This dissertation contains three empirical studies in asset pricing. The first two studies are on mutual funds and the last one on stock lending, a practice that has become an essential part of asset management in the modem world ofmarket neutral funds. Chapter one investigates European mutual funds with asymmetric performance fees (APFs). I show that APF funds are more conservative in terms ofrisk taking and outperform comparable non-performance fee funds in bear markets while underperforming in bull markets. I also show that APF funds increase total risk if the APF contract is out of the ./'- ' money in the middle of an assessment period. However, this increase in risk-taking does not decrease performance during the latter part of the assessment period. Overall, the results do not indicate t~at APFs neither induce excessive risk taking nor align the interest of fund managers and investors to a greater extent than non-APF funds. Chapter two is about the relationship between money flows and past performance in US mutual funds. Several studies have documented a convex relationship between past performance and net money flows for individual mutual funds in the US. Thp. main finding in this chapter is that the sensitivity ofnet flows to past performance has become stronger for ,' funds in all performance quintiles during the nineties compared to the previous two decades. Furthermore, I find support for the idea that increased inflows during the nineties have strengthen the relationship for the better performing funds and decreased transaction costs have made investor more willing to leave the poorly performing funds. In Chapter three I investigate whether price efficiency is affected by short-sale constraints. Using a unique dataset from several custodians with world-wide stock level information on supply of shares available for short-selling and the borrowing fee, I show that short-sales constraints reduce price efficiency.

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This study provides a critical review of the characteristics and performance of Islamic funds in Malaysia with the main objectives of identifying the return and risk profile of Islamic funds and examining the Islamic funds’ performance and valuation methods. The study was conceived on the back of the impressive growth of the Islamic fund industry amid abundant evidence and a common perception that Islamic funds generally underperform conventional funds. The study is designed to address four main areas, namely to analyse the return and risk characteristics of Islamic funds; to examine the performance trend of Islamic funds; to investigate the impact of Shariah-compliance requirements on Islamic funds’ performance; and, to explore the actual Islamic fund operation by fund management companies through the perception of those involved in the actual practice. To ensure that the study is undertaken thoroughly, the study employed the methodological triangulation technique, of which, the findings are deduced from three methods of analysis namely literature review, quantitative analysis, and qualitative analysis based on primary data collected through interviews. The findings of the study are deemed both intriguing and thought provoking. The study found that the existing Islamic funds have been created largely by mimicking conventional funds whilst economic motive, rather than religious motive, is arguably the main reason behind the creation of Islamic funds. Islamic funds are distinguished from conventional funds based on their Shariah identities, particularly with regards to stock selection and Shariah-compliance supervision. In general, relative to conventional funds, Islamic funds are characterised by a lower return but with higher volatility, have limited numbers of profitable stocks or industries whose returns are strongly and positively correlated, have a smaller fund size and low fund subscription rate, and are mainly invested in heavyweight stocks involved in defensive industries. Interestingly, although the Shariah-screening may expose Islamic funds’ portfolio to have high investment concentration in small-capitalised stocks, the study found that Islamic funds which invest mainly in large-capitalised stocks could outperform conventional funds and the market index. The analysis of Islamic fund performance is also sensitive to the benchmark used for performance comparison. The study also found that Shariah requirements affect Islamic funds’ performance adversely by incurring additional Shariah-related costs and introducing new Shariah non-compliance risks which are peculiar only to Islamic funds. In addition, the study revealed that there is a huge gap in terms of Shariah understanding and adoption of Shariah principles in the creation of Islamic funds. It is noted that despite the finding of Islamic funds’ underperformance, it can be argued that the evidence does not in any way represent a disadvantage of Islamic funds, considering that the underlying philosophy of the funds is not merely to maximise monetary return, but rather, to attain other non-pecuniary motives including adherence to religious principles and achievement of the objectives of the Shariah (maqasid al-shariah). With regards to Islamic fund performance valuation, the study found that the popular methods used by Islamic fund managers are the peer group comparison and the tracking error techniques instead of the traditional risk-adjusted return valuation models. The study also found that active fund management is probably the best strategy for Islamic funds in Malaysia as compared to the simple buy-and-hold or passive fund management strategy.

This study tackles the relationship between dividend policy and market value of companies in the UK through three empirical models. The aim of the first model was to test the validity of the Irrelevant Theory empirically by exploring the relationship between dividend type (cash dividend, share dividend and share repurchase), earnings (EPS) and investment policy (retained earnings per share) with the market value of a company. This is achieved through the use of annual and semi-annual data for 362 companies in different UK sectors by adopting Panel Data for the period extending from 1998 to 2007 (twenty periods), where the fixed-effect (within) regression model was used to examine this sample . The second model examines if companies favour the investment policy dividend policy by investigating whether or not companies follow a residual dividends policy. This has been identified by following the methodology of Baker and Smith (2006), based on the calculation of Standardized Free Cash Flow (SFCF) for 590 UK companies in different sectors for the period from 1998 to 2007 by using annual data. The third model seeks to explore managerial preferences regarding dividend type and the most important factors affecting the company management when setting dividends policy. In this respect, the importance of the following factors has been tested: the company’s market value; the financing decision; the investment decision; signaling theory; agency theory; and shareholder structure. The questionnaire methodology used for this model where it was distributed to 1319 UK companies in different sectors. The number of responses was 208 responses is equivalent to 15.77% of the total distributed). The study arrived at a number of important results that can be summarized as follows: 1) The invalidity of the Irrelevant Theory, as the results show that there is a relationship between dividend policy and market value of a company; 2) There is a relationship between earnings, investment policy and the market value, which indicates that the dividends policy, announced earnings and investment policy work together in affecting the market value of a company; 3) UK companies, on the whole, do not adopt a residual dividends policy, implying no preference for investment policy over dividend policy, except for the two sectors banking and insurance companies where the results showed that they follow the residuals dividends policy 4) Most UK companies’ managements prefer cash dividends to other venues choices because of its easy implementation; and 5) The most important factor affecting UK companies’ managements when they set their dividends policy is shareholder structure while the least factor listed in importance is agency theory.

