Mohsen Saad

Intra-regional integration of the GCC stock markets: the role of market liberalization

The study examines empirically whether, and to what extent, equity markets in the Gulf Cooperation Council (GCC) are integrated inter-regionally. According to the official Charter of the GCC, building stronger ties among financial and capital markets of member states is a chief objective of the GCC. The results for the equity markets of Saudi Arabia, Kuwait, Bahrain and Oman suggest that these markets share a common stochastic trend that binds them together over the long-run. The results from alternative tests also indicate that measures taken since 1997 to liberalize the capital markets in the Gulf region are at least partly responsible for linking the Gulf markets. At least two implications emerge from these results. First, portfolio diversifications in the context of the Gulf region should bring little or no benefits to investors with long-term horizons, although short-term gains remain a possibility. Second, further steps to liberalize capital markets in the region appear an appropriate strategy for achieving a more integrated capital markets in the Gulf.

The Sound of Silence

Using comprehensive electronic data collected directly from NASDAQ systems, we assess the impact of changes in electronic message traffic on predicting short-term changes in prices, spreads and quoted depth levels. We document evidence that message traffic at, and nearby, the inside quotes predicts upcoming price and quoted depth changes as much as 75 seconds in advance. Controlling for the time series properties of silent information, past price, volume, electronic communication network volume, time-of-day, and firm-specific fixed effects, we find that message traffic is strongly related to short-term returns. Our results demonstrate that modern electronic trading systems can be employed by high-frequency traders to effectively forecast short-term market conditions.

Accidents airline safety perceptions and consumer demand

This paper assesses the impact of perceptions about the safety level of airlines on enplanement. Consumer perceptions are specified with a Poisson distribution that updates over time. Using two different empirical specifications via a pooled generalized least squares procedure with fixed effects; we find no statistical evidence of a correlation between the perceived level of safety and enplanement. However, under an alternative specification in which the severity levels of accidents are ranked, we find that safety perceptions about accidents with minor injuries have no statistically significant impact on enplanement, while perceptions about accidents with serious injuries and fatalities lead to cumulative decreases in enplanement.

Pricing, Dynamics, and Determinants of Illiquidity Risks: International Evidence

We estimate conditional LCAPM illiquidity risks for common stocks in emerging and developed markets. We find that illiquidity risks are determined by local factors for both markets and are more strongly priced in emerging markets. Illiquidity risks exhibit no time trend and experienced an increase during the recent financial crisis that is not completely reversed a year after. Finally, we explore the determinants of illiquidity risks and find that business cycle determinants have similar explanatory ability in both sets of markets, while the effect of monetary policy and liquidity funding is more strongly supported in developed and emerging markets, respectively.

Idiosyncratic Volatility Forecasting in the Stock Market of Saudi Arabia

ABSTRACT We test the forecasting ability of two sets of models, one containing historical volatility–based models and the other conditional volatility–based models, on estimates of idiosyncratic risk of individual Saudi Arabian stocks. While the rankings of forecasts are sensitive to the choice of error statistics, historical volatility–based models appear to be superior, unless the model employed to generate the underlying idiosyncratic return series incorporates higher moments. Exponential smoothing models, with a seasonal component in particular, display superior forecasting performance regardless of whether the idiosyncratic volatility estimates are generated at the local (Saudi Arabian) level or the regional (Gulf Cooperation Council [GCC]) level. The results are of particular interest to investors that are not mean variance optimizers.

Floor information and common variations in liquidity

Specialists constantly update information based on the price movements of the stocks that trade nearby. The study argues that this process of changing quotes to reflect floor information may lead to contemporaneous co-variation in liquidity measures. The evidence indicates that individual stock liquidity co-varies with liquidity of the portfolio of stocks that trade in its proximity apart from the information reflected by market liquidity variation. Further tests indicate that the degree of commonality in liquidity decreases with the distance between different trading locations.

Intraday pattern in liquidity covariation: evidence from NYSE listed firms

Microstructure literature suggests common factors in liquidity measures. However, research on the intraday behaviour of liquidity commonality is scant. Because of higher information and inventory holding costs during the first and last half-hours of trading, we argue that liquidity covariations should increase during these half-hour trading periods. Our results from NYSE intraday data support a U-shaped pattern for liquidity covariation. These results have important implications for regulators, investors and academics.

Do common variations in liquidity exhibit a U-shaped pattern across weekdays?

Anomalies and stock returns have been studied thoroughly in the realm of asset pricing. This work is motivated by the lack of such studies on liquidity co-variation patterns. Earlier research documents market-wide commonality in liquidity. However, empirical work on the temporal behaviour of this observed commonality across trading weekdays has surprisingly been nonexistent. Given the well documented inverted U-shaped pattern of trading activity across weekdays, and the negative relation between trading costs and volume, it is argued that commonality in liquidity should exhibit a U-shaped pattern across weekdays. The empirical evidence supports this hypothesis. In particular, liquidity co-variations were found to be significantly higher on Mondays and Fridays. The contention that liquidity co-variations exhibit a U-shaped pattern is undoubtedly of interest to portfolio managers, investors, egulators, and academics.

Commonality in Liquidity: The Culture Channel

In this paper, we explore the link between culture, measured by collectivism, and commonality in liquidity for 51 countries over the period 1985 to 2012. We provide evidence that commonality in liquidity is higher for stocks that trade in collectivist countries, after controlling for supply-side and demand-side determinants of liquidity as well as a host of country- and firm-level variables. The impact of collectivism is statistically and economically significant. Our findings are robust to: alternative proxies for collectivism, sample composition, endogeneity concerns, and alternative estimation methodologies. We finally observe that collectivism has a stronger influence on co-movements between stock and market liquidity when both are simultaneously decreasing.