1.

Accounting disclosures, accounting quality and conditional and unconditional conservatism

April 2011 George Emmanuel Iatridis This study investigates the motives of UK listed companies when reporting high and low quality accounting disclosures. It also examines the relation between the quality of published financial statements and earnings management practises, for example, low quality accounting disclosures might be linked to earnings management. The paper further studies the relation between financial reporting quality and the timely disclosure of losses and difficult-to-verify accounting items, i.e. conservatism. The focus here is on conditional and unconditional conservatism, their association and the variables that influence the asymmetric disclosure of losses. The findings indicate that firms that display high quality accounting disclosures generally exhibit higher size, profitability and liquidity measures. Firms that experience a change in management or are audited by a Big-4 auditor also tend to report high quality disclosures. High quality disclosers tend to display higher capital needs and to engage less in earnings management. The study shows that they display greater conditional conservatism and less unconditional conservatism. The findings demonstrate that the conditional form of conservatism is negatively related to unconditional conservatism, as the former tends to enhance contracting efficiency, while the latter might facilitate managerial opportunism. The study provides evidence of asymmetric disclosure of losses for firms with high leverage. The same holds for high quality disclosers that display bad news. In contrast, firms that are in a growth phase are found to provide less conservative and less difficult-to-verify accounting information in order to influence their growth prospects.

2. Capital structure, dividend policy, and multinationality: Theory versus empirical evidence
March 2010 Raj Aggarwal | NyoNyo Aung Kyaw Textbook theory posits that multinational firms are large and diversified and should have higher debt capacity. In contrast, debt capacity of such firms can be expected to be lower because of the additional risks of foreign operations. This puzzle is unresolved by the empirical literature. Also, prior studies of multinational firms have not examined the relationship between debt and dividend payout ratios that can be expected in theory (both help manage agency costs). Accounting for this interdependence and controlling for appropriate other variables, this study documents that compared to domestic companies, multinational companies have significantly lower debt ratios with such debt ratios decreasing with increasing multinationality.

3. Financial crisis and stock market efficiency: Empirical evidence from Asian countries
June 2008 Kian-Ping Lim | Robert D. Brooks | Jae H. Kim This paper empirically investigates the effects of the 1997 financial crisis on the efficiency of eight Asian stock markets, applying the rolling bicorrelation test statistics for the three sub-periods of precrisis, crisis, and post-crisis. On a country-by-country basis, the results demonstrate that the crisis adversely affected the efficiency of most Asian stock markets, with Hong Kong being the hardest hit, followed by the Philippines, Malaysia, Singapore, Thailand and Korea. However, most of these markets recovered in the post-crisis period in terms of improved market efficiency. Given that the evidence of nonlinear serial dependencies indicates equilibrium deviation resulted from external shocks, the present findings of higher inefficiency during the crisis are not surprising as in the chaotic financial environment at that time, investors would overreact not only to local news, but also to news originating in the other markets, especially when the news events were adverse.

4. Rating agencies' credit signals: An analysis of sovereign watch and outlook

January 2012 Rasha Alsakka | Owain ap Gwilym We analyse sovereign watch and outlook signals from Moody's, S&P and Fitch. Prior literature shows strong market reactions to these signals, which arguably contain more new information than rating changes. We show that the agencies' actions imply different policies: S&P has more emphasis on short-term accuracy, while Moody's actions are consistent with greater stability. We find evidence of momentum in negative (not positive) outlook signals, but no watch momentum. We also examine the leadlag relationships, finding that S&P (Fitch) demonstrates the least (most) links with other agencies' actions. Moody's tends to be the first mover for positive outlook and watch signals.

5. Empirical relationship between macroeconomic volatility and stock returns: Evidence from Latin American markets
2008 Benjamin A. Abugri Emerging market stock returns have been characterized as having higher volatility than returns in the more developed markets. But previous studies give little attention to the fundamentals driving the reported levels of volatility. This paper investigates whether dynamics in key macroeconomic indicators like exchange rates, interest rates, industrial production and money supply in four Latin American countries significantly explain market returns. The MSCI world index and the U.S. 3-month T-bill yield are also included to proxy the effects of global variables. Using a six-variable vector

autoregressive (VAR) model, the study finds that the global factors are consistently significant in explaining returns in all the markets. The country variables are found to impact the markets at varying significance and magnitudes. These findings may have important implications for decisionmaking by investors and national policymakers.

6. International Financial Reporting Standards and the quality of financial statement information
June 2010 George Iatridis This study focuses on the adoption of the International Financial Reporting Standards (IFRSs) in the UK and concentrates in the switch from the UK GAAP to IFRSs. The study seeks to determine whether IFRS adoption leads to higher quality accounting numbers. By examining company accounting measures reported under the UK GAAP and IFRSs, the study investigates the earnings management potential under IFRSs. The paper also studies the value relevance of IFRS-based financial statement information. The study indicates that the implementation of IFRSs generally reinforces accounting quality. The findings show that the implementation of IFRSs reduces the scope for earnings management, is related to more timely loss recognition and leads to more value relevant accounting measures. This suggests that less information asymmetry and earnings manipulation would lead to the disclosure of informative and higher quality accounting information and would therefore assist investors in making informed and unbiased judgements.

7. Foreign direct investment and institutional quality: Some empirical evidence

January 2012 Bonnie G. Buchanan | Quan V. Le | Meenakshi Rishi Based on a panel data analysis of 164 countries from 1996 to 2006, we examine the impact of institutional quality on foreign direct investment (FDI) levels and volatility. We find that good institutional quality matters to FDI. We provide evidence that institutional quality has a positive and significant effect on FDI. More specifically, we find that a one standard deviation change in institutional quality improves FDI by a factor of 1.69. Ceteris paribus, institutional quality is negatively and significantly associated with FDI volatility which may have an adverse effect on economic growth per Lensink and Morrisey (2006). Thus, our results suggest that if there are institutional determinants of FDI volatility and if such volatility is associated with lower economic growth, then the usual policy prescription of attracting FDI into countries by offering the correct macroeconomic environment would be ineffective without an equal emphasis on institutional reform.

8. The relationship between product market competition and capital structure in Chinese listed firms
January 2011 Yilmaz Guney | Ling Li | Richard Fairchild Financial and industrial economists have increasingly recognized the interaction between product market competition and financing decisions of firms. This paper analyzes the relationship between product market competition (measured by Tobin's Q) and the capital structure of Chinese listed firms in a static and dynamic setting. We study an unbalanced panel dataset of 10,416 firm-year observations in 12 industries from 1994 to 2006. Employing several empirical methods, this study finds that there are significant differences in the debt ratios and product market competition across different industries. Our results suggest that the relationship between leverage and product market competition is non-linear (parabolic or cubic), depending on industry type, company size and firms' growth opportunities. The system-GMM results reveal that Chinese firms tend to adjust their leverage ratios through time. Overall, the fixed effects and GMM estimates detect a linear and inverse relationship between the intensity of competition and leverage ratio, which supports the predation theory.

9. The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence
December 2009 Fotios Pasiouras | Sailesh Tanna | Constantin Zopounidis This paper uses stochastic frontier analysis to provide international evidence on the impact of the regulatory and supervision framework on bank efficiency. Our dataset consists of 2853 observations from 615 publicly quoted commercial banks operating in 74 countries during the period 20002004. We investigate the impact of regulations related to the three pillars of Basel II (i.e. capital adequacy requirements, official supervisory power, and market discipline mechanisms), as well as restrictions on bank activities, on cost and profit efficiency of banks, while controlling for other country-specific characteristics. Our results suggest that banking regulations that enhance market discipline and empower the supervisory power of the authorities increase both cost and profit efficiency of banks. In contrast, stricter capital requirements improve cost efficiency but reduce profit efficiency, while restrictions on bank activities have the opposite effect, reducing cost efficiency but improving profit efficiency.

10. Estimation of expected return: CAPM vs. Fama and French

2005 Jan Bartholdy | Paula Peare Most practitioners favour a one-factor model (CAPM) when estimating expected return for an individual stock. For estimation of portfolio returns, academics recommend the Fama and French three-factor model. The main objective of this paper is to compare the performance of these two models for individual stocks. First, estimates for individual stock returns based on CAPM are obtained using different time frames, data frequencies, and indexes. It is found that 5 years of monthly data and an equal-weighted index, as opposed to the commonly recommended value-weighted index, provide the best estimate. However, performance of the model is very poor; it explains on average 3% of differences in returns. Then, estimates for individual stock returns are obtained based on the Fama and French model using 5 years of monthly data. This model, however, does not do much better; independent of the index used, it explains on average 5% of differences in returns. These results therefore bring into question the use of either model for estimation of individual expected stock returns.

11. Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries
June 2011 George Filis | Stavros Degiannakis | Christos Floros The paper investigates the time-varying correlation between stock market prices and oil prices for oilimporting and oil-exporting countries. A DCC-GARCH-GJR approach is employed to test the above hypothesis based on data from six countries; Oil-exporting: Canada, Mexico, Brazil and Oil-importing: USA, Germany, Netherlands. The contemporaneous correlation results show that i) although timevarying correlation does not differ for oil-importing and oil-exporting economies, ii) the correlation increases positively (negatively) in respond to important aggregate demand-side (precautionary demand) oil price shocks, which are caused due to global business cycle's fluctuations or world turmoil (i.e. wars). Supply-side oil price shocks do not influence the relationship of the two markets. The lagged correlation results show that oil prices exercise a negative effect in all stock markets, regardless the origin of the oil price shock. The only exception is the 2008 global financial crisis where the lagged oil prices exhibit a positive correlation with stock markets. Finally, we conclude that in periods of significant economic turmoil the oil market is not a safe haven for offering protection against stock market losses.

12. Dividend signaling under economic adversity: Evidence from the London Stock Exchange

October 2011 Konstantinos Bozos | Konstantinos Nikolopoulos | Ghanamaruthy Ramgandhi The signaling or information content hypothesis is amongst the most prominent theories attempting to explain dividend policy decisions. However, no research has, to date, examined the information content of dividends in conjunction with generalized economic adversity. With the majority of the western economies facing the tough reality of the economic recession since late 2007early 2008, we focus on the possibility of asymmetrical dividend signaling effects between periods of stability and economic adversity. Using data from the London Stock Exchange (LSE), where earnings and dividend news are released simultaneously, we test the dividend signaling hypothesis and the interaction of earnings and dividends under both steady and adverse economic conditions. We document positive and significant average abnormal stock price returns around the dividend/earnings announcements. We also find a significant interaction between economic conditions and the information content of dividends. After testing the dividend signaling hypothesis under both stable and recessionary economic conditions we find that dividends have less information content than earnings in periods of growth and stability, but more in periods of economic adversity.

