The Journal of Finance

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

Published: 09/01/1991   |   DOI: 10.1111/j.1540-6261.1991.tb04628.x

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: 12/17/2002   |   DOI: 10.1111/0022-1082.295575

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: 12/01/1992   |   DOI: 10.1111/j.1540-6261.1992.tb04693.x

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: 05/03/2005   |   DOI: 10.1111/j.1540-6261.2005.768_1.x

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: 12/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb05230.x

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.

Information, Ownership Structure, and Shareholder Voting: Evidence from Shareholder‐Sponsored Corporate Governance Proposals

Published: 06/01/1993   |   DOI: 10.1111/j.1540-6261.1993.tb04734.x

LILLI A. GORDON, JOHN POUND

This paper examines how information and ownership structure affect voting outcomes on shareholder‐sponsored proposals to change corporate governance structure. We find that the outcomes of votes vary systematically with the governance and performance records of target firms, the identity of proposal sponsors, and the type of proposal. We also find that outcomes vary significantly as a function of ownership by insiders, institutions, outside blockholders, ESOPs, and outside directors who are blockholders. These results suggest that both public information and ownership structure have a significant influence on voting outcomes.

Investment Bank Reputation and the Price and Quality of Underwriting Services

Published: 11/10/2005   |   DOI: 10.1111/j.1540-6261.2005.00815.x

LILY HUA FANG

The relation between investment bank reputation and the price and quality of bond underwriting services is studied here. After controlling for endogeneity in issuer–underwriter matching, I find that reputable banks obtain lower yields and charge higher fees, but issuers' net proceeds are higher. These relations are pronounced in the junk‐bond category, in which reputable banks' underwriting criteria are most stringent. These findings suggest that banks' underwriting decisions reflect reputation concerns, and are thus informative of issue quality. They also suggest that economic rents are earned on reputation, and thereby provide continued incentives for underwriters to maintain reputation.

Media Coverage and the Cross‐section of Stock Returns

Published: 09/28/2009   |   DOI: 10.1111/j.1540-6261.2009.01493.x

LILY FANG, JOEL PERESS

By reaching a broad population of investors, mass media can alleviate informational frictions and affect security pricing even if it does not supply genuine news. We investigate this hypothesis by studying the cross‐sectional relation between media coverage and expected stock returns. We find that stocks with no media coverage earn higher returns than stocks with high media coverage even after controlling for well‐known risk factors. These results are more pronounced among small stocks and stocks with high individual ownership, low analyst following, and high idiosyncratic volatility. Our findings suggest that the breadth of information dissemination affects stock returns.

Tracing the International Transmission of a Crisis through Multinational Firms

Published: 04/08/2024   |   DOI: 10.1111/jofi.13338

MARCUS BIERMANN, KILIAN HUBER

We show that multinational firms transmit shocks across countries through their internal capital markets. We study a credit supply shock to parent firms in Germany. International affiliates outside Germany supported their parents through internal lending, became financially constrained themselves, and experienced lower real growth. We find that managers were “Darwinist” with respect to international affiliates but “Socialist” in the home country, that internal capital markets transmitted the credit shock more strongly than a nonfinancial shock, and that access to developed credit markets attenuated the real effects. The total real impact of shock transmission through multinationals on foreign economies was large.