CERES :: Browsing by Author "Poshakwale, Sunil S."

Browsing by Author "Poshakwale, Sunil S."

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Open Access
Conflicts of interest in IPOs: case of investment banks - a systematic review
(Cranfield University, 2008) Neupane, S.; Poshakwale, Sunil S.
Since the burst of the internet bubble there is a great deal of interest in the way investment bank prices and allocates initial public offerings (IPOs). The additional scrutiny and spotlight is also because of the dominance of bookbuilding mechanism, which gives complete discretion in terms of allocation and pricing to underwriters, and the huge amount of money left on the table by the issuers, especially during the internet bubble period. Numerous press stories and law suit by investors and issuers alleged conflicts of interest by investment banks at the expense of issuers and investors. On the basis of scoping study we identified five areas to examine conflicts of interest: laddering, spinning, relationship banking, profit sharing allocation and allocation to affiliated funds. The findings of the systematic review show that very limited research has been done on the areas identified. Moreover, there is almost no evidence available to examine the behaviour of investment banks post internet bubble burst. Likewise, very limited evidence is available from countries other than United States. From whatever limited research has been done in these areas there does seem to be enough evidence to suggest that investment banks have been involved in activities that is in conflict with their responsibilities and duties. There is clear evidence of wrong doing by investment banks in US during the internet bubble period by being involved in spinning, laddering and profit sharing allocations. There is not much evidence available at the moment to charge the underwriters of exploiting issuers and investors through the use of affiliated banks, venture capitalists and mutual funds. There is a great need to examine the behaviour of investment banks not only for the sake of the stability of the financial markets but also for the financial intermediaries themselves as unnecessary regulations undermine the efficient operations of financial markets.
Open Access
The consequences of financial regulation.
(2017-10) Aghanya, Daniel Efe; Poshakwale, Sunil S.; Agarwal, Vineet
Given the importance of the financial services for capital accumulation, financial stability, and global financial intermediaries, the last decade has witnessed widespread calls for vigilant regulation of the sector, especially since 2007 to 2009 financial crisis. This has reinvigorated the debates on the economic benefits and costs of regulating the financial services. In this work, I examine the impact of financial regulation on the financial sector to better understand its influence on compliance costs, quality of financial reporting, and risk-taking, as well as the wider impact on the stock market liquidity and price informativeness. I also examine the impact of the UK’s decision to leave the European Union (BREXIT) on the UK stock market and industry. In the first paper, I review the empirical evidence on the literature on financial regulation published over the past thirty-five years with the aim: (1) to extend my understanding of its impact on the financial sector, (2) evaluate whether the regulation achieves the purpose it was designed, and (3) provide insights and suggestions for future research. I find several useful insights have been generated over the past two decades. Despite this progress, I find that most empirical studies were done in the United States, research on other regulatory context is under-researched. Further, most empirical research on costs of regulation exclude the financial sector, and we know that this sector is highly regulated. There is a need for more empirical research to provide insight on the regulatory cost burden to the financial sector. In the second paper, I examine how the Statutory Audit and Corporate Reporting Directives (SACORD) affect the compliance costs, risk-taking and quality of financial reporting of the EU banks. Using a natural experiment, I find that post SACORD, compliance costs of the EU banks increase by 11 to 26 percent. Further, there is a significant increase in risk-taking and a decline in the reporting quality. I conclude that as far as the EU banks are concerned, these regulations do not appear to have the desired effects of improving the reporting quality and constraining risk-taking. In the third paper, I investigate the impact of the MiFID on stock price informativeness and liquidity in the European Union (EU). Using data from 28 EU countries and the Difference in Differences approach, I find that post-MiFID the stock prices reflect greater firm-specific information and the market becomes more liquid. Consistent with the ‘Hysteresis Hypothesis’ the evidence shows that the impact of MiFID regarding price informativeness is greater for countries that have superior quality of regulation. The results are robust with respect to the choice of price informativeness and liquidity proxies as well as the control variables. Finally, in the fourth paper, I analyse the impact of UK referendum outcome (Brexit) on stock prices, along three key arguments made by proponents. I document that restricting EU labour movement is associated with a decline in market value by 9.64% to 10.35% over a 10-day event window. Further, sectors with a majority of their business operations outside the EU fared better than sectors that requires a lot of workforce from the EU. I find evidence that highly regulated sectors benefit more from expected deregulation of EU-derived laws except for the financial institutions. Additionally, internationally focused companies’ performed better than domestically focused firms. In sum, my evidence shows that the market expectations about labour restrictions, streamlining regulation and trade policies significantly affect firm values.