13. The value relevance of cash flows, current accruals, and non-current accruals in the UK
October 2011 Saeed Akbar | Syed Zulfiqar Ali Shah | Andrew W. Stark Cash flow statements have a longstanding history as mandated financial statement disclosures, having replaced funds flow statements. The usefulness of such disclosures with respect to one of the main purposes of financial statementsproviding information relevant to the assessment of future cash flows and their uncertainty, and the market value of firmsis still subject to debate. This study investigates whether various partitions of earnings involving combinations of a cash flow measure of performance and measures of current accruals and non-current accruals improve the ability to explain market values in the UK relative to using earnings alone. Using a valuation model-based methodology, and employing a UK sample of non-financial firms for the years 1993 to 2007, our results suggest strong support for the assertion that cash flows can have incremental value relevance relative to either earnings or funds flows. By implication, cash flows can have separate value relevance from total and, in particular, current accruals. There is slightly less consistent evidence that current and noncurrent accruals can have separate value relevance but, nonetheless, the results are still strongly in favour in this respect. Generally, the main source of increase in explanatory power for market values is the separate inclusion of our cash flow measure in the estimated regressions. As a consequence, we conclude that the statement of cash flows in the UK provides information useful to UK investors in

valuing firms. Further, requiring a cash flow statement, as opposed to a funds flow statement, improves the information content of financial statements in the UK.

14. Mandatory IFRS adoption and its impact on analysts' forecasts

January 2012 Tao Jiao | Miriam Koning | Gerard Mertens | Peter Roosenboom This paper examines the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) on financial analysts' ability to translate accounting information into forward looking information. In particular, we investigate whether the switch to IFRS has an impact on (1) the ability of analysts to forecast earnings accurately and (2) the agreement among analysts regarding forecasted earnings. The study is set in the European Union, in the year preceding the switch to IFRS and the first year after the switch. We document increased forecast accuracy and agreement after the switch to IFRS. These findings are robust to changes in model specifications. Overall, our results are consistent with the notion that the adoption of IFRS has improved the quality of financial reports and, more specifically the quality of earnings. Our results contribute to the understanding of the effect of the use of a uniform, high quality accounting language on the usefulness of financial information to financial market participants.

15. Cointegration relationship and time varying co-movements among Indian and Asian developed stock markets
January 2012 Rakesh Gupta | Francesco Guidi This paper aims to explore links between the Indian stock market and three developed Asian markets (i.e. Hong Kong, Japan and Singapore) using cointegration methodologies in order to explore interdependence. We further estimate the time-varying conditional correlation relationships among these markets. We find that correlations rose dramatically during periods of crisis and return to their initial levels after the crisis. Finally, we investigated the presence of different volatility regime across stock markets. International investors may find useful to model their portfolio by also considering how volatile stock markets are. Results show that estimated probability of being in the low volatility state is the highest for all stock markets considered, as well as the probability to switch from a medium- to high-volatility state. Results suggest a short-run relationship and absence of a strong long-run relationship among these markets. Absence of long-run linkages among these markets may provide potential benefits for the investors that look at emerging markets to enhance their risk adjusted returns by including emerging markets in their portfolios.

16. Macroeconomic determinants of credit risk: Recent evidence from a cross country study

June 2010 Asghar Ali | Kevin Daly The study of financial stability has become the cornerstone of modern macroeconomic policy particularly for developed countries. The recent global financial crisis has underscored the importance of understanding financial instability especially in the context of managing credit risk with particular emphasis on the banking sector. The key motivation for this paper is to improve our understanding of credit risk modelling at the country level especially under the framework of Basel II capital adequacy standards. The aim of the study is to investigate the interaction between the cyclical implications of aggregate defaults in an economy and the capital stock of a bank. The approach used requires the construction of a macroeconomic credit model that provides the framework to perform scenario analysis. Within this framework, our study forms the basis of a comparative analysis of two countries, a relatively immune economy from the recent crisisAustralia and the worst effected economythe USA. The key questions posed in the study are which macroeconomic variables are important for both countries in addition we examine the impact of adverse macroeconomic shocks on default rates in both countries. The results indicate that the same set of macroeconomic variables display different default rates for the two counties. Additionally the study finds that compared to Australia, the US economy is much more susceptible to adverse macroeconomic shocks.

17. Government intervention in response to the subprime financial crisis: The good into the pot, the bad into the crop
September 2010 Bastian Breitenfellner | Niklas Wagner The subprime-related 2007/2008 global financial crisis represented a major economic challenge. In order to prevent such episodes of market failure, it is vital to understand what caused the crisis and which lessons are to be learned. Given the tremendous bailout packages worldwide, we discuss the role of governments as lenders of last resort. In our view, it is important not to suspend the market mechanism of bankruptcy via granting rescue packages. Only those institutions which are illiquid but solvent should be rescued, and this should occur at a significant cost for the respective institution. We provide a formal illustration of a rescue mechanism, which allows to distinguish between illiquid but solvent and insolvent banks. Furthermore, we argue that stricter regulation cannot be the sole consequence of the crisis. There appears to be a need for improved risk awareness, more sophisticated risk management and a better alignment of interests among the participants in the market for credit risk.

18. Oil prices and accounting profits of oil and gas companies

October 2011 Ajit Dayanandan | Han Donker This paper investigates the relationship between commodity prices of crude oil, capital structure, firm size and accounting measures of firm performance using a sample of oil and gas firms from 1990 to 2008. We employ estimates based on panel least squares, a fixed effects model and a random effects model. We also use generalized method of moments (GMM) estimators by Arellano and Bond (1991) and Blundell and Bond (1998, 2000). Our findings show that crude oil prices positively and significantly impact the performance of oil and gas firms in North America using accounting measures of performance. The recent financial crisis of 2007 and 2008 negatively influenced oil prices and the financial performance of oil and gas firms. On the other hand, the earlier global crises (Asian financial crisis and 9/11) did not have a significant impact on the return on equity of oil and gas companies. Our primary contribution to the literature is a comprehensive and econometric analysis of the relation between commodity prices and accounting measures of performance oil and gas companies.

19. Dividend policy theories and their empirical tests

2002 George M Frankfurter | Bob G Wood Jr. The subject of corporate dividend policy has captivated economists for a long time, resulting in intensive theoretical modeling and empirical examinations. A number of conflicting theoretical models lacking strong empirical support define current attempts to explain the puzzling reality of corporate dividend behavior. The purpose of this paper is to determine if the method of analysis employed, sample period, and/or data frequency are responsible for this inconsistent support. The results presented here are consistent with the contention that no dividend model, either separately or jointly with other models, is supported invariably.

20. Financial statement data in assessing the future potential of a technology firm: The case of Nokia
2006 Erkki K. Laitinen The paper introduces a financial statement method to assess the future potential of a firm. First, the last strategic steady phase is identified. Second, growth rate for total expenditure is estimated (growth process). Third, the revenue generating potential of total expenditure is evaluated by a distributed lag function (revenue-generating process). This function is used to recalculate expenses and assets using alternative depreciation theories. Third, financial behavior is modeled by analyzing financial assets, taxation, interest expenses and revenues, and dividends (financial process). Fourth,

these processes are used to assess the future potential. The method is illustrated by the case of Nokia for the period 19902000.

21. Corporate governance and firm value during the global financial crisis: Evidence from China
January 2012 Chunyan Liu | Konari Uchida | Yufeng Yang We find that Chinese state-owned enterprises (SOEs) that performed poorly before the global financial crisis performed better during the crisis, especially when they relied on bank debt. This suggests that state ownership mitigates financial constraints during times of financial crisis. Large shareholders' ownership has a U-shaped relation to crisis-period performance, which suggests ownership concentration mitigates financial constraints and engenders expropriation problems. We also find that managerial ownership is positively associated with crisis-period performance of SOEs. This result suggests that managerial ownership mitigates expropriation problems in SOEs. Finally, Chinese firms that adopted a reputable accounting auditor experienced a small reduction in firm value during the global financial crisis.

22. Accounting disclosure and firms' financial attributes: Evidence from the UK stock market
2008 George Iatridis This paper focuses on the disclosure of accounting information in the financial statements of UK firms. The primary objective of the study is to analyse the financial characteristics of firms that provide extensive disclosures, and assess the financial impact of their motives, such as for example the need to raise equity finance. The study examines the financial attributes of firms that disclose information about key accounting issues including risk exposure, changes in accounting policies, use of international financial reporting standards and hedging practices. Firms are inclined to disclose accounting information in order to assure the market participants that their accounting policies are consistent with the accounting regulation and meet the information needs of their stakeholders. The study shows that in order to raise finance in the capital and debt markets, firms tend to provide extensive accounting disclosures. Firms that provide informative accounting disclosures appear to display higher size, growth and leverage measures. The findings also show that the disclosure of sensitive accounting information has not adversely affected firms' profitability. In fact, firms that provide detailed accounting disclosures tend to exhibit higher profitability. The implementation of international financial reporting standards enhances the quality and the comparability of financial

statements; hence it promotes consistency and reliability in financial reporting and facilitates companies in raising capital internationally.

23. Earnings management and firm financial motives: A financial investigation of UK listed firms
September 2009 George Iatridis | George Kadorinis This study focuses on the investigation of motives for and characteristics of UK firms that engage in earnings management activities. It concentrates particularly on the provision of voluntary accounting disclosures, the violation of debt covenants, management compensation, and on the equity and debt capital needs of firms and their relation with the use of earnings management. The study examines also the earnings management inclination of firms that seek to meet or exceed financial analysts' forecasts. The findings generally indicate that firms with low profitability and high leverage measures are likely to use earnings management. Also, firms that are in equity and debt capital need and are close to debt covenant violation also appear to be inclined to employ earnings management practices. Likewise, firms tend to use earnings management to improve their financial numbers and subsequently reinforce their compensation and meet and/or exceed financial analysts' earnings forecasts. In contrast, the study shows that firms that provide voluntary accounting disclosures appear to be less inclined to make use of earnings management.

