Return to The Financial Review Home Page
Abstracts of Articles in
The Financial Review
Vol. 35, No. 3 - August 2000
"Ownership Structure as a Determinant of Firm Value: Evidence from Newly Privatized Czech Firms"
Anil K. Makhija and Michael Spiro"The Performance Persistence of Closed-End Funds"
Martina K. Bers and Jeff Madura"Fund Manager Succession in Closed-End Mutual Funds"
Wei Wang Rowe and Wallace N. Davidson III"Market Efficiency in Specialist Markets Before and After Automation"
William C. Freund and Michael S. Pagano"On Testing the Random-Walk Hypothesis: A Model-Comparison Approach"
Ali F. Darrat and Maosen Zhong"Asymmetric Effects of Interest Rate Changes on Stock Prices"
Bento J. Lobo"The Impact of the Financial Institutions Reform, Recovery and Enforcement Act On The Risk of Savings Institutions"
Jeff Madura and Marilyn K. Wiley
"Ownership Structure as a Determinant of Firm Value: Evidence from Newly Privatized Czech Firms"
Anil K. Makhija and Michael Spiro
Volume 35, No. 3, pp. 1-32Abstract: Using a sample of 988 newly privatized Czech firms, with part of the ownership structure exogenously determined prior to voucher privatization, we find that share values are positively related with the ownership stakes of foreigners, insiders, and restituents. While the findings for foreigners and insiders can be attributed to their superior ability to identify more profitable firms, we interpret the findings on restituents as evidence of the beneficial effect of blockholdings. On the other hand, we find that the ownership of the fund with the largest stake is not significantly related with share value, suggesting that the value of external blocks depends on the identity of the owner. However, when the fund is also the largest blockholder in the firm, it has an adverse effect on share value. The negative effect of the dominant block owned by a fund is mitigated, however, when a bank sponsors the fund. Although funds are legally separated from their sponsoring institutions, bank-sponsored funds may nevertheless have inherited a better access to the innards of these firms, and may be in a better position to monitor them.
"The Performance Persistence of Closed-End Funds"
Martina K. Bers and Jeff Madura
Volume 35, No. 3, pp. 33-52Abstract: The purpose of this study is to extend the research on mutual fund performance persistence to net asset value and market price performance of domestic closed-end funds. While research has assessed the performance persistence of open-end mutual funds, it has not assessed the performance persistence of closed-end funds. Yet, the unique characteristics of closed-end funds allow stronger arguments for their persistence than the arguments previously submitted for open-end mutual funds. The results show evidence for risk-adjusted performance persistence.
"Fund Manager Succession in Closed-End Mutual Funds"
Wei Wang Rowe and Wallace N. Davidson III
Volume 35, No. 3, pp. 53-78Abstract: Managing the succession process by the hiring and firing of key executives is one of the important functions of a board of directors. In this research we study successions of fund managers in the closed-end mutual fund industry. The agency issues inherent in closed-end mutual funds makes them a unique laboratory for such a study. Our results suggest that while the overall abnormal returns of these manager changes are statistically insignificant, that the returns are more positive for funds with large expense ratios and for funds trading at a discount. We also find the abnormal returns are negatively related to the percentage of inside director stock ownership. Corporate bond funds and international equity funds react more negatively to these announcements than other types of funds. The abnormal returns do not appear to be related to board composition, but board composition does vary across fund type, and may therefore indirectly influence the results.
"Market Efficiency in Specialist Markets Before and After Automation"
William C. Freund and Michael S. Pagano
Volume 35, No. 3, pp. 79-104Abstract: Using nonparametric statistical analysis, we measure the degree of market efficiency before and after automation at the New York and Toronto Stock Exchanges. Overall, the results show that the level of informational efficiency remains effectively unchanged during the automation period. Despite several deviations from a random walk process, the returns for stocks on these exchanges do not appear to exhibit consistent patterns that investors can exploit to generate abnormal returns. Automation also coincides with an improvement in market efficiency at the Toronto Stock Exchange when compared to the New York Stock Exchange.
"On Testing the Random-Walk Hypothesis: A Model-Comparison Approach"
Ali F. Darrat and Maosen Zhong
Volume 35, No. 3, pp. 105-124Abstract: The main intention of this paper is to investigate, with new daily data, whether prices in the two Chinese stock exchanges (Shanghai and Shenzhen) follow a random-walk process as required by market efficiency. We use two different approaches, the standard variance-ratio test of Lo and MacKinlay (1988) and a model-comparison test that compares the ex post forecasts from a NAÏVE model with those obtained from several alternative models: ARIMA, GARCH and the Artificial Neural Network (ANN). To evaluate ex post forecasts, we utilize several procedures including RMSE, MAE, Theil’s U, and encompassing tests. In contrast to the variance-ratio test, results from the model-comparison approach are quite decisive in rejecting the random-walk hypothesis in both Chinese stock markets. Moreover, our results provide strong support for the ANN as a potentially useful device for predicting stock prices in emerging markets.
"Asymmetric Effects of Interest Rate Changes on Stock Prices"
Bento J. Lobo
Volume 35, No. 3, pp. 125-144Abstract: This study examines the stock price adjustment process around announcements of changes in the federal funds rate target in the 1990s using asymmetric autoregressive exponential GARCH model (ASAR-EGARCH). We find that target change announcements convey new information to the stock market. Risk aversion increases before the announcement of a rate change, and especially before the announcement of a joint target and discount rate change. The volatility estimates suggest that such joint rate changes send a clearer signal to the stock market about monetary policy objectives relative to unilateral target changes. Our findings are consistent with overreaction in the wake of bad news (rate hikes), and point to a shift in volatility from before to after the rate change announcement since the adoption of the immediate disclosure policy of the Federal Open Market Committee in February 1994.
"The Impact of the Financial Institutions Reform, Recovery and Enforcement Act On The Risk of Savings Institutions"
Jeff Madura and Marilyn K. Wiley
Volume 35, No. 3, pp. 145-168Abstract: The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 was intended to enhance the safety of savings institutions. We develop and test a model showing how institution-specific characteristics modify the overall effect of FIRREA on the risk of savings institutions. Our model incorporates market risk, interest rate risk, and exposure to real estate conditions. We find that risk shifts vary across savings institutions. Larger institutions exhibit no obvious shift in risk, while smaller institutions show reduced risk since FIRREA. Moreover, the effects are more favorable for institutions that maintained higher capital levels in response to FIRREA=s provisions.