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The Modeling and Empirical Studying of Overconfidence in Future Market

On 04/10/2014, in Finance, by rain

Overconfidence is a typical psychological phenomenon in human cognitive bias, itcauses the investors overly trust their own analytical skills, so the market reaction is notentirely rational. In order to explore the relationship between trading volume andoverconfidence in the future market, we have done the following researches:First, the research literatures about overconfidence and trading volume are included.We find that the existed literature on overconfidence research mainly focuses on the stockmarket, and the criteria of the overconfidence have not been unified. This chapter givesthe meanings of study about the behavioral finance theory in the future market.Second, we analyze the phenomenon that basis as the difference between spot andfutures price will be abnormal volatility and the turnover will be unstable when thespeculative in the future market is very large.Third, we construct and analyze the theoretical model of overconfidence and theempirical model. By solving the utility maximized equation, we get the optimal tradingstrategy. It indicates that the trading volume will amplify with the enlargement of thedegree of overconfidence and private information. By solving the vector auto-regressionequation about the variables of volume and rate of return, it indicates that the privateinformation and public information have different effects on trading volume.Fourth, soybean, cotton and rubber futures contracts are empirically analyzed. Theircoefficients from the vector auto-regression equation are calculated individually, and theyshow that the overconfidence is popular and the private information has a significantimpact on trading volume by comparing the residual sequence diagrams and impulseresponse diagrams.At last, the thesis gives the main conclusion and policy proposals. Overconfidence isa common phenomenon in the future market; the investors overreact to privateinformation and the private information shocks bring some volatility in the future market.So it’s necessary to enhance investor education and to guide the investors to form therational investment ideas; and to improve the transparency of market information. The regulatory agencies should crack down on illegal activities. At last, we give some proposalfor further study.

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The Empirical Research on the Redemptive Risk of Open-End Fund

On 04/10/2014, in Finance, by rain

Although since its establishment, open-end fund only had a decade of short-termdevelopment in China, it had experienced large-scale redemption for several times, thenredemptive risk emerged outstandingly. The paper analyzed the formation mechanism, theperformance characteristics and affecting factors of the redemptive risk of open-end fund,then found that the free redemptive system of our open-end fund was the root of causes ofleading to redemptive risk, and its formation was related to the size and the time ofredemption of the investors and the liquidity of the fund portfolio. Further, the purchaseand redemption of the investors, especially the redemption, affected the changes of fund’scash position directly, according to that, the fund managers must constantly adjust thefund asset allocation. For that, investors’ redemptive behaviors were the main reasonwhich leaded to redemptive risk. The paper mainly analyzed how the factors affectinvestors’ redemptive behavior empirically.The paper was divided into five parts. The first part of the paper described thebackground and significance of the topic, the domestic and foreign literature reviewsrelated, and the research methods, research projects and innovations. The second partintroduced the concept of the redemptive risk of the open-end fund, focused on theanalysis of the formation mechanism of the redemptive risk of open-end fund, cleared themain performance characteristics of China’s open-end fund’s redemptive risk, andanalyzed the factors of China’s investors’ redemptive behaviors theoretically. The thirdsection described the concept of the panel data model. The fourth part combined with thequarterly data of China’s46open-end fund which established before June30th,2006,established panel data (Panel Data) regression model, and applied empirical analysis todetect how the various factors affect investors’ redemptive behaviors more realistically.Finally, according to the result of the empirical analysis, we gave the relevant policies andproposals for how to avoid and prevent the redemptive risk of China’s open-end fundeffectively.

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The Study of Stock Price Fragility

On 04/10/2014, in Finance, by rain

This paper mainly discusses the relationship between the ownership structure ofstocks and non-fundamental risk. In traditional asset pricing theory, the composition ofownership of a stock does not influence future returns or risk. However, relative empiricalliteratures in finance finds that investor demand unrelated to fundamentals (i.e. herdingbehavior) will lead liquidity shocks to stocks, and thus can have large effects on stockprices. Therefore the composition of ownership of a stock should be useful for forecastingnon-fundamental risk.In this paper, we use ownership structure and correlated funds flows to measure stockprice fragility, which is used to predict stock price volatility. We define an asset to befragile if it is susceptible to non-fundamental risk. Therefore, a stock can be fragilebecause of concentrated ownership, or because its owners face correlated or volatile flowsstocks when ownership is diversified. Overall, fragility depends on ownershipconcentration and the volatilities and correlations of owners’ expected liquidity trades.Based on the definition of fragility above, the paper applies the idea to non-monetaryopen funds of China between2004and2010, empirically uses stock shares held by fundsand the correlation of funds net flows to measure stock price fragility, and thus predictsstock price volatility. Finally, the paper extends the logic of fragility to a multi-stockcontext, and uses co-fragility to forecast stock return comovement.Through empirical study, we find that fragility strongly predicts price volatility.Ownership structure, the correlation of funds net flows, market capitalization and stockmarket book ratio have impact on excepted volatility of stock price. Meanwhile,co-fragility is also statistically significant to stock return comovement.

