Volatility dynamics of stock returns, liquidity and exchange rates in ASEAN Countries

This study aims to determine the effect of stock prices, trading volume, and variance of return on the bid-ask spread in companies that do stock splits listed on stock exchanges in Southeast Asia in 2018. In this study the sampling technique used was nonprobability purposive sampling so that produced a total of 248 companies with 26 companies on the Indonesia Stock Exchange, 10 companies on the Philippines Stock Exchange, 56 companies on the Malaysia Stock Exchange, 18 companies on the Singapore Stock Exchange, 48 companies on the Thailand Stock Exchange and 90 companies on the Vietnam Stock Exchange. This study uses multiple regression methods using Eviews 10 to process data. The results of the study indicate that on the Indonesia Stock Exchange, stock prices have a negative and significant effect on the bid-ask spread, trading volume has no significant negative effect on the bid-ask spread, variance returns have a positive and insignificant effect on the bid-ask spread. On the Philippine Stock Exchange, stock prices have no significant negative effect on the bid-ask spread, trading volume has a positive and significant effect on the bid-ask spread, variance returns have a positive and insignificant effect on the bid-ask spread. On the Malaysia Stock Exchange, stock prices have a negative and significant effect on the bid-ask spread, trading volume and variance returns have a positive and significant effect on the bid-ask spread. On the Singapore Stock Exchange, stock prices and trading volume have a negative and significant effect on the bid-ask spread, variance returns have a positive and insignificant effect on the bid-ask spread. On the Thailand Stock Exchange, stock prices have a negative and significant effect on the bid-ask spread, trading volume and variance returns have a positive and significant effect on the bid-ask spread. On the Vietnam Stock Exchange, stock prices have no significant negative effect on the bid-ask spread, trading volume has no significant positive effect on the bid-ask spread, variance returns have a positive and significant effect on the bid-ask spread.Keywords: Stock Price, Trading Volume, Variant Return, Bid-Ask Spread, Stock Split

The objective of this research is to test the impact of stock return, stock trading volume and variance of stock return toward bid-ask spread. Using sampling of 20 manufacture companies which are united in LQ 45 index during the period of 2003 until 2005. The compilation of data is done in Jakarta Stock Exchange corner UII, and Indonesian Capital Market Directory (ICMD). The analysis is done with multiple linear regression method, regretted classical assumption examined, f- test and t –test. The result shows that the hypothesis of stock return are rejected, in this result shows that stock return have a positive significant impact toward bid-ask spread while the hypothesis of stock trading volume and variance of stock return are accepted, in this result shows that stock trading volume has a negative significant impact toward bid-ask spread and variance of stock return has a positive significant impact toward bid-ask spread. While as it simultaneously show that stock return, stock trading volume, and variance of stock return have significantly impact toward bid-ask spread and variance of stock return have dominant impact. Key words: Bid-ask spread, multiple linear regression method, stock trading volume, stock return, variance of stock return.

Effects of real effective exchange rate volatility on export earnings in Ethiopia: Symmetric and asymmetric effect analysis

This paper studies empirically the role of different economy-wide factors in explaining cross-sectional variation in stock returns in emerging markets. Using a sample of common stocks, traded on the Bulgarian stock exchange (BSE), we examine the relationship between macroeconomics and capital markets in order to determine whether the variations in stock returns can be explained by macroeconomic variables that might proxy for relevant systematic factors. We use a two-pass regression procedure following the Chen et al. approach. Relevant macroeconomic variables such as trade deficit, unexpected inflation, and country risk premium are found to play a significant role in explaining the fluctuations of stock returns in emerging markets.

