Return and Risk Premium Seasonalities in three Emerging Asian Markets: Hong Kong,Korea and Taiwan*

In this study, we find that seasonal return patterns differ from that implied by risk premiums in three emerging Asian markets; namely, Hong Kong, Korea and Taiwan. Positive January seasonal returns are found in the Hong Kong and Taiwan markets, while positive February seasonal returns are also found in Taiwan. These findings suggest that investors should place their money in these markets during January but not for the months of June and December in Korea, and for the months of May and November in Taiwan. Corporate managers should also be aware of the need to adjust for such seasonal variations when they use market data to evaluate the risk premium or required rate of return for projects in these markets. The results also show that the size effect may also be priced in some of these markets.     

Individual versus institutional investors and the weekend effect

Since the late 1980’s, considerable research has focused on the behavior of individual versus institutional investors and the potential patterns which may emerge from their trading activities. Miller (1988) and Abraham and Ikenberry (1994) posit that the tendency for negative Monday returns on equity (i.e., the weekend effect) is at least partially explained by the trading behavior of individual investors. Sias and Starks (1995), on the other hand, present empirical evidence showing a dominant role played by institutional traders. This study contributes to the literature by distinguishing between individual versus institutional trading as it relates to the weekend effect. We find that the information-processing hypothesis is consistent with observed institutional trading patterns, thus supporting the results of Sias and Starks (1995). In addition, these results are shown to be robust with respect to market type (i.e., auction and dealer markets).     

Liquidity provisions by individual investor trading prior to dividend announcements: Evidence from Taiwan

This paper investigates the role of liquidity provisions played by individual investors prior to dividend announcements in Taiwan. We first document a positive relationship between aggregate individual trading before dividend announcements and abnormal stock returns in the one month after the events. We find that this positive relationship varies with liquidity. We then decompose the abnormal returns following the event into information and liquidity provision components. The information component is not significant at all, but the liquidity component is positively significant, which shows that it is individual investors’ provisions of liquidity to institutional investors prior to dividend announcements that drives the positive relationship between pre-event individual trading and post-event returns.     

<Emphasis Type="BoldItalic">Mad Money</Emphasis> stock recommendations: market reaction and performance

We examine the stock recommendations of Jim Cramer televised on CNBC’s Mad Money, and document significant market reactions (i.e., announcement returns and volume) to Cramer’s recommendations, particularly for small capitalization stocks. The following findings indicate that the announcement returns are primarily due to price pressure from uninformed trading as opposed to the recommendations providing new value related information: announcement returns reverse following buy recommendations; bid-ask spreads temporarily decline; and there is no evidence of positive longer-term abnormal returns. One implication, when considered in combination with other works, is that investors should be cautious in following stock recommendations announced in the mass-media.     

Do real estate investors trade on momentum?

Real estate markets are known to be less-than-efficient for many reasons, but what roles short-term trading plays are unclear. Do short-term investors bring additional risk to the market and cause prices to deviate from fundamental values? Based on an extensive dataset of property transactions and a policy shock that substantially raised the cost of short-term trading in Hong Kong, we estimate ‘real estate risk’ with and without short-term trading based on return predictability, return volatility, and price dispersion. Our results show that as short-term investors exit the market, market returns are less predictable and less volatile, while prices are less dispersed cross-sectionally. Consistent with herding models in behavioral finance, the findings suggest that short-term investors are momentum traders who do not enhance price efficiency.     

Investor heterogeneity and commonality in stock return and liquidity

This paper examines how the trading activities of different investor types are related to common return and liquidity movements. Using a unique dataset, we decompose the daily return and liquidity of individual stocks into price impact components attributable to trades of institutional investors and retail investors. We then investigate the variation of each component relative to market-wide return and liquidity. We show that institutional trades contribute more than retail trades to liquidity commonality. However, retail trades contribute more strongly to return co-movement. The incremental contribution of retail trades to the co-variability of stock returns is more pronounced for firms with high information asymmetry.     

