Pub Date : 2020-04-02DOI: 10.1080/10293523.2020.1755817
Chimwemwe Chipeta, Prince Nkiwane
ABSTRACT This paper examines the influence of financial slack on the method of payment and financial performance of acquirers targeting African firms. Using panel data estimation techniques and controlling for, inter alia, firm and deal specific factors, we find no evidence that financial slack has a statistically significant influence on the means of payment. However, firms with high leverage have a higher propensity to acquire a target by using cash. Furthermore, we document a weak association between financial slack and acquirer post-acquisition performance. When we classify firms in terms of the degree of financial slack and considering the method of payment, we find that firms with a low degree of financial slack generate negative long-run operating returns. These results are consistent across the method of payment used. Conversely, firms with a high degree of financial slack that use cash and a combination of financing sources yield positive and statistically significant long-run operating returns. We further show that undervalued firms are significantly more likely to use cash as a form of payment.
{"title":"Financial slack, method of payment and acquirer performance: The case of cross-border acquisitions into Africa","authors":"Chimwemwe Chipeta, Prince Nkiwane","doi":"10.1080/10293523.2020.1755817","DOIUrl":"https://doi.org/10.1080/10293523.2020.1755817","url":null,"abstract":"ABSTRACT This paper examines the influence of financial slack on the method of payment and financial performance of acquirers targeting African firms. Using panel data estimation techniques and controlling for, inter alia, firm and deal specific factors, we find no evidence that financial slack has a statistically significant influence on the means of payment. However, firms with high leverage have a higher propensity to acquire a target by using cash. Furthermore, we document a weak association between financial slack and acquirer post-acquisition performance. When we classify firms in terms of the degree of financial slack and considering the method of payment, we find that firms with a low degree of financial slack generate negative long-run operating returns. These results are consistent across the method of payment used. Conversely, firms with a high degree of financial slack that use cash and a combination of financing sources yield positive and statistically significant long-run operating returns. We further show that undervalued firms are significantly more likely to use cash as a form of payment.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"104 - 92"},"PeriodicalIF":0.9,"publicationDate":"2020-04-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2020.1755817","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42716817","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-04-02DOI: 10.1080/10293523.2020.1759924
Cheng Yan, Xiaoli Wu
ABSTRACT We investigate whether the option implied volatility predicts the future realised volatility of the underlying securities and whether volatility risk factors exploited from options are pricing factors. Our sample includes six popular stock indices such as the S&P 500 and S&P 100 and their options from January 2007 to November 2017. We find option implied volatility of every stock index is positively related to future realised volatility. Return distributions of index call and put contracts exhibit similar a pattern with previous studies, with positive (negative) average call (put) return and highly skewed. Zero-beta straddle portfolio containing long position in one at-the-money call and put index option reports negative average monthly returns and becomes less negative over time. We find the market risk factor is a significant risk factor while the straddle return is an insignificant pricing factor.
{"title":"Expected option returns during the post-GFC era","authors":"Cheng Yan, Xiaoli Wu","doi":"10.1080/10293523.2020.1759924","DOIUrl":"https://doi.org/10.1080/10293523.2020.1759924","url":null,"abstract":"ABSTRACT We investigate whether the option implied volatility predicts the future realised volatility of the underlying securities and whether volatility risk factors exploited from options are pricing factors. Our sample includes six popular stock indices such as the S&P 500 and S&P 100 and their options from January 2007 to November 2017. We find option implied volatility of every stock index is positively related to future realised volatility. Return distributions of index call and put contracts exhibit similar a pattern with previous studies, with positive (negative) average call (put) return and highly skewed. Zero-beta straddle portfolio containing long position in one at-the-money call and put index option reports negative average monthly returns and becomes less negative over time. We find the market risk factor is a significant risk factor while the straddle return is an insignificant pricing factor.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"118 - 131"},"PeriodicalIF":0.9,"publicationDate":"2020-04-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2020.1759924","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44487732","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-04-02DOI: 10.1080/10293523.2020.1773143
Olalekan Aladesanmi
ABSTRACT This study investigates the spillovers of shocks and volatilities between the UK and the US stock markets over the period 1935–2020. The empirical analysis is carried out for the full sample and four subsample periods by applying the asymmetric GARCH-BEKK model. Based on the empirical results, the evidence indicates that financial market linkages between the two markets have become stronger since the commencement of the European Monetary Union (EMU), which suggests that stronger financial market interactions and interdependence could increase the vulnerabilities of domestic markets to any global shocks and reduce the potential benefits of portfolio diversification.