24. Credit supply and corporate capital structure: Evidence from Japan
October 2011 Konstantinos Voutsinas | Richard A. Werner In this paper we examine how financial constraints, especially fluctuations in the supply of credit, affect the capital structure of 1537 publicly listed Japanese firms from 1980 to 2007, in a data set with 33,000 observations. It is one of the first studies to do so and is inspired by the recent studies of Leary (2009) and Faulkender and Petersen (2006). Japan was selected due to the extreme credit supply fluctuations observed during the last 30years. It thus offers an ideal natural experiment to test the impact of credit supply on corporate capital structure. In particular, in our panel data study we investigated the impact of the asset bubble in the 1980s and the credit crunch of the late 1990s on corporate capital structure decisions. The results of this paper show, among other findings, that financial policy decisions are indeed influenced by monetary conditions and the supply of credit. In particular, smaller sized firms face financial constraints, especially during economic downturns.

25. Is earnings management opportunistic or beneficial? An agency theory perspective

June 2008 Pornsit Jiraporn | Gary A. Miller | Soon Suk Yoon | Young S. Kim Earnings management has been cast into negative light due to the recent corporate scandals and, therefore, is viewed as detrimental to the firm. Enron and Worldcom represent two of the most egregious cases of opportunistic earnings management that led to the largest bankruptcies in U.S. history. However, some argue that earnings management may be beneficial because it improves the information value of earnings by conveying private information to the stockholders and the public. We offer agency theory as a tool to distinguish between the opportunistic and beneficial uses of earnings management. The empirical evidence suggests that firms where earnings management occurs to a larger (less) extent suffer less (more) agency costs. Moreover, a positive relation is documented between firm value and the extent of earnings management. Taken together, the results reveal that earnings management is, on average, not detrimental.

Recently published articles available online on SciVerse ScienceDirect.

A review of the international literature on the short term predictability of stock prices conditional on large prior price changes: Microstructure, behavioral and risk related explanations
Available online 21 April 2012 Shima Amini | Bartosz Gebka | Robert Hudson | Kevin Keasey In this paper we review the literature on the short term predictability of stock prices conditional on large prior price changes. This research area is characterised by a large number of studies reflecting different markets, time periods, methodologies and model parameters. Whilst most of the papers do find elements of predictability in markets subsequent to large price changes the wide diversity in research approaches makes it very difficult to draw general conclusions from past studies. In addition there is little consensus within the literature regarding the causes of predictability with papers variously favoring explanations based around market microstructure, behavioral anomalies and the response of market participants to changing risk. We identify the key empirical findings from the literature, evaluate the explanations for the cause of the effects, discuss the links of the research programme to other areas of finance and finally review possible topics for future research in the area.

Exchange Rate Risk and the Equity Performance of Financial Intermediaries

Available online 19 April 2012 Dimitris Gounopoulos | Philip Molyneux | Sotiris K. Staikouras | John O.S. Wilson | Gang Zhao

This study uses the VAR-BEKK methodology to examine the relationship between equity returns and currency exposure for a sample of U.S., U.K. and Japanese banks and insurance firms during 20032011. The findings indicate that banks equity returns are negatively related to changes in foreign currency value during the recent financial crisis (20082011). That is, the U.S. (Japanese) banking sector returns are negatively correlated to changes in the Japanese Yen (U.S. dollar). Equity returns of U.S./U.K. insurers are negatively linked to changes in the value of Japanese Yen, and this relationship is accentuated during the crisis. Home currency exposure is not significant for any insurer. When size is taken into account, only small U.S. banks are exposed to home currency changes, while only large Japanese banks are exposed to foreign currency changes. Overall, the negative relationship between the foreign currency value and bank/insurance equity returns supports the flight to quality hypothesis from the U.S./U.K. to Japan.

Foreign currency derivatives use and shareholder value

Available online 11 April 2012 Yacine Belghitar | Ephraim Clark | Salma Mefteh This paper investigates the effect of foreign currency (FC) derivatives use on shareholder value. Exposures are broken down by currency, by whether the currency is appreciating or depreciating and by whether exposures are symmetric or asymmetric. We find that derivatives are effective in reducing overall FC exposure but there is no evidence of value creation through the application of a program that identifies and targets only loss causing exposures. We also find that FC derivatives use has no significant effect on firm value in the overall sample and when the sample is broken down by exposure type and derivative product.

Explaining aggregate credit default swap spreads

April 2012 Bastian Breitenfellner | Niklas Wagner We examine risk factors that explain daily changes in aggregate credit default swap (CDS) spreads before, during and after the 20072009 financial crisis. Based on the European iTraxx CDS index universe, we document time-variation in the significance of spread determinants. Before and after the crisis, spread changes are mainly determined by stock returns and implied stock market volatility. Global financial variables possess explanatory power during the pre-crisis and the crisis period. Liquidity proxy variables are significantly related to spread changes for financials, while unrelated for non-financials. Examination of the risk factors' explanatory power for large spread changes reveals weakened significance indicating that additional factors are necessary for their explanation. Finally, we examine the leadlag relationship between spread changes and stock returns. Stock market returns lead spread changes during the crisis period, while a bidirectional relationship emerges after the crisis period. This suggests that aggregate spread changes are actually informative for equity market participants, possibly measuring systemic risk.

Econometric modeling and value-at-risk using the Pearson type-IV distribution

April 2012 S. Stavroyiannis | I. Makris | V. Nikolaidis | L. Zarangas The recent financial crisis of 20072009 has challenged the requirements of Basel II agreement on capital adequacy as well as, the appropriateness of value-at-risk (VaR) measurement for properly back-tested and stress-tested models. This paper reconsiders the use of VaR as a measure for potential risk of economic losses in financial markets. We incorporate a GARCH model where the innovation process follows the Pearson-IV distribution, and the results are compared with the skewed Student-t distribution, in the sense of Fernandez and Steel. As case studies we consider the major historical indices of daily returns, DJIA, NASDAQ Composite, FTSE100, CAC40, DAX, and S&P500. VaR and backtesting are performed by the successfailure ratio, the Kupiec LR test, the Christoffersen independence and conditional coverage tests, the expected shortfall with ESF1 and ESF2 measures, and the dynamic quantile test of Engle and Manganelli. The main findings indicate that the Pearson type-IV distribution gives better results, compared with the skewed student distribution, especially at the high confidence levels, providing a very good candidate as an alternative distributional scheme.

On the dependence structure of realized volatilities

April 2012 Beatriz Vaz de Melo Mendes | Victor Bello Accioly Volatility plays an important role when managing risks, composing portfolios, and pricing financial instruments. However it is not directly observable, being usually estimated through parametric models such as those in the GARCH family. A more natural empirical measure of daily returns variability is the so called realized volatility, computed from high-frequency intra day returns, an unbiased and highly efficient estimator of the return volatility. At this time point, with globalization effects driving markets' volatilities all over the world, it becomes of great interest to assess volatilities' co-movements and contagion. To this end we use pair-copulas, a powerful and flexible statistical model which allows for linear and nonlinear, possibly asymmetric forms of dependence without the restrictions posed by existing multivariate models. Given the importance of the Brazilian stock market in the Latin America, in this paper we characterize the dependence structure linking the realized volatilities of seven Brazilian stocks. The realized volatilities are computed using an 8-year sample of 5-minute returns from 2001 through 2009. We include a more comprehensive study involving seven emerging markets, addressing the issue of contagion in a more general scenario.

Linking the interest rate swap markets to the macroeconomic risk: The UK and us evidence
Available online 13 March 2012 A.S.M. Sohel Azad | Victor Fang | Chi-Hsiou Hung

In this paper we aim to link the volatility of interest rate swap (hereafter, IRS) markets to the macroeconomic risk/uncertainty of the UK and the US. In doing so, we obtain the low-frequency volatility of IRS using a recently developed Asymmetric Spline GARCH (ASP-GARCH) model of Rangel and Engle (forthcoming). Our findings suggest a strong relationship between uncertainties of macroeconomic fundamentals and the fluctuation in swap market volatility. The association between the two is robust with respect to the choice of different alternative measures of volatility that are used in the literature on GARCH modelling. From the perspectives of practical implications, the findings suggest that policy makers should use low-frequency volatility in order to examine market responses to key macroeconomic policies, and that market participants may rely on low-frequency volatility to extract trading signals. Using such signals, hedgers could make forecast of whether they need to increase (decrease) IRS usage to hedge risk originating from macroeconomic uncertainty.

Wine Price Risk Management: International Diversification and Derivative Instruments

Available online 6 March 2012 Apostolos Kourtis | Raphael N. Markellos | Dimitris Psychoyios Variations in fine wine prices can be prominent and have widespread economic and financial implications. Although fine wine investments are dominated by French wines, we demonstrate that significant international diversification benefits exist for investors in Italian, Australian and Portuguese fine wines. This is important since we also find that diversification across varieties of French wine is not likely to be that effective. We propose the development of futures and options contracts on standardized wine price indices in order to enhance market completeness and to address the risk management needs of all market participants. Several popular continuous time processes are used to approximate empirically the dynamics of four fine wine price indices. On the basis of our results, we recommend appropriate equilibrium models for pricing fine wine futures and option contracts.

Call for Papers: Special Issue on Risk Management and Reporting in Light of the Recent Financial Crisis
January 2012

Call for Papers: Special Issue on Comovement and Contagion in Financial Markets
January 2012

Switching to floating exchange rates, devaluations, and stock returns in MENA countries
January 2012 Georgios Chortareas | Andrea Cipollini | Mohamed Abdelaziz Eissa

We test for the impact of the announcements of floating and/or devaluating the exchange rate on stock returns in three MENA countries after the financial crises they experienced. We, first, use an event-study methodology to test for event-induced abnormal volatility of stock returns in Egypt, Morocco and Turkey. We, then, use three different methodologies to test for abnormal returns: a traditional approach and two approaches that control for event-induced volatility. We find clear evidence of abnormal volatility and abnormal returns due to the floating of the Egyptian and Turkish exchange rates in 2003 and 2001, respectively. In contrast, our results do not show that the devaluation of the Moroccan currency in 2001 resulted in abnormal volatility and/or abnormal returns.

