Where do Australians invest?

The rapid increase in international capital flows is one of the most significant developments in the global economy in recent decades. International portfolio diversification brings potential benefits to investors by offering investors the opportunity to insulate their portfolios from domestic risks associated with a down turn in local asset prices. The Australian investment environment has been progressively liberalised beginning with the removal of foreign exchange controls in 1987, and the movement to a floating exchange rate regime, other milestones included opening up the banking sector to foreign competition. Until recently, data on the level and geographical pattern of international portfolio investment has been inadequate. In recognition of this fact the International Monetary Fund (IMF) commenced in the mid nineties a pioneering comprehensive survey of the geographic structure of the foreign portfolios (equity and long-term bonds). The first publication covered the 1997 position of foreign portfolios held by the residents of twenty-nine countries, including Australia (IMF 2000), data from a follow up survey relating to 2001 international portfolio holdings was made available in 2003. In this paper we analyse the Australian data reported in the surveys by providing an analysis of the geography of international portfolio investment (equity and long-term securities). We find that countries most open to trade and hence most vulnerable to external shocks tend to diversify more by holding a higher percentage of their portfolios in foreign assets, compared to other countries. Australia appears to be quite outward looking in its investment behaviour, suggesting that Australian investors recognise the advantages of international diversification. However, a cross country analysis of the pattern of international portfolio investment indicates that the Australian portfolio investment position is not proportional to the overall economic or financial market size of the destination countries global standing, but instead matches Australian trade patterns surprisingly closely, here the US is over represented in the case of Australia's international portfolio investment position. Does this reflect a preference for investing in countries made familiar by trade and other relations? If so, this portfolio may imply sub-optimal strategies by Australian investors

Foreign Bias in Australian Domiciled Mutual Fund Holdings

The paper develops foreign equity bias measures for Australian domiciled mutual funds, which invest in 41 countries worldwide, over the period 2002 to 2012, by employing various models i.e. International Capital Asset Pricing, Mean-Variance, Minimum-Variance, Bayes-Stein, Bayesian and Multi-Prior. The Bayesian measures that take into account various degrees of mistrust in ICAPM have lower values of foreign equity bias as compared to ICAPM. The Bayesian measures suggest that Australian domiciled mutual funds prefer investing in U.S., U.K., Japan and other developed countries. Paper finds that the plausible sources of foreign equity bias are GDP per capita, exchange rate volatility, foreign listing, tax credit, global financial crisis and stock market development, familiarity, institution and stock characteristic variables. There are policy implications associated with foreign bias

Foreign Bias in Australian Domiciled Mutual Fund Holdings

The paper develops foreign equity bias measures for Australian domiciled mutual funds, which invest in 41 countries worldwide, over the period 2002 to 2012, by employing various models i.e. International Capital Asset Pricing, Mean-Variance, Minimum-Variance, Bayes-Stein, Bayesian and Multi-Prior. The Bayesian measures that take into account various degrees of mistrust in ICAPM have lower values of foreign equity bias as compared to ICAPM. The Bayesian measures suggest that Australian domiciled mutual funds prefer investing in U.S., U.K., Japan and other developed countries. Paper finds that the plausible sources of foreign equity bias are GDP per capita, exchange rate volatility, foreign listing, tax credit, global financial crisis and stock market development, familiarity, institution and stock characteristic variables. There are policy implications associated with foreign bias

Does financial integration impact performance of equity anomalies?

We examine prominent market anomalies and evaluate the efficacy of alternative asset pricing models under different financial integration settings. A financial integration index is developed for classifying 25 sample markets into high-, medium- and low integration groups. Size is found to be the strongest anomaly in world markets, followed by value and liquidity. Value and profitability effects are larger for low-integrated markets. Highly integrated markets experience short-term momentum while many low-integrated markets exhibit mild reversals. Fama and French five-factor model outperforms capita l asset pricing model (CAPM) and Fama and French three-factor model in explaining returns. International factors augment the role of local factors for more integrated markets. Our study has implications for global investors to design anomaly based investment strategies

