• Selected
• Entire List

Abstract:
This paper evaluates the out-of-sample forecasting accuracy of eleven models for weekly and monthly volatility in fourteen stock markets. Volatility is defined as within-week (within-month) standard deviation of continuously compounded daily returns on the stock market index of each country for the ten-year period 1988 to 1997. The first half of the sample is retained for the estimation of parameters while the second half is for the forecast period. The following models are employed: a random walk model, a historical mean model, moving average models, weighted moving average models, exponentially weighted moving average models, an exponential smoothing model, a regression model, an ARCH model, a GARCH model, a GJR-GARCH model, and an EGARCH model. We first use the standard (symmetric) loss functions to evaluate the performance of the competing models: the mean error, the mean absolute error, the root mean squared error, and the mean absolute percentage error. According to all of these standard loss functions, the exponential smoothing model provides superior forecasts of volatility. On the other hand, ARCH-based models generally prove to be the worst forecasting models. We also employ the asymmetric loss functions to penalize under/over-prediction. When under-predictions are penalized more heavily ARCH-type models provide the best forecasts while the random walk is worst. However, when over-predictions of volatility are penalized more heavily the exponential smoothing model performs best while the ARCH-type models are now universally found to be inferior forecasters.

Abstract:
Recent studies find evidence that small funds outperform large funds. This fund size effect is commonly hypothesized to be caused by transaction costs. Due to the lack of transactions data, prior studies have investigated the transaction costs theory indirectly. Our study, however, analyzes the daily transactions of active Australian equity managers and finds aggregate market impact costs incurred by large managers are significantly greater than that incurred by small managers. Furthermore, we show large managers exhibit preferences for trade package formation and portfolio characteristics consistent with transaction cost intimidation. We analyze the interaction between transaction cost intimidation and the fund size effect, and document that large managers pursuing a highly active trading strategy suffer more from fund size, than large funds following a more passive strategy. This suggests the fund size effect is related to transaction costs, as trading activity is a good proxy for expected market impact. Finally, based on a simulation experiment, we find that transaction cost intimidation is at least as important as the increase in market impact costs due to fund size.

Fund size, transaction cost, market impact, fund performance

Abstract:
In this paper we investigate whether or not the conditional covariance between stock and market returns is asymmetric in response to good and bad news. Empirical observations such as the mean reversion of stock prices and asymmetric volatility can be readily explained by time varying risk premiums and it is the link between risk premiums and conditional covariance that we explore. Previous research has focussed on time varying betas but we propose that covariance asymmetry is a more powerful method of explaining such observed behaviour. Our model of conditional covariance accommodates both the sign and magnitude of return innovations and we find significant covariance asymmetry that can explain, at least in part, the mean reversion of stock prices and volatility feedback. We find little evidence in support of the leverage hypothesis of Christie (1982) in explaining asymmetric volatility. The results we obtain appear consistent across firm size, firm leverage, and temporal and cross sectional aggregations.

Abstract:
Using a matched sample design where companies are matched by size and industry from Australian, Canadian and US capital markets, we investigate whether capital market integration varies across industries. The tests are conducted in the Capital Asset Pricing Model and multi-factor pricing frameworks over the 1983-1992 period. Our evidence supports two main findings. First, global industry stocks such as oil and mining stocks are priced in a relatively integrated capital market while regional industry stocks such as consumer and capital goods stocks are priced in segmented markets. Second, Australian stocks are priced in different markets than their Canadian and US counterparts. Evidence suggests that the pricing of Canadian stocks occurs in a regionally integrated North American stock market rather than in a global market. This evidence supports the notion that economic and trade linkages are a dominant factor in international asset pricing.

