Applied Finance Letters (E-Journal - Auckland Centre for Financial Research)
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149 research outputs found
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The Cost of Innovation and Decreasing Book Equity of U.S. Firms
Full text linkThis study documents that book equity of U.S. firms has decreased dramatically over time and such decrease is systematic across various industries and firm size. Our analysis shows that intangible capital investment explains a significant portion of the decrease in book equity even after controlling for concurrent effect of leverage and profitability on book equity, and the effect of intangible capital investment on book equity increased in recent years. Further analysis shows that intangible capital contributes to decrease in book equity mostly through the channel of changing firm characteristics rather than changing sensitivity over time. Our findings suggest that investors must incorporate the effect of intangible capital investment into their valuation analysis, as indexes or investment strategies relying on indicators constructed by book equity may be biased and misleading
Heterogeneity of Cash Markets at Physical Delivery Points and the Hedging Effectiveness of Agricultural Commodity Futures in India – Lessons for Contract Optimization.
Full text linkAgricultural commodity futures in India are settled by physical delivery and the seller can choose the location of delivery from a list described in the contract specifications. Cash markets at these locations represent the deliverable basket for the futures contract and are the underlying assets for the delivery options granted to the seller by virtue of contract design. These cash markets are generally heterogenous. This paper studies the impact of heterogeneity of the underlying cash markets in different locations on the hedging effectiveness of the associated futures contract. The hedging effectiveness of cottonseed oilcake and soybean futures is regressed against several variables that represent heterogeneity of the underlying cash markets using ridge regression. We find that in general, the greater the heterogeneity, the poorer the hedging effectiveness of the contract. This paper is unique in that it provides a framework for guidance for contract designers at exchanges and regulators who will find this research useful in optimizing delivery specifications for agricultural futures contracts. This is especially important given the declining volumes in Indian agricultural commodity futures
Bank Concentration and Economic Growth Nexus: Evidence from OIC Countries
Full text linkThis paper examines the relationship between bank concentration and economic growth in Organization of Islamic Cooperation (OIC) countries. This is done using the system GMM estimators on a panel data sample consisting of 41 countries and 650 observations. Our analysis reveals that bank concentration has negative impact on economic growth and this relationship is non-linear. Furthermore, the impact of bank concentration on economic growth is found to be dependent on the country’s income and corruption levels. Therefore, it seems reasonable to conclude that bank concentration has negative impact on the economic growth in OIC countries
Time-varying equity premium forecasts based on industry indexes
Full text linkVarious studies report that the ability of industry indexes to predict the broad market disappeared during the most recent years. I revisit this theme using more flexible switching models and imposing economically motivated constraints on the predictions. My results show that traditional constant coefficients linear models are unable to forecast the stock market over the period considered, but restricting the equity premium to be non-negative, five industries predict the market. I also show that the Markov-switching models exhibit a dismal performance, which is even worse than the ones from the constant coefficients model. Finally, I test a model with two regimes- recession and expansion- which are identified in real-time through the Arouba-Diebold-Scotti Business Conditions Index. Using this model, I find that 8 out of 33 industries can successfully forecast the market. Furthermore, a mean-variance investor who bases his decisions on it obtains sizeable utility gains, relative to another investor who uses, exclusively, the historical returns
Price Clustering After the Introduction of Bitcoin Futures
Full text linkEconomic theory suggests that introduction of derivative contracts can improve the informational efficiency of the underlying asset prices (Danthine, 1978). In this study, we examine the impact of the introduction of Bitcoin futures on price clustering in Bitcoin. Our findings suggest that price clustering in Bitcoin meaningfully decreases post the introduction of its futures contracts
Effect of Perception Differences in Money Communication Between Parent-Adolescents on Financial Autonomy: An Experimental Study Using Financial Education Workshops
Full text linkThis study evaluates the effect of parent-child money communication on financial autonomy of the adolescents by considering the gender of the parent as a controlled variable by utilizing pre- and post- survey based experimental research design. The sample consisted of 300 female parents and their children under adolescence stage of life. Assuming that claim is often made by parents regarding their frequent money communication with their children, their children were asked to rate their perception towards parent’s money communication with them. Later, their female parent (mother) were invited for financial education workshops series and asked to complete pre-survey before they attended the first financial education workshop. The follow-up survey was done for female parents and their adolescent children six months after completion of the financial education workshop series. In both the surveys, 300 responses were collected from female parents and adolescents on nineteen pairs of money communication, wherein parents were not told that their children were also asked to rate the matching pair of each item of parent money communication scale and vice versa. The financial autonomy was measured by using pre- and post- surveys, wherein only adolescents participated in the surveys. The results of paired t-test provides noticeable conclusion that financial education given to the parent positively enhances money communication among parent-adolescent by reducing the disparity in the responses collected from the parents and adolescents on each matched pairs separately and collectively and this reduced disparity leads to enhance the financial autonomy of the adolescents. The findings may help policy makers and financial educators to design and implement such workshops which may open lines of “money communication” between parents and children.
