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Published Articles for Year 2015
Multinational Finance Journal, 2015, vol. 19, no. 2, pp. 77-107 |
Robert Joliet , IESEG School of Management Lille-Paris, France
Aline Muller , HEC Management School of the University of Liège, Belgium    Corresponding Author

This study uses Hines’ (1996) dividend process model to test the effect of domestic versus foreign profitability shocks on firms’ dividend payout policy. Investigating an international sample of 283 companies from Continental Europe, Australia, New Zealand, the U.S.A. and Canada, we find that increases in some foreign market earnings stimulate higher cash distributions than similar increases in domestic earnings. The disaggregation of foreign performance across country-specific markets reveals that managers are predominantly using dividends to signal foreign profit movements that have been generated in emerging markets and Asian Pacific developed markets – while they do not feel compelled to send signals related to positive earnings news originating from other mature developed markets (i.e. North America and Western Europe). The findings also confirm the popular view that due to their higher variance and lower persistence, positive foreign profitability shocks coming from emerging markets are more difficult to integrate into stable dividend policies.

Keywords : disclosure; dividend policy; multinational firm; disaggregation; emerging markets
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Multinational Finance Journal, 2015, vol. 19, no. 1, pp. 33-75 |
Steve Fan , University of Wisconsin - Whitewater, USA    Corresponding Author
Scott Opsal , University of Wisconsin - Whitewater, USA
Linda Yu , University of Wisconsin - Whitewater, USA

In this study, we examine how idiosyncratic risk is correlated with a wide array of anomalies, including asset growth, book-to-market, investment-to-assets, momentum, net stock issues, size, and total accruals, in international equity markets. We use zero-cost trading strategy and multifactor models to show that these anomalies produce significant abnormal returns. The abnormal returns vary dramatically among different countries and between developed and emerging countries. We provide strong evidence to support the limits of arbitrage theory across countries by documenting a positive correlation between idiosyncratic risk and abnormal return. It suggests that the existence of these well-known anomalies is due to idiosyncratic risk. In addition, we find that idiosyncratic risk has less impact on abnormal return in developed countries than emerging countries. Our results support the mispricing explanation of the existence of various anomalies across global markets.

Keywords : anomalies; idiosyncratic risk; international equity markets; limits of arbitrage
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Multinational Finance Journal, 2015, vol. 19, no. 1, pp. 1-31 |
Nicky J. Ferguson , University of Cambridge, UK
Dennis Philip , Durham University Business School, UK    Corresponding Author
Herbert Y. T. Lam , Renmin University of China, China
Jie Michael Guo , Durham University Business School, UK

This paper examines whether tone (positive and negative) and volume of firm-specific news media content provide valuable information about future stock returns, using UK news media data from 1981–2010. The results indicate that both tone and volume of news media content significantly predict next period abnormal returns, with the impact of volume more pronounced than tone. Additionally, the predictive power of tone is found to be stronger among lower visibility firms. Further, the paper finds evidence of an attention-grabbing effect for firm-specific news stories with high media coverage, mainly seen among larger firms. A simple news-based trading strategy produces statistically significant risk-adjusted returns of 14.2 to 19 basis points in the period 2003–2010. At the aggregate level, price pressure induced by semantics in news stories is corrected only in part by subsequent reversals. Overall, the findings suggest firm-specific news media content incorporates valuable information that predicts asset returns.

Keywords : news media content; stock returns; textual analysis; news-based trading strategy
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Multinational Finance Journal, 2015, vol. 19, no. 3, pp. 169-221 |
Lorne Switzer , Concordia University, Canada    Corresponding Author
Alan Picard , Concordia University, Canada

This paper re-examines the link between idiosyncratic risk and expected returns for a large sample of firms in both developed and emerging markets. Recent studies using Fama-French three-factor models have shown a negative relationship between idiosyncratic volatility and expected returns for developed markets. This relationship has not been studied to date for emerging markets. This study relates the current-month’s idiosyncratic volatility to the subsequent month’s stock returns for a sample of both developed and emerging markets expanding benchmark factors by including both a momentum and a systematic liquidity risk component. Using a five-factor model, the results suggest that idiosyncratic risk does not play a role on stock returns for most of the developed markets analyzed. In contrast, the paper shows, for the first time, that idiosyncratic risk is positively related to month-ahead expected returns for many emerging markets for this model.