Price discovery and sentiment

January 2012 Gady Jacoby | Rose C. Liao This paper investigates the influence of sentimental noise traders on the security price adjustment. We use De Long et al.'s (1990) definition of noise traders, who falsely believe they have special information, to extend Easley and O'Hara's (1992) seminal model. Our extended model demonstrates the existence of noise traders in the market narrows bid-ask spreads and slows down the speed of price reversion to the fundamental value. Furthermore, the bid-ask spread widens when noise trader sentiment aligns with the market maker's prior beliefs. We show that the market maker's ability to accurately predict noise traders' sentiment is positively related to the quoted bid-ask spread and to the speed of price reversion. We demonstrate that Easley and O'Hara's model is a special case of our model. Their conclusion that time is a factor in the security price adjustment process is strengthened in the presence of the erroneous sentiment of noise traders.

Open-ended property funds: Risk and return profile Diversification benefits and liquidity risks
January 2012 Lars Helge Ha | Lutz Johanning | Bernd Rudolph | Denis Schweizer In addition to the well-established forms of real estate investing (direct and listed), investors can also choose open-ended property funds (OPFs), which are considered a complementary real estate investment option. OPF fund managers generally provide daily liquidity, and these funds must maintain at least 5% liquidity. If liquidity falls below 5%, share redemptions will be temporarily suspended, for a period of up to two years. During this time, investors can only sell shares on the secondary market (exchange), and are thus subject to significant liquidity risk. The objective of this paper is to examine the impact of OPFs as an investment vehicle on the risk and return profile. OPFs in principle have the same underlying as direct and listed real estate investments, but they are subject to a different regulatory regime. Therefore, we analyze the diversification benefits of OPFs in mixed-asset portfolios for various risk measures, investor types, and holding periods. We find that OPFs are ideally suited to reduce portfolio risk. This result holds independent of

the holding period and whether in- or out-of-sample Monte Carlo portfolio simulations are used. However, these positive effects come at the cost of increased risk from temporary share redemption suspensions. During these periods, investors may have to accept an average 6% discount in the secondary market compared to the net asset value calculated by OPFs themselves. These discounts can go as high as 20% if investors fear that OPF management will not be able to ensure liquidity within the two-year time limit, and will have to fire-sell properties.

Foreign direct investment and institutional quality: Some empirical evidence

January 2012 Bonnie G. Buchanan | Quan V. Le | Meenakshi Rishi Based on a panel data analysis of 164 countries from 1996 to 2006, we examine the impact of institutional quality on foreign direct investment (FDI) levels and volatility. We find that good institutional quality matters to FDI. We provide evidence that institutional quality has a positive and significant effect on FDI. More specifically, we find that a one standard deviation change in institutional quality improves FDI by a factor of 1.69. Ceteris paribus, institutional quality is negatively and significantly associated with FDI volatility which may have an adverse effect on economic growth per Lensink and Morrisey (2006). Thus, our results suggest that if there are institutional determinants of FDI volatility and if such volatility is associated with lower economic growth, then the usual policy prescription of attracting FDI into countries by offering the correct macroeconomic environment would be ineffective without an equal emphasis on institutional reform.

Corporate governance and firm value during the global financial crisis: Evidence from China
January 2012 Chunyan Liu | Konari Uchida | Yufeng Yang We find that Chinese state-owned enterprises (SOEs) that performed poorly before the global financial crisis performed better during the crisis, especially when they relied on bank debt. This suggests that state ownership mitigates financial constraints during times of financial crisis. Large shareholders' ownership has a U-shaped relation to crisis-period performance, which suggests ownership concentration mitigates financial constraints and engenders expropriation problems. We also find that managerial ownership is positively associated with crisis-period performance of SOEs. This result suggests that managerial ownership mitigates expropriation problems in SOEs. Finally, Chinese firms that adopted a reputable accounting auditor experienced a small reduction in firm value during the global financial crisis.

A multiscale entropy approach for market efficiency

January 2012 Jose Alvarez-Ramirez | Eduardo Rodriguez | Jesus Alvarez

Motivated by the recently evolutionary economic theories, we propose to study market efficiency from an informational entropy viewpoint. The basic idea is that, rather than being an all-or-none concept as in classic economic theories, market efficiency changes over time and over time horizons. Within this framework, market efficiency is measured in terms of the patterns contained in the price changes sequence relative to the patterns in a random sequence. In line with evolutionary finance ideas, the empirical results for the Dow Jones Index showed that the degree of market efficiency varies over time and is dependent of the time scale. In general, the DJI is more efficient for shorter (about days) than for longer (about months and quarters) time scales. On the other hand, the market efficiency exhibits a cyclic behavior with two dominant periods of about 4.5 and 22years. It is apparent that the 4.5-year cycle is related to inventory (Kitchin-type) effects, while the 22-year cycle to structure inversion (Kondriatev-type) cycles.

Mandatory IFRS adoption and its impact on analysts' forecasts

January 2012 Tao Jiao | Miriam Koning | Gerard Mertens | Peter Roosenboom This paper examines the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) on financial analysts' ability to translate accounting information into forward looking information. In particular, we investigate whether the switch to IFRS has an impact on (1) the ability of analysts to forecast earnings accurately and (2) the agreement among analysts regarding forecasted earnings. The study is set in the European Union, in the year preceding the switch to IFRS and the first year after the switch. We document increased forecast accuracy and agreement after the switch to IFRS. These findings are robust to changes in model specifications. Overall, our results are consistent with the notion that the adoption of IFRS has improved the quality of financial reports and, more specifically the quality of earnings. Our results contribute to the understanding of the effect of the use of a uniform, high quality accounting language on the usefulness of financial information to financial market participants.

Rating agencies' credit signals: An analysis of sovereign watch and outlook

January 2012 Rasha Alsakka | Owain ap Gwilym We analyse sovereign watch and outlook signals from Moody's, S&P and Fitch. Prior literature shows strong market reactions to these signals, which arguably contain more new information than rating changes. We show that the agencies' actions imply different policies: S&P has more emphasis on short-term accuracy, while Moody's actions are consistent with greater stability. We find evidence of momentum in negative (not positive) outlook signals, but no watch momentum. We also examine the leadlag relationships, finding that S&P (Fitch) demonstrates the least (most) links with other agencies' actions. Moody's tends to be the first mover for positive outlook and watch signals.

The contrasting effects of board composition and structure on IPO firm underpricing in a developing context
January 2012 Bruce Hearn This study investigates the impact of board governance features and the presence of foreign, indigenous high society executives and board diversity on levels of IPO underpricing in a unique sample of 62 Initial Primary Offerings (IPOs) from across Sub Saharan African (SSA), excluding South Africa. I find evidence that greater numbers of foreign executives increase underpricing while higher numbers of indigenous high society directors have an opposing effect. Increasing board ethnic and nationality diversity together with the establishment of nominally independent board monitoring and oversight committees are associated with higher underpricing implying that standard international governance best practice is inappropriate in a developing region dominated by narrow political economies underscored by underdeveloped formal institutions with minimal investor protection.

An analysis of intraday market behaviour before takeover announcements

January 2012 Bruno Dore Rodrigues | Reinaldo Castro Souza | Maxwell J. Stevenson The objective of this study was to analyse the changes in the intraday market microstructure behaviour before a takeover announcement for a sample of target, bidder and control (non-target) companies. Under the hypothesis that agents with asymmetric information were operating in the market, the Autoregressive Conditional Duration (ACD) model was used to estimate the joint impact of duration and microstructure variables on the returns volatility in the months before the event. The analysis was conducted on tick-bytick data over a period of six to four months, and then three months before an announcement date. Our results suggested that the effect of information on the returns volatility, as measured by several economic and intraday microstructure observable variables, was different between target, bidder and non-target companies leading up to the takeover announcement. These variables were durations between trades, the surprise in durations, spreads and trading volumes. It was concluded that the intraday trading behaviour for takeover targets was affected by traders who held private information (especially the bidders) at least three months before the official announcement of the offer. The selected stocks were traded on the Australian Stock Exchange (ASX) and were sourced between 2004 and 2008 from a wide range of industries and with different levels of liquidity.

Cointegration relationship and time varying co-movements among Indian and Asian developed stock markets
January 2012 Rakesh Gupta | Francesco Guidi

This paper aims to explore links between the Indian stock market and three developed Asian markets (i.e. Hong Kong, Japan and Singapore) using cointegration methodologies in order to explore interdependence. We further estimate the time-varying conditional correlation relationships among these markets. We find that correlations rose dramatically during periods of crisis and return to their initial levels after the crisis. Finally, we investigated the presence of different volatility regime across stock markets. International investors may find useful to model their portfolio by also considering how volatile stock markets are. Results show that estimated probability of being in the low volatility state is the highest for all stock markets considered, as well as the probability to switch from a medium- to high-volatility state. Results suggest a short-run relationship and absence of a strong long-run relationship among these markets. Absence of longrun linkages among these markets may provide potential benefits for the investors that look at emerging markets to enhance their risk adjusted returns by including emerging markets in their portfolios.

A contingent claim analysis of sunflower management under board monitoring and capital regulation
January 2012 Jeng-Yan Tsai | Jyh-Horng Lin Sunflower management describes a style of management adopted by chief executive officer (CEO) in an attempt to produce a consensus between his own view and the view that he ascribes to the board. This paper develops a model that combines the contingent-claim pricing of bank equity and the resulting default risk probability under a sunflower management style. We show that the CEO's decision making in the optimal bank interest margin matches the board's low default risk expectation, but that it does not match its expectations for high equity return. Furthermore, an increase in either the internal force of the board's monitoring or the external force of the authority's capital regulation decreases the bank's equity return and increases its default risk probability. If there is sunflower management, both the forces lead to inefficiencies.

Special Issue on Risk Management and Reporting in Light of the Recent Financial Crisis
October 2011

Special Issue on Comovement and Contagion in Financial Markets

October 2011

Do optimal diversification strategies outperform the 1/N strategy in U.K. stock returns?
October 2011 Jonathan Fletcher This paper examines whether optimal diversification strategies outperform the 1/N strategy in U.K. stock returns. The study focuses on the performance of recent strategies developed by Tu and Zhou (2011) and

Kirby and Ostdiek (2010). I find that a number of optimal asset allocation strategies can significantly outperform the 1/N strategy even after adjusting for trading costs. The strategies developed by Kirby and Ostdiek outperform the 1/N strategy, even at higher trading costs, due to the low turnover of these strategies. The strategies of Tu and Zhou have mixed performance after adjusting for trading costs due to the high turnover of these strategies. The results of the paper provide support for the use of optimal diversification strategies.

