Applied Finance Letters (E-Journal - Auckland Centre for Financial Research)
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An Investigation of the Presence of Anomalies in Digital Asset Market: The Case of Bitcoin
Full text linkThis paper examines the cryptocurrency bitcoin to determine if there is evidence of the weekday effects, such as the Monday effect, during the period between January 2, 2011 and September 10, 2019. The study shows that Bitcoin exhibits a Monday effect at the 10% level of significance and a Tuesday and Sunday effect at the 5% significance level. The S&P500 stock index also showed a Monday effect but did not exhibit a Tuesday or Sunday effect. The study also examined if there was a Month of the Year effect and found that Bitcoin exhibited a May and November effect at the 10% significance level
Profitability, Product Market Competition, and Stock Returns
Full text linkThis paper finds that product market competition level (measured by Herfindahl Hirschman Index using Fama French 48 industries) affects the performance of zero-cost investment strategies based on gross probability. From 1973 to 2017, the positive returns from such strategy mainly comes from the most competitive industry quintile while a strong reversal exists the second most competitive quintile. The same strategy does not generate any statistically significant returns in concentrated industry quintiles. Out of 25 dependently sorted portfolios on product market competition level and gross profitability, the top performing portfolio comes from the least profitable firms in the second most competitive industry quintile, where 65% of firms are from pharmaceutical and oil industries
The Effect of Risk on Investment: New Evidence
Full text linkPrevious results on the relation between risk and investment are mixed, partly due to endogeneity. To allievate the effects of this bias, we adopt a generalized method of moments (GMM) dynamic panel estimator to investigate the relation. We find that the puzzling positive sensitivity of investment (i.e. firm’s investment rate) to systematic risk as frequently documented in previous studies disappears. Further, we show that the more irreversible the firm’s investments are, the more valuable is the option to delay investment when risk is high, which supports the model with irreversible investment
Does Debt Diversification lead to a Discount in Firm Value?
Full text linkCorporate firms access multiple sources of debt simultaneously. This study analyzes the impact of debt diversification on firm value. We argue that, when firms diversify their debt sources, the monitoring role played by debt holders decreases as a result of the free rider problem. Hence, such firms should experience a value discount in the capital markets. Our empirical analysis provides evidence for the existence of a value discount in the capital markets for firms accessing multiple sources of debt. Our results remain robust for alternative measures of debt diversification
Cointegration, Price-Adjustment Delays, and Optimal Hedge Ratio in the Precious Metal Markets
Full text linkFirms seeking to apply hedge accounting treatment under the Accounting Standards Codification Topic 815 must demonstrate higher hedge effectiveness, for which the regression analysis is commonly used as a testing method. An autoregressive distributed lag (ARDL) model is adopted in this article to examine the hedge effectiveness in the presence of nonsynchronous trading of spot and futures contracts as well as a long-run cointegrating relationship between their prices. Using precious metal market data, our study empirically demonstrates that a hedge ratio estimated with a conventional OLS model tends to be downwardly biased. Our finding also indicates that the omitted-variable bias becomes apparent only when the difference between the transaction frequencies in spot and futures markets is significantly large
The Shift in Firms’ Reliance on Debt Sources
Full text linkStructural changes in capital market and information innovations have altered characteristics of debt sources, make them more or less favourable to firms. This could possibly lead to a shift in firms' reliance on debt sources. Using a unique data set of debt mix of 1,100 U.S. non-financial firms, I conduct data analysis to reveal changes in firms' preference for different debt sources over a decade from 2004 to 2014. I find that bank debt remains the most common source of borrowing, followed by public debt and finally private placement debt. In addition, over time, firms have become more reliant on bank and public debt while less reliant on private placement debt. This pattern is consistent across different industries.  
The Price Transmission in European Stock Markets
Full text linkWe investigate the dynamic price relationships among ten major stock indexes in Europe before, during and after the recent financial crisis. Using an error-correction model we find that the stock markets are cointegrated with three cointegrating vectors before the crisis and that the markets are cointegrated with only one cointegrating vector during and after the crisis. We further apply directed acyclic graph (DAG) analysis on the contemporaneous correlations innovation matrix to explore the instantaneous transmission pattern. The results show that France and Spain appear to share leadership roles before the crisis while leadership role is less obvious during and after the crisis. We also find a decreasing number of instantaneous casual relationships between the markets after the crisis, indicating that the markets are becoming more independent
An Empirical Study of Regional Mutual Funds’ Diversification Value
Full text linkThis article studies three samples of United States-based regional mutual funds from the Asia-Pacific, Europe, and Latin America, to assess whether higher fund diversification translates into higher diversification values to fund shareholders. To measure mutual funds’ portfolio diversification, we implement a modified Herfindahl index. To assess diversification values we employ a methodology that considers Sharpe ratio funds and its correlation with existent portfolios. We found that Asian-Pacific funds are the most diversified, whereas European funds provide the highest diversification value to fund shareholders. The correlation between fund diversification and diversification value is positive only in the case of Asian-Pacific funds. To the best of our knowledge, the relation between portfolio diversification and diversification value of regional mutual funds has not yet been addressed in the literature.
Causality between stock market and “fear gauge” indices: An empirical analysis with E-statistics
Full text linkThis study investigates empirically the validity of three hypotheses that have been advanced to explain the tendency of stock market and volatility indices to move in opposite directions, using the notion of Brownian distance correlation. We consider three stock market-implied volatility index pairs, namely, the S&P 500 and the VIX, the DAX 100 and the V1XI, and the N225 and the JNIV. The empirical results support the leverage hypothesis relative to the volatility feedback hypothesis for the pairs S&P 500 and VIX, and N225 and JNIV, and the representativeness and affect heuristics hypothesis relative to the leverage hypothesis for the pairs DAX 100 and V1XI, and N225 and JNIV
Commodity Market Heterogeneity and Cross-Market Integration
Full text linkWe evaluate the recent levels of heterogeneity and cross-market integration for fluctuations in commodity futures returns for a post-financial-crisis data sample. We find that a single commodity-market risk factor explains 30.6% of the total variation in commodity futures returns. The commodity-market risk factor is significantly correlated with the dominant market-wide risk factors from other asset classes: +66.7% with a market risk factor for the US equity market; -74.2% with a US dollar risk factor for the FX market; and -27.8% with an interest-rate level risk factor for the US interest rate market. Thus, a part of the systematic variation in the commodity market is integrated with other asset classes