Volatility spillover and hedging effectiveness among China and emerging Asian Islamic equity indexes

We study the volatility spillover between China and Asian Islamic stock markets. We use a sample of six Islamic MSCI indices from the Asian region, namely China, India, Malaysia, Indonesia, Korea and Thailand obtained from MSCI (Morgan Stanley Capital International). In this paper we analyze the importance of considering spillover effects between emerging Asian Islamic indexes based on the Bivariate VARMA-BEKK-AGARCH model of McAleer et al. (2009), which includes spillover and asymmetric effects. We compute after the effectiveness of portfolio diversification based on the conditional volatility of returns series. Results show a significant positive and negative return spillover from China to selected Asian Islamic stock market and bidirectional volatility spillovers between China, Korea and Thailand Islamic market showing evidence of short-term predictability on Islamic Chinese stock market movements. However there is no short term volatility persistence in India, Indonesia and Malaysia. GARCH results show no persistence in volatility spillover effect in long term from Chinese to Indian, Indonesian and Korean Islamic stock market. Our findings are beneficial for international portfolio diversification for policy makers and investors since the results of portfolio management and hedging effectiveness ratio are different to previous studies.     

Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets

This paper examines whether Asian emerging stock markets (India, Korea, Malaysia, Philippines, Taiwan, and Thailand) have become integrated into world capital markets since their official liberalization dates by estimating and testing a dynamic integrated international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) using an asymmetric multivariate GARCH(1,1)-in-Mean approach. Also examined in this paper is whether there are pure contagion effects between stock and foreign exchange markets for each Asian country during the 1997 Asian crisis. The empirical results show that first, both currency and world market risks are priced and time-varying, suggesting that an international asset pricing model under PPP and constant price of risk might give rise to model misspecification. Second, the stock markets for India, Korea, Malaysia, Philippines, and Thailand were segmented from the world capital markets before their liberalization dates, but all six markets have become fully integrated since then. Third, the market liberalization has reduced the cost of capital and price volatility for most of the countries. Finally, as for the contagion effects, strong positive impact of return shocks originating from the domestic stock market to its foreign exchange market during the crisis is found. This dynamic relationship between stock market and foreign exchange market is consistent with stock-oriented exchange rate models.     

Stock Returns,Productivity, and Corruption in Eight European Fast-Emerging Markets

This article addresses the impact of productivity, corruption, and trade openness on the stock returns of 265 industrial companies listed in eight Eastern European fast-emerging markets, over the 2004-2013 period. Through a three-factor model that includes both measures at firm level and macro-level control variables, our findings suggest that country corruption index is negatively correlated with the total annual return of the stocks of the listed industrial companies of our sample. Moreover, the most productive firms are featured by higher stock returns, while leverage seems not to be a key predictor of stock returns. In addition, the article uncovers innovative evidence about trade openness that is negatively correlated with stock returns due to its connection with the recent financial crisis. That is, firms operating in markets that are more open to trade show a higher degree of interconnection with other economies and are more likely to undergo the effects of negative fluctuations from foreign markets during the economic crisis. © 2015 Wiley Periodicals, Inc.     

Industry and country factors in emerging market returns: Did the Asian crisis make a difference?

Should investors diversify across emerging stock markets or across industries to achieve improvements in their risk–return tradeoffs especially during financial crisis periods? We examine the issue using individual firm data from a selection of emerging markets and including the period of the 1997 Asian financial crisis. We find that country effects were the dominant force behind the low co-movements among emerging stock market returns. There is evidence of increased industry effects beginning at the time of the Asian financial crisis, but this may have been a temporary phenomenon associated with contagion effects during the crisis.     

Day-of-the-Week Variation and Predicting Stock Returns: Taiwan and Thailand Stock Exchanges

Previously, researchers created a day-of-the-week anomaly in closing stock returns for firms listed on established financial markets. This article explores whether this line of argument is or is not satisfactory and does or does not aid in predicting daily stock returns. The article focuses on the performance of stock returns for two large Asian Stock Market exchanges, Taiwan and Thailand. The purpose is to determine if stock market returns (which include closing prices and dividends) are in part predictable and whether there are explanations for short-term predictability.     

