Profiteering from the Dot‐Com Bubble,Subprime Crisis and Asian Financial Crisis

The paper explores the characteristics associated with the formation of bubbles that occurred in the Hong Kong stock market in 1997 and 2007, as well as the 2000 dot‐com bubble of Nasdaq. It examines the profitability of technical analysis (TA) strategies generating buy and sell signals, with and without our proposed trading rules. The empirical results show that, by applying long and short strategies during the bubble formation and a short strategy after the bubble burst, it not only produces returns that are significantly greater than buy‐and‐hold strategies, but also produces greater wealth compared with TA strategies without trading rules. We conclude that these bubble detection signals help investors generate greater wealth from applying appropriate long and short moving average (MA) strategies.     

TESTING FOR A UNIT ROOT AGAINST TRANSITIONAL AUTOREGRESSIVE MODELS

This article develops a novel test for a unit root in general transitional autoregressive models, which is based on the infimum of t‐ratios for the coefficient of a parametrized transition function. Our test allows for very flexible specifications of the transition function and short‐run dynamics and is significantly more powerful than all the other existing tests. Moreover, we develop a large sample theory general enough to deal with randomly drifting parameter spaces, which is essential to properly test for a unit root against stationary transitional models. An empirical application of our test to the exchange rate data is also provided.     

State-dependent risk and M&A

During economic contractions, the asset and capital structures of firms are more likely to deviate from their optimal levels. Target firms, in particular, are more susceptible to such deviations. I study how such deviations affect the bidding firms’ acquisition decision. I find that bidders abstain from taking over targets when the debts and growth options of the targets are over their optimal levels. Further, I show that bidders are more likely to pay a low premium for such targets. Both results are pronounced when the aggregate economy has had a bad shock; these results are associated with higher risks because of the excessive levels of debts and growth options. Overall, these results uncover the impact of the targets’ abnormal debts and growth options on the bidders’ acquisitions, contingent on the state of the economy.     

Developing countries’ financial vulnerability to the eurozone crisis: an event study of equity and bond markets

The global crisis highlights the continued vulnerability of developing countries to shocks from advanced economies. Just a few years after the global crisis, the eurozone sovereign debt crisis has emerged as the single biggest threat to the global outlook. In this paper, we apply the event study methodology to gauge the scope for financial contagion from the EU to developing countries. More specifically, we estimate the responsiveness of equity and bond markets in developing countries to global crisis period and eurozone crisis news. Overall, we find that whereas global crisis period had a consistently negative effect on returns of equity and bond markets in developing countries, the effect of eurozone crisis news was more mixed and limited.     

The impact of a conglomerate merger on its vendors and rivals – a case study of Google's acquisition of Motorola

This study explores the valuation effects of the conglomerate merger on an acquiring firm and its stakeholders. We examine Google's acquisition of Motorola and the impact that it had on Google's vendors and rivals. The empirical results suggest that the announcement of this deal led to positive market reaction among Android's vendors, primarily due to Google's ability to use Motorola's extensive patent portfolio to help protect Android's vendors from a potential patent infringement war in the future. Our results also find that when the Open Handset Alliance members obtain help from Motorola's patents or get new technology, an increase in shareholder wealth among Android's vendors and a decrease in shareholder wealth among Android's rivals are likely to occur.     

Myanmar: building economic foundations

Myanmar began a multifaceted economic reform process in 2011, soon after its political opening. The reform process is far from complete, and its impacts remain questionable. The paper examines progress to date and assesses opportunities and challenges for further reforms. Given the extensive list of development challenges remaining and the limited resources, careful prioritising of reforms is essential. Understanding of its strengths and weaknesses will help identify and sequence reforms and investments so as to maximise the growth dividends. This paper briefly reviews Myanmar's history and its legacy, examines the economy and some of the main policy reforms undertaken since 2011, assesses development potential and weaknesses, and outlines medium and long‐term growth strategies based on the country's specific context and international experiences and practices.     

Earnings quality and short selling: Evidence from real earnings management in the United States

Prior research provides evidence consistent with managers using real earnings management (REM) to increase earnings. This study examines whether short sellers exploit the overvaluation of firms employing REM. I find that firms with more REM have higher subsequent short interest. The positive relation between REM and short interest is more pronounced in settings where the costs associated with accrual‐based earnings management are high, such as when a firm has low accounting flexibility or faces greater scrutiny from a high quality auditor. I also find some evidence that short sellers respond to REM more than to other fundamental signals of firm overvaluation. My inferences are robust to the use of propensity score matching. Collectively, my evidence suggests that short sellers not only trade on REM information, but they also trade as if they understand the substitutive nature of alternative earnings management methods. This study provides additional insight into the important role that short sellers play in monitoring managerial operating decisions and overall earnings quality.     

Information Asymmetry and Corporate Cash Holdings

This study analyzes the effect of information asymmetry on corporate cash holdings. Using various measures of information asymmetry, this study shows that companies that operate in environments with higher information asymmetry have smaller cash holdings. This study continues to find a negative relationship between information asymmetry and corporate cash holdings from a battery of sensitivity analyses, including the tests using different regression methods and the difference‐in‐difference tests employing brokerage‐firm merger and closure events. On the whole, the results support the monitoring cost hypothesis of cash holdings over the investment opportunities hypothesis.