Integration, segmentation, industrial structure, multi-country study

Abstract:
This study analyses the foreign exchange exposure of the Australian equities market to movements in the Australian dollar/Japanese yen (AUDJPY) and the Australian dollar/US dollar (AUDUSD) in a Fama-French framework using both daily data and monthly data. In addition to simply investigating exchange rate exposure by augmenting the Fama-French three factor model with the exchange rate factor, this paper examines the nature of exchange rate exposure in a number of different settings. Specifically, it explores (i) the possibility of an asymmetric response; (ii) its intertemporal stability over the sample period; (iii) the effect of increasing return measurement intervals; and (iv) the pricing of exchange rate risk in the Australian equities market. This study also investigates a possible lagged response to fluctuations in the exchange rate factor. Although the results are mixed, a summary of the outcome of our investigation is as follows: (i) daily data provides stronger results than monthly data; (ii) there is some evidence of a lagged response; (iii) implementing the AUDUSD exchange rate factor provides stronger results in the basic multi-factor and the stability analyses; (iv) there is some evidence of a weak asymmetric response, intertemporal sensitivity and pricing of exchange rate risk in the Australian equities market; (v) there is evidence that exchange rate exposure increases as the return intervals increase; (vi) the Fama-French book-to-market factor and size factor are strongly significant throughout each of the analyses, hence supporting the Fama-French framework.

Exchange Rate Risk, Australian Stock Market, Fama and French Factors

Abstract:
This study investigates the aggregate stock market impact of local currency and foreign currency sovereign rating changes. Consistent with evidence pertaining to company credit rating changes, we report that only rating downgrades have a wealth impact on market returns. Decreases in local currency ratings appear to impart no information to the market whereas foreign currency rating downgrades are associated with significant wealth effects. Interestingly, of the four credit rating agencies examined, only Standard & Poors and Fitch rating downgrades result in significant market falls. These results are robust to differences in the currency denomination or interval of returns. Finally, we can find no evidence that emerging markets are particularly sensitive to rating changes or that markets react more severely to multiple rating changes. These findings should be of great interest to all investor groups (including managed investment funds) since there are important implications here regarding international asset allocation.

Sovereign Rating Changes, Event Study, Country Beta Risk

Abstract:
This paper extends the existing literature by analyzing the dual impact of changes in the interest rate and interest rate volatility on the distribution of Australian financial sector stock returns. In addition, a multivariate GARCH-M model is used to analyze the impact of deregulation on the financial institutions sector. It was found that there is a consistent inter-temporal trade off between risk and return over the different regulatory periods. Moreover, finance corporations were found to be highly sensitive to new shocks across the financial sector and deregulation increased the risk faced by finance corporations and small banks - effectively increasing the required rate of return and explaining the continued rationalization of these sectors. Furthermore, deregulation has changed the fundamental relationship between interest rates and large bank stock excess returns from positive in the pre-deregulation period to negative in the post-deregulation period. This reflects the changing institutional environment from one of controlled credit rationing to a more competitive environment.

Abstract:
This paper extends the existing literature by analysing the dual impact of changes in the interest rate and interest rate volatility on the distribution of Australian financial sector stock returns. In addition, a multivariate GARCH-M model is used to analyse the impact of deregulation on the financial institutions sector. It was found that there is a consistent inter-temporal trade off between risk and return over the different regulatory periods. Moreover, finance corporations were found to be highly sensitive to new shocks across the financial sector and deregulation increased the risk faced by finance corporations and small banks - effectively increasing the required rate of return and explaining the continued rationalisation of these sectors. Furthermore, deregulation has changed the fundamental relationship between interest rates and large bank stock excess returns from positive in the pre-deregulation period to negative in the post-deregulation period. This reflects the changing institutional environment from one of controlled credit rationing to a more competitive environment.

Interest rate risk, Australian financial sector, Regulatory change, GARCH-M

Abstract:
We examine the impact of several factors on the selection of portfolio managers for Australian pension plan mandates. Performance measures do not affect the probability of a mandate allocation. Pension sponsors tend to choose managers with top-quartile five-year performance who have recently beaten a market benchmark. Management expenses have a negative impact on a manager's chances. A surprising result is sponsors' tolerance for high portfolio trading costs. Mandates are spread across manager investment styles. The style and institutional attributes of preferred managers suggest trustees' reputation and prudential concerns matter, particularly for the aggregate annual mandate allocations.

Pension plan mandates, fund managers, delegated portfolio management.

