The dynamics among G7 government bond and equity markets and the implications for international capital market diversification

This paper investigates potential international capital market diversification gains from relationships between global government bond and equity markets. Its primary contributions are (1) including both government debt and equity markets in the investigation of global diversification gains, (2) basing the analysis on real, risk-adjusted returns, and (3) evaluating both variance decompositions and impulse responses, as well as long-term relationships for international U.S. dollar investors. We find the cointegration, variance decomposition, and impulse response function results indicate interdependence and reduction in gains to international diversification.     

Diversification strategy,efficiency, and firm performance: Insight from emerging market

We investigate further the inconsistencies of the diversification-performance link by introducing efficiency as moderating factor. A data of 319 firms was used to conduct a panel data analysis excluding the financial sector industries and the results show three important findings. First, industrial diversification shows a significant contribution in performance improvement while international diversification shows no effect on performance. Yet, international-conglomerate shows a significant negative relationship with performance. Meanwhile, the efficiency results are contrary to our conjecture. We find that efficiency is a factor to enhance performance, but it is not the moderating variable on the diversification-performance link. This implies that the efficiency of the firm has no connection with the link between diversification and performance.     

Sources of the stock price fluctuations in Chinese equity market

This paper proposes a latent factor approach based on a state–space framework in order to identify which factor, if any, dominates price fluctuations in the Chinese stock markets. We also illustrate the connection of such stock price decomposition with several general equilibrium asset pricing models and show that the decomposition results can potentially offer useful insights with regard to the empirical relevance of asset pricing models. We use quarterly data of the Chinese A-Share equity market over the period 1995Q3–2011Q1 and find that the estimates of the state–space model suggest that the expected return is the primary driving force behind price fluctuations in the Chinese stock market. We show that the time-varying expected returns appear to be counter-cyclical and this result seems to be consistent with the habit formation model of Campbell and Cochrane [1999. By force of habit: A consumption-based explanation of aggregate stock market behavior. Journal of Political Economy 107, no. 2: 205–51.]. However, we also note that there is a great deal of uncertainty with respect to this variance decomposition due to the resulting small signal-to-noise ratio in the estimated state–space model.     

The entry and exit dynamics of the cryptocurrency market

This paper presents an analysis of the entry and exit dynamics of the cryptocurrency market that focuses on the growth of initial coin offerings during 2015–2020. We used two different datasets: one includes long-lived cryptocurrencies, while the other includes the whole cryptocurrency system at our disposal–that is, it considers the entering and exiting cryptocurrencies. Comparing the dynamics between both datasets with the index cohesive force approach, we assessed how the growth of the initial coin offerings and the exiting cryptocurrencies affected the connectedness of the market. Our results show that the expansion of the cryptocurrency system gave rise to a strong collective movement during 2018–2019. Afterwards, the group pressure, due to the bubble of the initial coin offerings, decreased in favour of the largest cryptocurrencies. Lastly, we observed changes in the hierarchical order of the most influential cryptocurrencies. In particular, Ethereum became the most influential cryptocurrency, at the detriment of Bitcoin.     

An empirical analysis of home equity loan and line performance

Given the growth in home equity lending during the 1990s, it is imperative that lenders and regulators understand the risks associated with this segment of the residential mortgage market. Using a unique panel data set of over 135,000 homeowners with second mortgages, our analysis indicates that significant differences exist in the prepayment and default probabilities of home equity loans and lines, providing insights into bank minimum capital requirements. We find that households with equity loans are relatively more sensitive to changes in interest rates. By contrast, households with equity lines are more sensitive to appreciation in property value.     

