Steve Easton

Australian evidence on the implementation of the size and value premia

This study investigates whether passive investment managers can exploit the size and value premia without incurring prohibitive transaction costs or being exposed to substantial tracking error risk. Returns on the value premium are shown to be pervasive across size groups, while the size premium is nonlinear and driven by microcaps. The value premium cannot be explained by the capital asset pricing model; however, returns on value portfolios do covary across monetary regimes. The substantial turnover required to achieve annual rebalancing and the relative illiquidity of Australian small‐cap firms means that investing in a portfolio of large‐cap value firms appears to be the best way for passive fund managers to exploit the Fama and French (1993) premia.

Interest rates and the 2004 Australian Election

During the October 2004 Australian federal election campaign the expected or possible effect of the election outcome on interest rates was a key point of differentiation between the Australian Labor Party and the Liberal–National Party coalition. The purpose of this paper is twofold. First, we examine whether this effect was a significant factor in the election outcome, as measured by the percentage swing towards the coalition in each electorate. Second, we use standard methodology from financial economics to examine whether the election outcome had an effect on interest rates. Contrary to media coverage of the campaign, we find that the election result did have an effect on interest rates but that the possibility of interest rate changes was not a dominant factor in the election result.

An examination of the Australian Stock Exchange andAustralian Financial Review 's fair values

Purpose - The paper seeks to examine fair values provided by the Australian Stock Exchange (ASX) and reported daily in the Design/methodology/approach - Values reported in the Findings - The results document that between 1 and 2 per cent violate the most fundamental option relationships, specifically the requirement for call and put option values to increase as term to expiry increases, and for call (put) option values to increase (decrease) as exercise price decreases. Further, the magnitude of these violations is too large to be explained solely by the bid-ask spread. They are, nevertheless, consistent with staleness. Further, in nearly 30 per cent of cases these fair values violate the basic put-call parity relationship. The type of these violations is also consistent with these values being stale. Research limitations/implications - Simple screens should be included to remove fair values that breach the most basic relationships. Originality/value - The paper is the first to highlight flaws in fair values provided by the Australian Stock Exchange (ASX) and reported in the