UNT Theses and Dissertations - 55 Matching Results

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An Inquiry into the Inevitability of Prediction Error in Investment Portfolio Models

Description: Many mathematical programming models of the selection of investment portfolios assume that the best portfolio at any given level of risk is the portfolio having the highest level of return. The expected level of return is defined as a linear combination of the expected returns of the individual investments contained within the portfolio,and risk is defined in terms of variance of return. This study uses Monte Carlo simulation to establish that if the estimates of the future returns on potential investments are unbiased, the steady-state return on the portfolio is overestimated by the procedure used in the standard models. Under reasonable assumptions concerning the parameters of the estimates of the various returns, this bias is quite sizeable, with the steady-state predicted return often overestimating the steady-state actual return by more than ten percentage points. In addition, it is shown that when the variances of the alternative potential investments are not all equal,a limitation on the variance of the portfolio will reduce the magnitude of the bias. In many reasonable cases, constraining the portfolio variance reduces the bias by a magnitude greater than the amount by which it reduces the predicted portfolio return, causing the steady-state actual return to rise. This implies that return cannot automatically be assumed to be a monotonic function of risk.
Date: December 1972
Creator: Valentine, Jerome Lynn
Partner: UNT Libraries

Project Redeployment: A Financial Innovation, a Case Study of LTV

Description: The purpose of this study was to examine the aspects of redeployment in general terms, and then to present a case study of a specific redeployment program to analyze its effectiveness as a corporate financial tool. The first four chapters discuss the general and financial definitions of redeployment, as well as the objectives, benefits, and alternate methods of the operational asset form of redeployment. The specific redeployment program analyzed is the case study of Ling-Temco-Vought's use of the operational asset form of redeployment. The purpose of the case study was to determine if Ling-Temco--Vought achieved their stated objectives. An analysis of these objectives shows that redeployment was a success.
Date: December 1976
Creator: Ling, Robert Van
Partner: UNT Libraries

An Empirical Study of Financial Analysts' Valuations Using Proposed Disclosures About Oil and Gas Producing Activities

Description: This empirical study is concerned with the usefulness of proposed supplementary disclosures for oil and gas producers to financial analysts in valuing a company. It is concerned with what supplementary information is being used, to what extent it is being used and which type of information is used most. Three main research procedures are employed. In the first procedure, the Mann-Whitney U Test is applied to determine any significant difference between valuing an oil and gas producing company using basic financial statements and ratio data, and valuing the same company with this information plus the proposed disclosures. The second procedure involves applying the chi-square and Cramer's V statistics to determine whether the disclosure information caused switching in valuation method used for each of the cases. The third procedure tests for significant differences between financial ratios used for each case by employing the test of differences between two proportions. Additional evaluation attempts to determine analysts' perceived usefulness of each of the schedules of the proposed disclosures
Date: December 1983
Creator: Avard, Stephen L. (Stephen Lewis)
Partner: UNT Libraries

Announcement Effects of Bond Rating Changes on Common Stock Prices

Description: This dissertation examines the reaction of common stock prices to changes in bond ratings by Moody's Bond Service. The question is whether an announcement of a re-rating by Moody's is new information. There are only two studies of stock price reaction to bond changes and the results are conflicting. Pinches and Singleton (1978) [PS] concluded that any reaction comes well before the re-rating. Griffin and Sanvicente (1982) [GS] found that their portfolio test indicated that rating changes do convey new information. This was particularly true for downgradings. Both studies used monthly data and neither performed a statistical testing of residual reversals. PS provided a graph of the residuals which indicated the presence of a reversal trend. GS provided no information on this topic. This study, using daily data and the cumulative prediction error technique, finds that bond re-ratings offer new information. The results indicate that the market only partially anticipates the bond change. For the downgrades, the excess return on the announcement day is .6% which is statistically significant. The residuals reverse after the announcement day, but are not statistically significant. The upgrades do not have a significant reaction on the announcement day, but have a statistically significant negative reaction from day 1 to 10. The cumulative residual for days 1 to 10 is -2.8% with a test statistic of -3.85. This study finds as PS that there is some anticipation for both upgrades and downgrades. It extends their work by statistically testings the reversals after the announcement date and by testing the announcement day effect. There is significant abnormal return for the downgrades on the announcement day and the upgrades have a significant reversal in their residuals from day 1 to 10. This provides both support and extension of Griffin and Sanvicente's results and suggests that Moody's is offering ...
Date: December 1984
Creator: Glascock, John L. (John Leslie)
Partner: UNT Libraries

