Said Elfakhani

The effect of split announcements on Canadian stocks

Abstract This paper examines the market behavior surrounding stock split announcements in the Canadian market for the 1977–1993 period and the effect of the 2-year before compared to the 2-year after the announcement. Using the event study methodology, the findings indicate that positive abnormal returns (AR) exist on both the announcement days (0,1) and the 11-day period surrounding stock split announcements. The results also show that following the split event, bid-ask spreads decrease, while both trading volume and the number of transactions increase, thus suggesting that split events enhance liquidity. Further, it appears that earnings grow in the 2-year period following split events, thus implying that split events signal future performance of the firm.

The volatility effect of option listing: Some Canadian evidence

Abstract This paper examines the effect of the Canadian option listings on the volatility of the underlying stocks. Towards this end, this paper adjusts for contemporaneous change in market volatility and regression tendency of beta, and employs distribution-free Moses test of a change in variance. On average, Canadian option listings reduced the variance as well as the beta of the optioned stocks during the early years of trading (1970s). Surrounding the market crash of October 1987, option listings tended to increase the beta, but not the variance. A comparison of simultaneous listing of call and put options to listing of call options only reveals that put options reduce the beta as well as the variance of the underlying stock.

Foreign direct investment in the Middle East and North Africa region

This paper examines foreign direct investment (FDI) inflows in the Middle Eastern and North African (MENA) region, and attempts to identify their possible explanatory determinants. Nineteen countries are sampled for an 11-year period (1990–2000), and then we present an overview of the relationship between these foreign inflows and gross fixed capital formation (domestic investment) of MENA countries. Our test findings show that the previous years FDI, country openness, return on investment, membership of the World Trade Organisation, and being an oil-exporting country are all valuable predictors of country FDI inflows, and this relationship has been positive in the 1990–2000 period. These results, however, were found to be time-dependent as some variables were significant in the first sub-period 1990–1995, while other variables were significant in the 1996–2000 sub-period.

Short positions, size effect, and the liquidity hypothesis: implications for stock performance

This study focuses on the relationship between short interest and subsequent stock returns. It also deals with the question of whether this relationship itself is attributable to firm size. In this context, this study investigates: (1) whether short sellers are correct in their predictions and whether these predictions can benefit other investors, (2) whether returns on short positions are related to firm size, and (3) whether the liquidity hypothesis or the differential information hypothesis can explain the relationship between firm size and short selling. The results support the notion that short sellers made correct predictions of price movements during the sampling period, 1986–1990. The results also show that following the monthly report of short interests, investors can still earn higher returns on shorted stocks, especially the small ones. Finally, the results maintain that short interest positions on less-liquid overpriced small stocks are more profitable than more-liquid overpriced large stocks, thus supporting the liquidity hypothesis. Overall these findings do not display seasonal differences, especially in January.

Globalization and Investment Opportunities: A Cointegration Study of Arab, U.S., and Emerging Stock Markets

Using a sample of Arab, U.S., and emerging stock markets from 1997 to 2002, this study is designed to determine if international diversification is still possible despite growing globalization and the consequent integration among various stock markets. Our results show that within Arab markets, Kuwait cointegrates individually with Jordan, Tunisia, and Saudi Arabia and between Tunisia and Jordan, thus offering investors possible continued diversification opportunities. On the other hand, only Jordan, Kuwait, and Morocco are cointegrated with the U.S. general market index, implying that these markets offer a probable substitute for those investing in the U.S. markets.

The expected favourableness of dividend signals, the direction of dividend change and the signalling role of dividend announcements

This paper proposes that corporate private information is transmitted to the market in two complementary phases. The accounting information is released first, followed by a dividend change announcement. Hence, investors assess the dividend signal only after consideration of accounting information. The analysis suggests that the dividend signal has three components: the expected favourableness of a dividend signal (good, bad, or ambiguous), the direction of dividend change (+ or -) and the role of the dividend signal (confirmatory, clarificatory or unclear) in clearing corporate uncertainty. The mechanism of classifying the signal according to the three components is presented and tested. Consistent with the dividend literature, dividend change announcements are found to influence share prices. Also, the role of dividend signals has a distinguishable effect on the firms share price. Nevertheless, the expected favourableness of a dividend signal emerges as the dominant factor among the three signalling components.

