Dividend yields and stock returns in Hong Kong

2015 ◽  
Vol 41 (2) ◽  
pp. 164-181 ◽  
Author(s):  
Michael L. Lemmon ◽  
Thanh Nguyen
Keyword(s):  
Hong Kong ◽  
Stock Returns ◽  
Stock Prices ◽  
Firm Characteristics ◽  
Dividend Yield ◽  
Firm Level ◽  
Content Type ◽  
Tax Capitalization ◽  
The Us ◽  
Rule Out

Purpose – The positive relationship between dividend yield and risk-adjusted return, which is called the dividend yield effect, is well documented in the US market. Yet, the drivers of the yield effect are unclear. Some argue this evidence is consistent with the prediction that the investor-level tax burden is capitalized in stock prices, also known as the tax capitalization hypothesis. Still others contend that nontax omitted factors drive the yield effect. The purpose of this paper is to contribute to the debate by exploring if the yield effect occurs in Hong Kong market where no taxes exist on either dividend income or capital gain. Design/methodology/approach – The authors use two main approaches to detect the dividend yield effect. The first approach groups stocks into portfolios based on dividend yields and tests for the presence of a yield effect at the portfolio level. The second approach employs the Fama-MacBeth methodology at the firm level and tests if a yield effect is existent after controlling for firm characteristics known to explain stock returns. Findings – The paper documents a robust dividend yield effect in the Hong Kong market and suggests that nontax reasons help to explain the yield effect. Originality/value – Tax capitalization is a long-standing question in financial economics and the research evidence is mixed. The findings do not completely rule out the tax capitalization hypothesis. The main contribution is to illustrate the difficulty of conducting a powerful test of this hypothesis in practice and to urge caution in interpreting the dividend yield effect as evidence in support of this hypothesis.

Stock returns and the US dollar: the importance of monetary policy

2015 ◽  
Vol 41 (10) ◽  
pp. 1046-1058 ◽  
Author(s):  
J. Christopher Hughen ◽  
Scott Beyer
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Stock Returns ◽  
Foreign Exchange ◽  
Stock Prices ◽  
Factor Model ◽  
Consumer Spending ◽  
Content Type ◽  
The Us ◽  
The Impact

Purpose – In the increasingly globalized economy, foreign exchange fluctuations have multiple, conflicting effects on domestic stock prices. The purpose of this paper is to examine return data to determine the relation between the dollar’s value and stock prices as it relates to monetary policy. Design/methodology/approach – The authors examine US stock returns over a 40-year period, which is classified according to monetary policy and dollar trend. To better understand the impact of foreign exchange fluctuations, the authors estimate a model of stock returns using the three Fama-French factors and a momentum factor. Then the authors explore the underlying economic fundamentals that drive the sharp difference in annual returns between periods when the dollar is in an uptrend trend with loose monetary policy and periods when the dollar is in a downtrend with tight monetary policy. Findings – Over the last 40 years, US stock returns were 2.5 times higher when the dollar was trending up vs down. The factor model of returns shows that equity returns are positively associated with periods when the dollar appreciated. Returns were particularly high when the dollar was in an uptrend during accommodative monetary policy. During these periods, stocks in the consumer goods and services industries provided relatively high returns. This occurred with strong economic growth due to consumer spending. Stocks exhibited the lowest returns when the dollar was depreciating and the Federal Reserve was tightening. Originality/value – The key contribution of the research is that currency trends should be analyzed in the light of monetary policy. During periods of accommodative monetary policy and dollar appreciation, the US stock market provided average returns of 18.7 percent compared to −3.29 percent during a period of restrictive monetary policy and dollar depreciation. This result is driven by stronger economic growth, which is composed of consumer spending that more than offsets the dollar’s impact on net exports.

scholarly journals Heterogeneous firm-level responses to the US 2018 tariff announcement

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yafeng Qin ◽  
Zikai Yang ◽  
Min Bai
Keyword(s):  
Hong Kong ◽  
Stock Market ◽  
Mainland China ◽  
Chinese Stock Market ◽  
Firm Level ◽  
Content Type ◽  
Us Economy ◽  
The Us ◽  
The Usa ◽  
The Impact

PurposeThis study examines the impact of the $60 billion tariff announcement of the US government on the Chinese exporting firms. In particular, it focuses on the firms whose revenues are highly dependent on the US economy.Design/methodology/approachThis study uses an experimental analysis and the event study methodology. The sample includes firms listed in mainland China and Hong Kong Stock Exchanges that have the highest revenues from exporting to the USA. The data are obtained from China Stock Market and Accounting Research (CSMAR) and DataStream.FindingsThe authors find that the tariff announcement has significantly negative impacts on stock performance both before and after the announcement, and the impacts are heterogeneous across all sample firms. For A shares listed in Mainland China, firms with more revenues from the US experience greater price drops on the announcement day, regardless of being in the targeted industry or not. But such finding is absent from H shares listed in Hong Kong. The authors also find that for all the firms, greater pricing power can alleviate the impacts of the tariff announcement.Research limitations/implicationsThe results provide implications to investors, policymakers and regulators on the further US-China cooperation in the future.Originality/valueThis is the first study documenting the heterogeneity of the impact of the tariff announcement and thus contributes to the prosperous studies on the varied firm-level responses in the Chinese stock market, and to the burgeoning literature by filling the gap of the financial market responses to the protectionist policy announcement.

