Capital Market Behavior Research Articles

Exploring the Nexus of Capital Market and Investor Behaviour: A Systematic Literature Review

This review paper delves into the intricate interplay between capital markets, investor protection, portfolio strategies, and behavioural aspects in investments. The VOSviewer 1.6.19 software is utilised to perform a bibliometric analysis and a exhaustive systematic literature review on a sample of 248 papers published in journals in Web of Science databases. Our comprehensive analysis reveals the emergence of key themes, shedding light on the critical role of behavioural finance in shaping investment choices and outcomes. We explore how investor behaviour often deviates from traditional models of market efficiency and how these deviations impact portfolio construction and investment strategies. Our paper contributes to a deeper comprehension of the complexities that drive investment decisions and helps academics, society, investors, and regulators by providing a structured analysis of literature strands. Builds a basis for better regulation and protection of investors in the capital markets, with relevant information for future studies on investor behaviour.

Sharia Stocks and Muslim Millennials Investors in Indonesia: Between Religious and Economic Motives

Purpose: The objective of this study was to explore why Muslim millennials in Indonesia prefer to invest in Islamic stocks on the Indonesia Stock Exchange (IDX). Theoretical framework: Muslim millennials prefer stock investments that align with religion and align with the consistency and moral integrity upheld by the Muslim community, including investing. Design/methodology/approach: This study was a qualitative research method with a case study approach. Data were collected through in-depth interviews with ten millennial Muslim investors who invest in Islamic stocks in the IDX. Data analysis was carried out using thematic descriptive analysis. Findings: The findings of this study suggest that millennial Muslim investors in Indonesia prefer to invest in Islamic stocks for the following reasons: adherence to Islamic values and beliefs, ethical investment, risk management, diversification, and the potential for better returns. Research, Practical & Social implications: We suggest further studies to include a case study of a more specific group of Muslim millennials to determine the influence of previous investment experiences, personal characteristics, and financial situation on their preferences in investing in Islamic stocks. In addition, it can also conduct comparative studies among several different countries or cultures to identify the factors that influence sharia stock investment decisions to provide a broader and representative picture. Originality/value: This study provides insights into the factors that drive millennial Muslim investors in Indonesia to invest in Islamic stocks. This study's findings could benefit investors, the capital market industry, and policymakers in developing targeted strategies to attract millennial investors. Additionally, this study contributes to the literature on the Islamic capital market and investment behavior in emerging markets

Effect of geomagnetic activity on investors and managers: evidence from the pricing and timing of disclosure of earnings news

PurposeThis paper's purpose was to examine the impact of geomagnetic activity (GMA) on the timing and valuation of earnings information disclosed by firms every quarter.Design/methodology/approachThe authors start the analyses with a sample of 112,669 client firms from 1989 to 2018. To analyze the impact of GMA on the earnings response coefficient (ERC), the authors use the three-day cumulative abnormal returns and cumulative abnormal returns for the extended post-earnings announcement window [2, 75] as the dependent variables. The authors interact unexpected earnings (UE) with the C9 Index, an index commonly used to measure GMA and study how GMA affects the pricing of new public information. To examine the effect of GMA on the timing of disclosure of earnings news, the authors regress a variant of the GMA index on the propensity to disclose bad earnings news.FindingsThe authors find significantly lower earnings response coefficients during periods of high GMA. This effect is permanent and stock prices do not correctly incorporate the implications of earnings information over time. The authors also show that managerial behavior is affected by GMA as well and the managers are more (less) likely to release bad (good) news during periods of higher activity. Finally, the authors also find that in situations where stakeholders are likely to rely on modern technology that depends minimally on humans, the adverse impact of GMA on the pricing of earnings information is mitigated.Originality/valueThe literature on the effect of GMA on the capital market is very limited and focuses primarily on stock returns, while the behavioral finance literature focuses on circumstances like weather, temperature and sporting outcome to study how the investors' mood affects their capital market behavior. The authors add to both the literature by investigating how GMA influences investors' and managers' behaviors in the capital market.

Application of Capital Market Investment Planning Expert System Using Website-Based Forward Chaining Method

Good investment planning is the beginning to achieve investment goals. Price fluctuations in the capital market and financial behavior are the guides for the community in making investment plans. The low level of financial literacy in the community causes people to more often forget to make investment plans and if they are made only based on feelings. Thus, it is necessary to have a system that helps the community to make effective investment plans. The expert system was chosen for that because it has everything needed to meet these needs. In this study, the expert system uses the forward chaining method. After developing the expert system, it runs well and can meet the needs of the community.

