Template-Type: ReDIF-Article 1.0 Author-Name: Eric Girard Author-Name: Halil Kiymaz Title: THE RISK FACTORS ASSOCIATED WITH INVESTING IN AN EMERGING EQUITY MARKET DURING THE EU MEMBERSHIP PROCESS Abstract: This paper identifies the risks associated with investing in the Turkish stock market. We find that Turkish firms are more volatile than firms in countries that have recently joined the EU (our control group) and that the excess volatility is significantly associated with higher financial and economic risks rather than fundamentals. Additionally, firms’ fundamentals are as important as country risk factors in explaining stock risk premiums for the control group, while the combined effect of country risk scores has a greater impact on risk premiums than firms’ fundamentals alone for Turkish firms. Also, while Turkish stocks are sensitive to all country risk factors — economic conditions, international openness, investment profile, conflicts, and social tensions — stocks of the control group are mostly affected by only two factors, namely social tensions and economic conditions. Finally, some risks have become less relevant as a result of the changes in legal, political, and economic policies that occurred from 1999 to 2004 (the candidacy period for EU membership). Overall, Turkey has been quite successful at pursuing reforms since it began its candidacy for the EU. It has liberalized its political system and relaxed restrictions on freedom. It has also reduced hyperinflation, strengthened its currency, lowered interest rates, and provided more stable growth in GDP. However, political stability and financial and economic development appear to be issues for Turkey in its quest to become an EU member. Classification-JEL: F3; G1; N2 Keywords: Journal: The International Journal of Business and Finance Research Pages: 1-17 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-1.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:1-17 Template-Type: ReDIF-Article 1.0 Author-Name: E. M. Ekanayake Author-Name: John R. Ledgerwood Title: AN ANALYSIS OF THE INTRA-REGIONAL TRADE IN THE MIDDLE EAST AND NORTH AFRICA REGION Abstract: This paper analyzes the intra-regional trade and investment flows in the Middle East and North Africa (MENA) region using an augmented gravity model applied to panel data. The study uses annual trade and investment data for the period 1980-2006. There is a growing awareness among countries in the MENA region regarding the importance of international trade and foreign direct investment for stimulating growth and integrating into the world economy. The research will attempt to achieve the following objectives: (a) analyze the intra-regional trade and investment flows in the MENA region; (b) identify the major determinants of trade and investment flows in the MENA region using an augmented gravity model applied to panel data; and (c) measure the effect of preferential trading arrangements in the region on members’ trade and investment with other MENA countries. Classification-JEL: F14, F21 Keywords: Journal: The International Journal of Business and Finance Research Pages: 19-29 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-2.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:19-29 Template-Type: ReDIF-Article 1.0 Author-Name: Wei Ting Author-Name: Sin-Hui Yen Author-Name: Sheng-Shih Huang Title: TOP MANAGEMENT COMPENSATION, EARNINGS MANAGEMENT AND DEFAULT RISK: INSIGHTS FROM THE CHINESE STOCK MARKET Abstract: China has sustained a rapid rate of economic growth and absorbed a great deal of foreign investment over the past decades. However, the laws pertaining to business in China have not kept up with China’s market growth. For this reason, investors in the Chinese stock market must assess associated risks. We set out in this study to examine the relationships that exist between default risk, earnings management, and top management compensation of publicly-listed companies in the Chinese stock market, which is now considered the most important emerging market. The results reveal a greater likelihood of default amongst larger discretionary accruals and lower top management compensation. In addition to studying the relationships which exist in the full sample, we also divide the sample into two sub-groups, based upon the signs of discretionary accruals, to investigate the likelihood of default. We find higher default potential amongst firms only falling into the category of positive discretionary accruals. Classification-JEL: G14; G34; G35; M41 Keywords: Journal: The International Journal of Business and Finance Research Pages: 31-46 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-3.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:31-46 Template-Type: ReDIF-Article 1.0 Author-Name: Arman Kosedag Author-Name: Jinhu Qian Title: DO DIVIDEND CLIENTELES EXPLAIN PRICE REACTIONS TO DIVIDEND CHANGES? Abstract: Previous studies find that stock price reactions to dividend announcements are positively related to dividend yield, consistent with the dividend-clientele hypothesis. In this paper, we argue that this yield-related clientele effect can be attributed to estimation biases in using preannouncement dividends as a proxy for market's anticipated dividends. Based on our samples constructed to mitigate the dividend estimation biases, we find that dividend yield has no additional power beyond the standardized dividend change in explaining the announcement-period excess returns. Our results are consistent with the information/signaling hypothesis, but inconsistent with the dividend-clientele hypothesis. In addition, we find that firm size remains negatively related to the price reactions to dividend changes. Classification-JEL: G14, G35 Keywords: Journal: The International Journal of Business and Finance Research Pages: 47-57 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-4.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:47-57 Template-Type: ReDIF-Article 1.0 Author-Name: Ming-Song Kao Author-Name: Chih-Hsiang Hsu Author-Name: Chung-Chih Liao Title: ON THE OPTIMAL PACKAGE FORMAT FOR ASSET SELLERS Abstract: A seller who owns two common-value assets can choose to either sell them as a bundle or separately. In this paper, we present a theoretical model to select the optimal selling option when there is asymmetric information between the seller and the buyers. Our main finding is that separate selling makes the seller fall into a bilateral monopoly environment, in which the assets are sold through bargaining, while bundled selling leads to a competitive bidding environment. When the seller’s bargaining ability is given, the difference between the two assets’ values increases, so the seller’s incentive to sell as a bundle decreases. On the other hand, given the values of both assets, when the seller’s bargaining power increases, the incentive to sell as a bundle decreases. Classification-JEL: D44; D82 Keywords: Journal: The International Journal of Business and Finance Research Pages: 59-67 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-5.