Industry cost of equity capital: European evidence for multifactor models

We estimate the costs of equity capital for 117 industries from 16 European countries employing the CAPM and 8 multifactor asset pricing models as well as a variety of different econometric techniques. In doing so, we extend previous research on cost of equity estimation in mainly two ways. First, our study involves European instead of US or UK industries, which are investigated in previous research, and we find that cost of equity estimates obtained from the CAPM or multifactor asset pricing models are as imprecise for European industries as for US and UK industries. Second, in addition to the CAPM, the Fama and French [1993 Fama, Eugene F., and Kenneth R. French. 1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56. doi: 10.1016/0304-405X(93)90023-5[Crossref], [Web of Science ®] , [Google Scholar]. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56] three-factor model, and the Carhart [1997 Carhart, Mark M. 1997. “On Persistence in Mutual Fund Performance.” The Journal of Finance 52 (1): 57–82. doi: 10.1111/j.1540-6261.1997.tb03808.x[Crossref], [Web of Science ®] , [Google Scholar]. “On Persistence in Mutual Fund Performance.” The Journal of Finance 52 (1): 57–82] four-factor model, which are usually employed, our study includes six multifactor models that have not yet been examined on their ability to provide precise estimates of the costs of equity: the five-factor model of Fama and French [1993 Fama, Eugene F., and Kenneth R. French. 1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56. doi: 10.1016/0304-405X(93)90023-5[Crossref], [Web of Science ®] , [Google Scholar]. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33: 3–56] as well as the multifactor models of Pástor and Stambaugh [2003 Pástor, Lubos, and Robert F. Stambaugh. 2003. “Liquidity Risk and Expected Stock Returns.” Journal of Political Economy 111 (3): 642–685. doi: 10.1086/374184[Crossref], [Web of Science ®] , [Google Scholar]. “Liquidity Risk and Expected Stock Returns.” Journal of Political Economy 111 (3): 642–685]; Campbell and Vuolteenaho [2004 Campbell, John Y., and Tuomo Vuolteenaho. 2004. “Bad Beta, Good Beta.” American Economic Review 94 (5): 1249–1275. doi: 10.1257/0002828043052240[Crossref], [Web of Science ®] , [Google Scholar]. “Bad Beta, Good Beta.” American Economic Review 94 (5): 1249–1275]; Hahn and Lee [2006 Hahn, Jaehoon, and Hangyong Lee. 2006. “Yield Spreads as Alternative Risk Factors for Size and Book-To-Market.” Journal of Financial &; Quantitative Analysis 41 (2): 245–269. doi: 10.1017/S0022109000002052[Crossref], [Web of Science ®] , [Google Scholar]. “Yield Spreads as Alternative Risk Factors for Size and Book-To-Market.” Journal of Financial &; Quantitative Analysis 41 (2): 245–269]; Petkova [2006 Petkova, Ralitsa. 2006. “Do the Fama–French Factors Proxy for Innovations in Predictive Variables?” The Journal of Finance 61 (2): 581–612. doi: 10.1111/j.1540-6261.2006.00849.x[Crossref], [Web of Science ®] , [Google Scholar]. “Do the Fama–French Factors Proxy for Innovations in Predictive Variables?” The Journal of Finance 61 (2): 581–612]; and Koijen, Lustig, and van Nieuwerburgh [2010 Koijen, Ralph S., Hanno N. Lustig, and Stijn G. van Nieuwerburgh. 2010. “The Cross-Section and Time-Series of Stock and Bond Returns.” Working Paper, University of Chicago, University of California at Los Angeles, New York University. [Google Scholar]. “The Cross-Section and Time-Series of Stock and Bond Returns.” Working Paper, University of Chicago, University of California at Los Angeles, New York University]. Our results suggest that these models provide even more imprecise cost of equity estimates. One main reason for these inaccurate estimates is the large temporal variation of the risk loadings on the non-traded factors in these models.     

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.     

The role of global economic conditions in forecasting gold market volatility: Evidence from a GARCH-MIDAS approach

In this study, we examine the role of global economic conditions in the predictability of gold market volatility using alternative measures. Based on the available data frequency for the relevant series, we adopt the GARCH-MIDAS approach which allows for mixed-data frequencies. We find that global economic conditions contribute significantly to gold market volatility, albeit with mixed outcomes. While the results also lend support to the safe-haven properties of the gold market, the outcome can be influenced by the choice of measure for global economic conditions. For completeness, we extend the analyses to other precious metals (palladium, platinum, rhodium and silver) and find that the global economic conditions forecast the return volatility of the gold market better than these other precious metals. Our results are robust to multiple forecast horizons and offer useful insights on the plausible investment choices in the precious metals market.     