Keywords : idiosyncratic volatility; expected returns; developed vs. emerging markets; asset pricing; multifactor models
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Multinational Finance Journal, 2015, vol. 19, no. 2, pp. 109-147 |
Eleftherios Angelopoulos , University of Patras, Greece    Corresponding Author
Antonios Georgopoulos , University of Patras, Greece

This study examines the performance of retail banking focusing on the link between shareholder value creation and operational value drivers. A unique panel data set is used, derived from the monthly Profit and Loss statements of a branch network of a very large commercial bank operating in the Greek oligopolistic financial system for the period 2006–2010. Taking into account the existence of important trade-offs between most factors of shareholder value, the value effects of the recent Greek crisis primarily characterized by the sovereign debt factor are systematically incorporated in the analysis. The results show that the crisis reverses the generally positive value effect of income diversification and reduces the value premium of lending spreads. Moreover, the crisis significantly intensifies the value premium of efficient cost management, whilst simultaneously accelerating the value destruction causing by credit risk. The findings have important managerial implications for bank managers and policymakers.

Keywords : retail banking performance; shareholder value drivers; residual income approach; greek crisis
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Multinational Finance Journal, 2015, vol. 19, no. 4, pp. 267-313 |
Graham Bornholt , Griffith University, Australia
Paul Dou , Monash University, Australia
Mirela Malin , Griffith University, Australia    Corresponding Author

We investigate the role of trading volume in predicting the magnitude and persistence of the price momentum phenomenon in markets around the world. Using comprehensive data for 38,273 stocks from 37 countries, we show that past trading volume relates to both the level and persistence of momentum profits. The volume-based early stage momentum strategy outperforms the traditional momentum strategy in 34 out of 37 countries. In addition, we find evidence of a volume effect and we show that the degree of individualism in a country can explain the size of the volume effect in the markets investigated in this paper.

Keywords : early stage momentum; national culture; volume effect; turnover; individualism
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Multinational Finance Journal, 2015, vol. 19, no. 3, pp. 149-168 |
Yakov Amihud , NYU-Stern, USA    Corresponding Author
Haim Mendelson , Stanford University, USA

This paper reviews research on the effects of different measures of liquidity on asset prices. The foundation is the pricing of liquidity as an asset characteristic that began with the theoretical model and empirical evidence of Amihud and Mendelson (1986). The positive relation between expected returns on financial assets and the illiquidity of these assets has since been reconfirmed both in the U.S. and worldwide. The positive relation between illiquidity and expected return gives rise to research on the effect of liquidity-related systematic risk. Two types of such risk are shown to be priced: exposure to shocks in market liquidity and exposure to the market illiquidity return premium. The pricing of these risks is stronger in times of greater funding illiquidity and economic stress.

Keywords : liquidity; asset pricing; system risk; Amihud measure
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Multinational Finance Journal, 2015, vol. 19, no. 4, pp. 223-266 |
Panayiotis Theodossiou , Cyprus University of Technology, Cyprus    Corresponding Author

This article provides a mathematical and empirical investigation of the reasons for the presence of skewness and kurtosis in financial data. The results indicate that this phenomenon is triggered by higher-order moment dependencies in the data, such as asymmetric and conditional volatility. Moreover, the article develops and tests successfully a skewed extension of the generalized error distribution (SGED), which is then used to model European call option prices. Under the standard assumptions of risk neutrality, normality of log-returns, and absence of arbitrage opportunities, the SGED model yields as special cases several well-known models for pricing options on stocks, stock indices, currencies, and currency futures.

Keywords : asymmetric volatility; call option pricing; conditional heteroskedasticity; geometric Brownian motion; skewed GED
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