This paper aims at exploring the causal relationship between net foreign institutional investment flows to the Indian equity market with its possible covariates based on daily data for the period September 2008 to July 2013. The data has been analyzed in a Vector Autoregressive framework for determining the existence of long run relationships. Augmented Dickey Fuller (ADF) test and Johansen co-integration technique have been adopted for stationary test and co-integration. The explanatory variables chosen are domestic and US equity market returns, historic volatility of both domestic and US equity market returns, expected volatility of both domestic and US equity markets and the rupee dollar exchange rate. The study has been done for different time phases of Indian stock market sentiment to identify whether the explanatory variables chosen differ in their explanation of FII net inflows, controlling for market sentiment.
{"title":"Estimating Changing Significance of Determinants of FII Flows to India Over Different Time Periods in a Vector Autoregressive Framework Using Daily Data","authors":"T. Chaudhuri, D. Mukhopadhyay, Payal Maskara","doi":"10.2139/ssrn.2434436","DOIUrl":"https://doi.org/10.2139/ssrn.2434436","url":null,"abstract":"This paper aims at exploring the causal relationship between net foreign institutional investment flows to the Indian equity market with its possible covariates based on daily data for the period September 2008 to July 2013. The data has been analyzed in a Vector Autoregressive framework for determining the existence of long run relationships. Augmented Dickey Fuller (ADF) test and Johansen co-integration technique have been adopted for stationary test and co-integration. The explanatory variables chosen are domestic and US equity market returns, historic volatility of both domestic and US equity market returns, expected volatility of both domestic and US equity markets and the rupee dollar exchange rate. The study has been done for different time phases of Indian stock market sentiment to identify whether the explanatory variables chosen differ in their explanation of FII net inflows, controlling for market sentiment.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114762502","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}
Restriction on the access to the public equity market and non-market based selection of public listing create overvaluation and distort managerial incentives in the public listed companies in the Chinese stock market. Using the sample of newly listed firms in the Growth Enterprise Market (GEM), this paper documents evidence on the high agency costs of overvalued equity. We show that newly listed firms experience exodus of top executives shortly after public listing, and the executives time their resignations in order to “cash out” their stock holdings. Firms with greater overvaluation and lower profitability are more likely to experience executive resignation. Consistent with Jensen (2005), we find that managerial actions resulting from systemic equity overvaluation can be destructive: market reactions to executive resignation are negative and firms that experience executive exodus perform poorly. The results suggest that high valuation of public companies resulting from tight control of public equity market entry helps to create wealth for the corporate insiders rather than to create successful enterprises.
{"title":"The High Agency Costs of Overvalued Equity in an Emerging Market: Evidence from the Growth Enterprise Market (GEM) in China","authors":"Cao Ting Qiu, Qinghai Wang, Zhang Guangli","doi":"10.2139/ssrn.2984043","DOIUrl":"https://doi.org/10.2139/ssrn.2984043","url":null,"abstract":"Restriction on the access to the public equity market and non-market based selection of public listing create overvaluation and distort managerial incentives in the public listed companies in the Chinese stock market. Using the sample of newly listed firms in the Growth Enterprise Market (GEM), this paper documents evidence on the high agency costs of overvalued equity. We show that newly listed firms experience exodus of top executives shortly after public listing, and the executives time their resignations in order to “cash out” their stock holdings. Firms with greater overvaluation and lower profitability are more likely to experience executive resignation. Consistent with Jensen (2005), we find that managerial actions resulting from systemic equity overvaluation can be destructive: market reactions to executive resignation are negative and firms that experience executive exodus perform poorly. The results suggest that high valuation of public companies resulting from tight control of public equity market entry helps to create wealth for the corporate insiders rather than to create successful enterprises.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131419896","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 examine the possibility of an impact of the resumption of trading in Single Stock Futures (SSFs) on the dynamics (positive feedback trading and price volatility) of the underlying stocks in Pakistan’s market. Specifically, we test the hypothesis that trading in SSFs promotes or inhibits positive feedback trading in the spot market. Analyzing SSFs has several advantages over investigation of index futures. First, any impact of futures is more likely to be evident in the behavior of SSFs than index futures. Second, with SSFs it is possible to trade directly in the underlying stocks, and the endogeneity issue can be taken care of by using a relatively weighted portfolio of non-SSFs stocks. The findings of our study suggest that there is a statistically insignificant presence of positive feedback trading in both pre-SSFs period to post-SSFs period for both SSFs-listed stocks and a matching group of non-SSFs stocks. Furthermore, the unconditional volatility has significantly changed in both SSFs and non-SSFs, while asymmetry coefficient is statistically insignificant for SSFs but significant for non-SSFs. Overall our findings suggest that resumption of SSFs neither promotes nor inhibits feedback trading in the underlying spot market in Pakistan.
