Carbon emissions and stock returns: Evidence from the EU Emissions Trading Scheme

This paper provides an empirical investigation of the effect of the European Union’s Emissions Trading Scheme on German stock returns. We find that, during the first few years of the scheme, firms that received free carbon emission allowances on average significantly outperformed firms that did not. This suggests the presence of a large and statistically significant “carbon premium,” which is mainly explained by the higher cash flows due to the free allocation of carbon emission allowances. A carbon risk factor can also explain part of the cross-sectional variation of stock returns as firms with high carbon emissions have higher exposure to carbon risk and exhibit higher expected returns.     

In America's thrall: the effects of the US market and US security characteristics on Australian stock returns

Can Australian equity returns be modelled by ‘home‐grown’ factors? We examine the indigenous capital asset pricing model, the indigenous Fama–French three‐factor model, and extensions to the latter, and find them all wanting. We find evidence of domestic market segmentation in Australia. For the smallest firms, all the models we study fail. For the largest Australian firms, we find that the US Fama–French three factors (downloaded from French's website: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/ ) provide a successful model of Australian returns. It is as if the largest firms in the Australian market are simply part of the larger US market.     

The effect of corporate social responsibility on stock performance: new evidence for the USA and Europe

This paper provides new empirical evidence for the effect of corporate social responsibility on corporate financial performance. In contrast to former studies, we examine two different regions, namely the USA and Europe, and disentangle firm and sector specific impacts. Our econometric analysis shows that environmental and social activities of a firm compared with other firms within the industry are valued by financial markets in both regions. However, the respective positive effects on average monthly stock returns between 2003 and 2006 are more robust in the USA and, in addition, non-linear. Our analysis furthermore points to biased parameter estimates if incorrectly specified econometric models are applied: the seemingly significantly negative effect of environmental and social performance of the industry to which a firm belongs strongly declines and mostly becomes insignificant if the explanation of stock performance is based on the Fama–French three-factor or the Carhart four-factor models instead of the simple Capital Asset Pricing Model.     

The effects of information disclosure regulation on stock markets: Evidence from Vietnam

This paper investigates the effects of regulation pertaining to information disclosure on the Vietnam stock market. Using the event study methodology, we examine sectoral reactions, in terms of risk and return, following the announcements on information disclosure regulation in Vietnam. To validate the results, we also conduct several robustness tests such as the removal of firm-specific information and the use of a wide variety of ARCH models such as GARCH (1,1). We find evidence indicating that when the market anticipates a piece of regulation on information disclosure, most sectors experience negative reactions two and five days before the first announcement. Positive reactions are observed on the event date, as well as two and five days afterwards. Furthermore, we document a difference between the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) in terms of market reaction. The results also show that the sectors experience changes in short-term systematic risk. Our contributions to the literature are threefold. First, we focus on a complete and more updated set of the Vietnam stock market’s information disclosure regulation. Second, our study examines the effects of a series of events on a single regulation at sectoral and firm levels in an emerging market. Third, in addition to sectoral analysis, we analyse the Vietnam stock market reaction at the firm level.     

The Effects of Liberalisation on Market and Currency Risk in the European Union

This paper investigates the effects of liberalisation on the pricing of market and currency risk for a number of financial markets in the European Union (EU). An International Asset Pricing Model with a multivariate GARCH‐in‐Mean specification and time‐varying prices of risk is used for the four markets with the largest capitalisation in the EU. Only one price of market risk exists and international investors are rewarded for their exposure to currency risk. The evidence shows that all prices of risk are time‐varying and have been decreasing during the process of liberalisation. There is also evidence that markets react to period of uncertainty in the process toward the completion of liberalisation. In addition, the operation of the European Monetary System has generated lower covariances. As a consequence, total risk premia have declined in the last decade.     

Size and book to market effects and the Fama French three factor asset pricing model: evidence from the Australian stockmarket

The present study adds to the sparse published Australian literature on the size effect, the book to market (BM) effect and the ability of the Fama French three factor model to account for these effects and to improve on the asset pricing ability of the Capital Asset Pricing Model (CAPM). The present study extends the 1981–1991 period examined by Halliwell, Heaney and Sawicki (1999) a further 10 years to 2000 and addresses several limitations and findings of that research. In contrast to Halliwell, Heaney and Sawicki the current study finds the three factor model provides significantly improved explanatory power over the CAPM, and evidence that the BM factor plays a role in asset pricing.     

