Business Perspectives - Are Asian exchanges outliers? A market quality criterion

Business Perspectives - Are Asian exchanges outliers? A market quality criterion
1810-4967
1812-9358
Journals
Investment Management and Financial Innovations
Issue #2
Are Asian exchanges outliers? A market quality criterion
Are Asian exchanges outliers? A market quality criterion
Received
September 13, 2020;
Accepted
April 27, 2021;
Published
May 5, 2021
Author(s)
Ranjan R. Chakravarty
Link to ORCID Index
Sudhanshu Pani
DOI
Article Info
Volume 18 2021, Issue #2, pp. 64-78
TO CITE
АНОТАЦІЯ
Cited by
1 articles
Journal title:
Economy of Ukraine
Article title:
ІНСТРУМЕНТИ ХЕДЖУВАННЯ В УПРАВЛІННІ ЦІНОВИМИ РИЗИКАМИ (на прикладі аграрного і енергетичного ринків України)
DOI:
10.15407/economyukr.2024.03.019
Volume:
67
Issue:
First page:
19
Year:
2024
Contributors:
Марія ДИХА, Валерій ДИХА
1491 Views
634 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This paper provides a practical, empirical and theoretical framework that allows investment managers to evaluate stock exchanges’ market quality when choosing among different plausible international trading venues. To compare trading exchanges, it extends the hypothesis of market microstructure invariance to trading across exchanges. A measure ω, the ratio of the market-wide volatility to microstructure invariance, is introduced. The paper computes ω for the exchanges around the world. Its value for the NSE (India) is 24.5%, the Korea Exchange (Korea) is 7.9%, the Shanghai Exchange (China) is 3.5%, and the Shenzhen Exchange (China) is 4.4%, which is significantly different from that of major exchanges in the USA (NYSE – 0.8%, NASDAQ – 1.3%) and Europe (LSE (UK) – 0.4). This country risk dimension clearly identifies which equity exchanges cannot hold their own direct correlational hedges and therefore mandatorily require derivative positions, and has significant implications for the decision making of global long-short equity asset allocators in the Asian listed equity markets.
view full abstract
hide full abstract
PAPER PROFILE
AUTHORS CONTRIBUTIONS
FIGURES
TABLES
REFERENCES
Keywords
country risk
global asset allocation
international diversification
market microstructure
market quality of stock exchanges
trading venues
JEL Classification (Paper profile tab)
G11, G14, G15
References
48
Tables
Figures
Figure 1. Trends in in 2004–2018
Figure 2. Platform growth: Number of companies listed on the exchanges from 2004 to 2018
Table 1. Quartile statistics for the turnover-per-trade (2018)*
Table 2. 2018 values for (sqrt (trades per day)) upon (turnover per trade)
Table 3. Trends in from 2004 to 2018 in emerging Asian stock exchanges (in percent)
Table 4. Derivative business (2018)
Table 5. Number of shares of representative stocks on the NYSE and NSE large cap index traded in a representative trade
Table A1. Data sample for the year 2018
Table A2. Daily turnover-per-trade with 2004 as the base year (normalized to 1)
Aggarwal, R., Kearney, C. and Lucey, B., 2012. Gravity and culture in foreign portfolio investment. Journal of Banking & Finance, 36(2), 189-211.
Akbari, Amir, Lilian Ng, & Bruno Henri Solnik. (2020). Emerging Markets Are Catching Up: Economic or Financial Integration? Journal of Financial and Quantitative Analysis.
Andersen, T. G., Bondarenko, O., Kyle, A. S, & Obizhaeva, A. A. (2016). Intraday Trading Invariance in the E-Mini S&P 500 Futures Market.
Arnott, R. D., & Henriksson, R. D. (1989). A disciplined approach to global asset allocation. Financial Analysts Journal, 45(2), 17-28.
ASF. (2018). 9th Comparative Analysis Of Asian Securities Regulators & Sros And Market Characteristics (Data and information provided by participating organizations of the 14th ASF Tokyo Round Table).
Bekaert, G., & Harvey, C. R. (2017). Emerging equity markets in a globalizing world.
Benzaquen, M., Donier, J., & Bouchaud, J.-Ph. (2016). Unravelling the Trading Invariance Hypothesis. Market Microstructure and Liquidity, 2(03-04), 1650009.
