In this paper chaos is viewed as an alternative approach to modeling complex and random appearing behavior. The spatial (static) characteristics of weekly returns and price levels…
Abstract
In this paper chaos is viewed as an alternative approach to modeling complex and random appearing behavior. The spatial (static) characteristics of weekly returns and price levels for eleven International Indices are quantified. We find evidence that all countries exhibit similar static characteristics. Evidence presented supports the examination of price series instead of returns.
Lee Sarver and George C. Philippatos
This study explores the nature of the spot foreign exchange risk premium. Employing Ross's Arbitrage Pricing Theory (APT) as a vehicle, it tests the hypothesis that…
Abstract
This study explores the nature of the spot foreign exchange risk premium. Employing Ross's Arbitrage Pricing Theory (APT) as a vehicle, it tests the hypothesis that cross‐sectional differences in pure currency returns depend on measures of systematic (covariance) risk. These tests have greater power, in the sense of an enhanced ability to reject the hypothesis, since they explicitly allow for the possibility that idiosyncratic risk is priced. A battery of tests is unable to reject the hypothesis that expected exchange returns can be explained by a single‐factor APT. One implication of these results is that official intervention in exchange markets is unnecessary and undesirable.
George C. Philippatos and K.G. Viswanathan
From 1982 to 1987, several Third World borrowers defaulted on their loans to U.S. creditor banks. The defaults resulted in the deterioration of the quality of loan assets held by…
Abstract
From 1982 to 1987, several Third World borrowers defaulted on their loans to U.S. creditor banks. The defaults resulted in the deterioration of the quality of loan assets held by the banks. The purpose of this study is to analyze the market reaction to a series of sovereign debt defaults. Specifically, we analyze eight events during the six year period to find out how the market reaction changed from one event to the next. Standard residual analysis and volatility tests are applied to a sample of 75 banks common to all eight events. The speed of adjustment to the sequential events indicates that with each event, the market becomes better informed and there is evidence of market learning. New SEC regulations requiring banks to disclose significant exposures to foreign borrowers and increasing awareness about the quality of the loan portfolio of banks helped in the market correctly evaluating the effects of defaults on the lenders.
Roger W. Clark and George C. Philippatos
Surveys the development of employee stock ownership plans (ESOPs) in the USA, Canada, Japan and the EU. Suggests that ESOPs are driven by management in the USA but are culturally…
Abstract
Surveys the development of employee stock ownership plans (ESOPs) in the USA, Canada, Japan and the EU. Suggests that ESOPs are driven by management in the USA but are culturally approved by both sides of industry in Japan. Describes the European system as emphasizing profit sharing instead because of traditional polarity between management and workers. Concludes that the propensity to save, risk aversion and industrial relations are more important factors than tax or business climate.
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Andreas C. Christofi, Petros C. Christofi and George C. Philippatos
This paper demonstrates an application of the Arbitrage Pricing Theory using canonical analysis as an alternative to the conventional factor analysis. Following the traditional…
Abstract
This paper demonstrates an application of the Arbitrage Pricing Theory using canonical analysis as an alternative to the conventional factor analysis. Following the traditional view that asset prices are influenced by unanticipated economic events, the systematic effects of the major composite economic indices on a wide spectrum of industry returns are explored. The main conclusion is that profitability may be considered as the single most important factor that influences security returns. Also, the composite lagging economic indicators appear to be more useful to investors in forming market expectations than the composite leading economic indicators. Finally, it is argued that the composite index of coincident economic indicators do not exhibit any significant influence in the pricing of capital assets.
