International Review of Finance
- Publication date:
- No. 20-4, December 2020
- No. 20-3, September 2020
- No. 20-2, June 2020
- No. 20-1, March 2020
- No. 19-4, December 2019
- No. 19-3, September 2019
- No. 19-2, June 2019
- No. 19-1, March 2019
- No. 18-4, December 2018
- No. 18-3, September 2018
- No. 18-2, June 2018
- No. 18-1, March 2018
- No. 17-4, December 2017
- No. 17-3, September 2017
- No. 17-2, June 2017
- No. 17-1, March 2017
- No. 16-4, December 2016
- No. 16-3, September 2016
- No. 16-2, June 2016
- No. 16-1, March 2016
- Issue Information
- Patience Is a Virtue: In Value Investing*
This note illustrates a simple but important insight for financial investment. In a heterogeneous agent‐based evolutionary finance market model with long‐lived assets, markets are stable if clients of fundamental (“value”) investment funds are more patient than clients of other funds.
- Are Incentive Contract Settlements Nonevents?*
We examine the information conveyed in managers’ incentive contracts such as prepaid variable forward (PVF) contracts. Using a large database, we perform event studies on cumulative abnormal returns (CARs) and volatility around the signature and the settlement of such contracts. The results show that PVF settlements, which involve no divulgation of new information, can be interpreted as nonevents. For firms with lower visibility, CARs are significantly negative immediately after settlement, whereas firms with higher visibility incur this effect upon signature. The signature and settlement dates have a small negative effect on the firms’ volatility suggesting slow adjustment mechanisms.
- Comovement in Anomalies between the Australian and US Equity Markets*
This study examines the comovement between eight prominent Australian asset pricing anomalies and their corresponding US counterparts. It confirms the continued existence of these anomalies in Australia and finds that these anomalies do not co‐move with their US counterparts. Given the conflicting findings in prior research on the integration or segmentation of the Australian and US equity markets, this study adds to the body of evidence supporting segmentation.
- Maxing Out in China: Optimism or Attention?
Bali et al. (2011) document a maximum daily returns (MAX) premium in the US where stocks with the highest MAX underperform stocks with the lowest MAX in the subsequent month. However, the source of this MAX premium is contentious. Fong and Toh (2014) find that the MAX premium exclusively follows high sentiment periods suggesting that it is driven by investor optimism during high sentiment periods. In contrast Cheon and Lee (2017) find that the MAX premium is stronger following low sentiment periods suggesting that it is driven by the attention‐grabbing characteristic of high MAX stocks in low sentiment periods. We present evidence from China consistent with the MAX premium being driven by investor optimism during high sentiment periods.
- The q‐Factors and Macroeconomic Conditions: Asymmetric Effects of the Business Cycles on Long and Short Sides*
We examine whether the q‐factors—the investment factor (INV) and the return‐on‐equity factor (ROE)—are related to the macroeconomy. We find reliable evidence that returns on INV are positively related to future economic growth. When conditioning on good and bad states of the business cycle, we show that returns on INV are significantly higher during good states than bad states. We also find that the conditioning effect of economic conditions on INV is asymmetric between long and short sides of INV. On the other hand, we find that returns on ROE are negatively associated with future aggregate earnings change. The relations remain robust even in the presence of business cycle variables and after controlling for the book‐to‐market effect.
- Market Volatility Risk and Stock Returns around the World: Implication for Multinational Corporations*
We investigate the pricing of market volatility risk as a risk factor—the innovation risk and as a characteristic risk—the level risk. We find that the pricing of the country‐level (local) market volatility risk factor is not robust across 21 developed markets and that the global market volatility risk factor prices 21 developed market portfolios after controlling for global market, value, and size factors. Capturing various market information, idiosyncratic market volatility as a country‐specific characteristic risk dominates global market, value, size, and market volatility risk factors in predicting returns of market portfolios. Countries with higher investor protection and accounting standards have higher country‐specific market volatility. Market volatility is higher in these countries because corporate managers take higher risks on innovative projects that benefit economic growth.
- Momentum Trading with the ℓ1‐Filter: Are the Markets Efficient?*
This paper explores the possibility of generating consistent momentum profits by trading on nine major indices across the globe using the ℓ1‐filter. This methodology penalizes slope reversion of the filtered trend and identifies piecewise linear trends in the asset prices. We find the buy strategy to offer considerably higher momentum returns compared to the sell strategy. Our strategy beats the buy‐and‐hold (BH) strategy on all fronts and, thus, highlights the inefficiencies in financial markets in recent years (2000–2016). Comparing the momentum profits across a set of advanced economies (AEs) and emerging market economies (EMEs), we find that the developed and efficient financial markets of the AEs provide lower opportunities for momentum profits. The momentum profits are more than double in the EMEs as compared to the AEs. Highlighting the instability of the momentum strategy in different market states by using the global financial crisis (GFC) as a turning point, we further find that considerable opportunity exists for momentum strategies in the bullish runs that precede the crisis, as happened before the GFC. However, the momentum profits reduce significantly as the crisis sets in, increasing the degree of market uncertainty, fear, and risk‐aversiveness.
