What Is the Optimal Level of Transparency and Should Off-Market Block Trading exist in Futures Markets? The aims of this project are twofold; to assess (i) what level of transparency is optimal and (ii) whether off-market block trading should be allowed in futures markets. Transparency refers to how much of the trading process is made visible to participants. The issue has been researched only very recently and findings have been limited. Off-market block trading procedures allow large trades ....What Is the Optimal Level of Transparency and Should Off-Market Block Trading exist in Futures Markets? The aims of this project are twofold; to assess (i) what level of transparency is optimal and (ii) whether off-market block trading should be allowed in futures markets. Transparency refers to how much of the trading process is made visible to participants. The issue has been researched only very recently and findings have been limited. Off-market block trading procedures allow large trades to be executed away from the market. This project will undertake the first study of large trades on futures markets and will also compare the impact of large trades on market quality when executed on- and off-market.Read moreRead less
Capital Management in a Stochastic Earnings Framework. Many large Australian firms have on-going capital management programs. These programs are aimed at ensuring that the firm maintains an optimal capital structure. This is often done according to rules of thumb or benchmarked against a few financial ratios. To the extent that more rigor can be introduced into the analysis of optimal capital structure, there is a clear benefit to Australian firms. Of course, the reason firms engage in capit ....Capital Management in a Stochastic Earnings Framework. Many large Australian firms have on-going capital management programs. These programs are aimed at ensuring that the firm maintains an optimal capital structure. This is often done according to rules of thumb or benchmarked against a few financial ratios. To the extent that more rigor can be introduced into the analysis of optimal capital structure, there is a clear benefit to Australian firms. Of course, the reason firms engage in capital management initiatives in the first place is to lower their cost of capital and to increase value. Any initiative that lowers the cost of capital of Australian firms will result in increased productivity and economic growth.Read moreRead less
Measuring the Effects of Interest Rate Volatility. Interest rate changes have important implications for highly influential macroeconomic variables and, for the investor, have direct implications for asset prices, net worth and future wealth. By considering unresearched areas concerning the behaviour and influence of interest rates our research will be of interest to an academic audience, government, regulators and market practitioners. Attention to Australia, the US and Asia means that the rese ....Measuring the Effects of Interest Rate Volatility. Interest rate changes have important implications for highly influential macroeconomic variables and, for the investor, have direct implications for asset prices, net worth and future wealth. By considering unresearched areas concerning the behaviour and influence of interest rates our research will be of interest to an academic audience, government, regulators and market practitioners. Attention to Australia, the US and Asia means that the research will be directly relevant to Australian decision-makers. Further, the project will yield papers for publication in top international journals, reinforcing Australia's reputation as a leading centre for financial research and enhance it's reputation for cutting-edge work.Read moreRead less
Asset Pricing, Signal Type and Overconfident Investors. Recent bubbles in financial markets and other anxieties with regard to whether financial assets are correctly valued have led to a reduction in the confidence in financial markets. This study, by focussing upon potential biases in the price formation process, will provide strong insights into this important topic. In covering three major equity markets, the project will provide important guidance for the design of regulatory policies on c ....Asset Pricing, Signal Type and Overconfident Investors. Recent bubbles in financial markets and other anxieties with regard to whether financial assets are correctly valued have led to a reduction in the confidence in financial markets. This study, by focussing upon potential biases in the price formation process, will provide strong insights into this important topic. In covering three major equity markets, the project will provide important guidance for the design of regulatory policies on corporate disclosure by both Governments and Stock Exchanges. Given the increased need for funded superannuation/pension schemes, an increase in the confidence in capital market processes will benefit the development of successful funded schemes.Read moreRead less
The Role of Corporate Governance Mechanisms in Maximising the Performance of Listed Australian Corporations. The recent spake of corporate collapses and scandals highlights the need for an ongoing commitment to the development, implementation and maintenance of strong systems of governance within Australian corporations. This commitment necessitates an understanding of which suite of governance mechanisms are most effective in positively impacting upon corporate performance rather than just the ....The Role of Corporate Governance Mechanisms in Maximising the Performance of Listed Australian Corporations. The recent spake of corporate collapses and scandals highlights the need for an ongoing commitment to the development, implementation and maintenance of strong systems of governance within Australian corporations. This commitment necessitates an understanding of which suite of governance mechanisms are most effective in positively impacting upon corporate performance rather than just the performance impact of a particular mechanism in isolation. To date, research facilitating such an understanding is all but non-existent. However, our study will yield this much-needed evidence and, therefore, provide the foundations for ongoing corporate governance reform on the part of regulators and practitioners alike.Read moreRead less
A Complex Systems Approach to Modelling Time-Varying Risk in the Presence of Market Frictions. Risk and return are two fundamental variables underlying all business decisions. Risk is difficult to measure - potentially leading to sub-optimal outcomes needlessly wasting $millions. This project focuses on two important data problems in risk measurement - thin trading and price limits - applying a complex systems approach. Specifically, we develop a new time varying risk estimator from the clas ....A Complex Systems Approach to Modelling Time-Varying Risk in the Presence of Market Frictions. Risk and return are two fundamental variables underlying all business decisions. Risk is difficult to measure - potentially leading to sub-optimal outcomes needlessly wasting $millions. This project focuses on two important data problems in risk measurement - thin trading and price limits - applying a complex systems approach. Specifically, we develop a new time varying risk estimator from the class of generalised Tobit models - popular in other areas of economics. Using data across several markets, the new risk measure will be developed, applied and compared to existing approaches. This will improve future decision-making - delivering considerable long-term economic benefits.Read moreRead less
Causes and Consequences of Short Selling for Equity Returns. Short selling involves holding negative quantities of an asset. As prices fall, the short position makes profit. Short selling is thought to reflect the market's expectation of future underperformance. This study aims to explore the determinants and consequences of short selling. In particular we aim to address the following:
