Momentum effect refers to a pattern in stock price behaviour whereby prices of stocks which experienced relatively strongest gains in the past (“winners”) continue to overperform, and those of stocks with relatively weakest gains in the past (“losers”) continue to underperform. Momentum profits are widely documented in most developed markets except for Japan. However, evidence on their existence is ambiguous in developing markets, especially in China. This thesis attempts to provide an insight into the existence and characteristics of momentum effects in China, and to reconcile what often appears to be contradicting results in the literature. In this thesis, momentum strategies in Chinese A-share stock markets (1991-2012) are evaluated. Overall, no momentum profits but significant contrarian profits are found for whole sample periods. It is found that the ambiguous results with respect to momentum effects in Chinese stock market are due to different sample periods examined. This finding helps to reconcile often-contradicting results as reported by other studies. The second part of this thesis investigates the reason as to why no momentum profits are found in the Chinese stock market by examining momentum returns in different marketstates. It is found that in the Chinese stock market, momentum strategies generate relatively less momentum returns following UP market-states than following DOWN market-states. Motivated by this result, momentum strategies following different market dynamics are studied subsequently in part three. The results reveal that momentum effects are more pronounced when markets stay in the same state than when they transition into a different state. This finding is accordant with the theory of overreaction. This finding further suggests that the Chinese stock market is not fundamentally different from other, developed markets. The lack of absolute momentum in the Chinese stock market is not due to investors’ rationality but rather to the unique features of that market.

In this thesis, several theoretical specifications and estimation techniques are employed towards the dynamic modelling and forecasting of the term structure of interest rates, both independently and in conjunction with equity markets. The first empirical investigation is motivated by the recent call for richer specifications following the global financial crisis of 2007-2009. In that regard, several existing multi-factor continuous-time models are extended to four and five factors to assess the benefit of richer models. The Gaussian estimation methods for dynamic Continuous-Time models yield insightful comparative results concerning the two different segments of the yield curve. The dynamics of the more volatile short-end of the yield curve are best explained by the most flexible models which consistently outperform all the other less complex models in terms of both in-sample and out-of-sample performance. For the long-end flatter segment, the benchmark discrete-time parsimonious models seem hard to beat, while the addition of extra factors has a minimal benefit in terms of forecasting performance. In a second empirical study, the term structures of three Scandinavian countries are modelled using multi-latent-factor models. The empirical results produced by Kalman filter estimation method indicate that the three-factor specification captures most of the changes over time in the shape of the yield curve for Denmark and Norway, while for Sweden the statistical tests do not reject the two-factor model against the three-factor formulation. Finally, the third investigation brings new empirical evidence of the impact of the 2007-2009 financial crisis on the return and volatility linkages between the U.S. - the country where the shock originated and other major economies using a multivariate methodology for the simultaneous modelling of interest rates and equity markets. During the global financial crisis of 2007-2009 the financial markets around the world have communicated through a more complex network of information transmission routes. The channels with most intensity of information transmission were the indirect international ones, bringing new evidence of the importance of this type of routes that has previously been investigated very little in the spillovers literature.

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This study represents a new approach to the pricing decision of new issues. The past studies reveal two notable inadequacies, namely, the lack of prediction power and the failure to recognize the behavioral differences between individual issuing houses. Focusing on the market discount, Merrett, Howe and Newbould proposed the use of the tender method when pricing a new issue, thus avoiding the need for price prediction. Davis and Yeoman attempted to relate the market discounts to market conditions and financial ratios of the issuing company. The resulting low explanatory power precludes the application of the model to pricing decisions. Furthermore the use of only one model assumes an uniform pricing behaviour for all issuing houses; it is thus incapable of identifying individual pricing differences. In testing the market discounts of two issuing houses in the United States, McDonald and Fisher though recognizing the difference in their pricing behaviour, made no attempt to identify the variables leading to the pricing difference. The present study examines the actual pricing process of new issues during 1970 - 1974, taking into account individual behavioral differences. Pricing models have been constructed for nine issuing houses, of which six can be accepted unequivocally while the remaining three can be accepted with some qualifications. The results of the pricing models in terms of R2 are 0.55 for Wardley, 0.74 for Jardine Fleming, 0.79 for Schroders and Chartered, 0.69 for Hang Seng Bank, 0.81 for Oriental Financial Consultants, 0.94 for Union Bank, 0.92 for Hang Lung Bank, 0.67 for Overseas Trust Bank, and 0.50 for Bangkok Bank. All of them prove to have good predicting powers, even though the period of study included several volatile market conditions. In addition, individual pricing models were constructed for the four stock exchanges of the Hong Kong market, which yield satisfactory results. The R2 tests give 0.53 for Far East Exchange, 0.48 for Kam Ngan Stock Exchange, 0.52 for Hong Kong Stock Exchange, and 0.53 for Kowloon Stock Exchange. All in all, the models constructed in this study have demonstrated good explanatory and predicting power. In the Appendix, a supplementary approach has been used to construct models with a broad sample base but covering some unusual market conditions. The results obtained by using this approach, reveal that the approach adopted for this study is decidedly preferable in nine out of thirteen cases.

