International Research Journal of Finance and Economics
 Issue 161
 May, 2017
Dynamic Parametric and Nonparametric Hedging: Evidence from the Arab Gulf Equity Markets
Ramzi Nekhili and Hela Miniaoui

This paper examines the optimal hedging strategies in the Arab Gulf equity markets using a parametric and a nonparametric dynamic approaches in modeling the conditional variances and covariances of equity returns. The parametric approach is based on a multivariate VAR-GARCH model of daily returns, with BEKK specification of Engle and Kroner (1995), and the nonparametric approach adopts a dynamic system based on Filtered Historical Simulation (FHS) of Barone-Adesi et al. (1999) and nonparametric regression. These approaches are then used to calculate optimal portfolio weights and optimal ratios of hedging long and short positions in the Gulf Cooperation Council major sectors, namely, Service, Financial and Industrial. The results show that the nonparametric approach provides higher hedging effectiveness and hence superior hedging strategies.
Keywords: Multivariate GARCH, Filtered Historical Simulation, Optimal Hedging.
JEL Classification: G10, G15.
Comparative Effectiveness of Financial and Operational Hedging: A Gulf Co-Operation Council Perspective
Ahmad Bash, Abdullah M. Al-Awadhi, Musaed AlAli, Sundus Al-Yatama, Fahed Beneid, Mansour Al-Fadhli

This paper examines the effectiveness of financial-hedging techniques—such as forward hedging—versus operational-hedging techniques, such as risk-sharing arrangements, currency collars and hybrid arrangements for a domestic firm in the Gulf Co-operation Council (GCC) with foreign-currency exposure to the GBP, CHF, and JPY. Our results show that forward hedging is more effective than either risk-sharing arrangements or hybrid arrangements. However, when compared with currency collars, the results are mixed. Moreover, we find that hybrid-arrangements hedging consisting of a 0.667 weight of risk-sharing arrangements represents the optimum weight at which the maximum value of the domestic-currency value of payables, the variance of domestic-currency value of payables, the variance ratio, and variance reduction become insensitive to changes in risk parameters.
Keywords: Financial Hedging, Operational Hedging, Gulf Co-operation Council
JEL Classification: B17
The Effect of Discretionary Accruals on Financial Statement Fraud: The Case of the French Companies

The aim of this paper is to examine the effect of discretionary accruals and governance mechanisms in the occurrence of financial statement fraud. The sample consists of 250 annual reports spanning from 2006 to 2010 for listed French companies, which 45 detected fraudulent company by the Financial Market Authority (AMF). Our findings such that discretionary accruals have a positive effect in corporate fraud, when distinguish between positive discretionary accruals (aggressive accounting policy) and negative discretionary accruals (conservative accounting policy); we provide evidence that aggressive accounting manipulation increases the likelihood of financial statement fraud. By contrast, conservative accounting policy is negatively associate with corporate fraud. Additionally, the outside director and ownership concentration are the most significant variables of governance to explain the corporate fraud.
Keywords: Fraud, Discretionary Accruals, Corporate governance.
JEL Classification: G34
An Econometric Test of Long Term Relationship between Hang Seng China AH A-share Index and Hang Seng China AH H-share Index
MAN Ka Kit

If there are enough opportunities of arbitrage, the prices of an asset trading in different locations should not deviate from each other. Putting this premise upside down, an asset trading in different markets with substantial obstacle to arbitrage should have no ground to converge. Hence, the segregation of A-share and H-share market shall allow price divergence. However, empirical evidence shows long term relationship between A- and H-share markets. In this paper, an econometric analysis of a current data set demonstrates long term (in two years time) relationship between the two markets. To make the empirical result useful, further research should focus on what leads to temporary divergence of prices in different market. Even more important is to identify, with longer series of data, whether the relationship between the prices in the two markets is stable over time.
Keywords: Globalisation, Financial Institution, Financial Market.
JEL Classification: F36, G12
Explaining Role of Servant Leadership on Strengthening the Organizational Citizenship Behavior
Samira Mirshekar and Ebrahim Haddadi

Given the importance of servant leadership as successful management style in present organizations and evaluation of organizational behavior citizenship as an important determinant of organizational effectiveness, there have been conducted paucity of research in this area in Iran; the present research aims to assess servant leadership and more importantly, to find out the reasons on relationship between servant leadership and organizational citizenship behavior of employees. This is an applied and descriptive survey-research. The research instruments include library research and collecting information and data by structured questionnaire; In order to evaluate the validity and reliability of the questionnaire and Cronbach's alpha and this value is equal to 0.93. Data were analyzed using multiple regression test and SPSS software were used. Regression analysis of field data showed that among independent variables of servant leadership, variables fear of God, breath control, communication altruistic vision, and persuasiveness had positive effect on dependent variable (organizational citizenship behavior).
Keywords: Servant Leadership, Organizational Citizenship Behavior.
JEL Classification: D23
Perception of Bank Customers towards Banking Corporate Social Responsibility in Vietnam
Quan N. Tran, Thuy T. Le and Ly Ngoc T. Huynh

