Illiquidity of Frontier Financial Market: Case of Serbia

The paper explores illiquidity of the Serbian financial market for the period of 2005-2009. The financial market in Serbia is, by its type, a frontier market. We used daily data from the BELEXline index, as well as all stocks within this index in examined timeframe, provided by the Belgrade Stock Exchange. Results of this paper suggest that level of market liquidity is low and persistent in Serbia. Additionally, results confirm that time-varying illiquidity and its volatility is highly unstable in this market. This is the first paper that analyses liquidity issues in case of Serbia. It identifies different periods and shows that, in most cases, ups and downs in foreign investors’ participation leads to dramatic falls and rises in market illiquidity and its volatility.Frontier market, Illiquidity, Volatility of illiquidity, Conditional standard deviation

The Impact of Liquidity and Size Premium on Equity Price Formation in Serbia

The goal of this paper is to examine the impact of an overall market factor, the factor related to the firm size, the factor related to the ratio of book to market value of companies, and the factor of liquidity risk on expected asset returns in the Serbian market. For this market we estimated different factor models: Capital Asset Pricing Model (CAPM by Sharpe, 1964), Fama-French (FF) model (1992, 1993), Liquidity-augmented CAPM (LCAPM) by Liu (2006), and combination LCAPM with FF factors. We used daily data for the period from 2005 to 2009. Using a demanding methodology and complex dataset, we found that liquidity and firm size had a significant impact on equity price formation in Serbia. On the other hand, our results suggest that the factor related to the ratio of book to market value of companies does not have an important role in asset pricing in Serbia. We found that Liu’s twofactor LCAPM model performs better in explaining stock returns than the standard CAPM and the Fama-French threefactor model. Additionally, Liu’s LCAPM may indeed be a good tool for realistic assessment of the expected asset returns. The combination of the Fama-French model and the LCAPM could improve the understanding of equilibrium in the Serbian equity market. Even though previous papers have mostly dealt with examining different factor models of developed or emerging markets worldwide, none of them has tested factor models on the countries of former Yugoslavia. This paper is the first to test the FF model and LCAPM with FF factors in the case of Serbia and the area of ex-Yugoslavia

Serbian Financial Market in the Pre-Crisis and Post-Crisis Period

The paper analysis three important characteristics of financial market: level of (il)liquidity, liquidity risk premium and systematic risk in the pre-crises and the post-crises period, in case of Serbia. For this analysis, we used monthly data for BELEXline and BELEX15 indices as well as all stocks which these indices entailed in the period from October, 2005 to July, 2009, provided by the Belgrade Stock Exchange. Results of this paper suggest that Serbian market has low level of liquidity. Especially, the level of illiquidity for both indices increased in the post crises era in Serbia. Consequently, liquidity risk premium is decreased in the same period. Additionaly, results confirm that systematic risk which contained liquidity risk is increased even by 59% in the post crises period in Serbia

Specifična površina smonica aleksinačke kotline

In the present paper an estimation was given of total specific area (S) of very clayey soils of smonitza type in Central Serbia on the basis of the data on their textural composition and maximal hygroscopic moisture. Total specific area (m2g-1) of the analysed very clayey smonitzas is, on average equal to the product of maximal hygroscopic moisture (MH), expressed in percent ratio of the mass, and the coefficient 11.50, i.e. S = 11.50*MH (m2g-1).U ovom radu je dat prikaz ocene određivanja ukupne specifične površine (S) jako glinovitih zemljišta tipa smonice centralne Srbije na osnovu podataka o njihovom mehaničkom sastavu i maksimalnoj higroskopskoj vlažnosti. Ukupna specifična površina (m2 g-1) istraženih jako glinovitih smonica je jednaka u proseku proizvodu njihove maksimalne higroskopne vlažnosti (MH), izražene u procentima na masu, i koeficijenta 11.50, tj. S = 11.50*MH (m2 g-1)

CAPM augmented with liquidity and size premium in the Croatian stock market

This article examines the following models: Capital Asset Pricing Model (CAPM) (Sharpe, 1964), and Liquidity CAPM (Hearn, Piesse and Strange, 2009) in the Croatian stock market. We used daily data for the period 2005–2009. The goal of this article is to examine the impact of an overall market factor, factor related to the firm size, and factor of liquidity risk on expected asset returns in the Croatian stock market. We found that Liquidity Capital Asset Pricing Model (LCAPM) model performs better in explaining stock returns than the standard CAPM. Additionally, LCAPM may indeed be a good tool for realistic assessment of the expected asset returns. The combination of company size and illiquidity in asset pricing in the context of the Fama and French cross-sectional framework can improve the description of equilibrium in the Croatian stock market

Illiquidity of frontier financial market: Case of Serbia

The paper explores illiquidity of the Serbian financial market for the period of 2005-2009. The financial market in Serbia is, by its type, a frontier market. We used daily data from the BELEXline index, as well as all stocks within this index in examined timeframe, provided by the Belgrade Stock Exchange. Results of this paper suggest that level of market liquidity is low and persistent in Serbia. Additionally, results confirm that time-varying illiquidity and its volatility is highly unstable in this market. This is the first paper that analyses liquidity issues in case of Serbia. It identifies different periods and shows that, in most cases, ups and downs in foreign investors' participation leads to dramatic falls and rises in market illiquidity and its volatility

