Capital Market Theory Research Articles

Determinants of stock return in 10 biggest market capitalization on the Indonesian stock exchange

Several research results on the capital market in Indonesia fall into the category of market efficiency in the weak form, so the results of previous research do not reflect the theory of capital market efficiency in the strong form. The purpose of this research is to analyze and answer the existence of inconsistencies in the results of previous research as well as the phenomenon of stock returns which are not as described in capital market theory in strong form. This is what prompted researchers to do it again using different time series and cross-sectional data. This type of research is quantitative descriptive with a panel data multiple regression analysis method using 10 sample companies that are members of 50 large capitalization companies for 7 years. This research formula is to maximize the Stock Return value through leverage as an intervening variable using research objects of companies on the Indonesia Stock Exchange. Two research models are integrated into one and each goes through a model selection test stage, namely the Chow Test, Hausman Test, and Lagrange Multiplier Test using the eviews12 application. The results of this research explain that increasing ROA can have an impact on reducing Leverage (DER) and through DER it can explain the impact on Stock Returns, but ROA cannot directly explain Stock Returns. It is hoped that these results can help as a guide for investors to get maximum Stock Returns.

Pengaruh Corporate Governance Terhadap Nilai Pasar Saham di Pasar Modal

This research aims to determine the influence of corporate governance on share market value in the capital market. The research results show that corporate governance has a significant influence on stock market value. The results of the analysis show that corporate governance has a significant positive influence on stock market value. The results of this research contribute to capital market theory and practice, as well as providing useful information for investors and capital market policy developers, and overall, the implementation of good corporate governance practices can increase the company's credibility and value in the eyes of investors, thereby increasing stock prices. higher.

FAKTOR-FAKTOR YANG MEMPENGARUHI MINAT MAHASISWA UNTUK BERINVESTASI DI PASAR MODAL

Investment in the capital market can be used as an alternative to investing for people who want to invest their money and contribute for economic growth in a country. However, the number of investors in Indonesia in quantity is still far from the population in Indonesia. This study aims to analyze the factors that influence the interest in investing in the capital market. This research was located at the Faculty of Economics and Business, Udayana University with students of 2018-2019 who had attended the capital market theory course as a population. The sampling technique used was purposive sampling and the sample obtained was 233 respondents with a data analysis technique, namely multiple linear regression analysis. The results of this study indicate that investment knowledge, motivation, family environment and financial literacy have a positive effect on investment interest in the Capital Market.

Research on Strategies to Improve Digital Literacy of College Students to Enhance Employment Quality in the Intelligent Era

Abstract With the intensification of social employment pressure, the employment conflict of vocational college students has gradually shifted from quantitative to qualitative. The theoretical mechanism and path of the impact of digital literacy on the employment quality of vocational college students are explored through the combination of human capital and labor market theories in this study. In this paper, the digital literacy is used as an independent variable based on the employment quality as the dependent variable. The relevant control variable is set up, and the multivariate regression model is constructed. Finally, a questionnaire survey was conducted on college graduates in Jiangxi, and the influence and mechanism of digital literacy on the employment quality of college graduates were explored through a multiple regression analysis model. The results show that the regression coefficients of digital literacy of vocational college students are always positive, after all the control variables are included in the regression, the regression test coefficient of digital literacy level in the model (6) are, R2=5.15, P<0.001.

Tail Risks in Corporate Finance: Simulation-Based Analyses of Extreme Values

Recently, simulation-based methods for assessing company-specific risks have become increasingly popular in corporate finance. This is because modern capital market theory, with its assumptions of perfect and complete capital markets, cannot satisfactorily explain the risk situation in companies and its effects on entrepreneurial success. Through simulation, the individual risks of a company can be aggregated, and the risk effect on a target variable can be shown. The aim of this article is to investigate which statistical methods can best assess tail risks in the overall distribution of the target variables. By doing so, the article investigates whether extreme value theory is suitable to model tail risks in a business plan independent of company-specific data. For this purpose, the simulated cash flows of a medium-sized company are analyzed. Different statistical ratios, statistical tests, calibrations, and extreme value theory are applied. The findings indicate that the overall distribution of the simulated cash flows can be multimodal. In the example studied, the potential loss side of the cash flow exhibits a superimposed, well-delimitable second distribution. This tail distribution is extensively analyzed through calibration and the application of extreme value theory. Using the example studied, it is shown that similar tail risk distributions can be modeled both by calibrating the simulation data in the tail and by using extreme value theory to describe it. This creates the possibility of working with tail risks even if only a few planning data are available. Thus, this approach contributes to systematically combining risk management and corporate finance and significantly improving corporate risk management. Based on these findings, further analyses can be performed in terms of risk coverage potential and rating to improve the risk situation in a company.

