Search results

A subprime loan to straw borrower Charlotte Delaney was used to fraudulently strip equity from an elderly African American couple in Chicago. Following this loan from origination to securitization highlights responsibility for the wave of early payment default loans that contributed to the implosion of subprime lending. The Delaney loan, funded by subprime lender Mortgage Investment Lending Associates (MILA), was representative of the stated income, no down payment loans that defaulted in 2006 at the peak of the subprime bubble. MILA was suffering financially from demands to repurchase loans and was insolvent as early as 2004. MILA underwriters approved the Delaney loans despite obvious indications of fraud. Goldman Sachs bought MILA loans for inclusion in a $1.5 billion residential mortgage-backed security. Goldman Sachs warned investors that subprime loans were high risk and promised extensive due diligence. When subpoenaed for evidence of due diligence on MILA, Goldman Sachs provided none. The drive to generate profits through securitization explains why Goldman Sachs did not investigate and did not uncover MILA's inability to repurchase a growing portfolio of early payment default loans. Competition to buy subprime loans for securitization relieved lenders like MILA of pressure to verify that their loans were sustainable and not fraudulent.

It has been argued in the literature that structural changes in the financial markets, such as integration, have the potential to cause herding behavior or correlated behavioral patterns in traders. The purpose of this study is to investigate whether there is any financial herding behavior in the Latin American Integrated Market (MILA), a transnational stock market composed of Chile, Peru, Colombia and Mexico stock exchanges and whether there is any ARCH or GARCH effect in the herding behavior models.

This study uses the modified return dispersion approach on daily index return data. The sample period is from January 03, 2002 to May 07, 2019. The data are obtained from the MILA database. To count time-varying volatilities in herding models, the authors run ARCH family regression with GARCH (1,1) settings. Hwang and Salmon (2004) model is used as a robustness test.

The authors found strong herding behavior under the general market conditions and moderate and partial herding behavior under some specified markets circumstances, such as bull and bear markets and high-low volatility states. Moreover, the pre-MILA period exhibits more herding behavior than the post-MILA period. The empirical results show that most of the ARCH and GARCH effects are statistically significant, implying that the past information of stock returns and market volatility significantly affect the volatility of following periods, which can also explain the formation of herding tendency among investors. Finally, the results of the robustness tests (Hwang and Salmon, 2004) confirm herding in all periods, except full sample period for Mexico and post-MILA period for Mexico and Colombia.

This study investigates the herding behavior in the MILA market in terms of market return, volatility and timing. A limitation of the paper is that the authors have not included other factors on the formation of herding behavior, such as macroeconomic factors, effects of regional or international markets and policy influences. The authors will explore the issue in the extension of the paper.

As MILA is the first virtual integration of stock exchanges without merging, the study provides useful findings and draws good inferences of herding behavior in the MILA market in terms of market return, volatility and timing which are useful for academics, investors and policymakers in their investment and decision makings.

The paper provides useful findings and draws good inferences of herding behavior in the MILA market in terms of market return, volatility and timing which are not only useful in practical implications, but also in social implications.

This study contributes to the herding literature by examining four different hypotheses in respect of the unique case of transnational stock exchange without fusions or corporate mergers, where each market maintains its independence and regulatory autonomy. The authors also contribute to the literature by including both ARCH and GARCH effects in the herding behavioral models along the Hwang and Salmon (2004) approach.

The purpose of this article is to analyze the effects of accruals-based earnings management (AEM), International Financial Reporting Standard (IFRS) adoption and stock market integration for firms that belong to Latin-American Integrated Market (MILA).

The GMM estimator was used according to Arellano and Bover (1995) for panel data on a sample of 478 non-financial companies between 2000 and 2016. Multilevel mixed models was used for the robustness analysis.

AEM practices significantly and dynamically reduce agency costs. This result suggests companies use positive discretionary accruals to hide true agency costs and avoid shareholders monitoring, while negative discretionary accruals are ways to expropriate wealth and increase agency costs. This result implies that firms use AEM as a predetermined strategy to weaken corporate governance. The IFRS adoption and MILA implementation reduced agency costs. However, only IFRS adoption had the capability to mitigate the effects of AEM on agency costs.

