Review of Pacific Basin Financial Markets and Policies

Returns of the same companies' common stocks, both non-market-adjusted and market-adjusted, exhibit greater volatility, on the Stock Exchange of Hong Kong where short selling is allowed than on the Shanghai Stock Exchange and Shenzhen Stock Exchange where short selling is restrained. This unique evidence indicates that short selling increases stock price volatility for the Chinese stocks in the Chinese stock markets.

The ranking of colleges, programs, departments and faculties has reached a feverish pitch in recent years. Missing from the vast list of rankings is research covering doctoral programs in finance. This study ranks 91 US finance doctoral programs based on productivity of current finance department faculty, graduates of those programs, and a survey of doctoral program directors/chairs. The resulting rankings should be of value to those seeking to earn a finance doctorate in the future as well as satisfy the natural curiosity of finance faculty regarding bragging rights on their respective doctoral programs.

Estimation of benchmark yield curve in developing markets is often influenced by liquidity concentration. Based on an affine term structure model, we develop a long run liquidity weighted fitting method to address the trading concentration phenomenon arising from horizon-induced clientele equilibrium as well as information discovery. Specifically, we employ arguments from models of liquidity concentration and benchmark security information. After examining time series behavior of price errors against our fitted model, we find results consistent with both the horizon and information hypotheses. Our evidence indicates that trading liquidity carries information effect in the long run, which cannot be fully captured in the short run. Trading liquidity plays a key role in long run term structure fitting. Markets for liquid benchmark government bond issues collectively form a long term equilibrium. Compared with previous studies, our results provide a robust and realistic characterization of the spot rate term structure and related price forecasting over time, which in turn help portfolio investment of fixed income and long run pricing of financial instruments.

This paper examines opening and closing return patterns on the Chinese stock markets. We find that open-to-open returns are significantly more volatile than close-to-close returns. In addition, the correlation of the overnight return with the following daytime return is significantly negative, while the correlation of the daytime return with the following overnight return is strongly positive. The results show strong price continuation around the close and strong price reversal at the open, and the findings are not sensitive to trading volume. The findings are less likely to be caused by price limits. Our results are inconsistent with previous findings from the Tokyo Stock Exchange, yet similar to those from the New York Stock Exchange, albeit under a different market structure.

This study investigates whether the extent of earnings management has any impact on offer price in initial public offering (IPO). Using a sample of 581 JASDAQ IPO firms, we find that offer price reflects earnings management to some extent. Firms with conservative earnings management tend to have higher offer prices, and firms managing earnings aggressively tend to be discounted when they fail to exhibit smooth earnings growth. These results are consistent with the hypothesis that underwriters adjust for the effect of earnings management to appropriately pricing the issues. Overall, our evidence could lead to another explanation for IPO underpricing.

Cointegration tests and ex ante trading rules are applied to study cross-market linkages between the Taiwan Index futures contracts listed on the Singapore Exchange and the Taiwan Stock Exchange Capitalization-weighted Stock Index futures contracts listed on the Taiwan Futures Exchange. The exchange rate-adjusted returns of the two futures series do not differ significantly in mean but in variances, and show significant mean-reverting tendencies between them. Our trading strategies are able to generate statistically significant, if economically insignificant, profits, while our Granger causality tests demonstrate that information flows primarily from the Singapore market to the Taiwan market, a result confirming other research.

We examine the performance of technical trading rules in Chinese domestic A-share and foreign B-share markets. After controlling for non-synchronous trading and transaction costs, we find evidence to support the predictability and profitability of some of the most popular technical trading rules for B-shares but not for A-shares. However, after February 19, 2001, when domestic investors were allowed to trade B-shares, the predictive power of the trading rules in B-share markets disappeared. We conjecture that the predictability of technical trading rules in B-share markets can be attributed to the gradual diffusion of information among foreign investors under the foreign share ownership restriction, and, partly, to positive autocorrelations induced by thin trading.