On the connection between temperature and volatility in ideal agent systems

Models for spin systems known from statistical physics are applied by analogy in econometrics in the form of agent-based models. Researchers suggest that the state variable temperature T corresponds to volatility σ in capital market theory problems. To the best of our knowledge, this has not yet been theoretically derived, for example, for an ideal agent system. In the present paper, we derive the exact algebraic relation between T and σ for an ideal agent system and discuss implications and limitations.

A research agenda on portfolio diversification, government regulations, and the financial performance of deposit-taking SACCOs in Nairobi County, Kenya

The purpose of this study is to examine the relationship between portfolio diversification, government regulations, and the financial performance of DT SACCOs in Nairobi County, Kenya. It aims to determine the impact of financial asset investment on the financial performance of deposit-taking SACCOs in Nairobi County, Kenya; the impact of loan portfolios on the financial performance of deposit-taking SACCOs in Nairobi County; and the moderating effect of government regulations on the relationship between portfolio diversification and the financial performance of deposit-taking SACCOs in Nairobi County, Kenya. Capital market theory, modern portfolio theory, risk aversion theory, arbitrage portfolio theory, and decision-making theory will serve as the study's foundation. For the period under review, secondary data will be collected from audited annual financial statements included in SASRA reports.

Portfolio Diversification and Financial Performance of Microfinance Institutions in Nairobi County, Kenya

Purpose: The current study sought to establish the effect of portfolio diversification on financial performance of microfinance institutions in Kenya. The study focused on establishing the effects of asset class diversification, risk profiling diversification, income diversification and locational diversification on performance of microfinance institutions in Kenya. The study was supported by Shiftability Theory, Capital Market Theory, Resource Based Theory and Balanced Score Card Theory. 
 Methodology: A descriptive research design was used and targeted 57 micro finance institutions operating in Nairobi County and registered under Association of Micro Finance Institutions. The unit of observation comprised of employees in top level management including chief financial officer, operational manager, and chief manager making a total of 171 respondents. The study employed a census approach. Both primary and secondary data were utilized in the study. Primary data was gathered using a five point Likert scale questionnaire while a secondary data collection sheet was utilized to collect secondary data from financial reports of the respective institutions. Both descriptive and inferential statistics was used to analyze the collected data. The statistics were generated through Statistical Package for Social Scientists and MS Excel.
 Findings: The results were displayed in form of tables. The study established that portfolio diversification comprising of asset class, risk profiling, and income diversification positively and significantly affect financial performance of the MFIs operating in Nairobi County as shown by respective beta values of 0.318, 0.288 and 0.498 and significant values of 0.000, 0.005 and 0.000. This bears the implications that enhancing aspects of each of the portfolio diversification contributes to improved financial performance of the institutions. Locational diversification on the other had had a positive but insignificant effect on financial performance of the MFIs (beta=0.103, sig=0.000>0.05) which implies that enhancing aspects of locational diversification contributes insignificantly to financial performance of the MFIs.
 Unique contribution to theory, practice and policy: The study provided recommendations to the management of the MFIs to enhance the levels of asset class diversification, risk profiling diversification, and income diversification since the practices bears positive and significant effect on financial performances of the MFIs.

Financial Risk Management Practices on Financial Performance of Microfinance Institutions in Kiambu County, Kenya