These results reveal AEM constitutes a practice that managers use to weaken firms’ corporate governance and expropriate wealth from shareholders. These practices have effects at short-run and long-run. However, the IFRS adoption and market integration represented by MILA are mitigating factors for agency costs. These results have relevant implications for firms’ corporate governance because they guide investors and shareholders to strengthen corporate control and monitoring on business decision-making. These results also are relevant to policymakers because they orient the financial policies design to strengthen the benefits of IFRS and MILA.

The purpose of this article is to analyze the effects of the integration process for the Integrated Market of Latin America (MILA) on its stock markets behavior as well as their degree of integration.

Daily time series data were used for stock returns, volatility, volume and the number of transactions and securities between August 16, 2007 and December 28, 2018. A DCC-MGARCH model was applied to analyze the impact of MILA on stock market behavior and predict dynamic correlations. A GARCH (1,1) model was used to determine the effect of MILA on co-movements between markets. Finally, a Markov regime switching model was used for robustness analysis.

MILA increased stock market activity in terms of volume, transactions and securities traded. However, it reduced returns and volatility. MILA had significant effects on the dynamic correlations between regional stock markets. After the integration process, the dynamic correlations of returns and volatility were reduced, but those related to volume, transactions and securities traded increased. Mexico's subsequent entry into MILA further reduced market volatility, but it did not have relevant effects on markets' co-movements.

These results are relevant for investors and policymakers. MILA has benefited the markets by promoting stock market activity, reducing risk, creating a margin for diversification and limiting risk contagion between them. These results help to guide investment decisions due to the fact that MILA's benefits in terms of regional diversification would be greater in some markets.

The purpose of this paper is to provide evidence about the effects of the MILA agreement in terms of improving financial market efficiency.

The authors measure efficiency by studying the stock reaction to earnings announcements using a conditional heteroscedasticity generalized autoregressive conditional heteroscedasticity-adjusted market model and the most commonly implemented event study tests for 3,399 events across four countries in the Latin American Integrated Market (MILA).

Contrary to expectations, the results show that the MILA agreement has isolated gains in terms of reaction to corporate earnings announcements, which translates into partial improvements in market efficiency. However, the evidence indicates that the MILA agreement favored cointegration, which is in line with other studies.

This paper provides evidence for policymakers and regulators that a stock market agreement is a condition that promotes market cointegration, but it is not an element that in itself ensures an improvement in market efficiency. To achieve greater MILA benefits, regulatory and market-level changes are required.

This is the first study that analyses the effect of a stock market agreement on the efficiency of markets, expanding on what has been studied in the finance literature regarding the influence of these agreements on cointegration.

Esta investigación entrega evidencia sobre los efectos del acuerdo MILA respecto a mejoras en la eficiencia de los mercados accionarios involucrados.

Medimos eficiencia estudiando la reacción de los mercados accionarios tras anuncios de resultados utilizando un modelo de mercado ajustado por heteroscedasticidad condicional (GARCH). Además, consideramos las pruebas de estudios de evento más utilizadas en la literatura para 3,399 eventos en los 4 países involucrados en el acuerdo MILA.

Contrario a lo esperado, los resultados muestran que el acuerdo MILA genera aumentos marginales en la reacción frente a anuncios corporativos, lo cual se traduce en mejoras parciales de la eficiencia de mercados accionarios. Sin embargo, la evidencia muestra que el MILA sí favorece a la cointegración, lo cual va en línea con estudios previos.

Esta investigación entrega evidencia para reguladores de que un acuerdo de integración bursátil promueve cointegración entre mercados, pero no es un elemento que por sí solo asegure una mejora en eficiencia. Para alcanzar mayores beneficios del acuerdo MILA, se requieren cambios adicionales a nivel de mercado accionario y de regulación.

Este es el primer estudio que analiza el efecto de un acuerdo de integración bursátil en la eficiencia de los mercados accionarios, expandiendo lo que ha sido ya encontrado en la literatura financiera respecto a la influencia de estos acuerdos en cointegración.

