scholarly journals IS COMMONALITY IN LIQUIDITY A PRICED RISK FACTOR?

2020 ◽  
Vol 21 (2) ◽  
Author(s):  
CLÁUDIO P. SILVA JÚNIOR ◽  
MÁRCIO A. V. MACHADO
Keyword(s):  
Risk Factor ◽  
Stock Market ◽  
Financial Crises ◽  
Stock Return ◽  
Design Methodology ◽  
Investment Strategy ◽  
Knowledge Development ◽  
Trade Off ◽  
Risk Return ◽  
International Financial Crises

ABSTRACT Purpose: Analyze if the commonality in liquidity is priced and its relation with the stock return in the Brazilian stock market. Originality/value: Due to the shortage of papers about the effects of commonality in liquidity in the Brazilian financial literature, this paper provides knowledge development about commonality in liquidity effect for the investor, investigating whether an investment strategy in the most sensitive assets to systematic variations of liquidity is attractive for investors, consistent with the risk-return trade off. Design/methodology/approach: In order to identify the effect of commonality to investors, we opted to use portfolios. Using companies listed on B3 as a sample, we estimated regressions developed in the time series from January 2007 to December 2015. Findings: We found that the commonality is a phenomenon present in the Brazilian stock market and their highest values were concentrated in periods of international financial crises. In addition, using portfolios, we observed a premium of 4.165% per month for the commonality in liquidity, although not statistically significant. Finally, we found that the commonality in liquidity is a priced risk factor and when we exposed it to other risk factors we found that the liquidity risk factor was able to partly capture it.

Risk-return trade-off, information diffusion, and U.S. stock market predictability

2015 ◽  
Vol 02 (04) ◽  
pp. 1550038 ◽  
Author(s):  
Haibin Xie ◽  
Shouyang Wang
Keyword(s):  
Stock Market ◽  
Information Diffusion ◽  
Stock Return ◽  
Empirical Studies ◽  
Market Returns ◽  
Complementary Information ◽  
Stock Market Returns ◽  
Trade Off ◽  
Academic Literature ◽  
Risk Return

Recent academic literature in finance documents both risk-return trade-off and gradual information diffusion (ID). Motivated by these two financial theories, this paper proposes the ARCH-M model augmented by an ID indicator to forecast the U.S. stock market returns. Empirical studies performed on the monthly S&P500 index show that our approach is useful in both statistical and economic sense. Further analysis shows that the ID provides complementary information to risk-return trade-off effect. Our findings confirm that financial theories are valuable for stock return forecasting.

scholarly journals The Islamic Shariah principles for investment in stock market

2017 ◽  
Vol 9 (2) ◽  
pp. 132-146 ◽  
Author(s):  
Md. Mahmudul Alam ◽  
Chowdhury Shahed Akbar ◽  
Shawon Muhammad Shahriar ◽  
Mohammad Monzur Elahi
Keyword(s):  
Stock Market ◽  
Mutual Funds ◽  
Financial Crises ◽  
Design Methodology ◽  
Islamic Law ◽  
Descriptive Study ◽  
Alternative Form ◽  
Current Form ◽  
Content Type ◽  
Failure To Protect

PurposeBecause of chronic financial crises experienced during past several decades repeatedly and a failure to protect investors’ rights as a result, the world is looking for an alternative form of stock market for quite some time so that interests of all relevant stakeholders can be safeguarded. At the same time, from the perspectives of devout Muslims, the current form of stock market restricts a Muslim to make investments in the market because of several unsatisfying provisions from the viewpoint of the Islamic law known as Shariah. This study aims to provide the criteria under which conditions of the Islamic Shariah permit making investments in the stock market. Hand in hand with that primary discussion, it has been eluded briefly why the Islamic Shariah principles offer a better alternative against conventional practices of the stock market. Design/methodology/approachThis is a descriptive study based on the literature review. FindingsThis study explores the basic Islamic principles of investment in the stock market by revisiting the norms laid down by Shariah and current global practices of Islamic stock market and indexes. Originality/valueThis study will work as a guideline for investors and market authorities to understand the original Shariah rulings and the benchmark rulings for investment or establishing full-fledged Islamic stock markets, indexes and mutual funds.

