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Vishaal Baulkaran , University of Lethbridge    Corresponding Author
Nathaniel C. Lupton , San Jose State University

Abstract:
We examine the impact of shareholder rights protection on U.S multinational firms’ Foreign Direct Investments (FDI). We hypothesize that the expropriation of wealth is less likely to occur in countries with strong shareholder rights and hence, these countries will attract more FDI relative to countries with weaker shareholder rights protection. We also hypothesize that this relationship will be more important for developing countries compared to developed countries. Based on an analysis of US FDI data over the period 1997-2016, we find support for our predictions. These findings emphasize the importance of institutional development for economic development, via the attraction of FDI.

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Vishaal Baulkaran , University of Lethbridge    Corresponding Author
Nathaniel C. Lupton , San Jose State University

Abstract:
We examine the impact of shareholder rights protection on U.S multinational firms’ Foreign Direct Investments (FDI). We hypothesize that the expropriation of wealth is less likely to occur in countries with strong shareholder rights and hence, these countries will attract more FDI relative to countries with weaker shareholder rights protection. We also hypothesize that this relationship will be more important for developing countries compared to developed countries. Based on an analysis of US FDI data over the period 1997-2016, we find support for our predictions. These findings emphasize the importance of institutional development for economic development, via the attraction of FDI.

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Vishaal Baulkaran , University of Lethbridge    Corresponding Author
Nathaniel C. Lupton , San Jose State University

Abstract:
We examine the impact of shareholder rights protection on U.S multinational firms’ Foreign Direct Investments (FDI). We hypothesize that the expropriation of wealth is less likely to occur in countries with strong shareholder rights and hence, these countries will attract more FDI relative to countries with weaker shareholder rights protection. We also hypothesize that this relationship will be more important for developing countries compared to developed countries. Based on an analysis of US FDI data over the period 1997-2016, we find support for our predictions. These findings emphasize the importance of institutional development for economic development, via the attraction of FDI.

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Vishaal Baulkaran , University of Lethbridge    Corresponding Author
Nathaniel C. Lupton , San Jose State University

Abstract:
We examine the impact of shareholder rights protection on U.S multinational firms’ Foreign Direct Investments (FDI). We hypothesize that the expropriation of wealth is less likely to occur in countries with strong shareholder rights and hence, these countries will attract more FDI relative to countries with weaker shareholder rights protection. We also hypothesize that this relationship will be more important for developing countries compared to developed countries. Based on an analysis of US FDI data over the period 1997-2016, we find support for our predictions. These findings emphasize the importance of institutional development for economic development, via the attraction of FDI.

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Roberto Wessels , University of Groningen    Corresponding Author
Tom j. Wansbeek , University of Groningen
Lammertjan Dam , University of Groningen

Abstract:
We present a model to test the null hypothesis that firms organize their corporate governance arrangements optimally given the constraints they face. Following the literature, the model rejects the null if the conditional correlation between governance and performance is significantly different from zero. Our model provides a clean test of this hypothesis by controlling for measurement errors in all observed variables and avoiding simultaneous equation biases by casting our model as a reduced-form bivariate equation. We model governance, performance and the constraints on the firm’s investment decisions as latent variables. Our estimate of the conditional correlation between our measures of governance and performance is statistically speaking equal to zero, which therefore provides empirical support for the in-equilibrium view proposed by Demsetz (1983), of corporate governance arrangements.

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Exarsis? Business Solutions , My Primary Institution    Corresponding Author

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Fanos Theodosiou , University of Leicester    Corresponding Author
Fanos2 Theodosiou2 , Univeristy of Nicosia
Fanos3 Theodosiou3 , University of Leicester    Corresponding Author

Abstract:
Private equity is subject to public debate regarding its impact on economies. While several' papers have documented the effects of private equity on a firm level, the effects of private equity on an industry level is hardly addressed. This paper analyzes the influence of private equity on industry performance across twelve European countries. We find that the relative investment level of private equity positively influences the industries’ productivity, operating income, number of employees and average wage level. Causality tests show that the relative level of private equity investments causes the changes in the industries and not vice-versa.