Open Access
Corporate governance and firm performance: evidence from India.
(Cranfield University, 2019-09) Poudel, Ramji; Poshakwale, Sunil S.
Corporate governance (CG) has attracted much public interest in the last three decades because of its apparent importance for the financial health of corporations, for the economy, and society in general. Most prior studies have focussed on CG issues in developed economies, particularly in the USA, UK, and other European countries, arguing that the advanced economies have relatively resolved their CG problems. CG issues are rooted in the separation of ownership and control of corporations with widely diffused ownership structures and managerial controls that result in agency problems between owners and managers. CG models of these advanced economies have been branded as the international benchmark for the best practices. Emerging economies are rising to become global economic superpowers. Many of them are newly liberalized, but in a short period, they have been overtaking advanced economies in terms of sizes and growth rates. CG problems in emerging economies are manifest via the concentration of ownership, prevalence of family control, and pyramidal ownership structures having entirely different institutional contexts for CG structures. However, little is known about the impact of CG on firm performance in emerging and developing economies. To understand the evolving perspective of CG in emerging economies, I look at India. This thesis is organized in paper format with three journal papers. Paper 1 describes the evolving perspective of CG in India. Its first part analyses the evolution of CG in India in three stages: the managing agency model (in the colonial period until 1947); the conglomerates or business house model (1947-1991); and the Anglo-American model (after 1991). My analysis shows that the modern form of CG in India evolved with the economic liberalization of 1991. Since then it has gone through several reform processes with well structured CG laws, regulations and codes, such as Clause 49 of the Listing Agreements, the Corporate Governance Voluntary Guidelines 2009, the Companies Act 2013, and the Insolvency and Bankruptcy Code of India 2016. These CG laws, guidelines and codes are intended to provide a strong CG environment in the country, so that it can resolve CG problems and strengthen the financial health of corporations. The second part of the paper compares CG systems in India with those of the USA and UK in six areas, i.e. CG regulatory frameworks, board structures and committees, ownership structures, stakeholder relationships, financial accounting, auditing and reporting practices, and markets for finance. Initially, the CG systems in India were closer to the UK’s business-based CG model of ‘comply or explain’, but after the Companies Act 2013, Indian CG systems moved closer to the US regulations-based CG model of ‘comply or die’. Paper 2 discusses how performance indicators, such as Tobin’s Q, returns on assets (ROA) and returns on equity (ROE), are affected by a company’s leadership styles, and by it’s board’s size, independence, compensation, and gender diversity, plus it’s directors’ age, tenure, activities, and external commitments. From a sample of around 150 large Indian companies for five years from 2010/11 to 2014/15, listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), I construct a panel data, and I use system-generalized methods of moments (system GMM) on fixed effects regression models. The regression results show that board independence has a negative association with all performance indicators because of the lack of unified and prudent decisions. Directors’ tenure positively affects Tobin’s Q and ROA, implying that long- serving directors are good stewards of firms’ resources. CEO duality negatively affects Tobin’s Q, suggesting that the concentration of both the decision-making role and supervisory role in a single individual does not improve firm performance. Boardroom gender diversity is negative with ROA and ROE, which implies that companies appoint women directors as tokens to comply with the laws. Board size, external commitments, compensation and activities have no significant association with performance indicators. Past performance, as measured by one year lag of performance variables, are positive with the current year’s performance, implying that there is a dynamic effect on firm performance. In Paper 3, I empirically examine the components of ownership structure, as the key elements of internal governance mechanisms of the