Nathan Lael Joseph and Panayiotis Vezos
The purpose of this paper is to investigate the impact of foreign exchange and interest rate changes on US banks’ stock returns.
Abstract
Purpose
The purpose of this paper is to investigate the impact of foreign exchange and interest rate changes on US banks’ stock returns.
Design/methodology/approach
The approach employs an EGARCH model to account for the ARCH effects in daily returns. Most prior studies have used standard OLS estimation methods with the result that the presence of ARCH effects would have affected estimation efficiency. For comparative purposes, the standard OLS estimation method is also used to measure sensitivity.
Findings
The findings are as follows: under the conditional t‐distributional assumption, the EGARCH model generated a much better fit to the data although the goodness‐of‐fit of the model is not entirely satisfactory; the market index return accounts for most of the variation in stock returns at both the individual bank and portfolio levels; and the degree of sensitivity of the stock returns to interest rate and FX rate changes is not very pronounced despite the use of high frequency data. Earlier results had indicated that daily data provided greater evidence of exposure sensitivity.
Practical implications
Assuming that banks do not hedge perfectly, these findings have important financial implications as they suggest that the hedging policies of the banks are not reflected in their stock prices. Alternatively, it is possible that different GARCH‐type models might be more appropriate when modelling high frequency returns.
Originality/value
The paper contributes to existing knowledge in the area by showing that ARCH effects do impact on measures of sensitivity.
Details
Keywords
George Iatridis and Nathan Lael Joseph
To provide a framework of accounting policy choice associated with the timing of adoption of the UK Statement of Standard Accounting Practice (SSAP) No. 20, “Foreign Currency…
Abstract
Purpose
To provide a framework of accounting policy choice associated with the timing of adoption of the UK Statement of Standard Accounting Practice (SSAP) No. 20, “Foreign Currency Translation”. The conceptual framework describes the accounting policy choices that firms face in a setting that is influenced by: their financial characteristics; the flexible foreign exchange rates; and the stock market response to accounting decisions.
Design/methodology/approach
Following the positive accounting theory context, this paper puts into a framework the motives and choices of UK firms with regard to the adoption or deferment of the adoption of SSAP 20. The paper utilises the theoretical and empirical findings of previous studies to form and substantiate the conceptual framework. Given the UK foreign exchange setting, the framework identifies the initial stage: lack of regulation and flexibility in financial reporting; the intermediate stage: accounting policy choice; and the final stage: accounting choice and policy review.
Findings
There are situations where accounting regulation contrasts with the needs and business objectives of firms and vice‐versa. Thus, firms may delay the adoption up to the point where the increase in political costs can just be tolerated. Overall, the study infers that firms might have chosen to defer the adoption of SSAP 20 until they reach a certain corporate goal, or the adverse impact (if any) of the accounting change on firms' financial numbers is minimal. Thus, the determination of the timing of the adoption is a matter which is subject to the objectives of the managers in association with the market and economic conditions. The paper suggests that the flexibility in financial reporting, which may enhance the scope for income‐smoothing, can be mitigated by the appropriate standardisation of accounting practice.
Research limitations/implications
First, the study encompassed a period when firms and investors were less sophisticated users of financial information. Second, it is difficult to ascertain the decisions that firms would have taken, had the pound appreciated over the period of adoption and had the firms incurred translation losses rather than translation gains.
Originality/value
This paper is useful to accounting standards setters, professional accountants, academics and investors. The study can give the accounting standard‐setting bodies useful information when they prepare a change in the accounting regulation or set an appropriate date for the implementation of an accounting standard. The paper provides significant insight about the behaviour of firms and the associated impacts of financial markets and regulation on the decision‐making process of firms. The framework aims to assist the market and other authorities to reduce information asymmetry and to reinforce the efficiency of the market.
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Nathan Lael Joseph, David S. Brée and Efstathios Kalyvas
Are the learning procedures of genetic algorithms (GAs) able to generate optimal architectures for artificial neural networks (ANNs) in high frequency data? In this experimental…
Abstract
Are the learning procedures of genetic algorithms (GAs) able to generate optimal architectures for artificial neural networks (ANNs) in high frequency data? In this experimental study, GAs are used to identify the best architecture for ANNs. Additional learning is undertaken by the ANNs to forecast daily excess stock returns. No ANN architectures were able to outperform a random walk, despite the finding of non-linearity in the excess returns. This failure is attributed to the absence of suitable ANN structures and further implies that researchers need to be cautious when making inferences from ANN results that use high frequency data.
Jill Frances Atkins, Aris Solomon, Simon Norton and Nathan Lael Joseph
This paper aims to provide evidence to suggest that private social and environmental reporting (i.e. one-on-one meetings between institutional investors and investees on social…
Abstract
Purpose
This paper aims to provide evidence to suggest that private social and environmental reporting (i.e. one-on-one meetings between institutional investors and investees on social and environmental issues) is beginning to merge with private financial reporting and that, as a result, integrated private reporting is emerging.
Design/methodology/approach
In this paper, 19 FTSE100 companies and 20 UK institutional investors were interviewed to discover trends in private integrated reporting and to gauge whether private reporting is genuinely becoming integrated. The emergence of integrated private reporting through the lens of institutional logics was interpreted. The emergence of integrated private reporting as a merging of two hitherto separate and possibly rival institutional logics was framed.
Findings
It was found that specialist socially responsible investment managers are starting to attend private financial reporting meetings, while mainstream fund managers are starting to attend private meetings on environmental, social and governance (ESG) issues. Further, senior company directors are becoming increasingly conversant with ESG issues.
Research limitations/implications
The findings were interpreted as two possible scenarios: there is a genuine hybridisation occurring in the UK institutional investment such that integrated private reporting is emerging or the financial logic is absorbing and effectively neutralising the responsible investment logic.
Practical implications
These findings provide evidence of emergent integrated private reporting which are useful to both the corporate and institutional investment communities as they plan their engagement meetings.
Originality/value
No study has hitherto examined private social and environmental reporting through interview research from the perspective of emergent integrated private reporting. This is the first paper to discuss integrated reporting in the private reporting context.