Australian Stock Research Articles

Interdependence Between Some Major European Stock Markets - A Wavelet Lead/Lag Analysis

This paper investigates multiscale interdependence between the stock markets of Germany, Austria, France, and the United Kingdom. Wavelet energy additive decomposition was analyzed to investigate which scales capture the most energy (volatility), whereas a wavelet cross-correlation estimator was used to analyze comovement and lead/lag relationship between stock markets' return dynamics on a scale-by-scale basis. The main findings of the paper are as follows. First, major financial market crises had a significant impact on return volatility of investigated stock markets. Among them, the global financial crisis of 2007-2008 had the greatest and the most durable impact. Second, the lowest scale (associated with stock markets' return dynamics over a 2-4 days horizon) and the second lowest scale (associated with stock markets' return dynamics over 4-8 days horizon) MODWT (maximal overlap discrete wavelet transform) decompositions of stock markets' returns captured the greatest share (together about 70-80%) of indices' returns volatility. Third, comovement between stock market returns is a scale-dependent phenomenon. Fourth, a strong comovement between stock market returns of Germany, France, and the United Kingdom exists at all scales, while the Austrian stock market is less correlated with the three biggest stock markets in Europe. Fifth, the dynamics of stock market returns seems to be well time-synchronized at daily (raw returns) and the lowest scale (scale ) return decomposition as most of the return innovations are transmitted between stock markets intraday. Sixth, at the highest investigated scale (associated with stock markets' return dynamics over a 64-128 days horizon), significant leads and lags between dynamics of stock markets' returns were detected. The time-synchronization of the stock markets' return dynamics for investments of 64 to 128 days horizon is less perfect than for investments of shorter investment horizons.

Corporate Governance, Cash holdings and Value of a Firm: Evidence from Australian Firms

The present study analyses influence of board structure and cash holdings on the value of Australian firms for the period 2004 to 2010. Australian Stock Exchange (ASX) adopted the Principles of Good Corporate Governance Guidelines in 2003 and Australian firms have started adopting these principles starting 2004. Similarly the reporting framework of Australian firms is harmonized with the rest of the world with adoption of Australian International Financial Reporting Standards (AIFRS) starting in 2004. Corporate cash holdings despite their significance have not been considered extensively in prior literature outside the US. Cash holdings may have significant influence on the value of the firm as too much excess cash may lead to misuse of these funds by entrenched managers. Corporate governance has a role to play in maintaining appropriate cash holdings and their use. The present has two objectives: it considers the influence of corporate cash holdings on the value of Australian firms; and it examines the role of board structure on the relationship between cash holdings and value of the firm. The present study considers all non-financial firms that are part of the All Ordinaries Index (AOI). The present study constructs Fama French 25 portfolio and estimate the excess return as the difference between actual return and the average return of the relevant FF portfolio. OLS analyses show that board independence has no significant impact on the value of the firm though cash holdings have significant influence. Analysing using panel data methods however unearth the significant influence of board independence on the value of Australian firms.

Impacts on the biophysical economy and environment of a transition to 100% renewable electricity in Australia

We investigate the impacts on the biophysical economy, employment and environment of a transition scenario to an energy-efficient, 100% renewable electricity (RE) system by 2060, based on wind, solar and biomass technologies, and an introduction of electric vehicles. We employ a CSIRO process-based model of the physical activity of Australia’s economy and environmental resources, the Australian Stocks and Flows Framework. The RE systems are assumed to be manufactured in Australia to identify possible employment benefits. In comparison with the business-as-usual (BAU) scenario, on a national scale, the RE scenario has much lower economy-wide net emissions, remaining below contemporary levels and becoming zero in the electricity sector by 2060. Compared with BAU, the RE scenario also has significantly lower industrial water use, somewhat higher materials use, slightly lower unemployment, lower net foreign debt (relative to a GDP proxy) and, resulting from the growth in electric vehicles, reduced oil imports. The GDP per capita growth, based on the physical stocks of capital and labour, is virtually the same in both scenarios. Hence, from the viewpoint of the biophysical economy, there are no major barriers to implementing policies to facilitate the transition to a 100% renewable electricity system for Australia.

Board Monitoring and Earnings Management

Following the international effort of strengthening corporate governance, this study investigates the impact of Corporate Governance Principles and Recommendation (ASX 2009) on the credibility of accounting information. By using 138 companies listed on the Australian Stock Exchange (ASX), this study demonstrates that the independence and activities of sub-committee are negatively associated with earnings management represented by the discretionary accruals. The results of this study provide useful guidance to policy makers, practitioners and academics.