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A Study on the Exchange Rate Risk of China’s Foreign Exchange Reserves:Based on the CVaR Model

On 04/10/2014, in Finance, by rain

By the end of March of2011, Chinese foreign exchange reserves had reached3044.674billion dollars.According to growth of Chinese foreign exchange reserves,Chinese foreign exchange reserves are still growing. As dollar has higher proportion of theassets of Chinese current foreign reserve, according to the current international situationand with the trend of Dollar and RMB exchange rate, the dollar exists the possibility ofdepreciate. It is a serious challenge for China government which has a huge amount ofdollar assets. In order to make effective management of Chinese foreign exchangereserves, we must have a clear direction and goals, propose some effective preventivemeasures, to minimize the risk of foreign exchange reserves under the challenge ofholding huge assets of foreign exchange reserves.The article first reviews the development process of the increased of our country’sforeign exchange reserves, which from19.44billion dollars in late of1992, rose to3044.674billion dollars by the end of March2011. And then through internationalexperience standards to determine the adequacy of Chinese foreign exchange reserves, theresults show that: Chinese foreign exchange reserves are in excessive state. Thoughholding sufficient reserves has obvious advantages in preventing financial risks andpromoting economic development, holding excess reserves should pay a big price. Then,this article describes the main risks of Chinese foreign exchange reserves,such as interestrate risk, exchange rate risk, liquidity risk and opportunity risks. In the third part of thisarticle,it introduces the concepts and methods of VaR calculation methods. Although VaRis very popular in the field of risk measurement, it also has some bad properties, such as:lack of time convexity and sub-additive. Based on it, this paper proposed CvaR model tostudy the exchange of rate risk by empirical study, which is based on the model of Chineseforeign exchange reserves. And according to the results of empirical study, with the helpof Mean-CvaR model to optimization the structure of currency, makes the currency riskminimization. Finally, it gives the conclusions of the article, and put forward someappropriate policy and recommendations.

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A Study on the Resources Allocation Effect of Financial Intermediary in China

On 04/10/2014, in Finance, by rain

Promotion of resources allocation efficiency is not only one of the important issues ofeconomics research but also the important one tried to resolve by economics practice.Since reform and opening, China’s economy has experienced an unprecedented rapiddevelopment although never getting rid of structural imbalance problems. Misallocation ofresources is undoubtedly the most important one among types of factors leading tostructural imbalance in China. In response to the2008global financial crisis, the Chinesecentral government again proposed the measure of structural adjustment. The so-called”structural adjustment” is carrying on the re-allocation of resources to change theexisting imbalanced and distorted economic structure, and finally achieve economicstability and healthy development.From a narrow understanding, allocation of resources refers to the configuration ofcapital, labor and land elements. However the efficiency of capital allocation has adecisive and oriented impact on the efficiency of the land and labor allocation. Efficiencyof capital allocation depends on whether the financial system and financial market isdeveloped and perfect or not to great extent, especially the perfection of credit market andthe use of financial instruments or means in credit market.This thesis from the angle of bank financial intermediaries and the perspective of therelationship between Chinese economic structural imbalances and resource allocation,research the capital allocation effect of credit market which is mainly the state-ownedcommercial banks and takes commercial banks and corporation as the supply and demandsides, focusing on that of interest rate-the price signals and adjusting means of creditmarket.The paper starts with a general analysis of capital allocation mechanism and path ofbank financial intermediation and, especially that of the capital allocation function ofinterest rate as a tool from its level and structure and concludes that bank financialintermediaries or credit markets and regulation and structure change of interest rates havea major impact on the efficiency of capital allocation. Then, it from the perspective of theelements’ configuration analyzes the configuration effect of Chinese bank financial intermediaries on capital, labor and land elements, and points out that the bank financialintermediaries or credit markets and interest rate adjustment will directly determine thecapital allocation efficiency, and through the guide role of capital allocation, further affectlabor and land allocation efficiency.Finally, it estimates Chinese capital and labor allocation efficiency from1990to2007with the use of OLS, finds during two decades, resource allocation efficiency showsfluctuations to up or down and even decline slightly, and empirically research resourceallocation effects of Chinese banking reform for nearly two decades, consequently findsthat the gradual relaxation of control over interest rate or forward marketization of interestrate and encouraging the development of small and medium sized banks to provide creditto SMEs will benefit enhancing efficiency of resource allocation. Meanwhile, the centralbank according to the economic development situation regulates the credit marketappropriately to achieve the rational allocation of credit funds by industry, increase creditsupport to agriculture and SMEs, compress credit scale of overcapacity industry, drive therational flow and configuration of labor and land elements by the flow of credit funds,thus contribute to the improvement and upgrading of industrial structure and the economyhealthy and stable development.

