Better cross hedges with composite hedging? Hedging equity portfolios using financial and commodity futures

Unless a direct hedge is available, cross hedging must be used. In such circumstances portfolio theory implies that a composite hedge (the use of two or more hedging instruments to hedge a single spot position) will be beneficial. The study and use of composite hedging has been neglected; possibly because it requires the estimation of two or more hedge ratios. This paper demonstrates a statistically significant increase in out-of-sample effectiveness from the composite hedging of the Amex Oil Index using S&P500 and New York Mercantile Exchange crude oil futures. This conclusion is robust to the technique used to estimate the hedge ratios, and to allowance for transactions costs, dividends and the maturity of the futures contracts.

The impact of corporate social performance on financial risk and utility: a longitudinal analysis

This study focuses on the wealth-protective effects of socially responsible firm behavior by examining the association between corporate social performance (CSP) and financial risk for an extensive panel data sample of S&P 500 companies between the years 1992 and 2009. In addition, the link between CSP and investor utility is investigated. The main findings are that corporate social responsibility is negatively but weakly related to systematic firm risk and that corporate social irresponsibility is positively and strongly related to financial risk. The fact that both conventional and downside risk measures lead to the same conclusions adds convergent validity to the analysis. However, the risk-return trade-off appears to be such that no clear utility gain or loss can be realized by investing in firms characterized by different levels of social and environmental performance. Overall volatility conditions of the financial markets are shown to play a moderating role in the nature and strength of the CSP-risk relationship.

The financial system reform in China: the lesson learnt from the global financial crisis

This paper reviews the impact of the global financial crisis on financial system reform in China. Scholars and practitioners have critically questioned the efficiencies of the Anglo- American principal-agent model of corporate governance which promotes shareholder-value maximisation. Should China continue to follow the U.K.-U.S. path in relation to financial reform? This conceptual paper provides an insightful review of the corporate governance literature, regulatory reports and news articles from the financial press. After examining the fundamental limitations of the laissez-faire philosophy that underpins the neo-liberal model of capitalism, the paper considers the risks in opening up China’s financial markets and relaxing monetary and fiscal policies. The paper outlines a critique of shareholder-capitalism in relation to the German team-production model of corporate governance, promoting a “social market economy” styled capitalism. Through such analysis, the paper explores numerous implications for China to consider in terms of developing a new and sustainable corporate governance model. China needs to follow its own financial reform through understanding its particular economy. The global financial crisis might help China rethink the nature of corporate governance, identify its weakness and assess the current reform agenda.

The effects of institutional distance and headquarters’ financial performance on the generation of environmental standards in multinational companies

This article combines institutional and resources’ arguments to show that the institutional distance between the home and the host country, and the headquarters’ financial performance have a relevant impact on the environmental standardization decision in multinational companies. Using a sample of 135 multinational companies in three different industries with headquarters and subsidiaries based in the USA, Canada, Mexico, France, and Spain, we find that a high environmental institutional distance between headquarters’ and subsidiaries’ countries deters the standardization of environmental practices. On the other hand, high-profit headquarters are willing to standardize their environmental practices, rather than taking advantage of countries with lax environmental protection to undertake more pollution-intensive activities. Finally, we show that headquarters’ financial performance also imposes a moderating effect on the relationship between environmental institutional distance between countries and environmental standardization within the multinational company.

Dynamic analysis of house price diffusion across Asian financial centres

The aim of this paper is to explore effects of macroeconomic variables on house prices and also, the lead-lag relationships of real estate markets to examine house price diffusion across Asian financial centres. The analysis is based on the Global Vector Auto-Regression (GVAR) model estimated using quarterly data for six Asian financial centres (Hong Kong, Tokyo, Seoul, Singapore, Taipei and Bangkok) from 1991Q1 to 2011Q2. The empirical results indicate that the global economic conditions play significant roles in shaping house price movements across Asian financial centres. In particular, a small open economy that heavily relies on international trade such as – Singapore and Tokyo - shows positive correlations between economy’s openness and house prices, consistent with the Balassa-Samuelson hypothesis in international trade. However, region-specific conditions do play important roles as determinants of house prices, partly due to restrictive housing policies and demand-supply imbalances, as found in Singapore and Bangkok.

