Naceur Essaddam

Political Uncertainty and Stock Market Returns: Evidence from the 1995 Quebec Referendum

In this study, we investigate the short run effect of the 30 October 1995 Quebec referendum on the common stock returns of Quebec firms. Our results show that the uncertainty surrounding the referendum outcome had an impact on stock returns of Quebec firms. We also find that the effect of the referendum varied with the political risk exposure of Quebec firms, that is, the structure of assets and principally the degree of foreign involvement.

Event-study volatility and bootstrapping: an international study

This paper examines the impact of terrorism on volatility of stock returns over 17 market indices between 1994 and 2005. Using a volatility event study approach methodology, we find that terrorism has a significant impact on the stock market volatility. We also propose a new semi-parametric bootstrap technique which consists in re-sampling the rescaled residuals obtained from the estimations of GARCH equations before the event and using a moving block approach where the residuals are chosen in a chronologically consecutive manner each time we generate a bootstrap sample. This technique provides a better way to perform inference that is more reliable on finite samples than inference based on conventional asymptotic theory.

A New Framework for Foreign Exchange Risk Management in the Canadian Department of National Defence

There has been little research on the applicability and utility of private sector financial risk management practices within public or non-profit institutions and in particular the Canadian Department of National Defence. We examine the historical magnitude of the DNDs USD foreign exchange exposure (averaging 7.1% per annum over the study period April 1990 to October 2002) and compare the current no hedge approach to a passive and active financial hedging strategy. The results of our study suggest that an active hedging strategy employing one-year plain vanilla forward contracts consistently outperforms the DNDs current no hedge approach and reduces the impact of adverse currency fluctuations in the order of 2.2% per month. Furthermore, the use of forward currency contracts lessens the impact of exchange rate fluctuations experienced between the time of budget allocation and expenditure and offers a greater degree of stability in the planning, budgeting and liquidating of foreign currency obligations. Foreign currency hedging affords an opportunity to limit the DNDs foreign exchange risk and achieve a significant level of savings on its annual foreign currency expenditures. This approach could be of benefit to other Canadian Government departments and potentially other nations with similar forms of foreign currency exposure.