Abeyratna Gunasekarage

THE PROFITABILITY OF MOVING AVERAGE TRADING RULES IN SOUTH ASIAN STOCK MARKETS

Abstract Two studies published in the last decade ( Brock et al., 1992 , Hudson et al., 1996 ) uncover evidence that technical trading rules have predictive ability with respect to market indices in the USA and the UK. This study analyses the performance of one group of these trading rules using index data for four emerging South Asian capital markets (the Bombay Stock Exchange, the Colombo Stock Exchange, the Dhaka Stock Exchange and the Karachi Stock Exchange) and examines the implications of the results for the weak form of the efficient market hypothesis. The findings indicate that technical trading rules have predictive ability in these markets and reject the null hypothesis that the returns to be earned from studying moving average values are equal to those achieved from a naive buy and hold strategy; the employment of these techniques generates excess returns to investors in South Asian markets.

Corporate governance practices of small cap companies and their financial performance: an empirical study in New Zealand

The purpose of this paper is to examine the effect of corporate governance practices of small cap companies have had on their financial performances. Previous studies have mainly examined governance practices of larger corporations. This analysis focuses on the governance variables that have been highlighted by the New Zealand Securities Commission (2004) governance principles and guidelines and also on the governance variables that are supported in the literature as providing an appropriate structure for the firm in the environment in which it operates. The data for 71 small cap companies listed in New Zealand over a five-year period from 2001 to 2005 was analysed. Pooled data, OLS and 2SLS regression techniques were used and Tobins Q, ROA and OPINC were used as the dependent variables. The evidence does support the hypothesis that the existence of board independence and audit committee has enhanced firm financial performance, as measured by Tobins Q.

The Post-announcement Performance of Dividend-changing Companies: The Dividend-signalling Hypothesis Revisited

This study revisits the dividend–signalling hypothesis by examining the post–announcement performance of U.K. companies which disclose dividend and earnings news to the capital market on the same day. For this purpose, we first analyse market–adjusted excess returns for three periods around the announcement and then examine the financial performance in the year of the announcement and in the subsequent five–year period. The near announcement excess returns and the announcement–year financial profiles provide strong evidence in support of the dividend–signalling hypothesis. However, in contrast to the predictions of the hypothesis, the longer–term results suggest that the companies which announce a reduction in both dividends and earnings (bad news companies) outperform their dividend–increasing counterparts.

State Dominant and Non-State Dominant Ownership Concentration and Firm Performance: Evidence from China

This study investigates the relationship between firm ownership structure and performance for a comprehensive sample of Chinese listed firms for the period from 2000 to 2004. We find a convex relationship between state ownership and firm value, i.e. ownership by the state is beneficial at levels above approximately 35% but negative effects on value are observed at lower levels. The main theme of the paper relates to analysis of effects of private block shareholders on value. We examine this issue both in an OLS and 2SLS equation framework which takes account of potential endogeneities in ownership-performance relationship. We find evidence that the presence of large private shareholders at firms with no significant state holdings is detrimental to the performance of these firms.

Return and Volatility Spillovers from Developed to Emerging Capital Markets: The Case of South Asia

This study examines return and volatility spillovers from the US and Japanese stock markets to three South Asian capital markets – (i) the Bombay Stock Exchange, (ii) the Karachi Stock Exchange and (iii) the Colombo Stock Exchange. We construct a univariate EGARCH spillover model that allows the unexpected return of any particular South Asian market to be driven by a local shock, a regional shock from Japan and a global shock from the USA. The study discovers return spillovers in all three markets, and volatility spillovers from the US to the Indian and Sri Lankan markets, and from the Japanese to the Pakistani market. Regional factors seem to exert an influence on these three markets before the Asian financial crisis but the global factor becomes more important in the post-crisis period.

State‐dominant and non‐state‐dominant ownership concentration and firm performance

Purpose - This paper aims to investigate the relationship between ownership structure and performance for a comprehensive sample of Chinese listed firms for the years 2000-2004. In particular, the paper seeks to explore the effect of the dominance of state and private blockholders and control on firm performance. It aims to use a more differentiated approach than previous research on the subject, which has mainly focused on the effects of the pervasive state ownership on firm values. Accordingly, the main theme of the paper intends to relate to the analysis of the effects of private blockholders on firm value. Design/methodology/approach - The paper tests the ownership-performance relationship for the state and for sub-samples with predominantly private shareholders. The paper uses both an ordinary least squares and a two-stage least squares analysis, which treats ownership concentration as endogenous. Findings - The paper finds evidence that large private blockholdings are to the benefit of firm value for the full sample. Conversely, for smaller samples of companies without or with very low shareholdings by the various state players, there is some evidence that large private block shareholdings might be to the detriment of firm value. Originality/value - The study contributes to the literature by presenting a more comprehensive treatment of the ownership-performance relationship of listed firms in China. The main theme of the paper relates to ownership concentration and the effects of private blockholders on the performance of firms, in addition to the endogeneity of ownership. It also contributes by utilising the alternative ownership classification system developed by the National University of Singapore.

