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Article
Publication date: 15 February 2016

Honglei Yan, Suigen Yang and shengmin zhao

The purpose of this paper is to study the pricing efficiency of convertible bonds and arbitrage opportunities between the convertible bonds and the underlying stocks thus…

Abstract

Purpose

The purpose of this paper is to study the pricing efficiency of convertible bonds and arbitrage opportunities between the convertible bonds and the underlying stocks thus improve market efficiency.

Design/methodology/approach

Using nonparametric fixed effect panel data model, the authors build pricing model of convertible bonds and obtain fitted value for them. Then the authors constructs simultaneous confidence band for the smooth function to identify mispricing and study the pricing efficiency and arbitrage opportunities of convertible bonds.

Findings

Result shows, convertible bonds’ prices largely depend on stock prices. Pricing efficiency does not improve during the past few years as there are quite a few trading opportunities. Arbitrage opportunities increase as the stock prices approach it maxima, and selling opportunities for convertible bonds surpass buying opportunities which indicates that investors use market neutral strategies to arbitrage. Pricing efficiencies varies a lot and it is affected by the features of the stocks and convertible bonds. Index stocks eligible for margin trading with high liquidity enjoy higher pricing efficiency.

Research limitations/implications

The study does not take into account trading cost and risk management measures.

Practical/implications

Arbitrage between the underlying and the convertible bonds is profitable and contributes to pricing efficiency therefore should be encouraged. The regulator should pay attention to the extreme mispricing of the underlying and convertible bonds which cannot be corrected by the market as there might be manipulation.

Originality/value

Since traditional pricing methods are based on the framework of non-arbitrage equilibrium with the assumption of balanced and perfect market, there are many restrictions in the pricing process and the practical utility is somewhat limited, and the impractical assumptions lead to model risk. This study uses nonparametric regression to study the pricing of convertible bonds thus circumvents the problem of model risk. Simultaneous confidence band for smooth function identifies mispricing and explicitly reflects the variation of pricing efficiency as well as signalizes trading opportunities. Application of nonparametric regression and simultaneous confidence band in derivative pricing is advantageous in accuracy and simplicity.

Details

China Finance Review International, vol. 6 no. 1
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 29 May 2020

Yue-e Long and Xinyi Huang

The purpose of this paper is to investigate the impacts of equity incentive on stock pricing efficiency, as well as the institutional investors’ response to equity…

Abstract

Purpose

The purpose of this paper is to investigate the impacts of equity incentive on stock pricing efficiency, as well as the institutional investors’ response to equity incentive and its role in stock pricing efficiency.

Design/methodology/approach

Using a sample of 1,842 companies that announce implementing equity incentive schemes during the period 2009-2018, the authors compare the pricing efficiency between the firms with equity incentive and those without equity incentive, and companies that implement equity incentive before and after the implementation of equity incentive by using multiple regression and propensity score matching -DID (difference in difference) method. In addition, the multiple regression model is built to test the response of institutional investors to equity incentive and its role in the efficiency of stock pricing.

Findings

The empirical results indicate that a company’s stock price is influenced more by firm-specific information than systematic factors after it announces a stock-based compensation scheme. Institutional investors respond positively to companies that implement equity incentives. Among the companies that have implement equity incentive, the higher the shareholding ratio of institutional investors, the higher the efficiency of stock pricing.

Originality/value

The authors innovatively establish a connection between the implementation of equity incentive and the operation of stock market. The results imply that besides alleviating the agency problem, equity incentives can also improve the efficiency of stock pricing, which provide empirical evidence to support the positive effect of equity incentive.

Details

International Journal of Accounting & Information Management, vol. 28 no. 4
Type: Research Article
ISSN: 1834-7649

Keywords

Content available
Article
Publication date: 9 November 2018

Monsurat Ayojimi Salami and Razali Haron

The purpose of this paper is to examine the pricing efficiency of the Malaysian crude palm oil (CPO) market before and after the structural break. This study uses the…

Abstract

Purpose

The purpose of this paper is to examine the pricing efficiency of the Malaysian crude palm oil (CPO) market before and after the structural break. This study uses the daily closing price of CPO and CPO futures (CPO-F) for the period ranging from June 2009 to August 2016 while taking structural breaks into account.

Design/methodology/approach

In this study, symmetric and asymmetric long-run relationship model are employed, such as the Johansen cointegration, VECM, TAR and M-TAR models, to examine the impact of structural breaks on the pricing efficiency of the Malaysian CPO market.