Dependence dynamics of stock markets during COVID-19

Stock markets have exhibited increased returns connectedness during the COVID-19 period. We examine the returns dependence among 42 stock markets classified under various emerging and developed groupings. We apply several dependence measures to examine the returns connectedness among the markets. Our results show that stock markets from the G-7 and Emerging Frontier and Asian (EFA) region exhibit high connectedness with other international markets, while Middle East and North African (MENA) and Latin American (LA) stock markets offer high diversification opportunities through low returns connectedness. The returns coherence of Central and East European (CEE) and G-7 markets increase significantly during the COVID-19 period which supports the hypothesis of contagion. However, during the pandemic MENA stock markets (excluding Greece) and most EFA markets (excluding China, Singapore and Korea) remain less cointegrated with other international equity markets. Our results have implications for individual and institutional investors, fund managers and other financial market stakeholders.     

Dispersion in Analysts’ Earnings Forecasts and Market Efficiency

Recent studies show that firms with higher analysts’ earnings forecasts dispersion subsequently have lower returns than firms with lower forecasts dispersion. This paper evaluates alternative explanations for the dispersion–return relation using a stochastic dominance approach. We aim to discriminate between the hypothesis that some asset pricing models can explain the puzzling negative relation between dispersion and stock returns, and the alternative hypothesis that the dispersion effect is mainly driven by investor irrationality and thus is an evidence of a failure of efficient markets. We find that low dispersion stocks dominate high dispersion stocks by second‐ and third‐order stochastic dominance over the period from 1976 to 2012. Our results imply that any investor who is risk‐averse and prefers positive skewness would unambiguously prefer low dispersion stocks to high dispersion stocks. We conclude that the dispersion effect is more likely evidence of market inefficiency, rather than a result of omitted risk factors.     

The return to value in Asian stock markets

This paper investigates the returns to value strategies in four Asian stock markets: Hong Kong, Korea, Singapore and Taiwan. Hong Kong, Korea and Singapore exhibit value premia while Taiwan shows value discounts. The impact of firm characteristics on value premia differs across the four markets. The robustness tests indicate that the value premia are time-varying. They become greater in the post-crisis period across all four countries, indicating that high volatility during the crisis period did understate the value premia. The value strategy's excess return is sensitive to the sample selection rule and the firm size and liquidity effects. With tighter sample selection criteria, value premia tend to decline, which indicates that both the firm size effect and the liquidity effect are important sources of value premia. Unequal weighting assigned to financial variables in constructing the Average Price Rank (APR) based on the overall performance of single-variable approach does not necessarily improve the results.     

Military regimes and stock market performance

We examine whether military regimes harm stock market performance by investigating stock returns in ten emerging markets under military and civilian rule. We find no evidence of military regimes having a significantly negative impact on stock returns. In the case of Thailand and Pakistan, we find a significant positive military return premium. These returns cannot be explained by economic cycles, stock market cycles, or returns volatility. Our findings are robust to worldwide stock market movements, tests for spurious regression bias and randomization-bootstrap tests. Our results contradict the common view that military rule has a negative impact on stock market performance.     

Turnover and return in global stock markets

I study how growth affects liquidity of global stock exchanges and how liquidity determines cross-sectional returns on those stock exchange index portfolios. I measure portfolio liquidity by turnover ratio computed as value of shares traded over the market capitalization. I obtain data from FIBV, an association of global stock exchanges. In a multiple regression model for turnover ratio, I find age, size, type of exchange, competition for order flow, and growth rate to be significant determinants of portfolio liquidity; however, exchange- and time-specific effects are more appropriate for modeling portfolio liquidity. The time effects yield to three distinct regimes, while the exchange-specific effects are surrogates for the legal systems, English common law, and Civil laws of the countries. I estimate the parameters of a multiple regression model in a two-stage GLS framework in which index return is a function of turnover. The GLS method is preferable since a turnover ratio may have a non-stationary, random component. The significant determinants of index return are turnover and volatility, although some of the volatility effect may be a spillover from a January effect. Investors expect higher return from high turnover markets. However, the positive turnover expected return relation is true only in emerging markets; in developed markets expected return is a function of volatility. This result confirms existing empirical evidence that high turnover stock portfolios generate superior returns and further the sources and pricing of risk in emerging and developed markets are different.     

