Asset Growth and Future Stock Returns: Insight from International Equity Markets

The main purpose of this research is to examine the cross-sectional connection between asset growth and stock returns in the international equity market during 2016-2020. Firms in international equity markets, subsequently experience lower stock returns with higher asset growth rates, consistent with the United States evidence. If capital markets are well-developed stocks efficiently priced then the negative AG effect on returns is likely to be stronger, but different to country characteristics representing accounting quality, investor protection, and limits to arbitrage. The research is to examine the cross-sectional connection between the asset growth and stock return in the international equity market is likely due to optimal investment effect than due to market timing, overinvestment, or other forms of mispricing. The evidence suggests that the cross-sectional association between the AG effect and stock return is more likely due to an optimal investment effect than due to overinvestment, mispricing or market timing. The findings of the research support Copper et al (2008) however, the weakening of the accounting quality decreases the AG effect magnitude which contradicts the mispricing-based arguments.

Oil Market Factors as a Source of Commonality in Liquidity in International Equity Markets

When stock markets are less liquid or illiquid, investors are expected to require compensation for taking the risk of not being able to sell quickly. Many studies have documented the existence of the co-movements (commonality) of market liquidity in equity markets as a priced factor. The primary objective of this paper is to introduce the oil market as a potential source of commonality in liquidity. We hypothesize that conditions specific to the oil market can contribute to commonality in liquidity affecting both supply-side and demand-side factors because of its importance to the global economy in general. To this aim, a sample of firms is drawn from 50 countries spanning the period from January 1995 to December 2015. We examine two channels that transmit the effect of oil market movements to the liquidity commonality in international equity markets, namely, oil price returns and oil price volatility. Seemingly unrelated regressions (SUR) are utilized to estimate the effect of oil factors on commonality in liquidity. We find that the returns and volatility of oil prices explain the commonality in liquidity in countries with higher integration with oil markets. In addition, we show that the effect of oil volatility is more pronounced for net oil exporters as opposed to net oil importers after controlling for oil sensitivity. These results are robust to controlling for possible sources of commonality in liquidity as found in the literature and alternative estimation specifications.

Type-2 Fuzzy Expert System Approach for Decision-Making of Financial Assets and Investing under Different Uncertainty

Extensive research results of stock market time series using classical fuzzy sets (type-1) are available in the literature. However, type-1 fuzzy sets cannot fully capture the uncertainty associated with stock market developments due to their limited descriptiveness. This paper fills a scientific gap and focuses on type-2 fuzzy logic applied to stock markets. Type-2 fuzzy sets may include additional uncertainty resulting from unclear, uncertain, or inaccurate financial data through which model inputs are calculated. Here we propose four methods based on type-2 fuzzy logic, which differ in the level of uncertainty contained in fuzzy sets and compared with the type-1 fuzzy model. The case study aims to create a model to support investment decisions in Exchange-Traded Funds (ETFs) listed on international equity markets. The created models of type-2 fuzzy logic are compared with the classic type-1 fuzzy logic model. Based on the results of the comparison, it can be said that type-2 fuzzy logic with dual fuzzy sets is able to better describe data from financial time series and provides more accurate outputs. The results reflect the capability and effectiveness of the approach proposed in this document. However, the performance of type-2 fuzzy logic models decreases with the inclusion of increasing uncertainty in fuzzy sets. For further research, it would be appropriate to examine the different levels of uncertainty in the input parameters themselves and monitor the performance of such a modified model.

Asymmetric Volatility in the Nepalese Stock Market

This paper investigates the asymmetric volatility behavior of the Nepalese stock market including spillover effects from the US and Indian equity markets. I modeled asymmetric volatility within a generalized autoregressive conditional heteroskdasticy framework using comprehensive data for the Nepal stock market index. The results reveal a very different asymmetry compared to the results in other international equity markets: positive shocks increase volatility by more than negative shocks. The results further suggest that uninformed investors play a significant role in the Nepalese stock market. The spillover effect from the Indian stock market to the Nepalese stock market is negative. Overall, I conclude that a “fear of missing out” (FOMO) of noise traders as well as the deployment of pump and dump schemes are inherent features of the Nepalese stock market. The findings are very useful to policy makers and investors alike.

Global integration of the Gulf cooperation council markets

PurposeThis paper investigates the global financial integration of the Gulf Cooperation Council markets, which is important for financial economists, global investors and policymakers.Design/methodology/approachThe first step is to estimate a benchmark one-factor model and multifactor models over the entire sample period to obtain the time-invariant global integration estimates for the Gulf Cooperation Council markets. Because the global integration of the Gulf Cooperation Council markets may be time varying, the second step is to use 24-month rolling regressions to estimate the time-varying integration estimates. To explicitly test for structural breaks in global integration, this study applies a supremum Wald test to endogenously search for structural breaks.FindingsEmpirically, consistent evidence suggests that the Gulf Cooperation Council markets are increasingly integrated with international equity markets at different levels of financial development and from different regions. However, compared to other emerging and frontier markets, the global integration of the Gulf Cooperation Council markets is still relatively low, suggesting that these markets still offer significant diversification benefits for global investors.Originality/valueThis study contributes to the literature by systematically investigating the global integration of the Gulf Cooperation Council markets with monthly data (to account for the gradual information diffusion in international equity markets) and a longer sample period (to more robustly identify the trend in the global integration).

Cross-Country Composite Momentum

ZusammenfassungMedium-term price continuation, commonly defined as momentum, is a widespread phenomenon in financial markets. It exists for individual stocks (Jegadeesh and Titman, 1993), for industry sectors (Moskowitz and Grinblatt, 1999), for style portfolios (Lewellen, 2002), in international equity markets (Rouwenhorst, 1998; Chui et al., 2010), and across asset classes (Bhojraj and Swaminathan, 2006; Menkhoff et al., 2012; Asness et al., 2013). Momentum also appears to be persistent over time, at least outside the U.S. stock market (Jegadeesh and Titman, 2001; McLean and Pontif, 2016; Green et al., 2017; Jacobs and Müller, 2020).