Equity Markets (equity + market)

Distribution by Scientific Domains
Distribution within Business, Economics, Finance and Accounting

Kinds of Equity Markets

  • european equity market
  • international equity market

  • Selected Abstracts

    Equity Markets & the Economy

    ECONOMIC OUTLOOK, Issue 2 2001
    John Muellbauer
    Media commentary in the New Year has seen the word ,recession' increasingly associated with short-term US prospects, which seemed so positive only half a year ago. In this article, John Muellbauer discusses this ,boom to bust' phenomenon, the role of asset prices and the wider ramifications for global growth, exchange rates and the UK economy. [source]

    Short-Horizon Return Predictability in International Equity Markets

    FINANCIAL REVIEW, Issue 2 2010
    Abul Shamsuddin
    G12; G14; G15 Abstract This study measures the degree of short-horizon return predictability of 50 international equity markets and examines how its variation is related to the indicators of equity market development. Two multiple-horizon variance ratio tests are employed to measure the degree of return predictability. We find evidence that return predictability is negatively correlated with publicly available indicators of equity market development. Our cross-sectional regression analysis shows that the per capita gross domestic product, market turnover, investor protection, and absence of short-selling restrictions are correlated with cross-market variations in return predictability. [source]

    The Behavior and Performance of Foreign Investors in Emerging Equity Markets: Evidence from Taiwan

    Anchor Y. Lin
    This study investigates trading behavior and investment performance of foreign investors in 60 large-size firms listed on the Taiwan Stock Exchange. Strong evidence is found that foreign investors employ momentum strategies of buying past winners and selling past losers and favor large-size, high book-to-market, and high-tech stocks, while no evidence is found that foreign investors herd on market consensus. Findings show that foreign investors are short-term superior performers but long-term inferior performers. The short-term superior performance appears to be driven partially by price momentum of winners portfolios rather than by risk taking. After controlling for firm size, share turnover, and industry, foreigners' short-term performance in large-size, high-turnover, and high-tech stocks is better than it is in small-size, low-turnover, and non-high-tech stocks. [source]

    The Relationship Between Economic Factors and Equity Markets in Central Europe

    Jan Hanousek
    This paper investigates the possibility that newly-emerging equity markets in Central Europe exhibit semi-strong form efficiency such that no relationship exists between lagged values of changes in economic variables and changes in equity prices. We find that while there are connections between the real economy and equity market returns in Poland and Hungary, these links occur with lags, suggesting the possibility of profitable trading strategies based on public information and rejecting semi-strong efficiency. For the Czech Republic the situation is more complex. In recent periods, little connection exists between lagged economic variables and equity market returns. Although this finding might be viewed as consistent with semi-strong efficiency, in fact there is also little connection between current economic values and stock prices in the Czech Republic. Thus, instead of processing information efficiently, the Czech market appears to be entirely divorced from the real world. It is suggested that the difference in the current status of these markets may be due to the different methods by which they were created. [source]

    Limited Arbitrage in Equity Markets

    THE JOURNAL OF FINANCE, Issue 2 2002
    Mark Mitchell
    We examine 82 situations where the market value of a company is less than its subsidiary. These situations imply arbitrage opportunities, providing an ideal setting to study the risks and market frictions that prevent arbitrageurs from immediately forcing prices to fundamental values. For 30 percent of the sample, the link between the parent and its subsidiary is severed before the relative value discrepancy is corrected. Furthermore, returns to a specialized arbitrageur would be 50 percent larger if the path to convergence was smooth rather than as observed. Uncertainty about the distribution of returns and characteristics of the risks limits arbitrage. [source]

    Foreign Speculators and Emerging Equity Markets

    THE JOURNAL OF FINANCE, Issue 2 2000
    Geert Bekaert
    We propose a cross-sectional time-series model to assess the impact of market liberalizations in emerging equity markets on the cost of capital, volatility, beta, and correlation with world market returns. Liberalizations are defined by regulatory changes, the introduction of depositary receipts and country funds, and structural breaks in equity capital flows to the emerging markets. We control for other economic events that might confound the impact of foreign speculators on local equity markets. Across a range of specifications, the cost of capital always decreases after a capital market liberalization with the effect varying between 5 and 75 basis points. [source]