companies. Components of ownership structure, such as institutional ownership, promoter groups’ ownership, proportions of promoter directors, blockholders’ dispersion, family control, directors’ property, and government ownership are examined by linking them with firm performance, Tobin’s Q, ROA and ROE. In an unbalanced panel data of 150 large Indian companies, I use system GMM estimation on fixed effects regression models. I find that equity ownership of institutional investors has a positive impact on Tobin’s Q, indicating that institutional investors are independent, and they do not compromise as monitors of the firm. Family control improves firms’ accounting performances, as indicated by positive associations between family control and ROA and ROE. These results suggest that family control lowers agency problems between owners and managers and also does not adversely affect the interests of minority shareholders. Family members in family-controlled firms act as stewards instead of agents, and their behaviour improves firm performance. Similarly, ownership by promoter or promoter groups’ positively affects market performance as measured by Tobin’s Q. Higher percentage of ownership gives the promoters enough incentive and control to monitor managerial activities. Non-executive directors’ (NEDs) ownership has a negative association with ROA and ROE. NEDs, who hold a nominal proportion of ownership stake of the firms, are neither active directors nor fully independent, which can damage firm performance. Blockholders’ dispersion has a positive relationship with Tobin’s Q and negative association with ROA and ROE. These results suggest that markets react positively to the presence of multiple blockholders; however, multiple blockholders are damaging accounting performance due to the presence of a new set of conflicts among blockholders, and between large blockholders and minority shareholders. Government ownership of companies has no significant association with performance measures.
Open Access
Corporate Governance and firm value: evidence from Colombia and Mexico
(Cranfield University, 2014-12) Davila, Juan Pablo; Poshakwale, Sunil S.
This research is the result of the author’s quest to answer the question whether Corporate Governance is effective in Emerging Markets. Literature on Corporate Governance in the emerging markets of Latin America is limited mostly due to the relatively slower development of capital markets and the late adoption of corporate governance principles. Corporate Governance laws, which largely follow Sarbanes Oxley guidelines, were published and implemented in the mid 00´s and no research has checked their impact on corporate value in Latin America. This research reports compromises two empirical projects. The first project focused on the relationship between boards of directors attributes such size and composition, Corporate Governance law and firm value for Colombia. The second project focused on another Corporate Governance variable, CEO Duality and tested whether it has had any impact in Mexico. This second project also studied whether board attributes such as size and composition and Corporate Governance law were related to firm value. Based on the listed companies from Colombia and Mexico for the years 2001 to 2012 the author found no relationship between board size or composition and firm value. Results from Mexico, where CEO duality is allowed showed that it has no relationship with firm value. These results do not support or contradict either Agency theory or stewardship theory. Results on the impact of the adoption of a Corporate Governance law in firm value are mixed. Results for Colombia contradict previous literature by reporting a positive relationship between Corporate Governance laws and firm results while results from Mexico support previous research by reporting no relationship between these variables. This research is valuable for regulators and policy makers in their quest to assess the impact of the adoption of Corporate Governance laws in emerging markets. . Since effective Corporate Governance is important in easier access to financing it is important for shareholders to know which Corporate Governance mechanisms are positively related to firm value. Similarly, it is also important for investors (both foreign and local) in assessing the risk for equity investments in Colombia and Mexico.
Open Access
Country-specific equity market characteristics and foreign equity portfolio allocation
(Elsevier Science B.V., Amsterdam., 2012-03-01T00:00:00Z) Thapa, Chandra; Poshakwale, Sunil S.