Dividend signaling under economic adversity: Evidence from the London Stock Exchange
October 2011 Konstantinos Bozos | Konstantinos Nikolopoulos | Ghanamaruthy Ramgandhi The signaling or information content hypothesis is amongst the most prominent theories attempting to explain dividend policy decisions. However, no research has, to date, examined the information content of dividends in conjunction with generalized economic adversity. With the majority of the western economies facing the tough reality of the economic recession since late 2007early 2008, we focus on the possibility of asymmetrical dividend signaling effects between periods of stability and economic adversity. Using data from the London Stock Exchange (LSE), where earnings and dividend news are released simultaneously, we test the dividend signaling hypothesis and the interaction of earnings and dividends under both steady and adverse economic conditions. We document positive and significant average abnormal stock price returns around the dividend/earnings announcements. We also find a significant interaction between economic conditions and the information content of dividends. After testing the dividend signaling hypothesis under both stable and recessionary economic conditions we find that dividends have less information content than earnings in periods of growth and stability, but more in periods of economic adversity.

Covered interest rate parity in emerging markets

October 2011 Frank S. Skinner | Andrew Mason This paper finds that while covered interest rate parity holds for large and small triple A rated economies, it holds for emerging markets only for a three-month maturity. For a five-year horizon the size and frequency of violations lead to the conclusion that covered interest rate parity does not hold for longer maturities for Brazil, Chile, Russia and South Korea. Overall this paper finds that aspects of credit risk are the source of violations in CIRP in the long-term capital markets rather than transactions costs or the size of the economy.

Dynamics of analysts' coverage and the firms' information environment

October 2011 Marcela Giraldo

The main goal of this paper is to study analysts' coverage of stocks. Through a series of ordered probit regressions the paper studies the relationship between changes in coverage and the information environment of a firm.Coverage decreases on average with higher errors in estimation. The data also shows that coverage is less likely to decrease for physically large firms, but more likely to decrease for firms with high lagged market value. Higher past revisions to the predictions also decrease coverage, showing a real cost of uncertainty.

Liquidity, analysts, and institutional ownership

October 2011 Christine X. Jiang | Jang-Chul Kim | Dan Zhou In this paper, we investigate the empirical relationship between institutional ownership, number of analysts following and stock market liquidity. We find that firms with larger number of financial analysts following have wider spreads, lower market quality index, and larger price impact of trades. However, we find that firms with higher institutional ownership have narrower spreads, higher market quality index, and smaller price impact of trades. In addition, we show that changes in our liquidity measures are significantly related to changes in institutional ownership over time. These results suggest that firms may alleviate information asymmetry and improve stock market liquidity by increasing institutional ownership. Our results are remarkably robust to different measures of liquidity and measures of information asymmetry.

Credit supply and corporate capital structure: Evidence from Japan

October 2011 Konstantinos Voutsinas | Richard A. Werner In this paper we examine how financial constraints, especially fluctuations in the supply of credit, affect the capital structure of 1537 publicly listed Japanese firms from 1980 to 2007, in a data set with 33,000 observations. It is one of the first studies to do so and is inspired by the recent studies of Leary (2009) and Faulkender and Petersen (2006). Japan was selected due to the extreme credit supply fluctuations observed during the last 30years. It thus offers an ideal natural experiment to test the impact of credit supply on corporate capital structure. In particular, in our panel data study we investigated the impact of the asset bubble in the 1980s and the credit crunch of the late 1990s on corporate capital structure decisions. The results of this paper show, among other findings, that financial policy decisions are indeed influenced by monetary conditions and the supply of credit. In particular, smaller sized firms face financial constraints, especially during economic downturns.

The value relevance of cash flows, current accruals, and non-current accruals in the UK
October 2011 Saeed Akbar | Syed Zulfiqar Ali Shah | Andrew W. Stark

Cash flow statements have a longstanding history as mandated financial statement disclosures, having replaced funds flow statements. The usefulness of such disclosures with respect to one of the main purposes of financial statementsproviding information relevant to the assessment of future cash flows and their uncertainty, and the market value of firmsis still subject to debate. This study investigates whether various partitions of earnings involving combinations of a cash flow measure of performance and measures of current accruals and non-current accruals improve the ability to explain market values in the UK relative to using earnings alone. Using a valuation model-based methodology, and employing a UK sample of nonfinancial firms for the years 1993 to 2007, our results suggest strong support for the assertion that cash flows can have incremental value relevance relative to either earnings or funds flows. By implication, cash flows can have separate value relevance from total and, in particular, current accruals. There is slightly less consistent evidence that current and non-current accruals can have separate value relevance but, nonetheless, the results are still strongly in favour in this respect. Generally, the main source of increase in explanatory power for market values is the separate inclusion of our cash flow measure in the estimated regressions. As a consequence, we conclude that the statement of cash flows in the UK provides information useful to UK investors in valuing firms. Further, requiring a cash flow statement, as opposed to a funds flow statement, improves the information content of financial statements in the UK.

The role of trading intensity estimating the implicit bidask spread and determining transitory effects
October 2011 Bernard Ben Sita | P. Joakim Westerholm In this paper, we investigate the information content of trading intensity applying the Madhavan, Richardson and Roomans (1997) structural model to express trading intensity as trading momentum in duration and volume. Using both transactions and intraday data from the Helsinki Stock Exchange Limit Order Bookmarket, we find that momentum in duration and volume enhances the information effect. We reach this conclusion based on the parametric effect determined by the sign and the magnitude of the coefficients associated with the trading intensity variables, the trading effect determined by the ratio of transitory effects to permanent effects, and the economic effect determined by the size of the implicit bidask spread. While we find that the implicit bidask spread and transitory effects are decreasing toward the end of the trading day in consistency with information models in the literature, there is a surge of trades at the market close, most probably due to information uncertainty at market opening in New York.

Investor sentiment and feedback trading: Evidence from the exchange-traded fund markets
October 2011 Frankie Chau | Rataporn Deesomsak | Marco C.K. Lau

This paper extends the standard feedback trading model of Sentana and Wadhwani (1992) by allowing the demand for shares by feedback traders to depend on sentiment. Our empirical analysis of three largest Exchange-Traded Fund (ETF) contracts in the U.S. suggests that there is a significant positive feedback trading in these markets and the intensity of which is generally linked to investor sentiment. Specifically, the level of feedback trading tends to increase when investors are optimistic. In addition, we find that the influence of sentiment on feedback trading varies across market regimes. These results are consistent with the view that feedback trading activity is largely caused by the presence of sentiment-driven noise trading. Overall, the findings are important in understanding the role of sentiment in investment behaviour and market dynamics and are of direct relevance to the regulators and investors in ETF markets.

Dressed to merge small fits fine: M&A success in the fashion and accessories industry
October 2011 Steffen Meinshausen | Dirk Schiereck In this paper we examine the value implications of 192 M&A transactions in the fashion and leather accessories industry during the period from 1994 to 2009. Contrary to general cross-country evidence we find highly significant, positive abnormal returns to acquiring shareholders. Cross-sectional analysis further reveals that the key value drivers are diversifying fashion M&A transactions for smaller, profitable companies that reduce idiosyncratic risk whereas deals executed by large companies that act as frequent acquirers do not, on average, significantly enhance shareholder wealth.

Information in balance sheets for future stock returns: Evidence from net operating assets
October 2011 Georgios Papanastasopoulos | Dimitrios Thomakos | Tao Wang In this paper, we show that the negative relation of net operating assets (NOA) with future stock returns first documented by Hirshleifer et al. (2004) applies to both net working and investing pieces of NOA, while it is mostly driven by asset NOA components. Predictability of returns is significant only for their unexpected parts (unrelated to past sales growth) and not uniform across different industries. We also find that only high (low) NOA firms with asset expansion (contraction) and weak (strong) background of profitable investments exhibit negative (positive) abnormal returns. Our evidence suggests that the NOA anomaly may be present due to a combination of opportunistic earnings management and agency related overinvestment.

Market risk model selection and medium-term risk with limited data: Application to ocean tanker freight markets
October 2011 Manolis G. Kavussanos | Dimitris N. Dimitrakopoulos

The estimation of medium-term market risk dictated by limited data availability, is a challenging issue of concern amongst academics and practitioners. This paper addresses the issue by exploiting the concepts of volatility and quantile scaling in order to determine the best method for extrapolating medium-term risk forecasts from high frequency data. Additionally, market risk model selection is investigated for a new dataset on ocean tanker freight rates, which refer to the income of the capital good tanker vessels. Certain idiosyncrasies inherent in the very competitive shipping freight rate markets, such as excessive volatility, cyclicality of returns and the medium-term investment horizons found in few other markets make these issues challenging. Findings indicate that medium-term risk exposures can be estimated accurately by using an empirical scaling law which outperforms the conventional scaling laws of the square and tail index root of time. Regarding the market risk model selection for short-term investment horizons, findings contradict most studies on conventional financial assets: interestingly, freight rate market risk quantification favors simpler specifications, such as the GARCH and the historical simulation models.

Oil prices and accounting profits of oil and gas companies

October 2011 Ajit Dayanandan | Han Donker This paper investigates the relationship between commodity prices of crude oil, capital structure, firm size and accounting measures of firm performance using a sample of oil and gas firms from 1990 to 2008. We employ estimates based on panel least squares, a fixed effects model and a random effects model. We also use generalized method of moments (GMM) estimators by Arellano and Bond (1991) and Blundell and Bond (1998, 2000). Our findings show that crude oil prices positively and significantly impact the performance of oil and gas firms in North America using accounting measures of performance. The recent financial crisis of 2007 and 2008 negatively influenced oil prices and the financial performance of oil and gas firms. On the other hand, the earlier global crises (Asian financial crisis and 9/11) did not have a significant impact on the return on equity of oil and gas companies. Our primary contribution to the literature is a comprehensive and econometric analysis of the relation between commodity prices and accounting measures of performance oil and gas companies.

