Review of Pacific Basin Financial Markets and Policies

The on-the-run phenomenon is regularly found in the bond markets. It refers to the phenomenon of the yield difference observed when a new bond issue comes to market from the same issuer and gets a better price (lower yield given equivalent duration) from the market than the older issue. This paper proposes and tests a liquidity model to explain phenomenon introducing entropy as our liquidity measure. The yield differential results from the illiquidity cost of the older issue that has increased as a result of progressing through stages, which typically occur in an entropy process. We find that a model employing an entropy measure largely explains the on-the-run phenomenon, by accounting for over three-quarters of the liquidity differential for on-the-run corporate bonds.

This paper aims to model the impact of retail consumers’ behavior on a new banking dual market featuring both conventional and Islamic banking products. To build the model, we conduct an empirical qualitative and quantitative survey on Moroccan market consumers in order to appraise their preferences with regard to banking products’ attributes. Then, we use conjoint analysis method to determine the consumers’ decision function. We run market simulations on a Multi-Agents Simulation platform and analyze the results. Our findings indicate that in new dual markets, and under a range of assumptions, it is predicted that Islamic banks will face excess liquidity while conventional banks will be exposed to liquidity shortage.

This study applies self-developed models using standardized regression analysis to investigate the learning behavior associated with investor sentiment and psychological pitfalls during the 2007–2009 Global Financial Crisis. The empirical results, which draw on reinforcement learning and classical conditioning perspectives, reveal asymmetric reinforcement learning behavior because investors report a higher tendency to avoid past unfavorable outcomes rather than repeat past favorable outcomes. The evidence also supports the conditioned response of psychological pitfalls to the Taiwanese government’s stimulus measures during 2007–2009; however, no concrete evidence supports the conditioned response of investor sentiment.

This study examines the momentum effect in the Dhaka Stock Exchange (DSE) listed stock returns on the basis of market states. Momentum profits are found to be significantly positive in UP market states but insignificant in DOWN market states. Momentum profits evident in UP market states are also found to revert in the long term. The evidence of short term momentum and long term reversal hold true even after adjusting for risks. In addition to short-term momentum and long-term reversal, regression coefficients also provide evidence for a positive but nonlinear relationship between momentum profits and market states. Maximum momentum profits are found at the median market performance not at the peak. Findings of this study suggest that investors’ overreaction causes momentum profits in the DSE.

This study examines management’s response to the change in accounting for stock option-based compensation imposed by SFAS No. 123R, whose implementation is expected to reduce reported income. To cope with this impact, management may be motivated to decrease the use of stock options as part of compensating employees and engage in stock repurchases in an attempt to increase the value of outstanding employee stock options. Our findings demonstrate a significant negative relation between stock options granted and shares repurchased in the aftermath of SFAS No. 123R, particularly for the S&P 500 firms known for their heavy use of employee stock options. Furthermore, evidence of a contemporaneous increase in repurchases and leverage in the post SFAS 123R period may suggest that some of the buybacks may have been funded with debt. Our findings are robust to the inclusion of traditional determinants of share repurchases.

This paper involves developing financial utility function that considers compliance to a certain qualitative characteristic and studies the impact on market equilibrium prices, should this criterion be Sharia compliance, fair-trade, environmental, social and governance principles or other ethical aspect. The goal is to show that individual utility can depend on other parameters than wealth and risk aversion, that therefore influence equilibrium market prices. This has been done by examining a possible utility function that takes into account individual sensitivity to the criterion and the intrinsic quality of compliance of this parameter. In order to prove the effectiveness of the proposed utility function, a simulation is made using agent-based approach with NetLogo platform. Upon examination of the impact of these parameters, it becomes clear that compliance to a qualitative characteristic would impact individual utility, supply and demand and result in equilibrium prices. This research highlights the importance of ethical arguments on individual decision making and how markets behave to this.

This paper examines the effect of Chinese macroeconomic variables, the industrial production growth rate, the producer price index, the 3-month short-term Shanghai Interbank Offer Rate and the consumer price index, on the volatility of the Shanghai and Hong Kong stock markets. We apply the generalized autoregressive conditional heteroskedastic mixed data sampling model for the study. Our empirical findings on various indexes and enterprises in the Shanghai and Hong Kong markets show that Chinese macroeconomic variables have a greater power to explain the volatility in Hong Kong than in Shanghai. They also contribute significantly to Hong Kong’s market volatility.