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Published Articles for Year 1997 - 2024
Multinational Finance Journal, 2010, vol. 14, no. 3/4, pp. 255-289 | https://doi.org/10.17578/14-3/4-4
Jøril Mæland , Norwegian School of Economics and Business Administration, Norway    Corresponding Author

Abstract:
The owner of a real option does not have the necessary expertise to manage the investment project and needs to contract with an expert in order to exercise the real option. The potential managers (the experts) have private information about their respective cost of investing in the project. The project owner organizes an auction in which the experts participate. The winner of the contract is the expert who can exercise the investment project at the lowest cost. The optimal contract is incentive compatible, i.e., it induces the winner to follow the investment strategy preferred by the project owner. It is shown that private information increases the project owner's cost of exercising the option, which may lead to under-investment. The inefficiency due to under-investment decreases in the number of experts participating in the auction.

Keywords : real options; investment strategy; private information; auction
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Multinational Finance Journal, 2010, vol. 14, no. 3/4, pp. 291-317 | https://doi.org/10.17578/14-3/4-5
Ephraim Clark , Middlesex University, U.K.    Corresponding Author
Patrick Rousseau , Université Aix-Marseille, France
Magid Gadad , The Academy of Graduate Studies, Tripoli

Abstract:
This paper looks at divestitures by 144 UK firms listed on the London Stock Exchange from 1985 to 1991 and investigates whether and how accurately investors price the firm’s option to abandon assets in exchange for their exit value. Theory prices this real option as an American style put and the model we test includes the major features of the abandonment option literature: stochastic firm value, stochastic exit value, intermediate cash flows and uncertain project life. It also includes random events that can short circuit the optimal timing of the divestiture and trigger abandonment prematurely. The empirical implications are that investors do price the abandonment option but that they price it imperfectly because the exit price is private information. There is evidence that the effects of the timing factor are accurately priced and that the probability of forced premature abandonment figures in the option pricing.

Keywords : real options; abandonment; divestiture; premature abandonment; abnormal returns
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Multinational Finance Journal, 2005, vol. 9, no. 1 & 2, pp. 43-71 | https://doi.org/10.17578/9-1/2-3
Steven Pilloff , Hood College, U.S.A.    Corresponding Author

Abstract:
In their competitive analysis of proposed bank mergers, the Board of Governors of the Federal Reserve System, the U.S. Department of Justice, and other U.S. banking agencies accept branch divestitures as an antitrust remedy in local markets where there is substantial overlap between the acquirer and target. The results of this study, which examines the performance of 751 branches that were divested between June 1989 and June 1999 in conjunction with a merger in the U.S. that raised possible competition issues, are consistent with the policy of accepting branch divestitures as an antitrust remedy being successful. Divested branches operate for lengths of time that are comparable to all branches, and even though they experience substantial deposit runoff around the time of the merger, divested branches subsequently exhibit deposit growth rates that are comparable to those of other similar branches

Keywords : divestiture; bank merger; antitrust policy and remedy; competition
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Multinational Finance Journal, 1998, vol. 2, no. 4, pp. 295-310 | https://doi.org/10.17578/2-4-3
Christopher Korth , Western Michigan University, USA    Corresponding Author
Zane Swanson , Emporia State University, USA
Robert Singer , Quincy University, USA

Abstract:
Most of the Eastern European countries are burdened by heavy foreign debts. Securitization could be helpful in solving the vexing problem of servicing the debt of Eastern European countries and improving their financial situation. Three formats for securitizing the loans are broadly available. While all three formats could be used to enhance significantly the marketability of existing Eastern European debts, create a more favorable lending climate for new syndicated loans, and accelerate the development of large, integrated secondary markets, the analysis indicates that the mortgage-backed bond provides the best alternative

Keywords : securitization; Eastern Europe; loans and financial Intermediaries
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Multinational Finance Journal, 2010, vol. 14, no. 3/4, pp. 219-254 | https://doi.org/10.17578/14-3/4-3
Marco Antonio Guimarães Dias , PUC-Rio, Brazil    Corresponding Author
José Paulo Teixeira , PUC-Rio, Brazil

Abstract:
This paper discusses a selected literature on continuous-time option games models, providing new insights and extensions. The paper analyzes both symmetrical and asymmetrical duopoly under uncertainty, including issues like preemption, non-binding collusion, perfect-Nash equilibriums, first-mover advantage, mixed strategies, probability of mistake with simultaneous exercise, competitive advantage effect, etc. In the first model, the demand follows a stochastic process, whereas in the second model the exchange rate follows a stochastic process. This paper presents two equivalent ways to calculate the leader and follower values and thresholds, the differential and the integral methods. The paper extends the Joaquin and Buttler’s model by considering mixed strategies in asymmetric duopoly and other extensions.

Keywords : option games; real options; game theory; duopoly under uncertainty; preemption
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Multinational Finance Journal, 1997, vol. 1, no. 1, pp. 1-22 | https://doi.org/10.17578/1-1-1
Yin-Wong Cheung , University of California Santa Cruz, U.S.A.    Corresponding Author
Clement Yuk-Pang Wong , City University of Hong Kong

Abstract:
This article evaluates the performance of filter rules on four Asian exchange rates against the U.S. dollar. Risk premiums derived from the choice under uncertainty model and the GARCH specification are used to construct the risk–adjusted return series. Results show that risk premiums have significant implications for the performance of filter rules. Further, even if investors can tolerate some risk, transaction costs can further eliminate most of the remaining profitable trading opportunities.

Keywords :
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Multinational Finance Journal, 1997, vol. 1, no. 1, pp. 23-46 | https://doi.org/10.17578/1-1-2
Andrea L. DeMaskey , Villanova University, U.S.A    Corresponding Author

Abstract:
This article presents empirical evidence on the effectiveness of currency futures cross-hedging with the portfolio model. Single and multiple crosshedges for three minor European and three minor Asian currencies are examined. The performance of the cross-hedged portfolios is measured in terms of maximum possible variance reduction. Realistic simulations of crosshedging effectiveness are used to determine how well the optimal portfolio strategy performs relative to not hedging or a naive cross-hedge. Results show that Asian currency risk cannot be minimized with single or multiple currency futures cross-hedges. Indeed, both the naive and portfolio strategies increase exchange rate risk to the hedger. Because of the diversification benefit, the multiple currency cross-hedge is superior in hedging performance to the single currency cross-hedge. However, a cross-hedge constructed with two different currency futures positions is as effective as one with five different futures contracts.

Keywords :
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Multinational Finance Journal, 1997, vol. 1, no. 1, pp. 47-62 | https://doi.org/10.17578/1-1-3
Y. Angela Liu , National Chung Cheng University, Taiwan    Corresponding Author
Ming-Shiun Pan , Shippensburg University, U.S.A.

Abstract:
This paper investigates the mean return and volatility spillover effects from the U.S. and Japan to four Asian stock markets, including Hong Kong, Singapore, Taiwan, and Thailand. The empirical results from examining the data for the period of 1984 to 1991 suggest that the U.S. market is more influential than the Japanese market in transmitting returns and volatilities to the four Asian markets. In addition, the observed spillover effects are unstable over time in the sense that the spillovers increase substantially after the October 1987 stock market crash. Furthermore, the evidence indicates that while the cross–country stock investing hypothesis cannot by itself explain the international transmissions of return and volatility, the market contagion also plays an important role in the transmission mechanism.

Keywords :
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Multinational Finance Journal, 1997, vol. 1, no. 1, pp. 63-80 | https://doi.org/10.17578/1-1-4
Jan Bartholdy , University of Otago, New Zealand    Corresponding Author
Glenn W. Boyle , University of Otago, New Zealand
Roger D. Stover , Iowa State University, U.S.A.

Abstract:
Using data from six OECD countries, we examine the proposition that the costs associated with shareholder–debtholder agency conflicts can be reduced by allowing banks to hold equity in the firms to which they lend. Although the sensitivity of leverage to potential wealth expropriation is indeed significantly lower in Japan than in the U.S., no observable difference exists between the U.S. and the non–Japanese countries where banks are permitted to hold corporate equity. This "Japan effect" does not appear to be due to the Japanese keiretsu structure. We conclude that any differences in the debt–agency relationship between Japan and the U.S. are unlikely to be due to differences in restrictions on bank equity holdings

Keywords :
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Multinational Finance Journal, 1997, vol. 1, no. 2, pp. 93-99 | https://doi.org/10.17578/1-2-1
George M. Constantinides , University of Chicago, U.S.A.    Corresponding Author

Abstract:
I would like to thank the officers of the Multinational Finance Society and the organizers of its 4th annual conference for bringing us together in the historic city of Thessaloniki to discuss research developments in finance. Specifically, I would like to recognize the President of the Society, Geoffrey Booth, President-elect, George Philippatos, Chairman of the Board of Trustees, Panayiotis Theodossiou, Program Chair, Nickolaos Travlos, and Program Cochair, Angelos Tsaklanganos. They richly deserve a round of applause.

Keywords :
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Multinational Finance Journal, 1997, vol. 1, no. 2, pp. 101-122 | https://doi.org/10.17578/1-2-2
Moshe Arye Milevsky , York University, Canada    Corresponding Author
Eliezer Z. Prisman , York University, Canada

Abstract:
The Canadian Income Tax Act induces individual investors to close their short equity option positions at the end of the year and, if necessary, reopen them at the beginning of next year. This article analyzes the conditions under which it is optimal to close or leave open a short option position over the tax year boundary. The analysis shows that the latter decision depends on transaction costs, the investor’s marginal tax rate, the interest rates, the initial and end-of-the-year option prices, as well as whether the option position is naked or covered. The article also examines the impact of tax regulations in Canada on the pricing of naked vs. covered call options and American vs. European options.

Keywords : derivative securities, equity options, open interest, tax arbitrage
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Multinational Finance Journal, 2020, vol. 24, no. 3/4, pp. 211-266
Sakshi Saini , Institute of Economic Growth, India    Corresponding Author
Sanjay Sehgal , University of Delhi, India
Florent Deisting , Groupe ESC Pau, France

Abstract:
This paper analyses the interaction of monetary policy (both domestic and global), risk aversion and uncertainty for a set of advanced and emerging economies in vector autoregressive (VAR) framework. Variance risk premium (VRP) is used as a measure of risk aversion and computed as the difference between the risk-neutral and the physical expectation of the return variance. VRP is positive on average for all economies and exhibits significant inter-temporal variation. Results reveal that expansionary monetary policy leads to a short-term increase in risk aversion and a decrease in uncertainty. Central banks respond by reducing the policy rate in response to risk aversion and uncertainty shocks. Both risk aversion and uncertainty exhibit a higher magnitude of response to domestic as compared to the global monetary policy shocks. Further, we find that risk aversion positively affects risk premium and thus, considerably explains variations in excess returns in the market.

Keywords : monetary policy; risk aversion; uncertainty; variance risk premium; structural VAR; panel VAR
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Multinational Finance Journal, 2020, vol. 24, no. 3/4, pp. 183-209
Carmen Cotei , University of Hartford, USA    Corresponding Author
Joseph Farhat , Central Connecticut State University, USA

Abstract:
In this paper we analyze which factors explain the M&A exit outcome of high-technology startups using the confidential version of the Kauffman Firm Survey data. Our findings reveal that innovation activity is the most important factor in explaining the M&A exit outcome which indicates that acquirers value the growth potential signaled through intellectual property rights, research and development activity and therefore, businesses with high quality innovations are the most attractive targets for acquisitions. We also show that new, high-tech ventures owned by highly educated entrepreneurs are more likely to exit via M&A. These owners have better access to financial and social capital, which positively impacts the entrepreneur’s ability to create a business that is harvestable and increases the chance that the business will, indeed, be harvested.

Keywords : mergers and acquisitions; entrepreneurial exit; innovation; technology-based startups
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Multinational Finance Journal, 2020, vol. 24, no. 3/4, pp. 155-182
Vishaal Baulkaran , University of Lethbridge, Canada    Corresponding Author
Nathaniel C. Lupton , San Jose State University, USA

Abstract:
We examine the impact of shareholder rights protection on U.S multinational firms’ Foreign Direct Investments (FDI). We hypothesize that the expropriation of wealth is less likely to occur in countries with strong shareholder rights and hence, these countries will attract more FDI relative to countries with weaker shareholder rights protection. We also hypothesize that this relationship will be more important for developing countries compared to developed countries. Based on an analysis of US FDI data over the period 1997-2016, we find support for our predictions. These findings emphasize the importance of institutional development for economic development, via the attraction of FDI.

Keywords : FDI; expropriation; shareholder rights; multinational firms
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Multinational Finance Journal, 1997, vol. 1, no. 2, pp. 137-152 | https://doi.org/10.17578/1-2-4
Ilhan Meric , Rider University, U.S.A.    Corresponding Author
Gulser Meric , Rowan University, U.S.A.

Abstract:
This article studies the changes in the co-movements of the twelve largest European equity markets after the 1987 international equity market crash. Tests based on Box M and principal component analysis indicate that the comovements of these equity markets changed significantly after the crash. Low correlations among national equity markets are often presented as evidence in support of the benefits of international portfolio diversification. The findings indicate that correlations among the twelve largest European equity markets and between these equity markets and the U.S. equity market increased substantially; therefore, the benefits of international diversification with these twelve European equity markets decreased considerably after the crash

Keywords : correlation of returns; Box M analysis; European equity markets co-movements; principal component analysis
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Multinational Finance Journal, 1997, vol. 1, no. 2, pp. 153-168 | https://doi.org/10.17578/1-2-5
Robert Haney Scott , University of Macau, Macau    Corresponding Author

Abstract:
Macau pegs its currency, the pataca, to the Hong Kong dollar, which in turn is pegged to the U.S. dollar. This type of pegging order is unique in the annals of international financial arrangements. This article analyzes the structure of the pegged exchange rate systems in Macau and Hong Kong and discusses the financial and economic implications of these systems for the two territories

Keywords : currency board system; currency substitution; pegged exchange rates; seigniorage
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Multinational Finance Journal, 1997, vol. 1, no. 3, pp. 169-197 | https://doi.org/10.17578/1-3-1
Mandeep S. Chahal , Enron Capital and Trade Resources, U.S.A    Corresponding Author
Jun Wang , SAS Institute Inc., U.S.A

Abstract:
The underlying stochastic processes that drive returns in several emerging bond and stock markets are investigated using the pure diffusion, the jump diffusion, the ARCH pure diffusion, and the ARCH jump diffusion models. The results indicate that jump diffusion models fit the data better than pure diffusion models. Possible sources and linkages of information surprises in emerging stock and bond markets are also investigated. Bond and stock returns of the same country exhibit simultaneous jumps, indicating a possible linkage of the two markets. U.S. equity returns respond to jumps in emerging bond markets but not to jumps in emerging stock markets

Keywords : emerging markets; ARCH; jump diffusion; information surprises; distribution characteristics
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Multinational Finance Journal, 1997, vol.1, no. 3, pp. 199-227 | https://doi.org/10.17578/1-3-2
Li Jiang , Hong Kong Baptist University, Hong Kong    Corresponding Author
Lawrence Kryzanowski , Concordia University, Canada

Abstract:
In this article, we examine dynamic relationships between volatility and various microstructure measures of trade activity and quoted liquidity for each component stock in the Toronto Stock Exchange 35 Index and for the Toronto 35 Index Participation Shares. When volatility is conditioned on number of trades and quoted liquidity, trading volume provides no incremental explanatory power. Thus, the number of trades appears to be a better proxy for information flow. Furthermore, investigation into partitioned volume suggests that the number of trades is more effective than the unexpected volume in explaining volatility. Measures of quoted liquidity also play a significant role in explaining intra day volatility. Bid-ask spreads and quote depth are positively and negatively related to volatility, respectively. Consistent with the lack of information signal, no trade outcomes are negatively related to volatility

Keywords : volatility; volatility determinants; and market microstructure
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Multinational Finance Journal, 1997, vol. 1, no. 3, pp. 229-254 | https://doi.org/10.17578/1-3-3
George Athanassakos , Wilfrid Laurier University, Canada    Corresponding Author

Abstract:
This article proposes an alternative approach to estimating the required rate of return on equity, combining the bond-plus risk-premium approach and the Capital Asset Pricing Model, and tests it using Canadian data. Individual stock risk-premia are classified into groups according to the point in the business cycle, risk based on each company’s bond rating, and industry groups as defined by industry classification. Group averages are calculated. We find equity risk-premia are negatively related to interest rates and bond ratings. Moreover, the higher the risk of an industry group, the higher are the equity risk-premia. However, findings regarding the risk-premia’s sensitivity to the business cycle and stability across business cycles are not very conclusive

Keywords : equity risk-premia; cost of equity; CAPM; bond-plus riskpremium
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Multinational Finance Journal, 1997, vol. 1, no. 4, pp. 255-271 | https://doi.org/10.17578/1-4-1
Yin-Wong Cheung , University of California Santa Cruz, U.S.A.    Corresponding Author
Hung-Gay Fung , University of Missouri-St. Louis, U.S.A.

Abstract:
The pattern of information flows between Eurodollar spot and futures markets is examined using a robust two-step procedure. This procedure allows for conditional mean and variance dynamics as well as conditional heteroskedasticity. We find spot rates affect futures data and vice versa. In addition, there is evidence of volatility spillover between the two markets. Our results also indicate that information conveyed by data on futures tends to have a more persistent impact on both the mean and volatility of cash market price movements than the other way around

Keywords : Granger causality; cointegration; Eurodollar spot and futures interest rates; information flow
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Multinational Finance Journal, 1997, vol. 1, no. 4, pp. 273-289 | https://doi.org/10.17578/1-4-2
Unro Lee , University of the Pacific, U.S.A.    Corresponding Author

Abstract:
This article investigates whether the stock markets of the Pacific Basin countries of Hong Kong, Singapore, South Korea, and Taiwan are informationally efficient with respect to macroeconomic policies. Granger causality tests are utilized in the context of a Vector Error Correction Model to test the relationship between aggregate stock prices and monetary and fiscal policies. The findings indicate that the stock markets of all four countries are not efficient with respect to both macroeconomic policies. These findings are different from those of other articles focusing on major industrialized countries. Rejection of market efficiency may be attributed to the unique structure of financial markets in these countries.

Keywords : Pacific Basin countries; stock returns; macroeconomic policies; informational efficiency
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Multinational Finance Journal, 1997, vol. 1, no. 4, pp. 291-307 | https://doi.org/10.17578/1-4-3
Martin Laurence , William Paterson University of New Jersey, U.S.A.    Corresponding Author
Francis Cai , William Paterson University of New Jersey, U.S.A.
Sun Qian , Nanyang Technological University, Singapore

Abstract:
China has two major stock exchanges, the Shanghai and the Shenzen exchanges. Each of these exchanges trades two types of shares, type “A” and type “B” shares. Type “A” shares are available to domestic investors only and type “B” shares are available to foreign investors. This article tests for the weak-form efficiency in these markets and explores the statistical relationships and causality among these Chinese stock markets with each other and with the U.S. and Hong Kong stock markets. The results indicate the existence of (1) a weak-form efficiency in the market for “A” shares but not “B” shares, (2) statistically weak linkages between the Chinese markets, (3) a weak causal effect from the Hong Kong to the four Chinese markets, and (4) a strong causal effect from U.S. stock mark to all four Chinese stock markets and the Hong Kong Stock market, particularly during the second period of the sample. These results support the assertion that the Chinese stock markets are becoming more integrated to the global economy.

Keywords : Chinese stock markets; Granger causality tests; Hong Kong stock market; market efficiency
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Multinational Finance Journal, 1997, vol. 1, no. 4, pp. 309-324 | https://doi.org/10.17578/1-4-4
Roger D. Stover , Iowa State University, U.S.A.    Corresponding Author
Mark F. Schmitz , Rutgers University, U.S.A.

Abstract:
This article inquires into the factors that affect the pricing of new issues of corporate tax-exempt bonds backed by standby letter of credit of U.S. and foreign commercial banks. Previous literature suggests that U.S. banks possess superior certifying ability in this market due to their unique access to low-cost private information. This article also examines the extent to which such information is priced by the market. The results indicate that pricing of these bonds depends primarily on the quality of the commercial bank issuing the standby letter of credit irrespective of where the bank is domiciled. The quality influence on yield occurs indirectly through its significant effect on the issue’s bond rating

Keywords : bank certification; industrial revenue bond financing; Moody?s bond rating; standby letter of credit
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Multinational Finance Journal, 1998, vol. 2, no. 1, pp. 1-37 | https://doi.org/10.17578/2-1-1
Richard Chung , Concordia University, Canada    Corresponding Author
Lawrence Kryzanowski , Concordia University, Canada

Abstract:
This article examines the stock market effects of changes in the composition of the TSE300 index over the period 1990-94. The test methodology adjusts for thin trading, pre- and post-revision abnormal performance and sample selection criterion effects. The models used to characterize returns include factors such as illiquidity and large trade activity. The positive and transitory median changes in traded volumes become insignificant when market-adjusted volumes are examined. No permanent effects on trade and analyst price behavior are identified. Traditional market-adjusted abnormal return inferences are not robust. The announcement window abnormal returns are smaller for annual versus non-annual index additions. This suggests that a longer advance notice period more than compensates for a larger number of simultaneous index revisions. The findings support the price pressure and liquidity hypotheses. Temporary changes in liquidity costs temporarily move stock prices from their equilibrium values, and announcement window abnormal returns are essentially reversed in subsequent periods.

Keywords : index revision; abnormal returns; liquidity; event study
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Multinational Finance Journal, 1998, vol. 2, no. 1, pp. 38-63 | https://doi.org/10.17578/2-1-2
Jang-Ting Guo , University of California–Riverside, U.S.A.    Corresponding Author
Rong-Chang Wu , Shin Chien University, Taiwan

Abstract:
This article adopts a nonparametric approach to examine the exchange-rate exposure of Taiwanese firms between December 1979 and January 1995. The evidence indicates that financial liberalization that took place in July 1987 has introduced an important structural break to firms' foreign exchange exposure. In the pre-liberalization period, no industry shows significant exposure to changes in the exchange rate. By contrast, in the post-liberalization period, exchange-rate movements exert significant contemporaneous and lagged impacts on the value of firms, particularly those with high involvement in international trade

Keywords : financial liberalization; foreign exchange exposure effect; nonparametric econometrics
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Multinational Finance Journal, 1998, vol. 2, no. 1, pp. 64-86 | https://doi.org/10.17578/2-1-3
Jay Dahya , University of Wales College of Cardiff, U.K.    Corresponding Author
Ronan Powell , Queen's University of Belfast, Northern Ireland

Abstract:
This article investigates the impact that successful hostile and friendly takeovers have on the rates of top management change for U.K. target firms. The results shows that hostile takeovers are associated with a greater degree of both top executive and top team forced departure rates compared to that of friendly takeovers. Furthermore, prior to takeover, hostile targets have lower abnormal returns, lower profitability, higher debt, lower managerial ownership and a high ownership stake held by external block holders relative to friendly targets. The results give further support to the disciplining role of the hostile takeover

Keywords : managerial control; hostile takeover; top management turnover; friendly takeover; ownership structure
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Multinational Finance Journal, 1998, vol. 2, no. 2, pp. 87-99 | https://doi.org/10.17578/2-2-1
Hans R. Stoll , Vanderbilt University, U.S.A.    Corresponding Author

Abstract:
A new approach and a new mind-set are needed for the regulation of financial markets. Under our existing trajectory, regulation will become inefficient, unwieldy, and too costly as it attempts to deal with an ever–more complex financial system. Regulators ought to focus on what needs to be regulated, not simply on expanding regulatory oversight. Implicit in this mind-set is the idea that not everything must be regulated. A focused approach to regulation would separate what is regulated from what is not. Examples of how regulation can be more narrowly focused are given for banking, for securities markets, and for futures markets

Keywords : bank regulation; financial regulation; offshore offerings; Security and Exchange Commission
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Multinational Finance Journal, 1998, vol. 2, no. 2, pp. 101-132 | https://doi.org/10.17578/2-2-2
Kodjovi G. Assoe , Ecole des Hautes Etudes Commerciales, Canada    Corresponding Author

Abstract:
Many emerging markets have experienced significant changes in government policies and capital market reforms. These changes may lead to changes in their return-generating processes. Based on Markov-switching models, this paper investigates whether there is more than one regime in the return-generating processes of nine emerging markets and the specific characteristics of each regime. The results show very strong evidence of regime-switching behavior in emerging stock market returns. The two regimes through which emerging markets evolve are different whether one takes the domestic investors' perspective or that of foreign investors. For foreign investors, changes in volatility seem to be the main characteristic of emerging market regimes. The implications of these findings for the stability of emerging stock markets are discussed

Keywords : emerging markets; regime-switching; international investment
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Multinational Finance Journal, 1998, vol. 2, no. 2, pp. 133-149 | https://doi.org/10.17578/2-2-3
Shmuel Hauser , Ben Gurion Univ. of the Negeve and Israel Securities Authority, Israel    Corresponding Author
Azriel Levy , Bank of Israel and the Hebrew University, Israel

Abstract:
The increasing popularity of non-dealer security markets that offer automated, computer-based, continuous trading reflects the conventional wisdom that such markets are more efficient for all issues, large and small. This article uses a recent testing methodology to estimate the relative efficiency of discrete versus continuous trading regimes in the price discovery of thinly traded stocks. The empirical tests use over 9,000 transactions of dually listed stocks traded discretely on the Tel Aviv Stock Stock Exchange and continuously in the Over-The-Counter market in the U.S. It is shown that stock prices over-react to the arrival of new information and noise trading in both markets, but more so under continuous trading in the OTC market. It is also shown that continuous trading generates larger pricing errors and related return volatility.

Keywords : continuous trading; discrete trading; pricing efficiency; Tel Aviv Stock Exchange; trading mechanism
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Multinational Finance Journal, 1998, vol. 2, no. 3, pp. 189-223 | https://doi.org/10.17578/2-3-2
Antonis Demos , Athens University of Economics and Business, Greece    Corresponding Author
Sofia Parissi , Athens University of Economics and Business, Greece

Abstract:
This article applies a conditionally heteroskedastic asset pricing model to describe the time variation in the first and second moments of asset returns in an interdependent way in the emerging capital market of Greece. Depending on the observability of the factors and under the chosen parameterization it is possible to derive tests to address economically important questions that the models impose on the risk-return relationship. We apply the derived tests on the nine sectorial portfolios and the value weighted index of the Athens Stock Exchange, over the period 1985-1997. The evidence from the unconditional and conditional CAPM, with the Value Weighted Index as a benchmark portfolio, suggests the inefficiency of the Index. On the other hand, the dynamic latent factor model, considered here, describes sectorial returns in a much better way. However, there is still a shadow of doubt on the hypothesis that the price of risk is common across assets.

Keywords : n/a
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Multinational Finance Journal, 1998, vol. 2, no. 2, pp. 151-165 | https://doi.org/10.17578/2-2-4
Larry J. Prather , East Tennessee State University, U.S.A.    Corresponding Author
Jae Hoon Min , Seowon University, Korea

Abstract:
This article examines announcement effects of 240 international joint ventures undertaken by firms to ascertain their impact on shareholders' wealth. The positive-multinational-network hypothesis suggests that the market reaction should be related to the option value of the venture. To test the positive-multinational-network hypothesis, first the market reaction between ventures into developed and less-developed countries are contrasted. Then, the reaction between ventures that form the basis for initial operations in a country and subsequent operations are contrasted. Results indicate that venture-specific characteristics influence announcement effects and that the positive-multinational-network hypothesis is supported

Keywords : event studies; information and market efficiency; investment policy; joint ventures
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Multinational Finance Journal, 1998, vol. 2, no. 3, pp. 167-187 | https://doi.org/10.17578/2-3-1
Kenneth Wieand , University of South Florida, U.S.A.    Corresponding Author
Jeff Donaldson , Northern Kentucky University, U.S.A.
Socorro Quintero , Oklahoma City University, U.S.A.

Abstract:
This article investigates the relationships between the U.S. and Japanese stock market indices and the prices of modern and impressionist paintings sold at auction in New York by Christies and Sotheby. An art price index is constructed to adjust for heterogeneity of individual paintings. Time series properties of the art price index are examined in relation with the S&P500 and Topix stock market indices. The art-price index is heteroskedastic and autocorrelated. When the log-returns to art are compared to log-price returns to the S&P500 and TOPIX stock indices, a single common long-term stochastic trend in the three indices is found. In the short run, log-changes of art prices are related to current and lagged log-changes of the TOPIX index, only

Keywords : art prices; cointegration; GARCH model; hedonic price equation; S&P500 stock index; and TOPIX stock index
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Multinational Finance Journal, 1998, vol. 2, no. 3, pp. 225-244 | https://doi.org/10.17578/2-3-3
Seung-Doo Choi , Korea Telecom, Korea    Corresponding Author
Sang-Koo Nam , Korea University, Korea

Abstract:
This article compares the initial returns of privatization initial public offerings (IPOs) to those of privately-owned enterprises and investigates the determinants of short-run performance of privatization IPOs, using a sample of 185 privatization IPOs from 30 countries, over the period from 1981 to 1997. The evidence indicates that there is a general tendency for privatizations to be underpriced to a greater degree than the initial public offerings of privately-owned enterprises. In addition to comparing privatization IPOs to the private IPOs, the cross-sectional determinants of privatization initial returns are analyzed. The empirical results strongly support the theoretical models of Perotti (1995) and Biais and Perotti (1997). The degree of underpricing at the initial public offering is positively related to the stake sold at initial public offerings and to the degree of uncertainty in ex ante value of newly-privatized firms

Keywords : initial public offerings; initial return; policy uncertainty; privatization
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Multinational Finance Journal, 1998, vol. 2, no. 4, pp. 245-267 | https://doi.org/10.17578/2-4-1
Eva K. Jermakowicz , University of Southern Indiana, USA    Corresponding Author
Sylwia Gornik-Tomaszewski , Baldwin-Wallace College, USA

Abstract:
This article investigates the association between stock returns and the annual earnings, derived from the new accounting and reporting standards, of firms listed on the Warsaw Stock Exchange between 1995 and 1997. Following a brief history of the Warsaw Stock Exchange, two major issues affecting the effectiveness of the Polish securities market are discussed. These are the transition process from public to private enterprise ownership, and the development of accounting and reporting standards compatible with the capital market requirements and the European Union regulation. The empirical results indicate significant association between stock returns and the annual earnings. Results are compared with those for more developed capital markets.

