Huimin Chung

Corporate Governance and Equity Liquidity: analysis of S&P transparency and disclosure rankings

This paper sets out to investigate the effects of disclosure, and other corporate governance mechanisms, on equity liquidity, arguing that those companies adopting poor information transparency and disclosure practices will experience serious information asymmetry. Since poor corporate governance leads to greater information asymmetry, liquidity providers will incur relatively higher adverse information risks and will therefore offer higher information asymmetry components in their effective bid-ask spreads. The Transparency and Disclosure (T&D) rankings of the individual stocks on the S&P 500 index are employed to examine whether firms with greater T&D rankings have lower information asymmetry components and lower stock spreads. Our results reveal that the economic costs of equity liquidity, i.e. the effective spread and the quoted half-spread, are greater for those companies with poor information transparency and disclosure practices.

Estimation of GARCH Models from the Autocorrelations of the Squares of a Process

This paper shows how the parameters of a stable GARCH(1, 1) model can be estimated from the autocorrelations of the squared process. Specifically, the method applies a minimum distance estimator (MDE) to the sample autocorrelations of the squared realization. The asymptotic efficiency of the estimator is calculated from using the first g autocorrelations. The estimator can be surprisingly efficient for quite small numbers of autocorrelations and, in some cases, can be more efficient than the quasi maximum likelihood estimator (QMLE). Also, the estimated process can better fit the pattern of observed autocorrelations of squared returns than those from models estimated by maximum likelihood estimation (MLE). The estimator is applied to a series of hourly exchange rate returns, which are extremely non Gaussian.

Committee Independence and Financial Institution Performance during the 2007-08 Credit Crunch: Evidence from a Multi-country Study

Manuscript Type: Empirical. Research Question/Issue: Using the data of the 20 largest financial institutions from G8 countries, we explore whether the performance is higher for financial institutions with more independent directors on different committees during the 2007–08 financial crisis. We also examine the moderating effect of a country‐level civil law dummy and firm‐level excessive risk‐taking behaviors on the independence‐performance relationships. Research Findings/Insights: The empirical evidence shows that the performance during the crisis period is higher for financial institutions with more independent directors on auditing and risk committees. The influence of committee independence on the performance is particularly stronger for civil law countries. In addition, the independence‐performance relationships are more significant in financial institutions with excessive risk‐taking behaviors. Theoretical/Academic Implications: Our findings complement existing works to partially resolve the independence‐performance relationship controversies by exploring the independence of different committees. The moderating effects of civil law countries and excessive risk‐taking firms further address the governance environments role in the effectiveness of director independence. Practitioner/Policy Implications: Our results provide important policy implications for financial institutions. The regulation authorities should enhance regulation compliance to improve director independence, particularly for auditing and risk committees in banking industry. Independent directors in the banking industry are supposed to put more emphasis on excessive risk‐taking behaviors, as the financial institutions profit from risk‐bearing earnings.

Comprehensive Disclosure of Compensation and Firm Value: The Case of Policy Reforms in an Emerging Market

We set out in the present study to examine the market value of comprehensive disclosure of information relating to the compensation paid to directors and executives. Under the theory of self selection, firms with higher levels of board independence will tend to provide comprehensive disclosure of compensation, thereby leading to lower agency conflicts. Since the authorities in Taiwan chose to adopt a policy of gradual enforcement of compensation disclosure, firms are provided with discretion with regard to any greater levels of transparency that they may choose to provide. We therefore exploit this unique natural experimental setting to examine the effects of compensation disclosure on market value. The evidence indicates that the market provides a higher valuation only to those firms which elect to voluntarily disclose comprehensive information on their compensation practices. However, we also find that even where such disclosure is in excess of the minimum mandatory requirements, lower levels of transparency in the overall disclosure of compensation practices are of very little help with regard to the creation of market value.