Dahlquist, M., & Harvey, C. R. (2001). Global Tactical Asset Allocation. Journal of Global Capital Markets.
Darrat, A. F., & Zhong, M. (2002). Permanent and transitory driving forces in the Asian-Pacific stock markets. Financial Review, 37(1), 35-51.
Dow, J., & Gorton, G. (1997). Stock Market Efficiency and Economic Efficiency: Is There a Connection? The Journal of Finance, 52(3), 1087-1129.
Driessen, J., & Laeven, L. (2007). International portfolio diversification benefits: Cross-country evidence from a local perspective. Journal of Banking & Finance, 31(6), 1693-1712.
Durai, S. Raja Sethu, & Saumitra N. Bhaduri. (2011). Correlation dynamics in equity markets: evidence from India. Research in International Business and Finance, 25(1), 64-74.
Edmans, A., Fang, V. W., & Huang, A. (2018). The Long-Term Consequences of Short-Term Incentives.
Erb, C. B., Harvey, C. R., & Viskanta, T. E. (1995). Country risk and global equity selection. Journal of Portfolio Management, 21(2), 74-83.
Erb, C. B., Harvey, C. R., & Viskanta, T. E. (1997). Country risk in global financial management. Cfa Inst.
Faruk, B., Balli, H. O., & Luu, M. N. (2014). Diversification across ASEAN-wide sectoral and national equity returns. Economic Modelling, 41, 398-407.
Fayyaz, A., Draz, M. U., & Yang. (2015). Determinants of foreign portfolio inflows: Analysis and implications for China. Asian Journal of Finance & Accounting, 7(2), 66-77.
Garg, R., & Dua, P. (2014). Foreign portfolio investment flows to India: determinants and analysis. World Development, 59, 16-28.
Grubel, H. G. (1968). Internationally diversified portfolios: welfare gains and capital flows. The American Economic Review, 58(5), 1299-1314.
Harvey, C. R. (2012). Allocation to Emerging Markets in a Globally Diversified Portfolio. Oslo. Obtenido de.
Hsieh, J. & Nieh, Ch.-Ch. (2010). An overview of Asian equity markets. Asian-Pacific Economic Literature, 24(2), 19-51.
Hsu, J., Liu, X., & Wool, Ph. (2020). Should You Have More China in Your Portfolio? Putting Common Arguments for Increased China Exposure to the Test. The Journal of Index Investing, 11(3), 48-61.
Jacob, T., & Raphael, R. (2019). Macroeconomic Dynamics of Foreign Portfolio Investment in India: An Empirical Analysis. Review of Professional Management, 17(2), 63-73.
Jain, P. K. (2003). Institutional Design and Liquidity at Stock Exchanges around the World.
Kim, K., & Lee, D. (2017). Equity Market Globalization and Portfolio Rebalancing. Bank of Korea WP, 17.
Kim, Minho, Gyeong Rok Kim, & Mincheol Kim. (2004). Stock Market Volatility and Trading Activities in the KOSPI 200 Derivatives Markets. Applied Economics Letters, 11(1), 49-53.
Koepke, R. (2015). What drives capital flows to emerging markets. A Survey of the Empirical Literature. University Library of Munich, Germany.
Kolluri, B., Wahab, S., & Wahab, M. (2020). Systematic Covariations and Emerging Asian Equity Markets’ Diversification Benefits to US Equity Investors. Review of Pacific Basin Financial Markets and Policies, 23(02), 2050009.
Kyle, A. S., & Obizhaeva, A. A. (2016). Market Microstructure Invariance: Empirical Hypotheses. Econometrica, 84(4), 1345-1404.
Lessard, D. R. (1973). International portfolio diversification: a multivariate analysis for a group of Latin American countries. The Journal of Finance, 28(3), 619-633.
Levine, R., & Zervos, S. (1996). Stock Market Development and Long-Run Growth. The World Bank Economic Review, 10(2), 323-339.
Liu, Sh. (2009). The Impacts of Index Options on the Underlying Stocks: The Case of the S&P 100. The Quarterly Review of Economics and Finance, 49(3), 1034-1046.
Liu, Sh. (2010). Equity Options and Underlying Stocks’ Behavior: Further Evidence from Japan. International Review of Finance, 10(3), 293-312.
Loong, T. K., & Har, W. P. (2017). Global Share Market Integration and Diversification: A Study of Asian Emerging Markets. Asian Economic and Financial Review, 7(10), 981-991.
