Investment Analysts Journal - Volume 45, Issue 2, 2016
Volumes & issues
Volume 45, Issue 2, 2016
Source: Investment Analysts Journal 45, pp 63 –80 (2016) http://dx.doi.org/http://dx.doi.org/10.1080/10293523.2015.1125062More Less
This paper examines the way common-wide information is disseminated in credit default swap (CDS) markets. I find strong supporting evidence that earnings announcements of CDS references with greater liquidity and higher credit risk help in predicting the subsequent CDS spread movements of their industry peers. This is consistent with the notion that the earnings announcements of certain firms may contain valuable market- and industry-wide information, which may be utilised afterwards to appraise the financial situation and the creditworthiness of industry peers, thereby influencing their CDS rates. Another major finding is that this common-wide information seems to be impounded with a lag into the CDS rates of industry peers. That pattern appears to be more pronounced for negative than for positive earnings surprises. The lag in the response to earnings surprises is higher among firms of the financial, cyclical consumer and energy sectors, and almost non-existent for firms of the sectors of technology and utilities. Attention costs and market frictions seem to fuel the pattern of under-reaction of CDS spreads to these earnings announcements.
The asymmetric effects of financing deficits and surpluses on the pecking order theory in sub-Saharan AfricaSource: Investment Analysts Journal 45, pp 81 –94 (2016) http://dx.doi.org/http://dx.doi.org/10.1080/10293523.2015.1125063More Less
This paper is the first to examine the asymmetric effects of financing deficits and surpluses on the pecking order financing strategies in sub-Saharan Africa. Panel data estimation techniques are carried out on a sample of 564 non-financial firms for the years 2006 to 2014. Overall, the individual country analysis reveals that equity tracks the financing deficit better than debt for firms with financing deficits. However, the categorical analysis shows that firms operating in the weakest legal environments appear to follow pecking order financing strategies. A steady decline in the magnitude of the pecking order coefficient is observed as we progress from the weakest to the strongest legal systems. In addition, significant differences in the pecking order behaviour for firms with surpluses and deficits are observed in the upper and lower categories of banking and stock market development.
Source: Investment Analysts Journal 45, pp 95 –109 (2016) http://dx.doi.org/http://dx.doi.org/10.1080/10293523.2015.1126782More Less
This paper examines how liquidity, price discovery and the causality between them are affected by incremental transparency on the Taiwan Stock Exchange (TSEC). We find that it has small effects on market quality, with the impact being focused on small- or medium-sized firms. We also find that the causality between liquidity and price discovery is weakened after the event. This study is a supplement to the existing literature and our results imply that if the market is already considerably transparent, then the effects of further opening up the limit-order book may be limited.
Source: Investment Analysts Journal 45, pp 110 –122 (2016) http://dx.doi.org/http://dx.doi.org/10.1080/10293523.2016.1151984More Less
Past data on an asset is of limited value to market agents seeking information about an asset's future behaviour. Options, on the other hand, are forward-looking instruments: their payoff is based on the distribution of the underlying asset's future price at the time of maturity of the option. Current prices of traded options therefore contain information about the market's view on future asset prices and allow us to find implied risk-neutral probability distributions for such assets. David Shimko developed a method which gives an analytic expression for implied risk-neutral probability density functions, and a procedure for generating lognormal tails for the distribution (Shimko, 1993).
Researchers have noted that the distributions generated by his formula are not quite satisfactory in terms of area under the density function, skewness and kurtosis. In this paper, we prove that the 'Shimko formula' (Shimko, 1993, p. 36) contains errors, and we derive the correct formula. This new expression for the density function now gives an area below the curve equal to one, and improved values for the kurtosis and skewness of distributions. We also provide a new way of generating non-lognormal tails for the density function.
Shimko, D. C. (1993). Bounds of probability. Risk (Concord, NH), 6(4), 33 37.