Template-Type: ReDIF-Article 1.0 Author-Name: William J. Trainor Title: Volatility and Compounding Effects on Beta and Returns Abstract: Previous research indicates that long-term investors are not compensated for beta or volatility risk. This study shows these two results are at least partly due to the mathematics of compounding exacerbated in high volatility markets. Theoretical beta portfolios defined to perform exactly as the Capital Asset Pricing Model (CAPM) would predict on a monthly basis, show that high beta portfolios dramatically outperform in low volatility environments and underperform in high volatility environments. Empirically sorted beta portfolios confirm the results and show in a low volatility environment, high beta portfolios outperform low beta portfolios by 0.42% a month and underperform by 0.51% in high volatility environments. When combining the two market environments, the inevitable result shows no relationship between beta and return. Classification-JEL: G11 Keywords: Beta Compounding, Volatility Journal: The International Journal of Business and Finance Research Pages: 1-11 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-1.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:1-11 Template-Type: ReDIF-Article 1.0 Author-Name: Jan Bartholdy Author-Name: Cesario Mateus Author-Name: Dennis Olson Title: Do Small and Medium Sized Enterprises Match Their Assets and Liabilities? Evidence from Portugal Abstract: For small and medium-sized enterprises, various types of debt are not identical. There are specific costs and benefits associated with each funding source. We argue that the asset and liability sides of the balance sheet are interrelated. Specifically, we hypothesize that firms match specific assets with a specific set of liabilities. We test our theory using a unique sample of Portuguese firms for the years 1990-2000. Our data set identifies various short-term and long-term funding sources, as well as the uses of these funds to purchase various assets. Our results reject independence between the two sides of the balance sheet—suggesting that small and medium-sized firms in Portugal do indeed match specific assets with specific liabilities. The implication for financial theory is that each asset or project may have a different weighted average cost of capital. That is, there is no single weighted average cost of capital for a typical small to medium-sized firm. Classification-JEL: G32, M40 Keywords: Asset-Liability, SMEs, Capital Structure, Sources and Uses of Funds Journal: The International Journal of Business and Finance Research Pages: 13-31 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-2.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:13-31 Template-Type: ReDIF-Article 1.0 Author-Name: Jason West Title: Convenience Yields in Bulk Commodities: The Case of Thermal Coal Abstract: This study advances the research on the convenience yield of bulk commodities with particular emphasis on thermal coal. We extend the option model of Milonas and Thomadakis (1997) to estimate thermal coal convenience yields using forward prices. We examine the business cycle of thermal coal in the presence of both demand and supply shocks and find that the convenience yield for thermal coal exhibits seasonal behavior. Convenience yields are negatively related to the inventory level of thermal coal despite the inventory not being co-located at the point of consumption while convenience yields are positively related to interest rates due to the business cycle. Our estimates of convenience yields for a bulk commodity such as thermal coal is consistent with results for other commodities such as base metals and oil where spot prices are more volatile than forward prices at low inventory levels. The result implies that the costs of storage are generally less than the operating costs associated with changes to production capacity so thermal coal producers prefer to stockpile the commodity rather than adjust production in response to changes in demand. Classification-JEL: G14, Q41 Keywords: Commodities, Convenience Yield, Forward Markets, Thermal Coal, Storage, Options, Contango Journal: The International Journal of Business and Finance Research Pages: 33-44 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-3.