    Efficiency, Cointegration and Contagion in Equity Markets: Evidence from China, Japan and South Korea,

    A.S.M. Sohel Azad
    C14; C32; G14; G15 This paper empirically examines whether three East Asian stock markets, namely, those of China, Japan and South Korea, are individually and/or jointly efficient, and whether contagion exists between the cointegrated markets. While individual market efficiency is examined through testing for the random walk hypothesis, joint market efficiency is examined through testing for cointegration and contagion. The present study finds that the hypothesis of individual market efficiency is strongly rejected for the Chinese stock market, but not for the Japanese and the South Korean stock markets. However, when testing for cointegration, market efficiency is strongly rejected for all these markets. We take a simple case of contagion and find that although there is a long-term relationship among the three markets, the contagion hypothesis cannot be rejected only between Japanese and South Korean stock markets, indicating short-run portfolio diversification benefits from these two markets. [source]

    Equity market and foreign capital

    Yoko Furukawa
    Abstract I present a model that demonstrates that the market mechanism is not always effective in stabilizing an open equity market. Foreign capital inflows create multiple equilibria in the equity market, which may simultaneously trigger a currency crisis as well as an equity market crash even if the equity market is well developed. L'auteur présente un modèle qui montre que le mécanisme de marché n'est pas toujours efficace pour stabiliser un marché ouvert d'actions. Les influx de capitaux étrangers créent de multiples équilibres dans le marché des actions, qui peuvent simultanément engendrer une crise de la monnaie et un effondrement du marché des actions, même si le marché des actions est bien développé. [source]

    Ethical investment and the incentives for corporate environmental protection and social responsibility

    Iulie Aslaksen
    This paper addresses some interrelated questions regarding ethical investments: does ethical screening provide any incentives for improved social responsibility within firms? Are ethical screened portfolios competitive compared with conventional funds with respect to risk-adjusted return? Does the risk-adjusted return of a screened portfolio depend on the screening strategy applied? Considering ethical screening as a kind of segmentation of the equity market, it is shown that screening might create incentives for changes in firms' behaviour. The strength of this incentive depends on the relative share of screened portfolios, which in turn partially depends on the financial performance of the screened portfolios. While some theoretical arguments suggest that screening imposes a handicap compared with conventional portfolios, the empirical evidence does not suggest that screened portfolios systematically under-perform conventional portfolios. Copyright © 2003 John Wiley & Sons, Ltd and ERP Environment. [source]

    Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective

    FINANCIAL REVIEW, Issue 2 2009
    Darren D. Lee
    G11; G30; Q56 Abstract Does investing in sustainability leaders affect portfolio performance? Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) finds that (1) leading sustainability firms do not underperform the market portfolio, and (2) their lagging counterparts outperform the market portfolio and the leading portfolio. Notably, we find leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market. We develop an idiosyncratic risk factor and find that its inclusion significantly reduces the apparent difference in performance between leading and lagging CSP portfolios. [source]

    Informed Trading around Merger Announcements: An Empirical Test Using Transaction Volume and Open Interest in Options Market

    FINANCIAL REVIEW, Issue 2 2001
    Narayanan Jayaraman
    G14/G34 Abstract This paper provides empirical evidence on the level of trading activity in the stock options market prior to the announcement of a merger or an acquisition. Our analysis shows that there is a significant increase in the trading activity of call and put options for companies involved in a takeover prior to the rumor of an acquisition or merger. This result is robust to both the volume of option contracts traded and the open interest. The increased trading suggests that there is a significant level of informed trading in the options market prior to the announcement of a corporate event. In addition, abnormal trading activity in the options market appears to lead abnormal trading volume in the equity market. This finding supports the hypothesis that the options market plays an important role in price discovery. [source]

    Private Equity, Corporate Governance, and the Reinvention of the Market for Corporate Control

