International Journal of Banking, Accounting and Finance (10 papers in press)
Revising the Turn of the Month (TOM) effect study: why does it fade and reappear? Practical policy implications and thoughts for further research.
by Evangelos Vasileiou
Abstract: The purpose of this paper is to examine in detail the Turn of the Month (TOM) effect and to offer a detailed explanation for the controversial empirical findings that have been documented in the literature. Using data from the USA stock market, the results suggest that returns during the TOM period outperform the returns during the rest of the month period (non-turn of the month days - NTOM). However, the statistical significance of the TOM and the NTOM returns is significantly influenced by: (i) the definitely-selected TOM time span, (ii) the capitalization, (iii) the econometric modeling, (iv) the applied mean equation (v) the examined time period, and (vi) the financial trend. Therefore, the existence or fade of the TOM effect should be examined by taking all the aforementioned factors into consideration. Moreover, the empirical findings suggest that when the TOM returns are positive and statistically significant, there is a positively growing financial trend, while when the NTOM is negative and statistically significant, the NTOM days coincide with a financial crisis (or negative financial trend). The latter results could pave the way for further TOM studies which would examine whether the TOM period could be an indicator of the upcoming financial conditions. Finally, the paper indicates how these findings could be practically useful for investors, traders and financial advisors.
Keywords: Calendar Anomalies; Turn of the Month effect; Efficient Market Hypothesis; US stock market; Size Effect.
Social networks in banking: A note on coauthorship in banking research
by Andreas Andrikopoulos, Aristeidis Samitas, Anastasia Lolou
Abstract: We explore social networks of scientific collaboration in banking research. Collaboration is measured with coauthorship partnerships between individual scientists, institutions and countries. We employ a sample of published research in banking journals over the last 25 years and discuss the social structure of collaborations in banking papers. We find the most central authors, institutions and countries in banking research. We also discover that the network of banking research has small-world properties; the collaboration between authors,rninstitutions and countries is highly clustered and most nodes in the network are closely connected.
Keywords: social networks; banking research; small world.
Herding Behavior in a peripheral European stock market: The impact of the Subprime and the European Sovereign Debt crises
by Sérgio Lagoa, Luís G. G. Dos Santos
Abstract: The characteristics of the Portuguese stock market suggest that it is susceptible to herding behavior. We investigate the existence of this behavior in Portugal during periods of market stress, with emphasis on the Subprime and European Sovereign Debt Crises. We analyze the overall stock market, key industries, and portfolios divided by market capitalization. The study is performed using both linear and nonlinear models, and the impact of conditional variance is taken into account. This paper shows evidence of herding behavior when the nonlinear model is used and during periods of crisis. Investors imitate more assets of similar size than assets of the same industry. Finally, the evidence of herding behavior is reduced when GARCH effects are taken into account.
Keywords: Herding behavior; market stress; Portugal; stock market; crisis; Subprime Crisis; European sovereign debt crisis.
Does Money Supply Growth Contain Predictive Power for Stock Returns? Evidence and Explanation
by David G. McMillan
Abstract: We examine the nature of predictive power of money supply growth for stock returns. An understanding of which would be useful for market practitioners and policy makers given the current lack of consensus. In addition, knowledge of this relationship can aid our understanding of the risk and cash flow channels of stock price movement. Using monthly data and considering a range of alternative predictor variables, predictive and forecast time horizons, empirical methodologies and measures of stock returns, we find that money supply growth has a negative predictive relation with stock returns. Rolling window forecasts provide confirmatory out-of-sample evidence for the significance of money supply growth as a predictor variable. The use of both returns and dividend growth predictive regressions, as well as a VAR analysis and predictive regressions for size and book-to-market portfolios suggest that relationship operates through a risk channel. Higher money supply leads to improving economic conditions and lower (required) returns.
Keywords: Stock Returns; Money Supply; Predictability; Asset Price Movement; Forecasting.
Geographical disclosure quality under IFRS 8: A European Union analysis
by SAMEH KOBBI
Abstract: In November 2006, the International Financial Reporting Standard 8 (IFRS 8), Operating segments, was issued by the International Accounting Standards Board (IASB) as a substitute for the International Accounting Standard 14 Revised (IAS 14R), Segment reporting, and became effective in 2009. In this context, this paper aims to describe and evaluate the quality of geographical disclosure following the adoption of IFRS 8. Accordingly, this paper seeks to answer the following research questions: What geographical items are disclosed under IAS14R and IFRS8? Is there a gain or a loss of the geographical information disclosed following the implementation of IFRS 8? Has the implementation of IFRS 8 changed the number of geographical segments previously reported under IAS 14R? What types of geographical segments are actually reported? Has the implementation of IFRS 8 resulted in more disaggregated segment definitions? What quantitative materiality thresholds are used to determine the materiality of revenues in individual countries? Is the IFRS 8 information set with regard to revenues by geographical segment finer than the information set provided under IAS 14R? Is the firms geographical disclosure quality related to firm size, profitability, degree of internationalization, industry type and country of domicile?
