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Article
Publication date: 12 November 2021

Andreas Hecht

Empirical evidence on the determinants of corporate FX speculation is ambiguous. We note that the conflicting findings of prior studies could be the result of different…

Abstract

Purpose

Empirical evidence on the determinants of corporate FX speculation is ambiguous. We note that the conflicting findings of prior studies could be the result of different methodologies in determining speculation. Using a novel approach to defining speculative activities, we seek to help solve the puzzle of the determinants of speculation and examine which firms engage in such activities and why they do so.

Design/methodology/approach

This paper examines an unexplored regulatory environment that contains publicly reported FX risk data on the firms' exposures before and after hedging per year and currency. This unprecedented data granularity allows us to use actual reported volumes instead of proxy variables in defining speculation and to examine whether the convexity theories are empirically supported in FX risk management.

Findings

We find that frequent speculators are smaller, have more growth opportunities and possess lower internal resources, which indicates unprecedented empirical evidence for the convexity theories in FX risk management. Further, we provide evidence that corporate speculation might be linked to the application of hedge accounting.

Practical implications

We help solve the questions of which and why firms engage in speculative activities. This can provide valuable information to various stakeholders such as financial analysts, investors, or regulators, which can help prevent imperiling corporate losses and curb excessive speculative financial activities.

Originality/value

In order to question the unresolved issue of the determinants of speculation, this paper is the first to use openly available accounting data with actual reported FX exposure information before and after hedging in defining speculation, instead of relying on proxy variables for FX exposure and derivative usage with potential estimation errors.

Details

The Journal of Risk Finance, vol. 22 no. 5
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 29 April 2020

Michael Rehm and Yang Yang

The purpose of this paper is to examine housing speculation in Auckland, New Zealand, the second most unaffordable market in the world.

Abstract

Purpose

The purpose of this paper is to examine housing speculation in Auckland, New Zealand, the second most unaffordable market in the world.

Design/methodology/approach

The study considers rental property purchases from 2002 to 2016 within the Auckland region. The authors apply a simple cash flow model that emulates the before-tax investment calculations used during purchasers’ due diligence. From this model, the authors determine whether purchases involved speculation on capital gains or not and the authors estimate the degree of speculation at the transaction level.

Findings

The authors find that housing speculation in Auckland is endemic and its housing market is a politically condoned, finance-fuelled casino with investors broadly betting on tax-free capital gains.

Social implications

Although political leaders have decried that the “speculation-driven housing bubble in Auckland is a social and economic disaster”, the government’s main anti-speculation tool – the Income Tax Act’s intention test – sits idle and inoperable. By holstering this key policy tool, politicians foster housing speculation and use residential property investment to buttress New Zealand’s asset-based welfare system.

Originality/value

The authors develop novel methods to objectively distinguish speculators from genuine investors, measure the speculative pressure applied by individual rental property purchasers and outline an evidence-based approach to operationalise New Zealand’s currently impotent anti-speculation tool, the intention test.

Details

International Journal of Housing Markets and Analysis, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 30 September 2014

Christina Kleinau and Nick Lin-Hi

This paper aims to conceptually analyse the role of speculation in society to determine whether agricultural commodity index funds, a new form of speculation, contribute…

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1222

Abstract

Purpose

This paper aims to conceptually analyse the role of speculation in society to determine whether agricultural commodity index funds, a new form of speculation, contribute to sustainable development.

Design/methodology/approach

The theoretical arguments justifying the value of the market economic system for generating sustainable development and the positive contribution speculators make too in this context are elaborated. It is then considered whether the arguments justifying traditional speculation hold for agricultural commodity index funds.

Findings

Traditional forms of speculation contribute positively to sustainable development; primarily due to the information they uncover on demand and supply factors which affect prices. Agricultural index funds are a danger to sustainable development, as their transactions are not based on demand and supply factors but simply represent demand for the diversification effect which commodities generate when added to an investment portfolio.

Originality/value

The article offers a new approach to assessing whether agricultural index funds contribute to sustainable development. Empirical research has been conducted on whether speculation via index funds has unjustifiably affected commodity prices. However, results of these investigations have been inconclusive due to stark limitations in data availability. By approaching the issue from a conceptual point of view, the article delivers theoretically sound arguments as to why agricultural commodity index funds are likely to have an unjustifiable effect on prices and, hence, are a danger to sustainable development. This has strong implications for finance practice and regulation.

Details

Corporate Governance, vol. 14 no. 5
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 29 June 2012

Tom Aabo, Marianna Andryeyeva Hansen and Christos Pantzalis

The purpose of this paper is to investigate how non‐finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange…

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2847

Abstract

Purpose

The purpose of this paper is to investigate how non‐finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in non‐financial firms.

Design/methodology/approach

Non‐financial firms in a small open economy (Denmark) are surveyed to investigate the extent of foreign exchange speculation and how it is related to the degree of nonfinance departmental involvement in the management of exchange rate risks. The authors employ binary and ordered probit regression analysis.

