This section contains information about articles under review and waiting for publication in next issues of the journal.

Determinants of the asymmetric gold market

Apostolos Kiohos, Ph.D., Lecturer at the University of Macedonia, Department of International and European Studies, Thessaloniki, Greece
Nikolaos Sariannidis, Ph.D., iAssistant Professor at the Technological Education Institute of West Macedonia, Department of Financial Applications, Kila, Greece

Abstract. The purpose of this paper is to explore in the short-run the effects of energy (crude oil) and financial (equity, currency and bond) markets on the gold market. A GJR - GARCH model is used to test these relationships for the period January 1st 1999 to August 31st 2009 using daily data. The results suggest that the energy market positively influences the gold market. There is also evidence that the equity, currency and bond markets exert negative impact on the gold market. A possible explanation for this relationship is the way that the gold market functions as a mobilization factor of hedge against portfolio and geopolitical risks. Furthermore, the results show that the volatility of the U.S. Dollar/Yen exchange rate influences significantly the volatility of the gold market. Additionally, we found indications of volatility persistence in the gold market. Finally, the structural analysis of gold market volatility showed, at least in the short-run, that the volatility is not only asymmetric but it also tends to overact in response to positive shocks, contrary to the equity markets, since in times of market stress or turmoil the increased volatility from other markets is transmitted to the gold market which acts as a safe haven.

Does industrial financial analysis affect stock returns? International empirical evidence

Melita Charitou, Dr., University of Nicosia, Cyprus

Abstract. The present study examines empirically the role industrial financial information in explaining security returns in three major capital markets, UK, USA and France. It is hypothesized that the homogeneity across firms may not hold, due to industry specific differences across firms. The dataset consists of more than 40,000 USA, UK and French firm-year observations over a nine year period. Multivariate statistical regression analysis is undertaken to test the major research hypotheses. Results indicate that both earnings and cash flows are taken into consideration by investors in their investment decisions and that the industry the firm belongs to plays an important role in security analysis. More specifically, results indicate that in all industries the French model has the highest explanatory power as measured by the R-square. This result is mostly due to the increased importance of earnings to investors in France. Also, as expected, results indicate that the cash flow information is more useful to the UK and the USA investors than to French investors in all industries examined, and more importantly in the manufacturing and retail industries where more discretion and manipulation exists in their financial reporting systems.

Research on the IPO underpricing of the Hong Kong growth enterprise market

Chao Deng, Professor and Dean of Faculty of Finance, School of Business, Central South University, Hunan Province, P.R.China
Belinda Bai, Brighton Business School, University of Brighton, UK
Lisha Zeng, Faculty of Finance, School of Business, Central South University, Hunan Province, P.R.China
Jens Hölscher, Reader Brighton Business School, University of Brighton, UK

Abstract. According to general practice of the international security markets, new stock issue prices are often lower than the closing price of the first day. This means that the issue of new stock exists in the Initial Public Offering (IPO) underpricing. This paper analyzes the HKGEM in an all-round approach from three aspects of market characteristics, market index and issuance pricing of stocks. It further studies the price decision model and the issuance pricing method of the stock correlated with IPO underpricing on the growth market, and carries out theoretical research into IPO underpricing of the HKGEM on the basis of a combined market analysis of the HKGEM. The finding of this paper reveals that it carries out the statistical analysis of IPO underpricing in the HKGEM from four perspectives for different years, different trades, and whether there is a venture capital background on the main business in different areas separately. In this paper, we consider that the developing stage, market environment and investor state of the HKGEM are different from those of developed nations.

The Incorporation of Risk into the Clean-Surplus Valuation Model: Evidence from UK Stocks

Stella. N. Spilioti, Department of Business Administration, Athens University of Economics and Business, Athens, Greece

Abstract. Prior studies on equity valuation, use Ohlson's (1995) valuation model which assumes risk neutrality. This paper examines the issue of how one can generalize and modify the analysis in order to incorporate risk. To do so we replace the risk free rate with a risk adjusted interest rate that can be used as a firm's cost of equity capital. More specifically, we test the empirical validity of the standard clean-surplus valuation model against that of the clean surplus approach within a risk adjusted framework for two sectors of the British equity market using panel data techniques. To anticipate the results, these models appear to be equally reliable empirical share valuation models, for the two sectors examined by this paper.

An Analysis of SAM Pricing in the UK

Austin Murphy, Professor of Finance, Oakland University, SBA, Rochester, USA

Abstract. This paper investigates the pricing and valuation of Shared Appreciation Mortgages (SAMs) issued in 1997 in the UK. The analysis indicates a high expected value of returns to the lenders that was clearly apparent ex-ante, with extremely high upside potential and virtually no material risk of loss to the investors. Since SAMs had been invented decades before, the high returns to the UK lenders do not represent pay for financial engineering a new, innovative product. Instead, the high effective interest rates on the SAMs appear to represent compensation for misleading repackaging of a product existing elsewhere.

Financial education and consumers' willingness to change behavior

Swarn Chatterjee, Ph.D., Assistant Professor, University of Georgia, USA
Leslie Green-Pimentel, Ph.D., University of Georgia, USA
Pamela Turner, Ph.D., Assistant Professor, University of Georgia, USA

Abstract. This paper uses proprietary data comprising of 4,155 participants who attended financial education seminars conducted by a major US consumer credit counseling agency in 2007. In this study, knowledge gained from attending the seminars is estimated using a multivariate regression model. Results indicate that those most likely to gain knowledge from attending the financial education seminars were respondents between 18 and 24 years of age, lower income groups and respondents who did not complete college. The findings of this study also reveal that the minority groups, women, and the less educated were more willing to seek further financial counseling and act on behavior changes after attending the seminar.

