'Seeing the market': Technical analysis in trading styles

Whilst financial markets are not strangers to academic and professional scrutiny, they still remain epistemologically contested. For individuals trying to profit by trading shares, this uncertainty is manifested in the varying trading styles which they are able to utilize. This paper examines one trading style commonly used by non-professional share traders-technical analysis. Using research data obtained from individuals who identify themselves as technical analysts, this paper seeks to explain the ways in which individuals understand and use the technique in an attempt to make trading profits. In particular, four distinct subcategories or ideal types of technical analysis can be identified, each providing an alternative perceptual form for participating in financial markets. Each of these types relies upon a particular method for seeing the market, these visualization techniques highlighting the existence of forms of professional vision (as originally identified by Goodwin (1994)) in the way the trading styles are comprehended and acted upon.

Probabilistic cost benefit analysis of generation investment in a deregulated electricity market

A new methodology is proposed for the analysis of generation capacity investment in a deregulated market environment. This methodology proposes to make the investment appraisal using a probabilistic framework. The probabilistic production simulation (PPC) algorithm is used to compute the expected energy generated, taking into account system load variations and plant forced outage rates, while the Monte Carlo approach has been applied to model the electricity price variability seen in a realistic network. The model is able to capture the price and hence the profitability uncertainties for generator companies. Seasonal variation in the electricity prices and the system demand are independently modeled. The method is validated on IEEE RTS system, augmented with realistic market and plant data, by using it to compare the financial viability of several generator investments applying either conventional or directly connected generator (powerformer) technologies. The significance of the results is assessed using several financial risk measures.

Introducing international accounting standards to an emerging capital market: relative familiarity and language effect in Egypt

The purpose of this study is to assess the effect of relative familiarity and language accessibility on the International Accounting Standards (IASs) disclosures when IASs are first introduced in an emerging capital market. The study focuses on the annual reports of listed non-financial companies in Egypt when IASs were first introduced. The method used applies a disclosure index measurement to a sample of listed company annual reports and evaluates relative compliance with IASs in relation to corporate characteristics. The results show that for relatively less familiar requirements of IASs, the extent of compliance is related to the type of audit firm used and to the presence of a specific statement of compliance with IASs. A lower degree of compliance with less familiar IASs disclosure is observed consistently across a range of company characteristics. Consideration of agency theory and capital need theory would lead to prior expectation of a distinction in disclosure practices between different categories of companies. The results were, therefore, counterintuitive to expectations where the regulations were unfamiliar or not available in the native language, indicating that new variables have to be considered and additional theoretical explanations have to be found in future disclosure studies on emerging capital markets.

The market for professional services in Indonesia

This paper reports the results of a study which investigates the market for professional services in Indonesia, a country which has not been investigated in the by audit fee literature prior. A well-developed research model used in the prior literature has also been applied in this study, and the empirical findings suggest broad similarities in the pricing of professional services in Indonesia and other countries previously studied. In addition to extending the results of prior research to a country not previously studied, this paper examines whether the large auditors fee premium documented in other countries exists in Indonesia, especially after the major Asian financial crisis of 1997/98, since then almost all companies in this geographical area exercise tight budget controls. The results suggest that no audit fee premium is accrued to Indonesian Big 5 auditors, in contrast to the large audit firm fee premium documented in many other countries.

Concentration of the UK stock market

During 1999 and 2000 a large number of articles appeared in the financial press which argued that the concentration of the FTSE 100 had increased. Many of these reports suggested that stock market volatility in the UK had risen, because the concentration of its stock markets had increased. This study undertakes a comprehensive measurement of stock market concentration using the FTSE 100 index. We find that during 1999, 2000 and 2001 stock market concentration was noticeably higher than at any other time since the index was introduced. When we measure the volatility of the FTSE 100 index we do not find an association between concentration and its volatility. When we examine the variances and covariance’s of the FTSE 100 constituents we find that security volatility appears to be positively related to concentration changes but concentration and the size of security covariances appear to be negatively related. We simulate the variance of four versions of the FTSE 100 index; in each version of the index the weighting structure reflects either an equally weighted index, or one with levels of low, intermediate or high concentration. We find that moving from low to high concentration has very little impact on the volatility of the index. To complete the study we estimate the minimum variance portfolio for the FTSE 100, we then compare concentration levels of this index to those formed on the basis of market weighting. We find that realised FTSE index weightings are higher than for the minimum variance index.

