Market Conditions Asymmetries and Asset Pricing: An Information Asymmetry Perspective of Volatility Modeling in Pakistan

2017 ◽  
Author(s):  
Kashif Hamid ◽  
Arshad Hasan
Keyword(s):  
Asset Pricing ◽  
Information Asymmetry ◽  
Market Conditions ◽  
Volatility Modeling

Effect of Trading Relationships on Execution Costs in Low-Information-Asymmetry Over-the-Counter Markets

2018 ◽  
Vol 54 (6) ◽  
pp. 2605-2634 ◽  
Author(s):  
George Issa ◽  
Elvis Jarnecic
Keyword(s):  
Information Asymmetry ◽  
Corporate Bonds ◽  
Search Costs ◽  
Low Risk ◽  
Market Conditions ◽  
Over The Counter ◽  
Relationship Strength ◽  
Execution Costs ◽  
Potential Benefits

Traders can reduce search costs in dealership markets by entering relationships with dealers. However, dealers draw little informational benefit from these relationships in Treasury markets, due to low risk and information asymmetry. We investigate the extent, duration, effects on pricing, and potential benefits of client–dealer relationships. We find that relationship strength leads to higher execution costs for clients, more so during stressed market conditions but less so in the presence of information asymmetry and when trading in corporate bonds. Relationship traders are compensated with immediacy at times when search is costly.

Asset Pricing and Volatility Modeling: The Case of Indonesia Stock Market

2014 ◽  
Author(s):  
Aldrin Herwany ◽  
Mohd Azmi Omar ◽  
Ahamed Kameel Meera ◽  
Erie Febrian
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Volatility Modeling

Do financial blogs serve an infomediary role in capital markets?

2016 ◽  
Vol 31 (1) ◽  
pp. 17-40 ◽  
Author(s):  
Laura K. Rickett
Keyword(s):  
New Media ◽  
Information Asymmetry ◽  
Capital Markets ◽  
Earnings Quality ◽  
Abnormal Returns ◽  
Information Environment ◽  
Economic Uncertainty ◽  
Market Conditions ◽  
Content Type ◽  
Retail Investors

Purpose – Financial blogs provide an online platform whereby retail investors effortlessly gain access to an abundant array of investment guidance. Prior studies find that the market reacts to financial blogs and similar online venues but results are inconsistent and financial blogs, a growing area in new media and distinct from other online venues, have received little attention. The purpose of this paper is to examine the particular conditions in which financial blogs serve an infomediary role in capital markets; when information asymmetry is high, earnings quality is low, and during economic uncertainty. These are conditions in which retail investors may seek easily accessible advice for their investment decisions. Design/methodology/approach – Abnormal returns for firms mentioned in blog posts on the SeekingAlpha.com financial blog are examined using a multivariate regression to determine whether or not the market reaction associated with these posts is related to information asymmetry, earnings quality, and economic uncertainty. Findings – Results indicate that abnormal returns are associated with the SeekingAlpha.com financial blog when information asymmetry is high and during bearish market conditions, and in particular when buy recommendations are posted on the blog for firms with high information asymmetry. This association is strengthened for firms with low institutional ownership, a proxy for unsophisticated or retail investors. Research limitations/implications – Results are based on a sample collected during a specific time period in order to detect whether financial blogs serve an infomediary role during uncertain market conditions. Practical implications – Results of this study can be useful to company executives who may want to monitor investment advice posted about their firm on financial blogs. Financial blogs and other forms of social media such as Twitter and Facebook are becoming the “new normal” in the investor information environment, a trend that is likely to continue. Originality/value – Financial blogs provide an abundance of supplemental information demanded by investors. Financial blogs represent a form of “new media,” now considered a key component of firms’ information environment (Saxton, 2012). In contrast to prior studies which primarily investigate only whether the market reacts to financial blogs or similar online platforms such as stock message boards, this study attempts to understand the specific conditions in which the market reacts to financial blogs. The results provide a rationale as to when and why investors rely on financial blogs and whether financial blogs serve an infomediary role in capital markets.

