HKUST Institutional Repository
(5.015 recursos)
Repository of Hong Kong University of Science and Technology. Managed by the HKUST Library.
Mostrando recursos 1 - 16 de 16
1.
The investment opportunity set and its proxy variables : theory and evidence - Adam, Tim R.; Goyal, Vidhan K.
We use a real options approach to evaluate the performance of proxy variables for a firm's investment opportunity set. The results show that the market-to-book assets ratio is the best variable to proxy for investment opportunities. It has the highest information content with respect to investment opportunities and it is least affected by other factors. Although both the market-to-book equity and the earnings-price ratios are related to investment opportunities, they do not contain information that is not already contained in the market-to-book assets ratio. Consistent with this finding, a common factor constructed from several proxy variables does not improve the...
2.
Market discipline of bank risk : evidence from subordinated debt contracts - Goyal, Vidhan K.
Do bank debtholders discipline excessive risk taking? I investigate this question by examining how a bank's incentives to take risks affect offering yield spreads and restrictive covenants in their debt contracts. Results suggest that bank charter values, which determine a bank's risk taking incentives, significantly affect the likelihood of restrictive covenants in bank debt contracts. This effect is most pronounced during the 1980s, when greater competition and relatively less stringent regulation increased the severity of moral hazard problems in the U.S. banking industry. Overall, the results suggest that an important channel for market investors to discipline bank risk taking is...
3.
Statistical and economic significance of stock return predictability : a mean-variance analysis - Wei, Steven X.; Zhang, Chu
In this paper, we use mean-variance analysis to investigate the statistical and economic significance of stock return predictability as documented in Fama and French (1992). We ask if investors who form mean-variance efficient portfolios conditioned on the predictive variables can earn higher expected returns and higher expected utility than those who optimize unconditionally. The result shows that, by and large, they cannot. We examine various reasons for the lack of economic gains from return predictability and conclude that, while the in-sample relation between returns and predetermined firm-specific variables is strong in terms of the t-statistics, it is not stable enough...
4.
Why firms use non-linear hedging strategies - Adam, Tim R.
This paper examines how firms hedge, what instruments firms use and whether there are systematic differences between firms adopting different risk management strategies. I find that the decision to use non-linear hedging strategies (options strategies) is mostly a function of market conditions and to a lesser extent due to the non-linearity of the exposure. Consistent with Stulz (1996), larger firms are more likely to incorporate a market view in their risk management programs and use asymmetric hedging strategies (buy or sell options). Financially less constrained firms are more likely to buy options, while financially more constrained firms are more likely...
5.
Are there speculative components in corporate hedging and do they add value? - Adam, Tim R.; Fernando, Chitru S.
Why does corporate risk management add value? A common hypothesis is that derivatives transactions have zero NPV, and add value only because they help firms mitigate market imperfections. We reexamine this question by analyzing the derivatives transactions of 92 North American gold mining firms from 1989-1999. Our data allows us to infer the quarterly cash flows that each firm derives specifically from its derivatives transactions. Surprisingly, we find that these cash flows are positive, and both economically and statistically significant. Our sample firms realized an average gain of $2.73 million per quarter from their derivatives transactions, while their average quarterly...
6.
Property Rights Protection and Bank Loan Pricing - Bae, Kee-Hong; Goyal, Vidhan K.
We use data from 37 countries to examine how property rights affect loan spreads (over LIBOR or prime) in international bank loans. We find that banks charge higher loan spreads when property rights are weaker. These effects are economically large. If a country improved its property rights protection from the 25th percentile to the 75th percentile, loan spreads would decline by 87 basis points. Governance mechanisms at the firm level affect loan spreads too, but these are second-order effects. An implication of these findings is that improvement in the cost of external financing will be greater with policies that improve...
7.
Tick size change and liquidity provision on the Tokyo Stock Exchange - Ahn, Hee-Joon; Cai, Jun; Chan, Kalok; Hamao, Yasushi
The Tokyo Stock Exchange (TSE) introduced a change in its minimum tick sizes on April 13, 1998, for stocks traded at certain price ranges. We investigate the liquidity and market quality of the stocks affected by the tick size change, using a unique and comprehensive tick-by-tick data. We find that the quoted spread (effective spread) declined significantly by 20 to 50 percent (by 24 to 60 percent) after the tick size change. Reductions in spread are greater for firms with greater tick size reductions, greater trading activity, and higher monopoly rent proportion in the bid-ask spread component. Although investors are...
8.
Price reversal and momentum strategies - Chan, Kalok; Kot, Hung Wan
This paper investigates the role of price reversal in momentum strategies. We hypothesize that the momentum strategies implemented in the early stage of price reversal (MSES) are more profitable than those implemented in the late stage of price reversal (MSLS). Empirical results shows that while MSES records significant positive returns, the profits to MSLS are not significant. There is a continuation of momentum profits in MSES but a reversal in MSLS. Regression analysis shows that returns in MSES could be captured by the book-to-market factor in the Fama and French three-factor model.
9.