Momentum profits in alternative stock market structures

The aim of this study is to examine the relationship between momentum profitability and the stock market trading mechanism and is motivated by recent changes to the trading systems that have taken place on the London Stock Exchange. Since 1975 the London stock market has employed three different trading systems: a floor based system, a computerized dealer system called SEAQ and the automated auction system SETS. Since each new trading system has reduced the level of execution costs, one might expect, a priori, the magnitude of momentum profits to decline with each amendment to the trading system. However, the opposite empirical result is found showing that shares trading on the automated system generate higher momentum profits than those trading on the floor system and companies trading on the SETS system display greater momentum profitability than those trading on SEAQ. Our empirical results concur with the theoretical findings of the trader’s hesitation model of Du [Du, J., 2002. Heterogeneity in investor confidence and asset market under- and overreaction. Working paper] and the empirical findings of Arena et al. [Arena, M., Haggard, S., Yan, X., Price momentum and idiosyncratic volatility. Financial Review, in press].

Equity market integration in the Asia-Pacific region:a smooth transition analysis

We use a smooth transition logistic function to test for equity market integration in a sample of Asia-Pacific countries. This allows us to gauge the speed at which a market is becoming integrated. Of the countries we examine we find that Thailand has the fastest pace of global integration. When we examine the extent to which local integration is taking place, we find that Singapore is experiencing the fastest rise in market integration. © 2004 Published by Elsevier Inc.

Testing for market segmentation in the A and B share markets of China

Recent research has suggested that the A and B share markets of China may be informationally segmented. In this paper volatility patterns in the A and B share market are studied to establish whether volatility changes to the A and B share markets are synchronous. A consequence of new information, when investors act upon it is that volatility rises. This means that if the A and B markets are perfectly integrated volatility changes to each market would be expected to occur at the same time. However, if they are segmented there is no reason for volatility changes to occur on the same day. Using the iterative cumulative sum of squares across the different markets. Evidence is found of integration between the two A share markets but not between the A and B markets. © 2005 Taylor & Francis Group Ltd.

Mixing the grant cocktail:towards an understanding of the outcomes of financial support to small firms

One of the key policy objectives of government at national and regional level, is to overcome the constraints preventing local industry achieving greater competitiveness in the international market-place. This paper examines the impact of grant assistance to Northern Ireland small firms delivered over the period 1994 ^ 97 by the former Local Enterprise Development Unit through its Growth Business Support Programme (GBSP). Previous work by the authors showed that there was some tentative evidence to suggest a link between employment growth and grant aid provided to very small firms (fewer than 10 employees) assisted under the GBSP. The central objective of the empirical work reported in this paper is to extend the previous analysis by understanding the extent to which the value of financial assistance influences growth (employment, turnover, and productivity measures) and if differential impacts arise depending on the nature and timing (lag structures) of the grant assistance.

Market orientation in the service sector of the transition economies of central Europe

The Narver and Slater market orientation scale is tested in the context of service firms in the transition economies of central Europe and found to be both valid and reliable. The survey examined levels of market orientation in 205 business to business services companies and 141 consumer services companies in Hungary, Poland and Slovenia. As predicted by the predominantly western marketing literature, those service firms with higher levels of market orientation; were more often found in turbulent, rapidly changing markets; were more likely to pursue longer term market building goals rather than short term efficiency objectives; more likely to pursue differentiated positioning through offering superior levels of service compared to competitors; and also performed better on both financial and market based criteria. A number of different business approaches, however, are evident in the transition economies suggesting that other business orientations may co-exist with a market orientation creating a richer and more complex set of organizational drivers.

An empirical investigation of the UK stock market response to the implementation of SSAP 20

This study presents an empirical investigation of the UK stock market response to the im-plementation of the UK Statement of Standard Accounting Practice (SSAP) No. 20 “Foreign Cur-rency Translation” (issued in April 1983). Such an empirical investigation has not yet been under-taken for the UK. Our results show that the stock market generally appeared to have anticipatedthe implementation of SSAP 20. For the aggregate set of adopters, we found a positive stock mar-ket response in the official year of adoption, reflecting the appreciation of the income-stabilisingeffects of the standard. This paper also presents a cross-sectional analysis that tests for a relation-ship between the stock returns and the accounting measures of those firms that adopted SSAP 20.We found a significant relation between the stock returns and the related accounting measures inthe actual adoption period of the aggregate set of adopters. This study generally focuses on theinterpretation of the financial impacts of the various accounting choices of firms within their fi-nancial and economic environments.

Predicting returns in U.S. financial sector indices

This study focuses on: (i) the responsiveness of the U.S. financial sector stock indices to foreign exchange (FX) and interest rate changes; and, (ii) the extent to which good model specification can enhance the forecasts from the associated models. Three models are considered. Only the error-correction model (ECM) generated efficient and consistent coefficient estimates. Furthermore, a simple zero lag model in differences which is clearly mis-specified, generated forecasts that are better than those of the ECM, even if the ECM depicts relationships that are more consistent with economic theory. In brief, FX and interest rate changes do not impact on the return-generating process of the stock indices in any substantial way. Most of the variation in the sector stock indices is associated with past variation in the indices themselves and variation in the market-wide stock index. These results have important implications for financial and economic policies.