Abstract:
This article empirically investigates the exposure of country-level conditional stock return volatilities to conditional global stock return volatility. It extends the results found in the "volatility spillover" literature by providing evidence that conditional stock market return volatilities have a contemporaneous and systematic exposure to global return volatilities. Whereas all the countries included in the study exhibited significant and positive systematic exposures to global volatility, emerging market volatility exposures were considerably higher than developed market exposures.

Volatility Exposures, Volatility Spillovers, Risk Management, Asymmetric GARCH

Abstract:
Rights offerings in Australia provide valuable choices to the issuer in terms of both underwriting and renounceability. We formulate a set of hypotheses from a quality-signalling perspective, affording an analysis of the key interrelations between quality, underwriting status, renounceability, takeup, and subscription price discount. We analyse rights offerings from two perspectives: market reaction to rights announcements and identification of the factors driving the choice of issue type. Evidence strongly supports the relation between quality signals and issue type. Using a robustly constructed takeup variable, we establish empirical relations between takeup, underwriting status, and renounceability that differ significantly from those previously reported, but which are consistent with the hypotheses developed in this paper.

Rights offerings, Takeup, Renounceability, Underwriting, Australia

Abstract:
We investigate the impact of scheduled government announcements relating to six different macroeconomic variables on the risk and return of three major US financial markets. Our results suggest that these markets do not respond in any meaningful way, to the act of releasing information by the government. Rather, it is the news content of these announcements which cause the market to react. For the three markets tested, unexpected balance of trade news was found to have the greatest impact on the mean return in the foreign exchange market. In the bond market, news related to the internal economy was found to be important. For the US stock market, consumer and producer price information was found to be important. Finally, financial market volatility was found to have increased in response to some classes of announcement and fallen for others. In part, this result can be explained by differential policy feedback effects.

Macroeconomic News, Expectations, Financial Markets, GARCH

Abstract:
We examine the relationship between corporate governance and management earnings forecasts. We extend the prior literature by examining the impact of independent director reputation on characteristics of management forecasts, by refining the previously used proxy for director independence and by distinguishing between routine and non-routine forecasts. We find a significant positive relationship between the likelihood and frequency of firms issuing management earnings forecasts and our measures of audit committee independence and independent director reputation but not board independence. However, there is some evidence that director independence is related to more specific forecasts. We also find that these results are driven by the routine earnings forecasts over which management have greater discretion.

Management earnings forecasts, corporate governance, director reputation

Abstract:
Does investing in a global portfolio of leading corporate sustainability firms add to, detract from, or have no material impact on portfolio performance? To answer this question we undertake an analysis of leading and lagging corporate sustainability firms using data from the Dow Jones Sustainability World Index. An analysis of two mutually exclusive equally weighted leading and lagging global corporate sustainability portfolios finds that leading sustainability firms do not underperform the market portfolio. However, we find a portfolio of lagging corporate sustainability firms outperforms both the market portfolio and a leading corporate sustainability portfolio. Interestingly, we find leading/lagging corporate social performance (CSP) firms exhibit lower/higher idiosyncratic risk, which may provide a possible explanation for the returns premium of lagging CSP firms. Our findings are robust to country, industry, size, style (value/growth), momentum (country, industry and stock) and corporate sustainability industry ranking.

Corporate Sustainability, Dow Jones Sustainability Index, Cost of Equity Capital, Large Firms, Corporate Sustainability Discount, Portfolio

Abstract:
Seasoned equity offerings (SEOs) in the UK provide valuable choices to the issuer in terms of renounceability and control dilution. This is especially the case following the removal of the size restriction of £15 m on share placements to institutional investors in January 1996. We formulate a set of hypotheses from a quality-signalling perspective, affording an analysis of the key interrelations between renounceability, control dilution, shareholder takeup, and subscription price discount. We analyze SEOs from two perspectives: market reaction to the announcement, and identification of the factors driving the choice of issue type. Generally, we find strong support for our predictions - most notably that: high-quality firms signal quality via lower discounts and/or pre-renouncements; high-quality issuers have lower idiosyncratic risk; firms with widely dispersed ownership structures and firms with the largest market capitalizations will choose standalone placements with book-building; and firms with higher (lower) ownership concentration and lower (higher) shareholder takeup will choose fixed-price placements (rights offerings).

