Thomas A. Fetherston

The international co-movements of Finish stocks

This paper provides new empirical evidence on the international co-movements of Finnish stocks. The vector autoregression (VAR) approach indicates that US and especially Swedish stock markets lead Finnish stock market returns by approximately one or two months. The results based on international market models indicate that the returns of individual Finnish stocks are significantly positively related to those of Sweden, while the relation between Finnish and US returns is significantly lower. The relation seems to vary clearly between industries, some industries being related to US markets as well. Significant time-series instability is reported in the results, however.

Searching for periods of volatility: A study of the behavior of volatility in Thai stocks

Abstract This paper improves the precision of the useful new procedure of Inclan and Tiao (1994) that estimates variance shift points in a time series. It accomplishes this by incorporating the evidence of Bos and Fetherston (1992) that the linear Brown, Durbin, and Evans ( Brown et al., 1975 ) critical CUSUM of squares boundaries [used by Inclan and Tiao] produce an understatement of instability at the data end points. This is solved by Tanizaki (1995) which, like Bos and Fetherston, 1992 , Bos and Fetherston, 1995 , uses the fact that the CUSUM of squares statistic follows a beta distribution. This study uses the Inclan and Tiao procedure with the nonlinear Tanizaki CUSUM of squares boundaries to research volatility in Thai stock returns. The papers empirical results show that, on any trading day, there is a 1.16% chance that a Thai stock will experience a shift in volatility. The results also show that this incidence is not random, and, hence, it is possible to predict the incidence of shifts. Though the results here cannot answer the question of how to do this, we suspect that movements in average return have a role to play. We propose that the culprit may be changes in the average return, and therefore that the estimated volatility shift points may be spurious.

Disintermediation and the Development of Bond Markets in Emerging Europe

The recent financial crises in Asia and Russia have shown that emerging European economies, due to their strong dependence on foreign capital, are highly vulnerable to the excessive volatility of international capital flows. Those economies that pursued sound macroeconomic policies, including setting up functioning financial market systems, have held up well and avoided major spillover effects. We argue that the appropriate approach to meet future refinancing needs is through the development of viable domestic and international bond markets. A key benefit of this strategy will be a reduction in systemic risk and the probability of future crisis.

Are long-term return anomalies illusions?: Evidence from the spot Yen

Abstract This study investigates the sensitivity of the long-term return anomaly observed in the US

SIZE AND BOOK-TO-MARKET EFFECTS IN THE RETURNS ON INFORMATION TECHNOLOGY STOCKS

/Yen currency market to sample and method bias during the period from 11 October 1983 to 21 July 1999. Initially the CUSUM statistic is employed to identify subperiods of sign shifts in the mean returns. Then the dependence in these subperiods is investigated using the Hurst [Hurst, H.E., 1951. Trans. Am. Soc. Civil Eng. 116, 770–799] and the Lo [Lo, A.W., 1991. Econometrica 59 (5), 1279–1313] rescaled range statistics. The results suggest that rejection of the random null is conditional on both the procedure and the period being tested. The Hurst test may incorrectly lead to a rejection of the null hypothesis. However, the Lo test is a more appropriate approach to the data in this study. Thus previous research based on the Hurst test may have inadvertently introduced a method bias.

A Note on the equilibrium relationships between issuers in the Asia Pacific region

This paper explores the relationship between size, book-to-market, beta, and expected stock returns in the U.S. Information Technology sector over the July 1990–June 2001 period. Two models, the multivariate model and the three-factor model, are employed to test these relationships. The risk-return tests confirm the relationship between size, book-to-market, beta and stock returns in IT stocks is different from that in other non-financial stocks. However, the sub-period results (the periods before and after the technology crash in April 2000) show that the nature of the relationship between stock returns, size, book-to-market, and market factors, or the magnitude of the size, book-to-market, and market premiums, is on average unchanged for both sub-periods. This result suggests the technology stock crash in April 2000 was not a correction of stock prices.

Asia Pacific financial markets in comparative perspective : issues and implications for the 21st century

We investigate the relationships between the sovereign bonds issued in international markets by major Asia-Pacific issuers (China, Korea, Malaysia, Philippines and Thailand) and various benchmark US Treasury bonds (2, 5, 10 and 30 year maturities). The results suggest that the equilibrium relationship holds only between pairs of bonds of equivalent credit status. The dynamics of these processes highlight aggregation issues for portfolio managers constructing portfolios of sovereign Asian bonds of different credit ratings.

A perspective on Japan's corporate bond market

The Asia Pacific region is a geographical appellation that many still feel with justification will be the dynamic economic arena for this century. Accepting this premise and acknowledging the importance of the role of finance in that development brings with it the imperative to gain a greater understanding of the unique financial characteristics of the region. This chapter has two major pursuits. The first goal is to provide some background on the various markets of the region. An understanding of institutional detail (size and scope) of the relevant markets affords a view that lends or detracts from the credibility of intermarket comparisons. An exposure to institutional detail also supplies information that may bear on the statistical results of the empirical analysis. The vital roles played by stock markets of pricing capital, issuing new shares, providing a liquidity-creating secondary feature, serving as a vehicle for asset transfer and providing a linkage to international capital markets are as important to emerging markets as to developed countries. However, fixed income markets are still not as well developed in emerging markets and therefore an even heavier capital sourcing burden is placed on emerging stock markets. The Asia Pacific region derivatives markets (futures and options) play their risk-transfer role in equity and fixed income areas and are integral to the scene. The second pursuit in this chapter is to provide a thumbnail sketch of each of the contributions. The summary will include the nature of the empirical work, the type of methodology or statistical technique applied, and the results. In addition the results will be viewed in light of any reinforcement or digression from a priori expectations drawn from other markets. This volume contains 19 original research papers from 36 authors who represent major academic and financial institutions around the globe.

European Fixed Income Markets : Money, Bond and Interest Rate Derivatives

In the past decade, academic research has been awash with proposals on how Japan should reform, redesign and administer its bank-based financial system (Schinasi & Smith, 1998; Kuratani & Endo, 2000; Hattori, Koyama, & Yonetani, 2001; Rhee, 2001; Baba & Hisada, 2002; Batten & Szilagyi, 2003). Until the late 1980s, this unique regime, involving banks having cross-ownership with industry, was a driving force behind Japans post-war economic miracle. However, the burst of the asset bubble, and the subsequent prolonged ailing of both the banking sector and the economy as a whole suggests that during the bubble period, the monitoring effectiveness of banks was compromised by a lack of independence from industry and the absence of external discipline. This banking crisis ultimately impaired the corporate sectors fund-raising ability, while trapping excess liquidity in the financial system through a lack of attractive investment choice afforded to risk-averse Japanese investors.