{"title":"Modelling spillover effects between the UK and the US stock markets over the period 1935–2020","authors":"Olalekan Aladesanmi","doi":"10.1080/10293523.2020.1773143","DOIUrl":"https://doi.org/10.1080/10293523.2020.1773143","url":null,"abstract":"ABSTRACT This study investigates the spillovers of shocks and volatilities between the UK and the US stock markets over the period 1935–2020. The empirical analysis is carried out for the full sample and four subsample periods by applying the asymmetric GARCH-BEKK model. Based on the empirical results, the evidence indicates that financial market linkages between the two markets have become stronger since the commencement of the European Monetary Union (EMU), which suggests that stronger financial market interactions and interdependence could increase the vulnerabilities of domestic markets to any global shocks and reduce the potential benefits of portfolio diversification.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"132 - 148"},"PeriodicalIF":0.9,"publicationDate":"2020-04-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2020.1773143","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45897896","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-04-02DOI: 10.1080/10293523.2020.1775989
Doojin Ryu, Robert I. Webb, Jinyoung Yu
ABSTRACT This study examines the reaction of Korean banks’ procyclical behaviour to the adoption of the Basel III accord, which imposes a global capital framework on banks, and the sensitivity of Korean banks’ reactions depending on their capital structures prior to the adoption of the accord. Employing the random-effects panel data approach, we find that the procyclicality of banks, in terms of the capital adequacy ratio, profitability, and insolvency risk, is mitigated after the adoption of the accord. This change is only evident for banks with low capital adequacy ratios before the regulatory reform. Our findings suggest that the Basel III accord effectively mitigates bank procyclicality and that banks’ sensitivity to the reform becomes greater when their capital adequacy ratios are lower. The policy implications of the adoption in emerging and transitional economies are discussed, given the heterogeneous reaction of Korean banks to the international regulatory reform.
{"title":"Bank sensitivity to international regulatory reform: The case of Korea","authors":"Doojin Ryu, Robert I. Webb, Jinyoung Yu","doi":"10.1080/10293523.2020.1775989","DOIUrl":"https://doi.org/10.1080/10293523.2020.1775989","url":null,"abstract":"ABSTRACT This study examines the reaction of Korean banks’ procyclical behaviour to the adoption of the Basel III accord, which imposes a global capital framework on banks, and the sensitivity of Korean banks’ reactions depending on their capital structures prior to the adoption of the accord. Employing the random-effects panel data approach, we find that the procyclicality of banks, in terms of the capital adequacy ratio, profitability, and insolvency risk, is mitigated after the adoption of the accord. This change is only evident for banks with low capital adequacy ratios before the regulatory reform. Our findings suggest that the Basel III accord effectively mitigates bank procyclicality and that banks’ sensitivity to the reform becomes greater when their capital adequacy ratios are lower. The policy implications of the adoption in emerging and transitional economies are discussed, given the heterogeneous reaction of Korean banks to the international regulatory reform.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"149 - 162"},"PeriodicalIF":0.9,"publicationDate":"2020-04-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2020.1775989","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45130989","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-03-30DOI: 10.1080/10293523.2020.1806460
A. Paskaramoorthy, T. Gebbie, Terence L. van Zyl
ABSTRACT The artificial segmentation of the investment management process into silos of human operators can restrict silos from collectively and adaptively pursuing a unified investment goal. In this article, we argue that the investment process can be accelerated and be made more cohesive by replacing batch processing for component tasks of the investment process with online processing. We propose an integrated and online framework for investment workflows, where components produce outputs that are automatically and sequentially updated as new data arrives. The workflow can be further enhanced to refine signal generation and asset class evolution and definitions. Our results demonstrate that we use this framework in conjunction with resampling methods to optimise component decisions with direct reference to investment objectives while making clear the extent of backtest overfitting. We consider such an online update framework to be a crucial step towards developing intelligent portfolio selection algorithms that integrate financial theory, investor views, and data analysis with process-level learning.
