The Impact of Global Financial Market Uncertainty on the Risk-Return Relation in the Stock Markets of G7 Countries

2011 ◽  
Author(s):  
Geoffrey F. Loudon
Keyword(s):  
Financial Market ◽  
Stock Markets ◽  
Market Uncertainty ◽  
G7 Countries ◽  
Risk Return ◽  
The Impact

The impact of global financial market uncertainty on the risk-return relation in the stock markets of G7 countries

2017 ◽  
Vol 34 (1) ◽  
pp. 2-23 ◽  
Author(s):  
Geoffrey Loudon
Keyword(s):  
Financial Market ◽  
Stock Markets ◽  
Regime Switching ◽  
Transition Probabilities ◽  
Market Uncertainty ◽  
Content Type ◽  
Regime Switching Model ◽  
Switching Model ◽  
Risk Return ◽  
The Impact

Purpose This paper aims to investigate the effect of global financial market uncertainty on the relation between risk and return in G7 stock markets. Design/methodology/approach Market uncertainty is quantified using a probability-based measure derived from a regime-switching model in which the state transition probabilities are time-varying in response to leading economic indicators. Time variation in the risk return relation is estimated using a GARCH-M model. Findings While the regime-switching model successfully distinguishes between crisis and normal states, there remains substantial variability through time in the level of uncertainty about which state prevails. Results show that a strong negative relation exists between this uncertainty and the reward-to-variability ratio across all G7 stock markets. This finding is qualitatively consistent at both monthly and weekly horizons. Originality/value Extant evidence on the risk-return relation is conflicting. Most papers assume the relation is time constant. Allowing the reward-to-variability ratio to vary through time in response to return regime uncertainty increases the understanding of asset pricing. It also has important implications for asset allocation decisions by investors.

Decomposition of stock market trade-offs using Shewhart methodology

2016 ◽  
Vol 33 (9) ◽  
pp. 1311-1331 ◽  
Author(s):  
Nadeeka Premarathna ◽  
A. Jonathan R. Godfrey ◽  
K. Govindaraju
Keyword(s):  
Quality Management ◽  
Stock Returns ◽  
Financial Market ◽  
Significant Risk ◽  
Trade Off ◽  
Content Type ◽  
Risk Return ◽  
Trade Offs ◽  
The Impact ◽  
Market Behaviour

Purpose The purpose of this paper is to investigate the applicability of Shewhart methodology and other quality management principles to gain a deeper understanding of the observed volatility in stock returns and its impact on market performance. Design/methodology/approach The validity of quality management philosophy in the context of financial market behaviour is discussed. The technique of rational subgrouping is used to identify the observable variations in stock returns as either common or special cause variation. The usefulness of the proposed methodology is investigated through empirical data. The risk/return and skewness/kurtosis trade-offs of S&P 500 stocks are examined. The consistency of this approach is reviewed by relating the separated variability to “efficient market” and “behavioural finance” theories. Findings Significant positive and negative risk/return trade-offs were found after partitioning the returns series into common and special cause periods, respectively, while total data did not exhibit a significant risk/return trade-off at all. A highly negative skewness/kurtosis trade-off was found in total and special cause periods as compared to the common cause periods. These results are broadly consistent with the theoretical concepts of finance and other empirical findings. Practical implications The quality management principles-based approach to analysing financial data avoids the complexities commonly found in stochastic-volatility forecasting models. Social implications The results provide new insights into the impact of volatility in stock returns. They should have direct implications for financial market participants. Originality/value The authors explore the relevance of Shewhart methodology in analysing variability in stock returns through reviewing financial market behaviour.

scholarly journals Financial market consequences of early adoption of international standards on auditing: international evidence

2020 ◽  
Vol 35 (6) ◽  
pp. 819-858
Author(s):  
Ibrahim Khalifa Elmghaamez ◽  
Ali Meftah Gerged ◽  
Collins G. Ntim
Keyword(s):  
Least Squares ◽  
Financial Market ◽  
Stock Markets ◽  
International Standards ◽  
Least Squares Regression ◽  
Content Type ◽  
Early Adoption ◽  
Doi Theory ◽  
Market Consequences ◽  
The Impact

Purpose This paper aims to investigate the effects of the early adoption of International Standards on Auditing (ISAs) on Financial Market Indicators (FMIs) from a diffusion of innovation (DOI) theory perspective. Design/methodology/approach Using panel data from 110 countries in a period that spans from 1995 to 2014, this study applies an ordinary least squares regression model to investigate the financial consequences of adopting ISAs. This analysis was supplemented with estimating a fixed-effects and two-stage least squares regression models to address any concerns regarding the possible existence of endogeneity problems. Findings This study reports three key findings. First, the authors find that early ISAs adoption has a negative effect on several financial market consequences, namely stock market integration, market capitalisation, market turnover, market return, market development, stock price volatility and stock trading volume. Second, using an alternative measure to the one that is proposed by DOI theory, the authors found that some financial indicators have been significantly improved after ISAs adoption, but only for listed firms that prepared their financial statements under International Financial Reporting Standards and audited by ISAs simultaneously. Finally, the financialindicators of European stock markets, however, have insignificantly shrank post the mandatory adoption of ISAs in 2006. Practical implications The empirical evidence raises questions about how ISAs were enforced and implemented. For example, countries that adopted ISAs at early stages may have been dominated mostly by recently established stock exchanges. This implies a crucial need to determine and apply the best type of auditing regime that can increase investors trust and enhance the credibility of stock markets information, which might ultimately advance the FMIs over time significantly. Originality/value To-date, studies investigating the impact of the adoption of ISAs on FMI from a DOI theory perspective are virtually non-existent. The study, therefore, seeks to contribute to the extant literature by examining the influence of ISAs adoption on a wide range of FMIs.

Russian Banking Sector under World Financial Market Uncertainty: Problems and Prospects

2008 ◽  
pp. 4-19 ◽  
Author(s):  
A. Ulyukaev ◽  
E. Danilova
Keyword(s):  
Emerging Markets ◽  
Financial Market ◽  
Banking Sector ◽  
Financial System ◽  
Local Market ◽  
Market Uncertainty ◽  
Balanced Growth ◽  
Banking Sector Development ◽  
The World ◽  
The Usa

The authors point out that the local market crisis - on the USA substandard loan market - has led to the uncertainty of the world financial market. It has caused the growing demand for liquidity in the framework of the world financial system. The Russian banking sector seems to be more stable under negative changes than banking systems of other emerging markets. At the same time one can assume that the crisis will become the factor of qualitative shift in the character of the Russian banking sector development - the shift from impetuous to more balanced growth.

Risk Attitude and Corporate Investment under Output Market Uncertainty: Evidence from The Mekong River Delta, Vietnam

2016 ◽  
pp. 59-70
Author(s):  
Ninh Le Khuong ◽  
Nghiem Le Tan ◽  
Tho Huynh Huu
Keyword(s):  
Negative Relationship ◽  
Risk Attitude ◽  
Business Strategies ◽  
Risk Averse ◽  
Market Uncertainty ◽  
Firm Investment ◽  
Output Market ◽  
The Impact ◽  
The Relationship

This paper aims to detect the impact of firm managers’ risk attitude on the relationship between the degree of output market uncertainty and firm investment. The findings show that there is a negative relationship between these two aspects for risk-averse managers while there is a positive relationship for risk-loving ones, since they have different utility functions. Based on the findings, this paper proposes recommendations for firm managers to take into account when making investment decisions and long-term business strategies as well.

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