Block shareholder identity and firm performance in New Zealand

Purpose – The purpose of this study is to examine whether the influence of block ownership on firm performance depends on the identity of the largest investor.Design/methodology/approach – The authors analyse the data for New Zealand companies for the period from 2002 to 2007 and develop multiple regression models which test the influence of block ownership on firm performance subject to the identity of the investor. A two‐stage least square approach is employed to test the effect of possible reverse causality between block ownership and firm performance on the relationship found in multiple regression models.Findings – The authors find that the concentrated ownership has a positive, albeit decreasing, association with firm performance. This relationship is conditioned on the identity of the largest investor. Those companies whose block investors were financial institutions performed better than their peers. The superior influence of financial investors on corporate performance did not disappear even when...

The market reaction to the appointment of outside directors: An analysis of the interaction between the agency problem and the affiliation of directors

Purpose - The purpose of this study is to examine the character of any market response to the appointment of outside directors. The main propositions tested are: whether the stock market responds unconditionally to these appointments or whether the market response is conditional on the degree of the agency problem faced by the firm and the affiliation of the appointees. Design/methodology/approach - The authors use a New Zealand sample of the appointments of outside directors during the period from July 1999 to June 2004. The unconditional market response is examined analysing the abnormal returns generated by the appointing companies during the three-day announcement period. The influences of the agency problem and the affiliation of directors are tested by employing multiple regressions. Findings - The findings provide strong support for the second proposition; the market considers the degree of the agency problem faced by the firm and the affiliation of outside directors in responding to these appointments. The percentage of outside directors in the board emerged as the strongest governance mechanism which, together with firm size, posed a significant inverse influence on announcement period abnormal returns. A strong interaction effect between appointee status and the agency problem was not present. Originality/value - The mere appointment of outside directors may not please the firms investors. Such appointments are more useful for companies with severe agency conflicts; even if such a conflict is present, the affiliations that these outside directors have with the executives and the operations of the appointing companies may need to be considered in determining the value of such appointments.

Return-Based Investment Strategies in the New Zealand Stock Market: Momentum Wins

The purpose of this study is to examine the profitability of return-based investment strategies in the New Zealand stock market; sixteen such strategies are examined for the period from January 1995 to December 2004. The results show that a strong momentum effect, rather than a reversal effect, is present in this market. For example, the strategy which is based on a six-month portfolio formation period and a six-month holding period generates a monthly return of 1.14 per cent. These strategies are most profitable when they are based on formation and holding periods of three-to-six months. Further analyses reveal that the profits generated by such investment strategies cannot be explained by either the small firm effect or the January effect.

The long‐term inflation hedging effectiveness of real estate and financial assets: A New Zealand investigation

Purpose - The purpose of this paper is to examine the long-term relationship between the rate of inflation and the returns of real estate and financial assets traded in New Zealand markets. Design/methodology/approach - The question of whether these assets are good candidates to hedge inflation in the long run is addressed employing cointegration and causality tests on quarterly data for the period from December 1979 to December 2003. Findings - A strong long-term relationship was found between the returns offered by all types of real estate assets (i.e. residential, commercial, industrial and farm building) and the rate of inflation. However, such a long run relationship is not detected between the rate of inflation and the returns of financial assets (i.e. stocks, short-term bills and long-term bonds). Research limitations/implications - The empirical findings reveal that the direction of causality is from inflation to real estate assets indicating that changes in property prices do not cause inflation in New Zealand; the cause of inflation is independent of the price movements for real estate assets. The real estate assets are found to offer an effective hedge against inflation in the long run. The same cannot be said for the financial assets, however. Originality/value - This is the first New Zealand study which investigates the long-term inflation hedging effectiveness of both real estate and financial assets. The findings should be of interest to most of the investors in New Zealand as the real estate assets play a significant role in their portfolio decisions.