Stale News Hypothesis in Selected in FTSE/ASEAN 40 Stocks

Abstract

This paper examines the influence wielded by social media buzz on stock market performances of selected stocks from several ASEAN stock exchanges. The advent of social media has changed the dynamics of information propagation and utilization in stock markets. Though information asymmetry still persists, current literature has only recently caught up with the dominant trend of social media eclipsing traditional media as a source of information. This is an issue of significant complexity and import for stock market actors. Employing a brand-new theoretical model of predicting impact of social media on asset prices—proposed by Jiao, Veiga and Walther—this study gauges the performances of stocks with active social media coverage for a month and finds abnormally high trading volume and volatility in the ensuing month. Though these findings are statistically significant in confirming stale news hypothesis by Tetlock (2011), this study is the first empirical application of Jiao et al.’s model. Therefore, after discussing the implications of these findings, this paper highlights the need for more replication studies to help develop a social-media related theory on asset prices and how this affects regulators’ responsibility of ensuring fair dissemination of information.

Implied Volatility in Singaporean Structured Warrants (2014-2015)

Abstract

Options traders regard implied volatility a vital variable to determine profitability in options trading and use it to estimate the underlying stock’s volatility in the future. While it cannot predict market direction, it has a reputation for forecasting — to a certain extent — potential for large swings by the underlying stock. Once implied volatility is calculated, traders can estimate how high and low the stock can swing by the option’s expiration, and this probable estimation aids in making informed trading decisions. In this paper, we examine the information content of implied volatility of structured warrants in Singapore Stock Exchange (SGX). Using a daily dataset for 252 trading days for a period between August 1, 2014 and July 31, 2015, we test whether implied volatility is an unbiased estimate of realized volatility, if implied volatility contains information on future realized volatility, scrutinize the efficiency of implied volatility and its predictive power compared to historical volatility. Our findings suggest that for although implied volatility does contain some relevant information about future volatility, it is a biased forecast of realized volatility, the efficiency threshold of implied volatility is nugatory, and its predictive power is not superior to historical volatility.

 

Co-authored with Ismail, Najmi and Mohamad, Azhar

Under review for the 29th Asian Finance Association        Conference, 2017.

Predicting Financial Distress based on Corporate Actions: Malaysian Evidence

Abstract

Despite abundance of literature in the area of financial distress prediction modelling, very little research has been conducted on the field of the ability of corporate actions in predicting financial distress. The current use of accounting information for financial distress prediction poses problem of information of not being current while corporate actions taken by firms are disclosed promptly. The objective of this study is to investigate which corporate actions can help to predict financial distress and to investigate whether prediction of financial distress using corporate actions can improve classification accuracy compared to accounting ratios. We also compare a model based on a combination of accounting ratios and corporate actions with models using these information separately. Using a Logistic Regression with a sample of 54 Malaysian Public Listed Companies we come up with three models- we find the use of corporate actions as financial distress predictors improves the classification accuracy of the model to 92.6 per cent, which is higher compared to the use of only accounting ratios or a combination of accounting ratios and corporate actions.  We also find that the frequency of new issue of capital and frequency of changes in Audit Committee are significant predictors of financial distress. Furthermore, we find that Working Capital to Total Assets Ratio and Asset Turnover Ratio are reliable predictors of financial distress among the accounting ratios.

  • Preliminary findings of this paper were presented at 3rd International Conference on Global Business & Social Entrepreneurship at Johor Bahru, Johor in 2016. The paper is presently submitted for consideration at a Scopus indexed journal. 
  • Co-authored with Dr. Azhar Mohamad and Mohamed Azad
  • In this study we analyze the predictive ability of a number of corporate actions taken by Malaysian public listed companies. We find that frequency of new issue of shares and changes in Audit Committee are statistically significant at predicting financial distress. We also find that the model using only corporate actions to predict financial distress can improve the classification rate of financially distressed firms to 92.6% compared with the baseline model of 66.7%.

 

Innovation in Classroom as a Means to Inspire Innovation in Society: The Case for Project Based Learning

Title of Project

Innovation in Classroom as a Means to Inspire Innovation in Society: The Case for Project Based Learning

Authors

Tanzima Sultana & Imtiaz Sifat

Name of Event

International Conference on Social Innovation 2016

Organizer

ISM (Institut Sosial Malaysia)

Abstract

Project Based Learning—learning by experience and doing—emerged as an experimental alternative to the conventional teaching methods in order to improve cognitive and meta-cognitive abilities of the students. Rote learning, which has long been the mainstay of orthodox educational system, stresses inordinately on the final result and has been linked with stifling creativity, innovation, and enterprise. Conversely, Project Based Learning adopts a unique approach by emphasizing the journey of learning rather than its destination. In other words, it is more a process than a product, which aims to incorporate higher order thinking skills and instill virtues of creativity, imagination, and innovation in students’ repertoire. In this paper we advocate embracing this method of pedagogy into the central curriculum and argue for its potency in fostering innovation and thus bringing a wave of change into the social structure as its implementation promises to nurture a group of skilled, creative, and productive citizens for the global community.

 

Raising a Bias-Proof Generation: Advocating Reform in Malaysian Business School Curriculum in Light of Advances in Behavioral-Neuro Economics and Finance

Abstract

Unbeknownst to us, we(humans) possess biases and idiosyncratic interpretations that shape our judgments and ideals. Ergo, humans take for granted that other social participants will appreciate their judgments. When this preconceived notion is betrayed by reality, people’s certitude of objectivity forces them to perceive others as biased or unfair. Such cognitive biases can prove costly in hands of individuals at a micro-level and decision-makers at a macro-level. Recent global financial crises indicate that even regulators and policy-makers aren’t immune from self-serving biases that downplay own dispositional biases. If and when left unchecked, cognitive biases threaten a huge waste of efforts and economic resources. At this juncture of 21st century, overwhelming empirical and theoretical literature underscore the deviation of financial markets and human decision making process from the basic assumptions underlying traditional economics finance paradigm that has pervaded since the mid-1900s. Ranging from applying bounded rationality to economic models to Kahneman’s application of prospect theory to economics and financial markets, designers of business school curricula have now access to a smörgåsbord of literature addressing the inescapable issue of cognitive biases. Specifically, for economics and finance professors, this distinction of cognitive (in)coherences and their recognition should be inculcated subliminally in introductory 1st year level courses, and later on progressively through purposive behavioral-neuro economics/finance courses. In this paper, we argue that such bias-proofing redesign promises aiding students in superior decision making, assessing risk, and minimizing biases. After surveying the curricular praxis in Malaysian business schools, we draw attention to the attractive adaptive market hypothesis (AMH), which promises an exciting infusion of the legacy of EMH model, bounded rationality, evolutionary biology, neuroscience and psychology. This article is a plea for reform in light of nascent advances in behavioral/neuro economics and finance.