Research Papers - Dept of Business

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End date: 2009

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Now showing 1 - 10 of 17
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    PublicationOpen Access
    CAPM and Risk in the Australian Regulatory Context
    (SSRN, 2002-09-01) Alles, L. A; Johnson, N. W; Kenyon, P
    As one component in the determination of price caps for access to regulated gas pipelines under the National Access Code for Natural Gas Pipeline Systems (which is given legal effect through relevant State legislation), regulators utilise the CAPM to determine a 'reasonable' rate of return on the capital employed by the pipeline owner in the provision of gas transport services. A key issue in the use of CAPM in this manner is the determination of beta, the coefficient measuring systematic risk in the CAPM. Pipelines are not commonly traded in Australia, and hence market betas cannot be readily calculated from market data. This necessitates estimation of beta by other means. The methods used in practice is essentially a combination of comparisons with like pipelines which are traded (usually in the US or UK) combined with what can best be described as guesswork to incorporate differences between these pipelines and the pipelines being regulated. This process is less than rigorous and subject to rent-seeking behaviour by pipeline owners. This paper considers risk from the perspective of first principles, and derives a methodology for determining beta in the Australian regulatory context based upon a theoretical consideration of diversification choices of individuals.
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    PublicationOpen Access
    Asset Securitization and Structured Financing Future Prospects and Challenges for Countries in Emerging Markets
    (International Monetary Fund, 2001-09-01) Alles, L. A
    This article examines the issues and challenges involved for institutions, policy makers, and law-makers in less developed countries in their efforts to implement asset securitization techniques in their financial markets. Challenges and issues in the areas of market development, legislation, accounting, regulation and structuring are examined in the light of recent developments in securitization techniques.
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    PublicationOpen Access
    Risk factors in the Sri Lankan capital market
    (2008) Alles, L. A; Murray, L
    This paper examines whether additional risk factors such as the variance, skewness and coskewness of returns offer an appropriate explanation of company returns in the Sri Lankan Capital Market. Arguments for considering these risk factors in pricing models to better deal with the characteristics of a smaller developing capital market are presented. Using individual company returns, empirical tests examine whether the extra risk factors offer a significant explanation of the cross section of returns. Results indicate that while CAPM betas offer little explanation of company returns, variance and, to a lesser extent, skewness are significantly related to returns in this market. Coskewness has little importance. Robustness tests confirm that these measures are unrelated to company size.
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    PublicationEmbargo
    Identification of stock market maniplulation: a case study
    (Business Perspectives, Publishing Company, 2008-05-05) Alles, L. A; Simpson, J; Evans, J; Westaway, J
    This paper is based on an actual expert witness report undertaken by university business academics for a corporate regulatory authority in a developed country. The paper describes the methodology used to identify cases of stock market manipulation by insiders of a no liability mining company. An actual data set has been analyzed but the company and the country remain anonymous. It should be added that the real parties originally under suspicion were in fact charged with stock market manipulation based on the actual expert witness report outlined in this paper.
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    PublicationEmbargo
    The information on inflation in the Australian term structure
    (Routledge, 1997-12-01) Alles, L. A; Bhar, R
    In this paper we examine the information on inflation contained in the term spread of the Australian term structure in a model in which we allow the expected real term spread to vary with time. Previously, Mishkin (1990) assumed a constant expected real term spread in a similar inflation forecasting model. We further extend the model by allowing the coefficient of the nominal yield spread also to vary with time. Results show that the model based on the time-varying expected real rate, estimated with the Kalman filter, is more suitable than the model based on the constant real rate. Also, the term spread lagged one period has more information on future inflation than the contemporaneous term. Finally, the forecasting power of a model with a randomly time-varying yield spread is inferior to the other versions examined.
