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Int. J. Financial Stud., Volume 6, Issue 1 (March 2018)

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Open AccessEditorial Announcing the 2018 IJFS Travel Awards for Ph.D Students
Int. J. Financial Stud. 2018, 6(1), 33; https://doi.org/10.3390/ijfs6010033
Received: 16 March 2018 / Revised: 16 March 2018 / Accepted: 16 March 2018 / Published: 17 March 2018
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Open AccessArticle Testing Efficiency of the London Metal Exchange: New Evidence
Int. J. Financial Stud. 2018, 6(1), 32; https://doi.org/10.3390/ijfs6010032
Received: 26 December 2017 / Revised: 27 February 2018 / Accepted: 12 March 2018 / Published: 14 March 2018
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Abstract
This paper explores the market efficiency of the six base metals traded on the LME (London Metal Exchange) using daily data from January 2000 to June 2016. The hypothesis that futures prices 3M (3-month) are unbiased predictors of spot prices (cash) in the
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This paper explores the market efficiency of the six base metals traded on the LME (London Metal Exchange) using daily data from January 2000 to June 2016. The hypothesis that futures prices 3M (3-month) are unbiased predictors of spot prices (cash) in the LME is rejected based on the false premise that the financialization of commodities has been growing. For the robustness check, monthly data is analyzed using ordinary least squares (OLS) and GARCH (1,1) models. We reject the null hypothesis for all metals except for zinc. Full article
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Open AccessArticle Value Investing and Size Effect in the South Korean Stock Market
Int. J. Financial Stud. 2018, 6(1), 31; https://doi.org/10.3390/ijfs6010031
Received: 18 December 2017 / Revised: 14 February 2018 / Accepted: 28 February 2018 / Published: 12 March 2018
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Abstract
There are indications that value investing strategies have been able to outperform the overall market in several countries across the globe. In this article, the specific case of South Korea is analyzed. It would appear that from a rigorous statistical point of view
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There are indications that value investing strategies have been able to outperform the overall market in several countries across the globe. In this article, the specific case of South Korea is analyzed. It would appear that from a rigorous statistical point of view there are no strong evidence supporting the outperformance of value stocks versus growth stocks in South Korea, particularly when measured on a yearly basis. These results were consistent using both MSCI value and growth indexes as well as constructing portfolios using the P/E, P/B, cash flow per share and average 5-year sales growth. The statistical tests performed failed to reject for the majority of the years that the monthly returns come from distributions with different medians. The test yielding rather consistent results on a yearly basis but for large periods of time (decades) the results were more mixed, pointing in some cases to value investing outperforming over that very long time frame. It should be noted that the final value of the portfolios was rather different when using criteria, such as low P/E, typically associated with value stocks. The tests also failed to reject the hypothesis of different means for the monthly returns of small, medium and large companies. Full article
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Open AccessArticle Asymptotic Expansion of Risk-Neutral Pricing Density
Int. J. Financial Stud. 2018, 6(1), 30; https://doi.org/10.3390/ijfs6010030
Received: 14 December 2017 / Revised: 7 February 2018 / Accepted: 27 February 2018 / Published: 12 March 2018
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Abstract
A new method for pricing contingent claims based on an asymptotic expansion of the dynamics of the pricing density is introduced. The expansion is conducted in a preferred coordinate frame, in which the pricing density looks stationary. The resulting asymptotic Kolmogorov-backward-equation is
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A new method for pricing contingent claims based on an asymptotic expansion of the dynamics of the pricing density is introduced. The expansion is conducted in a preferred coordinate frame, in which the pricing density looks stationary. The resulting asymptotic Kolmogorov-backward-equation is approximated by using a complete set of orthogonal Hermite-polynomials. The derived model is calibrated and tested on a collection of 1075 European-style ‘Deutscher Aktienindex’ (DAX) index options and is shown to generate very precise option prices and a more accurate implied volatility surface than conventional methods. Full article
(This article belongs to the Special Issue Recent Developments in Numerical Methods for Option Pricing)
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Open AccessFeature PaperArticle Impact of Competition on Mutual Fund Marketing Expenses
Int. J. Financial Stud. 2018, 6(1), 29; https://doi.org/10.3390/ijfs6010029
Received: 6 February 2018 / Revised: 26 February 2018 / Accepted: 26 February 2018 / Published: 6 March 2018
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Abstract
In this paper, I study the impact of market competition on mutual fund marketing expenses. In a sample of US domestic equity mutual funds, I find that marketing expenses decrease with the competition. This effect is stronger for top-performing funds. These results are
