Index
A
Grossman-Stiglitz-Keiber explanation
for persistent existence of traders compatible, and consistent, 150
market prices under, 150
permit behavioral biases to exist, 150
ADF test, See Augmented Dickey-Fuller (ADF) test
ADLI factor, 228
Aforementioned model, 238
African frontier markets, 56
Agency, reputation-compensation scheme, 192
Akaike information criterion, 31
Allocational (economic) efficiency, 4
All Share Index (ALSI), 29
American International Group (AIG), 95
American Stock Exchange (AMEX), 219
Arbitrage, 149
Asian financial crisis, 93
Asymmetries, 56
autocorrelation problem, 9
criticism against, 10
employing regression model, 9
results, 15–17
random walk hypothesis, 22
for the returns based on return indices, 16
unit root test results, 17
Schwarz information criterion (SIC), 9
Automated trading system (ATS), 29
Autoregression, 151
Autoregressive conditional heteroscedasticity (ARCH)
genre of models, 40
B
Bai-Perron model, 258
Bangladesh stock exchange, for weak-form market efficiency, 151
Bangladesh stock market, 151
Bank of America, 95
Bankruptcy risk measures, 226
Bankruptcy risk premium, 225
Bankruptcy, systematic risk, 215
analysis/discussion of findings, 225–229
and equity value, 219
idiosyncratic factors, 218
inflation, 217
literature review, 219–222
national and the global financial crisis, 216
research design, data, and methodology, 223–225
Vietnamese government aims, 216
Vietnamese stock market, 215
Banks, finance, and investment companies (BI), 4
affected by election violence in Kenya, 79
and portfolio of bank returns
regressed against real short-term interest rates, 77
regressed against SIR, LIR and real FX, 77
regressions to investigate relationships between individual BSR and the portfolio of banks returns and
affected during, 81
relationship between FX and, 71
relationship between IR and, 71
returns on, 77
sensitivity of, 77
variable βri represent sensitivity of, 77
BET-Fi index, 132
Bloomberg’s financial software, 73
BM equity measure, 220
BM-sorted portfolio return, 228
Botswana market, 27
Botswana Share Market Index (BSI), 29
Botswana Stock Exchange (BSE), 29
BSM-prob model, 222
Bucharest Stock Exchange, 140
Bulgarian Stock Exchange, 132
C
Calm herding days, 209
Capital asset pricing model (CAPM), 220
Cash flows, 72
Central Statistics Office (CSO), 30
CFC Bank, 76
average stock returns, 76
Chinn-Ito index, 195
CH’s specification, 201
Commercial banks, in Kenya, 73
Commercial paper, 29
Commercial services, 4
Communist countries, 156
Communist system in Eastern Europe, 156
Conceptual framework, 172
financial analysts
forecast accuracy, 173
forecast bias, 173
Conditional variance, 259
Consumer Price Index (CPI), 217
Contagion, 93
exploring from a behavioral perspective, 94
Corporate bonds, 29
Country samples, 41
Creditors, 120
Credit risks, 220
Cross-sectional absolute deviation (CSAD)
statistics of, 199
descriptive statistics, 241
estimates of herding in Mongolia, 242–246
D
Dar es Salaam Stock Exchange (DSE), 4
behavior of stock prices and returns, 4
buy-and-hold investors, 24
economic implication, 25
growth in market capitalization, 24
stock price/returns indices, 10
low liquidity and nontrading, 24
weak-form market efficiency, 9
Data availability, 41
Data sources, 9
Datastream item WC03051, 224
Datastream market information service, 44
“Decision fatigue” effect, 97
Decision-making process
emotion, 191
Demand, for manufactured export goods, 217
Depreciation, 72
Deregulation, 71
Derivative pricing, 41
Descriptive statistics and diagnostics, 13–15
Descriptive statistics of absolute analysts forecast errors
and naive errors for each country and each subperiod, 175
Descriptive statistics, on individual bank stock returns, 75
Diamond Trust Bank’s return, 76
Distortion, 28
Diversification, 42
Diversification potential, 135
Dividends-to-price ratio, 6
DLI-sorted portfolios, 225
E
East African stock exchang, 4
ARIMA and ARCH methodology, 153
data availability for countries from
host stock market, Dow Jones, Morgan Stanley (MSCI), Nomura, and/or FTSE, 157
integer d Level of integration tests
for 2010-15, 166
for full period, 161
Phillips and Yu recursive ADF test for full period, 163
sample derived from bloomberg financial database, 158
