Open AccessFeature PaperArticle
A Study of Perfect Hedges
Int. J. Financial Stud. 2017, 5(4), 28; doi:10.3390/ijfs5040028 -
Abstract
In this study, we attempt to identify the asset which has the best hedging characteristics against inflation. We study stock, bond, commodity, real estate and oil indexes. We also study these indexes tracking exchange traded funds (ETFs) to determine the most beneficial tradable
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In this study, we attempt to identify the asset which has the best hedging characteristics against inflation. We study stock, bond, commodity, real estate and oil indexes. We also study these indexes tracking exchange traded funds (ETFs) to determine the most beneficial tradable asset in addition to the more theoretical index for inflation hedging. We find that, in our sample, oil is the best hedge against inflation, even though three in total are a good hedge—oil, gold and corn—with corn and oil being complete hedges, while gold is a partial hedge. Two assets have conflicting results depending on whether we examine the index or the ETF: the real estate index is a hedge, whereas real estate ETF is the opposite of a hedge. Similarly, the bond index is not related to inflation, whereas bond ETF is the opposite of a hedge. We find that stocks, soy and beef are not hedges against inflation. Full article
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Open AccessArticle
Impending Doom: The Loss of Diversification before a Crisis
Int. J. Financial Stud. 2017, 5(4), 29; doi:10.3390/ijfs5040029 -
Abstract
We present four methods of assessing the diversification potential within a stock market, and two of these are based on principal component analysis. They were applied to the Australian stock exchange for the years 2000 to 2014 and all show a consistent picture.
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We present four methods of assessing the diversification potential within a stock market, and two of these are based on principal component analysis. They were applied to the Australian stock exchange for the years 2000 to 2014 and all show a consistent picture. The potential for diversification declined almost monotonically in the three years prior to the 2008 financial crisis, leaving investors poorly diversified at the onset of the Global Financial Crisis. On one of the four measures, the diversification potential declined even further in the 2011 European debt crisis and the American credit downgrade. Full article
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Open AccessArticle
Investigating the Influence of Green Credit on Operational Efficiency and Financial Performance Based on Hybrid Econometric Models
Int. J. Financial Stud. 2017, 5(4), 27; doi:10.3390/ijfs5040027 -
Abstract
To understand the role of green credit in maintaining economic sustainability, we develop theoretical hypotheses including expectation, supervision and capital allocation channels to explain the impacts of green credit. Then, we use hybrid econometric models by using Chinese-listed enterprises in the energy-saving and
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To understand the role of green credit in maintaining economic sustainability, we develop theoretical hypotheses including expectation, supervision and capital allocation channels to explain the impacts of green credit. Then, we use hybrid econometric models by using Chinese-listed enterprises in the energy-saving and environmental sectors from 2007 to 2015 as the research sample to verify the above hypotheses. The empirical results show that: (1) the average value of financial performance and operational efficiency is relatively low, and the endogenous abilities of those enterprises have not yet been established; (2) the issuance of green loans does not improve public expectations of enterprises in the green industry, thus the expectation channel is not supported; (3) the issuance of green loans does not necessarily improve the enterprise’s operational efficiency and financial performance, thus the supervision channel hypotheses are not supported; and (4) green loans lead to an increase in financing costs, management costs, operation costs, and expenditure on R&D, thus, the capital allocation hypothesis is partly supported. Based on the empirical analysis, we also provide some countermeasures to strengthen the roles of green credit to support the development of energy-saving and environmental enterprises. Full article
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Open AccessArticle
Size Effects of Fiscal Policy and Business Confidence in the Euro Area
Int. J. Financial Stud. 2017, 5(4), 26; doi:10.3390/ijfs5040026 -
Abstract
In the aftermath of the European sovereign debt crisis (2009–2014), the management of expectations has risen in importance. However, policy responses have emphasized the management of fiscal spending without examining the impact changes in the business confidence have on the economy. This paper
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In the aftermath of the European sovereign debt crisis (2009–2014), the management of expectations has risen in importance. However, policy responses have emphasized the management of fiscal spending without examining the impact changes in the business confidence have on the economy. This paper uses a Factor-Augmented Vector Autoregressive specification, which allows for a larger information set covering both domestic and international developments, to measure the responses of five Euro Area economies to a one percent shock in government consumption and business confidence. The evidence suggests that even though the response to a government consumption shock is strong, a shock in expectations has an even greater effect. This points out to the fact that perceptions about the future and trust in the policymaker are much more important than previously considered. Thus, especially in (but not limited to) times of turbulence, or during efforts of stabilization and/or structural reforms, more emphasis should be placed on the overall credibility of the decisions, which could help to mitigate any potential adverse effects from the policies. Full article
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Open AccessArticle
Explaining the Number of Social Media Fans for North American and European Professional Sports Clubs with Determinants of Their Financial Value
Int. J. Financial Stud. 2017, 5(4), 25; doi:10.3390/ijfs5040025 -
Abstract