International transmission of stock price movements: Evidence from the U.S. and five Asian-Pacific markets

Using a vector autoregressive analysis, this paper examines the structure of international transmissions in daily returns for six national stock markets— the U.S., Japan, Hong Kong, Singapore, Taiwan, and Thailand. Our results generally indicate that (1) the degree of interdependence among national stock markets has increased substantially after the 1987 stock market crash, (2) the U.S. market plays a dominant role of influencing the Pacific-Basin markets, (3) Japan and Singapore together have a significant persistent impact on the other Asian markets, and (4) the markets in Taiwan and Thailand are not efficient in processing international news.     

Individual and Institutional Investors’ Response to Earnings Reported by Conservative and Non‐Conservative Firms: Evidence from Chinese Financial Markets

In this study, we document that there are significant differences in individual and institutional investors’ perception and interpretation of information based on accounting conservatism, as reflected by their trading behavior in the Chinese financial market. Our findings show that institutional investors, who are more sophisticated and have better skills, engage in higher purchases of equities of firms that use high accounting conservatism compared to the firms that use low/no accounting conservatism. Institutional investors’ equity purchases are even higher if these firms are associated with higher growth opportunities. On the other hand, individual investors are attracted more by the attention‐grabbing events and are motivated to purchase equities of firms that either do not use accounting conservatism or use low accounting conservatism, and their purchases are even higher when the firms report positive earnings surprises. Additionally, we find that abnormal returns are higher for the firms using high accounting conservatism and have experienced higher purchases by institutional investors.     

Weekly pattern in higher moments: An empirical test in Hong Kong stock market

This paper provides a direct test on the day-of-the-week effect on higher moments of stock returns and compares across different industrial sectors of the Hong Kong market. Empirical results show that daily returns of six different industrial sectors on all weekdays are non-normally distributed. The hypothesis of equal higher moments is rejected by most pairs of weekdays, particularly the Monday-Tuesday pair, for all indices, supporting the existence of the day-of-the-week effect on higher moments. The results also show that the weekly pattern on volatility and higher moments cannot help explain the weekly pattern on mean returns through the concept of risk premium. Further analysis shows that Rogalski’s effect exists on the higher moments because the day-of-the-week effect exists only in non-January months.     

Autocorrelation,return horizons,and momentum in stock returns

In this study we examine Lewellen’s (Rev Financ Stud 15:533–563 2002) claim that momentum in stock returns is not due to positive autocorrelation as behavioral models suggest. Using portfolio-specific data, we find the autocovariance component of the momentum profit to be negative, suggesting no return continuations. However, we also find that the autocorrelations calculated from short-term (e.g., monthly) returns are quite different from long-horizon (e.g., annual) autocorrelations. While the first-order autocorrelations of 6– and 12-month returns tend to be negative, the autocorrelations across twelve lags in monthly returns of the industry, size, and B/M portfolios are in general positive. Our results show that these portfolios exhibit return continuations when returns are measured on a monthly basis. Therefore, our finding appears to be consistent with the behavioral models, which suggest positive autocorrelation in stock returns.     

Are institutional investors colluding with manipulators?

This paper examines the trading behavior of institutional investors in Taiwan before, during, and after a manipulation event and determines whether institutional investors benefit from their trading behavior during the period from the year 2000 to 2020. We find that stocks with a low turnover and small market capitalization are the main targets of price manipulators. In addition, the stock price of manipulated firms increases from the start date of the manipulation event, peaks at the end of the event, then falls after the event. Foreign institutions collude with manipulators to exaggerate stock prices for self-benefit. In contrast, securities dealers counter the trading behavior of manipulators and act as market stabilizers, causing them to suffer losses. Moreover, foreign institutions earn higher returns on stocks of manipulated firms with a low turnover during and soon after manipulation; however, they earn a higher return on stocks of manipulated firms with a high turnover in the long run after manipulation.     

Contrarian strategies and investor overreaction under price limits

This study investigates the effects of price limits on investment performance of contrarian trading strategies in Taiwan’s stock market over the period 1997 to 2006. All contrarian strategies in intraday limit-hit stocks lead to superior returns relative to the benchmark index return, and the findings support the overreaction effect. Also, there is evidence of delayed overreaction reflected by price continuations for the overnight period and price reversals for the subsequent trading day. Moreover, investment performance of contrarian strategies is related to firm characteristics where investors tend to overreact more in small-size, high-turnover, and non-high-tech stocks. Finally, price overreaction is strong for up-hit stocks in the aftermath of catastrophic events. If overreaction exists, price-limit regulation designed to cool off investors and reduce price volatility may not be effective.     

