Template-Type: ReDIF-Article 1.0 Author-Name: Nathaniel J. Harness Author-Name: Michael M. Finke Author-Name: Swarn Chatterjee Title: HOUSEHOLD INVESTMENT ASSET VARIATION AND WEALTH Abstract: Frequent shifting of household portfolio composition may erode wealth due to poor market timing and transaction costs. If household preferences are stable, the optimal wealth maximizing strategy is periodically rebalancing to maintain a relatively constant ratio of investment assets to wealth from year to year. However, some households may fail to rebalance, or may change their preference for broad asset classes because of inexperience or behavioral biases. This research tests the impact of variation in the capital accumulation ratio (CAR), a commonly used ratio of investment assets to net worth, on changes in wealth using quantile regression. Using quantile regression, we find that having a high standard deviation of CAR results in the greatest losses among those with the lowest change in wealth between 1994 and 2004. Classification-JEL: D14; G11; H31 Keywords: Investment variation, portfolio choice, capital accumulation Journal: The International Journal of Business and Finance Research Pages: 1-11 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-1.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:1-11 Template-Type: ReDIF-Article 1.0 Author-Name: Claudia Kocher Author-Name: Hei Wai Lee Author-Name: Karen Strandholm Title: THE INFLUENCE OF MARKET CONDITIONS ON POISON PUT USE IN CONVERTIBLE BONDS Abstract: The objective of this study is to increase understanding of why poison put covenants are included in convertible bond contracts. We compare characteristics of convertible bond issuers who used poison puts with those who did not for the period from 1986 to 2002. We focus our analysis on two sub periods, 1988-1990 and 1991-1998, which were characterized by dramatically different financial market conditions. Our results show that almost all convertible bond issuers used poison put covenants during the late 1980s, a period of extremely high event risk. In contrast, poison put users differed from nonusers during the sub period of 1991-1998, with users having lower operating profit margins and higher capital expenditure ratios than nonusers. Given recent growing interest in bond covenants that address event risk, the findings of this study provide useful insights to practitioners. Classification-JEL: G24; G32 Keywords: Poison put provisions, Change of control covenants, Convertible bonds Journal: The International Journal of Business and Finance Research Pages: 13-26 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-2.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:13-26 Template-Type: ReDIF-Article 1.0 Author-Name: Sergiy Rakhmayil Title: DID FINANCIAL PERFORMANCE OF EUROPEAN FIRMS IMPROVE AND CONVERGE AFTER INTRODUCTION OF THE EURO? Abstract: This paper examines the effect of the Euro on financial performance of companies in the European countries. The main objective is to study the impact of the financial liberalization on firm performance in individual countries, and on cross-country convergence of firms in different aspects of financial performance, including profitability, investment, leverage, and firm valuation. This research finds evidence of improvements in financial performance for European companies after the introduction of the Euro. Furthermore, evidence points at significant convergence in financial performance for countries that implemented the common currency. Overall, financial liberalization had a positive effect on firm performance in Europe. Classification-JEL: F36, G15 Keywords: financial liberalization, Euro, firm performance Journal: The International Journal of Business and Finance Research Pages: 27-41 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-3.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:27-41 Template-Type: ReDIF-Article 1.0 Author-Name: Anthony Flint Author-Name: Andrew Tan Author-Name: Gary Tian Title: PREDICTING FUTURE EARNINGS GROWTH: A TEST OF THE DIVIDEND PAYOUT RATIO IN THE AUSTRALIAN MARKET Abstract: This paper examines the use of the payout ratio as a predictor of a firm’s future earnings growth. Recent evidence rejects the hypothesis that firm which retain a large portion of their earnings have strong future earnings growth. Higher dividend payout ratios instead correspond to higher future earnings growth. Examining both listed and delisted firms on the Australian stock exchange over the period 1989 to 2008, we provide further evidence that the dividend payout ratio is positively linked to future earnings growth. The results hold over both one, three and five year periods. Furthermore, our results rejected claims that such a relationship was caused by simple mean reversion in earnings. We find no evidence to support the cash flow signaling and free cash flow hypotheses as an explanation for this relationship. Classification-JEL: G17, G35 Keywords: Predicting Future Earnings Growth, Dividend Payout Ratio, Australian Market Journal: The International Journal of Business and Finance Research Pages: 43-58 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-4.