Information risk, stock returns, and asset pricing: Evidence from China

2017 ◽  
Vol 30 (4) ◽  
pp. 379-394 ◽  
Author(s):  
Raheel Safdar ◽  
Chen Yan
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Empirical Literature ◽  
Firm Level ◽  
Cross Sectional ◽  
Market Pricing ◽  
Content Type ◽  
Information Risk ◽  
Accruals Quality ◽  
Three Factor

Purpose This study aims to investigate information risk in relation to stock returns of a firm and whether information risk is priced in China. Design/methodology/approach The authors used accruals quality (AQ) as their measure of information risk and performed Fama-Macbeth regressions to investigate association of AQ with future realized stock returns. Moreover, two-stage cross-sectional regression analysis was performed, both at firm level and at portfolio level, to test if the AQ factor is priced in China in addition to existing factors in the Fama French three-factor model. Findings The authors found poor AQ being associated with higher future realized stock returns. Moreover, they found evidence of market pricing of AQ in addition to existing factors in the Fama French three-factor model. Further, subsample analysis revealed that investors value AQ more in non-state owned enterprises than in state owned enterprises. Research limitations/implications The study sample comprises A-shares only and the generalization of the findings is limited by the peculiar institutional and economic setup in China. Originality/value This study contributes to market-based accounting literature by providing further insight into how and if investors value information risk, and it seeks to fill gap in empirical literature by providing evidence from the Chinese capital market.

Testing the weak form of efficient market hypothesis for socially responsible and Shariah indexes in the USA

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abbas Khan ◽  
Muhammad Yar Khan ◽  
Abdul Qayyum Khan ◽  
Majid Jamal Khan ◽  
Zia Ur Rahman
Keyword(s):  
Stock Prices ◽  
Arima Model ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Future Price ◽  
Short Term ◽  
Socially Responsible ◽  
Efficient Market ◽  
Content Type ◽  
The Us

Purpose By testing the weak form of efficient market hypothesis (EMH) this study aims to forecast the short-term stock prices of the US Dow and Jones environmental socially responsible index (SRI) and Shariah compliance index (SCI). Design/methodology/approach This study checks the validity of the weak form of EMH for both SCI and SRI prices by using different parametric and non-parametric tests, i.e. augmented Dickey-Fuller test, Philip-Perron test, runs test and variance ratio test. If the EMH is invalid, the research further forecasts short-term stock prices by applying autoregressive integrated moving average (ARIMA) model using daily price data from 2010 to 2018. Findings The research confirms that a weak form of EMH is not valid in the US SRI and SCI. The historical data can predict short-term future price movements by using technical ARIMA model. Research limitations/implications This study provides better guidance to risk-averse national and international investors to earn higher returns in the US SRI and SCI. This study can be extended to test the EMH of Islamic equity in the Middle East and North Africa region and other top Islamic indexes in the world. Originality/value This study is a new addition to the existing literature of equity investment and price forecasting by comparing and investigating the market efficiency of two interrelated US SRI and SCI.

The effect of engagement partner workload on audit quality

2021 ◽  
Vol 36 (8) ◽  
pp. 1068-1091
Author(s):  
Yun Cheng ◽  
Christine M. Haynes ◽  
Michael D. Yu
Keyword(s):  
Audit Quality ◽  
Firm Level ◽  
Content Type ◽  
Big 4 ◽  
The Us ◽  
Performance Benchmarks ◽  
Partner Characteristics ◽  
Partner Firm ◽  
The Individual ◽  
The Relationship

Purpose Auditing studies have shifted the research focus from the audit firm level to the individual audit partner level in recent years. Motivated by the call from Lennox and Wu (2018) to explore the effect of audit partners’ characteristics on audit quality in the US, this study aims to develop a new measure of engagement partner workload (EPW), which includes both the size and number of clients audited to test the effect of EPW on audit quality. This study also examines the moderating effect of the partner firm size on audit quality. Design/methodology/approach To test the effect of the EPW on audit quality, this study runs multivariate regressions of EPW on each specific client’s discretionary accruals and audit report delays. This study also runs a logistic regression of EPW on clients’ probability of having small profit increases to meet performance benchmarks. Findings Results of the hypotheses show that partner workload is positively related to audit quality. The results indicate that partners with larger, but fewer, clients conduct higher quality audits. Further analysis indicates that the relationship between partner workload and audit quality only holds for partners from the non-Big 4 firms. Originality/value This study contributes to the literatures of both audit quality and audit partner characteristics, and the results complement initial research aimed at identifying US partner-related characteristics that influence audit quality.