The aim of this article is to investigate the explanatory variables of the number of Facebook fans and Twitter followers for professional sports clubs based on the financial value literature. Such explanatory variables are related to local market conditions and on-field and off-field
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The aim of this article is to investigate the explanatory variables of the number of Facebook fans and Twitter followers for professional sports clubs based on the financial value literature. Such explanatory variables are related to local market conditions and on-field and off-field performance. Based upon a sample of North American major league clubs and the most valuable European soccer clubs as evaluated by Forbes over the 2011–2013 period (423 observations), our results indicate a range of variables with a significant positive impact on the number of social media fans: population, no competing team in the market, current sports performance, historical sports performance, facility age, attendance, operating income, expenses/league mean, and being an English football club. An improved understanding of the effectiveness of clubs’ social media presence is important for contemporary sport managers in terms of enhancing supporter communication, involvement, and accountability, as well as maximizing clubs’ revenue generation possibilities. Our findings could help sport managers to realize their clubs’ social media potential in pursuit of these objectives, specifically to understand which variables are under-exploited and why some clubs over-perform, which will allow managers to prioritize decisions to increase their number of social media fans and financial value. Full article
Open AccessArticle
Stock Price Manipulation: The Role of Intermediaries
Int. J. Financial Stud. 2017, 5(4), 24; doi:10.3390/ijfs5040024 -
Abstract
We model a scenario in which there are three types of investors: fundamentalists, speculators, and trend-followers and an intermediary who cares about his reputation. Fundamentalists are rational investors with long horizons who are interested in the dividend stream. Speculators are rational investors who
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We model a scenario in which there are three types of investors: fundamentalists, speculators, and trend-followers and an intermediary who cares about his reputation. Fundamentalists are rational investors with long horizons who are interested in the dividend stream. Speculators are rational investors who have short horizons and are interested in profiting from short-term price movements or capital gains. Trend-followers are behavioral investors who extrapolate price trends, and, consequently, are late entrants in the market. We show that an informed intermediary (broker) can manipulate demand (consequently stock price) without losing his reputation when there is information asymmetry. We also show that there is a trade-off between broker level competition for reputation and market liquidity. Broker level competition checks manipulation, but it adversely affects market liquidity. Full article
Open AccessArticle
A Dynamic Programming Approach for Pricing Weather Derivatives under Issuer Default Risk
Int. J. Financial Stud. 2017, 5(4), 23; doi:10.3390/ijfs5040023 -
Abstract
Weather derivatives are contingent claims with payoff based on a pre-specified weather index. Firms exposed to weather risk can transfer it to financial markets via weather derivatives. We develop a utility-based model for pricing baskets of weather derivatives under default risk on the
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Weather derivatives are contingent claims with payoff based on a pre-specified weather index. Firms exposed to weather risk can transfer it to financial markets via weather derivatives. We develop a utility-based model for pricing baskets of weather derivatives under default risk on the issuer side in over-the-counter markets. In our model, agents maximise the expected utility of their terminal wealth, while they dynamically rebalance their weather portfolios over a finite investment horizon. Using dynamic programming approach, we obtain semi-closed forms for the equilibrium prices of weather derivatives and for the optimal strategies of the agents. We give an example on how to price rainfall derivatives on selected stations in China in the universe of a financial investor and a weather exposed crop insurer. Full article
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Open AccessFeature PaperArticle
The Market-Timing Ability of Chinese Equity Securities Investment Funds
Int. J. Financial Stud. 2017, 5(4), 22; doi:10.3390/ijfs5040022 -
Abstract
This study examines the market-timing performance of Chinese equity securities investment funds during the period from May 2003 to May 2014 using the parametric tests of Treynor–Mazuy and Henriksson–Merton as well as the Jiang non-parametric test. Based on the non-parametric approach, the study
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This study examines the market-timing performance of Chinese equity securities investment funds during the period from May 2003 to May 2014 using the parametric tests of Treynor–Mazuy and Henriksson–Merton as well as the Jiang non-parametric test. Based on the non-parametric approach, the study finds that only one fund among the sample of 419 funds possessed statistically significant market-timing skill, while 9% of the funds were statistically significant negative market timers. Most funds do not time the market. This conclusion is robust when controlling for publicly available information in evaluating ‘private’ timing ability. Consistent with studies of other markets such as the UK, a higher prevalence of successful market timers is found by the Treynor–Mazuy and Henriksson–Merton methods compared to the non-parametric procedure. Full article
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Open AccessFeature PaperArticle
An Empirical Examination of the Incremental Contribution of Stock Characteristics in UK Stock Returns
Int. J. Financial Stud. 2017, 5(4), 21; doi:10.3390/ijfs5040021 -
Abstract
This study uses the Bayesian approach to examine the incremental contribution of stock characteristics to the investment opportunity set in U.K. stock returns. The paper finds that size, book-to-market (BM) ratio, and momentum characteristics all make a significant incremental contribution to the investment