- On Education Level and Terms in Obtaining P2P Funding: New Evidence from China*
This paper examines the role of education in China's fast‐growing peer‐to‐peer (P2P) lending market. The level of education, as part of a borrower's profile, is an important yet relatively neglected factor that can affect both the demand and supply of credit in an increasingly more technologically oriented marketplace. With this in mind, we test the relationship between a borrower's education level and the interest rate, loan amount, and loan maturity based on more than 10,000 transactions from Renrendai.com. Controlling for a variety of other factors, we find on average that an individual with a higher education level obtains a lower interest rate, larger loan amount, and longer maturity. In contrast, less educated individuals pay higher interest rates, obtain smaller loans, and for shorter time periods.
- Risk Information Disclosure and Bank Soundness: Does Regulation Matter? Evidence from China*
This paper examines the impact of the Regulation for Commercial Bank Capital Management in China on banks’ risk taking and disclosure behavior. We construct a risk disclosure index for Chinese commercial banks around this Regulation and find that compliance with the Regulation through a higher risk disclosure index improves bank soundness. We also find that the component of the risk disclosure index associated with risk compensation is the main driving factor of our findings. Moreover, our results show the effect of the Regulation is much smaller for publicly listed banks, suggesting a substituting regulation effect of the public capital market.
- Momentum Strategies and Investor Sentiment in the REIT Market
Comparing across three momentum measures, we empirically find that the 52‐week high strategy plays a dominant role in generating momentum profits in the Real Estate Investment Trust (REIT) market. The profitability of the 52‐week high strategy, however, varies with the state of investor sentiment....
- The Changing Role of Financial Stress, Oil Price, and Gold Price in Financial Contagion among US and BRIC Markets
The objective of this paper is to explore the determining factors behind financial contagion between US and BRIC (Brazil, Russia, India, and China) equity markets. To this end, we investigate the effects of global macroeconomic factors on the time‐varying correlations among these markets obtained...
- Did Investors Herd during the Financial Crisis? Evidence from the US Financial Industry
We examine the herding behavior of investors in the US financial industry, especially commercial banks, S&Ls, investment and insurance firms during global financial crisis of 2008 towards own sub‐sector and market consensus using augmented cross sectional absolute deviation of returns (CSAD) model. ...
- Exchange Traded Funds and Stock Market Volatility
This study investigates the relationship between the volatility of stock market indexes and the trading volumes of their exchange traded funds (ETFs). Using both ordinary least squares and generalized autoregressive conditional heteroskedasticity approaches, we demonstrate that the contemporaneous...
- The Effectiveness of Regulatory Capital Requirements Prior to the Onset of the Financial Crisis
We extend the literature on the role of capital requirements as a regulatory tool by developing a continuous measure of the degree of regulatory pressure and by examining data on US commercial banks during the economic upturn that preceded the 2007–2009 financial crisis. Our findings indicate the...
- A Multivariate Stochastic Volatility Model Applied to a Panel of S&P500 Stocks in Different Industries
We estimate a multivariate stochastic volatility model for a panel of stock returns for a number of S&P 500 firms from different industries. To directly compare our results with those from the univariate estimation literature on the same data, we use an efficient importance sampling (EIS) method to ...
- Issue Information
- Does Institutional Blockholder Short‐Termism Lead to Managerial Myopia? Evidence from Income Smoothing
We examine institutional blockholders’ influence on income‐smoothing practices in the Korean market, which provides an interesting setting where family‐oriented chaebols dictate the corporate landscape and impede shareholder activism. The empirical results reveal that institutional shareholders...
- Environmental, Social, and Governance (ESG) Profiles, Stock Returns, and Financial Policy: Australian Evidence
This study investigates the independent effects of environmental (E), social (S), corporate governance (G), and the composite ESG ratings on stock returns and corporate financing decisions of the largest stocks in the Australian equity market. Firms with high composite ESG ratings tend to increase...
- The Price of Being a Systemically Important Financial Institution (SIFI)
After reviewing the notion of Systemically Important Financial Institution, we propose a first principles way to compute the price of the implicit put option that the State gives to such an institution. Our method is based on important results from extreme value theory, one for the aggregation of...