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Published Articles for Year 2011
Multinational Finance Journal, 2011, vol. 15, no. 1/2, pp. 1-46
Wing-Keung Wong , Hong Kong Baptist University, Hong Kong    Corresponding Author
Howard Thompson , University of Wisconsin-Madison, USA
Kweehong Teh , National University of Singapore, Singapore

Abstract:
After the September 11 attacks, several major newswires reported that there were insiders who tried to profiteer from the options market in anticipation of the event. We use the Student's t-statistics and several non-parametric statistics to test whether there was abnormal trading in S&P 500 (SPX) index options prior to the September 11 attacks. Our findings from the out-of-the-money (OTM), at-the-money (ATM) and in-the-money (ITM) SPX index put options and ITM SPX index call options lead us to reject the null hypothesis that there was no abnormal trading in these contracts prior to the September 11 attacks. We also find evidence consistent with three bearish speculation strategies, namely the Put Purchase strategy, the Put Bear Spread strategy, and the Naked ITM Call Write strategy. In addition, we conclude that there is evidence of abnormal trading in the September 2001 OTM, ATM and ITM SPX index put options immediately after the 9-11 attacks.

Keywords : 9-11 attacks; put options; call options; SPX index, Student?s t-statistics; non-parametric statistics
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Multinational Finance Journal, 2011, vol. 15, no. 1/2, pp. 47-85
Georges Dionne , HEC Montreal, Canada    Corresponding Author
Genevieve Gauthier , HEC Montreal, Canada
Nadia Ouertani , LEFA, ISCAE Manouba University, Tunisia
Nabil Tahani , York University, Canada

Abstract:
This paper proposes the use of analytical approximations to price an heterogeneous basket option combining commodity prices, foreign currencies and zero-coupon bonds. The performance of three moment matching approximations is examined: inverse gamma, Edgeworth expansion around the lognormal and Johnson family distributions. Since there is no closed-form formula for basket options, Monte Carlo simulations are carried out to generate the benchmark values. A simulation experiment on a set of options based on a random choice of parameters is performed. The results show that the Edgeworth-lognormal and Johnson distributions give the most accurate results.

Keywords : Basket Options; Options Pricing; Analytical Approximations; Monte Carlo Simulation
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Multinational Finance Journal, 2011, vol. 15, no. 1/2, pp. 87-124
Dimitrios D. Thomakos , University of Peloponnese, Greece Rimini Centre for Economic Analysis, Italy    Corresponding Author
Michail S. Koubouros , City College and University of Liverpool, UK

Abstract:
Using a newly developed dataset of daily, value-weighted market returns we construct and analyze the monthly realized volatility of the Athens Stock Exchange (A.S.E.) from 1985 to 2003. Our analysis focuses on the distributional and time series properties of the realized volatility series and on assessing the connection between realized volatility and returns through a multi-factor asset pricing model. In particular, we find strong evidence on the existence of a volatility feedback effect and a leverage effect, and on the existence of asymmetries between lagged returns and volatility. Furthermore, we examine the cross-sectional distribution of unconditional loadings on the realized risk factor(s) for different sets of characteristics-sorted common stock portfolios. We find that realized risk is a significantly priced factor in A.S.E. and its high explanatory power for the cross-section of portfolio average returns is independent of any return variation related to the market (CAPM) or size and book-to-market (Fama-French) factors. We discuss our findings in the context of the recent literature on realized volatility and feedback effects, as well as the literature on the pricing power of realized risk.

Keywords : realized volatility; leverage effect; volatility feedback effect; asset pricing; A.S.E
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 157-192
Kent Baker , American University, USA    Corresponding Author
Shantanu Dutta , University of Ontario Institute of Technology, Canada Samir Saadi
Samir Saadi , Queen's University, Canada

Abstract:
This study investigates the financial practices of Canadian firms involving capital budgeting, cost of capital estimation, capital structure, and real options. Survey respondents express a strong preference for net present value followed by internal rate of return and payback methods. The least popular capital budgeting technique is real options. Unlike their U.S. and European counterparts, Canadian firms rely more on subjective risk assessments in adjusting their discount rate. The use of subjective judgment by Canadian managers also applies to risk analysis, forecasting project cash flows, and estimating the cost of equity capital. This finding differs markedly from the widespread use of the capital asset pricing model by U.S. and European firms. In examining capital structure choice, the results show support for trade-off theory relative to pecking order theory. Finally, firm size and the education of the chief executive officer influence corporate finance decisions.

