Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets

In this paper we examine the impact of foreign bank penetration on the competitive structure of domestic banking sectors in host emerging economies. We focus our analysis on Asia and Latin America during the period 1997-2008. Using bank-level panel data to identify foreign banks and to estimate measures of banking competition, we are able to provide robust empirical evidence that an increase in foreign bank penetration enhances competition in these host countries’ banking sectors. We find that this positive foreign bank penetration and banking competition link is associated with a spillover effect from foreign banks to their domestic counterparts. This spillover effect becomes stronger when more efficient and less risky foreign banks enter into less concentrated host country markets. We also find that the spillover effect is greater when foreign banks enter in the form of ‘de novo penetration’ than through mergers or acquisitions of domestic banks (‘M&A penetration’).     

Can interest rates really control house prices? Effectiveness and implications for macroprudential policy

This paper investigates how changes in the central bank policy and retail mortgage rates affected real housing prices in New Zealand during the period 1999–2009. We find that real interest rates are significantly and positively related to real housing prices, indicating that increases in the policy rate may not be effective in depressing real housing prices. By testing interest rates, we also find some evidence of housing price bubbles. Our findings suggest that the central bank could have limited housing price bubbles if it had started to intervene in the housing market prior to 2003. Our results set international exemplars for using policy rates or macroprudential tools to cool the housing market, where the extent of policy rate adjustments is limited by internal or external economic factors.     

Do spot food commodity and oil prices predict futures prices?

Review of Quantitative Finance and Accounting - Futures prices reflect the price that both the buyer and the seller agree will be the price of a commodity upon delivery. Therefore, these prices...     

Does bank competition reduce cost of credit? Cross-country evidence from Europe

Despite the extensive debate on the effects of bank competition on economic welfare and growth, only a handful of single-country studies deal with the impact of bank competition on the cost of credit. We contribute to the literature by investigating the impact of bank competition on the cost of credit in a cross-country setting. Using a panel of firms from 20 European countries covering the period 2001–2011, we consider a broad set of measures of bank competition, including two structural measures (Herfindahl–Hirschman index and CR5), and two non-structural indicators (Lerner index and H-statistic). We find that bank competition increases the cost of credit and observe that the positive influence of bank competition is stronger for smaller companies. Our findings accord with the information hypothesis, whereby a lack of competition incentivizes banks to invest in soft information and conversely increased competition raises the cost of credit. This positive impact of bank competition is however influenced by the institutional and economic framework, as well as by the crisis.     

Can fiscal equalisation mitigate tax competition? Ad valorem and residence-based taxation in a federation

In this paper, we revisit the combined effect of horizontal and vertical tax externalities in a federal context, extending the theoretical framework of Keen and Kotsogiannis (Am Econ Rev 92(1):363–370, 2002) by allowing for ad valorem and residence-based taxation. When taxes are levied ad valorem rather than per-unit firstly, we find the interaction between both types of externalities is more ambiguous than commonly understood. As a result, and contrary to earlier findings, fiscal equalisation mechanisms such as the representative transfer system (RTS) fail to fully internalise the tax externalities. Given these limitations, we derive the conditions under which a standard RTS will either: (1) at least nudge politicians in the right direction; (2) realise no welfare gains at all; (3) considerably overshoot the second-best efficiency mark causing welfare loss. Lastly, we find that when taxation is residence-based rather than source-based, a different kind of competition emerges where tax cuts are aimed at stimulating outward factor flows, rather than attracting inward flows.     

Do stock prices reflect undisclosed financial statement information? Evidence from the OTCBB

I exploit a regulatory change that mandated that Over-the-Counter Bulletin Board (OTCBB) firms must comply with the reporting requirements of the 1934 Securities Exchange Act. I use this change to examine the association between equity values and financial statement data in voluntary and mandatory disclosure environments. Before the change, disclosure of financial statement information was voluntary for most of these firms. I study firms that initiate SEC filing after the change and classify them as disclosing and nondisclosing based on whether they voluntarily disclosed financial statement information before the regulatory change. In these firms’ initial SEC filings after the eligibility rule, they retroactively disclose financial statement information for the year prior to compliance with the rule. Thus I can observe previously withheld financial data. I find that the choice to voluntarily disclose is negatively associated with firm characteristics related to proprietary costs and with situations in which accounting information plays a less important role in resolving information asymmetry. For nondisclosing firms, I find evidence that equity values reflect financial statement data, even though this information was not publicly available, and that compliance with mandatory SEC disclosure requirements strengthens this association. For disclosing firms, I find evidence that suggests investors viewed their voluntary disclosure of financial statement data as credible and fail to find evidence that compliance with mandatory reporting requirements enhances this association.     

