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Insider dealing has been in the public eye for many years now. The impact of Big Bang and the growth of financial conglomerates has, however, propelled the practice to the very forefront of regulatory concern. Regulators are faced with a dilemma: financial conglomerates bring with them many economic benefits, but they also accentuate the problem of insider dealing, in that the greater availability of inside information within these open ended financial houses, increases the scope for its misuse. Regulators must ensure that the regulation imposed does not overly impede the benefits to be gained from conglomeration; yet they must ensure that regulation is sufficiently stringent to provide a fair market place. The Chinese Wall - a self-styled mechanism consisting of policies procedures designed to stop the flow of inside information within financial conglomerates - is singled out for special treatment. The legal and policy problems associated with the use of the mechansim are reviewed. These revolve around two main issues: (i) Is the Wall an effective policy device to rebut allegations of insider dealing in a financial conglomerate where Arm A is dealing in shares in Company X while arm B has information pertaining to Company X. (ii) If the Chinese Wall actually works, does the operation of the mechanism give rise to breach of fiduciary obligations ie. to what extent does the operation of the Chinese Wall in conglomerates modify traditional fiduciary law. The conclusion reached is that the Chinese Wall offers regulators the best solution to the problem of conflicts of interest and obligation in fully fledged financial conglomerates. The Wall must, however, be 'strengthened' to prevent, for example, a coroprate fiduciary dealing for its own account where another department within the conglomerate has a material interest in the transaction. At common law, the courts ought to, and probably would, accept this approach. However in an action brought under the SIB rulebook, and the rulebooks made thereunder, it would seem that the courts are bound to accept a Wall per se (ie. without being strengthened) as valid. To the extent that this differs from what ought to be the position at common law, the SIB rulebook should be modified. A tentative import of economic analysis is used to complement the largely legal analysis. In this way it is hoped to gain a better grasp of the policy issues under study.

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A key question in behavioural finance is why prices in financial markets change. The field of behavioural finance evolved in an attempt to understand better and explain how cognitive errors and emotions influence investors' decision-making processes. Behavioural finance is the study of the psychological effects of market events on investors that affect finance decisions. It is not a new field of study, but more emphasis has been placed on this field of finance in the past two decades. Behavioural finance explores the irrational nature of investors' decisions. The primary objective of the research was to provide an understanding of the psychological impact of people on prices in financial markets. The secondary objectives are <ul> <li> to provide a brief history of behavioural finance;</li> <li> to show that there are alternatives to the efficient markets theory; and</li> <li> to demonstrate the impact of popular models on prices.</li></ul> The report was compiled based on a literature study on the topic of behavioural finance. The purpose of the literature study was to provide sufficient information to meet the objectives of the study as set out above. The following sources were used: <ul> <li> published articles;</li> <li> textbooks; and</li> <li> the Internet.</li> </ul> The efficient market hypothesis and the CAPM are challenged by behavioural finance. Prices of speculative assets do not always reflect fundamental values. The perceptions of investors play an important role in the determination of prices. Hence, when there are market crashes on the equities markets, the contagion effect amongst investors should not be underestimated. It is shown in this report that portfolio insurance is an important contributing factor to the magnitude of any crash on equities markets. Dividends are an important determinant for the fundamental value of shares. This contrasts with the revenue model that is used to value new economy shares, such as Internet companies. It is also clear that investors expect to receive a dividend. In this report, various theories strongly suggest investors' preference for dividends. These include the self-control and prospect theories, regret-aversion and the clientele effect. Changes in dividends affect share prices. A decrease in the dividend of a company is a clear signal to investors that the share price is overvalued. Movements in share prices are therefore at least partially the result of changes in dividends. Investment strategies that can be followed by investors include the following: <ul> <li> It may help to acquire closed-end fund shares at the listing of a new fund. The research shows that initially closed-end funds trade at a premium of up to ten per cent, but within 180 days, the premium evaporates and the fund starts to trade at a discount.</li> <li> The optimal strategy for sophisticated investors is a strategy that involves market timing with increased exposures to shares that have fallen, and decreased exposure to shares after they have risen in price.</li> <li> Individual investors should follow a buy-and-hold strategy, as opposed to a trading strategy, as the cost of trading is excessive.</li> <li> Arbitrageurs (professional investors) can earn higher than normal returns on markets that are excessively volatile. However, they need to be cautious, as they can also lose significant amounts of money when markets are volatile.</li> </ul> Careful consideration should be given to what shares to trade, as the cost of trading is expensive, as much as six per cent. Furthermore, it is important to have stop-loss limits in place and to sell shares once they breach the lower limit that has been set. The notion that losing shares in a portfolio will somehow turn into winning shares is, in most cases, incorrect. Copyright 2003, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. Please cite as follows: Du Plessis, JJ 2003, Advances in behavioural finance, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-04202012-125738 / > F12/4/321/gm / Dissertation (MBA)--University of Pretoria, 2012. / Graduate School of Management / unrestricted

