Financial stocks and political bonds: stock market participation and political behavior in the United States and Britain

This dissertation investigates the effect of stock market participation on political behavior. Some observers claim that financial assets—stocks and mutual funds—have a causal effect on political behavior. The “investor class theory” asserts that as people invest in the stock market their partisan attachments shift rightward. The “asset effect theory” claims that financial investments increase political interest and participation. I examine these claims with longitudinal data from the United States and Great Britain covering a twenty-year period from the early 1980s through the mid-2000’s. I also examine the effect of financial asset ownership on political attitudes in the United States during the 2008 stock market crash. I find no evidence to support the argument that stock market participation has any causal effect on partisanship, participation, or political attitudes.

Tribes under threat : the collective behavior of firms during the stock market crisis

Due to their unpredictable behavior, stock markets are examples of complex systems. Yet, the dominant analysis of these markets as- sumes simple stochastic variations, eventually tainted by short-lived memory. This paper proposes an alternative strategy, based on a stochastic geometry defining a robust index of the structural dynamics of the markets and based on notions of topology defining a new coef- ficient that identifies the structural changes occurring on the S&P500 set of stocks. The results demonstrate the consistency of the random hypothesis as applied to normal periods but they also show its in- adequacy as to the analysis of periods of turbulence, for which the emergence of collective behavior of sectoral clusters of firms is mea- sured. This behavior is identified as a meta-routine.

Ultimate controlling shareholders and dividend payout policy in Chinese stock market

Departing from the traditional cash flow rights-dividend policy framework, this study investigates whether the level of control rights and the types of ultimate controlling shareholders (UCSs) of listed firms in China influence their cash dividend payout. We find that the level of control rights is positively associated with both the probability to pay and the level of cash dividend payout, which indicates that UCSs use cash dividends to reduce the agency cost of free cash flow and redirect listed firms' cash balance. Furthermore, different types of UCSs influence dissimilarly on the controlled firms' cash dividends, which can be attributed to the backgrounds of these UCSs originating from China's unique partial share issuance privatization process.

The real impact of stock market mispricing — evidence from Australia

Using a large panel of Australian firms, we investigate if mispricing in the stock market has an impact on firm-level investment. A significantly positive relation is documented between investment and theproxies for mispricing, suggesting that overpriced (underpriced) firms tend to overinvest (underinvest). Furthermore, we find that equity-dependent firms display a more pronounced sensitivity of investment to stock misvaluation than do nonequity-dependent firms. Taken together, our findings evidence that mispricing in Australian capital markets may have significant influence on the real economy, and the influence works though an equity-financing channel.© 2007 Elsevier B.V. All rights reserved.

How long is the memory of the US stock market?

The Efficient Market Hypothesis (EMH), one of the most important hypothesis in financial economics, argues that return rates have no memory (correlation) which implies that agents cannot make abnormal profits in financial markets, due to the possibility of arbitrage operations. With return rates for the US stock market, we corroborate the fact that with a linear approach, return rates do not show evidence of correlation. However, linear approaches might not be complete or global, since return rates could suffer from nonlinearities. Using detrended cross-correlation analysis and its correlation coefficient, a methodology which analyzes long-range behavior between series, we show that the long-range correlation of return rates only ends in the 149th lag, which corresponds to about seven months. Does this result undermine the EMH?

The impact of credit conditions on market liquidity – a case for European stock markets

The recent financial crisis has drawn the attention of researchers and regulators to the importance of liquidity for stock market stability and efficiency. The ability of market-makers and investors to provide liquidity is constrained by the willingness of financial institutions to supply funding capital. This paper sheds light on the liquidity linkages between the Central Bank, Monetary Financial Institutions and market-makers as crucial elements to the well-functioning of markets. Results suggest the existence of causality between credit conditions and stock market liquidity for the Eurozone between 2003 and 2015. Similar evidence is found for the UK during the post-crisis period. Keywords: stock

Stock return comovements and integration within the Latin American integrated market

Financial integration has been pursued aggressively across the globe in the last fifty years; however, there is no conclusive evidence on the diversification gains (or losses) of such efforts. These gains (or losses) are related to the degree of comovements and synchronization among increasingly integrated global markets. We quantify the degree of comovements within the integrated Latin American market (MILA). We use dynamic correlation models to quantify comovements across securities as well as a direct integration measure. Our results show an increase in comovements when we look at the country indexes, however, the increase in the trend of correlation is previous to the institutional efforts to establish an integrated market in the region. On the other hand, when we look at sector indexes and an integration measure, we find a decreased in comovements among a representative sample of securities form the integrated market.

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.

A-REIT seasoned equity offerings : determinants and market reaction

The paper examines the decision by Australian Real Estate Trusts (A-REITs) to issue seasoned equity offerings from 2000 - 2008 and stock market reaction to the offerings using panel data and event study methodologies, respectively. The global financial crisis has resulted in freezing of the Australian bond markets, with several A-REITs left with seasoned equity issuance and asset sales as the only viable modes of raising additional capital. The findings review that leverage and operating risk are negative significant determinants of seasoned equity offerings; profitability and growth opportunities are positive significant determinants. Of the structure and type of properties held by the A-REIT, only stapled management structure and international operations are significant determinants. Type of properties held by A-REITs show inconsistent results. Similar to previous studies of seasoned equity offerings, we find a significant negative abnormal return associated with their announcement and no evidence of excessive leakage of information. Cross-sectional regressions show that the issued amount raised and leverage are significant factors affecting abnormal returns.

