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Published Articles for Year 2020
Multinational Finance Journal, 2020, vol. 24, no. 3/4, pp. 211-266
Sakshi Saini , Institute of Economic Growth, India    Corresponding Author
Sanjay Sehgal , University of Delhi, India
Florent Deisting , Groupe ESC Pau, France

This paper analyses the interaction of monetary policy (both domestic and global), risk aversion and uncertainty for a set of advanced and emerging economies in vector autoregressive (VAR) framework. Variance risk premium (VRP) is used as a measure of risk aversion and computed as the difference between the risk-neutral and the physical expectation of the return variance. VRP is positive on average for all economies and exhibits significant inter-temporal variation. Results reveal that expansionary monetary policy leads to a short-term increase in risk aversion and a decrease in uncertainty. Central banks respond by reducing the policy rate in response to risk aversion and uncertainty shocks. Both risk aversion and uncertainty exhibit a higher magnitude of response to domestic as compared to the global monetary policy shocks. Further, we find that risk aversion positively affects risk premium and thus, considerably explains variations in excess returns in the market.

Keywords : monetary policy; risk aversion; uncertainty; variance risk premium; structural VAR; panel VAR
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Multinational Finance Journal, 2020, vol. 24, no. 3/4, pp. 183-209
Carmen Cotei , University of Hartford, USA    Corresponding Author
Joseph Farhat , Central Connecticut State University, USA

In this paper we analyze which factors explain the M&A exit outcome of high-technology startups using the confidential version of the Kauffman Firm Survey data. Our findings reveal that innovation activity is the most important factor in explaining the M&A exit outcome which indicates that acquirers value the growth potential signaled through intellectual property rights, research and development activity and therefore, businesses with high quality innovations are the most attractive targets for acquisitions. We also show that new, high-tech ventures owned by highly educated entrepreneurs are more likely to exit via M&A. These owners have better access to financial and social capital, which positively impacts the entrepreneur’s ability to create a business that is harvestable and increases the chance that the business will, indeed, be harvested.

Keywords : mergers and acquisitions; entrepreneurial exit; innovation; technology-based startups
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Multinational Finance Journal, 2020, vol. 24, no. 3/4, pp. 155-182
Vishaal Baulkaran , University of Lethbridge, Canada    Corresponding Author
Nathaniel C. Lupton , San Jose State University, USA

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.

Keywords : FDI; expropriation; shareholder rights; multinational firms
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Multinational Finance Journal, 2020, vol. 24, no. 1/2, pp. 1-37
Sean Lu , QMA LLC, USA    Corresponding Author
Cindy Lu , Stanford University, USA

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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Multinational Finance Journal, 2020, vol. 24, no. 1/2, pp. 93-117
Osamah Alkhazali , American University of Sharjah, UAE    Corresponding Author

Using the Pettengill et al. (1995) asset pricing model, this paper examines the relationship between conditional beta and returns in 12 emerging stock markets over the period of 2005 to 2017. In applying weekly and monthly data, the evidence shows that there is a flat relationship between beta and returns using the unconditional CAPM. However, the opposite is true when applying the Pettengill et al. (1995) model. The findings indicate that the relationship between beta and returns is positive in a bullish market and negative in a bearish market. In addition, the results support the conditional CAPM for all months of the year. Finally, the results show that market excess returns are positive and the risk-return relationship is symmetrical in both bullish and bearish markets. We conclude that beta is still a valuable risk measure, which helps portfolio managers in emerging markets make optimal investment decisions.

Keywords : CAPM; Beta; MENA stock markets; emerging markets
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Multinational Finance Journal, 2020, vol. 24, no. 1/2, pp. 39-64
Gualter Couto , University of Azores, Portugal    Corresponding Author
Pedro Pimentel , University of Azores, Portugal
Ana Cunha , University of Azores, Portugal

The equity risk premium is key for the cost of capital and a crucial tool to guide investment decisions. In the literature, an ex-post approach is widely used to estimate equity risk premium investor's future claims. In this paper, Merton's framework (1980) is applied to the Eurozone, USA, and Asia, using historical data for the period between 2002 and 2015. The expected equity risk premium will be calculated in the context of the financial crisis that started in 2008 and will be testing the reward-to-risk ratio non-negativity constraint. For all three economic areas, empirical analyses suggest investors' aggregate risk preferences that are stable for measurable periods. The authors subscribe to a direct connection between the time under analysis and the accuracy of equity risk premium estimates. At best, it is expected that equity risk premium for the Eurozone, USA, and Asia stand at 5.04%, 4.91%, and 7.75%, respectively.

Keywords : equity; risk; premium; preferences; volatility
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Multinational Finance Journal, 2020, vol. 24, no. 1/2, pp. 65-91
Dimitrios G Giantsios , University of Macedonia, Greece
Athanasios G. Noulas , University of Macedonia, Greece    Corresponding Author

This article employs a flexible stochastic frontier to estimate revenue efficiency and efficiency convergence for 22 European Union insurance markets during the financial crisis and after. It also looks 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.

Keywords : revenue efficiency; β-convergence; σ-convergence; European life insurance industry; stochastic frontier
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Multinational Finance Journal, 2020, vol. 24, no. 3/4, pp. 119-154
Haim Kedar-Levy , Ben Gurion University of the Negev, Israel    Corresponding Author
Elroi Hadad , Shamoon Collage of Engineering (SCE), Israel
Gitit Gur-Gershgoren , Ono Academic College, Israel

The discount rate reporting entities apply for future employee benefits obligations has a profound impact on their present value, both at the firm and at the country level. The IAS-19 accounting standard requires the existence of a ‘deep market’ in high-quality corporate bonds in order to use their yields as the discount rate, and in its absence, the often-lower government bond yields should be used. From a financial economics perspective, the term ‘deep market’ is vaguely defined in IAS-19, therefore we propose a dual approach. First, from the macro-economic perspective, we explore funding liquidity, and second, from the micro-economic perspective, we measure the illiquidity premium in high-quality corporate bonds. We argue that both aspects are essential because they are inter-connected. Our approach is tested empirically on a sample of 32 countries, with detailed analysis of the Israeli market as a case in point.

Keywords : IAS-19; deep market; employee benefits; market liquidity; funding liquidity
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