Grant Cullen

The Relation between Financial Development, Energy Consumption and Economic Growth: Empirical Evidence for the United States

This paper examines the relation between financial development, energy consumption and economic growth in the United States (U.S) for the period 1966-2011. We use a vector error correction model (VECM) to investigate the effect of financial development and energy consumption on economic growth in the U.S. In addition to examining the relation in the long run of the aforementioned variables using Johansen co-integration analysis, we also examine the short-run and long-run causalities between them. In addition to economic growth, financial development and energy consumption variables, we also examine the impact of real interest rate, gross fixed capital formation and trade openness on economic growth. We find that there is at least one co-integrating relation among the variables. There is some evidence that in the long run financial development causes economic growth; however, there is no evidence that economic growth causes financial development. Neither do we find evidence that financial development positively affects energy consumption either in the short- or long-run. However, in the short run, we find some evidence of two-way causality between economic growth and financial development.

Ownership control and debt maturity structure: evidence from China

Purpose - – The authors examine the debt maturity structure of Chinese listed companies during the period when bond market was under-developed and the majority of commercial banks were owned by the state. The purpose of this paper is to answer why and how the different ownership control types impact the firms’ preference and accessibility to either long- or short-term debts. Design/methodology/approach - – The univariate analysis was used to test the differences of debt maturity choices for firms grouped by ownership control types, profitability and institutional development. Then, logit regression and ordinary least squares regression were applied to examine the determinants of ownership control types in debt maturity structures. Findings - – Compared to privately controlled firms, state-owned enterprises had greater access to long-term debt and used less short-term debt during the sample period. Evidences also indicate that the on-going financial reform has increased the motivation of banks to consider company profitability in their lending decisions. However, state-owned banks still discriminate private firms in allocation of financial resources, particular in less-developed regions. Research limitations/implications - – Due to the research scope and data limitations, the authors cannot take some factors into consideration, such as collateral, guarantee, credit ranking, financing agreement and leasing obligation. Originality/value - – This study extends the existing literature in three ways. First, the authors investigate the bank discrimination problem into the loan term structure. Second, the authors recognise the effect of financial reform on alleviation in bank discrimination problem. Finally, the authors take the consideration of institutional development of firms’ location areas in their analyses.

Mutual Fund Trades: Timing Sentiment and Managing Tracking Error Variance

We use portfolio holdings to show that mutual funds preferentially trade stocks according to the stocks’ sentiment betas. Stocks with high sentiment betas are more responsive to investor sentiment and increase (decrease) in value as sentiment increases (decreases). Sentiment-based trades may be motivated by the opportunity to increase fund returns through timing predictability in sentiment, or by management of portfolio risk. Sentiment is mean-reverting, but its level and recent change only partially explain these trades. In contrast, 30 percent of sentiment-based trades are explained by the initial sentiment beta of funds that trade to reduce their tracking error variance.

Investor Sentiment and Momentum and Contrarian Trading Strategies: Mutual Fund Evidence

Stocks with high sentiment betas are more sensitive to investor sentiment, with more subjective valuations. We contend that sentiment beta also captures the duration of mispricing. Accordingly, stocks with high (low) sentiment betas provide opportunities for momentum (contrarian) traders. We form hypothetical zero investment portfolios of high (low) sentiment betas stocks, and show that momentum profits decompose to reveal positive (negative) serial correlation of idiosyncratic returns, that contribute to momentum (contrarian) profits. Furthermore, actual mutual funds identified as momentum (contrarian) traders hold stocks with higher (lower) sentiment betas. Additionally, funds adjust sentiment betas to enhance performance as sentiment changes.

Selectivity, Style, Sentiment and Skill in Mutual Fund Trades

Fund managers can only exhibit selectivity through purchasing (selling) stocks that appreciate (depreciate) more frequently than expected from random occurrence, if stocks are incorrectly priced. We develop a method that can statistically identify fund managers that exhibit net, buy, and sell selectivity in their trades, as well as distinguish manager skill from fortuitous stock selection. Stock investor sentiment betas are calculated from the recently developed investor sentiment index, and used to indicate stock mispricing. We find that superior stock selection is concentrated in funds that hold high sentiment beta stocks; the major constituent of funds with the aggressive growth objective.