sample selection, 157
simple fractional integration tests
on returns series for 2010-15, 167
on returns series for full period, 162
stock returns, and associated volatility, for indices, 153
time series plots
of logged values of the indices, 159
of Phillips-Yu test statistic, 164
Eastern European markets, 156
and sample selection, 156
Economic activity, 29
Economic development, 117
Economic growth, 41
Economic hypothesis, 28
Economy of Botswana, 29
data, 30
CPI exhibit a standard deviation, 30
descriptive statistics of, 30
monthly on stock prices of BSE ALSI, 30
methodology, 30
critical values for statistics, 33
Dickey- Fuller (ADF) test, 30
lag operator to model and yield, 32
method for cointegration, 31
model concerned with calculation
of maximum likelihood estimators and likelihood ratio tests, 31
ordinary least squares (OLS) linear regression, 31
Phillips- Perron (PP) test, 30
stationary series, 30
testing for cointegration, 32
vector error correction model (VECM), 32
results
of employing the ADF test on, 33
for testing the null hypothesis, 33
Efficiency, types of, 4
“Efficient” market hypothesis, 4
EGARCH volatility models, 269
Election violence, 73
Emerging markets, 41
Emotion, in decision making, 191
Empirical investigation, of Southeast Asian frontier markets, 251–270
Empirical literature
on informational efficiency and frontier markets, 151
Equities, 29
Equity markets, 4
Equity returns
bankruptcy risk, 217
cross-sectional dispersion of, 238
Equity transactions, 236
EU 28 equity market
capitalization, 118
equity markets, development prospects, 117
EU 10 frontier markets, 118
collaboration protocols with other European exchanges, 141
comparative analysis of, 120–130
comply with the fifth characteristic, 130
confronted with extremes, 119
lack of relevance within the EU, 119
potential evolution toward an emerging market, 119
countries summary, 122
diversified securities exchanges through introduction of bond segment, 140
Bulgarian Stock Exchange, 140
Deutsche Boerse’s Xetra trading platform, 140
NASDAQ-OMX, 140
Granger causality results, 133
Bulgaria, 133
Croatia, 133
Cyprus, 133
Romania, 133
hypothesis, data, and research results, 131
Granger causality for testing hypothesis 1 and 1 modified, 131–135
historic betas for testing hypothesis 2, 135–138
domestic, European, and International betas for the selected companies, 136
formula, 135
hypothesis 1, 131
hypothesis 2, 131
extension of MiFID through MiFID2, 141
threat influencing, 139
position based on global competitiveness report, 127
ranking based on financing through local equity markets, 139
Securities Markets Summary, 123
stand-alone position, 141
support growth of smaller domestic companies, 119
turnover structure, 129
using the Granger causality
to establish the existence/absence of a domestic index leader, 120
vs. EU 28 member states, sovereign risk and exchange rate risk, 129
European Economic Community (EEC) integration, 187
European emerging markets, 187
European frontier markets
CCK, 45
herding behavior, 203
measures, 193
methods, 201
model, 196
EFMs, 194
on calm days, 208
cultural and institutional indicators, 195
on negative extreme global return days, 208
on positive extreme global return days, 209
European sovereign debt crisis, 193
alternative trading venues, 118
enforcement of MiFID, 118
equity market capitalization, 118
establishment of securities exchanges, 118
frontier markets according to frontier index providers, 118
membership provide numerous benefits for, 118
multinationals, 119
national securities exchanges, 118
process of integration, 119
Euro zone countries, 216
Exchange rates, 74
on bank stock returns, 71
volatility, 120
F
FAF errors (FAFEs), 174
F- and t-tests, 79
FDI (foreign direct investment), 72
forecast bias, 173
performance of, 173
tend to overreact with increase of information flow, 183
Financial analysts’ forecasts (FAFs)
accuracy on eastern European frontier markets, 177
analysis of evolution of FAFE by types of earnings, 183
earnings increases vs. earnings decreases, 183
descriptive statistics of forecast errors in absolute mean, 186
earnings profits vs. earnings losses, 183
descriptive statistics of forecast errors in absolute mean, 185
