Maria Heui-Yeong Kim

Dynamic forecasts of financial distress of Australian firms

Dynamic forecasts of financial distress have received far less attention than static forecasts, particularly in Australia. This study, therefore, investigates dynamic probability forecasts for Australian firms. Novel features of the modelling are the use of time-varying variables in forecasts from a Cox model. Not only is this one of relatively few studies to apply dynamic variables in forecasting financial distress, but to the authors’ knowledge it is the first to provide forecasts of survival probabilities using the Cox model with time-varying variables. Forecast accuracy is evaluated using receiver operating characteristics curves and the Brier Score. It was found that the dynamic model had superior predictive power, in out-of-sample forecasts, to the traditional Cox model and to the logit model.

Macroeconomic shocks and stock market returns: the case of Korea

ABSTRACT This study examines the effects of macroeconomic shocks on key macro variables, including stock market returns in Korea, using the structural vector autoregression (SVAR) model. We suggest a three-variable SVAR model incorporating inflation, output growth and stock returns. We adopt a nonzero z-ratio restriction for the long-run identifying assumption to allow for economically meaningful relationships among variables. While our results support the negative (positive) relation of demand (supply) shocks to stock returns, we also find that demand shocks influence stock market variance more significantly than supply shocks do. The sub-period analysis finds that global market fluctuations during the global financial crisis have relatively little effect on Korean stock market performance. We also examine a generalized five-variable model that includes the foreign exchange rate and interest rate, confirming the results from the three-variable case.

Information Asymmetry and Trading Behavior by Investor Types Around the Bond-Rating Change Announcements

This study examines the stock-market reactions to public announcements (corporate bond-rating changes), in association with stock prices and investor behavior on trading volumes and trading patterns in the Korean stock market, a representative leading emerging market. Abnormal returns, abnormal volumes, and net order imbalance are estimated, using the high-quality and unique transaction data of Korean firms whose bonds have been rated by Korea Investors Service, NICE Investors Service, and Korea Ratings between 2000 and 2015. Our empirical finding shows positive (negative) abnormal stock returns around upgrades (downgrades), although stock-price reactions to downgrades are statistically more significant than those to upgrades, consistent with findings from previous studies. Significant abnormal volumes and order imbalances are found around rating changes, and the extent to which each investor group (domestic individuals, domestic institutions, and foreign investors) reacts to rating changes varies, which provides evidence for information superiority of domestic institutional investors and foreign investors in the Korean stock market.

Survival prediction of distressed firms: evidence from the Chinese special treatment firms

ABSTRACT In the Chinese stock market, firms experiencing financial distress have been imposed on a Special Treatment (ST) cap by the China Securities Regulatory Commission. Using a sample of 441 ST firms tracked from 1998 to 2011, this paper employs a Cox proportional hazards model to predict turnaround probability for a distressed firm to remove the ST cap. The predictor variables incorporate (1) accounting-driven ratios, (2) market-driven variables, and (3) information on ownership structure and restructuring status throughout the process. In contrast to previous distress studies, this paper finds that market variables do not add predictive power to the model when combined with accounting variables. Also, incorporating the time effect, the results show that the survivor function for an ST firms survival is negatively related to the duration, and that the Cox hazards model outperforms the logit model in the out-of-sample forecast.