Rights offerings, Private placements, Takeup, Renounceability, Private benefits of control, Book building, UK

Abstract:
This study examines the separate impact and joint effect of financial constraints and financial market mispricing on the sensitivity of investment to internal cash flows. Using a large sample of US manufacturing firms over the period 1971-2004, we find that financially unconstrained firms are more flexible in adjusting their sources of financing for corporate investment in response to financial market mispricing. Specifically, financially unconstrained firms tend to have lower (higher) investment-cash flow sensitivities in situations of overvaluation (undervaluation). This provides an explanation of why unconstrained firms have higher valuations than constrained firms.

Financial constraints, Mispricing, Corporate Investment, Investment-cash flow sensitivity, Financial Flexibility

Abstract:
This paper presents new evidence on the origins of investment management companies. Specifically, we examine the characteristics and nature of those "parent" fund companies from which at least one of their key fund manager personnel departed to establish their own independent firms. Covering the period 1980 and 2003, we create a unique hand-collected database of money management firm founders and their "parents." We find that larger, more reputable and more diversified firms with a significant presence in growth-oriented investment objectives are more likely to produce start-ups. Coming from larger companies increases the time it takes for a start-up to attain significant assets under management. Fund managers with experience in more diversified firms and those that are dominated by growth funds experience shorter time to "significant" assets. Locating a start-up geographically closer to a founder's previous employer results in a faster time to market. An analysis of the similarities between parent and start-ups' stock holdings shows that there is almost double the commonality of stocks held, than previously documented for competing mutual funds. The main driver of commonality in stock selection is the number of founders coming from a single parent firm.

Investment management firms, Fund manager background, Entrepreneurial activities

Abstract:
There are two related literatures on financial risk tolerance (FRT) (based on psychometrically-validated surveys) and risk aversion (based on lottery experiments) that hitherto have not been intersected. Exploring their integration is the primary goal of this paper. Specifically, we follow a two stage process: (1) we obtain FRT scores from a psychometrically-validated survey on a sample of 162 people; and (2) we conduct a battery of lottery choice experiments on the same people. The second stage is primarily distinguished from earlier lottery choice experiments by being online and involving non-student subjects. Moreover, we contrast: real and hypothetical payoffs; low and high stake payoffs; decisions involving gains and losses; and order effects. Our key finding is that the two approaches to analysing decision-making under uncertainty are strongly aligned. We present evidence that this is particularly the case for the female participants in our sample. There is also some evidence that the alignment is strengthened when high stake gambles are employed.

Financial Risk Tolerance, Risk Aversion, Psychometric Survey, Online Lottery Choice Experiment

Abstract:
This paper explores two issues in beta estimation, specifically, time variation and thin trading. In a multivariate GARCH approach, the paper conducts an analysis of the importance of assumptions made about the correlation structure in the multivariate GARCH model. The results of Monte Carlo analysis and an empirical application to Australian stock data demonstrate that it is better to allow for time variation in the correlation structure. The paper then develops a selectivity corrected time varying beta estimator. The results of a Monte Carlo experiment show that the new estimator performs well in handling the censoring in the data. Further, when the model is applied to individual stock data for Australia it provides a model that captures the impacts of censoring and thin trading on time varying beta risk.

Time varying betas, GARCH, Censoring, Thin trading, Sample selectivity model

Abstract:
This paper proposes and tests a new hypothesis concerning the price impact of option introductions on the underlying asset. In contrast to earlier research that has failed to explain the flipping of positive excess returns to negative excess returns on the listing date over the past thirty years for US optioned stocks, we find using an alternative dataset, strong evidence to suggest that an influx of informed traders in the option market
has been a major factor in the equity price changes associated with option listing.

options, complete markets, informed trading, short sales

Abstract:
In this paper, we investigative the impact of the introduction of the Euro on exchange rate exposures and the subsequent hedging practices of a sample of French corporations. Our findings indicate that the introduction of the Euro led to both a reduction in the number of firms that have significant exchange rate exposure and the absolute size of exposure. In response to these reduced exposures, French firms tend to use foreign currency derivatives less intensively although there has been no change in the number of firms that make use of the instruments. Furthermore, the use of foreign currency derivatives is found to be effective in managing exchange rate exposure but there is insufficient evidence that these instruments are more effective in post Euro periods.