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Exarsis Business Solutions , My Primary Institution    Corresponding Author

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Exarsis Business Solutions , My Primary Institution    Corresponding Author

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Exarsis Business Solutions , My Primary Institution    Corresponding Author

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Exarsis Business Solutions , My Primary Institution    Corresponding Author

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Exarsis Business Solutions , My Primary Institution    Corresponding Author

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Exarsis Business Solutions , My Primary Institution    Corresponding Author
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Fanos Theodosiou , University of Leicester    Corresponding Author

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Exarsis Business Solutions , My Primary Institution    Corresponding Author

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Fanos Theodosiou , University of Leicester    Corresponding Author

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Kelly Burns , RMIT University    Corresponding Author

Abstract:
This study revisits the Meese and Rogoff (1983) puzzle by estimating the traditional monetary models of exchange rate determination in state-space form, and comparing the accuracy of these forecasts against the naïve random walk model using a wide range of conventional and alternative measures of forecasting accuracy. The results demonstrate that incorporating stochastic movements in the parameters of exchange rate models does not enable the Meese-Rogoff puzzle to be overturned. However, estimating these models in state-space form substantially improves forecasting accuracy to the extent that the model and random walk produce an equivalent magnitude of error. Furthermore, the results prove that the Meese-Rogoff puzzle can be overturned if the forecasts are evaluated by alternative criteria. These criteria include direction accuracy, profitability and measures that jointly take into account both magnitude and direction accuracy.

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Exarsis Business Solutionswwsw , My Primary Institution    Corresponding Author

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Exarsis Business Solutions , My Primary Institution    Corresponding Author

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Abdulilah Ibrahim Alsheikhmubarak , Royal Holloway, University of London    Corresponding Author
Evangelos Giouvris , Royal Holloway, University of London

Abstract:
Modelling the volatility (or kurtosis) of the implied volatility is an important aspect of financial markets when analysing market consensus and risk strategies. The purpose of this study is to evaluate the ability of symmetric and asymmetric GARCH systems to model the volatility of the FTSE 100 Implied Volatility Index (IV). We use GARCH, EGARCH, GJR-GARCH and GARCH-MIDAS to model variance. We also introduce FTSE 100 returns and several macroeconomic variables (UK industrial production, 3M LIBOR, GBP effective exchange rate and unemployment rate) to investigate whether they explain variance. Our results show that market returns is a major explanatory factor besides macroeconomic variables. Also, GARCH (1,1) outperforms other asymmetric models unless there is exceptionally high volatility such as the crisis of 2008 in which case EGARCH performs better. GJR-GARCH is outperformed by all other models. GARCH-MIDAS shows that both macroeconomic variables and market returns are useful when estimating IV.

Keywords : FTSE 100 implied volatility index (IV); GARCH; EGARCH; GJR-GARCH; GARCH-MIDAS; FTSE 100 index returns; macroeconomic variables
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Fatima Faruqi , Air University
Tanveer Ahsan , Rennes School of Business    Corresponding Author
Sultan Sikandar Mirza , Zhejiang Gongshang University
Rao Rehman , University of Engineering and Technology

Abstract:
The study investigates the impact of corporate governance on bank performance and mediating role of cash-flows between corporate governance and bank performance in developed and developing countries. Data for the period 2006-2015 for 30 commercial banks from 5 countries (Australia, Bangladesh, Malaysia, Pakistan, and USA) has been collected and GMM-system has been applied to find out the direct impact of corporate governance and cash-flows on bank performance. Further, structural equation modelling has been applied to investigate the mediating role of cash-flows between corporate governance and bank performance. The results explain that the impact of corporate governance on bank performance is more significant in developed countries as compared to developing countries. Further, the results explain that investing cashflows mediates the relationship between board meetings and bank performance in developed countries while in developing countries financing cash-flows mediates the relationship between bank performance and different dimensions of corporate governance.

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Slim Mseddi , Al Imam Mohammad Ibn Saud Islamic University
Noureddine Benlagha , Qatar University    Corresponding Author

Abstract:
Recent global financial crisis have seriously affected the conventional banking system in the whole of the world, and has induced a series of failure of many banks and led to an increased interest in the Islamic banking system. The resilience of banks to crisis may be reflected by the behavior of stock bank returns during (short run) and after the crisis (long run). In this particular context, we focus on dependence and spillover effects between Islamic and conventional stock banks returns in GCC countries. We use daily return data for Islamic and conventional banks for the Gulf Cooperation Council countries for the period 2005-2015 to analyze the behavior of volatility through time. We are particularly interested in understanding whether periods of high volatility are correlated across banks. The analysis uses univariate and multivariate GARCH volatility models, especially Dynamic Conditional Correlation, which is compared to Diebold and Yilmaz’s methodology.

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Jyri Kinnunen , Hanken School of Economics    Corresponding Author
Minna Martikainen , Hanken School of Economics

Abstract:
We explore the relevance of dynamic autocorrelation in modeling expected returns and allocating funds between developed and emerging stock markets. Using stock market data for the US and Latin America, we find that autocorrelation in monthly returns vary with conditional volatility, implying some investors implement feedback trading strategies. Dynamic autocorrelation models fit the data considerably better than a conditional version of the zero-beta CAPM, while differences between models with an autoregressive term are modest. Investors can improve their portfolio optimization between developed and emerging stock markets by considering time-varying autocorrelation. The most drastic difference in portfolio performance is not due to allowing autocorrelation to vary over time, but realizing that stock returns are autocorrelated, especially in emerging stock markets.