{"title":"Single Stock Futures Trading and Its Impact on Feedback Trading and Volatility: A Case Study of Pakistan","authors":"I. Malik, Attaullah Shah, S. Khan","doi":"10.32368/FJES.20130905","DOIUrl":"https://doi.org/10.32368/FJES.20130905","url":null,"abstract":"In this paper, we examine the possibility of an impact of the resumption of trading in Single Stock Futures (SSFs) on the dynamics (positive feedback trading and price volatility) of the underlying stocks in Pakistan’s market. Specifically, we test the hypothesis that trading in SSFs promotes or inhibits positive feedback trading in the spot market. Analyzing SSFs has several advantages over investigation of index futures. First, any impact of futures is more likely to be evident in the behavior of SSFs than index futures. Second, with SSFs it is possible to trade directly in the underlying stocks, and the endogeneity issue can be taken care of by using a relatively weighted portfolio of non-SSFs stocks. The findings of our study suggest that there is a statistically insignificant presence of positive feedback trading in both pre-SSFs period to post-SSFs period for both SSFs-listed stocks and a matching group of non-SSFs stocks. Furthermore, the unconditional volatility has significantly changed in both SSFs and non-SSFs, while asymmetry coefficient is statistically insignificant for SSFs but significant for non-SSFs. Overall our findings suggest that resumption of SSFs neither promotes nor inhibits feedback trading in the underlying spot market in Pakistan.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"72 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126160553","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 examines the relationship between foreign shareholding and stock price efficiency for Malaysian public listed firms over the 2002-2008 sample period. We use stock price delay as an inverse measure of informational efficiency, and consider the speed of adjustment to local and global common factor information. The results show that foreign investors accelerate the incorporation of both types of common information into the prices of Malaysian stocks, mainly due to their superior skills in processing systematic market-wide factors. However, we find evidence of optimality in foreign shareholding, suggesting that the efficiency benefit disappears after foreign ownership exceeds a certain threshold level. Further analyses uncover the underlying channels that give rise to the U-shaped curve, and identify the significant moderating variables that strengthen this relationship. Our disaggregate analysis on foreign investor heterogeneity shows that foreign investors who trade via nominee accounts are elite processors of public market-wide and firm-specific news in the Malaysian stock market.
{"title":"Foreign Shareholding and Stock Price Efficiency: Firm-Level Evidence from Malaysia","authors":"K. Lim, C. Hooy, Kwok-Boon Chang, R. Brooks","doi":"10.2139/ssrn.2373482","DOIUrl":"https://doi.org/10.2139/ssrn.2373482","url":null,"abstract":"This paper examines the relationship between foreign shareholding and stock price efficiency for Malaysian public listed firms over the 2002-2008 sample period. We use stock price delay as an inverse measure of informational efficiency, and consider the speed of adjustment to local and global common factor information. The results show that foreign investors accelerate the incorporation of both types of common information into the prices of Malaysian stocks, mainly due to their superior skills in processing systematic market-wide factors. However, we find evidence of optimality in foreign shareholding, suggesting that the efficiency benefit disappears after foreign ownership exceeds a certain threshold level. Further analyses uncover the underlying channels that give rise to the U-shaped curve, and identify the significant moderating variables that strengthen this relationship. Our disaggregate analysis on foreign investor heterogeneity shows that foreign investors who trade via nominee accounts are elite processors of public market-wide and firm-specific news in the Malaysian stock market.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127521461","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 study, we have attempted to seek evidence for weak-form of market efficiency for KSE 100 Index because over the last five years KSE 100 Index has shown substantial growth as compared to other emerging stock markets. Index returns have been studied from 1st January, 1992 to 30th April, 2013. For further analysis, return series has been divided into sub-periods. The paper has made use of primarily Non-Parametric tests as well as parametric tests. For further analysis, Runs test has also been run on 20 companies return series for comparison purpose with the results of index return series. In addition, from KSE 30 Index, 20 companies return series based on the free-float of shares have also been analyzed through Runs test to check if increase in numbers of floating shares does increase the randomness in return series or not. To our knowledge, this paper is the first one on KSE 100 Index to study the overall time frame of return series of KSE 100 Index of 22 years with the several random walk and weak-form efficiency tests to ensure the consistency of results; and to compare the results of runs test of index return series with the results of runs test on companies return series from KSE 100 and KSE 30 Indexes. Overall KSE 100 Index has been found to be weak-form inefficient, but unlike other studies, our study illustrates how the last 4 years have shown some signs of efficiency. Companies return series from KSE 30 Index are found to be more random than companies return series from KSE100 Index.
