Constituent Stocks Research Articles

Realized volatility of index constituent stocks in Hong Kong

High-frequency financial data are useful for studying the statistical properties of asset returns at lower frequencies, and they have been widely used to study various market microstructure related issues. However, most studies to date have been concentrated on markets in developed economies such as the stock markets in US or UK. This article aims to investigate the statistical properties of stock return volatility in Hong Kong. Using the sample of constituent stocks of Hang Seng Index (HSI) and Hang Seng China Enterprises Index (HSCEI or “H-shares Index”), we found that the mean daily realized volatilities of HSCEI stocks to be significantly higher than their HSI counterpart, while the correlations between H-shares stay relatively lower than that of HSI stocks. A long-memory effect is also reported for the logarithmic standard deviations of all shares, with most of them showing slow decay over the series.

The impact of lifting the short-sale price restriction on volatility and liquidity in Taiwan

The restriction of short-sale prices, which states that short-sale prices must not be lower than the closing price of the previous trading day, no longer applies to the constituent stocks of the Taiwan Top 50 Index. This study investigates the impact of restriction lifting on the trading activities and volatilities of those component stocks. The empirical results show that while the trading activities of those component stocks do not change, their volatilities increase significantly. Moreover, stocks with a lower percentage of margin transactions experience higher volatility.

The Impact of H-Share Derivatives on the Underlying Equity Market

We conjecture that an introduction of the Hong Kong Hang Seng Chinese Enterprise Stock Index (H-share Index) futures induces additional speculating activities in the underlying equities, leading to an increase in volatility and volume of the underlying stocks. Whereas, a subsequent introduction of H-share index options increases the level of informed trading and opens up opportunities for speculative and arbitrage activities using futures directly against options. These futures and options trading activities are much cheaper and more efficient than using the underlying stocks, leading to a significant decline in spot market volatility and volume. Our results are consistent with these arguments. We also find that derivative trading does not change the liquidity of H-share constituent stocks. Further tests based on the difference-in-difference approach confirm that the above findings are robust.

The impact of H-share derivatives on the underlying equity market

We conjecture that an introduction of the Hong Kong Hang Seng Chinese Enterprise Stock Index (H-share Index) futures induces additional speculating activities in the underlying equities, leading to an increase in volatility and volume of the underlying stocks. Whereas, a subsequent introduction of H-share index options increases the level of informed trading and opens up opportunities for speculative and arbitrage activities using futures directly against options. These futures and options trading activities are much cheaper and more efficient than using the underlying stocks, leading to a significant decline in spot market volatility and volume. Our results are consistent with these arguments. We also find that derivative trading does not change the liquidity of H-share constituent stocks. Further tests based on the difference-in-difference approach confirm that the above findings are robust.

Size and Value Premium in Karachi Stock Exchange

Investment decisions are based on the rational return expectations and investors require returns that are aligned with their risk and utility. This phenomenon has been extensively discussed in the financial theory as well as practice and the first known theory of asset pricing leads back to as early as Bachelier (1900). The current study evaluates the performance of Fama and French Three Factor model in Karachi Stock Exchange (KSE). It employs a multivariate regression approach after sorting six portfolios on size and bookto market. The constituent stocks were selected to represent each and every sector of KSE. Daily returns were employed for a period of five years starting from January 2003 to December 2007. The six month Pakistan’s T Bill yield was used as proxy for risk free rate to determine excess returns. The excess returns for each portfolio were regressed on market, size and value factors. The results were encouraging for the three factor model. The three factor model was able to explain the variations in returns for most of the portfolios and the results remain consistent when the sample was reduced to control for the size effect. Our findings are consistent with most of the studies that suggested the validity of three factor model in emerging markets. These findings havesubstantial implications for fund managers, analysts and investors. The results suggest that size and value premium must be incorporated for asset valuations and portfolio management decisions.

Hedging under the influence of transaction costs: An empirical investigation on FTSE 100 index options

AbstractThe Black–Scholes (BS; F. Black & M. Scholes, 1973) option pricing model, and modern parametric option pricing models in general, assume that a single unique price for the underlying instrument exists, and that it is the mid‐ (the average of the ask and the bid) price. In this article the authors consider the Financial Times and London Stock Exchange (FTSE) 100 Index Options for the time period 1992–1997. They estimate the ask and bid prices for the index, and show that, when substituted for the mid‐price in the BS formula, they provide superior option price predictors, for call and put options, respectively. This result is reinforced further when they .t a non‐parametric neural network model to market prices of liquid options. The empirical .ndings in this article suggest that the ask and bid prices of the underlying asset provide a superior fit to the mid/closing price because they include market maker's, compensation for providing liquidity in the market for constituent stocks of the FTSE 100 index. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:471–494, 2007

Long-Term Performance of Additions and Deletions of Hang Seng Index Constituent Stocks

Long-Term Performance of Additions and Deletions of Hang Seng Index Constituent Stocks