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:59-67 Template-Type: ReDIF-Article 1.0 Author-Name: Jodylyn Quijano-Arsenio Author-Name: Karen Corpus Author-Name: Young-Jin Kim Author-Name: Julius Rola Title: IS THERE A SYNCHRONICITY BETWEEN THE PHILIPPINE STOCK EXCHANGE AND NEW YORK STOCK EXCHANGE? Abstract: This study examines the impact of macroeconomic variables such as real Gross Domestic Product, inflation rate, savings interest rate, foreign exchange rate, oil price and economic disturbances including the 9/11 incident and Internet bubble burst on the Philippines Stock Exchange composite price index. Using multiple linear regression analysis, monthly data from 1996 to 2006, including 119 observations were analyzed. The results indicate that rates of inflation, savings interest rate, foreign exchange rate and oil price significantly affected the Philippine Stock Exchange composite price index. The lag one first difference in the unit root test revealed stability of Philippine Stock Exchange (PSE) market and New York Stock Exchange (NYSE) market. Both were also found to be significantly affected by the two economic disturbances. Likewise, we find synchronicity between PSE and NYSE markets using Grangercausality test. Specifically, causality runs one-way from NYSE stock prices to PSE stock prices. Classification-JEL: E44, G15 Keywords: Journal: The International Journal of Business and Finance Research Pages: 69-77 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-6.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:69-77 Template-Type: ReDIF-Article 1.0 Author-Name: Yu Hsing Title: THE DETERMINATION OF THE COSTA RICA COLON/USD EXCHANGE RATE Abstract: The purpose of this paper is to compare four major exchange rate models for the Costa Rica Colon. We examine exchange rate data for the Costa Rica/U.S. dollar relationship from 1981-2007 and find that monetary models have a higher explanatory ability whereas the Mundell-Fleming model performs better in forecasting exchange rates than other models. The coefficient of the interest rate differential in the uncovered interest parity model has a wrong sign. Classification-JEL: F31 Keywords: Journal: The International Journal of Business and Finance Research Pages: 79-87 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-7.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:79-87 Template-Type: ReDIF-Article 1.0 Author-Name: Kuei-Yuan Wang Author-Name: Ching-Hai Jiang Author-Name: Yen-Sheng Huang Title: MARKET STATES AND THE PROFITABILITY OF MOMENTUM STRATEGIES: EVIDENCE FROM THE TAIWAN STOCK EXCHANGE Abstract: This paper examines the impact of market states on the profitability of momentum strategies using weekly data from the Taiwan Stock exchange over the 10-year period 1997-2006. Market states refer to the states of market such as up or down markets. In this paper, the formation period is defined as in an up (down) state if the market return over the six-month period prior to the holding period is nonnegative (negative). The results indicate that market states in the formation period are positively associated with the profitability of the momentum strategies. The results are consistent with the overreaction theory developed in Daniel et al. (2004). Moreover, the empirical results indicate that market states in the holding period are negatively associated with the profitability of the momentum strategies. The holding period is defined as in an up (down) state if the market return in the six-month period following the formation period is nonnegative (negative). The momentum profits appear to be higher in a bearish holding period and lower for a bullish holding period. Thus, the market states in the holding period also provide information regarding the profitability of the momentum strategies. Classification-JEL: G11, G14 Keywords: Journal: The International Journal of Business and Finance Research Pages: 89-102 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-8.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:89-102 Template-Type: ReDIF-Article 1.0 Author-Name: Li Guozhou Author-Name: Christopher Gan Author-Name: Sirimon Treepongkaruna Title: IMPACT OF HEDGING PRESSURE ON IMPLIED VOLATILITY IN FINANCIAL TIMES AND LONDON STOCK EXCHANGE (FTSE) MARKET Abstract: This paper examines the impact of net buying pressure and the event of 9/11 on the implied volatility of the U.K. FTSE 100 (Financial Times and the London Stock Exchange) index options. Our findings indicate that when effects such as financial leverage, information flow and mean reversion are held constant, the net buying pressure of the out-of-the-money put options plays a dominant role in determining the shape of the implied volatility function. Further, the event of 9/11 has a transitory influence on the implied volatility change. Our results also support the notion that hedging pressure can help explain the difference between implied volatility and realized volatility. Classification-JEL: G11, G15 Keywords: Journal: The International Journal of Business and Finance Research Pages: 103-118 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-9.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:103-118 Template-Type: ReDIF-Article 1.0 Author-Name: Byron J. Hollowell Title: THE LONG-TERM PERFORMANCE OF PARENT FIRMS AND THEIR SPIN-OFFS Abstract: This study examines the four-year stock performance of firms that undertake a spin-off. The theoretical motivations for spin-offs have been widely documented in the literature; however, an empirical examination of the aftermarket performance of spin-offs across a protracted bear market remains an unexamined topic. I find that spin-offs and their parents consistently outperform market indices from the closing price on the first day of public trading to their four-year anniversaries. These findings are important because the existence of price patterns during a market correction can serve as an investment hedge within a mean-variance efficient portfolio. Classification-JEL: G30, G38 Keywords: Journal: The International Journal of Business and Finance Research Pages: 119-129 Volume:3 Issue: 1 Year: 2009 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n1-2009/IJBFR-V3N1-2009-10.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:119-129