The financial industry changed significantly through the 1990s as commercial banks pursued additional profits through non-traditional and off-balance sheet (OBS) activity. The regulatory bodies had to accept the changing risk nature of the industry and the response was the introduction of the 1996 Market Risk Amendment (MRA) by the Basle Committee. The MRA, through a series of 4 key announcements, was reached in January 1996 and fully implemented from January 1997, whereby banks were required to hold incremental capital to cover unexpected losses from market risk. In this study a multivariate regression model is used to investigate the effect of the MRA announcements on the returns to shareholders of commercial banks within G-10 countries (Belgium, Canada, France, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States). The empirical results suggest that bank shareholders in Italy, Sweden, and especially Japan benefited from the introduction of the MRA, while bank shareholders in the United Kingdom, Canada, and especially US experienced significant losses from 4 announcements that led to the final proposal of the 1996 MRA. The significant growth in income generated through OBS activities, such as trading and fee-based income, changed the risk profile financial institutions. This study employs four VaR methodologies (parametric, historical simulation, Monte Carlo simulation, and Extreme Value Theory) to calculate bank risk in a period of high 4 financial market volatility: 1992 through to 1998. The results show a strong increase in VaR for the years 1997 and 1998, with Japan showing the largest risk ranking over the period, while the US and Sweden were at the low end of the risk range. The VaR results indicate it may be misleading to compare risk scores across financial institutions if the reported numbers are based on different VaR methodologies. The results from the Monte Carlo (MC) and Extreme Value Theory (EVT) approaches result in the highest VaR estimates, while the parametric results were consistently lower. This thesis also employed Data Envelopment Analysis (DEA) to compute bank-level technical efficiency under Constant Returns to Scale (CRS) and Variable Returns to Scale (VRS) between 1992 and 1998. The results for the entire bank sample across the period of study show inefficiency levels of 39% and 33%, under CRS and VRS respectively. The inclusion of off-balance sheet (OBS) activity in the DEA score is found to be significant, and indicate that the exclusion of this variable as an output leads to a misspecification and underestimation of bank efficiency. A Tobit regression approach was used to examine the relationship between bank efficiency and various bank and environmental variables. The second stage findings show that inflation is detrimental to bank efficiency, while a negative relationship is found between VaR and efficiency, indicating inefficient banks appear to take on less risk. A positive relationship is found between the MRA dummy variable and bank efficiency.

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Banking systems in emerging and developing economies hold the key to economic growth and productivity change at the macroeconomic level. As financial globalization proceeds, many emerging economies are reforming their banking systems through the process of liberalisation, privatisation and deregulation, especially where state-owned banks have previously been dominant. This thesis uses both parametric and non-parametric methods, namely and Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA) respectively, to measure the efficiency and productivity growth in the banking systems of two emerging economies – Turkey and Egypt. Coelli, Perelman and Romano (1999) approach is used for the banking sector for the first time in the literature. The pervasive gap is also addressed in the literature by empirically comparing the DEA and SFA efficiency scores following Bauer et al. (1998) conditions. A generalised parametric Malmquist approach is specified using the distance functions for both data sets. The findings show that Turkey and Egypt have various similarities. Both have undergone significant regulatory, ownership and market structure changes in the last two decades. The reform policies in both countries are stimulated by the IMF and World Bank. Egypt, as an emerging economy, has introduced a wide range of structural economic reforms to create a viable banking system in the past decade by adopting a cautious approach in liberalisation implementation. However, Turkey‘s approach was expeditious. Both banking sectors efficiency and productivity improved as response to the liberalisation policies. However, Turkey’s experience of financial crisis overwhelmed the obtained efficiency. The results on the separate economies suggest that scale effects can be important in identifying the initial impact of financial liberalisation policies on the productivity of banking sector.

This study generates an overview of the 1997 Asian financial crisis, from its causes to the consequences. At the same time, it examines the context of the crisis, which includes the review of historical Asian development and the role of the International Monetary Fund (IMF) in the financial crisis. Particular attention is given to the crisis‘ impact on the local economy and people. In this it differs from existing research that analyses the impact on its own, this study links the crisis‘ impact to the foreign direct investment (FDI). The impact of the crisis, therefore, is reflected by examining the control power of the FDI money. It examines the crisis‘ impact through focusing on a unique angle of the two elements in the crisis – danger and opportunity. The results show that the social impact of the crisis put local people in danger of unemployment, underemployment, falling real wages and growing social inequality and lowered land and commodity prices, which dramatically reduced the cost of production. Accordingly, the control power of the FDI money increased extensively in the crisis, which represents the increasing danger of unfair exploitation of local labour and enclosure of land and resources which can be seen as opportunities beneficial to the international capitalists.