Aligning labour disputes with institutional,cultural and rational approach: evidence from East Asian-invested enterprises in China

This study examines the underlying critical factors, such as the institutional arrangements, working conditions, workforce composition, expatriate managers, and managerial style which influence the labour disputes in the East Asian-invested enterprises (EAIEs) in China. Throughout the process, we can determine which factors should be changed for better human resource management (HRM) practices. This research incorporates the survey data collected from the managers and factory workers working at 30 different firms invested from Taiwan, Korea, Hong Kong and Japan in the coastal cities from 2000 to 2001.

The results or findings demonstrate that the long work hours and less regulative managerial styles have significant and positive effects on the number of the labour disputes in the Hong Kong owned firms. Among the firms owned by Taiwan, the long work hours and their authoritarian managerial style have significant effects on the frequency of the labour disputes, while the lack of unionization has a diminishing effect on the labour disputes. The firms owned by Korea, on the other hand, often encounter frequent collective actions, organized by homogeneous local workforces and supported by the relatively high numbers of trade unions. Responding to the relatively strict enforcement of the labour laws and the institutional arrangements of the local governments in northern China, the firms owned by Korea tend to adopt the less regulative and less authoritarian managerial styles. Lastly, the firms owned by Japan experience the lowest number of the labour disputes when compared to their counterparts. The observance of the legal work hours and the regulative managerial style displays a significantly diminishing effect on the number of the labour disputes, although the higher level of institutionalization of the labour relations such as higher setting-up of trade unions somewhat positively contributes to the frequency of the labour disputes.

From the theoretical perspective, our exploratory model seems to exhibit the stronger explanatory ability when the institutional, cultural, and rational factors are taken into consideration. From the institutional perspective, it is imperative for local governments to reinforce the institutional arrangements through effective supervision and enforcement of the labour regulations and legislation. From the cultural perspective, foreign investors should enhance their inter-cultural understanding and localization to diminish the industrial conflicts in the workplaces in China. From the rational perspective, foreign-investors will face more labour disputes than they had before, if harsh working conditions, such as extension of the working hours, are enforced. It is also imperative for the workers to understand their rights and empower themselves to improve their working conditions.     

A Comparison of Relations Between Security Market Prices, Returns and Accounting Measures in Japan and the United States

We examine associations between accounting measures of earnings and stock returns in Japan over varying window lengths and compare them to those for the United States. Our results are consistent with the view that Japanese investors utilize less accounting information in their pricing of equities than do their U.S. counterparts. This was particularly evident in the 'boom' period of the mid to late 1980s when the fundamental values conveyed by accounting measures appear to have been largely ignored. The association increases with the inclusion of 1991, suggesting a return to more emphasis on fundamentals with the recent decline in stock prices.     

Insider Trading, Earnings Management and Corporate Governance: Empirical Evidence Based on Hong Kong Firms

We document positive association between earnings management and insider selling after the fiscal year‐end for Hong Kong firms. This positive association is especially evident before the 1997 Asian Financial Crisis. Our findings suggest that Hong Kong executives manage reported earnings to maximize their private benefits from insider selling. Additionally, we find that a higher proportion of independent directors (INED) on corporate boards moderate the positive association between insider selling and earnings management. Stricter monitoring of earnings management by INED is especially evident when no member of the family with majority ownership is present on corporate boards as a director. This suggests that the presence of family members with majority ownership on corporate boards significantly reduces INED's monitoring effectiveness. Our findings suggest that strict regulations are needed to control insider trading, and independence of corporate boards is important for monitoring of earnings management associated with insider trading. Furthermore, appointment of family members with majority shareholdings should be avoided to enhance independence and to monitor effectiveness of corporate boards.     

