Organizational Change within the Stockbroking Industry: A Contracting Perspective

Teece (1982) extended Coase's (1937) theory of the firm to explain firm amalgamations. This explanation is centred around three fundamental constructs: excess capacity, market imperfections and the nature of assets, together with the frequency of their exchange. This paper provides an application of Teece's work to explain recent organizational change within the stockbroking industry in Australia and concludes by developing testable explanations of why, following deregulation, stockbroking firms countenanced moves by financial institutions, particularly banks, to acquire large equity positions.     

Volatility in stocks subject to takeover bids: Australian evidence using daily data

Using daily price and volume data on 112 of the largest takeover targets in Australia during the period from 1985 to 1993, we find that conditional price volatility declines after the takeover announcement. This decline is greatest for targets of cash bids and smallest for targets of share-exchange bids. We argue that the phenomenon is due to convergence of trader opinion regarding the value of the target stock, and reflects a change in the price formation process that has not hitherto been recognised. Our findings have implications for event studies of takeovers that inappropriately assume a time-invariant risk-return relation, and also for regulatory policies in the market for corporate control.     

A nesting framework for Markov-switching GARCH modelling with an application to the German stock market

In this paper, we establish a generalized two-regime Markov-switching GARCH model which enables us to specify complex (symmetric and asymmetric) GARCH equations that may differ considerably in their functional forms across the two Markov regimes. We show how previously proposed collapsing procedures for the Markov-switching GARCH model can be extended to estimate our general specification by means of classical maximum-likelihood methods. We estimate several variants of the generalized Markov-switching GARCH model using daily excess returns of the German stock market index DAX sampled during the last decade. Our empirical study has two major findings. First, our generalized model outperforms all nested specifications in terms of (a) statistical fit (when model selection is based on likelihood ratio tests) and (b) out-of-sample volatility forecasting performance. Second, we find significant Markov-switching structures in German stock market data, with substantially differing volatility equations across the regimes.     

Rhetoric, argument and impression management in hostile takeover defence documents

This exploratory study extends the analysis of narrative disclosures from routine reporting contexts such as annual reports and press releases to non-routine takeover documents where the financial consequences of narrative disclosures can be substantial. Rhetoric and argument in the form of impression management techniques in narrative disclosures are examined. Prior thematic content analysis methods for analysing good and bad news disclosures are adapted to the attacking and defensive themes in the defence documents of target companies subject to hostile takeover bids. The paper examines the incidence, extent and implications of impression management in ten hostile takeover defence documents issued by target companies listed on the London Stock Exchange between 1 January 2006 and 30 June 2008. Three impression management strategies – thematic, visual and rhetorical manipulation – are investigated using content analysis methodologies. The findings of the research indicate that thematic, visual and rhetorical manipulation is evident in hostile takeover defence documents. Attacking and defensive sentences were found to comprise the majority of the defence documents analysed. Such sentences exhibited varying degrees of visual and rhetorical emphasis, which served to award greater or lesser degrees of prominence to the information conveyed by target company management.While exploratory in nature, this paper concludes with suggestions for future more systematic research allowing for greater generalisations from the findings.     

Market reaction to takeover rumour in Internet Discussion Sites

We examine the market reaction to takeover rumour postings in the Hotcopper Internet Discussion Site (IDS). Results from the interday analysis show abnormal returns and trading volumes on the day before and the day of the posting. Results of the intraday analysis show abnormal returns and trading volumes during the 10 min posting interval and abnormal trading volume during the 10 min interval immediately preceding it. Sensitivity analyses indicate that the results are robust to concerns regarding potential confounds, credibility and bid–ask spread bias. Taken together, these findings are consistent with the market reacting to the posting of takeover rumours in IDS.     