Findings

A positive link is found between the extent to which departments other than the finance department are involved in the management of exchange rate risks; and second, the extent to which the firm is likely to speculate – whether in the form of selective hedging or active speculation – on the foreign exchange market.

Practical implications

The findings indicate that the trend towards a more integrated risk management approach in which the finance department is not the only department responsible for risk management may have the (unforeseen) consequence that foreign exchange speculation increases.

Originality/value

The paper's findings are important because the link between the extent of foreign exchange speculation and a more integrated risk management approach has not been addressed previously.

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Article
Publication date: 23 January 2007

Tom Aabo

To investigate the extent to which finance managers in non‐financial firms speculate in the currency markets and particularly to investigate the effect of…

Abstract

Purpose

To investigate the extent to which finance managers in non‐financial firms speculate in the currency markets and particularly to investigate the effect of individual‐owners on such speculation.

Design/methodology/approach

This paper uses survey data in order to analyse the extent of currency speculation in non‐financial firms. It uses survey data and publicly available data in an ordered probit regression analysis in order to analyse the decisive factors behind the extent of currency speculation in non‐financial firms.

Findings

Currency speculation is widespread among non‐financial firms and takes the form of selective hedging as well as speculation not related to the underlying business. The extent of speculation is positively related to the size of the firm, to the international involvement of the firm, and to the conservatism of its capital structure. If an individual (often the founder or a descendant of the founder) is the largest shareholder in the firm, the extent of such speculation is significantly reduced.

Research limitations/implications

The findings are based on Danish, non‐financial firms listed on the Copenhagen Stock Exchange.

Originality/value

The contribution of this paper is to provide evidence on the negative relationship between individual‐owners (ownership structure) and the extent of currency speculation in non‐financial firms and more generally to investigate the factors behind such speculation.

Details

International Journal of Managerial Finance, vol. 3 no. 1
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 12 December 2017

Shanshan Dong and Yun Feng

The purpose of this paper is to study the effect of different parts (predictable and impact) of different types of speculative behavior (intraday speculation, medium-term…

Abstract

Purpose

The purpose of this paper is to study the effect of different parts (predictable and impact) of different types of speculative behavior (intraday speculation, medium-term speculation and long-term speculation) on future fluctuations in the underlying index.

Design/methodology/approach

The authors input information about heterogeneous speculative behavior into the HAR-RV model to study the effect of different parts (predictable and impact) of different types of speculative behavior (intraday speculation, medium-term speculation and long-term speculation) on the future fluctuation of the underlying index.

Findings

The authors find that the increase in intraday speculation will exacerbate spot market volatility; and the expected increase of long-term value speculation can reduce market volatility, but the shock of speculation will exacerbate market volatility.

Practical implications

The authors suggest that regulators should strictly limit speculative intraday trading, and also focus on the long-term value speculation that decreases market volatility, in order to guide the benign development of the markets that stabilize abnormal market fluctuations.

Originality/value

First, in view of the correlation between the futures and spot markets, the authors put forward a new proxy for the speculation degree. Second, the authors input heterogeneous speculative behavior into the HAR-RV model to study the effects of different parts (predictable and impact) on different types of speculative behavior (intraday speculation, medium-term speculation and long-term speculation) on the future fluctuation of the underlying index.

Details

China Finance Review International, vol. 8 no. 2
Type: Research Article
ISSN: 2044-1398

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Book part
Publication date: 9 July 2010

Anna Rubtsova, Rich DeJordy, Mary Ann Glynn and Mayer Zald

In this article, we consider the evolution of the US stock market from the 1770s through the early 20th century. Adopting an institutional lens, we conceive of the stock…

Abstract

In this article, we consider the evolution of the US stock market from the 1770s through the early 20th century. Adopting an institutional lens, we conceive of the stock market as an institutional field constituted by socially constructed cultural logics and myths. We focus on the role of the US government as an actor embedded in the stock market field and sharing in the prevailing field logics. Tracking the dominant logics of the stock market field at different historical periods, we examine how these logics impacted government regulatory action upon the stock market, and how those government regulations affected the subsequent logics of the stock market field. Our research included both quantitative content analysis of articles in historical newspapers and qualitative historical analysis of multiple primary and secondary accounts of stock market problems and solutions across more than 150 years. We document how government regulatory action both reflects and shapes the logics of the stock market field.

Details

Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part B
Type: Book
ISBN: 978-0-85724-208-2

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Article
Publication date: 29 January 2021

C.M. Sashi

Technological innovations that resulted in the emergence and widespread adoption of digital communication in recent years have led to a surge of academic and practitioner…

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1151

Abstract

Purpose

Technological innovations that resulted in the emergence and widespread adoption of digital communication in recent years have led to a surge of academic and practitioner interest in its implications for the co-creation of value and customer engagement. However, in comparison to the attention given to the study of customer engagement in consumer markets, few studies have examined its key role in business markets. This paper aims to examine the impact of digital communication on value co-creation and customer engagement in inter-organizational relationships in business networks.