Order Book Slope and Price Volatility

This paper investigates the information content of the limit order book in an order driven market, the Australian Stock Exchange (ASX). Specifically, we examine the informativeness of the order book slope in explaining the equity price volatility. By utilizing the order book slope as a proxy for the Difference of Opinion (DO), we document the following. Firstly, we find a negative contemporaneous relation between the order book slope and the price volatility for the constituent stocks of the ASX S&P20 index over the period between 1 July 2005 and 30 June 2006. Secondly, we observe that a decrease in the order book slope has a significantly larger impact on volatility than an increase in the order book slope. Next, our results provide supportive evidence for the informativeness of the order book slope to predict the future price volatility (especially the permanent component). Finally, we document that the removal of broker IDs in the ASX has little impact on the predictive power of the order book slope on the future volatility.

Resiliency Ability of the Underlying Spot Market after the Introduction of Index Futures Contracts: Evidence from Hong Kong

This article focuses on the impact of the introduction of the Hang Seng Index (HSI) futures contracts on the resiliency ability of the underlying constituent stocks. The resiliency ability is defined as the market’s ability to execute market orders without large changes in the market price. The higher resiliency ability the market has, the better the market mechanism in evacuating large price changes owing to temporary order imbalances. This article employs a cross-sectional regression model to examine the impact of HSI futures trading on the resiliency ability of the underlying spot market. The results in this article indicate that the introduction of HSI futures contracts in Hong Kong increases the resiliency ability of the underlying constituent stocks.

Discretionary government intervention and the mispricing of index futures

AbstractThis article examines how and to what extent direct market intervention by the Hong Kong government in both the stock and futures markets affected the pricing relationship between the Hang Seng Index futures and the cash index during the period of the Asian financial crisis. The study avoids infrequent trading and nonexecution problems by using tradeable bid and offer quotes for the constituent stocks of the index. The results show that arbitrage efficiency was impeded during, and in the immediate aftermath of, the intervention. The findings suggest that discretionary government action introduces an additional risk factor for arbitrageurs that continues to disrupt normal market processes even after the government ceases to intervene. The continued disruption following the government's actions in the market also stems from a poorly developed stock loan market that impedes short selling, as well as a lack of liquidity in the market. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:1159–1189, 2003

Dividend policies in Australia and Japan

This paper presents the findings of a comparative study of dividend policies in Australia and Japan. It examines panel data from the constituent stocks of the ASX 200 Index of the Australian stock market and the Nikkei 225 Index of the Japanese stock market. The evidence that Australia, with an imputation tax system which favors dividends over capital gains, has a significantly higher dividend payout than Japan lends support to the influence of environment on dividend policy. Dividend policies in Australia and Japan are affected by different financial factors. Fixed effects regression models indicate that dividend policies are affected positively by size in Australia and liquidity in Japan, and negatively by risk in Japan only. An industry effect is found to be significant in both countries.

The Cointegration Alpha: Enhanced Index Tracking and Long-Short Equity Market Neutral Strategies

This paper presents several applications of cointegration based trading strategies: a classic index tracking strategy, a long-short equity market neutral strategy and a number of strategies combining index tracking and long-short market neutral. As opposed to other traditional index tracking or long-short equity strategies, the portfolio optimisation is based on cointegration rather than correlation. The first strategy aims to replicate a benchmark accurately in terms of returns and volatility, while the other seeks to minimise volatility and generate steady returns under all market circumstances. The combinations of index tracking and long-short market neutral are designed as to enhance the properties of the basic strategies. To validate the applicability of the cointegration technique to asset allocation, pioneered by Lucas (1997) and Alexander (1999), and explain how and why it works, we have employed a panel data on DJIA and its constituent stocks. When applied to constructing trading strategies in the DJIA, the cointegration technique produced encouraging results. For example, between January 1995 and December 2001 the most successful self-financing statistical arbitrage strategies returned (net of transaction and repo costs) approximately 10% with roughly 2% annual volatility and negligible correlation with the market. The comprehensive set of back-test results reported is meant to offer a detailed picture of the cointegration mechanism, and to emphasise its practical implementation issues. Its key characteristics, i.e. mean reverting tracking error, enhanced weights stability and better use of the information contained in stock prices, allow a flexible design of various funded and self-financing trading strategies, from index and enhanced index tracking, to long-short market neutral and alpha transfer techniques. Further enhancement of the strategy should target first, the identification of successful stock selection rules to supplement the simple cointegration results and second, the investigation of the potential benefits of applying optimal rebalancing rules.

Asymmetric and crash effects in stock volatility for the S&P 100 index and its constituents

The volatility processes of the S&P 100 index and all its constituent stocks are compared after estimating ARCH models from ten years of daily returns, from 1983 to 1992. The leverage effect of Black (1976) is estimated from an extension of the asymmetric volatility model of Glosten et al. (1993) that isolates the effects of the crash in October 1987. The index and the majority of stocks have a greater volatility response to negative returns than to positive returns and the asymmetry is higher for the index than for most stocks. Conclusions about volatility asymmetry and persistence change when the crash is considered to be an extraordinary event.