Free float and market liquidity : evidence from Hong Kong Government's intervention - Chan, Kalok; Chan, Yue Cheong; Fong, Wai-Ming
In August 1998, the Hong Kong Government intervened in the stock market, buying up to HK$118.1 billion in shares of the 33 Hang Seng Index (HSI) component stocks. That represented about 7.3 percent of all the shares in the stocks, causing a substantial decrease in the free floats. This paper examines whether there is any adverse change in market liquidity of the stocks as a result of the decrease in free floats. We study the market liquidity in terms of the price impact of trades. We find that, relative to a group of control stocks, the HSI component stocks have...
10.
Under-pricing and long-term performance of IPOs in China - Chan, Kalok; Wei, John K. C.; Wang, Junbo
We study the under-pricing and long-term performance of 570 A-share IPOs and 39 B-share IPOs issued in China. The average under-pricing for A-share IPOs is 178%, while the average under-pricing for B-share IPOs is only 11.6%. Some institutional characteristics in China could explain the under-pricing of A-share IPOs. The under-pricing is positively related to the number of days between the offering and the listing and the number of stock investors in the province from which the IPO comes, but it is negatively related to the number of shares being issued. In contrast, none of these characteristics explain the under-pricing of...
11.
Asymmetric price distribution and bid-ask quotes in the stock options market - Chan, Kalok; Chung, Y. Peter
We present a model of the bid and ask quotes in the equity option market when option payoffs are asymmetrically distributed due to the limited liability of the option. We then provide empirical evidence for the actively-traded Chicago Board Options Exchange stock options, which is consistent with the implications of our model. First, the bid and ask quotes are asymmetric around the option value, with the value being closer to the bid quote than to the ask. Second, the degree of the asymmetry increases as the moneyness of the option decreases. Finally, the ask quote of an option changes more...
12.
Catching up with the Joneses : heterogeneous preferences and the dynamics of asset prices - Chan, Yeung Lewis; Kogan, Leonid
We examine how cross-sectional heterogeneity in preferences affects equilibrium behavior of asset prices. We obtain explicit characterization of the competitive equilibrium in an exchange economy in which individual agents have catching up with the Joneses preferences and differ only with respect to the curvature of their utility functions. We show that heterogeneity can have a drastic effect on the behavior of asset prices, in particular, on their conditional moments. Dynamic re-distribution of wealth among the agents in heterogeneous economies leads to time-variation in aggregate risk aversion and market price of risk, generating empirically observed negative relation between conditional return volatility...
13.
Active asset markets, divestitures and divisional cross-subsidization - Dasgupta, Sudipto; Goyal, Vidhan K.; Tan, Guofu
This paper develops a model which shows that when divestiture activity takes place in the backdrop of an active asset market, divisional cross-subsidies emerge even in the absence of agency problems between managers and shareholders. In our model, the incentive to cross-subsidize arises because firms attempt to window-dress the performance of divisions that are likely candidates for sale. Since in equilibrium, the prospective buyers are not misled, window-dressing results in a deadweight loss. An early divestiture avoids this deadweight loss and consequently improves firm value. This theory of cross-subsidization is consistent with existing empirical results reporting value gains on asset...
14.
Capital structure decisions - Frank, Murray Z.; Goyal, Vidhan K.
This paper examines the relative importance of 39 factors in the leverage decisions of publicly traded U.S. firms. The pecking order and market timing theories do not provide good descriptions of the data. The evidence is generally consistent with tax/bankruptcy tradeoff theory and with stakeholder co-investment theory. The most reliable factors are median industry leverage (+ effect on leverage), bankruptcy risk as measured by Altman's Z-Score (- effect on leverage), firm size as measured by the log of sales (+), dividend- paying (-), intangibles (+), market-to-book ratio (-), and collateral (+). Somewhat less reliable effects are the variance of own...
15.
Market segmentation and relative supply of domestic and foreign shares : evidence from China stock market - Chan, Kalok; Kwok, Kam Hong
In China, domestic firms can issue A and B shares. Domestic investors can only invest A shares while foreign investors can only hold B shares. Unlike other emerging markets, domestic A shares are sold at premium relative to domestic A shares. We conjecture that the premium of domestic A shares is due to the limited alternative investment available to retail investors. Consistent with our hypothesis, empirical evidence indicates that cross-sectional variation of the premia of A shares is negatively related to the relative supply of A shares, and positively related to the relative of B shares. We also find that...
16.
The price behavior of China-related stocks listed in China and Hong Kong - Wei, John K. C.; Chang, Eric; Jagannathan, Ravi
This paper examines the relationship between stock prices, earnings, and book values (i.e.,the value-relevance of earnings and book values) for China-originated stocks under different corporate governance structure and accounting standards. There are four types of shares originating from China, namely, A-shares, B-shares, H-shares, and red-chips. Both A- and B-shares are traded on China's Shanghai Securities Exchange and Shenzhen Stock Exchange, while H-shares and red-chips are traded on the Stock Exchange of Hong Kong. With the exception of red-chip companies, which are incorporated in Hong Kong and own assets in both Hong Kong and China, all other share companies are incorporated...
1.