Do country-specific equity market characteristics explain variations in foreign equity portfolio allocation? We study this question using comprehensive foreign equity portfolio holdings data and different measures of country-specific equity market factors for 36 host countries. Employing panel data econometric estimations, our investigation shows that foreign investors prefer to invest more in larger and highly visible developed markets which are more liquid, exhibit a higher degree of market efficiency and have lower trading costs. The findings imply that by improving the preconditions necessary for well- functioning capital markets, policymakers should be able to attract higher levels of foreign equity portfolio investments.
Open Access
Determinants of asymmetric return comovements of gold and other financial assets
(Elsevier, 2016-08-18) Poshakwale, Sunil S.; Mandal, Anandadeep
Using conditional time-varying copula models, we characterize the dependence structure of return comovements of gold and other financial assets (stocks, bonds, real estate and oil) during economic expansion and contraction regimes. We also investigate which key macroeconomic and non-macroeconomic variables significantly impact the asset return comovements using a two stage Markov Switching Stochastic Volatility (MSSV) framework. Our results show that the non-macro variables have significant influence on the return comovements. We find that gold is an inappropriate hedge against interest rate changes for real-estate and oil-based portfolios, while for bond portfolios, gold offers a good hedge against inflation uncertainty. We also provide evidence that the “flight to safety” phenomenon is due to the implied volatility of the stock market, rather than the observed stock market uncertainty. Finally, we forecast the asset return comovements and examine their economic significance. We show that a dynamic MSSV model which includes the macroeconomic and non-macroeconomic variables yields superior forecast of future asset return comovements when compared with a multivariate conditional covariance model.
Open Access
The determinants of UK Equity Risk Premium
(Cranfield University, 2016-10) Chandorkar, Pankaj Avinash; Poshakwale, Sunil S.
Equity Risk Premium (ERP) is the cornerstone in Financial Economics. It is a basic requirement in stock valuation, evaluation of portfolio performance and asset allocation. For the last decades, several studies have attempted to investigate the relationship between macroeconomic drivers of ERP. In this work, I empirically investigate the macroeconomic determinants of UK ERP. For this I parsimoniously cover a large body of literature stemming from ERP puzzle. I motivate the empirical investigation based on three mutually exclusive theoretical lenses. The thesis is organised in the journal paper format. In the first paper I review the literature on ERP over the past twenty-eight years. In particular, the aim of the paper is three fold. First, to review the methods and techniques, proposed by the literature to estimate ERP. Second, to review the literature that attempts to resolve the ERP puzzle, first coined by Mehra and Prescott (1985), by exploring five different types of modifications to the standard utility framework. And third, to review the literature that investigates and develops relationship between ERP and various macroeconomic and market factors in domestic and international context. I find that ERP puzzle is still a puzzle, within the universe of standard power utility framework and Consumption Capital Asset Pricing Model, a conclusion which is in line with Kocherlakota (1996) and Mehra (2003). In the second paper, I investigate the impact of structural monetary policy shocks on ex-post ERP. More specifically, the aim of this paper is to investigate the whether the response of UK ERP is different to the structural monetary policy shocks, before and after the implementation of Quantitative Easing in the UK. I find that monetary policy shocks negatively affect the ERP at aggregate level. However, at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of Quantitative Easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the Bank of England’s monetary policy before and after the monetary stimulus. In the third paper I examine the impact of aggregate and disaggregate consumption shocks on the ex-post ERP of various FTSE indices and the 25 Fama-French style value-weighted portfolios, constructed on the basis of size and book-to-market characteristics. I extract consumption shocks using Structural Vector Autoregression (SVAR) and investigate its time-series and cross-sectional implications for ERP in the UK. These structural consumption shocks represent deviation of agent’s actual consumption path from its theoretically expected path. Aggregate consumption shocks seem to explain significant time variation in the ERP. At disaggregated level, when the actual consumption is less than expected, the ERP rises. Durable and Semi-durable consumption shocks have a greater impact on the ERP than non-durable consumption shocks. In the fourth and final paper I investigate the impact of short and long term market implied volatility on the UK ERP. I also examine the pricing implications of innovations to short and long term implied market volatility in the cross-section of stocks returns. I find that both the short and the long term implied volatility have significant negative impact on the aggregate ERP, while at sectoral level the impact is heterogeneous. I find both short and long term volatility is priced negatively indicating that (i) investors care both short and long term market implied volatility (ii) investors are ready to pay for insurance against these risks.
