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Multinational Finance Journal, 2017, vol. 21, no. 3, pp. 133-175
Liviu Voinea , Bucharest University of Economic Studies, Romania
Ana-Maria Cazacu , National Bank of Romania, Romania    Corresponding Author
Florian Neagu , National Bank of Romania, Romania

Abstract:
This paper looks at the largest credit institutions from Central and East European countries to better understand the role of expatriates and of other top management team’s characteristics for banks’ risk profile, strategies and lending activity. The results find that credit institutions with expatriate chief executive officers or larger share of expatriates in the top management team are more risk-takers, as indicated by alternative measures of risk (loan-to-deposit ratio, share of risk weighted assets and provisions for loan losses in total assets). On the other hand, banks managed by expatriates and more interconnected with the parent financial institution or other related parties tend to deliver more credit to companies and households (as share in total assets).

Keywords : banks; expatriates; top management teams; risk; CEE countries
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Multinational Finance Journal, 2017, vol. 21, no. 2, pp. 91-132
Slim Mseddi , Al Imam Mohammad Ibn Saud Islamic University, Saidi Arabia
Noureddine Benlagha , Qatar University, Qatar    Corresponding Author

Abstract:
This paper features an application of Diebold and Yilmaz's (2009) spillover index model to assess the impact of the global financial crisis on spillovers between the bank sectors in terms of both returns and volatility time series. The spillover investigation is performed on daily return data for Islamic and conventional banks in the Gulf Cooperation Council countries for the period 2005-2015. We use a dynamic conditional multivariate GARCH to directly model the time varying spillover effects among the studied time series. This study finds a strong bidirectional returns spillover between conventional banks and a very weak spillover from Islamic banks to conventional banks, so the transmission of shocks from Islamic banks to conventional banks is reduced. It also finds that the dependence between stock returns in an Islamic bank market structure is more strongly affected by the financial crisis than in a conventional bank market. Moreover, the volatility linkage is highly affected by the crisis in an Islamic context than that in a conventional bank system. Finally, using the DCC-GARCH model this study shows a high persistence in the time series of correlation among all GCC countries, except Bahrain, indicating that a long-run average of the correlation can be pushed away by shocks for a very long period. The empirical results are expected to have potentially important implications for improving the process of selection and allocation for domestic and international portfolios.

Keywords : financial crisis; islamic banks; spillover index; dependence; multivariate GARCH
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Multinational Finance Journal, 2017, vol. 21, no. 4, pp. 247-283
Samit Paul , Indian Institute of Management Calcutta, India    Corresponding Author
Madhusudan Karmakar , Indian Institute of Management Lucknow, India

Abstract:
The purpose of this study is to estimate intraday Value-at-Risk (VaR) and Expected Shortfall (ES) of high frequency stock price indices taken from select markets of the world. The stylized properties indicate that the return series exhibit skewed and leptokurtic distributions, volatility clustering, periodicity of volatility and long memory process in volatility, all of which together suggest the usage of Component GARCH- EVT combined approach on periodicity adjusted return series to forecast accurate intraday VaR and ES. Hence we estimate intraday VaR and ES using Component GARCH-EVT combined approach with different innovation distributions such as normal, student-t and skewed student-t and compare its relative accuracy with the benchmark GARCH-EVT model with different distributions. The Component GARCH-EVT models in general perform better than GARCH-EVT models and the model with skewed student-t innovations forecasts more accurately. The study is useful for market participants involved in frequent intraday trading in such markets.

Keywords : deseasonalized; intraday; value at risk; expected shortfall; component GARCH; EVT
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Multinational Finance Journal, 2017, vol. 21, no. 1, pp. 1-20
Kenneth Högholm , Hanken School of Economics, Finland
Johan Knif , Hanken School of Economics, Finland    Corresponding Author
Gregory Koutmos , Fairfield University, USA
Seppo Pynnönen , University of Vaasa, Finland

Abstract:
The paper focuses on asymmetric fund performance by comparing performance characteristics of European and US large-cap mutual equity funds. The quantile approach applied enables the monitoring of fund performance across different conditional outcome scenarios. For the sample of 31 European and 35 US large-cap mutual equity funds the performance is found to be sensitive to the empirical estimation approach applied. Furthermore, the performance alphas exhibit asymmetry across the conditional return distribution. This asymmetric performance behavior might be utilized for the construction of a portfolio of funds with suitable hedge characteristics. A large part of the US individual funds significantly underperforms the benchmark, especially in the lower tail of the conditional distribution. A few of the European funds, on the other hand, exhibit significant and positive performance alphas in the lower tail of the conditional return distribution.