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In this paper, I study the impact of market competition on mutual fund marketing expenses. In a sample of US domestic equity mutual funds, I find that marketing expenses decrease with the competition. This effect is stronger for top-performing funds. These results are counterintuitive, as one would ordinarily expect funds to incur more marketing expenses in response to pressure from competing funds. However, these results support the narrative that mutual funds employ marketing to draw attention to their performance in a tournament-like market, where the top-performing funds (the winners) are rewarded with disproportionately high new investments. Higher competition decreases the chances of each fund to outperform the others and adversely affect their ability to attract new investments, and the funds respond by decreasing marketing expenses. Thus, competition appears to have implications for investor search cost. Full article
Open AccessArticle Dynamic Relationships between Price and Net Asset Value for Asian Real Estate Stocks
Int. J. Financial Stud. 2018, 6(1), 28; https://doi.org/10.3390/ijfs6010028
Received: 13 November 2017 / Revised: 6 January 2018 / Accepted: 9 February 2018 / Published: 6 March 2018
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Abstract
This paper examines short- and long-term behavior of the price-to net asset value ratio in six Asian public real estate markets. We find mean-reverting behavior of the ratio and spillover effects, where each of the examined public real estate markets correlates with other
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This paper examines short- and long-term behavior of the price-to net asset value ratio in six Asian public real estate markets. We find mean-reverting behavior of the ratio and spillover effects, where each of the examined public real estate markets correlates with other markets. Additionally, the unexpected shock correlating with the price-to-net asset value ratio in one market has a positive or negative correlation with the ratios of other markets. Our results offer fresh insights to portfolio managers, policymakers, and academic researchers into the regional and country market dynamics of public real estate valuation and cross-country interaction from the long-term and short-term perspectives. Full article
(This article belongs to the Special Issue Financial Economics)
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Open AccessFeature PaperArticle Gas Storage Valuation and Hedging: A Quantification of Model Risk
Int. J. Financial Stud. 2018, 6(1), 27; https://doi.org/10.3390/ijfs6010027
Received: 1 December 2017 / Revised: 8 February 2018 / Accepted: 23 February 2018 / Published: 5 March 2018
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Abstract
This paper focuses on the valuation and hedging of gas storage facilities, using a spot-based valuation framework coupled with a financial hedging strategy implemented with futures contracts. The contributions of this paper are two-fold. Firstly, we propose a model that unifies the dynamics
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This paper focuses on the valuation and hedging of gas storage facilities, using a spot-based valuation framework coupled with a financial hedging strategy implemented with futures contracts. The contributions of this paper are two-fold. Firstly, we propose a model that unifies the dynamics of the futures curve and spot price, and accounts for the main stylized facts of the US natural gas market such as seasonality and the presence of price spikes in the spot market. Secondly, we evaluate the associated model risk, and show not only that the valuation is strongly dependent upon the dynamics of the spot price, but more importantly that the hedging strategy commonly used in the industry leaves the storage operator with significant residual price risk. Full article
(This article belongs to the Special Issue Finance, Financial Risk Management and their Applications)
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Open AccessArticle Finite Difference Methods for the BSDEs in Finance
Int. J. Financial Stud. 2018, 6(1), 26; https://doi.org/10.3390/ijfs6010026
Received: 2 May 2017 / Revised: 17 December 2017 / Accepted: 4 January 2018 / Published: 5 March 2018
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Abstract
This paper gives a review of numerical methods for solving the BSDEs, especially, finite difference methods. For numerical methods of finite difference, we should divide them into three branches. Distributed method (or parallel method) should now become a hot topic. It is a
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This paper gives a review of numerical methods for solving the BSDEs, especially, finite difference methods. For numerical methods of finite difference, we should divide them into three branches. Distributed method (or parallel method) should now become a hot topic. It is a key reason we present the review. We give a brief survey on the financial problems. The problems include solution and simulation methods for the BSDEs. We first describe the BSDEs, and then outline the main techniques and main results of the BSDEs. In addition, we compare with the errors between these methods and the Euler method on the BSDEs. Full article
(This article belongs to the Special Issue Recent Developments in Numerical Methods for Option Pricing)
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Open AccessArticle The Inconsistent Effects of Plain English Disclosures on Nonprofessional Investors’ Risk Judgments
Int. J. Financial Stud. 2018, 6(1), 25; https://doi.org/10.3390/ijfs6010025
Received: 19 December 2017 / Revised: 14 February 2018 / Accepted: 22 February 2018 / Published: 2 March 2018
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Abstract