{"title":"A framework for online investment decisions","authors":"A. Paskaramoorthy, T. Gebbie, Terence L. van Zyl","doi":"10.1080/10293523.2020.1806460","DOIUrl":"https://doi.org/10.1080/10293523.2020.1806460","url":null,"abstract":"ABSTRACT The artificial segmentation of the investment management process into silos of human operators can restrict silos from collectively and adaptively pursuing a unified investment goal. In this article, we argue that the investment process can be accelerated and be made more cohesive by replacing batch processing for component tasks of the investment process with online processing. We propose an integrated and online framework for investment workflows, where components produce outputs that are automatically and sequentially updated as new data arrives. The workflow can be further enhanced to refine signal generation and asset class evolution and definitions. Our results demonstrate that we use this framework in conjunction with resampling methods to optimise component decisions with direct reference to investment objectives while making clear the extent of backtest overfitting. We consider such an online update framework to be a crucial step towards developing intelligent portfolio selection algorithms that integrate financial theory, investor views, and data analysis with process-level learning.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"215 - 231"},"PeriodicalIF":0.9,"publicationDate":"2020-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2020.1806460","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45958006","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-01-02DOI: 10.1080/10293523.2019.1707457
An-Sing Chen, P. Anh
ABSTRACT This paper examines firms’ asset volatility across a broad cross-section of publicly traded Taiwanese listed nonfinancial firms and its relationship with effective tax rate and equity volatility under the capital structure framework. By analysing the leverage effect hypothesis of firms under the asymmetric diagonal VECH-GJR model, we find both equity volatility and asset volatility do not show the asymmetric effect. In the context of equity volatility dynamics, financial leverage turns from being negatively related to equity volatility to being positively related to equity volatility when the model adds asset volatility as a control variable. Moreover, lower equity volatility is found to be associated with higher effective tax rates.
{"title":"The firm’s asset volatility, effective tax rate and leverage effect: Evidence from Taiwan","authors":"An-Sing Chen, P. Anh","doi":"10.1080/10293523.2019.1707457","DOIUrl":"https://doi.org/10.1080/10293523.2019.1707457","url":null,"abstract":"ABSTRACT This paper examines firms’ asset volatility across a broad cross-section of publicly traded Taiwanese listed nonfinancial firms and its relationship with effective tax rate and equity volatility under the capital structure framework. By analysing the leverage effect hypothesis of firms under the asymmetric diagonal VECH-GJR model, we find both equity volatility and asset volatility do not show the asymmetric effect. In the context of equity volatility dynamics, financial leverage turns from being negatively related to equity volatility to being positively related to equity volatility when the model adds asset volatility as a control variable. Moreover, lower equity volatility is found to be associated with higher effective tax rates.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"16 - 33"},"PeriodicalIF":0.9,"publicationDate":"2020-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2019.1707457","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47128017","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-01-02DOI: 10.1080/10293523.2020.1723865
C. Adcock, Nelson Areal, M. C. Cortez, B. Oliveira, F. Silva
ABSTRACT This paper investigates whether investment strategies using rankings based on different portfolio performance measures lead to different future abnormal returns. A set of 13 commonly used risk-adjusted performance measures is applied to a dataset of US equity mutual funds over the period July 1970 to September 2019. The results show some evidence of short-term performance persistence, suggesting that portfolios formed on different performance measures ex-ante can generate abnormal returns ex-post. A strategy of investing in the top performing funds and shorting the poor performing funds provides positive excess returns and five-factor alphas. However, when adjusting for the momentum factor, there is less evidence of abnormal performance. The results also show that overall there is little difference arising from the use of different performance measures, but with one notable exception: the Rachev ratio.