External Financing Needs, Corporate Governance, and Firm Value

We set out in this study to explore the overall impact of external financing needs on corporate governance and firm value, arguing that external financing needs have extremely important impacts on corporate governance, essentially because external financing can prove to be very costly, largely as a result of asymmetric information. Thus, we suggest that improvements in corporate governance of firms with external financing needs could help to reduce costs of outside equity financing. Our results reveal that it is in fact firm valuation that has an effect on governance practices, as opposed to the reverse, and that external financing needs appear to strengthen the influence of the quality of corporate governance practices on firm value. The external forces considered in this study are product market competition, investment opportunities, and external financing needs, with particular emphasis being placed upon the impact of external financing needs, since this relates directly to outside shareholders. Given that poor corporate governance practices signal higher asymmetric information costs, and thus, lead to an increase in the costs of raising external capital, it is important to gain a comprehensive understanding of the impact of external financing needs on firm value and corporate governance. Our results demonstrate the important implications that corporate governance practices have for those firms with a particularly strong need for external equity, and the fact that external financing needs provide incentives for firms to seek out ways of making improvements to the overall quality of their corporate governance practices.

Carrier dynamics in isoelectronic ZnSe1−xOx semiconductors

This study explores the effects of both Oxygen and temperature on the carrier dynamics of isoelectronic ZnSe1−xOx (x=0.027 and 0.053) semiconductors using photoluminescence (PL) and time-resolved PL spectroscopy. We find that the Kohlrausch law is highly consistent with the complex decay traces induced by isoelectronic O traps, and the mechanism of carrier recombination undergoes a complicated change from trapped to free excitons with the increase in temperature. Complex recombination processes are clarified using the relaxation model based on various decay channels. These findings are consistent with the initial fall in the stretching exponent β followed by its monotonic increase with increasing temperature.

The dynamic relationship between the prices of ADRs and their underlying stocks: evidence from the threshold vector error correction model

This paper sets out to estimate the dynamic relationship that exists between the prices of ADRs and their underlying stocks, in both the short run and the long run, using a number of recent developments of the threshold cointegration framework. The empirical results support the notion of nonlinear mean reversion of the prices of ADRs and their underlying stocks.

Portfolio Optimization Models and Mean-Variance Spanning Tests

In this chapter we introduce the theory and the application of the computer program of modern portfolio theory. The notion of diversification is age-old: “don’t put your eggs in one basket,” obviously predates economic theory. However, a formal model showing how to make the most of the power of diversification was not devised until 1952, a feat for which Harry Markowitz eventually won the Nobel Prize in economics. Markowitz portfolio shows that as you add assets to an investment portfolio the total risk of that portfolio – as measured by the variance (or standard deviation) of total return – declines continuously, but the expected return of the portfolio is a weighted average of the expected returns of the individual assets. In other words, by investing in portfolios rather than in individual assets, investors could lower the total risk of investing without sacrificing return. In the second part we introduce the mean–variance spanning test that follows directly from the portfolio optimization problem.

Intraday Liquidity Provision by Trader Types in a Limit Order Market: Evidence from Taiwan Index Futures

This study examines the dynamic liquidity provision process by institutional and individual traders in the Taiwan index futures market, which is a pure limit order market. The empirical analysis obtains several interesting empirical results. We find that trader type affects liquidity provision in a number of interesting ways. First, although institutional traders use more limit orders than market orders, foreign institution (individual) traders use a relatively higher percentage of market (limit) orders in the early trading session and then switch to more limit (market) orders for the remainder of the day until close to the end of the trading day. Second, net limit order submissions by both institutional and individual traders are positively related to one-period lagged transitory volatility and negatively related to informational volatility. Third, net limit order submissions by institutional traders are positively related to one-period lagged spread. Finally, both the state-of-limit order book and order size significantly influence all types of traders’ strategy on submission of limit order versus market order during the intraday trading session.

An Analysis of Long Memory in Volatility for Asian Stock Markets

One of the important questions in studies of asset return and volatility has been how long the effects of shocks persist. In this article, the modified R/S statistic of Lo (1991) and the robust semiparametric method of Lobato and Robinson (1997) are applied to investigate the long memory properties in return and volatility of Asian financial markets. For the return series, we find little evidence of long memory, while the empirical results support the hypothesis of long memory in volatility for Asia-Pacific stock markets. We also discuss the possible causes of spurious long memory effect in volatility, namely aggregation, size distortion, and shifts in variance. Our empirical evidence shows that spurious long memory effect in volatility might occur as a result of shifts in variance for some Asian stock markets.