Key words: financial education workshops, parent-adolescent money communication, financial autonomy.
 
Does the Nature of Index and Liquidity Influence the Mispricing in Future Contracts in India?
Full text linkIn this study, we investigate the variations in the mispricing of futures in Nifty (benchmark index), Bank Nifty and Nifty IT. Using a regression model on 1230 observations for the period of 1 January 2014 to 31 December 2018, we find no significant mispricing exists in the last week to the expiry of the contract in all three indices. This finding supports the existing literature that as the contract moves towards the maturity date, its value converges the market value. However, the main highlight of the paper is to reveal the difference in the life of mispricing in different indices. This difference in mispricing can be allocated to the liquidity in that indices. We report that being the most liquid, Bank Nifty is having mispricing only in 1 week (first week) of the contract, after that no significant mispricing exists in mispricing, Nifty shows significant mispricing for the first two weeks and Nifty IT shows mispricing for all weeks except last week. This is the pioneering work which considers the sectoral differences while evaluating futures mispricing. The findings of this study will provide a useful insight to the regulator and investors
Liquidity in Asian Financial Markets: Crowding Out or Spillover Effect
Full text linkThe paper attempts to explore the relationship between the stock market and the corporate bond market, with a focus on the inter-dependency of liquidity between the two markets. The study employs a panel dataset to assess the impact of stock market liquidity on the corporate bond market liquidity for top five Asian economies (ranked by GDP) for the period 2008-2017. In contrast to limited number of earlier studies that reported a spillover effect of liquidity among the markets for stock and government bonds, the results of the present study convey that an increase in stock market liquidity tends to eat up the liquidity of the corporate bonds, even after controlling for government bond yield and inflation rate changes. The findings indicate a crowding out effect instead of a spillover effect, as indicated by related studies. The ‘flight-to-quality’ argument provides one possible explanation of liquidity moving away from one market to the other. This has an implication that if regulators’ policies are focused in developing only one type of market, it may crowd out the liquidity and the development of the other market. The study suggests the government to focus more on corporate bond market, which is yet to flourish in the Asian markets as compared to its stock market counterparts. The paper is one of the few attempts that focus on the corporate bond market and its liquidity and aims to ignite a debate on the possible linkages between liquidity of corporate bond market and the stock market
The response of corporate investments in the US to oil price changes: the role of asymmetries
No full textThis paper investigates the influence of oil on corporate investments in the US. The inference is taken from a large sample which contains data on 15,411 companies over the period that extended from 1984 to 2017. It adds to the literature by showing that non-oil corporate investments in the US respond asymmetrically to oil price changes. In particular, when the oil price increases, the capital spending of companies suffers by more than it benefits from the declines in the price of oil. These results are important in assessing the impact of energy price fluctuations on the long-term investment decisions of US companies.  
Cryptocurrency and Stock Market: Complements or Substitutes?
Full text linkThe main goal of this study is to examine whether the cryptocurrency market impacts the stock market returns in the Gulf countries. Understanding this impact is quite interesting to clarify whether the cryptocurrency market and the stock market are substitutes or complements for investors. The author compiles the data on the stock market of the Gulf countries with the cryptocurrency data on a daily basis over the period 2014-2019. Generalized Method of Moments with Instrumental Variable (IV - GMM) approach has been implemented as the main strategy to fulfill the objective of the paper. The results of this paper show that the Stock market and the
cryptocurrency market are substitutes for investors in Gulf countries. In fact, each 10 percent increase in the cryptocurrency returns is associated with a decline in the stock market returns by 0.17 percent. The cryptocurrency market hampers the stock market indices in the Gulf countries. Having agreed upon in the literature that the stock market is affected by fundamental factors, market sentiment, technical factors, and
anomalies, this study offers robust evidence that the cryptocurrency should be introduced as one of the main determinants of stock market prices and returns