Open Access
Determinants of worldwide foreign equity portfolio holdings and impact of foreign equity porfolio flows on global financial linkages of emerging markets
(Cranfield University, 2010-07) Thapa, Chandra; Poshakwale, Sunil S.
This thesis comprises of four empirical studies. The first three empirical studies identify and investigate the role of different factors explaining the cross sectional and temporal variation of foreign equity portfolio holdings for thirty-six developed and developing host countries. The fourth empirical study demonstrates the impact of foreign equity flows on global financial linkages of four Asian emerging markets. Our first three empirical studies use foreign equity portfolio holding data on 36 host countries and employ different panel data models. Our survey of the literature shows that only few studies (two to the best of our knowledge) have modelled the bilateral cross-country foreign equity portfolio holdings on a global basis. Further, unlike previous studies, which use cross-section models, we test all our hypotheses using relatively more efficient random effect and more robust fixed effect panel data models. The first empirical study examines three hypotheses demonstrating the association between three different components of transaction costs (commission, fees and market impact) and foreign equity portfolio allocation (FEPA). To the best of our knowledge, we are first to comprehensively test the role of each of the components individually and collectively in modelling FEPA. Addressing several robustness issues, we show significant and robust effect of transaction costs with clear evidence that foreign investors tend to underweight countries with higher transaction costs. In our second empirical study we test five hypotheses investigating the role of country specific equity market characteristics (CSEMC) in explaining FEPA. We use five different variables as proxy of CSEMC, such as stock market development/size, market liquidity, emerging market dummy, equity return volatility and exchange rate volatility. We are first to use the later two volatility measures in modelling FEPA. Consistent with theory, the results show that all the CSEMC factors tend to have strong and statistically significant effect on foreign equity portfolio allocation decisions. Our third empirical study investigates the relationship between investor protection and FEPA. The existing findings on the role of investor protection are highly controversial with divided views and contrasting conclusions. By including three different measures, we demonstrate that investor protection right, particularly the one specific to foreign investments, is also an important feature influencing allocation decisions. Finally, in our fourth empirical study we use daily foreign equity flow data for four Asian emerging markets. Application of co-integration and vector error correction (VEC) models provide strong indication that the increase in foreign equity flows is driving the global financial linkages of the Asian emerging markets. Using different variants of VEC model, our investigation also demonstrates that foreign investors in the selected Asian emerging markets engage in momentum trading strategy and flows have significant effect on the local equity market (price pressure hypothesis). Overall, our study concludes that stock market development features are the most important inputs in the worldwide foreign equity portfolio allocation decision. Furthermore, there is an indication that the growing foreign equity portfolio flows are, in part, responsible for the increasing global financial linkages of the Asian emerging markets.
Metadata only
Director prestige, firm performance, value, and risk.