Purpose – Variations in price/earnings (P/E) ratios are explained in a rational expectations framework by a number of fundamental factors, such as differences in growth expectations and risk. The purpose of this paper is to use a regression model and data from four sample periods (1996, 2000, 2001, and 2008) to separate the earnings/price (E/P) ratio into two parts – the portion of E/P that is related to fundamental determinants and a residual portion that cannot be explained by fundamentals. The authors use the residual portion as an indicator of over or undervaluation; a large negative residual is consistent with overvaluation while a large positive residual implies undervaluation. The authors find that stocks with larger negative residuals are associated with lower subsequent returns and reward-to-risk ratio, while stocks with larger positive residuals are associated with higher subsequent returns and reward-to-risk ratio. This pattern persists for both one and two-year holding periods. Design/methodology/approach – This study uses a regression methodology to decompose E/P into two parts – the portion of E/P than is related to fundamental determinants and a residual portion that cannot be explained by fundamentals. Focussing on the second portion allows us to isolate a potential indicator of stock over or undervaluation. Using a sample of stocks from four time periods (1996, 2000, 2001, and 2008, the authors calculate the residuals from a regression model of the fundamental determinants of cross-sectional variation in E/P. These residuals are then ranked and used to divide the stock sample into deciles, with the first decile containing the stocks with the highest negative residuals (indicating overvaluation) and the tenth decile containing stocks with the highest positive residuals (indicating undervaluation). Total returns for subsequent one and two-year holding periods are then calculated for each decile portfolio. Findings – The authors find that high positive residual stocks substantially outperform high negative residual stocks. This is true even after risk adjustments to the portfolio returns. The residual E/P appears to accurately predict relative stock performance with a relatively high degree of accuracy. Research limitations/implications – The findings of this paper provide some important implications for practitioners and investors, particularly for the stock selection, fund allocations, and portfolio strategies. Practitioners can still rely on a valuation measure such as E/P as a useful tool for making successful investment decisions and enhance portfolio performance. Investors can earn abnormal returns by allocating more weights on stocks with high E/P multiples. Portfolios of high E/P multiples or undervalued stocks are found to enjoy higher risk-adjusted returns after controlling for the fundamental factors. The most beneficial performance holding period return will be for a relatively short period of time ranging from one to two years. Relying on the E/P valuation ratios for a long-term investment may add little value. Practical implications – Practitioners and academics have long relied on the P/E ratio as an indicator of relative overvaluation. An increase in the absolute value of P/E, however, does not always indicate overvaluation. Instead, a high P/E ratio can simply reflect changes in the fundamental factors that affect P/E. The authors find that stocks with larger negative residuals are associated with lower subsequent returns and coefficients of variation, while stocks with larger positive residuals are associated with higher subsequent returns and coefficients of variation. This pattern persists for both one and two-year holding periods. Originality/value – The P/E ratio is widely used, particularly by practitioners, as a measure of relative stock valuation. The ratio has been used in both cross-sectional and time series comparisons as a metric for determining whether stocks are under or overvalued. An increase in the absolute value of P/E, however, does not always indicate overvaluation. Instead, a high P/E ratio can simply reflect changes in the fundamental factors that affect P/E. If interest rates are relatively low, for example, the time series P/E should be correspondingly higher. Similarly, if the risk of a stock is low, that stock’s P/E ratio should be higher than the P/E ratios of less risky stocks. The authors examine the cross-sectional behavior of the P/E (the authors actually use the E/P ratio for reasons explained below) after controlling for factors that are likely to fundamentally affect this ratio. These factors include the dividend payout ratio, risk measures, growth measures, and factors such as size and book to market that have been identified by Fama and French (1993) and others as important in explaining the cross-sectional variation in common stock returns. To control for changes in these primary determinants of E/P, the authors use a simple regression model. The residuals from this model represent the unexplained cross-sectional variation in E/P. The authors argue that this unexplained variation is a more reliable indicator than the raw E/P ratio of the relative under or overvaluation of stocks.

Speculative bubbles and the cross-sectional variation in stock returns

PurposeThe purpose of this paper is to explore the effect of leverage mimicking factor portfolios in explaining stock return variations. This paper broadens the focus of the current asset pricing literature by forming portfolios mimicking the leverage factor.Design/methodology/approachFollowing Fama and French's and Carhart's procedure in forming size, book‐to‐market and momentum mimicking portfolios, the authors of this paper form leverage mimicking factor portfolios to explain stock returns. A five factor model is constructed that explains the variations in stock returns better relative to the other asset pricing models including the Fama‐French‐Carhart four factor model.FindingsThe findings indicate that the leverage mimicking portfolio helps to explain stock return variations better relative to the other asset pricing models including the Fama‐French‐Carhart four factor model. Results are robust to other risk factors.Research limitations/implicationsThe results lead us to explore further avenues in using other risk factors in asset pricing such as future work to consider other cross‐sectional attributes such as the stochastic behaviour of earnings or profitability that might also produce common variation in stock returns. There may be other risk factors that carry a premium and thus can be used for asset pricing.Practical implicationsThe paper's findings are important in fund management when selecting or evaluating portfolio performance. The authors introduce an additional factor that has a sound theoretical appeal and show that leverage mimicking factor portfolios provide additional information in pricing assets, both in the cross section of all shares and in different sectors.Originality/valueTo the best of the authors' knowledge this is the first study of the effect of leverage mimicking factor portfolios in explaining stock return variations.