Analysts' decision on initiating or discontinuing coverage and future firm performance

Jerry Sun, Odette School of Business, University of Windsor, Windsor, Canada
Guoping Liu, Ted Rogers School of Management, Ryerson University, Toronto, Canada

Abstract. This study examines the association between analysts' decision on initiating or discontinuing coverage and future firm performance. We use both accounting earnings and stock return to measure firm performance. First, we find that the initiation coverage event itself signals more favorable information on future earnings performance of newly added stocks with non-negative ratings of "Buy" or "Hold", and more favorable information on excess stock return for the first post-rating month of newly added stocks with non-negative ratings of "Strong Buy", "Buy", or "Hold". Second, we find that future earnings performance significantly differentiates between those five or two ordinal categories of final ratings on subsequently dropped stocks, and that the more negative the final ratings, the lower the future earnings performance. Third, we find that the discontinuation coverage event itself signals some unfavorable information on future earnings performance that has not been reflected in the final ratings of "Strong Buy", "Buy", "Hold", or "Sell" on subsequently dropped stocks. Overall, this study documents evidence that analysts' initiating or discounting coverage activity itself has incremental informativeness on future firm performance of the newly added stocks or subsequently dropped stocks. These results provide somewhat implications for investors that it may be beneficial to incorporate analysts' initiating or discounting coverage activity into investment portfolios.

The role of cross-sectional dispersion in Active Portfolio Management

Larry R. Gorman, Associate Professor of Finance, California Polytechnic State University, USA
Steven G. Sapra, Center for Neuroeconomic Studies, Claremont Graduate University and Analytic Investors, LLC, USA
Robert A. Weigand, Professor of Finance and Brenneman Professor of Business Strategy
Washburn University School of Business, USA

Abstract. We derive and interpret the main results of Modern Portfolio Theory and the Theory of Active Portfolio Management from the perspective that, for active investors, the cross-sectional dispersion of returns is more relevant as a measure of risk than time series volatility. We show that all key measures of portfolio risk - total, systematic and idiosyncratic - are positively related to return dispersion, with dispersion primarily affecting idiosyncratic risk. Moreover, active portfolio returns are a function of managers' skill and cross-sectional dispersion, with realized dispersion acting as a leverage factor for realized skill. Regardless of their level of skill, however, active managers will tend to reduce their active weights as the cross-sectional dispersion of returns increases. While higher levels of dispersion represent opportunities to earn higher active returns, managers' information ratios are expected to remain unchanged, as realized tracking error is expected to vary proportionately with dispersion and managers' active returns. Absolute return investors are therefore more likely to benefit from tactically adjusting the activeness of their strategies with the level of return dispersion.

Impact of tick-size reduction on the volatility components:the case of the Taiwanese stock exchange

Tzung-Yuan Hsieh, Department of Finance, MingDao University, Taiwan

Abstract.Using the model proposed by Amihud & Mendelson (1987), this paper discusses the impact of the tick-size reduction implemented in the Taiwanese Stock Exchange on March 1st, 2005, on the volatility components. While previous studies assume that trading information can be fully revealed by the market, this work, which assumes that it is only partially revealed, indicates that the speed of price adjustment plays an important role in volatility-component decomposition. We find that after the tick-size reduction, noise variance, intrinsic variance and speed of price adjustment all decrease, and noise reduction is the major source in the volatility reduction. In addition, the changes in the speed of price adjustment are positively related to the changes in noise variance and volatility, but are negatively related to the changes in intrinsic variance.

Differences in the development of the Latin American microfinance market: identifying reasons

Annabel Vanroose, the Section for Economic, Monetary and Financial Policy, Vrije Universiteit Brussel and is affiliated to the Centre for European Research in Microfinance (CERMi), Université Libre de Bruxelles, Belgium

Abstract. This paper explores which macro factors influence the uneven development of the microfinance sector in Latin America. It is based on a literature study to construct hypotheses and it uses cross-country regression analysis on a unique database comprising 32 countries with data until 2003 to test them. Results indicate that microfinance is more present in the countries that receive more international aid. Human capital plays a positive role and the microfinance sector is more developed in countries with lower levels of industrialization.

Risk and performance attribution

Joel R. Barber, Mike Cottrell School of Business, North Georgia College and State University, USA

Abstract.This paper develops a method based upon Sharpe's (1990 and 1992) Asset Class Factor Model for decomposing both the risk and return of an actively managed portfolio into independent categories associated with passive asset allocation, active asset allocation, and security selection. Because the risk measures for each category are additive, they can be used to separately evaluate asset allocation and security selection performance. Indeed, we are able to decompose the Sharpe ratio of a portfolio into a ratio attributed to passive asset allocation and incremental ratios associated with active asset allocation and security selection. In this way, it is possible to independently examine in a risk-return framework the efficacy of asset allocation and security selection.

Earnings management, corporate governance, and auditor's opinions: a financial distress prediction model

Hsiao-Fen Hsiao, Department of Finance, MingDao University Taiwan, R.O.C
Szu-Hsien Lin, Department of Business Administration, National Chung Cheng University, Taiwan, R.O.C
Ai-Chi Hsu, Department of Finance, National Yunlin University of Science & Technology in Taiwan, Taiwan, ROC

Abstract. This study sets out to examine three issues: whether financially distressed firms are more likely to manipulate their earnings, whether the board of directors of these firms has a low level of independence, and whether the opinion of their auditors reflects the possibility of financial distress. This study uses a dataset of listed firms and de-listed firms from 1997 to 2007 to examine various factors and conditions before a firm's financial distress, including the variables of earnings management, corporate governance, and audit opinions. This study is unique in its combination of these three variables to build a financial distress prediction model, which is used to verify whether financial distress has occurred in a firm recently. The prediction model may help countries or firms to predict and prevent the likelihood of a financial distress.