This study aims to determine the association between the companies’ financial indicators and the Dow Jones Sustainability MILA Pacific Alliance Index (DJSMPAUP Index).

The study adopted a quantitative, explanatory level approach, based on measuring the interactions between the financial performance ratios of these companies (return on assets, return on equity, EBITDA margin and net margin) and sustainability index of MILA member countries. The study used a non-experimental, retrospective, cross-sectional design, using observed data from the annual period spanning 2017 to 2022 for MILA companies and includes analyses before and after COVID-19.

The estimates show a positive and statistically significant relationship between each company’s financial indicator and the DJSMPAUP index for the period 2017 to 2022.

The primary limitation of the study was the availability of data, which restricted the use of more advanced statistical analyses, and the inclusion of many factors that can be associated with DJSMPAUP. This constraint arose since the index was introduced only from the 2017 annual period, resulting in a limited dataset.

The study sheds light on MILA’s companies and their characteristics and specific conditions, which can help to improve sustainability strategies with an impact on financial performance, primarily due to the significance of MILA in the world economy and the GDP of Latin America. It focuses on an emerging market with a few years of applying sustainability policies.

This study contributes to revealing the progress in sustainability for member companies in MILA.

The study connects the financial performance and the sustainability of organizations oriented to the emerging significance of MILA in the world economy.

The purpose of this paper is to analyze the dependence between the Chinese and Market Integrated Latin America (MILA) stock markets.

The authors adjust the multivariate probability distribution Variance Gamma (VG) on data yields from the Hang Seng Index (HSI) and MILA and they use the estimated parameters under VG to find a robust estimator of the correlation matrix yields.

The degree of dependence between stock indices from China, Peru, Mexico, Colombia and Chile. In addition, the impact of the change in the HSI affects mostly the movements of the selective stock price index (IPSA) and equally affects the index of the Mexican stock exchange (IPC) and Lima Stock Exchange (S&P/BVL). The effect on index of the Colombia Stock Exchange (COLCAP) is not significant.

Over time there are different structural changes so the time has been restricted to the years 2000-2015, but could extend the analysis to other time periods and sectors of listed companies in the indices.

The results can guide policy makers to assess the effect of a random crash on stock markets and measure the level of risk from other markets.

The results can generate a greater understanding of the relationship between the stock markets of China and the emerging countries of Latin America.

The value of this paper is to focus on alternative methodology to calculate the correlation matrix yields and measure the dependence between the Chinese and MILA stock markets.

The purpose of this study is to estimate the effect of information disclosure on firm value for firms in the Integrated Latin American Market (MILA) over the period 2011–2017.

The study uses structural equation modeling (SEM), where the latent variable “Disclosure Quality” is measured using five textual analysis variables as indicators. The final sample is composed of 1,412 observations representing 198 firms from which we were able to collect annual reports and financial information required.

The authors find a positive and statistically significant effect of “Disclosure Quality” on firm value. The indirect effect of language on firm value is also captured. Text similarity, negative tone, readability and text length in corporate disclosure are negatively related to firm value while using positive tone is positively related. In the exploratory analysis, the authors have significant effects of textual measures on disclosure quality.

The research is original and unique as it approaches the relation between disclosure quality and market valuation of the firm using SEM for firms participating in the MILA.

El propósito es estimar el efecto de la calidad en la revelación de información sobre el valor de la firma para empresas que hacen parte del mercado integrado Latinoamericano (MILA) durante el periodo 2011–2017.

El estudio utiliza un modelo de ecuaciones estructurales (SEM), donde la variable latente “Calidad de la información” es medida usando cinco variables de análisis textual como indicadores. La muestra final está conpuesta de 1,412 observaciones que representan 198 empresas para las cuales se pudo recolectar los reportes anuales y la información financiera requerida

Nosotros encontramos una relación positiva y estadísticamente significativa entre la variable “Calidad de la información” y valor de la firma. El efecto indirecto del lenguaje en el valor de la firma es igualmente observado. La similaridad en el texto, el tono negativo, la legibilidad y el largo del texto en la revelación corporativa están relacionados de manera negativa con el valor de la firma mientras que el tono positivo está relacionado de manera positiva. En el análisis exploratorio, nosotros encontramos un efecto estadísticamente significativo entre las medidas de texto y la calidad de la revelación.