An analysis of net FDI drivers in BRIC countries

Purpose – The purpose of this study is to identify the main drivers which can explain the relative success of BRIC countries (i.e. Brazil, Russia, India and China), collectively and individually, in attracting foreign direct investment (FDIs). Unlike previous studies that have identified gross domestic product (GDP) as a major determinant, we find that for the sampling period 1980-2008, social variables (namely, high population growth and educated labor) and political variables account for 40 and 7 per cent of the variance in net inward FDI, respectively, and no importance for economic variables. Interestingly, for a sub-period (1999-2008), we observe the salience of financial (namely, sizable GDP economy, favorable net trade balance and controlled currency risk and sovereign debt risk) determinants of inward FDI (R2 is 44 per cent). On the other hand, when testing individual countries, it seems that FDI determinants are not universal as each country enjoys different characteristics and sources of strengt...

Intertemporal Test of Beta Stationarity Performance of Islamic Sector Structured Mutual Funds

The purpose of this research paper is to examine social Islamic mutual funds’ financial performance. Since Islamic mutual funds have only been around for the past two decades, most of the research on this topic is fairly new. In this study we apply the single factor model of Schwert and Seguin (1990) to a sample of Islamic mutual funds. The Islamic mutual funds market is one of the fastest growing sectors within the Islamic financial system. Several studies have investigated the characteristics of individual Islamic mutual funds (see Elfakhani, et al (2006), Elfakhani ,et al (2005), and Hassan, et al (2005). We are not aware of any studies that have applied the Schwert and Seguin methodology to Islamic mutual funds. Such an application is important because it allows for studying the impact of market volatility on the time variation of monthly betas and the corresponding returns. Using the S&P 500 and the FTSE Global Islamic indices on sector structured Islamic mutual funds, our results suggest that the volatility of the market and that of the Islamic mutual funds portfolio behave differently with inter and intra market proxies. There is also evidence that the volatility persistence of each Islamic mutual fund portfolio and its systematic risk are significantly related. Hence, the systematic risks of different portfolios tend to move in a different direction during periods of increased market volatility. As a result, we gain an insight into the return dynamics and the process by which Islamic mutual funds prices are determined.

Intermarket spread opportunities between Canadian and American agricultural futures

Abstract This study extends Carters (1989) study of the efficiency of Canadian canola and American soybean oil futures markets during 1981–1987 to a new period (1988–1993). It also uses a different spread strategy than Carter to see if the same conclusions hold for canola and soybean as well as Canadian feed wheat and American wheat futures. Our findings confirm that in the 1981–1987 period there were no opportunities for intermarket spread profit between canola and soybean oil futures and between feed wheat and wheat futures. Our findings for the period 1988–1993, however, suggest there were some opportunities for such profits. Thus, it was possible for floor traders (and possibly institutional investors), who paid low transaction costs, to experience some additional profits. We also find that these opportunities are neither due to changes in currency values over time, nor to the use of weekly or daily exchange rates. Nevertheless, nonparametric tests show that spread profits are statistically insignificant.

Thin trading and mispricing profit opportunities in the Canadian commodity futures

Abstract This study examines whether thin trading problems in the Canadian futures market can create mispricing profit opportunities for canola and feed wheat futures traded over the period 1981 through 1993. A forecasting model is developed using historical and publicly available information to predict futures closing prices for these contracts, then two trading rules (a confidence interval and a percentage price change filter) are used to determine their profit potentials. The size of profits generated from trading canola futures under either rule during the period 1987–1993 is consistent with C. Carters (1989) earlier results that no market inefficiency was detected during the 1980–1987 period. Similarly, profits from the Canadian feed wheat thinly traded contracts and from a control group using the highly-liquid American soybean oil and wheat contracts do not violate the efficiency theory. The average gross profit per trade analysis further suggests that net positive profits may not be viable for marginal investors.