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:43-58 Template-Type: ReDIF-Article 1.0 Author-Name: R. Ratneswary V. Rasiah Title: MACROECONOMIC ACTIVITY AND THE MALAYSIAN STOCK MARKET: EMPIRICAL EVIDENCE OF DYNAMIC RELATIONS Abstract: This study uses time-series analysis to investigate the long-run relationships and short-run dynamic interactions between the stock market and various macroeconomic variables in Malaysia over the period 1980M1 to 2006M12. The study applies the multivariate cointegration methodology to establish the possible causal relations between these variables. The cointegration test and the vector error correction model demonstrates the evidence of positive long-run relationships between real stock returns and measures of aggregate economic activity including industrial production, consumer price index, money supply and real exchange rate. The long-term elasticity coefficients of the macroeconomic variables on stock returns display relationships that are theoretically grounded. Further analysis using variance decompositions lends evidence of the dominant influence of certain macroeconomic variables namely; consumer price index, money supply and real exchange rate in forecasting stock price variance. Classification-JEL: G14 Keywords: Cointegration, VECM, Stock Market, Macroeconomic Variables, Variance Decomposition Journal: The International Journal of Business and Finance Research Pages: 59-69 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-5.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:59-69 Template-Type: ReDIF-Article 1.0 Author-Name: Ai-Chi Hsu Author-Name: Szu-Hsien Lin Title: TRADING STRATEGIES BASED ON DIVIDEND YIELD: EVIDENCE FROM THE TAIWAN STOCK MARKET Abstract: This study examines whether a high dividend yield is equivalent to a high return. For constructing a proposed portfolio, we use the panel data of listed companies dividends in six consecutive quarters, and other financial data to estimate expected current yields, which more conform to firms’ profit prospective than the traditional current dividend yield. The results show that in 2003 Q1 to 2008 Q2, the performance differences between the portfolio and the benchmark portfolio are significantly positive statistically. Furthermore, the use of Sharpe ratios and Treynor indices to re-measure the performances does not change the results. In addition, when we extend our prediction period, the effectiveness of the portfolio persists for at least a quarter. Classification-JEL: G11 Keywords: Dividend, dividend yield, trading strategies Journal: The International Journal of Business and Finance Research Pages: 71-84 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-6.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:71-84 Template-Type: ReDIF-Article 1.0 Author-Name: Michael J. Gift Author-Name: Paul Gift Author-Name: YeQing Yang Title: FINANCIAL MARKET REACTIONS TO EARNINGS ANNOUNCEMENTS AND EARNINGS FORECAST REVISIONS: EVIDENCE FROM THE U.S. AND CHINA Abstract: This paper examines the impact of earnings announcements and earnings forecast revisions on stock returns across markets with different levels of maturity. In each market, the objects of interest are the effects of backward-looking earnings announcement information and forward-looking earnings forecast information on the price of equity shares. We analyze financial markets in both the U.S. and China in order to see how the level of market maturity and differences in information availability and actual or perceived reliability affect this relationship. We find that forward-looking analyst forecast information plays a significantly larger role in the security pricing process in the more mature U.S. financial market. In the less mature Chinese financial market, we find the opposite relationship as backward-looking earnings announcement information plays a larger role. Classification-JEL: D84, G14, G15, O57 Keywords: earnings forecast revisions, earnings announcements, unexpected earnings, security returns, forward-looking, backward-looking, relevance, reliability, market maturity Journal: The International Journal of Business and Finance Research Pages: 85-96 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-7.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:85-96 Template-Type: ReDIF-Article 1.0 Author-Name: Rupendra Paliwal Title: INTRA INDUSTRY EFFECTS OF TAKEOVERS: A STUDY OF THE OPERATING PERFORMANCE OF RIVAL FIRMS Abstract: This paper investigates whether the managers of industry rivals act to mitigate their agency exposure and improve operating performance when one of the firms in the industry is subject to a takeover attempt. The results indicate that rival firms in general decrease free cash flows, improve operating performance, reduce capital expenditures and increase leverage in response to a control threat within the industry. In particular, rival firms with potentially higher agency costs i.e. fewer investment opportunities and high cash or high free cash flows exhibit a higher reduction in cash levels and free cash flows subsequent to a control threat in their industry. These results are consistent with the inefficient management hypothesis, which suggests poorly performing firms are more likely to be the target of a takeover attempt and the acquisition probability hypothesis proposed by Song and Walkling (2000), which states that rivals of initial targets earn abnormal returns because of an increased probability that they themselves will be targets. These results lend support to the argument that takeovers act as an effective external control mechanism for managers and that they have industry wide effects. Classification-JEL: G34 Keywords: Mergers, takeovers, industry rivals, agency costs Journal: The International Journal of Business and Finance Research Pages: 97-115 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-8.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:97-115 Template-Type: ReDIF-Article 1.0 Author-Name: Lynda S. Livingston Title: EVALUATING ALTERNATIVE WEIGHTING SCHEMES FOR STOCKS IN A BEST IDEAS PORTFOLIO Abstract: As institutional investors have become more aggressive in deploying their capital, fund managers have become more creative with their product offerings. In this paper, we consider a new institutional fund of mutual funds, a portfolio that combines the best-idea stocks from two underlying primary funds. The sponsor of this portfolio has chosen to weight all of the stocks equally, even those chosen by both of the underlying funds’ managers. However, stocks chosen by both managers may be more likely to outperform. We propose an alternative weighting scheme, where these confirmed stocks are weighted more heavily. We show that this overweighting strategy leads to a higher expected portfolio return than does the equally weighted scheme used by the sponsor. Classification-JEL: G11, G23 Keywords: Funds-of-funds, Mutual Funds Journal: The International Journal of Business and Finance Research Pages: 117-136 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-9.