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:33-44 Template-Type: ReDIF-Article 1.0 Author-Name: Gulser Meric Author-Name: Christine Lentz Author-Name: Wayne Smeltz Author-Name: Ilhan Meric Title: International Evidence on Market Linkages After the 2008 Stock Market Crash Abstract: The 2008 crash was the most important global stock market crash in history since the Great Depression. In this paper, we study the contemporaneous co-movements of and the time-series lead/lag linkages between global stock markets after the 2008 stock market crash by using the time-varying correlation analysis, principal components analysis (PCA), and Granger-causality (G-C) statistical techniques. We find that correlation between global stock markets has increased and the benefit of global portfolio diversification has decreased since the 2008 stock market crash. The PCA technique can group global stock markets in terms of the similarities in their contemporaneous movements. Global investors can maximize the portfolio diversification benefit by investing in stock markets with high factor loadings in different principal components. Our PCA results indicate that all Asian stock markets, except the Japanese stock market, are lumped together in one principal component and the stock markets in the rest of the world are lumped together in another principal component. Our G-C test results show that the U.S. stock market has substantial influence on the European and Australasian stock markets. U.S. stock returns lead the European and Australasian stock returns (i.e., the past returns of the U.S. stock market can predict the future returns of the European and Australasian stock markets). Classification-JEL: G11, G15 Keywords: 2008 Stock Market Crash, Global Stock Market Linkages, Global Portfolio Diversification, Time-Varying Correlation, Principal Components Analysis, Granger Causality Journal: The International Journal of Business and Finance Research Pages: 45-57 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-4.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:45-57 Template-Type: ReDIF-Article 1.0 Author-Name: Chia-Jung Tu Title: The Price Response to KIKKEI 225 Stocks Index Adjustments Abstract: Using Nikkei 225 Index adjustment data, this study examines price response to changes in index composition. This study demonstrates that prices of stocks added to and deleted from the Nikkei 225 Index respectively fluctuate accordingly on the announcement day. These price trends then reverse during the post-announcement period. The results are consistent with the price pressure hypothesis. By classifying the composite stocks into two categories, this study finds that small-scale stocks exhibit larger price responses than large-scale stocks. In addition, the results show that newly added stocks with upward revised earnings forecasts earn more abnormal returns during the post-announcement period. The results shed more light on the information content associated index adjustments in the Japanese stock market. Classification-JEL: G15, G32 Keywords: Nikkei 225 Index, price responses, earnings forecast revision Journal: The International Journal of Business and Finance Research Pages: 59-71 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-5.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:59-71 Template-Type: ReDIF-Article 1.0 Author-Name: Pedro Martinez Author-Name: Diego Prior Author-Name: Josep Rialp Title: The Price of Stocks in Latin American Financial Markets: En Empirical Application of the Ohlson Model Abstract: The emergence of the Latin American market and its growing importance attract global investors to this region with an eye on profit opportunities. This attraction demands a reliable instrument for the calculation of future stock prices of regional companies. This study examined the reliability and validity of the Ohlson Model to predict Latin American stock prices through an empirical application of a panel data analysis of 1,112 companies from this region with data from 2002 to 2009. The findings identified the countries in Latin America where the model can be used successfully. Classification-JEL: G12 Keywords: Ohlson Model, Latin American, Stock Prices Journal: The International Journal of Business and Finance Research Pages: 73-85 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-6.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:73-85 Template-Type: ReDIF-Article 1.0 Author-Name: Mei-Mei Kuo Author-Name: Shih-Wen Tai Author-Name: Bing-Huei Lin Title: Forecasting Term Structure of HIBOR Swap Rates Abstract: To investigate yield curve dynamics, researchers have employed a wide variety of models, including the famous Nelson-Siegel level, slope, and curvature factors, and principal components analysis, among others. In this paper, we decompose the term structure of HIBOR (Hong Kong Interbank Offered Rate) swap rates by means of the Nelson-Siegel factors and principal components analysis, and employ autoregressive and vector autoregressive for ex ante forecasting the yield curve by predicting the dynamic factors and components. We compare the results of a broadly empirical prediction with benchmark models such as random walk and yield levels. Further, we survey the predictability in the shape of the swap yield curve for these models. Our results appear to show that the Nelson-Siegel model with autoregressive process on factor changes is the most efficient model for forecasting HIBOR swap yields. Classification-JEL: E43, E47, C53 Keywords: Term Structure, Nelson-Siegel model, Principal Component Analysis, HIBOR Swap Rate Journal: The International Journal of Business and Finance Research Pages: 87-100 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-7.