Investment Analysts Journal - latest Issue
Volumes & issues
Volume 45, Issue 3, 2016
Source: Investment Analysts Journal 45, pp 123 –148 (2016) http://dx.doi.org/10.1080/10293523.2015.1126916More Less
In this paper we set out to test whether, on sector level, returns series in South Africa exhibit long memory and asymmetries and, more specifically, whether these effects should be accounted for when assessing downside risk. The purpose of this analysis is not to identify the most optimal downside risk assessment model or to reaffirm the often regarded stylised fact of the existence of long memory and asymmetry in asset returns series. Rather, we set out to establish whether accounting for these effects and allowing for more flexibility in second order persistence models actually leads to improved downside risk assessments. We use several variants of the widely used GARCH family of second order persistence models that control for these effects, and compare the downside risk estimates using Value-at-Risk measures of different model formulations and compare the out-of-sample performances. Our findings confirm that controlling for asymmetries and long memory in volatility models improve risk management calculations.
Author Frank LiSource: Investment Analysts Journal 45, pp 149 –162 (2016) http://dx.doi.org/10.1080/10293523.2016.115198More Less
The endogeneity problem has always been one, if not the only, obstacle to understanding the true relationship between different aspects of empirical corporate finance. Variables are typically endogenous, instruments are scarce, and causality relations are complicated. As the first attempt to summarise different econometric methods that are commonly used to address endogeneity concerns in the context of corporate governance, we explore the relation between CEO power and firm performance, as an experiment, to illustrate how these methods can be used to mitigate the endogeneity problem and by how much. After carefully dealing with the endogeneity issues, we find strong evidence that the true relationship between CEO power and subsequent firm performance is negative, suggesting CEOs are overpowered in some firms. Furthermore, we show that all the prevailing econometric remedies are generally effective in mitigating the endogeneity problem to some degree (i.e., to correct the sign from positive to negative), but quantitatively the effects vary considerably. Among all the remedies, GMM has the greatest correction effect on the bias, followed by instrumental variables, fixed effect models, lagged dependent variables and the addition of more control variables. As for a combination of the methods, firm fixed effects, year fixed effects and the addition of more meaningful control variables appear to work as well, even without a valid instrumental variable.
Analysis of price discovery and non-linear dynamics between volatility index and volatility index futuresSource: Investment Analysts Journal 45, pp 163 –176 (2016) http://dx.doi.org/10.1080/10293523.2016.1153025More Less
This study utilises a smooth transition vector error correction model with a Generalised AutoRegressive Conditional Heteroskedasticity GARCH model to investigate the price-discovery and non-linear dynamics at different times when a deviation occurs in the co-movement equilibrium between the spot volatility index (VIX) and futures. Our results show support for relative price-discovery contribution from both VIX spot and VIX futures markets. Moreover, we provide evidence that information traders obtain profits by exhibiting more confidence in exploiting large deviations from the equilibrium in these two markets, whereas noise traders expand their mispricing behaviour. Both VIX spot and VIX futures in turn continue to deviate from equilibrium with the existence of large deviations from the co-movement.
Source: Investment Analysts Journal 45, pp 177 –193 (2016) http://dx.doi.org/10.1080/10293523.2016.1165901More Less
The effect of different-shaped yield curves on the effectiveness of bond immunisation was investigated. Bonds were priced using historical yield curves of various shapes and simulated interest rate shocks applied. The resulting end-values of these bonds were calculated and compared at relevant duration dates using symmetrical (positive and negative) shocks. Yield curve shape and position were found to be important factors for immunisation effectiveness and results also demonstrated that - all else held constant - immunisation effects are asymmetrical for shocks of different sign. Changes in bond value are consistently less pronounced for positive shocks, regardless of yield curve shape or level.
Author Lida NikmaneshSource: Investment Analysts Journal 45, pp 194 –211 (2016) http://dx.doi.org/10.1080/10293523.2016.1172806More Less
The present study investigates the relation between trade openness and stock market volatility in the ASEAN-5 countries, using data of the composite price indices and trade openness in these countries from 1990 to 2013. A two-step methodology is employed. Firstly, the volatilities of stock indices are estimated using GARCH family. Then panel and the seemingly unrelated regression (SUR) methods are utilised to find the linkage between trade openness and stock market volatility. The results prove that the SUR method can efficiently handle certain limitations of the panel regression method in the present study. The results concerning the whole sample period demonstrate that trade openness affects the stock market volatility in Indonesia and Malaysia positively; and in Thailand negatively. Although the effect of trade openness on the Philippine and Singaporean stock market volatilities is not significant during the whole sample period, trade openness is found to influence stock market volatility in the Philippines and Singapore in the subsamples.
Individuals' feedback trading in market and limit trades : trading behaviours on the Korean stock marketAuthor Hyo-Jeong LeeSource: Investment Analysts Journal 45, pp 212 –232 (2016) http://dx.doi.org/10.1080/10293523.2016.1173315More Less
Using all of individuals' transactions on the Korean stock exchange from 1999 to 2009, I find that Korean individuals engage in negative feedback trading in market trades and positive feedback trading in limit trades. These patterns are stronger for smaller stocks and during down-market. These results indicate that the previously documented contrarian trading by individual investors is driven by their unique behavioural preference instead of their heavy use of limit order. Individuals produce relative gains by engaging in negative feedback trading in market trades, indicating that such trading behaviour is not irrational.