https://ojs.aut.ac.nz/applied-finance-letters/issue/feedApplied Finance Letters2024-10-08T01:48:12+00:00Olga Doddolga.dodd@aut.ac.nzOpen Journal Systems<p>Applied Finance Letters is an open access journal publishing mainly empirical research with implications and relevance for academia and the finance industry. The aim is to encourage high-quality contributions that foster discussions among academics, policymakers and financial practitioners. The Journal welcomes submissions from all fields of finance and is especially interested in innovative and original contributions. Applied Finance Letters is B-ranked on the <a href="http://www.abdc.edu.au/master-journal-list.php" target="_blank" rel="noopener">2019 ABDC Journal Ranking List</a>, is indexed by <a href="https://www.aeaweb.org/econlit/journal_list.php" target="_blank" rel="noopener">EconLit</a> and <a href="https://doaj.org/" target="_blank" rel="noopener">DOAJ</a>, and has a self-computed <a href="https://en.wikipedia.org/wiki/Impact_factor" target="_blank" rel="noopener">2017 Impact Factor</a> of 0.53. We are pleased to invite papers for a special issue in 2023, go to "Announcements for more information.</p>https://ojs.aut.ac.nz/applied-finance-letters/article/view/713IMPACTS OF RISK PREFERENCE AND SOCIAL INSURANCE ON HOUSEHOLD FINANCIAL MARKET PARTICIPATION IN CHINA: ARE THERE DIFFERENCES BETWEEN URBAN AND RURAL RESIDENTS?2024-02-02T07:03:21+00:00Wei Yangxyw84200@gmail.comZhaohua LiZhaohua.Li@lincoln.ac.nzLe WangLe.Wang@lincolnuni.ac.nz<p>This letter examines the impact of risk preference and social insurance on household financial market participation and diversification using the 2017 and 2019 China Household Finance Survey. A multi-value treatment model is used to address the selection bias between risk preference and household financial investment, considering the moderation role of social insurance in between. Overall, our results show that high-risk takers are more likely to participate in the financial market and diversify their portfolios than low risk takers. Focusing on rural and urban differentials, we find marked differences in the impacts of risk preference and social insurance on household financial investment. Having social insurance may widen the difference in investment decisions between high- and low-risk takers in urban areas; the latter group tends not to participate in or diversify when socially insured. In contrast, having social insurance encourages low- and intermediate-risk preferred rural households to participate in the financial market and diversify their financial portfolios. Our work highlights the different consequences of social insurance on investment incentives of the rural and urban households. Whilst the obvious benefits of having social insurance for rural households via risk-sharing, there is undesired consequence of incentive distortion of urban households.</p>2024-02-02T03:13:31+00:00Copyright (c) 2024 Wei Yang, Zhaohua Li, Le Wanghttps://ojs.aut.ac.nz/applied-finance-letters/article/view/662The INVESTIGATION OF ASYMMETRIC DYNAMICS OF BORSA ISTANBUL INDEX WITH QUANTILE UNIT ROOT TEST2024-03-24T22:45:12+00:00Müge Özdemirmozdemir@umd.edu<p>In this study, we apply the quantile unit root test, which provides robust inferences for non-normal processes based on the quantile autoregression approach, to examine the asymmetric dynamic process of the BIST100 Borsa Istanbul index. The quantile autoregression approach allows the measurement of the persistency of shocks of different magnitudes and signs affecting the stock market index and can capture the adjustment of asymmetric dynamics in the long-run equilibrium of the index. Therefore, quantile unit root tests add new approaches to index dynamics compared to traditional unit root methodologies based on the least squares regression method. Our results show that the index not only returns to the mean but also exhibits asymmetric behavior in its dynamic structure. Compared to traditional unit root tests, quantile unit root tests provide more evidence to support the efficiency of the stock market index and show that the stock market index at different frequencies does not consistently have a unit root. Asymmetric inferences in shock magnitude and sign play an important role in asset pricing and forecasting in the securities market.