Efficient Markets Hypothesis and the Emerging Capital Market in Sri Lanka: Evidence from the Colombo Stock Exchange – A Note

The behaviour of stock prices on the Colombo Stock Exchange (CSE) is examined with a view to determine its consistency with the weak form of the Efficient Markets Hypothesis (EMH). Runs, Autocorrelation and Cointegration tests are applied to daily, weekly and monthly CSE index data for the period of January 1991–November 1996. Results of Runs, Correlation and Cointegration tests overwhelmingly reject the serial independence hypothesis, leading to the conclusion that the behaviour of stock prices in the Colombo Stock Exchange is not consistent with the weak form of the Efficient Markets Hypothesis. Tests of the-day-of-the-week-effect, however, show that there is no evidence of such a phenomenon on the Colombo Stock Exchange stock prices. Results of the tests of the-month-of-the-year-effect lead to the conclusion that CSE prices do not display any month-specific behaviour.     

Capital market equilibrium with heterogeneous investors

As a two-parameter model that satisfies stochastic dominance, the mean-extended Gini model is used to build efficient portfolios. The model quantifies risk aversion heterogeneity in capital markets. In a simple Edgeworth box framework, we show how capital market equilibrium is achieved for risky assets. This approach provides a richer basis for analysing the pricing of risky assets under heterogeneous preferences. Our main results are: (1) identical investors, who use the same statistic to represent risk, hold identical portfolios of risky assets equal to the market portfolio; and (2) heterogeneous investors as expressed by the variance or the extended Gini hold different risky assets in portfolios, and therefore no one holds the market portfolio.     

The Momentum Effect in Latin American Emerging Markets

We find that momentum strategies yield profits in Latin American emerging markets. Both stock type and country play a major role in explaining the momentum effect in these markets, but stock type is much more important. For risk-averse investors, winner portfolios stochastically dominate loser portfolios in these markets, implying that there are no asset-pricing models consistent with risk-averse investors that can rationalize the momentum effect. The results obtained via the bootstrap procedure without replacement also uphold this conclusion.     

A stochastic dominance analysis of the turnover related performance of mutual funds

Mutual fund performance relative to portfolio turnover is examined for funds in different investment categories using non-parametric, stochastic dominance criteria. We find that, in general, high-turnover funds are at least equally preferable to those with low turnover. This suggests that the costs of obtaining and exploiting information are, on average, compensated for by the subsequent return distribution. The exception is maximum capital gains funds. Here, high-turnover funds clearly dominate those with low turnover and the information gathering function is profitable.We gratefully acknowledge the contribution of an anonymous referee and the comments of Art Gudikunst of Bryant College.     

Capital Market Integration in the Middle East and North Africa

This paper studies capital market integration in Middle Eastern and North African (MENA) countries and its implications for international portfolio investment allocation. Starting with four cointegration methodologies, we significantly reject the hypothesis of a stable, long-run bivariate relationship between each of these markets and the European Monetary Union (EMU), the United States, and a regional benchmark. This indicates the existence of significant diversification opportunities for three categories of investors (EMU, world, and regional investors). A recursive analysis based on Barari (2004) suggests that recently, the MENA markets have started to move toward international financial integration. Investigating the effect of selected financial, economic, and political events on such a process, we extend the methodology and find that the markets react heterogeneously to the different categories of shocks. They should therefore not be treated as a bloc for global allocation purposes. Finally, after adjusting the integration levels by relative market capitalization, Israel and Turkey are the most promising markets in the region, followed by Egypt, Jordan, and Morocco. Tunisia and Lebanon seem to be lagging behind.     

中国股票市场效率的实证检验

了解股票市场是否有效对于监管者和投资者具有重要意义。近年来,大多数实证分析结果倾向于中国证券市场尚未达到半强式有效的结论,但对于是否达到弱式有效,则存在较大分歧。自回归检验结果表明,目前我国沪、深股市已达到弱式有效。这一结论对于进一步制定我国股票市场的发展对策具有重要的指导意义。     

股指期权合约规格设计研究——基于全球股指期权市场对比的视角

为了探索股指期权产品合约规格设计的一般规律,对全球主要市场中股指期权产品业务实践进行了调查、对比分析与总结。分析结果表明,全球主要市场的股指期权以欧式行权与现金交割的方式为主,注重近月合约月份,在行权价格间距、行权价格序列、合约乘数以及报价单位的设计上会综合考虑它们对流动性等因素的影响,合约编码主要采用交易代码、合约到期日、合约类型以及行权价格四个要素依次排列的结构。这些都为未来在境内市场推出股指期权产品,开展股指期权业务提供了重要参考。     

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.     