Can mergers increase output? Evidence from the lodging industry

We find that hotel mergers increase occupancy. In some specifications, price also rises. Because these effects occur only in markets with high capacity utilization and high uncertainty, we reject simple models of price or quantity competition in favor of models of “revenue management,” where firms price to fill available capacity in the face of uncertain demand.     

Does information risk affect the implied cost of equity capital? An analysis of PIN and adjusted PIN

Using a unique dataset of Korean listed companies for which trade initiators are correctly identifiable, we estimate bias-free PIN (probability of informed trading) that is no longer subject to the trade misspecification problem and test whether it is related to expected returns. Unlike prior studies, we find that bias-free AdjPIN, the adjusted PIN purged of a liquidity component, is positively related to implied cost of equity. Our findings suggest that the errors in PIN variables hamper a proper identification of PIN pricing in prior studies.     

Is there a dark side of competition? Product market competition and auditor-client contracting

This study establishes the informational value of a company's product market competition, derived from qualitative nonfinancial disclosures, in the audit contracting process. Greater product market competition could either serve as means of mitigating agency costs between managers and shareholders or heightening managerial rent-seeking activities and the incentive to distort disclosures. Consequently, greater competition could either increase or decrease audit engagement risk. We find that greater product market competition is associated with greater engagement risk. Auditors respond to the higher risk by assessing greater audit fees. Although auditors respond by charging higher fees and dedicating greater effort to these engagements, we nonetheless find that audit quality is negatively affected by greater competition. Our findings are consistent with the dark side hypothesis of product market competition. Overall, our study provides evidence that company-level competition effects convey valuable information to auditors.     

Do economic statistics contain information to predict stock indexes futures prices and returns? Evidence from Asian equity futures markets

This research examines the impact of local and international market factors on the pricing of stock indexes futures in East Asian countries. The purpose of this paper is to present a study of the significant factors that determine the major stock indexes futures’ prices of Hong Kong, Malaysia, Singapore, South Korea and Taiwan. This study first investigates the relationships between Hang Seng Index Futures, KLCI Futures, SiMSCI Futures, KOSPI Futures, Taiwan Exchange Index Futures and local interest rates, dividend yields, local exchange rates, overnight S&P500 index and a newly constructed index, Asian Tigers Malaysia Index (ATMI). 11 years historical data of stock indexes futures and the economic statistics are studied; 10 years in-sample data are used for testing and developing the pricing models, and 1 year out-of-sample data is used for the purpose of verifying the predicted values of the stock indexes futures. Using simple linear regressions, local interest rates, dividend yields, exchange rates, overnight S&P500 and ATMI are found to have significant impact on these futures contracts. In this research, the next period close is predicted using simple linear regression and non-linear artificial neural network (ANN). An examination of the prediction results using nonlinear autoregressive ANN with exogenous inputs (NARX) shows significant abnormal returns above the passive threshold buy and hold market returns and also above the profits of simple linear regression (SLR). The empirical evidence of this research suggests that economic statistics contain information which can be extracted using a hybrid SLR and NARX trading model to predict futures prices with some degree of confidence for a year forward. This justifies further research and development of pricing models using fundamentally significant economic determinants to predict futures prices.

     

Can energy predict the regional prices of carbon emission allowances in China?

The carbon emission trading is an important market-oriented tool in the process of China's carbon neutrality, which makes companies face tremendous pressure to reduce emissions while having strong energy demands. In order to evaluate whether energy prices can be robust predictors of the prices of emission allowances, this study perform extreme bounds analysis (EBA) in four representative markets. The empirical results reveal that energy prices can indeed predict the prices of emission allowances, but the robustly predictive capabilities of different energy prices vary with regions. Among them, thermal coal is the robustly positive predictor for Guangdong, Hubei and Shanghai market; natural gas is the robustly negative predictor for all the four chosen regions; and crude oil can only positively predict Hubei market with robustness. Meanwhile, the horizons that predictions from energy to emission allowance can be performed as well as the predictive coefficients also vary with energy types and regions. And some trading implications are also provided alongside.     

Can banks monitor small business borrowers effectively using hard information?

We investigate whether banks rely on hard information to monitor small business borrowers and to what extent hard information is credible. Using Japanese firm-level data, we show that banks reduce the amount of lending to defaulting firms if the firms are financially distressed and suffer operating losses. In contrast, banks do not significantly reduce the amount of lending to defaulting firms with low levels of leverage and high profitability. This implies that banks mitigate type II errors if they receive default signals using the hard information of informationally opaque small businesses.     

Is the relationship between prices and exchange rates homogeneous?