</p>2024-03-07T00:00:00+00:00Copyright (c) 2024 Müge Özdemirhttps://ojs.aut.ac.nz/applied-finance-letters/article/view/663FUNDING AND OVERFUNDING PHENOMENA IN CROWDFUNDING: RELEVANCE OF PLATFORM CHOICE AND VARYING INDUSTRY DYNAMICS2024-03-25T11:00:28+00:00Dominika GalkiewiczDominika.Galkiewicz@fh-kufstein.ac.atMichal Galkiewiczmichal@galkiewicz.com<p>This study provides new evidence on factors relevant for the success of crowdfunding campaigns run in Europe between 2015 and 2017 on the most popular crowdfunding platforms in Germany/Austria – Kickstarter.com and Startnext.com. In particular, for this study, a sample of 10,514 campaigns from Germany and Austria for the first time serves as a basis for identifying the determinants of the level of projects’ (over-)funding. For crowdfunding projects, an increase in a project’s funding goal results in higher funding on both platforms, but this does not guarantee success, i.e. reaching the relevant funding goal. Projects with a higher success probability show lower funding goals, especially if launched on Startnext.com. In contrast, a longer duration negligibly increases the amount raised on Startnext and slightly decreases on Kickstarter. On Startnext, projects from the Art cluster have a higher chance to succeed, while these from the Technology cluster show smaller success probabilities as they regularly get less funding. On Kickstarter, projects from the Art, Technology, or Lifestyle field reach higher financing as compared to the Sustainability area. We show that the uncertainty about market size and project/founder quality leads to diverging over- and underfunding levels across platforms and industry clusters, which is of core importance to interested stakeholder groups.</p> <p><strong>Key words: </strong>crowdfunding, crowd, reward, Kickstarter, Startnext</p>2024-03-24T00:00:00+00:00Copyright (c) 2024 Dominika Galkiewicz, Michal Galkiewiczhttps://ojs.aut.ac.nz/applied-finance-letters/article/view/699GEOPOLITICS, UNCERTAINTY, AND CRYPTOCURRENCY: A LOVE TRIANGLE GONE WRONG2024-03-27T11:06:54+00:00Leila Dagherleiladagher@gmail.comAmar Raoamarydvrao@gmail.comDagar Vishaldagarvishal99@gmail.comOlatunji Shobandeo.shobande@tees.ac.uk<p>This study aims to investigate the spillover effects from geopolitical risks (proxied by the geopolitical risk index GPRD) and cryptocurrencies-related uncertainty (proxied by the Cryptocurrency Uncertainty Index UCRY) to cryptocurrencies. We utilize the Baruník and Křehlík (2018) framework to detect time-frequency connectedness. Our investigation for the period 2017 to 2022 discovers significant spillover effects from both indices (GPRD and UCRY) to cryptocurrencies. Utilizing the information transmission theory and network graphs, our findings reveal that some cryptocurrencies function as net receivers of spillovers from geopolitical risks and uncertainty in the short-term, while over longer time horizons they transform into net transmitters of spillovers to uncertainty. The study underscores the importance of comprehending how uncertainty due to various factors (geopolitical, policy changes, regulatory changes, etc.) could affect the cryptocurrencies’ markets.