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This study uses the Bayesian approach to examine the incremental contribution of stock characteristics to the investment opportunity set in U.K. stock returns. The paper finds that size, book-to-market (BM) ratio, and momentum characteristics all make a significant incremental contribution to the investment opportunity set when there is unrestricted short selling. However, no short selling constraints eliminate the incremental contribution of the size and BM characteristics, but not the momentum characteristic. The use of additional stock characteristics such as stock issues, accruals, profitability, and asset growth leads to a significant incremental contribution beyond the size, BM, and momentum characteristics when there is unrestricted short selling, but no short selling constraints largely eliminates the incremental contribution of the additional characteristics. Full article
Open AccessFeature PaperArticle
The Effect of Stock Return Sequences on Trading Volumes
Int. J. Financial Stud. 2017, 5(4), 20; doi:10.3390/ijfs5040020 -
Abstract
The present study explores the effect of the gambler’s fallacy on stock trading volumes. I hypothesize that if a stock’s price rises (falls) during a number of consecutive trading days, then the gambler’s fallacy may cause at least some of the investors to
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The present study explores the effect of the gambler’s fallacy on stock trading volumes. I hypothesize that if a stock’s price rises (falls) during a number of consecutive trading days, then the gambler’s fallacy may cause at least some of the investors to expect that the stock’s price “has” to subsequently fall (rise), and thus, to increase their willingness to sell (buy) the stock, resulting in a stronger degree of disagreement between the investors and a higher-than-usual stock trading volume on the first day when the stock’s price indeed falls (rises). Employing a large sample of daily price and trading volume data, I document that following relatively long sequences of the same-sign stock returns, on the days when the sign is reversed, the trading activity in the respective stocks is abnormally high. Moreover, average abnormal trading volumes gradually and significantly increase with the length of the preceding return sequence. The effect is slightly more pronounced following the sequences of negative stock returns, and remains significant after controlling for other potentially influential factors, including contemporaneous and lagged actual and absolute stock returns, historical stock returns and volatilities, and company-specific events, such as earnings announcements and dividend payments. Full article
Open AccessArticle
Effect of Disproportional Voting Rights on Firm’s Market Performance: Evidence from Chinese Firms Cross-Listed on U.S. Exchanges
Int. J. Financial Stud. 2017, 5(3), 19; doi:10.3390/ijfs5030019 -
Abstract
Dual-class firms face great criticism as it is believed that firms choose this structure to expropriate minority shareholders’ wealth. We compare market performance of Chinese dual-class firms with their single-class counterparts by constructing a list of Chinese firms cross-listed on U.S. exchanges. We
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Dual-class firms face great criticism as it is believed that firms choose this structure to expropriate minority shareholders’ wealth. We compare market performance of Chinese dual-class firms with their single-class counterparts by constructing a list of Chinese firms cross-listed on U.S. exchanges. We find, contrary to the literature, that Chinese dual-class firms are outperforming in terms of market performance measured by Tobin’s Q, P/E ratio, and abnormal return in both subsequent years after the initial public offering (IPO). The reason for contrary results is that Chinese dual-class firms bond themselves to high U.S. standards from low local Chinese standards, and it is evident from the literature that when a firm bonds itself to high standards it shows a credible commitment towards minority shareholders’ rights, as well as focus on upright performance rather than investing in value-destroying projects and competes to survive in the market that imposes the high standards. Full article
Open AccessArticle
Does Corporate Diversity Really Matter in the Plantation Sector? Empirical Evidence from a World Islamic Leading Country and Market Reaction
Int. J. Financial Stud. 2017, 5(3), 17; doi:10.3390/ijfs5030017 -
Abstract
The paper examines demographic and cognitive diversity at top-level management and its impact on the performance of Malaysian-listed companies (Plantation and Energy Sectors). Although many organisations aspire to be socially diverse, diversity’s consequences for organisational performance remain unclear. Do profitable firms tend to
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The paper examines demographic and cognitive diversity at top-level management and its impact on the performance of Malaysian-listed companies (Plantation and Energy Sectors). Although many organisations aspire to be socially diverse, diversity’s consequences for organisational performance remain unclear. Do profitable firms tend to enhance board diversity or other attributes of the firm that contribute towards the firm’s financial performance? This study specifies the whole distinct mechanism and measures it independently; bridging as the demographic and cognitive diversity among the board of directors (BODs) and bonding as the firm’s financial performance. To maintain the homogeneity factor, empirical analysis is confined to two fully-fledged sectors and 125 Malaysian listed firms out of 798 firms selected on the basis of judgmental sampling during the period of 2009 to 2013. The paper applies econometrics methodology on panel data analysis and the correlation matrix to justify this phenomenon. The paper attempts to fill the gap in the existing literature, discuss the empirically diverse corporate boards with the interaction approach and its impact on firm performance (a) gender diversity and foreign participation (b) gender diversity and ethnic diversity. The empirical findings suggest that both demographic and cognitive diversity are significant predictors of a firm’s financial performance. Hence, the companies specifically belonging to plantation and energy sectors are more responsible for promoting diversity among top-level management. Full article
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Open AccessArticle
Does Gold Act as a Hedge and a Safe Haven for China’s Stock Market?