Keywords : accounting and reporting standards Poland; earnings and returns; privatization; Warsaw Stock Exchange
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Multinational Finance Journal, 1998, vol. 2, no. 4, pp. 269-293 | https://doi.org/10.17578/2-4-2
Emeka T. Nwaeze , Rutgers University, U.S.A    Corresponding Author

Abstract:
This article focuses on regulation and variation in rate structures to investigate asymmetric return responses to positive and negative abnormal earnings. The abnormal earnings (AE) metric is measured as the difference between the actual profit rate and the maximum allowed profit rate, scaled by the beginning-period price. The analysis is motivated by the anticipated asymmetry in the information contents of positive and negative AE induced by existing rate structures which permit utilities to recover below normal profits but allow them to retain abnormal profits. Accordingly, negative AE is expected to be largely transitory and price-irrelevant whereas positive AE is expected to persist and be price-relevant. The results reveal significant asymmetry in return responses to positive and negative AEs. Specifically, the magnitude of return responses is larger for positive than for negative AEs. The results further show variations in the magnitudes of price responses across regulatory structures.

Keywords : abnormal earnings; asymmetric return responses; egulatory structure
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Multinational Finance Journal, 1999, vol. 3, no. 1, pp. 1-17 | https://doi.org/10.17578/3-1-1
Pekka Ahtiala , University of Tampere, Finland    Corresponding Author
Yair E. Orgler , Tel Aviv University, Israel

Abstract:
The paper explores the conditions whereby an exporter can gain a competitive advantage by offering a buyer a contract with a choice of invoice currencies rather than a single currency, and determines the value of such a choice. The model incorporates accounts-payable management with exchange- risk management, taking into account the forward exchange rate and the seller's assumptions about the buyer's initial foreign exchange position, its expectations about the future spot rate, and its risk premium. It demonstrates how the value of a choice depends on these variables, as well as on the market interest rates in the two currencies, and on the implicit conversion factor that the seller uses in pricing in different currencies.

Keywords : invoice currency choice; payment terms in foreign trade
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Multinational Finance Journal, 1999, vol. 3, no. 1, pp. 19-40 | https://doi.org/10.17578/3-1-2
Nikitas Niarchos , University of Athens, Greece    Corresponding Author
Yiuman Tse , State University of New York at Binghamton, U.S.A.
Chunchi Wu , Syracuse University, U.S.A.
Allan Young , Syracuse University, U.S.A.

Abstract:
This article investigates the international information transmission between the U.S. and Greek stock markets using daily data from the Athens Stock Exchange (ASE) and the S&P 500 Index returns. It employs a bivariate exponential GARCH-t (EGARCH-t) that allows for both mean and variance spillovers between the two markets. It also performs cointegration tests on the long-run relation between these two markets and explores the possible common volatility feature in the spirit of Engle and Kozicki (1993). The results show no spillovers between these two markets for the conditional mean and variance. Also, the cointegration test shows that these two markets are not driven by a common trend. It appears that the U.S. and Greek stock markets are not related to each other, either in the short-run or in the long-run. Contrary to previous studies of the world’s large financial markets, the evidence here shows that the U.S. market does not have a strong influence on the Greek stock market.

Keywords : cointegration; clustering; EGARCH; heteroskedasticity; spillover
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Multinational Finance Journal, 1999, vol. 3, no. 1, pp. 41-70 | https://doi.org/10.17578/3-1-3
Hung-Gay Fung , University of Missouri, U.S.A.    Corresponding Author
Wai K. Leung , University of Hong Kong, Hong Kong
Gary A. Patterson , University of South Florida, U.S.A.

Abstract:
Numerous studies have examined trading strategies that seek to exploit price reversal behaviors in the U.S. stock market. The evidence to date suggests that taking a long position in U.S. stocks with negative returns (losers) and a short position in stocks that have positive returns (winners) may yield large profits. This article expands this line of research by applying these trading rules to Pacific Basin markets. Striking differences in the pattern of portfolio returns between most Pacific Basin markets and those in the U.S. market are found. This article demonstrates that profitable trading strategies developed in the U.S. may not be successfully transferred to other national markets.

Keywords : Pacific Basin and U.S. stock markets; trading rules; transaction costs
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Multinational Finance Journal, 1999, vol. 3, no. 2, pp. 71-101 | https://doi.org/10.17578/3-2-1
Michael Doumpos , Technical University of Crete, Greece    Corresponding Author
Constantin Zopounidis , Technical University of Crete, Greece

Abstract:
Financial distress prediction is an essential issue in finance. Especially in emerging economies, predicting the future financial situation of individual corporate entities is even more significant, bearing in mind the general economic turmoil that can be caused by business failures. The research on developing quantitative financial distress prediction models has been focused on building discriminant models distinguishing healthy firms from financially distressed ones. Following this discrimination approach, this paper explores the applicability of a new non–parametric multicriteria decision aid discrimination method, called M.H.DIS, to predict financial distress using data concerning the case of Greece. A comparison with discriminant and logit analysis is performed using both a basic and a holdout sample. The results show that M.H.DIS can be considered as a new alternative tool for financial distress prediction. Its performance is superior to discriminant analysis and comparable to logit analysis.

Keywords : discrimination; financial distress; mathematical programming; multi-criteria decision aid
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Multinational Finance Journal, 1999, vol. 3, no. 2, pp. 103-125 | https://doi.org/10.17578/3-2-2
Sunti Tirapat , Chulalongkorn University, Thailand    Corresponding Author
Aekkachai Nittayagasetwat , National Institute of Development Administration, Thailand

Abstract:
The emergence of the economic crisis in Thailand in 1997 is an interesting case for academic studies. Internationally, it had a contagion effect, spreading to countries in Asia and in other regions. Domestically, it caused a great many industrial and corporate bankruptcies. The Thai economy had been relatively stable since 1984. The recent development in 1997, however, produced a sudden economic slump resulting in closures of many Thai corporations. Using a logit regression, this study develops a macro-related micro-crisis investigation model. The significance of the model is in its ability to bridge a firm's sensitivity to macroeconomic conditions and its financial characteristics in order to explore a firm's financial distress. The findings indicate that macroeconomic conditions are critical indicators of potential financial crisis for a firm. The article shows that the higher a firm's sensitivity to inflation, the higher the firm's exposure to financial distress.

Keywords : bankruptcy; financial distress; prediction model; and Thailand crisis
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Multinational Finance Journal, 1999, vol. 3, no. 2, pp. 127-145 | https://doi.org/10.17578/3-2-3
Obeua S. Persons , Rider University, U.S.A.    Corresponding Author

Abstract:
This article combines qualitative and quantitative information from financial statements and auditors' reports with logistic models to differentiate failed from surviving finance companies in Thailand. Failed companies are those that were forced to suspend their operations in mid-1997. The results indicate that auditors' reports from the 1996 financial statements did not differentiate failed from surviving finance companies. On the other hand, the logistic regression models indicate that failed finance companies had lower profitability, lower foreign borrowing possibly due to their poorer credit rating, lower management quality, and smaller size. These models have relatively high predictive ability for failed finance companies and low expected costs of misclassification

Keywords : CAMEL; emerging economies; financial failure; logistic model; Thailand
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Multinational Finance Journal, 1999, vol. 3, no. 3, pp. 147-172 | https://doi.org/10.17578/3-3-1
Norbert Fiess , University of Strathclyde, U.K.    Corresponding Author
Ronald MacDonald , University of Strathclyde, U.K.

Abstract:
Most technical analysis studies are concerned with the profitability of technical trading rules and almost all of them focus exclusively on trend- following patterns. In this paper we examine a different kind of technical indicator which suggests a structural relationship between High, Low, and Close prices of daily exchange rates. Since, for a given exchange rate, it can be shown that these prices have different time series properties, it is possible to explore the structural relationships between them using multivariate cointegration methods. This methodology facilitates the construction of dynamic structural econometric models, which are used to derive dynamic out-of-sample forecasts over different time horizons. Compared to standard benchmarks, it turns out that these models have extremely good forecasting properties, even when allowance has been made for transactions costs and risk premia

Keywords : exchange rates forecasting; technical analysis
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Multinational Finance Journal, 1999, vol. 3, no. 3, pp. 173-221 | https://doi.org/10.17578/3-3-2
Winston T. Lin , State University of New York at Buffalo, U.S.A.    Corresponding Author

Abstract:
This paper examines how determinants of volatility and stock returns change with financial crisis. The contributions of the paper are twofold. First, using a GARCH-M framework, risk and return are jointly modeled by using macroeconomic variables both in the variance and the mean equations. The conditional variance equation is specified by including macro-economic variables, a relevant information set for emerging economies, that is often overlooked in various GARCH specifications. Second, determinants of risk and return are investigated before during and after a major financial crisis at ISE. We show that, both the determinants of risk and the risk-return relationship change as the economy switches from one regime to the other.

Keywords : currency betas; five special tests; four-step generalized least squares; mean and variance shifts; the unbiasedness hypothesis; variable-mean-response random coefficients models
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Multinational Finance Journal, 1999, vol. 3, no. 4, pp. 223-252 | https://doi.org/10.17578/3-4-1
Gulnur Muradoglu , University of Manchester, U.K.    Corresponding Author
Hakan Berument , Bilkent University, Turkey
Kivilcim Metin , Bilkent University, Turkey

Abstract:
This paper examines how determinants of volatility and stock returns change with financial crisis. The contributions of the paper are twofold. First, using a GARCH-M framework, risk and return are jointly modeled by using macroeconomic variables both in the variance and the mean equations. The conditional variance equation is specified by including macro-economic variables, a relevant information set for emerging economies, that is often overlooked in various GARCH specifications. Second, determinants of risk and return are investigated before during and after a major financial crisis at ISE. We show that, both the determinants of risk and the risk-return relationship change as the economy switches from one regime to the other

Keywords : emerging; financial crisis; GARCH-M; Istanbul Stock Exchange; macroeconomic variables; risk; stock returns
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Multinational Finance Journal, 1999, vol. 3, no. 4, pp. 253-282 | https://doi.org/10.17578/3-4-2
Ranko Jelic , University of Birmingham, U.K.    Corresponding Author
Richard Briston , University of Hull, U.K.
Chris Mallin , University of Birmingham, U.K.

Abstract:
A transition from centrally-planned towards market-based economies in Central and Eastern European Countries (CEEC) in the early 1990's, resulted in mass privatisation programmes and the transformation of the state-controlled banks, the main (and sometimes the only) financial intermediaries in those countries. Given the unique institutional background, the focus of this paper is upon answering the following two questions: First, whether, and if so how, the emerging financial structures of firms in transition economies differ from the structures in Western financial markets? Second, what are the factors that affect bank loan supply schedules in transition economies, and to what extent do they differ between the selected countries? Results from data sets for firms in the Czech Republic, Hungary, and Poland suggest lower debt ratios than those reported for the G-7 countries.

Keywords : bank lending; enterprise debt; firm financing; transition economies
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Multinational Finance Journal, 2000, vol. 4, no. 1&2, pp. 1-4 | https://doi.org/10.17578/4-1/2-1
George J. Papaioannou , Hofstra University, U.S.A.    Corresponding Author
Nickolaos G. Travlos , Athens Laboratory of Business Administration (ALBA), Greece

Abstract:
No Abstract

Keywords : n/a
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Multinational Finance Journal, 2000, vol. 4, no. 1&2, pp. 5-34 | https://doi.org/10.17578/4-1/2-2
Richard Chung , Concordia University, Canada    Corresponding Author
Lawrence Kryzanowski , Concordia University, Canada
Ian Rakita , Concordia University, Canada

Abstract:
The overallotment option (OAO) gives underwriters the right to acquire additional shares from the issuing firm at the offer price (less underwriting fees) in order to meet any excess demand for an issue. Thus, underwriters can use overallotment options to stabilize market prices post-issue by increasing the supply of shares for oversold issues. Unlike IPOs in the U.S., the Canadian evidence finds that OAOs are included less frequently, that underwriting fees are positively associated with OAO inclusion, and that the OAO appears to play a minor role in market price stabilization, which is itself less detectable and appears to be limited to the very early stages of secondary market trading. These results suggest that the role of the OAO differs markedly for IPOs in Canadian versus U.S. markets

Keywords : initial public offerings; overallotment options; price stabilization; underwriting fees
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Multinational Finance Journal, 2000, vol. 4, no. 1&2, pp. 35-68 | https://doi.org/10.17578/4-1/2-3
Tim Brailsford , Australian National University, Australia    Corresponding Author
Richard Heaney , Australian National University, Australia
John Powell , University of Otago, New Zealand
Jing Shi , Australian National University, Australia

Abstract:
The market for unseasoned equity has the unusual and distinguishing feature of periods of concentrated activity in terms of both volume and underpricing. This paper formally documents the existence of such periods using a regime-switching model that dates transitions between hot and cold states. A number of hot periods are identified over a 20-year period using a variety of IPO activity measures that capture different aspects of new issue volume, proceeds and underpricing. The study further documents a leading relationship between underpricing and IPO volume of up to six months. This relationship supports the contention that the decision to issue is a function of current underpricing. Various reasons are hypothesised for this result and the paper finds supportive evidence through a VAR analysis that reveals the influence of stock market and business conditions.

Keywords : hot issues; IPOs; regime-switching; stock market; unseasoned issues
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Multinational Finance Journal, 2000, vol. 4, no. 1&2, pp. 69-99 | https://doi.org/10.17578/4-1/2-4
Wolfgang Aussenegg , Vienna University of Technology, Austria    Corresponding Author

Abstract:
This article compares the characteristics and the price behavior of case-by-case privatization initial public offerings and private sector initial public offerings in Poland over the first nine years after the reopening of the Warsaw Stock Exchange in April 1991. There is evidence that the Polish government is market-oriented, trying to build up reputation for its privatization policy over time by underpricing, selling a high fraction at the initial offer and underpricing more when selling to domestic retail investors. In the long run privatization initial public offerings experience neither an under- nor an overperformance. A lower political influence has no effect on the long-run performance of privatized companies

Keywords : initial public offerings; long-run performance; privatization; underpricing
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Multinational Finance Journal, 2000, vol. 4, no. 1&2, pp. 101-132 | https://doi.org/10.17578/4-1/2-5
Neil Hartnett , The University of Newcastle, Australia    Corresponding Author
Jennifer Römcke , The University of Newcastle, Australia

Abstract:
Contemporaneous evidence of corporate revenue and profit forecasting error is provided in a different institutional context, Australian sharemarket initial public offerings. This article extends the literature on company forecast risk by incorporating new proxies for forecasting error (float motive, subscription price premium, range of activities and internationalisation) and by refining others. The study investigates the association between earnings forecast risk and conventional ex-ante uncertainty proxies used to explain IPO underpricing. Ex-ante and ex-post explanatory variables are distinguished and a forecast error prediction model is tested. The results show revenue forecast errors were smaller and less sensitive than those for profit. Strong associations are reported between forecast error and float motive, audit quality and unanticipated industry activity. The link between earnings forecast error and proxies for initial public offering underpricing is observed. Predictability was poor regarding individual company forecast error, but improved for portfolio average forecasting error.

Keywords : error; forecast; IPO; prediction, profit; underpricing
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Multinational Finance Journal, 2000, vol. 4, no. 1&2, pp. 133-153 | https://doi.org/10.17578/4-1/2-6
Li Li Eng , The National University of Singapore, Singapore    Corresponding Author
Hwee Shan Aw , The National University of Singapore, Singapore

Abstract:
This article investigates the impact of fundamentals of initial public offering (IPO) firms on two categories of investors, large and small investors. In the decision to purchase IPOs, the demand by large investors is positively associated with earnings yield, firm size and underpricing, and negatively associated with book-to-market ratio. Large investor demand is higher for issues denominated in the local currency (Singapore dollars) than issues denominated in foreign currencies. In contrast, the demand by small investors is negatively associated with earnings yield, firm size and underpricing. Small investor demand is also lower for issues denominated in Singapore dollars than issues denominated in foreign currencies

Keywords : initial public offerings; fundamentals; small investors; large investors
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Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 155-157 | https://doi.org/10.17578/4-3/4-1
Yin-Wong Cheung , University of California Santa Cruz, U.S.A.    Corresponding Author

Abstract:
no abstract

Keywords : n/a
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Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 159-179 | https://doi.org/10.17578/4-3/4-2
Torben G. Andersen , Northwestern University, U.S.A.    Corresponding Author
Tim Bollerslev , Duke University and NBER, U.S.A.
Francis X. Diebold , University of Pennsylvania and NBER, U.S.A.
Paul Labys , University of Pennsylvania, U.S.A.

Abstract:
It is well known that high-frequency asset returns are fat-tailed relative to the Gaussian distribution, and that the fat tails are typically reduced but not eliminated when returns are standardized by volatilities estimated from popular ARCH and stochastic volatility models. We consider two major dollar exchange rates, and we show that returns standardized instead by the realized volatilities of Andersen, Bollerslev, Diebold and Labys (2000a) are very nearly Gaussian. We perform both univariate and multivariate analyses, and we trace the differing effects of the different standardizations to differences in information sets

Keywords : high-frequency data; integrated volatility; realized volatility; risk management
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Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 181-200 | https://doi.org/10.17578/4-3/4-3
Michael Hertzel , Arizona State University, U.S.A.    Corresponding Author
Paul Lowengrub , Nathan Associates, U.S.A.
Michael Melvin , Arizona State University, U.S.A.

Abstract:
This article analyzes the impact on stock prices in the home market of important events associated with a U.S. listing. Events include the "filing effect" of financial statements made public by the SEC in preparation for an ADR program; the "announcement effect" of the forthcoming ADR program; and the "listing effect" of the first day of U.S. trading. The sample includes German firms that listed in the U.S. between 1991 and 1997. While German accounting standards allow firms to show profits when U.S. GAAP would show losses, we find that the reconciliation to U.S. GAAP reported in the "filing effect" is associated with positive abnormal returns. Perhaps this reflects self-selection where firms with nothing to hide list in the U.S. The announcement effects are mixed across firms. The listing effect is associated with positive abnormal returns. We also find some evidence of volume migrating from the home market to the U.S. after U.S. trading begins

Keywords : ADRs; international cross-listing; international equity markets; German stocks
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Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 201-219 | https://doi.org/10.17578/4-3/4-4
Hailiang Yang , The University of Hong Kong, Hong Kong    Corresponding Author

Abstract:
This article presents a simple methodology for computing Value at Risk (VaR) for a portfolio of financial instruments that is sensitive to market risk, rating change, and default risk. An integrated model for market and credit risks is developed. The Jarrow, Lando and Turnbull model (the Markov chain model) is used to represent the dynamics of the credit rating. Procedures for calculating VaR are presented. Numerical illustration results are included

Keywords : credit rating; default risk; integrated risk management; Markov chain; value at risk
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Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 221-245 | https://doi.org/10.17578/4-3/4-5
Cheol S. Eun , Georgia Institute of Technology, U.S.A.    Corresponding Author
H. Jonathan Jang , Inha University, Korea

Abstract:
In this paper, we examine the behavior of stock prices of individual firms with different bond ratings surrounding the October market crash of 1987 and therefrom make inferences about the significance of bankruptcy costs borne by stockholders. The key findings are as follows: Immediately following the crash, stock prices of firms with different bond ratings display dramatically divergent behavior. Specifically, stocks with speculative bond ratings exhibit significantly negative cumulative abnormal returns (CAR) in the wake of crash; the more speculative a firm's bond is, the more negative is the CAR of the firm's stock. Regression analysis confirms that there indeed exists a significantly negative relationship between the post-crash CARs and individual firms' bankruptcy risk proxied by their bond ratings, a variable that measures the likelihood of financial distress ex ante.

Keywords : n/a
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Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 247-267 | https://doi.org/10.17578/4-3/4-6
Richard T. Baillie , Michigan State University, U.S.A.    Corresponding Author
Aydin A. Cecen , Central Michigan University, U.S.A.
Young-Wook Han , Michigan State University, U.S.A.

Abstract:
This article considers the use of the long memory volatility process, FIGARCH, in representing Deutschemark - US dollar spot exchange rate returns for both high and low frequency returns data. The FIGARCH model is found to be the preferred specification for both high frequency and daily returns data, with similar values of the long memory volatility parameter across frequencies, which is indicative of returns being generated by a self similar process. The BDS test for non-linearity is applied to the residuals of the model for the high frequency returns. No evidence is found to suggest that the procedure for filtering the high frequency returns to remove the intraday periodicity has induced any non-linearities in the residuals; and the FIGARCH specification is found to be adequate.

Keywords : BDS test; correlation dimension; FIGARCH; high frequency data; intra day periodicity; volatility
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Multinational Finance Journal, 2000, vol.4, no. 3&4, pp. 269-288 | https://doi.org/10.17578/4-3/4-7
W.C Lo , Open University of Hong Kong, Hong Kong    Corresponding Author
W.S. Chan , The University of Hong Kong, Hong Kong

Abstract:
Using a modified outlier identification procedure by Chen and Liu (1993), this article studies the large shocks of the Greater China stock markets. We find that while large shocks are typical in all the markets and more outliers appear in the Chinese stock markets than in the other markets. We also find that most of the outliers identified in the Hong Kong market cluster in the periods of the 1997 Asian financial crisis and after the government's market intervention in August 1998. With the exception of Hong Kong, most outliers seem to be driven by local events

Keywords : Greater China stock markets; large shocks; time series outliers
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Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 1-33 | https://doi.org/10.17578/5-1-1
Amalia Di Iorio , RMIT University, Australia    Corresponding Author
Robert Faff , RMIT University, Australia

Abstract:
This article analyzes the impact of movements in the Australian dollar/Japanese yen (AUDJPY) and the Australian dollar/US dollar (AUDUSD) exchange rates on the returns of the Australian equities market. Specifically, this paper investigates the nature of exchange rate exposure across increasing return measurement intervals, enabling an examination of both its short-term and its long-term effect on stock returns. Consistent with previous literature, considerable evidence of long-term exchange rate exposure is found. Further, it is found that in the long-term the Australian equities market in general is exposed to fluctuations in the AUDJPY, while only some Australian industries are exposed to movements in the AUDUSD. Finally, convincing evidence in terms of the determinants of foreign exchange exposure is not found

Keywords : Australian stock market; exchange rate risk; intervaling
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Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 35-58 | https://doi.org/10.17578/5-1-2
Tim Brailsford , Australian National University, Australia    Corresponding Author
Jack H.W. Penm , The Australian National University, Australia
R. Deane Terrell , The Australian National University, Australia

Abstract:
Vector autoregressive models are increasingly being used in the analysis of relationships within and between financial markets. In such models, there are circumstances that require zero entries in the coefficient matrices. Such circumstances can be particularly relevant in the context of markets with special characteristics, such as emerging economies. This paper shows that a direct extension of the use of the Yule-Walker relations for fitting vector autoregressive models with zero-non-zero patterned coefficient matrices is inconsistent with statistical procedures as the resultant estimated variance-covariance matrix of the white noise disturbance process becomes non-symmetric. This inconsistency can cause a breakdown when testing financial theory. The paper provides a consistent adjustment which fits with the theory. The practical use of the adjustment is demonstrated in a vector system comprising variables from the Hong Kong stock market and foreign exchange markets

Keywords : foreign exchange market; time series; VAR models; Yule-Walker relations
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Multinational Finance Journal, 2001, vol. 5, no. 1, pp. 59-86 | https://doi.org/10.17578/5-1-3
Wing-Keung Wong , Hong Kong Baptist University    Corresponding Author
Boon-Kiat Chew , Independent Economic Analysis (Holdings) Limited
Douglas Sikorsk , National University of Singapore, Singapore

Abstract:
This paper tests the performance of stock market forecasts derived from technical analysis by means of a specific indicator. The indicator is computed from E/P ratios and bond yields. Several stock markets are studied over a 20-year period. Two test statistics are introduced to utilize the indicator. The results show that the forecasts generated from the indicator would enable investors to escape most of the crashes and catch most of the bull runs. The trading signals provided by the indicator can generate profits that are significantly better than the buy-and-hold strategy

Keywords : bond yield; E/P ratio; interest rate; standardized yield differential; yield differential
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Multinational Finance Journal, 2001, vol. 5, no.2, pp. 87-112 | https://doi.org/10.17578/5-2-1
Nickolaos Travlos , ALBA, Greece, and Cardiff Business School, U.K.    Corresponding Author
Lenos Trigeorgis , University of Cyprus, Cyprus, and University of Chicago, U.S.A.
Nikos Vafeas , University of Cyprus, Cyprus

Abstract:
This article examines the stock market reaction to announcements of cash dividend increases and bonus issues (stock dividends) in the emerging stock market of Cyprus. Both events elicit significantly positive abnormal returns, in line with evidence from developed stock markets. This study contends that special characteristics of the Cyprus stock market delimit applicability of most traditional explanations for cash and stock dividends in favor of an information-signaling explanation. The empirical results are generally inconsistent with these contentions

Keywords : cash dividends; emerging markets; stock dividends
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Multinational Finance Journal, 2001, vol. 5, no. 2, pp. 113-128 | https://doi.org/10.17578/5-2-2
Yin-Wong Cheung , University of California Santa Cruz, U.S.A.    Corresponding Author
Frank Westermann , University of Munich, Germany

Abstract:
Daily data from the German and U.S. equity markets before and after the introduction of the Euro are used to study the effect of exchange rate regime choices on equity markets. It is found that, since the introduction of the Euro, the volatility and the persistence of the German stock index have fallen significantly relative to those of the U.S. index. However, the switch in exchange rate arrangement appears to have no significant implication for the causal relationships – both the mean and variance causalities between the two equity markets

Keywords : n/a
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Multinational Finance Journal, 2001, vol. 5, no. 2, pp. 129-148 | https://doi.org/10.17578/5-2-3
Jussi Nikkinen , University of Vaasa, Finland    Corresponding Author
Petri Sahlström , University of Vaasa, Finland

Abstract:
This study examines how the U.S. macroeconomic news releases affect uncertainty in domestic and foreign stock exchanges. For that purpose, the behavior of the implied volatilities from the U.S. and Finnish markets is investigated around the employment, producer price index (PPI) and consumer price index (CPI) reports. The results confirm the hypothesis that implied volatility increases prior to the macroeconomic news release and drops after the announcement in both markets. This implies that uncertainty associated with the U.S. macroeconomic news releases is reflected in foreign stock markets as well. Of the macroeconomic news releases, the employment report has the largest impact on uncertainty

Keywords : implied volatility; index options; macroeconomic news; uncertainty
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Multinational Finance Journal, 2001, vol. 5, no. 2, pp. 149-154 | https://doi.org/10.17578/5-2-4
Adam Steen , Monash University, Australia    Corresponding Author
Petko Kalev , Monash University, Australia
Keith Turpie , Swinburne University of Technology, Australia

Abstract:
This article builds on an earlier study by Choi and Nam (1998) on the initial price performance of Public Sector Initial Public Offerings PIPOs in 30 countries. They report that, in general, PIPOs are more underpriced than private sector IPOs. Our study of the Australian market suggests the opposite is the case. The difference in the underpricing between their study and the evidence presented here is most likely due to the characteristics of Australian PIPOs. These characteristics include the tender process adopted, the extensive marketing employed and the dominant position of many of the issuers

Keywords : initial public offerings; initial return; privatization
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Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 155-173 | https://doi.org/10.17578/5-3-1
Ephraim Clark , Middlesex University, U.K.    Corresponding Author
Radu Tunaru , Middlesex University, U.K.

Abstract:
This paper presents a model that measures the impact of political risk on portfolio investment when the political risks are multivariate and correlated across countries. The multivariate approach generalizes the single country model but retains most of its characteristics in terms of its ability to price political risk based on the stochastic process of exposure to loss and the expected frequency of loss causing events. The methodology is compatible with modern portfolio theory, straightforward to apply and can accommodate the traditional techniques in political risk assessment for the estimation of the relevant parameters.

