Political orientation of government and stock market returns

Prior research documented that U.S. stock prices tend to grow faster during Democratic administrations than during Republican administrations. This letter examines whether stock returns in other countries also depend on the political orientation of the incumbents. An analysis of 24 stock markets and 173 different governments reveals that there are no statistically significant differences in returns between left-wing and right-wing executives. Consequently, international investment strategies based on the political orientation of countries' leadership are likely to be futile.Stock market returns; Politics; Presidential puzzle

Errors in estimation of cost of capital in investment appraisal and their significance

In order to check out the significance of errors in the estimation of capital cost in investment appraisal, the simulation experiment has been presented in the paper. On the basis of the simulated development of the comparable firms, we have compared the end values of two simulated companies. Both companies encountered the same investment projects but they assess them differently – one firm with the proper cost of capital and the other with the cost of capital two times higher than it should use. The difference between the end value of such companies were not significant for firms which encounter many profitable investment projects (difference of only 3.3% in the company value after 25 years) and slightly higher for the companies which encounter more projects whose value is positive but is only slightly higher than zero (difference of 39.3% in the company value). Therefore, the significance of proper cost of capital estimation is more important for bigger firms in older economy segments which encounter lack of many highly profitable projects. This outcome is consistent with the pattern of use of advanced investment appraisal methods observed in the practice.estimation of cost of capital, investment appraisal

Stock market volatiltity around national elections

This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the country-specific component of index return variance can easily double during the week around an Election Day, which shows that investors are surprised by the election outcome. Several factors, such as a narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets.Political risk; National elections; Stock market volatility

Stock Market Volatility around National Elections

This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the countryspecific component of index return variance can easily double during the week around an Election Day, which shows that investors are surprised by the election outcome. Several factors, such as a narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets. --Political risk,National elections,Stock market volatility

Piety and Profits: Stock Market Anomaly during the Muslim Holy Month

Observed by more than 1.5 billion Muslims, Ramadan is one of the most celebrated religious rituals in the world. We investigate stock returns during Ramadan for 14 predominantly Muslim countries over the years 1989-2007. The results show that stock returns during Ramadan are almost nine times higher and less volatile than during the rest of the year. No discernible difference in trading volume is recorded. We find these results consistent with a notion that Ramadan positively affects investor psychology, as it promotes feelings of solidarity and social identity among Muslims world-wide, leading to optimistic beliefs that extend to investment decisions.Ramadan Effect; Behavioral Finance; Market Efficiency; Religion

Political Orientation of Government and Stock Market Returns

Prior research documented that U.S. stock prices tend to grow faster during Democratic administrations than during Republican administrations. This letter examines whether stock returns in other countries also depend on the political orientation of the incumbents. An analysis of 24 stock markets and 173 different governments reveals that there are no statistically significant differences in returns between left-wing and right-wing executives. Consequently, international investment strategies based on the political orientation of countries' leadership are likely to be futile. --Stock market returns,Politics,Presidential puzzle

The relationship between insider trading and volume-induced return autocorrelation

As was establihed in Llorenteetal (2001) the dynamic relationship between return and volume is a function of information asymmetry. This study extends their analysis by linking the volume induced return auto correlarion coefficients with the level of disclosed insider trading. Using New Zealand data, we document a strong link between the sustainability of tradegenerated price changes and the extent of insidertrading. This relationship is robust to alternative econometric specifications and remains significant even after controlling for conventional measure of information asymmetry such as bid-ask spreads size ananalyst following. This suggests that volume induced autocorrelation may be a suitable criterion on which to rank firms on the level of private information trading. --Insidertrading,return autocorrelation

Stock Market Volatility around National Elections

This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the countryspecific component of index return variance can easily double during the week around an Election Day, which shows that investors are surprised by the election outcome. Several factors, such as a narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets

The Impact of the Securities Market Amendment Act 2002 on Insider Trading in New Zealand

Insider trading has a number of harmful effects that can result in financial market distortions reducing its efficient functioning. Much of this harm comes from the large profits insiders expropriate from small investors and the resulting loss of confidence in the market by the investing community. This causes investors to reduce investment and participation in the market and imposes higher risk premiums and transaction costs on share prices to compensate for the added risk of trading against an insider. Studies have however shown that the regulatory regime of a country can impact on the degree of harm suffered by a market from the presence of insiders.However perceptions and commentaries on the laws governing insider trading in New Zealand over the past decade and a half have been generally dismissive. These views in no small part have been driven by the lack of successful enforcement since their introduction in 1988 despite a number of high profile situations that have reinforced the belief that insider trading is rife in the market. Etebari Tourani-Rad and Gilbert (2004) also showed that under the previous regime insider's trades earned profits that were significantly higher than both those of ordinary investors as well as insiders from more effectively regulated markets. To rectify this problem the Securities Market Amendment Act 2002 was enacted targeting the major weaknesses of the previous law. The new law now requires all corporate insiders executives directors and substantial shareholders to disclose details of their transactions within 5 working days and allows the Securities Commissions to prosecute an insider. These changes should reduce the amount of insider trading and therefore improve confidence in the New Zealand Stock Exchange. This paper examines the effect that these changes have had on the structure of the New Zealand market to see if the changes have been effective

The relationship between insider trading and volume-induced return autocorrelation

As was establihed in Llorenteetal (2001) the dynamic relationship between return and volume is a function of information asymmetry. This study extends their analysis by linking the volume induced return auto correlarion coefficients with the level of disclosed insider trading. Using New Zealand data, we document a strong link between the sustainability of tradegenerated price changes and the extent of insidertrading. This relationship is robust to alternative econometric specifications and remains significant even after controlling for conventional measure of information asymmetry such as bid-ask spreads size ananalyst following. This suggests that volume induced autocorrelation may be a suitable criterion on which to rank firms on the level of private information trading