The wealth effects of takeover bids regulation in the European Union

We investigate the wealth effects of the Takeover Bids Directive, enacted by the European Union (EU), on mergers and acquisitions. The directive aims at protecting target minority shareholders by restricting antitakeovers provisions and preventing managerial entrenchment. We test the regulation impact using a treatment sample of EU public acquisitions and a control sample from outside the EU. Our results suggest diverse effects of the regulation across treatment countries: acquirers from countries with better shareholder protection engage in more value-enhancing acquisitions postregulation that could otherwise be too costly. The regulation also increases the likelihood of firms becoming targets and raises market value.     

The role of defensive strategies and ownership structure of target firms: Evidence from UK hostile takeover bids

The outcome of a hostile takeover bid hinges on an interplay of the defensive strategies of targets and the offensive strategies of bidders. This study examines the determinants of outcome for a sample of 205 hostile bids for UK public company targets over the period 1983–1989. the impact of a number of defensive strategies adopted by the targets, their ownership structure which could aid or hinder the deployment of those strategies, and the method of payment selected by bidders is investigated using multivariate logit methodology. the City Code on Takeovers and Mergers in the UK and its influence on the choice of defensive and offensive strategies is described. the study finds outcome in hostile bids in the UK is significantly influenced by the use of certain defensive strategies, the presence of large institutional shareholders in targets, the size of targets and the method of payment chosen by the bidder. the results of this study are useful in devising effective strategies to frustrate or prosecute hostile bids.     

On the necessity of solving the free rider problem in takeover bids

Previous analysis of the free rider problem in takeover bids has concluded that complex takeover strategies, nonprice taking behavior, taxes, or exogenous exclusion of minority shareholders are necessary for the bidder to profit from a takeover bid. In contrast, in this study, costs of disclosure and the fungible nature of the bidder's information mitigates the detrimental consequences of the free rider problem. The absence of the free rider problem in takeover bids has important implications for optimal bidding strategies, the interpretation of mechanisms posed as solutions to the free rider problem, and the analysis of regulation of takeover activity.     

Profitability of technical stock trading: Has it moved from daily to intraday data?

This paper investigates how technical trading systems exploit the momentum and reversal effects in the S&P 500 spot and futures market. When based on daily data, the profitability of 2580 technical models has steadily declined since 1960, and has been unprofitable since the early 1990s. However, when based on 30-minutes-data the same models produce an average gross return of 7.2% per year between 1983 and 2007. These results do not change substantially when trading is tested over eight subperiods. In particular, there is no clear trend of a declining profitability of technical stock trading based on 30-minutes-data. Those 25 models which performed best over the most recent subperiod produce a significantly higher gross return over the subsequent subperiod than all models. Between 2001 and 2007 the 2580 models perform worse than over the 1980s and 1990s. This result could be due to stock markets becoming recently more efficient or to stock price trends shifting from 30-minutes-prices to prices of higher frequencies.     

Oil price shocks and the US stock market: A nonlinear approach

We study the response of US stock market returns to oil price shocks and to what extent it behaves asymmetrically over the different phases of the business cycle. For this purpose, we decompose the oil price changes into supply and demand shocks in the oil market and assess the state-dependent dynamics of structural shocks on US stock returns using a smooth transition vector autoregression model. When nonlinearity is considered, quantitatively very different asymmetric dynamics are observed. Our findings show that the responses of US stock returns to disaggregated shocks are asymmetric over the business cycle and that the impact of demand-driven shocks on US stock returns is stronger and more persistent, especially when economic activity is depressed. Furthermore, the contribution of shocks to expectation-driven precautionary demand in recessions accounts for a larger share of the variability of US stock market returns than that predicted by standard linear vector autoregressions.     