Keywords : geometric Brownian motion; insurance policy; Poisson arrival process; portfolio investment; political risk
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Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 175-200 | https://doi.org/10.17578/5-3-2
Angela Huang , Reserve Bank of New Zealand, New Zealand    Corresponding Author
Dimitri Margaritis , University of Waikato, New Zealand
David Mayes , Bank of Finland, Finland

Abstract:
Ten years of inflation targeting in New Zealand is used to test whether monetary policy conforms to the simple rules that have been recommended in the literature. While a Taylor rule with the standard parameters used in the US describes New Zealand monetary policy quite well, the Reserve Bank has focused more strongly on price stability, as required by its Policy Targets Agreements. Monetary policy is better described by targeting the future inflation rate as forecast by the Bank than by current inflation as in the Taylor rule. However, restricting the description of policy to the information available at the time of setting policy does not result in a much-improved explanation. There is a ‘smoothing’ element to the Bank’s policy rather than an immediate response to every small fluctuation. There is also insufficient evidence to suggest that monetary policy has been asymmetric in treating upside inflationary pressures differently from those towards deflation

Keywords : central banks; inflation-targeting; monetary policy rules
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Multinational Finance Journal, 2001, vol. 5, no. 3, pp. 201-224 | https://doi.org/10.17578/5-3-3
Asjeet S. Lamba , The University of Melbourne, Australia    Corresponding Author
Isaac Otchere , The University of Melbourne, Australia

Abstract:
This paper provides the first comprehensive analysis of the dynamic relationships between the South African and major world equity markets during May 1988 - May 2000. Using a multivariate cointegration framework and vector error-correction modeling the results indicate that there is a long-run relationship between the South African market and major developed markets. Over the full sample period, the US, Canada and Australia exert the most influence on South Africa, while the influence of Japan is minimal. The subperiod analysis shows that, during the Apartheid period, a long-run equilibrium relationship between South Africa and the major developed markets did not exist. In contrast, during the post-Apartheid period, the long-run relationship has become strong and statistically significant for all the major developed markets, except Japan. Overall, the results imply that South Africa is now much more economically and financially integrated with major developed markets, and that the removal of Apartheid has played a significant role in this process

Keywords : co-integration; emerging markets; South Africa; vector errorcorrection model
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Multinational Finance Journal, 2001, vol. 5, no. 4, pp. 225-257 | https://doi.org/10.17578/5-4-1
Hossein Asgharian , Lund University, Sweden    Corresponding Author
Björn Hansson , Lund University, Sweden

Abstract:
This article seeks to find factors that can account for the determinants of common variations in returns for a small open economy where the Swedish stock market serves as an example. The importance of the candidate factors is first analyzed by looking at the standard deviation of their mimicking portfolio returns, while their performance is evaluated from a risk management viewpoint. The results of the volatility analysis verify that the market, as represented by both the world market portfolio and the Swedish home market portfolio, is a crucial factor and most of the macro factors seem to be redundant. The results of the risk management exercise show that the market factor and the portfolios mimicking size and book-to-market ratio are important

Keywords : multifactor models; open economy; return covariance; risk management
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Multinational Finance Journal, 2001, vol. 5, no. 4, pp. 259-301 | https://doi.org/10.17578/5-4-2
Cathy S. Goldberg , University of San Francisco, U.S.A.    Corresponding Author
Francisco A. Delgado , UBS Warburg, U.S.A.

Abstract:
This article presents an analysis of financial integration for emerging financial markets. The results indicate that for the sample of countries examined, Argentina, Chile, Mexico and Thailand’s stock markets are financially integrated. Conclusions are reached by first identifying endogeonous breaks in multiple stock return series and then constructing confidence intervals around these break dates. Further support is provided that identified breaks are due to integration by performing statistical analyses on the return series pre and post break. In general, the stocks in integrated countries become more correlated with world and industry indexes. Mean returns for these stocks decrease and become more aligned with the mean returns of their respective industry indexes. In cases where we do not find supporting evidence for financial integration, the break dates correspond to currency crises or other events that caused a shift in the return series

Keywords : emerging markets; financial integration; structural break tests
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Multinational Finance Journal, 2002, vol. 6, no. 1, pp. 1-27 | https://doi.org/10.17578/6-1-1
George Athanassakos , Wilfrid Laurier University, Canada    Corresponding Author

Abstract:
This article examines whether seasonality is present in the excess returns of low risk Canadian firms in safe industries for a sample of firms that are highly scrutinized and visible and uses such tests as the foundation to empirically test competing explanations of stock market seasonality, namely, the tax-loss selling hypothesis and the gamesmanship hypothesis. The tests cover the period 1980 to 1998. For a sample of highly scrutinized and visible firms strong seasonality in excess returns is reported. However, the firms in our sample have unusually low excess returns in January and returns adjust upwards over the remainder of the year. The results hold even after we control for various risk differences among the stocks of our sample. Further, this article’s findings imply that the January effect is not as pervasive across risk classes and industry sectors as earlier studies using aggregate data have shown it to be. The disaggregated data of this study provide evidence in support of the gamesmanship hypothesis, but not the tax-loss selling hypothesis. Whenever a January effect is observed, the last quarter of the year tends to be weak for those companies in our sample that experienced a strong January. The opposite is true when a January effect is not evident, as the gamesmanship hypothesis would predict.

Keywords : firm visibility; gamesmanship hypothesis; January effect; portfolio rebalancing
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Multinational Finance Journal, 2002, vol. 6, no. 1, pp. 29-42 | https://doi.org/10.17578/6-1-2
Bilgehan Yazici , ABN-AMRO Asset Management Turkey Istanbul, Turkey    Corresponding Author
Gülnur Muradoglu , Cass University Business School City of London, UK

Abstract:
The objective of this study is to examine whether published investment advice generates higher returns for investors. We investigate the impact of security recommendations in the financial press on common stock prices in Istanbul Stock Exchange. Recommendations of Investor Ali column of the weekly-published popular economics journal Moneymatik constitutes our sample. The column is designed to inform individual investors about company prospects and use them as the basis for its recommendations. The results show that the published investment advice in this column does not help small investors earn excess returns. On the contrary, it provides a valuable deal to its ‘preferred investors’, if any, in selecting the stocks. If one could front-run the column’s recommendations by five days he/she could earn more than 5% per week in excess of the index return. Compounded annually the excess return of a preferred investor could earn would be more than an amazing 1500% per annum.

Keywords : excess returns; insider trading; investment advice; ISE; stocks
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Multinational Finance Journal, 2002, vol. 6, no. 1, pp. 43-63 | https://doi.org/10.17578/6-1-3
Costas Siriopoulos , University of Macedonia, Greece    Corresponding Author
Alexandros Leontitsis , University of Kent at Canterbury, U.K.

Abstract:
We analyzed six stock exchange markets through the nonlinear dynamics concept. We used daily data from the Toronto Stock Exchange, NYSE, London Stock Exchange, Hong Kong Stock Market, Tokyo Stock Exchange, and the Singapore Stock Exchange. The period studied is from January 1, 1988 to June 30, 1999. We performed Local Principal Components Analysis in order to estimate the dimension of each underlying attractor. Our main interest is the noise level estimation of each time series. The results indicate weak determinism and strong noise influence. The noise-to-signal ratio for almost all time series is above 50%. Noise is leptokurtic in the eastern stock markets, and mesokurtic in western ones.

Keywords : chaos theory; local principal components analysis; noise estimation; nonlinear dynamics
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Multinational Finance Journal, 2002, vol. 6, no. 2, pp. 65-98 | https://doi.org/10.17578/6-2-1
Marco Corazza , University Ca’ Foscari of Venice, Italy    Corresponding Author
A. G. Malliaris , Loyola University Chicago, U.S.A.

Abstract:
Several empirical studies have shown the inadequacy of the standard Brownian motion (sBm) as a model of asset returns. To correct for this evidence some authors have conjectured that asset returns may be independently and identically Pareto-Lévy stable (PLs) distributed, whereas others have asserted that asset returns may be identically - but not independently - fractional Brownian motion (fBm) distributed with Hurst exponents, in both cases, that differ from 0.5. In this article we empirically explore such non-standard assumptions for both spot and (nearby) futures returns for five foreign currencies: the British Pound, the Canadian Dollar, the German Mark, the Swiss Franc, and the Japanese Yen.

Keywords : exponent of Hurst; fractional Brownian motion; multi-fractal market hypothesis; Pareto-Levy stable process; R/S analysis
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Multinational Finance Journal, 2002, vol. 6, no. 2, pp. 99-130 | https://doi.org/10.17578/6-2-2
Mondher Bellalah , Université de Cergy-Pontoise, France    Corresponding Author
Marc Lavielle , Univsité Paris-Sud, France

Abstract:
The selection of an appropriate parameterization of data is a fundamental step in a majority of empirical research effort. Likewise, detecting or estimating features of non-stationarities in data sequences is a critical point in conducting credible research that uses data for inference. In this spirit, this paper presents a simple decomposition of the empirical return distributions of financial assets into the sum of various normal distributions. The decomposition is motivated by the fact that market participants expect distributions to be drawn from two or three possible scenarios. It is also motivated by the recent applications of the EM algorithm to financial data. A parametric and a nonparametric approach are proposed and applied to the empirical distribution of the CAC 40 index traded in the Paris Bourse. We estimate the parameters of the mixture and propose a decomposition into three Gaussian distributions which essentially differ by their variances. The decomposition fits the observed distribution. An alternative approach, which consists in detecting these changes and estimating the distribution of the returns between two changes is developed. The results are obtained using a segmentation method, which is applied to financial data. One of the main findings in this paper is that the two approaches show the same results and give support to the proposed decomposition. There exists three kinds of regimes in the Paris Bourse and the series of the returns jump from a regime to another one at some random instants. This work might be applied to other data sets or other data generating conditions. It can used for the valuation of standard and exotic derivatives.

Keywords : derivatives; distributions; EM algorithm; mixture
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Multinational Finance Journal, 2002, vol. 6, no. 3&4, pp. 131-166 | https://doi.org/10.17578/6-3/4-1
Larry R. Gorman , California Polytechnic State University, U.S.A.    Corresponding Author
Bjorn N. Jorgensen , Columbia University, U.S.A.

Abstract:
The observed international home bias has traditionally been viewed as an anomaly. This paper provides statistical evidence contrary to this view within a mean-variance framework. Two methods of estimating the expected return and covariance parameters are investigated: (i) the traditional Markowitz approach, and (ii) the Bayes-Stein "shrinkage" algorithm. In-sample tests reveal that neither the Markowitz tangency allocation vectors nor the Bayes-Stein tangency allocation vectors are significantly different than a 100% domestic allocation (i.e. extreme home bias). These results are robust to the shorting of equity and across foreign exchange hedge strategies. The paper also reports out-of-sample tests with a view toward investment performance. Typically, a 100% domestic allocation outperforms both the Bayes-Stein and Markowitz tangency portfolios. Overall, the theorized gains to international diversification appear difficult to capture in practice and, hence, investors exhibiting a strong home bias are not necessarily acting irrationally.

Keywords : efficient allocation; foreign exchange hedging; home bias; international allocation; portfolio
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Multinational Finance Journal, 2002, vol. 6, no. 3&4, pp. 167-195 | https://doi.org/10.17578/6-3/4-2
Winston T. Lin , State University of New York at Buffalo, U.S.A.    Corresponding Author
Hong-Jen Lin , State University of New York at Buffalo, U.S.A.
Yueh H. Chen , National Sun Yat-sen University, Taiwan

Abstract:
This article examines the dynamic and stochastic behavior of the beta coefficient (to be referred to as the currency beta) of the unbiasedness hypothesis (UH) in foreign exchange markets. We argue that the dynamics and stochastics of currency betas can be attributed to the dynamic behavior of various macroeconomic variables from different sectors of an economy, in addition to the trend variable considered in previous research. Incorporating four macroeconomic variables from the financial, real, and external sectors into the currency betas of eight currencies (developed and emerging) under a logarithmic change specification used to test the UH, we attempt to simultaneously test the behavior of currency betas in terms of nonstationarity, shifts in the mean and variance, and randomness. The vast quantity of empirical tests and results strongly suggests that the changing characteristics of currency betas are readily apparent and have important implications for the reconciliation of the controversies surrounding the legitimacy of the UH, for government exchange rate policies, and for the forecasting of future spot rates, across the developed and emerging economies under study. We also find different tales from developed and developing countries.

Keywords : four-step generalized; logarithmic change specification; macroeconomic variables; unbiasedness hypothesis; variable mean response
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Multinational Finance Journal, 2002, vol. 6, no. 3&4, pp. 197-221 | https://doi.org/10.17578/6-3/4-3
Rashid Al-Qenae , University of Kuwait, Kuwait    Corresponding Author
Carmen Li , University of Essex, UK
Bob Wearing , University of Essex, UK

Abstract:
This paper investigates the incremental information content of earnings and other macroeconomic variables for share prices within the ‘prices leading earnings’ framework. We find evidence supporting the phenomenon of ‘prices leading earnings’ for the Kuwait Stock Exchange (KSE) after controlling for basic macroeconomic indicators. That is, the estimated earnings response coefficient is found to be sensitive (and significant) to the leading periods and it increased when more leading periods were included. The results suggest that prices anticipate earnings and hence provide useful information to KSE investors

Keywords : earnings response coefficients; Kuwait Stock Exchange; price-leading earnings
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Multinational Finance Journal, 2002, vol. 6, no. 3&4, pp. 223-249 | https://doi.org/10.17578/6-3/4-4
Simon Stevenson , University College Dublin, Ireland    Corresponding Author

Abstract:
This study examines the cross-border impact of central bank interest rate changes, using the example of the German Bundesbank. We examine the price impact of rate changes on both the general stock markets and on bank stocks in seven other European countries. The sample includes nations both within and outside of the European Union, and includes EU members who are participating in monetary union and members who obtained opt-outs. The results point to the existence of cross-border information transfers. Both non-German bank stocks and general equities react significantly to a large number of the Bundesbank rate changes. The results also indicate that European capital markets did differentiate between rate changes in terms of their relative importance. This was the case in terms of different responses between the financial institutions and the general equity markets and with regard to differing reactions between markets. In particular, those markets that were more committed to the exchange rate mechanism and the goal of monetary union generally reacted more than markets such as Denmark and UK. In addition, the importance of Bundesbank policy during the years leading up to EMU is supported by the fact that most non-German bank stocks reacted more to Bundesbank policy than to domestic rate changes and that no other country had the same level of influence on foreign equity returns.

Keywords : bank interest rate sensitivity; cross-border information transfers
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Multinational Finance Journal, 2003, vol. 7, no. 1 & 2 , pp. 3-23 | https://doi.org/10.17578/7-1/2-1
Anthony J. Seymour , University of Cape Town, South Africa    Corresponding Author
Daniel A. Polakow , University of Cape Town and Cadiz Holdings, South Africa

Abstract:
This research is aimed at a formal appraisal of recent advancements in stochastic volatility modeling and extreme-value theory to application of value-at- risk computation in particularly volatile markets. Established methods such as historical simulation are prone to underestimating value-at-risk in such developing markets. Two contemporary methods of value-at-risk calculation are tested on a representative portfolio of South African stocks. The first method incorporates extreme value theory. The second model includes both extreme value theory and volatility updating (via GARCH-type modeling). The combined GARCH-type time-series approach and extreme value theory model is found to provide significantly better results than both straightforward historical simulation as well as the extreme value model. In no instance, however, were results on these VaR methods as good as those obtained when the same methods were tested in developed markets. This research highlights noteworthy improvements to value-at-risk estimation efficacy in volatile emerging markets, and also stresses the need for further work into the estimation of value-at-risk in this context.

Keywords : backtesting; extreme value theory; GARCH, historical simulation; RiskMetrics; value-at-risk
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Multinational Finance Journal, 2003, vol. 7, no. 1&2, pp. 25-54 | https://doi.org/10.17578/7-1/2-2
Kam Fong Chan , University of Queensland, Australia    Corresponding Author
Christopher Gan , Lincoln University, New Zealand
Patricia A. McGraw , Lincoln University, New Zealand

Abstract:
A survey on derivative usage and financial risk management in New Zealand shows that the currency forward is the most frequently used derivatives in hedging transaction exposure. This paper examines whether forwards performs better than over-the-counter option for a New Zealand exporter in hedging NZD/USD transaction exposure. This research adopts H sin, Kuo and Lee’s (1994) model of hedging effectiveness which maximizes the exporter’s expected negative exponential utility function to compare and evaluate the ex-ante hedging effectiveness of both forwards and options synthetic forwards. The results show that prior to the 1997 Asian Crisis, forwards are marginally more effective than options synthetic forwards for an ordinary risk-averse exp orter to hedge against her/his 1, 3, 6 and 12-month transaction exposures. However, during and after the 1997 Asian Crisis, options synthetic forwards are more effective than forwards for hedging exposures of 1, 3 and 6 months. The results are robust to the exporter’s degree of absolute risk aversion.

Keywords : forwards; hedging effectiveness; optimal hedge ratio; options synthetic forwards; utility maximization
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Multinational Finance Journal, 2003, vol. 7, no. 1 & 2 , pp. 55-82 | https://doi.org/10.17578/7-1/2-3
Jean-Yves Datey , Comission Scolaire de Montréal, Canada    Corresponding Author
Geneviève Gauthier , HEC Montréal, Canada
Jean-Guy Simonato , HEC Montréal, Canada

Abstract:
An option contract now commonly encountered is the Asian quanto-basket option. This contract is useful for risk managers willing to participate to the return of an industrial sector with an international exposure without the foreign exchange risk exposition. Although the price of such contracts can be obtained very accurately using Monte Carlo simulation, market participants prefer faster but less accurate analytical approximations. This paper thus examines the precision of three different analytical approximations available to price Asian quanto-basket options. The results of a comprehensive simulation experiment performed on a large test pool of option contracts reveal that the approximations based on the reciprocal gamma and Johnson-type densities are in general the most accurate.

Keywords : analytical approximation; Asian option; basket option; option pricing; quanto option
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Multinational Finance Journal, 2003, vol. 7, no. 1&2, pp. 83-106 | https://doi.org/10.17578/7-1/2-4
C. J. Adcock , The University of Sheffield, UK    Corresponding Author

Abstract:
This paper reports a study into the performance of currency-hedged portfolios constructed using mean-variance optimization methods. The method is to carry out optimization relative to a benchmark portfolio, which consists of the real assets, and simultaneously to determine the optimal exposures to each currency future. This is done at various levels of risk along the efficient frontier. A study into a portfolio of international stock and bond indices viewed from a US Dollar perspective indicates that, for the period studied, optimal currency hedging has the potential to add value in terms of additional expected return and excess return on a risk-adjusted basis. The results also demonstrate the superiority of strategies in which the hedge ratio is optimally determined over those with a fixed hedge ratio.

Keywords : exchange rate risk; currency hedging; mean-variance optimization
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Multinational Finance Journal, 2003, vol. 7, no. 3 & 4, pp. 107-130 | https://doi.org/10.17578/7-3/4-1
Wi Saeng Kim , Hofstra University, U.S.A.    Corresponding Author
Esmeralda Lyn , Hofstra University, U.S.A.
Edward Zychowicz , Hofstra University, U.S.A.

Abstract:
This paper takes the position that technology transfers associated with foreign direct investment inflows (FDI) are an important determinant of economic growth in developing countries. The paper also posits that technology transfers, ceteris paribus, depend on the attributes of FDI providers, particularly as they relate to the degree of technological advancement and the behavioral aspects of the technology transfer. Japan and the U.S. are two important sources of FDI where multinational corporations domiciled in the two nations exhibit distinct variation in these attributes. Consistent with earlier research, the findings of this paper lend support for a positive role of FDI inflows from the advanced countries in increasing the economic growth of developing countries. The paper further finds some evidence that the relationship between the economic growth of the host countries and FDI inflows is stronger for U.S. originated FDI than that of Japanese originated FDI. This finding is consistent with the notion that U.S. multinational firms are more effective in generating technology transfers and spillovers to developing countries than do Japanese multinational firms.

Keywords : emerging market economies; foreign direct investments; economic development; technology transfer
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Multinational Finance Journal, 2003, vol. 7, no. 3 & 4, pp. 131-152 | https://doi.org/10.17578/7-3/4-2
Markku Vieru , University of Oulu, Finland    Corresponding Author

Abstract:
This paper tests the hypothesis that an anticipated information event affects the use of trading venues. Data from the Helsinki Stock Exchange are used where an upstairs market co–exists with a downstairs market. Trades are classified also as in-house trades and externalized trades. This paper suggests that interim earnings announcement affects where trades are executed. The results indicate that an anticipated announcement increases downstairs trading before the announcement event. Correspondingly trades in the upstairs market tend to decrease before the announcement. After the announcement upstairs trading recovers. Furthermore, the empirical findings suggest that the in-house trades in the upstairs market are positively related to the liquidity and volatility during the pre-announcement period. After the announcement the volatility association changes resulting in increased downstairs trading with high volatility. The results suggest that after the announcement trades are more information-motivated and high volatility is associated with a larger proportion of downstairs trading.

Keywords : event study; information asymmetry; accounting disclosure; thin securities markets; trading behavior
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Multinational Finance Journal, 2003, vol. 7, no. 3 & 4, pp. 153-175 | https://doi.org/10.17578/7-3/4-3
Costas M. Stephanou , University of South Africa, S.A    Corresponding Author
Gawie S. du Toit , University of South Africa, S.A
Marius J. Maritz , University of South Africa, S.A

Abstract:
What determined the value of South African assets after the unbanning of the African National Congress (ANC) and the release of Nelson Mandela? Economic or political events? This paper employs a dynamic version of the APT model for the period from 1991 to 1998 to determine whether the increase in volatility on the JSE changed the specification of the APT model as it applied to the Financial & Industrial Index of the Johannesburg Securities Exchange (JSE). The finding is that political events in late 1991, and economic events in mid 1994, changed APTM’s specification. This would indicate that during periods of profound political change, political events drive stock market prices.

Keywords : arbitrage pricing theory model; Johannesburg Securities Exchange; political events; economic events
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Multinational Finance Journal, 2003, vol. 7, no. 3 & 4, pp. 177-206 | https://doi.org/10.17578/7-3/4-4
Paolo Girardello , University of Verona, Italy    Corresponding Author
Orietta Nicolis , University of Bergamo, Italy
Giovanni Tondini , University of Verona, Italy

Abstract:
The aim of this paper is to identify whether the GARCH or the SV based models provide the best goodness of fit to financial time-series data. To investigate the issue, three different formulations for each type (i.e., the standard model, the fat-tailed model, and the asymmetric model) are examined. The models are first compared on theoretical grounds, then estimated using the daily returns from four market indices, and finally subjected to some diagnostic tests. The results demonstrate that for the standard formulation, the SV model fits data better than the GARCH model, while the fat-tailed and the asymmetric models roughly equivalent in describing the key features of returns. The results provide a preliminary analysis for selecting the best model with which to forecast the volatility of financial returns.

Keywords : GARCH models; stochastic volatility models; QML estimation; financial time series
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Multinational Finance Journal, 2003, vol. 7, no. 3 & 4, pp. 207-230 | https://doi.org/10.17578/7-3/4-5
Tatiana Ermolieva , International Institute for Applied Systems Analysis, Austria    Corresponding Author
Yuri Ermoliev , International Institute for Applied Systems Analysis, Austria
Guenther Fischer , International Institute for Applied Systems Analysis, Austria
Istvan Galambos , VITUKI Consult, Hungary

Abstract:
The main goal of this paper is to develop a flood management model that takes into account the specifics of catastrophic risk management: highly mutually dependent losses, the lack of information, the need for long-term perspectives and explicit analyses of spatial and temporal heterogeneities of various agents such as individuals, governments, and insurers. We use modified data from a pilot region of the Upper Tisza river, Hungary, to illustrate the evaluation of a public multipillar flood loss-spreading program involving partial compensation to flood victims by the central government, the pooling of risks through a mandatory public catastrophe insurance on the basis of location-specific exposures, and the demand for a contingent ex-ante credit to reinsure the insurance’s liabilities. GIS-based catastrophe models and stochastic optimization methods are used to guide policy analysis with respect to location-specific risk exposures.

Keywords : flood risk; catastrophe modeling; insurance; stochastic optimization; insolvency; contingent credit,; CvaR
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Multinational Finance Journal, 2004, vol. 8, no. 1 & 2, pp. 3-34 | https://doi.org/10.17578/8-1/2-1
Ken L. Bechmann , Copenhagen Business School, Denmark    Corresponding Author

Abstract:
This paper considers the effects of changes in the composition of the Danish blue-chip KFX index for the period of 1989-2001. Consistent with the selection criterion used for the index, there is no evidence for a stock price effect at the announcement of a change in the index. However, deleted stocks experience an abnormal return averaging –13% in a six-month period before the deletion and a decrease in trading volume and efficiency of stock prices following the deletion. For added stocks, the average abnormal return is 8% and there is no significant change in trading volume or efficiency. These long-run effects are best explained by the imperfect substitutes hypothesis or the information costs/liquidity hypothesis, suggesting that stocks in the KFX Index are exposed to a higher demand or more attention and a lower cost of trading than stocks outside the index. However, the results do not rule out the possibility that part of the stock price effect is due to the selection criterion used for the KFX Index. All in all, this paper documents that the selection criterion for and the size of an index as well as the size of the related stock market are relevant when explaining the stock market effects of index revisions.

Keywords : index composition; selection criterion; price and liquidity effects
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Multinational Finance Journal, 2004, vol. 8, no. 1 & 2, pp. 35-72 | https://doi.org/10.17578/8-1/2-2
Ronan G. Powell , University of New South Wales, Australia    Corresponding Author

Abstract:
This paper uses a multinomial framework to develop several takeover prediction models. The motivation for this approach lies with Morck, Shleifer and Vishny (1988), who note that separate considerations are appropriate for predicting which firms are subject to hostile (disciplinary) and friendly (synergistic) takeovers in the USA. In a typical binomial setting, in which takeover targets are treated as belonging to one homogenous group, differences between hostile and friendly targets are ignored. This may result in biased takeover probabilities and poor predictive performance. Using UK data, the results from this paper show that the characteristics of hostile and friendly targets do differ, particularly in terms of firm size. The multinomial models also have higher significance and explanatory power when compared to the binomial models. Furthermore, when the models are tested in an investment portfolio setting, the results suggest that a strategy of predicting hostile targets only, beats a benchmark control portfolio of firms of a similar size and market-to-book.

Keywords : multinomial logit; takeover prediction; abnormal returns; size effect
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Multinational Finance Journal, 2004, vol. 8, no. 1 & 2, pp. 73-114 | https://doi.org/10.17578/8-1/2-3
Mohammed Omran , Arab Academy for Science & Technology, Egypt and Arab Monetary Fund, U.A.E.    Corresponding Author

Abstract:
This paper evaluates the financial and operating performance of newly privatized Egyptian state-owned enterprises and determines whether such performance differs across firms according to their new ownership structure. The Egyptian privatization program provides unique post-privatization data on different ownership structures. Since most studies do not distinguish between the types of ownership, this paper provides new insight into the impact that post-privatization ownership structure has on firm performance. The study covers 69 firms, which were privatized between 1994 and 1998. For these newly privatized firms, this study documents significant increases in profitability, operating efficiency, capital expenditures, and dividends. Conversely, significant decreases in employment, leverage, and risk are found, although output shows an insignificant decrease following privatization. The empirical results also show that Egyptian state-owned enterprises, which were sold to anchor-investors and employee shareholder associations, seem to outperform other types of privatization, such as minority and majority initial public offerings.

Keywords : privatization; SOEs; Egypt; and ownership structure
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Multinational Finance Journal, 2004, vol.8, no.1 & 2, pp. 115-139 | https://doi.org/10.17578/8-1/2-4
John Capstaff , University of Strathclyde, U.K.    Corresponding Author
Audun Klæboe , Nordea Bank, Norway
Andrew P. Marshall , University of Strathclyde, U.K.

Abstract:
This study tests the signaling theory of dividends by investigating the stock price reaction to dividend announcements on the Oslo Stock Exchange (OSE), and subsequent changes in the cash flows of the firms involved. This paper adds to existing evidence by examining the role of dividends in a market where the corporate ownership structure is notably different from the U.S. and the U.K., and where the motivation to use dividends as a signaling mechanism appears to be stronger. The results indicate significant abnormal stock returns are associated with announcements of dividend changes. The results are robust to alternative models of dividend expectations, after controlling for the impact of earnings announcements, and are consistent across sub-periods in the sample. The stock market reaction is most pronounced for large, positive dividend announcements that are followed by permanent cash flow increases. This evidence provides modest support for the signaling theory of dividends in Norway, but it does not support the proposition that corporate ownership structure is an important influence on the use of dividends as a signaling mechanism.

Keywords : dividend announcements, Oslo stock exchange; signaling
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 141-171 | https://doi.org/10.17578/8-3/4-1
George Kaufman , Loyola University of Chicago, U.S.A. and Federal Reserve Bank of Chicago, U.S.A.    Corresponding Author

Abstract:
This paper focuses on the strong links between macroeconomic stability and bank soundness and argues that if the first is not achieved the second is not likely either with serious adverse consequences. Instability in banking is most often the result of actions by governments directed at the macroeconomy and banks to achieve short-run goals with little consideration for unintended immediate or longer-term consequences. Without government interference, there is little evidence that the banking system is unstable. This paper develops a framework for designing optimum regulatory structures that, if adopted by countries, will help to reduce instability in their banking systems and thereby also in their macroeconomies.

Keywords : macroeconomic stability; bank soundness; designing optimum regulatory structures
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 173-209 | https://doi.org/10.17578/8-3/4-2
Jan Bartholdy , Aarhus School of Business, Denmark    Corresponding Author
Kate Brown , University of Otago, New Zealand

Abstract:
The observed changes in share prices at the ex-dividend day have led researchers to look for a single marginal investor, either a long or a short term trader with different tax status, dominating all trades to explain the ex-day pricing in different markets. This paper provides a model which extends this research in three directions. One, it allows for the possibility that different types of traders may influence different stocks, thereby generating a separating equilibrium. Two, it identifies an additional marginal investor who has the option of being taxed as a short term or long term trader. Three, it explicitly models the fact that it can take a considerable time from when a dividend based trade is made until taxes have to be paid on that trade. A unique data set from New Zealand is used for the empirical analysis. Evidence of a separating equilibrium with at least two types of marginal investors is found

Keywords : dividends; ex-day pricing; taxation
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 211-225 | https://doi.org/10.17578/8-3/4-3
Gertjan Schut , IBM Business Consulting Services, Netherlands    Corresponding Author
Ruud van Frederikslust , Erasmus University Rotterdam, Netherlands

Abstract:
We investigate the shareholder wealth effects of 233 joint venture announcements of Dutch public companies in the period 1987 till 1998. The research shows that, on average, establishing joint ventures has a positive effect on the market value of Dutch companies. Using the strategic characteristics of joint ventures it is possible to explain and understand these wealth effects. Our research shows that the factors of strategic intention, the context in which the strategy is unfolded and the extent to which the company has control over the implementation strongly explains the extent to which a joint venture can create value

Keywords : oint venture strategy; event studies; shareholders value
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 227-245 | https://doi.org/10.17578/8-3/4-4
Ali M. Kutan , Southern Illinois University-Edwardsville, U.S.A.    Corresponding Author
Tansu Aksoy , Southern Illinois University-Edwardsville, U.S.A.