Short-selling and cost of equity: evidence from China

In this study, we take advantage of the gradual lifting of the short-selling ban in China and find that firms affected by the lifting of the ban experience a lower cost of equity. In addition, the affected firms also incur less earnings management, higher market liquidity and higher investment efficiency. Further evidence shows that firms’ cost of equity increases after their stocks are no longer eligible for short selling. Our inferences are robust to alternative measures of cost of equity, and to using a propensity score-matched sample. Our study contributes to the literature by providing evidence that short sellers play a monitoring role in the Chinese stock markets and sheds light on the benefits of short selling in emerging markets.     

An examination of the equity market price linkage between Australia and the European Union using leveraged bootstrap method

The paper examines the equity market price interaction between Australia and the European Union – represented by the UK, Germany and France – based on the Toda–Yamamoto causality test, which is bootstrapped with leveraged adjustments. A new information criterion is used to choose the optimal lag order. Weekly MSCI data covering the period 1988 to 2001 is used, divided into two subperiods to allow for a structural break arising from the ERM crisis of 1992. Results show that, during the period before the ERM crisis, no significant causal links exist between Australia and any of three EU countries. During the period after the ERM crisis, Australia also had no causal links with Germany and France but it had with the UK, with causality running from the UK to Australia but not vice-versa. Thus, Australian investors may find the German and French, but not the UK, equity markets, attractive venues for their international diversification. German and French, but not British, investors may also obtain the same benefit from the Australian equity market.     

The interrelatedness of global equity markets, money markets, and foreign exchange markets

This article investigates different aspects of global financial markets, specifically relationships among equity markets, money markets, and foreign exchange markets across countries. To represent the three major financial markets of the world, Japan is the proxy for Asia, Germany is the proxy for Europe, and the United States is the proxy for North America. Strong evidence exists that international money markets and international equity markets are becoming increasingly integrated over time. This article incorporates foreign exchange values as partial determinants of equity returns and money market returns and investigates the interactions among these three asset markets from a global perspective.     

Earnings management,market discounts and the performance of private equity placements

Private equity placement data allow us to determine whether sophisticated investors can uncover the true value of firms. This can be done by defining sophisticated investors as those who meet the stringent participation requirements of the private equity market. Our results show private equity issuing firms overstate their earnings in the quarter preceding private equity placement announcements and that sophisticated investors do not ask for a fair discount when purchasing the shares of the private issuing firms. We also find evidence showing that the reversal of the effects of pre-issue earnings management is a significant determinant of the long-term performance of private issues. Results further show that post-issue stock performance and operating performance of firms using “aggressive” earnings management significantly underperform those using more “conservative” earnings management.     

Long-run stock performance of German initial public offerings and seasoned equity issues

We estimate the long-run stock performance after initial public offerings (IPOs) in the German capital market with a larger sample than prior studies and alternative benchmarks (the equally and the value-weighted market portfolio, size portfolios and matching stocks). In addition we present the first results on the long-run performance after seasoned equity issues (SEOs) in Germany. We conclude that size portfolios and matching stocks are better benchmarks than market portfolios. Using buy‐and-hold abnormal returns, we estimate that German stocks involved in an IPO or in a SEO, on average, underperform a portfolio consisting of stocks with a similar market capitalization by 6% in three years. This is considerably less than the underperformance after IPOs and SEOs in the US market reported by Loughran and Ritter (1995) and the underperformance after IPOs in Germany reported by Ljungqvist (1997). We also show that the apparent underperformance of the 1988–1990 IPO cohort discussed by Ljungqvist (1997) disappears when the abnormal performance estimate is based on size instead of market portfolios.     

Seasoned equity offerings and the short- and long-run performance of initial public offerings in the UK

In contrast to the US practice, rights issues is the predominant method of raising additional equity capital in the London market. the UK evidence for the period 1980-1991 provides no support to the hypothesis that IPO firms deliberately underprice to signal their quality and facilitate subsequent seasoned equity offerings. the level of initial returns is related neither to the size of the issue nor to the price response at the announcement of a rights issue. the results demonstrate, however, that firms with higher first day returns are quicker in returning to the market for additional equity capital. There is also strong evidence to suggest that the announcement of a seasoned equity offering follows a period of significant rises in the stock prices of reissuing firms. Such gains are, however, dissipated quickly in the 18 months after the announcement of the seasoned equity offering. the level of underperformance is particularly pronounced for firms that raised relatively small subsequent amounts of capital in relation to funds raised at the initial offering. Thus, the paper documents a pattern of post-issue behaviour which is fundamentally similar for both unseasoned and seasoned equity offerings.     