Market Timing With Moving Averages

I present evidence that a moving average (MA) trading strategy has a greater average return and skewness as well as a lower variance compared to buying and holding the underlying asset using monthly returns of value‐weighted US decile portfolios sorted by market size, book‐to‐market, and momentum, and seven international markets as well as 18,000 individual US stocks. The MA strategy generates risk‐adjusted returns of 3–7% per year after transaction costs. The performance of the MA strategy is driven largely by the volatility of stock returns and resembles the payoffs of an at‐the‐money protective put on the underlying buy‐and‐hold return. Conditional factor models with macroeconomic variables, especially the default premium, can explain some of the abnormal returns. Standard market timing tests reveal ample evidence regarding the timing ability of the MA strategy.     

Measuring transparency and disclosure at firm-level in emerging markets

Transparency and disclosure are integral to corporate governance. In this paper, we use a new dataset to analyze Transparency & Disclosure scores (T&D score) in 19 emerging markets for 354 firms representing 70% of S&P/IFCI Index market capitalization over the 3 years ending in 2000. We analyze differences across countries, economic sectors and trend over the 3 years. We find that the Asian emerging markets and South Africa have significantly higher transparency and disclosure compared to the Latin American, Eastern European, and Middle Eastern emerging markets. The gap between the Asian emerging markets and South Africa over other emerging markets has increased over the last 3 years. We do not find any significant differences in T&D scores among economic sectors. Changes in the T&D scores over the last 3 years, however, differ by economic sectors for the 6 markets with the largest investable market capitalization and/or number of observations, viz. Brazil, Poland, South Africa, India, Thailand, and Korea. We then study the relationships between T&D scores and cross-holdings for the 6 emerging markets. For the 6 markets except Korea, correlation between cross-holdings and T&D scores is negative. For the 6 markets except South Africa, correlation between price-to-book ratios and T&D scores is positive. We conclude with a discussion on further research.     

Property and liability stockholder yields and accounting profits

The market rate of return and related risk of a group of 23 property-liability insurers are explored. The focus is on the return earned by the stockholders of these firms. Previous studies have only examined the accounting rate of return. This study compares the accounting rate of returns to stockholder yields. Several factors that effect the return earned by shareholders are reviewed.The average return on the property-liability stocks studies was 4.0 percentage points greater than the accounting rate of return (0.14 vs 0.10). This evidence suggests that studies based only on accounting rates of return under-estimate returns earned by property-liability shareholders. On a risk-return basis property-liability profits were found not to be significantly different from the general stock market. However, several individual firms had superior stockholder yields. The beta for the group of firms was 1.09.     

Volatilities in emerging MENA stock markets

This article examines the interrelationships among the emerging stock markets of the Middle East and North Africa (MENA) region, as well as the relationship between each MENA stock market and the larger and more developed markets of Europe and the United States. It explores whether MENA stock markets can offer international investors unique risk/return characteristics to diversify international and regional portfolios. This study adds to the existing literature by focusing—for the first time— on the dynamic relationships in the volatilities of the returns in MENA stock markets. The econometric part of the article uses the causality‐in‐variances GARCH model, the TARCH and ARCH‐M models, and VAR analysis to model conditional volatilities in stock market returns and the dynamic responses of volatilities to innovations in conditional variances. © 2006 Wiley Periodicals, Inc.     

Is Indonesia's stock market different when it comes to predictability?

