Regulation of securities markets : some recent trends and their implications for emerging markets

Recent rapid changes in the world economy, particularly the transformation of command economies into free market economies in many places around the world, can be expected to lead to an increase in the number of newly created securities markets through the 1990s. This follows a decade of unprecedented change in the world's securities markets. In the 1990s, it is expected that increased attention will be given to newly established and emerging securities markets as a result of the historic movement toward free market economies in central Europe and the Soviet Union and the need for more efficient capital markets to support the expanding role of the private sector in many developing countries around the world. Given the importance of the regulatory environment to capital market development, this paper focuses on the regulatory issues. It examines the interplay between regulation and market efficiency and reviews recent development in regulation, paying particular attention to the experience in the Korean market in the 1980s.Environmental Economics&Policies,Insurance&Risk Mitigation,Insurance Law,Markets and Market Access,Financial Intermediation

Emerging stock markets in the Pacific Basin : An empirical analysis with particular reference to the Korean stock market.

This thesis investigates emerging stock markets in the Pacific Basin with particular reference to the Korean stock market, which is representative of typical, fast-growing emerging markets. Using a broader range of econometric models, the short-run and long-run behaviour of stock prices, the impact of changes of a price limit system, and derivatives trading on the stock market are investigated. In the first two chapters, recent performance of emerging stock markets in the Pacific Basin and the development of the Korean stock market are examined. Chapter 3 investigates the behaviour of Korean stock market volatility is investigated. The results show that the GARCH(1,1)-AR(1) and the GARCH(1,1)-MA(1) seemed to be the best fit models among the Autoregressive Conditional Heteroscedasticity (ARCH) class models. The nexus between Korean stock market returns and macroeconomic variables is investigated in Chapter 5. The evidence suggests that changes in the exports/imports ratio is the most important determinant in forecasting the variance of stock returns in the Korean export-oriented economy. Chapter 6 provides tests of long-run equilibrium among Pacific-Basin stock markets for a period spanning the Asian financial market crises. Using unit root tests, which allow for a possible crash, the results find that four of the series are trend stationary. Among the remaining I(1) series, little evidence of cointegration is found. In Chapter 7, the consequences of price limits for weak-form efficiency is investigated for the first time. The evidence suggests that the stock market as a whole approaches a random walk as price limits are relaxed. Chapter 8 investigates the impact on the spot market of trading in KOSPI 200 futures. Empirical results show that futures trading increases the speed at which information is impounded into spot market prices. The lead-lag relation is asymmetric with stronger evidence that the stock index futures market leads the spot market

The Pricing Behaviors of Stock Index Futures: Some Preliminary Evidence in the Korean Market

This research examines the pricing behaviors of futures contract in the Korean market in its early inception period. This research is mainly organized into three parts. The first chapter investigates the mispricing of futures contract relative to its theoretical value. Consistent with earlier studies regarding futures markets in other countries, futures have been persistently underpriced in the Korean market. Even after accounting for 10 minute execution lag in the arbitrage trading, arbitrage opportunities have been largely unexploited. Market inertia caused by institutional investors\u27 unfamiliarity is presumed to be largely responsible for underpricing of futures. Unfavorable spot market condition also hinders institutional investors from correcting for mispricing by arbitrage transactions. In the second chapter, lead and lag relationship in returns and volatilities between cash and futures markets is investigated. Based upon the Granger causality test, it is found that futures returns tend to strongly lead spot returns over the whole sample period although there is evidence that spot market also leads futures market from time to time. On the other hand, bi-directional causalities in volatility are observed between cash and futures market with strong ARCH and volume effects. In the final chapter, intraday volatility patterns in the Korean market are examined. In addition, volatilities between cash and futures markets are compared using several methods over the sample period. Generally, futures tend to be more volatile than spot. Combined with results obtained in the second chapter, this fact suggests that futures reflect new information more rapidly occurring in the marketplace than spot as Ross (1989) proposes. Finally, the expiration day effect on the spot and futures market volatilities is also investigated. On average, spot market does not display any extreme volatility around the expiration date, but futures tend to be more tranquil as they approach maturity. Overall, the pricing behavior of index futures in the Korean market seems to have followed the same path as recorded in the futures markets of other countries

An Analysis of the Effects of Political Events on Oil Price Volatility and Consequential Spillover Effects on Selected GCC Stock Markets: An Emphasis on the Case of Kuwait