How do investment patterns of independent and captive private equity funds differ? Evidence from Germany

Empirical literature emphasizes a positive contribution of private equity investors, which results from their combined provision of capital, monitoring, and management support. The aim of this study is to show that these previous results, which are based mostly on the analysis of US independent closed-end private equity funds, cannot be generalized since the private equity industry should not be treated as homogenous. We argue that it is necessary to distinguish between different types of private equity providers because their differing governance structures, strategic goals and experiences have a decisive influence on their value adding activities. The results of this study—which uses a data set of 179 German private equity-backed companies—are consistent with the conjecture that independent and corporate private equity providers tend to have a more pronounced role in corporate governance and monitoring of the companies they finance, than bank-dependent and governmental funds which often serve only as bridge investors.      

The initial private placement of equity and changes in operating performance in Taiwan

We propose the corporate governance hypothesis which suggests that the outside blockholders arising from the private placement of equity are more likely to have a significantly positive effect on firms with poor corporate governance. Using a sample of Taiwan‐listed firms with initial private placements of equity, our study’s results indicate that an improvement in operating performance is more likely to be seen after a private placement for those firms that are without independent directors, are controlled by a family, have lower insider shareholdings or are characterized by a pyramidal ownership structure. These findings are consistent with our hypothesis.     

Religious atmosphere and the cost of equity capital: Evidence from China

The cost of equity capital (ICC) is a crucial component of investment decisions and corporate performance evaluations. This study explores the effect of a region’s religious atmosphere on ICC and finds that ICC tends to be lower when stronger religious atmosphere is created. We further use the mediation effect method to clarify the specific channel through which religious atmosphere reduces ICC, and find that earnings quality, corporate investment efficiency and corporate social responsibility partially mediate the effect of religious atmosphere on ICC. Moreover, the relationship between religious atmosphere and ICC is more pronounced in firms with stronger external law environments and higher audit quality, indicating that formal institutions and religious tradition complement each other.     

The impact of surprise offer-share adjustments on offer-day returns: evidence from seasoned equity offers

Using a sample of seasoned equity offerings (SEOs), we examine the eleventh-hour information carried by the final offer-share adjustment. We argue that if market participants interpret the final offer-share adjustment as a new information signal regarding the demand for the stocks issued, a greater final offer-share adjustment will affect the offer-day return positively (demand information hypothesis). Alternatively, if investors interpret the final offer-share adjustment as increasing the supply of stocks issued and/or as diluting the value of existing shares, a greater final offer-share adjustment will affect the offer-day returns negatively (price-pressure and dilution hypothesis). We provide empirical evidence that the offer-day returns are positively related to the final offer-share adjustment after controlling for confounding factors, supporting the demand information hypothesis. Our results also remain intact even after controlling for the endogeneity. Overall, our findings suggest that the final offer-share adjustment is another important determinant of offer-day returns, in addition to the final offer-price adjustment that Altinkiliç and Hansen [J Financ Econ 69(2):285–323 (2003)] report.     

The performance of banks in the MENA region during the global financial crisis

This paper examines the impact of the global financial crisis on the banking sector in the Middle East and North Africa (MENA) region, as well as the main determinants of the profitability of both domestic and foreign banks. The empirical findings suggest that during the crisis the former outperformed the latter in that region. As for the determinants of profitability, size does not appear to play a role, whilst the liquidity ratio and net interest revenues seem to have a negative and positive effect respectively; GDP has a positive effect in the case of domestic banks.     

Firm internationalization and cost of equity: Evidence from China

This paper examines the relationship between firm internationalization and cost of equity. We find that firms with a higher degree of international operations have a significantly lower cost of equity, which is more pronounced for firms in provinces with a weak institutional environment or firms experiencing intense domestic competition. Our results are robust after adopting a firm fixed effect model, propensity score matching, difference-in-difference regressions and alternative measurements of key variables. Further, international operations help firms to break through their institutional constraints in the domestic market, which reduces the cost of equity and improves resource allocation efficiency in the capital market. Our paper enriches the literature on firm internationalization and the cost of equity from the perspective of emerging markets.