Agregatni sastav i stabilnost strukturnih agregata u humusnom horizontu šumskih, pašnjačkih i njivskih rendzina

The present study includes the results of comparative investigations of aggregate composition and water stability of structural aggregates in humus horizons of calcareous rendzina, Estern Serbia, under native forest and pasture vegetations and the same rendzina utilized long-term as arable field. The results show that aggregate composition and water stability of structural aggregates in the cultivated calcareous rendzina are significantly impaired due to a long-term anthropogenization. In the cultivated rendzina, the content of agronomically most valuable aggregates (0.25-10 mm) is decreased, while the percentage of cloddy aggregates (>10 mm) is increased about 1.5 to 2 times in comparison with the forest and pasture. The forest and the permanent pasture calcareous rendzina had a greater aggregate water stability than the cultivated rendzina in humus horizon. The lowest water stability is found in aggregates >3 mm. The largest mean weight diameters (MWD) of dry aggregates were found in forest calcareous rendzina (4.48 mm, vs. 4.23 mm in pasture and 3.98 mm in arable field). MWD of water stable agregates was higher in pasture (1.32 mm) and forest (1.12 mm) than in cultivated calcareous rendzina (0.54 mm). The structure coefficient of cultivated calcareous rendzina was lower than in forest and meadow. .U ovom radu je izvršeno uporedno istraživanje agregatnog sastava i vodootpornosti strukturnih agregata u humusnom horizontu karbonatnih, skeletno praškasto-glinovito ilovastih do glinovito ilovastih rendzina na laporcu i laporovitim krečnjacima, pod prirodnom šumskom i pašnjačkom vegetacijom, i istih rendzina koje se dugotrajno (stolećima) koriste kao njivska zemljišta u istočnoj Srbiji. Rezultati istraživanja pokazuju da su agregatni sastav i vodootpornost strukturnih agregata u humusnom, tj. oraničnom horizontu njivskih rendzina znatno pogoršani usled dugotrajne antropogenizacije. Međutim, i pored toga, prema klasifikaciji koju navode ŠEIN et al. (2001), njihov agregatni sastav je još uvek dobar. U njivskim rendzinama sadržaj agronomski najpovoljnijih agregata (prečnika 0.25-10 mm) je znatno smanjen, dok je udeo (prosek 20.55%) grudvastih agregata (prečnika >10 mm) povećan za 1.5 do 2 puta u poređenju sa šumom (13.49%) i pašnjakom (11.84%). U humusnom horizontu istraženih karbonatnih rendzina pod šumom i pašnjakom utvrđena je znatno veća vodootpornost strukturnih agregata nego u njivskoj rendzini. Najmanju vodootpornost pokazali su strukturni agregati prečnika >3 mm. Najveći prosečni prečnik strukturnih agregata (MWD) u suvom stanju utvrđen je u zemljištu pod šumom (4.48 mm), 4.23 mm pod pašnjakom i 3.98 mm u njivskoj rendzini. MWD vodootpornih strukturnih agregata veći je za oko 2 puta u zemljištu pod pašnjakom (1.32 mm) i pod šumom (1.12 mm) nego u njivskoj (0.54 mm) karbonatnoj rendzini. Koeficijent strukturnosti u njivskoj redndzini znatno je manji nego pod šumom i pašnjakom.

Open issues in testing liquidity in frontier financial markets: the case of Serbia

This paper examines the impact of illiquidity and liquidity risk on expected asset returns in the Serbian stock market. For this market we estimate the conditional Liquidity-adjusted Capital Asset Pricing Model (LCAPM) of Acharya and Pedersen (2005). We use daily data for the period from 2005-2009. While the method developed is applicable in other markets this is the first paper that tests the LCAPM model in the case of Serbia. Liquidity risks are allowed to be timevarying. We find that for the Serbian market as a frontier market illiquidity and liquidity risk significantly impact price formation. For such a market the LCAPM may indeed be a good tool for realistic assessment of the expected asset returns

Illiquidity of Frontier Financial Market: Case of Serbia

The paper explores illiquidity of the Serbian financial market for the period of 2005-2009. The financial market in Serbia is, by its type, a frontier market. We used daily data from the BELEXline index, as well as all stocks within this index in examined timeframe, provided by the Belgrade Stock Exchange. Results of this paper suggest that level of market liquidity is low and persistent in Serbia. Additionally, results confirm that time-varying illiquidity and its volatility is highly unstable in this market. This is the first paper that analyses liquidity issues in case of Serbia. It identifies different periods and shows that, in most cases, ups and downs in foreign investors’ participation leads to dramatic falls and rises in market illiquidity and its volatility

On the spillover of exchange rate risk into default risk

In order to reduce the exchange-rate risk, banks in emerging markets are typically denominating their loans in foreign currencies. However, in the event of a substantial depreciation of the local currency, the payment ability of a foreign-currency borrower may be reduced significantly, exposing the lender to additional default risk. This paper analyses how the exchange-rate risk of foreign currency loans spills over into default risk. We show that in an economy where foreign currency loans are a dominant source of financing economic activity, depreciation of the local currency establishes a negative feedback mechanism that leads to higher default probabilities, reduced credit supply, and reduced growth. This finding has some important implications that may be of special interest for regulators and market participants in emerging economies