Chun-Da Chen

Removal of an investment restriction: the 'B' share experience from China's stock markets

This paper investigates the impact of CSRC allowing domestic residents to invest in the B-share stock market. An ARJI model is used to analyse the jump dynamics process during the pre- and post-event periods and impulse response functions are employed to demonstrate the volatility transmissions between the A- and B-share markets. Results indicate that the jump intensity and the jump frequency of Shanghai and Shenzhen stock markets increases. Moreover, the volatility transmissions between A- and B-share markets accelerates. It is therefore concluded that the CSRC, by permitting domestic residents to invest in B shares, will impact the A- and B-share stock markets.

Political elections and foreign investor trading in South Korea's financial markets

This article investigates the relationship between foreign investors’ trading behaviour and political election events in South Korea and the effect of the relationship on the financial markets via a bivariate GARCH (1,1) model analysis. The empirical results show that the KOSPI 200 index return (total trading volumes of spot) and the derivatives volume have a negative (positive) relationship for foreign investors. South Korea shifted to a free floating exchange rate system, however, it did not have an effect on foreign investors’ trading behaviour. In particular, foreign investors showed significant decrease in trading options contracts during the parliamentary election periods and the parliamentary elections stabilized derivatives trading volatility. It is evident from the results that the presidential elections create far more financial uncertainty in comparison to parliamentary elections.

Downside risk measures and equity returns in the NYSE

Although investors are concerned foremost with mean and variance, they are also sensitive to downside risk. In this article we employ several risk variables of traditional and downside risk measures to evaluate the equity returns in the New York Stock Exchange (NYSE) market in order to test their explaining power. The test results show that variance (or SD) is better than beta in the performance. However, those traditional risk measures have almost less explanatory power than total downside risk measures, whether the downside risk measures are relative to zero, the mean return or the market index return when they are used to predict the future risk premium. The results also show that the significance of the downside risk measures in the NYSE market is different between different industry sectors, different periods of time and in different individual equities.

Assessing the effects of sports marketing on stock returns: evidence from the Nippon professional baseball series.

This paper employs an event study method to associate Japanese professional baseball championship competition with the effects of a parent company’s stock prices from a sports marketing perspective. The empirical results show that there are significant positive abnormal stock returns for the parent companies when their own teams qualified for the final championship series, and the parent companies have higher and more significant cumulative abnormal returns (CARs) when their teams win the championship. It is noteworthy that the stocks of parent companies experience significantly positive ARs prior to the event day when their team wins the title earlier. Additionally, the retail industry has more significant positive abnormal stock returns when teams backed by this industry win the championship, as compared with non-retail industries. The related sports marketing expenses and teams’ operations do affect firm values during the postseason period. The authors reasonably conclude that the retail industry is the most likely sector to adopt sports marketing strategies to enhance firm performances and profits, especially for those companies that own professional baseball teams.

VaR and the Cross-Section of Expected Stock Returns: An Emerging Market Evidence

In this paper we investigate the explanatory power of the market beta, firm size, and the book-to-market ratio, as well as Value-at-Risk regarding the cross-sectional expected stock returns in a less developed stock market - Taiwans stock market. The main purpose is to examine whether the Value-at-Risk factor has marginal explanatory power related to the Fama-French three-factor model. The empirical results show that Value-at-Risk can account for the average stock returns at both 1% and 5% significance levels based on cross-sectional regression analysis. Moreover, from the perspective of the time series regression, the Value-at-Risk factor can also demonstrate the variation of the stock market, especially for the larger companies in the Taiwan stock market.

Are They Hedgers or Speculators? Evidence from South Korea's Political Elections

This study uses a simultaneous equation model based on a three-stage least squares estimation to offer new empirical evidence that investors are hedgers or speculators during South Koreas elections. Major investor groups include individuals, securities companies, and foreigners in the Korea Composite Stock Price Index (KOSPI 200) market. The results show that cash market volatility and futures market activity have lead behaviors with one another. However, the contemporaneous variables of cash market volatility and options market activity have only unidirectional causality. Most investors will trade futures and options contracts for speculating within the entire sample period. During political election periods, investors prefer to trade options contracts for hedging rather than futures contracts.

Return autocorrelations in the stock markets

This article investigates the return autocorrelation in four stock markets around the Asia-Pacific rim: the USA, Japan, Taiwan and South Korea. The results indicate that there are conditional return autocorrelation in Taiwans and South Koreas stock markets for daily data. Moreover, there are negative relationships between autocorrelation and two factors (trading volume and return volatility) significantly in Taiwan and South Korea, implying that the stock markets in Taiwan and South Korea are not as efficient as those in developed countries (the USA and Japan). For weekly data, however, none of the above four markets has significant return autocorrelation.

Hedging with S&P500 and E-mini S&P500 stock index futures

Abstract In this study we explore the differences in hedging effectiveness between S&P500 and E-mini S&P500 futures contracts. We utilize VAR (vector autoregressive model), ECM (error correction model), bivariate GARCH, and Kalman filter to minimize the risks of spots and futures and obtain the optimal hedge ratio. A dynamic mechanism has been considered in making comparisons of the hedge effect among models and in determining the optimal hedge strategy. The results show that both S&P500 and E-mini S&P500 futures reduce the risks of holding spot positions, and regardless of the time span in hedging, S&P500 index futures can do better than E-mini S&P500 in terms of hedging effectiveness. The means of transaction indeed affect the hedging effectiveness, with high electronic transaction costs and high sensitivity of institutional investors seeming to be the reasons. As the time span in hedging is extended, the correlation coefficient between the spot market and futures increases and the hedge effectiveness increases as well. For both the means and different time span, the GARCH model shows its superiority in HEI performance as it captures the short-run dynamic effect and reflects the short-run fluctuations.

The Profitability of Herding: Evidence from Taiwan

This study shows that the level of herding in an industry can be the basis for a profitable investment strategy. Using data from the Taiwanese stock market wherein the presence of investor herding has already been documented, we find that industries that experience high level of herding yield higher subsequent returns regardless of their past performance. Consequently, we show that a herding-based investment strategy generates significant profits, even after adjusting for risk. Our findings also show that the herding effect when combined with past performance as part of a conditional investment strategy yields significant profits regardless of the formation and holding periods. The findings suggest that the level of herding could serve as a systematic driver of returns and could be exploited for profitable investment strategies.

The optimal dynamic hedging strategy for Nikkei 225 index and futures

Abstract In this study we investigate the hedging effectiveness on the Nikkei 225 index within Osaka and Singapore Nikkei 225 Futures. The results show that the bivariate GARCH-CI model generates better hedging performances than the other models do, no matter what futures we use. Under these four models (bivariate GARCH-CI, ECM, VAR, and Kalman filter), a longer holding period generates a better hedging effectiveness. Moreover, the Osaka Nikkei 225 Futures provide better hedging performance than Singapore Nikkei 225 Futures do. We therefore conclude that investors employing Osaka Nikkei 225 Futures with a longer holding period to hedge spot risks can achieve the best hedging performance under the bivariate GARCH-CI model. These results are very helpful to investors who invest in Japan’s stock markets.