Country and industry factors in tests of Capital Asset Pricing Models for partially integrated emerging markets

This study investigates the validity of the Shari’ah-Compliant Asset Pricing Model (S-CAPM) and alternative Fama-French Factor Models, as well as the comparative performance evaluations of these models, in explaining the variation in stock returns in the BIST Participation All Index. The validity and comparative performance of the S-CAPM and alternative Fama-French Factor Models are measured using adjusted R2, mean absolute intercept, GRS F-test statistic, and the probability value of the GRS-F test. The empirical findings of the study, based on the S-CAPM and alternative Fama-French Factor Models using the return mudharabah (RMDZ) instead of the risk-free rate as suggested by Faisol, Nidar, and Herwany (2022), indicate that the S-CAPM RMDZ, S-FF3F RMDZ, S-FF5F RMDZ, and S-FF6F RMDZ are valid for the BIST Participation All Index. Among these models, the S-FF6F RMDZ performs better in explaining the variation in stock returns. To test the robustness of the empirical findings for the S-CAPM and alternative Fama-French Factor Models with RMDZ, the study also employs S-CAPM and alternative Fama-French Factor Models created using the inflation rate instead of the risk-free rate, as proposed by Hanif (2011), in the BIST Participation All Index. The empirical findings confirm the results obtained from the S-CAPM and alternative Fama-French Factor Models with RMDZ. To the best of our knowledge, this is the first study to test the S-FF6F model. Additionally, the study presents an alternative asset pricing model for the S-CAPM. Besides, this study makes significant contributions to the field of finance, particularly in the context of Islamic finance.

Evidence suggests that rational, periodically collapsing speculative bubbles may be pervasive in stock markets globally, but there is no research that considers them at the individual stock level. In this study we develop and test an empirical asset pricing model that allows for speculative bubbles to affect stock returns. We show that stocks incorporating larger bubbles yield higher returns. The bubble deviation, at the stock level as opposed to the industry or market level, is a priced source of risk that is separate from the standard market risk, size and value factors. We demonstrate that much of the common variation in stock returns that can be attributable to market risk is due to the co-movement of bubbles rather than being driven fundamentals.

This study aims to obtain empirical evidence of the effect of Stock Price, Stock Return, Stock Trading Volume, and Return Variant on the Bid-Ask Spread of Stocks in Textile and Garment Companies Listed in Indonesia Stock Exchange in 2019-2020. The stock price used is the stock price recorded at the end of each closing period (closing price), stock returns are measured using the difference between returns on the research day and before the study divided by returns on the day before the study, stock trading volume is measured by the number of shares traded at the time of the study. t is divided by the number of shares outstanding at the time of the study, the variance of stock returns is measured using the standard deviation, and the bid-ask spread is measured by the difference between the selling price and the purchase price divided by the difference between the selling price and the purchase price divided by two. The population in this study is 17 textile and garment companies listed on the IDX. Based on the purposive sampling method, a sample of 16 companies was obtained with 309 data. This research data is obtained from the company's monthly data from 2019 to 2020. The results of the analysis show that stock prices and stock trading volumes affect the bid-ask spread, while stock returns and return variances do not affect the bid-ask spread. Meanwhile, simultaneously, stock prices, stock returns, stock trading volume, and return variance affect the bid-ask spread. This research data is obtained from the company's monthly data from 2019 to 2020. The results of the analysis show that stock prices and stock trading volume affect the bid-ask spread, while stock returns and return variances do not affect the bid-ask spread. Meanwhile, simultaneously, stock prices, stock returns, stock trading volume, and return variance affect the bid-ask spread. This research data is obtained from the company's monthly data from 2019 to 2020. The results of the analysis show that stock prices and stock trading volumes affect the bid-ask spread, while stock returns and return variances do not affect the bid-ask spread. Meanwhile, simultaneously, stock prices, stock returns, stock trading volume, and return variance affect the bid-ask spread.