The Prediction of Industrial Bond Rating Changes: a Multiple Discriminant Model Versus a Statistical Decomposition Model

Description: The purpose of this study is to investigate the usefulness of statistical decomposition measures in the prediction of industrial bond rating changes. Further, the predictive ability of decomposition measures is compared with multiple discriminant analysis on the same sample. The problem of this study is twofold. It stems in general from the statistical problems associated with current techniques employed in the study of bond ratings and in particular from the lack of attention to the study of bond rating changes. Two main hypotheses are tested in this study. The first is that bond rating changes can be predicted through the use of financial statement data. The second is that decomposition analysis can achieve the same performance as multiple discriminant analysis in duplicating and predicting industrial bond rating changes. To explain and predict industrial bond rating changes, statistical decomposition measures were computed for each company in the sample. Based on these decomposition measures, the two types of analyses performed were (a) a univariate analysis where each decomposition measure was compared with an industry average decomposition measure, and (b) a multivariate analysis where decomposition measures were used as independent variables in a probability linear model. In addition to statistical decomposition analysis, multiple discriminant analysis was used in duplicating and predicting bond rating changes. Finally, a comparison was made between the predictive abilities of decomposition analysis and discriminant analysis.
Date: December 1985
Creator: Metawe, Saad Abdel-Hamid
Partner: UNT Libraries

Futures-Forward Price Differences and Efficiency in the Treasury Bill Futures Market

Description: This study addressed two issues. First, it examined the ability of two models, developed by Cox, Ingersoll and Ross (CIR), to explain the differences between futures and implicit forward prices in the thirteen-week T-bill market. The models imply that if future interest rates are stochastic, futures and forward prices differ; the structural difference is due to the daily settlement process required in futures trading. Second, the study determined the efficiency of the thirteen-week T-bill futures market using volatility and regression tests. Volatility tests use variance bounds to examine whether futures prices are excessively volatile for the market to be efficient. Regression tests investigate whether futures prices are unbiased predictors of future spot prices. The study was limited to analysis of the first three futures contracts, using weekly price data as reported in the Wall Street Journal from March, 1976 to December, 1984. Testing of the first CIR model involved determination of whether changes in futures-forward price differences are related to changes in local covariances between T-bill futures and bond prices. The same procedure applied in testing the second model with respect to changes in futures-forward price differences, local covariances between T-bill spot and bond prices, and local variances of bond prices. Volatility tests of market efficiency involved comparison of mean variances on both sides of two inequality equations. Regression tests involved determination of whether slope coefficients are significantly different from zero.
Date: May 1986
Creator: Wong, Alan, 1954-
Partner: UNT Libraries

A Test of Allocational Market Efficiency in Takeovers Using Tobin's q Theory of Investment

Description: The primary purpose of the study was to investigate whether takeover markets are allocationally efficient using Tobin's q as the variable which summarizes the investment opportunities of firms. Chapter I presented the purposes, hypotheses, methodology, and limitations of the study. The two hypotheses proposed were as follows: Acquiring firms' q should be significantly higher than that of control firms, on average, and target firms' q should be significantly lower than that of control firms, on average. Chapter II presented the review of literature on takeovers and theory of investments. Chapter III presented the research design adopted to test the above hypotheses. The methodology to calculate q-values and methods to reduce the bias which may result from choice-based sampling were also given. A paired comparison t-test was employed to test the hypotheses. Sample firms were selected from the COMPUSTAT RESEARCH and COMPUSTAT INDUSTRIAL tape.
Date: May 1987
Creator: Kim, Keeho
Partner: UNT Libraries