An information-based model of target stock price runup in the market for corporate control

The stock price runup of target firms in the market for corporate control has been anecdotally attributed to inside trading. Moreover, the empirical merger and acquisitions literature documents a time-varying level and duration of the stock price runup of target firms. Using a market microstructure approach, we model stock price runup as a stochastic process that shifts between a random walk without drift and a predictable process dependent on a parsimonious set of state variables. Consistent with the market microstructure literature, predictability in prices can be exploited only by the informed trader. The model is capable of explaining the complex stylized facts observed in stock price runup. It is also consistent with the merger wave literature, as we find that capital liquidity, economic growth, and market valuations drive the complex dynamics of stock price runup.     

股票价格、房地产价格和我国货币需求的实证分析

本文通过引入股票价格和房地产价格,实证分析了资产价格对我国货币需求关系的影响。协整分析表明,房地产价格对长期货币需求有显著的替代效应,股票价格因素不显著。可变参数误差修正模型分析表明,我国的转轨经济特性使得各经济变量对短期货币需求的影响呈现动态变化的特征,同时金融深化和创新也加快了公众对长期货币需求偏离的修正速度。     

Which financial stocks did short sellers target in the subprime crisis?

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposure in the subprime crisis. Evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms’ stocks was not significantly greater than that of non-financial firms after we match them on firm size and insolvency risk. When the short ban was in effect, the market quality of financial stocks without subprime assets exposure had deteriorated to a larger degree than that of financial companies with subprime assets exposure. The findings imply that such a regulation may mute the market disciplining effects of investors and may also be seen as a counterweight to any perceived macro or systemic risk reduction benefits resulting from such a ban.     

Option pricing for GARCH-type models with generalized hyperbolic innovations

In this paper, we provide a new dynamic asset pricing model for plain vanilla options and we discuss its ability to produce minimum mispricing errors on equity option books. Given the historical measure, the dynamics of assets being modeled by Garch-type models with generalized hyperbolic innovations and the pricing kernel is an exponential affine function of the state variables, we show that the risk-neutral distribution is unique and again implies a generalized hyperbolic dynamics with changed parameters. We provide an empirical test for our pricing methodology on two data sets of options, respectively written on the French CAC 40 and the American SP 500. Then, using our theoretical result associated with Monte Carlo simulations, we compare this approach with natural competitors in order to test its efficiency. More generally, our empirical investigations analyse the ability of specific parametric innovations to reproduce market prices in the context of an exponential affine specification of the stochastic discount factor.     

Volatility Forecasting in the Hang Seng Index using the GARCH Approach

The aim of this paper is to add to the literature on volatility forecasting using data from the Hong Kong stock market to determine if forecasts from GARCH based models can outperform simple historical averaging models. Overall, unlike previous studies we find that the GARCH models with non-Normal distributions show a robust volatility forecasting performance in comparison to the historical models. The results indicate that although not all models outperform simple historical averaging, the EGARCH based models, with non-normal conditional volatility, tend to produce more accurate out-of-sample forecasts using both standard measures of forecast accuracy and financial loss functions. In addition we test for asymmetric adjustment in the Hang Seng, finding strong evidence of asymmetries due to the domination of financial and property firms in this market.     

On the persistence and volatility in European,American and Asian stocks bull and bear markets

In this paper we examine the statistical properties of several stock market indices in Europe, the US and Asia by means of determining the degree of dependence in both the level and the volatility of the processes. In the latter case, we use the squared returns as a proxy for the volatility. We also investigate the cyclical pattern observed in the data and in particular, if the degree of dependence changes depending on whether there is a bull or a bear period. We use fractional integration and GARCH specifications. The results indicate that the indices are all nonstationary I(1) processes with the squared returns displaying a degree of long memory behaviour. With respect to the bull and bear periods, we do not observe a systematic pattern in terms of the degree of persistence though for some of the indices (FTSE, Dax, Hang Seng and STI) there is a higher degree of dependence in both the level and the volatility during the bull periods.     