Int. J. Financial Stud. 2017, 5(3), 18; doi:10.3390/ijfs5030018 -
Abstract
This paper examines the dynamic relationships between gold and stock markets in China. Using daily gold and stock indexes data, we estimated the DCC-GARCH model for the five bear markets since 31 October 2002, and simultaneously used different segments of China’s stock markets
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This paper examines the dynamic relationships between gold and stock markets in China. Using daily gold and stock indexes data, we estimated the DCC-GARCH model for the five bear markets since 31 October 2002, and simultaneously used different segments of China’s stock markets for analysis. Our main objective was to examine the time-varying correlations between gold and stock and to check the effectiveness of gold as a hedge or a safe haven for stocks. Results showed that: (1) the dynamic conditional correlations switched between positive and negative values over the periods under study; (2) due to the increasing investment demand of gold, the hedging effect of gold on China’s stock market has strengthened remarkably. Gold acts as a safe haven for only the latest two of the five bear markets analyzed (12 June 2015–26 August 2015 and 22 December 2015–29 February 2016); and (3) for non-bear markets, gold does not offer good risk hedging. Full article
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Open AccessEditorial
Editorial for Special Issue “New Challenges in Asian Capital Markets”
Int. J. Financial Stud. 2017, 5(3), 16; doi:10.3390/ijfs5030016 -
Abstract
We are pleased to announce the Special Issue on the New Challenges in Asian Capital Markets in the International Journal of Financial Studies. The focus of papers in this Special Issue is on the future challenges and/or future developments Asian Finance. In addition,
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We are pleased to announce the Special Issue on the New Challenges in Asian Capital Markets in the International Journal of Financial Studies. The focus of papers in this Special Issue is on the future challenges and/or future developments Asian Finance. In addition, one article provides a review of the literature on certain issues in relevance to the banking and capital markets in Asia. This Guest Editor’s note synthesizes the contributing authors’ propositions and findings regarding these challenges and developments and hopes that opens new venues for future research directions. Full article
Open AccessArticle
Financial Insights from the Last Few Components of a Stock Market PCA
Int. J. Financial Stud. 2017, 5(3), 15; doi:10.3390/ijfs5030015 -
Abstract
We show that the last few components in the principal component analysis of the correlation matrix of a group of stocks may contain useful financial insights by identifying highly correlated pairs or larger groups of stocks. The results of this type of analysis
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We show that the last few components in the principal component analysis of the correlation matrix of a group of stocks may contain useful financial insights by identifying highly correlated pairs or larger groups of stocks. The results of this type of analysis can easily be included in the information an investor uses to manage an investment portfolio. Full article
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Open AccessReview
The European Insurance Industry: A PEST Analysis
Int. J. Financial Stud. 2017, 5(2), 14; doi:10.3390/ijfs5020014 -
Abstract
The insurance industry plays an important role for European economic stability and the threats and opportunities it faces should be carefully determined. In this paper we highlight the main challenges by using a Political, Economic, Social and Technological (PEST) analysis. This work applies
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The insurance industry plays an important role for European economic stability and the threats and opportunities it faces should be carefully determined. In this paper we highlight the main challenges by using a Political, Economic, Social and Technological (PEST) analysis. This work applies conventional actuarial thought on this area by focusing strictly on the European sector. Full article
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Open AccessArticle
Impacts of Capital Structure on Performance of Banks in a Developing Economy: Evidence from Bangladesh
Int. J. Financial Stud. 2017, 5(2), 13; doi:10.3390/ijfs5020013 -
Abstract
The capital structure decision plays an important role in the performance of a firm. Therefore, there have been many studies inspecting the rapport of capital structure with the performance of firms, although the findings of these studies are inconclusive. In addition, there is