Volume and Performance of Convertible Preferred Stocks Used in Mergers: 1968-1984

Description: This study provides information about convertible preferreds generally and, in particular, those used in financing mergers during the period 1968-1984. Specifically, the following topics are examined: (1) traditional corporate motives for the use of convertible preferreds as a financing means in mergers and acquisitions, (2) annual data about convertible preferreds' issuance by volume and purpose for the period 1968-1984, (3) average annual returns of merger-related convertible preferreds and average annual returns of common stock of the same companies for the period 1968-1980, (4) performance of convertible preferreds in relation to the market in general, and (5) the future of convertible preferreds as a financing instrument in merger activity.
Date: May 1987
Creator: Nijim, Monther M.
Partner: UNT Libraries

A Weak-Form Efficient Markets Test of the Dallas-Fort Worth Office Properties Real Estate Market

Description: Few areas of research in the finance literature have received greater attention than the efficient market hypothesis. Much of the research has been directed toward the securities market while very little research has been done in the real estate markets. The existing research on real estate market efficiency has been either descriptive or illustrative with very little empirical testing being performed. The major reason for the lack of empirical testing has been the inability to develop an adequate data base. The results of the empirical work that has been done do not support the widely held belief that real estate markets are inefficient. This study, using the autoregressive-integrative-moving average (ARIMA) time series analysis technique, tests the weak-form efficiency of the Dallas-Fort Worth office properties real estate market. According to the weak-form efficient market hypothesis, all price information should be capitalized into current real estate prices and not provide the basis for earning abnormal returns in trading. Price data formed from office building sales dating from January, 1979 to January, 1985 are used to test the market. The data was gathered from the files of several professional appraisal firms located in the Dallas-Fort Worth area. The transaction information includes (1) transaction price; (2) location of the property; (3) net rentable area; (4) gross income multiplier (GIM); (5) net income multiplier (NIM); and (6) net operating income. The results of the study indicate a lack of significant autocorrelation. This suggests that the Dallas-Fort Worth office properties real estate market is weak-form efficient. As further evidence of weak-form market efficiency, ARIMA models are estimated to predict future sales prices but they are unable to outperform a simple mean series forecast. The results indicate that a change in traditional real estate theory concerning market efficiency may be warranted.
Date: May 1987
Creator: McIntosh, Willard
Partner: UNT Libraries

A Comparison of Money Demand in Four Industrialized Countries Using Seemingly Unrelated Regressions

Description: In this study, the possibility that money demand of one country might be affected by macroeconomic activities of other countries is investigated. We use the seemingly unrelated regression (SUR) technique, which takes into account all covariances between residuals of country-specific money demand equations. Efficiency of estimates using the SUR technique is enhanced because it uses information contained in the contemporaneous correlation of the error terms. The hypothesis of economic interdependence is tested. A proxy for foreign influence, deviation from interest rate parity (DIRP), is tested for significance in the money demand function.
Date: August 1987
Creator: Dheeriya, P. L. (Prakash Lachmandas)
Partner: UNT Libraries

A Test of Catastrophe Theory Applied to Corporate Failure

Description: Catastrophe theory (CT) is a relatively new mathematical theory that comprehensively describes a system exhibiting discontinuous behavior when subjected to continuous stimuli. This study tests the theory using capital-market data. The data is a time series of stock returns on firms that filed for Chapter 11 reorganization during 1980-1985. The CT model used is based on a corporate failure model suggested by Francis, Hastings and Fabozzi (1983). The model predicts 1) as the filing date approaches, there will be a structural shift in the underlying stock-return generating process of the filing firm, and 2) firms with lower operating risk will have a smaller jump than firms with higher operating risk, corresponding to their relative positions within the bifurcation set of the catastrophe cusp.
Date: August 1987
Creator: Gregory-Allen, Russell B. (Russell Brian)
Partner: UNT Libraries