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The Technical Spillover Effect of FDI on the Human Capital

On 04/10/2014, in Finance, by rain

When foreign direct investment influences the economy of host country, there aretwo main ways: capital and technical spillover effect. The technical spillover effect offoreign direct investment is an important way for host country, especially the developingcountries, to get the world advanced technology and catch up with the developed countries.China, as the largest developing country in the world, compared to other counties may paymore attention to foreign direct investment. Furthermore, there is much factor affects theproduce and level of technical spillover effect of foreign direct investment, but the humancapital of the host country is particularly important.In this research,we will study while the human capital of Shandong province effectsthe technical spillover effect of South Korea’s direct investment or not. On the base ofC-D production function, from the empirical analysis we know South Korea’s directinvestment has no visible technical spillover effect in Shandong province;but the effectwill happen when the human capital of Shandong province takes part in. Therefore,inorder to make better use of the South Korea’s direct investment to improve economy andtechnology of Shandong province,we should pay much attention to the addition of humancapital of Shandong province.

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The Study of Our Residents of Asset Price Fluctuations on the Wealth Effect

On 04/10/2014, in Finance, by rain

In recent years, national capital market developed rapidly and it hasplayed anIncreasingly important role in the financial market.As an importantindicator of the capital market asset price had a significant impact on thenational financial system and macroeconomic.In the world, the stock and the real estate have had a growing greaterinfluence on consumer behavior in Europe and Japan since1990.Anddifferent types of asset had different effect in different contries. From adomestic perspective, the stock and real estate has become a major assettypes held by residents, capital market has become a top priority ofChina’s macro-control policies. Then whether does the wealth effectsexist? Where are the root cause of the wealth effect? The basic theoreticalproblem has not been completely resolved. The different understanding ofthese issues and judgments will lead to different macroeconomic policies,and thus affect the effectiveness of macroeconomic policy and the economy’s health. Therefore based on the study of wealth effect inEurope and America and other developed countries by senior scholars, webegin to study the wealth effect in China and explore the mechanism thatthe volatility of asset prices affact the national economy. It can greatlyhelp us to aware of the channels of the stock price and the real estateprices on consumption contributing to the overall growth in consumption.Based on the theory proposed by scholars at home and abroad,combined with the status quo of Chinese capital market, this paper gatherquarterly data from first quarter in2001to second quarter in2011.Basedon the LC-PIH model, we study the direct and indirect wealth effectbetween the stock market and the real estate and the consumer spending.The empirical results show there is some wealth effect between the majorasset and the consumer spending. As time go on, the wealth effect instock market will increase and the wealth effect in the real estate willdiminish. But the result is different from the result got by scholars inother contries. Finally, based on the empirical results, we make relevant policy recommendations on how to give full play to Chinese wealth effectof asset prices and macroeconomic policy formulation and adjustment.

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The Analysis on Relationship of Commercial Banks’ Diversification and Operational Efficiency in China

On 04/10/2014, in Finance, by rain

In recent years, with the development of China’s economy and large of theforeign banks enter into China after the protection of WTO, which has brought atremendous impact to China’s listed banks’ traditional business. In response to thefierce market competition, China’s listed banks increasingly become pluralisticoperation: developing the intermediary business on the basis of traditionalasset-liability business. As a result, China listed commercial banks have reduced theconsolidated operating costs and increase operational efficiency throughdiversification. Diversification has become an important business strategy to listedcommercial banks, the research to operational efficiency become more realistic andtheory significance.This paper intends to combine the theoretical analysis and empirical analysistogether, and then introduces the diversification theories and management theories ofgeneral into our commercial banks. In this paper I take four Chinese state-ownedcommercial banks and twelve shareholding commercial banks as the researchexamples, and construct the Linear Regression model with E、ROA、TQ and NPL etc,after the empirical analysis I’ll give my advices on how to improve China’scommercial banks diversification operation.Based on the existing literature of domestic and aboard, at the first part of thispaper, discussed the meaning of diversified management, and then analysis thediversified operation’s influences of operation performance. Secondly, this paper briefdiscussion of China’s listed commercial banking business structure evolution, andthen analysis the existing problems which China’s commercial companies has faced.Thirdly, with the diversification index with E、ROA、 TQ and NPL etc, I chooseempirical analysis on the influence between commercial banks’ diversification andperformance by Linear Regression. In the context of China’s three major banks,diversification can improve the performance of listed commercial banks. At the lastpart of this paper, on the basis of the empirical analysis results, I have written someadvices to commercial bank diversification, and wish for learning and reference ofimproving listed banks operational diversification efficiency.