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:117-136 Template-Type: ReDIF-Article 1.0 Author-Name: Giovanni Tria Author-Name: Giuseppe Galloppo Title: HOW DOES NATIONAL FOREIGN TRADE REACT TO THE EUROPEAN CENTRAL BANK’S POLICY? Abstract: This paper examines how external foreign trade reacts to the European Central Bank’s (ECB) Official Discount Rate, considering exports to the US and Japan in EU27 and in four European countries. Although many previous studies have measured the cointegration and causality among exchange rate, exports, and imports, to date, no research has considered these relationships while introducing monetary variables into the analysis. The objective of this article is to fill this gap in the literature. We use the bounds testing approach to cointegration and error-correction modelling to test relations between monetary policy, exports, and terms of trade, making the distinction between short and long-run effects possible. Our datasets include quarterly data on exports, imports, income, relative price, and the official ECB discount rate. The quarterly data starts from the first quarter of 1999 and ends in the last quarter of 2008. The results show that a long-run relationship exists between real exports, real foreign income, real bilateral cross rates and interest rates for a large part of these countries. Also long run parameter estimates are consistent with economic theory in most of the cases. More importantly the statistically significant error-correction term corroborates the results of the long-run parameter. Classification-JEL: G11 Keywords: Cointegration Analysis, Export, Central Bank Policy Journal: The International Journal of Business and Finance Research Pages: 137-151 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-10.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:137-151 Template-Type: ReDIF-Article 1.0 Author-Name: Eric Girard Author-Name: Trevor Reid Title: COST OF CARRY ON STEROIDS: APPLICATION TO OIL FUTURES PRICING Abstract: This paper develops an empirical cost of carry model with exogenously conditioned convenience yield. The approach is implemented using monthly prices of all futures contracts traded at the New York Mercantile Exchange between 1985 and 2006. Tests indicate that the model fits the data extremely well, much better than the unconditional model. Though the paper concentrates on oil, the approach can be used for any other commodity with well-developed futures markets. Classification-JEL: F3; G1; N2 Keywords: Multifactor Models; Futures Pricing; Cost of Carry Journal: The International Journal of Business and Finance Research Pages: 153-163 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-11.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:153-163 Template-Type: ReDIF-Article 1.0 Author-Name: Yen-Hsien Lee Title: THE IMPACT OF DEREGULATION ON STOCK MARKET EFFICIENCY Abstract: This study discusses the gradual shift of the Taiwanese government toward deregulation. Using the traditional variance ratio, nonparametric-based variance ratio tests and a rolling variance ratio test, this study examines the impact of liberalization on market efficiency in Taiwan. The results of the variance ratio test show that the deregulation of the activities of QFIIs is good for Taiwanese market efficiency during the first and third deregulations for foreign investors. Using a fixed-sized rolling window, this study shows that the policy of liberalization helps improve market efficiency, and disproves the weak form of the efficient markets hypothesis. The results of this study have practical implications for regulators wishing to attract international capital into their market in order to help improve market efficiency in emerging markets. Classification-JEL: C14, G14, G18 Keywords: variance ratio tests, rolling variance ratio test, foreign deregulation Journal: The International Journal of Business and Finance Research Pages: 165-176 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-12.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:165-176 Template-Type: ReDIF-Article 1.0 Author-Name: Meng-Fen Hsieh Author-Name: Tzu-Yi Yang Author-Name: Yu-Tai Yang Title: POSITIVE TRADING EFFECTS AND HERDING BEHAVIOR IN ASIAN MARKETS: EVIDENCE FROM MUTUAL FUNDS Abstract: Many studies on mutual funds have demonstrated the existence of herding behavior and positive feedback trading. However, most research has not examined the characteristics of herding behavior, but simply attempted to determine if herding behavior exists. These studies fail to probe into the actual causes behind herding behavior. The current study fills this gap in the literature. The study is based on the herding definition of Bikhchndani and Sarma (2001) and examines Asian country mutual funds with a six-year sample period. We examine if there are Buy high, sell low, Buy previous winners, sell previous losers, positive feedback trading, and herding behavior in global mutual funds. We also explore the possible factors behind these phenomena. Classification-JEL: G15 Keywords: Mutual fund, positive feedback effect, herding, financial crisis, behavioral finance Journal: The International Journal of Business and Finance Research Pages: 177-188 Volume:4 Issue: 2 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n2-2010/IJBFR-V4N2-2010-13.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:177-188