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This thesis deals with two different topics, both related to modelling time-varying variances in high frequency financial time series. The first topic concerns the estimation of unobserved component models with autoregressive conditional heteroscedastic (ARCH) effects. The second topic concerns the quasi-maximum likelihood estimation of stochastic variance processes. These are an alternative to ARCH processes for modelling conditionally heteroscedastic time series. The motivation of the work is based on the increasing interest in the financial area in modelling volatility. In financial markets, many decisions are based on the volatility of a specific stock or index, which is closely related to the variance. Therefore, it is important to develop good statistical models able to describe time-varying variances. 2

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The economic reforms in Jordan during the last two decades have highlighted and promoted the role that non-financial firms play within the Jordanian economy. The ability of firms to play this role is in major part determined by the structure of the financial system in which they operate, and in particular whether this financial system is able to make capital available efficiently to those firms that need it. Whether this is the case can be investigated by analysing the impact of firm characteristics on some of the most important financial decisions taken by these firms, and how these decisions are influenced by the presence of market imperfections. The thesis examines the relation between the financing and investment decisions, where the effect of financial constraints on the firm’s investment decision is investigated. In particular, this thesis focuses on how financial constraints affect different firms by investigating the extent to which the reliance on internal cash flow is affected by firm characteristics such as size, age, dividend payout ratio, and market listing. We find that Jordanian firms are financially constrained, but that these constraints do not appear to be related to firm characteristics. Further, results show that Jordanian firms use debt rather than equity to finance their investment. The second empirical chapter focuses on the main determinants of firms’ capital structure. Here the results show that Jordanian firms follow the pecking order theory, where profitability and liquidity have a negative impact on the level of debt. Size and market to book value have a positive impact, supporting the view that there are significant constraints on debt financing since indicators of the financial health of the firms affect their capital structure ratio. There is also evidence that ownership structure affects the firm’s access to debt. The final empirical chapter examines the impact of firm characteristics on dividend policy, and shows that profitability and market to book value have a positive impact on dividend policy, implying that firms with better access to capital or credit pay dividends. This implies that firms retain earnings in order to ensure that they have sufficient capital to invest, confirming the initial result that Jordanian firms are financially constrained. There is also evidence of the impact of ownership structure, consistent with the predictions of agency cost theory, while institutional investors appear to follow the prudent-man restrictions, being positively associated with firms that pay dividends. This thesis confirms the presence of market imperfections that have a significant influence on the financial decisions taken by Jordanian firms. The consistent evidence of the importance of retained earnings shows that these firms face substantial constraints in terms of their access to external funds, despite the reforms to the Jordanian financial system over the last two decades.

Being a part of social studies of finance, i.e. a perspective that, in its narrow sense, investigates the role of science and technology in financial markets, the thesis suggests that one can understand science in a wider sense, as an expert knowledge domain. The social studies of finance, then, can be broadened out to encompass the different ways in which expert knowledge shapes financial practices. Legal expertise is another instantiation of expert knowledge in the sense that both (science and law) are different forms of power; therefore this research aims at answering the question how finance is shaped by legal expert knowledge. The study employs the method of ‘opening the black box’ of regulation, and thus it argues that technicalities of regulation, which embody legal expertise, are crucial for the construction of financial markets. The thesis demonstrates how ‘just’ a concise amendment to Article 1062 of the Russian Civil Code has had significant ramifications for the interbank USD/RUB cash-settled forward market, and explores the controversies involved in and details of the law making process. The amendment was made in 2007 and changed the legal status of non-deliverable forwards, which had been classified by Russian courts as gambling transactions under Russian law in 1998-1999. Based on the evidence obtained from the study of the legal developments that resulted in the amendment, the thesis shows that the politics of the law-making process, as well as shaping the outcome, can in equal measure be disruptive and result in a delay in legal changes that market participants felt were much-needed. After almost a decade of painstaking negotiations, the amendment stated that cashsettled derivatives are legally enforceable under the Russian law. It rendered cash-settled forwards legally secure, hence encouraged cross-border transactions and enhanced the market’s liquidity; it is also made possible the introduction of netting as a risk management tool in the market. The contested, long-delayed amendment is thus an example of a pervasive process: the constitutive role of law (including esoteric law, little noticed outside of specialist spheres) in shaping markets.