Characteristics of Firms that Buy Voluntary Disclosure: Evidence from Open Briefings

Firms increasingly can choose to disclose news through a variety of channels. The study of alternative disclosure channels can provide insights into not just why firms disclose, but why they disclose using different methods. This paper focuses on a unique disclosure option for Australian firms, called Open Briefings. Open Briefings are question and answer documents that are announced on the Australian Stock Exchange. Firms pay Orient Capital, an investor relations consultant, to hold one and are motivated to disclose via Open Briefings as they serve to heighten the attention and effectiveness of disclosure. We find that Open Briefing firms are more likely to be loss making, in the resource sector, younger, have a greater dispersion of share ownership, make more market announcements, have greater director independence and are likelier to issue equity after the Open Briefing. We add to the voluntary disclosure literature by finding that both mature and growth firms use attention increasing disclosure (investor relations activities) when they have reasons to do so. Furthermore, Open Briefings are useful for firms to supplement existing firm coverage. We also document the characteristics of firms that hold different types of Open Briefings. This adds to our understanding of voluntary disclosure by providing insight into the types of firm using Open Briefings and the reasons for doing so.

Intellectual capital disclosures by Indian and Australian information technology companies

PurposeThe purpose of this paper is to investigate and compare the voluntary reporting of intellectual capital (IC) by the top 20 software and technology sector companies in a developing nation, India, and a developed nation, Australia. The paper aims to highlight the differences in IC disclosure practices of the companies operating in two different economies.Design/methodology/approachThe study investigates the top 20 firms by market capitalisation listed on the Bombay Stock Exchange in India and the Australian Stock Exchange in Australia in the year 2007‐2008. Using the content analysis method, the paper reviews the annual reports of these firms to determine IC disclosure trends in India and Australia. Statistical tools and graphs have been used to compare and contrast ICD disclosures in two countries.FindingsThe study has identified IC disclosure differences between Indian and Australian firms, and reports disclosures by Indian companies are on a higher scale than Australian Software and Technology Sector companies. However, Levels of voluntary IC disclosure are found to be low in both the nations and most of the disclosures are declarative in nature.Research limitations/implicationsThis lack of consistency in reporting practices makes comparisons across countries difficult. The paper emphasises the need for a uniform and consistent framework for the reporting of intellectual capital items.Practical implicationsThe results of this exploratory study on the knowledge based industrial sector can be used by researchers to explore different types of IC reporting initiatives pursued across specifically knowledge based industrial sectors.Originality/valueThis study offers insights into comparative trends in IC disclosure practices of software and technology sector companies operating in a developed and a developing country.

Dissecting anomalies in the Australian stock market

The study examines the pervasiveness of eight well-documented anomalies in global equity markets for the Australian stock market. After partitioning stocks into three size categories (micro, small and big), we find that none of the eight anomalies are pervasive across size groups in either sorts or cross-sectional regressions. The existence of size, value, profitability, asset growth and accruals anomalies is primarily attributable to micro-cap stocks. Momentum and asset growth predict the expected returns of big stocks, but momentum does not predict the returns on micro stocks, and asset growth does not matter for small stocks. Contrarian returns are largely explained by stock size and value dimensions. Evidence for the earnings growth anomaly contradicts the growth extrapolation hypothesis. By looking at the hedge portfolio returns of anomalies in different regimes, we also show that many anomalies tend to exist in bear markets rather than bull markets. This evidence contradicts the risk-based explanations for the existence of anomalies.

PENGARUH PASAR SAHAM DUNIA TERHADAP PASAR SAHAM INDONESIA

This research was intended to analyze the causality of the global stock markets to Indonesian stock market. The variables of this research were used stock price indices from nine countries. This research using Granger Causality and VAR from 2004 up to 2010. USA, Japan, and England were selected because those countries had strong economics. The results, there are causality Granger among the global stock markets to Indonesian stock market.The global stock markets that has bi-directional causality were Australian stock market, England stock market, Singapore stock market, and Philipine stock market. Meanwhile, the global stock markets that has uni-directional causality were Japan stock market, USA stock market, Hongkong stock market, and Malaysia stock market.DOI: 10.15408/etk.v11i2.1887

A Gourmet's delight: CAViaR and the Australian stock market

Value at Risk (VaR) is the metric adopted by the Basel Accords for banking industry internal control and regulatory reporting. This has focused attention on the measuring, estimating and forecasting of lower tail risk. Engle and Manganelli (2004) developed the conditional autoregressive value at risk (CAViaR) model using quantile regression to calculate VaR. In this article we apply their model to Australian stock market indices and a sample of stocks, and test the efficacy of four different specifications of the model in a set of in-sample and out-of-sample tests. We also contrast the results with those obtained from a Generalized Autoregressive Conditional Heteroskedastic (GARCH(1,1)) model, the RiskMetrics™ model (Morgan, 1996) and an Asymmetric Power Autoregressive Conditional Heteroskedastic (APARCH) model.