Purpose: MFIs are subject to financial risks, just like all other financial institutions. This is intimately tied to their primary businesses of managing credit and accepting deposits. Therefore, risk management is crucial for MFIs in order to maximize their return on investment. The current study sought to establish the effect of financial risk management practices on financial performance of microfinance institutions in Kiambu County, Kenya. The study focused on establishing the effect of liquidity risk management practices, operational risk management practices, credit risk management practices, and market risk management practices on financial performance of microfinance institutions in Kiambu County, Kenya. The theories anchoring the study comprised of Risk Management Theory, Extreme Value Theory, Credit Risk Theory, and Capital Market Theory.
 Methodology: A descriptive survey research design was adopted in the study. The target population comprised of 31registered microfinance institutions operating in Kiambu County. The unit of observation comprised of Risk and Compliance Manager, Finance Manager, Operations Manager, Credit Manager, and Business Development Manager from each of the microfinance institution making a total of 155 respondents. A census approach was adopted in the study where all the registered microfinance institutions were involved in the study. Both primary and secondary data was employed in the study where 5-point Likert scale questionnaires were employed to gather primary data while a secondary data collection sheet was utilized to gather secondary data. Both descriptive and inferential statistics were used to analyze the collected data. The statistics were generated by help of Statistical Package for Social Scientist and MS Excel.
 Findings: The results of the analysis revealed that Liquidity Risk Management Practices, Operational Risk Management Practices, Credit Risk Management Practices, and Market Risk Management Practices positively and significantly affects financial performances of microfinance institutions in Kiambu County, Kenya as shown by beta values of 0.401, 0.309, 0.497 and 0.351 and significant values of 0.000. 0.001, 0.000 and 0.006 respectively.
 Unique contribution to theory, practice and policy: The results implies that when each of the independent variable is increased with one unit, financial performance of the microfinance institutions increases with the respective beta value of the independent variable. The results led to conclusions that liquidity risk management practices, operational risk management practices, credit risk management practices, and market risk management practices bears appositive and significant effect on financial performance of microfinance institutions in Kiambu County. The study provided recommendations to the management of the microfinance institutions to enhance their practices in areas of liquidity risk management, operational risk management, credit risk management, and market risk management to improve financial performance to a positive and significant level.

Impact of Foreign Direct Investments on the Hospitality Sectors in Ethiopia

Purpose: The study sought to analyze the impacts of foreign direct investments on the hospitality sectors in Ethiopia.
 Methodology: The study adopted a desktop methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library.
 Findings: The results show that showed that the success of the hospitality industry in developing countries depends on the levels of foreign direct investment. Although many developing countries have natural features such as beaches, rivers, and other natural resources, local capital to invest in those resources is unavailable. The tourism industry is one of the largest and fastest-growing sectors in the global economy and a key driver of socio-economic development, as it is labor-intensive and stimulates SME growth and investment. It has been used in other countries as an economic driver for growth which can widely support poverty reduction.
 Unique Contribution to Theory, Practices and Policies: The capital market theory, investment development path theory and the eclectic theory may be used to anchor future studies in the tourism sector. The study results will also benefit other stakeholders such as the policy makers as well as researchers and scholars from different parts of the world. The top management of hospitality management companies in the country will also use the study findings to improve tourism performance in all their activities and programs. The study recommends that the adoption of effective social protection development policies in the tourism sector will help to improve efficiency in their major operations and activities.

Ruminate the Significance of Internal Capital Market to enterprise capital control

Internal capital market theory is one of the most essential theories for studying the internal management of enterprises. It fundamentally solves the problem of information asymmetry in the external market and optimizes the internal resource allocation of enterprises while reducing transaction costs. This paper analyzes the impact of internal capital allocation and endogenous financing from the perspective of internal capital market theory which improve the centralized management of corporate capital and enhance the overall value of corporate groups.

Cash holdings, the internal capital market, and capital allocation efficiency in listed companies

The rise in firm-level cash asset ratios has become a prominent trend in countries around the world which may further influence the capital allocation efficiency. This study analysed the inefficient effect of cash holdings on the capital allocation by combining the internal capital market theory with principal–agent theory and asymmetric information theory. The theoretical hypotheses were tested using linear panel regression models based on financial data from Chinese listed enterprises. We found that corporations holding more cash assets had lower capital allocation efficiency than those with fewer cash assets, which is consistent with agency theory and asymmetric information theory. Internal capital markets exacerbated this adverse effect. Additional testing was conducted to examine the heterogeneity of this effect between different types of ownership and strategy; the findings showed that an increase in cash holdings had a greater marginal impact on overinvestment among privately owned enterprises and underinvestment among state-owned enterprises. Internal capital market operation alleviated the problem of overinvestment but exacerbated the problem of underinvestment in privately owned enterprises, whereas it increased overinvestment in state-owned enterprises. The results suggested that different types of enterprises should deal with the inefficient effect of cash assets based on the causes of inefficient investment.