This thesis is comprised of three chapters that independently investigate the dynamics of market efficiency, market integration, portfolio diversification and risk management of developed, emerging and frontier equity markets. Overall, we have demonstrated that market efficiency, market integration, asset portfolio allocation and hedging effectiveness vary continuously over time and across markets due to changing economic conditions. In chapter one, we examine the return predictability and technical trading rules profitability of developed, emerging and frontier equity markets over the period 1999 to 2015. Using automatic portmanteau test and wild bootstrapped automatic variance ratio test, we find evidence of time-varying return predictability to be consistent with the adaptive market hypothesis. Secondly, we find that the adaptive moving average rule outperforms the moving average convergence-and-divergence rule and buy-and-hold strategy on the basis of dynamic profitability and risk-adjusted profits. Finally, we find that macroeconomic volatility weakly increases technical rule profitability while crisis period strongly diminishes profitability. In chapter two, we evaluate the spillover effects, correlation dynamics and macro-finance determinants between UK and US stock markets for a long dataset using asymmetric BEKK-GARCH model. We carry out empirical analysis by splitting the period 1935 – 2015 into Interwar/Second World War, Bretton Wood System, pre-UK exchange control, post-UK exchange control, pre-EMU and post-EMU, and find that shock and asymmetric volatility spillovers have become stronger in the final period between the two markets, suggesting strong financial linkages. Using mixed-sampling regression model, we find that stock market integration has been driven by macroeconomic convergences, financial indicators, stock market characteristics and market contagion. In chapter three, we examine correlation dynamics, portfolio diversification and risk management of developed, emerging and frontier equity markets from 1999 to 2015 using asymmetric BEKK-GARCH and value-at-risk models. We find that with very low integration, strong hedging effectiveness, significantly high portfolio returns and minimal loss of investment, UK investors are better-off holding diversified portfolios that include UK and frontier markets during the Great Moderation period (1999 – 2007). In contrast, as a result of moderately high integration, less strong hedging effectiveness, comparatively low tail risk and marginally high portfolio returns and relatively lower loss of investment, UK investors are better off holding two-asset portfolio that include UK and some emerging and frontier markets during the Great Austerity period (2007-2015).

The relationship between exchange rates and stock prices is examined in three independent but inter-connected studies. The original contribution of first study is the finding that interest rates have a significant non-liner explanatory power in the relationship between exchange rates and stock prices. The main contribution of the second study is the finding that there are asymmetric volatility spillover effects between exchange rates and stock prices in both developed and emerging countries, particularly during the financial crisis. The third study makes original contribution to knowledge by finding that there is no major deference between Eurozone and non-Eurozone, and between financial and non-financial firms in terms of exchange rate exposures after controlling for market effects. In study 1, the evidence from the M-TECM tests indicate that there is a uni-directional causality from stock prices to exchange rates in the Eurozone, a unidirectional causality in the opposite direction in Brazil, and a bi-directional causality between the variables in Russia. In study 2, the results of the EGARCH tests indicate that there is a uni-directional volatility spillover effect running from stock prices to exchange rates in developed countries and a volatility spillover in the opposite direction in emerging countries. In study 3, the results of the regression tests show that 18% of Eurozone firms and 16% of non-Eurozone firms, and 20% of financial firms and 16% of non-financial firms have significant exchange rate exposures. However, the exposure increases during the financial crisis. Overall, the thesis finds evidences supportive of long-run equilibrium and short-run causal relationships between exchange rates and stock prices in macro level. In micro level, however, the relationship between exchange rate movements and the market value of firms is relatively week.