(Cranfield University, 2022-10) Khedar, Harsh; Poshakwale, Sunil S.; Agarwal, Vineet
This thesis investigates the impact of director prestige on firm performance, value, and risk. The first essay, entitled, “Are prestigious directors mere attractive ornaments on the corporate Christmas tree?”, examines the impact of appointments of prestigious directors on both short- and long-term firm performance. Using the UK’s unique institutional setting of Queen’s honours to measure director prestige, I find that the market reacts positively to the appointment announcements of Prestigious Award-Winning Directors (PAWDs). Further, I show that firms appointing PAWDs show a significant improvement in performance than firms appointing Non-Award-Winning Directors (NAWDs). However, it is the first appointment of a PAWD to firms that are driving the significance implying that there is no incremental value in appointing more than one PAWD to the board. I attribute these findings to the monitoring, legitimacy, and preferential access to resources roles of prestigious directors. My results are robust to several checks controlling for endogeneity arising through omitted variable bias and self-selection bias. In the second essay, entitled, “Prestigious Directors, Firm Acquisitions, Financial Policies and Risk”, I investigate the impact of prestigious directors on the firm’s acquisition behaviour, financial policies such as cash holdings and net leverage and its risk and valuation. I find that firms undertake less acquisitions, especially, diversifying acquisitions, after appointing PAWDs. Moreover, they increase their cash holdings after appointing PAWDs, and hence, their net leverage decreases as firms need not borrow externally due to excess cash. Finally, I find that the firm risk declines and the value increases after the appointment of prestigious directors. I consider these findings to diligent monitoring performed by prestigious directors that reduce managerial private benefits. Overall, my findings are consistent with both the Agency Theory and the Resource Dependence Theory that suggest that prestige not only acts as an incentive to effectively monitor management but also signals higher human and social capital.
Open Access
Do investors gain from forecasting the asymmetric return co‐movements of financial and real assets?
(Wiley, 2020-08-10) Mandal, Anandadeep; Poshakwale, Sunil S.; Power, Gabriel J.
Recent research on asset allocation emphasizes the importance of considering non‐traditional asset classes such as commodities and real estate—the former for their diversification properties, and the latter due to its importance in the average investor's portfolio. However, modelling and forecasting asset return co‐movements is challenging because the dependence structure is dynamic, regime‐specific, and non‐elliptical. Moreover, little is known about the economic source of this time‐varying dependence or how to use this information to improve investor portfolios. We use a flexible framework to assess the economic value to investors of incorporating better forecasting information about return co‐movements between equities, bonds, commodities, and real estate. The dependence structure is allowed to be dynamic and non‐elliptical, while the state variables follow Markov‐switching stochastic volatility processes. We find that the predictability of return co‐movements is significantly improved by incorporating macro and non‐macroeconomic variables, in particular inflation uncertainty and bond illiquidity. The economic value added to investors is significant across levels of risk aversion, and the model outperforms traditional multivariate GARCH frameworks.
Open Access
An empirical investigation of the determinants of asset return comovements
(Cranfield University, 2015-10) Mandal, Anandadeep; Poshakwale, Sunil S.
Understanding financial asset return correlation is a key facet in asset allocation and investor’s portfolio optimization strategy. For the last decades, several studies have investigated this relationship between stock and bond returns. But, fewer studies have dealt with multi-asset return dynamics. While initial literature attempted to understand the fundamental pattern of comovements, later studies model the economic state variables influencing such time-varying comovements of primarily stock and bond returns. Research widely acknowledges that return distributions of financial assets are non-normal. When the joint distributions of the asset returns follow a non-elliptical structure, linear correlation fails to provide sufficient information of their dependence structure. In particular two issues arise from this existing empirical evidence. The first is to propose a more reliable alternative density specification for a higher-dimensional case. The second is to formulate a measure of the variables’ dependence structure which is more instructive than linear correlation. In this work I use a time-varying conditional multivariate elliptical and non-elliptical copula to examine the return comovements of three different asset classes: financial assets, commodities and real estate in the US market. I establish the following stylized facts about asset return comovements. First, the static measures of asset return comovements overestimate the asset return comovements in the economic expansion phase, while underestimating it in the periods of economic contraction. Second, Student t-copulas outperform both elliptical and non-elliptical copula models, thus confirming the ii dominance of Student t-distribution. Third, findings show a significant increase in asset return comovements post August 2007 subprime crisis ... [cont.].