analysis on eastern European frontier markets, 179
FAF accuracy, 179
after the crisis: 2011-13, 180
before the crisis: 2005-07, 179
during the crisis: 2008-10, 180
FAF bias, 180–183
descriptive statistics of forecast errors at end of fiscal year, 181
on eastern European frontier markets, 177–178
regression of reported earnings variation on forecasted earnings variation, 184
test on difference of forecast biases, 182
improvement of accuracy, 172
in investment decisions, 171
merging data, 173
by subperiods and types of earnings, 178
Financial contagion from US to African frontier markets, 93
aristocratic networks, 108
behavioral-related differences, 109
classify contagion theories into groups, 95
financial linkages, 95
herding behavior, 95
trade linkages, 95
comparison-of-means based contagion tests
long crisis period, 105
subcrisis periods, 106
consensus in African market social networks, 109
daily returns, 98
data and descriptive statistics, 95
data sources and descriptive statistics, 98
decision fatigue in Africa, 110
descriptive statistics, 96
exploring contagion from a behavioral perspective, 94
herding occur at faster speed in Africa, 109
hypotheses, 101
hypothesis 1, 101
hypothesis 2, 101
loss aversion in developed markets, 110
disposition effect, 110
low levels of integration, importance from, 95
cointegration-based techniques, 101
conditional correlation coefficients, estimated from DCC equation, 102
correlation coefficient analysis, 101
DCC-MGARCH model to test for contagion, 101
pooled variance t-test, 103
robustness testing, 103
dummy variable based robustness tests for contagion, 107
time-varying correlation techniques, 101
time-varying variance equations, 102
transmission mechanism approach, 101
vector autoregression (VAR)-based equations in the MGARCH, 102
social mood effects, 108
social networking effects, 108
speed of the herding process in the transmission, 110
time-varying correlations
of US with African markets, 113
of US with developed markets, 114
Financial development, 117
Financial liberalization, 41
Financial linkages
between US and African frontier markets, 94
Foreign Company Index (FCI), 29
Foreign direct investment (FDI), 156
Vietnam, 217
Foreign investors, 120
consensus, 198
to stock markets, 192
FX coefficient, 91
G
Gephi visualizations, of herding relationships, 203
Global depositary receipts (GDRs), 29
2008-09, 193
Government’s privatization policy, 236
Gross domestic product (GDP), 194
Gulf Cooperation Council (GCC) markets, 56
H
Hedging, 41
Herding, 55
defined, 192
in European frontier markets (CCK), 203
rational behavior, 192
in up and down European frontier markets, 204
in up and down extreme markets, 201
Herding patterns, in European frontier markets
CH/CCK methods, 195–197
database, 193–195
empirical results, 198
descriptive statistics, 198–201
evidence on
CH/CCK methods, 201–203
Gephi visualizations, 203–210
Gephi proposal, 197–198
herding behavior, analysis of, 201
overview of, 191–193
Herding regression, 202
Heteroscedasticity, 11
conditional, 11
Heteroscedasticity-consistent test, 11
High integration countries, 100
HNX Index, 269
Ho Chi Minh Stock Exchange (HOSE), 253
Hofstede Index, 194
power distance and uncertainty avoidance, 194
Homoscedasticity-consistent test, 11
HOSE (Ho Chi Minh City Stock Exchange), 215
Housing Finance, 76
average stock returns, 76
I
Idiosyncratic risks, 221
Idiosyncratic volatility, 221
Immunization strategies, 40
Inadequate regulatory frameworks, 120
Industrial and allied sectors (IA), 4
Industrialization, 4
Industry, contributors to government revenues, 29
rates, 73
and frontier markets, 151–153
Informationally efficient market, 149
Informational market efficiency
theory of, 148
Information asymmetry, 45
Information technology, 41
Integration, 42
Interest rates (IR), 71, See also Bank stock returns (BSR)
converted from annualized returns to monthly returns, 73
monthly inflation rates, 73
results from estimating model 3
with inclusion of changes in inflation rates, 83
results from estimating model 4
with the inclusion of inflation rates, 84
results from estimating regression model 2
using real short-term interest rates, real long-term interest rates, and real exchange rates, 82
results from regressing model 1