Texas Energy Banks: Problems and Prospects

Description: The forces that shaped banking practices in the late 1970s and which fostered attempts by the banks to rapidly expand their markets are examined. Why, and to what extent, the Texas energy banks committed themselves to the oil industry in those years, as well as the effects of the oil industry's four-and-one-half year decline on the banks' financial strength is detailed. How banks structured loans to various energy borrowers and why these borrowers lost their ability to service their debts is analyzed. The changes that the Texas banks' painfully learned lessons will bring about in energy and other specialized lending is considered.
Date: August 1987
Creator: Seley, Joan Bonness
Partner: UNT Libraries

Intra-Industry Effects of the Ten Largest United States Bank Failures: Evidence from the Capital Markets

Description: This study examines the differential effect of each of the ten largest bank failures on shareholders' wealth of non-failed banks over the period from 1973 through 1984. It examines how contagion and information effects of major bank failures have changed over time. FDIC policy for settling failures has important implications for system stability, and has changed over time. This study's purpose is to provide empirical evidence on the effects of FDIC policy. The FDIC's handling of the Penn Square failure signaled a policy shift and offers a unique opportunity to examine changes in market reactions to large bank failures. The literature on the capital market effects of major bank failures provides limited evidence on the impact of bank failures and related FDIC policy. Most fail to discriminate between contagion and information effects, and conduct analysis on one (or a few) bank failure(s) in the mid-1970s using traditional event study methodology. This study considers multivariate regression (MVRM) an appropriate methodology for bank failures which are likely to have simultaneous impact on non-failed banks. MVRM, which accounts for contemporaneous cross-sectional dependence of residuals, has three advantages over standard residual analysis: no "event clustering" problem, multiple hypotheses tests, and computational efficiency. This study uses daily stock-return data for fifty-one non-failed commercial banks. For each bank failure, the non-failed banksare grouped into three portfolios: "information-related," "large," and "small." The impact on each portfolio is tested for an average effect and joint hypotheses on excess return. This study offers evidence on no contagion effects and lack of information effects before Penn Square, strong information effects since Penn Square, contagion effects in post-Penn Square failures, and capital market discipline on large banks since Penn Square. There has been a change in the nature of the impact of bank failures since Penn Square.
Date: December 1987
Creator: Choi, In Suk
Partner: UNT Libraries

Arbitrage Pricing Theory and the Capital Asset Pricing Model: Evidence from the Eurodollar Bond Market

Description: Monthly returns on twenty-seven Eurobonds from July 1982 to June 1986 were examined. There were no consistent differences in returns based on the country in which a firm is located. There were consistent differences due to industry classification, with energy-related firms exhibiting higher average returns and variances. Excess returns were calculated using the capital asset pricing model and arbitrage pricing theory. The results from calculation of mean average deviation, root mean square, and R2 all indicate that the arbitrage pricing theory was a better descriptor of the Eurobond market. The excess returns were also examined using stochastic dominance. Arbitrage pricing theory never dominated the capital asset pricing model using first-order criteria, but consistently dominated using second-order criteria. The results were discussed in terms of the implications for investors and portfolio managers.
Date: May 1988
Creator: Jordan-Wagner, James M. (James Michael)
Partner: UNT Libraries

Information Content of Managerial Decisions, Change in Risk, and Complimentary Signals: Evidence on New Bond Issue, Exchange Offer, and Dividend Payments

Description: The effect of a change in capital structure on the risk and return of common stockholders is investigated. Also, the information content of dividends when a firm goes for new outside financing is examined. Data used in the study are collected from the Moody's Bond Survey, the Prentice Hall's Capital Adjustments, the Wall Street Journal Index, and the Center for Research in Security Prices Tape. The study uses an event study methodology. The risk (beta) of common stock before an issuance of debt securities is compared with the risk after the issue. The stock market reaction to the issuance of new debt securities is measured using after-the-event risk. The information content of dividend announcement before a new debt issue is compared to that of after the issue. The findings show that debt issue reduces stock holders' risk if the issuer is a dividend paying company. Also, debt securities issued through an exchange offer increase stockholders' wealth. Finally, issuance of new debt does not affect the information content of dividends.
Date: August 1988
Creator: Iqbal, Zahid
Partner: UNT Libraries