Climate change,risk factors and stock returns: A review of the literature

This article reviews how climate change could be considered an additional source of market risk. I discuss the types of data needed to analyse the climate risk drivers that shape the dynamics of the equity market. I present empirical evidence at both the macro and micro-level, analysing whether and to what extent the equity market prices climate change and related risks. Top-down and bottom-up approaches are compared to understand which climate risk is more likely to affect the cross-section of stock returns, both within and across sectors. Emphasis is also placed on investors’ beliefs about climate change risks, and the related asset pricing implications are analysed. I conclude by illustrating further directions for both empirical and theoretical research in the field of climate finance.     

The pricing of exchange rate risk and stock market segmentation: The Canadian case

Empirical evidence by Eun and Resnick (1988), among others, has demonstrated the significance of exchange rate risk in the international asset allocation and they have noted that the risk is nondiversifiable. Yet, exchange rate risk was found by Jorion (1991) to be a risk factor that is not priced in the U.S. stock market. This study reexamines such counterintuitive results using data from the Toronto Stock Exchange. The evidence here weakly supports the pricing of the exchange rate risk. Further, the sample period in this study coincides with Jorion's to ensure that both studies examine the pricing of the exchange rate risk in the same global economic environment. The significant pricing of exchange rate risk in Canada and the insignificant pricing in the U.S. imply the possibility of market segmentation.     

The first five years of the EU Impact Assessment system: a risk economics perspective on gaps between rationale and practice

In 2003, the European Commission (EC) started using Impact Assessment (IA) as the main empirical basis for its major policy proposals. The aim was to systematically assess ex ante the economic, social and environmental impacts of European Union (EU) policy proposals. In parallel, research proliferated in search for theoretical grounds for IAs and in an attempt to evaluate empirically the performance of the first sets of IAs produced by the EC. This paper combines conceptual and evaluative studies carried out in the first five years of EU IAs. It concludes that the great discrepancy between rationale and practice calls for a different theoretical focus and a higher emphasis on evaluating empirically crucial risk economics aspects of IAs, such as the value of statistical life, price of carbon, the integration of macroeconomic modelling and scenario analysis.     

The impact of exchange rate risk on international asset pricing under various market structures

This article derives international equity pricing relations by taking into account inflationary exchange risk under various forms of market segmentation/integration. In a mean-variance framework, a two-country, two-period, two-goods model is analyzed under three different market structures: segmented, mildly segmented and integrated. It is found that as long as investors are consuming imported goods, in the presence of market frictions, inflationary exchange risk is an important determinant of real equity prices. This is the case because inflationary exchange rate affects the real purchasing power of investors.

Forecasting stock market returns: The sum of the parts is more than the whole

We propose forecasting separately the three components of stock market returns—the dividend–price ratio, earnings growth, and price–earnings ratio growth—the sum-of-the-parts (SOP) method. Our method exploits the different time series persistence of the components and obtains out-of-sample R-squares (compared with the historical mean) of more than 1.3% with monthly data and 13.4% with yearly data. This compares with typically negative R-squares obtained in a similar experiment with predictive regressions. The performance of the SOP method comes mainly from the dividend–price ratio and earnings growth components, and the robustness of the method is due to its low estimation error. An investor who timed the market using our method would have had a Sharpe ratio gain of 0.3.     

Ripple effects of the 2011 Japan earthquake on international stock markets

This paper provides a comprehensive analysis of the impacts of Japan’s 2011 earthquake on 19 stock market sector returns in Japan and its trading partners both in the short and long run. Using an event study methodology, we find that the impact of this event was not limited to Japan or industries directly hit by the earthquake. Our short-run analysis indicates that all sector indices in Japan and many in its trading partners were affected by the earthquake. The direction of the impact on trading partners, however, was not the same for all sectors; while the earthquake adversely affected the majority of the sectors analyzed, some sectors benefited. Further, we find that the magnitude of the abnormal returns did not systematically vary across trading partners according to their shares in Japan’s trade flow. The long-run analysis reveals how the consequences of the earthquake unfolded beyond the event date.     