Pendampingan Investasi Saham Syariah pada ASN di Lingkungan Satkordikcam Jepara

<pre><em>Nowadays, </em><em>everyone's needs and wants are huge. Needs and wants become difficult to distinguish because of the changing times that are increasingly advanced. Lifestyle makes people have a lot of demands. To fulfill this, it is not enough to just rely on a monthly salary. Therefore, we must look for ways to be able to utilize the finances we have to meet our needs and desires. One way that can be taken is by investing.</em></pre><pre><em>Along with the mandate of service, it is deemed necessary to convey knowledge transfer to organizations that play an important role in the community. Among them are the Department of Education, Youth and Sports, Jepara sub-district, Jepara district. It is considered important because there is still limited knowledge and stigma in the community about investing in sharia shares in the capital market. Sharia stock investment material in the capital market will be very helpful for people who will invest in sharia in the capital market and can become an investor.</em></pre><em>The result of service activities for ASN in the Jepara Satkordikcam environment is that ASN understands capital market theory, the basics of Islamic capital market, is able to practice open accounts through MNC Sekuritas, and is able to understand the management of family financial management</em>

Determinan yang Berpengaruh pada Minat Investasi di Pasar Modal

Investing in the capital market is an alternative for people who want to invest their excess funds as well as being able to drive the economy in a country. This study aims to obtain empirical evidence regarding the determinants that influence investment interest in the capital market. Determination of the sample in this study using purposive sampling method with a sample of 105 students who have taken the capital market theory course and already have an account of effects. The data analysis technique used is multiple linear regression analysis. The results of the study indicate that investment understanding, motivation, and the bandwagon effect have a positive effect on investment interest in the capital market. This means that the higher the understanding of investment, motivation, and the bandwagon effect phenomenon that occurs, the higher the interest in investing in the capital market.
 Keywords: Investing Interest; Investment Understanding; Motivation; Bandwagon Effect.

AN INVESTIGATION RELATING TO THE APPLICATION OF CAPITAL ASSET PRICING MODEL (CAPM) IN STOCK MARKET

Purpose – The present study aims to examine the concept of Capital Asset Pricing Model (CAPM), the mechanism of Capital Asset Pricing Model (CAPM) and evaluate its applicability as tools that Investors and Traders can use to facilitate decision making related to stocks in Stock Market. Design/methodology/approach – This paper uses secondary data to empirically examine the impact of Capital Asset Pricing Model in Stock Market. Since, Capital Asset Pricing Model occupies an important place in the Security Analysis and Portfolio Management, therefore this Model has been selected in order to bring to light the current mechanism prevailing in the Stock Market. Findings- In this paper, it has been highlighted that CAPM can be strategically used to determine whether securities are overvalued or undervalued and whether the stocks are to be purchased or sold. Application of CAPM can be truly helpful in the process of decision making and can also help in buying or selling the securities at the right time and right price. Research Implications- Application of CAPM in Stock Market carries a wide scope and this area needs to be worked on. A deeper understanding of CAPM will help investors and traders to determine optimum strategies, estimate and forecast precisely the value or the market price of the securities. Practical Implications- This study also signifies an important implication of Capital Asset Pricing Model which is estimating the market price of the stock using equilibrium return and simultaneously aims to assess the applicability of this analysis in the Stock Market. Originality- The study seeks to contribute towards the existing literature on usage of Capital Asset Pricing Model (CAPM) in Stock Market by giving a new perspective. KEYWORDS: Capital Asset Pricing Model (CAPM) , Capital Market Theory, Expected Return, Equilibrium Return, Sharpe Index Model, Stock Market

Cost gap, Shapley, or nucleolus allocation: Which is the best game‐theoretic remedy for the low‐risk anomaly?

Empirical research in investment management has discovered the puzzling phenomenon that, contrary to established capital market theory, low‐risk assets tend to earn larger returns than their high‐risk counterparts. In a recent contribution, Auer and Hiller (2019) emphasize that an inadequate quantification of risk may be the root of this problem. By interpreting a portfolio as a cooperative game, they arrive at the interesting finding that using assets' risk‐based Shapley values instead of classic stand‐alone risk measures has the potential to solve the low‐risk puzzle. In this article, we extend their study first by considering additional game‐theoretic risk allocation schemes, namely, the cost gap technique and the nucleolus method, and then by improving their simulation design via a larger number of assets and a supplementary determination of risk–return slopes. We find that the Shapley method outperforms the alternatives with respect to the generation of positive risk–return slopes.