The Determinants of Off-Balance-Sheet Hedging in the Value-Maximizing Firm: an Empirical Analysis

Description: The observed use (and indeed tremendous growth in volume) of forward contracts, futures, options, and swaps as hedges against interest rate risk, foreign exchange risk, and commodity price risk indicates that hedging does add value to the firm. The purpose this research was to empirically examine the value of off-balance-sheet hedging. The benefits of off-balance-sheet hedging were found to accrue from reducing (1) taxes, (2) expected financial distress costs, and (3) agency costs. Taxes. Hedging reduces the firm's tax liability by reducing the variability in taxable income. The value of hedging to the firm is a positive function of the convexity of the tax function and the variability of taxable income. Expected Financial Distress Costs. The value of hedging is a positive function of the degree to which hedging reduces the probability of financial distress and the costs of financial distress. Agency Cost. Due to the fact that bondholders and some managers hold fixed claims while shareholders hold variable claims, shareholders desire more risky projects than do bondholders or managers. Hedging reduces this conflict by allowing shareholders to undertake higher risk projects while protecting the holders of fixed claims. Firms can achieve the same benefits of hedging by using alternative strategies. Among the various alternatives to hedging are modifying the firm's capital structure, purchasing insurance, and modifying dividend policy. The amount of off-balance-sheet hedging activity undertaken by a specific firm is therefore a function of the value of hedging to the firm and the degree to which the firm has used alternatives to hedging. Using a regression analysis, this paper provides empirical evidence on the preceding relations. This study provides (1) the first empirical evidence into the reasons for a value-maximizing firm using off-balance-sheet hedging instruments, and (2) empirical insights into the way in which the firm's hedging decision interrelates ...
Date: December 1988
Creator: Nance, Deana R. (Deana ReneƩ)
Partner: UNT Libraries

Purchasing Power Parity and the Efficient Markets: the Recent Empirical Evidence

Description: The purpose of the study is to empirically determine the relevance of PPP theory under the traditional arbitrage and the efficient markets (EPPP) frameworks during the recent floating period of the 1980s. Monthly data was collected for fifteen industrial nations from January 1980 to December 1986. The models tested included the short-run PPP, the long-run PPP, the EPPP, the EPPP with deviations from expectations, the forward rates as unbiased estimators of future spot rates, the EPPP and the forward rates, and the EPPP with forward rates and lagged values. A generalized regression method called Seemingly Unrelated Regression (SUR) was employed to test the models. The results support the efficient markets approach to PPP but fail to support the traditional PPP in both the short term and the long term. Moreover, the forward rates are poor and biased predictors of the future spot rates. The random walk hypothesis is generally supported.
Date: December 1988
Creator: Yuyuenyongwatana, Robert P. (Robert Privat)
Partner: UNT Libraries

The Information Content of Pension Fund Asset Reversion

Description: Prior studies on the impact of the termination of overfunded defined benefit pension plans on shareholders' wealth have produced conflicting findings. The first study on the stock market reaction to pension plan termination was conducted by Alderson and Chen (1986); this study claimed that shareholders realize significant positive abnormal returns around the termination announcement date. A more recent study, by Moore and Pruitt (1990), disclaimed the findings of Alderson and Chen. Reexamination of these two studies with additional evidence and the use of the appropriate announcement date suggests that termination of pension plans is associated with significant wealth gain to shareholders. This study also analyzes samples from periods prior to and after the imposition in 1986 of a 10 percent excise tax on recaptured excess pension assets. The empirical results suggest that shareholders experience significant positive wealth effects for the pre-tax (1980-85) period and no wealth effects for the post-tax (1986-88) period. The primary purpose of this study is to determine the impact of stock market reaction upon shareholders' wealth under the partial anticipation hypothesis. The pre-tax sample is analyzed by isolating the expected terminators using the multiple discriminant analysis model. This study finds significant positive abnormal returns only for firms that are not anticipated by the investors as potential terminators. The results of this study do not lend support to either the "separation" or the "integration" hypothesis as proposed by Alderson and Chen (1986). Instead, the results are consistent with the information hypothesis that the market reacts to unanticipated events that provide new information. Cross-sectional regression analysis of unexpected terminators suggests that the abnormal performance of stocks of pension terminating firms is explained by the firms' debt ratio and the amount of surplus pension assets. It can be inferred that firms may resort to recapturing excess pension assets as ...
Date: August 1992
Creator: Shetty, Shekar T.
Partner: UNT Libraries

