Going European from American: does style matter?

2017 ◽  
Vol 43 (4) ◽  
pp. 471-487 ◽  
Author(s):  
Rajesh Pathak ◽  
Satish Kumar ◽  
Ranajee Ranajee
Keyword(s):  
Stock Returns ◽  
Stock Options ◽  
Equity Returns ◽  
European Options ◽  
Cross Sectional ◽  
Content Type ◽  
Put Options ◽  
Portfolio Approach ◽  
Systematic Risk Factors ◽  
Practical Implications

Purpose The purpose of this paper is to examine the cross-sectional predictive power and the information content of volatility smirks for future stock returns using single stock options. Design/methodology/approach The study uses Fama-Macbeth procedure and portfolio approach to investigate the predictability and informativeness in a setup when options settlement style is changed from American to European. Findings The study reports that the volatility smirk of European style options, unlike American style options, predict the underlying cross-sectional equity returns. Firms with steepest volatility smirk underperform firms with flatter volatility smirks, by an average of 3.28 and 4.01 per cent annually for American and European options, respectively. The results are robust to the control of idiosyncratic and systematic risk factors. Practical implications The results confirm that a trader with negative information prefers to trade out-of-the-money put options. The more pronounced results of European options designate the trader’s preference to less risky European style stock options. Results are robust and signify the delay of equity market in incorporating information impounded in the volatility smirk. Originality/value Very few studies examine smirk and returns relationship and to the best of the authors’ knowledge, no study exists that examine the unique case of change in options style and its role in affecting relationship between smirk and future returns.

Short- and long-term effects of responsible investment growth on equity returns

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yann Ferrat ◽  
Frédéric Daty ◽  
Radu Burlacu
Keyword(s):  
Stock Returns ◽  
Equity Returns ◽  
Investment Horizon ◽  
Long Term Effects ◽  
Cross Sectional ◽  
Content Type ◽  
Responsible Investment ◽  
Short Run ◽  
Investment Growth ◽  
The Impact

PurposeThe growth of socially responsible assets has been exponential over the last decade, they now account for almost a third of professional investments. As the growth persists, faith and conviction investors reshape the equity markets. To fully comprehend the impact of socially conscious participants on security returns, this paper attempts to provide insights on how responsible investment growth has impacted the returns of sustainable stocks. The examination is split by investment horizon to account for short and long effects.Design/methodology/approachUsing an exclusive dataset of non-financial ratings, provided by MSCI ESG research, the authors examine the cross-sectional returns of US and European sustainability-leading and lagging corporations between 2007 and 2019. Panel models robust to country, firm-year and industry effects were then employed to examine the impact of responsible investment growth on future stock returns.FindingsThe authors find evidence that the impact of responsible investment growth is dual contingent upon the timeframe considered. In the short run, sustainability-leading and lagging firms display similar stock returns. However, the spread in returns is negative over long horizons and increasing over time.Originality/valueThe examination performed in this study highlights the significant effect of responsible investment growth on future stock returns. Overall, the authors’ findings are consistent with the price pressure hypothesis in the short run and the cost of capital alteration over longer horizons.

Quality investing and the cross-section of country returns

2016 ◽  
Vol 33 (2) ◽  
pp. 281-301 ◽  
Author(s):  
Adam Zaremba
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Quality Metrics ◽  
Momentum Strategies ◽  
Cross Sectional ◽  
Content Type ◽  
Country Level ◽  
The Cross ◽  
Practical Implications

Purpose The main purpose of this study is to examine the role of quality as a determinant of a cross-sectional variation in country-level stock returns. The study attempts to address the question: Is there any special premium for top-quality stock markets with decent profitability, indebtedness and liquidity ratios? Design/methodology/approach The computations are based on the listings of 66 country portfolios over the period between 2000 and 2013. Long/short country portfolios from sorts on characteristics related to quality are examined with asset-pricing models. Findings The inter-market variation in returns may be explained with profitability and debt ratios: the more profitable and the less indebted is the stock market, the better is its performance. Moreover, the performance of country-level value, size and momentum strategies may be improved by double sorting on quality characteristics. Practical implications The practical implications include such issues as the global asset allocation, the development of investment products, asset pricing and investment performance measurement. The country selection strategies that are based on leverage and profitability prove to be a useful tool for investors with a global investment mandate. Furthermore, additional sorting on quality metrics may markedly improve the performance of inter-market value, size and momentum strategies. Originality/value This paper examines the role of quality metrics related to financial leverage, profitability and liquidity in explaining the cross-sectional variation in country returns.

