Price extremes and asymmetric dependence structures in stock returns: the emerging market evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Saji Thazhungal Govindan Nair
Keyword(s):  
Business Cycle ◽  
Stock Returns ◽  
Extreme Values ◽  
Stock Exchange ◽  
Emerging Market ◽  
Empirical Finding ◽  
Content Type ◽  
Asymmetric Dependence ◽  
News Effects ◽  
Valuation Ratios

PurposeEquity research in experimental psychology reveals investors' overreactions to bad news events. This study of asymmetric price structures in equity markets investigates whether such behavior predicts stock returns in an emerging market of India.Design/methodology/approachThe research decomposes Bombay Stock Exchange (BSE) Sensex returns into Extremely Positive Returns (EPR) and Extremely Negative Returns (ENR) based on extreme values at first and then tests their lead–lag relations.FindingsThe empirical finding is consistent with the existing evidence of asymmetric news effects on stock returns in India. In precise, ENR robustly predicts one-month-ahead EPR for the sample period from January 1991 to March 2020. This predictive power persists even in the presence of popular valuation ratios and business cycle variables.Practical implicationsThe paper explains the rationale of extreme value modeling in price forecasting. Investors can find additional utility gains from market cycle information while predicting extreme returns in Indian stock market.Originality/valueThe paper is unique to understand business cycle effects in extreme return reversals in emerging markets.

Conditional stock liquidity premium: is Warsaw stock exchange different?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Szymon Stereńczak
Keyword(s):  
Emerging Markets ◽  
Stock Returns ◽  
Stock Exchange ◽  
Emerging Market ◽  
Market Liquidity ◽  
Investment Horizon ◽  
Liquidity Premium ◽  
Stock Liquidity ◽  
Content Type ◽  
Bear Market

Purpose This paper aims to empirically indicate the factors influencing stock liquidity premium (i.e. the relationship between liquidity and stock returns) in one of the leading European emerging markets, namely, the Polish one. Design/methodology/approach Various firms’ characteristics and market states are analysed as potentially affecting liquidity premiums in the Polish stock market. Stock returns are regressed on liquidity measures and panel models are used. Liquidity premium has been estimated in various subsamples. Findings The findings vividly contradict the common sense that liquidity premium raises during the periods of stress. Liquidity premium does not increase during bear markets, as investors lengthen the investment horizon when market liquidity decreases. Liquidity premium varies with the firm’s size, book-to-market value and stock risk, but these patterns seem to vanish during a bear market. Originality/value This is one of the first empirical papers considering conditional stock liquidity premium in an emerging market. Using a unique methodological design it is presented that liquidity premium in emerging markets behaves differently than in developed markets.

Risk and returns in Shari’ah-compliant cross-section stocks: evidence from an emerging market

2019 ◽  
Vol 10 (5) ◽  
pp. 621-643
Author(s):  
Muhammad Hanif ◽  
Abdullah Iqbal ◽  
Zulfiqar Shah
Keyword(s):  
Risk Factors ◽  
Stock Returns ◽  
Factor Model ◽  
Stock Exchange ◽  
Emerging Market ◽  
Explanatory Power ◽  
Market Returns ◽  
Content Type ◽  
The Impact ◽  
Three Factor

Purpose This study aims to understand and document the impact of market-based – market returns and momentum – as well as firm-specific – size, book-to-market (B/M) ratio, price-to-earnings ratio (PER) and cash flow (CF) – factors on pricing of Shari’ah-compliant securities as explanation of variations in stock returns in an emerging market – Pakistan’s Karachi Stock Exchange. Design/methodology/approach Initially, the authors test Fama and French (FF) three-factor model – market risk premium, size and B/M – followed by modified FF model by including additional risk factors (PER, CF and momentum) over a 10-year period (2001-2010). Findings Our results support superiority of FF three-factor model over single-factor capital asset pricing model. However, addition of further risk factors – including PER, CF and momentum – improves explanatory power of the model, as well as refines the selection of risk factors. In this study, CF, B/M and momentum factors remain insignificant. Traditional B/M factor in FF model is replaced by PER. Practical implications Based on the modified FF model, the authors propose a stock valuation model for Shari’ah-compliant securities consisting of three factors: market returns, size and earnings, which explains 76per cent variations in cross sectional stock returns. Originality/value To the best of the authors’ knowledge, this is the first study (which combines market-based as well as fundamental factors) on pricing of Islamic securities and identification of risk factors in an emerging market – Karachi Stock Exchange.

