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Vol. 5, Number 1, 2008

Asian Derivative Markets: Research Issues
Shamsher M. and Taufiq H.
Universiti Putra Malaysia
Abstract Ɩ Full Text
Theory suggests that the introduction of derivative market in a market with spot trading completes the market-based price discovery process. There are 19 derivative markets in Asia. Derivative trades in such markets help to hedge away the risk of price changes in the spot markets at very low costs. Commodity futures instruments are also needed to hedge away price changes in real sector just as financial futures does this function for the financial sector. In this paper, we examine the current status of selected commodity and financial derivative markets in Asia. It suggests that the more industrial/advanced economies have developed liquid commodities markets, and few of them have also developed active financial derivative markets. But for most of the 19 or so emerging markets in Asia, the development of derivative markets is still at an early stage.
JEL Classification: E44 & G15
Keywords: Derivative markets, Futures markets, Price risk, Commodities futures, Asian markets.

International Prudential Regulation, Regulatory Risk and Cost of Bank Capital
Phong T. H. Ngo
Australian National University
Abstract Ɩ Full Text
We define regulatory risk as regulation that leads to an increase in the cost of capital for a regulated firm. In a general equilibrium setting, scholars have shown that uniform increases in capital requirements lead to an increase in the cost of capital. We extend their model to show that when regulatory standards differ across countries, financial integration leads to positive spillovers that reduce the cost of capital mark up for a given increase in bank capital. Accordingly, regulatory risk may be greater under a regulatory agreement such as the Basel Accord, which imposes international uniformity in capital ratios.
JEL Classication: G15, G21 & G28
Keywords: Basel Accord, bank capital regulation, cost of capital, regulatory risk, international harmonization.

New Evidence on the Effect of Cboe Options Listing on the Volatility of New York Listed Stocks
Khelifa Mazouz
Aston University, United Kingdom
Abstract Ɩ Full Text
This paper re-examines the evidence on how the listing of options impacts on underlying stock’s volatility by taking into consideration the possible presence of a learning effect, along with the impact of the very endogenous nature of the options listing decision itself. Our analyses are centred on both the portfolio approach as well as the individual stock approach applied on the sample of optioned stocks with a matched control sample. The results show that the individual stock approach yielded accurate results, as it is amenable to both the sign and the statistical significance test of variance change. However, unlike the individual stock approach, the more frequently applied portfolio approach relies more on the sign rather than the statistical significance. Based on these analyses, we found no evidence of the CBOE-option listing effect’s presence on the volatility of the underlying stocks in the New York Stock Exchange.
JEL Classification: G14, G20 & G21
Keywords: Financial institutions, Cost efficiency, Profitability, Firm size.

Corporate Spin-Offs, Their Price Reactions and Determinants in Malaysia
Chung-Sin Yoon and Mohamed Ariff
Alan Yoon Associates and Bond University,
Abstract Ɩ Full Text
Spin-off as a form of financial restructuring has been examined in the US and the UK but not in other markets. This is a first study outside those markets. The evidence from a sample of 85 spin-off cases in Malaysia reveals that both the parent and the spin-off company stocks gain significant positive abnormal returns: parent firms earn smaller value while the spin-off firm gains substantially, much greater than is documented in other markets. Examining the factors correlated with the size of the spin-off effect, we find the abnormal returns are positively correlated with market capitalization and negatively correlated with age. The larger is the company or the newer is the company the greater is the magnitude of the positive abnormal returns.
JEL Classification: G14
Keywords:Spin-offs, Restructuring, Emerging Markets, Tax Motivation, Size, and Age.

The Effectiveness of Bank Recapitalization in Japan
Heather Montgomery
Asian Development Bank, Philippines
Abstract Ɩ Full Text
This study examines the effectiveness of Japanese banking recapitalization policies. Based on the careful reading of individual business revitalization plans submitted by several banks requesting government funds, we identified four primary goals of the capital injection plan: to increase the bank capital ratios; increase lending to avoid a credit crunch; increase the number of write-offs for non-performing loans; and encourage restructuring. Using a panel of individual bank data, we empirically estimated the effectiveness of the policy. Our findings suggest that capital injections are more effective for international banks than for domestic banks. The capital injections do not appear to affect lending to SMEs for either bank type. For international banks however, receipts of injected capital seem to relax the constraint on overall loan growth. The receipt of injected capital strengthens the capital positions of both international and regional banks, but these results do not hold up once we control for possible endogeneity when tested.
JEL Classification: F28
Keywords: Bank recapitalization, Japan, Capital injections, Non-performing loans.

Multi-Country Study of Bank Credit Risk Determinants
Nor Hayati Ahmad and Mohamed Ariff
University Utara Malaysia and
Bond University, Australia
Abstract Ɩ Full Text
This paper presents fresh findings about key determinants of credit risk of commercial banks in emerging economy banking systems compared with developed economies. Australia, France, Japan and the US represent developed economies; emerging economies are India, Korea, Malaysia, Mexico and Thailand. Credit risk theories and empirical literature suggest eight credit risk determinants. We find anywhere from two to four factors are alone significantly correlated with credit risk of any one banking system. Regulatory capital is significant for banking systems that offer multi products; management quality is critical in the cases of loan-dominant banks in emerging economies. Contrary to theory or studies, we find leverage is not correlated with credit risk in our test period. Data transformations and statistical corrections ensured these results are reliable: Model robustness was tested using AIC. The model developed here could be applied to test more emerging economy banking systems to generalize our findings to other economies.
JEL Classification: F28
Keywords: Bank risk management; credit risk; regulatory capital; emerging economies.

Day-of-the-Week Effect and Volatility in Stock Returns: Evidence From East Asian Financial Markets
Chiaku Chukwuogor-Ndu
Eastern Connecticut State University, United States of America
Abstract Ɩ Full Text
The presence of the day-of-the-week effect has been documented in finance literature. This paper investigates the presence of the day-of-the-week effect and return volatility in ten East-Asian financial markets in the post Asian financial crisis period, after 1998. A set of parametric and non-parametric tests is used to test the equality of mean returns and standard deviations of returns. The results indicate the presence of the day-of-the-week effect and insignificant daily returns volatility in most markets. Some of these results reinforce some previously documented evidence and others are at variance with published results for the same markets. This effect, unlike in devloped markets, is still persistent.
JEL Classification: G14 & G15
Keywords: returns, volatility, standard deviation, anomalies, day-of-the-week effect, kurtosis, skewness.

Thai Banking: A Note on Technological Change and Technological Capabilities
Jarunee Wonglimpiyarat
The National Science and Technology
Development Agency (MTEC), Thailand
Abstract Ɩ Full Text
This paper reports on the technological capabilities and learning of Thai banking system. It identifies innovation development of the system as it evolved and how the learning process took place. This study is based on a leading technological regime change literature and the results are based on the study of five commercial banks: Bangkok Bank, Siam Commercial Bank, Thai Farmers Bank (Kasikorn Bank), Krung Thai Bank, and Bank of Ayudhya. Mass automation of work procedures occurred during the 1960s and 1970s while the smart automation regime began in the early 1970s. The ways in which the banks improved their technological capabilities via electronic banking services is explored. The results also show that the use of technology in the mass automation regime is carried through to the smart automation regime, showing that the technological change in the banking sector is not revolutionary, but ocurred slowly, i.e. evoled via slow learing process.
JEL Classification: G21
Keywords: technological change, technological capabilities, revolutionary, evolutionary, mass automation, smart automation.

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