Taxation of Domestic Dividend Income and Foreign Investment Holdings

In this paper it is argued that the heavier is domestic taxation of domestic dividend income, the more attractive is foreign investment to domestic agents. Dividend imputation schemes play an important role in this discussion. Dividend imputation eliminates the double taxation of domestic income, reduces the effective tax rate on domestic investment and makes investment in foreign securities less attractive. A fall of 10% in effective tax rate on domestic dividend income reduces foreign equity investment by about 5%. Domestic investors paid dividends under a dividend imputation system receive a credit for the tax paid at the company level and this reduces the effective tax rate. Cross-border equity investment is increased if tax credit rises for taxes paid overseas. Empirical analysis is based on bilateral investments among 23 mature economies over 2001-2011. Results are robust to consideration of the global financial crisis and the role of double taxation treaties

Taxation of Domestic Dividend Income and Foreign Investment Holdings

In this paper it is argued that the heavier is domestic taxation of domestic dividend income, the more attractive is foreign investment to domestic agents. Dividend imputation schemes play an important role in this discussion. Dividend imputation eliminates the double taxation of domestic income, reduces the effective tax rate on domestic investment and makes investment in foreign securities less attractive. A fall of 10% in effective tax rate on domestic dividend income reduces foreign equity investment by about 5%. Domestic investors paid dividends under a dividend imputation system receive a credit for the tax paid at the company level and this reduces the effective tax rate. Cross-border equity investment is increased if tax credit rises for taxes paid overseas. Empirical analysis is based on bilateral investments among 23 mature economies over 2001-2011. Results are robust to consideration of the global financial crisis and the role of double taxation treaties

Global and Regional Volatility Spillovers to GCC Stock Markets

This paper examines the effects of return spillovers from regional (Saudi Arabia) and global (US) markets to GCC stock markets (Bahrain, Oman, Kuwait, Qatar, United Arab Emirates). The paper develops various bivariate GARCH models for regional and global returns: BEKK, constant correlation and dynamic correlation. The specification tests are used to choose between the models with and without asymmetric effects. The estimated innovations for the regional and global returns are then used as input for the univariate volatility spillover model which allows the unexpected returns of any particular GCC stock market be driven by three sources of shocks: local, regional from Saudi Arabia and global from US. We find significant return spillover effects from Saudi Arabia and US to GCC markets. Trade, turnover and institutional quality has significant impacts on regional volatility spillovers from Saudi Arabia to GCC markets. There are macroeconomic policy implications associated with the strengthening of intra-regional and cross-border trade in goods, services and assets and regulatory framework

Global and Regional Volatility Spillovers to GCC Stock Markets

This paper examines the effects of return spillovers from regional (Saudi Arabia) and global (US) markets to GCC stock markets (Bahrain, Oman, Kuwait, Qatar, United Arab Emirates). The paper develops various bivariate GARCH models for regional and global returns: BEKK, constant correlation and dynamic correlation. The specification tests are used to choose between the models with and without asymmetric effects. The estimated innovations for the regional and global returns are then used as input for the univariate volatility spillover model which allows the unexpected returns of any particular GCC stock market be driven by three sources of shocks: local, regional from Saudi Arabia and global from US. We find significant return spillover effects from Saudi Arabia and US to GCC markets. Trade, turnover and institutional quality has significant impacts on regional volatility spillovers from Saudi Arabia to GCC markets. There are macroeconomic policy implications associated with the strengthening of intra-regional and cross-border trade in goods, services and assets and regulatory framework

Thematic analysis of big data in financial institutions using NLP techniques with a cloud computing perspective : a systematic literature review

This literature review explores the existing work and practices in applying thematic analysis natural language processing techniques to financial data in cloud environments. This work aims to improve two of the five Vs of the big data system. We used the PRISMA approach (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) for the review. We analyzed the research papers published over the last 10 years about the topic in question using a keywordbased search and bibliometric analysis. The systematic literature review was conducted in multiple phases, and filters were applied to exclude papers based on the title and abstract initially, then based on the methodology/conclusion, and, finally, after reading the full text. The remaining papers were then considered and are discussed here. We found that automated data discovery methods can be augmented by applying an NLP-based thematic analysis on the financial data in cloud environments. This can help identify the correct classification/categorization and measure data quality for a sentiment analysis