Risk-based portfolio strategy in emerging stock markets: economic significance from Brazil,Russia, India and China

The purpose of this paper is to examine the conditional volatility and correlation predictability of four emerging stock markets, and address the issue whether investors could exploit this predictability to earn excess returns from the minimum variance portfolio of index component stocks. Inevitably, transaction cost affects the conclusive results. Nevertheless, economic gain exceeding a conservatively high transaction cost could be derived from a number of conditional volatility and correlation models. One dominant model, the shrinkage model, outperforms the market across the countries, cost structures and performance measures. We also document the superiority of averaging methodologies. However, semiparametric modelling falls in a grey area of profitability – sometimes attractive whilst sometimes not attractive.     

Sufficiency Conditions For Inclusion of One Asset Over Another in Investment Portfolios

By extending Tsiang's (1972) analysis to encompass two risky assets, sufficiency conditions for including one asset over another in any investor's investment portfolio are derived. This derivation stems from the fact that any realistic utility function must have indifference curves with slopes less than one. Using this model's framework, it is found that short-term Treasury bills in addition to cash balances cannot be a component of investor's investment portfolios. The results have implications for both the risk-free rate used in portfolio analysis and provide a partial solution to Mehra and Prescott's (1985) equity premium puzzle.     

Modeling a Dynamic Portfolio for Pension Plans in Emerging Markets With Myopic and Nonmyopic Behavior

ABSTRACT

We introduce a dynamic formulation for the problem of portfolio selection of pension funds in the absence of a risk-free asset. In emerging markets, a risk-free asset might be unavailable, and the approaches commonly used may no longer be suitable. We use a parametric approach to combine dynamic programming and Monte Carlo simulation to gain additional flexibility. This approach is general in the sense that optimal asset allocation is tractable for all HARA utility functions in the absence of a risk-free asset. The traditional case composed of several risky assets and one risk-free asset is compared to a case in which the risk-free asset is unavailable.     

人力资本、人力资本结构与产业经营效率关系研究

对我国财险业2005年～2009年人力资本及其结构进行度量。采用随机前沿模型(SFA),对我国财险业人力资本、人力资本结构与产业经营效率之间的关系进行了研究。研究结果显示:期间我国财险业从业人员受教育年限不断提高,人力资源结构得到了优化升级,但中外资企业之间有较大差距;人力资本存量的投资能促进产业经营效率的提高,但效果不明显;财险业人力资本结构对经营效率的改善具有滞后效应;本科学历和硕士学历人力资本对财险业经营效率的提高具有较强的效果。     

The International Transmission of Arbitrage Information Across Futures Markets

Abstract:   This paper examines whether deviations from a domestic spot‐futures relation, as identified through mispricing series in stock index futures, spillover international boundaries. Such spillovers suggest that information from a mispricing series in one market conveys a signal of similar mispricing in another market. In the presence of arbitrage traders and in the absence of market frictions, mispricing series should be independent across international boundaries. The study employs a VAR analysis of stock index futures mispricing across three large futures markets – Australia, the UK and the USA. Using time zone differences, tests are conducted for the daily transmission of arbitrage information. The results reveal the relationship between mispricing series is bi‐directional. Based on this finding, a trading strategy is employed to examine the economic significance of apparent profits. The results show that some profits are possible after transaction costs but that a long horizon, probably beyond the scope of most traders, is required to exploit the spillover information.     

Generalised Sharpe Ratios and Asset Pricing in Incomplete Markets

The paper presents an incomplete market pricingmethodology generating asset pricebounds conditional on the absence of attractiveinvestment opportunities in equilibrium.The paper extends and generalises the seminal article ofCochrane and Saá-Requejowho pioneered option pricing based on the absenceof arbitrage and high Sharpe Ratios. Ourcontribution is threefold:We base the equilibrium restrictions on an arbitrary utility function, obtaining theCochrane and Saá-Requejo analysis as a special case with truncated quadratic utility. We extend the definition of Sharpe Ratio from quadratic utility to the entire family of CRRA utility functions and restate the equilibrium restrictions in terms ofGeneralised Sharpe Ratios which, unlike the standard Sharpe Ratio, provide aconsistent ranking of investment opportunities even when asset returns are highlynon-normal. Last but not least, we demonstrate that for Itô processes theCochrane and Saá-Requejo price bounds are invariant to the choice of the utilityfunction, and that in the limit they tend to a unique price determined by theminimal martingale measure.     