Our methodology is twofold. First, a content analysis of the annual reports of 171 publicly listed European Union (EU) companies during the period from 2006 to 2012 shows substantial variation in geographical disclosure practices. Second, a multiple regression analysis shows the negative impact of IFRS 8 on the quality of geographical disclosure measured by two proxies, namely extent and fineness. Our findings suggest that geographical disclosure quality is associated with firm size and that more internationally oriented firms provide finer geographical segments compared to their counterparts.
Keywords: IFRS 8 - IAS 14R - Geographical disclosure quality - Aggregation level - Materiality threshold - Extent of disclosure - Fineness - Firm’s characteristics.
Working Capital Management, Cash Flow and SMEs Performance
by Godfred Afrifa
Abstract: Purpose The paper presents comprehensive evidence on the relationship between Working Capital Management (WCM) and SMEs performance by taking into consideration the plausible effect of cash flow.
Design/methodology/approach The paper adopts a panel data regression analysis on a sample of 802 British quoted small and medium enterprises listed on the Alternative Investment Market for the period from 2004 to 2013.
Findings The results of the study demonstrate the importance of cash flow on SMEs WCM and performance. According to our findings, WCM has a significantly negative impact on SME performance. However, with available cash flow, we find a significantly positive relationship. Additionally, our evidence revels that cash flow constrained (non-constrained) SMEs are able to enhance their performance through decreased (increased) investment in WCM.
Practical implications Overall, the results demonstrate the importance of cash flow availability on SMEs working capital needs. Our findings suggest that in an event of cash flow unavailability (availability) managers should strive to reduce (increase) the investment in working capital in order to improve performance.
Originality/value This current study incorporates the relevance of cash flow in assessing the association between WCM and firm performance.
Keywords: Working Capital Management; Performance; SMEs; Cash Flow.
Volume Weighted Volatility: Empirical Evidence for a New Realized Volatility Measure
by Chaiyuth Padungsaksawasdi, Robert Daigler
Abstract: We introduce a new conceptually superior realized volatility estimator, volume weighted volatility (VWV), which effectively measures demand-based volatility, rather than only measuring the variability of a price series. We compare VWV to other return- and range-based measures using stock index futures, with our results supporting the empirical uniqueness of VWV. First, regressions show that VWV provides unique information. Second, VWV is (only) weakly associated with other volatility measures for the smallest four volatility quintiles. Third, correlograms illustrate that VWV is less persistent than other measures, leading to more unique volatility values. Finally, VWV most closely approximates the normal distribution.
Keywords: Volatility; Futures; VWAP.
Branch manager characteristics and efficiency during capital controls
by Eleftherios Aggelopoulos
Abstract: This paper investigates the impact of manager characteristics on bank branch efficiency during the capital control period in Greece which is unique for a eurozone member in the post-war era. A unique branch-level data set comprising of specific accounting and personal managerial information of a very representative systemic bank is utilized. A profit-oriented bootstrapped DEA model is applied to the data set covering the period from January 2016 to February 2017. The model, which is run for both the total branch network of the bank under investigation and a homogeneous group of its branches located in Athens, produces consistent efficiency estimates of the branch operating process and provides interesting outcomes. Generally, it is found that education and experience influence profit performance effectively in an important manner. More precisely, university graduate managers outperform on average their colleagues with a secondary education level regardless of the sample used. Moreover, in the case of the homogeneous sample, more experienced managers can tackle adverse crisis effects on branch performance more effectively than inexperienced managers; this is even more applicable to the large branches. In this homogeneous branch framework, management experience can satisfactorily compensate for educational limitations caused by a manager not having higher education qualifications. The findings of the study offer useful directions for an effective branch management policy during turbulent times for the banking sector.
Keywords: efficiency; managers; retail branches; profit bootstrap DEA; capital control.
A contingent claims approach to the determinants of the stock-bond return relationship
by Thanos Verousis, Louisa Chen
Abstract: This paper decomposes two effects on a firms stock and bond returns - the effect of firms future cash flow and the effect of business risk to study the relationship between the returns of stocks and bonds issued by the same firm. Based on the contingent claims option pricing theory, we employ firm-level data and an event study methodology, and generate hypotheses regarding the stock-bond return relationship. We show that, by controlling for firms leverage, firms future cash flow has a simultaneous positive effect on firms stock and bond returns, whereas firms business risk has a decoupling effect on stock and bond returns. In addition, we provide evidence for the flight to quality hypothesis at a firm-specific level. Our findings complement the literature of stock and bond correlation within a theoretical framework.
Keywords: stock-bond relationship; Contingent claims analysis; Option pricing theory; firm performance; business risk.
Intraday realized volatility forecasting and announcements
by Dimitrios Vortelinos, Konstantinos Gkillas (Gillas)
Abstract: This paper examines the importance of macroeconomic announcements, nonlinearity and combining, to realized volatility forecasting in equity -, energy - and commodities - mini-futures markets, by using intraday frequency data. We use three evaluation criteria to detect whether the predictions are more accurate on the out-of-sample announcement days or on the all out-of-sample days. The forecasting evaluation dataset starts from 14 October 2009 to 14 October 2011. The ﬁndings indicate that there are some announcements on which nonlinear and combined models forecast realized
volatility more accurately in announcement days.
Keywords: Forecasting; Macroeconomic announcements; Nonlinearity; Combining; Mini-futures markets.