Cross-sectional return patterns in New Zealand’s registered and OTC stock markets

2015 ◽  
Vol 27 (1) ◽  
pp. 51-68 ◽  
Author(s):  
Hamish Anderson ◽  
Ben Marshall ◽  
Xiao Wang
Keyword(s):  
Stock Returns ◽  
Design Methodology ◽  
Explanatory Power ◽  
International Markets ◽  
Stock Exchanges ◽  
Cross Sectional ◽  
Over The Counter ◽  
Content Type ◽  
Pricing Factors ◽  
Practical Implications

Purpose – This paper aims to examine whether the cross-sectional return patterns in New Zealand’s main stock market (NZSX) are also present in the alternative (NZAX) and over-the-counter (Unlisted) markets. Design/methodology/approach – Cross-sectional regressions of monthly stock returns on well-known pricing factors including firm size, book-to-market (B/M) ratio, liquidity and past returns were run. The NZSX sample commenced in 1988 and continued through to 2011, while data are available for the Unlisted and NZAX markets from 2004 to 2011. Findings – The pricing factors that are important in explaining returns in major international markets also influence returns on the NZSX. However, only B/M is consistently priced across all New Zealand stock exchanges, including the alternative NZAX and Unlisted markets. There is evidence of reversal in NZAX stocks, but liquidity effects are not consistent or pervasive in either market. Practical implications – With B/M being the only consistently priced variable across all markets, investors in the NZAX and in particular Unlisted may be concerned with other risk factors. For example, the risks associated with differing levels of investor protection, corporate governance and disclosure may be of more concern to investors than pricing factors such as size, liquidity and past returns in these alternative trading platforms. Originality/value – The paper examines cross-sectional return patterns of the NZAX and Unlisted stocks and is the first paper to jointly test the explanatory power of size, B/M, past returns and liquidity factors for NZSX stocks.

scholarly journals Terrorism, militarism, and stock returns

2015 ◽  
Vol 23 (1) ◽  
pp. 70-86 ◽  
Author(s):  
Jeffrey Hobbs ◽  
Ludwig Christian Schaupp ◽  
Joel Gingrich
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Primary Target ◽  
Cross Sectional ◽  
Content Type ◽  
High Profile ◽  
The Usa ◽  
Aggregate Effect ◽  
Market Focus ◽  
Practical Implications

Purpose – This study aims to examine the effect on stock returns of 28 terrorist and military events occurring between 1963 and 2012. The authors divide the sample and examine these attacks on the basis of industry, country targeted, location, terrorism versus militarism and predicted overall impact. Design/methodology/approach – The authors measure the effects of the events in our sample along several dimensions: in the aggregate; comparatively across industries; by each event’s predicted level of impact; by the type of event (terrorist versus military); by the location of the attack (USA or outside the USA); and by whether the USA was, directly or by proxy, the primary target of the attack. Findings – Stock returns are significantly lower for those industries predicted to be most hurt than for other industries. Events that the authors predict to be of high impact to the market are followed by significantly lower returns than events we predict to be of low impact. Stocks perform significantly worse on the days of terrorist events than on the days of military events, but the opposite is true for the day after. Significantly lower returns follow events that occur inside the USA or where the USA was the primary target. Research limitations/implications – This study focuses on 28 high-profile events over a 50-year period and makes several new contributions to the literature. The authors find compelling cross-sectional differences between stock returns at the industry level as well as predictable differences in mean returns between events. The authors distinguish between terrorist and military attacks and also separate the sample geographically. Practical implications – The authors believe that this study can help researchers and investors more deeply understand the overall market and industry effects of significant terrorist and military events. Social implications – By offering a thorough examination of the differences between high-profile attacks in the context of stock returns both on the day of and the day immediately following those attacks, the authors hope that people will be able to better grasp the likelihood and magnitude of the initial damage done by these attacks as well as the subsequent recovery. Originality/value – Most studies that examine the effects of terrorism on the stock market focus on one or two specific events or stock market locations. They also tend to concentrate on very specific characteristics of the attack(s) that they examine, such as the size of the market or the aggregate effect to that market. The authors study 28 high-profile events over a 50-year period and examine them by industry, country targeted, location, terrorism versus militarism and predicted overall impact. This study presents many new results using these classifications.

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.

