Search results for: Charlie X. Cai

Items from 1 to 20 out of 21 results

article

Economic uncertainty: Mispricing and ambiguity premium

Charlie X. Cai, Xi Fu, Semih Kerestecioglu

European Financial Management > 29 > 5 > 1702 - 1751

We uncover two channels of effect in the financial market when investors face macroeconomic uncertainty. Conditional on a common mispricing index, we find that economic uncertainty exposure (EUE) induces disagreement, which amplifies mispricing. The highest EUE quintile produces an annualised mispricing alpha of 9.96%, more than double the unconditional mispricing effect. An ambiguity premium of 3...

article

Nonlinear limits to arbitrage

Jingzhi Chen, Charlie X. Cai, Robert Faff, Yongcheol Shin

Journal of Futures Markets > 42 > 6 > 1084 - 1113

We study the nonlinear limits to arbitrage in a model. When mispricing is small, arbitrage activity increases with mispricing because of the higher cost‐adjusted return. However, at high levels of mispricing, arbitrageurs are deterred by larger mispricing as funding constraints become more binding. Testing the model predictions on the index spot‐futures arbitrage with a Markov‐switching model, we...

article

Overreaction to growth opportunities: An explanation of the asset growth anomaly

Charlie X. Cai, Peng Li, Qi Zhang

European Financial Management > 25 > 4 > 747 - 776

The negative relation between asset growth and subsequent stock returns is known as the asset growth anomaly. We propose that overreaction to growth opportunities is the source of the asset growth anomaly. This suggests that growth firms as opposed to mature firms, and firms with longer series of asset growth should experience a stronger asset growth anomaly. Our evidence supports these predictions...

article

Noise Momentum Around the World

Charlie X. Cai, Robert Faff, Yongcheol Shin

Abacus > 54 > 1 > 79 - 104

We argue that arbitrageurs will strategically limit their initial investment in an arbitrage opportunity in anticipation of further mispricing caused by the deepening of noise traders' misperceptions. Such ‘noise momentum’ is an important determinant of the overall arbitrage process. We design an empirical strategy to capture noise momentum in a two‐period generalized error correction model. Applying...

article

International stock market leadership and its determinants

Charlie X. Cai, Asma Mobarek, Qi Zhang

Journal of Financial Stability > 2017 > 33 > C > 150-162

We study time-varying price leadership between international stock markets using a Markov switching causality model. We demonstrate variations in the causality pattern over time, with the US being the dominant country in causing other markets. We examine the factors which determine a country’s role in the causal relationship. For country-specific factors, we show that trades openness increases price...

article

Credit scores and the performance of newly-listed stocks: an exploration of the Chinese A-share market

Charlie X. Cai, Paul B. McGuinness, Qi Zhang

Review of Quantitative Finance and Accounting > 2018 > 51 > 1 > 79-111

This study assesses the power of S&P Global Market Intelligence’s CreditModel (CM) scores in explaining the short- and long-run performance of newly-listed Chinese firms. A unique feature of the data arises from such scores being outside the public domain during the study period. Focus on such a period avoids the signalling and self-selection biases that inevitably plague studies delving into...

article

The Cost of Multiple Large Shareholders

Charlie X Cai, David Hillier, Jun Wang

Financial Management > 45 > 2 > 401 - 430

Previous research argues that large noncontrolling shareholders enhance firm value because they deter expropriation by the controlling shareholder. We propose that the conflicting incentives faced by large shareholders may induce a nonlinear relationship between the relative size of large shareholdings and firm value. Consistent with this prediction, we present evidence that there are costs to having...

article

Value‐enhancing Learning from Industry‐wide Diversification Experience

Thang Nguyen, Charlie X. Cai

British Journal of Management > 27 > 2 > 323 - 337

Diversification is an important strategic decision and a rare event. By definition, when undertaking a new diversification, a firm will not have direct internal experience of the venture. In this regard, external experience of similar diversifications provides a valuable lesson pool for the focal manager. While there are many studies of internal learning in organizational learning literature, research...

article

How firms manage their cash flows: an examination of diversification’s effect

Thang Nguyen, Charlie X. Cai, Patrick McColgan

Review of Quantitative Finance and Accounting > 2017 > 48 > 3 > 701-724

We extend recently documented evidence that diversified firms hold significantly less cash than specialized firms to consider differences in how diversified and specialized firms adjust their cash flows to achieve their target cash balance. We find that diversified firms have higher free cash flows as a result of equal operating cash flows and lower investment in comparison to specialized firms. Diversified...

article

High‐Frequency Exchange Rate Forecasting

Charlie X. Cai, Qi Zhang

European Financial Management > 22 > 1 > 120 - 141

Predictability of exchange rate movement is of great interest to both practitioners and regulators. We examine the predictability of exchange rate movement in the high‐frequency domain. To this end, we apply a model designed for modelling high‐frequency and irregularly spaced data, the autoregressive conditional multinomial–autoregressive conditional duration (ACM–ACD) model. Studying three pairs...

article

Do audit committees reduce the agency costs of ownership structure?

Charlie X. Cai, David Hillier, Gaoliang Tian, Qinghua Wu

Pacific-Basin Finance Journal > 2015 > 35 > Part A > 225-240

We investigate the agency costs of corporate ownership structure and the role of audit committees in mitigating their effect. Using China as a laboratory, where audit committees are voluntary, we study the demand for and value relevance of audit committees conditional on the various agency costs of corporate ownership. Audit committees complement existing internal governance systems by reducing the...

article

Are Market‐Based Measures of Global Systemic Importance of Financial Institutions Useful to Regulators and Supervisors?