1. Do short sales create excessive volatility?
2. Can we price the volatility associated with short selling i ....Causes and Consequences of Short Selling for Equity Returns. Short selling involves holding negative quantities of an asset. As prices fall, the short position makes profit. Short selling is thought to reflect the market's expectation of future underperformance. This study aims to explore the determinants and consequences of short selling. In particular we aim to address the following:
1. Do short sales create excessive volatility?
2. Can we price the volatility associated with short selling in a modern risk management framework?
3. What factors underlie the volume of short sales?
4. Should we distinguish between long and short transactions, or is gross traded volume a sufficient measure of turnover?
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Fragmentation, globalization and the architecture of stock markets: How should the ASX be redesigned to ensure its long-term survival? The ASX is only at 10% of its potential relative to world best practice in architectural design. Reforms that we investigate, such as a massive reduction in the minimum tick and greater transparency to reduce asymmetric information, could lift traded value by several fold and by billions of dollars to efficiency levels achieved by South Korea and reduce trading c ....Fragmentation, globalization and the architecture of stock markets: How should the ASX be redesigned to ensure its long-term survival? The ASX is only at 10% of its potential relative to world best practice in architectural design. Reforms that we investigate, such as a massive reduction in the minimum tick and greater transparency to reduce asymmetric information, could lift traded value by several fold and by billions of dollars to efficiency levels achieved by South Korea and reduce trading costs by hundreds of millions pa. For each dollar of actual trading costs saved there is a further saving of 12 dollars in trades currently forgone. The ASX can be preserved from the threat of annihilation by a new global exchange and set up common trading platforms like Euronext in our region. The result will be more successful stocks to replace NewsCorp.Read moreRead less
Equity Market Integrity and Liquidity. This project seeks to increase our understanding of market integrity. Market integrity directly impacts investor confidence which influences liquidity and the cost of capital. It is imperative that exchanges implement policies to enhance integrity to survive in a competitive market. The Australian Stock Exchange Limited (ASX) has provided access to unique data of alleged market manipulation to undertake this research. Previous researchers have been cons ....Equity Market Integrity and Liquidity. This project seeks to increase our understanding of market integrity. Market integrity directly impacts investor confidence which influences liquidity and the cost of capital. It is imperative that exchanges implement policies to enhance integrity to survive in a competitive market. The Australian Stock Exchange Limited (ASX) has provided access to unique data of alleged market manipulation to undertake this research. Previous researchers have been constrained by their inability to access such data. We now have an opportunity to complete unique research to develop a measure of market integrity and assess its impact on liquidity and the cost of capital.Read moreRead less
Australian Costs of Equity. The goal of this project is to identify the most appropriate framework and estimation methodology for estimating the cost of equity capital for Australian firms. The outcome of the project will be the identification of precise costs of equity of all industries and exchange-listed companies in Australia. Our final product will not only attain high academic value by providing comprehensive examination of all popular asset pricing models, but will also serve as a compreh ....Australian Costs of Equity. The goal of this project is to identify the most appropriate framework and estimation methodology for estimating the cost of equity capital for Australian firms. The outcome of the project will be the identification of precise costs of equity of all industries and exchange-listed companies in Australia. Our final product will not only attain high academic value by providing comprehensive examination of all popular asset pricing models, but will also serve as a comprehensive benchmarking tool for all investment decisions (both corporate and government) in Australia. This will bring about economic efficiency and benefits to the business community via more accurate valuation of assets and more appropriate evaluation of potential new projects.Read moreRead less