Sources of time varying return comovements during different economic regimes: evidence from the emerging Indian equity market

We study the economic and non-economic sources of stock return comovements of the emerging Indian equity market and the developed equity markets of the US, UK, Germany, France, Canada and Japan. Our findings show that the probability of extreme comovements in the economic contraction regime is relatively higher than in the economic expansion regime. We show that international interest rates, inflation uncertainty and dividend yields are the main drivers of the asymmetric return comovements. Findings reported in the paper imply that the impact of interest rates and inflation on return comovements could be used for anticipating financial contagion and/or spillover effects. This is particularly critical since during extreme market conditions, the tail return comovements can potentially reveal critical information for active portfolio management

Predictability of stock returns using financial statement information: Evidence on semi-strong efficiency of emerging Greek stock market

This article examines the predictability of stock returns in the Athens Stock Exchange (ASE) during 1993 to 2006 by using accounting information. Using panel data analysis, this article concludes that the selected set of financial ratios contains significant information for predicting the cross-section of stock returns. Results indicate that portfolios selected on the basis of financial ratios produce higher than average returns, suggesting that the emerging Greek market does not fully incorporate accounting information into stock prices and hence it is not semi-strong efficient

International shocks and growth in emerging markets

The paper provides evidence on the extent and channels of transmission of international shocks on the economic growth of emerging markets. Using a block dynamic factor model, the shocks are decomposed into four components; a general global component, an activity based component, a financial component and a commodity price component. Using a sample of 75 emerging markets over the period 1992–2009, the paper finds that the average effect of international shocks on emerging markets' growth over the entire sample period is negligible, which supports the classic view of isolated, de-coupled emerging markets. However, there is considerable variation both over time, over cross-section and across factors. When we split our sample by time period, we find greater effect of the international factors on the emerging markets' growth during 2002–2009 period. There is evidence which suggests that sensitivity to international shocks has increased over time and at the country level these sensitivities are more pronounced. Although the drivers of integration vary as does the sensitivity to alternative sources of shocks, we find that certain emerging markets have become considerably more integrated with the global economy than others. Overall, there is evidence of a significant impact on the economic growth of some emerging markets of the international shock caused by the global financial crisis

The impact of statutory audit and corporate reporting directives on compliance costs, risk-taking and reporting quality of the EU banks

The paper examines the effects of recently introduced Statutory Audit and Corporate Reporting Directives (SACORD) on compliance costs and risk taking of the EU banks. Using data of 80 EU banks and 71 non-EU banks for the period 2004 to 2013, we estimate the effects of SACORD regulation compliance costs, risk taking and quality of reporting. Our results show that the economic effects of SACORD on audit fees are approximately 19 to 33 percent higher relative to the non-EU banks. We also find robust evidence of significant increase in in total compliance costs. The findings are consistent with those reported in the previous literature mainly for the US banks that regulation increases compliance costs. Further, we find that post SACORD, there is a significant increase in risk-taking and a decline in reporting quality. Findings suggest that the SACORD regulation does not appear to have the desired effects of constraining risk-taking by banks

The impact of regulations on compliance costs, risk-taking, and reporting quality of the EU banks

The paper examines how the Statutory Audit and Corporate Reporting Directives (SACORD) affect the compliance costs, risk taking and quality of financial reporting of the EU banks. Using a natural experiment, we find that post SACORD, both compliance costs and risk taking increase significantly. However, the implementation of additional regulations seems to be effective in terms of improved quality of financial reporting. When we analyse the impact by size, we find that smaller banks face disproportionately higher increase in compliance costs while larger banks seem to engage in greater risk taking

The impact of monetary policy shocks on the Equity Risk Premium before and after the quantitative easing in the United Kingdom

The authors investigate the impact of structural monetary policy shocks on ex-post equity risk premium (ERP) of aggregate and sectoral FTSE indices and 25 Fama-French style value-weighted portfolios. They find that monetary policy shocks negatively affect the ERP but at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of quantitative easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the BoE’s policy before and after the monetary stimulus

Market in Financial Instruments Directive (MiFID), stock price informativeness and liquidity

The paper examines the impact of MiFID on stock price informativeness and liquidity in 28 EU countries. We find that post-MiFID the stock prices reflect greater firm specific information and the market becomes more liquid. Consistent with the ‘Catch-up Hypothesis’ our evidence shows that the impact of MiFID in terms of price informativeness is greater for countries that have weaker quality of regulation. We find that regulation with enforcement improves market efficiency. Our results are robust with respect to the choice of price informativeness and liquidity proxies as well as the control sample

Sudden changes in volatility: The case of five central European stock markets

This is the post-print version of the final paper published in Journal of International Financial Markets, Institutions and Money. The published article is available from the link below. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. Copyright @ 2007 Elsevier B.V.This paper investigates sudden changes in volatility in the stock markets of new European Union (EU) members by utilizing the iterated cumulative sums of squares (ICSS) algorithm. Using weekly data over the sample period 1994–2006, the time period of sudden change in variance of returns and the length of this variance shift are detected. A sudden change in volatility seems to arise from the evolution of emerging stock markets, exchange rate policy changes and financial crises. Evidence also reveals that when sudden shifts are taken into account in the GARCH models, the persistence of volatility is reduced significantly in every series. It suggests that many previous studies may have overestimated the degree of volatility persistence existing in financial time series

Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market

We provide robust evidence of the impact on spot market liquidity and the pricing efficiency of FBM-FKLI index futures following the introduction of lower tick sizes for the stocks listed in the Bursa Malaysia. Our findings show a significant increase in unexpected trading volume and the speed of mean reversion of the futures mispricing. We find that the increase in the unexpected trading volume of the underlying stocks helps in reducing inter-market price discrepancies. The findings offer new evidence that lowering of tick sizes improves pricing efficiency in the Malaysian futures market

Volatility in the emerging stock markets in Central and Eastern Europe: Evidence on Croatia, Czech Republic, Hungary, Poland, Russia and Slovakia

This paper investigates the main features of stock market volatility in the emerging markets of European transition economies using daily indexes. Starting with the universe of all stock markets in the transition economies, we use the criterion of data availability to obtain a sample of six stock markets, namely the markets in Croatia, Czech Republic, Hungary, Poland, Russia and Slovakia. We apply ARIMA, the BDSL procedure and symmetric as well as asymmetric GARCH models to test for daily return volatility. The main findings are fourfold. First, in all the six markets, volatility exhibits significant conditional heteroskedasticity and non–linearity. Second, volatility seems to be of a persistent nature; however, no asymmetric volatility effects are found for most of the markets. Third, as measured by a GARCH–in–Mean model, volatility does not explain expected returns for any of the six markets. Although GARCH appears to be the most appropriate process in characterising volatility in these markets, the explanation provided by symmetric and asymmetric GARCH models is not significant enough for predicting future volatility. Fourth, while the evidence suggests that the martingale hypothesis can be significantly rejected for all the six markets, none of the markets shows the well–known day–of–the–week anomaly commonly reported in most stock markets