Growth and returns across countries

2021 ◽  
pp. 78-87
Author(s):  
Jesper Rangvid
Keyword(s):  
Economic Growth ◽  
Interest Rates ◽  
Stock Returns ◽  
Stock Prices ◽  
Economic Activity ◽  
Wide Margin ◽  
The Past ◽  
Long Run ◽  
The Us ◽  
Long Run Risk

This chapter examines the relation between long-run economic growth and returns across countries. Have countries that have experienced high GDP growth historically also experienced high stock returns? The chapter contains three main messages. First, there is no clear tendency that countries that have grown fast in the past are also countries that have delivered high stock returns in the past. Second, as in the US, stock prices have in many countries followed economic activity in the long run. Third, real interest rates relate to economic growth across countries in the long run.Another conclusion emerging from this chapter is that long-run stock returns exceed long-run rates of economic growth and long-run risk-free rates by a wide margin.

scholarly journals Stock returns, illiquidity and feedback trading

2020 ◽  
Vol 19 (2) ◽  
pp. 135-145
Author(s):  
Jing Chen ◽  
David G. McMillan
Keyword(s):  
Stock Returns ◽  
Positive Feedback ◽  
Stock Prices ◽  
Sovereign Debt ◽  
Negative Impact ◽  
Estimation Methods ◽  
Content Type ◽  
Study Results ◽  
European Markets ◽  
Feedback Trading

Purpose This study aims to examine the relation between illiquidity, feedback trading and stock returns for several European markets, using panel regression methods, during the financial and the sovereign debt crises. The authors’ interest here lies twofold. First, the authors seek to compare the results obtained here under crisis conditions with those in the existing literature. Second, and of greater importance, the authors wish to examine the interaction between liquidity and feedback trading and their effect on stock returns. Design/methodology/approach The authors jointly model both feedback trading and illiquidity, which are typically considered in isolation. The authors use panel estimation methods to examine the relations across the European markets as a whole. Findings The key results suggest that in common with the literature, illiquidity has a negative impact upon contemporaneous stock returns, while supportive evidence of positive feedback trading is reported. However, in contrast to the existing literature, lagged illiquidity is not a priced risk, while negative shocks do not lead to greater feedback trading behaviour. Regarding the interaction between illiquidity and feedback trading, the study results support the view that greater illiquidity is associated with stronger positive feedback. Originality/value The study results suggest that when price changes are more observable, due to low liquidity, then feedback trading increases. Therefore, during the crisis periods that afflicted European markets, the lower levels of liquidity prevalent led to an increase in feedback trading. Thus, negative liquidity shocks that led to a fall in stock prices were exacerbated by feedback trading.

The effect of the JOBS act on analyst coverage of emerging growth companies

2019 ◽  
Vol 27 (1) ◽  
pp. 86-109
Author(s):  
Elena Precourt
Keyword(s):  
Stock Prices ◽  
Information Dissemination ◽  
Quiet Period ◽  
Firm Characteristics ◽  
Probability Models ◽  
Security Analysts ◽  
Policy Makers ◽  
Analyst Coverage ◽  
Content Type ◽  
Jobs Act

PurposeThe purpose of this paper is to examine the section of the Jumpstart Our Business Startups (JOBS) Act related to information dissemination by sell-side security analysts. The paper analyzes how the abolishment of the quiet period requirements for emerging growth companies (EGCs) changes the analyst initiation timing and market expectation of and reaction to the issuance of the analyst recommendations.Design/methodology/approachThis paper considers the effect of the abolishment of the quiet period requirements on analyst coverage initiations for EGCs with IPOs between January 2006 and December 2015 using regression analyses and probability models.FindingsThe results confirm the current anecdotal and empirical evidence that a shorter, de facto, quiet period exists. Analyst issue stronger average ratings for EGCs than for similar firms with IPOs before the JOBS Act. EGCs with initiations from multiple analysts also experience stronger positive market reaction than the firms with initial offerings before the JOBS Act. The market seems to anticipate which EGCs will have initiations and particularly which EGCs will have initiations from multiple analysts. The investors, however, do not fully anticipate the strength of actual recommendations.Practical implicationsThis paper is important for researchers, practitioners and policy-makers to understand how analysts impact the financial markets, how timing of analyst initiations affects stock prices of EGCs and what firm characteristics play a role in securing analyst coverage shortly after initial offerings.Originality/valueThis paper adds to the emerging literature on consequences of and changes brought by the JOBS Act. Specifically, this paper extends the limited literature on analyst initiations issued for firms with IPOs following the JOBS Act, timing of those initiations and magnitude of the market’s response to the initiations.