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:87-100 Template-Type: ReDIF-Article 1.0 Author-Name: Raoudha Bejaoui Author-Name: Houssam Bouzgarrou Title: Cost Efficiency of French Commerical Banks: Domestic Versus Foreign Banks Abstract: The present paper investigates efficiency levels of commercial domestic versus foreign banks in France between 2000 and 2007. Using Stochastic Frontier Analysis, we also shed light on the determinants of cost efficiency of 62 domestic and 40 foreign banks. Our results indicate that foreign banks exhibit higher cost efficiency than domestic banks. This finding contradicts previous empirical literature, concluding an advantage of cost efficiency for domestic banks in developed countries such as France (Berger et al. 2000). This suggests the decision to practice retail banking activities by domestic banks implies high fixed costs. Classification-JEL: G21, C23, D24 Keywords: Efficiency, Domestic Banks, Foreign Banks Journal: The International Journal of Business and Finance Research Pages: 101-112 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-8.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:101-112 Template-Type: ReDIF-Article 1.0 Author-Name: Gozde Unal Author-Name: Derya Korman Title: Analysis of Extreme Dependence Between Istanbul Stock Exchange and Oil Returns Abstract: In this study, the relationship between oil price movements and Turkish stock market is investigated. Given the fact that Turkey is an emerging and oil dependent country, we analyze how the stock market behaves together with the fluctuations in oil prices. The study focuses on extreme observations and uses bivariate extreme value methodology in order to analyze the dependence structure between oil and stock market (ISE100). The residuals of autoregressive integrated moving average (ARIMA) models of stock market index and Brent oil returns are examined by using bivariate extreme value analysis over the period between 1988 and 2011. The overall period studied is analyzed by subdividing the period into two phases. We observe a higher dependence in the second phase (2000-2011), compared to the first phase (1988-1999). Our results show that in the second phase the extremes on the negative tails coincide more commonly compared to the extremes on the positive tails, which is in line with the current literature findings. Our findings suggest diversification opportunities for portfolio managers, as extreme observations in Turkish stock market and oil are asymptotically independent. Classification-JEL: C46, C51, C53, F4 Keywords: Bivariate EVT, Stock Market Returns, Oil Prices, ISE Journal: The International Journal of Business and Finance Research Pages: 113-124 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-9.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:113-124 Template-Type: ReDIF-Article 1.0 Author-Name: Krishna M. Kasibhatla Title: Integration of Key Worldwide Money Market Interest Rates and the Federal Funds Rate: An Empirical Investigation Abstract: This study investigates whether there is an increased integration of U.S. domestic money market interest rates and the Eurodollar market interest rates following two important changes that the U.S Federal Reserve (the Fed) implemented. First, elimination of reserve requirements on Eurodollar bank deposits in the early 1990s. Second, change in the operating procedure for conducting monetary policy in early 1992 from borrowed reserves targeting to federal funds rate targeting. The money market interest rates are three and six month Eurodollar London Interbank Offered Rates (Libor), three and six month U.S. Treasury bill (T-bill) rates, and the effective federal funds rate. Cointegration and error-correction methodology of Johansen and Juselius (1990,1992) is employed for this empirical study. Results indicate that integration of the five interest rates increased following the two changes by the Fed. It is the effective fed funds rate and the three-month T-bill rate that participate in the adjustment process back to their equilibrium path following an external shock to the system. Granger causality tests produced different and somewhat conflicting results when the error-correction model is estimated with and without the federal funds rate in the system. This finding requires further study and investigation. Classification-JEL: G32, C58, E43, G15 Keywords: LIBOR, Unit Root, Cointegration, Granger Causality Journal: The International Journal of Business and Finance Research Pages: 125-138 Volume: 6 Issue: 4 Year: 2012 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v6n4-2012/IJBFR-V6N4-2012-10.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:125-138