Keywords : Capital budgeting; cost of capital; risk analysis; real options
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Multinational Finance Journal, 2011, vol. 15, no. 1/2, pp. 125-156
Manolis G. Kavussanos , Athens University of Economics and Business, Greece    Corresponding Author
Ilias D. Visvikis , ALBA Graduate Business School, Greece

Abstract:
This paper investigates the short-run forecasting performance, in the relatively new and fairly unresearched futures market of Greece. Forecasts from univariate (ARIMA) and multivariate (VAR, VECM and SURE-VECM) linear time-series models indicate that cash returns can be more accurately forecasted, for all forecast horizons, when forecast specifications contain information from both lagged cash and futures returns, than from specifications that utilize information only from lagged cash returns. On the other hand, futures return forecasts are not enhanced in accuracy when lagged cash returns are employed for almost all forecasts. This verifies that at almost all forecasting horizons futures returns contain significantly more and different information than that embodied in current cash returns. Moreover, all time-series models generate more accurate cash and futures forecasts than the forecasts obtained by the random walk model.

Keywords : Cointegration; VECM and ARIMA Models; Forecasting; Futures Markets; Emerging Markets; Predictability
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 193-216
Lucy Chernykh , Bowling Green State University, USA    Corresponding Author
Alexandra K. Theodossiou , Texas A&M University, Corpus Christi, USA

Abstract:
We investigate the determinants of the banks' propensity to make long-term business loans in an emerging market context. Using a large sample of Russian banks, we find that the median bank allocates only 0.5% of its assets in long-term business loans and that there is wide cross-sectional variation in this ratio among banks. A bank's ability to extend long-term business loans depends on its size, capitalization, and the availability of long-term liabilities rather than its type of ownership. These results highlight the importance of bank-level (supply side) constraints in extending vital long-term credit to firms.

Keywords : emerging market banking; long-term business loans; Russia
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 217-234
Rafi Eldor , Interdisciplinary Center, Israel    Corresponding Author
Shmuel Hauser , Ono Acdemic College and Ben-Gurion University, Israel
Uzi Yaari , Rutgers University, USA

Abstract:
Margin requirements are designed to control the default risk inherent to commitments undertaken by traders writing options. Much like similar institutions, the Tel Aviv Stock Exchange first adopted a system based on the Standard Portfolio Analysis of Risk (SPAN), which sets required levels of options margin according to the most pessimistic of 16 possible outcomes. Seeking to lower the probability of default without adversely affecting liquidity, the Exchange switched in 2001 to a more detailed margin system based on the most pessimistic of 44 scenarios. This unique change provides an ideal laboratory for testing the impact of increased margining precision on the efficiency of option trading. Based on a sample of over 3 million transactions, this study demonstrates that the more accurate pricing of default risk over the studied range increases efficiency by a number of measures, including a smaller implied standard deviation and deviations from put-call parity.

Keywords : option margins; option default risk; market efficiency; SPAN system
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 235-272
Dimitrios Gounopoulos , University of Surrey, U.K.    Corresponding Author

Abstract:
This study examines the earnings forecast accuracy of newly listed companies on the Athens Stock Exchange and further investigates the relationship between earnings forecast and pricing of IPOs. It uses a unique data set of 208 IPOs, which were floated during the period of January 1994 to December 2001 in the Athens Stock Exchange. The results suggest that investors are able to anticipate forecast errors at the time of listing. Pricing of IPOs indicate that firms with negative earnings forecast (pessimistic) are associated with low level of underpricing while optimistic management earning forecast can be a signal for high initial returns. Three variables - age of the IPOs, ownership by insiders and industry classification significantly contribute towards accuracy of earnings forecast.

Keywords : earnings forecast; IPO; accuracy of earnings; forecast error
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Multinational Finance Journal, 2011, vol. 15, no. 3/4, pp. 273-296
Panayotis Alexakis , University of Athens, Greece    Corresponding Author
Ioannis Tsolas , National Technical University of Athens, Greece

Abstract:
This paper employs Data Envelopment Analysis to measure for the first time the performance of Greek domestic equity mutual funds over four different one-year horizons and for the whole four-year period. In particular, the model used examines whether fund managers employ inputs (i.e. assets, loads, and risk) efficiently to produce output (returns). The results demonstrate that the efficient funds form the smaller part of the examined sample of funds, the average efficiency rises over time, and that the mean-variance efficiency hypothesis holds for the inefficient funds over the whole period. Moreover, the evidence from the identified sources of inefficiency suggests that fund managers should put more emphasis on the management of assets and the specification of front-end and back-end loads.

Keywords : Mutual funds; equity funds; efficiency; data envelopment analysis
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