Asymmetric and Crash Effects in Stock Volatility for the S&P 100 Index and its Constituents

The volatility process of the S&P 100 index and all its constituent stocks are compared after estimating ARCH models from ten years of daily returns, from 1983 to 1992. The leverage effect of Black (1976) is estimated from an extension of the asymmetric volatility model of Glosten et al (1993) that isolates the effects of the crash in October 1987. The index and the majority of stocks have a greater volatility response to negative returns than to positive returns and the asymmetry is higher for the index than for most stocks. Conclusions about volatility asymmetry and persistence change when the crash is considered to be an extraordinary event.

The impact of salient political and economic news on the trading activity

This paper investigates the impact of salient political and economic news on the intraday trading activity, namely, the stock return volatility, the stock price volatility, the number of shares traded, and the trading frequency. Using transactions data on 33 constituent stocks of the Hang Seng Index in the Stock Exchange of Hong Kong (SEHK), we find that political news has a distinct impact on market activity when compared with economic news. We argue that the observed phenomenon is related to the precision of signals associated with these two types of news and investors' perceptual biases.

Natural History and Conservation of the Greenland Whale, or Bowhead, in the Northwest Atlantic

One of the longest-living mammals, the Greenland whale or bowhead ( Balaena mysticetus ) is specialized to filter small crustaceans, especially Calanus copepods, from barren Arctic seas. Brought to near extinction by commercial whaling, the North Atlantic 'meta-population' remains at less than 5% of its former abundance, and none of its three constituent stocks has shown demonstrable recovery during the last century. Two of these stocks, the Baffin Bay and Hudson Bay populations, occur in coastal waters of the Eastern Canadian Arctic during summer. Each of these two stocks numbers in the low hundreds and exists in isolated groups segregated by age and sex, showing strong fidelity to essential habitats. A skewed age distribution, predation by killer whales (Orcinus orca), hunting, net entanglement, tourism, climate change, habitat loss, and inbreeding suppression are some of the factors that may affect the bowhead's recovery. We need local and historical knowledge to understand the bowhead's natural history. Together with scientific data, such know ledge is also useful in evaluating the status of the species and prescribing a management plan. A recovery plan must employ the precautionary principle, both within the international 'meta-population' context and at the sub-population level; it must take a historical view and seek to protect abandoned habitats. Canada has conducted whaling activities that violate international agreements and diminish the effectiveness of the International Whaling Commission. Key words: Greenland whale, bowhead whale, Balaena mysticetus , biology, conservation, management, traditional knowledge

Long-term memory in stock market volatility

The modified rescaled range test proposed by Lo (1991) and the semiparametric test proposed by Geweke and Porker-Hudak (1983) are applied to detect the existence of long-term dependence in volatility for S & P 500 index, Dow Jones Industrial Average index and its constituent stocks. Three proxies of the variability of returns: the absolute mean deviation, the squared mean deviation and the logarithm of the absolute mean deviation are adopted in this study. Strong evidence of long-term dependence in volatility is found in nearly all cases. This suggests that it is important to incorporate the long memory feature in the modelling of volatility in order to produce good volatility forecasts and derivative pricing formulas.

Seasonality in the Athens stock exchange

This paper studies calendar effects in the emerging Athens Stock Exchange. Rather than examining only basket indices, we analyse calendar effects for each of the constituent stocks of the Athens Stock Exchange General Index for the period from October 1986 to April 1997. In accordance with similar studies substantial evidence of ‘day-of-the week’, ‘monthly’, ‘trading month’ and ‘holiday’ effects are found. The intensity of these effects for various stocks on the basis of capitalization, beta coefficients and company type are examined. The results indicate that the calendar regularities vary significantly across the constituent shares of the General Index and that aggregation introduces a considerable bias in unravelling these regularities. Also, it is found that factors such as the beta coefficient and company type influence significantly the intensity of calendar effects.

The impact of index futures trading on the betas of the underlying constituent stocks. The case of Hong Kong

Abstract A varying risk market model, which captures the potential differential return premiums between recessions and expansion, is employed to test the change of beta coefficients of the HSI constituent stocks after the HSI futures trading. Unlike the results in earlier literature describing studies of the US markets, this study shows that the creation of the index futures in an emerging market does not necessarily increase the systematic risk of is underlying stocks.

The effect of index futures trading on volatility of HSI constituent stocks: A note

This paper examines the adjusted volatilities of the individual constituent stocks in Hang Seng Index (HSI) before and after the HSI futures trading. After controlling for cross-sectional differences in stock attributes known to affect volatility, we find no significant increase in the adjusted volatility of the constituent stocks relative to the non-constituent stocks after the HSI futures trading.