Waël Louhichi

Market reaction to sporting results The case of European listed football clubs

Purpose – This paper aims to study the stock market reaction to sporting results of European listed football clubs. Specifically, it tries to examine the impact of the sporting results on the stock market valuation in terms of abnormal returns and trading volume around the dates of matches. Design/methodology/approach – This paper undertakes an event study around the dates of 745 matches played by European listed football clubs. Findings – The empirical analysis shows that the sporting results of listed football clubs affect both the abnormal returns and the trading volume around the dates of matches. The movement (positive or negative) and the time when the impact occurs (before or after the match) differ according to the nature of the result (defeat, draw or win) and the match venue (home or away). Findings in this study imply that the success of investments in listed football clubs requires a regular follow-up of their sporting performances. Originality/value – This paper is one of the first to take into consideration the nature of sporting results (defeat, draw or win) according to the match venue (home or away) in order to study the market reaction in terms of both abnormal returns and trading volume. Unlike some previous studies, it is not limited to studying a single specific context but considers listed football clubs from all over Europe.

Intraday bidirectional volatility spillover across international stock markets: does the global financial crisis matter?

This article studies volatility spillover between the US and the three largest European stock markets (Frankfurt, London and Paris) around the time of the recent Subprime crisis. In order to investigate the impact of the latter, we break our sample down into two sub-periods: a pre-crisis period and a post-crisis period, using a structural break test that has the advantage of endogenously testing for further breaks in the data. Unlike previous studies that have frequently investigated this issue using low frequency data, our article makes use of intraday data. Accordingly, using Threshold generalized autoregressive conditional heteroscedasticity (GARCH) model estimations, we find weak evidence of volatility transmission between the two regions before the Subprime crisis. However, during the post-crisis period, we record returns and volatility spillover from US to European markets and vice versa at different times of the trading day, indicating that the two regions became more dependent during the recent Subprime crisis, a finding that supports the contagion hypothesis between the US and European stock markets.

Alternative Financial Decision Principles: Theoretical Foundations of Islamic Banks' Capital Structure

The aim of this chapter is to analyse consequences of the consideration of ethical principles in the financial decisions process of banks. More specifically, we study how the consideration of shariah principles could affect the capital structure of Islamic banks (IBs). First, we apply the classical concepts and theories of capital structure (trade-off theory, pecking order theory, agency theory) in the specific context of IBs. Then, through a literature review, we propose some expected determinants of the capital structure of IBs. Our theoretical analysis reveals that the trade-off theory is more suitable for IBs. Moreover, in Islamic institutions, information asymmetry and agency conflicts should be less important than in their conventional counterparts. However, our analysis does not allow us to conclude on the optimal combination of equity and non-equity financing.

Does trading activity contain information to predict stock returns? Evidence from Euronext Paris

This article aims to examine the causal and dynamic relationship between trading activity and stock returns, using detailed intraday data from Euronext Paris. We distinguish between two measures of trading activity: the raw volume metric (the nondirectional volume) and the directional volume. In line with the existing literature, we find a unidirectional causality running from stock returns to nondirectional volume. Furthermore, we highlight a strong bidirectional relation between stock returns and directional volume. This result is interesting and has several implications. First, it provides evidence that the directional volume is more informative than the nondirectional volume. Second, it shows that the directional volume helps predict stock returns. Third, it provides an empirical test for the Mixture Distribution Hypothesis (MDH) and the sequential arrival hypothesis, which posit that the information content of the trading activity affects future returns.

Do the US trends drive the UK–French market linkages?: empirical evidence from a threshold intraday analysis

This article investigates the impact of US stock market openings on linkages between the UK and French markets. Using intraday data over the period December 2004 to March 2009, we find significant time-varying dependence between the UK and French stock returns, which alter according to the state of the US market. Indeed, not only does the opening of the US market itself significantly affect the UK stock dependency, but such linkages also seem to be closely dependent on bearish or bullish US market trends. Interestingly, the estimation of a two-regime Threshold Autoregressive (TAR) model indicates that the bearish US trends are a source of minor linkage (lower regime), whereas the bullish US trends involve higher interdependency (upper regime). This finding is particularly interesting as following the US trend expectations enables us to better forecast future European stock prices and to calculate the level of their potential contagion effects.

Measurement errors in stock markets

This paper points to further measurement errors in stock markets. In particular, we show that the application of usual performance ratios to evaluate financial assets can lead to inappropriate findings and consequently wrong conclusions. To this end, we analyze standard performance ratios as well as extreme loss-based financial ratios and compare the conclusions with those provided by systemic risk measures. The application of these different measures to both conventional and Islamic stock indexes for developed and emerging countries in the context of the financial crisis yields two interesting results. First, the analysis of financial performance exhibits further measurement errors. Second, the consideration of extreme loss and systemic risk in computing performance measures increases the reliability of performance analysis.

