Review of Pacific Basin Financial Markets and Policies

A weather derivative is financial instrument that companies or individuals use to hedge against the risk of weather-related losses. Freight derivatives value is derived from the future levels of freight rates, like a dry bulk-a category of cargo stowed in bulk, consisting of grain, cotton, coal, etc., carrying rates, and oil tanker rates.

Numerous empirical studies exist on weather and freight derivatives and their pricing models such as Indifference Pricing Approach, Arbitrage Pricing Model, Financial Pricing model, Benchmark Pricing Approach, Fair Pricing Approach, Actuarial Pricing, Consumer Based Pricing Method, and Index Modeling. This paper aims to address issues relating to the functioning of weather and freight derivatives.

This paper also focuses on the studies published on weather and freight derivatives’ pricing models during the last seven decades (i.e., 1950–2020).

Objectives:

• (1)To understand the vital issues relating to models of weather and freight derivatives.
• (2)To compare pricing models of weather and freight derivatives during the last seven decades (i.e., 1950–2020).

We build upon social movement and investor attention theories to investigate the effect of “taking a knee” protests on the abnormal stock returns of NFL sponsoring companies. The study is conducted in two phases. Employing event study methodology in the first phase, we measured the abnormal returns and trading volumes of the companies during a four-year period from 2016 to 2020. While the results for abnormal returns are economically small, we found that there is 13.42% increase in trading volume in [0,$+$5], 61.28% in [0,$+$15], and 160.01% in [0,$+$30] event windows. There was also information leakage prior to the events as indicated by the 36.08 increase in trading volume in the [$-$30, $-$2] event window. We ran multiple regression models in the second phase to further examine the degree to which the unique circumstances surrounding the protests explain variations in abnormal returns. Companies that had higher brand values and the negative emotional tone of the comments made by the President of the United States about the protests were positively associated with abnormal returns. The results are also robust to methodological changes using abnormal returns adjusted for trading volume. Overall, the findings suggest that social activism by athletes is likely to affect investor attention and sentiment, thereby garnering a spillover effect on sponsoring companies’ stock prices and trading volumes.

Instead of managing bottom-line earnings, firms may use revenue classification shifting to inflate core earnings due to its less risky, less costly, but viable features. Female CEOs, being perceived more risk-averse and more ethical, may engage in either more or less revenue classification shifting than male CEOs. Using a sample of 36,427 US firm-year observations from 1993 to 2019, we find that female CEOs tend to engage in less revenue classification shifting than male CEOs when the monitoring environment is looser but increase revenue classification shifting when the monitoring environment becomes more stringent. Further analyses indicate that female CEOs may substitute revenue classification shifting for more costly earnings management tools under stricter monitoring. The results are robust to endogeneity tests, sample selection bias, and additional control variables, providing new evidence that female CEOs are more risk-averse.

Contrary to findings from prior empirical studies, which show that temperature affects stock returns linearly, we find that the relation of temperature with stock returns is nonlinear. The results show that investors got higher returns under both extremely hot and cold temperatures than under comfortable temperatures. More specifically, we find that hot temperatures led to higher returns only for investors from warm-climate countries with a tropical or subtropical climate. In contrast, cold temperatures led to higher returns only for investors from cool-climate countries with a temperate or polar climate. With further investigation, we found that such hot-temperature effects on returns in warm-climate countries are enhanced when the investor is optimistic about the stock market due to having recently invested in winner stocks. Conversely, the cold temperature effect on returns in cool-climate countries is strengthened when the investor is pessimistic due to having recently invested in loser stocks.

In this paper, we examine the relationship between ownership concentration and dividend policy for Thai publicly listed companies. High family ownership firms have higher dividend payouts than low family ownership firms, which we interpret to mean high family ownership firms follow a more rational dividend policy. This finding is consistent with the prediction that agency conflicts between the managers and shareholders are lower at firms with a controlling shareholder. The evidence is robust through different econometric specifications; robust when the level used to determine the extent of family ownership (family control) is lowered to 10% of the outstanding shares; and robust to the inclusion of the ownership wedge as a proxy for the severity of agency conflicts.

We argue that forced CFO turnover has a complex relation with SOX reports of internal control problems. Sometimes forced turnover precedes an adverse SOX report whereas, in other cases, forced turnover follows the unfavorable SOX opinion. Further, financial markets are aware of this complex relation. Using a large sample collected over eight years, we find evidence to support our arguments. Regarding market reactions, we find that upon the announcement of CFO turnover, cumulative abnormal returns (CAR) are negative and significant for forced resignations. This reaction is mitigated if an unfavorable SOX opinion had been issued for the prior year. We also find that negative market reactions to adverse SOX reports are attenuated, in part, by whether the company previously forced the CFO to leave.

This study provides a comparative analysis of hedging determination for three alternative international equity index futures, namely FTSE 100, NIKKEI 225 and S&P 500 futures contracts. Both the conventional regression and the error correction modeling approaches are used to estimate the minimum-variance hedge ratios and to evaluate the hedging effectiveness. Comparisons of out-of-sample hedging performance reveal that the error correction model outperforms the conventional model, suggesting that the error correction model serves as a better hedging model than conventional model in a hedge using stock index. In addition, the effects of temporal aggregation on hedge ratio estimates and hedging effectiveness are evaluated. It is found that temporal aggregation plays an important role on sizing hedging positions and measuring hedge effectiveness.

This paper examines the relation between corporate social responsibility (CSR) performance and corporate tax avoidance in the context of Taiwan’s change from an imputation to classical tax system in 2018. Using a sample of 1,277 listed firms from 2015 to 2020, I determine that, after 2018, firms engage in tax avoidance to a greater extent. Furthermore, firms that perform well in CSR are less likely to engage in tax avoidance. After the 2018 legislative change, firms with high CSR performance are less likely to engage in tax avoidance to a greater extent. These results are consistent with the stakeholder theory and withstand a battery of robustness checks.