Paulina Roszkowska

Issuing Bonds, Shares or Staying Private? Determinants of Going Public in an Emerging Economy

The Warsaw Stock Exchange is one of Europe’s largest exchanges by the number of IPOs, although it retains features of a market in post-transition countries, including a relatively small size, shallowness and a weak institutional framework. In this study, we use a large dataset to explore firms’ decisions to issue equity on the main or alternative market and debt on the bond market. We observe that in general, larger, more profitable firms are more likely to go public, although in contrast to developed economies, these firms tend to be younger. Moreover, we find that current market valuation positively affects the decision to go public on the main market, and we establish that highly leveraged companies are more likely to issue either shares on the alternative market or bonds. At the same time, however, we observe that firms issuing shares on the alternative market are most likely to manipulate their profitability prior to going public.

(Ab)Normal Returns in an Emerging Stock Market: International Investor Perspective

This paper studies the comparative attractiveness of public equity investments in the Polish (emerging) and in the U.S. (advanced) stock markets in the years 2000–2013. Through an original implementation strategy based on one- and multi-factor asset pricing models, we find that the potential for abnormal profits is higher in the Polish stock market, specifically in conjunction with size and profitability anomalies. This result is persistent throughout all models and robustness checks. We evidence that the Fama–French five-factor model fares best in an international setting, yielding additional abnormal returns of 0.19 percentage point per month. Additionally, we show that an international investor should apply local, rather than global, risk factors to properly assess relative abnormal investment opportunities between markets.

Counterintuitive Investment Opportunities in the WSE. Evidence from the Field of Asset Pricing

How mispriced is the equity in emerging economies? We join this academic discussion by studying stock returns in the contemporary stock market of Poland. We test for abnormal excess returns yield using classic and modern asset pricing models. We report the evidence of certain time-varying return patterns that show investment potential. While size, investment, and momentum effects are not unequivocal enough to advertise them as trading opportunities, strategies based on profitability and value anomaly are evident and persistent throughout different investment climates. Counterintuitively, at an aggregated level we report higher level of mispricing, and thus higher abnormal investment opportunities, in the period of bear market and stable macro-conditions (2000-2006) than during and after the recent global financial crisis (2007-2013). We advocate that in emerging stock markets, like the Warsaw Stock Exchange, investors’ asset pricing skills outweigh the effect of international portfolio rebalancing in the process of asset pricing.

IPO Mispricing. Evidence from Aftermarket Performance Tests and a Natural Experiment in Poland.

We exploit a natural experiment arising from the government-forced changes to the assets under management and investment policy of the Polish pension funds. We test whether this new regulation and its resultant demand shock on the investors’ side, leads to changes in the IPO pricing and subsequent stock’s performance. We report a material and statistically significant decrease in the IPO proceeds (IPO size) in the post-treatment period equal to over 100 million PLN. We find no empirical evidence that the treatment had a significant effect on the first-day IPO underpricing or on the long-term underperformance. We conclude that demand shock resulting from the pension fund reform effectively eliminates the so-called ‘pension premium’ of higher IPO valuations.

The Role of a Bank’s Treasury under the New Macro-Conditions

This study investigates the contemporary challenges faced by banks’ treasuries and shows how the treasury function is being transformed across the banking sector. Using a comprehensive sample of international surveys of banks representing both the emerging and advanced markets, we analyse current and future (stressed) macro-conditions affecting financial institutions to assess the expected reaction of banks’ treasuries to events of tighter credit and liquidity, and we document that the main problem boils down to the risk of interest rates hikes, followed by disruptions in the FX and money markets. In search of revenue diversification, banks turn to trading for the wealth management; trading for the corporate customers; structured derivatives; and revising balance sheet management. We report that banks are considering establishing a secondary market for their products in order to launch new revenue sources, and eventually become market makers. This paper also argues that Basel III capital for interest rates on the banking book rule and liquidity requirements constitute primary concerns and obstacles for banks’ treasuries. Finally, the paper advises banks on the optimal treasury strategies along with the necessary steps that should be considered during the implementation of the new treasury roles.This study investigates the contemporary role of banks’ treasuries and shows how the trea-sury function is being transformed across the banking sector. Using a sample of internationalsurveys of banks representing both emerging and advanced markets (with 35% of banks rep-resenting the Asia–Paci�?c region), we analyze the current and future challenges faced by trea-suries. Including the Asia–Paci�?c banks in the analysis enables comparison of how thetreasury departments differ in their search of revenue diversi�?cation under the conditions oftighter credit and liquidity, and what are the problems associated with treasury productsoffering as part of the revised strategies.