Abstract:
Recent findings have heightened the debate about the usefulness of public information in asset markets. Using daily composite and sector index returns, this paper examines the role of public information arrival in an emerging, high-inflation economy like Turkey. The findings reveal that real GDP and industrial production announcements have the most important impact on stock returns. Regarding inflation, nominal stock returns increase in response to unfavorable inflation announcements, but only for the financials sector and partially. Market volatility is more sensitive to news about real GNP, balance of trade, tourism and construction. Implications of the findings for market participants are discussed

Keywords : emerging markets; GARCH models; stock market volatility
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Multinational Finance Journal, 2004, vol. 8, no. 3 & 4, pp. 247-274 | https://doi.org/10.17578/8-3/4-5
Demissew Diro Ejara , Fairleigh Dickinson University, U.S.A.    Corresponding Author
Chinmoy Ghosh , University of Connecticut, U.S.A.

Abstract:
This paper investigates the impact of ADR listing on the trading volume and volatility of the domestic market. Existing theories indicate that trading shifts to a market with lower transaction costs, and the level of volatility is directly related to the level of trading activity. The analyses provide empirical evidence showing increase in both trading volume and price volatility in the domestic market after ADR listing. The increase in volatility is attributed to noise resulting from public information as opposed to from increased trading friction. This suggests improvement in liquidity following ADR listing. Comparison across country groups indicates marginally higher gain for emerging market stocks although the difference is not statistically significant. Auction type markets gain more in terms of increase in trading volume than dealer type markets

Keywords : ADR; cross listing; market segmentation; market liquidity.; transparency
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Multinational Finance Journal, 2005, vol. 9, no. 1 & 2, pp. 1-22 | https://doi.org/10.17578/9-1/2-1
Milind Sathye , University of Canberra, Australia    Corresponding Author

Abstract:
This study investigates the efficiency of large commercial banks in Asia and the Pacific region. In particular, the overall technical efficiency, pure technical efficiency and scale efficiency has been estimated, the factors (including, the environmental factors) that influence efficiency of banks in the region have been explained and the mean efficiency of large banks in different countries of the region has been compared. The study found that when the national frontier was expanded to regional frontier, the efficiency scores declined, the environmental variables had significant influence on efficiency scores and developed countries showed pure technical efficiency score significantly higher than the less developed countries. Hence, going by the global advantage hypothesis a surge in mergers and acquisitions of banks in this region is predicted

Keywords : bank efficiency; data envelopment analysis; Asia-Pacific
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Multinational Finance Journal, 2005, vol. 9, no. 1 & 2, pp. 23-42 | https://doi.org/10.17578/9-1/2-2
Fatma Cebenoyan , Hunter College-CUNY, U.S.A.    Corresponding Author
A. Sinan Cebenoyan , Hofstra University, U.S.A.
Elizabeth S. Cooperman , University of Colorado at Denver, U.S.A.

Abstract:
This paper uses a two-step methodology to examine the relationship between managerial cost inefficiency and the takeover of U.S. thrifts during a period of market liberalization and widespread takeover activity, 1994 to 2000. In the first stage using stochastic cost frontiers, controllable managerial cost inefficiency scores are estimated for all stock firms operating each year in 1994 to 2000. In a second stage, these scores are used to examine correlates of takeovers, focusing on cost inefficiency. For takeovers by banks, a significant negative relationship between cost inefficiency and takeover is found, suggesting an exit of more cost efficient firms from the thrift industry during this period. However, takeovers by thrifts are associated with other characteristics

Keywords : depository institutions; thrifts; takeovers and cost inefficiency
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Multinational Finance Journal, 2005, vol. 9, no. 1/2, pp. 72-98 | https://doi.org/10.17578/9-1/2-4
Sebouh Aintablian , Lebanese American University, Lebanon    Corresponding Author
Gordon S. Roberts , York University, Canada

Abstract:
This study examines a sample of mergers of Canadian Financial Institutions during the 1990’s to determine whether in-pillar, cross-pillar and foreign mergers are value-enhancing, and to determine possible sources of synergies behind those mergers. It develops testable hypotheses for Canadian FI mergers by synthesizing prior U.S. tests in the context of Canadian institutional arrangements. The overall results support the generality of findings of prior U.S. studies that the average abnormal return for both the acquiring and target firms is positive and statistically significant. This result suggests that acquisitions in the financial industry are, in Canada as elsewhere, driven by value-maximizing motivations. The study also shows that acquiring institutions’ shareholders benefit more when the acquisition is of a similar type (in-pillar) and domestic.

Keywords : Bank merger announcements; Canada
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Multinational Finance Journal, 2005, vol.9, no.1/2, pp. 99-128 | https://doi.org/10.17578/9-1/2-5
Syed M. Harun , Texas A&M University-Kingsville, USA    Corresponding Author
M. Kabir Hassan , University of New Orleans, USA
Tarek S. Zaher , Indiana State University, USA

Abstract:
The objective of the paper is to investigate whether the stock price reactions of commercial banks to monetary policy actions are dependent on the state of the economy. The results indicate that monetary policy actions have asymmetric effects on the returns of commercial banks across different monetary policy and business environments. The asymmetric effects can primarily be attributed to the asymmetric effects of monetary policy on discount rates across different monetary and business environments. We also observe that the impact of monetary policy on the returns of commercial banks is affected by bank-specific characteristics. Bank size, leverage and profitability play an important role in explaining the cross-sectional variation in bank returns as a result of monetary policy changes. We find that cross-sectional bank-specific characteristics affect the bank returns asymmetrically as a result of monetary policy changes across different business conditions. The results suggest that th

Keywords : Monetary policy; commercial bank; business condition.
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Multinational Finance Journal, 2005, vol. 9, no. 3/4, pp. 131-160 | https://doi.org/10.17578/9-3/4-1
Darren Butterworth , Charles River Associates, London, U.K.    Corresponding Author
Phil Holmes , University of Durham, Durham, U.K.

Abstract:
This paper provides the first investigation of the hedging effectiveness of the FTSE 100 and FTSE Mid 250 stock index futures contracts using hedge ratios generated within an extended mean Gini framework. This framework provides a robust alternative to the standard minimum variance approach, by distinguishing between different classes of risk aversion and producing hedge ratios that are consistent with the rules of stochastic dominance. The results show that the appropriate hedge ratio varies considerably with the investor’s degree of risk aversion and that the EMG approach is capable of being utilized by all classes of risk averse investors, in contrast to the standard minimum variance approach. In addition, the results show strong evidence of a duration effect and support the use of the extended mean Gini approach when cross hedges are involved

Keywords : hedging; futures; mean-gini; risk aversion
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Multinational Finance Journal, 2005, vol. 9, no. 3/4, pp. 161-187 | https://doi.org/10.17578/9-3/4-2
Söhnke M. Bartram , Lancaster University, U.K.    Corresponding Author

Abstract:
Commodity prices are more volatile than exchange rates and interest rates. Hence, a priori, commodity price risk represents a more important source of risk to corporations. This paper presents a comprehensive analysis of the economic commodity price exposure of a large sample of nonfinancial firms. The results indicate that corporations exhibit net exposures with regard to several commodity prices. Even though commodity prices are highly volatile, commodity price risk is, however, not found to be of greater importance than other financial risks. The results are consistent with few cash flows being affected by commodity price movements, and with corporate hedging of commodity price risk

Keywords : capital markets; commodity prices; corporate finance,;derivatives; exposure; risk management
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Multinational Finance Journal, 2005, vol. 9, no. 3/4, pp. 189-214 | https://doi.org/10.17578/9-3/4-3
Benilde Maria do Nascimento Oliveira , University of Minho, Portuga    Corresponding Author
Manuel José da Rocha Armada , University of Minho, Portugal.

Abstract:
This paper examines the impact of the introduction of the futures market, on the volatility of the underlying Portuguese stock market. The simple analysis of variance is only the first step to a later undertaking of a much more robust methodology which involves the application of a GARCH model, with the main purpose of studying some potential changes on the structure of the conditional volatility of the Portuguese stock market. The results for the Portuguese market are not identical to those generally found internationally. The initial and simple analysis of variance seems to suggest a strong increase in the level of volatility. When a GARCH model is applied, with the main purpose of studying the evolution of the structure of the conditional volatility, a reduction in market efficiency, measured by its ability to quickly incorporate new information, is identified.

Keywords : Index futures; conditional volatility; information; GARCH
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Multinational Finance Journal, 2005, vol. 9, no. 3/4, pp. 215-236 | https://doi.org/10.17578/9-3/4-4
Lawrence Kryzanowski , Concordia University, Canada    Corresponding Author
Skander Lazrak , Brock University, Canada
Ian Rakita , Concordia University, Canada

Abstract:
Microstructure effects for 359 TSX listed IPO’s in the period 1984-2002 are examined. Based on first day returns, earning positive mean returns is very difficult even when most IPO’s are purchased at the offer price. Mean daily trade volume for the first five days of IPO trading is large relative to the means for the first thirty days and for longer periods. The dollar volume of sells is always significantly larger than that of buys suggesting that institutional investors are active on the sell side in the aftermarket. Liquidity as measured by quoted depth is initially large and decays rapidly over time. Gross returns are often low or negative, and average round-trip trade costs increase from 1.5% to 2.9% and 1.8% to 3.7% for more and less patient traders, respectively, over the first nine months of trading for an average IPO. Early amortized spreads are relatively large due to large initial share turnover

Keywords : initial public offerings; microstructure; spreads; decimalization
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Multinational Finance Journal, 2005, vol. 9, no.3/4, pp. 237-269 | https://doi.org/10.17578/9-3/4-5
Mitchell Ratner , Rider University, New Jersey, USA    Corresponding Author
Ricardo P. C. Leal , COPPEAD Graduate School of Business, Brazil

Abstract:
One of the main reasons that investment advisors recommend international investments is that foreign stocks are not highly correlated with U.S. stocks. As world economies become increasingly interrelated, it may become more difficult for investors to achieve effective diversification. This research investigates international stock market correlation, and assesses whether global diversification on a sector basis is beneficial to U.S. investors. This analysis includes 38 developed and emerging stock markets from 1981-2000. In addition to demonstrating a potential loss of diversification benefits, this paper utilizes an optimal global asset allocation model to illustrate the effects of sector diversification on portfolio performance over time.

Keywords : sectors; optimal portfolio; international diversification; co-movement
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Multinational Finance Journal, 2006, vol. 10, no. 1/2, pp. 1-41 | https://doi.org/10.17578/10-1/2-1
Amrit Judge , Middlesex University, U.K.    Corresponding Author

Abstract:
For 366 large non-financial U.K. firms, this paper reports the factors that are important in determining their decision to hedge foreign currency exposure. The results provide strong evidence of a relationship between expected financial distress costs and the foreign currency hedging decision and more significantly the foreign currency only hedging decision. These findings seem stronger than those found in similar studies using U.S. data. The paper argues that this might be due to the fact that several U.S. studies include in their non-hedging sample other hedging firms, such as firms using non-derivative methods for currency hedging and interest rate only hedgers, which might bias the results against the a priori expectations. However, it might also be due to a country specific institutional factor, that is, U.K. firms face higher expected costs of financial distress due to differences in the bankruptcy codes in the two countries

Keywords : corporate hedging; foreign currency hedging; derivatives, financial distress; foreign currency debt; bankruptcy codes
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Multinational Finance Journal, 2006, vol. 10, no. 1/2, pp. 43-79 | https://doi.org/10.17578/10-1/2-2
Jason Mitchell , University of Michigan Business School, U.S.A    Corresponding Author
H. Y. Izan , University of Western Australia, Australia
Roslinda Lim , Macquarie University, Australia

Abstract:
A compelling reason for engaging in on-market buy-backs is that it provides a signal about the undervaluation of the company. In this paper an alternative, accounting based, method of determining fundamental value and undervaluation is used, namely the Ohlson residual income valuation framework. It is found that prior to the announcement buy-back companies are significantly undervalued relative to comparable non-buy-back companies. This undervaluation is largely but not totally removed in the period immediately following the on-market buy-back implying on-market buy-backs are predominantly an effective signaling mechanism. Where the firm cites undervaluation as a specific motive for the buy-back then, in fact, a higher degree of undervaluation prior to the buy-back is evident. The results provide evidence that management can, and does, identify undervaluation and reduces this through the signaling mechanism of on-market buy-backs.

Keywords : buy-backs; undervaluation; fundamental value
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Multinational Finance Journal, 2006, vol. 10, no. 1/2, pp. 81-116 | https://doi.org/10.17578/10-1/2-3
Liliana Gonzalez , University of Rhode Island, USA    Corresponding Author
Philip Hoang , Australian National University, Australia
John G. Powell Massey , University, New Zealand
Jing Shi , Jiangxi University of Finance and Economics, China and The Australian National University, Australia

Abstract:
A compelling reason for engaging in on-market buy-backs is that it provides a signal about the undervaluation of the company. In this paper an alternative, accounting based, method of determining fundamental value and undervaluation is used, namely the Ohlson residual income valuation framework. It is found that prior to the announcement buy-back companies are significantly undervalued relative to comparable non-buy-back companies. This undervaluation is largely but not totally removed in the period immediately following the on-market buy-back implying on-market buy-backs are predominantly an effective signaling mechanism. Where the firm cites undervaluation as a specific motive for the buy-back then, in fact, a higher degree of undervaluation prior to the buy-back is evident. The results provide evidence that management can, and does, identify undervaluation and reduces this through the signaling mechanism of on-market buy-backs.

Keywords : stock market; bulls and bears; turning point dating
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Multinational Finance Journal, 2006, vol.10, no. 1/2, pp. 117-151 | https://doi.org/10.17578/10-1/2-4
Eric Girard , Siena College, U.S.A.    Corresponding Author
Amit Sinha , Indiana State University, U.S.A.

Abstract:
This paper examines the relationships between market risk premiums, time-varying variance and covariance in forty-eight emerging, and seven developed capital markets. We allow each market’s risk premium generating process to be state-dependent by accounting for negative and positive market price of variance and covariance risk. We find that half of the emerging markets exhibit reward to world variance while for the other half are only sensitive to local risk factors. We also find evidence of a negative relationship between reward to local risk and reward to world risk. Accordingly, the relative importance of one reward versus the other depends on the ever-changing correlation with the world market. Finally, we show that correlation is not a factor that explains reward to local risk in few segmented capital markets

Keywords : reward to risk; conditional risk; market price of risk; multivariate GARCH
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Multinational Finance Journal, 2006, vol. 10, no. 3/4, pp. 153-177 | https://doi.org/10.17578/10-3/4-1
T.J. Brailsford , UQ Business School, University of Queensland, Australia    Corresponding Author
J. H.W. Penm , The Australian National University, Australia
R.D. Terrell , The Australian National University, Australia

Abstract:
Vector error-correction models (VECM) are increasingly being used to capture dynamic relationships between financial variables. Estimation and interpretation of such models can be enhanced if zero restrictions are allowed in the coefficient matrices. Specifically, in tests of indirect causality and/or Granger non-causality in a VECM, the efficiency of the causality detection is crucially dependent upon finding zero coefficient entries where the true structure does indeed include zero entries. Such a VECM is referred to as a zero-non-zero (ZNZ) patterned VECM and includes full-order models. Recent advances have shown how ZNZ patterns can be explicitly recognized in a VECM and used to provide an effective means of detecting Granger-causality, Granger non-causality and indirect causality. This paper develops a general approach and framework for I(d) integrated systems. We show that causality detection in an I(d) system can be discovered identically from the ZNZ patterned VECM’s or the equivalent VAR models.

Keywords : error correction models; VAR; granger causality; purchasing power parity
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Multinational Finance Journal, 2006, vol. 10, no. 3/4, pp. 179-221 | https://doi.org/10.17578/10-3/4-2
Marios Nerouppos , Cyprus International Institute of Management, Cyprus    Corresponding Author
David Saunders , University of Waterloo, Canada
Costas Xiouros , University of Southern California, U.S.A.
Stavros A. Zenios , University of Cyprus, Cyprus

Abstract:
Risk management has undergone a remarkable transformation over the past fifteen years, with most new methods having been designed for the concerns of large institutions operating in well-developed financial markets. This paper addresses a problem faced by smaller institutions operating in emerging markets, namely the significant lack of data. As many risk management techniques are data intensive, this problem may seem insurmountable. This paper introduces a new method, enriched historical simulation, which supplements the data in an emerging market with data from other markets. The principle behind this methodology is that when many markets are considered, the essence of emerging market economies comes to the fore, with local idiosyncrasies being washed out. This principle is illustrated on the problem of estimating Value-at-Risk on the Cyprus and Athens Stock Exchanges.

Keywords : risk management; historical simulation; value-at-risk; emerging markets
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Multinational Finance Journal, 2006, vol. 10, no. 3/4, pp. 223-250 | https://doi.org/10.17578/10-3/4-3
Seung-Doo Choi , Dongeui University, Korea    Corresponding Author
Sang-Koo Nam , Korea University, Korea

Abstract:
This paper compares the long-run buy-and-hold returns of privatization initial public offerings (IPOs) to those of the domestic stock markets of respective countries using a sample of 241 privatization IPOs from 41 countries. The evidence indicates that the privatization IPOs significantly outperform their domestic stock markets if the returns are equally-weighted while value-weighted returns show a sharp reduction in performance. However, there are substantial variations in the long-run performance of privatization IPOs across industries, issuing countries, issue period, and the origin of commercial law of the country. This paper also analyzes the cross-sectional determinants of the long-run buy-and-hold returns of privatization shares. The results indicate that the long-run performance of privatization IPOs is significantly related to the proxies of policy uncertainty, consistent with the signaling models of Perotti (1995). Such effects appear to be overwhelming in the earlier post-IPO period, while the traditional market factors become more important as the policy uncertainty disappears over time. The institutional features of the country such as accounting standards, origin of commercial law, and corporate governance scheme also affect the return performance of privatization issues.

Keywords : privatization; IPO; policy uncertainty;CAR; BHAR
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Multinational Finance Journal, 2006, vol. 10, no. 3/4, pp. 251-276 | https://doi.org/10.17578/10-3/4-4
Andreas Charitou , University of Cyprus, Cyprus    Corresponding Author
Andreas Makris , University of Cyprus, Cyprus
George P. Nishiotis , University of Cyprus, Cyprus

Abstract:
Using data from 1993 to 2002 for eight developed and fifteen emerging markets, we find that return correlations, mean-variance spanning, and Sharpe ratio tests support that closed-end country funds (CECF) can mimic their corresponding foreign indices, and that they are more heavily influenced by their corresponding local markets instead of the U.S. market. This implies that U.S. investors, by investing in CECF, can achieve similar international diversification benefits to those achieved by investing directly in the foreign indices. We also document increased correlation between the U.S. market and foreign markets during this period and find no compelling evidence of economically and statistically significant international diversification benefits, as opposed to a pre 1993 period. These findings could be associated with the financial market liberalization that was prevalent during the period

Keywords : closed-end country funds; international diversification; emerging markets; liberalization; spanning tests
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Multinational Finance Journal, 2006, vol.10, no.3/4, pp. 277-305 | https://doi.org/10.17578/10-3/4-5
Riadh Belhaj , Conservatoire National des Arts et Métiers, France    Corresponding Author

Abstract:
In this paper we present a model for valuing European and American options, which incorporates both default and interest rate risks. We develop a framework that permits evaluation of three kinds of options: (i) options issued by default-free counterparties on risky bonds, (ii) options issued by risky counterparties on default-free bonds and (iii) options issued by risky counterparties on risky bonds — a case where default risk enters at both levels. We show that the price of a put option on a risky discount bond is hump shaped for a European put and monotone increasing for an American put. We also find that the price impact of default risk is less for an American put option than for a European one.

Keywords : option pricing; default risk; defaultable bonds; vulnerable options
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Multinational Finance Journal, 2007, vol. 11, no. 1/2, pp. 1-31 | https://doi.org/10.17578/11-1/2-1
Rubi Ahmad , University of Malaya, Malaysia    Corresponding Author
Mohamed Ariff , Bond University, Australia
Michael Skully , Monash University, Australia

Abstract:
What was termed government-guided merger was a unique banking sector reform implemented in 2002 by the central bank of Malaysia guiding a larger number of depository institutions to form 10 large banks. This paper identifies the factors entering this massive merger exercise. Similar to the finding in bank merger literature, we find larger banks became acquirers. Also, low risk banks had higher probability of becoming an acquiring bank while high-risk banks became targets for takeover. Surprisingly managerial performance—financial ratios and changes in productivity reported as significant factors in prior market-based merger studies—was not significant in this study. Banks closely connected to government had greater chance of becoming acquiring banks while the reverse is true of target banks. These findings have not been reported in other studies of mergers, and are likely to be useful to central banks considering similar reforms.

Keywords : bank mergers; acquiring banks; managerial performance; government connections
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Multinational Finance Journal, 2007, vol. 11, no. 1/2, pp. 33-76 | https://doi.org/10.17578/11-1/2-2
Hubert Ooghe , Vlerick Leuven Gent Management School and Ghent University, Belgium    Corresponding Author
Sofie Balcaen , Ghent University, Belgium

Abstract:
Faced with the question as to whether failure prediction models can easily be transferred and applied to a new data setting, this study examines the performance of seven models on a dataset of Belgian company failures after re-estimation of the coefficients. The validation results indicate that some models are widely usable: they are strongly predictive when applied to the new data set. The Gloubos-Grammatikos models and Keasey-McGuinness appear among the best performing models, and also Ooghe-Joos-De Vos and Zavgren seem to be widely usable, respectively for failure prediction 1 and 3 years prior to failure. At the same time, the Altman and Bilderbeek models show very poor results when applied to the Belgian dataset. The best performing models seem to combine the right variables in an intuitively right sense and it appears that the combination of some types of variables generally leads to good predictive results. On the contrary, the estimation technique, complexity and number of variables do not explain the predictive performances.

Keywords : failure prediction model; international comparison; validation; annual accounts; re-estimation
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Multinational Finance Journal, 2007, vol. 11, no. 1/2, pp. 77-96 | https://doi.org/10.17578/11-1/2-3
Amin Mawani , York University, Toronto, Canada    Corresponding Author

Abstract:
This paper illustrates a methodology for estimating corporate marginal tax rates in the presence of tax losses, and within the context of Canadian tax law.

Keywords : taxation; marginal tax rates; tax losses; corporate tax rates.
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Multinational Finance Journal, 2016, vol. 20, no. 2, pp. 85-126 | https://doi.org/10.17578/20-2-1
Nihat Aktas , WHU Otto Beisheim School of Management, Germany    Corresponding Author
Santo Centineo , WHU Otto Beisheim School of Management, Germany
Ettore Croci , Universita’ Cattolica del Sacro Cuore, Italy

Abstract:
This article studies European acquisitions in the period 1990-2013 to examine the relationship between family ownership and the propensity to undertake diversifying acquisitions. We show that family firms, especially those highly leveraged, tend to make more cross-industry acquisitions as this allows the owners to effectively diversify their wealth without selling their shares. Our results also indicate that family firms that value control high (i.e., family firms with high leverage) appear not to diversify at the detriment of minority shareholders.

Keywords : family firms; leverage; control motives; acquisitions
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Multinational Finance Journal, 2007, vol. 11, no. 1/2, pp. 97-122 | https://doi.org/10.17578/11-1/2-4
Antonis Demos , Athens University of Economics and Business, Greece    Corresponding Author
George Vasillelis , Imperial College and Dresdner-Kleinwort-Benson Bank, U.K.

Abstract:
The stock market predictability has been a favorite topic of scholars and practitioners alike. It seems that some small predictability is present in all major stock markets worldwide. This predictability can be attributed to the risk premium structure and/or to inefficiencies present in the markets. This paper investigates the predictability of returns of some major shares listed in the London Stock exchange, using economic as well as accounting variables. We first measure the predictability of these variables by regressing individual stock returns on their corresponding accounting variables and the economic ones. Second, we estimate for the returns a seasonal latent factor model with time varying volatility. Provided that our measure of risk is an adequate one, the residuals of this estimation are free of the predictability of risk premium, and consequently one expects that any accounting and factor economic variables would have no predictive power. An LM-type test is developed and employed to indicate that indeed the U.K. stock market predictability is due to the risk premium structure, and the explanatory power of the variables considered here is due to them being an approximation of risk. However, when we perform the test jointly for all assets, we reject the zero predictability hypothesis at 5% but not at 1%.

Keywords : conditional heteroskedastic latent factor; LM test; stock returns
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Multinational Finance Journal, 2007, vol. 11, no. 1/2, pp.123-156 | https://doi.org/10.17578/11-1/2-5
Pascal Alphonse , Lille School of Management, University of Lille 2, France    Corresponding Author

Abstract:
This article examines whether mean reversion in stock index basis changes is actually induced by arbitrage trading, using intra-day arbitrage trade data. The empirical evidence suggests that arbitrage trading alone cannot account for all of the mean reversion in basis changes, even when infrequent trading is controlled for. This general mean reversion is consistent with mean reversion in liquidity and partial adjustment in the cash market. The behavior of arbitrageurs appears highly competitive. We find that on average the net arbitrage profit is at the competitive level of zero. Furthermore, it is suggested that some mispricing persistence may be related to time-varying liquidity. Accordingly, the results indicate that arbitrageurs pay attention to the depth of the market and value the early unwinding option

Keywords : market microstructure; arbitrage trading; liquidity; stock index futures; market efficiency
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Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 157-178 | https://doi.org/10.17578/11-3/4-1
Manfred Frühwirth , Vienna University of Economics and Business Administration, Austria    Corresponding Author
Paul Schneider , Vienna University of Economics and Business Administration, Austria
Markus S. Schwaiger , Austrian Central Bank and Vienna University of Economics and Business Administration, Austria

Abstract:
The Amin/Bodurtha framework was developed for the valuation of American-style financial instruments driven by three sources of uncertainty— domestic interest rate risk, foreign interest rate risk and exchange rate risk. The model is not only appropriate for pricing a number of financial derivatives, but also, as we show, for valuing foreign investment projects in the presence of real options. In this paper we propose the most natural directly implementable specification within the Amin/Bodurtha framework that permits all combinations of up and down moves of these three risk factors without restricting volatility functions of the factors or correlations between them. By use of the depth-first algorithm, we can show that this specification is implementable at reasonable computation times

Keywords : American-style derivatives; multinational timing decisions; depth-first algorithm
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Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 179-210 | https://doi.org/10.17578/11-3/4-2
Thomas C. Chiang , Drexel University, U.S.A    Corresponding Author
Cathy W.S. Chen , Feng Chia University, Taiwan
Mike K.P. So , The Hong Kong University of Science and Technology, China

Abstract:
This paper examines the hypothesis that both stock returns and volatility are asymmetric functions of past information derived from domestic and U.S. stock-market news. The results show the presence of negative autocorrelation, which is consistent with the dominance of positive-feedback trading behavior. By employing a double-threshold autoregressive GARCH model to investigate four major index-return series, the study finds significant evidence to sustain the asymmetric hypothesis of stock returns. Specifically, this paper finds that negative news will cause a decline in national stock returns that is larger than the gain caused by good news of an equivalent magnitude. This also holds true for the conditional variance. The return appears to be more volatile and persistent when bad news hits the market than when good news does.

Keywords : asymmetry; threshold GARCH; volatility; Bayesian estimation; posterior-odds ratio
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Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 211-252 | https://doi.org/10.17578/11-3/4-3
Sabri Boubaker , Université Paris XII, Val de Marne, France    Corresponding Author

Abstract:
The purpose of this study is to provide an empirical analysis of the relationship between ownership structure of French firms and their value. Using data for 510 French publicly traded firms, the current study provides evidence in support of the entrenchment hypothesis. The results show that large controlling shareholders maintaining grip on control while holding only small fraction of cash flow rights are inclined to expropriate minority shareholders, which in turn detrimentally affects the firm’s valuation. The evidence also indicates that pyramiding is the main device set to unduly entrench the large controlling shareholder. Additional analysis reveals that the identity of the second largest controlling shareholder matters. Sharing control with a family constrains the largest controlling shareholder to steer clear of self-serving behavior. However sharing control with a widely held firm or with a financial institution fosters this self-serving behavior.

Keywords : ownership structure; corporate governance; minority expropriation
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Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 253-285 | https://doi.org/10.17578/11-3/4-4
Erik R. Lidén , Göteborg University, Sweden    Corresponding Author

Abstract:
The paper analyzes stock-price reactions to stock recommendations published in printed Swedish media and also trading volumes at and around the publication day, bid/ask spreads, and the post publication drift in recommended stocks for the period 1995 – 2000. Its small size and limited number of actors makes the Swedish stock market an interesting comparison to the U.S. stock markets. The positive publication-day effect for buy recommendations was almost fully reversed after 20 days, supporting the price pressure hypothesis, and the effect for sell recommendations was negative and prices continued to drift down, supporting the information hypothesis. Analysts seem to hand their information to clients before publication, whereas no such information leaking pattern was observed for journalists. The impact to recommendations from journalists was significantly larger than analyst recommendations, implying a tradeoff between the size of pre-publication cumulative abnormal returns and the publication-day effect.