Forecasting stock returns in Saudi Arabia and Malaysia

2018 ◽  
Vol 17 (2) ◽  
pp. 259-279 ◽  
Author(s):  
Abdelmonem Oueslati ◽  
Yacine Hammami
Keyword(s):  
Saudi Arabia ◽  
Stock Returns ◽  
Equity Premium ◽  
Return Predictability ◽  
Excess Returns ◽  
Content Type ◽  
Forecasting Method ◽  
The Us ◽  
Diffusion Index ◽  
Practical Implications

Purpose This paper aims to investigate the performance of various return forecasting variables and methods in Saudi Arabia and Malaysia. The authors document that market excess returns in Saudi Arabia are predicted by changes in oil prices, the dividend yield and inflation, whereas the equity premium in Malaysia is predicted only by the US market excess returns. In both countries, the authors find that the diffusion index is the best forecasting method and stock return predictability is stronger in expansions than in recessions. To interpret the findings, the authors perform two tests. The empirical results suggest irrational pricing in Malaysia and rationally time-varying expected returns in Saudi Arabia. Design/methodology/approach The authors apply the state-of-the-art in-sample and out-of-sample forecasting techniques to predict stock returns in Saudi Arabia and Malaysia. Findings The Saudi equity premium is predicted by oil prices, dividend yield and inflation. The Malaysian equity premium is predicted by the US market excess returns. In both countries, the authors find that the diffusion index is the best forecasting method. In both countries, predictability is stronger in expansions than in recessions. The tests suggest irrational pricing in Malaysia and rationality in Saudi Arabia. Practical implications The empirical results have some practical implications. The fact that stock returns are predictable in Saudi Arabia makes it possible for policymakers to better evaluate future business conditions, and thus to take appropriate decisions regarding economic and monetary policy. In Malaysia, the results of this study have interesting implications for portfolio management. The fact that the Malaysian market seems to be inefficient suggests the presence of strong opportunities for sophisticated investors, such as hedge and mutual funds. Originality/value First, there are no papers that have studied the return predictability in Saudi Arabia in spite of its importance as an emerging market. Second, the methods that combine all predictive variables such as the diffusion index or the kitchen sink methods have not been implemented in emerging markets. Third, this paper is the first study to deal with time-varying short-horizon predictability in emerging countries.

Asymmetric impact of exchange rate changes on stock returns: evidence of two de facto regimes

2019 ◽  
Vol 19 (2) ◽  
pp. 147-173
Author(s):  
Walid M.A. Ahmed
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Prices ◽  
Spillover Effects ◽  
Content Type ◽  
Currency Depreciation ◽  
Long Run ◽  
Exchange Rate Changes

Purpose This study focuses on Egypt’s recent experience with exchange rate policies, examining the existence of spillover effects of exchange rate variations on stock prices across two different de facto regimes and whether these effects, if any, are asymmetric. Design/methodology/approach The empirical analysis is carried out using a nonlinear autoregressive distributed lag modeling framework, which permits testing for the presence of short- and long-run asymmetries. Relevant local and global factors are also included in the analysis as control variables. The authors divide the entire sample into a soft peg period and a free float one. Findings Over the soft peg regime period, both positive and negative changes in EGP/USD exchange rates seem to have a significant impact on stock returns, whether in the short or long run. Short-term asymmetric effects vanish in the free float period, while long-term asymmetries continue to exist. By and large, the authors find that currency depreciation tends to exercise a stronger influence on stock returns than does currency appreciation. Practical implications The results offer important insights for investors, regulators and policymakers. With the domestic currency depreciation having a negative impact on stock prices, investors should contemplate implementing appropriate currency hedging strategies to abate depreciation risks and, hence, preserve their expected rate of return on the Egyptian pound-denominated investments. In the current post-flotation era, the government could pursue a flexible inflation targeting monetary policy framework, with a view to both lowering the soaring inflation toward an announced target rate and stabilizing economic growth. The Central Bank of Egypt (CBE) could adopt indirect monetary policy instruments to secure tightened liquidity conditions. Besides, the CBE could raise policy rates to incentivize people to keep their money in local currency-denominated instruments, instead of dollarizing their savings, thereby relieving banks of foreign currency demand pressures. Nevertheless, while being beneficial to the country’s real economy on several aspects, such contractionary monetary measures may temporarily impinge on stock market performance. Accordingly, policymakers should consider precautionary measures that reduce the potential for price distortions and unnecessary volatility in the stock market. Originality/value To the best of the authors’ knowledge, the current study represents the first attempt to explore the potential impact of exchange rate changes under different regimes on Egypt’s stock market, thus contributing to the relevant research in this area.

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