We construct a unique dataset consisting of 342 firms aimed at stock return predictability. Using seven predictors, we show that unlike in conventional markets, it is capital expenditure that is the most successful predictor of returns. However, the overall evidence of out-of-sample predictability when using other conventional return predictors is weak. Capital expenditure-based forecasting models do lead to profits also although these are small. This tends to imply that for markets that are at the nascent stages of development, such as Indonesia, capital expenditure might have a role to play in shaping the market. Our results are in sharp contrast to the literature on emerging markets.     

Size,value, profitability,and investment: Evidence from emerging markets

In this study, we investigate how the Fama and French three-, four-, and five-factor models perform in emerging markets. We find that the four- and five-factor models perform better than the three-factor model in most of our tests. We note that the value factor seems to be somewhat redundant in the presence of profitability and investment factors. We find clear evidence of size effects in average stock excess returns, little evidence of value and profitability effects, and some investment effects. Finally, the local factors perform better than the US and global factors do, showing evidence of emerging market segmentation.     

Law,finance, and emerging market returns

This paper investigates how legal foundation influences the return distribution, the growth rate of market capitalization, the ratio of market capitalization to gross domestic product (GDP) and the correlation structure of emerging market indices with developed market indices. Using a sample of 24 emerging markets, we find that emerging markets from the French [civil] law systems earned higher returns, have higher correlations with the world market portfolio, higher average growth rates in market capitalization and lower average market capitalization to GDP than their English common law counterparts. Finally, most emerging markets returns are more highly correlated to the returns of developed markets with an English common law tradition. Our results suggest that diversification potential is highest with the English common law emerging markets but that the diversification benefits come at the cost of reduced returns.     

Market valuation of marketing alliances in East Asia: Korean evidence

This paper investigates firm value created by non-equity marketing alliance announcements of Korean listed firms in terms of stock price reactions to the announcements. We find evidence that on the Korean stock market, the announcements of marketing alliances produce significant positive abnormal returns, which reflect an increase in firm value, around the announcement date. This suggests that firm managers need to seek for various marketing alliances not only for an effective competition in competitive business environments but also for enhancement in shareholder wealth. The increase in firm value has inverse relationship with firm's size and growth opportunity. In particular, marketing alliances with firms based in G7-countries create greater firm value than ones with firms based in the home country. Our study provides investors, firm managers, and academics with valuable implications of an importance of marketing alliances for valuation of firms in other Asian countries as well as in Korea.     

Country v sector effects in equity returns and the roles of geographical and firm-size coverage

Since Roll (The Journal of Finance 47(1):3–41, 1992) and Heston and Rouwenhorst (Journal of Financial Economics 36:3–27, 1994), there has been a debate whether country factors in international stock returns are typically more variable than sector factors. The addition of emerging markets (EMs) does boost the ratio of country-factor variance relative to industry-factor variance: these markets have a higher variability, but are also less related to global factors. Investigating to what extent this phenomenon can be tracked down to the impact of adding more small firms, we find the following. (1) Small firms do have higher volatility, but only after controlling for country and sector affiliation. (2) Small firms do have weaker sector affinity, as expected. (3) Small firms unexpectedly have weaker local-market sensitivities than large firms. Facts (2) and (3) mean that adding more small firms to the data base has a diversifying effect on both the sector- and country-factor variance; while the impact on sector variance is larger, the net effect turns out to be tiny. (4) Adding emerging markets has a very marked impact on the variance ratio. In fact, the addition of small stocks to the sample hardly dents the effect of adding EMs. Thus, the role of EMs cannot be reduced to just a small-firm phenomenon.     

Emerging markets before the 1997 Asia Pacific financial crisis

This study investigates which Asia Pacific markets were driven by the US stock market and which by the Japanese stock market during the 1995-97 period, right before the 1997 Asia Pacific financial crisis. The results show that stock markets of Hong Kong, Indonesia and Malaysia shared a long-run equilibrium relationship with the US stock market. The stock market of the Philippines was linked with both the US stock market and the Japanese stock market, while stock markets of Thailand and South Korea did not appear to be influenced by either. Countries whose capital markets had a co-integrating relationship with the US market pegged their national currencies closely to the US dollar.