    Karen H. Wruck
    In the early 1980s, during the first U.S. wave of debt-financed hostile takeovers and leveraged buyouts, finance professors Michael Jensen and Richard Ruback introduced the concept of the "market for corporate control" and defined it as "the market in which alternative management teams compete for the right to manage corporate resources." Since then, the dramatic expansion of the private equity market, and the resulting competition between corporate (or "strategic") and "financial" buyers for deals, have both reinforced and revealed the limitations of this old definition. This article explains how, over the past 25 years, the private equity market has helped reinvent the market for corporate control, particularly in the U.S. What's more, the author argues that the effects of private equity on the behavior of companies both public and private have been important enough to warrant a new definition of the market for corporate control,one that, as presented in this article, emphasizes corporate governance and the benefits of the competition for deals between private equity firms and public acquirers. Along with their more effective governance systems, top private equity firms have developed a distinctive approach to reorganizing companies for efficiency and value. The author's research on private equity, comprising over 20 years of interviews and case studies as well as large-sample analysis, has led her to identify four principles of reorganization that help explain the success of these buyout firms. Besides providing a source of competitive advantage to private equity firms, the management practices that derive from these four principles are now being adopted by many public companies. And, in the author's words, "private equity's most important and lasting contribution to the global economy may well be its effect on the world's public corporations,those companies that will continue to carry out the lion's share of the world's growth opportunities." [source]

    Financial Restatements, Cost of Debt and Information Spillover: Evidence From the Secondary Loan Market

    Jong Chool Park
    Abstract:, In this paper, we investigate the effect of financial restatements on the debt market. Specifically, we focus on the secondary loan market, which has become one of the largest capital markets in the US, and ask the following: (1) whether financial restatements increase restating firm's cost of debt financing and (2) whether the information about restatements arrives at the secondary loan market earlier than at the stock market? Using 176 restatement data, we find significant negative abnormal loan returns and increased bid-ask spreads around restatement announcements. Furthermore, this negative loan market reaction is more pronounced when the restatement is initiated by either the SEC or auditors, and when the primary reason for restatement is related to revenue recognition issues. Additionally, we find restatement information arrives at the secondary loan market earlier than at the equity market, and that such private information quickly flows into the equity market. We also show that stock prices begin to decline approximately 30 days prior to the restatement announcements for firms with traded loans. However, we do not find such informational leakage for firms without traded loans. Collectively, the results of this paper suggest: (1) increased cost of debt financing after restatements and (2) superior informational efficiency of the secondary loan market to the stock market. [source]

    Relationships between Australian real estate and stock market prices,a case of market inefficiency

    John Okunev
    Abstract This paper explores the relationship between the Australian real estate and equity market between 1980 and 1999. The results from this study show three specific outcomes that extend the current literature on real estate finance. First, it is shown that structural shifts in stock and property markets can lead to the emergence of an unstable linear relationship between these markets. That is, full-sample results support bi-directional Granger causality between equity and real estate returns, whereas when sub-samples are chosen that account for structural shifts the results generally show that changes within stock market prices influence real estate market returns, but not vice versa. Second, the results also indicate that non-linear causality tests show a strong unidirectional relationship running from the stock market to the real estate market. Finally, from this empirical evidence a trading strategy is developed which offers superior performance when compared to adopting a passive strategy for investing in Australian securitized property. These results appear to have important implications for managing property assets in the funds management industry and also for the pricing efficiency within the Australian property market. Copyright © 2002 John Wiley & Sons, Ltd. [source]

    Monetary Policy and Stock Prices in an Open Economy

    monetary policy; stock prices; Taylor Rule; open-economy DSGE models; wealth effects This paper studies monetary policy in a two-country model where agents can invest their wealth in both stock and bond markets. In our economy the foreign country hosts the only active equity market where also residents of the home country can trade stocks of listed foreign firms. We show that, in order to achieve price stability, the Central Banks in both countries should grant a dedicated response to movements in stock prices driven by relative productivity shocks. Determinacy of rational expectations equilibria and approximation of the Wicksellian interest rate policy by simple monetary policy rules are also investigated. [source]

    Market Timing and Capital Structure

    THE JOURNAL OF FINANCE, Issue 1 2002
    Malcolm Baker
    It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to historical market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market. [source]