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Lan Thi Phuong Nguyen , Multinational University    Corresponding Author
Cheng Ming Yu , Universiti Tunku Abdul Rahman (UTAR),
Malick Osmane Sy , Royal Melbourne Institute of Technology (RMIT)
Sayed Hossain , Adjunct, Cedar Valley College,
Chen Booi Tan , Multimedia University

Abstract:
This study aims to confirm whether funds of hedge funds (FOFs) truly offer better diversification benefits to investors. Data from three Eureka Hedge Inc.'s databases for North American, European, Asia- Pacific, and funds of hedge funds are employed for a period of 1st January 2008 and 30th April 2016. Only FOFs and other hedge funds with long/short and multi-strategy strategies are selected for this study due to their dominance in the hedge fund industry. Mean-variance optimization method is employed to construct replicating portfolios of long/short equity and multi-strategy hedge funds investing in global as well as in Asia-Pacific, European, and North-American markets. The performance of these portfolios are then compared with the actual FOFs with similar strategies and geographical markets. This study concludes that FOFs do not offer superior diversification benefits to hedge fund investors; and that an efficient portfolio of hedge funds may be still a better alternative.

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Shu Ling Chiang , National Kaohsiung Normal University
Ming Shann Tsai , National University of Kaohsiung    Corresponding Author

Abstract:
After undergoing several financial crises, many countries have required that each bank obeys strict financial regulations. The general purpose of these financial regulations is to require bank’s default probability lower than a specific official default rate. Thus, when pricing a fair deposit insurance (DI) premium for banks obeying these financial regulations, the official default rate should be incorporated into the valuation model. In this paper, we present a valuation formula for DI premiums based on this premise. Moreover, we discuss a bank’s optimal investment based on the efficient frontier. Doing so can avoid probable inaccurate estimation of DI premiums caused by using market equity data. We use data from Taiwanese commercial banks to illustrate the application of our model. The empirical evidence clearly shows that the DI premium for banks that obey the financial regulations is lower than the premium estimated by the traditional model. According to the results, we suggest that the DI premium should be lower for banks that fully obey the financial supervisory regulations and do an excellent job in keeping their risks low. Doing so should be able to incentivize these banks to decrease their likelihood of default by strictly implementing the financial regulations, thus stabilizing the financial environment.

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Abdul Rahman Khokhar , Saint Mary’s University, Canada

Abstract:
This study empirically compares the working capital investment of Canadian and U.S. industrial firms and finds that Canadian firms invest less in working capital compared to their U.S. counterparts. Matched samples of 8627 firm-year observations each from Canada and the U.S. are utilized covering the period 1988 to 2016. Compared to their U.S. counterparts, Canadian firms have a significantly lower cash conversion cycle, non-cash working capital to asset ratio and non-cash working capital to sales ratio. The difference in working capital investment is robust to variety of firm, industry and country controls as well as to year and industry fixed effects. Finally, we investigate the determinants of the lower investment in working capital by Canadian firms and find that working capital investment is positively associated with short-term interest rates and negatively associated with multinational operations.

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Sean Lu , QMA    Corresponding Author
Cindy Lu , Stanford University

Abstract:
We propose a new way of constructing an idiosyncratic momentum factor using the common style factors from the Barra risk model. Our method removes the limitation in the conventional approach of constructing idiosyncratic momentum using Fama-French model factors, and allows us to build an effective idiosyncratic momentum factor for a wide variety of international markets, particularly emerging markets, where the Fama-French model is not available. Also, we examine the properties and the performance of this new factor by applying it to China's stock market. Our analysis shows that the idiosyncratic momentum factor constructed here carries an resemblance to the conventional price momentum factor, but with much lower variance and exposure to the common market factors, such as value, size, and volatility. In the long-short portfolio test for both China's A-Share IMI and CSI 500 indices, we observe the significant improvement of this factor's return over the conventional momentum. The performance results strongly suggest that, compared with the traditional momentum, the idiosyncratic momentum factor is more reliable and possesses higher predictive power for future stock returns. This factor is a good candidate to replace the traditional price momentum factor when developing an effective momentum strategy for investing in China's stock market.