The purpose of this research is to identify how episodes of sustained market uncertainty due to political events can affect oil price behavior and potentially generate spillover effects to the stock markets of Kuwait, the Kingdom of Saudi Arabia (KSA) and the UAE. Three major events associated with significant levels of market uncertainty are examined: the Iraqi invasion of Kuwait in 2003, the Global Financial Crisis (GFC or the US Financial Crisis) in 2008, and the Arab Spring Revolution in 2011 – with the aim of identifying interlinkages between oil prices and the performance of the Kuwaiti, Saudi and the UAE stock markets. The study uses daily data collected from the Kuwait Stock Exchange (KSE), the Saudi Stock Exchange (TASI), the Abu Dhabi Securities Exchange (ADX), the Dubai Financial Market (DFM) and the United States Energy Information Administration (EIA) that were cross-checked with data available on DataStream. Well-known econometric models such as the Vector Autoregressive test, Cointegration tests (e.g. the Engle Granger and Johansen approaches), the Granger causality test and a more up to date model dealing with dynamic causality (frequency domain or spectral causality) were also implemented to help strengthen the research outcomes. The time period under study was conditioned to data availability issues and spanned between 1995 and 2016. The key research findings did not find significant evidence on the existence of a long run association between Brent oil prices and all four major stock price indices. The outcomes in the context of short run dynamics offered richer insights on regional dynamics. In the case of Kuwait, Granger causal effects from Brent returns to stock returns are reported for all cases except for the period of the Arab Spring Revolution. The results in the case of the KSA are similar to those registered for Kuwait with the exception of unidirectional causality running from stock returns to Brent returns during the US Financial Crisis. Dubai and Abu Dhabi exhibit a mixed type of behavior, as for example, in the case of Dubai no causal relationship is found during the Iraqi invasion and the US Financial Crisis. However, in the case of Abu Dhabi there is evidence of unidirectional causality running from Brent to stock returns during the GFC, while stock market returns signal a causal effect on Brent returns during the Arab Spring revolution. The outcomes for dynamic causality indicate that there is evidence of causal effects between the Kuwaiti stock market and Brent during early stages of the analyzed sample that connected to the Iraqi invasion period, and short run dynamics between Brent and stock returns during the GFC. In the case of the KSA, there is no evidence of dynamic causality running from Brent returns to stock returns. On the other hand, the dynamics are quite different when looking at stock returns causal effects on Brent returns, as evidence of a short run association is identified during the three shock events. In the case of the UAE, there is evidence of unidirectional causality from stock returns to Brent returns during the Iraqi invasion period. The outcomes for the volatility analysis (GARCH modeling) report stable results for the full sample period. However, when shock events are considered the GARCH model is not able to capture volatility effects and exhibits explosive behaviour for all countries and periods except for the case of Abu Dhabi, where the model remains stable during the Iraqi invasion and the Arab Spring revolution. The overall research findings indicate the existence of short-run dynamics between oil and the analysed stock markets in the Gulf Cooperation Council (GCC) region with lack of evidence on the existence of a long run relationship. The research outcomes from this thesis are significant for market players, governments and policy makers who should consider monitoring closely the relationship between oil and stock markets in the GCC region, as they are exhibiting dynamic behaviour in a context of oil dependent economies

Essays on Corporate Finance Issues

This dissertation consists of two essays on corporate finance issues. In the first essay (Chapter 1), I explore whether business group affiliations affect the covariance structure of stock returns in Korea. I find that the stock returns of firms belonging to the same business group show positive and significant comovement. The strong comovement between group returns and firm returns is explained by correlated fundamentals. I find strong comovement among business group affiliate earnings. Moreover, variance decomposition of returns shows that cash flow news plays a relatively more important role in explaining group comovement than discount rate news, suggesting a link between stock return comovement and the “tunneling” and “propping” behaviors of business groups. Finally, return comovement increases when a firm joins a business group. In the second essay I show that, based on the decomposition of a model\u27s R2, latent manager qualities play a less important role than firm qualities in explaining the variation in innovation productivity. Labor economists argue that the average ability of managers who are raided should be higher than the average ability of managers who die suddenly. Our results show that the average change in innovation productivity following manager raids is not significantly different from that following manager deaths. The difference in abnormal returns surrounding manager raids between high and low innovation firms is similar to that surrounding manager sudden deaths. Assuming that exceptionally innovative managers are scarce, our results imply that managerial ability to promote innovation is not a sufficient determinant of manager quality. Overall, our evidence suggests that firm attributes matter more for stimulating corporate innovation than managerial attributes

A test of the value relevance of financial indicators and macroeconomic factors to the performance of Chinese stock market

1 online resource (iii, 41 p.)Includes abstract.Includes bibliographical references (p. 38-41).This paper firstly aims to investigate how certain essential financial indicators, such as P/E ratio, P/B ratio, earning per share (EPS), and book value per share (BVPS) are associated with the Chinese stocks’ performance measured by abnormal return and price. I used two models (the P/E-P/B model and the Ohlson (1995) model) to estimate the relationship between abnormal returns and financial indicators, amidst which the first model uses the abnormal return as a dependent variable and the other uses the price as an explained variable. Secondly, the study of this paper will move from firm-specific factors to macroeconomic factors to discuss how Chinese stock prices have been affected by macroeconomic variables using a linear multi-variables model. For the analysis, five macroeconomic variables, namely the inflation rate, the M2 supply, the long-term interest rate, the exchange rate, and the expected GDP growth rate were taken into consideration. Regarding the contribution of this paper, it measures the value relevance of accounting information by testing the efficiency of the strategy that investors, with the expectation of earning abnormal return and beating the market, purchase undervalued stocks identified by low P/E and P/B ratios. Besides, this paper simultaneously considered firm specific information and macroeconomic variables and found out what kind of indicators (firm-specific indicators or macroeconomic indicators) are more influential on the performance of Chinese stock market, while previous studies solely focus on either decisive issues. Chinese investors, therefore, can get an insight from this research in whether firm-specific factors or macroeconomic factors are more reliable for decision- making