    Return and Volatility Dynamics in the Spot and Futures Markets in Australia: An Intervention Analysis in a Bivariate EGARCH-X Framework

    Ramaprasad Bhar
    This article provides evidence of linkages between the equity market and the index futures market in Australia, where the futures market has experienced a major structural event due to the futures contract respecification. A bivariate Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model is developed that includes a cointegrating residual as an explanatory variable for both the conditional mean and the conditional variance. The conditional mean returns from both markets are influenced by the long-run equilibrium relationship, and these markets are informationally linked through the second moments. The crossmarket spillovers exhibit asymmetric behavior in that the volatility responses to past standardized innovations are different for market advances and market retreats. An intervention analysis shows that some of the parameters describing the return-generating process have shifted after the contract respecification by the futures exchange. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:833,850, 2001 [source]

    Studies on Information Asymmetry, Price Manipulation and Investor Performances,

    Jin Yoo
    Abstract In this paper, we examine optimal investment strategies of informed traders in an equity market, where well informed and not so well informed traders as well as noise traders coexist. Naturally, less informed traders follow more informed counterparts because of informational advantage. On the other hand, more informed investors can take advantage of less informed investors' trust by manipulating prices. Often, by inflating or deflating the equity prices, more informed traders make greater profits than less informed traders do. Over time, less informed traders become aware of the others' strategy, thereby a long-term equilibrium is to be attained, in which the more informed mixes his sincere and cheating strategy, and the less informed mixes his trust and distrust strategy. This model can be especially useful in understanding emerging markets, where foreign investors, local institutions, and local individuals are often characterized as more informed, less informed, and noise traders, respectively. [source]


    This paper examines whether the New Zealand equity market is integrated with the equity markets of Australia and the G7 economies by applying both the Johansen (1988) and Gregory and Hansen (1996) approaches to cointegration. The Johansen (1988) test suggests that there is no long-run relationship between the New Zealand stock market and any of the other stock markets considered in the study. The Gregory and Hansen (1996) test finds that the New Zealand and United States stock market is cointegrated, but the New Zealand stock market is not cointegrated with the other stock markets in the study. This suggests that in order to avoid some of the risk through international portfolio diversification there is potential for investors to purchase shares in the New Zealand market and either the Australian market or most of the world's leading equity markets. [source]

    The Anglo-Saxon Approach to Corporate Governance and its Applicability to Emerging Markets

    Dennis C. Mueller
    Almost all firms start out as small, owner-managed companies. Many stay that way throughout their lives. Some create attractive investment opportunities, however, that will allow them to grow rapidly and become leading companies in their country. These firms typically do not have sufficient internal funds flows and must turn to external sources of finance. Among these is the issuance of equity. Once a firm sells shares, however, the cost of the managers engaging in on-the-job consumption falls, and they can be expected to do so at the expense of their shareholders. Knowing this, potential shareholders may be unwilling to purchase a new offering of a young firm's shares, and the firm with attractive investment opportunities is unable to finance them. Strong corporate governance institutions help to protect shareholders from the discretionary use of their firm's resources. This paper reviews the case for having strong corporate governance institutions to facilitate the creation of thick equity markets in the context of developing countries in emerging markets, and examines the case for relying on alternative sources of capital including the state. [source]

    Does Correlation Between Stock Returns Really Increase During Turbulent Periods?

    ECONOMIC NOTES, Issue 1 2001
    Francois Chesnay
    Correlations betwen international equity markets are often claimed to increase during periods of high volatility. Therefore the benefits of international diversification are reduced when they are most needed, i.e. during turbulent periods. This paper investigates the relationship between international correlation and stock-market turbulence. We estimate a multivariate Markov-switching model, in which the correlation matrix varies across regimes. Subsequently, we test the null hypothesis that correlations are regime-independent. Using weekly stock returns for the S&P, the DAX and the FTSE over the period 1988,99, we find that international correlations significantly increased during turbulent periods. (J.E.L.: C53, G15). [source]

