the four regions with no conclusive evidence of significant association between size and risk.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116901432","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 apply a novel Quantile Monte Carlo (QMC) model to measure extreme risk of various European industrial sectors both prior to and during the Global Financial Crisis (GFC). The QMC model involves an application of Monte Carlo Simulation and Quantile Regression techniques to the Merton structural credit model. Two research questions are addressed in this study. The first question is whether there is a significant difference in distance to default (DD) between the 50% and 95% quantiles as measured by the QMC model. A substantial difference in DD between the two quantiles was found. The second research question is whether relative industry risk changes between the pre-GFC and GFC periods at the extreme quantile. Changes were found with the worst deterioration experienced by Energy, Utilities, Consumer Discretionary and Financials; and the strongest improvement shown by Telecommunication, IT and Consumer goods. Overall, we find a significant increase in credit risk for all sectors using this model as compared to the traditional Merton approach. These findings could be important to banks and regulators in measuring and providing for credit risk in extreme circumstances.
{"title":"A Quantile Monte Carlo Approach to Measuring Extreme Credit Risk","authors":"D. Allen, R. Boffey, R. Powell","doi":"10.2139/ssrn.1948311","DOIUrl":"https://doi.org/10.2139/ssrn.1948311","url":null,"abstract":"We apply a novel Quantile Monte Carlo (QMC) model to measure extreme risk of various European industrial sectors both prior to and during the Global Financial Crisis (GFC). The QMC model involves an application of Monte Carlo Simulation and Quantile Regression techniques to the Merton structural credit model. Two research questions are addressed in this study. The first question is whether there is a significant difference in distance to default (DD) between the 50% and 95% quantiles as measured by the QMC model. A substantial difference in DD between the two quantiles was found. The second research question is whether relative industry risk changes between the pre-GFC and GFC periods at the extreme quantile. Changes were found with the worst deterioration experienced by Energy, Utilities, Consumer Discretionary and Financials; and the strongest improvement shown by Telecommunication, IT and Consumer goods. Overall, we find a significant increase in credit risk for all sectors using this model as compared to the traditional Merton approach. These findings could be important to banks and regulators in measuring and providing for credit risk in extreme circumstances.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121176820","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 subprime crisis highlights how little we know about bank governance. This paper addresses a long-standing gap in the literature by analyzing the relationship between board governance and performance using a sample of banking firm data that spans 34 years. We find that board independence is not related to performance, as measured by a proxy for Tobin’s Q. However, board size is positively related to performance. Our results are not driven by M&A activity. But, we provide new evidence that increases in board size due to additions of directors with subsidiary directorships may add value as BHC complexity increases. We conclude that governance regulation should take unique features of bank governance into account.
{"title":"Bank Board Structure and Performance: Evidence for Large Bank Holding Companies","authors":"Renée B. Adams, Hamid Mehran","doi":"10.2139/ssrn.1945548","DOIUrl":"https://doi.org/10.2139/ssrn.1945548","url":null,"abstract":"The subprime crisis highlights how little we know about bank governance. This paper addresses a long-standing gap in the literature by analyzing the relationship between board governance and performance using a sample of banking firm data that spans 34 years. We find that board independence is not related to performance, as measured by a proxy for Tobin’s Q. However, board size is positively related to performance. Our results are not driven by M&A activity. But, we provide new evidence that increases in board size due to additions of directors with subsidiary directorships may add value as BHC complexity increases. We conclude that governance regulation should take unique features of bank governance into account.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123166306","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}
Prior US research indicates that acquiring firms pay an additional premium in acquisitions (i.e., pooling transactions) in which they do not need to amortise goodwill. The results of these studies however are subject to endogeneity problems as the accounting method choice and takeover premiums are jointly determined. As Australia has never permitted a choice of the pooling method, this study is able to take advantage of Australia’s adoption of IFRS in 2005 to examine the relationship between goodwill accounting and takeover premiums without concerns regarding endogeneity. Our results show that bidding firms lower their takeover premium when there is greater target firm goodwill. This relationship however is eliminated after Australia adopted IFRS and no longer required goodwill amortisation. Furthermore, we show that this change in the relationship between takeover premiums and goodwill post- IFRS only exists for bidding firms that have a CEO accounting based performance plan in place.
{"title":"Goodwill Accounting and Takeover Premiums: Pre- and Post-IFRS","authors":"M. Bugeja, Anna Loyeung","doi":"10.2139/ssrn.1941459","DOIUrl":"https://doi.org/10.2139/ssrn.1941459","url":null,"abstract":"Prior US research indicates that acquiring firms pay an additional premium in acquisitions (i.e., pooling transactions) in which they do not need to amortise goodwill. The results of these studies however are subject to endogeneity problems as the accounting method choice and takeover premiums are jointly determined. As Australia has never permitted a choice of the pooling method, this study is able to take advantage of Australia’s adoption of IFRS in 2005 to examine the relationship between goodwill accounting and takeover premiums without concerns regarding endogeneity. Our results show that bidding firms lower their takeover premium when there is greater target firm goodwill. This relationship however is eliminated after Australia adopted IFRS and no longer required goodwill amortisation. Furthermore, we show that this change in the relationship between takeover premiums and goodwill post- IFRS only exists for bidding firms that have a CEO accounting based performance plan in place.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115449786","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 analyse the determinants of Australian corporate credit default swap (CDS) spreads. In addition to structural determinants, consisting of equity returns, equity volatility and risk-free interest rates, we show that CDS spreads are impacted by the uncertainty of asset values as proxied by the dispersion in equity analysts’ price targets. Market-based variables including the changes in the S&P/ASX200 index return and stock-level option-implied volatility also contain valuable information about spreads. The analysis of spread determinants also shows that during the financial crisis equity-based market variables featured more prominently in the pricing of CDS spreads than credit ratings.
{"title":"Market-Based Structural Determinants of Australian CDS Spreads","authors":"Andrew Ainsworth, Jiri Svec","doi":"10.2139/ssrn.1939520","DOIUrl":"https://doi.org/10.2139/ssrn.1939520","url":null,"abstract":"We analyse the determinants of Australian corporate credit default swap (CDS) spreads. In addition to structural determinants, consisting of equity returns, equity volatility and risk-free interest rates, we show that CDS spreads are impacted by the uncertainty of asset values as proxied by the dispersion in equity analysts’ price targets. Market-based variables including the changes in the S&P/ASX200 index return and stock-level option-implied volatility also contain valuable information about spreads. The analysis of spread determinants also shows that during the financial crisis equity-based market variables featured more prominently in the pricing of CDS spreads than credit ratings.","PeriodicalId":246130,"journal":{"name":"FIRN (Financial Research Network) Research Paper Series","volume":"71 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131038673","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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