Keywords : price pressure hypothesis; information hypothesis; journalists; analysts
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Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 287-322 | https://doi.org/10.17578/11-3/4-5
Haitham A. Al-Zoubi , United Arab Emirates University, UAE    Corresponding Author
Aktham Maghyereh , United Arab Emirates University, UAE

Abstract:
This paper re-examines the issue of mean reversion in stock prices by incorporating the structural break effect in the long horizon regression. Before adjusting for structural break, the paper finds that previous studies understate the evidence of mean-reversion. The understatement is mainly due to the clustering heteroskedasticity and autocorrelation in the overlapping returns. After adjusting for structural break(s), no evidence of predictability for value-weighted returns has been documented. However, stronger evidence of mean reversion in stock prices is documented for equally-weighted portfolios. The reverse effect of structural break can be explained by the switch to mean aversion in the last subperiod of value-weighted portfolios while no such switch in equally weighted portfolios.

Keywords : moving blocks bootstrap; mean reversion; structural change long-horizon regressions
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Multinational Finance Journal, 2008, vol. 12, no. 1/2, pp. 1-20 | https://doi.org/10.17578/12-1/2-1
Raj Aggarwal , University of Akron, U.S.A.    Corresponding Author
Winston T. Lin , The State University of New York at Buffalo, U.S.A.
Sunil K. Mohanty , University of St. Thomas, Minneapolis, U.S.A.

Abstract:
It has been suggested that prior studies that have puzzlingly found forward rates to be inefficient and biased forecasts of future spot rates may be limited by inadequate statistical methodologies. Using an improved statistical methodology that accounts for both non-stationarity and non-normality in exchange rates, we unfortunately reconfirm that U.S. dollar forward rates for horizons ranging from one to twelve months for the British pound, Japanese yen, Swiss franc, and the German mark over the period 1973–1998 are generally not efficient or rational forecasts of future spot rates. However, as one bright spot, we cannot reject efficiency and rationality for the U.S. dollar forward rate for the Canadian dollar.

Keywords : forward rates; rational forecasts
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Multinational Finance Journal, 2008, vol. 12, no. 1/2, pp. 21-44 | https://doi.org/10.17578/12-1/2-2
Tanweer Hasan , Roosevelt University, U.S.A.    Corresponding Author
Palani-Rajan Kadapakkam , University of Texas at San Antonio, U.S.A.
P. C. Kumar , American University, U.S.A.

Abstract:
The quality of corporate governance has been shown to have wide-ranging implications, e.g., on the performance of stock markets and on exchange rates. This study investigates whether the quality of corporate governance in a country impacts investment decisions made at the micro level of the firm. The study focuses on Asian emerging markets since they have widely varying standards of corporate governance. Based on eight measures of corporate governance, four aggregate indices of corporate governance (business environment, legal environment, investor rights, and an overall measure) are developed for seven countries in the sample drawing on data from published sources. The results indicate that improvements in corporate governance mitigate the dependency of firm investments on their internal resources and facilitate access by firms to capital markets.

Keywords : corporate governance; firm investments; emerging markets; investment-cashflow sensitivity
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Multinational Finance Journal, 2008, vol. 12, no. 1/2, pp. 45-66 | https://doi.org/10.17578/12-1/2-3
David Michayluk , University of Technology Sydney, Australia    Corresponding Author
Laurie Prather , Bond University, Australia

Abstract:
Most exchanges do not report trade direction thus researchers and traders must deduce whether a trade is buyer or seller initiated since this information is required to evaluate models of bid-ask spread components and to understand the market for immediacy. Algorithms that assign trade direction based on the proximity to bid or ask quotes are easily implemented but ignore information readily discernable from orders, changes in the quoted depth and subsequent price movements. Using the New York Stock Exchange Trades, Orders and Quotes database, systematic biases in existing trade direction algorithms are documented that can be rectified by recognizing that the impact on liquidity is the fundamental characteristic underlying order placement. Although this liquidity-based method is difficult to implement, it more closely captures the actual behavior of market participants.

Keywords : liquidity; trade direction algorithm; TORQ database; order placement
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Multinational Finance Journal, 2008, vol. 12, no. 1/2, pp. 67-104 | https://doi.org/10.17578/12-1/2-4
Timotheos Angelidis , University of Peloponnese, Greece    Corresponding Author
Alexandros Benos , National Bank of Greece, Greece

Abstract:
This paper analyses the application of several volatility models to forecast daily Value-at-Risk (VaR) both for single assets and portfolios. We calculate the VaR number for 4 Greek stocks, 2 portfolios based on these securities and for the Athens Stock Exchange General Index. We model VaR for long and short trading positions by employing non-parametric methods, such as historical and filtered historical simulation, as well as parametric ones. Especially for the later techniques we use a collection of ARCH models (GARCH, EGARCH and TARCH) based on three distributional assumptions (Normal, Student-T and Skewed Student-T), while we combine the Extreme Value Theory with a volatility updating technique (via GARCH type-modeling). In order to choose one model among the various forecasting methods, we employ a two-stage backtesting procedure. In the first one, we implement two backtesting criteria (unconditional and conditional coverage) to test the statistical accuracy of the models.

Keywords : value-at-risk,; GARCH; historical simulation; backtesting
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Multinational Finance Journal, 2016, vol. 20, no. 3, pp. 181-236 | https://doi.org/10.17578/20-3-1
Andreas Charitou , University of Cyprus, Cyprus
Ifigenia Georgiou , Aston Business School, UK & Cyprus International Institute of Management, Cyprus    Corresponding Author
Andreas Soteriou , University of Cyprus, Cyprus

Abstract:
In this paper, we highlight the strategic role of the board of directors (BOD) in business excellence and its link with firm value. We empirically investigate the relationship between the composition of the BOD and the winning of a Malcolm Baldrige National Quality Award (MBNQA) or a local award explicitly based on the MBNQA criteria, a proxy for business excellence. Using a contingency approach, we examine several characteristics of the BOD, such as the number of inside directors, the number of directors who can be considered industry experts, and the number of directors with management expertise. We show that the likelihood of winning a quality award is positively associated with the number of outside directors with Ph.D. in the main object of business operations, and the number of outside directors with recent industry expertise. Subsequent residual analysis reveals that firm value is positively associated with the degree of the fit between board composition and quality management strategy. Specifically, operating income before depreciation, operating margin, Tobin’s Q, and ten-day raw and market adjusted returns, are positively related to the degree of fit, while cost per dollar of sales, negatively. Thus, we, conclude that an appropriate board structure that fits the QM strategy exists, and this fit is positively associated with firm value.

Keywords : board of directors; corporate governance; director expertise; strategic role of the board quality management; quality awards
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Multinational Finance Journal, 2008, vol. 12, no. 1/2, pp. 105-126 | https://doi.org/10.17578/12-1/2-5
Gary Tian Gang , Tian University of Wollongong, Australia    Corresponding Author

Abstract:
This study examines the cointegrating and long-term causal relationships of equity market prices in equity markets of Chinese states namely, Shanghai, Shenzhen, Hong Kong, Taiwan and Singapore. I cover the period between October 5, 1992 and March 20, 2006, taking into account both the Asian financial crisis and the opening-up of China’s equity markets in recent years. First, I analysis the cointegration by utilizing Johansen’s (1988) cointegration tests. I find that a long-term equilibrium relationship measured by cointegration has been established among Shanghai, Shenzhen, Hong Kong and Taiwanese markets and, to a lesser degree, between these markets and the Singapore market since 1998. Secondly, this study examines causality by exploring the bootstrapped Toda-Yamamoto non-causality tests. I find that there is strong evidence of a bi-directional causality between Shanghai and Shenzhen markets after 1998. Furthermore, I also find that there are more causal linkages between the Chinese states equity markets: two mainland Chinese markets, Hong Kong, Taiwan, and Singapore became more dependent on each other. The robustness of the above findings is confirmed by the use of a bootstrap test employed to test the validity of my results.

Keywords : international financial markets; causality testing in VaRs with bootstrapping; cointegration
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Multinational Finance Journal, 2012, vol. 16, no. 1/2, pp. 1-20 | https://doi.org/10.17578/16-1/2-1
Selçuk Caner , International Monetary Fund, Washington D.C., USA
Mehmet Baha Karan , Hacettepe University, Ankara, Turkey    Corresponding Author

Abstract:
In this paper we estimate creditworthiness of small and medium-sized enterprises (SMEs) that receive financial and non-financial incentives from the small business development administration (KOSGEB) in Turkey. Assessing creditworthiness of SMEs to qualify for government support remains a concern since standard methods based on financial information on firms would be inadequate due to lack of transparent financial information. Such businesses apply for government support because they would not qualify for funding from financial institutions. To assess the creditworthiness of these businesses other firm-level data is essential. A logit model is used to estimate riskiness of SMEs including non-financial data obtained from the business survey obtained by KOSGEB. We find that efficient and internationally competitive SMEs are unlikely to default. Firms with high creditworthiness are also managed by owners and focus on their core businesses.

Keywords : Risk; creditworthiness; credit risk; default; SME; logit
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Multinational Finance Journal, 2008, vol. 12, no. 1/2, pp. 127-155 | https://doi.org/10.17578/12-1/2-6
Kirt C. Butler , Michigan State University, U.S.A.    Corresponding Author
Katsushi Okada , Michigan State University, U.S.A.

Abstract:
This article documents the stochastic properties of bivariate returns to international stock market indices. In particular, the article searches for the best fit among a class of higher-order VARMA(u,v)-EGARCH(p,q) models with normal errors and a constant conditional correlation using MSCI domestic and world-ex-domestic index pairs for the Emu, Japan, the United Kingdom, and the United States. Although a first-order VAR or VMA specification is sufficient to accommodate the conditional means, second-order EGARCH terms are necessary in two of the four bivariate series

Keywords : higher-order; bivariate; international diversification; EGARCH; VARMA
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Multinational Finance Journal, 2008, vol. 12, no. 3/4, pp. 157-184 | https://doi.org/10.17578/12-3/4-1
Mohamed Nurullah , Glasgow Caledonian University, U.K.    Corresponding Author
Sotiris K. Staikouras , Cass Business School, U.K.

Abstract:
The European market of banks and insurance companies has traditionally no exact boundaries between insurance and banking activities. Such business arena poses distinctive challenges to both banking and insurance industries. The paper statistically evaluates the feasibility of a hybrid portfolio integrating banking and insurance services. It examines the risk-return effects of European banks’ diversification into life and non-life insurance underwriting, as well as into insurance broking businesses. More specifically, it focuses on financial data and analyzes changes in profitability, return volatility and creditworthiness of those financial institutions. The empirical results indicate that diversification by European banks into life and non-life insurance underwriting activities increases banks’ risk. Unlike the non-life insurance sector, the return on life assurance underwriting increases significantly. On the other hand, insurance broking returns increase as well, while volatility and possible bankruptcy remain insignificant. This suggests that the interface of banks and insurance broking activities could be further explored.

Keywords : Bancassurance; Financial institutions; Bank diversification; Insurance activities; Risk-return analysis
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Multinational Finance Journal, 2008, vol. 12, no. 3/4, pp. 185-204 | https://doi.org/10.17578/12-3/4-2
Joëlle Miffre , EDHEC Business School, France    Corresponding Author

Abstract:
The paper estimates conditional pricing models for 11 international government bonds and shows that, while local instruments capture the change in the bonds’ risks, global instruments model the variation in the factor risk premia. Altogether the changes in the factor risk premium capture 78.25% of the bonds’ predictability, while the dynamics in the betas account for less than 1%. One cannot conclude however that the conditional models are well-specified as parameter instability and relatively large mean squared errors were uncovered. These results extend for the first time some of the evidence from the equity market of Ferson and Harvey (1993), Harvey (1995) and Ghysels (1998) to the bond market.

Keywords : international government bonds; conditional asset pricing models; variance ratio; mean squared errors; parameter stability
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Multinational Finance Journal, 2008, vol. 12, no. 3/4, pp. 205-218 | https://doi.org/10.17578/12-3/4-3
L. K. Hotta , State University of Campinas, Campinas SP, Brazil    Corresponding Author
E. C. Lucas , ESAMC, Campinas SP, Brazil
H. P Palaro , State University of Campinas, Campinas SP, Brazil and Cass Business School, U.K.

Abstract:
This paper proposes a method for estimating the VaR of a portfolio based on copula and extreme value theory. Each return is modeled by ARMA-GARCH models with the joint distribution of innovations modeled by copula. The marginal distributions are modeled by the generalized Pareto distribution in the left tail (large loss) and empirical distribution otherwise. The copula is estimated by an estimator which gives more weight to observations with large loss. The method is applied to a two-asset portfolio and compared to other traditional methods.

Keywords : conditional copula; risk measures; VaR, extreme value theory
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Multinational Finance Journal, 2008, vol. 12, no. 3/4, pp. 219-240 | https://doi.org/10.17578/12-3/4-4
Balasingham Balachandran , Monash University, Australia    Corresponding Author
Robert Faff , Monash University, Australia
Roger Love , Monash University, Australia
Andrew Menon , Monash University, Australia

Abstract:
This study examines the effects of announcements of acquisition of assets on shareholder wealth of buyers over the period January 2000 to December 2002 in the U.K. Significant positive announcement period abnormal returns for ‘fit’ acquisitions of divested assets that disclosed the “sources of funds” are documented. Multivariate regression analysis shows that announcement period abnormal returns are significantly related to pre-announcement period abnormal returns, relative size of the acquisitions and disclosure of sources of funds. Overall, there is little or no support for the asset fit hypothesis. However, there is strong support for “Fund Source Disclosure”, “Fund Source Pecking-Order” and “Relative Size of Acquisition” Hypotheses .

Keywords : divested asset acquisition; buyers; price reaction; fit and non-fit; fund source
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Multinational Finance Journal, 2008, vol. 12, no. 3/4, pp. 241-277 | https://doi.org/10.17578/12-3/4-5
Raj Aggarwal , University of Akron, U.S.A.    Corresponding Author
Sijing Zong , California State University-Stanislaus, U.S.A.

Abstract:
Even though the forward-spot relationship in currency markets is very important for policy makers and for corporate and investment managers, it remains a theoretical and empirical puzzle. In theory the forward rate should be an unbiased forecast of the future spot rate, but this hypothesis has little empirical support. For the currencies of the nine major industrialized countries, this paper documents that in spite of the very high trading volumes in currency markets, consistent with evidence for other asset markets, revisions in the forward rate forecasts of the future spot exchange rate reflect systematic pessimism and under-reaction to new information.

Keywords : exchange rates; forward bias; market rationality; under-reaction
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Multinational Finance Journal, 2008, vol. 12, no. 3/4, pp. 279-311 | https://doi.org/10.17578/12-3/4-6
Patricia Chelley Steeley , University of Aston, U.K.    Corresponding Author
Brian Lucey , Trinity College Dublin, Ireland

Abstract:
This is the first paper to examine the microstructure of the Irish Stock Market empirically and is motivated by the adoption, on June 7th of Xetra the modern pan European auction trading system. Prior to this the exchange utilized an antiquated floor based system. This change was an important event for the market as a rich literature exists to suggest that the trading system exerts a strong influence over the behavior of security returns. We apply the ICSS algorithm of Inclan and Tiao (1994) to discover whether the change to the trading system caused a shift in unconditional volatility at the time Xetra was introduced. Because the trading mechanism can influence volatility in a number of ways we also estimate the partial adjustment coefficients of the Amihud and Mendelson (1987) model prior and subsequent to the introduction of Xetra. Although we find no evidence of volatility changes associated with the introduction of Xetra we do find evidence of an increase in the speed of adjustment.

Keywords : trading systems; adjustment speed; cross listing; microstructure
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Multinational Finance Journal, 2009, vol. 13, no. 1/2, pp. 1-38 | https://doi.org/10.17578/13-1/2-1
Peter Spencer , University of York, U.K.    Corresponding Author

Abstract:
This paper develops a macro-finance model of the yield curve and uses this to explain the behavior of the US Treasury market. Unlike previous macro-finance models which assume a homoscedastic error process and suppose that the one-period return is directly observable, I develop a general affine model which relaxes these assumptions. My empirical specification uses a single conditioning factor and is thus the macro-finance analogue of the EA1(N) specification of the mainstream finance literature. This model provides a decisive rejection of the standard EA0(N) macro-finance specification. The resulting specification provides a flexible 10-factor explanation of the behavior of the US yield curve, keying it in to the behavior of the macroeconomy.

Keywords : n/a
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Multinational Finance Journal, 2009, vol. 13, no. 1/2, pp. 39-54 | https://doi.org/10.17578/13-1/2-2
Geoffrey Poitras , Simon Fraser University, Canada    Corresponding Author
Chris Veld , University of Stirling, U.K.
Yuriy Zabolotnyuk , Carleton University, Canada

Abstract:
The European put-call parity condition is used to estimate the early exercise premium for American currency options traded on the Philadelphia Stock Exchange. Using a sample of 331 pairs of call and put options with the same exercise price and time to expiration, evidence is provided for early exercise premiums that average 5.03% for put options and 4.60% for call options. The premiums for both call and put options are strongly related to the interest rate differential and time to expiration. These results have implications for the use of European option pricing models in the valuation of American options.

Keywords : European put-call parity; currency options; early exercise premium
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Multinational Finance Journal, 2009, vol. 13, no. 1/2, pp. 55-74 | https://doi.org/10.17578/13-1/2-3
Andrew Adams , University of Edinburgh Business School, U.K.    Corresponding Author
Rajiv Bhatt , Deloitte Touche Tohmatsu India Pvt. Ltd., India
James Clunie , Scottish Widows Investment Partnership, U.K.

Abstract:
The recent sub-prime debacle has brought ‘innovative’ structured credit products such as collateralized debt obligations under severe criticism. The complexity of some structured finance securities and difficulties in understanding their risks has been a common theme. This paper argues that CDO-squared structures can be so complex as to make risk assessment difficult. By modeling a simplified CDO-squared structure using Monte Carlo simulation, two of the risks unique to such structures are examined: default location risk and overlap risk. Failure to take account of these risks during a distressed credit environment will result in greater than anticipated losses among senior CDO-squared tranches.

Keywords : collateralized debt obligation; CDO-squared; default location risk; overlap risk; Monte Carlo simulation
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Multinational Finance Journal, 2009, vol. 13, no. 1/2, pp. 75-102 | https://doi.org/10.17578/13-1/2-4
Patrick Sentis , University Montpellier, France    Corresponding Author

Abstract:
The phenomena of IPO underpricing and underperformance are examined in the same rational model. In this model, underpricing is caused by the presence of uninformed investors. Low-type firms carry out an IPO under the same conditions as high-type firms. Instead of investing by themselves, the latter prefer to merge with a bidder, which entails their delisting from the market. The behavior of these firms provides a rational explanation for the underperformance phenomenon since only low-type firms remain on the market. Initial preliminary findings are consistent with the basic idea of the model. We show that when mergers occur, the monthly average return of the remaining firms is significantly negative, whereas the monthly average return is not significantly different from zero for the months without mergers. This result suggests that mergers induce a depreciation effect on the remaining firms and could be a source of underperformance.

Keywords : initial public offerings; underpricing; underperformance; delisted; takeover; merger
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Multinational Finance Journal, 2009, vol. 13, no. 1/2, pp. 103-134 | https://doi.org/10.17578/13-1/2-5
D. Johannes Jüttner , Macquarie University, Sydney    Corresponding Author
Wayne Leung , Macquarie University, Sydney

Abstract:
This study examines on the basis of economic theory the determinants of exchange rate volatilities for a large number of currencies. We relate daily changes in GARCH(1,1) volatilities of exchange rates to the volatility changes of several of their presumed fundamental economic determinants in the context of a portfolio balance model. The use of high-frequency data limits the choice of the explanatory economic variables that can be included in empirical estimates. The first differences of GARCH(1,1) volatilities of share and bond price indices reflect portfolio trading decisions in corresponding markets for both assets. In the same vein, first differences of the gold price volatility, as an additional determinant, are related to exchange rate volatilities of two commodity currencies in the sample. The panel data estimates, using the Seemingly Unrelated Regression technique, produce coefficients with the expected signs and statistical significance. The results of our study enhance our understanding of high-frequency currency volatility changes for 19 currencies beyond the purview of announcement effects in the event studies framework.

Keywords : Exchange rate volatilities; volatility relationships; GARCH modelling
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Multinational Finance Journal, 2009, vol. 13, no. 1/2, pp. 135-154 | https://doi.org/10.17578/13-1/2-6
Sven-Olov Daunfeldt , The Ratio Institute, Sweden    Corresponding Author
Carina Selander , Umeå University, Sweden
Magnus Wikström , Umeå University, Sweden

Abstract:
The purpose of the paper is to study the effect of taxation on dividend payments and ex-dividend price-changes in Sweden during 1991-1995. Tax changes in Sweden during the 1990s were implemented in such a way that they provide an opportunity to include direct measures of the tax-treatment of dividends and capital gains in the empirical analysis, in contrast to previous studies. The results indicate that tax-reforms can have large effects on dividend payments, while the effects on ex-dividend price-changes are less conclusive.

Keywords : censoring; dividend; ex-dividend; taxation
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Multinational Finance Journal, 2009, vol. 13, no. 3/4, pp. 155-188 | https://doi.org/10.17578/13-3/4-1
Daniella Acker , University of Bristol, U.K.    Corresponding Author
Nigel W. Duck , University of Bristol, U.K.

Abstract:
We investigate the effects of bull and bear markets on correlations between developed and emerging country equity returns, and on the benefits of combining international markets in a portfolio. Contrary to most other studies we find that correlations fall in both bull and bear markets, although far more in the former; that emerging markets provide both additional diversification benefits for investors in developed markets and, especially, some protection during bear markets.

Keywords : International equity markets; correlations; portfolio choice
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Multinational Finance Journal, 2009, vol. 13, no. 3/4, pp. 189-208 | https://doi.org/10.17578/13-3/4-2
Ariful Hoque , Curtin University of Technology, Australia    Corresponding Author
Felix Chan , Curtin University of Technology, Australia
Meher Manzur , Curtin University of Technology, Australia

Abstract:
This paper presents a general optimization framework to forecast put and call option prices by exploiting the volatility of the options prices. The approach is flexible in that different objective functions for predicting the underlying volatility can be modified and adapted in the proposed framework. The framework is implemented empirically for four major currencies, including Euro. The forecast performance of this framework is compared with those of the Multiplicative Error Model (MEM) of implied volatility and the GARCH(1,1). The results indicate that the proposed framework is capable of producing reasonable accurate forecasts for put and call prices.

Keywords : Foreign currency options; implied volatility; optimal volatility; multiplicative error model; GARCH model
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Multinational Finance Journal, 2009, vol. 13, no. 3/4, pp. 209-228 | https://doi.org/10.17578/13-3/4-3
Isaac T. Tabner , University of Stirling, U.K.    Corresponding Author

Abstract:
Identifying a suitable benchmark is essential when testing asset pricing models, measuring the performance of active investors, or providing market proxy portfolios for passive investors. Concern that increased domination of capitalization weighted stock indices by a few large firms will lead to inefficient portfolio diversification is leading some investors and researchers to argue that index providers should adjust their weighting methods to limit concentration. This study tests and rejects the hypothesis that concentration arising as a result of capitalization weights in the FTSE 100 Index increases risk, either during normal market conditions or during negative tail events in the return distribution. On the contrary, during the left tail of the return distribution, the equally weighted portfolio of FTSE 100 Index constituents exhibits higher risk and lower returns than the capitalization weighted FTSE 100 Index portfolio, a finding consistent with variations of the CAPM that allow for time varying risk premia.

Keywords : stock index benchmarks; incremental returns; incremental standard deviation; portfolio diversification; capitalization weights; index concentration; performance measurement
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Multinational Finance Journal, 2009, vol. 13, no. 3/4, pp. 229-264 | https://doi.org/10.17578/13-3/4-4
Frieda Rikkers , Tilburg University, Netherlands    Corresponding Author
André E. Thibeault , Vlerick Leuven Gent Management School, Belgium

Abstract:
The objective of this research is to develop a structural form probability of default model for small and medium-sized enterprises, dealing with the methodological issues which arise in the modelling of small commercial loan portfolios. Other motivations are to provide an extensive overview of the characteristics of SMEs, and to provide a list of characteristics for an SME PD model, e.g. time and cost efficiency, broad applicability, limited data requirements, and powerful in predicting default. The structural form model is developed and tested on a unique dataset of private firm’s bank loans of a Dutch bank. The results are promising; the model output differs significantly between defaulted and non-defaulted firms. The structural form model can be used on its own, or as an additional variable in a credit risk model. A second PD model is developed using logistic regression with a number of financial ratios, including the structural form measure. This variable is significant in default prediction of SMEs and has some additional predictive power, next to the popular financial ratios. Overall, the results indicate that the structural form model is a good indicator for default of SMEs.

Keywords : SME; probability of default; structural form credit risk model; Basel II
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Multinational Finance Journal, 2009, vol. 13, no. 3/4, pp. 265-292 | https://doi.org/10.17578/13-3/4-5
James Clunie , Scottish Widows Investment Partnership, U.K.    Corresponding Author
Peter Moles , University of Edinburgh Business School, U.K.
Tatiana Pyatigorskaya , Merrill Lynch Wealth Management, U.K.

Abstract:
This study fills an important gap in the literature on loss realization aversion. It shows how a ‘sophisticated’ sub-set of investors, namely short-sellers, react to losses. Using daily data on stock lending, we estimate the average price at which short positions were initiated, thus permitting a study of short-sellers’ responses to their own book losses. We find that short-sellers close their positions in response to losses and not simply in response to rising share prices. This is a key result and a distinction from findings in related research. We conclude that short-sellers do not exhibit an aversion to realizing losses, but instead accept their losses or ‘mistakes’ systematically.

Keywords : n/a
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Multinational Finance Journal, 2009, vol. 13, no. 3/4, pp. 293-321 | https://doi.org/10.17578/13-3/4-6
James B. McDonald , Brigham Young University, USA    Corresponding Author
Richard A. Michelfelder , Rutgers University, USA
Panayiotis Theodossiou , Cyprus University of Technology, Cyprus

Abstract:
Robust estimation techniques based on symmetric probability distributions are often substituted for OLS to obtain efficient regression parameters with thick-tail distributed data. The empirical, simulation and theoretical results in this paper show that with skewed distributed data, symmetric robust estimation techniques produce biased regression intercepts. This paper evaluates robust methods in estimating the capital asset pricing model and shows skewed stock returns data used with symmetric robust estimation techniques produce biased alphas. The results support the recommendation that robust estimation using the skewed generalized T family of distributions may be used to obtain more efficient and unbiased estimates with skewness.

Keywords : CAPM; quasi-maximum likelihood estimator; robust estimator; skewed generalized T
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Multinational Finance Journal, 2010, vol. 14, no. 1/2, pp. 1-27 | https://doi.org/10.17578/14-1/2-1
Thomas E. Copeland , CRA International, MIT    Corresponding Author

Abstract:
This article attempts to answer some of the most common questions about how to apply the theory of real options to practice. Its primary focus is on how to start with irregular expected cash flows of the underlying risky asset that do not follow any regular stochastic process and end up with a legitimate real options analysis. It is organized as follows. Section I is a simple numerical example. Section II discusses the necessary theory -- three key assumptions. Section III discusses how to estimate volatility. Section IV goes on to describe six short case examples where the solution process worked well. The paper discusses why traditional NPV methodology forces false mutually exclusive alternatives and how real options solves the problem, and illustrates how modularity of project construction can be more valuable than significant economies of scale.

Keywords : n/a
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Multinational Finance Journal, 2010, vol. 14, no. 1/2, pp. 29-71 | https://doi.org/10.17578/14-1/2-2
Tom Arnold , University of Richmond, USA    Corresponding Author
Richard Shockley , Indiana University, USA

Abstract:
This paper provides a non-technical presentation of the theoretical foundations of corporate financial decision making and the net present value (NPV) rule. Our objective is to show that the concepts of value and value creation arise from a single, unified framework that is firmly rooted in neoclassical microeconomic theory. This, in turn, allow us to demonstrate that the corporate valuation approach generically known as real options analysis is perfectly justifiable – without further qualification – in any situation when investors want managers to maximize NPV.

Keywords : NPV; real options analysis; arbitrage; fundamental theorem of asset pricing
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Multinational Finance Journal, 2010, vol. 14, no. 1/2, pp. 73-123
Gordon Sick , University of Calgary, Canada    Corresponding Author
Andrea Gamba , University of Verona, Italy

Abstract:
This paper provides an introduction to real options, as well as highlighting some important issues that are often neglected by real options analysts. While many books and surveys have been written on real options, there are some ubiquitous concepts that are not well-understood by many authors and practitioners. The objective of this paper is to redress this shortfall. The paper discusses organizational issues that impede adoption of real options strategies. It discusses modeling and analytic techniques for real options.

Keywords : Real Options; Capital Budgeting; Numerical Methods
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Multinational Finance Journal, 2010, vol. 14, no. 1/2, pp. 125-151 | https://doi.org/10.17578/14-1/2-4
Han T.J. Smit , Erasmus University Rotterdam, Netherlands    Corresponding Author
Lenos Trigeorgis , University of Cyprus, Cyprus

Abstract:
We present a framework for value-based strategic planning combining concepts and tools from strategy and finance. Our ‘Expanded NPV’ framework reconciles flexibility and strategic commitment, viewing strategic planning as managing a portfolio of real options with competitive interactions. The flexibility and strategic value of a business strategy are interwoven with that strategy’s design. We synthesize real options and game theory to evaluate projects or acquisitions. We connect strategic planning and the underlying sources of value creation with the market value of the firm and its three main value components: expected cash flows or assets in place (NPV), flexibility (growth options), and strategic value (moves and games). We develop implications depending on simple or compound growth options, the type and competitive impact of the investment, and relative market power.