Appetite for Risk in Emerging Stock Markets

Based on qualitative empirical research, we examine the extent to which Central European emerging stock markets were affected by the recent international financial crisis, and how the current investment climate influences investments in Polish equities. We find that global financial crisis induced changes to domestic and international investors’ appetite for risk related to equity investments in emerging stock markets: (i) investors are more prudent about emerging markets but Warsaw stock exchange still shows substantial growth potential and positively distinguishes itself among other Central European stock exchanges; (ii) capital market practitioners’ feel that the risks attached to investing in the Warsaw stock exchange have evolved but have at their disposal tools to manage said risks; (iii) emerging markets equities are an attractive component of the international portfolio diversification, provided trading strategies are adjusted to the contemporary investment environment. With insights from practitioners we also contribute to the international debate on investor protection and regulations that can improve the investment processes.

Model of Financial Crisis Contagion: A Survey-Based Simulation Using Modified Kaplan-Meier Survival Plots

Purpose: The current paper attempts to contribute to the vigorous debate about policies and regulations that would shield financial markets’ participants from future events of the financial turmoil. In doing so, the paper aims to broaden the picture of the financial crisis contagion and set it against the background of contemporary European markets. The main purpose of this paper is to present novel aspects of the financial crisis contagion, hence clarifying the contagion theory that still remains confusing and ambiguous for both the academics and financial market practitioners. This, however, requires a detailed overview of international financial linkages between markets, with particular attention paid to spot vulnerabilities in regulatory frameworks that allowed for the financial crisis contagion to spread. Henceforth, the current research paper attempts to address issues associated with the overconfidence of policy makers and financial supervisory authorities which believed that the financial crises affecting advanced markets would not be transferred to the emerging ones.This research paper is designed to deal with the notion of the international financial crisis contagion that still remains the least understood phenomenon confusing practitioners associated with financial markets worldwide. As spotted by Rigobon (2002), a lack of comprehensive knowledge of the ways financial crises spread throughout stock markets caused substantial investment losses. These losses were manly incurred by investors diversifying their portfolios with suboptimal choices. Therefore, a study that would shed light on the contagion processes across contemporary financial markets would be of great benefit to global investors. To this point, the current research paper focuses on the financial crisis contagion by adopting stock market practitioners’ perspectives. Moreover, the paper attempts to report findings that could contain useful advice for emerging markets’ authorities by suggesting an implementation of policies, stock market regulations, stimulus packages and fiscal plans that consider and manage the cross-market transfers of investment risks. This, however, does not suggest that markets lack regulations; rather this paper argues that the current policies are not effective in dealing with nascent problems concerning global capital flows. Addressing, these emergent problems require a more insightful analysis that would prevent from the occurrence of overregulation – e.g. taxation of capital flows as suggested decades ago by Tobin (1972), recently discussed within the structures of European Union. In addition, this paper acknowledges that the choice for macro-prudential supervisory systems should account for country-specific factors when dealing with the financial crisis contagion.Finally, the current paper aims to address the question whether financial crises can be predicted, especially in terms of their contagion across markets – this would provide implications of interest to international investors willing to diversify their portfolios with assets traded on European markets. This question remains open in academic circles and among practitioners associated with financial markets worldwide. To this point, the current research paper attempts to broaden the context of the financial crisis contagion to encompass the European markets that constitute international investment hubs attracting large numbers of practitioners. Especially important remains the focus on Central European emerging stock markets, as these investment hubs remain relatively under-researched.Design: The current paper builds on a simulation model for the financial crisis contagion that is rooted in the qualitative query and backed by semi-structured interviews with financial markets’ participants who possess extensive knowledge about the functioning of European markets and their interconnectedness. The methodology is rooted in the modified model of the Kaplan-Meier Survival Plots.With this in mind, the current paper adopts an international investor’s perspective on implications that stem from the linkages between European financial markets, flawed regulations and the absence of cross-border monitoring of the financial crisis contagion. By shifting its focus on Europe, this paper attempts to illustrate cross-market linkages between diverse groups of advanced and emerging markets. Such diversified research background enables the simulation model included to capture how propagation factors/links were being modified at different stages of the current financial contagion. Thus this paper strives to enrich the reviewed existing academic literature with novel and pioneering findings suggesting that the contagion factors/links are not constant over the period of transmission of the financial turmoil across European markets.Originality and Value: The current paper addresses the issues of the financial crisis contagion that belong to the group of the most commonly referenced yet least understood notions in finance. Furthermore, the paper focuses on addressing the recently exposed fragility of financial markets’ surveillance and regulations. In doing so, the paper employs a pioneering approach to a simulation of the financial crisis contagion by embarking on a qualitative query rather than empirical data. Henceforth, the limitations of the empirical simulations – experienced in the past studies devoted to investigation of the financial crisis contagion – were ameliorated and the findings presented in the paper became of practical use for the markets’ practitioners and policymakers.