for the election violence period, 89
for the postelection violence period, 90
for the preelection violence period, 88
results from regressing model 2
for the election violence period, 86
for the postelection violence period, 87
for the preelection violence period, 85
International Finance Corporation (IFC) global composite index, 8
International Financial Reporting Standards (IFRS), 172
International Monetary Fund, 117
Investable markets, 39
Investment restrictions, 147
Investor dependent, on performance, 192
Investor psychology, 217
Investors’ herding, in frontier markets, 233
data/methodology, 238–241
intentional herding, 233
Mongolian Stock Exchange (MSE), 236–237
professional, 233
relative homogeneity, 234
research on herding, 236
results, 241–247
style investing, 234
Istanbul Stock Exchange, 42
regulatory changes, 42
J
Jarque-Bera (JB)
JB probabilities for Models, 79
K
Kazakhstan, gross domestic product (GDP) of, 194
Kenya National Bureau of Statistics, 73
L
Laos Securities Exchange (LSX), 253
Large capitalization indices, 235
Lehman bankruptcy, 97
Linkage-related factors, 95
risk, 247
Ljung-Box Q-statistic, 260
Lo and MacKinlay variance ratio test results, 82
Long-term debt, 224
Low integration countries, 100
LSX Index, 269
M
Mandatory consolidation programs, 72
Market consensus, 192
Market diversification, 56
Market efficiency, 154
ADF-GLS test, 154
nonzero mean and trend stationarity, 154
probability distribution, 154
GPH estimator, 154
techniques based on fractional integration, 155
issue of dating the time line of financial bubbles, 155
Kwiatkowski-Phillips-Schmidt-Shin (KPSS) test, 154
methodology for testing for bubble migration, 155
standard Dickey-Fuller test, 155
structural break or bubble behavior for the period, 154
Market index, 73
returns, 76
Markets
institutional and cultural differences, 194
Markets hypothesis, based on information, 191
Market volume, 240
Martingale difference sequence (MDS), 5
Maximum log likelihood (LL) criterion, 260
Memory, 149
Merrill Lynch, 95
Methodology, 9
Mexican economic crisis, 93
Mexican economy, 72
Mongolia
counter-herding, 247
investors’ herding, in frontier markets, 233
Monthly equity volatilities, 224
Moody’s KMV, 224
Morocco, 56
asymmetric herding behavior, 67
reestimate all model specifications, 67
benchmark CCK model estimation, 60
descriptive statistics, 60
descriptive statistics for the markets, 60
equities, 60
employ percentage log-differenced returns, 60
evolution of MSCI Frontier Markets Africa Index, 59
examining herd behavior, 56
index country weights, 59
sample consists of, 60
structural breaks for markets under examination, 66
Quandt-Andrews break point test, 66
Mortgage crisis, 216
MSCI Barra, 117
MSCI Frontier Markets Africa Index, 59
Multifactor regression analysis, 228
Mutual funds, 117
N
Nairobi Stock Exchange 20-Share Index (NSE 20), 73
National Bank of Kenya’s return, 76
Niche markets, 142
Nigeria, 56
descriptive statistics, 60
equities, 60
employ percentage log-differenced returns, 60
estimated relationship, linear and increasing, 60
estimates of the standard CCK (2000) model, 61
augmented with additional variables, 66
during the global financial crisis, 65
market volatility
during up and down periods of, 63
market volume
during up and down periods of, 64
model during the global financial crisis, 65
evidence of herding during, 66
evolution of MSCI Frontier Markets Africa Index, 59
index country weights, 59
sample consists of, 60
stocks displayed trading activity, 60
structural breaks for markets under examination, 66
Quandt-Andrews break point test, 66
Noise traders, 149
Nonlinear model, 57
Normal distribution assumption, 257
NSE20 index, 74
O
OLS estimation, 202
OLS regression, 35
Consumer Price Index, 36
Operational efficiency, 4
Option-pricing model, 224
Ordinary least squares (OLS)
procedure, 174
Ordinary least squares (OLS)
regression, 193
Overoptimism, 172
Over-the-counter (OTC) securities, 216
P
Pacific Rim markets, 172
Pakistan stock market, 151
informational inefficiencies at the semistrong-form level, 151
Political risk, 120
Portfolio management, 41
Portfolio returns
liquidity, and default risk, 222
Price indices, 44
Price-to-earnings (P/E) ratio, 6
Q