    Trust in Financial Markets

    Colin Mayer
    O16 Abstract This paper examines contemporaneous and historical evidence on the structure of ownership and control of corporate sectors in developed countries to draw lessons for development of financial markets. It records the critical role that equity markets played in the ownership and financing of corporations at the beginning of the 20th century. It notes that this occurred in the absence of formal systems of regulation and that equity markets functioned on the basis of informal relationships of trust. These were sustained through local stock markets in the UK, banks in Germany, and business coordinators and family firms in Japan. The paper explores the concept of trust that is required to promote the development of financial markets. [source]

    The impact of the euro on Europe's financial markets

    Gabriele Galati
    This paper presents an overview of the impact of the introduction of the euro on Europe's financial structure over the first four years since the start of EMU. It analyzes changes in money markets, bond markets, equity markets and foreign exchange markets. Euro's role in originating or catalyzing trends has been uneven across the spectrum of financial markets. From the supply side, banks and investors in fixed income markets have become more focused on the characteristics of individual borrowers rather than the nationality of the issuer and have built up expertise to evaluate credit risk. European equity markets have also been affected by the enhanced ability of investors to build strategies with a pan-European perspective as prices increasingly reflected risk factors specific to industrial sectors rather than individual countries. On the borrower side, EMU has increased the attractiveness of market-based financing methods by allowing debt issuers to tap institutional portfolios across the euro area. Lower barriers to cross-border financial transactions have also increased the contestability of the market for financial services, be it at the wholesale or the retail level. The introduction of the euro has also highlighted the shortcomings of existing institutional structures and areas where excessive focus on narrowly defined interests may stand in the way of realizing the full potential benefits from the new environment. Diverging legal and institutional infrastructures and market practices can impede further financial market development and deepening. Hence, the euro has put a premium on cooperation between national authorities and institution as a means of achieving a more harmonized financial environment. The impact of EMU on depth in foreign exchange markets has been less clear-cut, as volatility, spreads, trading volumes and liquidity appear not to have changed in a substantial way. Overall, it seems that the new currency has made some progress towards the goal of becoming a currency of international stature that would rival that of the US dollar. However, a number of the necessary next steps towards achieving this goal are also among the trickiest to implement. [source]

    Short-Horizon Return Predictability in International Equity Markets

    FINANCIAL REVIEW, Issue 2 2010
    Abul Shamsuddin
    G12; G14; G15 Abstract This study measures the degree of short-horizon return predictability of 50 international equity markets and examines how its variation is related to the indicators of equity market development. Two multiple-horizon variance ratio tests are employed to measure the degree of return predictability. We find evidence that return predictability is negatively correlated with publicly available indicators of equity market development. Our cross-sectional regression analysis shows that the per capita gross domestic product, market turnover, investor protection, and absence of short-selling restrictions are correlated with cross-market variations in return predictability. [source]

    Cash Flows and Discount Rates, Industry and Country Effects and Co-Movement in Stock Returns

    FINANCIAL REVIEW, Issue 2 2007
    John Ammer
    F36; G15 Abstract We apply the Campbell decomposition to industry-by-country, national, global industry, and world stock index returns using 1995,2003 data. World, global industry, and country factors are all important for each of the two key components of stock returns: news about future dividends and news about future discount rates. Furthermore, the world component of future discount rates is more important than the idiosyncratic component, while the reverse is true for news about future dividends. Our results are broadly consistent with co-movement in future discount rates arising from perceptions of common elements of risk in international equity markets. [source]

    Size and momentum in European equity markets: empirical findings from varying beta Capital Asset Pricing Model

    ACCOUNTING & FINANCE, Issue 1 2010
    George Karathanasis
    G14; G15 Abstract We use securities listed on 13 European equity markets to form size and momentum portfolios. We find limited evidence of a size premium but significant momentum returns in eight sample markets. We find that these premia may not constitute an anomaly because they are consistent with a varying-beta Capital Asset Pricing Model. We also show that systematic risk is related to the business cycle. Furthermore, the results suggest that although size and especially momentum returns are significant, it would be difficult to exploit them in the short to medium run, because they are positive and sizeable in very few years in our sample. [source]

    The relation between implied and realised volatility in the Danish option and equity markets