Forecasting stock-market tail risk and connectedness in advanced economies over a century: The role of gold-to-silver and gold-to-platinum price ratios

We examine the predictive value of risk perceptions as measured in terms of the gold-to-silver and gold-to-platinum price ratios for stock-market tail risks and their connectedness in eight major industrialized economies using monthly data for the period 1916:02–2020:10 and 1968:01–2020:10, where we use four variants of the popular Conditional Autoregressive Value at Risk (CAViaR) framework to estimate the tail risks for both 1% and 5% VaRs. Our findings for the short sample period show that the gold-to-silver price ratio resembles the gold-to-platinum price ratios in that it is a useful proxy for global risk. Our findings for the long sample period show, despite some heterogeneity across economies, that the gold-to-silver price ratio often helps to out-of-sample forecast for both 1% and 5% stock market tail risks, particularly when a forecaster suffers a higher loss from underestimation of tail risks than from a corresponding overestimation of the same absolute size. We also find that using the gold-to-silver price ratio for forecasting the total connectedness of stock markets is beneficial for an investor who suffers a higher loss from an underestimation of total connectedness (i.e., an investor who otherwise would overestimate the benefits from portfolio diversification) than from a comparable overestimation.     

Systematic risk, and oil price and exchange rate sensitivities in Asia-Pacific stock markets

This paper examines the relationship between beta risk and realized stock index return in the presence of oil and exchange rate sensitivities for 15 countries in the Asia-Pacific region using the international factor model. Thirteen of the 15 countries have the expected beta signs and show significant sensitivity to domestic risk when the world stock market is in both up and down modes. In terms of oil sensitivity, only the Philippines and South Korea are oil-sensitive to changes in the oil price in the short run, when the price is expressed in local currency only. Basically no country shows sensitivity to oil price measured in US dollar regardless whether the oil market is up or down. Nine countries are affected by changes in the exchange rate. In terms of relative factor sensitivity distribution, one is willing to conclude that these stock markets are more conditionally sensitive to local currency oil price changes than to beta risk wherever the relationships are significant.     

Stock price firm‐specific information on the choice of stock payment in mergers and acquisitions

Previous studies on the choice of stock payment in M&A mainly focus on managerial private information. This study shows that managers also learn new firm‐specific information from financial markets in making this decision. The acquirer's stock price firm‐specific information increases the stock‐payment‐to‐Q sensitivity. The target's stock price firm‐specific information decreases the stock payment probability. Further analyses on deal and firm characteristics as well as shareholder wealth in stock mergers support the managerial learning argument. Overall, this study highlights a new set of information that affects the form of merger payment in mergers and acquisitions.     

Dynamic spillover effects among green bond,renewable energy stocks and carbon markets during COVID-19 pandemic: Implications for hedging and investments strategies

This study has been inspired by the emergence of socially responsible investment practices in mainstream investment activity as it examines the transmission of return patterns between green bonds, carbon prices, and renewable energy stocks, using daily data spanning from 4th January 2015 to 22nd September 2020. In this study, our dataset comprises the price indices of S&P Green Bond, Solactive Global Solar, Solactive Global Wind, S&P Global Clean Energy and Carbon. We employ the TVP-VAR approach to investigate the return spillovers and connectedness, and various portfolio techniques including minimum variance portfolio, minimum correlation portfolio and the recently developed minimum connectedness portfolio to test portfolio performance. Additionally, a LASSO dynamic connectedness model is used for robustness purposes. The empirical results from the TVP-VAR indicate that the dynamic total connectedness across the assets is heterogeneous over time and economic event dependent. Moreover, our findings suggest that clean energy dominates all other markets and is seen to be the main net transmitter of shocks in the entire network with Green Bonds and Solactive Global Wind, emerging to be the major recipients of shocks in the system. Based on the hedging effectiveness, we show that bivariate and multivariate portfolios significantly reduce the risk of investing in a single asset except for Green Bonds. Finally, the minimum connectedness portfolio reaches the highest Sharpe ratio implying that information concerning the return transmission process is helpful for portfolio creation. The same pattern has been observed during the COVID-19 pandemic period.