This thesis presents three empirical studies investigating the capital market effects of the interplay between financial reporting discretion and insider trading. The empirical studies contribute to the emerging accounting literature which considers managers’ private signal conveyed by means of their trading on their own firm’s shares. The first study examines whether the disclosure of directors trading improves market efficiency and contributes to the long standing controversy in the literature with regards to the informational efficiency of insider trading. The findings indicate that insider trading assist market participants to assess the implications of current for future earnings during an earnings announcement and consequently lead to more efficient prices. However, the information in insider trading subsumes the information in financial reporting discretion in this setting. The second empirical chapter investigates the interplay between financial reporting discretion and insider trading focusing on the setting of acquisitions financed with equity whereby managers have incentives to manipulate earnings and the opportunity to conceal the consequences from doing so. In this particular setting, it is shown that a combination of financial reporting discretion aiming to inflate earnings and insider purchases denoting overconfident managers is associated with acquirers’ long term underperformance. The third empirical chapter employs a setting characterised by an exogenous constraint over financial reporting discretion over the capitalisation of R&D expenditures. It is shown that constraining financial reporting discretion comes at the expense of a loss of information about future earnings. Moreover, constraining financial reporting discretion reduces also the usefulness of the insider purchases disclosure as a means for assessing the motivation for capitalisation.

Dividends are payments made to the shareholders (owners) out of firms? earnings. Numerous academics, adopting either a behavioural or empirical approach, have provided rationales to address the issue of why companies pay dividends and whether the market response to the announcements can be predicted. However, these endeavours have failed to achieve unanimity on either issue. Moreover, most of these studies have been conducted in countries with developed markets; relatively little research has been conducted in the emerging stock markets of (Southern) Asia, such as Pakistan. This thesis tries to fill the gap in the literature by investigating both the impact of dividend announcements on the share prices of Pakistani firms and the behavioural determinants of dividend policy. The Pakistani market was characterised by a unique tax system, with capital gains totally exempted from taxation before June 2010. This unique feature provides an additional motivation for the researcher to explore the reasons why Pakistani firms pay dividends despite the tax penalty associated with such disbursements. For the purposes of the research, a mixed-methods approach was employed involving, firstly, an event study to calculate any unexpected share returns around dividend announcements for a sample of 639 dividend events across 202 firms listed on the Karachi Stock Exchange (KSE) over the period 2005-09. Secondly, interviews were conducted with 23 company executives to ascertain their views about the determinants of dividend policy and its perceived impact on share prices. To gain an alternative – investor – perspective on the signalling impact of dividends, 16 financial analysts were also interviewed. The results of the event study indicate that dividend announcements do not convey information about Pakistani firms to the stock market; insignificant unexpected returns are documented for the announcement date. Nonetheless, the disaggregated results of the event study showed significant unexpected returns for the dividend increase and no-change sub-groups – usually before the actual dividend announcement date. However, consistent with results for developed countries with diverse shareholdings, this research suggests that earnings are the dominant signal in Pakistan, in the context of an interaction effect where earnings and dividends signals re-enforce each other. The results of the interviews indicated that Pakistani executives primarily base their dividend decisions on earnings, followed by liquidity. However, Pakistani firms do not appear have target payout ratios or employ a constant speed-of-adjustment to decide on payout levels. Indeed, most of the firms indicated that they decided the current payout ratio on an ad hoc basis. More importantly, both sets of interviewees (company officials and financial analysts) believed in the signalling effect, where dividends were sometimes used by investors as a signal of future earnings.

