Quarterly Publication of Multinational Finance Society • ISSN
1096-1879
Volume 4 Numbers 3&4 September/December 2000
Special Issue on Asset
Price Dynamics and Risk Management
(Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp.
155-157)
Yin-Wong Cheung
University of California, U.S.A.
Introduction Letter
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full article (pdf version)
Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian
(Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 159-179)
Torben G. Andersen
Northwestern University, U.S.A.
Tim Bollerslev
Duke University and NBER, U.S.A.
Francis X. Diebold
University of Pennsylvania and NBER, U.S.A.
Paul Labys
University of Pennsylvania, U.S.A.
It is well known that high-frequency asset returns are fat-tailed relative to
the Gaussian distribution, and that the fat tails are typically reduced but
not eliminated when returns are standardized by volatilities estimated from
popular ARCH and stochastic volatility models. We consider two major dollar
exchange rates, and we show that returns standardized instead by the realized
volatilities of Andersen, Bollerslev, Diebold and Labys (2000a) are very nearly
Gaussian. We perform both univariate and multivariate analyses, and we trace
the differing effects of the different standardizations to differences in information
sets (JEL C10, C22, C32, G15, G12).
Keywords: high-frequency data, integrated volatility, realized
volatility, risk management.
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version)
Information, Announcement, and Listing Effects of ADR Programs and German-U.S.
Stock Market Integration
(Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 181-200)
Michael Hertzel
Arizona State University, U.S.A.
Paul Lowengrub
Nathan Associates, U.S.A.
Michael Melvin
Arizona State University, U.S.A.
This article analyzes the impact on stock prices in the home market of important
events associated with a U.S. listing. Events include the "filing effect" of
financial statements made public by the SEC in preparation for an ADR program;
the "announcement effect" of the forthcoming ADR program; and the "listing effect"
of the first day of U.S. trading. The sample includes German firms that listed
in the U.S. between 1991 and 1997. While German accounting standards allow firms
to show profits when U.S. GAAP would show losses, we find that the reconciliation
to U.S. GAAP reported in the "filing effect" is associated with positive abnormal
returns. Perhaps this reflects self-selection where firms with nothing to hide
list in the U.S. The announcement effects are mixed across firms. The listing
effect is associated with positive abnormal returns. We also find some evidence
of volume migrating from the home market to the U.S. after U.S. trading begins
(JEL F3).
Keywords: ADRs, international cross-listing, international
equity markets, German stocks.
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version)
An Integrated Risk Management Method: VaR Approach
(Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 201-219)
Hailiang Yang
The University of Hong Kong, Hong Kong
This article presents a simple methodology for computing Value at Risk (VaR)
for a portfolio of financial instruments that is sensitive to market risk, rating
change, and default risk. An integrated model for market and credit risks is
developed. The Jarrow, Lando and Turnbull model (the Markov chain model) is
used to represent the dynamics of the credit rating. Procedures for calculating
VaR are presented. Numerical illustration results are included (JEL G10, D81).
Keywords: credit rating, default risk, integrated risk management,
Markov chain, value at risk.
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version)
Investor Recognition of Bankrputcy Costs: Evidence from the 1987 Market
Crash
(Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 221-245)
Cheol S. Eun
Georgia Institute of Technology, U.S.A.
H. Jonathan Jang
Inha University, Korea
In this paper, we examine the behavior of stock prices of individual firms with
different bond ratings surrounding the October market crash of 1987 and therefrom
make inferences about the significance of bankruptcy costs borne by stockholders.
The key findings are as follows: Immediately following the crash, stock prices
of firms with different bond ratings display dramatically divergent behavior.
Specifically, stocks with speculative bond ratings exhibit significantly negative
cumulative abnormal returns (CAR) in the wake of crash; the more speculative
a firm's bond is, the more negative is the CAR of the firm's stock.
Regression analysis confirms that there indeed exists a significantly negative
relationship between the post-crash CARs and individual firms' bankruptcy
risk proxied by their bond ratings, a variable that measures the likelihood
of financial distress ex ante. These results indicate that the bankruptcy
costs borne by stockholders are significant and investors recognize it as such,
especially during a period of market turbulence.
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version)
High Frequency Deutsche Mark-US Dollar Returns: FIGARCH Representations
and Non Linearities
(Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 247-267)
Richard T. Baillie
Michigan State University, U.S.A.
Aydin A. Cecen
Central Michigan University, U.S.A.
Young-Wook Han
Michigan State University, U.S.A.
This article considers the use of the long memory volatility process, FIGARCH,
in representing Deutschemark - us dollar spot exchange rate returns for both
high and low frequency returns data. The FIGARCH model is found to be the preferred
specification for both high frequency and daily returns data, with similar values
of the long memory volatility parameter across frequencies, which is indicative
of returns being generated by a self similar process. The BDS test for non-linearity
is applied to the residuals of the model for the high frequency returns. No
evidence is found to suggest that the procedure for filtering the high frequency
returns to remove the intraday periodicity has induced any non-linearities in
the residuals; and the FIGARCH specification is found to be adequate (JEL C22,
F31).
Keywords: BDS test, correlation dimension, FIGARCH, high frequency
data, intra day periodicity, volatility.
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version)
Diagnosing Shocks in Stock Market Returns of Greater China
(Multinational Finance Journal, 2000, vol. 4, no. 3&4, pp. 269-288)
W.C. Lo
Open University of Hong Kong, Hong Kong
W.S. Chan
The University of Hong Kong, Hong Kong
Using a modified outlier identification procedure by Chen and Liu (1993), this
article studies the large shocks of the Greater China stock markets. We find
that while large shocks are typical in all the markets and more outliers appear
in the Chinese stock markets than in the other markets. We also find that most
of the outliers identified in the Hong Kong market cluster in the periods of
the 1997 Asian financial crisis and after the government's market intervention
in August 1998. With the exception of Hong Kong, most outliers seem to be driven
by local events (JEL C52, G14, G15).
Keywords: Greater China stock markets, large shocks, time series
outliers.
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