Contagion of the Eurozone Debt Crisis

This paper examines the contagion of the eurozone debt crisis to developed and emerging stock markets around the world. Using the VAR methodology, and changes in sovereign bond yields and stock returns of the crisis countries as proxies for the eurozone debt crisis, this paper finds strong and pervasive evidence of negative contagion from the crisis countries to other stock markets. Consistent with risk-on risk-off hypothesis, changes in sovereign bond yields of crisis countries impact stock returns positively during normal times and negatively during the crisis, providing strong evidence of negative contagion. The impact of equity returns of crisis countries on other equity markets is large and positive during normal times and less positive during the crisis, suggesting evidence of negative contagion and decoupling of stock markets during the crisis. The Asian markets do not show pervasive evidence of contagion from the eurozone crisis

Stock Market Liberalization and Return Volatility: Evidence From the Emerging Stock Market of Sri Lanka

This study examines the impact of liberalization of the Sri Lankan stock market on return volatility. We specify GARCH and TGARCH models of volatility, and estimate them using 16 years of weekly returns for the period from 1985 to 2000. The results show that liberalization of the market to foreign investors significantly increased the return volatility in the Colombo Stock Exchange. Both conditional and unconditional volatility measures are the highest in the liberalization period. Negative return shocks lead to lower volatility suggesting that there is no leverage effect, and this appears to reflect the very low levels of leverage used by Sri Lankan companies

Asymmetric Investor Behavior between Buyside and Sellside: Evidence from Investor Classes in the Sri Lankan Stock Market

Using unique trading data for investor classes from Sri Lanka, this study finds asymmetric investor behavior between buyside and sellside in large trades. Investors are positive feedback traders on the buyside and contrarians on the sellside. Domestic investors exhibit more feedback and contrarian behavior than foreign investors, suggesting that foreign investors are more informed on the buyside and less informed on the sellside. Individuals are more feedback and contrarian traders than institutions. Foreign institutional investor sales do not precede, coincide with, or lead to significant returns. Trades do not lead to price momentum or reversals, but leave a permanent positive price effect

Stock market interdependence, contagion, and the U.S. financial crisis: The case of emerging and frontier markets

This paper examines transmission of shocks between the U.S. and foreign markets to delineate interdependence from contagion of the U.S. financial crisis by constructing shock models for partially-overlapping and non-overlapping markets. There exists important bi-directional, yet asymmetric, interdependence and contagion in emerging markets, with important regional variations. Interdependence is driven more by U.S. shocks, while contagion is driven more by emerging market shocks. Frontier markets also exhibit interdependence and contagion to U.S. shocks. Except for Latin America, there is no contagion from U.S. to emerging markets. But there is contagion from emerging markets to the U.S

The Relation Between Trades of Domestic and Foreign Investors and Stock Returns in Sri Lanka

This study investigates the relation between equity flows and returns in Sri Lanka using daily trade data categorized by investor classes. The results show that purchases and sales of domestic and foreign investors, both institutional and individual, are positively related with past returns, except during crisis periods, when they are negatively related. Domestic institutional and foreign individual purchases lead to higher future returns whereas domestic individual purchases lead to lower future returns. Foreign institutional purchases do not impact future returns. Sales by domestic investors have no impact on future returns while sales by foreign investors lead to higher future returns

The Short-run Underpricing of Initial Public Offerings in Sri Lankan Stock Market

The abstract should be a concise 250-300 word summary of the content of the work. This study investigates underpricing of IPOs in Sri Lanka. On average, IPOs are underpriced by 34%. Small issues are more underpriced than large issues, and privatization issues are more underpriced than conventional issues. Investor sentiment is positively related with underpricing and affects small and large issues similarly. Small privatization issues are more underpriced than large privatization issues, and partially explain the asymmetry in underpricing between small and large issues. However, even after controlling for privatization, small issues remain more underpriced than large issues. The results strongly support the uncertainty hypothesis for larger underpricing of small issues and privatization issues

Stocks, Bills and Inflation in Sri Lanka

Stocks, Bills and Inflation in Sri Lank

Asymmetric investor behavior between buyside and sellside: Evidence from investor classes in the Sri Lankan stock market

Using unique trading data for investor classes from Sri Lanka, this study finds asymmetric investor behavior between buyside and sellside in large trades. Investors are positive feedback traders on the buyside and contrarians on the sellside. Domestic investors exhibit more feedback and contrarian behavior than foreign investors, suggesting that foreign investors are more informed on the buyside and less informed on the sellside. Individuals are more feedback and contrarian traders than institutions. Foreign institutional investor sales do not precede, coincide with, or lead to significant returns. Trades do not lead to price momentum or reversals, but leave a permanent positive price effect.Equity flows Positive feedback trading Contrarian trading Foreign investors Domestic investors Emerging markets

The short-run underpricing of initial public offerings in the Sri Lankan stock market

This study investigates underpricing of IPOs in Sri Lanka. On average, IPOs are underpriced by 34%. Small issues are more underpriced than large issues, and privatization issues are more underpriced than conventional issues. Investor sentiment is positively related with underpricing and affects small and large issues similarly. Small privatization issues are more underpriced than large privatization issues and partially explain the asymmetry in underpricing between small and large issues. However, even after controlling for investor sentiment, privatization, hot-market conditions, underwriter-size, and industry, small issues remain more underpriced than large issues. The results strongly support the uncertainty hypothesis for larger underpricing of small issues, and privatization issues.IPOs Underpricing Uncertainty hypothesis Investor sentiment Privatization

The relation between trades of domestic and foreign investors and stock returns in Sri Lanka

This study investigates the relation between equity flows and returns in Sri Lanka using daily trade data categorized by investor classes. The results show that purchases and sales of domestic and foreign investors, both institutional and individual, are positively related with past returns, except during crisis periods, when they are negatively related. Domestic institutional and foreign individual purchases lead to higher future returns whereas domestic individual purchases lead to lower future returns. Foreign institutional purchases do not impact future returns. Sales by domestic investors have no impact on future returns while sales by foreign investors lead to higher future returns.Equity flows Domestic investors Foreign investors Positive feedback trading Contrarian trading