Abstract:
This study examines the effects of announcements of voluntary sell-offs on shareholder wealth of the selling and buying companies over the period January 2000 to December 2002 The study then examines whether these wealth effects differ as between countries, using data bases for the United Kingdom and Australia. Announcement returns for shareholders (i.e. sellers and buyers), were positive and significant as determined by conventional event study methodology. Sellers' announcement returns were found to be augmented by the degree of focus of the sell-off. As for buyers, disclosure of the source of acquisition funds; disclosure of the acquisition price; and relative size were found to have a significant impact on wealth gains. However, a different result was observed when we examined UK and Australian shareholders separately. Positive and highly significant announcement returns were experienced by Australian sellers and buyers, while the positive market reaction for UK sellers and buyers were insignificantly different from zero.

Divestitures, Spin-Offs, Mergers and Acquisitions

Abstract:
We revisit the role of default risk in asset pricing. The detail of our dataset allows us to undertake this analysis on a previously ignored segment of the market - microcap stocks, allegedly vulnerable to default risk. The cross-equation restrictions in our baseline models are rejected, but the risk premia are positive and statistically significant. When we allow for intertemporal risk premia, our findings remain significant. We also find that the estimated default premium increases over time. When we condition on the business cycle, we find that the default risk premium is twice as high during expansions than during contractions.

Default risk, Business cycle, Conditional Asset pricing, Microcaps

Abstract:
We examine whether bank bailout programs initiated in seven countries during the 2007-2009 global financial crisis reduced counterparty risk in the financial system using the hedge fund industry as a laboratory. Hedge funds have extensive and economically significant ties to banking institutions and these links spurred fears of systemic risk among regulators and investors. We find that the rescue of financial institutions offering prime brokerage, custodial and investment advisory services to hedge funds was followed in the short term (up to six months) by reduced probability of hedge fund liquidation. However, only the rescue of custodians reduced hedge fund illiquidity or the ability of funds to meet clients’ redemption requests.

Bailouts, counterparty risk, hedge funds, terminations, liquidity

Abstract:
Using multiple discriminant analysis, we construct an index that measures firms' external financial constraints in an Australian setting. We form portfolios of firms based on our financial constraints index and find that financially constrained firms earn lower return than their unconstrained counterparts. Moreover, stock returns of financially constrained firms are found to move together, indicating the potential existence of a financial constraints factor. Neither the variation nor the mean return of the constraints factor are well explained by existing asset pricing models, suggesting an independent role for our financial constraints factor in affecting stock returns.

Financial Constraints, Stock Returns, Australian Firms

Abstract:
Givoly (1985) provides formal evidence on the relation between the past history of earnings and their own forecast. Our study uses a new methodology, modified Granger causality tests, to further analyze the information flows between earnings and forecasts. Our application of this widely acclaimed time series approach complements existing cross-sectional studies by abstracting from stock market reactions to information, and focusing on the dynamic interaction between reported earnings and analysts' forecasts. Based on long time series of analyst earnings forecasts and reported earnings, we provide formal and compelling evidence of bi-directional causality. Further, we report that the lag structure in information flows is longer than has been documented in the previous literature. This is consistent with our expectation that, in addition to past earnings reports, the forecasts themselves make a significant contribution to the information that is reflected in future earnings. However, the presence of feedback also suggests that past earnings reports as well as past forecasts are incorporated into later forecasts. Collectively, our findings imply that the information in earnings reports has inherent positive value and that forecasts do not fully substitute for earnings releases.