Open Access
Foreign direct investment from developing countries: a systematic review
(Cranfield University, 2009-08) Prasad Kodiyat, Tiju; Poshakwale, Sunil S.
The privileges of integration with the global economy have led developing countries to embark on a path of liberalisation and globalisation. This resulted in rapid growth of inward and outward foreign direct investment from developing countries. In the last two decades there is an increasing trend of outward FDI from developing countries to both developed and developing countries. This dissertation focuses on exploring the literature on outward FDI from developing countries, and internationalisation process of developing country multinationals which are considered to be carriers to investment across international borders. The study has examined the two main strands of literature on outward FDI from developing countries – determinants of outward FDI and internationalisation process. Findings of the systematic review show that there is a dearth of studies in this area of research. Except a number of studies on China and countries of East and South East Asia, there is very limited evidence on outward FDI from developing countries. There is a set of studies on Africa that examine South-South investment flows. Studies on other major developing countries are either non-existent or lack in comprehensiveness. Some studies resulted in contradictory findings about the determinants of outward FDI. This raises the question of sensitivity of variables across geographical locations and time periods, which has not been researched before. Studies on outward FDI also do not make a clear distinction between South-South and South-North FDI flows. Other aspects like sovereign wealth funds and commodity price boom have been ignored in the literature. It is important to investigate outward FDI flows from the major developing economies because of its sheer scope to contribute to academic literature, its policy implications, and also because of its potential to bring development to some of the most impoverished parts of the world.
Open Access
Foreign Investors and Global Integration of Emerging Indian Equity Market
(SAGE Publications, 2010-06) Poshakwale, Sunil S.; Thapa, Chandra
This article examines the influence of foreign investors in explaining short-run dynamics and long-run relationship of the emerging Indian equity market with global equity markets. Using daily return series and equity portfolio investments made by foreign institutional investors, we conclude that the rapid growth in the flow of foreign equity portfolio investments is leading to greater integration of the Indian equity market with global markets. With the increased global integration, the Indian market will become more susceptible to global shocks as has been witnessed by significant losses suffered by investors in the Indian market following the sub-prime crisis.
Open Access
Global power shift
(Cranfield University School of Management, 2011-03-01T00:00:00Z) Poshakwale, Sunil S.
Open Access
The governing dynamics of stock-bond return co-movements: a systematic literature review
(Cranfield University, 2012-08) Mandal, Anandadeep; Poshakwale, Sunil S.
Understanding stock-bond return correlation is a key facet in asset mix, asset allocation and in an investor’s portfolio optimisation strategy. For the last couple of decades, several studies have probed this cardinal relationship. While initial literature tries to understand the fundamental pattern of co-movements, later studies aim to model the economic state variables influencing such time-varying volatility behaviour of stock-bond returns. This study provides a systematic literature review in the field of stock and bond return correlation. The review investigates the existing literature in three key dimensions. First, it examines the effect of macro-economic variables on SB return co-movements. Second, it illustrates the effect of financial integration on the asset correlation dynamics. Third, it reviews the existing models that are employed to estimate the dynamic relationship. In addition to the systematic review, I conduct an empirical analysis of stock-bond return co-movements on U.S. capital market. Both the literature and the empirical investigation substantiate my claims on existing research gaps and respective scope for further research. Evidence shows that existing models impose strong restrictions on past stock-bond return variance dynamics and yield inconclusive results. I, therefore, propose an alternative method, i.e. copula function approach, to model stock and bond time-varying co-movements. Since the previous studies largely focus on developed economies, I suggest an empirically investigation of emerging economies as well. This will allow me to examine the effect of financial integration on the dynamic asset return correlation. Apart from this academic contribution, the study provides an illustration of the economic implications which relate to portfolio optimization and minimal-risk hedge ratio.