The performance of the Broad Based Black Economic Empowerment compliant listed property firms in South Africa

2016 ◽  
Vol 34 (1) ◽  
pp. 3-26 ◽  
Author(s):  
Omokolade Akinsomi ◽  
Katlego Kola ◽  
Thembelihle Ndlovu ◽  
Millicent Motloung
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Stock Exchange ◽  
Sharpe Ratio ◽  
Economic Empowerment ◽  
Content Type ◽  
Black Economic ◽  
Black Economic Empowerment ◽  
The Government ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of Broad-Based Black Economic Empowerment (BBBEE) on the risk and returns of listed and delisted property firms on the Johannesburg Stock Exchange (JSE). The study was investigated to understand the impact of Black Economic Empowerment (BEE) property sector charter and effect of government intervention on property listed markets. Design/methodology/approach – The study examines the performance trends of the listed and delisted property firms on the JSE from January 2006 to January 2012. The data were obtained from McGregor BFA database to compute the risk and return measures of the listed and delisted property firms. The study employs a capital asset pricing model (CAPM) to derive the alpha (outperformance) and beta (risk) to examine the trend amongst the BEE and non-BEE firms, Sharpe ratio was also employed as a measurement of performance. A comparative study is employed to analyse the risks and returns between listed property firms that are BEE compliant and BEE non-compliant. Findings – Results show that there exists differences in returns and risk between BEE-compliant firms and non-BEE-compliant firms. The study shows that BEE-compliant firms have higher returns than non-BEE firms and are less risky than non-BEE firms. By establishing this relationship, this possibly affects the investor’s decision to invest in BEE firms rather than non-BBBEE firms. This study can also assist the government in strategically adjusting the policy. Research limitations/implications – This study employs a CAPM which is a single-factor model. Further study could employ a multi-factor model. Practical implications – The results of this investigation, with the effects of BEE on returns, using annualized returns, the Sharpe ratio and alpha (outperformance), results show that BEE firms perform better than non-BEE firms. These results pose several implications for investors particularly when structuring their portfolios, further study would need to examine the role of BEE on stock returns in line with other factors that affect stock returns. The results in this study have several implications for government agencies, there may be the need to monitor the effect of the BEE policies on firm returns and re-calibrate policies accordingly. Originality/value – This study investigates the performance of listed property firms on the JSE which are BEE compliant. This is the first study to investigate listed property firms which are BEE compliant.

Epidemics and Chinese firms' stock returns: is COVID-19 different?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Quang Thi Thieu Nguyen ◽  
Dao Le Trang Anh ◽  
Christopher Gan
Keyword(s):  
Stock Returns ◽  
Negative Impact ◽  
Stock Exchange ◽  
Market Performance ◽  
Disease Outbreaks ◽  
Stock Exchanges ◽  
Content Type ◽  
Event Study Method ◽  
Economic Shock ◽  
The Impact

PurposeThis study investigates the Chinese stocks' returns during different epidemic periods to assess their effects on firms' market performance.Design/methodology/approachThe study employs an event study method on more than 3,000 firms listed on Shanghai and Shenzhen stock exchanges during periods of SARS, H5N1, H7N9 and COVID-19FindingsEpidemics' effect on firms' stock returns is persistent up to 10 days after the event dates. Although the impact varies with types and development of the disease, most firms experience a negative impact of the epidemics. Among the epidemics, COVID-19 has the greatest impact, especially when it grows into a pandemic. The epidemics' impact is uneven across industries. In addition, B-shares and stocks listed on Shanghai Stock Exchange are more negatively influenced by the epidemic than A-shares and those listed on Shenzhen Stock Exchange.Research limitations/implicationsThe results of the study contribute to the limited literature on the effects of disease outbreaks as an economic shock on firm market performance. Given the possibility of other epidemics in the future, the study provides guidance for investors in designing an appropriate investing strategy to cope with the epidemic shocks to the market.Originality/valueThe research is novel in the way it compares and assesses the economic impact of different epidemics on firms and considers their impact at different development stages.

Managers ability and investment dynamics during the global financial crisis: an emerging market context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rehana Naheed ◽  
Bushra Sarwar ◽  
Rukhsana Naheed
Keyword(s):  
Global Financial Crisis ◽  
Stock Exchange ◽  
Emerging Market ◽  
Investment Policy ◽  
Managerial Ability ◽  
Content Type ◽  
Crisis Period ◽  
Managerial Talent ◽  
The Impact

