The impact of news on measures of undiversifiable risk: evidence from the UK stock market

Using UK equity index data, this paper considers the impact of news on time varying measures of beta, the usual measure of undiversifiable risk. The empirical model implies that beta depends on news about the market and news about the sector. The asymmetric response of beta to news about the market is consistent across all sectors considered. Recent research is divided as to whether abnormalities in equity returns arise from changes in expected returns in an efficient market or over-reactions to new information. The evidence suggests that such abnormalities may be due to changes in expected returns caused by time-variation and asymmetry in beta.

Frontiers of finance: Evolution and efficient markets

In this review article, we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions of research, some focusing on more elaborate mathematical models that are capable of rationalizing the empirical facts, others taking a completely different tack in rejecting rationality altogether. One of the most promising directions is to view financial markets from a biological perspective and, specifically, within an evolutionary framework in which markets, instruments, institutions, and investors interact and evolve dynamically according to the “law” of economic selection. Under this view, financial agents compete and adapt, but they do not necessarily do so in an optimal fashion. Evolutionary and ecological models of financial markets is truly a new frontier whose exploration has just begun.

Anomalias da hipótese de eficiência de mercado: estudo do efeito dia da semana na Bolsa de Valores de Cabo Verde

A eficiência dos mercados tem sido uma questão que tem despertado muito interesse no campo dos investimentos e da investigação financeira durante as últimas décadas, mas nos últimos anos com a intensificação dos estudos e surgimento de evidências da existência de comportamentos anómalos nas rentabilidades dos ativos financeiro, esta teoria passou a ser questionada no meio académico. A discussão do tema é ainda muito polémico, pois existem de um lado os defensores da hipótese de eficiência que defendem que as anomalias identificadas não podem ser generalizadas e não são consistentes ao longo do tempo, e de outro lado os defensores da corrente das finanças comportamentais, segundo os quais as anomalias são provocadas por padrões documentados de comportamento irracional dos investidores, sendo que estes comportamentos são inconsistentes com a teoria de eficiência dos mercados. Entre as anomalias detetadas, destacam-se as anomalias de Calendário, tais como o efeito Janeiro, efeito dia da semana, efeito feriado, entre outros; anomalias na valorização de ativos, tais como o efeito tamanho e outras anomalias de sobre reação. O efeito dia da semana é dos mais persistentes detetados em vários mercados internacionais e tendo em conta este cenário, o objetivo desta dissertação é a verificação da existência das anomalias de calendário, mais precisamente o efeito dia da semana onde se irá analisar o efeito segunda-feira, efeito sexta-feira, o efeito fim-de­ semana. Para esta verificação foram utilizadas as cotações diárias médias do Índice da Bolsa de Valores de Cabo Verde, no período de finais de 2005 a finais de 2008. A análise estatística dos resultados diários indicou que não existem evidências da existência do efeito dia da semana. ABSTRACT: The markets efficiency has been an issue of particular interest in the field of financial investigation in recent decades. However, due to the intensification of the studies and the arise of evidences about the existence of abnormal behaviours on financial assets returns, over the last years, this theory begun to be discussed in academic circles. The debate of this theme is still very controversial, because on one hand there are the defenders of the efficiency hypothesis, who defend that identified anomalies cannot be generalized and are not consistent in the long-term; on the other hand, there are the defenders of behavioral finance tendency, to whom the anomalies are caused by documented patterns about the irrational behaviour of investors. These behaviours are inconsistent with the markets efficient theory. Among the detected anomalies, we highlight the calendar anomalies, such as: the January effect, the day of week effect and holiday effect among others; anomalies over the valuation of assets, such as: the size effect and other anomalies on the reaction. The day of week effect is one of the most persistent effect detected in several international markets, and due to this scenario, the objective of this essay is the finding of calendar abnormalities, namely the day of week effect, where the Monday, the Friday and the weekend effects will be analyzed. For this checking, we used the average daily exchange rates from the prices of the Cape Verde Stock Exchange, for the period from late 2005 to late 2008. The statistical analysis of daily results indicated that there is no evidence of the existence of the day of the week effect.