This study aims to test the validity of the Fama and French Three-Factor Model (FF3FM) in explaining the cross-sectional variation in stock returns of the diversified financial companies listed on the Colombo Stock Exchange (CSE). It adopted the Fama and French (1992) approach to construct the portfolios. Accordingly, six portfolios were constructed using a 2x3 annual sorting procedure based on market capitalization and book to market equity ratio. The sample period spans for five years, from April 2014 to March 2019 and the sample is included 37 diversified financial companies listed on the CSE. The data analysis is based on both descriptive statistics and inferential statistics which are derived on correlation analysis and multiple regression analysis. The results indicate that FF3FM performs well in explaining cross-sectional variation in stock returns. All three factors of the model - market risk premium, size premium, and value premium exhibit significant relations with excess portfolio returns. The study also finds that market risk premium is the most prominent factor of the model, while the other two factors share equal explanatory power. The results further confirm that FF3FM outperforms Capital Assets Pricing Model (CAPM) in explaining cross-sectional variation in stock returns. The study supports the prediction of Fama French (1992) that high BE/ME ratio portfolios outperform the portfolios with low BE/ME ratios. Considering these findings, it is recommended that, in addition to stock beta, size and value information should be made available to stock investors for conducting better assessment of uncertainties associated with investment returns.

The study examines the relationship between capital flow, return of stock indices and exchange rate. This paper documents a significant relationship between capital flow and market volatility but returns of stock exchange and exchange rate are found to be insignificant. The study will be helpful for the policy makers so that they will be able to take the decision by considering the impact of capital flow. Because of the modern technology capital mobility financial and economic agent because it signify a measure increase with an accelerating role. Risk assessment of risk exposure in their investment. The capital flow plays analysis for the stock market after liberalization has an important role in this regard. Unstable stock market is assumed more importance in the world. Usefulness of an important concern for policy makers because instability efficient stock markets in dynamic resource is well known. of the stock market creates uncertainty and affects the Karachi Stock Exchange once again started moving in growth success. upward direction and performance of the economy of The purpose of the paper is to investigate with the Pakistan has increased. Investigating the behavior of aim of either the capital flow from the other countries volatility using a new set of variables is important. carries volatility with them or not. This study will be Stock market volatility is of vital important for helpful to investigate that volatility shocks from the other investors. Stock return usually follows the random countries will affect Karachi stock exchange and Colombo path and touches the maximum and minimum level. stock exchange. The volatility of stock price can be observed from its The second important purpose is to study with the fluctuation from the mean. Why we Study volatility in aim of either the shocks in the capital flow will affect the stock market and capital flows? volatility in the exchange rate or not. In latest years The capital flow may have different effects on volatility in equity market have turn out to be a topic of exchange rate and stock market volatility. joint worry for individual stake holders. Stock return Large capital inflows can damage the economy in volatility cause delay in economic performance during many ways. Capital flow raise asset bubbles and customer spending. Stock Return instability might too promote too much borrowing, but they also spoil the have an effect on trade asset expenses. Additional, the competitiveness of the export sector, they can also cause intense instability might upset the silky performance of a rapid increase in rates of exchange. Open account debit the monetary system and show the way to structural or of a country will build it yet further at threat to a quick method differences. setback of funds. On the other side, if central banks The stock market in Pakistan has had its fair interfere to seize down their currencies, the increase of contribute to trouble due to extreme speculation resulting funds can go in front to extremely loose financial in excessive volatility. Certainly, in the early 1990's the circumstances and getting higher inflation. confidence of investors to some extent has been eroded Stock market volatility prediction is imperative to

This paper investigates the direct theoretical relationship between the variance of stock returns (σ2E) and financial leverage (L) considering both corporate and personal taxes. Using a dataset of U.S. industrial firms, we examine the variance of stock returns as a function of the firm’s financial leverage. We demonstrate that (1) the variance of stock returns is positively related to the firm’s financial leverage, (2) the relationship between the variance of stock returns and financial leverage is positive when corporate and personal taxes are also considered, and (3) with regard to the relationship between the variance of stock returns and financial leverage, using market measures of the latter tends to generate a higher coefficient of determination and a more accurate approximation of the theoretical relationship between financial leverage and the variance of stock returns.

While previous research has identified several characteristics of takeover targets, bidder firms, and acquisition offers that partially explain the variation in stock returns of acquiring firms (Halpern [1983] and Jensen and Ruback [1983]), these results provide few insights about managerial incentives and takeover decisions. Our understanding of the forces responsible for variations in abnormal stock returns among bidder firms thus remains incomplete. The Tehranian, Travlos, and Waegelein (henceforth TTW) study attacks this problem by investigating the extent to which variations in managerial compensation arrangements (i.e., the presence or absence of performance plans) are associated with differential share price responses to acquisition bids. Conference discussion of the TTW paper focused on four major topics: (1) apparent contradictions in the empirical results; (2) performance plans as mechanisms for mitigating horizon problems; (3) the compensation structures of sample firms; and (4) methodological issues.