Empirical tests of purchasing power parity (PPP) are implicitly based on the conditions of symmetry and proportionality of the price coefficients. We investigate a separate condition, which we term homogeneity. Specifically, while there may be factors that drive a wedge between prices and exchange rates, when these factors are held constant we would expect a change in exchange rates to be associated with a proportional, or homogeneous, change in prices. To test for the existence of homogeneity in prices, we conduct two experiments. First, we apply a time-varying-coefficient procedure to nine euro-area countries as well as the euro area as a whole during the (monthly) sample period, 1999:M1 to 2011:M3. Second we apply the same procedure to the same group of countries, plus Canada, Japan and Mexico, over the longer period, 1957:M4 to 2011:M3. We find that averages of the price coefficients, corrected for specification biases, are uniformly homogeneous in the long run, providing strong support for PPP.     

Are Housing Wealth Effects Asymmetric in Booms and Busts?

The Journal of Real Estate Finance and Economics - This paper investigates the effects of household indebtedness and housing wealth on consumption. To identify exogenous movements of housing wealth...     

Asymmetric information,volatility components and the volume–volatility relationship for the CAC40 stocks

This paper investigates the relationship between trading volume components and various realized volatility measures for the CAC40 index constituents. A mixture-of-distribution model is used to decompose trading volume into informed and liquidity components. Realized volatility is broken down into continuous volatility and jumps. Our findings confirm the strong positive contemporaneous relationship between total trading volume and volatility when realized volatility and its continuous component are considered. A limited evidence of the effect of total trading volume on discontinuous volatility is found. The positive volume–volatility relationship is mainly driven by the informed component of trading volume. Conversely, liquidity volume is negatively related to realized volatility lending some support to the view that liquidity trading dampens the volatility of stock returns. A stronger negative relationship between liquidity volume and volatility jump is uncovered.     

Can trade costs explain why exchange rate volatility does not feed into consumer prices?

If countries specialize in imperfectly substitutable goods, trade costs increase the share of expenditure devoted to domestic output, reducing the exposure of consumer price inflation to exchange rate changes. I present a multi-country flexible-price model where expenditure shares are inversely related to trade costs through a gravity equation. In this setting, consumer price inflation can be approximated as an expenditure-share-weighted average of the contributions to inflation from all countries. I use data from 24 OECD countries, 1970-2003, to estimate a structural gravity model. I combine the fitted expenditure shares from the estimation with actual data on exchange rates to construct predictions of inflation. The behavior of these predictions indicates that trade costs can explain both qualitatively and quantitatively the failure of exchange rate volatility to feed into inflation.     

Can online annual general meetings increase shareholders’ participation in corporate governance?

We find that annual shareholder meetings conducted online can significantly increase the participation of shareholders, especially minority shareholders. This finding is more evident when the cost of physically attending the annual meeting is higher and when the firm's ownership is more dispersed. We further document significant positive stock returns when firms initiate annual online meetings. We also find that such online meetings help improve corporate governance. Overall, we provide evidence that online shareholder meetings provide shareholders a cost-effective way to participate in governance issues.     

U.S. stock prices and the dot.com-bubble: Can dividend policy rescue the efficient market hypothesis?

This paper thoroughly integrates speculative bubbles to corporate finance literature by focusing on dividend policy issues. More specifically, we examine the importance of dividend policy when testing for speculative bubbles in the S&P 500 equity index on a data set spanning 1871 to 2014. Given the phenomenon of dividend smoothing, in particular in the U.S., we question the usefulness of observed dividend payments as fundamental factor in testing for bubbles. Circumventing dividend smoothing, we construct hypothetical dividend payouts which are based on reported corporate earnings instead. The empirical evidence presented here indeed suggests that the dividend policy of firms affects testing for speculative bubbles. While the dot.com-bubble—commonly seen as the prime example for a stock price bubble not only in the NASDAQ but also in other, broader equity indices—is detected with the observed dividend series as fundamental factor, this is not necessarily the case with our adjusted dividend time series. Some of our results argue against a speculative price bubble in the broader U.S. stock market in the late 1990s.     

How well do investor sentiment and ensemble learning predict Bitcoin prices?

Investor sentiment is widely recognized as the major determinant of cryptocurrency prices. Although earlier research has revealed the influence of investor sentiment on cryptocurrency prices, it has not yet generated cohesive empirical findings on an important question: How effective is investor sentiment in predicting cryptocurrency prices? To address this gap, we propose a novel prediction model based on the Bitcoin Misery Index, using trading data for cryptocurrency rather than judgments from individuals who are not Bitcoin investors, as well as bagged support vector regression (BSVR), to forecast Bitcoin prices. The empirical analysis is performed for the period between March 2018 and May 2022. The results of this study suggest that the addition of the sentiment index enhances the predictive performance of BSVR significantly. Moreover, the proposed prediction system, enhanced with an automatic feature selection component, outperforms state-of-the-art methods for predicting cryptocurrency for the next 30 days.