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This paper examines firms' asset volatility across a broad cross-section of publicly traded Taiwanese listed nonfinancial firms and its relationship with effective tax rate and equity volatility under the capital structure framework. By analysing the leverage effect hypothesis of firms under the asymmetric diagonal VECH-GJR model, we find both equity volatility and asset volatility do not show the asymmetric effect. In the context of equity volatility dynamics, financial leverage turns from being negatively related to equity volatility to being positively related to equity volatility when the model adds asset volatility as a control variable. Moreover, lower equity volatility is found to be associated with higher effective tax rates. [ABSTRACT FROM AUTHOR]

In this article, we apply the threshold autoregressive model to examine oil price thresholds and the relationship between oil prices and the returns of 25 benchmark portfolios formed on size and book-to-market. Our results show that the relationship between the change in oil prices and portfolio returns reverses depending on whether the current oil price is above or below the estimated oil price threshold. Additional results show that this threshold effect is concentrated in the small stock portfolios. Finally, our finding that there is a threshold effect of oil price changes on stock returns is consistent with the theoretical model of investor sentiment presented by Barberis, Shleifer, and Vishny (1998) and is intuitively consistent with the economic dynamics and structure of the oil industry. [ABSTRACT FROM AUTHOR]

No  prior research has (1) studied the relation between gold and stocks for the four severe bear markets since 1960s, (2) used different segments of stock markets simultaneously for analysis and (3) implemented a system of equations to control for exogenous and endogenous variables to investigate the role of gold for investments hedge in these severe bear market periods, and compare the results with its role in nonbear market periods. Results show that gold was a good instrument for hedging stock market risk for only two of the four severe bear market periods analysed. For nonbear market periods, except for small-cap stocks, gold also did not offer good risk hedging. The findings are of interest, as it coincides with the fact that small-cap stocks are the riskiest and most volatile investment even during economic good times, and gold is found to offer a risk-hedging power for this segment of the stock market. [ABSTRACT FROM AUTHOR]

This study investigated students’ perceptions of their own and their peers’ academic dishonesty (AD), their reasons for this dishonesty, their achievement goals, and their willingness to report AD (WRAD) within a Chinese cultural context. The results identified students’ belief that their peers had a greater likelihood of engaging in AD and had more motivation to do so than did the students themselves. Gender and academic major did not affect students’ WRAD. However, students were significantly more willing to report classmates than friends. In terms of the participants’ self-perceptions and peer perceptions concerning motivations for AD, more female students cited the lack of penalties as the reason for their own and their peers’ AD, whereas male students more frequently cited their lack of attention to schoolwork as the reason for their own AD. In contrast to students in the social sciences, business students more frequently cited inadequate capabilities as the reason for their AD, and engineering students more frequently attributed their AD to self-interest. Multiple regression analysis demonstrated that three motivations for AD (opportunism, inadequacy, and self-promotion) could positively predict AD, whereas mastery-approach goals could negatively predict AD. [ABSTRACT FROM AUTHOR]

We apply the bootstrap technique proposed by Kosowski et al. [J. Finance, 2006, 61, 2551–2595] in conjunction with Carhart's [J. Finance, 1997, 52, 57–82] unconditional and Ferson and Schadt's [J. Finance, 1996, 51, 425–461] conditional four-factor models of performance to examine whether the performances of enhanced-return index funds over the 1996 to 2007 period are based on luck or superior ‘enhancing’ skills. The advantages of using the bootstrap to rank fund performance are many. It eliminates the need to specify the exact shape of the distribution from which returns are drawn and does not require estimating correlations between portfolio returns. It also eliminates the need to explicitly control for potential ‘data snooping’ biases that arise from an ex-post sort. Our results show evidence of enhanced-return index funds with positive and significant alphas after controlling for luck and sampling variability. The results are robust to both stock-only and derivative-enhanced index funds, although the spread of cross-sectional alphas for derivative-enhanced funds is slightly more pronounced. The study also examines various sub-periods within the sample horizon. [ABSTRACT FROM PUBLISHER]

We test and implement portfolio strategies for three major asset pricing models, under uniform diagnostic measures using the PACAP data set containing all current listing and de-listing of firms for the local stock exchange in several Pacific Basin countries. Compared to the often used MSCI database that include only a subset of the (large) firms in the local markets, the more complete coverage of our database allows for more robust testing of current multifactor asset pricing models since the possible effects of additional factors such as size and book to market may not show up correctly using less comprehensive data sets. Our data set also provides a natural packet of nonUS data for addressing the issue of whether the results of recent asset pricing research are sample specific. Our overall results provide multi-country (sample nonspecific) support for the additional asset pricing risk factors of the Fama-French three-factor model but not for the momentum factor of the Carhart model. We additionally find that the size risk factor is more prominent than value risk factor in the Pacific Basin markets. Finally, we find strong evidence that portfolio strategies implemented to capture value and size effects are profitable in the Pacific Basin stock markets. [ABSTRACT FROM AUTHOR]

