scholarly journals On Modelling Long Term Stock Returns with Ergodic Diffusion Processes: Arbitrage and Arbitrage-Free Specifications

2009 ◽  
Vol 2009 ◽  
pp. 1-16 ◽  
Author(s):  
Bernard Wong
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Diffusion Processes ◽  
Local Martingale ◽  
Liability Management ◽  
Hedging Strategies ◽  
Arbitrage Opportunities ◽  
Ergodic Diffusion ◽  
Ergodic Diffusions

We investigate the arbitrage-free property of stock price models where the local martingale component is based on an ergodic diffusion with a specified stationary distribution. These models are particularly useful for long horizon asset-liability management as they allow the modelling of long term stock returns with heavy tail ergodic diffusions, with tractable, time homogeneous dynamics, and which moreover admit a complete financial market, leading to unique pricing and hedging strategies. Unfortunately the standard specifications of these models in literature admit arbitrage opportunities. We investigate in detail the features of the existing model specifications which create these arbitrage opportunities and consequently construct a modification that is arbitrage free.

Behavioral and Rational Explanations of Stock Price Performance around SEOs: Evidence from a Decomposition of Market-to-Book Ratios

2010 ◽  
Vol 45 (4) ◽  
pp. 935-958 ◽  
Author(s):  
Michael G. Hertzel ◽  
Zhi Li
Keyword(s):  
Research And Development ◽  
Stock Returns ◽  
Stock Price ◽  
Cash Holdings ◽  
Capital Expenditures ◽  
Growth Opportunities ◽  
Growth Option ◽  
Price Performance ◽  
Investment Opportunities

AbstractWe examine the extent to which investment opportunities and/or mispricing motivate equity issuance and contribute to post-issue stock underperformance. We decompose market-to-book ratios into misvaluation and growth option components and find that issuing firms are both overvalued and have greater growth opportunities relative to nonissuers. Firms with greater growth opportunities invest more in capital expenditures and research and development (R&D) after issuance but do not experience lower post-issue stock returns. In contrast, issuing firms with greater mispricing tend to decrease long-term debt and/or increase cash holdings and do earn lower returns. Our findings are consistent with behavioral explanations for post-issue stock price underperformance.

scholarly journals The Impact of Exchange Rates and Interest Rates on Bank Stock Returns: Evidence from U.S. Banks

2016 ◽  
Vol 11 (1) ◽  
pp. 124-139 ◽  
Author(s):  
Verma Priti
Keyword(s):  
Exchange Rates ◽  
Interest Rates ◽  
Stock Returns ◽  
Short Term ◽  
Volatility Spillovers ◽  
Hedging Strategies ◽  
Bank Stock ◽  
The Impact ◽  
Bank Portfolios

AbstractThis paper examines the mean, volatility spillovers and response asymmetries between short-term and long-term interest rates, exchange rates and portfolios of money center, large and medium-sized banks in the U.S. I use the multivariate version of Nelson’s (1991) Exponential Generalized Autoregressive Conditionally Heteroscedastic (EGARCH) model. Results indicate mean and volatility spillovers from short-term interest rates and exchange rates and long-term interest rates and exchange rates to three bank portfolios. Results also show response asymmetries from short-term interest rates and exchange rates and long-term interest rates and exchange rates to all the three bank portfolios. These findings have important implications for bankers in terms of devising different hedging strategies against interest rates and exchange rate risks.

scholarly journals Is Gold a Hedge against Stock Price Risk in U.S. or Indian Markets?

Risks ◽  
2021 ◽  
Vol 9 (10) ◽  
pp. 174
Author(s):  
Hemant Manuj
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Stock Price ◽  
Negative Relationship ◽  
Series Data ◽  
Safe Haven ◽  
Policy Makers ◽  
Monthly Return ◽  
Significant Negative Relationship

We study whether gold acts as a hedge or a safe haven in U.S. and the Indian stock markets. These two stock markets have been chosen as representatives of the developed markets and the emerging markets, respectively, and are of significant interest to long-term investors. We apply a linear regression and a GARCH technique to monthly return series data on the S&P500, the BSE Sensex, and gold prices. We find that, for the period of our study, 1980–2020, gold has not served as a hedge or a safe haven for long-term investors in the U.S. or Indian stock markets. This holds true even across multiple sub-periods in our study period. Gold returns do not exhibit a significant negative relationship with stock returns in any of the chosen stock market scenarios, i.e., in times of extremely low returns as well as in the periods of high or low volatility. Equity investors in U.S. and Indian markets can use the findings of this study for optimising their portfolios. Additionally, central bankers and policy makers can use the findings for better outcomes with respect to their policies on holding of gold.

scholarly journals Is Shari’ah Index Membership Risky? The Case of Malaysia Shari’ah Blue-Chip Index

2020 ◽  
pp. 75-101
Author(s):  
Asmah Mohd Jaapar ◽  
Shamsher Mohammad Ramadili Mohd ◽  
Mohamed Eskandar Shah Mohd Rasid
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Abnormal Returns ◽  
Return Volatility ◽  
Negative Results ◽  
Trading Volumes ◽  
Temporary Decrease ◽  
New Evidence ◽  
Blue Chip

The study explores the Shariah index membership effect around index revision period especially to the newly added and deleted constituent stocks (termed as event stocks). This study analysed 40 event stocks for Shariah blue-chip index, Dow Jones Islamic Market Titans Malaysia 25 Index (DJIMY25). The analysis was conducted over a period of seven years (2009-2015) using event study methodologies which capture abnormal returns, trading volumes, and return volatility, and discussed the extent of market efficiency. The study divided the event stocks into three groups – additions, deletions due to the index annual rebalancing and deletions due to non-Shariah compliance. The findings of this study provide a new evidence on index additions and deletions contrary to the ones reported in previous studies. Surprisingly, additions to DJIMY25 produces negative results with permanent decrease in stock returns and temporary decrease in trading volumes. The deletions either due to the index annual rebalancing or non-Shariah compliance have shown negative results with the decrease in stock price, temporary decrease in trading volumes and increase in the stock’s absolute volatility. The finding of this study implied that index membership in Shariah index can induce Shariah compliant risk for the firms that are unable to maintain their Shariah compliant status in the long-term.