Findings

This finding establish that Malaysian CPO price is efficient before and after the structural break. The consistent efficiency of the Malaysian CPO market supports the trading of the CPO-F in Globex and the use of Malaysian CPO pricing as the reference price. This study establishes that a structural break in the Malaysian CPO price series does not affect the pricing efficiency of the market.

Research limitations/implications

This study shows that using Malaysian CPO price as a reference price is sustainable even in the event of a structural break. Therefore, market participants in the Malaysian CPO market have less to worry about the CPO price as it supports the weak form of efficiency. Price deviation in the short run may not lead to arbitrage profit as transaction cost may not be covered.

Practical implications

This study implies that if there is distortion in the price due to shocks, both manufacturers and producers need to hedge their positions in the futures market (subject to their positions in the underlying market). By entering into the futures market, pricing is locked in advance; hence, price risk is eliminated. Such a distortion could also affect the efficiency of the CPO price, therefore this study also addresses the issue of efficiency of the local CPO market.

Originality/value

Previous studies on Malaysian CPO pricing efficiency did not take the effect of structural break into consideration, making it difficult for these studies to show consistency in the efficiency of the Malaysian CPO market.

Details

Journal of Capital Markets Studies, vol. 2 no. 2
Type: Research Article
ISSN: 2514-4774

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Article
Publication date: 15 July 2020

Hakan Aygoren and Emrah Balkan

The aim of this study is to investigate the role of efficiency in capital asset pricing. The paper explores the impact of a four-factor model that involves an efficiency

Abstract

Purpose

The aim of this study is to investigate the role of efficiency in capital asset pricing. The paper explores the impact of a four-factor model that involves an efficiency factor on the returns of Nasdaq technology firms.

Design/methodology/approach

The paper relies on data of 147 firms from July 2007 to June 2017 to examine the impact of efficiency on stock returns. The performances of the capital asset pricing model (CAPM), Fama–French three-factor model and the proposed four-factor model are evaluated based on the time series regression method. The parameters such as the GRS F-statistic and adjusted R² are used to compare the relative performances of all models.

Findings

The results show that all factors of the models are found to be valid in asset pricing. Also, the paper provides evidence that the explanatory power of the proposed four-factor model outperforms the explanatory power of the CAPM and Fama–French three-factor model.

Originality/value

Unlike most asset pricing studies, this paper presents a new asset pricing model by adding the efficiency factor to the Fama–French three-factor model. It is documented that the efficiency factor increases the predictive ability of stock returns. Evidence implies that investors consider efficiency as one of the main factors in pricing their assets.

Details

Managerial Finance, vol. 46 no. 11
Type: Research Article
ISSN: 0307-4358

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Abstract

Details

Threats from Car Traffic to the Quality of Urban Life
Type: Book
ISBN: 978-0-08-048144-9

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Article
Publication date: 4 September 2020

Michael McCord, Martin Haran, Peadar Davis and John McCord

A number of studies have investigated the relationship between energy performance certificates (EPCs) and house prices. A majority of studies have tended to model energy…

Abstract

Purpose

A number of studies have investigated the relationship between energy performance certificates (EPCs) and house prices. A majority of studies have tended to model energy performance pricing effects within a traditional hedonic conditional mean estimate model. There has been limited analysis that has accounted for the relationship between EPCs and the effects across the pricing distribution. Moreover, there has been limited research examining the “standard cost improvements EPC score”, or “potential score”. Therefore, this paper aims to quantify and measure the dynamic effects of EPCs on house prices across the price spectrum and account for standardised cost-effective retrofit improvements.

Design/methodology/approach

Existing EPC studies produce one coefficient for the entirety of the pricing distribution, culminating in a single marginal implicit price effect. The approach within this study applies a quantile regression approach to empirically estimate how quantiles of house prices respond differently to unitary changes in the proximal effects of EPCs and structural property characteristics across the conditional distribution of house prices. Using a data set of 1,476 achieved transaction prices, the quantile regression models apply both assessed EPC score and bands and further examine the potential EPC rating for improved energy performance based on an average energy cost improvement.

Findings

The findings show that EPCs are valued differently across the quantiles and that conditional quantiles are asymmetrical. Only property prices in the upper quantiles of the price distribution show significant capitalisation effects with energy performance, and only properties with higher EPC scores display positive significant effects at the higher end of the price distribution. There are also brown discount effects evident for lower-rated properties within F- and G-rated EPC properties at the higher end of the pricing distribution. Moreover, the potential energy efficiency rating (score) also shows increased effects with sales prices and appears to minimise any brown discount effects. The findings imply that energy performance is a complex feature that is not easily “averaged” for valuation effect purposes.