Information asymmetry and stock returns

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anshi Goel ◽  
Vanita Tripathi ◽  
Megha Agarwal
Keyword(s):  
Asset Pricing ◽  
Information Asymmetry ◽  
Stock Returns ◽  
Content Type ◽  
Information Risk ◽  
Portfolio Returns ◽  
Expected Stock Returns ◽  
Fama And French ◽  
The Relationship ◽  
Three Factor

PurposeThis study endeavours to examine the relationship between information asymmetry and expected stock returns at the National Stock Exchange (NSE) of India, with a sample of NIFTY 500 stocks for a period ranging from 1st April 2000 to 31st March 2018, by employing three different proxies of information asymmetry: number of transactions, institutional ownership and idiosyncratic volatility.Design/methodology/approachThe return differential amongst information-sorted decile portfolios has been assessed to understand the effect of information risk on stock returns by employing (1) traditional measures of performance evaluation like mean, Sharpe,  Treynor and information ratios, (2) regression models like the capital asset pricing (CAPM), Fama and French three-factor, Carhart's four-factor, information-augmented CAPM, information-augmented Fama and French three-factor and information-augmented Carhart's four-factor models and (3) an autoregressive distributed lag (ARDL) model.FindingsThe empirical evidence indicated that as information asymmetry associated with portfolio increases, returns also expand to recompense investors for bearing information risk validating the existence of a significant positive relationship between information asymmetry and expected stock returns at the NSE. Amongst the various asset pricing models employed in this study, the information-augmented Fama and French three-factor model turned out to be the best in explaining cross-sectional variations in portfolio returns.Research limitations/implicationsStrong information premium was observed such that high information stocks outperformed low information stocks which have strong inference for investors and portfolio managers, who all continuously look out for investment strategies that can lend hand to beat the market.Originality/valueEasley and O'Hara (2004) proposed that stocks with more information asymmetry have higher expected returns. Very few studies have examined this relationship between information risk and stock returns that too restricted to the US market only, with a few on other emerging markets. No work has been conducted on the concerned issue in the Indian context. Therefore, it seems to be the first study to explore the relationship between information asymmetry and expected stock returns in the Indian securities market.

scholarly journals DOES CAPITAL ASSET PRICING MODEL APPLY IN A VARYING MARKET CONDITIONS?

2019 ◽  
Vol 4 (1) ◽  
pp. 57
Author(s):  
Michael Amoh Asiedu ◽  
Richard Oduro ◽  
Emmanuel Kojo Amoah
Keyword(s):  
Asset Pricing ◽  
Stock Exchange ◽  
Emerging Market ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Market Conditions ◽  
Asset Pricing Model ◽  
Ghana Stock Exchange

Purpose: Capital asset pricing model (CAPM) has been one of the major asset pricing tools applied on the capital market to price listed securities. Several researchers have challenged the overall efficiency and validity of the model in terms of its ability to explain the behavior of the average returns on the basis of a single variable. The debate is now taking a new trend which aimed at assessing the robustness of the model in varying market conditions and this has been the main focus of the study; that is to determine whether or not CAPM applies to securities on Ghana Stock Exchange at different market conditions.Methodology: Data on monthly returns of 29 shares were selected from the Ghana Stock Exchange spanning from 2010 to 2018 and analyzed using regression analysis on the assumption of constant risk and varying risk situations.Findings: The study evidenced that the systematic risks differ between bulls, tranquil and bear periods. Market conditions therefore have impact on the CAPM model. CAPM is not robust with changes in market conditions after all especially in an emerging market such as the Ghana Stock Exchange.Contribution to theory, practice and policy: The result of this study implies that, the widely accepted CAPM for asset pricing model is not robust to changes in market conditions. It is therefore essential to predict future market conditions when formulating investment strategy as an investor. Again, investors should vary their risk premium depending on their expectation of the market conditions at the time of investment.

scholarly journals Do Investors Mimic Trading Strategies of Foreign Investors or the Market: Implications for Capital Asset Pricing

2018 ◽  
Vol 13 (3) ◽  
pp. 171-205 ◽  
Author(s):  
W. Chamil Senarathne ◽  
Wei Jianguo
Keyword(s):  
Asset Pricing ◽  
Global Market ◽  
Trading Strategies ◽  
Market Condition ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Market Conditions ◽  
Foreign Investors ◽  
Market Portfolio ◽  
Foreign Trading

Abstract This paper examines the presence of herding on foreign trading at individual stock level and portfolio level in the Colombo Stock Exchange as a response to a long-standing trading belief that investors mimic the trading strategies of foreign investors. The standard CSAD framework of Chang et al (2000) is extended replacing return on market portfolio with return on market foreign portfolio holding in the model specification. The standard CSAD specification is also used to identify the presence of herding towards the market under high market volatility, bullish market condition, high trading and transaction volume, domestic and global market crisis and up and down market conditions. Except for the evidence on herding towards the market under bullish market condition at portfolio level, the regression results under other market conditions do not provide reasonable evidence for the presence of herding on foreign trading or herding towards the market on average. Further, taking CSAD as a proxy for heteroskedastic residuals following the framework of Banz (1981), the capital asset pricing model of Black (1972) is used to test the specification of CSAD. The findings suggest that the form of herding accounted for by CSAD is a manifestation of residual heteroskedasticity.