THE ASYMMETRIC VOLATILITY OF THE ISLAMIC CAPITAL MARKET DURING THE COVID-19 PANDEMIC

This study attempts to identify the existence of asymmetric volatility in the Islamic capital market in Indonesia during the Covid-19 pandemic. The paper employs the symmetric analysis of the GARCH (1,1) model and the asymmetric analysis of the TGARCH (1,1) model in order to identify Islamic capital market behaviour duringthe first 200 days after the first Covid-19 cases were confirmed. We used the daily closing prices of the Indonesia Sharia Stock Index (ISSI). The symmetric analysis of the GARCH (1,1) model revealed that the current value of return on the ISSI does not have a significant impact on its future value. On the other hand, the TGARCH (1,1) model showed that the asymmetric parameter coefficient was positive and statistically significant. Good news and bad news does not have the same level of impact on the volatility of returns on the ISSI. Furthermore, coefficients αi and γi in the variance equation indicate that good news has a higher volatility impact than bad news. The results indicate that investors should not to worry about the bad news effect of theCovid-19 pandemic, while the government should continue the mitigation of the spread of the coronavirus along with its economic recovery policy.

Does carbon performance matter to market returns during climate policy changes? Evidence from Australia

Tackling climate change has been a global challenge and business corporations are responding to this challenge actively as it directly affects business bottom lines. The ‘win-win’ resolution has been advocated and supported by many prior studies. However, there is a lack of empirical evidence examining how the relationship between corporate environmental performance and financial returns might change if government climate policy changes. This study uses evidence from Australia to explore this question. Australia experienced incredible carbon policy changes within a short time frame during 2009 and 2014 – (1) the ETS move, (2) the carbon tax, and (3) the repeal of the carbon tax, all of which have had profound impacts on the capital market and business behaviour. This study examines the association between carbon performance of listed firms and their market returns during each stage of carbon legislative changes in Australia. It finds that better carbon performance has led to significantly greater market returns during the repeal of the carbon tax, but this positive relationship is not found during the ETS and carbon tax changes despite stronger market reactions to these two stages of policy changes. It also reveals that high emitters in environmentally sensitive industries have suffered the most during the repeal of the carbon tax. The findings imply that lengthy processes of climate policy debate and legislative changes limit the value-enhancing capability of carbon performance. Along with years of policy uncertainty and political instability, the market has become weaker in response to policy changes, but stronger in response to the public call to reward better carbon performers.

Analysis of the Influence of Capital Structure and Profit Ability on Corporate Value: Empirical Study with Modigliani and Miller Theory of Investment Review

This study aims to provide empirical evidence of the influence of capital structure and profitability on firm value. The selection of independent variables capital structure and profitability to prove the proposition Modigliani and Miller (1958) which states that the value of the company is not influenced by capital structure, but rather influenced by profitability. The results of this study are expected to provide insight and understanding of capital market behavior in Indonesia, particularly those relating to decision making by investors. The contribution of research results is to the field of accounting especially the subject of financial accounting and the subject of investment and portfolio management is the field of science that gets the most contribution from this research. The results of this study can also be used as learning material for the course concerned. The research method used is descriptive quantitative, using multiple regression analysis, using secondary data from LQ 45 companies listed on the Indonesia Stock Exchange. hypothesis testing does not support the Modigliani and Miller (1958) hypotheses, which maintain market efficiency and symmetrical assumptions of information and state that capital structure will not affect firm value Keywords: capital structure, profitability, company value, LQ 45 DOI : 10.7176/EJBM/12-3-20 Publication date: January 31 st 2020

Beyond Merton: The S Model A Discrete, Dynamic Structural Model of Firm Capital Incorporating Liquidity

Merton’s structural model offers a powerful and intuitively appealing approach to the evaluation of a firm’s capital structure choices and market behaviour across a firm’s issued debt and equity securities. We construct a robust, extended and expanded interpretation of the Merton conceptual framework that incorporates many real world features of firm behaviour and market activity. Notably, we introduce the notion of liquidity that captures the requirement for firms to settle all payments and receipts through a cash account.

Consequences of Mandatory Quarterly Reporting: The U.K. Experience

The Securities and Exchange Commission (SEC) is considering the pros and cons of moving to semi-annual reporting from quarterly reporting at least for certain segments of the market. However, documenting causal evidence on the consequences of mandatory quarterly reporting has been difficult, due to either the absence of a clear exogenous shock or older data. We exploit the start of mandatory quarterly reporting by the Financial Conduct Authority (FCA) in 2007 and the end of the requirement in 2014 in the United Kingdom to examine corporate and capital market behavior. After imposition of mandatory quarterly reporting in 2007, we find (i) a dramatic decline in the number of companies that issue reports with quantitative information (defined as including both sales and earnings numbers for the quarter); (ii) a substantial increase in companies announcing managerial guidance for the upcoming year's earnings or sales; and (iii) an increase in analyst following for all sample companies. However, using a difference-in-differences analysis, we find that the imposition of mandatory quarterly reporting has virtually no impact on firms’ investment decisions. Companies that voluntarily moved back from quarterly to semi-annual reporting after 2014 have experienced a reduction in analyst coverage, but no detectable increases in their levels of corporate investments.