Essays on volatility and liquidity in financial markets

The price formation of financial assets is a complex process. It extends beyond the standard economic paradigm of supply and demand to the understanding of the dynamic behavior of price variability, the price impact of information, and the implications of trading behavior of market participants on prices. In this thesis, I study aggregate market and individual assets volatility, liquidity dimensions, and causes of mispricing for US equities over a recent sample period. How volatility forecasts are modeled, what determines intradaily jumps and causes changes in intradaily volatility and what drives the premium of traded equity indexes? Are they induced, for example, by the information content of lagged volatility and return parameters or by macroeconomic news, changes in liquidity and volatility? Besides satisfying our intellectual curiosity, answers to these questions are of direct importance to investors developing trading strategies, policy makers evaluating macroeconomic policies and to arbitrageurs exploiting mispricing in exchange-traded funds. Results show that the leverage effect and lagged absolute returns improve forecasts of continuous components of daily realized volatility as well as jumps. Implied volatility does not subsume the information content of lagged returns in forecasting realized volatility and its components. The reported results are linked to the heterogeneous market hypothesis and demonstrate the validity of extending the hypothesis to returns. Depth shocks, signed order flow, the number of trades, and resiliency are the most important determinants of intradaily volatility. In contrast, spread shock and resiliency are predictive of signed intradaily jumps. There are fewer macroeconomic news announcement surprises that cause extreme price movements or jumps than those that elevate intradaily volatility. Finally, the premium of exchange-traded funds is significantly associated with momentum in net asset value and a number of liquidity parameters including the spread, traded volume, and illiquidity. The mispricing of industry exchange traded funds suggest that limits to arbitrage are driven by potential illiquidity.

Finnish Short-Term Stock Returns

Functioning capital markets are a crucial part of a competitive economy since they provide the mechanisms to allocate resources. In order to be well functioning a capital market has to be efficient. Market efficiency is defined as a market where prices at any time fully reflect all available information. Basically, this means that abnormal returns cannot be predicted since they are dependent on future, presently unknown, information. The debate of market efficiency has been going on for several decades. Most academics today would probably agree that financial markets are reasonably efficient since virtually nobody has been able to achieve continuous abnormal positive returns. However, it is clear that a set of return anomalies exists, although they are apparently to small to enable substantial economic profit. Moreover, these anomalies can often be attributed to market design. The motivation for this work is to expand the knowledge of short-term trading patterns and to offer some explanations for these patterns. In the first essay the return pattern during the day is examined. On average stock prices move during two time periods of the day, namely, immediately after the opening and around the formal close of the market. Since stock prices, on average, move upwards these abnormal returns are generally positive and cause the distinct U-shape of intraday returns. In the second essay the results in the first essay are examined further. The return pattern around the former close is shown to partly be the result of manipulative action by market participants. In the third essay the focus is shifted towards trading patterns of the underlying stocks on days when index options and index futures on the stocks expire. Generally no expiration day effect was found. However, some indication of an expiration day effect was found when a large amount of open in- or at-the-money contracts existed. Also, the effects were likelier to be found for shares with high index-weight but fairly low trading volume. Last, in the forth essay the attention is turned to the behaviour of different tax clienteles around the dividend ex-day. Two groups of investors showed abnormal trading behaviour. Domestic non-financial investors, especially domestic companies, showed a dividend capturing behaviour, i.e. buying cum-dividend and selling ex-dividend shares. The opposite behaviour was found for foreign investors and domestic financial institutions. The effect was more notable for high yield, high volume stocks.

Panel unit root tests in the presence of cross-sectional dependence: finite sample performance and an application

This paper examines the finite sample properties of three testing regimes for the null hypothesis of a panel unit root against stationary alternatives in the presence of cross-sectional correlation. The regimes of Bai and Ng (2004), Moon and Perron (2004) and Pesaran (2007) are assessed in the presence of multiple factors and also other non-standard situations. The behaviour of some information criteria used to determine the number of factors in a panel is examined and new information criteria with improved properties in small-N panels proposed. An application to the efficient markets hypothesis is also provided. The null hypothesis of a panel random walk is not rejected by any of the tests, supporting the efficient markets hypothesis in the financial services sector of the Australian Stock Exchange.

Oil and Dependency::The Case of Kazakhstan

Following the collapse of the Soviet Union in 1991, the newly independent oil-rich country of Kazakhstan has become a major recipient of foreign direct investment (FDI). Although international organisations such as the IMF and UNCTAD have claimed that FDI could be considered an engine in the transition from state socialism and as a powerful force for integration of this region into the global economy; this investment also poses significant risks to Kazakhstan. These risks fall into two broad categories: The first category can be broadly described as issues associated with the “resource curse” or the “Dutch Disease”. The term Dutch Disease describes a situation where booming demand in oil exporting countries, due to high oil revenues, leads to shift of an economy’s productive resources from the tradeable sector to the non-tradeable sector. The second category is associated with the over-dependency of oil exporting countries on a relatively small number of large multinational corporations (MNCs). This over-dependency can lead to a situation where licenses and concessions are granted at less favourable conditions than if they were auctioned in an efficient market. Examining the licensing policy of the Kazakhstani Energy and Mineral Resource Ministry, this paper notes that the latter issue of over-dependency has become less of a risk due to deliberate efforts to diversify investment relationships. Notwithstanding this situation there is some evidence that it remains difficult for oil exporting nations such as Kazakhstan to ensure that oil revenues are channelled into sustainable economic development.