{"title":"Is Pakistan Stock Market Moving Towards Weak-Form Efficiency? Evidence from the Karachi Stock Exchange and the Random Walk Nature of Free-Float of Shares of KSE 30 Index.","authors":"Ushna Akber, Nabeel Muhammad","doi":"10.2139/ssrn.2364912","DOIUrl":"https://doi.org/10.2139/ssrn.2364912","url":null,"abstract":"In this study, we have attempted to seek evidence for weak-form of market efficiency for KSE 100 Index because over the last five years KSE 100 Index has shown substantial growth as compared to other emerging stock markets. Index returns have been studied from 1st January, 1992 to 30th April, 2013. For further analysis, return series has been divided into sub-periods. The paper has made use of primarily Non-Parametric tests as well as parametric tests. For further analysis, Runs test has also been run on 20 companies return series for comparison purpose with the results of index return series. In addition, from KSE 30 Index, 20 companies return series based on the free-float of shares have also been analyzed through Runs test to check if increase in numbers of floating shares does increase the randomness in return series or not. To our knowledge, this paper is the first one on KSE 100 Index to study the overall time frame of return series of KSE 100 Index of 22 years with the several random walk and weak-form efficiency tests to ensure the consistency of results; and to compare the results of runs test of index return series with the results of runs test on companies return series from KSE 100 and KSE 30 Indexes. Overall KSE 100 Index has been found to be weak-form inefficient, but unlike other studies, our study illustrates how the last 4 years have shown some signs of efficiency. Companies return series from KSE 30 Index are found to be more random than companies return series from KSE100 Index.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-11-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121244873","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}
Conventional finance suggests that the higher the risk of an investment, the higher the return it should give. Nevertheless, whether Islamic stocks that offer alternative investment in the stock market suggest different risk-return relationship still needs to be investigated. This empirical study is aimed at assessing risk-return behavior of Islamic stocks. This study employs cross sectional data of portfolio developed using beta-rank and market capitalization, in which daily data will better reflect the real volatility. This study also measures volatility of both conventional and Islamic stocks using Value-at-Risk (VaR). To check whether Islamic stocks are immune from any impact of financial crisis, this study utilizes three periods of observation, i.e., before, during and after the 2008 crisis. This study assesses risk and return using Multi-index model, in which variables tested are the respective fundamental factors. Results of this study will provide more accurate approach in Islamic stocks analysis.