In this paper, we examine whether the readability of different types of corporate risk disclosures influences the risk judgments of nonprofessional investors. Our study contributes evidence to the Security and Exchange Commission’s ongoing initiative to improve corporate financial statement disclosures. Using 359 responses
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In this paper, we examine whether the readability of different types of corporate risk disclosures influences the risk judgments of nonprofessional investors. Our study contributes evidence to the Security and Exchange Commission’s ongoing initiative to improve corporate financial statement disclosures. Using 359 responses from an experimental survey of nonprofessional investors (NPIs), we find that readability, in conjunction with risk factor type, significantly influences investors’ judgments of probability and size of economic loss, cause for worry, and overall risk. NPIs judged the risk from an industry-related risk factor (competition) to be higher when written in plain English, but judged the risk of a company-specific risk factor (internal control weakness over financial reporting) to be higher when written in a less readable format (i.e., legalese). We found no significant differences in judgments between plain English and less readable language on a combined industry/company risk factor, information security. Results suggest that a move to plain English for all types of risk factors may have consequences that are not fully understood or expected. This area needs further research before regulators enact (or enforce) mandates for risk factors to be presented in plain English. Full article
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Open AccessArticle Tests of Racial Discrimination in a Simple Financial Market: Managers in Major League Baseball
Int. J. Financial Stud. 2018, 6(1), 24; https://doi.org/10.3390/ijfs6010024
Received: 22 December 2017 / Revised: 20 February 2018 / Accepted: 23 February 2018 / Published: 1 March 2018
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Abstract
This study tests for racial discrimination against minority managers in Major League Baseball using financial-market imbalances as it relates to the wagering marketplace for the sport. Using detailed betting data on the percentage bet on the favorite from Sports Insights, we test for
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This study tests for racial discrimination against minority managers in Major League Baseball using financial-market imbalances as it relates to the wagering marketplace for the sport. Using detailed betting data on the percentage bet on the favorite from Sports Insights, we test for prejudice against minority mangers using an ordinary least squares multiple regression model. The results reveal that bettors have a clear preference for the favored team as the percentage bet on the favorite increases with the odds on the favorite. In addition, they prefer road favorites by an even greater margin. In terms of minority managers, there is no evidence of discrimination against minorities. In fact, bettors prefer to wager on minority managers by a statistically significant margin when they are favorites. This finding suggests that either the participants in this financial marketplace are not prejudiced against minority managers or the financial incentives inherent in the market drive out discrimination against the minority managers. Full article
(This article belongs to the Special Issue Financial Economics)
Open AccessFeature PaperArticle Macroeconomic Stability in a Model with Bond Transaction Services
Int. J. Financial Stud. 2018, 6(1), 23; https://doi.org/10.3390/ijfs6010023
Received: 31 December 2017 / Revised: 11 February 2018 / Accepted: 12 February 2018 / Published: 22 February 2018
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Abstract
Cochrane (2014) shows that high-powered money balances and short-term government bonds can be considered as perfect substitutes for the U.S economy during the past twenty years. We build on this claim and consider a variant of the standard cashless new-Keynesian model with two
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Cochrane (2014) shows that high-powered money balances and short-term government bonds can be considered as perfect substitutes for the U.S economy during the past twenty years. We build on this claim and consider a variant of the standard cashless new-Keynesian model with two types of government bonds, which can be thought of as short- and long-term bonds. The first one has a macroeconomic role in the sense that it provides transaction services in addition to generating a yield. The other type of government bond pays only an interest rate. Consistent with previous findings, the Taylor principle is not a panacea for equilibrium determinacy in a model without money. When the government bond market matters beyond the need for fiscal solvency, monetary policy rules do not need to comply with the Taylor principle for unique equilibria to exist. Full article
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Open AccessArticle Foreign Exchange Speculation: An Event Study
Int. J. Financial Stud. 2018, 6(1), 22; https://doi.org/10.3390/ijfs6010022
Received: 8 December 2017 / Revised: 12 February 2018 / Accepted: 13 February 2018 / Published: 17 February 2018
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Abstract
Does speculation facilitate price discovery or instability? If it is price discovery, it is beneficial and should be encouraged; if it is instability, welfare is enhanced by its reduction. This paper seeks to distinguish between these two characteristics by analysing those times when