Open Access
The impact of aggregate and disaggregate consumption shocks on the Equity Risk Premium in the United Kingdom
(Peking University Press, 2019-11-01) Poshakwale, Sunil S.; Chandorkar, Pankaj
We examine the impact of aggregate and disaggregate consumption shocks on the ex-post Equity Risk Premium (ERP) of FTSE indices and the 25 Fama-French portfolios. Findings suggest that aggregate consumption shocks seem to explain significant time variation in the ERP. At disaggregated level, the ERP increases when the actual consumption is less than expected. Finally, durable and semi-durable consumption shocks have a greater impact on the ERP than non-durable consumption shocks
Open Access
The impact of foreign equity investment flows on global linkages of the Asian emerging equity markets
(Taylor & Francis, 2009-11) Poshakwale, Sunil S.; Thapa, Chandra
Evidence of the impact of foreign equity investment flows on the global linkages of the Asian emerging equity markets is provided. Findings confirm that there is a general trend towards greater integration and this process appears to be influenced by the increasing volumes of foreign equity portfolio investment flows. The results support the widely-held view that foreign investors are return chasers and their trading behaviour is based on information drawn from recent returns available in the emerging markets. The results also confirm the price-pressure hypothesis which suggests that foreign equity investors are mainly responsible for the increases in the stock market valuations in the Asian emerging markets. In view of the findings, the Asian emerging markets may become more vulnerable to the changes in foreign investment flows and turn more volatile in future.
Open Access
The impact of foreign equity investment flows on integration of Asian emerging equity markets
(Cranfield University School of Management, 2009-01) Poshakwale, Sunil S.; Thapa, Chandra
The paper investigates the impact of foreign equity investment flows on the integration process of emerging markets with the global markets. Daily net foreign equity investment flow and return data for the four Asian emerging markets of India, Korea, Taiwan, and Thailand for 2001-2007 is used in examining the long and short-run relationship with the global markets. The findings show that despite the instability of the correlation structure, there is a general trend towards greater integration. The cointegration analysis results suggest that the four Asian emerging markets are getting integrated with the global markets and the integration process is driven by the activities of the foreign investors. Findings confirm that the global markets have significant causal impact on returns of all four emerging markets and the foreign equity investment flows play a significant role in correcting the short-term deviations in the convergence process. Whilst the results are consistent with previous research, we find stronger evidence for the positive feedback hypothesis for all four markets. The results support the widely held view that foreign investors are high return chasers and extract information from recent returns. Our results also confirm the price pressure hypothesis which suggests that foreign equity investors are mainly responsible for the increase in the stock market valuations in the four Asian emerging markets. If this were to be true, the emerging markets may become increasingly vulnerable to the shocks in the volume of foreign equity investment flows and turn more volatile in future.
Open Access
The impact of monetary policy shocks on the Equity Risk Premium before and after the quantitative easing in the United Kingdom
(2016-12-29) Poshakwale, Sunil S.; Chandorkar, Pankaj Avinash
The authors investigate the impact of structural monetary policy shocks on ex-post equity risk premium (ERP) of aggregate and sectoral FTSE indices and 25 Fama-French style value-weighted portfolios. They find that monetary policy shocks negatively affect the ERP but at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of quantitative easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the BoE’s policy before and after the monetary stimulus.
Open Access
The impact of regulations on compliance costs, risk-taking, and the reporting quality of the EU banks
(Elsevier, 2019-12-14) Poshakwale, Sunil S.; Aghanya, Daniel; Agarwal, Vineet
The paper examines how the Statutory Audit and Corporate Reporting Directives (SACORD) affect the compliance costs, risk taking and quality of financial reporting of the EU banks. Using a natural experiment, we find that post SACORD, both compliance costs and risk taking increase significantly. However, the implementation of additional regulations seems to be effective in terms of improved quality of financial reporting. When we analyse the impact by size, we find that smaller banks face disproportionately higher increase in compliance costs while larger banks seem to engage in greater risk taking.

Browsing by Author "Poshakwale, Sunil S."

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