Analyst's forecasts, Reported earnings, Granger causality, Information flows

Abstract:
This paper studies impacts of US investor sentiment on non-US stock returns across 38 developed and developing equity markets. Employing data from 1977 to 2004, we find that US sentiment strongly influences future returns for various long-short portfolios designed to reflect sentiment prone stocks. The sentiment contagion is unlikely to be fully explained by the asset holdings of international investors. We find that the sentiment contagion is generally and significantly stronger when the information and legal environments are of high quality. We further document strong evidence that good corporate governance environments help diminish the spread of US investor sentiment across stock markets. Our results also suggest higher correlation for stocks with similar levels of sentiment sensitivity, such as small and high growth stocks, across markets, which will tend to reduce international diversification benefits.

Investor Sentiment, Financial Contagion, Information Environment, Legal Environment, Corporate Governance

Abstract:
This paper studies impacts of US investor sentiment on non-US stock returns across 38 developed and developing equity markets. Employing data from 1977 to 2004, we find that US sentiment strongly influences future returns for various long-short portfolios designed to reflect sentiment prone stocks. The sentiment contagion is unlikely to be fully explained by the asset holdings of international investors. We find that the sentiment contagion is generally and significantly stronger when the information and legal environments are of high quality. We further document strong evidence that good corporate governance environments help diminish the spread of US investor sentiment across stock markets. Our results also suggest higher correlation for stocks with similar levels of sentiment sensitivity, such as small and high growth stocks, across markets, which will tend to reduce international diversification benefits.

Investor Sentiment, Financial Contagion, Information Environment, Legal Environment, Corporate Governance

Abstract:
We examine the price and volatility reaction around stock dividend ex-dates for an Australian sample, over the period January 1992 to December 2000. We find that price reaction around stock dividend ex-dates provides positive abnormal returns both prior, and subsequent, to the abolishment of par value of shares in July 1998. When we partitioned the sample into financial, industrial non-financial and mining firms, the price reaction is found to be positive and significant only for industrial non-financial companies. Volatility of daily returns for periods subsequent to ex-dates is significantly greater than corresponding periods prior to announcement dates, while cumulative raw returns subsequent to ex-dates are significantly lower than periods prior to announcement dates for industrial non-financial companies. The magnitude of the price reaction is statistically significantly related to an increase in the volatility of daily returns and to a reduction in cumulative raw returns subsequent to the ex-dates, for industrial non-financial companies. These findings support buying pressure hypothesis suggested by Dhatt et al. (1994, 1996).

Abstract:
We examine the information content of managed fund ratings for Australian retail investors. Because fund ratings, premised on a quantitative-qualitative model, are highly transitory, we question whether investors formulate their investment decisions with respect to changes in ratings and whether ratings, in turn, react to fund flows. We find that information regarding fund flows can be obtained from ratings, and that rating changes can have far-reaching effects. Investors flock to newly upgraded funds while they penalize those that have been downgraded by withdrawing funds. Investors are constantly anticipating ratings revisions, particularly downgrades, and we attribute this phenomenon to the role of qualitative factors in the ratings.

Abstract:
No abstract available.

Abstract:
We study the market reaction of Australian firms issuing management earnings forecasts (MEF). Specifically, we measure and distinguish between the immediate and post-earnings announcement impact of MEF. Our analysis is conditioned on growth/value characteristics and news surprise and we test for asymmetric effects on these two conditioning variables. We find that the 3-day returns following non-routine bad news forecasts are significantly more negative for growth firms than value firms. No significant differences are found for good news forecasts. In the post-earnings announcement period, both growth and value firms have significant negative post-earnings announcement drift following non-routine bad news forecasts but they are not significantly different from each other.

Abstract:
We investigate the effect of firm size on the market's short-window response to annual earnings announcements for a large sample of Australian listed companies. Our research design involves regressions of unexpected earnings against unexpected returns. Non-linearity in the returns-earnings relationship is incorporated and other factors known to affect the response to earnings announcements are controlled for. Contrary to prior US research, our results show that firm size has either no effect on the response to earnings announcements (3 day window) or the response is significantly stronger for larger firms (twenty-one day window). The information content of earnings announcements is present across firm size categories but the nature of the response differs with firm size and context.