Matusin, A. (2012). Benefits of International Diversification: The Case of Asian Equity Markets. Borneo Research Bulletin, 43, 311-312.
Mauboussin, M. J. (2002). Revisiting Market Efficiency: The Stock Market as a Complex Adaptive System. Journal of Applied Corporate Finance, 14(4), 47-55.
Mayhew, S. (2000). The Impact of Derivatives on Cash Markets: What Have We Learned. Unpublished Manuscript, University of Georgia, February.
Mensah, J., & Premaratne, G. (2014). Exploring Diversification Benefits in Asia-Pacific Equity Markets.
Mensah, J., & Premaratne, G. (2019). Exploring Diversification Benefits In Asian Equity Markets. The Singapore Economic Review, 64(03), 517-542.
OECD. (2019). Equity Market Review of Asia 2019. Paris: OECD Capital Market Series.
Paul, J., & Mas, E. (2016). The emergence of China and India in the global market. Journal of East-West Business, 22(1), 28-50.
Pohl, M., Ristig, A., Schachermayer, W. and Tangpi, L., 2017. The amazing power of dimensional analysis: Quantifying market impact. Market Microstructure and Liquidity, 3(03n04), p.1850004.
Prakash, A. (2012). Major Episodes of Volatility in the Indian Foreign Exchange Market in the Last Two Decades (1993–2013): Central Bank’s Response. Reserve Bank of India Occasional Papers, 33(1-2).
Ramkumar, S. R., Black, M. J., & Fu, V. C. (2019). International Equity Investing: Is Flexibility the New Diversification? The Journal of Portfolio Management, 45(6), 86-107.
Solnik, B. H. (1974). An equilibrium model of the international capital market. Journal of Economic Theory, 8(4), 500-524.
Solnik, B., & Watewaib, T. (2019). Does Extreme Correlation Matter In Global Equity Asset Allocation? Journal of Investment Management, 17(1), 4-26.
Srinivasan, P., & Kalaivani, M. (2013). Determinants of Foreign Institutional Investment in India: An Empirical Analysis. Journal of Academic Research in Economics, 5(3).
Thapa, C., & Poshakwale, S. S. (2012). Country-specific equity market characteristics and foreign equity portfolio allocation. Journal of International Money and Finance, 31(2), 189-211.
Conceptualization
Ranjan R. Chakravarty, Sudhanshu Pani
Data curation
Ranjan R. Chakravarty, Sudhanshu Pani
Formal Analysis
Ranjan R. Chakravarty, Sudhanshu Pani
Investigation
Ranjan R. Chakravarty, Sudhanshu Pani
Methodology
Ranjan R. Chakravarty, Sudhanshu Pani
Resources
Ranjan R. Chakravarty, Sudhanshu Pani
Software
Ranjan R. Chakravarty, Sudhanshu Pani
Validation
Ranjan R. Chakravarty, Sudhanshu Pani
Visualization
Ranjan R. Chakravarty, Sudhanshu Pani
Writing – original draft
Ranjan R. Chakravarty, Sudhanshu Pani
Writing – review & editing
Ranjan R. Chakravarty, Sudhanshu Pani
Related Articles
Political risk and banking sector performance in Nigeria
Adefemi A. Obalade
Babatunde Lawrence
Joseph Olorunfemi Akande
doi: http://dx.doi.org/10.21511/bbs.16(3).2021.01
Banks and Bank Systems
Volume 16, 2021          Issue #3         pp. 1-12
Views: 2576
Downloads: 1520
TO CITE
АНОТАЦІЯ
Political risk is prevalent in Nigeria and tends to influence business outcomes and the stability of the banking system. As a result of this study, it was determined whether political risk matters to the performance of the banking sector in Nigeria. The effect of political risk on different banks’ performance measures, such as return on assets, return on invested capital, credit risk and stock price, were examined in a panel of 12 selected commercial banks for the period 2006–2018. Data was analyzed using a two-stage system of generalized method of moments. The results provided evidence that the effect of political risk on bank performance depends on the performance proxies. Specifically, political risk was found to be negatively related to banks’ returns on invested capital and positively related to deteriorating credit risk. Hence, it can be concluded that political risk induces poor banking system performance in Nigeria. The study provides a critical insight into the management of a country’s political systems in terms of their potential to create unfavorable conditions for banking systems to thrive.