{"title":"Portfolio Volatility of Islamic and Conventional Stock: The Case of Indonesia Stock Market","authors":"Aldrin Herwany, Erie Febrian","doi":"10.2139/ssrn.2331803","DOIUrl":"https://doi.org/10.2139/ssrn.2331803","url":null,"abstract":"Conventional finance suggests that the higher the risk of an investment, the higher the return it should give. Nevertheless, whether Islamic stocks that offer alternative investment in the stock market suggest different risk-return relationship still needs to be investigated. This empirical study is aimed at assessing risk-return behavior of Islamic stocks. This study employs cross sectional data of portfolio developed using beta-rank and market capitalization, in which daily data will better reflect the real volatility. This study also measures volatility of both conventional and Islamic stocks using Value-at-Risk (VaR). To check whether Islamic stocks are immune from any impact of financial crisis, this study utilizes three periods of observation, i.e., before, during and after the 2008 crisis. This study assesses risk and return using Multi-index model, in which variables tested are the respective fundamental factors. Results of this study will provide more accurate approach in Islamic stocks analysis.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117220124","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 objective of this article is to investigate the volatility asymmetry, volatility-volume relationship by considering trading volume as a mixing variable, and the risk-return relationship in the Indian stock market. Daily data from January 2, 1997 to May 30, 2013 for SP provide supports to MDH but the volatility shocks are found to be highly persistent even after incorporating trading volume. The study also finds evidence of no significant relationship between risk and return. The implication of the findings may be applicable to traders, speculator as well as the financial decision makers and practitioners as the trading volume reflects the information about market expectation.
{"title":"An Empirical Investigation of Asymmetric Volatility, Trading Volume and Risk-Return Relationship in the Indian Stock Market","authors":"P. K. Naik, Puja Padhi","doi":"10.2139/ssrn.2305758","DOIUrl":"https://doi.org/10.2139/ssrn.2305758","url":null,"abstract":"The objective of this article is to investigate the volatility asymmetry, volatility-volume relationship by considering trading volume as a mixing variable, and the risk-return relationship in the Indian stock market. Daily data from January 2, 1997 to May 30, 2013 for SP provide supports to MDH but the volatility shocks are found to be highly persistent even after incorporating trading volume. The study also finds evidence of no significant relationship between risk and return. The implication of the findings may be applicable to traders, speculator as well as the financial decision makers and practitioners as the trading volume reflects the information about market expectation.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-08-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129750102","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}
Sonali Jain-Chandra, M. Kim, Sung Ho Park, Jerome Shin
Korea was hit hard by the 2008 global financial crisis, with the foreign bank deleveraging channel coming prominently into play. The global financial crisis demonstrated that a sharp deleveraging can be transmitted to emerging markets through the bank lending channel to a slowdown in credit growth. The analysis finds that a sharp decline in external funding led to relatively modest decline in domestic credit by Korean banks, due to concerted policy efforts by the government in 2008. Impulse responses from a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to Korea shows that it appears better prepared to handle such shocks relative to 2008. Indeed, Korea is much more resilient to such shocks due to the efforts by the authorities, which has led to the strengthening of external buffers, such as higher foreign exchange reserves and bilateral and multilateral currency swap arrangements.
{"title":"The Impact of Foreign Bank Deleveraging on Korea","authors":"Sonali Jain-Chandra, M. Kim, Sung Ho Park, Jerome Shin","doi":"10.2139/ssrn.2592809","DOIUrl":"https://doi.org/10.2139/ssrn.2592809","url":null,"abstract":"Korea was hit hard by the 2008 global financial crisis, with the foreign bank deleveraging channel coming prominently into play. The global financial crisis demonstrated that a sharp deleveraging can be transmitted to emerging markets through the bank lending channel to a slowdown in credit growth. The analysis finds that a sharp decline in external funding led to relatively modest decline in domestic credit by Korean banks, due to concerted policy efforts by the government in 2008. Impulse responses from a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to Korea shows that it appears better prepared to handle such shocks relative to 2008. Indeed, Korea is much more resilient to such shocks due to the efforts by the authorities, which has led to the strengthening of external buffers, such as higher foreign exchange reserves and bilateral and multilateral currency swap arrangements.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130018886","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}
Sharpe’s (1964) Capital Asset Pricing Model (CAPM) assumes that the relationship between risk and return is positive, linear and significant. However, it is not free from controversies and one of them advocates replacing CAPM’s beta by downside beta based on investors’ preference of downside risk. Roy (1952) debates that investor care for downside risk and Hogan and Warren (1974) replace variance with semivariance in CAPM as the first official version of downside risk based CAPM. Bawa (1975), Fishburn (1977) and Bawa and Lindenberg (1977) develop and extend proxy for downside risk/beta as Lower Partial Moment. This study empirically tests beta and downside beta based CAPM (DCAPM). Conceptual and empirical problems related in testing alternative models are discussed with adoption of Fama-MacBeth (1973) procedure by making it robust. This study inspects intercept, risk-return relationship, nonlinearities and effect of residuals for both CAPM and DCAPM. Intercept results are almost similar and they follow introduction of zero-beta models as outlined by Black et al. (1972). Both models show rejection of nonlinearities and effect of residuals. However, DCAPM comes out to be strong contender compared to CAPM for risk-return relationship. These results are consistent with Estrada (2002), Ang et al.(2004) and Post and Vliet (2004).