Q-squared (QSQ) statistic, 260
Q-statistic test, 255
benefits, 196
R
advantage of nonparametric statistical tests, 12
calculation, 12
results, 21
test statistic (St) defined as, 14
Real estate investment trusts (REITs), 172
Regression analysis, cross-sectional, 224
Regression model, 195
Relationship
heterogeneity, 29
negative, 29
positive, 29
Relative homogeneity, 234
Return deviation distribution, 196
Reverse causality hypothesis, 29
Risk management, 41
Risk manager, 41
Romania, gross domestic product (GDP) of, 194
Royal Bank of Scotland (RBS), 97
Russell Frontier Index, 117
Russian financial crisis, 93
S
Sample selection, 157
Bloomberg financial database, 157
SEA frontier markets, See Southeast Asian (SEA) frontier markets
Securities markets, 251
Security prices, 4
volatility, 120
Semistrong-form efficient market, 149
Sensex, 35
Shareholders, 120
traditional view of, 149
Short-term debt, 224
Short-term Treasury bills, 6
Size of market returns, 239
Small-capitalization stocks, 235
Social networking, 108
Southeast Asian (SEA) frontier markets, 258
data analysis, 253–255
empirical investigation, 251–270
empirical literature review, 252–253
empirical results
randomness tests, 261–264
structural breaks and volatility, 265–269
long memory dynamics, 258–260
market efficiency, 252
random walk hypothesis, 252
structural breaks, 258–260
test for volatility, 258–260
tests for randomness, 255–257
VN Index, 253
Sovereign risk, 120
Spurious, 234
Standard & Poor’s (S&P) indices, 117
State-owned enterprises (SOEs), 215
Stockbroking firm, 29
Stock exchange, 29
Stock Exchange of Thailand, 220
in Bangladesh, 151
in Pakistan, 151
Stock market volatility
data, 44
for country partitioned into in-sample estimation, 44
Datastream market information service, 44
methodology, 45
ARCH effects, 45
comparisons of forecast performance, 48
component GARCH (CGARCH) model, 48
exponential GARCH (EGARCH), 47
generalized autoregressive conditional heteroscedasticity (GARCH), 47
results for coefficient of determination of the MZ regression, 50
results for forecasting performance of all sample countries
using MAE, RMSE, 50
Stock returns, 28
Stock volatility, 40
Strong-form efficient market, 149
Structural break test results, 265
Style investing, 234
Symmetric volatility models, 269
Systematic manner, bankruptcy risk, 217
T
Taiwan stock market, 221
Tanzania Share Index (TSI), 4
Tau statistic, 255
Tax-effect hypothesis, 28
Tax liability, 28
Technology, 4
Theory of fair markets (TFM), 150
Thomson Reuters Datastream, 193
TOP-20 index, 237
Total return (TR) indices, 131
Troubled Assets Relief Program (TARP), 97
Turnover ratio, 121
U
Ukraine, gross domestic product (GDP) of, 194
US dollar, 216
V
van der Waerden scores, 12
Variance ratio test, 10–12
formula for computing
values of estimator of variance, 10
homoscedasticity test statistic, 11
results, 16–20
variance ratio of the qth difference, 10
Vietnam
bankruptcy, systematic risk, 215
foreign direct investment (FDI), 217
global and national financial crisis, 217
inflation, 217
stock market, percentage of GDP, 215
Vietnamese economy, 216
Vietnamese equities market, 215
Volatility, 40, See also Stock market volatility
clustering, 40
forecasting, 42
autoregressive conditional heteroscedasticity (ARCH) model, 43
Chicago Board Options Exchange (CBOE) Market Volatility Index, 43
component GARCH (CGARCH) model, 43
concept of “realized” volatility, 44
exponential GARCH (EGARCH) model, 43
generalization (GARCH), 43
importance of, 40–41
integrated GARCH (IGARCH) model, 43
“long memory” models, 43
modeling of, 43–44
threshold GARCH (TGARCH) or GJR GARCH model, 43
Volatility Index (VIX), 43
Volatility Index (VIX), 94
Volume changes, in market, 236
W
WDmax tests, 258
Weak-form market efficiency, 6
in African markets, investigations on, 8
empirical literature review on, 6–8
momentum strategy, 153
size effect involve grouping stocks into portfolios based on, 153
small Pacific-Basin markets, 152
ARCH model to examine, 152
value strategy, grouping the stocks in each market, characteristics, 152
variance ratio, employed to test, 11
Western European economies, 156
Wholesale Price Index, 35
Worldwide Governance Indicators, 194
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