Intraday patterns in London listed Exchange Traded Funds

October 2011 Patricia Chelley-Steeley | Keebong Park In this paper we examine the intraday trading patterns of Exchange Traded Funds (ETFs) listed on the London Stock Exchange. ETFs have been shown to be characterised by much lower bidask spread costs and by lower levels of information asymmetry than individual securities. One possible explanation for intraday trading patterns is that concentration of trading arises at the start of the trading day because informed traders have private information that quickly diminishes in value as trading progresses. Since ETFs have

lower trading costs and lower levels of information asymmetry we would expect these securities to display less pronounced intraday patterns than individual securities. We fail to find that ETFs are characterised by concentrated trading bouts during the day and therefore find support for the argument that information asymmetry is the cause of intraday volume patterns in stock markets. We find that ETF bidask spreads and volatility are elevated at the open but not at the close. This lends support to the accumulation of information explanation that sees high spreads and volatility at the open as a consequence of information accumulating during a market closure and impacting on the market when it next opens.

Forecasting the yield curve with linear factor models

October 2011 Marco Matsumura | Ajax Moreira | Jos Vicente In this work we compare the interest rate forecasting performance of a broad class of linear models. The models are estimated through a MCMC procedure with data from the US and Brazilian markets. We show that a simple parametric specification has the best predictive power, but it does not outperform the random walk. We also find that macroeconomic variables and no-arbitrage conditions have little effect to improve the out-of-sample fit, while a financial variable (Stock Index) increases the forecasting accuracy.

Short-sales constraints and market quality: Evidence from the 2008 short-sales bans
August 2011 Alex Frino | Steven Lecce | Andrew Lepone Using data from fourteen equity markets, this study empirically examines the impact of the 2008 shortselling bans on market quality. Evidence indicates that restrictions on short-selling lead to artificially inflated prices, indicated by positive abnormal returns. This is consistent with Miller's (1977) overvaluation theory, and suggests that the bans are effective in temporarily stabilizing prices in struggling financial stocks. Market quality is reduced during the restrictions, as evidenced by wider bid-ask spreads, increased price volatility and reduced trading activity. While these effects are strong, regulators may view the deterioration in market quality as a necessary by-product of the bans to maintain prices and protect investors.

Robust global stock market interdependencies

August 2011 Brian M. Lucey | Cal Muckley In this paper, we examine the scope for in ternational stock portfolio diversification, from the viewpoint of a United States representative investor, in regard to both the Asian and the European stock markets. Our findings indicate that despite correlation style evidence to the contrary, the European stock markets provide a superior long-term diversification opportunity relative to that provided by the Asian stock markets. Hence, a short-term measurement of interdependence appears to be uninformative with respect to the

diversification opportunities of investors with longer term investment horizons. In terms of methodology, we adopt common stochastic trend tests, including a common stochastic trend test which accounts for generalised autoregressive conditional heteroskedasticity effects in conjunction with the recursive estimation of these tests to estimate the development of long-term stock market interdependence linkages. Recursively estimated robust correlations between the international stock markets are utilised to reveal the nature of short-term stock market interdependence linkages.

Industry membership and capital structure dynamics in the UK

August 2011 Jon Tucker | Evarist Stoja We examine the impact of industry membership on the capital structure dynamics of UK quoted firms over the period 1968 to 2006 by analysing how the components of common gearing ratios are adjusted in relation to one another. More specifically, if we find evidence of a cointegrating relationship between these components then we argue that this provides us with evidence of target gearing behaviour. Further, employing a novel approach, we test whether firms engage in targeting behaviour in the long-run whilst a hierarchy or pecking order of financing arises in the short-run. The paper is motivated by the conjecture that a synthesis of the pecking-order theory and the trade-off theory is necessary. Arguably, whilst both theories can explain certain aspects of capital structure setting behaviour, neither provides a satisfactory general explanation of behaviour in the real-world. The results reveal that in the long-run, most firms demonstrate target gearing behaviour, though targeting is restricted to those measures most meaningful to a firm's particular industry. Adjustment towards a given target is rapid, taking on average no more than four years. In the short-run, old economy firms follow a standard pecking order whilst new economy firms choose equity in preference to debt when external financing is required. This provides some evidence in support of a synthesis approach to the determination of gearing whilst also highlighting the importance of industry membership to capital structure determination.

What drives the volumevolatility relationship on Euronext Paris?

August 2011 Wal Louhichi The goal of this paper is to shed light on the relationship between volume and volatility. More specifically, it aims to determine which component of trading volume (trade size or number of transactions) drives this relation. Our intraday analysis reveals several results. Firstly, we confirm the strong positive relationship between volume and volatility. Secondly, including volume in the conditional variance of stock returns significantly reduces the persistence of volatility. Thirdly, we show that the well-known positive relationship between volatility and volume is generated by the number of trades. These results are robust, even after

controlling for the impact of the intraday patterns. Finally, our findings are available for the CAC40 Index as well as for individual stocks.

The prudential effect of strategic institutional ownership on stock performance

August 2011 Yacine Belghitar | Ephraim Clark | Konstantino Kassimatis This paper examines the effect of prudentially obligated strategic institutional ownership on the performance of firm stock returns. Using the concept of marginal conditional stochastic dominance (MCSD), performance is measured to include the whole distribution of stock returns instead of limiting itself to the first two moments of mean and variance. It provides strong evidence that prudentially obligated strategic institutional ownership is consistent with the fiduciary responsibility of prudential investment behaviour and that it is performance enhancing as well. Our results also provide evidence that although the effects of pressure sensitive and pressure resistant institutions affect the individual measures of risk aversion (moments of the distributions) differently, when the total distribution is considered, both types of institutional ownership reflect prudence and are performance enhancing. These results are robust with respect to a range of conventional control variables and estimation techniques.

Econophysics: Bridges over a turbulent current

Available online 30 July 2011 Shu-Heng Chen | Sai-Ping Li In this editorial guide for the special issue on econophysics, we give a unique review of this young but quickly growing discipline. A suggestive taxonomy of the development is proposed by making a distinction between classical econophysics and modern econophysics. For each of these two stages of development, we identify the key economic issues whose formulations and/or treatments have been affected by physics or physicists, which includes value, business fluctuations, economic growth, economic and financial time series, the distribution of economic entities, interactions of economic agents, and economic and social networks. The recent advancements in these issues of modern econophysics are demonstrated by nine articles selected from the papers presented at the Econophysics Colloquium 2010 held at Academia Sinica in Taipei.

Market fraction hypothesis: A proposed test

Available online 21 July 2011 Michael Kampouridis | Shu-Heng Chen | Edward Tsang This paper presents and formalizes the Market Fraction Hypothesis (MFH), and also tests it under empirical datasets. The MFH states that the fraction of the different types of trading strategies that exist in a financial market changes (swings) over time. However, while such swinging has been observed in several agentbased financial models, a common assumption of these models is that the trading strategy types are static

and pre-specified. In addition, although the above swinging observation has been made in the past, it has never been formalized into a concrete hypothesis. In this paper, we formalize the MFH by presenting its main constituents. Formalizing the MFH is very important, since it has not happened before and because it allows us to formulate tests that examine the plausibility of this hypothesis. Testing the hypothesis is also important, because it can give us valuable information about the dynamics of the market's microstructure. Our testing methodology follows a novel approach, where the trading strategies are neither static, nor prespecified, as in the case in the traditional agent-based financial model literature. In order to do this, we use a new agent-based financial model which employs genetic programming as a rule-inference engine, and selforganizing maps as a clustering machine. We then run tests under 10 international markets and find that some parts of the hypothesis are not well-supported by the data. In fact, we find that while the swinging feature can be observed, it only happens among a few strategy types. Thus, even if many strategy types exist in a market, only a few of them can attract a high number of traders for long periods of time.

On the nonstationarity of the exchange rate process

Available online 19 July 2011 Takaaki Ohnishi | Hideki Takayasu | Takatoshi Ito | Yuko Hashimoto | Tsutomu Watanabe | Misako Takayasu We empirically investigate the nonstationarity property of the USDJPY exchange rate by using a high frequency data set spanning 8years. We perform a statistical test of strict stationarity based on the twosample KolmogorovSmirnov test for the absolute price changes, and Pearson's chi square test for the number of successive price changes in the same direction, and find statistically significant evidence of nonstationarity. Further, we study the recurrence intervals between the days in which nonstationarity occurs and find that the distribution of recurrence intervals is well approximated by an exponential distribution. In addition, we find that the mean conditional recurrence interval hTjT0i is independent of the previous recurrence interval T0. These findings indicate that the recurrence intervals are characterized by a Poisson process. We interpret this observation as a reflection of the Poisson property regarding the arrival of news

Most Cited International Review of Financial Analysis Articles Most cited articles published since 2007, extracted from SciVerse Scopus.
Sudden changes in volatility in emerging markets: The case of Gulf Arab stock markets
Volume 17, Issue 1, January 2008, Pages 47-63 Hammoudeh, S. | Li, H.

This article examines sudden changes in volatility for five Gulf area Arab stock markets using the iterated cumulative sums of squares (ICSS) algorithm and analyzes their impacts on the estimated persistence of volatility. This algorithm identifies large shifts in volatility of the stock markets during the weekly period 1994 to 2001. In contrast to Aggarwal et al. [Aggarwal, R., Inclan, C., & Leal, R., 1999, Volatility in emerging markets. Journal of Financial and Quantitative Analysis 34, 33-55], this paper found that most of the Gulf Arab stock markets are more sensitive to major global events than to local and regional factors. The 1997 Asian crisis, the collapse of oil prices in 1998 after the crisis, the adoption of the price band mechanism by OPEC in 2000, and the September 11th attack have been found to have consistently affected the Gulf markets. Accounting for these large shifts in volatility in the GARCH(1,1) models significantly reduces the estimated persistence of the volatility in the Gulf stock markets. 2006 Elsevier Inc. All rights reserved.