Modelling and forecasting liquidity supply using semiparametric factor dynamics

We model the dynamics of ask and bid curves in a limit order book market using a dynamic semiparametric factor model. The shape of the curves is captured by a factor structure which is estimated nonparametrically. Corresponding factor loadings are modelled jointly with best bid and best ask quotes using a vector error correction specification. Applying the framework to four stocks traded at the Australian Stock Exchange (ASX) in 2002, we show that the suggested model captures the spatial and temporal dependencies of the limit order book. We find spill-over effects between both sides of the market and provide evidence for short-term quote predictability. Relating the shape of the curves to variables reflecting the current state of the market, we show that the recent liquidity demand has the strongest impact. In an extensive forecasting analysis we show that the model is successful in forecasting the liquidity supply over various time horizons during a trading day. Moreover, it is shown that the model's forecasting power can be used to improve optimal order execution strategies. ► The Dynamic Semiparametric Factor Model successfully models liquidity supply. ► The spatial structure of the limit order book can be explained by two factors. ► Factor loadings and quote dynamics follow a vector error correction specification. ► Our method outperforms a naive benchmark approach. ► Intra-day order execution strategies can be improved.

Plasma pharmacokinetics and pharmacodynamics of alfaxalone in neonatal foals after an intravenous bolus of alfaxalone following premedication with butorphanol tartrate

ObjectiveTo determine the pharmacokinetics and pharmacodynamics of the neurosteroid anaesthetic, alfaxalone, in neonatal foals after a single intravenous (IV) injection of alfaxalone following premedication with butorphanol tartrate. Study designProspective experimental study. AnimalsFive clinically healthy Australian Stock Horse foals of mean ± SD age of 12 ± 3 days and weighing 67.3 ± 12.4 kg. MethodsFoals were premedicated with butorphanol (0.05 mg kg−1 IV) and anaesthesia was induced 10 minutes later by IV injection with alfaxalone 3 mg kg−1. Cardiorespiratory variables (pulse rate, respiratory rate, direct arterial blood pressure, arterial blood gases) and clinical signs of anaesthetic depth were evaluated throughout anaesthesia. Venous blood samples were collected at strategic time points and alfaxalone plasma concentrations were assayed using liquid chromatography-mass spectrometry (LC/MS) and analysed by noncompartmental pharmacokinetic analysis. ResultsThe harmonic, mean ± SD plasma elimination half life (t½) for alfaxalone was 22.8 ± 5.2 minutes. The observed mean plasma clearance (Clp) and volume of distribution (Vd) were 19.9 ± 5.9 mL minute kg−1 and 0.6 ± 0.2 L kg−1, respectively. Overall, the quality of the anaesthetic inductions and recoveries was good and most monitored physiological variables were clinically acceptable in all foals, although some foals became hypoxaemic for a short period following recumbency. The mean durations of anaesthesia from induction to first movement and from induction to standing were 18.7 ± 7 and 37.2 ± 4.7 minutes, respectively. ConclusionsThe anaesthetic protocol used provided a predictable and consistent plane of anaesthesia in the five foals studied, with minimal cardiovascular depression. In foals, as in the adult horse, alfaxalone has a short elimination half life. Clinical relevanceAlfaxalone appears to be an adequate anaesthetic induction agent in foals and the pharmacokinetics suggest that, with continuous infusion, it might be suitable to provide more prolonged anaesthesia. Oxygen supplementation is recommended.

Short Selling and Over‐Optimism: Do Short Sellers Profit on the Australian Stock Exchange?

This paper considers short sellers’ activities when equity analysts are over-optimistic about a stock’s future performance. We use a novel dataset of daily aggregated stock lending information for stocks short sold on the Australian Security Exchange (ASX) during the period of October 2005 to January 2012. We document that there are abnormal profits on stocks short sold based on over-optimistic expectations and these profits are both statistically and economically significant. Our results suggest that short sellers are able to discern between analyst over‐optimism and valid optimism among stocks with a positive skew in analyst forecasts around the consensus.

A Dynamic Analysis of the Integration of the Australian Stock Market with Those of Its Trading Partners

This paper aims to investigate does foreign trade matter for the stock markets integration by segmenting Australian trade partners into three groups based on bilateral trade relations. We further explore time-varying correlations of pairwise stock market returns by employing asymmetric generalized DCC-GARCH models. Study uses weekly price index data from September 3rd, 1999 to May 4th, 2012. Empirical findings from cointegration tests show the presence of long-run relationship between Australia and its major trading partners in the pre-crisis and post-crisis (includes crisis-period). We also found the long-run relationship between Australia and its medium trading partners only in the post-crisis period. Granger non-causality test show the presence of bidirectional relationship between Australia and Singapore. Study also finds unidirectional relationship from Australia to China, Korea and the Philippines and from the USA, the UK and South Africa to Australia. Results from AGDCC-GARCH evidence that correlations are time-varying and increase significantly during the crisis period and revert close to their initial levels after the crisis. Further, we identified that the time-varying correlations of Australia with the USA, Korea and the Philippines are more volatile. Our findings confirm that foreign trade intensity matters for the stock market integration. The absence of stable long-run relationship may provide incentive for investors to include these markets into their portfolio selection process to exploit potential diversification benefits.