The impact of exchange rates on stock market returns: new evidence from seven free-floating currencies

This paper provides evidence of a significant exchange rate effect on stock index returns using data from seven selected countries practicing free-floating exchange rate regimes. This research uses parity and asset pricing theories, thus placing it within the monetary-cum-economics framework for international asset pricing. In this study, we apply a system of seemingly unrelated regression to control for unobserved heterogeneity and cross-sectional dependence. The findings constitute evidence of a statistically significant exchange rate impact on stock index returns across selected countries. These findings can be considered as falling under the arbitrage pricing approach of the international capital asset pricing model of Solnik who also used the parity-theoretical framework on exchange rate determination.     

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.     

When bad news is good news: Geopolitical risk and the cross-section of emerging market stock returns

Using a news-based gauge of geopolitical risk, we study its role in asset pricing in global emerging markets. We find that changes in risk positively predict future stock returns. The countries with the highest increase in geopolitical uncertainty outperform their counterparts with the lowest change by up to 1% per month. The anomaly is not explained by other established asset pricing effects and remains robust to many considerations. We link the observed phenomenon with investor overreaction to geopolitical news driven by the availability bias.     

The impact of monetary policy announcements on the stock price of large European banks during the financial crisis

Since 2007, the European Central Bank responded decisively to the challenges posed by the global financial crisis, reducing key policy interest rates to unprecedented low levels and intervening with non-standard policy measures (i.e., monetary easing and liquidity provision). This paper aims to assess the impact of ECB monetary policy announcements on the stock price of large European banks. As a first step, an event study is conducted in order to measure cumulated abnormal returns (CARs) around the announcements over June 2007–June 2013; the second step is a regression analysis aimed at identifying the determinants of CARs. Results show that banks were more sensitive to non-conventional measures than to interest rate decisions, and that the same type of intervention may have a different impact depending on the stage of the crisis. In addition, banks with weaker balance sheets and operating with high-risk were more sensitive to monetary policy interventions.     

The impact of regulation FD on the information environment: evidence from the stock market response to stock split announcements

This paper examines the information environment effects of regulation fair disclosure (Reg FD). We investigate the stock market response to stock splits in the pre- and post-regulation periods. We find that abnormal returns around split announcement are positive in both periods, but the magnitude of the returns is smaller in the post-FD period relative to the pre-FD period. The difference between the pre- and post-FD period abnormal returns persists even after we control for factors that may affect split announcement returns. We also find that the magnitude of the association between announcement returns and the unexpected portion of the split factor has increased post-regulation. Our analysis of performance trends for split firms reveals that patterns of profitability and changes in profitability in the years around stock splits are similar in the pre- and post-FD periods. However, we find that announcement returns are associated with lagged profitability changes in the pre-FD period, but with future profitability changes in the post-FD period. Collectively, our results imply that Reg FD has reduced information asymmetry and improved price efficiency.     

The impact of company responses to exchange queries on the Australian equity market

This study examines the impact of company responses to trading‐induced queries made by the Australian Securities Exchange over the period January 2007–December 2008, inclusive. We utilise event study methodology and a matched sample approach to assess the impact of trading query announcements. We use multivariate analysis to investigate any cross‐sectional determinants affecting abnormal returns and volume, and find significant positive shareholder wealth and volume effects associated with query announcements. Further, the unexplained abnormal returns observed prior to the announcement of the trading query persist post‐announcement. Subsequent analysis reveals the industry effect reported in the literature loses significance after accounting for sample selection bias.     

传闻消息对我国上市公司股价影响的实证分析

本文通过有关我国上市公司的传闻消息对上市公司股价影响的实证分析,得出在消息公布日前2天以及后3天的时间段里,传闻消息对股价有正影响,从而给投机者带来了非正常收益,但是从长期来看,传闻消息不会给投资者带来任何非正常收益。另外,通过对各类传闻消息对股价影响的进一步分析,发现在诸类传闻消息中,主力类传闻对上市公司股价的影响最为显著,能给投机者带来很大的非正常收益。