An Analysis of the Profitability, Risk and Growth Indicators of Banks Operating In Malta

The paper consolidates the summarised financial statements of the main banks operating in Malta during the year 2002, to form a Typical Large Bank and a Typical Small Bank. The rofitability, risk and growth prospects of the two institutions are analysed through Return on Equity decomposition and the use of other financial ratios. Various differences between large and small institutions emerge. In particular, larger institutions realised higher profitability and cost control; they were more capitalised in absolute terms and relied relatively less on interest income. Smaller institutions generated comparatively more revenue; they were more capitalised in relative terms, were relatively more provisioned against loan losses and held a higher proportion of liquid assets.Return on Equity Model, Banks, Malta, Indicators

Can a Stock Index be Less Efficient than Underlying Shares? An Analysis Using Malta Stock Exchange Data.

Researchers often assume that stock market indices are the best possible yardstick in terms of market efficiency. The paper investigates this concept using data from the Malta Stock Exchange (MSE). The fact that a significant number of MSE shares do not trade everyday, may imply that the most liquid shares on this exchange are more efficient than the market index, whose value is dependent on shares of varying liquidity levels - including the less liquid ones. The paper applies various tests to compare the pricing efficiency of the MSE Index to that of the most liquid share quoted on the exchange. It is found that the MSE Index is still more efficient than the latter share.Malta Stock Exchange, Non-Synchronous Trading, Stock Markets.

The impact of stock market structure on volatility : evidence from a call auction suspension

The purpose of this paper is to investigate the volatility impacts of the suspension of a call auction system by the National Stock Exchange of India (NSE) in June 1999, thus extending prior empirical work relating to this area. The realised volatility on NSE is compared with that of the Bombay Stock Exchange using two volatility proxies: modulus of log returns and scaled intra-day price difference. We also focus on conditional volatility by estimating an AGARCH model on seasonally-adjusted NSE Nifty Index data. Whilst some results yield contrasting inferences, the overall outcomes indicate that volatility was higher during the auction period, and we do not find any evidence that supports the foreseen benefits of auction frameworks. Results reinforce the idea that market designers should think about the possible interactions with subsidiary market microstructure features when formulating auction protocols, since the latter may compromise auction efficacy.peer-reviewe

The implementation of standards for securities markets as a source of competitiveness

This analysis discusses the importance of the operations of securities exchanges and securities markets, with particular reference to their relationship with competitiveness. Following a review of the current trends within the worldwide securities industry, the main principles which govern the coherent operations of securities markets are outlined. The practical issues involved in the implementation of standards, and their relevance to smaller exchanges are also evaluated.peer-reviewe

Do call auctions curtail price volatility? Evidence from the National Stock Exchange of India

Purpose: This paper empirically investigates whether call auctions which batch orders for simultaneous execution, may restrain stock market volatility. Design / Methodology / Approach: We use high frequency data to investigate volatility changes following the suspension of opening and closing call auctions on the National Stock Exchange of India in June 1999. We evaluate this issue by considering both modelled and realised volatility. Using a GARCH approach we model intra-day volatility for the trading days preceding and succeeding the auction suspension. We also scrutinise return distributions to look for volatility changes during different parts of the day. Findings: When interpreted collectively, our empirical results suggest that the auction suspension was followed by reduced volatility particularly in the middle of the trading day and at the closing. Practical implications: Given that auctions are often incorporated in trading systems with the aim of curtailing volatility, our main conclusion, that the auction suspension was followed by lower volatility, has important practical inferences. Auctions cannot be automatically relied on to reduce volatility. The intricacies of the auction protocol and their interaction with ancillary market microstructure features may impact on auction efficacy. Originality / value: The paper adopts a novel approach towards assessing the effectiveness of call auctions by considering an unusual occurrence of an auction suspension. The empirical setting enables a clear comparison of the respective regimes since the auction and the post-suspension period do not materially differ in other subsidiary aspects. This is a noteworthy factor, since the empirical contexts considered in prior studies, often feature several simultaneous changes.peer-reviewe

Deregulation of financial markets a review of the past outcomes and current issues

The aim of this study is to present the main aspects behind deregulation, including possible impacts on general economic activity, financial stability, and competitive effects in the financial services industry. The paper describes the expected benefits and costs of deregulation. It also discusses how deregulation should be accompanied with new regulations which aim to preserve the safety of financial institutions whilst encouraging competition. Possible challenges relating to the implementation of these concepts are also outlined.peer-reviewe

Can a stock index be less efficient than underlying shares? An analysis using Malta Stock Exchange data

Researchers often assume that stock market indices are the best possible yardstick in terms of market efficiency. The paper investigates this concept using data from the Malta Stock Exchange (MSE). The fact that a significant number of MSE shares do not trade everyday, may imply that the most liquid shares on this exchange are more efficient than the market index, whose value is dependent on shares of varying liquidity levels – including the less liquid ones. The paper applies various tests to compare the pricing efficiency of the MSE Index to that of the most liquid share quoted on the exchange. It is found that the MSE Index is still more efficient than the latter share.peer-reviewe

The Relevance of Short Sales to the Maltese Stock Market

The paper discusses the possible effects of short sales on the operation of a very small stock market such as the Maltese one. After studying the basic mechanics of short selling procedures, the paper reviews the salient literature with particular reference to how short sales may enhance informational efficiency and their relationship with liquidity. The paper proceeds by examining these relationships in the context of the Maltese securities market. The study reveals that short sales may be desirable on the Maltese stock market for enhancing price efficiency and liquidity, yet a more formal framework for conducting such transactions is required. In addition, short positions may be particularly risky in the context of the Maltese stock market, due to low liquidity levels.Short Sales, Malta Stock Exchange, Liquidity

The effect of dividend policy on share price volatility : an analysis of Mediterranean banks' stocks

This empirical study investigates the relationship between share price volatility and dividend payments in the case of Mediterranean Banks. We use the dividend yield and the dividend payout as proxies of dividend policy, and regress these ratios together with other control variables to model share price volatility. The robustness of the results is assessed by re-using a data set which omits the outliers relating to the 2007 financial crisis and by forming sub-samples using a clustering procedure. Our results show that inferences may differ across samples and depending on the treatment of outlier observations. Besides adding new empirical evidence, our results offer insights to academics, stock traders and corporate managers in terms of better understanding the effect of dividend policies on share price volatility and its related risks and opportunities.peer-reviewe

An Analysis of the Impacts of Non-Synchronous Trading On

The serial correlation effects which non-synchronous trading can induce in financial data have been documented by various researchers. In this paper we investigate non-synchronous trading effects in terms of the predictability that may be induced in the values of stock indices. This analysis is applied to emerging-market data, on the grounds that such markets might be less liquid and thus prone to a higher degree of non- synchronous trading. We use both a daily data set and a higher frequency one, since the latter is a prerequisite for capturing intra-day variations in trading activity. When considering one-minute interval data, we obtain clear evidence of predictability between indices with different degrees of non-synchronous trading. We then propose a simple test to infer whether such predictability is mainly attributable to non- synchronous trading or an actual delayed adjustment on part of traders. The results obtained from an intra-day analysis suggest that the former cause seems a better explanation for the observed predictability. Future research in this area is needed to shed light on the degree of data predictability which may be exclusively attributed to non-synchronous trading, and how empirical results may be influenced by the chosen data frequency.Non-Synchronous Trading, Stock Markets, National Stock Exchange of India, High-Frequency Data.