Dynamic linkages between emerging European and developed stock markets: Has the EMU any impact?
Volume 16, Issue 1, January 2007, Pages 41-60 Syriopoulos, T. This paper investigates the short- and long-run behavior of major emerging Central European (Poland, Czech Republic, Hungary, Slovakia), and developed (Germany, US) stock markets and assesses the impact of the EMU on stock market linkages. Evidence of one cointegration vector in both a pre- and a post-EMU sub-period indicates market comovements towards a stationary long-run equilibrium path. Central European markets tend to display stronger linkages with their mature counterparts, whereas the US market holds a world leading influential role. No dramatic post-EMU shock is detected in stock market dynamics. The empirical findings have important implications for the effectiveness of domestic policy decisions, as the emerging Central European states have recently joined the EU and local stock markets may become less immunized to external shocks. 2005 Elsevier Inc. All rights reserved.

Debt-equity choice in Europe

Volume 16, Issue 3, June 2007, Pages 201-222 Gaud, P. | Hoesli, M. | Bender, A. Using a sample of over 5000 European firms, we document the driving factors of capital structure policies in Europe. Controlling for dynamic patterns and national environments, we show how these policies cannot be reduced to a simple trade-off or pecking order model. Both corporate governance and market timing impact upon capital structure. European firms limit themselves to an upper barrier to leverage, but not to a lower one. Debt constrains managers to payout cash, and equity may become cheap during windows of opportunity. Internal financing, when available, is preferred over

external financing, but companies limit future excess of slack as it constitutes a potential source of conflict. 2006 Elsevier Inc. All rights reserved.

Analysis of efficiency for Shenzhen stock market based on multifractal detrended fluctuation analysis
Volume 18, Issue 5, December 2009, Pages 271-276 Wang, Y. | Liu, L. | Gu, R. We divided the whole series of Shenzhen stock market into two sub-series at the criterion of the date of a reform and their scale behaviors are investigated using multifractal detrended fluctuation analysis (MF-DFA). Employing the method of rolling window, we find that Shenzhen stock market was becoming more and more efficient by analyzing the change of Hurst exponent and a new efficient measure, which is equal to multifractality degree sometimes. We also study the change of Hurst exponent and multifractality degree of volatility series. The results show that the volatility series still have significantly long-range dependence and multifractality indicating that some conventional models such as GARCH and EGARCH cannot be used to forecast the volatilities of Shenzhen stock market. At last, the abnormal phenomenon of multifractality degrees for return series is discussed. The results have very important implications for analyzing the influence of policies, especially under the environment of financial crisis. 2009 Elsevier Inc. All rights reserved.

Financial crisis and stock market efficiency: Empirical evidence from Asian countries
Volume 17, Issue 3, June 2008, Pages 571-591 Lim, K.-P. | Brooks, R.D. | Kim, J.H. This paper empirically investigates the effects of the 1997 financial crisis on the efficiency of eight Asian stock markets, applying the rolling bicorrelation test statistics for the three sub-periods of precrisis, crisis, and post-crisis. On a country-by-country basis, the results demonstrate that the crisis adversely affected the efficiency of most Asian stock markets, with Hong Kong being the hardest hit, followed by the Philippines, Malaysia, Singapore, Thailand and Korea. However, most of these markets recovered in the post-crisis period in terms of improved market efficiency. Given that the evidence of nonlinear serial dependencies indicates equilibrium deviation resulted from external shocks, the present findings of higher inefficiency during the crisis are not surprising as in the chaotic financial environment at that time, investors would overreact not only to local news, but also to news originating in the other markets, especially when the news events were adverse. 2007 Elsevier Inc. All rights reserved.

Persistence characteristics of the Chinese stock markets

Volume 17, Issue 1, January 2008, Pages 64-82 Los, C.A. | Yu, B. Using advanced signal processing, this paper identifies the lack of ergodicity, stationarity, independence and the degree of persistence of the Shanghai (SHI) stock market and Shenzhen A shares (SZI) and B shares (SZBI), before and after the various deregulations and reregulations. Their lack of stationarity and ergodicity are ascribed to (1) the initial interventions in these stock markets by the Chinese government by imposing various daily price change limits, and (2) the changing trading styles, after the Chinese government left these equity markets to develop by themselves. The SHI, SZI, and SZBI are moderately persistent with Hurst exponents slightly greater than the Fickian 0.5 of the Geometric Brownian Motion. These stock markets were considerably more persistent before the deregulations, but they now behave more like Geometric Brownian Motions, i.e., efficiently. Thus, the Chinese stock markets are gradually and properly being integrated into one Chinese stock market. Our results are consistent with similar empirical findings from Latin American, European, and other Asian emerging financial markets. 2006 Elsevier Inc. All rights reserved.

Does ownership structure affect value? A panel data analysis for the Spanish market
Volume 16, Issue 1, January 2007, Pages 81-98 Mnguez-Vera, A. | Martn-Ugedo, J.F. This paper analyzes the influence of ownership structure on firm value. We find a non-significant relationship between the ownership of large blockholders and firm value. We also find a positive effect of the degree of control with regard to firm value. Endogenous treatment of these variables then reveals a positive effect for the ownership by major shareholders on firm value, although the opposite relationship is not significant; and a positive effect of the degree of control on Tobin's Q and vice versa. A positive effect is seen when the major shareholders are individuals. 2005 Elsevier Inc. All rights reserved.

Volatility in stock returns for new EU member states: Markov regime switching model
Volume 16, Issue 3, June 2007, Pages 282-292 Moore, T. | Wang, P. In this paper, we investigate the volatility in stock markets for the new European Union (EU) member states of the Czech Republic, Hungary, Poland, Slovenia and Slovakia by utilising the Markov regime switching model. The model detects that there are two or three volatility states for the emerging stock markets. The result reveals that there is a tendency that the emerging stock markets move from the high volatility regime in the earlier period of transition into the low volatility regime as they move into

the EU. Entry to the EU appears to be associated with a reduction of volatility in unstable emerging markets. 2007 Elsevier Inc. All rights reserved.

Does financial market liberalization increase the degree of market efficiency? The case of the Athens stock exchange
Volume 18, Issues 1-2, March 2009, Pages 50-57 Cajueiro, D.O. | Gogas, P. | Tabak, B.M. In this paper we assess if the financial market liberalization introduced in the beginning of the 1990s in Greece has changed the degree of market development (efficiency) by studying time-varying global Hurst exponents. Our results suggest that changes in financial market liberalization have important positive implications on the degree of development of stock markets. These results have important policy implications for the development of stock markets around the world. 2008 Elsevier Inc. All rights reserved.

Volatility transmission between oil prices and equity sector returns

Volume 18, Issue 3, June 2009, Pages 95-100 Malik, F. | Ewing, B.T. This paper employs bivariate GARCH models to simultaneously estimate the mean and conditional variance between five different US sector indexes and oil prices. Since many different financial assets are traded based on these market sector returns, it is important for financial market participants to understand the volatility transmission mechanism over time and across these series in order to make optimal portfolio allocation decisions. We examine weekly returns from January 1, 1992 to April 30, 2008 and find evidence of significant transmission of shocks and volatility between oil prices and some of the examined market sectors. The findings support the idea of cross-market hedging and sharing of common information by investors. 2009 Elsevier Inc. All rights reserved.

Bank efficiency in the new European Union member states: Is there convergence?
Volume 17, Issue 5, December 2008, Pages 1156-1172 Mamatzakis, E. | Staikouras, C. | Koutsomanoli-Filippaki, A. We employ the stochastic frontier approach and estimate a common frontier in order to examine cost and profit efficiency in the banking systems of the ten new European Union member states over the period 1998-2003. The results indicate a generally low level of cost and an even lower level of profit efficiency, whilst we do not observe marked differences of inefficiency scores across countries. Foreign banks outperform both state-owned and domestic private-owned banks in terms of profit efficiency, though results are less clear in the case of cost efficiency. In addition, - and -convergence criteria

indicate some convergence in cost efficiency across the new member states, yet no convergence appears to have been achieved in terms of profit efficiency. 2007 Elsevier Inc. All rights reserved.

The identification of acquisition targets in the EU banking industry: An application of multicriteria approaches
Volume 16, Issue 3, June 2007, Pages 262-281 Pasiouras, F. | Tanna, S. | Zopounidis, C. In this paper we develop classification models for the identification of acquisition targets in the EU banking industry, incorporating financial variables that are mostly unique to the banking industry and originate from the CAMEL approach. A sample of 168 non-acquired banks matched with 168 acquired banks is used over the period 1998-2002, covering 15 EU countries. We compare and evaluate the relative efficiency of three multicriteria approaches, namely MHDIS, PAIRCLAS, and UTADIS, with all models developed and tested using a 10-fold cross validation approach. We find that the importance of the variables differs across the models. However, on the basis of univariate test and the results of the models we could state that in general after adjusting for the country where banks operate, acquired banks are less well capitalized and less cost and profit efficient. The results show that the developed models can achieve higher classification accuracies than a nave model based on random assignments. Nevertheless, there is fair amount of misclassification that is hard to avoid given the nature of the problem, showing that as in previous studies for non-financial firms, the identification of acquisitions targets in banking is a difficult task. 2006 Elsevier Inc. All rights reserved.

Underpricing of Chinese A-share IPOs and short-run underperformance under the approval system from 2001 to 2005
Volume 17, Issue 5, December 2008, Pages 984-997 Guo, H. | Brooks, R. This paper analyses underpricing and short-run underperformance of the Chinese A-share IPOs from Mar, 2001 to 2005 when the new approval system was adopted. We find that the average market adjusted first-day return is 93.49% in this period, a more reasonable level when compared with those in previous periods in China. The findings show that underpricing in this period is significantly affected by offering mechanisms and inequality of demand and supply of IPOs. The effect of shareholder's structure is tested in the model and state-owned share's weight is shown to increase the degree of underpricing. Meanwhile, this paper analyses IPOs' short-run underpricing on their 10th, 20th, 30th trading days. It is found that most IPOs' underpricing shrinks and the degree of shrinking degrees is different across the groups categorized by offering mechanisms. Further, the underperformance of

IPOs which are underwritten by more prestigious underwriters shows a comparatively lower range and is less severe in the short-run. 2008 Elsevier Inc. All rights reserved.