Price and volatility behaviour of four Asian stock markets

The past ten years have witnessed many changes in the Asian economies and stock markets, particularly in the Four Tigers, Hong Kong, Singapore, South Korea and Taiwan. They enjoyed economic growth well above the world average during the late 1980s and early 1990s. There were sharp increases in their stock market capitalisations against the background of low growth and low interest rates in the US and European countries in the early 1990s. This coincided with the time when measures to liberalise these markets were implemented to allow or attract foreign direct investments in their stock markets. Then by mid 1997, both their economies and stock markets began to slump. This ten year time period thus provides a good opportunity to examine how such economic and institutional changes affected the price and volatility behaviour of the Four Tigers and their relationships with other markets. Overall, the findings of the thesis suggest that with the increase in foreign participation in the four individual markets, the influence of noise trading activities has been reduced through more and better informed trading. However, their relationships with three world major markets, the US, the UK and Japan, are not getting much stronger. There is no evidence to suggest that their prices are being increasingly led by the world markets, nor is their volatility becoming more sensitive to foreign news. Their price and volatility relationships with three regional markets, Thailand, Malaysia and Indonesia, were not particularly strong either, until recently, when the Asian financial crisis has made them more responsive to shocks from one another. The message to the governments of the Four Tigers is clear. Foreign direct equity investments have not destabilised their stock markets. Instead, the mismanagement of their own and/or their trading partners' economies should be held more responsible

Three empirical studies on market efficiency – evidence from the Pakistan stock exchange

The thesis is comprised of three interrelated empirical chapters on the Pakistan stock exchange which effects on the market efficiency. In the first empirical chapter, ‘Is the Market Efficient – Evidence from Pakistan stock exchange’. It is evaluating the short and long run market efficiency of the stock market from the period of Jan-2005 to Dec-2014. The chapter examines the market efficiency through using notable methodology of event study and also implementing the parametric and non-parametric test such as CAAR, t-test, Patell Z, Boehmer et al., Corrado rank and sign test. Within the chapter I have arranged the dataset based on firm size in order to evaluate whether the top 25% companies have more influence on market price in comparison with bottom 25% companies. Moreover, my data set also used the technique of market efficiency curve where my analysis is giving understanding of market reaction either it is over reacting or slow response towards the dividend announcement information. Another useful technique also implemented on the dividend announcement to identify the respective information as the good news, bad news or neutral. The results indicate strong evidence in support of dividend announcement towards market reaction. The results from this chapter show evidence in support of weak form of market efficiency in the context of the Pakistan stock exchange.The next empirical chapter entitled “Implementation of new price impact ratios: Evidence from the Pakistan stock Exchange” examines the liquidity measures, and, getting inspiration of the recent research of Florackis et al. (2011). The empirical chapter analyse two latest liquidity measures developed by Amihud (2002) return-to-volume (RtoV) and Florackis et al. (2011) return-to-turnover (RtoTR). Both the measures implemented into the Pakistan stock exchange. The results are more align with Florackis et al. (2011) (RtoTR) which suggests that lower RtoTR values indicates higher returns in contrast of high RtoTR ratio. Moreover, the results are also consistent with the work of Florackis et al. (2011) and Amihud and Mendelson (1986a) where trading frequency and trading cost are important features for evaluating the returns. In addition, the findings relating to RtoV ratio indicates the negative correlation with market capitalisation which explains that small stocks are illiquid.In the third empirical chapter, “Market Efficiency and Anomalies: Evidence from the Pakistan Stock Exchange” analysis is based on examining any existence of market anomalies in the Pakistan stock exchange. The analysis is considering three major anomalies i.e. day of the week effect which includes weekend effect as well, month of the year effect and holiday effect in Pakistan stock market. The importance of the particular study is to scrutinise the market anomalies by using one data set through implementation of ARCH and GARCH models. The results indicate that Pakistan stock exchange has a seasonality effect on weekend (Friday), Monday and Tuesday. The major anomalies exist in the month of August which explains the year end effect and in Pakistan the tax year ends in the month of June, additionally the announcement of budget from Government announced during the June (Federal) and July in (Provinces). However, holiday effect has no particular trend in the Pakistan stock market