Chi-Hsiou Daniel Hung

Return Predictability of Higher-Moment CAPM Market Models

This paper examines the relative performance of the higher-moment CAPM market models and the CAPM in explaining realised returns and predicting one-period-ahead returns on individual stocks and (both equally- and value-weighted) portfolios of momentum, size and country sorts. The three-moment CAPM, the quadratic-marke model, provides the best ex post estimates in respect of the time-variation in returns on both the return winner and the smallest size portfolios. Further analysis using an orthogonal factor model for tackling multicollinearity confirms the findings. Parameter uncertainty, however, impinges on forecast accuracy and hence hampers the predictive ability of the higher-moment models.

Predicting Stock Market Returns and Volatility with Investor Sentiment: Evidence from Eight Developed Countries

We test the predictive ability of investor sentiment on the return and volatility at the aggregate market level in the U.S., four largest European countries and three Asia-Pacific countries. We find that in the U.S., France and Italy periods of high consumer confidence levels are followed by low market returns. In Japan both the level and the change in consumer confidence boost the market return in the next month. Further, shifts in sentiment significantly move conditional volatility in most of the countries, and in Italy such impacts lead to an increase in returns by 4.7% in the next month.

Non‐Tradable Share Reform, Liquidity, and Stock Returns in China

This article studies the influence of the non-tradable share reform in the cross-section of stock returns in China. Prior research has generally neglected this important development in the Chinese stock market. We find that the firm-specific illiquidity measures that reflect direct transaction costs, price impact and difficulties in trading immediacy, exhibit a positive and significant relationship with stock returns. These effects are particularly pronounced after the non-tradable share reform. Furthermore, in the post-reform era, portfolios with high illiquidity (i.e. high relative bid–ask spread, high Amihud illiquidity, low Amivest liquidity ratio) significantly outperform portfolios with low illiquidity, controlling for size, and book-to-market effects.

Competition or Manipulation? An Empirical Evidence of Determinants of the Earnings Persistence of the U.S. Banks

We examine the impact of competition on bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition. We find that bank earnings adjustment speed increases after their states implement the deregulation. This relationship is weakened, however, with the increase of bank’s abilities to sustain earnings, as reflected in size, diversification, man- agerial efficiency and safety. We further find that the impact of compeititon on bank earnings adjustment speed is direct but not indirectly through the channel of earnings management.

Capital Structure Adjustments of Bank Holding Companies and Subsidiary Failure

A subsidiary failure may deteriorate the bank holding company’s (BHC) financial conditions. BHCs’ managers possess better knowledge than market investors concerning the likelihood of subsidiary failure, which gives rise to information asymmetry. We examine the effects of this information asymmetry on capital structure adjustments of BHCs in the periods surrounding subsidiary failure. We find that subsidiary failure significantly affects financial policies of the parent companies. Specifically, BHCs increase leverage ratio as early as one year prior to the failure of their subsidiaries, and substantially lower leverage after subsidiary failure. These capital structure adjustments are attributable to BHCs’ internal capital risk and most importantly, the information asymmetry between BHCs and the market.