scholarly journals TIME-ON-MARKET IN CHINESE CONDOMINIUM PRESALES

2018 ◽  
Vol 22 (3) ◽  
pp. 191-203 ◽  
Author(s):  
Xiaorong ZHOU ◽  
Velma ZAHIROVIC-HERBERT ◽  
Karen M. GIBLER
Keyword(s):  
Information Asymmetry ◽  
Proportional Hazards ◽  
Proportional Hazards Model ◽  
Cox Proportional Hazards ◽  
Cox Proportional Hazards Model ◽  
Lower Price ◽  
Price Premium ◽  
Market Conditions ◽  
Duration Time ◽  
Hazards Model

The condominium presale market is characterized by information asymmetry between the developer and potential buyers. A condominium developer faces conflicting incentives to sell units quickly at a lower price to generate cash and sales momentum versus to hold prices high and endure longer marketing time to maximize revenues and maintain the property’s value. We examine the pattern of marketing duration for condominium units offered for presale in a large homogeneous development in Chengdu, China using a Cox proportional hazards model. Results indicate that a patient developer may extract a price premium on units. Diminishing risk to buyers is associated with shorter marketing duration. Time-on-market is also influenced by unit and building size as well as orientation. Market conditions may moderate the speed at which units are sold.

scholarly journals Liquidity Risk and Asset Pricing in Pakistan Stock Exchange

2021 ◽  
Vol 19 (1) ◽  
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Stock Exchange ◽  
Risk Measures ◽  
Liquidity Risk ◽  
Excess Returns ◽  
Market Conditions ◽  
Bear Market ◽  
Market Trends ◽  
The Impact

This paper empirically investigates the impact of liquidity risk on stock returns in Pakistan and determines investors' attitude under bull and bear market conditions. Specifically, the liquidity adjusted capital asset pricing model(CAPM) is modified by including the interaction between the liquidity risk and the indicators of bull- and bear-market periods to investigate whether the pricing of liquidity risk differs in both upward and downward market trends. The analysis is carried out for a large panel of Pakistani manufacturing firms listed at the Pakistan Stock Exchange for the period January 2000 – December 2015. We use alternative liquidity risk measures to check the robustness of the liquidity risk effect. We observe that higher liquidity risk yields higher excess stock returns, implying pricing of liquidity risk during the examined period. The results also reveal that the liquidity risk is positively and significantly related to excess returns in the high-liquidity-risk beta portfolios, whereas it is negatively or insignificantly related to excess returns of low-liquidity-risk beta portfolios. The results also provide evidence that stocks affected by liquidity risk yield positive expected returns in both bull and bear market conditions. However, we find significant differences in the pricing of liquidity risk under upward and downward market trends. The robustness check confirms that the findings on the pricing of liquidity risk are not driven by any specific measure of liquidity.

scholarly journals The Impact of Business Cycles, Stock Market Phases and Crisis on the Value Premium: The Indian Experience

2021 ◽  
Vol 29 (03) ◽  
pp. 08-31
Author(s):  
Priti Aggarwal ◽  
◽  
Vanita Tripathi ◽  
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Business Cycles ◽  
Emerging Market ◽  
Value Premium ◽  
Market Conditions ◽  
Value Stocks ◽  
Stock Portfolios ◽  
Indian Stock Market ◽  
The Impact

Purpose :This paper is an attempt to explore the relationship between the value premium and expected stock returns in the Indian stock market and evaluates whether the value premium disappears or not when the different economic conditions (Boom & Recession), market conditions (Bull & Bear) and 2008 Global financial crisis are considered. Methodology: The annual data of 500 companies belonging to BSE-500 from 1999- 2017 was collected and ten portfolios were constructed and sorted using six valuation proxies (P/B, P/E, D/P/, CF/P, S/P and EV/PBDITA). Standard CAPM and Dual beta market model were employed. Findings: The empirical results confirm that irrespective of market conditions, value stock portfolios surpass growth stock portfolios in the Indian stock market by delivering significant abnormal returns. Practical implications: The paper holds important implications for asset pricing literature and investors. The higher returns generated by value stocks during the crisis and recession period imply that investors can put faith in the value stocks during times of adversity. The future value of an investment is a function of its present price. The lower the price, the higher the returns will be. Therefore, value stocks are good investments whether it is boom or recession, bull or bear, crisis or non-crisis periods. Originality: The paper is first of its kind to study the impact of business cycles, stock market phases and crisis on the value premium in the Indian stock market. The paper contributes to portfolio management and asset pricing literature for an emerging market.

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