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Does speculation facilitate price discovery or instability? If it is price discovery, it is beneficial and should be encouraged; if it is instability, welfare is enhanced by its reduction. This paper seeks to distinguish between these two characteristics by analysing those times when speculation in the foreign exchange market is most extreme. A series of event studies are conducted on the extremes of speculative sentiment and speculative activity. If speculation is noise, extreme sentiment and extreme positions should lead to overshooting and increase risk of subsequent reversals. The finding that speculative extremes do not provide information about subsequent returns implies that speculation is part of the process of price discovery and that efforts to reduce it would reduce the informational efficiency of financial markets. Full article
(This article belongs to the Special Issue Financial Economics)
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Open AccessArticle Brexit and Uncertainty in Financial Markets
Int. J. Financial Stud. 2018, 6(1), 21; https://doi.org/10.3390/ijfs6010021
Received: 22 January 2018 / Revised: 6 February 2018 / Accepted: 8 February 2018 / Published: 11 February 2018
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Abstract
This paper applies long-memory techniques (both parametric and semi-parametric) to examine whether Brexit has led to any significant changes in the degree of persistence of the FTSE (Financial Times Stock Index) 100 Implied Volatility Index (IVI) and of the British pound’s implied volatilities
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This paper applies long-memory techniques (both parametric and semi-parametric) to examine whether Brexit has led to any significant changes in the degree of persistence of the FTSE (Financial Times Stock Index) 100 Implied Volatility Index (IVI) and of the British pound’s implied volatilities (IVs) vis-à-vis the main currencies traded in the FOREX (foreign exchange market), namely the euro, the US dollar and the Japanese yen. We split the sample to compare the stochastic properties of the series under investigation before and after the Brexit referendum, and find an increase in the degree of persistence in all cases except for the British pound-yen IV, whose persistence has declined after Brexit. These findings highlight the importance of completing swiftly the negotiations with the European Union (EU) to achieve an appropriate Brexit deal. Full article
(This article belongs to the Special Issue Impact of Brexit on Financial Markets)
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Open AccessArticle Integrated Supervision of the Financial Market without the UK?
Int. J. Financial Stud. 2018, 6(1), 20; https://doi.org/10.3390/ijfs6010020
Received: 8 December 2017 / Revised: 20 January 2018 / Accepted: 25 January 2018 / Published: 9 February 2018
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Abstract
This paper analyses the integration of financial market supervision at international level, particularly focusing on EU law and the actual processes taking place in this area considering Brexit as its part. Current legislative action at EU level has a significant impact on legislation
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This paper analyses the integration of financial market supervision at international level, particularly focusing on EU law and the actual processes taking place in this area considering Brexit as its part. Current legislative action at EU level has a significant impact on legislation in all member countries of European Union. This paper seeks, among other things, to find the causes of the increasingly ongoing process of integration of financial market supervision and determine whether or not the direction in which the international integration is going is the right one. The objective of this paper is to determine whether or not the process of integration increases the efficiency of financial market supervision itself and helps to develop the European single market, while simultaneously reducing systemic risk to financial market stability. Full article
(This article belongs to the Special Issue Financial Economics)
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Open AccessFeature PaperArticle Noise Reduction in a Reputation Index
Int. J. Financial Stud. 2018, 6(1), 19; https://doi.org/10.3390/ijfs6010019
Received: 1 January 2018 / Revised: 19 January 2018 / Accepted: 1 February 2018 / Published: 7 February 2018
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Abstract
Assuming that a time series incorporates “signal” and “noise” components, we propose a method to estimate the extent of the “noise” component by considering the smoothing properties of the state-space of the time series. A mild degree of smoothing in the state-space, applied
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Assuming that a time series incorporates “signal” and “noise” components, we propose a method to estimate the extent of the “noise” component by considering the smoothing properties of the state-space of the time series. A mild degree of smoothing in the state-space, applied using a Kalman filter, allows for noise estimation arising from the measurement process. It is particularly suited in the context of a reputation index, because small amounts of noise can easily mask more significant effects. Adjusting the state-space noise measurement parameter leads to a limiting smoothing situation, from which the extent of noise can be estimated. The results indicate that noise constitutes approximately 10% of the raw signal: approximately 40 decibels. A comparison with low pass filter methods (Butterworth in particular) is made, although low pass filters are more suitable for assessing total signal noise. Full article
(This article belongs to the Special Issue Finance, Financial Risk Management and their Applications)
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