English

Brazil, Russia, India and China (BRIC) are pointed as the most probable countries to enter the select group of industrialised countries, also appearing among the world’s twelve largest economies. The main objective of the present study is to assess whether the capital market behaviour of the BRIC’s emerging countries in the 2008 international crisis had already been equivalent to that of industrialised countries (USA, Japan, United Kingdom, and Germany). Three univariate approaches were applied for modelling the market volatilities (GARCH, EGARCH and TARCH). The results showed similar behaviours between both market groups regarding the presence of persistent effects of shocks on volatility, volatility asymmetry, and delayed volatility reaction to market changes. The BRIC’s markets showed less persistence to volatility shocks, less asymmetry, and faster reactions of volatility to market changes. Key words: Volatility, BRIC, emerging markets, GARCH models, financial crisis.

The Impact of Capital Market Behaviour on a Nation’s Economic Growth: a Case of Nigeria

The Nigerian capital market behaviour in relation to its economic development efforts is hamstrung by factors like information asymmetric, regulation overbearing, inconsistency and insider trading which had been the hindering factors in the development of the market. Suffice to say that capital market is an economic barometer usually use to detect the economic pulse of any nation in their quest to toe the line of thresh hold in the comity of nations; which spurred my interest in the behaviour of capital market as it relate to its nation’s economic growth and development function with the key area of human behaviour that is constantly hindering the market development in consonance with behavioral finance as it plays complementary role with long held efficient market hypothesis. Though, the impact of the stock market on the Nigeria economic growth rate is found to be insignificant due to structural rigidities that characterized the economic policies. The market plays a key role in helping to accelerate the Nigerian economic growth and development. Therefore recommend that the adoption of strategic management principles and appropriate enabling rules and regulations should be applied to minimize regulatory inconsistency and policy somersault with negative consequences.

The Impact of Capital Market Behaviour on a Nation’s Economic Growth: a Case of Nigeria

The Impact of Capital Market Behaviour on a Nation’s Economic Growth: a Case of Nigeria

Tax-Motivated Loss Shifting

ABSTRACT:This paper examines the implications of tax loss carryback incentives for corporate reporting decisions and capital market behavior. During the 1981 through 2010 sample period, we find that firms increase losses in order to claim a cash refund of recent tax payments before the option to do so expires, and we estimate that firms with tax refund-based incentives accelerate about $64.7 billion in losses. Tax-motivated loss shifting is reflected in both recurring and nonrecurring items and is more evident for financially constrained firms. Analysts do not generally incorporate tax-motivated loss shifting into their earnings forecasts, resulting in more negative analyst forecast errors for firms with tax-based incentives than for firms without. Holding earnings surprises constant, however, investors react less negatively to losses reported by firms with tax loss carryback incentives.Data Availability: Data are available from sources identified in the paper.

Stock Repurchases and TARP in the Financial Industry

In this paper, we examine the relation between the inadequate levels of capital during the recent financial crisis and the shareholder dividend and stock repurchase activities in the banking industry. In 2008, the Treasury Department initiated a bailout of the banking industry through the Troubled Asset Relief Program (TARP). Over the years leading up to this bailout, 2004-2007, shareholder payout activity increased dramatically. We first explore the efficient capital market motivations for the share repurchases of our sample of banking firms. Consistent with studies in the non-financial industry we find some support for the excess cash, undervaluation, and stock compensation hypotheses. However, we observe a structural shift in the model in 2007 that is inconsistent with efficient capital market behavior. Next, we explore the relation between firms that accepted funds from the Capital Purchase Program (CPP), the largest program within TARP, and the increasing levels of shareholder payouts. We find that firms that accepted CPP funds returned a higher proportion of their available capital to shareholders in the periods leading up to the financial crisis than firms that did not accept CPP funding. Finally, we document the improvement in for the capital adequacy of the CPP participant firms, and we provide anecdotal evidence on the impact of CPP on the largest four participating banks.