Keywords : strategic planning; real options; game theory; option games; competition
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Multinational Finance Journal, 2010, vol. 14, no. 3/4, pp. 153-188 | https://doi.org/10.17578/14-3/4-1
Blake Johnson , Stanford University, USA    Corresponding Author

Abstract:
A company’s operating capabilities, performance and risk are determined by its supply chain, the complex set of activities spread across internal functions and external partners that together enable it to deliver its products. Supply chains have traditionally been coordinated with deterministic plans together with inventory buffers added to accommodate uncertainty. More recently, substantial investments have been made in supply chain information sharing, collaboration, and responsiveness initiatives to enable supply chains to react more rapidly to the outcomes of key sources of uncertainty as they become known. To date, however, capabilities that enable supply chain uncertainty to be identified and evaluated before the fact, and its performance impact proactively quantified and managed, have been absent, and as a result offer the potential for significant further improvements in performance and control.

Keywords : Supply chain; Performance management; Risk management; Flexibility
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Multinational Finance Journal, 2010, vol. 14, no. 3/4, pp. 189-217 | https://doi.org/10.17578/14-3/4-2
Bart M. Lambrecht , Lancaster University Management School, UK    Corresponding Author
Grzegorz Pawlina , Lancaster University Management School, UK

Abstract:
This paper considers real options within a continuous-time corporate finance context. We analyze whether these real options are exercised effciently, and what the underlying sources of inefficiency are. In particular we consider the role of incomplete information, competition, search costs and financing constraints on investment decisions. We also analyze the stockholder-bondholder and the manager-stockholder agency problems, and their effect on a firm's investment and closure policies.

Keywords : real options, product market competition; costly search; financing constraints; agency problem
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Multinational Finance Journal, 2011, vol. 15, no. 1/2, pp. 1-46 | https://doi.org/10.17578/15-1/2-1
Wing-Keung Wong , Hong Kong Baptist University, Hong Kong    Corresponding Author
Howard Thompson , University of Wisconsin-Madison, USA
Kweehong Teh , National University of Singapore, Singapore

Abstract:
After the September 11 attacks, several major newswires reported that there were insiders who tried to profiteer from the options market in anticipation of the event. We use the Student's t-statistics and several non-parametric statistics to test whether there was abnormal trading in S&P 500 (SPX) index options prior to the September 11 attacks. Our findings from the out-of-the-money (OTM), at-the-money (ATM) and in-the-money (ITM) SPX index put options and ITM SPX index call options lead us to reject the null hypothesis that there was no abnormal trading in these contracts prior to the September 11 attacks. We also find evidence consistent with three bearish speculation strategies, namely the Put Purchase strategy, the Put Bear Spread strategy, and the Naked ITM Call Write strategy. In addition, we conclude that there is evidence of abnormal trading in the September 2001 OTM, ATM and ITM SPX index put options immediately after the 9-11 attacks.

Keywords : 9-11 attacks; put options; call options; SPX index, Student?s t-statistics; non-parametric statistics
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Multinational Finance Journal, 2011, vol. 15, no. 1/2, pp. 47-85 | https://doi.org/10.17578/15-1/2-2
Georges Dionne , HEC Montreal, Canada    Corresponding Author
Genevieve Gauthier , HEC Montreal, Canada
Nadia Ouertani , LEFA, ISCAE Manouba University, Tunisia
Nabil Tahani , York University, Canada

Abstract:
This paper proposes the use of analytical approximations to price an heterogeneous basket option combining commodity prices, foreign currencies and zero-coupon bonds. The performance of three moment matching approximations is examined: inverse gamma, Edgeworth expansion around the lognormal and Johnson family distributions. Since there is no closed-form formula for basket options, Monte Carlo simulations are carried out to generate the benchmark values. A simulation experiment on a set of options based on a random choice of parameters is performed. The results show that the Edgeworth-lognormal and Johnson distributions give the most accurate results.

Keywords : Basket Options; Options Pricing; Analytical Approximations; Monte Carlo Simulation
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Multinational Finance Journal, 2011, vol. 15, no. 1/2, pp. 87-124 | https://doi.org/10.17578/15-1/2-3
Dimitrios D. Thomakos , University of Peloponnese, Greece Rimini Centre for Economic Analysis, Italy    Corresponding Author
Michail S. Koubouros , City College and University of Liverpool, UK

Abstract:
Using a newly developed dataset of daily, value-weighted market returns we construct and analyze the monthly realized volatility of the Athens Stock Exchange (A.S.E.) from 1985 to 2003. Our analysis focuses on the distributional and time series properties of the realized volatility series and on assessing the connection between realized volatility and returns through a multi-factor asset pricing model. In particular, we find strong evidence on the existence of a volatility feedback effect and a leverage effect, and on the existence of asymmetries between lagged returns and volatility. Furthermore, we examine the cross-sectional distribution of unconditional loadings on the realized risk factor(s) for different sets of characteristics-sorted common stock portfolios. We find that realized risk is a significantly priced factor in A.S.E. and its high explanatory power for the cross-section of portfolio average returns is independent of any return variation related to the market (CAPM) or size and book-to-market (Fama-French) factors. We discuss our findings in the context of the recent literature on realized volatility and feedback effects, as well as the literature on the pricing power of realized risk.

Keywords : realized volatility; leverage effect; volatility feedback effect; asset pricing; A.S.E
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 157-192 | https://doi.org/10.17578/15-3/4-1
Kent Baker , American University, USA    Corresponding Author
Shantanu Dutta , University of Ontario Institute of Technology, Canada Samir Saadi
Samir Saadi , Queen's University, Canada

Abstract:
This study investigates the financial practices of Canadian firms involving capital budgeting, cost of capital estimation, capital structure, and real options. Survey respondents express a strong preference for net present value followed by internal rate of return and payback methods. The least popular capital budgeting technique is real options. Unlike their U.S. and European counterparts, Canadian firms rely more on subjective risk assessments in adjusting their discount rate. The use of subjective judgment by Canadian managers also applies to risk analysis, forecasting project cash flows, and estimating the cost of equity capital. This finding differs markedly from the widespread use of the capital asset pricing model by U.S. and European firms. In examining capital structure choice, the results show support for trade-off theory relative to pecking order theory. Finally, firm size and the education of the chief executive officer influence corporate finance decisions.

Keywords : Capital budgeting; cost of capital; risk analysis; real options
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Multinational Finance Journal, 2011, vol. 15, no. 1/2, pp. 125-156 | https://doi.org/10.17578/15-1/2-4
Manolis G. Kavussanos , Athens University of Economics and Business, Greece    Corresponding Author
Ilias D. Visvikis , ALBA Graduate Business School, Greece

Abstract:
This paper investigates the short-run forecasting performance, in the relatively new and fairly unresearched futures market of Greece. Forecasts from univariate (ARIMA) and multivariate (VAR, VECM and SURE-VECM) linear time-series models indicate that cash returns can be more accurately forecasted, for all forecast horizons, when forecast specifications contain information from both lagged cash and futures returns, than from specifications that utilize information only from lagged cash returns. On the other hand, futures return forecasts are not enhanced in accuracy when lagged cash returns are employed for almost all forecasts. This verifies that at almost all forecasting horizons futures returns contain significantly more and different information than that embodied in current cash returns. Moreover, all time-series models generate more accurate cash and futures forecasts than the forecasts obtained by the random walk model.

Keywords : Cointegration; VECM and ARIMA Models; Forecasting; Futures Markets; Emerging Markets; Predictability
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 193-216 | https://doi.org/10.17578/15-3/4-2
Lucy Chernykh , Bowling Green State University, USA    Corresponding Author
Alexandra K. Theodossiou , Texas A&M University, Corpus Christi, USA

Abstract:
We investigate the determinants of the banks' propensity to make long-term business loans in an emerging market context. Using a large sample of Russian banks, we find that the median bank allocates only 0.5% of its assets in long-term business loans and that there is wide cross-sectional variation in this ratio among banks. A bank's ability to extend long-term business loans depends on its size, capitalization, and the availability of long-term liabilities rather than its type of ownership. These results highlight the importance of bank-level (supply side) constraints in extending vital long-term credit to firms.

Keywords : emerging market banking; long-term business loans; Russia
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 217-234 | https://doi.org/10.17578/15-3/4-3
Rafi Eldor , Interdisciplinary Center, Israel    Corresponding Author
Shmuel Hauser , Ono Acdemic College and Ben-Gurion University, Israel
Uzi Yaari , Rutgers University, USA

Abstract:
Margin requirements are designed to control the default risk inherent to commitments undertaken by traders writing options. Much like similar institutions, the Tel Aviv Stock Exchange first adopted a system based on the Standard Portfolio Analysis of Risk (SPAN), which sets required levels of options margin according to the most pessimistic of 16 possible outcomes. Seeking to lower the probability of default without adversely affecting liquidity, the Exchange switched in 2001 to a more detailed margin system based on the most pessimistic of 44 scenarios. This unique change provides an ideal laboratory for testing the impact of increased margining precision on the efficiency of option trading. Based on a sample of over 3 million transactions, this study demonstrates that the more accurate pricing of default risk over the studied range increases efficiency by a number of measures, including a smaller implied standard deviation and deviations from put-call parity.

Keywords : option margins; option default risk; market efficiency; SPAN system
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 235-272 | https://doi.org/10.17578/15-3/4-4
Dimitrios Gounopoulos , University of Surrey, U.K.    Corresponding Author

Abstract:
This study examines the earnings forecast accuracy of newly listed companies on the Athens Stock Exchange and further investigates the relationship between earnings forecast and pricing of IPOs. It uses a unique data set of 208 IPOs, which were floated during the period of January 1994 to December 2001 in the Athens Stock Exchange. The results suggest that investors are able to anticipate forecast errors at the time of listing. Pricing of IPOs indicate that firms with negative earnings forecast (pessimistic) are associated with low level of underpricing while optimistic management earning forecast can be a signal for high initial returns. Three variables - age of the IPOs, ownership by insiders and industry classification significantly contribute towards accuracy of earnings forecast.

Keywords : earnings forecast; IPO; accuracy of earnings; forecast error
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 273-296 | https://doi.org/10.17578/15-3/4-5
Panayotis Alexakis , University of Athens, Greece    Corresponding Author
Ioannis Tsolas , National Technical University of Athens, Greece

Abstract:
This paper employs Data Envelopment Analysis to measure for the first time the performance of Greek domestic equity mutual funds over four different one-year horizons and for the whole four-year period. In particular, the model used examines whether fund managers employ inputs (i.e. assets, loads, and risk) efficiently to produce output (returns). The results demonstrate that the efficient funds form the smaller part of the examined sample of funds, the average efficiency rises over time, and that the mean-variance efficiency hypothesis holds for the inefficient funds over the whole period. Moreover, the evidence from the identified sources of inefficiency suggests that fund managers should put more emphasis on the management of assets and the specification of front-end and back-end loads.

Keywords : Mutual funds; equity funds; efficiency; data envelopment analysis
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Multinational Finance Journal, 2012, vol. 16, no. 1/2, pp. 137-154 | https://doi.org/10.17578/16-1/2-6
Rossitsa Yalamova , University of Lethbridge, Canada    Corresponding Author

Abstract:
This paper proposes the generalized use of fractional Brownian motion in a multifractal trading time framework to reveal variation in the index price diffusion process that appears before and after 'extreme' events of distinct origin. "Crashes" following internal self-organization and those caused by external shocks differ in the relaxation process. The goal of this paper is to test for differences in the price diffusion process related to the organization of trading.

Keywords : trading mechanics; multifractal spectrum; extreme events
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Multinational Finance Journal, 2012, vol. 16, no. 1/2, pp. 105-136 | https://doi.org/10.17578/16-1/2-5
Guglielmo Maria Caporale , Brunel University, UK    Corresponding Author
Luis Gil-Alana , University of Navarra, Spain

Abstract:
This paper focuses on nominal exchange rates, specifically the US dollar rate vis-à-vis the Euro and the Japanese Yen at a daily frequency. In the paper both absolute values of returns and squared returns are modelled using long-memory techniques, being particularly interested in volatility modelling and forecasting. Compared with previous studies using fractional integration such as Granger and Ding (1996), a more general model is estimated, which allows for dependence not only at the zero but also at other frequencies. The results show differences in the behaviour of the two series: a long-memory cyclical model and a standard I(1) model seem to be the most appropriate for the US dollar rate vis-à-vis the Euro and the Japanese Yen respectively.

Keywords : Fractional integration; Long memory; Exchange rates, Volatility
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Multinational Finance Journal, 2012, vol. 16, no. 1/2, pp. 21-47 | https://doi.org/10.17578/16-1/2-2
Jie (Michael) Guo , Durham University, U.K.    Corresponding Author
Dimitris Petmezas , University of Surrey, U.K.

Abstract:
This paper examines the link between the causes and effects of mergers and acquisitions. By using a sample of UK acquisitions, which have the distinct characteristics of limited use of stock as means of payment and dominance of private acquisitions, the evidence shows that, on average, there is a substantial price run-up for acquirers prior to an acquisition announcement followed by a significant drop of bidder’s price in the post-event period. This indicates, to an extent, that corporate acquisitions are the effect of good performance rather than the cause. However, the results also reflect that a relatively better acquisition strategy for a firm to create value is by making many small acquisitions rather than a small number of large acquisitions, implying that acquisitions also drive performance. Overall, the evidence found is mixed and suggests that in the UK market, acquisition returns cannot be solely based on the market driven explanation.

Keywords : mergers & acquisitions; price run-up; method of payment; frequent bidders; long-term wealth effects
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Multinational Finance Journal, 2012, vol. 16, no. 1/2, pp. 49-86 | https://doi.org/10.17578/16-1/2-3
Olga Dodd , Auckland University of Technology, New Zealand    Corresponding Author
Christodoulos Louca , Cyprus University of Technology, Cyprus

Abstract:
This study evaluates the relationship between international cross-listings and shareholders’ wealth across different host markets and across time. For a sample of cross-listings by European companies in the US, in the UK, and within Europe, the findings show that US and UK cross-listings, on average, result in positive cumulative abnormal returns around the announcement of cross-listing. No such evidence exists for the rest of European cross-listings. In addition, the Sarbanes-Oxley Act (SOX) of 2002 affects negatively the wealth benefits of US cross-listings, while wealth creation around UK cross-listings is primarily concentrated in Alternative Investment Market listings rather than Main Market listings. There is no evidence that the introduction of the Euro affects the wealth effects of cross-listings within the Eurozone. Finally, this study provides evidence on the relative importance of alternative theories on the wealth effects of cross-listing, including market segmentation, legal bonding, liquidity, investor recognition, proximity preference, market timing and business strategy theories, after considering the effect of the introduction of the Euro and the adoption of SOX. The results show that significance of the alternative theories varies across host markets and over time.

Keywords : Cross-listing; shareholders? wealth; Euro; AIM; the Sarbanes-Oxley Act
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Multinational Finance Journal, 2012, vol. 16, no. 1/2, pp. 87-103 | https://doi.org/10.17578/16-1/2-4
Briance Mascarenhas , Rutgers University, USA    Corresponding Author

Abstract:
Many firms facing global competition are seeking to become specialists. This study examines international specialists, defined as companies that produce, sell, and expand internationally within one industry. This study examines their capital sourcng and deployment. Analysis of a knowledge-intensive industry, pharmaceuticals, suggests that firms which pursue this focused strategy match their funding and deployment of financial resources. They use equity funding and invest it heavily in research in order to develop international proprietary niches.

Keywords : strategy; focus; niche; international; diversification; finance
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Multinational Finance Journal, 2012, vol. 16, no. 3/4, pp. 225-260 | https://doi.org/10.17578/16-3/4-3
Jean Canil , University of Adelaide, Australia    Corresponding Author
Bruce Rosser , University of Adelaide, Australia

Abstract:
We test the option incentive models of Hall and Murphy (2000, 2002) and Choe (2003). Hall and Murphy (2000, 2002) posit optimal grant size and exercise price contingent on the executive’s levels of risk aversion and private diversification. Choe (2003) relates these choices to firm characteristics, principally the target risk level and financial leverage. A unique hand-collected data set of Australian grants is employed, wherein exercises prices and grant sizes are unconstrained by taxation and accounting practices. The Hall and Murphy (2000, 2002) model is found to explain observed exercise prices while neither model satisfactorily explains grant sizes. However, there is some evidence that CEO influence is associated with larger grants than posited by these optimal incentive models, but does not impact on exercise prices.

Keywords : Executive; stock options; optimal; grant size; exercise price; governance
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Multinational Finance Journal, 2013, vol. 17, no. 1/2, pp. 1-47 | https://doi.org/10.17578/17-1/2-1
Anand B. Gulati , Hanken School of Economics, Finland    Corresponding Author
James W. Kolari , Texas A&M University, USA
Johan Knif , Hanken School of Economics, Finland

Abstract:
This study empirically examines how exchange rate shocks affect firms’ competitiveness in the small, export-oriented country of Finland. Specifically, using Sweden as a benchmark and controlling for cross-country sector and industry effects, the forex competition hypothesis is tested using the impact of exchange rate shocks on Finnish stock returns. The empirical tests reveal statistically significant exchange rate exposure of Finnish stock returns. Comparing pre- versus post-euro periods, equities’ exchange rate exposure is much stronger after the introduction of the euro. Further results indicate that Finnish and Swedish sector and industry stock returns positively co-move. This implies market integration in contradiction to the forex competition hypothesis. However, for some sectors and industries interaction variables reveal that the co-movement is conditional on exchange rate movements, especially in the post-euro period.

Keywords : exchange rate exposure; stock returns; cross-country industry competition; market integration; pre- and post-euro
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Multinational Finance Journal, 2012, vol. 16, no. 3/4, pp. 189-223 | https://doi.org/10.17578/16-3/4-2
Stephen Matteo Miller , Monash University, Australia    Corresponding Author

Abstract:
Selling (buying) a country’s equity index in exchange for equity investments elsewhere during a stock market crash (boom) is analogous to exercising an option to exchange an underperforming country (global benchmark) index for a global benchmark (country) index. This can be shown by extending an existing single factor option pricing framework to determine the exchange option value of entering and exiting an emerging market. As country betas, corrected for non-synchronous trading bias, rise during the Asian Crisis and fall thereafter, exit option values on average increase by at least 14 cents per dollar invested for each unit increase in country betas during the first stage of the crisis in 1997. Exit option values on average rise by 29 cents per dollar invested during the last stage in January 1999. So even if the benefits of diversification fall during a crisis, the effects of a crisis might be hedged.

Keywords : Country Systematic Risk and Risk-Adjusted Performance; Exchange Options; International Transmission; Net Capital Flow Monitoring; Non-synchronous Trading Bias
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Multinational Finance Journal, 2013, vol. 17, no. 1/2, pp. 77-106 | https://doi.org/10.17578/17-1/2-3
Xiangnan Meng , University of South Australia, Australia
Xin Deng , University of South Australia, Australia    Corresponding Author

Abstract:
This study employs a GARCH model to investigate the effects of interest rate and foreign exchange rate changes on Chinese banks’ stock returns. The results suggest that market movement and foreign exchange rate changes are statistically significant in explaining banks’ stock returns, despite different reactions from different bank portfolios in regard to risks. Interest rate fluctuations, on the other hand, appear to be insignificant factors in equity pricing. The results confirm the link between market risks and stock returns and highlight the need for further interest rate liberalization.

Keywords : risks; GARCH; banking industry; China
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Multinational Finance Journal, 2013, vol. 17, no. 1/2, pp. 107-148 | https://doi.org/10.17578/17-1/2-4
Dimitrios V Kousenidis , Aristotle University of Thessaloniki, Greece    Corresponding Author
Christos Negakis , University of Macedonia, Greece

Abstract:
In the present paper we study the performance of young closed-end funds (CEFs) in Greece. Using monthly CEF data from 1997 to 2007, we provide evidence showing that young funds underperform both old funds and the market. As in Kaplan and Schoar (2005), we note that new underperforming funds occur more frequently during hot market periods, potentially due to the presence of uninformed investors. The entrance of the newly raised funds in the market dilutes the overall industry performance and motivates financial institutions to take over fairly-performing subsidiary funds. As a result, well-performing funds are gradually delisted from the market and eventually only poor-performing funds survive. In this context the takeover activities prevail as a rational explanation for the underperformance and the shrinking of the closed-end fund industry in Greece

Keywords : closed-end funds; young fund underperformance; models of portfolio performance; ATHEX
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 165-200 | https://doi.org/10.17578/17-3/4-3
Thomas Chiang , Drexel University, USA
Lin Tan , California State Polytechnic University, USA
Jiandong Li , Central University of Finance and Economics, China
Edward Nelling , Drexel University, USA    Corresponding Author

Abstract:
This study examines investor herding behavior in Pacific-Basin equity markets. Results indicate that the level of herding is time-varying, and is present in both rising and falling markets. It is positively related to stock market performance, but negatively related to market volatility. Herding estimates across markets are positively correlated, signifying comovement of herding behavior in the region. The findings suggest that tests for herding should consider its dynamic behavior.

Keywords : herding behavior, stock return dispersion, kalman filter, nonlinearity, pacific-basin markets
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 243-293 | https://doi.org/10.17578/17-3/4-5
Wenjuan Xie , University of New Hampshire, USA    Corresponding Author

Abstract:
This paper studies the accounting performance measure, profit efficiency and investor valuation of 1,262 Chinese firms listed in Shanghai and Shenzhen Stock Exchanges from 2001 to 2010. Profit efficiency is defined as the ratio of actual profit realized to the optimal profit described by stochastic frontier approach. An estimation of robust ordinary least square model for accounting performance measures (ROA) controlling for industry effect results in negative skewness of the residuals, indicating the existence of profit inefficiency. A year-by-year cross-section stochastic frontier analysis documents a declining pattern of accounting performance and a contrastive increasing tendency of profit efficiency. Linking the market valuation ratios to profit efficiency illustrates a significant empirical relationship that Chinese investors reward firms of higher efficiency with higher market valuation. The over-time improvement of efficiency is also associated with increased market valuation.

Keywords : market valuation; profitability; efficiency; stochastic frontier; chinese listed firms
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 295-340 | https://doi.org/10.17578/17-3/4-6
I-Ju Chen , Yuan Ze University, Taiwan    Corresponding Author
Shin-Hung Lin , Yuan Ze University, Taiwan

Abstract:
This study investigates the relationship between managerial optimism, investment efficiency and firm valuation. This study follows the Campbell’s measurement for managerial optimism and investigates the influences of the different levels of managerial optimism on improving investment efficiency and firm value when firms tend to under-invest or over-invest. The results indicate that an under-invested firm with a CEO who has a higher level of managerial optimism can improve the firm’s investment efficiency by reducing the degree of underinvestment, which further increases the firm’s value. However, when firms tend to overinvest, there is insufficient evidence to show that a firm with a lower level of CEO managerial optimism will effectively improve the firm’s investment efficiency and increase firm value by reducing the degree of overinvestment.The results generated in this study help scholars and practitioners understand how managerial optimism affects the investment efficiency of firms

Keywords : managerial optimism, investment efficiency, overinvestment, underinvestment
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 201-241 | https://doi.org/10.17578/17-3/4-4
Wendy Rotenberg , University of Toronto, Canada    Corresponding Author

Abstract:
This study explores whether the valuation of Canadian natural resource firms is related to their decisions to present financial reports in U.S. dollars or to allow dual currency (Canadian and U.S. dollar) trades of their shares in Canadian markets. The results indicate that firms electing to report their financial results in U.S. dollars do enjoy a higher proportion of U.S. trades, and a higher market value, compared with firms reporting in domestic currency. These findings are consistent with U.S. dollar reporting reducing the behavioral phenomenon known as “home bias”, for U.S. investors. In contrast, giving investors the opportunity to transact in U.S. dollars in Canada does not appear to have a beneficial impact. This latter finding is consistent with the practical observation that very few Canadian firms adopted dual currency trading. The dual currency trading experiment on the TSX appears to have failed.

Keywords : home bias, dual currency trading, reporting currency, natural resource firms
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 149-163 | https://doi.org/10.17578/17-3/4-2
Marc Oliver Rieger , University of Trier, Germany    Corresponding Author
Thorsten Hens , University of Zurich, Switzerland
Mei Wang , WHU Otto Beisheim school of Economics, Germany

Abstract:
We examine time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premiums across 27 countries. This result implies that higher historical equity risk premiums are observed in countries where survey participants tend to be more short-term oriented. This finding is consistent with the explanation of the equity premium puzzle provided by myopic loss aversion.

Keywords : equity risk premium; time discounting; myopic loss aversion; cultural finance
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Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 341-369 | https://doi.org/10.17578/17-3/4-7
Prasad Padmanabhan , St. Mary’s University, USA    Corresponding Author
Wenqing Zhang , SolBridge International School of Business, South Korea
Chia-Hsing Huang , SolBridge International School of Business, South Korea

Abstract:
Today, firms are facing a globally competitive environment. Against this backdrop, firms can ill afford to make mistakes in their capital budgeting and acquisition decisions. When making major decisions, firms may be faced with additional costs associated with managerial anchoring. Using simulation results, it is shown that firms making off-shoring decisions can be better off using two or more managers when managerial anchoring can lead to significant cost increases. This paper shows the conditions under which management by committee can involve higher incremental costs, but are offset by decreased anchoring costs if managers anchor in different directions. It is also shown that firms cannot completely eliminate the impact of anchoring even if they hire an infinite number of managers. Firms should consider hiring additional managers in instances where major decisions are involved, if the incremental cost of hiring the additional manager is offset by decreased anchoring costs.

Keywords : behavior finance; anchoring; manager; financial decision
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Multinational Finance Journal, 2012, vol. 16, no. 3/4, pp. 261-301 | https://doi.org/10.17578/16-3/4-4
Seraina Anagnostopoulou , Athens University of Economics and Business, Greece    Corresponding Author

Abstract:
This study comparatively examines the determinants of working capital management for listed vs. unlisted firms, and assesses the impact of this policy on profitability by focusing on the cash conversion cycle, a commonly used measure of working capital management. By using a large UK public and private firm sample, it is found that private firms have significantly lower cash conversion cycles than their public counterparts, and that traditional determinants of the cycle significantly differ between the two groups. The findings are robust to matching public and private firms according to a number of fundamental characteristics, allowing only for their listing status to differ. Results further indicate that the cash conversion cycle has a relatively stronger (negative) impact on operating profitability for private, compared to public firms. This is consistent with greater importance of efficient working capital management for firms with more restricted access to external financing.

Keywords : working capital; cash conversion cycle; private firms; listing status
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Multinational Finance Journal, 2012, vol. 16, no. 3/4, pp. 155-188 | https://doi.org/10.17578/16-3/4-1
Robert Faff , University of Queensland, Australia
Annette Nguyen , Deakin University, Australia
Bonnie H.I. Ip , BPM Financial Modelling, Australia
Philip Gharghori , Monash University, Australia    Corresponding Author

Abstract:
This study applies return-based style analysis to a sample of Australian managed and superannuation funds, seeking to compare their asset allocation strategies across different style groups. Style analysis is performed using a rolling window estimation technique. As expected, riskier fund classes are more exposed to the riskier benchmarks. Further, differences in institutional and legal settings lead the managers of managed and superannuation funds to invest differently, with the latter employing a more conservative investment strategy despite having longer investment horizons.

Keywords : Style analysis; managed funds; superannuation funds; fund performance
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Multinational Finance Journal, 2013, vol. 17, no. 1/2, pp. 49-76 | https://doi.org/10.17578/17-1/2-2
Dimitris Kenourgios , University of Athens, Greece    Corresponding Author
Dimitrios Dimitriou , University of Athens, Greece
Apostolos Christopoulos , University of Athens, Greece

Abstract:
This study investigates the contagion effects of the 2007-2009 global financial crisis across multiple asset markets and different regions. It uses daily return data of six asset classes: stocks, bonds, commodities, shipping, foreign exchange and real estate. A robust analysis of financial contagion is provided by estimating and comparing asymmetric conditional correlations among asset markets during stable and turmoil periods. Results provide evidence on the existence of a correlated-information channel as a contagion mechanism among the US stocks, real estate, commodities and emerging Brazilian bond index. The findings also support the decoupling of BRIC equity markets from the crisis, the diversification benefits of shipping and foreign exchange value of the US dollar indices, and the existence of a flight to quality mechanism from risky US assets to German bonds. This evidence has important implications for portfolio diversification strategies and the future work of policymakers.

Keywords : global financial crisis; asset markets; contagion; asymmetric dynamic conditional correlations
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Multinational Finance Journal, 2014, vol. 18, no. 1/2, pp. 85-138 | https://doi.org/10.17578/18-1/2-3
Nikolaos Philippas , University of Piraeus, Greece    Corresponding Author

Abstract:
This study examines the performance of mutual funds that employ investment strategies based on the principles of behavioral finance, collectively known as “behavioral mutual funds”. A series of performance measures is employed in order to test whether behavioral mutual funds outperform the stock market, their benchmarks or passively managed index funds, using monthly data for the period January 2007-March 2013. Results from the full sample and subperiod analysis show that behavioral mutual funds actually exhibited poor performance, both during the recent financial crisis and in its aftermath, rejecting the conjecture that the crisis period would provide an ideal environment for their strategies to be profitable by exploiting market inefficiencies and investors behavioral biases.

Keywords : behavioral mutual funds, financial crisis, market inefficiencies, performance evaluation
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Multinational Finance Journal, 2014, vol. 18, no. 1/2, pp. 1-41 | https://doi.org/10.17578/18-1/2-1
Mihail K. Miletkov , University of New Hampshire, USA    Corresponding Author

Abstract:
The governments which undertake privatization of their state owned enterprises often maintain some ownership in the newly privatized firms. This paper examines the effect of the presence of the government as a minority shareholder on the protection of the minority shareholders in privatized firms. Consistent with the government’s incentive to foster security market development and to enlist the support of the median-class voters for the privatization process we find that the government effectively monitors the controlling shareholders in the newly privatized firms and curbs their ability to expropriate the minority shareholders. Furthermore, the evidence suggests that minority government ownership acts as a substitute for the lack of alternative mechanisms for minority shareholder protection.