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George Athanassakos , University of Western Ontario    Corresponding Author
Vasiliki Athanasakou , London School of Economics

Abstract:
The purpose of this paper is to examine whether earnings quality contributes to the book-to-market’s predictive power in the cross section of stock returns. Earnings quality is embedded in the value-growth effect given that retained earnings is a key part of the book value of equity. Earnings quality reflects the effects of managerial discretion on reported earnings, which has been shown to be associated with both risk and behavioral biases in asset pricing. Our results affirm the existence of a value premium and show that the value premium is more pronounced within poor earnings quality stocks. Moreover, we find that poor earnings quality contributes to the value premium mainly through the pricing of growth stocks. Our results suggest that the quality of reported earnings has an incremental role in shaping expected returns of value versus growth stocks.

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Sean Lu , Quantitative Management Associates, USA    Corresponding Author
Cindy Lu , Stanford University, USA

Abstract:
A new approach of constructing an idiosyncratic momentum using common style factors from the Barra risk model has been proposed. The method removes the limitation in the conventional approach of constructing idiosyncratic momentum using Fama-French factors, and allows to build more effective idiosyncratic momentum factor for a wide variety of international markets where the Fama-French model is not available. The performance results indicate that the idiosyncratic momentum factor carries a resemblance to the conventional price momentum, but with much lower variance and exposure to the common market factors, such as value, size, and volatility. The long-short portfolio test for both China's A-Share IMI and CSI 500 indices in the Chinese equity market demonstrates the significant improvement of this factor's return over the conventional momentum. The results strongly suggest the idiosyncratic momentum factor could be used as an effective momentum strategy for investing in China's stock market.

Keywords : stocks; price momentum; idiosyncratic momentum; risk model; regression
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Dimitrios G Giantsios , University of Macedonia
Athanasios G. Noulas , University of Macedonia    Corresponding Author

Abstract:
We employ a flexible stochastic frontier to estimate revenue efficiency and efficiency convergence for 22 European Union insurance markets during the financial crisis and after. We also look at firm-specific factors that might affect inefficiency. Revenue efficiency falls with the beginning of the financial crisis but remains relatively stable over the examined period. The average revenue efficiency is found to be 57.4% indicating a 42.6% possible increase in revenue efficiency on average. The results on the issue of convergence are mixed; β-convergence has taken place but not σ-convergence. In fact, σ-divergence occurred during the financial crisis period. Size and diversification seem to negatively affect efficiency.

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Iñaki Rodríguez Longarela , Stockholm University    Corresponding Author
Geir Høidal Bjønnes , BI Norwegian Business School

Abstract:
For many countries, information in FX markets about the fundamentals of their economies is reduced to two relevant and competing channels, namely, their currency's exchange rate with either the euro or the US dollar. In light of this, this paper presents an analysis which can help establishing which one of these two currency numeraires drives the price discovery process and what market microstructure factors determine their informational contribution. Using EBS benchmark exchange rates, we find that the USD dollar is an informationally dominant currency when it comes to the Japanese economy but that such prominence is clearly contested when the two currencies are matched with the Swiss franc. Although price discovery appears to positively correlate with the bid-ask spread, two-stage regressions present no evidence of a causal impact of liquidity. Furthermore, we provide evidence suggesting that managed exchange rates may affect the price discovery of their targets.

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John Garcia , California Lutheran University    Corresponding Author

Abstract:
This research examines the impact of divergent investor sentiment derived from tweets and news media content on a firm's share liquidity. The study analyzes a sample of 1,945 publicly traded US firms from January 2015 to April 2021. Utilizing daily Amihud illiquidity, bid-ask spread, and share turnover as liquidity proxies, the study’s results reveal a positive relationship between divergent sentiment and share liquidity. Interestingly, this effect was found to be more potent during the COVID-19 pandemic period. Moreover, the study presents mixed evidence suggesting that the effect of divergent sentiment on share liquidity is heightened during periods of increased investor attention. This study contributes to our understanding of how investor sentiment influences financial markets, particularly by highlighting the role of sentiment divergence in shaping share liquidity.

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Iordanis Karagiannidis , The Citadel    Corresponding Author
G. Geoffrey Booth , Michigan State University

Abstract:
Abstract: The Secured Overnight Financing Rate (SOFR), defined by the U.S. Alternative Reference Rates Committee (ARRC) and now used by the U.S. Federal Reserve instead of the London Interbank Offer Rate (LIBOR) because of a loss of faith in its veracity, has clear and strong historical roots. Its calculation is closely related to that of the florin-denaro daily exchange rate that the Arte del Cambio (moneychangers guild) developed and implemented in the Repubblica Fiorentine (Florence) city-state located in what is now Italy from 1252 to 1532. This paper explores the how SOFR is defined and calculated by the U.S. Federal Reserve and its economic and mathematical relationship to what has become known as the Florin Fix, i.e., the calculation of Florences’ exchange rate between its gold florin and silver billon denari.

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