Modelling the relationship between future energy intraday volatility and trading volume with wavelet

ABSTRACT Although the energy and stock markets are both characterized by volatility and liquidity, and there has been substantial research to explore the relationship between volatility and trading volume (TV) in stock markets, few researchers have investigated this relationship in energy markets. Moreover, studies that have explored this association within energy markets did not describe its nature or impetus. To redress this oversight, we investigate this relationship using intraday data from the oil and gas markets – the most liquid energy markets in the world. In this way, the current article extends the previous studies through the use of a frequency approach to propose an original analysis of the relationship between volume and volatility. More specifically, we employ a continuous wavelet transform to identify the lead–lag phase between volatility and volume. This framework supplants usual time series modelling, as it uses a measure of coherence for different frequencies and time-scales to capture further changes and time variation in the volume–volatility relationship. Our results provide supportive evidence for the well-known positive relationship between realized volatility and TV, thereby supporting the mixture distribution hypothesis. In particular, our results show that volume causes volatility only during ‘turbulent times’, while volatility causes volume during ‘good times’. Furthermore, there is no relationship between volume and volatility in the long term, due to the absence of noise traders and liquidity traders in the long run. These findings are helpful for investors and policymakers as they contribute to better forecast the TV and price volatility during turbulent and calm periods and over several investment horizons.

Pass-Through of Exchange Rate Shocks to Prices in the Euro Area: Evidence from Pricing Chain Model

This chapter analyzes the exchange rate pass-through (ERPT) into different prices for 12 euro area (EA) countries. We provide new up-to-date estimates of ERPT by paying attention to either the time-series properties of data and variables endogeneity. Using VECM framework, we examine the pass-through at different stages along the distribution chain, that is, import prices, producer prices, and consumer prices. When carrying out impulse response functions analysis, we find a higher pass-through to import prices with a complete pass-through (after one year) detected for roughly half of EA countries. These estimates are relatively large compared to single-equation literature. We denote that the magnitude of the pass-through of exchange rate shocks declines along the distribution chain of pricing, with the modest effect recorded for consumer prices. When assessing for the determinant of cross-country differences in the ERPT, we find that inflation level, inflation volatility, and exchange rate persistence are the main macroeconomic factors influencing the pass-through almost along the pricing chain. Thereafter, we have tested for the decline of the response of consumer prices across EA countries. According to multivariate time-series Chow test, the stability of ERPT coefficients was rejected, and the impulse responses of consumer prices over 1990–2010 provide an evidence of general decline in rates of pass-through in most of the EA countries. Finally, using the historical decompositions, our results reveal that external factors, that is, exchange rate and import prices shocks, have had important inflationary impacts on inflation since 1999 compared to the pre-EMU period.

Analyst earnings forecast revision activity around profit warnings across four European countries

Purpose - – The purpose of this paper is to report on research concerning financial analysts’ activity surrounding profit warnings issued by listed companies in the four largest European stock exchanges (France, Germany, the Netherlands and the UK). The authors address three aspects of analysts’ forecasts: ex-post accuracy of forecasts, earnings forecast revisions, and consensus forecast dispersion. The goal of the analysis is to study the differences between financial analysts’ behavior within different regulatory settings, namely common law vs civil law countries. Design/methodology/approach - – The sample is composed of 1,330 profit warnings issued by listed European firms during the period 2000-2010. The authors apply event study methodology and OLS regressions to highlight the impact of the legal information environment on analysts’ reactions. Findings - – The empirical analysis reveals that analyst activity depends on each country’s legal context factors, such as the legal information environment of the firm and the index of investor protection. Accordingly, the authors show that both a richer legal information environment and stronger country-level investor protection substantially improve analyst accuracy around profit warnings. Research limitations/implications - – The sample is only composed on firms from four European countries owing to a lack of firms from other European countries that disclosed PW during the period 2000-2010. It would be pertinent to conduct future research dealing with an international sample from different continents. Practical implications - – The paper contributes to a deeper understanding of analysts’ reactions to profit warnings. The findings can influence firms’ reporting practices and lead to future regulation policies. Originality/value - – This work is the first to examine the relationship between profit warning releases and the behavior of financial analysts in a pan-European context where there are different institutional levels of investor protection.

Does The Financing Decision Help To Understand Market Reaction Around Mergers And Acquisitions

Few studies distinguish between the method of payment and the means of financing in mergers and acquisitions. This paper aims to test if the financing means has incremental information beyond that contained in the payment means. To answer this question, we consider a sample of 265 deals undertaken by French listed acquires between January 1997 and December 2008. We decompose our sample according to the method of payment (cash, stock or mixed payment). The difference of means test shows that the impact of the three methods of payment is not statistically significant. In order to take the analysis further, we then broke our sample down according to both the method of payment and the means of financing (debt, equity or internal funds). The difference of means test, the event study methodology and OLS regressions reveal that takeovers financed by debt outperform those financed by other means of financing. These findings confirm the monitoring role of debt and support the pecking order preferences. Finally, our OLS regressions highlight that market reaction depends also on legal environment (common law vs. non common law) on acquisition characteristics such as deal size and on acquirer specific factors such as size and growth opportunities.