Institutional investors' attention to environmental information,trading strategies,and market impacts: Evidence from China

Using a large proprietary database of intraday high‐frequency trading, we investigate the trading strategies of institutional investors in dealing with the negative environmental event disclosure of listed companies and their impact on markets, aiming to reveal the mechanism of the lack of “green efficiency” in China's capital market from the perspective of institutional investors. The results show that institutional investors react to negative environmental events prior to the announcements, indicating premature information leakage in the market; in addition, their trading behaviors mitigate the immediate effect of negative environmental event announcements on stock price. After the event is disclosed, institutional investors engage in short‐term selling and long‐term buy and hold. This trading strategy undermines the irrational selling of individual investors in the event of disclosure, short‐term decline in stock price, and long‐term reversal of market overreaction. In a China context, institutional investors generally take environmental information into consideration. However, they fail to recognize the long‐term value effect of negative environmental events and instead cater to trading strategies towards market volatility.     

The Profitability of Trading Strategies Based on Book Value and Earnings in Hong Kong: Market Inefficiency vs. Risk Premia

Using a sample of Hong Kong firms, we have examined the relative and incremental usefulness of book-to-price ratio (B/P), and earnings-to-price ratio (E/P) for providing profitable trading strategies or for predicting stock returns. Our results show that trading strategies based on B/P or E/P yield significant excess returns for various holding periods up to two years, and that B/P and E/P are not only individually but also incrementally useful for predicting stock returns. Further, results of various tests indicate that trading profits observed from the B/P strategy are likely to be a result of B/P proxying for risk differentials, while those from the E/P strategy are related to gains from exploitation of market inefficiency or mispricing. The two ratios appear to capture different aspects of firm value in Hong Kong.     

The empirical linkages among market returns,return volatility,and trading volume: Evidence from the S&P 500 VIX Futures

The purpose of this study is to examine the relationships between return and trading volume as well as between return volatility and trading volume by analyzing the asymmetric relationships of contemporaneity and lead-lags between these factors for the S&P 500 VIX Futures Index. We apply the threshold model with the GJR-GARCH framework for empirical analysis herein. The main findings demonstrate that the threshold effects exist in both the contemporaneous and lead-lag relationships between return-volume and volatility-volume. Moreover, the delayed effects of a one-trading-day lag through to three-trading-day lags exist from trading volume to returns and return volatility. Larger trading volume is beneficial for investors to gain returns, but it also leads to higher volatility. The implication of our findings offers a suggestion as to the opportune timing for investors to buy S&P 500 VIX Futures.     

Disclosure quality,price efficiency,and expected returns

Using a composite disclosure quality measure, we examine the effect of disclosure quality on price delay and the effect of price delay determined by disclosure quality on expected returns in the Taiwan stock market. We find that higher disclosure quality can reduce stock price delay through more investor attention and higher stock liquidity after we control for accounting quality variables and consider the endogeneity issue. Furthermore, we show that disclosure quality reduces expected stock returns through the price efficiency channel associated with both investor attention and stock liquidity. Our results indicate that increasing a firm’s standardized information rating by one standard deviation can reduce its expected stock return by 0.63% annually. Taken together, our evidence suggests that regulatory activities enforced to improve public firms’ disclosure quality in the Taiwan stock market can make the stock market more efficient and therefore lower investors’ required return for stocks.     

Modeling dynamic conditional correlations with leverage effects and volatility spillover effects: Evidence from the Chinese and US stock markets affected by the recent trade friction

In this article, we investigate the dynamic conditional correlations (DCCs) with leverage effects and volatility spillover effects that consider time difference and long memory of returns, between the Chinese and US stock markets, in the Sino-US trade friction and previous stable periods. The widespread belief that the developed markets dominate the emerging markets in stock market interactions is challenged by our findings that both the mean and volatility spillovers are bidirectional. We do find that most of the shocks to these DCCs between the two stock markets are symmetric, and all the symmetric shocks to these DCCs are highly persistent between Shanghai’s trading return and S&P 500′s trading or overnight return, however all the shocks to these DCCs are short-lived between S&P 500′s trading return and Shanghai’s trading or overnight return. We also find clear evidence that the DCC between Shanghai’s trading return and S&P 500′s overnight return has a downward trend with a structural break, perhaps due to the “America First” policy, after which it rebounds and fluctuates sharply in the middle and later periods of trade friction. These findings have important implications for investors to pursue profits.