Valuation impact of currency crises: Evidence from the ADR market

This study analyzes American depository receipts (ADR) performance surrounding the outbreak of major currency crises during the past decade. By employing event-study methodologies and multifactor pricing models, we find that the outbreak of a currency crisis is accompanied by a negatively significant abnormal return for the corresponding ADRs, even after controlling for variations in exchange rates. We also find significant upward shifts in the exchange rate exposure of ADRs when the home currency is switched from a “pegging” to a “floating” exchange rate regime. In addition, ADR-originating firms with larger sizes, greater proportions of U.S. market activities, and greater market liquidity have relatively less negative abnormal returns (ARs) and less significant upward shifts in currency exposure, implying that such firms are relatively better hedged against currency crises.     

Price Linkages in Asian Equity Markets: Evidence Bordering the Asian Economic, Currency and Financial Crises

This paper examines price linkages among Asian equity markets in the period surrounding the recent Asian economic, financial and currency crises. Three developed markets (Hong Kong, Japan and Singapore) and six emerging markets (Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand) are included in the analysis. Multivariate cointegration and level VAR procedures are conducted to examine causal relationships among these markets. The results indicate that there is a stationary relationship and significant causal linkages between the Asian equity markets. Nevertheless, lower causal relationships that exist between the developed and emerging equity markets suggest that opportunities for international portfolio diversification in Asian equity markets still exist.     

Financial Sector Risk and the Stock Returns: Evidence from Tokyo Stock Exchange Firms

We investigate whether the activity of financial firms creates value and/or risk to the economy within the asset pricing framework. We use stock return data from nonfinancial firms listed in the first section of the Tokyo Stock Exchange. The value-weighted index that is solely composed of nonfinancial firms is augmented with the index of the firms from the financial sector, and we estimate multivariate asset pricing model with these two indices. We note that our procedure can simultaneously take into account the cross-holding phenomena among Japanese firms, especially between the financial sector and the nonfinancial sector. Our augmented index model performs well both with cross-sectional Fama and MacBeth regression test and GMM test. Our two index model with additional Fama and French's HML factor can capture cross-sectional variations of the returns of sample portfolios better than the original Fama and French model can, when measured by Hansen and Jagannathan distance measure. We find that this additional new sector variable can be a substitute for Fama and French's size factor, but not related to the bond index return. This variable has similar factor characteristic as money supply growth or the term structure, but the latter variables contain more information than the former. Morever, our financial sector model helps explain the return and risk structure of Japanese firms during the so-called bubble period.     

Attention allocation and international stock return comovement: Evidence from the Bitcoin market

We employ extreme Bitcoin returns as exogenous shock events to investigate the impact of investor attention allocation on worldwide stock return comovement. We find that (1) these shock events decrease worldwide stock return comovement, (2) there is an asymmetric effect in which a crash shock event has a greater impact on return comovement than a jump shock event, and (3) the impact of these shock events on equity comovement is more pronounced in emerging markets. Our results suggest that identifying extreme Bitcoin returns will benefit portfolio construction. Our results may be of considerable interest to investors, as well as to academics interested in portfolio diversification, asset comovement, and cryptocurrencies.     

Dual foreign currency markets and the role of expectations: Evidence from the Pacific Basin countries

This paper analyzes the role of expectations about the government policy in the official foreign currency market in determining the black market premium. We use data for the recent float from six emerging markets of the Pacific Basin where active black markets for foreign currency exist, namely, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand. To test the impact of anticipated and unanticipated shocks to the official exchange rate on the black market premium, we employ the two-step procedure of Hoffman et al. [Hoffman, D.L., Low, S.A., Schlagenhauf, D.E., 1984. Tests of rationality, neutrality and market efficiency: a Monte Carlo analysis of alternative test statistics. J. Monet. Econ. 14, 339–363] which provides corrected F-statistics and allows us to draw valid inference in the presence of generated regressors. The main finding of our analysis is that anticipated and unanticipated shocks to the official exchange rate have an impact on the black market premium in all six Pacific Basin countries. These results suggest that portfolio balance models provide the suitable theoretical framework for analyzing the behaviour of the black market premium in the markets for foreign currency in the Pacific Basin countries. Furthermore, this implies that economic agents in these countries are sensitive to expected returns in foreign exchange.     

Exploring Portfolio Diversification Opportunities Through Venture Capital Financing: Evidence from MGARCH-DCC,Markov Switching,and Wavelet Approaches

Islamic financial institutions are being pressurized by critics to offer profit and loss sharing (PLS) financing, such as venture capital (VC) financing, for the purpose of entrepreneurial development aligned to the principle of equity risk sharing. Our study aims to link PLS investments with portfolio optimization opportunities for the Islamic asset managers. Using portfolio analysis with dynamic conditional correlation, Markov switching, and maximal overlap discrete wavelet transformation, our findings tend to indicate that there is indeed a portfolio optimization opportunity in investment universe for the fund managers who invested in PLS investments in the context of VC asset class over the long run.     