Abstract:
Using a sample of Australian Multi-sector trusts we examine selectivity and market timing performance and extend the analysis to include the relatively new measure of volatility timing. This is of particular relevance to our data set, as high levels of volatility persistence are prevalent in Australia. In addition we consider the stability, asymmetry and seasonality of the various performance and risk measures. A survivorship adjustment procedure is also employed in order to assess the impact of survivorship on selectivity, market timing and volatility timing performance.

Abstract:
Thirteen percent of own-company trades by directors do not meet the ASX requirement of reporting within 5 business days, while seven percent are not reported within 14 business days as required by the Corporations Act. Such breaches of reporting regulations are particularly important given that directors tend to purchase (sell) shares when the price is low (high), thereby achieving abnormal returns. These abnormal returns are highest for purchases in resource companies. Ignoring transaction costs outsiders can achieve abnormal returns by imitating directors' trades. Directors avoid small but statistically significant losses in the period between selling shares and these trades being reported to the market.

Abstract:
Does investing in sustainability leaders affect portfolio performance? Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) finds that (1) leading sustainability firms do not underperform the market portfolio, and (2) their lagging counterparts outperform the market portfolio and the leading portfolio. Notably, we find leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market. We develop an idiosyncratic risk factor and find that its inclusion significantly reduces the apparent difference in performance between leading and lagging CSP portfolios.

Abstract:
Does investing in sustainability leaders affect portfolio performance? Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) finds (a) leading sustainability firms do not underperform the market portfolio and (b) their lagging counterparts outperform the market portfolio and the leading portfolio. Notably, we find leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market. We develop an idiosyncratic risk factor and find that its inclusion significantly reduces the apparent difference in performance between leading and lagging CSP portfolios.

Sustainability, corporate social performance, corporate financial performance, idiosyncratic risk, global evidence, best of sector

Abstract:
In this paper, we utilize data from the Australian version of the TV game show, ‘Deal or No Deal’, to explore risk aversion in a high real stakes setting. An attractive feature of this version of the game is that supplementary rounds may occur which switch the decision frame of players. There are four main findings. First, we observe that the degree of risk aversion generally increases with stakes. Second, we observe considerable heterogeneity in people's willingness to bear risk – even at very high stakes. Third, we find that age and gender are statistically significant determinants of risk aversion, while wealth is not. Fourth, we find that the reversal of framing does have a significant impact on people's willingness to bear risk.

Abstract:
We investigate agency variation in credit quality assessment (Standard and Poor's vs. Moody's vs. Fitch) employing sovereign ratings data for 129 countries, spanning the period 1990 to 2006. While we find that the credit rating agencies often disagree about credit quality, it is usually confined to one or two notches on the finer scale. Given we find that several variables have varying importance in explaining ratings across agencies leads us to conclude that material heterogeneity exists between them. Also, while watch and outlook procedures are generally strong predictors of rating changes relative to other public data, additional significant variables suggest that it might be possible to augment these agency data to provide better forecasts of future rating changes.

Credit rating, rating transition, prediction, information content, sovereign

Abstract:
Very few studies to date have considered the market reaction to the announcement of credit watch procedures and the impact of credit watch procedures upon the market reaction to credit rating changes. This paper addresses this gap in the literature by focusing on credit watch procedures at the sovereign level. Our primary finding is that re-ratings which follow watch procedures are neither more nor less informative, and we conclude therefore that the credit watch procedure does not impact upon the private information of credit rating agencies. In addition we provide evidence on the types of sovereign state for which credit watch procedures are invoked and of the relative activities at the sovereign level of three major rating agencies.

Credit rating, rating change, credit watch, information, sovereign

Abstract:
The investment role of precious metals in financial markets is investigated by analysis of daily data for gold, platinum, and silver from 1976 to 2004. All three precious metals have low correlations with stock index returns, which suggests that these metals may provide diversification within broad investment portfolios. Moreover, the data reveal that all three precious metals have some hedging capability, particularly during periods of abnormal stock market volatility. Financial portfolios that contain precious metals perform significantly better than standard equity portfolios.