The Risk-Return Trade-Off in a Liberalized Emerging Stock Market: Evidence from Vietnam

2015 ◽  
Vol 53 (4) ◽  
pp. 746-763 ◽  
Author(s):  
Kuangnan Fang ◽  
Ji Wu ◽  
Cuong Nguyen
Keyword(s):  
Stock Market ◽  
Trade Off ◽  
Risk Return

scholarly journals Asset growth and stock return: evidence in the Brazilian market

2018 ◽  
Vol 29 (78) ◽  
pp. 418-434
Author(s):  
Márcio André Veras Machado ◽  
Robert William Faff
Keyword(s):  
Risk Factor ◽  
Asset Pricing ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Return ◽  
Operating Performance ◽  
Growth Effect ◽  
Capital Investments ◽  
Limits To Arbitrage ◽  
Asset Growth

Abstract Empirical evidence suggests that firms which have experienced fast growth, through increased external funding and by making capital investments and acquisitions, tend to show bad operating performance and lower stock returns, whereas firms that have experienced contraction, through divestiture, share repurchase and debt retirement, tend to show good operating performance and higher stock returns. So, this study aimed to analyze the relationship between asset growth and stock return in the Brazilian stock market, and it tested the hypothesis that asset growth is negatively related to future stock return. To do this, the methodology was divided into 3 steps: verifying 1) if asset growth anomaly exists; 2) if this relation may be explained by the investment friction hypothesis and/or by the limits-to-arbitrage hypothesis; and 3) if asset growth is a risk factor or mispricing. In addition, the analysis was carried out both at a portfolio level and an individual assets level. The sample included all the non-financial firms listed at B3 from June 1997 to June 2014. As for the main results, this study found that the asset growth effect exists, both at the portfolio level and the individual assets level, although it is sensitive to the proxy. About the effect’s materiality, this study concluded that the asset growth effect is not economically relevant, since it is not observed in big firms, regardless of the proxy used, a fact that makes it difficult to explore this effect. Another finding is that the asset growth effect may not be related to the limits-to-arbitrage hypothesis and to the financial constraint hypothesis; also, this effect may be considered a risk factor, suggesting that the investment effect documented in the Brazilian stock market may be explained by the rational asset pricing perspective. Therefore, capital market professionals should take into account the asset growth factor in asset pricing models for better investment risk assessment.

FinTech and Stock Market Behaviors

2019 ◽  
pp. 170-205
Author(s):  
Taner Sekmen ◽  
Mercan Hatipoglu
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
High Frequency ◽  
Stock Return ◽  
Garch Models ◽  
Algorithmic Trading ◽  
Risk Return ◽  
The Past ◽  
Volatility Asymmetry ◽  
Technological Developments

This chapter examines the effects of high-frequency trading (HFT) and algorithmic trading (AT) activities, which represent important technological developments in financial markets in the past two decades, on Borsa Istanbul in terms of volatility. To clarify stock market behaviors in terms of volatility, asymmetry, and risk return after the BISTECH transition, the GJR-GARCH-in-Mean and I-GARCH models were used. The dataset consists of the daily stock return series of the main and sub-sector indexes of Borsa Istanbul, covering the period from October 24, 2012 to June 1, 2018. Although there are mixed results for the sub-indexes, it is observed that in the post-BISTECH period, volatility increases significantly in the BIST 100 and BIST 30 indexes, where AT and HFT activities are used more frequently. In particular, the duration of volatility returns to average after shock increases about seven times for BIST 100 and about eight times for the BIST 30 in the post-BISTECH period. Overall, the results indicate that AC and HFT activities may have disruptive effects on financial markets.

scholarly journals Quantile Risk–Return Trade-Off

2021 ◽  
Vol 14 (6) ◽  
pp. 249
Author(s):  
Nektarios Aslanidis ◽  
Charlotte Christiansen ◽  
Christos S. Savva
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Quantile Regressions ◽  
Lower Tail ◽  
Trade Off ◽  
Risk Return ◽  
Market Portfolio ◽  
Asset Pricing Models ◽  
The Us ◽  
European Stock Markets

We investigate the risk–return trade-off on the US and European stock markets. We investigate the non-linear risk–return trade-off with a special eye to the tails of the stock returns using quantile regressions. We first consider the US stock market portfolio. We find that the risk–return trade-off is significantly positive at the upper tail (0.9 quantile), where the upper tail is large positive excess returns. The positive trade-off is as expected from asset pricing models. For the lower tail (0.1 quantile), that is for large negative stock returns, the trade-off is significantly negative. Additionally, for the median (0.5 quantile), the risk–return trade-off is insignificant. These results are recovered for the US industry portfolios and for Eurozone stock market portfolios.