</p>2024-03-26T20:55:42+00:00Copyright (c) 2024 Leila Dagher, Amar Rao, Dagar Vishal, Olatunji Shobandehttps://ojs.aut.ac.nz/applied-finance-letters/article/view/738THE INFORMATIONAL ROLE OF THE LOAN ONLY CREDIT DEFAULT INDEX (LCDX) ON THE PRICING OF SYNDICATED LOANS 2024-04-02T21:05:14+00:00Zagdbazar Davaadorjzagdbazar.davaadorj@wmich.eduJorge Brusajbsa@tamiu.edu<p>This paper explores the informational role of the Loan Only Credit Default Index (LCDX) on the pricing of syndicated loans. Despite an extensive body of research on credit indices and loan pricing, limited studies have comprehensively assessed the complex relationship between the LCDX and individual loan spreads. Contrary to indices like the CDX, which are largely linked to corporate bonds, the LCDX directly pertains to the syndicated secured loan market, offering valuable insights about the overall credit default market and the cost of credit risk insurance. Preliminary results reveal a pronounced positive correlation between the LCDX spread and the syndicated loan spread, particularly noticeable amongst borrowers with lower credit quality. The paper highlights the LCDX's pivotal role in conveying secondary credit market information, with critical implications for credit risk management and financial regulations.</p>2024-03-27T23:08:53+00:00Copyright (c) 2024 Zagdbazar Davaadorj, Jorge Brusahttps://ojs.aut.ac.nz/applied-finance-letters/article/view/694INFECTIOUS DISEASE AND ASYMMETRIC INDUSTRIAL VOLATILITY2024-04-05T11:40:41+00:00Muhammad Tahir Suleman Sulemantahir.suleman@otago.ac.nzBurcu Kaparbkapar@aud.eduFaisal Ranafrana@aud.edu<p>We examine the time-varying effect of stock market volatility due to infectious diseases on industrial sectors<br>in the US from 2012 to 2021. We extend the current literature by exploring the diverse impact of infectious<br>diseases on various industrial sectors and decomposing industrial volatility into good and bad volatility to<br>quantify how good and bad components vary in response to the transmission of shocks due to infectious<br>diseases. The results show that the transmission of volatile shocks from the stock market more strongly<br>enhances the good component of industrial volatility as compared with bad volatility during COVID-19. We<br>conclude that the relationship between infectious disease equity market volatility and industrial volatility<br>depends on the good and bad volatile components and their respective conditions at different quantiles.</p>2024-04-04T21:05:27+00:00Copyright (c) 2024 Muhammad Tahir Suleman Suleman, Burcu Kapar, Faisal Ranahttps://ojs.aut.ac.nz/applied-finance-letters/article/view/767PERFORMANCE AND TRACKING EFFICIENCY OF COMMODITY ETFS IN THE UK2024-04-11T12:29:44+00:00GERASIMOS ROMPOTISgeras3238@yahoo.gr<p>This paper examines the performance and tracking efficiency of nine iShares ETFs traded on the London Stock Exchange in the UK. The results indicate that, on average, the performance of the examined ETFs has been positive during their entire trading history. However, these ETFs have failed to fully replicate the performance of the underlying commodities and indexes. At the cumulative level, an average underperformance of 172 basis points is found. In addition, at the sample level, about 86% of daily tracking errors are negative (indicating underperformance), and only 14% of tracking errors are positive (reflecting outperformance). Based on our results, the tracking error is induced by the departure from the full replication of the underlying assets. </p>2024-04-10T21:13:52+00:00Copyright (c) 2024 GERASIMOS ROMPOTIShttps://ojs.aut.ac.nz/applied-finance-letters/article/view/648RESILIENCE OF ORGANISATION CAPITAL ON FIRMS’ PERFORMANCE AMID CRISIS2024-04-19T13:08:19+00:00Li Xian Liuli.liu1@jcu.edu.auZhiyue Sunzhiyue.sun@curtin.edu.au<p>Drawing on the concept of organisation capital as an intangible asset perspective, we examine the relationship between organisation capital and Australia firms’ performance and its moderating effects during the last two crisis periods, i.e., Global Financial Crisis (GFC) and COVID-19. We find that higher investment in organisation capital will result in lower drops in firm’s performance. Long-term investment in organization capital would help to improve firm’s performance and mitigate the drops in performance in crisis. A resilience picture through organisation capital is pictured.