Private long-term investment in uncertain times. Bruegel Policy Contribution 2012/23, December 2012

The economic and financial crisis in Europe is affecting the financing of long-term infrastructure investment. There are multiple clearly identifiable channels: reduced demand for long-term investment, a tightening prudential framework for lending, upward adjustment of risk perception, complex transition of the financial system, and increasing macroeconomic, sovereign and regulatory risk. Some of the identified channels are potentially dangerous spillovers from the crisis that entail the risk of a downward spiral (eg increasing regulatory risk), while others are efficient market responses (eg reduced investment demand, correction of pricing of risk). Consequently, public policy instruments should not address the accessibility of long-term finance per se, but should explicitly target the critical channels.

Office rent determinants: a hedonic panel analysis

It has been frequently observed that office markets are subject to particularly high fluctuations in rents and vacancy levels, thus exposing real estate investors to considerable risk regarding expected future income streams. This paper analyzes the determinants of office rents and their variability over time and across sub-markets to gain insight into the rent price formation and its stability across space and over time. No support is found for the single-market hypothesis which states that arbitrage opportunities effectively align real estate pricing schemes in various parts of city. Instead, the results suggest that the importance of hedonic pricing factors varies both over time and across submarkets.

Information and efficiency: goal arrival in soccer betting

An efficient market incorporates news into prices immediately and fully. Tests for efficiency in financial markets have been undermined by information leakage. We test for efficiency in sports betting markets – real-world markets where news breaks remarkably cleanly. Applying a novel identification to high-frequency data, we investigate the reaction of prices to goals scored on the ‘cusp’ of half-time. This strategy allows us to separate the market's response to major news (a goal), from its reaction to the continual flow of minor game-time news. On our evidence, prices update swiftly and fully.

Varumärkning för småföretag

In this degree project a study of the importance of a graphic identity to companies has been done. A questionnaire among small companies in Dalarna has beenmade. From this, three sets of graphic profile-program have been formed andthese are suitable for new companies. Finally a practical application has been made on Greenfield in Mora, a graphic profile has been designed.To cause an identity is to prove that someone or something exists by individualizingand distinguish. Every individual or company has its qualities or charasteristics.The way to a desirable identity is going by a corporate identity-program that containsthe companies strategies, people, products, buildings, trademarks, graphic design. To create an identity a well considered strategy is needed, where all members of the company are involved. This will lead to a positive image and means for an efficient market communication. The identity of the company is that the company wish what the company/product will stand for, but the image is what the market think about the company/product. The surrounding worldwill be convinced that the company is a reliable producer or deliverer. The companyvill also be regarded as useful and responsable, profitable as an object or partner and a good place of work.Today, trademarking is the most important carrier of identity for a company. A trademark, like a word, a picture or a slogan, will distinguish a product from theothers. What is needed to build up a strong trademark? How can a trade markbe developed to an advantage?To get a lot of people in the same direction clear guidlines are needed. Usually you focused on graphic design, especially the symbols and marks of the companies.The results are presented on a graphic profile, documented in a graphic manual.

Proposal for redesigning the financial system: lessons learned from the crisis

this paper analyzes the singularities inherent to the financial industry, in relation to other businesses, and its implications to financial crises throughout history. The efficient markets hypothesis is questioned, and its impact on the deregulation of the financial system is analyzed. Finally, the causes of the current crisis are investigated, and the general lines to be addressed for the redesign of a financial system to achieve an efficient and equitable capitalism are suggested.

Diffusion of Eco-innovations: exploring the literature

In recent years, the importance of the management of eco-innovations has been growing, more in practice than in academia. However, although in the literature there are already some evidences focussed on management of eco-innovations, there is no comprehensive review on the knowledge base of diffusion of eco-innovations. This paper provides a current overview of the existing body of literature, identifying the most active scholars and relevant publications in this field, and deepening in the major disciplines and research streams. Results show that the theory of diffusion of innovations which provided the philosophical underpinnings of how innovations are diffused is not the main knowledge base to explain the diffusion of eco-innovations. Lead market hypothesis, sustainable transitions and the ecological modernization appear as the initial base of the cognitive platform that can contribute to the understanding of diffusion of eco-innovations.