The impact of investor sentiment on stock liquidity of listed companies in China
Lu Xu
Chunxiao Xue
Jianing Zhang
doi: http://dx.doi.org/10.21511/imfi.21(2).2024.01
Investment Management and Financial Innovations
Volume 21, 2024         Issue #2         pp. 1-14
Views: 2529
Downloads: 675
TO CITE
АНОТАЦІЯ
Researchers have scrutinized the link between investor sentiment and stock market liquidity globally, yet few have delved into this dynamic in emerging markets, especially China. Utilizing a sample of 1,839 publicly listed companies in China from 2010 to 2019, this study applies firm- and year-fixed-effects models to explore the nexus between investor sentiment and stock illiquidity, employing the Amihud measure for stock illiquidity assessment. The outcomes of these fixed-effect regressions illustrate a significantly positive relationship between investor sentiment and stock liquidity in the Chinese market. The positive link is more evident in scenarios characterized by high firm leverage, rapid revenue growth, larger corporations, greater institutional ownership, higher stock volatility, and lower book-to-market ratios. Intriguingly, this analysis incorporates the quadratic term of investor sentiment to examine the potential for a nonlinear dynamic between stock illiquidity and investor sentiment. The findings elucidate that the effect of investor sentiment on stock liquidity diminishes at elevated levels of sentiment, revealing a nonlinear inverse U-shaped relationship. The positive correlation between investor sentiment and stock liquidity persists across the three divisions of the Chinese Shenzhen Stock Exchange and remains robust using alternative liquidity measures, such as Roll’s impact and zeros impact. Addressing causality concerns, current investor sentiment appears to influence subsequent liquidity levels. These results provide valuable perspectives for policymakers, business executives, and investors in the stock market.
Acknowledgment
This research was funded by the Department of Education of Zhejiang Province General Program [Y202353438], the Wenzhou Association for Science and Technology—Service and Technology Innovation Program [jczc0254], the Wenzhou-Kean University Student Partnering with Faculty Research Program [WKUSPF2023004], and the Wenzhou-Kean University International Collaborative Research Program [ICRP2023002].
Determinants of price reversal in high-frequency trading: empirical evidence from Indonesia
Perdana Wahyu Santosa
doi: http://dx.doi.org/10.21511/imfi.17(1).2020.16
Investment Management and Financial Innovations
Volume 17, 2020         Issue #1         pp. 175-187
Views: 2394
Downloads: 2210
TO CITE
АНОТАЦІЯ
This article analyzes whether the factors of the mechanism of high-frequency trading (HFT) or intraday trading affect the process of price reversal and continuation. The price reversal phenomenon is gaining importance rapidly due to the increasingly intensive use of IT/Fintech-based trading automation facilities on the Indonesia Stock Exchange. However, one knows little about how their trading affects volatility and liquidity pressures that cause price reversals. A new research approach uses the factors of market microstructure mechanism based on high-frequency data (HFD-intraday). The research method uses purposive random sampling, which classified price fractions into three groups, specifically low price, medium price, and high price, which are analyzed by logistic panel regression. The research variables used include price reversal (dependent), stock return, trading volume, transaction frequency, volume/frequency (V/F) proxy, volatility, and liquidity. According to low price model research findings, all variables show a significant effect on price reversal; for medium price model, all variables except liquidity show a significant effect on price reversal; and for high price model, all variables have a significant effect on price reversal, except trading volume and volatility. In conclusion, low price shares tend to have higher price reversal probability compared to continuity because they tend to be liquid, low institutional ownership, and minimal reporting/analysis and are controlled by HFTs (uninformed traders). Some variables are not significant because of the bounce effect around the bid-ask spread.
Acknowledgment
Many thanks to Armida S. Alisjahbana, Roy H. Sembel, Budiono, Rahardi S. Rahmanto, and the anonymous referee/reviewer for valuable inputs and feedback.
< Prev
Next >
Preview
Close
Investment Management and Financial Innovations
Issue #2
Journal Homepage
Indexed/Abstracted
Aims and Scope
Editorial Board
Editorial Policies and Publication Ethics
Submission Guidelines for Authors
Copyright and Permissions
Acceptance rate
Self-Archiving Policy
Article processing charge
The cookie settings on this website are set to 'allow all cookies' to give you the best experience.
If you continue without changing these settings, you consent to this
Accept