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Article

Robert Faff and TIMOTHY J. BRAILSFORD

In this paper we employ a GMM‐based approach to test the restrictions imposed by a two‐factor ‘market and oil’ pricing model when a risk‐free asset is assumed to exist. We…

Abstract

In this paper we employ a GMM‐based approach to test the restrictions imposed by a two‐factor ‘market and oil’ pricing model when a risk‐free asset is assumed to exist. We examine the Australian market which has several interesting features including self‐sufficiency in relation to oil, a large concentration of natural resource companies, susceptibility to the ‘Dutch disease’ and a diverse industry base. We extend previous literature by examining industry sector equity returns as different industry groups are likely to have different exposures to an oil factor, particularly in Australia. In the formal tests, we find evidence in favour of the model, particularly for industrial sector industries. The preferred model includes a domestic portfolio proxy for market returns in addition to the oil price factor and we find evidence of a positive market risk premium as well as a significantly priced oil factor.

Details

Pacific Accounting Review, vol. 12 no. 1
Type: Research Article
ISSN: 0114-0582

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Article

Robert D. Brooks, Amalia Di Iorio, Robert W. Faff, Tim Fry and Yovina Joymungul

The purpose of this paper is to provide some insights into the exchange rate exposure of Australian stock returns.

Abstract

Purpose

The purpose of this paper is to provide some insights into the exchange rate exposure of Australian stock returns.

Design/methodology/approach

Using a dynamic econometric approach that allows for both asymmetry and time‐varying risk exposures in both the exchange rate variable and the market variable, a large sample of Australian firms were tested over the period of January 2001 and December 2005. The data were analysed using three different classification methods, forming portfolios according to industry sector, size deciles, and censoring deciles.

Findings

Although the evidence of exchange rate exposure is limited across the sample of industries, the following were found: a time‐varying asymmetric effect primarily in the utilities sector, time‐varying exposure in the materials and energy sectors, and an asymmetric effect in the technology sector. Further, some time‐varying asymmetric exchange rate exposure was found across most size and censoring deciles and also substantial evidence of a positive asymmetric effect in the market beta across all three classification methods.

Originality/value

This approach varies from previous studies in this area that only allow for asymmetry and time variation in exchange rate exposures. The paper also examines the Australian stock market, a market which has not been extensively tested in this area of empirical research.

Details

International Journal of Commerce and Management, vol. 20 no. 4
Type: Research Article
ISSN: 1056-9219

Keywords

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Article

Robert W. Faff and Michael D. McKenzie

This paper empirically assesses the determinants of conditional stock index autocorrelation with particular emphasis on the impact of return volatility that are…

Abstract

Purpose

This paper empirically assesses the determinants of conditional stock index autocorrelation with particular emphasis on the impact of return volatility that are theoretically linked through the behaviour of feedback traders.

Design/methodology/approach

The S&P 100, 500 and the NASDAQ 100 index are considered and volatility in each series is captured using option‐implied estimates taken from the Chicago Board Options Exchange. A seemingly unrelated regression approach is used in which trading volume and volatility are simultaneously modelled.

Findings

The results of this study suggest that low or even negative return autocorrelations are more likely in situations where: return volatility is high; price falls by a large amount; traded stock volumes are high; and the economy is in a recessionary phase.

Research limitations/implications

The results confirm that previous related work showing a link between autocorrelation and volatility is not induced by a mechanical relation.

Practical implications

Usage of endogenously determined volatility measures in this area of the literature is justified.

Originality/value

This study provides a robustness test of the autocorrelation/volatility relation, as well as a further exploration of the utility inherent in option‐implied volatility.

Details

International Journal of Managerial Finance, vol. 3 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

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Book part

Robert D. Brooks, Robert W. Faff, Tim Fry and Diana Maldonado-Rey

In this paper we investigate the empirical performance of an alternative beta risk estimator, which is designed to be superior to its conventional counterparts in…

Abstract

In this paper we investigate the empirical performance of an alternative beta risk estimator, which is designed to be superior to its conventional counterparts in situations of extreme thin trading. The estimator used is based on the sample selectivity model. The study compares the resultant selectivity-corrected beta to the OLS beta and Dimson Betas. We demonstrate the empirical behaviour of the selectivity corrected beta estimator using a sample of stocks in seven countries from Latin America. The results indicate that the selectivity-corrected beta does correct the downward bias of the OLS estimates and is likely to better estimate stock risk.

Details

Latin American Financial Markets: Developments in Financial Innovations
Type: Book
ISBN: 978-1-84950-315-0

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Article

Darren D. Lee, Robert W. Faff and Saphira A.C. Rekker

The purpose of this paper is to examine whether portfolios comprising high‐ranked corporate social performance (CSP) firms out/underperform portfolios comprised of…

Abstract

Purpose

The purpose of this paper is to examine whether portfolios comprising high‐ranked corporate social performance (CSP) firms out/underperform portfolios comprised of low‐ranked CSP firms. The authors employed a US sample covering the period 1998‐2007.

Design/methodology/approach

In the context of the Fama and French model augmented by momentum and industry factors, the authors test the significance of the alpha for a CSP difference portfolio, defined as high‐ranked minus low‐ranked CSP stocks.

Findings

The results are consistent with the “no‐linkage” hypothesis, which argues that no significant difference in the risk‐adjusted performance is expected between high‐ and low‐ranked CSP‐formed portfolios. Furthermore, little evidence was found that high‐ or low‐ranked CSP‐formed portfolios, irrespective of the portfolio formation type, systematically differ with regard to performance, size, book‐to‐market or momentum factors.

Originality/value

The authors employ sustainability CSP rankings that focus on environmental, social and governance (ESG) materiality factors, in contrast to many prior studies that solely use KLD ratings or just focus on a subarea of CSP. Moreover, the authors' dataset considerably improves upon previous studies employing similar data in which individual company rankings are not available.

Abstract

Details

International Journal of Accounting & Information Management, vol. 19 no. 2
Type: Research Article
ISSN: 1834-7649

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Article

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Abstract

Details

Latin American Financial Markets: Developments in Financial Innovations
Type: Book
ISBN: 978-1-84950-315-0

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Book part

Abstract

Details

Latin American Financial Markets: Developments in Financial Innovations
Type: Book
ISBN: 978-1-84950-315-0

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Book part

Harvey Arbeláez and Reid William Click

This book is an attempt to reflect on what we have learned from financial policies and financial crises in Latin America. The 21 chapters in this volume capture the…

Abstract

This book is an attempt to reflect on what we have learned from financial policies and financial crises in Latin America. The 21 chapters in this volume capture the developments in various ways. They cover theoretical contributions, regional empirical studies, and specific inquiries on Argentina, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Peru and Venezuela. The breadth of methodologies implemented suggests that researchers are looking at Latin American financial markets through a variety of lenses. The chapters are divided into 7 parts, including, in Part I, an initial overview. Part II examines the foreign exchange markets in Latin America and their interactions with other markets. Part III discusses dollarization issues in the region. Part IV then takes up the issue of banking in Latin America. Equity and bond markets are considered in Parts V and VI, respectively. Lastly, Part VII considers pension systems in Latin America. Taken as a whole, the 21 chapters seize the excitement of studying Latin America and provide lessons that are applicable around the world.

Details

Latin American Financial Markets: Developments in Financial Innovations
Type: Book
ISBN: 978-1-84950-315-0

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