Alternative Investments, Commodities, Portfolio Management, Asset Allocation

Abstract:
In this paper, we examine the asset-pricing role of liquidity (as proxied by share turnover) in the context of the Fama and French (1993) three-factor model. Our analysis employs monthly Australian data, covering the sample period from 1990 to 1998. The key finding of our research is that the main test is unable to reject the test of over-identifying restrictions, thus supporting the overall favorability of the liquidity augmented Fama-French model. In addition, we find that the asset- pricing performance of the liquidity factor is generally very robust to a wide range of sensitivity checks.

asset pricing; liquidity; Fama-French model

Abstract:
We investigate the unconditional and conditional gold betas of four country-based gold industry portfolios. First, we document the similarity of unconditional gold betas across countries. Second, we find that the factors affecting conditional gold betas are different in the Australian and South African gold sectors relative to their North American counterparts. Only the gold bullion return volatility shows a negative association with conditional gold betas in Australian and South African gold mining firms. Moreover, gold price does not appear to play a systematic role in determining Australian or South African conditional gold betas. We discuss possible explanations for these findings.

Stock Price Exposures, Gold Beta, International Evidence

Abstract:
We propose that covariance (rather than beta) asymmetry provides a superior framework for examining issues related to changing risk premiums. Accordingly, we investigate whether the conditional covariance between stock and market returns is asymmetric in response to good and bad news. Our model of conditional covariance accommodates both the sign and magnitude of return innovations, and we find significant covariance asymmetry that can explain, at least in part, the volatility feedback of stock returns. Our findings are consistent across firm size, firm leverage, and temporal and cross-sectional aggregations.

Covariance, beta, volatility feedback

Abstract:
We document further evidence of the potential profitability of short-term contrarian investment strategies using Australian data. Such profits are robust to two portfolio weighting schemes, bid-ask bounce, risk, seasonality and volume. When transaction costs are introduced, the profitability largely disappears.

Short-term Contrarian Investing, Market Overreaction

Abstract:
This paper utilizes Frank Russell style portfolios to create useful proxies for the Fama and French (1993) factors. The proxy-mimicking portfolios are shown to represent a pervasive source of exposure across U.S. industry portfolios and to generally possess similar properties to those utilized in the finance literature. Further, a set of multivariate asset-pricing tests of the three-factor Fama and French asset-pricing (FF) model based on the proxy factors fail to reject the model. However, they do not reveal strong evidence of significantly positive risk premiums, particularly in the case of the size and book-to-market factors.

Abstract:
This paper investigates whether return volatility, trading volume, return asymmetry, business cycles and day-of-the-week are potential determinants of conditional autocorrelation in stock returns. The primary focus is on the role of feedback trading and the interplay of return volatility. We present empirical evidence using conditional autocorrelation estimates generated from multivariate generalised autoregressive conditional heteroscedasticity (M-GARCH) models for individual U.S. stock and index data. In addition to return volatility, we find that trading volume and market returns are important in explaining the time-varying patterns of return autocorrelation.

Abstract:
In this article, we investigate the impact of the introduction of stock index futures trading on the daily returns seasonality of the underlying index for seven national markets. It has been previously argued that the introduction of futures trading should lead to reduced seasonality of mean returns, and generally our results support this conclusion. The impact of index futures introduction on return autocorrelations and volatility is also tested, and the evidence presented suggests that futures trading has no impact on the former, although a change in the seasonal for the latter was detected.

Abstract:
Fischer Black's strategy of skewing portfolios to low-beta stocks makes sense in non-U.S. markets if a similar 'flat' relationship between beta and return exists in those markets. Theory suggests, however, that for taxation reasons, the relationship between beta and return will be more steeply sloped in markets like that of Australia, where dividend-imputation taxation has been adopted, than in the U.S. market, where classical taxation prevails. We document empirically that the relationship between beta and return has been, in fact, more steeply sloped in the Australian market in the postimputation period. Moreover, we found a significantly positive excess return on the 'zero-beta factor' in the preimputation period but a zero or significantly negative excess return on the zero-beta factor in the postimputation period. The implication is that following the zero-beta investment strategy in an economy that includes an imputation tax may not be successful.