Vanitha Ragunathan

The Determinants of Credit Ratings: Australian Evidence:

We examine the impact that various financial and industry variables have on credit ratings issued for Australian firms by Standard and Poors. Our ordered probit model indicates that interest coverage and leverage ratios have the most pronounced effect on credit ratings. Profitability variables and industry concentration measures are also important. Financial variables are helpful in discriminating between A- and BBB-rated firms, but are less precise in separating AA- and A-rated firms. We also document a consistent trend towards lower ratings—the standard required to achieve a particular rating is increasing over time.

Correlations, business cycles and integration

Correlations and the integration of capital markets impact upon portfolio diversification. The key research question addressed in this paper is whether and to what extent business cycles and financial deregulation affect correlations and integration between the Australian and US markets. In summary, four major themes can be detected in our findings. First, correlations between the Australian and US markets are at their highest when the US is in a contractionary phase. Secondly, we are more likely to conclude that the markets are integrated in the expansionary phase of business cycles. Thirdly, we are more likely to conclude that the markets are segmented in the contractionary phase of the business cycles. Finally, we are more likely to conclude that markets are segmented prior to deregulation and integrated in the post financial deregulation period.

Price variability, trading volume and market depth: evidence from the Australian futures market

This study investigates the nature of the relationship between volume, price variability and market depth for four futures contracts traded on the Sydney Futures Exchange. This study is not limited to the determination of the relationship between volatility and volume but also considers the likely effect that open interest, a proxy for market depth, has on volatility. This is achieved by partitioning volume and open interest into expected and unexpected components based on one-step-ahead forecast errors. The results of this study confirm the empirical findings of other studies conducted on this area of futures markets.

Returns and volatility on the Chinese stock markets

The transfer of information is analysed within two distinct markets in the same country, specifically, the Chinese stock markets. The presence of autocorrelation and cross correlation in the four main stock indices is examined. The results for stock index data find spillovers in both directions from ‘A’ and ‘B’ shares. However, it is also documented that this feature of the market does not extend to volatility in that there is no spillover in volatility from ‘B’ share prices to ‘A’ share prices or vice-versa.

The Horse Has Bolted: Revisiting the Market Reaction to Going Concern Modifications of Audit Reports

This paper examines what value is added by an audit report through an investigation of the information content for first-time going concern modifications (GCMs). Consistent with prior research, we find no evidence of a short-term market reaction to the public announcement of a first-time GCM. We document a significant adverse medium-term market reaction in the 12 months prior to a first-time GCM announcement, but find no evidence of a persistent market underreaction in the 12 months following the announcement. These results are consistent with an audit opinion fulfilling an attestation function and confirming the deteriorating financial condition of a firm.

Financial deregulation and integration: an Australian perspective

Many countries in recent years have progressively removed economic and financial barriers and this process has provided easier access to their capital markets. Further, such liberalization measures can impact upon the risk-return relationship between assets. This paper investigates whether the Australian stock market is segmented from or integrated into the world equity market. The aim is to ascertain if the liberalization undertaken in the Australian economy, in the form of financial deregulation in the early 1980s, has resulted in its integration with the world equity market. Consistent with expectations, we find evidence that the stock market was segmented in the pre-deregulation period but integrated following financial deregulation. The hypothesis that industry factors may impact upon integration could not be supported.

Australian industry beta risk, the choice of market index and business cycles

The paper presents an investigation of the equity beta risk of 23 Australian industry portfolios over the period 1974 to 1992. A comparison of domestic and international market model betas, favours the domestic risk measures, although the international counterparts are generally statistically significant relative to a world market index. Furthermore, the international betas seem to display greater instability than the domestic beta estimates. Tests are made to determine whether business cycles, both domestic and international, impact upon stock returns, via changes in the estimated domestic beta. Generally, it is found that business cycles are important and that the US business cycle has a much larger impact on the equity betas of industry portfolios, than does the Australian business cycle. Finally, it is found that interactions between the business cycles of Australia and the United States, have an impact on the beta risk for many industries.

Correlations, integration and Hansen-Jagannathan bounds

Recent studies have documented the growing economic and financial integration between countries. Among other things, this has led to the argument that greater integration results in higher bilateral correlations between returns on national stock markets. This study endeavours to link the two issues by utilizing the assumption that if countries are integrated, they would have to display a minimum level of correlation. This is achieved by constructing a bound on the level of the bilateral correlation, as originally developed by Kasa (1995). In contrast to Kasa, the present studies demonstrate that the correlation bound may not be downward sloping in all cases and careful interpretation of the results is required.

The Relative Importance of Domestic and Global Factors in Explaining Australian Stock Returns

In this study, we explore the relative importance of the several documented factors in explaining the behaviour of stock returns for a sample of 157 Australian companies over the period 1993–9. In line with prior evidence, we contend that the influence of global (market, industry and currency) factors is related to the extent of a firms international activity. We find that Australian firms are in large part impacted by domestic factors with the level of sensitivity declining as the level of international activity increases. In contrast to prior literature, we also show that Australian firm returns are related to regional market, global industry and currency factors and the firms sensitivity to these factors is an increasing function of its level of international activities.

Market timing as an explanation for the short-lived premium on cross-listing

This study provides further evidence on the cross‐listing valuation premium using a sample of Asian firms from 2000 to 2010. First, following Doidge et al. (2004), we document a premium, but it disappears when we incorporate firm fixed effects. Second, consistent with Gozzi et al. (2008), we find that the premium arises immediately preceding the cross‐listing year and disappears shortly thereafter. Of central interest, consistent with our proposition that the listing is strategically timed like an SEO, we document a similar pattern in operating performance, and increased financing activity in the listing year and the following 2 years.