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Article
Publication date: 29 April 2021

Saba Haider, Mian Sajid Nazir, Alfredo Jiménez and Muhammad Ali Jibran Qamar

In this paper the authors examine evidence on exchange rate predictability through commodity prices for a set of countries categorized as commodity import- and…

Abstract

Purpose

In this paper the authors examine evidence on exchange rate predictability through commodity prices for a set of countries categorized as commodity import- and export-dependent developed and emerging countries.

Design/methodology/approach

The authors perform in-sample and out-of-sample forecasting analysis. The commodity prices are modeled to predict the exchange rate and to analyze whether this commodity price model can perform better than the random walk model (RWM) or not. These two models are compared and evaluated in terms of exchange rate forecasting abilities based on mean squared forecast error and Theil inequality coefficient.

Findings

The authors find that primary commodity prices better predict exchange rates in almost two-thirds of export-dependent developed countries. In contrast, the RWM shows superior performance in the majority of export-dependent emerging, import-dependent emerging and developed countries.

Originality/value

Previous studies examined the exchange rate of commodity export-dependent developed countries mainly. This study examines both developed and emerging countries and finds for which one the changes in prices of export commodities (in case of commodity export-dependent country) or prices of major importing commodities (in case of import-dependent countries) can significantly predict the exchange rate.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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Article
Publication date: 14 August 2018

Umar Farooq, Muhammad Ali Jibran Qamar and Abdul Haque

The purpose of this paper is to explain the multi-stage dynamic process of financial distress. An attempt is made to explore multiple adverse heterogeneous events of…

Abstract

Purpose

The purpose of this paper is to explain the multi-stage dynamic process of financial distress. An attempt is made to explore multiple adverse heterogeneous events of financial distress leading a firm closer to bankruptcy progressively.

Design/methodology/approach

Sample comprises 321 ongoing, 54 suspended and 91 delisted non-financial firms from Pakistan Stock Exchange. Financial distress is segregated into three stages, i.e. profit reduction, mild liquidity (ML) and severe liquidity (SL). Flow diagrams are used to explain the transition of healthy firms through proposed stages of financial distress.

Findings

Results showed that firms liquidated/winding-up by court documented SL problems and closed their operations well before the delisting year. It is found that healthy firms are more likely to face SL when faced ML problem at first stage. Distressed firms can recover to a healthy position at any stage, however after approaching to SL, recovery is less expected.

Practical implications

The proposed process will provide a foundation for future studies to develop more relevant, robust and accurate early warning system of corporate failure that will help stakeholders to respond potential crisis accordingly and timely.

Originality/value

Previously, most of the studies used the ex post definition of bankruptcy that is criticized due to the contextual application, sample bias and non-segregation by the degree of liquidity problems. The originality of the proposed ex ante model is its segregation into a three-stage process that can be generalized regardless of specific bankruptcy law.

Details

Managerial Finance, vol. 44 no. 9
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 24 August 2020

Krishna Reddy, Muhammad Ali Jibran Qamar, Nawazish Mirza and Fangwei Shi

The purpose of the study is to examine overreaction effect in the Chinese stock market after the global financial crisis (GFC) of 2007 for all the stocks listed in…

Abstract

Purpose

The purpose of the study is to examine overreaction effect in the Chinese stock market after the global financial crisis (GFC) of 2007 for all the stocks listed in Shanghai Stock Exchange (SSE) Composite 50 index.

Design/methodology/approach

To capture overreaction effect in the stock listed at SSE 50 Index, a time series analysis of average cumulative abnormal return within a unified framework is applied for the period of January 2009 to December 2015. From these loser and winner portfolios, contrarian strategy is applied to build arbitrage portfolio, which is the difference of mean reversions between loser and winner portfolios. The portfolio construction is based on a 12-month formation period and 6-month testing period for intermediate-term analysis and. for short-term analysis, 6 month formation and 3 month testing periods. The authors also applied regression analysis to test a return reversal effect for the sampled period.

Findings

Results show that contrarian strategy yields positive excess returns for the arbitrage portfolio for most of the testing periods. The intermediate baseline case shows the arbitrage portfolio producing an average excess return of 14.1%, while even the short-term one produces 4%, which is statistically significant at the 5% level. The study finds asymmetrical overreactions in the SSE especially for loser portfolios. The biggest winner and loser portfolios follow the mean reversal effect. Moreover, before-after test for the biggest winner and loser portfolios shows that the losers recovered and beat the market immediately.

Practical implications

The study could benefit government, policy makers and regulators by studying how presence of more individual investors than institutional investors of China stock market leads to more irrational decisions giving rise to volatility. The regulators could build favourable policies for institutional investors to give them incentive to invest more than individual investors through which market volatility could be controlled.

Originality/value

This research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. The authors provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.

Contribution to Impact

This research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. We provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.

Details

International Journal of Managerial Finance, vol. 17 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

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Article
Publication date: 23 May 2019

Krishna Reddy, Muhammad Ali Jibran Qamar and Marriam Rao

The existing literature about return reversal effect in Chinese stock markets is inconclusive and controversial. Therefore, the purpose of this paper is to investigate the…

Abstract

Purpose

The existing literature about return reversal effect in Chinese stock markets is inconclusive and controversial. Therefore, the purpose of this paper is to investigate the presence of return reversal effect in the Shanghai A stock market.

Design/methodology/approach

The authors used the late-stage contrarian strategy of Malin and Bornholt (2013) for the period March 2011‒March 2016.

Findings

The results show that there is a long-term return reversal effect in the Shanghai A stock market for the period March 2011‒March 2016. When portfolios are in the formation period (P=24 months), the excess returns are significant in the holding period, Q=6, 9, 12, 24 months. Further, there is also a significant short-term momentum effect in the Shanghai A stock market. For the robustness check, a new reversal factor was introduced into the Fama‒French three-factor model. Results show that portfolios have a smaller size and have lower book-to-market ratios; the return reversal factor explains a portion of the abnormal returns and coefficient of the reversal effect is significant.

Research limitations/implications

The authors caution readers from generalizing the findings of this study, as the sample is small and the focus is only on A stocks listed on the Shanghai Stock Exchange.

Originality/value

The present research expands the current literature by providing a comprehensive information about the presence of the long-term and short-term return reversal effects in Shanghai A stock market. Furthermore, the Chinese stock markets have distinctive features in comparison to the developed stock markets in terms of government control, institutional structure, liquidity, cultural background, etc. Such differences affect the pattern in stock returns compared with those observed in developed stock markets. Contrary to previous studies, the present study also accounts for robustness checks. Finally, it also evaluates the possible reasons for the return reversal effect in the Shanghai market.

Details

Managerial Finance, vol. 45 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

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