Financial Market Data Versus Accounting Data: Which Better Explains Stock Returns?

This paper presents the comparison of how financial market and accounting data affect stock prices and returns. The goal was to ascertain whether financial information or accounting data dominate in evaluating stock prices. Most valuation techniques used by firms are based on models using either accounting variables (earnings, book value, cash flows, research and development expenses) or financial market data (e.g. beta, market value, interest). The answer is of great importance for valuators and investors as it will help them focus on the most important variables and make better valuations and choices. This answer is also important for accounting standard setters as the preferred method will serve as an indicator for the quality of financial statements and their importance to users. The paper contributes to the existing literature in the fields of value relevance of accounting information and firm valuation and accounting standards (e.g. International Financial Reporting Standards, United States General Accepted Accounting Principles). To answer this question, share prices were estimated based on financial data using the capital asset pricing model and for accounting data, using Ohlson’s model. The results were tested for both methodologies by comparing estimated share prices with actual ones. The greater the correlation between the two variables the better the explanatory power of the model. The focus was on S&P 500 firms for the period 2002–2017.

     

Modeling the time varying volatility of housing returns: Further evidence from the U.S. metropolitan condominium markets

This study extends the literature on modeling the volatility of housing returns to the case of condominium returns for five major U.S. metropolitan areas (Boston, Chicago, Los Angeles, New York, and San Francisco). Through the estimation of ARMA models for the respective condominium returns, we find volatility clustering of the residuals. The results from an ARMA‐TGARCH‐M model reveal the absence of asymmetry in the conditional variance. Dummy variables associated with the housing market collapse unique to each metropolitan area were statistically insignificant in the conditional variance equation, but negative and statistically significant in the mean equation. Condominium markets in Los Angeles and San Francisco exhibit the greatest persistence to volatility shocks.     

Default estimation,correlated defaults,and expert information

Capital allocation decisions are made on the basis of an assessment of creditworthiness. Default is a rare event for most segments of a bank's portfolio and data information can be minimal. Inference about default rates is essential for efficient capital allocation, for risk management and for compliance with the requirements of the Basel II rules on capital standards for banks. Expert information is crucial in inference about defaults. A Bayesian approach is proposed and illustrated using prior distributions assessed from industry experts. A maximum entropy approach is used to represent expert information. The binomial model, most common in applications, is extended to allow correlated defaults yet remain consistent with Basel II. The application shows that probabilistic information can be elicited from experts and econometric methods can be useful even when data information is sparse. Copyright © 2009 John Wiley & Sons, Ltd.     

Enhancing Governmentally Sponsored Export Promotions Through Better Segmentation of the Market of a State's Manufacturing Concerns

This article presents methodology for identifying product categories that, if they were made the subjects of a specified state's export promotions, would hold promise for satisfying relevant needs of members of three key “stakeholder” groups regarding the outcomes of the governmentally sponsored export promotions: the World Trade Organization (WTO), managements of non-exporting, small- and- medium-sized (SME) manufacturing concerns, and governmental entities who are responsible for raising funds to support such promotions. Methodology is applied in the context of a state in the United States (North Carolina).

The methodology is then applied in the context of a state in the United States (North Carolina). The presentations of the results of the application of the methodology at each of the 2-, 4- and 6-digit HS-coded product category levels are in each case followed by discussions of implications of the results.     

The Bank Lending Channel and Monetary Policy Rules: Evidence from European Banks

There exist two main channels of the monetary transmission mechanism: the interest rate and the bank lending channel. This paper focuses on the latter, which is based on the central bank’s actions that affect loan supply and real spending. The supply of loans depends on the monetary policy indicator, which, in most studies, is the real short-term interest rate. The question investigated in this paper is how the operation of the bank lending channel changes when this short-term indicator is allowed to be endogenously determined by the target rate the central bank sets through a monetary rule. We examine the effect that a rule has on the bank lending channel in European banking institutions spanning the period 1999–2009. The expectations concerning inflation and output affect the decision of the central bank for the target rate, which, in turn, affect private sector’s expectations —commercial banks— by altering their loan supply.     

Airports in their urban settings: towards a conceptual model of interfaces in the Australian context

In Australia, airports have emerged as important sub-regional activity centres and now pose challenges for both airport operation and planning in the surrounding urban and regional environment. The changing nature of airports in their metropolitan context and the emergence of new pressures and problems require the introduction of a fresh conceptual framework to assist the better understanding of these complex roles and spatial interactions. The approach draws upon the meta-concept of interfaces of an ‘airport metropolis’ as an organising device consisting of four main domains: economic development, land use, infrastructure, and governance. The paper uses the framework to further discuss airport and regional interactions and highlights the use of sustainability criteria to operationalise the model. The approach aims to move research and practice beyond the traditionally compartmentalised analysis of airport issues and policy-making by highlighting interdependencies between airports and regions.     

Why Do Property‐Liability Insurers Destroy Liquidity? Evidence from South Africa

This paper examines liquidity creation behaviour in the property‐liability insurance market in South Africa. Using annual data on 76 insurers from 2007 to 2014, the paper employs the three‐stage approach to estimate liquidity creation. The results suggest that property‐liability insurers are characterised by liquidity destruction by transforming liquid assets in cash and investable securities into illiquid reserves liabilities. The findings also indicate that the R1.32 billion in liquid assets were transformed into illiquid reserves liabilities in 2014, an increase from the R700 million liquidity de‐created in 2007. The increases were mainly driven by large insurers which accounted for about 70% liquidity de‐created. The results of panel regression analysis provide evidence in support of the “risk‐absorption” hypothesis which argues that high levels of capital increases liquidity creation. In addition, size, leverage and reinsurance were also identified as the firm‐level factors that explain liquidity creation. The policy implications of the findings are discussed.