Regulation and information asymmetry

2008 ◽  
Vol 16 (1) ◽  
pp. 59-76 ◽  
Author(s):  
Robyn McLaughlin ◽  
Assem Safieddine
Keyword(s):  
Information Asymmetry ◽  
Stock Returns ◽  
Operating Performance ◽  
Cost Benefit ◽  
Future Research ◽  
Information Asymmetries ◽  
Cross Sectional ◽  
Industrial Firms ◽  
Content Type ◽  
Regulated Utilities

PurposeThis paper seeks to examine the potential for regulation to reduce information asymmetries between firm insiders and outside investors.Design/methodology/approachExtensive prior research has established that there are substantial effects of information asymmetry in seasoned equity offers (SEOs). The paper tests for a mitigating effect of regulation on such information asymmetries by examining differences in long‐run operating performance, changes in that performance, and announcement‐period stock returns between unregulated industrial firms and regulated utilities that issue seasoned equity. The authors also segment the samples by firm size, since smaller firms are likely to have greater asymmetries.FindingsConsistent with regulated utility firms having lower levels of information asymmetry, they have superior changes in abnormal operating performance than industrial firms pre‐ to post‐issue and their announcement period returns are significantly less negative. These findings are most pronounced for the smallest firms, firms likely to have the greatest information asymmetries and where regulation could have its greatest effect.Research limitations/implicationsThe paper does not examine costs of regulation. Thus, future research could seek to measure the cost/benefit trade‐off of regulation in reducing information asymmetry. Also, future research could examine cross‐sectional differences between different industries and regulated utilities.Practical implicationsRegulation reduces information asymmetry. Thus, regulation or mandated disclosure may be appropriate in industries/markets where information asymmetry is severe.Originality/valueThis paper is the first to compare the operating performance of regulated and unregulated SEO firms.

Does uncertainty boost overconfidence? The case of financial analysts' forecasts

2014 ◽  
Vol 40 (3) ◽  
pp. 300-324 ◽  
Author(s):  
Véronique Bessière ◽  
Taoufik Elkemali
Keyword(s):  
Stock Returns ◽  
Private Information ◽  
High Tech ◽  
Cross Sectional ◽  
Forecast Dispersion ◽  
Content Type ◽  
The Public ◽  
Public Announcement ◽  
Before And After ◽  
Sectional Analysis

Purpose – This article aims to examine the link between uncertainty and analysts' reaction to earnings announcements for a sample of European firms during the period 1997-2007. In the same way as Daniel et al., the authors posit that overconfidence leads to an overreaction to private information followed by an underreaction when the information becomes public. Design/methodology/approach – In this study, the authors test analysts' overconfidence through the overreaction preceding a public announcement followed by an underreaction after the announcement. If overconfidence occurs, over- and underreactions should be, respectively, observed before and after the public announcement. If uncertainty boosts overconfidence, the authors predict that these two combined misreactions should be stronger when uncertainty is higher. Uncertainty is defined according to technology intensity, and separate two types of firms: high-tech or low-tech. The authors use a sample of European firms during the period 1997-2007. Findings – The results support the overconfidence hypothesis. The authors jointly observe the two phenomena of under- and overreaction. Overreaction occurs when the information has not yet been made public and disappears just after public release. The results also show that both effects are more important for the high-tech subsample. For robustness, the authors sort the sample using analyst forecast dispersion as a proxy for uncertainty and obtain similar results. The authors also document that the high-tech stocks crash in 2000-2001 moderated the overconfidence of analysts, which then strongly declined during the post-crash period. Originality/value – This study offers interesting insights in two ways. First, in the area of financial markets, it provides a test of a major over- and underreaction model and implements it to analysts' reactions through their revisions (versus investors' reactions through stock returns). Second, in a broader way, it deals with the link between uncertainty and biases. The results are consistent with the experimental evidence and extend it to a cross-sectional analysis that reinforces it as pointed out by Kumar.

scholarly journals Unemployment and spell duration during the Great Recession in the EU

2015 ◽  
Vol 36 (2) ◽  
pp. 216-235 ◽  
Author(s):  
Carlos Gradín ◽  
Olga Cantó ◽  
Coral del Río
Keyword(s):  
Great Recession ◽  
Negative Impact ◽  
Labour Force ◽  
Future Research ◽  
Cross Sectional ◽  
Content Type ◽  
The Great Recession ◽  
Unemployment Spells ◽  
Practical Implications ◽  
The Eu