FINANÇAS COMPORTAMENTAIS EM DECISÕES DE JOGOS DE EMPRESA NA GRADUAÇÃO DA UMESP

Os 799 discentes presenciais cursando entre o 5º a 8º semestre que utilizam os jogos de empresas, inclusos nas 225 empresas ativas distribuídas entre os cursos de Administração geral; Comércio exterior; Administração financeira; Ciências contábeis e Ciências econômicas no campus Rudge Ramos da Universidade Metodista de São Paulo, foram submetidos a 6 cenários virtuais, com diferentes graus de complexidade, onde suas decisões foram investigadas sob a ótica dos aspectos heurísticos, contidos em finanças comportamentais, validando a hipótese de que suas decisões não são tomadas utilizando a teoria de mercado eficiente contida nas finanças tradicionais, modelo este que pressupõe que seus agentes são racionais e maximizadores de benefícios esperados, mas as tomam através das heurísticas comportamentais de efeito certeza, reflexão e isolamento, existentes no questionário da Teoria do Prospecto, Nobel de economia em 2002 por introduzir os insights da pesquisa psicológica na ciência econômica, especialmente no que diz respeito as avaliações e tomada de decisão sob incerteza, sugerindo uma mudança na função linear da predileção de perdas à ganhos, constantes em finanças tradicionais, para uma concavidade da função utilidade para ganhos e convexas para perdas, utilizadas em heurísticas comportamentais de Kahneman e Tversky (1979). Foi também efetuada uma análise de processos das 56 empresas virtuais contidas no 1º quartil, escalonadas em ordem decrescente, gerando duas proxys de confirmação dos resultados tabulados. Foi constatado uma superestimação de resultados possíveis ao invés de resultados prováveis, demonstrando fantasias das habilidades dos jogadores, equiparáveis com os resultados de Weinstein (1980), em até 71% acreditando serem melhores do que realmente são. Além de análise Qui-Quadrática que confirmaram que os resultados da teoria do prospecto são equiprováveis e equilibrados com o trabalho original, além do Teste-t entre amostras de variâncias equivalentes que geraram significância estatística, reforçando o modelo. Também foi efetuado uma análise das decisões por gênero nas respostas, para comprovar a irrelevância proposta por Hanna, Gutter e Fan (2001) quanto a predileção e aceitação ao risco.

Wealth effects of mergers and acquisitions for US firms: using alternative pricing models

This empirical study employs a different methodology to examine the change in wealth associated with mergers and acquisitions (M&As) for US firms. Specifically, we employ the standard CAPM, the Fama-French three-factor model and the Carhart four-factor models within the OLS and GJR-GARCH estimation methods to test the behaviour of the cumulative abnormal returns (CARs). Whilst the standard CAPM captures the variability of stock returns with the overall market, the Fama-French factors capture the risk factors that are important to investors. Additionally, augmenting the Fama-French three-factor model with the Carhart momentum factor to generate the four-factor captures additional pricing elements that may affect stock returns. Traditionally, estimates of abnormal returns (ARs) in M&As situations rely on the standard OLS estimation method. However, the standard OLS will provide inefficient estimates of the ARs if the data contain ARCH and asymmetric effects. To minimise this problem of estimation efficiency we re-estimated the ARs using GJR-GARCH estimation method. We find that there is variation in the results both as regards the choice models and estimation methods. Besides these variations in the estimated models and the choice of estimation methods, we also tested whether the ARs are affected by the degree of liquidity of the stocks and the size of the firm. We document significant positive post-announcement cumulative ARs (CARs) for target firm shareholders under both the OLS and GJR-GARCH methods across all three methodologies. However, post-event CARs for acquiring firm shareholders were insignificant for both sets of estimation methods under the three methodologies. The GJR-GARCH method seems to generate larger CARs than those of the OLS method. Using both market capitalization and trading volume as a measure of liquidity and the size of the firm, we observed strong return continuations in the medium firms relative to small and large firms for target shareholders. We consistently observed market efficiency in small and large firm. This implies that target firms for small and large firms overreact to new information resulting in a more efficient market. For acquirer firms, our measure of liquidity captures strong return continuations for small firms under the OLS estimates for both CAPM and Fama-French three-factor models, whilst under the GJR-GARCH estimates only for Carhart model. Post-announcement bootstrapping simulated CARs confirmed our earlier results.