Purpose Many scholars have developed several theories and empirics to study issues related to investment policy. However, there are still some unexplored issues in the field of finance that require further analysis and investigation, particularly in the corporate governance literature such as the role of managerial talent in the firms. This study investigated the impact of managerial ability on investment decisions of the firms. Design/methodology/approach The study first uses firm efficiency and managerial ability by using data envelope analysis (DEA) proposed by Demerjian, Lev and McVay, 2012. Data is collected for the firms listed in Shenzhen and Shanghai stock exchange for an emerging market of China during the crisis period with 1,640 number of observations. Findings The study reveals that the presence of more managerial talent in a firm is significant for the strategic decisions of the firms. Findings follow a resource-based view and identify that more talented managers help the firms in the acquisition of resources specifically during financial distress. The study subdivides the firms based on: ownership structures and financial constraints. Results generated from propensity score matching imply that the role of high-talented managers is significantly different from that of low-talented managers. Originality/value The study reveals managerial ability as a determinant of investment policy. To the researchers’ best knowledge, none of the previous studies have been conducted in emerging market literature during the crisis period.

Do Indian stock market sentiments impact contemporaneous returns?

2018 ◽  
Vol 7 (3) ◽  
pp. 332-346
Author(s):  
Divya Aggarwal ◽  
Pitabas Mohanty
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Temporal Dynamics ◽  
Stock Exchange ◽  
Principal Component ◽  
Stock Index ◽  
Content Type ◽  
Investor Sentiments ◽  
Indian Stock Market ◽  
The Impact

Purpose The purpose of this paper is to analyse the impact of Indian investor sentiments on contemporaneous stock returns of Bombay Stock Exchange, National Stock Exchange and various sectoral indices in India by developing a sentiment index. Design/methodology/approach The study uses principal component analysis to develop a sentiment index as a proxy for Indian stock market sentiments over a time frame from April 1996 to January 2017. It uses an exploratory approach to identify relevant proxies in building a sentiment index using indirect market measures and macro variables of Indian and US markets. Findings The study finds that there is a significant positive correlation between the sentiment index and stock index returns. Sectors which are more dependent on institutional fund flows show a significant impact of the change in sentiments on their respective sectoral indices. Research limitations/implications The study has used data at a monthly frequency. Analysing higher frequency data can explain short-term temporal dynamics between sentiments and returns better. Further studies can be done to explore whether sentiments can be used to predict stock returns. Practical implications The results imply that one can develop profitable trading strategies by investing in sectors like metals and capital goods, which are more susceptible to generate positive returns when the sentiment index is high. Originality/value The study supplements the existing literature on the impact of investor sentiments on contemporaneous stock returns in the context of a developing market. It identifies relevant proxies of investor sentiments for the Indian stock market.

Impact of oil volatility shocks on global emerging market stock returns

2017 ◽  
Vol 13 (5) ◽  
pp. 578-591 ◽  
Author(s):  
Probal Dutta ◽  
Md Hasib Noor ◽  
Anupam Dutta
Keyword(s):  
Stock Returns ◽  
Emerging Market ◽  
Equity Returns ◽  
Oil Price ◽  
Financial Assets ◽  
Stock Market Returns ◽  
Content Type ◽  
Volatility Index ◽  
Jump Model ◽  
Oil Price Risk

Purpose The purpose of this paper is to investigate whether the crude oil volatility index (OVX) plays any key role in explaining the trend in emerging market stock returns from a global standpoint. Design/methodology/approach At the empirical stage, different forms of the GARCH-jump model have been estimated. Findings The findings confirm the effects of OVX on equity returns. In addition, the results document that there exist time-varying jumps in the stock market returns. Besides, the impacts of OVX shocks appear to be symmetric. The analysis further shows that the magnitude of OVX impact is marginally bigger than that of the conventional oil price shocks. Originality/value Since various financial assets are traded on the basis of oil and equity markets, investors, for instance, could use the findings of this study for taking proper investment decisions and gaining better portfolio diversification benefits. Additionally, policymakers could utilize the results to develop effective measures and strategies in order to minimize the oil price risk.

The impact of qualified audit opinion on stock returns: an empirical study at Amman stock exchange

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rana Bayo Flees ◽  
Sulaiman Mouselli
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Market Model ◽  
Content Type ◽  
Going Concern ◽  
Study Approach ◽  
Audit Opinions ◽  
The Impact ◽  
First Time

