Neal Maroney

Country risk and stock market volatility, predictability, and diversification in the Middle East and Africa

Abstract With globalization, an understanding of country risk (political risk (PR), financial risk (FR), and economic risk (ER)) and its impact on stock market return volatility and predictability is important for evaluating direct investment and country selection decisions in globally and regionally diversified portfolios. This paper examines these issues in the context of the Middle East and Africa (MEAF) and analyzes 10 stock markets in the region over the period 1984–1999. After examining volatility and predictability, this paper explains how portfolios of stocks can be formed from these countries in order to achieve mean–variance efficient portfolios. This paper generally finds that country political, financial and economic risks significantly determine stock volatility and predictability. The diversification exercise shows that an international investor can still benefit by diversifying into the stock markets of Middle East and African countries.

The Book-to-Market and Size Effects in a General Asset Pricing Model: Evidence from Seven National Markets

The positive relation of returns with Book-to-Market ratio (BE/ME) and their negative relation withMarket Value(MVE) remains strong under a general stochastic discount function (SDF) that does not depend on a specific asset pricing model and avoids potentially serious simultaneity biases inherent in the Fama and French three-factor model. However, we find that SDFs that include the equivalent of the HML portfolio do not span all asset sub-spaces, even with additional conditioning information. Finally, macro and financial variables we introduce to the pricing functions do not offer an alternative explanation of the BE/ME effect. JEL Classification codes: G10, G12, G15, G30.

Changing Risk, Return, and Leverage: The 1997 Asian Financial Crisis

This paper explores risk and return relations in six Asian equity markets affected by the 1997 Asian financial crisis. After the start of the crisis, national equity betas increased and average returns fell substantially. Beta increases due to leverage linked to exchange rates. The increase in expected return needed to accompany this rise in beta is made possible through the creation of capital losses that lower average returns. We propose a new probability-based asset pricing model that captures leverage effects using valuation ratios. Results show the role of leverage in explaining the likelihood of the financial crises. Crosssectional evidence supports time-series findings.

An Empirical Examination of Stability, Predictability, and Volatility of Middle Eastern and African Emerging Stock Markets

This paper examines the stability, predictability, volatility, time varying risk premiums and persistence of shocks to volatility in the ten Middle Eastern and African (MEA and the volatility movement affects the stock market returns. In summary, eight emerging markets have volatility clustering and one market shows positive and significant time varying risk premiums. Overall, the results fail to indicate time varying risk premium in nine of the ten ME&A markets. Although many of the emerging markets in ME&A regions are in the formative stage, it is felt that ME&A equity markets are where investors may find a good return for the investment, considering the trade-off between risk and return. In particular, the correlation is found to be low, which provides investors with the opportunity for diversification.

A macroeconomic model of the Bangladesh economy and its policy implications

This paper develops a macroeconometric model for the Bangladesh economy using nine key macroeconomic variables employing annual data from 1974 to 2000. The methodology employed in this paper uses unit root and Johansens cointegration tests followed by vector error correction model and variance decomposition to examine the dynamic relationships among macroeconomic variables. Our results show that within the context of Bangladesh, monetary policy is more important than fiscal policy. As significant amount of development expenditure for Bangladesh comes from foreign donation, it is also argued that this aid must be channeled to productive activities so that it contributes to economic growth. The domestic export base has also to be widened and diversified.

AIG's announcements, Fed's innovation, contagion and systemic risk in the financial industries

We examine the effects of the American International Group, Inc.’s (AIGs) loss announcements and the Federal Reserves subsequent innovation in the financial sector. Analysis of seemingly unrelated regression on the returns of four financial industries – banking, insurance, brokerage firms and savings and loan institutions (S&Ls) for the period 5 September 2007 to 31 December 2008 reveals that, the Federal Reserves announcements on 16 September 2008 and on 8 October 2008 to pledge

EFFICIENCY, VALUE ADDITION AND PERFORMANCE OF US BANK MERGERS

85 billion and

The Impact of Financialization on the Benefits of Incorporating Commodity Futures in Actively Managed Portfolios

37.8 billion, respectively, to save the AIG, have the most impact on the financial industries. All four industries are sensitive towards shocks in short- and long-run interest rate returns and market returns. We find evidence of significant contagion effect between insurance and banking industries and incremental systemic risk in all financial industries after the bailout by the Federal Reserve. We do not find any significant evidence supporting the Federal Reserves perception of AIG to be too-big-to-fail.

The Wealth and Risk Effects of the Gramm-Leach-Bliley Act (GLBA) on the US Banking Industry

There is little consensus regarding the overall performance of mergers and acquisitions in the banking industry. The goal of this paper is to investigate the change in operating performance, efficiency, and value addition of US bank mergers and acquisitions after GLBA. We extend the previous research by combining all the previous methodologies used in mergers and acquisitions studies and add a new methodology, namely Expected EVA improvement. We will test whether these performance metrics yield similar results or if the performance of mergers varies depending on the measurements. We will also examine the factors that have significant impact on changes in bank performance. Our empirical results lead to the conclusion that the industry-adjusted operating performance of merged banks increases significantly after a merger. This finding is consistent with the findings of Cornett et al. (2006). We also find that the acquirer expected EVA improvement increases significantly after a merger. Revenue enhancement opportunity appears to be more profitable if there exists more opportunity for cost cutting such as geographically focused and diversified mergers. Product diversification mergers increase the industry adjusted performance more than product focused mergers. The efficiency or profitability of targets have either a positive or no effect on acquirer performance.

Diversification Benefits of Japanese Real Estate Over the Last Four Decades

This paper examines the return performance and diversification benefits of both buy-and-hold and tactical portfolios of commodity futures. We fuse together both of these highly desired investment benefits of the unique asset class to provide a thorough analysis of the commodities market given the changes it has undergone over the last decade due to the rapid increase in investor participation. We find that tactical portfolios based on basis and net speculation offer the highest potential returns. However, in the post-2000 era, the risk-adjusted returns of many of the commodity portfolio examined are insignificant. Furthermore, we find the diversification properties of these commodity portfolios have largely broken down for investors of traditional buy-and-hold benchmark portfolios, and to a lesser extent actively managed equity-based benchmark portfolios, since the early 2000’s. This breakdown has been much less severe for the international buy-and-hold portfolios when compared to the US domestic buy-and-hold counterpart.