Analyzing frequent acquires in emerging markets and futures markets linkage

The first chapter of this dissertation examines the returns to frequent acquirers from emerging markets and analyzes the cross-country variations in cumulative abnormal returns. The sample consists of 5,147 transactions carried out by firms from 17 common and civil-law countries during the period of January 1985 to June 2008. I find that the cumulative abnormal returns decline over the deal order and it is more pronounced in civil-law countries than in common-law countries. There is also evidence that the premiums paid by acquirers from civillaw countries with a first successful acquisition are higher than those from common-law countries. These findings are consistent with agency problems and the hubris hypothesis, first introduced by Roll (1986). The second chapter examines the information links across futures markets in different nations, using Vector Autoregressive (VAR)-Dynamic Conditional Correlation (DCC) model. The data comprise a large set of commodity and financial futures traded in U.S., U.K., China, Japan, Canada, and Brazil during the period from August 1998 to December 2008. The primary finding is that market interactions are relatively high for commodities for which information production generally is more diverse (metal commodities), while moderate for commodities for which information is more concentrated (agricultural commodities). Furthermore, the strength and persistence of interactions among futures markets decline after excluding the most informative markets. These findings indirectly support the breadth of information being a relevant factor in the extent of information linkage. The results also indicate that the dynamic correlation in futures markets is high in most commodity and financial futures if there is a significant bi-directional return and volatility spillover. Additionally, I estimate a market’s contribution to the price discovery process. In general, the market that has a stronger price impact and a stronger volatility spillover tends to be the market that has greater contribution or leadership in price discovery

Analyzing frequent acquires in emerging markets and futures markets linkage

The first chapter of this dissertation examines the returns to frequent acquirers from emerging markets and analyzes the cross-country variations in cumulative abnormal returns. The sample consists of 5,147 transactions carried out by firms from 17 common and civil-law countries during the period of January 1985 to June 2008. I find that the cumulative abnormal returns decline over the deal order and it is more pronounced in civil-law countries than in common-law countries. There is also evidence that the premiums paid by acquirers from civil-law countries with a first successful acquisition are higher than those from common-law countries. These findings are consistent with agency problems and the hubris hypothesis, first introduced by Roll (1986). The second chapter examines the information links across futures markets in different nations, using Vector Autoregressive (VAR)-Dynamic Conditional Correlation (DCC) model. The data comprise a large set of commodity and financial futures traded in U.S., U.K., China, Japan, Canada, and Brazil during the period from August 1998 to December 2008. The primary finding is that market interactions are relatively high for commodities for which information production generally is more diverse (metal commodities), while moderate for commodities for which information is more concentrated (agricultural commodities). Furthermore, the strength and persistence of interactions among futures markets decline after excluding the most informative markets. These findings indirectly support the breadth of information being a relevant factor in the extent of information linkage. The results also indicate that the dynamic correlation in futures markets is high in most commodity and financial futures if there is a significant bi-directional return and volatility spillover. Additionally, I estimate a market’s contribution to the price discovery process. In general, the market that has a stronger price impact and a stronger volatility spillover tends to be the market that has greater contribution or leadership in price discovery. Keywords. Frequent acquirers, hubris, agency problem, emerging markets, CAR, futures markets, breadth of information, price discovery, Dynamic Conditional Correlatio

Forecasting Volatility: Evidence from the Saudi Stock Market

The purpose of this paper is to evaluate the forecasting performance of linear and non-linear generalized autoregressive conditional heteroskedasticity (GARCH)⁻class models in terms of their in-sample and out-of-sample forecasting accuracy for the Tadawul All Share Index (TASI) and the Tadawul Industrial Petrochemical Industries Share Index (TIPISI) for petrochemical industries. We use the daily price data of the TASI and the TIPISI for the period of 10 September 2007 to 26 February 2015. The results suggest that the Asymmetric Power of ARCH (APARCH) model is the most accurate model in the GARCH class for forecasting the volatility of both the TASI and the TIPISI in the context of petrochemical industries, as this model outperforms the other models in model estimation and daily out-of-sample volatility forecasting of the two indices. This study is useful for the dataset examined, because the results provide a basis for traders, policy-makers, and international investors to make decisions using this model to forecast the risks associated with investing in the Saudi stock market, within certain limitations

New evidence on fund performance in extreme events

Purpose: The purpose of this paper is to compare the return performance and persistence of ethical and conventional mutual funds during two extreme events, the Asian and the global financial crises under Shariah constraints. Design/methodology/approach: The overall sample comprises of 129 Islamic mutual funds (IMFs) and 350 conventional mutual funds (CMFs) in Malaysia, and the average monthly data cover two periods of market cycles, before and during a financial crisis. The net of all expenses data is obtained from the Morningstar Database. This study employs various market risk-adjusted performance measures (ratios) to estimate the funds’ overall performance during the crises, and then it uses CAPM model to estimate the parameters via panel data approach. Moreover, paper employs the two persistence performance measures on IMFs and CMFs through contingency tables. It tests for the performance persistence effects for IMFs, CMFs using repeat winner and the cross-product ratio (CPR) tests proposed by Malkiel (1995) and Brown and Goetzmann (1995), respectively. Findings: The main findings of the paper are: on average, both funds IMF and the CMF outperform the market return during the entire sample period; none of the funds is better than the “others” during the financial crises and the pre-crisis periods; the ethical fund – IMF outperforms the CMF over the study period. This outcome also indicates that ethical funds are more persistent especially during and the pre-crisis AFC and the GFC periods. Research limitations/implications: The finding of this study is limited to only Malaysian data because the objective was to guideline investors and market players in Malaysia to prefer investing in Islamic ethical funds to diversify their investment portfolio. Practical implications: Cautions to use existing ratio measures and CAPM model rather persistence measures may be used with existing methodologies in light of extreme events which influenced investor decision making for better returns at lower risks. Social implications: A class of ethical funds consists of religious sustainable, socially responsible and impact-investing (SRI) funds but Shariah implications of halal investment must be observed to avoid prohibited practices within the class of SRI funds. Originality/value: The work done in this paper are original in the sense that the authors employed various ratios to measure fund performance in conjunction with CAPM model and then tested for two persistence performance measures; the repeat winner and CPR tests. © 2019, Emerald Publishing Limited

Developments in Risk Management in Islamic Finance: A Review

The purpose of this study is to review recent developments pertaining to risk management in Islamic banking and finance literature. The study explores the fundamental features of risks associated with Islamic banks (IBs) as compared to those associated with conventional banks (CBs) in order to determine the extent to which IBs engage in effective risk mitigation. The study includes a consideration of the major studies in which the fundamental features of Islamic banks and finance (IBF) and the main characteristics of risk management in IBs are analyzed in comparison with those of CBs. Specifically, these two kinds of banks are compared in relation to the types of risks faced, the characteristics of those risks, and the nature and extent of exposure to those risks. A tabular methodology approach is used in concert with a comparative literature review approach for the analysis. The results show that there is weak support for Shariah-based product development due to the lack of risk mitigation expertise in IBs. The conclusion presented is that in comparison with CBs, IBs are more risk-sensitive due to the nature of their products, contract structure, legal costing, governance practices, and liquidity infrastructure. Furthermore, the determinants of the credit risk of Islamic banks in Malaysia (MIBs) are examined. Overall, bank capital and financing expansion have a significant negative impact on the credit risk level of IBs in Malaysia