Bilingual 'tagging' of financial accounts in Demotic and Greek

‘Bilingual’ documents, with text in both Demotic and Greek, can be of several sorts, ranging from complete translations of the same information (e.g. Ptolemaic decrees) to those where the information presented in the two languages is complementary (e.g. mummy labels). The texts discussed in this paper consist of a number of examples of financial records where a full account in one language (L1) is annotated with brief pieces of information in a second language (L2). These L2 ‘tags’ are designed to facilitate extraction of summary data at another level of the administration, functioning in a different language, and probably also to make the document accessible to those who are not literate in the L1.

International office investment in global cities: the production of financial space and systemic risk

The paper explores the relationships between UK commercial real estate and regional economic development as a foundation for the analysis of the role of real estate investment in local economic development. Linkages between economic growth, development, real estate performance and investment allocations are documented. Long-run regional property performance is not the product of long-run economic growth, and weakly related to indicators of long-run supply and demand. Changes in regional portfolio weights seem driven by neither market performance nor underlying fundamentals. In the short run, regional investment shifts show no clear leads or lags with market performance.

Patterns of discourse semantics: A corpus-assisted study of financial crisis in British newspaper discourse in 2009

Corpus-assisted analyses of public discourse often focus on the lexical level. This article argues in favour of corpus-assisted analyses of discourse, but also in favour of conceptualising salient lexical items in public discourse in a more determined way. It draws partly on non-Anglophone academic traditions in order to promote a conceptualisation of discourse keywords, thereby highlighting how their meaning is determined by their use in discourse contexts. It also argues in favour of emphasising the cognitive and epistemic dimensions of discourse-determined semantic structures. These points will be exemplified by means of a corpus-assisted, as well as a frame-based analysis of the discourse keyword financial crisis in British newspaper articles from 2009. Collocations of financial crisis are assigned to a generic matrix frame for ‘event’ which contains slots that specify possible statements about events. By looking at which slots are more, respectively less filled with collocates of financial crisis, we will trace semantic presence as well as absence, and thereby highlight the pragmatic dimensions of lexical semantics in public discourse. The article also advocates the suitability of discourse keyword analyses for systematic contrastive analyses of public/political discourse and for lexicographical projects that could serve to extend the insights drawn from corpus-guided approaches to discourse analysis.

Macro-economic and financial determinants of comovement across global real estate security markets

This paper models the determinants of integration in the context of global real estate security markets. Using both local and U.S. Dollar denominated returns, we model conditional correlations across listed real estate sectors and also with the global stock market. The empirical results find that financial factors, such as the relationship with the respective equity market, volatility, the relative size of the real estate sector and trading turnover all play an important role in the degree of integration present. Furthermore, the results highlight the importance of macro-economic variables in the degree of integration present. All four of the macro-economic variables modeled provide at least one significant result across the specifications estimated. Factors such as financial and trade openness, monetary independence and the stability of a country’s currency all contribute to the degree of integration reported.

The financial effects of uniform and mixed corporate social performance

Firms typically present a mixed picture of corporate social performance (CSP), with positive and negative indicators exhibited by the same firm. Thus, stakeholders’ judgements of corporate social responsibility (CSR) typically evaluate positives in the context of negatives, and vice versa. Building on social judgement theory, we present two alternative accounts of how stakeholders respond to such complexity, which provide differing implications for the financial effects of CSP: reciprocal dampening and rewarding uniformity. Echoing notable findings on strategic consistency, our US panel study finds that firms that exhibit uniformly positive or uniformly negative indicators in particular dimensions of CSP outperform firms that exhibit a mixed picture of positives and negatives, which supports the notion that stakeholders’ judgements of CSR reward uniformity.