Economic Turmoil in Islamic Banking Investment

ETIKONOMI ◽  
2020 ◽  
Vol 19 (2) ◽  
Author(s):  
Budiandru Budiandru ◽  
Sari Yuniarti
Keyword(s):  
Interest Rates ◽  
Stock Price ◽  
Time Series Data ◽  
Series Data ◽  
Islamic Banking ◽  
Vector Error Correction ◽  
Investment Financing ◽  
Vector Error ◽  
Operational Activities

Investment financing is one of the operational activities of Islamic banking to encourage the real sector. This study aims to analyze the effect of economic turmoil on investment financing, analyze the response to investment financing, and analyze each variable's contribution in explaining the diversity of investment financing. This study uses monthly time series data from 2009 to 2020 using the Vector Error Correction Model (VECM) analysis. The results show that the exchange rate, inflation, and interest rates significantly affect Islamic banking investment financing in the long term. The response to investment financing is the fastest to achieve stability when it responds to shocks to the composite stock price index. Inflation is the most significant contribution in explaining diversity in investment financing. Islamic banking should increase the proportion of funding for investment. Customers can have a larger business scale to encourage economic growth, with investment financing increasing.JEL Classification: E22, G11, G24How to Cite:Budiandru., & Yuniarti, S. (2020). Economic Turmoil in Islamic Banking Investment. Etikonomi: Jurnal Ekonomi, 19(2), xx – xx. https://doi.org/10.15408/etk.v19i2.17206.

Macroeconomic Factors and Pakistani Equity Market”

2004 ◽  
Vol 43 (4II) ◽  
pp. 619-637 ◽  
Author(s):  
Muhammad Nishat ◽  
Rozina Shaheen
Keyword(s):  
Stock Market ◽  
Industrial Production ◽  
Stock Prices ◽  
Stock Price ◽  
Consumer Price Index ◽  
Reverse Causality ◽  
Macroeconomic Factors ◽  
Macroeconomic Variables ◽  
Equilibrium Relationships

This paper analyzes long-term equilibrium relationships between a group of macroeconomic variables and the Karachi Stock Exchange Index. The macroeconomic variables are represented by the industrial production index, the consumer price index, M1, and the value of an investment earning the money market rate. We employ a vector error correction model to explore such relationships during 1973:1 to 2004:4. We found that these five variables are cointegrated and two long-term equilibrium relationships exist among these variables. Our results indicated a "causal" relationship between the stock market and the economy. Analysis of our results indicates that industrial production is the largest positive determinant of Pakistani stock prices, while inflation is the largest negative determinant of stock prices in Pakistan. We found that while macroeconomic variables Granger-caused stock price movements, the reverse causality was observed in case of industrial production and stock prices. Furthermore, we found that statistically significant lag lengths between fluctuations in the stock market and changes in the real economy are relatively short.

scholarly journals Financial Crises, Macroeconomic Variables, and Long-Run Risk: An Econometric Analysis of Stock Returns Correlations (2000 to 2019)

2021 ◽  
Vol 14 (3) ◽  
pp. 127
Author(s):  
Marco Tronzano
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Financial Crises ◽  
Stock Price ◽  
Financial Risk ◽  
Swiss Franc ◽  
Chinese Stock Market ◽  
Stock Market Index ◽  
Defensive Role ◽  
Long Run

This paper focuses on four major aggregate stock price indexes (SP 500, Stock Europe 600, Nikkei 225, Shanghai Composite) and two “safe-haven” assets (Gold, Swiss Franc), and explores their return co-movements during the last two decades. Significant contagion effects on stock markets are documented during almost all financial crises; moreover, in line with the recent literature, the defensive role of gold and the Swiss Franc in asset portfolios is highlighted. Focusing on a new set of macroeconomic and financial series, a significant impact of these variables on stock returns correlations is found, notably in the case of the world equity risk premium. Finally, long-run risks are detected in all asset portfolios including the Chinese stock market index. Overall, this empirical evidence is of interest for researchers, financial risk managers and policy makers.

scholarly journals Institutional Investors and Hedge Fund Activism

2020 ◽  
Author(s):  
Simi Kedia ◽  
Laura Starks ◽  
Xianjue Wang
Keyword(s):  
Stock Returns ◽  
Institutional Investors ◽  
Operating Performance ◽  
Hedge Fund ◽  
Target Firms ◽  
Hedge Fund Activism ◽  
Institutional Shareholders

Abstract Hedge fund activists have ambiguous relationships with the institutional shareholders in their target firms. While some support their activities, others counter their actions. Due to their relatively small holdings in target firms, activists typically need the cooperation of other institutional shareholders that are willing to influence the activists’ campaign success. We find the presence of “activism-friendly” institutions as owners is associated with an increased probability of being a target, higher long-term stock returns, and higher operating performance. Overall, we provide evidence suggesting the composition of a firm’s ownership has significant effects on hedge fund activists’ decisions and outcomes.

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