The Journal of Finance

Tests of the CAPM with Time‐Varying Covariances: A Multivariate GARCH Approach

Published: 9/1991,  Volume: 46,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1991.tb04628.x  |  Cited by: 65

LILIAN NG

This paper examines an asset pricing model in which the Sharpe‐Lintner CAPM and the zero‐beta CAPM are special cases. The model allows the ratio of expected market risk premium to market variance, the conditional expected excess returns, and the risks to change over time. The results are found to be sensitive to the choice of the portfolio formation techniques. Significant time variability is shown in the conditional expected excess asset returns and risks and also in the reward‐to‐risk ratio.

The Foreign Exchange Exposure of Japanese Multinational Corporations

Published: 4/1998,  Volume: 53,  Issue: 2  |  DOI: 10.1111/0022-1082.295575  |  Cited by: 443

Jia He, Lilian K. Ng

We find that about 25 percent of our sample of 171 Japanese multinationals' stock returns experienced economically significant positive exposure effects for the period January 1979 to December 1993. The extent to which a firm is exposed to exchange‐rate fluctuations can be explained by the level of its export ratio and by variables that are proxies for its hedging needs. Highly leveraged firms, or firms with low liquidity, tend to have smaller exposures. Foreign exposure is found to increase with firm size. We also find that keiretsu multinationals are more exposed to exchange‐rate risk than nonkeiretsu firms.

Stock Price Dynamics and Firm Size: An Empirical investigation

Published: 12/1992,  Volume: 47,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1992.tb04693.x  |  Cited by: 171

YIN‐WONG CHEUNG, LILIAN K. NG

We show that after controlling for the effects of bid‐ask spreads and trading volume the conditional future volatility of equity returns is negatively related to the level of stock price. This “leverage effect” is stronger for small, as compared to large, firms. We also document that while the essential characteristics of the relations between stock price dynamics and firm size are stable, the strengths of the relationships appear to change over time.

What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide

Published: 5/3/2005,  Volume: 60,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2005.768_1.x  |  Cited by: 691

KALOK CHAN, VICENTIU COVRIG, LILIAN NG

We examine how mutual funds from 26 developed and developing countries allocate their investment between domestic and foreign equity markets and what factors determine their asset allocations worldwide. We find robust evidence that these funds, in aggregate, allocate a disproportionately larger fraction of investment to domestic stocks. Results indicate that the stock market development and familiarity variables have significant, but asymmetric, effects on the domestic bias (domestic investors overweighting the local markets) and foreign bias (foreign investors under or overweighting the overseas markets), and that economic development, capital controls, and withholding tax variables have significant effects only on the foreign bias.

Tests of the Relations Among Marketwide Factors, Firm‐Specific Variables, and Stock Returns Using a Conditional Asset Pricing Model

Published: 12/1996,  Volume: 51,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1996.tb05230.x  |  Cited by: 22

JIA HE, RAYMOND KAN, LILIAN NG, CHU ZHANG

In this article we generalize Harvey's (1989) empirical specification of conditional asset pricing models to allow for both time‐varying covariances between stock returns and marketwide factors and time‐varying reward‐to‐covariabilities. The model is then applied to examine the effects of firm size and book‐to‐market equity ratios. We find that the traditional asset pricing model with commonly used factors can only explain a small portion of the stock returns predicted by firm size and book‐to‐market equity ratios. The results indicate that allowing time‐varying covariances and time‐varying reward‐to‐covariabilities does little to salvage the traditional asset pricing models.

PARETO‐OPTIMALITY OF AUTHENTIC INFORMATION

Published: 12/1977,  Volume: 32,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1977.tb03365.x  |  Cited by: 9

David S. Ng

Default Premiums in Commodity Markets: Theory and Evidence

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03777.x  |  Cited by: 8

WARREN BAILEY, EDWARD NG

We model the effect of nonperformance risk on forward and futures pricing and look for evidence of nonperformance risk in precious metals futures prices from the “Hunt Brothers”episode. Changes in default premiums are measured and related to the sequence of events in the metals markets during this period. Results suggest first that ex ante costs of nonperformance can be a significant, priced factor in commodity markets and second that the arrival of new information is often associated with changes in these costs. The evidence has implications for both theoretical and empirical research on commodity markets.

Measuring and Testing the Impact of News on Volatility

Published: 12/1993,  Volume: 48,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1993.tb05127.x  |  Cited by: 2653

ROBERT F. ENGLE, VICTOR K. NG

This paper defines the news impact curve which measures how new information is incorporated into volatility estimates. Various new and existing ARCH models including a partially nonparametric one are compared and estimated with daily Japanese stock return data. New diagnostic tests are presented which emphasize the asymmetry of the volatility response to news. Our results suggest that the model by Glosten, Jagannathan, and Runkle is the best parametric model. The EGARCH also can capture most of the asymmetry; however, there is evidence that the variability of the conditional variance implied by the EGARCH is too high.

Option Valuation with Systematic Stochastic Volatility

Published: 7/1993,  Volume: 48,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1993.tb04023.x  |  Cited by: 170

KAUSHIK I. AMIN, VICTOR K. NG

We use an extension of the equilibrium framework of Rubinstein (1976) and Brennan (1979) to derive an option valuation formula when the stock return volatility is both stochastic and systematic. Our formula incorporates a stochastic volatility process as well as a stochastic interest rate process in the valuation of options. If the “mean,” volatility, and “covariance” processes for the stock return and the consumption growth are predictable, our option valuation formula can be written in “preference‐free” form. Further, many popular option valuation formulae in the literature can be written as special cases of our general formula.

Determinants of Contract Choice: The Use of Warrants to Compensate Underwriters of Seasoned Equity Issues

Published: 3/1996,  Volume: 51,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1996.tb05213.x  |  Cited by: 28

CHEE K. NG, RICHARD L. SMITH

The issuer's decision to include warrants as compensation to underwriters is studied for a sample of 1,991 negotiated firm commitment issues of seasoned equity. Using a two‐stage logit model to correct for self‐selection bias, we find direct evidence that warrant compensation functions as a bond, substituting for reputational capital and enabling the underwriter to certify the issue price. To a lesser degree, the decision also is affected by regulations on underwriter compensation and on the use of underwriter warrants. Issuers' decisions are consistent with an objective of minimizing total underwriting cost, including cash compensation, warrants, and underpricing.

Evidence on the Determinants of Credit Terms Used in Interfirm Trade

Published: 6/1999,  Volume: 54,  Issue: 3  |  DOI: 10.1111/0022-1082.00138  |  Cited by: 625

Chee K. Ng, Janet Kiholm Smith, Richard L. Smith

AbstractTrade credit is created whenever a supplier offers terms that allow the buyer to delay payment. In this paper we document the rich variation in interfirm credit terms and credit policies across industries. We examine empirically the firm's basic credit policy choices: whether to extend credit or to require cash payment; and, if credit is extended, whether to adopt simple net terms or terms with discounts for prompt payment. We also examine determinants of variations in two‐part terms. Results are supportive primarily of theories that explain credit terms as contractual solutions to information problems concerning product quality and buyer creditworthiness.