Cointegration and causality in the Asian and emerging foreign exchange markets: Evidence from the 1990s financial crises

This article examines the cointegration level, changes in the existence and directions of causality of the foreign exchange (FX) rates in the Asian and emerging markets during the 1990s financial crises. Engle and Granger's simple bivariate and Johansen's multivariate cointegrations are applied to the FX rates for the 1994 Mexican, 1997 Asian, 1998 Russian, and 1999 Brazilian crises. In addition, the article conducts the Granger causality test and impulse response analysis to examine the causality pattern in all the FX rates. The analysis shows most of the pre-Mexican causality disappears and significant numbers of new causality emerge in the 1994 Mexican crisis while the 1997 Asian crisis generates significant spillover effects into the later part of the 1998 Russian and 1999 Brazilian crises.     

Bank risk-taking and corporate investment: Evidence from the Global Financial Crisis of 2007–2009

In this paper, we explore the relation between the banking sector's risk-taking and a firm's investment (“corporate investment”). Specifically, we ask whether firms' cash holdings moderate the effect of the banking sector's risk-taking on corporate investment. Based on a panel sample of publicly listed non-financial firms in 15 EU countries during the period 1990–2015, we document several key findings. First, both cash holdings and the banking sector's risk-taking are positively associated with corporate investment. Second, bank loan growth, which roughly captures the supply of bank credit, is not related to corporate investment. Third, firms with smaller cash holdings disproportionately invest more than do firms with larger cash holdings during periods of higher risk-taking by the banking sector.     

汇率与股价关联的实证研究——基于汇改后中国大陆、台湾、香港的数据

通过运用协整检验和格兰杰因果检验对汇率制度改革后中国大陆、台湾、香港的股市与汇市关系的实证结果表明,中国大陆汇市与股市存在长期稳定的协整关系,短期相互影响明显;台湾汇市与股市只存在短期的相互效应;香港数据表明两者不存在因果关系,但方差分解显示股市变动对汇率波动有一定的冲击效应.     

Stock market volatility and the crash of 1987: evidence from six emerging markets

This paper studies volatility, risk premia and the persistence of volatility in six emerging stock markets before and after the 1987 stock market crash. The empirical investigation is conducted by means of the GARCH in the mean model (GARCH-M) and monthly data from Argentina, Greece, India, Mexico, Thailand, and Zimbabwe between January of 1976 and August of 1994. Results indicate changes in the ARCH parameter, risk premia and persistence of volatility before and after the 1987 crash. But these noted changes are not uniform and depend upon the individual markets. Factors other than the 1987 crash may also be responsible for the changes.     

Realizing the volatility impacts of sovereign credit ratings information on equity and currency markets: Evidence from the Asian Financial Crisis

We examine the effects of different types of sovereign rating announcements on realized stock and currency market volatilities and cross-asset correlations around periods of financial crises. Using intraday market data and sovereign ratings data for nine sample countries in the Asia-Pacific region over 1997–2001, we find that currency and stock markets react somewhat heterogeneously to various rating announcements and that stock markets are more responsive to rating news than currency markets. We find new evidence that ratings events have significant and asymmetric impacts on intraday market data and that national market attributes influence rating impacts during financial crises.     

Financial liberalization and changes in the dynamic behaviour of emerging market volatility: Evidence from four Latin American equity markets

This paper examines whether the dynamic behaviour of stock market volatility for four Latin American stock markets (Argentina, Brazil, Chile and Mexico) and a mature stock market, that of the US, has changed during the last two decades. This period corresponds to years of significant financial and economic development in these emerging economies during which several financial crises have taken place. We use weekly data for the period January 1988 to July 2006 and we conduct our analysis in two parts. First, using the estimation of a Dynamic Conditional Correlation model we find that the short-term interdependencies between the Latin America stock markets and the developed stock market strengthened during the Asian, Latin American and Russian financial crises of 1997–1998. However, after the initial period of disturbance they eventually returned to almost their initial (relatively low) levels. Second, the estimation of a SWARCH-L model reveals the existence of more than one volatility regime and we detect a significant increased volatility during the period of crisis for all the markets under examination, although the capital flows liberalization process has only caused moderate shifts in volatility.     

Abnormal trading volume,news and market efficiency: Evidence from the Jamaica Stock Exchange

This paper investigates market efficiency of the Jamaica Stock Exchange (JSE). Together, weak and semi-strong form efficiency claim that historical and newly released public information do not predict future stock price movement. We test both forms of market efficiency by analyzing stock price behavior during times of abnormal trading volume and around the release dates of earnings information. Abnormal trading volume may be driven by liquidity demand or reflect new or private information flow to the market. Using JSE data over the period 2000 to 2021, we find price dynamics consistent with price pressure as firms experience negative abnormal returns on the day of abnormal trading activity but offsetting positive abnormal stock returns on the following day. Further findings show post earnings announcement drift on the JSE. Taken as a whole, the evidence suggests violations of market efficiency and has implications for capital allocation in this emerging market.     