Purpose – The purpose of this paper is to analyze the different dynamic characteristics of unemployment in a selected group of European Union countries during the current Great Recession, which had unequal consequences on employment depending on the country considered. Design/methodology/approach – The paper follows Shorrocks’s proposal of a duration-sensitive measure of unemployment, and uses cross-sectional data reported by Eurostat coming from European Labour Force Surveys. Findings – The results add some evidence on the relevance of incorporating spells’ duration in measuring unemployment, finding remarkable differences in unemployment patterns in time among European countries. Research limitations/implications – In this paper unemployment is analyzed for all the labor force. Future research should investigate patterns across specific groups such as young people, women, immigrants or the low skilled. Practical implications – It is generally accepted that the negative impact of unemployment on individual welfare can be very different depending on its duration. However, conventional statistics on unemployment do not adequately capture to what extent the recession is not only increasing the incidence of unemployment but also its severity in terms of duration in time of ongoing unemployment spells. The paper shows an easy and practical way to do it in order to improve the understanding of the unemployment phenomenon, using information usually reported by statistical offices. Originality/value – First, the paper provides a tool for dynamic analysis of unemployment based on reported cross-sectional data. Second, the paper demonstrates the empirical relevance of considering spells’ duration when assessing differences in unemployment across countries or in unemployment trends. This is usually neglected or only partially addressed by most conventional measures of unemployment.

The optimism-pessimism ratio as predictor of employee creativity: the promise of duality

2018 ◽  
Vol 21 (3) ◽  
pp. 423-442 ◽  
Author(s):  
Arménio Rego ◽  
Miguel Pina e Cunha ◽  
Dálcio Reis Júnior ◽  
Cátia Anastácio ◽  
Moriel Savagnago
Keyword(s):  
Cross Sectional ◽  
Content Type ◽  
Future Studies ◽  
Positive Effects ◽  
The Status ◽  
Single Moment ◽  
Quasi Experimental ◽  
Creativity And Innovation ◽  
The Relationship ◽  
Practical Implications

Purpose The purpose of this paper is to study if the employees’ optimism-pessimism ratio predicts their creativity. Design/methodology/approach In total, 134 employees reported their optimism and pessimism, and the respective supervisors described the employees’ creativity. Findings The relationship between the optimism-pessimism ratio and creativity is curvilinear (inverted U-shaped); beyond a certain level of the optimism-pessimism ratio, the positive relationship between the ratio and creativity weakens, suggesting that the possible positive effects of (high) optimism may be weakened by a very low level of pessimism. Research limitations/implications Being cross-sectional, the study examines neither the causal links between the optimism-pessimism ratio and creativity nor other plausible causal links. The study was carried out at a single moment and did not capture the dynamics that occur over the course of time involving changes in optimism/pessimism and creativity. Future studies may adopt longitudinal or quasi-experimental designs. Practical implications Managers and organizations must consider that, even though positivity promotes creativity, some level of negativity may help positivity to produce creativity. Originality/value This study suggests that scholars who want to study the antecedents of creativity (and innovation) must be cautious in focusing only on the positive or the negative sides of individuals’ characteristics, and rather they must explore the interplay between both poles. Individuals may experience both positive and negative states/traits (Smith et al., 2016), and this both/and approach may impel them to think divergently, to challenge the status quo and to propose “out the box” and useful ideas.

Intention to adopt cryptocurrency: a robust contribution of trust and the theory of planned behavior

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bahadur Ali Soomro ◽  
Naimatullah Shah ◽  
Nadia A. Abdelmegeed Abdelwahed
Keyword(s):  
Theory Of Planned Behavior ◽  
Planned Behavior ◽  
Online Survey ◽  
Behavioral Control ◽  
Perceived Behavioral Control ◽  
Cross Sectional ◽  
Content Type ◽  
Intention To Adopt ◽  
Positive Effect ◽  
Practical Implications

PurposeAt present, the adoption of cryptocurrency investment has brought consideration to the globe. The present paper attempts to investigate the intention to adopt cryptocurrency (IACR) among the potential investors of Pakistan.Design/methodology/approachThe theory of planned behavior (TPB) is applied to underpin the conceptual framework. The study uses a quantitative approach. The study collects cross-sectional data through an online survey questionnaire. In the last, the authors utilized 334 samples for outcomes.FindingsFindings of the SEM reveal a significant positive effect of attitude, subjective norms (SNs), perceived behavioral control (PBC) and trust on IACR.Practical implicationsThe outcomes of an investigation would develop further intention and trust towards cryptocurrency adoption. The results would support developing favorable policies regarding the reduction of the ban on cryptocurrency in Pakistan to make easier transactions of the investors further. Possibly, it brings several opportunities in all segments of society in making the digital transaction modes through cryptocurrency. Finally, the findings would further validate the TPB in the context of cryptocurrency.Originality/valueThe study provides a better understanding of cryptocurrency and investors IACR. The empirical evidence further develops the other individuals' intentions towards cryptocurrency usage.

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