Keywords : privatization; private benefits of control; government ownership; investor protection
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Multinational Finance Journal, 2014, vol. 18, no. 1/2, pp. 43-84 | https://doi.org/10.17578/18-1/2-2
Zhichao Zhang , Durham University, UK
Li Ding , Durham University, UK
Si Zhou , Durham University, UK    Corresponding Author
Yaoyao Fu , Durham University, UK

Abstract:
By applying tournament analysis to the UK Unit Trusts data, the results support significant risk shifting in the family tournament; i.e. interim winning managers tend to increase their level of risk exposure more than losing managers. It also shows that the risk-adjusted returns of the winners outperform those of the losers following the risk taking, which implies that risk altering can be regarded as an indication of managers’ superior ability. However, the tournament behaviour can still be a costly strategy for investors, since winners can be seen to beat losers in the observed returns due to the deterioration in the performance of their major portfolio holdings.

Keywords : mutual fund family; fund performance; tournament; risk taking
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Multinational Finance Journal, 2014, vol. 18, no. 1/2, pp. 139-167 | https://doi.org/10.17578/18-1/2-4
Håkan Jankensgård , Lund University, Sweden    Corresponding Author

Abstract:
According to the cost-of-capital hypothesis, increased voluntary disclosure should reduce information asymmetries, lower the cost of capital, and increase firm value. The optimal-disclosure hypothesis, however, predicts that costs related to voluntary disclosure lead to the existence of an interior optimum of disclosure that maximizes firm value. These hypotheses are empirically tested using a previously unexplored database that covers disclosure rankings for listed Swedish firms between 2007 and 2012 (rendering around 1000 firm-years). The evidence is consistent with the optimal-disclosure hypothesis. I find a robust quadratic relationship between Tobin’s Q and the level of disclosure in annual reports. I find no significant relationship, however, between Tobin’s Q and disclosure in quarterly reports or web-based reporting.

Keywords : voluntary disclosure, cost of capital, Tobin
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Multinational Finance Journal, 2015, vol. 19, no. 2, pp. 77-107 | https://doi.org/10.17578/19-2-1
Robert Joliet , IESEG School of Management Lille-Paris, France
Aline Muller , HEC Management School of the University of Liège, Belgium    Corresponding Author

Abstract:
This study uses Hines’ (1996) dividend process model to test the effect of domestic versus foreign profitability shocks on firms’ dividend payout policy. Investigating an international sample of 283 companies from Continental Europe, Australia, New Zealand, the U.S.A. and Canada, we find that increases in some foreign market earnings stimulate higher cash distributions than similar increases in domestic earnings. The disaggregation of foreign performance across country-specific markets reveals that managers are predominantly using dividends to signal foreign profit movements that have been generated in emerging markets and Asian Pacific developed markets – while they do not feel compelled to send signals related to positive earnings news originating from other mature developed markets (i.e. North America and Western Europe). The findings also confirm the popular view that due to their higher variance and lower persistence, positive foreign profitability shocks coming from emerging markets are more difficult to integrate into stable dividend policies.

Keywords : disclosure; dividend policy; multinational firm; disaggregation; emerging markets
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Multinational Finance Journal, 2013, vol. 17, no. 3/4 | https://doi.org/10.17578/17-3/4-1
Hersh Shefrin , Santa Clara University, USA    Corresponding Author

Abstract:
Proponents of behavioral finance have as their goal the introduction of realistic psychological concepts into the study of finance. I call this the “behavioralizing finance.” In this respect, behavioral finance is more of an approach than a field. This special issue is devoted to behavioralizing multinational finance. In this regard, the issue focuses on topics that provide insights into the manner in which the psychological concepts manifest themselves in different countries and across the financial spectrum. The papers in this issue explore the broadening of behavioral finance, in terms of new applications and different countries, thereby providing deeper insights into issues that have been prominent in the existing behavioral literature.

Keywords : n/a
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Multinational Finance Journal, 2014, vol. 18, no. 3/4, pp. 215-248 | https://doi.org/10.17578/18-3/4-2
Sha Liu , University of Southampton, UK    Corresponding Author

Abstract:
This study examines the relation between textual sentiment (media pessimism), the concentration/volume of news, and sovereign bond yield spreads, specifically in Greece, Ireland, Italy, Portugal and Spain during the European sovereign debt crisis from 2009 to 2012. The findings suggest that higher media pessimism and greater concentration/volume of news collectively communicate additional value-relevant information that has not been quantified by traditional determinants of yield spreads. If higher media pessimism is coupled with greater concentration/volume of news and other factors remain unchanged, yield spreads would move upwards, causing prices to fall. Media pessimism and the number of news stories respectively and collectively help predict the widening of yield spreads. Higher media pessimism level is strongly associated with more news stories being reported, suggesting that “no news is good news.”

Keywords : textual sentiment; media pessimism; information supply; sovereign bond yield spreads; European sovereign debt crisis
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Multinational Finance Journal, 2014, vol. 18, no. 3/4, pp. 249-280 | https://doi.org/10.17578/18-3/4-3
Abdullah Iqbal , University of Kent, UK
Ortenca Kume , University of Kent, UK    Corresponding Author

Abstract:
This study examines the impact of the recent financial crisis on the capital structure decision of UK, French and German firms. The results show that overall leverage ratios increase from pre-crisis (2006 and 2007) to crisis (2008 and 2009) years and then decrease in the post-crisis (2010 and 2011) years. Both equity and debt levels change during the crisis and post-crisis years. The findings further reveal that firms with lower than industry average capital structure ratios in the pre-crisis period experience a gradual increase in their leverage during crisis and post-crisis periods. However, firms with higher than industry average capital structure ratios in the pre-crisis periods experience a significant decrease in the leverage ratios particularly in the post-crisis period mainly due to changes in their equity levels.

Keywords : financial crisis; capital structure; leverage, UK, France, Germany
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Multinational Finance Journal, 2014, vol. 18, no. 3/4, pp. 169-213 | https://doi.org/10.17578/18-3/4-1
Frédéric Délèze , Hanken school of Economics, Finland
Syed Mujahid Hussain , Hanken school of Economics, Finland    Corresponding Author

Abstract:
This paper investigates jumps and cojumps in European financial markets around the major U.S macroeconomic news announcements employing more than six years of high frequency data on stock indices, currency and interest rate futures. The findings show that while the U.S macroeconomic announcements cause significant jumps on all asset classes, European equity markets are found to be more responsive. Moreover, there is a strong correlation between the type of news and direction of the jumps. Significant cojumps caused by the U.S macroeconomic surprises across European stock indices futures are also reported. The time series analyses show that the European financial markets experienced more frequent and sizeable jumps during the recent global financial crisis. Similarly, more frequent cojumps are also reported across European equity markets during the same period.

Keywords : jumps and cojumps; macroeconomic announcements; tick by tick data; interest rate futures; global credit crisis
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Multinational Finance Journal, 2015, vol. 19, no. 1, pp. 33-75 | https://doi.org/10.17578/19-1-2
Steve Fan , University of Wisconsin - Whitewater, USA    Corresponding Author
Scott Opsal , University of Wisconsin - Whitewater, USA
Linda Yu , University of Wisconsin - Whitewater, USA

Abstract:
In this study, we examine how idiosyncratic risk is correlated with a wide array of anomalies, including asset growth, book-to-market, investment-to-assets, momentum, net stock issues, size, and total accruals, in international equity markets. We use zero-cost trading strategy and multifactor models to show that these anomalies produce significant abnormal returns. The abnormal returns vary dramatically among different countries and between developed and emerging countries. We provide strong evidence to support the limits of arbitrage theory across countries by documenting a positive correlation between idiosyncratic risk and abnormal return. It suggests that the existence of these well-known anomalies is due to idiosyncratic risk. In addition, we find that idiosyncratic risk has less impact on abnormal return in developed countries than emerging countries. Our results support the mispricing explanation of the existence of various anomalies across global markets.

Keywords : anomalies; idiosyncratic risk; international equity markets; limits of arbitrage
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Multinational Finance Journal, 2015, vol. 19, no. 1, pp. 1-31 | https://doi.org/10.17578/19-1-1
Nicky J. Ferguson , University of Cambridge, UK
Dennis Philip , Durham University Business School, UK    Corresponding Author
Herbert Y. T. Lam , Renmin University of China, China
Jie Michael Guo , Durham University Business School, UK

Abstract:
This paper examines whether tone (positive and negative) and volume of firm-specific news media content provide valuable information about future stock returns, using UK news media data from 1981–2010. The results indicate that both tone and volume of news media content significantly predict next period abnormal returns, with the impact of volume more pronounced than tone. Additionally, the predictive power of tone is found to be stronger among lower visibility firms. Further, the paper finds evidence of an attention-grabbing effect for firm-specific news stories with high media coverage, mainly seen among larger firms. A simple news-based trading strategy produces statistically significant risk-adjusted returns of 14.2 to 19 basis points in the period 2003–2010. At the aggregate level, price pressure induced by semantics in news stories is corrected only in part by subsequent reversals. Overall, the findings suggest firm-specific news media content incorporates valuable information that predicts asset returns.

Keywords : news media content; stock returns; textual analysis; news-based trading strategy
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Multinational Finance Journal, 2016 vol. 20, no. 1, pp. 1-39 | https://doi.org/10.17578/20-1-1
Costas Lambrinoudakis , University of Piraeus, Greece    Corresponding Author

Abstract:
Dynamic trade-off models of capital structure predict negative correlation between adjustment speed and adjustment costs. This paper empirically tests this prediction by bringing together elements from two strands of the literature: dynamic capital structure and security offerings literature. In contrast to existing studies, this approach employs directly measurable proxies for adjustment cost (security issuance cost) determinants. The correlation between adjustment costs and the speed of adjustment is found to be positive or zero. From a dynamic trade-off perspective, these results are puzzling as they suggest that transaction costs cannot explain the observed pattern of the capital structure adjustment process.

Keywords : capital structure; target leverage; adjustment speed; security issuance costs
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Multinational Finance Journal, 2014, vol. 18, no. 3/4, pp. 281-336 | https://doi.org/10.17578/18-3/4-4
Basma Majerbi , University of Victoria, Canada    Corresponding Author
Houssem Rachdi , University of Jendouba, Tunisia

Abstract:
This paper revisits the relationship between liberalization and systemic banking crisis in light of a more comprehensive measure of financial liberalization and its interaction with various measures of banking governance and institutional quality. We estimate the probability of systemic banking crisis for a sample of 53 countries using multivariate logit models and allowing the determinants of crisis to vary across country groups. The results show that liberalization increases the likelihood of crisis only at early stages of financial reforms and up to certain level, after which, greater liberalization, through more advanced financial reforms, tends to reduce the probability of systemic banking crisis. We also find that stricter banking regulation and supervision, better law and order, government stability, lack of corruption and bureaucratic efficiency generally lead to reduced probability of crisis. However, the magnitude and significance of the beneficial effects of governance largely depend on the degree of liberalization and vary across countries depending on their levels of income and development.

Keywords : systemic banking crises; early warning systems; multivariate logistic regressions; financial liberalization; institutional quality and banking governance
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Multinational Finance Journal, 2015, vol. 19, no. 3, pp. 169-221 | https://doi.org/10.17578/19-3-2
Lorne Switzer , Concordia University, Canada    Corresponding Author
Alan Picard , Concordia University, Canada

Abstract:
This paper re-examines the link between idiosyncratic risk and expected returns for a large sample of firms in both developed and emerging markets. Recent studies using Fama-French three-factor models have shown a negative relationship between idiosyncratic volatility and expected returns for developed markets. This relationship has not been studied to date for emerging markets. This study relates the current-month’s idiosyncratic volatility to the subsequent month’s stock returns for a sample of both developed and emerging markets expanding benchmark factors by including both a momentum and a systematic liquidity risk component. Using a five-factor model, the results suggest that idiosyncratic risk does not play a role on stock returns for most of the developed markets analyzed. In contrast, the paper shows, for the first time, that idiosyncratic risk is positively related to month-ahead expected returns for many emerging markets for this model.

Keywords : idiosyncratic volatility; expected returns; developed vs. emerging markets; asset pricing; multifactor models
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Multinational Finance Journal, 2015, vol. 19, no. 2, pp. 109-147 | https://doi.org/10.17578/19-2-2
Eleftherios Angelopoulos , University of Patras, Greece    Corresponding Author
Antonios Georgopoulos , University of Patras, Greece

Abstract:
This study examines the performance of retail banking focusing on the link between shareholder value creation and operational value drivers. A unique panel data set is used, derived from the monthly Profit and Loss statements of a branch network of a very large commercial bank operating in the Greek oligopolistic financial system for the period 2006–2010. Taking into account the existence of important trade-offs between most factors of shareholder value, the value effects of the recent Greek crisis primarily characterized by the sovereign debt factor are systematically incorporated in the analysis. The results show that the crisis reverses the generally positive value effect of income diversification and reduces the value premium of lending spreads. Moreover, the crisis significantly intensifies the value premium of efficient cost management, whilst simultaneously accelerating the value destruction causing by credit risk. The findings have important managerial implications for bank managers and policymakers.

Keywords : retail banking performance; shareholder value drivers; residual income approach; greek crisis
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Multinational Finance Journal, 2015, vol. 19, no. 4, pp. 267-313 | https://doi.org/10.17578/19-4-2
Graham Bornholt , Griffith University, Australia
Paul Dou , Monash University, Australia
Mirela Malin , Griffith University, Australia    Corresponding Author

Abstract:
We investigate the role of trading volume in predicting the magnitude and persistence of the price momentum phenomenon in markets around the world. Using comprehensive data for 38,273 stocks from 37 countries, we show that past trading volume relates to both the level and persistence of momentum profits. The volume-based early stage momentum strategy outperforms the traditional momentum strategy in 34 out of 37 countries. In addition, we find evidence of a volume effect and we show that the degree of individualism in a country can explain the size of the volume effect in the markets investigated in this paper.

Keywords : early stage momentum; national culture; volume effect; turnover; individualism
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Multinational Finance Journal, 2015, vol. 19, no. 3, pp. 149-168 | https://doi.org/10.17578/19-3-1
Yakov Amihud , NYU-Stern, USA    Corresponding Author
Haim Mendelson , Stanford University, USA

Abstract:
This paper reviews research on the effects of different measures of liquidity on asset prices. The foundation is the pricing of liquidity as an asset characteristic that began with the theoretical model and empirical evidence of Amihud and Mendelson (1986). The positive relation between expected returns on financial assets and the illiquidity of these assets has since been reconfirmed both in the U.S. and worldwide. The positive relation between illiquidity and expected return gives rise to research on the effect of liquidity-related systematic risk. Two types of such risk are shown to be priced: exposure to shocks in market liquidity and exposure to the market illiquidity return premium. The pricing of these risks is stronger in times of greater funding illiquidity and economic stress.

Keywords : liquidity; asset pricing; system risk; Amihud measure
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Multinational Finance Journal, 2015, vol. 19, no. 4, pp. 223-266 | https://doi.org/10.17578/19-4-1
Panayiotis Theodossiou , Cyprus University of Technology, Cyprus    Corresponding Author

Abstract:
This article provides a mathematical and empirical investigation of the reasons for the presence of skewness and kurtosis in financial data. The results indicate that this phenomenon is triggered by higher-order moment dependencies in the data, such as asymmetric and conditional volatility. Moreover, the article develops and tests successfully a skewed extension of the generalized error distribution (SGED), which is then used to model European call option prices. Under the standard assumptions of risk neutrality, normality of log-returns, and absence of arbitrage opportunities, the SGED model yields as special cases several well-known models for pricing options on stocks, stock indices, currencies, and currency futures.

Keywords : asymmetric volatility; call option pricing; conditional heteroskedasticity; geometric Brownian motion; skewed GED
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Multinational Finance Journal, 2016, vol. 20, no. 1, pp. 41-83 | https://doi.org/10.17578/20-1-2
Kelly Burns , Curtin University, Australia    Corresponding Author

Abstract:
This study revisits the Meese-Rogoff puzzle by estimating the traditional monetary models of exchange rate determination in state-space form and comparing the accuracy of these forecasts against the naïve random walk model using a wide range of conventional and alternative measures of forecasting accuracy. The results demonstrate that incorporating stochastic movements in the parameters of exchange rate models does not enable the Meese-Rogoff puzzle to be overturned. However, estimating these models in state-space form substantially improves forecasting accuracy to the extent that the model and random walk produce an equivalent magnitude of error. Furthermore, the results prove that the Meese-Rogoff puzzle can be overturned if the forecasts are evaluated by alternative criteria. These criteria include direction accuracy, profitability, and measures that jointly take into account both magnitude and direction accuracy.

Keywords : forecasting; random walk; exchange rate models; time-varying parameters
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Multinational Finance Journal, 2016, vol. 20, no. 2, pp. 127-179 | https://doi.org/10.17578/20-2-2
André Küster Simic , Hamburg School of Business Administration, Germany
Philipp Lauenstein , Helmut Schmidt University and Hamburg School of Business Administration, Germany    Corresponding Author
Stefan Prigge , Hamburg School of Business Administration, Germany

Abstract:
Until the outbreak of the most recent shipping crisis in late 2008, German KG ship funds had been a prominent vehicle for investing in, and financing of, global shipping operations. Given that KG shares are not designed to be traded, investors are expected to require higher returns as compensation for illiquidity. Since the early 2000s, secondary market platforms for trading of shares in ship funds emerged. If investors could sell their shares at prices reflecting the fundamentals of their asset, lower returns would be demand. Making use of a novel methodological approach, 341 transactions of container ship funds executed from 2007 through 2012 are analyzed. The results reveal a surprisingly high fundamental-valuation efficiency: The identified pricing-relevant variables explain about 86% of the variations in the secondary market valuations of the ship funds. However, it is documented that shares in ship funds trade at discount relative to fundamental asset values.

Keywords : ship finance; KG funds; secondary markets; informational efficiency; market microstructure
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Multinational Finance Journal, 2016, vol. 20, no. 3, pp. 237-271 | https://doi.org/10.17578/20-3-2
Tom Berglund , Hanken School of Economics, Finland    Corresponding Author
Martin Holmén , University of Gothenburg, Sweden

Abstract:
Employees in Swedish firms have the legal right to be represented on the company board. However, in a considerable share of Swedish listed firms, this option is not exercised. This paper asks why that is the case. We use a simple framework, based on rational choice by individual employees. Our sample consists of 226 listed non-financial Swedish firms in 2001-2007. The results are in line with our predictions. Employee board representation does not impact firm performance, neither positively nor negatively. The main driver of employee board representation is the number of eligible employees. Furthermore, employee board representation decreases with firm risk, slow growth, and internationalization. We conclude that when the law grants the right for employees to be represented on the board a simple model based on individual utility maximization provides an explanation for why the right is used in some firms and not in others.

Keywords : employee representation; board composition; dependent directors; firm performance; corporate governance
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Multinational Finance Journal, 2016, vol. 20, no. 04, pp. 323-354 | https://doi.org/10.17578/20-4-2
Roberto Wessels , University of Groningen, Netherlands    Corresponding Author
Tom J. Wansbeek , University of Groningen, Netherlands
Lammertjan Dam , University of Groningen, Netherlands

Abstract:
We present a model to test the null hypothesis that firms organize their corporate governance arrangements optimally given the constraints they face. Following the literature, the model rejects the null if the conditional correlation between governance and performance is significantly different from zero. Our model provides a clean test of this hypothesis by controlling for measurement errors in all observed variables and avoiding simultaneous equation biases by casting our model as a reduced-form bivariate equation. We model governance, performance and the constraints on the firm’s investment decisions as latent variables. We estimate of the conditional correlation between our measures of corporate governance and firm financial performance to be statistically speaking equal to zero. This result therefore provides empirical support for the in-equilibrium view of corporate governance arrangements.

Keywords : corporate governance; optimal firm behavior; endogeneity; structural models; latent variables
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Multinational Finance Journal, 2016, vol. 20, no. 04, pp. 273-322 | https://doi.org/10.17578/20-4-1
Stephani A. Mason , DePaul University, USA
Ann F. Medinets , Rutgers Business School, USA
Dan Palmon , Rutgers Business School, USA    Corresponding Author

Abstract:
There is an ongoing debate about whether executives receive excessive compensation, and if so, how to control it. Several countries have instituted say-on-pay rules (shareholders’ right to vote on executive compensation) to reduce excessive compensation. However, determining the effectiveness of say-on-pay is difficult because its tenets vary by country due to political, institutional, cultural, economic, and social factors. Policy issues like say-on-pay are complex, ill-structured problems without definitive assumptions, theories, or solutions. Existing say-on-pay research is inconclusive, since some studies find no change in CEO compensation around its adoption, whereas other studies show that say-on-pay lowers CEO pay or changes its composition. This paper chronicles the history of say-on-pay, compares its implementation by groups (e.g. shareholders-initiated versus legislated and binding versus advisory), discusses the complexities of using say-on-pay to address excessive executive compensation, and recommends future research directions.

Keywords : executive compensation; say-on-pay; compensation regulation; shareholder activism; shareholder proposals; corporate governance
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Multinational Finance Journal, 2017, vol. 21, no. 3, pp. 133-175
Liviu Voinea , Bucharest University of Economic Studies, Romania
Ana-Maria Cazacu , National Bank of Romania, Romania    Corresponding Author
Florian Neagu , National Bank of Romania, Romania

Abstract:
This paper looks at the largest credit institutions from Central and East European countries to better understand the role of expatriates and of other top management team’s characteristics for banks’ risk profile, strategies and lending activity. The results find that credit institutions with expatriate chief executive officers or larger share of expatriates in the top management team are more risk-takers, as indicated by alternative measures of risk (loan-to-deposit ratio, share of risk weighted assets and provisions for loan losses in total assets). On the other hand, banks managed by expatriates and more interconnected with the parent financial institution or other related parties tend to deliver more credit to companies and households (as share in total assets).

Keywords : banks; expatriates; top management teams; risk; CEE countries
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Multinational Finance Journal, 2018, vol. 22, no. 3/4, pp. 211-254
Yuriy Zabolotnyuk , Carleton University, Canada    Corresponding Author

Abstract:
This paper employs meta-analysis methodology to reconcile the diverse international empirical evidence on the effects of bond rating announcements on the stock prices of the issuing firms. The random-effects model meta-analysis of 53 published studies and 421 sub-samples of data covering a range of countries and 44,713 bond rating announcements reveals an average cumulative abnormal stock return of -1.64% associated with the bond downgrades and an average cumulative abnormal stock return of 0.28% associated with the bond upgrades. Factors such as initial bond rating, issuer location, announcement period, and rating change size have significant effects on the size of the abnormal stock returns around the rating announcement dates.

Keywords : bond rating announcements; wealth effects; meta-analysis; information asymmetry
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Multinational Finance Journal, 2018, vol. 22, no. 3/4, pp. 173-210
Elyas Elyasiani , Temple University, USA
Luca Gambarelli , University of Modena and Reggio Emilia, Italy
Silvia Muzzioli , University of Modena and Reggio Emilia, Italy    Corresponding Author

Abstract:
The aim of this paper is to propose a simple and unique measure of risk that subsumes the conflicting information contained in volatility and skewness indices and overcomes the limitations of these indices in accurately measuring future fear or greed in the market. To this end, the concept of upside and downside corridor implied volatility, which accounts for the asymmetry in the risk-neutral distribution, is exploited. The risk-asymmetry index is intended to capture the investors’ pricing asymmetry towards upside gains and downside losses. The results show that the proposed risk-asymmetry index can play a crucial role in predicting future returns, at various forecast horizons, since it subsumes the information embedded in both the volatility and skewness indices. Furthermore, the risk-asymmetry index is the only index that, at very high values, possesses the ability to clearly highlight a risky situation for the aggregate stock market.

Keywords : risk-asymmetry; corridor implied volatility; risk-neutral moments; risk measures; return predictability
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Multinational Finance Journal, 2017, vol. 21, no. 2, pp. 91-132
Slim Mseddi , Al Imam Mohammad Ibn Saud Islamic University, Saidi Arabia
Noureddine Benlagha , Qatar University, Qatar    Corresponding Author

Abstract:
This paper features an application of Diebold and Yilmaz's (2009) spillover index model to assess the impact of the global financial crisis on spillovers between the bank sectors in terms of both returns and volatility time series. The spillover investigation is performed on daily return data for Islamic and conventional banks in the Gulf Cooperation Council countries for the period 2005-2015. We use a dynamic conditional multivariate GARCH to directly model the time varying spillover effects among the studied time series. This study finds a strong bidirectional returns spillover between conventional banks and a very weak spillover from Islamic banks to conventional banks, so the transmission of shocks from Islamic banks to conventional banks is reduced. It also finds that the dependence between stock returns in an Islamic bank market structure is more strongly affected by the financial crisis than in a conventional bank market. Moreover, the volatility linkage is highly affected by the crisis in an Islamic context than that in a conventional bank system. Finally, using the DCC-GARCH model this study shows a high persistence in the time series of correlation among all GCC countries, except Bahrain, indicating that a long-run average of the correlation can be pushed away by shocks for a very long period. The empirical results are expected to have potentially important implications for improving the process of selection and allocation for domestic and international portfolios.

Keywords : financial crisis; islamic banks; spillover index; dependence; multivariate GARCH
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Multinational Finance Journal, 2017, vol. 21, no. 4, pp. 247-283
Samit Paul , Indian Institute of Management Calcutta, India    Corresponding Author
Madhusudan Karmakar , Indian Institute of Management Lucknow, India

Abstract:
The purpose of this study is to estimate intraday Value-at-Risk (VaR) and Expected Shortfall (ES) of high frequency stock price indices taken from select markets of the world. The stylized properties indicate that the return series exhibit skewed and leptokurtic distributions, volatility clustering, periodicity of volatility and long memory process in volatility, all of which together suggest the usage of Component GARCH- EVT combined approach on periodicity adjusted return series to forecast accurate intraday VaR and ES. Hence we estimate intraday VaR and ES using Component GARCH-EVT combined approach with different innovation distributions such as normal, student-t and skewed student-t and compare its relative accuracy with the benchmark GARCH-EVT model with different distributions. The Component GARCH-EVT models in general perform better than GARCH-EVT models and the model with skewed student-t innovations forecasts more accurately. The study is useful for market participants involved in frequent intraday trading in such markets.

Keywords : deseasonalized; intraday; value at risk; expected shortfall; component GARCH; EVT
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Multinational Finance Journal, 2018, vol. 22, no. 1/2, pp. 1-33
Panayiotis Alexakis , National and Kapodistrian University of Athens, Greece
Gikas Hardouvelis , University of Piraeus & Ex Minister of Finance of Greece, Greece
Dean Paxson , University of Manchester, UK
Gordon Sick , University of Calgary, Canada
Lenos Trigeorgis , University of Cyprus, Cyprus & King’s College London & MIT, UK    Corresponding Author

Abstract:
This article addresses certain key issues of the Greek sovereign debt crisis and its broader economic distress and growth implications for the Euro Area. It also offers a number of remedies, including growth indexed bonds, fiscal balances over the growth cycle, structural reforms, and the use of real option analysis in relevant public policy areas involving either inefficient or growth sectors of the economy.

Keywords : greek sovereign debt; eurozone financial crisis; GDP-linked bonds; structural reforms; real options
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Multinational Finance Journal, 2017, vol. 21, no. 1, pp. 1-20
Kenneth Högholm , Hanken School of Economics, Finland
Johan Knif , Hanken School of Economics, Finland    Corresponding Author
Gregory Koutmos , Fairfield University, USA
Seppo Pynnönen , University of Vaasa, Finland

Abstract:
The paper focuses on asymmetric fund performance by comparing performance characteristics of European and US large-cap mutual equity funds. The quantile approach applied enables the monitoring of fund performance across different conditional outcome scenarios. For the sample of 31 European and 35 US large-cap mutual equity funds the performance is found to be sensitive to the empirical estimation approach applied. Furthermore, the performance alphas exhibit asymmetry across the conditional return distribution. This asymmetric performance behavior might be utilized for the construction of a portfolio of funds with suitable hedge characteristics. A large part of the US individual funds significantly underperforms the benchmark, especially in the lower tail of the conditional distribution. A few of the European funds, on the other hand, exhibit significant and positive performance alphas in the lower tail of the conditional return distribution.

Keywords : asymmetric fund performance; european equity funds; US equity funds
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Multinational Finance Journal, 2017, vol. 21, no. 2, pp. 49-90
Prasenjit Chakrabarti , Indian Institute of Management Ranchi, India
Kiran Kumar Kotha , Indian Institute of Management Indore, India    Corresponding Author

Abstract:
This study investigates whether volatility demand information in the order flow of Indian Nifty index options impacts the magnitude of variance risk premium change. The study further examines whether the sign of variance risk premium change conveys information about realized volatility innovations. Volatility demand information is computed by the vega-weighted order imbalance. Volatility demand of options is classified into different categories of moneyness. The study presents evidence that volatility demand of options significantly impacts the variance risk premium change. Among the moneyness categories, volatility demand of the most expensive options significantly impacts variance risk premium change. The study also finds that positive (negative) sign of variance risk premium change conveys information about positive (negative) innovation in realized volatility.