Realizing the volatility impacts of sovereign credit ratings information on equity and currency markets: Evidence from the Asian Financial Crisis

We examine the effects of different types of sovereign rating announcements on realized stock and currency market volatilities and cross-asset correlations around periods of financial crises. Using intraday market data and sovereign ratings data for nine sample countries in the Asia-Pacific region over 1997–2001, we find that currency and stock markets react somewhat heterogeneously to various rating announcements and that stock markets are more responsive to rating news than currency markets. We find new evidence that ratings events have significant and asymmetric impacts on intraday market data and that national market attributes influence rating impacts during financial crises.     

Stock market dependence in crisis periods: Evidence from oil price shocks and the Qatar blockade

This paper examines the correlation and the dependence patterns of the Qatar stock market with other markets using copula statistical theory and exploiting new datasets covering the period August 1998 to June 2018. To examine the crisis –specific change in the average degree of dependence we decomposed the data into the time periods before and after oil price shocks and the 2017 political crisis among the Gulf Cooperation Council members (i.e. the Qatari blockade). Our findings from the static copula modelling show that the correlations between the Qatari and the other stock markets significantly change after the oil price and the blockade crisis as well. The degree of change in the correlation is time varying and differs from county-group to another. Moreover, our findings reveals that the 2008 global financial crisis has a stronger impact than the price shocks and political crisis. The findings of the paper are of interest and allow for formulating a reliable and dynamic portfolio design framework for investors and risk managers.     

Stock returns and volatility following the September 11 attacks: Evidence from 53 equity markets

September 11 attacks matter, and why not? Given that globalization has integrated financial markets, the magnitudes of the effect of the September 11 attacks on global markets are expected to be pervasive. We used data from 53 equity markets to investigate the short term impact of the September 11 attacks on markets' returns and volatility. Our empirical findings indicate that the impact of the attacks resulted in significant increases in volatility across regions and over the study period. However, stock returns experienced significant negative returns in the short-run but recovered quickly afterwards. Nevertheless, we find that the impact of the attacks on financial markets varied across regions. The implication here is that the less integrated regions (e.g., Middle East and North Africa) are with the international economy, the less exposed they are to shocks.     

Financial Crisis,Politically Connected CEOs,and the Performance of State-Owned Enterprises: Evidence from Korea

This study examines under specific situations the performance of state-owned enterprises (SOEs) from two points of view—business performance and public performance. We find that SOEs with a politically connected CEO perform well even during a financial crisis as the SOEs are able to obtain more favorable treatment. However, the results imply that politically connected CEOs perform poorly when government subsidies are excluded as they may lack the skills for successful management. The results also confirm that SOEs encourage more corporate social responsibility (CSR) activities during a financial crisis in an effort to gain legitimacy by demonstrating that they are committed to social responsibility. However, politically connected CEOs have a negative effect on CSR performance during a financial crisis.     

Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis

We use a sample of 800 firms in eight East Asian countries to study the effect of ownership structure on value during the region's financial crisis. The crisis negatively impacted firms' investment opportunities, raising the incentives of controlling shareholders to expropriate minority investors. Crisis period stock returns of firms in which managers have high levels of control rights, but have separated their control and cash flow ownership, are 10–20 percentage points lower than those of other firms. The evidence is consistent with the view that ownership structure plays an important role in determining whether insiders expropriate minority shareholders.     

Crude oil market and stock markets during the COVID-19 pandemic: Evidence from the US,Japan, and Germany

We analyzed the return and volatility spillover between the COVID-19 pandemic in 2020, the crude oil market, and the stock market by employing two empirical methods for connectedness: the time-domain approach developed by Diebold and Yilmaz (2012) and the method based on frequency dynamics developed by Barunik and Krehlik (2018). We find that the return spillover mainly occurs in the short term; however, the volatility spillover mainly occurs in the long term. From the moving window analysis results, the impact of COVID-19 created an unprecedented level of risk, such as plummeting oil prices and triggering the US stock market circuit breaker four times, which caused investors to suffer heavy losses in a short period. Furthermore, the impact of COVID-19 on the volatility of the oil and stock markets exceeds that caused by the 2008 global financial crisis, and continues to have an effect. The impact of the COVID-19 pandemic on financial markets is uncertain in both the short and long terms. Our research provides some urgent and prominent insights to help investors and policymakers avoid the risks in the crude oil and stock markets because of the COVID-19 pandemic and reestablish economic development policy strategies.