Three Essays in Corporate Governance

Description: Corporate governance issues have become increasingly important to financial managers and shareholders. Firms that are plagued by poor performance, incompetent managers, or excess agency costs have become the subject of a dramatic increase in shareholder activism. Dissident shareholders, who are unable to launch costly takeover bids or proxy contests, have initiated a process of governance reform through the use of shareholder sponsored proposals. Shareholder proposals are a direct attempt to reverse operating or voting policies, such as a proposal to repeal a classified board. Managers announce shareholder proposals in a proxy statement and typically include a vote recommendation against the proposal. In the first essay, I find an unfavorable stock price reaction to the announcement of a shareholder proposal. In some cases, however, management supports the proposal and negotiates an agreement with the proposing shareholder. Stock prices react favorably to a settlement announcement. If managers are willing to negotiate with shareholders, they are perceived to be acting in the best interest of shareholders. If managers are unwilling, shareholders believe a severe agency problem exists. In the second essay, the effect that ownership structure has on voting outcomes of shareholder proposals is examined. I find a direct relationship between the percentage of votes cast in favor of the proposal and levels of institutional ownership. There is an inverse relationship between the percentage of votes and managerial ownership and firm size. Large firms with powerful owner-managers present the greatest obstacle to the success of shareholder proposals. The repeal of shareholder rights plans is one of the most frequently used shareholder proposals. By adopting the rights plan, managers increase the probability of defeating a takeover, but increase their power in negotiating with a potential acquiring firm. In the third essay, I find that firms who combine a rights plan with high debt levels ...
Date: December 1993
Creator: Forjan, James M. (James Martin)
Partner: UNT Libraries

An Analysis of Preferred Equity Redemption Cumulative Stock

Description: This dissertation examines whether Percs, Preferred Equity Redemption Cumulative Stocks, are properly priced regarding to the relevant securities, such as the underlying common stock, the long-term call option of the stock, and so on. Test results indicate that Percs were overpriced with respect to the equivalent packages composed of the relevant securities. Further tests on arbitrage restrictions show that transaction costs would prevent arbitrage profits. This dissertation also examines the market reactions to Percs offerings. Test results reveal that the market reactions to the announcement of Percs offering and the actual issuance are both significantly negative. Compared to the market reaction on common stock offering announcement, the market reaction on Percs offering announcement is weaker. The overpricing of Percs and the weaker reaction of the market suggest that Percs may have advantages in transaction costs, taxes and some corporate finance issues.
Date: May 1994
Creator: Pu, Hansong
Partner: UNT Libraries

A Theory of the Role of Medium of Exchange in Mergers and Acquisitions

Description: An acquisition bid is like any other proposal for risky investment. The difference arises due to additional source of risk arising from two different sources of information asymmetry due to private knowledge held by the bidder and target. We hypothesize that the bidding process evolves in a manner to optimize bidder's investment in the target through a process of joint signalling. Medium of exchange and bid premium are used as the two signal elements simultaneously by the bidder. We develop a multiple signalling model of the bidding process which is fully revealing in equilibrium.
Date: May 1994
Creator: Tiwari, Rajesh Kumar
Partner: UNT Libraries

The Wealth Effect of the Risk-Based Capital Regulation on the Commercial Banking Industry