{"title":"An Investigation of Beta and Downside Beta Based CAPM-Case Study of Karachi Stock Exchange","authors":"M. Tahir, Qaiser Abbas, Shahid Mehmood Sargana, Usman Ayub, Syed Kashif Saeed","doi":"10.2139/ssrn.2241416","DOIUrl":"https://doi.org/10.2139/ssrn.2241416","url":null,"abstract":"Sharpe’s (1964) Capital Asset Pricing Model (CAPM) assumes that the relationship between risk and return is positive, linear and significant. However, it is not free from controversies and one of them advocates replacing CAPM’s beta by downside beta based on investors’ preference of downside risk. Roy (1952) debates that investor care for downside risk and Hogan and Warren (1974) replace variance with semivariance in CAPM as the first official version of downside risk based CAPM. Bawa (1975), Fishburn (1977) and Bawa and Lindenberg (1977) develop and extend proxy for downside risk/beta as Lower Partial Moment. This study empirically tests beta and downside beta based CAPM (DCAPM). Conceptual and empirical problems related in testing alternative models are discussed with adoption of Fama-MacBeth (1973) procedure by making it robust. This study inspects intercept, risk-return relationship, nonlinearities and effect of residuals for both CAPM and DCAPM. Intercept results are almost similar and they follow introduction of zero-beta models as outlined by Black et al. (1972). Both models show rejection of nonlinearities and effect of residuals. However, DCAPM comes out to be strong contender compared to CAPM for risk-return relationship. These results are consistent with Estrada (2002), Ang et al.(2004) and Post and Vliet (2004).","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"50 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132051776","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 studies suggest an increasing trend in return idiosyncratic volatility and a ‘puzzling’ negative relationship between idiosyncratic and total volatility and stock returns. We investigate in an emerging market, the time-series behaviour of total and idiosyncratic volatility and their respective relationship with cross-sectional stock returns. First, we find that the time-series behaviour of both total and idiosyncratic volatility is episodic rather than exhibiting a long-term trend and that this episodic behaviour is driven by the level and variability of growth options. Second, we find a significant negative total volatility effect which reverses the apparent negative idiosyncratic volatility effect. Our results are consistent with a market populated by underdiversified risk-averse investors with a preference for high total volatility stocks. Consequently, we suggest that there is neither an idiosyncratic nor a total volatility puzzle. Our study underscores the importance of country verification, especially in emerging markets, of anomalies initially discovered in mature markets.
{"title":"Is There a Volatility Puzzle in the Hong Kong Stock Market?","authors":"Ji (George) Wu, G. Nartea","doi":"10.2139/ssrn.2200823","DOIUrl":"https://doi.org/10.2139/ssrn.2200823","url":null,"abstract":"Recent studies suggest an increasing trend in return idiosyncratic volatility and a ‘puzzling’ negative relationship between idiosyncratic and total volatility and stock returns. We investigate in an emerging market, the time-series behaviour of total and idiosyncratic volatility and their respective relationship with cross-sectional stock returns. First, we find that the time-series behaviour of both total and idiosyncratic volatility is episodic rather than exhibiting a long-term trend and that this episodic behaviour is driven by the level and variability of growth options. Second, we find a significant negative total volatility effect which reverses the apparent negative idiosyncratic volatility effect. Our results are consistent with a market populated by underdiversified risk-averse investors with a preference for high total volatility stocks. Consequently, we suggest that there is neither an idiosyncratic nor a total volatility puzzle. Our study underscores the importance of country verification, especially in emerging markets, of anomalies initially discovered in mature markets.","PeriodicalId":287077,"journal":{"name":"ERN: Asia & Pacific (Emerging Markets) (Topic)","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-01-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124721527","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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