Keywords : variance risk premium; volatility demand; model-free implied volatility; realized variance; options contract
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Multinational Finance Journal, 2017, vol. 21, no. 3, pp. 177-210
Maria Eleni Agoraki , Athens University of Economics and Business & Panteion University, Greece    Corresponding Author
Anastasios Tsamis , Panteion University, Greece

Abstract:
This paper investigates the effect of bank-specific, industry-specific and macroeconomic determinants, as well as the regulatory environment on the profitability of emerging European banking sector over the period 2000-2016. Banks in countries with higher capital requirements, market discipline and more restrictions on banking activities performed better, while the better-performing banks had excessive foreign ownership. Using dynamic frameworks, the empirical analysis reveals that performance is affected by bank-specific determinants like equity capital and bank size, while traditional activities lead to increased profitability. Obviously, the specific measures of economic policy must be oriented towards specific aspects of banking business. This is likely to set new standards in performance and efficiency, making bank management to address particular firm-specific issues, such as the composition of the balance sheet, the quality of the credit portfolio, as well as the range of financial products and services. Overall, our evidence shows that regulation, and balance sheets are all helpful in understanding bank profitability during the crisis.

Keywords : banking sector profitability; financial crisis; regulatory framework; emerging markets
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Multinational Finance Journal, 2021, vol. 25, no.3/4, pp. 73–83
Elena Duggar , Moody's Investors    Corresponding Author

Abstract:
The G-20 Debt Service Suspension Initiative (DSSI) was endorsed effective May 1, 2020, in the midst of an unprecedented fall in government revenues and rapidly rising public expenditure following the COVID-19 shock and resulting deep economic contraction. By the end of 2020, 45 of the 73 eligible countries had participated in the initiative. By March 18, 2021, 24 countries had participated in the extended DSSI. The G-20 DSSI initiative will alleviate liquidity pressures for participating countries, but in general the savings from debt relief under the DSSI are modest relative to the fiscal deterioration brought about by the COVID-19 shock. Countries eligible for the DSSI and the Common Framework for Debt Treatments differ greatly in terms of their debt-to-GDP levels, debt sustainability positions and credit risk, potential benefits from DSSI debt relief, and creditor universe. This diversity will necessitate tailored approaches to debt relief, taking into account country-specific circumstances.

Keywords : DSSI; common framework; sovereign debt restructuring and default; country risk; creditworthiness; debt crisis
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Multinational Finance Journal, 2020, vol. 24, no. 1/2, pp. 1-37
Sean Lu , QMA LLC, USA    Corresponding Author
Cindy Lu , Stanford University, USA

Abstract:
A new approach of constructing an idiosyncratic momentum using common style factors from the Barra risk model has been proposed. The method removes the limitation in the conventional approach of constructing idiosyncratic momentum using Fama-French factors, and allows to build more effective idiosyncratic momentum factor for a wide variety of international markets where the Fama-French model is not available. The performance results indicate that the idiosyncratic momentum factor carries a resemblance to the conventional price momentum, but with much lower variance and exposure to the common market factors, such as value, size, and volatility. The long-short portfolio test for both China's A-Share IMI and CSI 500 indices in the Chinese equity market demonstrates the significant improvement of this factor's return over the conventional momentum. The results strongly suggest the idiosyncratic momentum factor could be used as an effective momentum strategy for investing in China's stock market.

Keywords : stocks; price momentum; idiosyncratic momentum; risk model; regression
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Multinational Finance Journal, 2018, vol. 22, no. 3/4, pp. 119-172
Abdulilah Ibrahim Alsheikhmubarak , Royal Holloway, University of London, UK    Corresponding Author
Evangelos Giouvris , Royal Holloway, University of London, UK

Abstract:
Modelling the volatility (or kurtosis) of the implied volatility is an important aspect of financial markets when analysing market consensus and risk strategies. The purpose of this study is to evaluate the ability of symmetric and asymmetric GARCH systems to model the volatility of the FTSE 100 Implied Volatility Index (IV). We use GARCH, EGARCH, GJR-GARCH and GARCH-MIDAS to model variance. We also introduce FTSE 100 returns and several macroeconomic variables (UK industrial production, 3M LIBOR, GBP effective exchange rate and unemployment rate) to investigate whether they explain variance. Our results show that market returns is a major explanatory factor besides macroeconomic variables. Also, GARCH (1,1) outperforms other asymmetric models unless there is exceptionally high volatility such as the crisis of 2008 in which case EGARCH performs better. GJR-GARCH is outperformed by all other models. GARCH-MIDAS shows that both macroeconomic variables and market returns are useful when estimating IV.

Keywords : FTSE 100 implied volatility index (IV); GARCH; EGARCH; GJR-GARCH; GARCH-MIDAS; FTSE 100 index returns; macroeconomic variables
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Multinational Finance Journal, 2017, vol. 21, no. 4, pp. 211-245
Yoon K. Choi , University of Central Florida, USA
Seung Hun Han , Korea Advanced Institute of Science and Technology, South Korea    Corresponding Author
Sangwon Lee , University of Houston, USA

Abstract:
We examine the extent of expropriation by controlling owners of business groups. Specifically, we investigate the investment behavior of Korean business groups’ (chaebols’) member firms with respect to cash flows of their own operations as well as other affiliated firms. We also explore the role of corporate governance in curtailing expropriation by investigating the impact of audit committees on investment/cash flow sensitivities. We find that high cash flow rights are associated with reducing overinvestment, while the investment sensitivity of chaebol firms to their own cash flows remains unaffected. By contrast, investments are significantly sensitive to cash flows of other affiliated firms in the business group with high cash flow rights. Furthermore, investment decisions appear to be more efficient among firms with audit committees than among those without. The results suggest that internal capital markets of chaebol firms are active and at least partly efficient in the post-Asian financial crisis period.

Keywords : investment; cash-flows; corporate governance; business groups
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Multinational Finance Journal, 2019, vol. 23, no. 3/4, pp. 211-272
Michalis-Panayiotis Papafilis , University of Piraeus, Greece
Maria Psillaki , University of Piraeus, Greece    Corresponding Author
Dimitris Margaritis , The University of Auckland Business School, New Zealand

Abstract:
This study examines the nexus between sovereigns and banks during a crisis with a focus on the effects of PSI, the voluntary exchange program of Greek sovereign bonds with private sector involvement. The effectiveness of the program is evaluated through its impact on credit default swaps of 8 Eurozone countries and 21 banks, using daily data from 2009 to 2014. Using linear and nonlinear causality analyses, it is found that the link between sovereign and bank risk weakened after PSI, while the persistence and magnitude of lead-lag interactions also declined in the same period. A difference-in-difference model confirms this result. The findings are also robust to second moment filtering, with GARCH-BEKK residuals indicating the presence of significant albeit declining nonlinear causal effects. The empirical evidence suggests that sovereign debt restructuring initiatives, such as PSI, could be an effective policy measure to ease off pressure on the nexus between banks and their sovereigns.

Keywords : CDS spreads; PSI; sovereign/bank credit risk; contagion; nonlinear causality
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Multinational Finance Journal, 2017, vol. 21, no. 1, pp. 21-48
Jyri Kinnunen , Hanken School of Economics, Finland    Corresponding Author
Minna Martikainen , Hanken School of Economics, Finland

Abstract:
We explore the relevance of dynamic autocorrelation in modeling expected returns and allocating funds between developed and emerging stock markets. Using stock market data for the US and Latin America, we find that autocorrelation in monthly returns vary with conditional volatility, implying some investors implement feedback trading strategies. Dynamic autocorrelation models fit the data considerably better than a conditional version of the zero-beta CAPM, while differences between models with an autoregressive term are modest. Investors can improve their portfolio optimization between developed and emerging stock markets by considering time-varying autocorrelation. The most drastic difference in portfolio performance is not due to allowing autocorrelation to vary over time, but realizing that stock returns are autocorrelated, especially in emerging stock markets.

Keywords : autocorrelation; volatility; portfolio; international; emerging markets
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Multinational Finance Journal, 2018, vol. 22, no. 1/2, pp. 35-62
Anastasios G. Malliaris , Loyola University Chicago, USA    Corresponding Author

Abstract:
This paper links the bursting of the housing asset price bubble around 2007 in the U.S. to the instability that arose in financial markets with the bankruptcy of Lehman Brothers in September 2008, and both of these to the Great Recession and the unconventional monetary policy that followed. Similar narratives about the Stock Market Crash of 1929, the Crash of 1987 and the Internet Bubble of 2000 are briefly presented to show their evolving financial nature, describe the financial instabilities produced by them and their costs and, finally examine the responses initiated, primarily, by monetary policy. This analytical synopsis of the four best-known U.S. asset bubble crashes guides us to an articulation of a few basic lessons learned.

Keywords : asset price bubbles; financial instability; monetary policy; financial crises; the great recession
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Multinational Finance Journal, 2019, vol. 23, no. 3/4, pp. 141-167
Shu Ling Chiang , National Kaohsiung Normal University, Taiwan
Ming Shann Tsai , National University of Kaohsiung, Taiwan    Corresponding Author

Abstract:
This study presents a formula for valuating a deposit insurance (DI) premium based on a specific official default probability. This formula can be used to flexibly determine the DI premium that reflects changes in economic circumstances. We provide a new estimation method to determine the implied asset risk based on the efficient frontier between asset value and asset risk. Doing so avoids the problem for estimating a bank’s assets and asset risk using market equity data. Empirical evidence shows current DI premium assumes that banks have too high default rates. We suggest the DI premium should be lower for banks that fully obey the financial supervisory regulations. Doing so should incentivize these banks to decrease their likelihood of default by strictly implementing financial regulations, thus stabilizing financial environment. We also suggest a new dynamic method to help them determine reasonable DI premiums and maintain the target level of DIF reserves.

Keywords : deposit insurance; premium; default probability; financial supervision
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Multinational Finance Journal, 2019, vol. 23, no. 1/2, pp. 103-139
Sanjay Sehgal , University of Delhi, India
Sakshi Saini , Institute of Economic Growth, India    Corresponding Author
Florent Deisting , Groupe ESC Pau, France

Abstract:
This paper investigates dynamic interdependencies among major global financial markets from January 1999 to April 2017 by examining their risk and return spillovers. Risk and return interactions are also analyzed within the sample markets. Using block-aggregation technique under the Diebold-Yilmaz framework, strong information linkages are observed among the global equity markets that intensify during the crisis period. Results establish the dominance of the US in the global financial system based on information linkages. Further, systematic factors are found to be more prevalent in spillovers among return and volatility as compared to idiosyncratic factors. With regards to interaction between risk and return, results reveal return spillovers of high magnitude onto risk and almost negligible risk spillovers onto return. These findings have important implications for international investors and policymakers.

Keywords : financial markets; Diebold and Yilmaz; spillovers; conditional volatility
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Multinational Finance Journal, 2019, vol. 23, no. 3/4, pp. 169-210
Vasiliki Athanasakou , Saint Mary’s University, Canada
George Athanassakos , University of Western Ontario, Canada    Corresponding Author

Abstract:
The purpose of this paper is to examine whether earnings quality contributes to the book-to- market’s predictive power in the cross section of stock returns. Earnings quality is embedded in the value-growth effect given that retained earnings is a key part of the book value of equity. Earnings quality reflects the effects of managerial discretion on reported earnings, which has been shown to be associated with both risk and behavioral biases in asset pricing. Our results affirm the existence of a value premium and show that the value premium is more pronounced within poor earnings quality stocks. Moreover, we find that poor earnings quality contributes to the value premium mainly through the pricing of growth stocks. Our results suggest that the quality of reported earnings has an incremental role in shaping expected returns of value versus growth stocks.

Keywords : value premium; earnings quality; earnings management; asset pricing
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Multinational Finance Journal, 2019, vol. 23, no. 1/2, pp. 1-36
Fatima Faruqi , Air University, Pakistan
Tanveer Ahsan , Rennes School of Business, France    Corresponding Author
Sultan Sikandar Mirza , Zhejiang Gongshang University, China
Zia-ur-Rehman Rao , Forman Christian College, Pakistan

Abstract:
The purpose of the study is to investigate the impact of corporate governance on bank performance and the mediating role of cash flows between corporate governance and bank performance in developed and developing countries. The study collects data for 2006-2015 for 30 commercial banks operating in five countries (Bangladesh, Malaysia, Pakistan, Australia, and the USA) and applies bank, time (year), and country fixed effects regression analysis to determine the direct impact of corporate governance and cash flows on bank performance. Structural equation modeling is employed to investigate the mediating role of cash flows between corporate governance and bank performance. The results suggest that the impact of corporate governance on bank performance is more significant in developed countries than in developing countries. The results also show that investment cash flows mediate the relationship between corporate governance and bank performance in developed as well as developing countries, while operating cash flows mediate the relationship between bank performance and corporate governance in developing countries only.

Keywords : corporate governance; cash flows; bank performance; panel data
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Multinational Finance Journal, 2019, vol. 23, no. 1/2, pp. 37-64
Lan T.P. Nguyen , Multinational University, Malaysia    Corresponding Author
Malick O. Sy , Royal Melbourne Institute of Technology (RMIT), Australia
Cheng M. Yu , Universiti Tunku Abdul Rahman (UTAR), Malaysia
Sayed Hossain , Cedar Valley College, USA
Tan B. Chen , Multimedia University, Malaysia

Abstract:
This study aims to examine whether long/short funds of hedge funds truly provide better diversification benefits to hedge fund investors as compared to efficient portfolios of long/short hedge funds in North America, Europe, and Asia Pacific. Data of long/short hedge funds and long/short FOHFs are obtained from Eurekahedge databases from 1st January 2008 to 31st December 2016. Mean-variance optimization method is employed to construct efficient portfolios of 100 long/short hedge funds with highest Sharpe ratios for each of the selected regions. To ensure the robustness of our findings, two rolling windows of observation are set up for a comparative analysis. This study concludes that most of the single-region focused long/short FOHFs in the sample, did not outperform the constructed efficient portfolios of long/short hedge funds investing in the same region. In fact, many long/short FOHFs did not survive more than a period of six years as observed in this study.

Keywords : funds of hedge funds; long/short strategy; diversification; efficient portfolios; mean-variance method
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Multinational Finance Journal, 2019, vol. 23, no. 1/2, pp. 65-102
Abdul-Rahman Khokhar , Saint Mary’s University, Canada    Corresponding Author

Abstract:
This study empirically compares the working capital investment of industrial firms and finds that Canadian firms invest less in working capital than their U.S. counterparts. Matched samples of 8,628 firm-year observations each from Canada and the U.S. are utilized covering the period 1988 to 2016. Compared to their U.S. counterparts, Canadian firms have a significantly lower cash conversion cycle, non-cash working capital to asset ratio and non-cash working capital to sales ratio. The difference in working capital investment is robust to variety of firm, industry and country controls as well as to year and industry fixed effects. The study also investigates the determinants of the lower investment in working capital by Canadian firms and finds that working capital investment is negatively moderated by short-term interest rates and positively associated with international operations.

Keywords : working capital management; cash conversion cycle; working capital investment; short-term financial policies
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Multinational Finance Journal, 2020, vol. 24, no. 1/2, pp. 93-117
Osamah Alkhazali , American University of Sharjah, UAE    Corresponding Author

Abstract:
Using the Pettengill et al. (1995) asset pricing model, this paper examines the relationship between conditional beta and returns in 12 emerging stock markets over the period of 2005 to 2017. In applying weekly and monthly data, the evidence shows that there is a flat relationship between beta and returns using the unconditional CAPM. However, the opposite is true when applying the Pettengill et al. (1995) model. The findings indicate that the relationship between beta and returns is positive in a bullish market and negative in a bearish market. In addition, the results support the conditional CAPM for all months of the year. Finally, the results show that market excess returns are positive and the risk-return relationship is symmetrical in both bullish and bearish markets. We conclude that beta is still a valuable risk measure, which helps portfolio managers in emerging markets make optimal investment decisions.

Keywords : CAPM; Beta; MENA stock markets; emerging markets
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Multinational Finance Journal, 2018, vol. 22, no. 1/2, pp. 63-118
Scott Brown , University of Puerto Rico, USA
Demetra Demetriou , Cyprus University of Technology, Cyprus
Panayiotis Theodossiou , Cyprus University of Technology, Cyprus    Corresponding Author

Abstract:
The economy of Cyprus was barely affected by the U.S. subprime mortgage debacle. The economic crisis in Cyprus was initially driven by fiscal mismanagement and subsequently by the failure of the government and its regulatory branches to monitor the imprudent behavior and risky investment actions of top executives in the banking sector. That is, banking executives run amok due to poor monitoring leading to severe agency problems in the Cypriot banking industry. The economic effects of the first capital-controlled bail-in in the EU in 2013 temporarily hobbled the real economy and the banking sector of Cyprus. Nevertheless, in less than five years, the economy of Cyprus recovered almost fully. This paper provides an economic analysis of the macroeconomic, banking and political events that led to the economic collapse in Cyprus. We also cover the interim period between collapse and recovery. The Cyprus case is an opportunity for European economic agents and regulators to learn how to avoid bail-in and welfare bloat. Studying Cyprus helps the reader see the most troubling cracks in the foundations of the European Fortress.

Keywords : n/a
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Multinational Finance Journal, 2020, vol. 24, no. 1/2, pp. 39-64
Gualter Couto , University of Azores, Portugal    Corresponding Author
Pedro Pimentel , University of Azores, Portugal
Ana Cunha , University of Azores, Portugal

Abstract:
The equity risk premium is key for the cost of capital and a crucial tool to guide investment decisions. In the literature, an ex-post approach is widely used to estimate equity risk premium investor's future claims. In this paper, Merton's framework (1980) is applied to the Eurozone, USA, and Asia, using historical data for the period between 2002 and 2015. The expected equity risk premium will be calculated in the context of the financial crisis that started in 2008 and will be testing the reward-to-risk ratio non-negativity constraint. For all three economic areas, empirical analyses suggest investors' aggregate risk preferences that are stable for measurable periods. The authors subscribe to a direct connection between the time under analysis and the accuracy of equity risk premium estimates. At best, it is expected that equity risk premium for the Eurozone, USA, and Asia stand at 5.04%, 4.91%, and 7.75%, respectively.

Keywords : equity; risk; premium; preferences; volatility
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Multinational Finance Journal, 2020, vol. 24, no. 1/2, pp. 65-91
Dimitrios G Giantsios , University of Macedonia, Greece
Athanasios G. Noulas , University of Macedonia, Greece    Corresponding Author

Abstract:
This article employs a flexible stochastic frontier to estimate revenue efficiency and efficiency convergence for 22 European Union insurance markets during the financial crisis and after. It also looks at firm-specific factors that might affect inefficiency. Revenue efficiency falls with the beginning of the financial crisis but remains relatively stable over the examined period. The average revenue efficiency is found to be 57.4% indicating a 42.6% possible increase in revenue efficiency on average. The results on the issue of convergence are mixed; β-convergence has taken place but not σ-convergence. In fact, σ-divergence occurred during the financial crisis period. Size and diversification seem to negatively affect efficiency.

Keywords : revenue efficiency; β-convergence; σ-convergence; European life insurance industry; stochastic frontier
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Multinational Finance Journal, 2020, vol. 24, no. 3/4, pp. 119-154
Haim Kedar-Levy , Ben Gurion University of the Negev, Israel    Corresponding Author
Elroi Hadad , Shamoon Collage of Engineering (SCE), Israel
Gitit Gur-Gershgoren , Ono Academic College, Israel

Abstract:
The discount rate reporting entities apply for future employee benefits obligations has a profound impact on their present value, both at the firm and at the country level. The IAS-19 accounting standard requires the existence of a ‘deep market’ in high-quality corporate bonds in order to use their yields as the discount rate, and in its absence, the often-lower government bond yields should be used. From a financial economics perspective, the term ‘deep market’ is vaguely defined in IAS-19, therefore we propose a dual approach. First, from the macro-economic perspective, we explore funding liquidity, and second, from the micro-economic perspective, we measure the illiquidity premium in high-quality corporate bonds. We argue that both aspects are essential because they are inter-connected. Our approach is tested empirically on a sample of 32 countries, with detailed analysis of the Israeli market as a case in point.

Keywords : IAS-19; deep market; employee benefits; market liquidity; funding liquidity
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Multinational Finance Journal, 2021, vol. 25, no. 1/2, pp. 1-61
Christina Vadasi , University of the Aegean, Greece
Michalis Bekiaris , University of the Aegean, Greece
Andreas Andrikopoulos , University of the Aegean, Greece    Corresponding Author

Abstract:
Internal audit is fundamental in maintaining transparency in the dissemination of information about a company’s financial position and performance. In this respect, the quality of internal audit is essential for effective corporate governance. We construct a composite measure of the quality of the internal audit function and explore its association with "good" corporate governance. Employing data from 45 listed companies in the Athens Stock Exchange, we discover that "good" corporate governance affects internal audit function quality, since the internal audit function is better in companies that comply with certain corporate governance guidelines. On the other hand, we find limited evidence on the effect of internal audit function quality on effective corporate governance. We also discover that internal audit’s active role in corporate governance is shaped by company-wide characteristics such as size, internationalization and CEO duality.

Keywords : internal audit; internal audit function; quality; corporate governance; Athens Stock Exchange; survey
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Multinational Finance Journal, 2021, vol. 25, no.3/4, pp. 63–71
Michael G. Papaioannou , International Monetary Fund    Corresponding Author
George Tsetsekos , Drexel University

Abstract:
The unprecedented contraction in global economic activity from the COVID-19 pandemic drew decisive domestic fiscal and monetary policy measures to ameliorate demand and supply implications, reduce systemic risks and maintain financial stability. However, medium-term vulnerabilities have risen because of these measures. In particular, sovereign and corporate debt levels have increased amid massive fiscal stimulus spending, contributing to explosive debt accumulation in advanced economies, emerging markets, and low-income countries. As a result, issues of risk and sustainability have emerged. The increase in public debt necessitates the development of careful debt management strategies to avoid risks and debt distress situations that could lead to sovereign debt restructurings.

Keywords :
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Multinational Finance Journal, 2021, vol. 25, no.3/4, pp. 85–99
Thordur Jonasson , International Monetary Fund    Corresponding Author
James Knight , International Monetary Fund

Abstract:
This paper discusses the impact of the Covid-19 pandemic on global debt and on debt management practices, with a focus on the state of debt management prior to the pandemic, the responses of country authorities to the challenge, and how debt management is likely to change in the future.

Keywords :
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Multinational Finance Journal, 2021, vol. 25, no.3/4, pp. 101–114
Rafael M. Molina , Newstate Partners LLP, UK    Corresponding Author

Abstract:
This paper discusses the evolution of sovereign debt management over the past two decades, highlights the need for its further evolution in light of the continuous efforts to build sustainable debt and growth policies, and outlines some views on its future following the ensuing challenges from the Covid-19 pandemic. The paper also outlines some key lessons and considerations for sovereign debt restructurings that might emerge as a result of Covid-19-related sovereign debt distresses and concludes by stressing the need of integrating sovereign debt management with fiscal and monetary policies.

Keywords :
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Multinational Finance Journal, vol. 25, no.3/4, pp. 115-149
Michael G. Papaioannou , International Monetary Fund    Corresponding Author
George Tsetsekos , Drexel University

Abstract:
This paper examines the causes, processes, and outcomes of the sovereign debt restructuring episodes that occurred during 2020-2021 in the context of the prevailing IMF sovereign debt restructuring framework and the G20 debt relief initiatives for LICs instituted as a result of the Covid-19 economic implications. The central role of debt sustainability analysis in the IMF sovereign debt restructuring framework is presented for both low-income countries and countries that maintain market access. Based on the observed salient features of the recent restructurings, we point out common traits in the behavior of involved stakeholders and draw lessons on facilitating sovereign and creditor attributes for efficient sovereign debt resolutions.

Keywords :
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Multinational Finance Journal, 2021, vol. 25, no.3/4, pp. 163-186
Tamon Asonuma , International Monetary Fund    Corresponding Author
Michael G. Papaioannou , International Monetary Fund
Takahiro Tsuda , World Bank, USA

Abstract:
Cyprus’ domestic sovereign debt restructuring in 2013 was undertaken in the context of the country’s economic adjustment programs. The government agreed to a € 9.0 billion program with the European Stability Mechanism on March 25, 2013 and a €1.0 billion program with the International Monetary Fund on May 13, 2013 (both programs were concluded at end-March 2016). In this context, Cyprus’ second-largest bank, the Cyprus Popular Bank (CPB), was closed, and a unique bail-in mechanism was applied, with a one-time bank deposit levy (haircut) imposed on all uninsured deposits of CPB and on 47.5 percent of uninsured deposits of the largest commercial bank, the Bank of Cyprus (BoC). No insured deposit of Euro 100,000 or less would be affected. The debt restructuring was successful in attaining substantial debt relief, reducing the country’s debt-to-GDP ratio, and restoring financial stability, although at a high cost for some depositors. The bail-in of both resident and nonresident depositors helped mitigate the burden of high bank recapitalization for the general public.

Keywords : Sovereign Debt; Sovereign Debt Restructuring; Cyprus; Banking Crisis; Financial Stability Policy;
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Multinational Finance Journal, 2021, vol. 25, no.3/4, pp. 151–161
Elena Duggar , Moody’s Investors Service, USA    Corresponding Author
Gabriel Torres , Moody’s Investors Service, USA
Claire Li , Moody’s Investors Service, USA
Gabriel Agostini , Moody’s Investors Service, USA

Abstract:
Argentina’s 2020 debt restructuring was the second largest sovereign restructuring in history, after Greece’s in 2012. The sovereign’s latest default was triggered by extending maturities on short-term debt in August 2019, followed by another postponement of short-term debt payments in December 2019 and long-term debt payments in February 2020. In August 2019, the government also announced its intention to restructure its long-term debt. This article compares Argentina’s sovereign debt crisis with prior sovereign bond defaults and sets forth Moody’s view that significant challenges result in Argentina’s creditworthiness remaining weak even after the debt restructuring and despite sizeable losses for investors. These challenges include Argentina’s large share of foreign-currency debt amid its dependence on external foreign-exchange financing and limited domestic funding options, and subdued economic prospects as the coronavirus pandemic deepened the country’s multi-year recession and also affected Argentina’s main trading partners.

Keywords : Sovereign debt restructuring; sovereign debt default; country risk; creditworthiness; debt crisis.
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Multinational Finance Journal, 2021, vol. 25, no. 3/4, pp. 187–217
Kay Chung , International Monetary Fund    Corresponding Author
Michael G. Papaioannou , International Monetary Fund

Abstract:
This paper analyzes the effects of the inclusion of enhanced collective action clauses (CACs) in international (nondomestic law-governed) sovereign bonds on borrowing costs, using secondary-market bond yield spreads, during September 2014 to March 2021. Our findings indicate that in the period September 2014 to February 2020, where no restructuring episodes have occurred, enhanced CACs are negatively associated with sovereign bond yield spreads and cosequently lower borrowing costs. However, during the COVID-19 period of March 2020 to March 2021, when the Argentina and Ecuador sovereign debt restructurings occurred, investors bond pricing behavior was differentiated depending on the inclusion or not of enhanced CACs, with their inclusion being positively associated with yield spreads, maybe due to the lack of flexibility of investors binded by the enhanced CACs provisions. The results obtained for September 2014 to February 2020 continue to hold when the sample is extended to March 2021.

Keywords : collective action clause; sovereign bond contractual clause; governing law; sovereign debt restructuring; default; bond spreads; sovereign cost of borrowing.
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Multinational Finance Journal, 2021, vol. 25, no. 3/4, pp. 219-245
Demetra Demetriou , Neapolis University Pafos, Cyprus    Corresponding Author

Abstract:
The aim of the paper is to stimulate the discussion around the recent increase in NPLs across several industrial countries by proposing a remedy framework for the resolution of non-performing loans (NPLs). The framework focuses on providing a reprieve to borrowers until they can recover financially and regain the ability to service their loans. In this respect, this paper proposes the establishment of a state-owned asset management company and attempts to find a balance between incentivizing the participation of banks regarding the disposal of NPLs and limiting risks to the state while avoiding moral hazard situations.

Keywords : Non-performing loans (NPLs); remedy framework; asset management company; lending behavior; moral hazards
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Multinational Finance Journal, 2022, vol. 26, no. 3/4, pp. 27-59
Scott Brown , University of Puerto Rico    Corresponding Author
William T Ziemba , The University of British Columbia

Abstract:
Lotto tickets normally have negative expected value that sometimes turn positive with carryover or promotions. The purchase of lotto tickets by professional bettors has been shown to be rational economic behavior during these periods. The typical player is known to play continually and is subject to a regressive tax when a professional bettor wins the jackpot. We perform an out-of-sample experiment that provides countervailing evidence of an economically significant silver lining for the typical player from easier-to-win small prizes making lotto one type of investment for this demographic. In this light lotto participation by the typical player is, if not rational, less irrational in terms of prospect, strain, networking, and consumption theories. Finally, we show linkage between jackpot size and economic boom and bust in Puerto Rico

Keywords : Lotto; Prospect Theory; Portfolio Theory; Strain Theory; Networking Theory; Consumption Theory.
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Multinational Finance Journal, 2022, vol. 26, no. 1/2, pp. 1-26
Iordanis Karagiannidis , The Citadel    Corresponding Author
G. Geoffrey Booth , The Citadel and Michigan State University

Abstract:
Mutual funds are either run by a single manager or by a management team. Which management design is better has long been a topic of interest. In the early 2000s, the proportion of team-managed funds rose, but in 2007 it leveled off. Using the constant term from Carhart’s 4-factor model as a measure of management performance and data from Morningstar Inc., this paper adds to the discussion by incorporating another important dimension to this question, i.e., whether the fund changed its management company at the same time. The results indicate, among other things, that single-managed funds that changed management companies, on average, performed better than those that did not change. They also suggest that single-managed funds outperform team-managed funds

Keywords : equity funds; performance; management; portfolio; event study
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