    ACCOUNTING & FINANCE, Issue 3 2001
    Charlotte Strunk Hansen
    We show that the conclusions to be drawn concerning the informational efficiency of illiquid options markets depend critically on whether one carefully recognises and appropriately deals with the econometrics of the errors-in-variables problem. This paper examines the information content of options on the Danish KFX share index. We consider the relation between the volatility implied in an option's price and the subsequently realised index return volatility. Since these options are traded infrequently and in low volumes, the errors-in-variables problem is potentially large. We address the problem directly using instrumental variables techniques. We find that when measurement errors are controlled for, call option prices even in this very illiquid market contain information about future realised volatility over and above the information contained in historical volatility. [source]

    Monetary policy's effects during the financial crises in Brazil and Korea

    Charles Goodhart
    This paper looks at the effect of monetary policy changes on asset prices in the foreign exchange and equity markets of Brazil and Korea. We were searching for evidence whether monetary policy tightening may have had (adverse) counterproductive effects on such asset markets. In common with other authors we find only weak or sporadic evidence for this hypothesis. Using a theoretical model of financial market imperfections, we show that the failure to find monetary policy effectiveness during a crisis can come about not only because of the endogeneity caused by a ,leaning against the wind' policy reaction but also, independently, if there are large and correlated risk premia in the financial markets in which interest rates and determined. Copyright © 2003 John Wiley & Sons, Ltd. [source]

    Predicting Stock Market Returns with Aggregate Discretionary Accruals

    ABSTRACT We find that the positive relation between aggregate accruals and one-year-ahead market returns documented in Hirshleifer, Hou, and Teoh [2009] is driven by discretionary accruals but not normal accruals. The return forecasting power of aggregate discretionary accruals is robust to choices of sample periods, return measurements, estimation methods, business condition and risk premium proxies, and accrual models used to isolate discretionary accruals. Our extensive analysis shows that aggregate discretionary accruals, in sharp contrast to aggregate normal accruals, contain little information about overall business conditions or aggregate cash flows and display little co-movement with ICAPM-motivated risk premium proxies. Our findings imply that aggregate discretionary accruals likely reflect aggregate fluctuations in earnings management, thereby favoring the behavioral explanation that managers time aggregate equity markets to report earnings. [source]

    The Future of Private Equity

    Steve Kaplan
    A distinguished University of Chicago financial economist and longtime observer of private equity markets responds to questions like the following: ,With a track record that now stretches in some cases almost 30 years, what have private equity firms accomplished? What effects have they had on the performance of the companies they invest in, and have they been good for the economy? ,How will highly leveraged PE portfolio companies fare during the current downturn, especially with over $400 billion of loans coming due in the next three to five years? ,With PE firms now sitting on an estimated $500 billion in capital and leveraged loan markets shut down, are the firms now contemplating new kinds of investment that require less debt? ,If and when the industry makes a comeback, do you expect any major changes that might allow us to avoid another boom-and-bust cycle? Have the PE firms or their investors made any obvious mistakes that contribute to such cycles, and are they now showing any signs of having learned from those mistakes? Despite the current problems, the operating capabilities of the best PE firms, together with their ability to manage high leverage and the increased receptiveness of public company CEOs and boards to PE investments, have all helped establish private equity as "a permanent asset class." Although many of the deals done in 2006 and 2007 were probably overpriced, the "cov-lite" deal structures, deferred repayments of principal, and larger coverage ratios have afforded more room for reworking troubled deals. As a result of that flexibility, and of the kinds of companies that get taken private in leveraged deals in the first place, most troubled PE portfolio companies should end up being restructured efficiently, thereby limiting the damage to the overall economy. Part of the restructuring process involves the use of the PE industry's huge stockpile of capital to purchase distressed debt and inject new equity into troubled deals (in many cases, their own). At the same time the PE firms have been working hard to rescue their own deals, some have been taking significant minority positions in public companies, while gaining some measure of control. Finally, to limit overpriced and overlev-eraged deals in the future, and so avoid the boom-and-bust cycle that appears to have become a predictable part of the industry, the discussion explores the possibility that the limited partners and debt providers that supply most of the capital for PE investments will insist on larger commitments of equity by sponsors to their own funds and individual deals. [source]