Can technical trading beat the foreign exchange market in times of crisis?

I examine the profitability of three simple foreign exchange technical trading rules (moving average, momentum, and relative strength index) before, during, and after the 2007–2008 global financial crisis. These rules significantly improve profitability during the crisis (as opposed to before and after it). The moving average rule significantly increases profitability for exchange rate changes during the crisis. The momentum and relative strength index rules generate significant positive excess currency returns (defined as the difference between the forward premium and spot rate changes), but this profitability is not visible in spot rate changes. These findings are robust for portfolios of developed and emerging market currencies as well as for bilateral exchange rates.     

Can the Chinese volatility index reflect investor sentiment?

The volatility index is the implied volatility calculated inversely from the option prices. This study investigates whether the official Chinese volatility index, iVX, can represent investor sentiment. In order to describe investor sentiment comprehensively, we build a three-dimensional investor sentiment measurement system composed of macro, meso and micro level, and decompose iVX into three components to obtain short-term, medium-term fluctuations and long-term trend by EEMD method. The relationships between iVX, its components and sentiment indexes at each level have been analyzed separately, and the empirical results reveal all components of iVX can reflect the investor sentiment at the corresponding level but to which extent they can reflect are not the same. Further we introduce the mixed-frequency dynamic factor analysis to extract the common sentiment factor, which shows stronger correlation with contemporaneous iVX, compared with the sentiment indexes at each level. The ADL model in robustness check also demonstrates the results. Our findings confirm iVX can represent the common sentiment and expectations of Chinese investors in different time scales.     

A Comparative Analysis of Anglo‐Australian Pre‐packs: Can the Means Be Made to Justify the Ends?

Whereas pre‐packaged administrations have been prevalent in the UK for years, Australia's voluntary administration regime has been more restrictive of the practice. This article analyses the evolution of UK pre‐packs, why UK‐style pre‐packs are not prevalent in Australia and the challenges for UK and Australian lawmakers in striking the right balance with pre‐packs in their respective administration regimes. Building upon this analysis, the article proposes a mechanism that might make ‘connected‐party’ pre‐pack business sales work more fairly for stakeholders—that is, by obligating a connected‐party purchaser to make a future‐income contribution in favour of the insolvent company whose business has been ‘rescued’ by a pre‐packaged sale in administration. Copyright © 2012 INSOL International and John Wiley & Sons, Ltd.     

Do exchange‐traded fund flows increase the volatility of the underlying index? Evidence from the emerging market in China

Studying 70 Chinese equity exchange‐traded funds (ETFs), we show that daily ETF flows significantly increase both the total volatility and the fundamental volatility of the underlying index on the next trading day. More specifically, it is the forward‐looking flow component which captures APs’ share creation/redemption activities beyond their role of market makers that can significantly predict the two types of volatility. Moreover, ETF arbitrage (ETF's information share) enhances the effect of forward‐looking flows on the total volatility (fundamental volatility) of the index. Furthermore, the relationships between forward‐looking flows and the two types of index volatility show a two‐way contagion.     

Consumer strategy in the public sector: Are you being served?

If your consumers had a choice, would they still choose you? Looking at your service through their eyes is a useful first step in working towards a positive answer to that question. Public sector managers need market sensitivity, whether or not they are monopoly suppliers of services.     

Speculative bubbles in the S&P 500: Was the tech bubble confined to the tech sector?

This study tests for the presence of periodically, partially collapsing speculative bubbles in the sector indices of the S&P 500 using a regime-switching approach. We also employ an augmented model that includes trading volume as a technical indicator to improve the ability of the model to time bubble collapses and to better capture the temporal variations in returns. We find that well over half of the S&P 500 index by market capitalization and seven of its ten sector component indices exhibited at least some bubble-like behavior over our sample period. Thus the speculative bubble that grew in the 1990s and subsequently collapsed was surprisingly pervasive in the US equity market and it affected numerous sectors including financials and general industrials, rather than being confined to information technology, telecommunications and the media. In addition, we develop a joint model for cross-sectional contagion of bubbles across the sectors and we examine whether there is evidence for bubble spillovers.     

Is trading in the shortest-term index options profitable?

Review of Derivatives Research - The aim of this study is to examine the return rates of the TAIEX options with at most 8 calendar days to maturity using a buy-and-hold strategy. Although our...     

Does Say‐on‐Pay Matter? Evidence from Say‐on‐Pay Proposals in the United States

We investigate the effect of say‐on‐pay (SOP) proposals on changes in executive and director compensation. Relative to non‐SOP firms, SOP firms’ total compensation to CEOs does not significantly change after the proposal. However, the mix of compensation does change—companies move away from using cash compensation toward more incentive compensation, offsetting the reduction in bonus. Further, the mix of compensation of non‐CEO executives changes similarly to that of CEOs. Compensation to directors of SOP firms increases less than non‐SOP firms. Firms whose CEOs are well compensated, especially with cash‐based compensation, are most likely to receive a proposal.     

The Long‐Run Fisher Effect: Can It Be Tested?

In this paper, I provide a plausible explanation as to why past studies have been unable to find support for the long-run Fisher effect. My argument is that exogenous shocks to the inflation rates in industrialized economies have not produced the permanent change to inflation necessary for testing the Fisher effect. Instead of finding a nonstationary, unit-root process for inflation like previous Fisher effect studies, here each country's inflation rate is found to follow a mean-reverting, fractionally integrated, long-memory process. Applying a bivariate, maximum likelihood estimator to a multivariate, fractionally integrated model of inflation and nominal interest, I find that the estimated inflation rates in 17 developed countries are highly persistent, fractionally integrated, mean-reverting processes with order of integration parameters significantly less than one. Since a permanent change to inflation has not occurred, a test of whether a permanent change to inflation affects the nominal interest rate one-for-one will be uninformative as to the truth or fallacy of the Fisher effect hypothesis.     

