Most stock markets are characterized by a number of parallel operating trading systems which interact intensively with each other. Usually, smaller trading platforms take the leading domestic main market as a benchmark in the price discovery process and for closing open trading positions. But what happens if the smaller trading systems suddenly have to act without this benchmark platform? We ex...

Using pooled time-series, cross-sectional data on 110 Australian companies over the period 1992-1998 an examination is undertaken whether the trademarked variant of residual income known as economic value-added (or EVA) is more highly associated with stock returns than conventional accounting-based measures. The accountingbased measures of internal and external performance include earnings, net...

We introduce a new semiparametric model, GARCH with Functional EX ogeneous Liquidity (GARCH-FunXL), to capture the impact of liquidity, as implied by a stock exchange’s complete electronic limit order book (LOB), on asset price volatility. LOB-implied liquidity can be viewed as a functional rather than scalar or vectorial stochastic process. We adopt recent ideas from the functional data analys...

We demonstrate that simply by using the ethnic makeup surrounding a firm’s location, we can predict, on average, which trade links are valuable for firms. Using customs and port authority data on the international shipments of all U.S. publicly-traded firms, we show that firms are significantly more likely to trade with countries that have a strong resident population near their firm headquarte...

This paper establishes a strong link between the dispersion in beliefs among active mutual funds, as revealed through their active holdings (i.e., deviations from benchmarks), and future stock returns. We find that after standard risk adjustments, stocks in the top decile portfolio with large increases in dispersion outperform those in the bottom decile by more than 1% per month. This effect of...

Using a new data set on investor sentiment, we show that institutional and individual sentiment seem to proxy for smart money and noise trader risk, respectively. First, using bias-adjusted long-horizon regressions, we show that institutional sentiment forecasts stock market returns at intermediate horizons correctly, whereas individuals consistently get the direction wrong. Second, even the si...

We exploit the restrictions of intertemporal portfolio choice in the presence of nonfinancial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor. We use a unique dataset of Swedish investors with information broken down at the investor level and into various components of wealth, investor income, tax positions and inve...

This paper develops a simple new methodology to test for asset integration and applies it within and between American stock markets. Our technique is tightly based on a general intertemporal asset-pricing model, and relies on estimating and comparing expected risk-free rates across assets. Expected risk-free rates are allowed to vary freely over time, constrained only by the fact that they are ...

Abstract Many financial instruments are designed with embedded leverage, such as options and leveraged exchange-traded funds (ETFs). Embedded leverage alleviates investors’ constraints, and, therefore, we hypothesize that lowers required returns. Consistent this hypothesis, find empirically ETFs provide significant amounts of leverage; increases return volatility in proportion to the higher is ...

the process of economic globalization and integration has had a tremendous growth in recent years and the convergence of various economic sectors, including the financial markets is increasingly in the spotlight. this increasing trend has strengthened investors' interests in the subject of convergence among the world's stock markets and investors experimentally show a passion for unde...