Purpose This paper aims to investigate the impact of qualified audit opinions on the returns of stocks listed at Amman Stock Exchange (ASE) after the introduction of the recent amendments by the International Auditing and Assurance Standard Board (IAASB) on audits reporting and conclusions. It further investigates if results differ between first time qualified and sequenced qualifications, and between plain qualified opinion and qualifications with going concern. Design/methodology/approach Audit opinions’ announcements and stock returns data are collected from companies’ annual reports for the fiscal years 2016 to 2019 while stock returns are computed from stock closing prices published at ASE website. The authors apply the event study approach and use the market model to calculate normal returns. Cumulative abnormal returns (CARs) and average abnormal returns (AARs) are computed for all qualified audit opinions’ announcements. Findings The empirical evidence suggests that investors at ASE do not react to qualified audit opinions announcements. That is, the authors find an insignificant impact of qualified audit opinion announcements on stock returns using both CAR and AAR estimates. The results are robust to first time and sequenced qualifications, and for qualifications with going concern. Results are also robust to the use of risk adjusted market model. Research limitations/implications The insignificant impact of qualified audit opinions on stock returns have two potential conflicting research implications. First, the new amendments introduced to auditors’ report made them more informative and reduce the negative signals contained in the qualified opinions. That is, investors are now aware of the real causes of qualifications and not overreacting to the qualified opinion. Second, the documented insignificant impact confirms that ASE is not a semi-strong form efficient. Practical implications The apparent excessive use of qualifications should ring the bell on whether auditors misuse their power or companies are really in trouble. Hence, the Jordanian regulatory bodies need to warn auditors against the excessive use of qualifications on the one hand, and to raise the awareness of investors on the implications of auditors’ opinions on the other hand. Originality/value This study is innovative in twofold. First, it explores the impact of qualified audit opinions on stock returns after the introduction of new amendments by IAASB at ASE. In addition, it uses event study approach and distinguishes between first time qualified and sequenced qualifications, and between plain qualified opinion and qualifications with going concern. The results are consistent with efficient market theory and behavioral finance explanations.

A new look at the meeting clustering effect

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ángel Pardo ◽  
Eddie Santandreu
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Relevant Information ◽  
Investor Attention ◽  
Content Type ◽  
Potential Link ◽  
Clustering Effect ◽  
Trading Volumes ◽  
The Relationship

PurposeThe study aims to test the existence of a meeting clustering effect in the Spanish Stock Exchange (SSE).Design/methodology/approachThis paper studies the relationship between the clustering of annual general meetings and stock returns in the SSE. A multivariate analysis is carried out in order to analyse the relationship between monthly returns and the clustering of general meetings in the SSE.FindingsThe authors show that meeting clustering exists and that some months exhibit significant and positive additional returns related to the holding of ordinary or extraordinary general meetings.Research limitations/implicationsThe authors have explored some possible explanations for the meeting clustering effect, such as a potential link with the “Halloween” effect or the presence of higher-than-normal levels of volatility, trading volumes or investor attention. However, none of these can explain the meeting clustering effect that emerges as a new anomaly in the SSE.Practical implicationsThe authors have documented significant and positive abnormal returns in some months that coincide with the holding of general meetings. Therefore, the holding of ordinary and/or extraordinary meetings in some months involves the release of relevant information for investors.Originality/valueThis study complements the financial literature because it is focused on the clustering of meetings and its effect on a stock market whose legal order is based on civil law. This fact allows us to shed new light on meeting clustering and its effect on other types of markets.

Consequences of corporate sustainability reporting: evidence from an emerging market

2020 ◽  
Vol 62 (3) ◽  
pp. 243-265
Author(s):  
RMNC Swarnapali
Keyword(s):  
Financial Reporting ◽  
Firm Value ◽  
Stock Exchange ◽  
Emerging Market ◽  
Earnings Quality ◽  
Corporate Sustainability ◽  
Market Value ◽  
Sustainability Reporting ◽  
Content Type ◽  
Sustainability Disclosure

Purpose The purpose of this paper is to discover whether corporate sustainability disclosure has a potential impact on the market value and earnings quality of firms in an emerging market. Design/methodology/approach The data were collected from 220 companies listed in the Colombo Stock Exchange (CSE) in Sri Lanka during the period 2012-2016. Firm value proxies by Tobin’s Q, while earnings quality proxies by discretionary accruals (DAC). The study is premised on value-enhancing theory for firm value and transparent financial reporting perspective for earnings quality. Regression analyses are executed on the panel data to achieve the study objectives. Findings The results reveal a positive relationship between sustainability reporting (SR) and firm market value, accepting the value-enhancing theory while rejecting the value-destroying theory. This finding suggests that investors pay a premium in the financial markets for firms that perform in an environmentally and socially responsible manner, compared to firms that do not perform in a similar manner. In the same vein, the results reveal that sustainability disclosure and DAC are negatively and significantly associated, resulting in high-quality earnings. The result is consistent with the transparent financial reporting hypothesis, which is also in line with the managers’ integrity motivation. Originality/value This is the first study investigating the consequences of SR that is specific to the Sri Lankan context. Owing to the sparse studies on consequences of SR, this study contributes significantly to the extant literature by broadening the geographical coverage to include a developing country setting.

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