Keywords : asymmetric fund performance; european equity funds; US equity funds
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Multinational Finance Journal, 2017, vol. 21, no. 2, pp. 49-90
Prasenjit Chakrabarti , Indian Institute of Management Ranchi, India
Kiran Kumar Kotha , Indian Institute of Management Indore, India    Corresponding Author

Abstract:
This study investigates whether volatility demand information in the order flow of Indian Nifty index options impacts the magnitude of variance risk premium change. The study further examines whether the sign of variance risk premium change conveys information about realized volatility innovations. Volatility demand information is computed by the vega-weighted order imbalance. Volatility demand of options is classified into different categories of moneyness. The study presents evidence that volatility demand of options significantly impacts the variance risk premium change. Among the moneyness categories, volatility demand of the most expensive options significantly impacts variance risk premium change. The study also finds that positive (negative) sign of variance risk premium change conveys information about positive (negative) innovation in realized volatility.

Keywords : variance risk premium; volatility demand; model-free implied volatility; realized variance; options contract
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Multinational Finance Journal, 2017, vol. 21, no. 3, pp. 177-210
Maria Eleni Agoraki , Athens University of Economics and Business & Panteion University, Greece    Corresponding Author
Anastasios Tsamis , Panteion University, Greece

Abstract:
This paper investigates the effect of bank-specific, industry-specific and macroeconomic determinants, as well as the regulatory environment on the profitability of emerging European banking sector over the period 2000-2016. Banks in countries with higher capital requirements, market discipline and more restrictions on banking activities performed better, while the better-performing banks had excessive foreign ownership. Using dynamic frameworks, the empirical analysis reveals that performance is affected by bank-specific determinants like equity capital and bank size, while traditional activities lead to increased profitability. Obviously, the specific measures of economic policy must be oriented towards specific aspects of banking business. This is likely to set new standards in performance and efficiency, making bank management to address particular firm-specific issues, such as the composition of the balance sheet, the quality of the credit portfolio, as well as the range of financial products and services. Overall, our evidence shows that regulation, and balance sheets are all helpful in understanding bank profitability during the crisis.

Keywords : banking sector profitability; financial crisis; regulatory framework; emerging markets
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Multinational Finance Journal, 2017, vol. 21, no. 4, pp. 211-245
Yoon K. Choi , University of Central Florida, USA
Seung Hun Han , Korea Advanced Institute of Science and Technology, South Korea    Corresponding Author
Sangwon Lee , University of Houston, USA

Abstract:
We examine the extent of expropriation by controlling owners of business groups. Specifically, we investigate the investment behavior of Korean business groups’ (chaebols’) member firms with respect to cash flows of their own operations as well as other affiliated firms. We also explore the role of corporate governance in curtailing expropriation by investigating the impact of audit committees on investment/cash flow sensitivities. We find that high cash flow rights are associated with reducing overinvestment, while the investment sensitivity of chaebol firms to their own cash flows remains unaffected. By contrast, investments are significantly sensitive to cash flows of other affiliated firms in the business group with high cash flow rights. Furthermore, investment decisions appear to be more efficient among firms with audit committees than among those without. The results suggest that internal capital markets of chaebol firms are active and at least partly efficient in the post-Asian financial crisis period.

Keywords : investment; cash-flows; corporate governance; business groups
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Multinational Finance Journal, 2017, vol. 21, no. 1, pp. 21-48
Jyri Kinnunen , Hanken School of Economics, Finland    Corresponding Author
Minna Martikainen , Hanken School of Economics, Finland

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.

Keywords : autocorrelation; volatility; portfolio; international; emerging markets
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