Small Firm Effect, Liquidity and Security Returns: Australian Evidence

Standard asset pricing models ignore the costs of liquidity. In this study we advance the ongoing debate on empirical asset pricing and test if liquidity costs (as proxied by turnover rate, turnover ratio and bid-ask spread) affect stock returns for Australian stocks. Our tests use the factor portfolio mimicking approach of Fama and French (1993, 1996). We find small and less liquid firms generate positive risk premia after controlling for market returns and firm size. We find no evidence of any seasonal effects that can explain our multifactor asset pricing model findings. In summary, our study provides support for a broader asset-pricing model with multiple risk factors.Liquidity, Turnover, Asset Pricing, and Closing Bid-Ask Spread

Capital account liberalization in China: the need for a balanced approach

This repository item contains a single issue of the Pardee Center Task Force Reports, a publication series that began publishing in 2009 by the Boston University Frederick S. Pardee Center for the Study of the Longer-Range Future.This is the third report stemming from the Pardee Center Task Force on Regulating Capital Flows for Long-Run Development, a project of the Global Economic Governance Initiative (GEGI) at Boston University. This report is the collective work of experts examining the benefits and risks of accelerated capital account liberalization in China. The contributing authors – all leading scholars and practitioners from around the world (listed below) – met at Boston University in February 2014 to discuss the experiences of other emerging market countries that liberalized the capital account to glean lessons for China as it considers this delicate task. This volume is an outcome from that meeting, presenting the authors’ perspectives on important aspects of capital account liberalization that China should pay special attention to, not only for its own sake, but also in consideration of the potential impacts that China’s actions may have on other emerging markets and the global economy overall

In Trusts We Trust: Pension Funds Between Social Protection and Financial Speculation.

les réformes européennes des retraites ont pris pour référence le système américain. cet article propose de comprendre les origines d'une telle croyance persistante dans les vertus des fonds de pension. l'analyse met en évidence le rôle joué par leur structure juridique, le trust, dans la légitimation de la "pension industry".Recent reforms of European pension schemes have largely taken the American system as a reference.The remarks which follow are aimed at understanding the origins of such a persistent belief in the virtues of the pension funds. The analysis brings out the role played by their legal structure, the trust, in the legitimisation of the ‘pension industryFonds de pension; Trust;

Value At Risk and Expected Returns of Portfolio (Companies Listed on LQ45 Index Period 2013–2016)

The objective of this research is to investigate whether there is a positive relationship between Value at Risk and Expected Portfolio Returns on the Indonesia Stock Exchange. The population of this research is companies listed on the LQ45 index for the period 2013–2016, and the sample is 20 companies that meet the criteria. Markowitz method was used to form 65 portfolios; each consists of a combination of two stocks that have a negative correlation. The result shows that there is no positive relationship between Value at Risk and Expected Portfolio Returns. On the contrary, the correlation coefficient indicated that there is a negative relationship between the variables, which means that there is an inverse relationship (high return low risk, and vice versa). It proves that the assumption of a rational investor is avoiding risk (risk averse). This result is also supported by the findings from Schroders Global Investment Trends Survey 2015, which shows that 63% of investors in Indonesia prefer to allocate their investments in instruments with low- and medium-risk levels. However, it does not mean that the concept of high-risk high-return is not applicable in Indonesia because the result is not significant.     Keywords: Value at Risk, Markowitz Method, Expected Return Portfoli

The System of Corporate Governance in Kyrgyzstan

The paper is devoted to formation of the modern corporate governance system in Kyrgyz Republic. The main factors that influence this process have been studied, e.g., legal background and practice of privatization; corporate and antimonopoly law; financial markets; stakeholders activities, etc. The authors conclude that there were significant positive changes in the sphere of corporate governance in Kyrgyzstan. First of all it should be marked that in the country that had no previous experience of private property and market, institutions of corporate governance were formed, there was a process of learning of both owners and managers how to govern the company using the available set of laws and regulations. But this process is far from being complete, since the real corporate relations are still very dysfunctional. In the authors’ opinion, improvement of corporate governance in the country requires a complex approach: upgrading of legislation must be accompanied by active measures aimed at improving the situation in all spheres that influence the quality of corporate governance. The main task in this sphere is creation of favorable legal and institutional climate which would lead to improvement of common norms of corporate governance and to attraction of external investments.corporate governance, privatization, ownership structure, transition economy, Kyrgyzstan