Description: The purpose of this study is to examine the wealth effect of the Risk-Based Capital (RBC) regulation on the U.S. commercial banking industry. The RBC plan was first proposed in January 1986, and its final form was announced on July 11, 1988. This plan resulted from dissatisfaction with the old capital regulation, which did not account for asset risk and off-balance sheet activities. The present study hypothesizes that the new regulation restricted bank optimal behavior and, therefore, adversely affected stock prices. The second and third hypotheses suggest that investors used company specific information, Net Tier 1 and Total risk-based capital ratios respectively, in valuing stocks of the affected bank holding companies. Hypotheses four and five suggest that abnormal returns are proportionally related to the levels of Net Tier 1 or Total RBC ratio. Both the traditional event study and the portfolio time-series regression, with RBC ratios (Net Tier 1 or Total) as the weight factors, are used in this study.
Date: August 1994
Creator: Zoubi, Marwan M. Sharif (Marwan Mohd Sharif)
Partner: UNT Libraries

The Application of Statistical Classification to Business Failure Prediction

Description: Bankruptcy is a costly event. Holders of publicly traded securities can rely on security prices to reflect their risk. Other stakeholders have no such mechanism. Hence, methods for accurately forecasting bankruptcy would be valuable to them. A large body of literature has arisen on bankruptcy forecasting with statistical classification since Beaver (1967) and Altman (1968). Reported total error rates typically are 10%-20%, suggesting that these models reveal information which otherwise is unavailable and has value after financial data is released. This conflicts with evidence on market efficiency which indicates that securities markets adjust rapidly and actually anticipate announcements of financial data. Efforts to resolve this conflict with event study methodology have run afoul of market model specification difficulties. A different approach is taken here. Most extant criticism of research design in this literature concerns inferential techniques but not sampling design. This paper attempts to resolve major sampling design issues. The most important conclusion concerns the usual choice of the individual firm as the sampling unit. While this choice is logically inconsistent with how a forecaster observes financial data over time, no evidence of bias could be found. In this paper, prediction performance is evaluated in terms of expected loss. Most authors calculate total error rates, which fail to reflect documented asymmetries in misclassification costs and prior probabilities. Expected loss overcomes this weakness and also offers a formal means to evaluate forecasts from the perspective of stakeholders other than investors. This study shows that cost of misclassifying bankruptcy must be at least an order of magnitude greater than cost of misclassifying nonbankruptcy before discriminant analysis methods have value. This conclusion follows from both sampling experiments on historical financial data and Monte Carlo experiments on simulated data. However, the Monte Carlo experiments reveal that as the cost ratio increases, robustness of linear ...
Date: December 1994
Creator: Haensly, Paul J.
Partner: UNT Libraries

An Empirical Analysis of Stock Market Anomalies and Spillover Effects: Evidence from the Securities Exchange of Thailand

Description: This study examines two interrelated but separate issues: cross-sectional predictability of equity returns in the Stock Exchange of Thailand (SET), and transmission of stock market movements. The first essay empirically investigates to what extent the evidence of three major documented stock market anomalies (earnings-price ratio, firm size, and book-to-market ratio) can be generalized across national stock markets. The second essay studies the price and volatility spillover effects from the New York Stock Exchange (NYSE) to the SET. The first essay, using the Fama-Macbeth procedure and the pooled time-series cross-sectional GLS regressions, finds a weak relation between the beta and average stock returns. The adjustment of estimated beta for the effect of thin trading does not change the implications of the results. Of the three anomalies investigated, the size effect has the most prominent and consistent role in explaining average returns. For the earnings-price ratio, the results indicate that the significance of the E/P ratio variable persists only if the nonfinancial firms are considered. In contrast to the previous empirical results for the U.S. and Japanese stock markets, the book-to-market ratio fails to explain the SET equity returns. The second essay employs a generalized autoregressive conditionally heteroskedastic (GARCH) model with conditional t-distributed errors to investigate the spillover effects. No evidence of price spillover effects is found for the full sample period. However, the spillover effects are significant during the period in which the Federal Reserve Board raised interest rates. Further examinations reveal that information inferred from price changes in the U.S. market influences only the opening price in the SET, not the open-to-close Thai stock market returns. This implies that price in the SET is informationally efficient with respect to the price determined in the U.S. stock market. The evidence is generally supportive of international financial integration and informational efficiency in ...
Date: December 1994
Creator: Sangmanee, Amporn
Partner: UNT Libraries