This thesis investigates the weak-form of the Efficient Market Hypothesis (EMH) by examining the behaviour of equity returns in the Amman Stock Exchange (ASE). In particular, the 10 largest sectors in terms of market capitalisation and number of listed companies are considered. According to the weak-form of EMH, current share prices reflect all available historical information such that investors should not be able to beat the market or earn abnormal returns consistently by trading on the basis of historical price data. It is important topic for a country seeking to promote economic development as well as foster the financial and regulatory development that Jordan has sought to publicise over the past few years. Furthermore, while a number of studies have investigated the topic of stock market efficiency for ASE they have tended to focus on the whole market index, or used the old sectoral classification. To the best of the researcher’s knowledge no study has either used the new industry grouping or applied the multivariate General Autoregressive Conditional Heteroscedasticity (GARCH) model to test for time-varying variance and correlations between sectoral index returns in the ASE. This thesis tries to fill this gap in the literature by investigating market efficiency in the ASE using the new sectoral classification and finding the determinants of any interdependence between sectors. In the first part of the analysis, the weak-form of EMH is tested by examining the risk-return relationship of the 10 ASE sectoral equity indices. Persistence in share volatility is investigated and the leverage effect is also studied by employing univariate symmetric and asymmetric GARCH models. A large sample of daily sectoral index data is used in the analysis over the 10-year period from 2003 to 2012. The results from estimating various GARCH models indicate that the returns for different sectors are characterised by different levels of volatility persistence and almost all reject the hypothesis that the ASE is weak-form efficient. This finding implies that share price changes in a sector may be predicted from its own historical information on return and volatility and a more up-to-date trading system is needed or more regulations concerning corporate disclosure are required. To obtain a more in depth understanding of the share price formation process than that supplied in the first part of the analysis, the dynamic linkages between the 10 sectors of ASE in terms of both return and volatility are investigated in the second empirical component of the thesis. A Granger Causality test is employed to study the relationships between each pair of equity returns from the ASE sectors. The return spillovers between the 10 sectors of the ASE are investigated using a multivariate Vector Autoregressive (VAR) model, while the volatility spillovers in own as well as in other sectors’ returns and the dynamic conditional correlations among the sectors is examined using a multivariate Threshold GARCH model with Dynamic Conditional Correlation (DCC-MVTGARCH). In terms of return spillovers, the results indicate that the mean return of a sector is only affected by changes of historical share prices from other industries in a minority of cases. By contrast, evidence of interdependence in the volatility across the 10 ASE sectors is more evident; a large number of shocks and volatility spillovers are uncovered in the data. Furthermore, the results indicate that correlations between the sectoral equity returns are time-varying and not constant over the period of investigation. The results support the notion the news in one sector influences not only the return in that sector but also the variance of price changes in other sectors through their input-output linkages. These findings imply that the sectoral equity returns of the ASE are predictable from historical share price changes in their own series while their return volatility and interdependences are also predictable from the past volatility of the other sectors; this result calls the weak-form of the EMH into question since it suggests that investors can outperform the market by studying historic return and volatility information in the ASE.Finally, building on the previous analysis the determinants of the time-varying conditional correlations between the different pairs of sectoral returns are investigated. Firm specific as well as macroeconomic variables are found to be significant determinants. In particular, 10 financial ratios and seven macroeconomic variables are investigated; a Principal Component Analysis (PCA) is used to narrow down the most relevant factors. Principal components are then extracted and used to construct the independent variables in the panel data analysis to explain the time-varying sectoral return correlations. The resulting findings show that profitability, aggregated demand and inflation are important in explaining time-varying sectoral return correlations between the ASE sectors. However, a further analysis indicated the effect on asset correlation of liquidity, profitability and stock market performance (growth) depends on aggregate demand (economic vulnerability).

In recent years there has been a significant increase in the flow of investment into emerging equity markets. The low return correlations between this class of stock market and developed equity markets has allowed global investors the opportunity to earn higher portfolio returns while at the same time reducing overall portfolio risk. The investment climate in emerging markets has improved vastly and many of these countries have experienced superior rates of economic and capital market growth and, increasingly, they are contributing to global trade and investment. Emerging capital markets are now recognised as a distinct investment class and have become an essential component of any global investment strategy. Until recently, African stock markets were not considered as mainstream investment opportunities. However, in recent times there have been widespread structural and economic improvements in many African countries and they have sought to attract foreign investment. These changes have resulted in impressive economic and capital market growth; African markets are now becoming recognised as a legitimate investment destination and capital flows to these countries are beginning to increase. This thesis attempts to shed light on the potential of these newly emerging African stock markets to offer UK investors the opportunity for international portfolio diversification. The analysis begins by conducting a Johansen cointegration analysis and Granger causality tests to examine the inter-relationships between African markets and the UK, in order to determine their time-varying potential for investment. The results of this analysis suggest that stock markets in Africa are weakly related to that of the UK and that opportunities for diversification could be significant. The second part of the thesis builds upon these results and investigates the magnitude of the risk-return gains available from investing in African stock markets. In so doing, the analysis seeks to examine, on an ex-post basis, whether a sample of African equity indices might have offered higher returns for relatively lower levels of risk as compared to a UK or World index only portfolio. The results of the analysis reveal that African markets can offer a UK investor risk-return gains that are significantly greater than those available from investing solely in the domestic market. This finding applied to all periods examined. The final section in this thesis examines the gains available in African stock markets on an ex-ante basis. In particular, various forecasting techniques are employed in order to assume the conditions under which investors operate. Creating portfolios based on historical data and comparing the results to the theoretical gains available, the study analyses the predictability of returns in African stock markets. The findings from this ex-ante analysis suggest that it may be difficult for UK investors to achieve the theoretical gains available from investing in African stock markets.