Time-Varying Risk-Return Trade-off in the Stock Market

2013 ◽  
Vol 45 (4) ◽  
pp. 623-650 ◽  
Author(s):  
HUI GUO ◽  
ZIJUN WANG ◽  
JIAN YANG
Keyword(s):  
Stock Market ◽  
Time Varying ◽  
Trade Off ◽  
Risk Return

scholarly journals Estimating Stock Returns Volatility and the Risk-Return Nexus in the Nigerian Stock Market in the Presence of Shift Dummies

2019 ◽  
pp. 1-15
Author(s):  
David Adugh Kuhe ◽  
Moses Abanyam Chiawa ◽  
Sylvester Chigozie Nwaosu ◽  
Jonathan Atsua Ikughur
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Stock Returns ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Stock Market Volatility ◽  
Trade Off ◽  
Risk Return ◽  
Market Changes

Volatility and the trade-off between risk and return in stock markets is an important subject in financial theory which play significant role in investment decision making, portfolio selection, options pricing, financial stability, hedging and pair trading strategy among others. This study estimates stock return volatility and analyses the risk-return trade-off in the Nigerian stock market using symmetric GARCH (1,1)-in-mean, asymmetric CGARCH (1,1)-in-mean and EGARCH (1,1)-in-mean models with Generalized Error Distribution and Student-t innovation. Data on daily closing all share prices of the Nigerian stock exchange for the period 2nd January, 1998 to 9th January, 2018 are utilised. The data is further divided into three sub-periods of pre-crisis, global financial crisis and post crisis periods to allow volatility behaviour and the risk-return trade-off to be investigated across the sub-periods. Results showed evidence of volatility clustering, leptokurtosis, high persistence of shocks to volatility and asymmetry without leverage effects across the study periods. The persistence of shocks to volatility increased during the global financial crisis period with delayed reactions of volatility to market changes. However, by incorporating the exogenous breaks into the volatility models for the full study period, the shock persistence drastically reduced with faster reactions of volatility to market changes. The results of this study also found supportive evidence for a significant positive risk-return relationship in Nigerian stock market across various study sub-periods and model specifications meaning that investors in Nigerian stock market should be compensated for holding risky assets. The empirical findings of this study further suggest that the recent global financial crisis have not altered the market dynamics to distort the risk-return trade-off in Nigerian stock market indicating that expected returns are not driven by changes in the stock market volatility. The study provides some policy recommendations for investors and policy makers in the Nigerian stock market.

scholarly journals The effect of foreign investment flow on commonality in liquidity on the Brazilian stock market

2020 ◽  
Vol 31 (84) ◽  
pp. 425-443
Author(s):  
Claudio Pilar Silva ◽  
Márcio André Veras Machado
Keyword(s):  
Stock Market ◽  
Transaction Costs ◽  
Current Literature ◽  
Foreign Investment ◽  
Financial Crises ◽  
Stock Exchange ◽  
Foreign Investor ◽  
Foreign Investors ◽  
International Financial Crises ◽  
Investor Trading

ABSTRACT The aim of this study was to analyze the characteristics and determinants of commonality in liquidity in the Brazilian stock market. Since the internationalization of the Brazilian stock market (Bolsa, Brasil, Balcão - B3), the flow of foreign investment in Brazil has increased over the years, except in times of crisis. Thus, the present study argues that, in the Brazilian stock market, commonality in liquidity is partly determined by foreign investor trading. Despite the benefits obtained from foreign resources in the Brazilian stock market, it is important to analyze the effect of this flow of foreign investment into the Brazilian stock market. This paper contributes to the current literature by providing evidence for commonality in liquidity in the Brazilian stock market and by showing its stronger effect in periods of market decline. Therefore, investors pay greater attention to the risk of commonality in their portfolios when executing orders and to their trading timing due to the increase in transaction costs of the stocks most sensitive to commonality in liquidity. The study sample consisted of a set of companies listed on the Brazilian stock exchange from January 2007 through December 2017. To analyze commonality in liquidity, we used the model proposed by Karolyi, Lee, and Djik (2012) and by Qian, Tam, and Zhang (2014). To measure the influence of foreign investors on the Brazilian stock market, we used three measures based on Gonçalves and Eid (2016). The results showed that commonality occurs in the Brazilian stock market and that it peaks during international financial crises, as well as indicated that commonality might be higher in times of crisis due to capital constraint. In addition, the results showed that foreign investor participation partly determined commonality.

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