The Financial and Economic Relationship between China and the Australian Mining Sector

The study investigated the Australian-Chinese economic relationship to uncover opportunities for statistical arbitrage and hedging. A co-integration study using data from the Australian and Shanghai stock exchanges from 3 January 2006 to 26 August 2011 was conducted. A theory of pairs trading was developed and index tracking, enhanced indexing, Markov switching and PPP strategies were tested. The index tracking strategy was profitable; while other strategies were mixed. Preliminary results revealed that the theory seems to explain the behaviour of noise traders and institutional traders within the context of the Markov and PPP strategies. Profitable trades are possible between the two countries.

To Study the Australian Stock Market Features and Regulators

To study the Australian Stock Market and also the features of the Australian Stock Exchange

Bivariate asymmetric GARCH models with heavy tails and dynamic conditional correlations

A bivariate generalized autoregressive conditional heteroskedastic model with dynamic conditional correlation and leverage effect (DCC-GJR-GARCH) for modelling financial time series data is considered. For robustness it is helpful to assume a multivariate Student-t distribution for the innovation terms. This paper proposes a new modified multivariate t-distribution which is a robustifying distribution and offers independent marginal Student-t distributions with different degrees of freedom, thereby highlighting the relationship among different assets. A Bayesian approach with adaptive Markov chain Monte Carlo methods is used for statistical inference. A simulation experiment illustrates good performance in estimation over reasonable sample sizes. In the empirical studies, the pairwise relationship between the Australian stock market and foreign exchange market, and between the US stock market and crude oil market are investigated, including out-of-sample volatility forecasts.

Share Issuance Effects in the Cross-Section of Stock Returns

Previous research describes the net share issuance anomaly in U.S. stocks as pervasive, both in size-based sorts and in cross-section regressions. As a further test of its pervasiveness, this paper undertakes an in-depth study of share issuance effects in the Australian equity market. The anomaly is observed in all size stocks except micro stocks. For example, equal weighted portfolios of non-issuing big stocks outperform portfolios of high issuing big stocks by an average of 0.84% per month over 1990–2009. This outperformance survives risk adjustment and appears to subsume the asset growth effect in Australian stock returns.

Public versus private takeovers of Australian stock exchange listed targets

In this study we investigate the association between bidding firm listing status and the abnormal returns and characteristics of target firms, in the context of Australian takeovers. Similar to the US, target abnormal returns are significantly lower in private bids. However, this difference is only significant when comparing public bidders with private non-operating bidders suggesting the results are driven by a lack of operating synergy available to non-operating bidders rather than public bidder agency problems. We also study how target firm characteristics differ between public and private bidders. The results indicate that different private bidders have alternative motivations for making an acquisition. Private equity targets have a less independent board than targets of public bidders and are more undervalued. In comparison, targets of private bidders without existing business activities are smaller, have higher management ownership, lower growth and lower cash flows than targets of public bidders.

Testing the profitability of moving-average rules as a portfolio selection strategy

One of the main difficulties in evaluating the profits obtained using technical analysis is that performance of trading rules depends upon the judicious choice of rule parameters. In this paper, popular moving-average (or cross-over) rules are applied to a cross-section of Australian stocks and the signals from the rules are used to form portfolios. The performance of the trading rules across the full range of possible parameter values is evaluated by means of an aggregate test that does not depend on the parameters of the rules. The results indicate that for a wide range of parameters moving-average rules generate contrarian profits (profits from the moving-average rules are negative). In bootstrap simulations the return statistics are significant indicating that the moving-average rules pick up some form of systematic variation in returns that does not correlate with the standard risk factors.

Modelling and Forecasting Liquidity Supply Using Semiparametric Factor Dynamics

We model the dynamics of ask and bid curves in a limit order book market using a dynamic semiparametric factor model. The shape of the curves is captured by a factor structure which is estimated nonparametrically. Corresponding factor loadings are assumed to follow multivariate dynamics and are modelled using a vector autoregressive model. Applying the framework to four stocks traded at the Australian Stock Exchange (ASX) in 2002, we show that the suggested model captures the spatial and temporal dependencies of the limit order book. Relating the shape of the curves to variables reflecting the current state of the market, we show that the recent liquidity demand has the strongest impact. In an extensive forecasting analysis we show that the model is successful in forecasting the liquidity supply over various time horizons during a trading day. Moreover, it is shown that the model’s forecasting power can be used to improve optimal order execution strategies.