Review of Pacific Basin Financial Markets and Policies

This study examines whether and how US bank holding companies that early adopted Statement of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative Instruments and Hedging Activities,” experience changes in their external financing activities relative to banks that did not early adopt the standard. Consistent with predictions, the study shows that early adopters hold higher and experience greater changes in their leverage compared with nonearly adopters. In addition, early adopters experience greater shifts in weights of liabilities other than insured deposits in banks’ funding mix. This finding is consistent with banking literature which states that banks have shifted towards nondeposit debts to finance their balance sheet growth.

We examine the dynamic effect of aggregate stock market sentiment on the performance of various hedge fund styles. We find that hedge funds typically perform better during periods of optimistic sentiment and that for different hedge fund styles there is a differential response of hedge fund returns to positive and negative sentiment shocks. We also find that changes in aggregate investor sentiment have a larger effect on hedge fund performance during periods of high conditional volatility. Our results suggest there is a strong asymmetry in the relationship between hedge fund performance and investor sentiment.

Despite the positive growth performance of Indonesia over the past two decades, concerns have been expressed about whether the country would be caught in a middle-income trap. This paper offers a systematic analysis on growth slowdown for the Indonesian provinces, against the backdrop of other developing Asian economies including the ASEAN economies, Greater China economies and the Indian sub-national economies. Provincial-level analysis for Indonesia is appropriate given the size and great variations in the levels of development of the Indonesian provinces. By employing a logistic regression as well as Bayesian Model Averaging techniques, we ascertain the determinants of growth slowdown in Indonesian sub-national economies. Having identified the underlying drivers of growth slowdown in each income group, we also assess the predictive probability of each sub-national economy in Indonesia experiencing growth slowdown in the near future. Overall, we find that the Indonesian sub-national economies have a 10% chance of experiencing growth slowdown in the 2012–2017 period on average which is lower than the average predictive probabilities for Greater China and India sub-national economies.

We observe a positive correlation between an oil price factor and the All Ordinaries Index of the Australian stock market. Furthermore, an asymmetrical effect is observed when the sample is divided into sub-periods. A more pervasive stock market response is observed when the price of oil displays a positive trend. We also study the influence of oil shocks on the stock returns of specific Australian industries. As expected, the energy and material sectors exhibit a positive response to oil disturbances, whereas the financial and industrial sectors show a negative relation to oil shocks. The utility and consumer discretionary sectors exhibit a lower sensitivity to oil shocks.

Weak internal controls should increase risk perception among various contracting parties, e.g., institutional investors. This study examines whether the penalty firms pay for weak internal controls is associated with ownership decisions made by institutional investors in Taiwan and whether such decisions differ from those made by qualified foreign institutional investors (denoted as QFIIs) and local institutional investors. Empirical results indicate that weak internal controls are negatively associated with changes to institutional investor ownership, particularly for QFIIs. Further evidence shows that this negative association is more pronounced for firms with high divergence of control and cash-flow rights. This suggests that, faced with weak internal controls, institutions passively vote with their feet rather than actively monitor their portfolio firms. We demonstrate several diagnostic tests and show that the results are robust in various specifications.

Environmental insurance (EI) protections help resolve the firm-industry economic loss problem. However, the loss ratio of EI is positively affected by itself from one period ahead. The positive and negative effects of macroeconomic factor on the loss ratio of EIs are not necessarily consistent, but they are dependent on the effect of the year’s environmental condition. The economic variables affecting the loss ratio of EI are quite inconsistent, so insurance prices and liability reserves should be modified every year. While the investigations are the special properties of our input data of Taiwan, the prescription of this paper could provide cross-references with other countries.

This paper relates informed repurchases to firm information asymmetry. We propose a new measure of informed repurchases, which is based on causality tests relating repurchase information to firm returns. Our results indicate that informed repurchases show larger abnormal returns surrounding the announcement of an open market share repurchase, which suggests the market at least partially recognizes informed repurchases. This holds after controlling for conventional information asymmetry proxies, such as firm size, number of analysts following, and analyst forecast dispersion, indicating that the market is aware of repurchase specific information not captured by traditional information asymmetry proxies. Informed repurchases demonstrate larger long-term abnormal returns at one, two, and three-year windows than high traditional information asymmetry repurchases.