The volume and volatility relation in the Australian stock market

The thesis studies the volume-volatility relation in the Australian Securities Market. It is concluded that the number of trades is the most important variable driving realized volatility. The average trade size is significant but its explanatory power is only trivial. Order imbalance does not drive volatility in the Australian market.

Non-nested tests of a GDP-augmented Fama–French model versus a conditional Fama–French model in the Australian stock market

We extend Vassalou (2003) by conditioning the Fama–French model with the same macroeconomic variables used to construct a GDP factor. The motivation for doing so is to ascertain whether the ability of the GDP-augmented model to explain equity returns is actually due to news about future GDP growth or whether it is due to the macroeconomic conditioning variables used to construct the GDP factor. We compare the performance of a GDP-enhanced Fama–French model with the conditional Fama–French model using non-nested testing techniques. We find that the GDP-augmented model considerably underperforms the conditional version of the model.

Institutional Ownership, Audit Committee and Risk Disclosure – Evidence from Australian Stock Market

This study investigates the influence of institutional ownership and audit committees corporate risk disclosures. Focusing on analysing firms’ risk disclosures make in their 2009 annual reports, our sample constitutes a sample of 66 Australian listed firms. We divide institutional shareholders into dedicated-type institutional block shareholders and transient-type institutional block shareholders. We find that while there is no significant relationship between dedicated-type institutional block shareholders and risk disclosure, there is a positive relationship between transient-type institutional block shareholders and risk disclosures. Our result is consistent with a principal that wields limited monitoring resources while achieving high resource dependency over management. We also find a significant and positive relationship between audit committee independence and risk disclosures, showing the positive role played by audit committee in improving the information transparency and reducing information asymmetry in capital market.

Concurrent momentum and contrarian strategies in the Australian stock market

We investigate the coexistence of momentum and contrarian strategies in the Australian equity market from 1992 to 2011. We show that contrarian strategies prevail in the short-term investment horizon while momentum strategies dominate in the intermediate- and long-term horizons. However, only short-term contrarian strategies significantly outperform the simple buy-and-hold strategy of investing in the market index over the same period. Further examination of these strategies shows that the Australian mining sector undermines the performance of momentum while enhancing performance of contrarian strategies. Lastly, using both parametric and non-parametric approaches, we show that these strategies’ returns are persistent anomalies and not completely explained by standard return-generating models.

Price exhaustion and number preference : time and price confluence in Australian stock prices

Confluence occurs when different trading filters generate signals that point to the same directional move. Using regression analysis, this paper investigates confluence trading signals associated with number preference and price exhaustion, for a sample of Australian stocks. The results show that certain price levels tend to act as psychological barriers, and that price exhaustion signals are a real phenomenon in the Australian stock market. It is shown also that confluence exists in the Australian stock market. Importantly, confluence is associated with price retracements that are of economic and statistical significance, offering profitable trading opportunities. The results suggest that Australian stocks do not follow a random walk.

Market capitalization of Australian stock exchange (ASX) listed biotechnology companies

Comments on the market capitalization of Australian Stock Exchange listed biotechnology companies. Background on the Australian biotechnology stock market; Factors which determine the levels of risks; Points to consider when valuing Australian biotechnology companies.

Latency reduction and market quality: the case of the Australian Stock Exchange

This study investigates the role of latency in market quality in the Australia Securities Exchange following the introduction of the Integrated Trading Platform (ITS) and ASXTrade. We find that the reduction in system latency from 70. ms to 30. ms (ITS) improved liquidity. However, the lower latency has not had a long-lasting downward effect on spreads, as there was no discernible reduction in trading costs when institutional traders already had access to lower-latency co-locations. We contribute to the literature by reporting that low latency improves market liquidity, but privileged participants that have access to trading information prior to others may induce greater information asymmetry and adverse selection.

Stock market liquidity and firm value : an empirical examination of the Australian market

We document a positive relation between stock liquidity and firm value. We examine the mechanism through which stock market liquidity enhances firm value by dividing firm value, as measured by Tobin’s Q, into three components, namely, operating income to price, leverage, and operating income to assets. Using the switch to broker anonymity as an exogenous shock to market liquidity, we show that the increase in liquidity around the shock leads to an increase in firm value. Our results suggest that higher firm value for more liquid stocks seems to stem from enhanced stock prices rather than from better operating performance.

Short-run performance of recent Australian on-market share buy-back announcements

Share buy-backs (or share repurchases) have become increasingly popular among Australian companies during the recent times. One of the aims of share buy-back is to increase the shareholders' wealth by increasing the market price of company shares. While there are several ways of buying backs shares, on-market buy-backs is the most popular method of share repurchase in Australia. Australian listed companies have announced more than two hundred on-market share buy-backs over the past three years. The aim of this paper is to examine the short-run market performance of these recent on-market buy-back announcements.

Short-term effect of on-market buy-back announcements on the share price is an issue, which is theoretically interesting and practically important. Buy-back announcements are believed to convey a signal to the market (i.e., signalling effect). If the market considers this signal positively, the short-run price of the shares would increase. If the signal were considered negatively, the short-run price of shares would decrease. If there is no signalling content or the signal is neutral the price would remain the same. In this study, signalling effect of share buy-back announcements is empirically examined using most recent Australian data. The total population of on-market buy-back announcements that have been lodged with Australian Stock Exchange by Australian listed companies during the period from 1 January 2000 to 10 March 2003 are included in this study. The abnormal market return over the short-run (announcement day and 10 trading days centred on the announcement date) is examined using the All Ordinaries Accumulation Index as the reference portfolio. The daily abnormal returns (AR) and cumulative abnormal returns (CAR) during the event period are computed. The results indicate that the Australian market generally positively reacts to on-market buy-back announcements.

Modelling the linkages between the Australian and G7 stock markets : common stochastic trends and regime shifts

This paper examines whether the Australian equity market is integrated with the equity markets of the G7 economies by applying both the Johansen (Statistical analysis of conintegrating vectors, Journal of Economic Dynamics and Control, 12, 231-54, 1988) and Gregory and Hansen (Residual-based tests for cointegration in models with regime shifts, Journal of Econometrics, 70, 99-126, 1996) approaches to cointegration. Some evidence of a pairwise long-run relationship between the Australian stock market and the stock markets of Canada, Italy, Japan and the United Kingdom is found, but the Australian equity market is not pairwise cointegrated with the equity markets of France, Germany or the USA.

Asymmetric risk and return: evidence from the Australian Stock Exchange

This paper examines volatility asymmetry in a financial market using a stochastic volatility framework. We use the MCMC method for model estimations. There is evidence of volatility asymmetry in the data. Our asymmetric stochastic volatility in mean model, which nests both asymmetric stochastic volatility (ASV) and stochastic volatility in mean models (SVM), indicates ASV sufficiently captures the risk-return relationship; therefore, augmenting it with volatility in mean does not improve its performance. ASV fits the data better and yields more accurate out-of-sample forecasts than alternatives. We also demonstrate that asymmetry mainly emanates from the systematic parts of returns. As a result, it is more pronounced at the market level and the volatility feedback effect dominates the leverage effect.