Amjad Iqbal

Comparison between Islamic and General Equity Funds of Pakistan: Difference in Their Performances and Fund Flow Volatility

Abstract This study aims to analyze the performance, assets volatility and fund flow performance relationship of Islamic and conventional equity funds. Islamic funds are different from conventional funds as they do not invest in those businesses whose operations or capital structure is against the Shariah (law) of Islam. We do not find any significant difference between the performances of Islamic and conventional funds and they both are unable to beat the market. Conventional funds witnessed more volatility in their asset size than Islamic funds. Islamic funds are more sensitive to lagged positive returns and less sensitive to lagged negative returns as compared to conventional funds. These results indicate that Islamic investors derive multi attribute function instead of just profit and risk optimization.

Effects of Terms of Trade on Economic Growth of Pakistan

This paper analyzes the effect of terms of trade on economic growth of Pakistan considering annual time series data from 1980 to 2013. This study opted autoregressive distributed lag model for purpose of analyzing short- and long-run relationship. The results reveal significant negative long-run and short-run effects of terms of trade on economic growth. The analyses also indicate significant positive long-run and short-run effects of labour on economic growth. Further, capital stock is influencing positively the economic growth in long run only. We suggest that economic policies may be implemented to deteriorate terms of trade which will further enhance the economic growth of Pakistan. JEL: F13, F43

Information sources and trading behavior: does investor personality matter?

Purpose This paper aims to investigate the impact of sources of information on trading behavior by analyzing the influence of investor personality in Chinese futures market. Design/methodology/approach The authors adopted the Big Five personality framework and examined the survey results of individual investors (n = 333) in Chinese futures market. Personality traits of futures investors were measured by the NEO-Five Factor Inventory (Costa and McCrae, 1989) which is a shortened version of revised NEO personality inventory of the Big Five model (Costa and McCrae, 1992). Confirmatory factor analysis was conducted to assess the fitness of model. Structural equation modeling was used to evaluate the moderating influence of investor personality traits on the association between source of information and trading behavior. Findings The results confirm the previous findings that the sources of information used by investors as a foundation of their financial choices have a significant impact on trading frequency. The authors also provide an empirical evidence that investor personality traits moderate the relationship between sources of information and trading behavior. Financial advice from professionals is likely to increase trading frequency in investors with neuroticism and openness personality traits, and to reduce trading frequency in conscientious and extravert investors. Similarly, financial information acquired via word-of-mouth communication results in more trading in extravert and agreeable investors. Finally, information acquisition from specialized press causes more adjustment of conscientious investors’ portfolios. Theoretical explanations, implications and recommendations for future research are discussed. Originality/value This study combines information search and behavioral finance literature to demonstrate that the impact of various sources of market information on asset allocation decisions is influenced by investor personality. No previous study has been conducted yet to explain variations in the impact of sources of information on trading behavior by the Big Five personality traits and this paper seeks to fill this gap in Chinese futures market.

Emerging market mutual fund performance: evidence for China

Purpose The purpose of this paper is to find whether Chinese equity funds outperform the market and do Chinese fund managers possess positive market timing ability. This study also aims to investigate whether well-performing (worst) funds of last year continue to perform well (worst) in the following year. Design/methodology/approach Capital Asset Pricing Model and Carhart four-factor model are used for performance analysis, whereas for analyzing market timing ability, the Treynor and Mazuy (1966) and Henriksson and Merton (1981) models are applied. To investigate persistence in the performance of Chinese equity funds, all equity funds are divided, on the basis of performance in the past 12 months, into three equally weighted groups (high, middle and low) and then observed for next 12 months. After that, groups are again rebalanced according to their performance. This study uses a panel regression model for analysis. Findings Chinese equity funds are successful in providing higher than market returns, and fund managers possess positive market timing ability. The authors find that Chinese equity funds do not show persistence in performance as witnessed in developed markets. Well-performing funds (worst funds) of last year do not continue to provide higher (lower) return in the following year. Moreover, the authors detect positive relationship of fund size, age and expense ratio with the fund’s performance. Overall results suggest that emerging market equity funds show better performance than that of developed markets. Practical implications Investors are better off if they invest in equity funds instead of index funds, as results illustrate that equity funds outperformed the market. Further, the strategy of buying well-performing funds of last year and selling poorly performing funds of last year does not look very attractive in China. This study helps investors to understand the Chinese managed funds industry, and such an understanding is also helpful for fund managers and asset management companies who use performance information in marketing strategies. Originality/value This is the first study to investigate the performance persistence in Chinese equity funds and also contributes to the literature about the performance and market timing ability of equity funds. The study takes the sample of 520 equity funds for the period from 2004 to 2014, which includes a period of financial crisis of 2008.

Credit supply and corporate capital structure: evidence from Pakistan

Purpose – The purpose of this paper is to investigate the relevance of credit supply for corporate capital structure decisions of manufacturing firms in Pakistan. Design/methodology/approach – The implicit assumption in much of the work on capital structure is that for a firm, the availability of incremental capital depends solely on its characteristics. However, the capital market frictions suggest that suppliers of credit may also affect firms’ ability to borrow. The authors investigated this intuition by employing dynamic panel data estimators using 8,984 firm-year observations for the period 1990-2010. Findings – The results show that short-term debt is a major source of financing in these firms. Further, credit supply plays a significant role in these firms’ capital structure decisions and hence, they increase their short-term debt (main financing source) with an increase in credit supply in the market while payoff their long-term debt with internal funds. Practical implications – The findings of thi...

Modeling product market competition and reporting quality: the transitional economy of China

Purpose - The purpose of this paper is to examine the role of product market competition in shaping a firm’s reporting quality (RQ). Design/methodology/approach - This research uses an aggregate measure of a firm’s RQ, considering both the absolute level of discretionary accruals (DA) and the quality of accruals, using modified Jones model and Francis Findings - This study finds that firms operating in more competitive industries are associated with higher RQ. This association still prevails when analysis is done using the component measures of RQ (i.e. the absolute level of DA and the quality of accruals). Overall, the empirical results provide evidence on the disciplining role of product market competition among Chinese firms. Practical implications - Given the complex governance structures and specific kind of agency problems in Chinese corporations, this study suggests that product market competition may play an external disciplining role to improve the corporate information environment. Originality/value - This research explores the role of product market competition for a firm’s RQ in Chinese-listed companies, while the prior studies on the same topic are mostly from the developed countries.

Corporate Governance and Earnings Management: A Case of Karachi Stock Exchange Listed Companies

Abstract The prime aim of this study is to investigate the impact of corporate governance practices on earnings management. We employed fixed effect estimators on a sample of 89 non-financial companies listed on KSE (Karachi Stock Exchange), for the period 2003–2012. Corporate governance has been quantified through its four different practices (namely, board size, managerial ownership, CEO–chair duality, and audit committee independence) whereas discretionary accruals have been used as a proxy for measuring earnings management and are calculated through modified Jones model developed by Dechow, Sloan and Sweeney (1995). The empirical findings are quite in line with the philosophy of corporate governance. Audit committee independence and earnings management are negatively correlated. Similarly, CEO–chair duality is positively associated with earnings management. However, two of the corporate governance variables (i.e., board size and managerial ownership) are found insignificantly related to earnings management. The study contributes in general to the existing literature on corporate governance and earnings management by examining their relationship; that corporate governance is negatively associated with earnings management. The study contributes specifically by evidencing that in developing countries like Pakistan, where the interest war is more prominent among the minority shareholder and controlling shareholders than among management and owners, corporate governance is playing an effective role to overcome these problems.