Design/methodology/approach

Co-creation of value and customer engagement in business networks occurs among interconnected organizations that are partners in intermediate transactions. The paper develops a matrix of inter-organizational engagement among partners in business networks and propositions linking digital communication to value co-creation and inter-organizational engagement.

Findings

The relationships among network organizations may be characterized by the extent of relational exchange and inter-organizational bonds among them. Four types of inter-organizational engagement emerge: transactional partners, loyal partners, trusted partners and engaged partners. The partners co-create value to better satisfy customers.

Research limitations/implications

The paper is an initial attempt to develop a conceptual understanding of customer engagement in business markets and formulate propositions that can be further investigated. Networks of partner organizations co-create value, altering their input and output markets, value addition and products, permitting greater flexibility and customization in satisfying the needs of customers.

Practical implications

The ability afforded by digital communication for real-time interactive communication enables individuals from multiple departments and hierarchical positions within multiple organizations dispersed across geographic locations and industries to maintain contact, quickly and easily communicate task information, build trust and commitment in long-term relationships with network partners and provide superior customer value.

Originality/value

The paper represents a unique attempt to understand the nature of customer engagement in business markets. It discusses how digital communication alters market transactions among partner organizations in a network by facilitating changes in their make/buy decisions. It develops a matrix of inter-organizational engagement in business networks and propositions that improve understanding of the customer engagement concept and provide the foundation for strategies to better satisfy customers.

Details

European Journal of Marketing, vol. 55 no. 6
Type: Research Article
ISSN: 0309-0566

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Article
Publication date: 13 August 2019

Raziyeh Reza-Gharehbagh, Ashkan Hafezalkotob, Ahmad Makui and Mohammad Kazem Sayadi

This study aims to analyze the competition of two financial chains (FCs) when the government intervenes in the financial market to prohibit the excessively high-interest…

Abstract

Purpose

This study aims to analyze the competition of two financial chains (FCs) when the government intervenes in the financial market to prohibit the excessively high-interest rate by minimizing the arbitrages caused by speculative transactions. Each FC comprises an investor and one intermediary, attempts to finance the capital-constrained firms in financing needs.

Design/methodology/approach

Using a Stackelberg game theoretic framework and formulating two- and three-level optimization problems for six possible scenarios, the authors establish an integrative framework to evaluate the scenarios through the lens of the two main decision-making structures of the FCs (i.e. centralized and decentralized) and three policies of the government (i.e. speculation minimizing, revenue gaining and utility maximizing).

Findings

Solving the problem results in optimal values for tariffs, which guarantee a stable competitive market. Consequently, policymaking by the government influences the decision variables, which is shown in a numerical study. The authors find that the government can orchestrate the FCs in the competitive market by imposing tariffs and prohibiting high-interest rates via regulating the speculation impacts, which guarantees a stable market and facilitates the financing of capital-constrained firms.

Research limitations/implications

This paper aids the financial markets and governments to control the interest rate by minimizing the speculation level.

Originality/value

This paper investigates the impact of government intervention policies – as a leading player – on the competition of FCs – as followers – in providing financial services and making profits. The government imposes tariffs on the interest rate to stabilize the market by limiting speculative transactions. The paper presents the mathematical models of the optimization problems through the game-theoretic framework and comparison of the scenarios through a numerical experiment.

Details

Kybernetes, vol. 49 no. 3
Type: Research Article
ISSN: 0368-492X

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Article
Publication date: 13 February 2017

Ildus Rafikov and Buerhan Saiti

This paper aims to discuss the topic of financial speculation with special reference to forex and offers an analysis from the Maqasid Al-Shariah perspective, whereby…

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1091

Abstract

Purpose

This paper aims to discuss the topic of financial speculation with special reference to forex and offers an analysis from the Maqasid Al-Shariah perspective, whereby authors propose to limit the outreach of speculative instruments in the financial markets.

Design/methodology/approach

The authors will make use of a simple textual analysis of existing materials and documents. To come up with conclusions, relevant to this study and to make them credible enough, the authors will undertake to review the existing literature in the next part of the paper and will later present his analysis of findings in light of financial crises and the objectives of Shariah.

Findings

The Maqasid Al-Shariah approach used in the analysis suggests that speculative financial instruments do not constitute a necessity, and their harmful practice must be limited to protect the religion, life, lineage, intellect and property.

Originality/value

Financial speculation in general and foreign exchange in particular must be regulated. Their current practices of financial system pose significant challenges for entire economies as well as individuals. Muslims should also avoid speculative financial instruments, such as forex, because they are a clear threat to individual and state wealth and prosperity. In addition, they threaten traditional businesses and social norms in Muslim societies.

Details

Humanomics, vol. 33 no. 1
Type: Research Article
ISSN: 0828-8666

Keywords

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