David Power

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.

An analysis of the stock market impact of environmental performance information

Abstract This paper examines whether publicity (either good or bad) about environmental performance affects companies’ share prices. To date, a lot of the research in this area has been conducted in a US setting and has arrived at inconclusive results. This investigation examines the topic in a UK context. Specifically, it looks at publicity about fines for environmental pollution as well as commendations about good environmental achievements to see whether such information influences share prices. The results indicate that there is a stock market response to such news especially for details on fines—typically up to 1 week after news is published. A cross-sectional analysis indicates that the share price response is mainly a function of the relative fine imposed on the firm; other explanatory variables such as environmental performance news or sector membership were unsuccessful in explaining variations in the market responses.

Macroeconomic Influence on the Stock Market: Evidence from an Emerging Market in South Asia

This study examines the influence of macroeconomic variables on stock market equity values in Sri Lanka. We use the Colombo all share price index to represent the stock market and (a) the money supply, (b) the treasury bill rate (as a measure of interest rates), (c) the consumer price index (as a measure of inflation), and (d) the exchange rate as macroeconomic variables. We analyse monthly data for the above variables for the 17-year period from January 1985 to December 2001 employing a battery of tests, which include unit roots, cointegration, vector error correction models (VECM), impulse response functions (IRFs) and variance decompositions (VDCs). These tests examine both long-run and short-run relationships between the stock market index and the economic variables. The VECM analyses provide some support for the argument that the lagged values of macroeconomic variables such as the consumer price index, the money supply and the treasury bill rate have a significant influence on the stock market. The treasury bill rate demonstrates the strongest influence on price changes compared to other variables. However, the share price index does not have any influence on macroeconomic variables except for the treasury bill rate. Both VDC and IRF analyses revealed that shocks to economic variables explained only a minority of the forecast variance error of the market index; these effects did not persist for very long.

UK unit trust performance 1980-1989: A passive time-varying approach

Abstract This paper indirectly tests the efficient markets hypothesis by analysing the performance of 30 authorised unit trusts from 1980 through 1989. The risk-return relationship of the funds is allowed to vary in a generalised manner thus allowing for passive structural change in underlying economic relationships. Our findings suggest that 21 of the 30 trusts in the sample were able to supply investment opportunities to the individual investor which were superior to a buy-and-hold strategy.

An analysis of trading strategies in eleven European stock markets

Abstract In recent years, the validity of the weak form efficient market hypothesis (EMH) has been called into question as several studies have uncovered evidence that technical trading rules have predictive ability with respect to both developed and emerging stock market indices. This study analyses the forecasting power of 2 of the most popular trading rules using index data for a selection of 11 European stock markets over the January 1991 to December 2000 period. The findings indicate that the emerging markets included in this paper are informationally inefficient; these markets displayed some degree of predictability in their share returns, although the developed markets did not. Furthermore, the results point to large differences in the performance of the rules examined; while small size filters consistently outperformed the buy-and-hold strategy in the emerging markets examined even after the consideration of transaction costs, the performance of the moving average rules was erratic and varied dramatically from market to market.

Evidence on the Irish stock market's reaction to dividend announcements

This study investigates the manner in which the Irish stock market responds to company announcements about dividend payments. In particular, the paper examines whether the predictions of the ‘signalling’ hypothesis hold or if more recent findings (which suggest that there is little value-relevant information contained in dividend changes) better characterize the Irish market. Data were obtained for a sample of 50 companies whose shares were traded on the Dublin Stock Exchange from 1987 to 2001. Abnormal returns were then calculated for the whole sample and for various dividend–earnings change combinations. The results suggest that dividend announcements are important for Irish investors, but earnings signals appear to have a stronger impact on equity values.

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.

Managerial attitudes to risk: a comparison of Scottish chartered accountants and U.K. managers

Abstract This paper examines attitudes to risk by Scottish chartered accountants and considers whether their risk-taking attitudes are similar to or different from those of other business managers in the U.K. The papers also investigates whether the respondents focus on simple heuristics rather than on statistical outcomes in their decision-making process. The findings reported here are based on a large survey of accountants and managers in different functional areas. The results suggest that accountants and managers exhibit many of the biases that have been documented for executives in other countries. A focus on the framing of a decision, an emphasis on the magnitude of negative outcomes and an insensitivity to probability estimates are all characteristics of the responses to the scenario cases provided. In addition respondents display clear views about the factors that influence the riskiness of a decision. A number of strategies are likely to be adopted by the respondents to control risk, including the gathering of information and consultation with colleagues. Finally, the respondents suggest that several groups, such as customers, competitors and large shareholders, influence risk decisions taken.

Attitudes of UK managers to risk and uncertainty

The authors provide an overview of their research into the attitudes of UK managers to risk and uncertainty. They find that, when it comes to decision making, managers in UK enterprises tend to focus on loss aversion rather than risk aversion. They found that managers’ personal attitudes to risk were often more important than risk management systems and their appropriateness.

Accounting textbooks: Exploring the production of a cultural and political artifact

Abstract This paper explores the production of introductory financial accounting textbooks in the UK. Despite being a pervasive pedagogical device (see Brown and Guilding, 1993, Accounting Education: an international journal, 4(2) pp. 211–218), there has been little research carried out which examines the role or contents of textbooks in accounting education. This is a surprising gap in the literature when one considers the numerous concerns that have been expressed regarding the content of accounting education, the values which it projects and the type of student which it produces. Drawing on contemporary research into textbooks, this paper considers accounting textbooks to be ‘cultural artifacts’ which may reflect the cultural, ideological, and political interests of particular groups in society. In this regard, introductory financial textbooks have the potential to reinforce cultural homogeneity through the advancement of shared attitudes. This study is based upon 12 semi-structured interviews with both textbook authors and commissioning editors. Results indicate that the contents of textbooks are the product of complex social and cultural relations. Whilst conflicts and negotiations may characterize the production process, the knowledge that is considered most ‘legitimate’ tends to be mandated, either directly or indirectly, by professional accounting bodies through course accreditation requirements. Furthermore, this knowledge reflects wider cultural issues and assumptions regarding the structure of society and of how it should be organized.