Originality/value

While numerous studies have investigated the pricing effects of EPCs, they have tended to provide a single estimate to determine the relationship with price. This paper extends the traditional analytical insights beyond the conditional mean estimate by examining the quantiles of the relationship between EPCs and house prices to enhance the understanding of this esoteric and complex issue. In addition, this research applies the assessed energy efficiency potential to establish whether effective cost improvements enhance the relationship with sales price and capitalisation effects.

Details

Journal of European Real Estate Research , vol. 13 no. 3
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 28 January 2020

Fahad Almudhaf and Bader Alhashel

This paper aims to investigate the pricing efficiency of Saudi Sharia-compliant (i.e. Islamic) exchange-traded funds (ETFs).

Abstract

Purpose

This paper aims to investigate the pricing efficiency of Saudi Sharia-compliant (i.e. Islamic) exchange-traded funds (ETFs).

Design/methodology/approach

The paper adheres to a positivist research philosophy with a deductive research approach where data is collected, analyzed and interpreted to examine a hypothesis. Ordinary least squares (OLS) regressions are applied to investigate pricing efficiency and persistence.

Findings

The results show that Saudi ETFs do not currently offer proper diversification for investors, possibly due to their low trading volumes and the delays of market prices in reflecting net asset value (NAV). On average, ETFs trade at a premium to their NAVs. Moreover, the authors find that the deviations of ETF prices from their NAVs (i.e. premiums or discounts) do not disappear in one day. The results reveal a significant positive relationship between the trading volume of Saudi ETFs and volatility, a significant positive correlation between ETF returns and contemporaneous deviations and a significant negative relationship between returns and lagged deviations. These findings can be interpreted as evidence against the market efficiency of Saudi ETFs.

Practical implications

Individual and institutional investors can use Saudi ETFs, especially as their efficiency improves with increased trading volume (liquidity). Saudi regulators must increase their efforts to educate market participants and expand the availability of information to enhance transparency and awareness of the benefits of investing in ETFs, which will positively affect liquidity and pricing efficiency in the future.

Originality/value

This paper is the first to perform empirical tests on Saudi ETFs. Saudi Arabia deserves further attention because it is the most significant stock market in the Gulf Cooperation Council and only recently allowed foreigners to participate.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 3
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 31 August 2012

Ling‐Yun He and Wen‐Si Xie

There is a distinct separation of price discovery from pricing power in China's sugar spot and futures markets. The purpose of this paper is to identify the reasons and…

Abstract

Purpose

There is a distinct separation of price discovery from pricing power in China's sugar spot and futures markets. The purpose of this paper is to identify the reasons and provide plausible explanations for this stylized phenomenon. Therefore, the research may deepen the understandings of the operational mechanisms and internal efficiency of China's sugar spot and futures markets.

Design/methodology/approach

The authors analyze the historical spot and futures price time series from China's sugar spot market and China's Zhengzhou Commodity Exchange (CZCE) within a co‐integration framework.

Findings

It is found that China's sugar spot market has the pricing power, even though the futures market leads the spot market in price discovery. The phenomenon of observed separation of price discovery in spot market from pricing power in futures market may be caused by: irrational speculation in CZCE sugar futures market; oligopoly and local government politics; or the operational efficiency of the wholesale spot market, especially for its comparative advantages of information accessibility in the sugar producing areas. The results are compared with other empirical findings in many other commodities markets to obtain deeper understandings.

Originality/value

The paper uncovers and provides the earliest econometric evidence of the observed stylized phenomenon and also provides plausible explanations for this phenomenon.

Details

China Agricultural Economic Review, vol. 4 no. 3
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 1 February 2004

J. WANG, B.M. BURTON and G.M. HANNAH

This study examines differences in the extent of predictability in the pricing of the two main classes of equity traded in China, namely: A shares (available to Chinese…

Abstract

This study examines differences in the extent of predictability in the pricing of the two main classes of equity traded in China, namely: A shares (available to Chinese investors) and B shares (traditionally available only to non‐Chinese investors). The study extends previous work by conducting a wider range of analyses and extending the sample period until the relaxation of rules preventing domestic investors from purchasing B shares. The results suggest that earlier evidence of greater predictability in the pricing of B shares is not entirely robust to changes in the method of analysis, and may only partially explain why Chinese authorities have recently decided to widen participation in the B market.

Details

Studies in Economics and Finance, vol. 22 no. 2
Type: Research Article
ISSN: 1086-7376

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Book part
Publication date: 25 July 1997

Les Gulko

Abstract

Details

Applying Maximum Entropy to Econometric Problems
Type: Book
ISBN: 978-0-76230-187-4

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