Intraday Empirical Regularities in Interest Rate and Equity Index Futures Markets, and the Effect of Macroeconomic Announcements

This paper focuses on the intraday behaviour of returns, volatility, volume and price reversals for the Short Sterling interest rate and FTSE100 stock index futures contracts traded on the London International Financial Futures and Options Exchange (LIFFE). It also examines the effect of scheduled macroeconomic announcements and interest rate changes on the intraday behaviour of the variables of interest. We find clear differences and similarities with US studies and between the interest rate and equity contracts, which have important theoretical implications. This new evidence helps discriminate between the theories seeking to explain these intraday patterns.     

对中国各省资本存量的估计及典型性事实：1978～2008

本文通过对基年资本存量、当年投资数据、固定资产价格指数和折旧率进行了认真的处理和计算,并利用永续盘存法对改革开放以来各省资本存量进行了较为准确的估计。进一步回归分析得出,资本存量增长与经济增长密切相关,而资本产出比率则与经济增长负相关。这与经济理论及国内有关学者的研究结论一致。     

Efficient scholars: academic attention and the disappearance of anomalies

This study examines the dynamics of ten most notable stock market anomalies through 1926–2018 and assesses the joint impact of academic attention, post-publication decay, data-snooping bias, institutional trading, and time trend on their disappearance. It proposes new and simple measures of academic attention attracted by stock market anomalies using the number of articles published on the relevant topic available via Google Scholar or respective citation counts. The study finds that academic attention is the most dominant factor explaining the diminishing abnormal returns of anomaly-exploiting strategies. The approach developed by this study can also be useful in determining whether a stock return regularity is a behavioural anomaly or a systematic risk factor.     

Transmission of Stock Returns and Volatility between the U.S. and Japan: Evidence from the Stock Index Futures Markets

In this paper, we examine the nature of transmission of stock returns and volatility between the U.S. and Japanese stock markets using futures prices on the S&P 500 and Nikkei 225 stock indexes. We use stock index futures prices to mitigate the stale quote problem found in the spot index prices and to obtain more robust results. By employing a two-step GARCH approach, we find that there are unidirectional contemporaneous return and volatility spillovers from the U.S. to Japan. Furthermore, the U.S.'s influence on Japan in returns is approximately four times as large as the other way around. Finally, our results show no significant lagged spillover effects in both returns and volatility from the Osaka market to the Chicago market, while a significant lagged volatility spillover is observed from the U.S. to Japan. This revised version was published online in August 2006 with corrections to the Cover Date.     

The Role of Gatekeepers in Capital Markets

Gatekeepers in financial markets have the power to provide the institutional stability, fortitude, and direction necessary for the development and the smooth functioning of capital markets. At the same time, they are often motivated by their own private incentives. This along with the tradeoffs they face, and the at‐times unintended consequences of the regulations they propose and enforce, can undermine their effectiveness. A thorough understanding of gatekeepers and their roles can thus illuminate academics, the financial community, and regulators on how such gatekeepers can be the most effective and generate the greatest benefits for capital markets. Since gatekeeping roles and the literature they have inspired encompass a wide array of institutions and agencies, our overview concentrates on those that the conference papers appearing in this volume focus on. We conclude that collectively, the papers contribute to significant progress, and point out some crucial areas that call for further investigation and offer opportunities for future research.     

Investor Trading Behavior and Sentiment in Futures Markets

This study investigates the effects of investor trading behavior and investor sentiment on futures market return. We find that the spot investor trading behavior, futures investor trading behavior, spot market sentiment, and futures market sentiment all have positive effects on daily futures returns in Chinese financial market. More importantly, we show that the effect of (spot) futures investor trading behavior has better explanatory power than (spot) futures market sentiment on futures returns. Further supporting our results, high investor trading behavior and high investor sentiment strengthen the positive relation between sentiment-returns and behavior-returns.