The role of Investment Management Systems in regulatory compliance: a Post-Financial Crisis study of displacement mechanisms

The financial crisis of 2007–2009 and the resultant pressures exerted on policymakers to prevent future crises have precipitated coordinated regulatory responses globally. A key focus of the new wave of regulation is to ensure the removal of practices now deemed problematic with new controls for conducting transactions and maintaining holdings. There is increasing pressure on organizations to retire manual processes and adopt core systems, such as Investment Management Systems (IMS). These systems facilitate trading and ensure transactions are compliant by transcribing regulatory requirements into automated rules and applying them to trades. The motivation of this study is to explore the extent to which such systems may enable the alteration of previously embedded practices. We researched implementations of an IMS at eight global financial organizations and found that overall the IMS encourages responsible trading through surveillance, monitoring and the automation of regulatory rules and that such systems are likely to become further embedded within financial organizations. We found evidence that some older practices persisted. Our study suggests that the institutionalization of technology-induced compliant behaviour is still uncertain.

e-Government as a regulatory response to the financial crisis: the case of the UK

This paper seeks to discuss EU policies relating to securities markets, created in the wake of the financial crisis and how ICT and specifically e-Government can be utilised within this context. This study utilises the UK as a basis for our discussion. The recent financial crisis has caused a change of perspective in relation to government services and polices. The regulation of the financial sector has been heavily criticised and so is undergoing radical change in the UK and the rest of Europe. New regulatory bodies are being defined with more focus on taking a risk-based system-wide approach to regulating the financial sector. This approach aims to prevent financial institutions becoming too big to fail and thus require massive government bail outs. In addition, a new wave of EU regulation is in the wind to update risk management practices and to further protect investors. This paper discusses the reasons for the financial crisis and the UK’s past and future regulatory landscape. The current and future approach and strategies adopted by the UK’s financial regulators are reviewed as is the lifecycle of EU Directives. The regulatory responses to the crisis are discussed and upcoming regulatory hotspots identified. Discussion of these issues provides the context for our evaluation of the role e-Government and ICT in improving the regulatory system. We identify several processes, which are elementary for regulatory compliance and discuss how ICT is elementary in their implementation. The processes considered include those required for internal control and monitoring, risk management, record keeping and disclosure to regulatory bodies. We find these processes offer an excellent opportunity to adopt an e-Government approach to improve services to both regulated businesses and individual investors through the benefits derived from a more effective and efficient regulatory system.

International financial reporting standards (IFRS) as a change agent in Ukraine

This paper aims to examine the perception of key actors regarding the costs and benefits that result from adopting International Financial Reporting Standards (IFRS) in Ukraine. Authors showed that IFRS implementation impacts on internal reporting quality, the relationship with customers, creditors and shareholders, the access to international markets and external financing. They also indicated that financial managers have serious concerns about implementation costs related to the introduction of IFRS. These costs relate to training, instruction on IFRS adoption and translation of current IFRS, changes in software systems, double purpose accounting and deadlines for IFRS adoption and consulting services.

Islamic mutual funds' financial performance and international investment style: evidence from 20 countries

We pursue the first large-scale investigation of a strongly growing mutual fund type: Islamic funds. Based on an unexplored, survivorship bias-adjusted data set, we analyse the financial performance and investment style of 265 Islamic equity funds from 20 countries. As Islamic funds often have diverse investment regions, we develop a (conditional) three-level Carhart model to simultaneously control for exposure to different national, regional and global equity markets and investment styles. Consistent with recent evidence for conventional funds, we find Islamic funds to display superior learning in more developed Islamic financial markets. While Islamic funds from these markets are competitive to international equity benchmarks, funds from especially Western nations with less Islamic assets tend to significantly underperform. Islamic funds’ investment style is somewhat tilted towards growth stocks. Funds from predominantly Muslim economies also show a clear small cap preference. These results are consistent over time and robust to time varying market exposures and capital market restrictions.