</p>2024-04-18T21:08:50+00:00Copyright (c) 2024 Li Xian Liu, Zhiyue Sunhttps://ojs.aut.ac.nz/applied-finance-letters/article/view/718THE EFFECTS OF LOCAL SHAREHOLDERS ON FIRM PERFORMANCE: EVIDENCE FROM CORPORATE SOCIAL RESPONSIBILITY2024-05-01T13:43:48+00:00Hyoseok (David) Hwanghwangh@uwec.eduHyun Gon Kimhyungon.kim@rutgers.edu<p>This paper shows that local institutional shareholders tend to improve firm performance through corporate social investments. Using an extensive U.S. mutual fund-firm dataset, we find that local mutual funds tend to promote corporate social responsibility (CSR). In addition, the social investments are positively associated with firm performance. Finally, it is evident that CSR mediates the relation between local ownership and firm performance. Consistent with instrumental stakeholder theory, our findings suggest that local shareholders help firms develop reputational and relationship capital through CSR and lead to higher firm performance.</p>2024-05-01T03:51:09+00:00Copyright (c) 2024 Hyoseok (David) Hwang, Hyun Gon Kimhttps://ojs.aut.ac.nz/applied-finance-letters/article/view/730THE IMPACT OF SOCIAL MEDIA PRESENCE, RESPONSE TIME, CORPORATE ACTIONS ON THE STOCK MARKET: EVIDENCE FROM THE RUSSIA–UKRAINE WAR2024-05-15T14:22:54+00:00Vinayaka Gudegude.vinayaka@gmail.comDaniel HsiaoDaniel.Hsiao@tamuc.edu<p>This study investigates the influence of social media presence and conflict response on the stock returns during the Russia–Ukraine war. We examined the long-term impacts regarding social media presence, response time, action taken, and industry affiliation using a sample of 174 firms in 10 industrial sectors. The results highlight that response time and actions significantly impacted stock returns in both the short- term and long-term. Conversely, social media presence marginally affected response decisions, but did not significantly affect stock returns.</p>2024-05-15T00:03:05+00:00Copyright (c) 2024 Vinayaka Gude, Daniel Hsiaohttps://ojs.aut.ac.nz/applied-finance-letters/article/view/763POWER OF CSAD-BASED TEST ON HERDING BEHAVIOR2024-05-31T15:52:11+00:00Haoran Zhanghzhang05@manhattan.edu<p>This study aims to answer the question of whether the cross-sectional absolute deviation (CSAD)-based test is powerful enough to detect herding behavior in financial markets. Using US stocks as the main sample, I investigate the power of the CSAD-based test as a herding detection method, with a focus on two dimensions: the self-consistency of the method and the power of t-tests used in the method. I find that conducting the tests with a large number of stocks over extended time periods is likely to provide consistent conclusions on whether herding behavior exists in the stock market. These findings support the CSAD-based test as a herding detection method. However, with an overall mean of 59.37%, the estimated power of t-tests can be as low as 37.62%, indicating low testing power. Therefore, researchers should be careful when using the CSAD-based test as a herding detection method, especially when R^2s are low.</p>2024-05-30T00:00:00+00:00Copyright (c) 2024 Haoran Zhanghttps://ojs.aut.ac.nz/applied-finance-letters/article/view/761EVALUATING STOCK SELECTION IN THE SAAS INDUSTRY: THE EFFECTIVENESS OF THE RULE OF 402024-09-02T22:25:04+00:00King Fuei Leeking.lee@schroders.com<p>The Rule of 40 is a popular financial guideline used by software-as-a-service (SaaS) industry participants to assess the operational health of the companies. This paper investigates the effectiveness of the Rule of 40 as a stock selection criterion. Our study analyses a sample of 1756 SaaS companies worldwide spanning the period 2003-2022. The findings demonstrate that the Rule of 40 adds value and delivers a moderately high Sharpe ratio as a stock selection tool. A modified rule, the SaaS Investing Rule of 65, is proposed and found to outperform the Rule of 40 in identifying relative winners and losers within the SaaS space. The effectiveness of the rules raises practical implications for investors and analysts. Additionally, we explore the effectiveness of alternative versions of the Rule of 40 using different measures of profitability, as well investigate whether the returns are driven by traditional style factors.