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    PublicationEmbargo
    Futures and forward price differential and the effect of marking-to-market: Australian evidence
    (Blackwell Publishers Ltd, 2001-07) Alles, L. A; Peace, P. P. K
    The objective of this paper is to examine the effects of marking-to-market of futures contracts on the price differential between futures and forward contracts based on the predictions ofthe Cox, Ingersoll and Ross (1981) (CIR) model. Cox et al., (1981) derive a series of propositions with respect to the relationship between futures and forward prices and a set of testable implications. These are tested empirically in this paper using Australian data from November 1991 to June 1997. The results provide evidence of the presence of significant futures and forward price differences, where the futures price is consistently below the forward price. Only partial support is found for the Cox et al., (1981) propositions, implying that the effect of marking-tomarket is not able to fully account for the price differential. Therefore, it is not possible to rule out the influence of other institutional factors on the futuresforward price difference.
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    PublicationOpen Access
    An option pricing approach to the estimation of downside risk: A European cross-country study
    (Palgrave Macmillan UK, 2008-05) Alles, L. A
    The purpose of this paper is to undertake a comparative study of the costs of downside protection for investors in the four major European stock markets: UK, Germany, France and Italy, and to investigate the time diversification effects in these markets by examining the variation of this cost as the investment horizon is extended. The cost of downside protection and time diversification effects are investigated by examining the properties of a protective put strategy and a capital protected equity participation strategy in each country's stock market over investment horizons ranging from 1 to 20 years. Long-horizon investment outcomes are generated using a bootstrapping technique. Results indicate that the cost of downside protection differs from one country to another, but there is a common pattern of the cost decreasing as the investment horizon lengthens. In overall terms, the pattern of decreasing protection costs at longer investment horizons is consistent with the notion of the time diversification benefits of investment risk.
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    Industry return predictability, timing and profitability
    (North-Holland, 2006-04-01) Yao, J; Alles, L. A
    This paper aims to investigate the predictability of Australian industrial stock returns. Several identified economic variables are found to contain significant predictive power over industry portfolio returns in a Bayesian dynamic forecasting model. The Bayesian updating process was also applied in an investigation of out-of-sample prediction, timing ability and the profitability of an investment strategy of industry-rotation. When the predictor variables are employed in out-of-sample analysis, the predictive power is superior to the naïve prediction. The timing ability and profitability associated with predictability are also economically significant. When the industry momentum is examined, the results show that a group-rotation strategy can enhance the portfolio performance.
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    The cost of downside protection and the time diversification issue in South Asian stock markets
    (Routledge, 2008-06-01) Alles, L. A
    The objectives of this article are to carry out a comparative study of the costs of downside protection for investors in the stock markets of Bangladesh, India, Pakistan and Sri Lanka, and to investigate the time diversification issue in these markets by examining the variation of this cost as the investment horizon is extended. The cost of downside protection and time diversification effects are investigated by examining the properties of a protective put strategy and a capital protected equity participation strategy in each country’s stock market over investment horizons ranging from 1 to20 years. Long-horizon investment outcomes are generated using a bootstrapping technique. Results indicate that the cost of downside protection differs from one country to another, but there is a common pattern of the cost decreasing as the investment horizon lengthens. In overall terms, the pattern of decreasing protection costs at longer investment horizons is consistent with the notion of the time diversification benefits of investment risk.
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    PublicationEmbargo
    Investment risk concepts and measurement of risk in asset returns
    (MCB UP Ltd, 1995-01-01) Alles, L. A
    The theory of finance is built around return and risk concepts and a basic tenet of finance is that there is a trade off between the risk and returns of assets. As such the measurement of risk goes to the very core and foundation of the theory of finance. Given that the main theories of finance have been maturing over several decades of discussion and debate, one would imagine that a concept as fundamental as the measurement of risk would be a well settled issue by now. On the contrary, the recent finance literature shows ample evidence that risk measurement and risk concepts are drawing continued scrutiny from academic researchers. This is because there are several alternative, and competing ways in which risk can be conceived of and it is not clear which of the alternative concepts is most appropriate. Each concept of risk can be measured or estimated in several ways as well. Estimation methods can be diverse in their precision. Risk measurement can be further complicated by the fact that risk is not a static feature. Risk changes over time. Whether risk changes can be modelled satisfactorily is a major challenge taken up by researchers.