La investigación es original y única en cuanto aproxima la relación entre calidad de la revelación y desempeño de la firma usando un modelo de ecuaciones estructurales para las firmas participantes del mercado integrado Latinoamericano (MILA).

This paper tests the accuracies of the models that predict the Value-at-Risk (VaR) for the Market Integrated Latin America (MILA) and Association of Southeast Asian Nations (ASEAN) emerging stock markets during crisis periods.

Many VaR estimation models have been presented in the literature. In this paper, the VaR is estimated using the Generalized Autoregressive Conditional Heteroskedasticity, EGARCH and GJR-GARCH models under normal, skewed-normal, Student-t and skewed-Student-t distributional assumptions and compared with the predictive performance of the Conditional Autoregressive Value-at-Risk (CaViaR) considering the four alternative specifications proposed by Engle and Manganelli (2004).

The results support the robustness of the CaViaR model in out-sample VaR forecasting for the MILA and ASEAN-5 emerging stock markets in crisis periods. This evidence is based on the results of the backtesting approach that analyzed the predictive performance of the models according to their accuracy.

An important issue in market risk is the inaccurate estimation of risk since different VaR models lead to different risk measures, which means that there is not yet an accepted method for all situations and markets. In particular, quantifying and forecasting the risk for the MILA and ASEAN-5 stock markets is crucial for evaluating global market risk since the MILA is the biggest stock exchange in Latin America and the ASEAN region accounted for 11% of the total global foreign direct investment inflows in 2014. Furthermore, according to the Asian Development Bank, this region is projected to average 7% annual growth by 2025.

Corporate social responsibility (CSR) actions are expected to reduce information asymmetries and increase legitimacy among the stakeholders of the company, which consequently should have a positive impact on the financial conditions of the firm. Hence, the objective of this paper is to find empirical evidence on the negative relationship between sustainable behavior and the cost of equity, in the specific context of Latin America. To address this issue, some proxies and moderating variables for sustainability are used in our study.

The regression model considers a sample with 252 publicly trading firms and 2,772 firm-year observations, from 2008 to 2018. The generalized method of moments is used to avoid endogeneity problems.

The study finds evidence that firms with higher environmental, social and governance activities disclosed by sustainability reports and assured by external providers decrease their cost of equity, especially if they are in an integrated market as MILA. This finding confirms that agency conflicts between firm's management and stakeholders diminish with higher CSR transparency, leading to a lower cost of capital.

Our research is unique and valuable as, to our knowledge, it is the first study to analyze the impact of sustainable behavior and the cost of equity from companies operating in Latin America.

Las actividades de Responsabilidad Social Empresarial permiten disminuir asimetrías de información e incrementar la legitimidad ante los stakeholders de una empresa, generando impactos positivos financieros para la misma. De hecho, el objetivo del artículo es medir la relación entre el comportamiento sostenible y el Costo de Capital en el contexto empresarial latinoamericano. Para ello, consideramos algunas variables proxy y moderadoras sustentables en nuestro estudio.

El modelo considera una muestra de 252 empresas cotizadas y 2772 observaciones que abarcan el período de 2008 a 2018. Se implementa el Modelo Generalizado de Momentos para evitar problemas de endogeneidad.

Los autores evidencian que empresas con altos niveles de divulgación ambiental, social y gobernanza corporativa a través de reportes de sostenibilidad y asegurados por proveedores externos disminuyen el Costo de Capital, especialmente si cotizan en un mercado integrado como el MILA. Estos hallazgos confirman que se reduce la asimetría de información entre la gerencia y los stakeholders, dado que incrementa la transparencia mediante la Responsabilidad Social Corporativa y ello conduce a un menor Costo de Capital.

Nuestro estudio es único dado que, hasta la fecha, es el primer estudio que analiza el impacto de la divulgación voluntaria de RSE y Costo de Capital de empresas que operan en Latinoamérica.