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The capital structure decision plays an important role in the performance of a firm. Therefore, there have been many studies inspecting the rapport of capital structure with the performance of firms, although the findings of these studies are inconclusive. In addition, there is a relative deficiency of empirical studies examining the link between capital structure and the performance of banks in Bangladesh. This study attempts to fill this gap. Using the panel data of 22 banks for the period of 2005–2014, this study empirically examined the impacts of capital structure on the performance of Bangladeshi banks assessed by return on equity, return on assets and earnings per share. The results of the pooled ordinary least square analysis showed that capital structure inversely affects bank performance. The findings of this empirical study are of greater significance for the developing countries like Bangladesh because it calls for the concentration of the bank management and the policy makers to pursue the policies that reduce reliance on debt to achieve the optimal level of capital structure. The results of this study are also analysed in the light of earlier studies. Full article
Open AccessArticle
The ECB’s Fight against Low Inflation: On the Effects of Ultra-Low Interest Rates
Int. J. Financial Stud. 2017, 5(2), 12; doi:10.3390/ijfs5020012 -
Abstract
Starting in June 2014, the European Central Bank (ECB) stepped up its monetary accommodation in order to counter a too prolonged period of low inflation in the euro area. This article offers a narrative of the monetary policy measures taken up to December
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Starting in June 2014, the European Central Bank (ECB) stepped up its monetary accommodation in order to counter a too prolonged period of low inflation in the euro area. This article offers a narrative of the monetary policy measures taken up to December 2016 and a review of the effects of ultra-low interest rates. The exceptional monetary stimulus transmitted to the economy broadly as intended. Moreover, it enhanced the financial capacity of economic agents to bear risks. At the same time, the ECB and the European micro- and macro-prudential authorities remained watchful of the unintended side-effects of an extended period of very low or negative interest rates for financial intermediation, financial stability and market discipline and took preventive or corrective measures as appropriate. A joint plan of action carried out by the 19 member countries with the aim to speed up balance sheet repair, accelerate the economic recovery and achieve higher productivity growth could have contributed to a more effective euro area macroeconomic and financial policy mix. Full article
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Open AccessArticle
Analysis of the Relationship between Ethanol Spot and Futures Prices in Brazil
Int. J. Financial Stud. 2017, 5(2), 11; doi:10.3390/ijfs5020011 -
Abstract
In this work, an investigation and analysis are carried out in order to observe the relationship between ethanol spot and futures prices in Brazil. We adopted the Engle and Granger co-integration approach. Also, we consider the information share method proposed by Hasbrouck in
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In this work, an investigation and analysis are carried out in order to observe the relationship between ethanol spot and futures prices in Brazil. We adopted the Engle and Granger co-integration approach. Also, we consider the information share method proposed by Hasbrouck in order to examine the market efficiency in price discovery and information transmission. Results show that although the futures market is efficient in price discovery and information transmission, the cash market leads the long-run price discovery process. This suggests that the underlying cause of the dominance of the available market over the futures market can be attributed to the market’s relative concentration in wholesale ethanol distribution due to the formation of marketing pools by the ethanol mills, as well as the small number of distributors that control a significant portion of the market share. Full article
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Open AccessArticle
What Should You Pay to Cap your ARM?—A Note on Capped Adjustable Rate Mortgages
Int. J. Financial Stud. 2017, 5(1), 10; doi:10.3390/ijfs5010010 -
Abstract
In this paper, an Adjustable Rate Mortgage (ARM) and a Fixed Rate Mortgage (FRM) are formalized and studied in a simple continuous-time setting under the assumption of a simple one-factor Affine Term Structure (ATS). Through an application of existing results from ATS theory,
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In this paper, an Adjustable Rate Mortgage (ARM) and a Fixed Rate Mortgage (FRM) are formalized and studied in a simple continuous-time setting under the assumption of a simple one-factor Affine Term Structure (ATS). Through an application of existing results from ATS theory, it is shown that when the short rate reaches a certain pre-determined boundary, the constant payment stream on a new FRM equals the payments on an existing ARM. Hereby, this paper provides a theoretical build-in cap on the formalized ARM. The finite boundary for the short-rate suggests that certain caps on ARMs should (in theory) be offered free of charge. Full article
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