The financial crisis and consequences has significantly highlighted the need for integration of corporate social responsible (CSR) in the banking business. Banking industry allocates vast amount of funds to emphasis on various CSR strategies in the marketplace. However, there are just few studies investigate how retail bank customers response to different CSR initiatives. The study investigates ASEAN bank customers’ perception towards Corporate Social Responsibilities (CSR) initiatives among three stakeholder groups: customers themselves, community and environment. The sample includes 200 bank customers of major banks in Vietnam. Empirical survey and snowball sampling have been carried out to collect customers’ reactions. As a result, 190 valid questionnaires were employed in reliability test, exploratory factor analysis (EFA), multiple regression and analysis of variance (ANOVA) to examine customer attitude and behavioral intentions toward banking CSR and their choice of banking services. The analysis shows that banking customers are entirely in the favor of CSR initiatives in the banking industry with emphasis on customer centric initiatives.
Keywords: Corporate Social Responsibility, CSR initiatives, Customer choice of banks, Customer Centric, Philanthropy, Environmental Protection
JEL Classification: G21, L20
Does Stock Option Force Bid-Ask Spread and Abnormal Return?
R. Adisetiawan

Research on stock splits has frequently been undertaken. The results vary, but fundamentally can be classified into two groups. First, the stock split is purely ”cosmetic”. Second, the stock split has a real effect on stocks. The difference between these opinions raises controversy. The purpose of this study is to examine whether stock splits influence stock liquidity and return of an individual stock as well as in a group of stocks as a portfolio. Overall, the results of this study show that stock splits did influence stock price, trading volume and bid-ask spread but did not influence stock risk and abnormal return from the point of view of an individual stock as well as in a group of stocks as a portfolio. The test of a relationship between bid-ask spread and stock price, trading volume and stock risk for each stock shows that all three variable did not significantly affect the bid-ask spread. On the other hand, the test of a relationship in a portfolio reveals that only stock prices significantly affect the bid-ask spread.
Keywords: stock splits, liquidity, abnormal return, bid-ask spread, stock return.
JEL Classification: G32
On the Determinants of Outward Foreign Direct Investment: Empirical Evidences from Thailand
Hsiang-Hsi Liu and Pitprapha Dejphanomporn

Foreign direct investment (FDI) has played an important role in Thailand’s economic growth and development in the Asia-Pacific area. Since 1988-1990, Thailand has been a major destination for FDI, but rapid increasing trend in outward FDI was not seen until 2003. Empirical results of this study show that major determinants such as Thailand’s openness and bilateral trade agreements have positive and statistically significant effects on Thailand’s outward FDI. On the other hand, exchange rates and global financial crisis have negative and statistically significant effects. Hopefully, the empirical results provide investors and policymakers some implications to select the appropriate investment decisions.
Keywords: Foreign Direct Investment, Panel Data Model, Fixed Effects, Generalized Least Squares (GLS), Thailand Economy.
JEL Classification: F3
Whether Reputation of Auditors, Board of Directors, Leverage, and the Initial Public Offering (Ipo), Triggering Earnings Management? an Evidance in Indonesia

Earnings management is a management act in financial statement preparing process in order to obtain whether his personality welfare or his company’s value. This research is a replication from Dechow et. al (1996) who had tested causes and consequences of earnings manipulation in firms subject to AAER (Accounting and Auditing Enforcement Release) by SEC (Securities Exchange Commission). Purpose of this research is to give empirically evidence the influence of auditor reputation, board of directors, leverage, and public offering stock percentage at IPO time to the earnings management in initial public offering’s firms which was listed in Indonesian Stock Exchange at 2014 until 2016. Statistical analysis method used is multiple regression. This research’s result shows that leverage has significant influence to earnings management. It is mean that earnings management has a relation with external financing, especially debt.
Keywords: earnings management, discretionary accruals, initial public offering (IPO), leverage.
JEL Classification: G2
Profitability of the Pair Trading Strategy across Different Asset Classes
Samar Habibi and Kamran Pakizeh

We perform an extensive empirical analysis of performance of pairs trading, a popular relative-value arbitrage strategy, based on four different selection methods—the Minimum Distance, Augmented Dickey Fuller Test and Granger Causality test, Linear Regression, and Correlated Remaining methods—across different asset classes including the Tehran Stock Exchange (TSE) shares, and components of S&P500 as well as commodities from February 2013 to May 2015. Results of the empirical test of four methods demonstrate that using different asset classes yields an excess return more than market. In addition, Minimum Distance can be considered the best method for application of the pairs trading strategy with an average annualized excess return of about 22%.
Keywords: Pair trading, Asset classes, Distance method, Augmented Dicky Fuller (ADF) test, Granger causality (CG) test
JEL Classification: C01, F21, G11, G15