Profitability of investment strategies developed on the basis of buy and sell recommendations

Aim/purpose – The paper has two objectives. The first is to examine the profitability of applying investment strategies based on “buy” and “sell” recommendations issued by stock market analysts. The second objective is to validate that analysts who issue a rec- ommendation may not be impartial (not supporting any of the sides involved in an argu- ment) because the largest group of recommendations issued is “buy” recommendations. Design/methodology/approach – This study was conducted based on all the “buy” and “sell” recommendations issued during the period between January 1, 2004 and Decem- ber 31, 2016 for companies listed on the Warsaw Stock Exchange, using data from www.bankier.pl. The annual forecast rates of return were determined for all the recom- mendations included in the survey. The expected rates of return were determined for each recommendation based on the information collated from the Bloomberg database. The regression analysis enabled the exploration of the relationship between the actual rates of return and the rates of return predicted in recommendations. Findings – It was determined that investing on the basis of the information included in “sell” recommendations might make it possible to avoid unprofitable investments. At the same time, the study shows that an investment strategy compliant with “buy” recom- mendations does not let the investor achieve the expected rates of return on an invest- ment in the capital market in the long term. Research implications/limitations – The conducted research could be an important source of information for stock market investors’ decision-making regarding invest- ments. Originality/value/contribution – Despite the topic of recommendation effectiveness being very important from the perspective of capital market theory and practice, it is still unclear whether investing based on information provided in stock market recommenda- tions can be a profitable strategy in the long run. The study offers a bridge to fill the existing research gap. Keywords: recommendations, stock exchange, investment. JEL Classification: G140.

Valuation Handbook — International Guide to Cost of Capital: 2021 Summary Edition

The cost of capital is the expected rate of return that the market requires in order to attract funds to a particular investment and is one of the most important concepts in finance. It may be described in simple terms as the expected return appropriate for the expected level of risk and is also commonly called the discount rate, the expected return, or the required return. There are three broad valuation approaches: (i) the income approach, (ii) the market approach, and (iii) the cost or asset-based approach. The country risk premia (CRPs), equity risk premia (ERPs), and relative volatility (RVs) can be used to develop cost of capital estimates for use in income approach-based valuation methods. Of the three aforementioned approaches to estimating value, only the income approach typically requires cost of capital estimates. The cost of capital is a critical input used in income approaches to equate the future economic benefits (typically measured by projected cash flows) of a business, business ownership interest, security, or intangible asset to present value. The income approach is most often applied through a discounted cash flow (DCF) model. A basic insight of capital market theory, that expected return is a function of risk, still holds when dealing with cost of equity capital in a global environment. Estimating a proper cost of capital (i.e., a discount rate) in developed countries, where a relative abundance of market data and comparable companies exist, requires a high degree of expertise. Estimating cost of capital in less-developed (i.e., “emerging”) economies can present an even greater challenge, primarily due to lack of data (or poor data quality) and the potential for magnified financial, economic, and political risks. A good understanding of cost of capital concepts is, therefore, essential for making global investment decisions.

Exchange rate fluctuations and interest rate policy

AbstractThis research studies the non‐linear relationship between interest rates and exchange rates for China and the United States using the rolling‐window method. We also investigate uncovered interest rate parity (UIP) and the capital market theory for the whole time period and subperiods so as to reconsider various economic connections between China and the United States. The results suggest that the effect of the latter's interest rate adjustment on China/U.S. exchange rate volatility is stronger than that of China's interest rate adjustment. Moreover, changes in the China/U.S. exchange rate have a slightly stronger effect on the U.S. interest rate than on China's interest rate. Our findings reveal that the interest rate parity theory does not hold for the entire sample period but may hold in subperiods. The results provide a reference for the steady implementation of RMB internationalization.

The role of bank affiliation in bank efficiency: a fuzzy multi-objective data envelopment analysis approach

This paper examines differences in bank efficiency between banks affiliated with single-bank holding companies and those affiliated with multi-bank holding companies by applying a fuzzy multi-objective two-stage data envelopment analysis technique. Using a sample of U.S. commercial banks covering 1994–2018, the results show that banks affiliated with multi-bank holding companies are more efficient than those affiliated with single-bank holding companies, suggesting that the former takes advantage of their parents’ resources to enhance their efficiency, consistent with the internal capital market theory. They also show that banks with a powerful CEO exhibit lower efficiency than others. Moreover, there is an inverted U shape relationship between multi-bank holding company structure and bank efficiency, suggesting the presence of an optimal number of multi-bank holding subsidiaries that maximizes efficiency.