Myopic loss aversion and the equity premium puzzle reconsidered

Benartzi and Thaler [The Quarterly Journal of Economics 110 (1995) 73–92] offer a quasi-rational explanation for the equity premium puzzle. We reconsider their methodology and, making a simple modification to it, find that their analysis is not robust.     

CEO Share Ownership and Firm Value

This study examines the effect of CEO ownership on firm performance. The findings suggest that CEO ownership and firm performance are jointly determined. Firm performance affects CEO ownership positively and in turn, CEO ownership has a positive effect on firm performance. Our results also show that firms managed by founder CEOs have better performance and that the CEO duality structure is beneficial in a turbulent environment.     

The Impacts of Financial Integration on the Linkages Between Monetary Independence and Foreign Exchange Reserves

This paper investigates the short-run and long-run effects of financial integration on the dynamics between monetary independence and foreign exchange reserves using a GMM system estimation involving two-year non-overlapping average data (2000-2011) from 114 countries. The results indicate that the effect of foreign exchange reserves on the monetary independence is intensified by the level of financial integration. This suggests a positive spill over effect from the financial integration to the monetary policy independence. Besides, a positive implication of financial integration on monetary independence could be established when the foreign exchange reserves is at the maximum level. In addition, the comparisons between the mean of foreign exchange reserves and the threshold levels of foreign exchange reserves that neutralise the impact of financial integration indicate that on average, the foreign exchange reserves are sufficient to offset the effect of financial integration. A stable exchange rate will undermine the positive impact of foreign exchange reserves on monetary independence. Finally, the long-run and short-run impacts occur in the same direction. This paper ends with some policy implications and suggestions for future research.     

An analysis of the factors affecting the turnover intention of non-managerial clerical staff: a Singapore study

This study examines the factors affecting turnover intention and attempts to construct a turnover prediction model. Sixteen demographic, job satisfaction and job attitude factors are considered in the study. From the three-hundred questionnaires administered, a usable response rate of 36 per cent (i.e., 108 usable questionnaires) was obtained.

Correlation analyses, t-tests and multiple regression were used to analyse the data. The results show that demographic and job attitude factors are not significantly associated with turnover intention. In contrast, job satisfaction factors affect turnover intention significantly. In particular, satisfaction with career future, company identity, kind of work and financial rewards were found to be statistically significant. These four variables are thus included in the final turnover prediction model.     

The Legitimacy of Pay and Performance Comparisons: An Analysis of UK University Vice Chancellors Pay Awards

This article examines UK University Vice Chancellors (VC) pay awards. The empirical analysis, covering the period 1997–2002, evaluates the impact upon VC pay awards of university performance measures, internal pay comparisons and two external pay comparisons, that is, the pay of other VCs and the pay of chief executive officers (CEOs) leading comparable‐sized UK firms. For the total sample, we find no evidence that VC pay awards are related to any of the performance measures, although for the pre‐ and post‐1992 subsamples there is some evidence that pay awards are related to some ‘mission‐relevant’ performance measures. All the analyses show a positive relationship between changes in the proportion of other highly paid employees and VC pay awards, which suggests that internal pay comparisons play an important role in remuneration committee decision making. As anticipated, the two external pay benchmarks have very different effects upon VC pay awards; the pay received by other VCs produces a marked ‘mean reversion’ in pay levels while the pay of CEOs running comparable‐sized UK firms had a highly significant positive impact upon VC pay awards. Following the insights of institutional theory, we interpret this conservatism by university remuneration committees as stemming primarily from legitimation concerns rather than financial constraints.     

Ethnic board diversity,earnings quality and institutional investors: evidence from Malaysian corporate boards

Motivated by calls to examine the issue of board diversity in emerging economies, this study explores the association between ethnic board diversity and earnings quality; and the moderating effect of institutional investors’ ownership. In a sample of Malaysian firms, we find that boards with higher ethnic diversity are associated with higher earnings quality. Consequently, our findings suggest that institutional investors prefer boards to be ethnically diverse. Consistent with geographical proximity theory, this effect is primarily driven by domestic institutional investors. Finally, we find that political connection attenuates the association between ethnic board diversity and higher earnings quality.     

Measuring liquidity commonality in financial markets

This paper contributes to the literature by developing a new methodology, termed the beta index, for measuring liquidity commonality in financial markets which is derived from the dynamics of liquidity co-movements. We show that computing the beta index is a straightforward process. In addition, not only is the proposed beta index more efficient in controlling for confounding factors and addressing the associated statistical inference issues, but it will also enhance the accuracy of estimation. We apply the beta index to track liquidity commonality in the foreign exchange markets over the study period and to identify important financial and economic events that caused liquidity commonality. We detect periods of high and low liquidity commonalities that would especially benefit active market traders who frequently rebalance portfolios and require knowledge of liquidity commonality as an important early signal and indication of diversification benefit.     

The effect of downside risk reduction on UK equity portfolios included with Managed Futures Funds

The concept of asymmetric risk estimation has become more widely applied in risk management in recent years with the increased use of Value-at-risk (VaR) methodologies. This paper uses the n-degree lower partial moment (LPM) models, of which VaR is a special case, to empirically analyse the effect of downside risk reduction on UK portfolio diversification and returns. Data on Managed Futures Funds are used to replicate the increasingly popular preference of investors for including hedge funds and fund-of-funds type investments in the UK equity portfolios. The result indicates, however that the potential benefits of fund diversification may deteriorate following reductions in downside risk tolerance levels. These results appear to reinforce the importance of risk (tolerance) perception, particularly downside risk, when making decisions to include Managed Futures Funds in UK equity portfolios as the empirical analysis suggests that this could negatively affect portfolio returns.     

International Evidence on the Link between Quality of Governance and Stock Market Performance

Abstract

This paper examines the link between country-level governance and global stock market returns. We find a negative relation between governance quality and equity return. Countries with low governance scores, on average, have higher equity returns than those with high governance scores after controlling for global risk factors known to influence international equity returns. This implies that investors associate low governance quality with increased risk and thus demand higher risk premium. We find that the quality of governance as measured by Political Stability and Absence of Violence is key governance dimension affecting international equity returns, suggesting that heightened investor concerns over political risks have profound impact on equity markets. Interestingly, we find no evidence that variation in equity returns is affected by the governance indicator representing Voice and Accountability. The findings of this study provide important policy implications.