{"title":"Does the choice of fund performance measure matter?","authors":"C. Adcock, Nelson Areal, M. C. Cortez, B. Oliveira, F. Silva","doi":"10.1080/10293523.2020.1723865","DOIUrl":"https://doi.org/10.1080/10293523.2020.1723865","url":null,"abstract":"ABSTRACT This paper investigates whether investment strategies using rankings based on different portfolio performance measures lead to different future abnormal returns. A set of 13 commonly used risk-adjusted performance measures is applied to a dataset of US equity mutual funds over the period July 1970 to September 2019. The results show some evidence of short-term performance persistence, suggesting that portfolios formed on different performance measures ex-ante can generate abnormal returns ex-post. A strategy of investing in the top performing funds and shorting the poor performing funds provides positive excess returns and five-factor alphas. However, when adjusting for the momentum factor, there is less evidence of abnormal performance. The results also show that overall there is little difference arising from the use of different performance measures, but with one notable exception: the Rachev ratio.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"53 - 77"},"PeriodicalIF":0.9,"publicationDate":"2020-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2020.1723865","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44540866","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-01-02DOI: 10.1080/10293523.2020.1723854
J. Szczygielski, Leon M. Brümmer, H. Wolmarans, Adam Zaremba
ABSTRACT We investigate whether macroeconomic factors adequately proxy for systematic influences in stock returns within the South African context. We also investigate whether a commonly used solution to factor omission in macroeconomic factor models, the residual market factor, adequately reflects systematic influences not reflected by a set of macroeconomic factors. Our contribution lies in precisely quantifying the ability of macroeconomic and residual market factors to proxy for systematic drivers of returns. Systematic influences are represented by statistically derived factor scores which are then related to a set of carefully selected macroeconomic factors. We find that the identification of macroeconomic factors that proxy for systematic influences is a challenge in itself. Once identified, macroeconomic factors are poor and unstable proxies for systematic influences and the use of a residual market factor does not significantly improve the approximation of factor scores. Our conclusion is that macroeconomic linear factor models are likely to be underspecified, even if a residual market factor is included. This has implications for researchers, investors, econometricians and economists that rely on macroeconomic factor models to study financial markets.
{"title":"Are macroeconomic factors adequate proxies for systematic influences in stock returns? A South African perspective","authors":"J. Szczygielski, Leon M. Brümmer, H. Wolmarans, Adam Zaremba","doi":"10.1080/10293523.2020.1723854","DOIUrl":"https://doi.org/10.1080/10293523.2020.1723854","url":null,"abstract":"ABSTRACT We investigate whether macroeconomic factors adequately proxy for systematic influences in stock returns within the South African context. We also investigate whether a commonly used solution to factor omission in macroeconomic factor models, the residual market factor, adequately reflects systematic influences not reflected by a set of macroeconomic factors. Our contribution lies in precisely quantifying the ability of macroeconomic and residual market factors to proxy for systematic drivers of returns. Systematic influences are represented by statistically derived factor scores which are then related to a set of carefully selected macroeconomic factors. We find that the identification of macroeconomic factors that proxy for systematic influences is a challenge in itself. Once identified, macroeconomic factors are poor and unstable proxies for systematic influences and the use of a residual market factor does not significantly improve the approximation of factor scores. Our conclusion is that macroeconomic linear factor models are likely to be underspecified, even if a residual market factor is included. This has implications for researchers, investors, econometricians and economists that rely on macroeconomic factor models to study financial markets.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"34 - 52"},"PeriodicalIF":0.9,"publicationDate":"2020-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2020.1723854","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45826636","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-01-02DOI: 10.1080/10293523.2019.1682786
A. Charteris, K. J. Chipunza
ABSTRACT The present value model (PVM) is considered a cornerstone of financial theory and practice, yet the limited empirical tests thereof have produced varying results depending on the method used. In addition, these tests have focused principally on developed countries, with little knowledge of the validity of the PVM for developing markets. This study employs firm-level data and advanced panel unit root and cointegration tests to assess the PVM for South Africa using a sample of firms that have consistently paid dividends over the period 1999 to 2018. The results largely support the assertion of the model that the stock price is a function of future dividends but the relationship does not move in perfect harmony.
{"title":"Stock prices and dividends: A South African perspective","authors":"A. Charteris, K. J. Chipunza","doi":"10.1080/10293523.2019.1682786","DOIUrl":"https://doi.org/10.1080/10293523.2019.1682786","url":null,"abstract":"ABSTRACT The present value model (PVM) is considered a cornerstone of financial theory and practice, yet the limited empirical tests thereof have produced varying results depending on the method used. In addition, these tests have focused principally on developed countries, with little knowledge of the validity of the PVM for developing markets. This study employs firm-level data and advanced panel unit root and cointegration tests to assess the PVM for South Africa using a sample of firms that have consistently paid dividends over the period 1999 to 2018. The results largely support the assertion of the model that the stock price is a function of future dividends but the relationship does not move in perfect harmony.","PeriodicalId":44496,"journal":{"name":"Investment Analysts Journal","volume":"49 1","pages":"1 - 15"},"PeriodicalIF":0.9,"publicationDate":"2020-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/10293523.2019.1682786","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44294540","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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