Statistical time-series approaches to hedging are difficult to beat, especially out-of-sample, and are capable of out-performing many theory-based derivative pricing model approaches to hedging commodity price risks using futures contracts. However, the vast majority of time-series approaches to hedging discussed in the literature are essentially linear statistical projections, whether univariate or multivariate. Little is known about the potential hedging capabilities of nonlinear methods. This study describes how least-squares orthogonal polynomial approximation methods based on the spanning polynomial projection (SPP) can be used to enhance standard (linear) optimal hedging methods and improve hedging performance for a hedger with a mean-variance objective. Empirical analyses show that the SPP can be used effectively for hedging and gives better out-of-sample hedging performance than the benchmark VEC-GARCH hedging model. Results are robust to the inclusion of transaction costs and risk-aversion assumptions. [ABSTRACT FROM AUTHOR]

We study whether dividend yield (DY) can predict aggregate stock returns while controlling for the effects of structural breaks in the parameters and bias induced by autocorrelation in the predictor variable. To do so we apply the Bai and Perron (BP) (1998, 2000) methodology to test for structural breaks and the bias-adjusted predictability test of Lewellen (2004). We show that although DY predicts market returns during the period 1946 to 1989, there exist 'natural' subsamples bounded by statistically detectable structural breaks that can last for long periods of time (up to 11 years in duration) when DY does not show significant forecasting power. This has important implications in that even if in the long-run DY actually provides strong predictive ability, investors should be mentally prepared for long dry spells of unpredictability with respect to DY. [ABSTRACT FROM AUTHOR]

The effect of employee bonus plans may be difficult to ascertain empirically if the size of bonus is not large enough in magnitude compared to base salary. This study makes use of data from Taiwan where employee bonus payments are not only mandated by law but are quite often several times a typical employee's annual base salary. The use of this unique data allows one to empirically observe interesting relationships difficult to ascertain from traditional datasets. Evidence is found that the performance of bonus-paying firms is related to the size of bonuses paid, both before and after analysis, and across industries. In general, evidence seems to indicate that bonus-paying firms tend to achieve higher productivity, better cost control and asset utilization, and share price returns. However, there may be evidence that marginal returns to employee bonuses are decreasing, reflecting the use of bonuses as substitutes for cash pay in order to attract employees in short supply. These results can serve as useful benchmarks for future studies. [ABSTRACT FROM AUTHOR]

This study applies linear and nonlinear Granger causality tests to examine the dynamic relation between London Metal Exchange (LME) cash prices and three possible predictors. The analysis uses matched quarterly inventory, UK Treasury bill interest rates, futures prices and cash prices for the commodity lead traded on the LME. The effects of cointegration on both linear and nonlinear Granger causality tests is also examined. When cointegration is not modelled, evidence is found of both linear and nonlinear causality between cash prices and analysed predictor variables. However, after controlling for cointegration, evidence of significant nonlinear causality is no longer found. These results contribute to the empirical literature on commodity price forecasting by highlighting the relationship between cointegration and detectable linear and nonlinear causality. The importance of interest rate and inventory as well as futures price in forecasting cash prices is also illustrated. Failure to detect significant nonlinearity after controlling for cointegration may also go some way to explaining the reason for the disappointing forecasting performances of many nonlinear models in the general finance literature. It may be that the variables are correct, but the functional form is overly complex and a standard VAR or VECM may often apply. [ABSTRACT FROM AUTHOR]

The present study focuses on the trading of at-the-money straddles using options on foreign currency futures, namely British Pound, Canadian Dollar, and Japanese Yen. The financial performance and economic significance of a direct profit forecast trading strategy are examined. This strategy uses a linear projection to directly forecast the profit (net of transaction costs) of engaging in a straddle. The straddle is purchased when the forecast is positive and sold when negative. This di1ers from the conventional option trading strategy of basing trading decisions on a two-step procedure of first generating a volatility forecast and then inputting the volatility forecast into an appropriate option pricing model to price the straddle. The direct profit forecast trading strategy removes volatility forecasting and option-pricing models from the straddle trading decision process altogether. This method has only one source of model risk, compared to the conventional two-step method which has two sources of model risk. It is possible that the direct forecast trading strategy with only one source of model risk may outperform the conventional method of trading straddles. The experimental investigation confirms this notion and the out-of-sample results indicate that, for each of the currencies analysed, the direct forecasting strategy is more profitable than the conventional two-step method. Furthermore, the results are robust with respect to di1erent transaction cost assumptions. Finally, tests of economic significance indicate consistent market timing value for the direct forecast method. [ABSTRACT FROM AUTHOR]