Empirical relationship between macroeconomic volatility and stock returns: Evidence from Latin American markets
Volume 17, Issue 2, March 2008, Pages 396-410 Abugri, B.A. Emerging market stock returns have been characterized as having higher volatility than returns in the more developed markets. But previous studies give little attention to the fundamentals driving the reported levels of volatility. This paper investigates whether dynamics in key macroeconomic indicators like exchange rates, interest rates, industrial production and money supply in four Latin American countries significantly explain market returns. The MSCI world index and the U.S. 3-month T-bill yield are also included to proxy the effects of global variables. Using a six-variable vector autoregressive (VAR) model, the study finds that the global factors are consistently significant in explaining returns in all the markets. The country variables are found to impact the markets at varying significance and magnitudes. These findings may have important implications for decisionmaking by investors and national policymakers. 2006 Elsevier Inc. All rights reserved.

Stock returns and volatility following the September 11 attacks: Evidence from 53 equity markets
Volume 17, Issue 1, January 2008, Pages 27-46 Nikkinen, J. | Omran, M.M. | Sahlstrm, P. | ij, J. September 11 attacks matter, and why not? Given that globalization has integrated financial markets, the magnitudes of the effect of the September 11 attacks on global markets are expected to be pervasive. We used data from 53 equity markets to investigate the short term impact of the September 11 attacks on markets' returns and volatility. Our empirical findings indicate that the impact of the attacks resulted in significant increases in volatility across regions and over the study period. However, stock returns experienced significant negative returns in the short-run but recovered quickly afterwards. Nevertheless, we find that the impact of the attacks on financial markets varied across regions. The implication here is that the less integrated regions (e.g., Middle East and North Africa) are with the international economy, the less exposed they are to shocks. 2007 Elsevier Inc. All rights reserved.

Portfolio selection subject to experts' judgments

Volume 17, Issue 5, December 2008, Pages 1036-1054 Smimou, K. | Bector, C.R. | Jacoby, G.

Since Markowitz [Markowitz, H. M. (1952). Portfolio selection. The Journal of Finance, 7, 77-91.], mean-variance theory has assumed that risky-asset returns to be random variables. The theory deals with this uncertainty by further assuming that investors hold homogeneous beliefs regarding the probability distribution governing return uncertainty. While the theory deals with return uncertainty, it fails to address measurement imprecision. In his original work, Markowitz recognized the need to combine randomness with heterogeneous expert judgment resulting in such imprecision. The main objective contributions of the paper are (i) to explore the implications of fuzzy return indeterminacy on mean-variance optimal portfolio choice, (ii) to use bid-ask spread as a proxy measure of the indeterminacy or "fuzzy" nature of random returns, and (iii) to introduce a brief, self-contained glimpse of empirical representations to practitioners unfamiliar with the fuzzy modeling field. Exposition, such as this one, is expected to open new collaborations between other branches of fuzzy mathematics and asset-pricing theories. 2008 Elsevier Inc. All rights reserved.

Unifractality and multifractality in the Italian stock market

Volume 18, Issue 4, September 2009, Pages 154-163 Onali, E. | Goddard, J. Tests for random walk behaviour in the Italian stock market are presented, based on an investigation of the fractal properties of the log return series for the Mibtel index. The random walk hypothesis is evaluated against alternatives accommodating either unifractality or multifractality. Critical values for the test statistics are generated using Monte Carlo simulations of random Gaussian innovations. Evidence is reported of multifractality, and the departure from random walk behaviour is statistically significant on standard criteria. The observed pattern is attributed primarily to fat tails in the return probability distribution, associated with volatility clustering in returns measured over various time scales. 2009 Elsevier Inc. All rights reserved.

Accounting disclosure and firms' financial attributes: Evidence from the UK stock market
Volume 17, Issue 2, March 2008, Pages 219-241 Iatridis, G. This paper focuses on the disclosure of accounting information in the financial statements of UK firms. The primary objective of the study is to analyse the financial characteristics of firms that provide extensive disclosures, and assess the financial impact of their motives, such as for example the need to raise equity finance. The study examines the financial attributes of firms that disclose information about key accounting issues including risk exposure, changes in accounting policies, use of international financial reporting standards and hedging practices. Firms are inclined to disclose accounting information in order to assure the market participants that their accounting policies are

consistent with the accounting regulation and meet the information needs of their stakeholders. The study shows that in order to raise finance in the capital and debt markets, firms tend to provide extensive accounting disclosures. Firms that provide informative accounting disclosures appear to display higher size, growth and leverage measures. The findings also show that the disclosure of sensitive accounting information has not adversely affected firms' profitability. In fact, firms that provide detailed accounting disclosures tend to exhibit higher profitability. The implementation of international financial reporting standards enhances the quality and the comparability of financial statements; hence it promotes consistency and reliability in financial reporting and facilitates companies in raising capital internationally. 2006 Elsevier Inc. All rights reserved.

The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence
Volume 18, Issue 5, December 2009, Pages 294-302 Pasiouras, F. | Tanna, S. | Zopounidis, C. This paper uses stochastic frontier analysis to provide international evidence on the impact of the regulatory and supervision framework on bank efficiency. Our dataset consists of 2853 observations from 615 publicly quoted commercial banks operating in 74 countries during the period 2000-2004. We investigate the impact of regulations related to the three pillars of Basel II (i.e. capital adequacy requirements, official supervisory power, and market discipline mechanisms), as well as restrictions on bank activities, on cost and profit efficiency of banks, while controlling for other country-specific characteristics. Our results suggest that banking regulations that enhance market discipline and empower the supervisory power of the authorities increase both cost and profit efficiency of banks. In contrast, stricter capital requirements improve cost efficiency but reduce profit efficiency, while restrictions on bank activities have the opposite effect, reducing cost efficiency but improving profit efficiency. 2009 Elsevier Inc. All rights reserved.

Common stochastic trends among Far East stock prices: Effects of the Asian financial crisis
Volume 16, Issue 3, June 2007, Pages 242-261 Choudhry, T. | Lu, L. | Peng, K. This paper investigates empirically the change(s) in the long-run relationship(s) between the stock prices of eight Far East countries around the Asian financial crisis of 1997-98. Further tests are conducted to check the change in the influence of the Japanese and the US stock markets in the Far East Region before, during and after the crisis. Empirical investigation is conducted by means of rolling correlation coefficients, the Johansen multivariate cointegration method, causality tests and band spectrum regression. Results show significant long-run relationship(s) and linkage between the Far

East markets before, during, and after the crisis. The most significant linkage and relationship are found during the crisis period. Results mostly indicate larger US influence in all periods but some evidence of increasing Japanese influence is also shown. 2006 Elsevier Inc. All rights reserved.

Investor interest, trading volume, and the choice of IPO mechanism in France
Volume 16, Issue 2, February 2007, Pages 116-135 Chahine, S. This paper investigates the relationship between underpricing and investor interest level prior to and after the IPO date. Empirical tests show a significant 3-day buy-and-hold abnormal return of 19.15%. It is positively related to the share demand-to-offer ratio in the pre-market period and to trading volume in the aftermarket. Despite a high initial underpricing for some book-built issues, the bookbuilding procedure allows for more effective pricing and a lower divergence of opinion among investors in the aftermarket than the auction-like procedure. 2005 Elsevier Inc. All rights reserved.

Is earnings management opportunistic or beneficial? An agency theory perspective

Volume 17, Issue 3, June 2008, Pages 622-634 Jiraporn, P. | Miller, G.A. | Yoon, S.S. | Kim, Y.S. Earnings management has been cast into negative light due to the recent corporate scandals and, therefore, is viewed as detrimental to the firm. Enron and Worldcom represent two of the most egregious cases of opportunistic earnings management that led to the largest bankruptcies in U.S. history. However, some argue that earnings management may be beneficial because it improves the information value of earnings by conveying private information to the stockholders and the public. We offer agency theory as a tool to distinguish between the opportunistic and beneficial uses of earnings management. The empirical evidence suggests that firms where earnings management occurs to a larger (less) extent suffer less (more) agency costs. Moreover, a positive relation is documented between firm value and the extent of earnings management. Taken together, the results reveal that earnings management is, on average, not detrimental. 2006 Elsevier Inc. All rights reserved.

The Spanish privatisation process: Implications on the performance of divested firms

Volume 16, Issue 4, September 2007, Pages 390-409 Cabeza Garca, L. | Gmez Ansn, S. This paper reviews the main characteristics of the Spanish privatisation and liberalisation processes and their consequences for the performance of privatised firms. Conventional pre- versus postprivatisation comparisons fail to indicate significant improvements in privatised firms' profitability and operating efficiency over a medium-term horizon once industry effects are taken into account. In

contrast, they do highlight significant improvements in divested firms' industry-adjusted profitability and efficiency over a long-term horizon. Furthermore, the results of the study suggest that the economic environment may play an important role in the success of privatisation processes, and that profitability and efficiency gains seem to take place in firms operating in competitive markets and in firms that were privatised during periods of macroeconomic growth. Our results also partially support the influence of restructurings before privatisation on firms' performance. 2006 Elsevier Inc. All rights reserved.

Modelling stock returns in Africa's emerging equity markets

Volume 18, Issues 1-2, March 2009, Pages 1-11 Alagidede, P. | Panagiotidis, T. We investigate the behaviour of stock returns in Africa's largest markets namely, Egypt, Kenya, Morocco, Nigeria, South Africa, Tunisia and Zimbabwe. The validity of the random walk hypothesis is examined and rejected by employing a battery of tests. Secondly we employ smooth transition and conditional volatility models to uncover the dynamics of the first two moments and examine weak form efficiency. The empirical stylized facts of volatility clustering, leptokurtosis and leverage effect are present in the African data. Crown Copyright 2009.

Price and volatility spillovers across North American, European and Asian stock markets
Volume 19, Issue 1, January 2010, Pages 55-64 Singh, P. | Kumar, B. | Pandey, A. This paper examines price and volatility spillovers across North American, European and Asian stock markets. The return spillover is modeled through VAR(15) in which fifteen world indices, representative of their stock market are considered. The effect of same day return in explaining the return spillover is also analyzed using VAR and AR with exogenous variables. Volatility spillover is modeled through AR-GARCH incorporating the same day effect. In both return and volatility spillover, it is found that a particular index is mostly affected by the indices which open/close just before it. It is also found that there is a greater regional influence among Asian and European stock markets. Our paper contributes to the literature by including markets that span the whole time line and also modeling the same day effect with simultaneity preserved where required. Given the evidence, the results can be generalized for the other markets that were not included. 2009 Elsevier Inc. All rights reserved