Determinants and market impact of seasoned equity offerings : the case of A-REITs

The paper examines the decision by Australian Real Estate Trusts (A-REITs) to issue seasoned equity offerings from 2000 - 2008 and stock market reaction to the offerings. The findings reveal that highly leveraged A-REITs with variable earnings are less likely to issue seasoned equity offerings. Inconsistent results for structure and type of properties held by the A-REIT do not allow for inference to be drawn. Similar to previous studies of seasoned equity offerings, we find a significant negative abnormal return associated with their announcement and no evidence of excessive leakage of information. Furthermore, market reaction differences to announcements of SEOs for the pre-global financial crisis (GFC) (2000-2006) and GFC eras (2007-2008) are noted with GFC era shareholders incurring larger abnormal return losses at 1.13% in comparison to the pre-GFC era shareholder loss of 0.34% on the SEO announcement day. Cross-sectional regressions show that the issued amount, leverage and profitability are significant factors affecting abnormal returns. Growth opportunities, tangibility, operating risk, size of A-REIT and other variables capturing A-REIT structure and property types held do not have an impact on abnormal returns

A hybrid approach to combining CART and logistic regression for stock ranking

The benefits of applying tree-based methods to the purpose of modelling financial assets as opposed to linear factor analysis are increasingly being understood by market practitioners. Tree-based models such as CART (classification and regression trees) are particularly well suited to analysing stock market data which is noisy and often contains non-linear relationships and high-order interactions. CART was originally developed in the 1980s by medical researchers disheartened by the stringent assumptions applied by traditional regression analysis (Brieman et al. [1984]). In the intervening years, CART has been successfully applied to many areas of finance such as the classification of financial distress of firms (see Frydman, Altman and Kao [1985]), asset allocation (see Sorensen, Mezrich and Miller [1996]), equity style timing (see Kao and Shumaker [1999]) and stock selection (see Sorensen, Miller and Ooi [2000])...

Interdependence between Greece and other European stock markets: A comparison of wavelet and VMD copula, and the portfolio implications

The interdependence of Greece and other European stock markets and the subsequent portfolio implications are examined in wavelet and variational mode decomposition domain. In applying the decomposition techniques, we analyze the structural properties of data and distinguish between short and long term dynamics of stock market returns. First, the GARCH-type models are fitted to obtain the standardized residuals. Next, different copula functions are evaluated, and based on the conventional information criteria and time varying parameter, Joe-Clayton copula is chosen to model the tail dependence between the stock markets. The short-run lower tail dependence time paths show a sudden increase in comovement during the global financial crises. The results of the long-run dependence suggest that European stock markets have higher interdependence with Greece stock market. Individual country’s Value at Risk (VaR) separates the countries into two distinct groups. Finally, the two-asset portfolio VaR measures provide potential markets for Greece stock market investment diversification.

Monetary Policy, Stock Price Misalignments and Macroeconomic Instability

Perhaps the most fundamental prediction of financial theory is that the expected returns on financial assets are determined by the amount of risk contained in their payoffs. Assets with a riskier payoff pattern should provide higher expected returns than assets that are otherwise similar but provide payoffs that contain less risk. Financial theory also predicts that not all types of risks should be compensated with higher expected returns. It is well-known that the asset-specific risk can be diversified away, whereas the systematic component of risk that affects all assets remains even in large portfolios. Thus, the asset-specific risk that the investor can easily get rid of by diversification should not lead to higher expected returns, and only the shared movement of individual asset returns – the sensitivity of these assets to a set of systematic risk factors – should matter for asset pricing. It is within this framework that this thesis is situated. The first essay proposes a new systematic risk factor, hypothesized to be correlated with changes in investor risk aversion, which manages to explain a large fraction of the return variation in the cross-section of stock returns. The second and third essays investigate the pricing of asset-specific risk, uncorrelated with commonly used risk factors, in the cross-section of stock returns. The three essays mentioned above use stock market data from the U.S. The fourth essay presents a new total return stock market index for the Finnish stock market beginning from the opening of the Helsinki Stock Exchange in 1912 and ending in 1969 when other total return indices become available. Because a total return stock market index for the period prior to 1970 has not been available before, academics and stock market participants have not known the historical return that stock market investors in Finland could have achieved on their investments. The new stock market index presented in essay 4 makes it possible, for the first time, to calculate the historical average return on the Finnish stock market and to conduct further studies that require long time-series of data.

A factor model of seasonality in stock returns

Published as an article in: The Quarterly Review of Economics and Finance, 2004, vol. 44, issue 2, pages 224-236.

Statistical analysis of microscale gas flows and stock price changes

First, recent studies on the information preservation (IP) method, a particle approach for low-speed micro-scale gas flows, are reviewed. The IP method was validated for benchmark issues such as Couette, Poiseuille and Rayleigh flows, compared well with measured data for typical internal flows through micro-channels and external flows past micro flat plates, and combined with the Navier-Stokes equations to be a hybrid scheme for subsonic, rarefied gas flows. Second, the focus is moved to the microscopic characteristic of China stock market, particularly the price correlation between stock deals. A very interesting phenomenon was found that showed a reverse transition behaviour between two neighbouring price changes. This behaviour significantly differs from the transition rules for atomic and molecular energy levels, and it is very helpful to understand the essential difference between stock markets and nature.