George C. Philippatos, Nicolas Gressis and Philip L. Baird
The Black‐Scholes (B‐S) model in its various formulations has been the mainstay paradigm on option pricing since its basic formulation in 1973. The model has generally been proven…
Abstract
The Black‐Scholes (B‐S) model in its various formulations has been the mainstay paradigm on option pricing since its basic formulation in 1973. The model has generally been proven empirically robust, despite the well documented empirical evidence of mispricing deep‐in‐the‐money, deep out‐of‐the‐money and, occasionally, at‐the‐money options with near maturities [see Galai (1983)]. Research on explaining the observed pricing anomalies has focused on the variance of the return of the underlying asset, which, in the case of the B‐S model, is assumed to remain invariant over time. The variance term is not directly observable, leading researchers to speculate that pricing discrepancies may be caused by misspecification of this variable. More specifically, interest in the volatility variable has centered about the implied standard deviation (ISD).
James H. Dulebohn and Hsiu‐Lang Chen
State and local public pension plans cover a significant number of workers and represent a major component of the nation's retirement system. This study examined the…
Abstract
State and local public pension plans cover a significant number of workers and represent a major component of the nation's retirement system. This study examined the size‐administrative cost relationship of public pension plans to ascertain whether cost savings can be realized by increasing pension plan size. The results indicated that while the consolidation of smaller plans will generate administrative cost savings, the consolidation of larger plans will generate savings only up to an optimal membership size at which point cost savings will end. In addition, optimal size was found to differ for active and beneficiary members indicating that membership composition needs to be considered when assessing the potential for cost savings.
Gregory Koutmos and George C. Philippatos
This paper seeks to test the hypothesis that stock returns in the Athens Stock Exchange (ASE) adjust asymmetrically to past information due to differential adjustment costs.
Abstract
Purpose
This paper seeks to test the hypothesis that stock returns in the Athens Stock Exchange (ASE) adjust asymmetrically to past information due to differential adjustment costs.
Design/methodology/approach
The methodological approach is based on the asymmetric price adjustment model suggested by Koutmos. The model is estimated using daily sector stock return data for the ASE over the period 2 January 1992‐1 March 1999.
Findings
The empirical evidence suggests that prices respond asymmetrically to past information. Specifically, positive past returns are more persistent than negative past returns of an equal magnitude. This behavior is consistent with an asymmetric partial adjustment price model where news suggesting overpricing (negative returns) are incorporated faster into current market prices than news suggesting underpricing (positive returns).
Research limitations/implications
This paper does not investigate the possibility that the asymmetric price adjustment is related to conditional heteroscedasticity in stock return. Further research in this area should prove very useful.
Practical implications
The findings in this paper have important theoretical and practical implications. On the theoretical level the findings suggest that violations of the efficient markets hypothesis could be due to market frictions and costly adjustments. On the practical level, the asymmetric adjustment process could improve trading profits, especially those based on momentum strategies.
Originality/value
This paper presents new findings on the stock price dynamics of the ASE. These findings should be of interest to researchers, regulators and market participants.
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Suk H. Kim and Gregory Ulferts
A quarter of a century has passed since Stonehill and Nathanson (1968) surveyed multinational companies to determine their foreign capital budgeting practices. Since then…
Abstract
A quarter of a century has passed since Stonehill and Nathanson (1968) surveyed multinational companies to determine their foreign capital budgeting practices. Since then, research has not only refined its theoretical base on this subject but also expanded the knowledge of actual practices by multinational companies. This article summarizes the findings of major multinational capital budgeting studies for the last 25 years to ascertain whether companies followed theoretically prescribed approaches. Then, it suggests further research to advance the knowledge on this subject.
The purpose of this paper is to assess the usefulness of financial ratios derived from working capital‐based funds flow information to predict the failure of US industrial firms…
Abstract
The purpose of this paper is to assess the usefulness of financial ratios derived from working capital‐based funds flow information to predict the failure of US industrial firms. Unlike cash‐based funds flow ratios, used in the previous papers, capital‐based funds ratios are less volatile, therefore they are expected to be better predictors of business failure. Moreover, the paper utilizes a more general definition of business failure than the legal definition. The analysis is carried out using a stepwise logit procedure. The results indicate that working capital‐based funds flow measures are superior to cash‐based funds flow measures in business failure prediction models.