QI ZHANG, FRANCESCO VALLASCAS, KEVIN KEASEY, CHARLIE X. CAI

Journal of Money, Credit and Banking > 47 > 7 > 1403 - 1442

We analyze whether four market‐based measures of the global systemic importance of financial institutions offer early warning signals during three financial crises. The tests based on the 2007–2008 crisis show that only one measure (∆CoVaR) consistently adds predictive power to conventional early warning models. However, the additional predictive power remains small and it is not normally confirmed...

article

Informed Trading and Market Structure

Charlie X. Cai, Jeffrey H. Harris, Robert S. Hudson, Kevin Keasey

European Financial Management > 21 > 1 > 148 - 177

We examine London Stock Exchange trading around information releases and link market quality dimensions with market structure during periods with heightened interaction between informed and uninformed traders. We find support for both the hypothesis that automated electronic markets minimise trading costs for liquid stocks and the hypothesis that adverse selection costs are minimised with intermediated trading. We examine how news affects both dealer and electronic systems and find that electronic markets are prone to greater stealth trading and post‐trade volatility, both consistent with the proliferation of algorithmic trading and short‐term volatility events such as the May 6, 2010 ‘flash crash.’...

article

The profitability, costs and systematic risk of the post-earnings-announcement-drift trading strategy

Qi Zhang, Charlie X. Cai, Kevin Keasey

Review of Quantitative Finance and Accounting > 2014 > 43 > 3 > 605-625

This paper re-examines the profitability of the post-earnings-announcement-drift (PEAD) trading strategy using a practical simulation approach that aligns with a fund manager’s investment perspective. It allows us to calculate the break-even transaction costs of following a PEAD strategy, and permits the explicit incorporation of transaction costs. Using US data from 1974 to 2007, we show that the...

article

Market reaction to earnings news: A unified test of information risk and transaction costs

Qi Zhang, Charlie X. Cai, Kevin Keasey

Journal of Accounting and Economics > 2013 > 56 > 2-3 > 251-266

We examine how information risk and transaction costs influence the initial and subsequent market reaction to earnings news. We find that the initial market reaction is higher per unit of earnings surprise for higher information risk firms (information content effect). Furthermore, it is information risk that induces transaction costs that limit the initial market reaction and lead to higher subsequent...

article

Consequences of the Capital Asset Pricing Model (CAPM)—a Critical and Broad Perspective

Charlie X. Cai, Iain Clacher, Kevin Keasey

Abacus > 49 > S1 > 51 - 61

article

Stock index return forecasting: The information of the constituents

Charlie X. Cai, Khine Kyaw, Qi Zhang

Economics Letters > 2012 > 116 > 1 > 72-74

We investigate whether the use of component forecasts improves the accuracy of a portfolio forecast which uses only aggregate data. The results show that the use of component data improves the accuracy of aggregate forecasts. Furthermore, the long–short trading strategy based on the component forecasts always generates substantially higher returns than the buy-and-hold strategy.

article

The pricing dynamics of cross-listed securities: The case of Chinese A- and H-shares

Charlie X. Cai, Paul B. McGuinness, Qi Zhang

Journal of Banking & Finance > 2011 > 35 > 8 > 2123-2136

We develop a non-linear Markov error correction approach to examine the general co-integration relation between the H- and A-prices of cross-listed Chinese stock issuers across the period January 1999 to March 2009. We unravel three important dimensions of this relation. These pertain to (i) the long-run expectation of the H- (to A-price) discount; (ii) the level of short-run co-movement in prices;...

article

Which trades move prices in emerging markets?: Evidence from China's stock market

Bill M. Cai, Charlie X. Cai, Kevin Keasey

Pacific-Basin Finance Journal > 2006 > 14 > 5 > 453-466

This paper extends Barclay and Warner's [Barclay, M.J. and J.B. Warner (1993), ‘Stealth trading and volatility: which trades move prices?’, Journal of Financial Economics, vol. 34, pp. 281–306.] original work on stealth trading by analysing which trades move price for the emerging Chinese stock market. A large block trade/manipulation hypothesis is proposed in addition to the stealth and public information...

article

Modelling return and conditional volatility exposures in global stock markets

Charlie X. Cai, Robert W. Faff, David J. Hillier, Michael D. McKenzie

Review of Quantitative Finance and Accounting > 2006 > 27 > 2 > 125-142

This article empirically investigates the exposure of country-level conditional stock return volatilities to conditional global stock return volatility. It provides evidence that conditional stock market return volatilities have a contemporaneous association with global return volatilities. While all the countries included in the study exhibited a significant and positive relationship to global volatility,...

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INFONA - science communication portal

Search results for: Charlie X. Cai

Economic uncertainty: Mispricing and ambiguity premium

Nonlinear limits to arbitrage

Overreaction to growth opportunities: An explanation of the asset growth anomaly

Noise Momentum Around the World

International stock market leadership and its determinants

Credit scores and the performance of newly-listed stocks: an exploration of the Chinese A-share market

The Cost of Multiple Large Shareholders

Value‐enhancing Learning from Industry‐wide Diversification Experience

How firms manage their cash flows: an examination of diversification’s effect

High‐Frequency Exchange Rate Forecasting

Do audit committees reduce the agency costs of ownership structure?

Are Market‐Based Measures of Global Systemic Importance of Financial Institutions Useful to Regulators and Supervisors?

Informed Trading and Market Structure

The profitability, costs and systematic risk of the post-earnings-announcement-drift trading strategy

Market reaction to earnings news: A unified test of information risk and transaction costs

Consequences of the Capital Asset Pricing Model (CAPM)—a Critical and Broad Perspective

Stock index return forecasting: The information of the constituents

The pricing dynamics of cross-listed securities: The case of Chinese A- and H-shares

Which trades move prices in emerging markets?: Evidence from China's stock market

Modelling return and conditional volatility exposures in global stock markets

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