Click or Call? Auction versus Search in the Over‐the‐Counter Market

Over‐the‐counter (OTC) markets dominate trading in many asset classes. Will electronic trading displace traditional OTC “voice” trading? Can electronic and voice systems coexist? What types of securities and trades are best suited for electronic trading? We study these questions by focusing on an innovation in electronic trading technology that enables investors to simultaneously search many bond dealers. We show that periodic one‐sided electronic auctions are a viable and important source of liquidity even in inactively traded instruments. These mechanisms are a natural compromise between bilateral search in OTC markets and continuous double auctions in electronic limit order books.     

Can you get what you pay for? Pay‐for‐performance and the quality of healthcare providers

Despite the popularity of pay-for-performance (P4P) among health policymakers and private insurers as a tool for improving quality of care, there is little empirical basis for its effectiveness. We use data from published performance reports of physician medical groups contracting with a large network HMO to compare clinical quality before and after the implementation of P4P, relative to a control group. We consider the effect of P4P on both rewarded and unrewarded dimensions of quality. In the end, we fail to find evidence that a large P4P initiative either resulted in major improvement in quality or notable disruption in care.     

Can short selling improve internal control? An empirical study based on the difference‐in‐differences model

Based on pilot margin trading in China, this study examines how short selling affects internal control quality in listed firms. Using the difference‐in‐differences approach, we find that compared with control firms, firms that are eligible for short selling significantly improve their internal control after they are designated as underlying securities. We consider the effects of state ownership and external auditors. The improvement in internal control is only significant for non‐state‐owned firms and firms audited by non‐Big 4 auditors. These findings indicate that short selling can improve firms’ internal control and play a role in their corporate governance.     

Where Is the Risk in Value? Evidence from a Market‐to‐Book Decomposition

We study the value premium using the multiples‐based market‐to‐book decomposition of Rhodes‐Kropf, Robinson, and Viswanathan (2005). The market‐to‐value component drives all of the value strategy return, while the value‐to‐book component exhibits no return predictability in either portfolio sorts or firm‐level regressions. Existing results linking market‐to‐book to operating leverage, duration, exposure to investment‐specific technology shocks, and analysts’ risk ratings derive from the unpriced value‐to‐book component. In contrast, results on expectation errors, limits to arbitrage, and certain types of cash flow risk and consumption risk exposure are due to the market‐to‐value component. Overall, our evidence casts doubt on several value premium theories.     

Irving Fisher and Price‐Level Targeting in Austria: Was Silver the Answer?

The question of price level versus inflation targeting remains controversial. Disagreement concerns not so much the desirability of price stability but rather the means of achieving it. Irving Fisher argued for a commodity dollar standard where the purchasing power of money was fixed by indexing it to a basket of commodities. We show that movements in the price of silver closely track the movements in overall prices during the classical gold standard era. The one‐to‐one relationship between paper and silver bonds suggests that a simple “silver rule” could have sufficed to fix the purchasing power of money.     

New directions in local accountability: Can the people be trusted?

Everyone is talking about accountability but it is a hard concept to pin down. The Audit Commission commends some of the Governments’ reforms, but believes that ultimately it will be people who will determine whether a better system of accountability emerges.     

What Happens During the Private Period?: Evidence from Public‐to‐Private Reverse LBOs

This study provides new evidence on the restructuring activities undertaken by public‐to‐private reverse leveraged buyouts (RLBOs) while owned by private equity firms. The authors' comprehensive sample of public‐to‐private LBOs that return to public ownership through IPOs enables them to observe changes in profitability, valuation, financial structure, operating structure, and cost structure from the time the firms go private through (and after) their emergence through (re‐) IPOs. With their exclusive focus on reverse LBOs involving public‐to‐private deals, the authors reach findings that contradict previous conclusions about RLBOs. At the time of the LBO, the target firms in reverse LBOs are more levered than their peers, pay higher dividends, and are more profitable than their peers. At the same time, however, they appear to have lower market valuations before the buyouts. During the private period, the target firms of reverse LBOs achieve significant increases in employee productivity, asset restructuring, and improved gross margins, while operating with substantially higher levels of debt financing, lower levels of cash and working capital, and greater concentration of equity ownership. After the companies return to public ownership through IPOs, such companies continue to operate with higher leverage and ownership concentration than their publicly traded peers while producing further increases in profitability, resulting in substantial increases in both enterprise and equity valuation. The authors' analysis also shows that higher debt levels from the buyout play an important role in increased enterprise values. The evidence suggests that possible undervaluation as well as expected efficiency gains from restructuring actions are the primary motives for such reverse LBOs.     

Cross‐border Insolvency Problems: Is the UNCITRAL Model Law the Answer?

This paper examines the impact that the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross‐border Insolvency has had on States in the light of the central problems often associated with transnational insolvencies. Despite the accolades that it has received, the Model Law has been adopted in only 19 countries in the last 15 years and that too in many different ways. If the number of adoptees and the rather conditional acceptance of the Model Law's provisions represent a lack of international enthusiasm for adopting the Model Law, what are the reasons for this? The paper concludes by asking whether the UNCITRAL Model Law presently has a future in dealing with cross‐border insolvencies. Copyright © 2012 INSOL International and John Wiley & Sons, Ltd.