</p>2024-07-24T00:44:21+00:00Copyright (c) 2024 King Fuei Leehttps://ojs.aut.ac.nz/applied-finance-letters/article/view/753INDEPENDENT DIRECTORS AND FIRM VALUE: NEW EVIDENCE FROM THE 2023 REGULATORY REFORM IN CHINA2024-09-02T22:25:01+00:00Anqi Jiaojiaoanqi@cueb.edu.cnRan Sun22022110095@cueb.edu.cnJuntai Lujlu4@aum.edu<p>This paper explores the “Measures for the Management of Independent Directors of Listed Companies” announced on August 4, 2023, for Chinese listed firms. We find that firms failing to meet the criteria in the Measures suffer losses in the stock market. The 2023 <em>Measures</em> exogenously increase the demand for qualified independent directors and incur high search costs for firms facing more labor market constraints.</p>2024-07-31T22:54:16+00:00Copyright (c) 2024 Anqi Jiao, Ran Sun, Juntai Luhttps://ojs.aut.ac.nz/applied-finance-letters/article/view/757CEO GENDER AND FIRM PERFORMANCE: EVIDENCE FROM THE COVID-19 PANDEMIC2024-09-02T22:24:58+00:00Georgios Koimisisgkoimisis02@manhattan.eduChristos GiannikosChristos.Giannikos@baruch.cuny.eduJun Loujun.lou@maine.edu<p>The COVID 19 pandemic precipitated an unprecedented deceleration of economic activities and a stock market crash. The unparalleled shock and the altered risk attitudes present a distinctive opportunity to examine whether the well-established concept of the "glass ceiling" is indicative of latent gender differentials in company performance. Utilizing US financial data, the study employs a range of methodologies to examine whether firms led by female CEOs exhibited the same performance as firms led by male CEOs during 2020-2021. Our empirical results confirm previous findings from the finance literature, as we neither find a systematic difference in returns to holding stock in female-led firms, nor a difference in accounting returns between female-led and male-headed firms.</p>2024-08-20T00:00:00+00:00Copyright (c) 2024 Georgios Koimisis, Christos Giannikos, Jun Louhttps://ojs.aut.ac.nz/applied-finance-letters/article/view/852DRIVERS OF PROFIT CONVERGENCE IN EURO AREA BANKS2024-09-10T23:06:44+00:00Hélène Bruffaertshelene.bruffaerts@ugent.beRudi Vander Vennetrudi.vandervennet@ugent.be<p>Since there are persistent concerns about the viability of euro area banks, we analyse their profit recovery in the post-crisis period, applying the concepts of β and σ convergence as well as the Phillips and Sul clustering algorithm. The results are consistent with ROE convergence, but to different levels across bank groups. The clustering analysis reveals the existence of banks with solid performance, but also a group of persistent underperformers. We find that non-interest income and operational efficiency emerge as crucial discriminating factors to explain the banks’ relative post-crisis ROE dynamics. Supervisors and bank managers are advised to monitor and reinforce bank business model viability.</p>2024-09-10T00:04:56+00:00Copyright (c) 2024 Hélène Bruffaerts, Rudi Vander Vennethttps://ojs.aut.ac.nz/applied-finance-letters/article/view/809OIL VOLATILITY-OF-VOLATILITY AND TAIL RISK OF COMMODITIES2024-10-08T01:48:12+00:00Yahua Xuyahua.xu@cufe.edu.cnAlireza Tourani-Radalireza.touranirad@aut.ac.nzTai-Yong Rohtaiyongroh@lnu.edu.cn<p>We examine the information content of oil volatility-of-volatility (VOV), constructed from the past 1-month OVX (implied volatility in crude oil market), on the expected tail risk of commodities. Specifically, we find oil VOV predicts 1-step-ahead tail risks of Energy, Precious Metals, Agriculture, Livestock sectors and the Aggregate Commodity sector (GSCI) for both in-sample and out-of-sample. Our results indicate the important role of crude oil in overall commodity markets by incorporating forward-looking information of OVX. Our findings are robust and complement the strand of literature about the leading role of crude oil in commodity markets. </p>2024-10-08T00:28:53+00:00Copyright (c) 2024 Yahua Xu, Alireza Tourani-Rad, Tai-Yong Roh