Corporate ‘excesses’ and financial market dynamics

The recent corporate failures in the US and in Europe have considerably damaged investors’ confidence in the functioning of financial markets and the ability of the regulatory framework to safeguard their interest and prevent fraud. These episodes demonstrate that market failures exist, which can undermine the effectiveness of market discipline to ensure the appropriate allocation of capital. Specifically the paper considers four particular features of financial markets that may have given rise to market failures: (a) perverse incentives/conflict of interests, (b) destabilising trading/investment strategies, (c) lack of disclosure/transparency and (d) concentrated versus fragmented ownership structures. The paper reviews the theoretical arguments and empirical evidence related to these four possible types of market failures, illustrating these with evidence drawn from the most recent corporate scandals. The last part of the paper is devoted to the policy responses both in the US and in Europe to prevent these failures.

Investment Games

Popular zero-commission stock trading apps like Robinhood innovate in user-experience design, featuring “gamification” practices—flashy graphics, leaderboards, and the like—that make it attractive, easy, and fun to trade stocks. Regulators are increasingly scrutinizing gamification and other digital engagement practices, with efforts underway at the SEC to adopt rules in broker-dealer and investment-advisor regulation. This attention reflects considerable skepticism about gamification in securities markets. At best, these practices encourage motivation and engagement, and democratize access to financial markets. But at worst, these practices encourage people to trade habitually and unreflectively, and more than they might want. This can lead to undesirable market-wide effects, like distorting the process by which markets allocate investment capital to firms and projects that will grow the real economy, as well as socially wasteful (and individually harmful) excessive trading. And given that interventions in retail investor choice have significant implications for market quality and wealth inequality, regulatory responses here are a high stakes matter for society broadly. Calls to regulate gamification highlight a tension at the core of securities markets. Securities law has largely ceded the field of market structure to the interests of sophisticated financial intermediaries in producing liquidity and price discovery. By permitting gamification practices that encourage active trading for the primary benefit of financial intermediaries, securities law subordinates its investor protection function to encourage wasteful investment in achieving eversmaller improvements in liquidity and price discovery. Regulatory intervention would be socially desirable, I argue, not just given what we know about retail trader behavior and its effects on personal finance and markets—but because it is an opportunity for securities law to recalibrate away from an all-out arms race in arbitrage. This Article takes up the problem of gamification and related digital engagement practices. It considers how gamification is the nearly inevitable consequence of the rise of retail investors who trade without superior information about a stock’s fundamental value, competition on brokerage commissions, and a fragmented market structure. Yet calls for regulatory interventions often elide important distinctions between how securities law should treat active traders who prefer risk, and those with preferences distorted by gamification. This Article explains how we got here; examines the social-welfare case for regulating gamification and related digital engagement practices; offers a typology of techniques that securities regulators can adopt in response; and assesses these interventions against existing securities law doctrine and policy. This Article also considers how the securities laws’ tenuous relationship with innovative stock-market technology shapes how retail investors engage with financial markets

Investor sentiment and herding - an empirical study of UK investor sentiment and herding behaviour

The objectives of this thesis are: first, to investigate the impact of investor sentiment in UK financial markets in different investment intervals through the construction of separate sentiment measures for UK investors and UK institutional investors; second, to examine institutional herding behaviour by studying UK mutual fund data; third, to explore the causal relation between institutional herding and investor sentiment. The study uses US, German and UK financial market data and investor sentiment survey data from 1st January 1996 to 30th June 2011. The impact of investor sentiment on UK equity returns is studied both in general, and more specifically by distinguishing between tranquil and financial crisis periods. It is found that UK equity returns are significantly influenced by US individual and institutional sentiment and hardly at all by local UK investor sentiment. The sentiment contagion across borders is more pronounced in the shorter investment interval. The investigation of institutional herding behaviour is conducted by examining return dispersions and the Beta dispersions of UK mutual funds. Little evidence of herding in return is found, however strong evidence of Beta herding is presented. The study also suggests that beta herding is not caused by market fundamental and macroeconomic factors, instead, it perhaps arises from investor sentiment. This is consistent between closed-end and open-ended funds. The relation between institutional herding and investor sentiment is investigated by examining the measures of herding against the measures of investor sentiment in the UK and US. It suggests that UK institutional herding is influenced by investor sentiment, and UK institutional sentiment has a greater impact as compared to UK market sentiment. Open-end fund managers are more likely to be affected by individual investor sentiment, whereas closed-end fund managers herd on institutional sentiment