Corporate financial leverage and asset pricing in the Hong Kong market

Our earlier paper [see Ho, R. Y.-W., Strange, R., & Piesse, J. (2006). On the conditional pricing effects of beta, size, and book-to-market equity in the Hong Kong market. Journal of International Financial Markets, Institutions and Money, 16, 124–199] reported evidence supporting significant conditional pricing effects of beta, size, and book-to-market equity in the Hong Kong market. This study attempts to extend our earlier work by examining the pricing of beta in the presence of another commonly hypothesized risk factor, namely financial leverage, conditional on market situations, i.e. whether the market is up or down. Evidence indicates that market leverage (but not book leverage) exhibits conditional pricing relationship with returns. The study yields important results on a non-US market, which lend strong support to the conditional relationship hypotheses originally developed by Pettengill, Sundaram, and Mathur [(1995). The conditional relation between beta and returns. Journal of Financial and Quantitative Analysis, 30, 101–116; and (2002). Payment for risk: Constant beta vs. dual-beta models. The Financial Review, 27, 123–136] for the US market. The findings enrich our understanding of capital market behaviour, and should prove helpful to corporate managers and investors in their financial decision making.

The Sarbanes‐Oxley Act of 2002 and Capital‐Market Behavior: Early Evidence*

AbstractThe Sarbanes‐Oxley Act of 2002 (“the Act”) was enacted in response to numerous corporate and accounting scandals. It aims to reinforce corporate accountability and professional responsibility in order to restore investor confidence in corporate America. This study examines the capital‐market reaction to the Act and finds a positive (negative) abnormal return at the time of several legislative events that increased (decreased) the likelihood of the passage of the Act. We interpret this finding as evidence supporting the notion that the Act is wealth‐increasing in the sense that its induced benefits significantly outweigh its imposed compliance costs. We also find that the market reaction is more positive for firms that are more compliant with the provisions of the Act prior to its enactment.

The Small Business Capital Market Behavior in Athens Stock Exchange

Financing small and medium enterprises (SMEs), especially business investments and growth, is a com- posite and particular complicated affair in the Greek entrepre- neurial reality. This paper examines the significance of secondary capital markets, as an alternative source of financing small-medium enterprises' new entrepreneurial plans. Cointe- gration technique is applied to test the relationship between the secondary capital market and the dominant sectors in Athens Stock Exchange (ASE). Causality tests are also used to provide evidence on the existence of interdependence between the co- integrated series. The results indicate that there is significant uni-directional causality between primary and secondary capi- tal market in Greece, enhancing us to suggest valuable policy implications.

Canadian and American federalism in capital markets: Comparative debt financing

As China and other countries seek to decentralize the financial practices of their sub‐national governments, designing relevant institutions and rules looms as a major policy issue. The purpose of this paper is to clarify the capital market behaviour of Canadian provincial and municipal governments (PMGs), given their financing choices, and to draw relevant comparisons to American state and local government (SLG) debt financing practices. After identifying relevant elements of the federalism structure in the two countries, the paper compares the institutional rules and roles that comprise the capital acquisition behaviour of sub‐national borrowers. The paper concludes by highlighting key points of difference in this important area of fiscal federalism. Both Canada and the United States can present their market‐oriented approaches to subnational financing as a positive foreign policy force.

On the conditional pricing effects of beta, size, and book-to-market equity in the Hong Kong market

Using Hong Kong equity stock data, this study examines empirically the pricing effects of beta, firm size, and book-to-market equity, but conditional on market situations, i.e. whether the market is up or down. Evidence supports the hypothesis that, if the risk variable is priced by the market, then there exists a systematic but conditional relation between the risk variable and average return, and this relation takes on opposite directions during up and down markets. However, the significance of the relations is often affected by the changing values of the risk variables as a result of changes in market conditions. Specifically, it is found that all three risk variables, namely beta, size, and book-to-market equity, exhibit conditional pricing effects. This is the first comprehensive study of its kind on Hong Kong market, which provides out-of-sample evidence relative to earlier tests on US data. The findings give important insights into capital market behaviour, which should prove useful in investment management and corporate financial decisions.

Public policies as specification errors

Treating public policies as computable dynamic general equilibrium model specification errors offers computational and conceptional advantages for comparing models with data. The set of policies calculated to rationalize observed behaviors raises the substantive economic question whether, in any particular market, actual public policies sufficiently coincide with the model's behavior-rationalizing policies, or whether the model offers correct hypotheses about the determinants of demand and supply. As illustrations, public policies are calculated to rationalize, with respect to the stochastic neoclassical growth model, capital market behavior since WWII and labor market behavior in 1929–1950. One conclusion is that capital taxation drives a wedge between consumption growth and the expected pre-tax capital return, in the direction and amount predicted by the theory, and that capital taxation is the major intertemporal distortion in the postwar capital market. Second, a good theory of the Great Depression labor market must explain why measured MRS and MPL diverged so dramatically in 1929–1933 and why the wedge persisted.