Browsing by Author "Marshall, Ben"
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- ItemEssays on stock price crashes : a thesis presented in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Finance, School of Economics and Finance, Massey University(Massey University, 2024-03-29) Roy, SuvraThis thesis comprises three essays that contribute to the literature on the consequences of stock price crashes. Essay One explores the post-crash responses of managers, the motives behind those responses, and the effects of those management responses on shareholders. The essay finds that managers of the crashed firms change their course of action to regain the trust of investors and improve firm value. Managers shift their attention towards enhancing transparency, optimizing investments, resolving internal conflicts, and investing in social capital and employee well-being. These initiatives contribute to enhancing the firm's value. Furthermore, this research proposes that management engages in these measures with consideration for their job security. Essay Two investigates the extent to which firm systematic risk changes following stock price crashes. It shows that stock price crashes result in increased systematic risk. This is evident across firms with both low and high betas. The higher systematic risk following a crash primarily stems from heightened default risk and results in equity financing becoming more expensive. Essay Three examines whether a firm price crash leads to the returns of the firm’s non-crash peer firms co-moving more with the returns of the market. The essay finds that this does occur. Investors focus more on firms that have experienced a crash while paying less attention to their non-crashed peer firms. This suggests that the investor trading behavior of these peer firms relies less on specific stock-related news and more on general market trends. The essay does not find any evidence to consider internal as well as external monitoring and information asymmetry as possible mechanisms of investor distraction. Overall, these essays provide contributions to the literature on stock price crash risk, financial markets, and corporate risk management. The thesis highlights how stock price crashes impact management responses, systematic risk, and the behavior of non-crashing peer firms, offering valuable insights for managers, investors, and market regulators to manage and respond to such events effectively. The thesis suggests that managers need to ensure their actions are taken post-crashes and potentially even before to prevent adverse events. Increased firm beta post-crash affects equity financing, portfolio management, risk assessment, and hedging decisions. Understanding firms’ systematic risk holds implications for managers, portfolio managers, and market regulators to manage firm systematic risk effectively. This thesis also documents a new source of return co-movement distinct from market-level shocks.
- ItemEssays on stop-loss rules : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Palmerston North, New Zealand(Massey University, 2021) Dai, BochuanStop-loss rules are trading rules that involve selling a security when its price drops by a certain amount and buying the security back when its price rises above a pre-specified level. They are popularly used by practitioners. These rules are designed to protect gained profits as their sale trigger the price to be adjusted higher as prices increase. This thesis contributes to the literature on stop-loss rules in financial markets. The first essay investigates the time-series and cross-sectional determinants of stop-loss rules for risk reduction in the U.S. stock market. It finds that, even though stop-loss rules have poorer mean returns to a mean-variance optimal benchmark, they are effective at stopping losses. These rules reduce overall and downside risk, especially during declining market states. The transaction costs analysis shows that the significant effectiveness of risk reduction holds for these rules with larger stop-loss thresholds. Essay two examines the performance of stop-loss rules from the perspective of international equity market allocation. International diversification provides potential for larger returns but often induces higher risks. Thus, it is a natural setting to consider stop-loss rules from a global point-of-view. This essay finds that stop-loss rules are an important factor of international equity allocation in a parametric portfolio policy setting. These rules generate portfolios with larger mean and risk-adjusted returns. This result is economically stronger in declining markets. The outperformance is robust once the transaction costs are accounted for. Essay three shows that stop-loss rules enhance the returns to stocks with lottery features. Individual investors have a strong preference for lottery stocks that typically have irregular enormous gains and frequent small losses. Stop-loss rules are useful at reducing losses and protecting gains from large price rises. This essay highlights that the sell signals of popular technical rules and time-series momentum rules are consistent with stop-loss rules, thereby effectively increasing the risk-adjusted returns of lottery stocks. These rules would have helped investors avoid instances of major historical drawdowns and are particularly beneficial in recessionary markets. Some rules are robust to the inclusion of transaction costs.
- ItemLiquidity and stock returns in order driven markets : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Finance at Massey University(Massey University, 1999) Marshall, BenThis thesis examines the relationship between liquidity and stock returns in the New Zealand and Australian stock markets, for the periods of 1993 to 1998 and 1994 to 1998 respectively. There is evidence to suggest that investors are compensated for holding less liquid stocks with higher returns. However, this is the first study (that the author is aware of) to test the return-liquidity relationship in pure order driven stock exchanges. The combined use of bid-ask spread, turnover rate, and amortised spread as proxies for liquidity, also makes this study unique. Previous studies have investigated the return-liquidity relationship using only one or two of these proxies. In addition to liquidity, other factors that have been found by previous researchers to influence stock returns, such as beta, size, and book-to-market equity are also considered. Seemingly Unrelated Regressions (SUR) and a variant of the General Pooled Cross-Sectional Time-Series Model, known as the Cross Sectionally Correlated Timewise Autoregressive (CSCTA) Model, form the methodological basis for this research. A small liquidity premium is found in both markets. This premium persists for the entire year in the Australian market, while in the New Zealand market the premium is only evident in the month of January. There is strong evidence of a negative size effect in Australia. In New Zealand, there is weak evidence of a negative size effect in the month of January. The returns of high book-to-market equity (value) firms are found to be larger than those of their low book-to- market equity (growth) firm counterparts in New Zealand.