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The Performance Investigation and Risk Management of the Banking Industry in China

On 04/10/2014, in Finance, by rain

Nowadays,the bank is the core of the financial community in the world, theoperation of a country’s economic is closely related with the bank’s development. Atpresent, the state-owned commercial banks have restructured already, foreign bankscontinue to emerge, in this case, the bank’s performance have become the issue thatthe financial industry most care about.So improving the bank’s performance is thekey to maintain stable economic development,also the key to improve the bankingmarket competition.Based on this, this paper discusses the influence factors of the commercialbanks’performance in China.First review the international research’s literature onbank performance, then discuss the measuring indicators and methods of bankperformance. And on this basis,the impact factor of bank performance are studiedbased on the theory and evidence: profitability, management ability, the developmentof capacity and safety. Then this paper determines which factors play a key role inbank performance,thus proposes on how to improve the performance of commercialbanks in China.In addition, on the basis of the research of the bank performance, this paperassess the banks’ risk by introducting the VaR model. As a kind of the quantitativeanalysis tool, VaR model is, in recent years, widely used as a financial riskmeasurement technology in the international financial domain. That it’s a quantitativeanalysis method,makes risk management objective and scientific. This paper mainlyby combining the performance and VaR model, assess a bank whether there is anyrisk in China, and put forward the VaR model in China’s banking industry in the useof risk management.The conclusion of this paper is that the bank performance is influenced byprofitability, management ability, the development of capacity and safety. Profitabilityis the most important factor.Management ability is the second one.Next is thedevelopment of capacity.The last one is safety. With the help of the VaR model, theauthor find that the16banks’ performances are good and the market performance isalso good. The risks of these banks are at a low level, the degree of risk managementmay be appropriately lower.

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Locational Choice Trends of Foreign Direct Investment in China:1984-2009

On 04/10/2014, in Finance, by rain

Since reform and opening, China has made remarkable economic achievements,absorpting and utilizing a large number of foreign direct investments (Hereinafterreferred to as FDI). But review the history of attracting FDI, we can see China attractslittle FDI in the beginning of the reform and opening, but after the strategy of “marketfor technology” putting forward in1992, attracting FDI has risen sharply. Afterjoining in the WTO, FDI inflow presents a new phenomenon. While the regionaldistribution of FDI in China’s domestic is also very uneven, showing east high westlow; furthermore, in the same area, the situation of attracting foreign investment isdifferent at different times. This paper attempts to research locational factors whichinfluence FDI locational choices, and identify the trends of locational factors affectingFDI locational choices, and then through the relationship of certainty to recommendlocal governments to develop policies to better improve the locational factors toattract more FDI.This paper uses theoretical and empirical analysis, and as a city-sectional studyto explore the relationship between different locational factors and FDI locationalchoice, as well as changes in this relationship. The results of this study show that: Thewhole country: per capita GDP (pgdp), incentives, the number of students in collegesand universities and per capita wages the impact of FDI showed a gradual increasingtrend; wastewater treatment compliance rate (wastewater) and FDI locational choiceof a negative correlation, and this relationship was apparent to the third stage; cargo ofthe FDI locational choice of showing the first increase and then decreased, butremains positive relationship. The GDP growth rate (gdpg) of the FDI locationalchoice has no significant effect. East: pgdp, wage impact of FDI, as the case with thecountry. Policy, student locational choice for FDI influence increases firstly and thendecreased, cargo impact of FDI from scratch and then no process. Wastewater, gdpgon the locational choice of FDI has no significant effect. Central Region: policy,student and wage on FDI locational choice of the positive impact in the graduallyincreasing, pgdp, cargo starting from the second stage of locational selection of FDIhas a positive impact, and this effect in strengthening the relationship. Wastewater,gdpg on the locational choice of FDI has no significant effect. West: all the factors inthe first and second stages of FDI location choice are not affected. The third stage isonly cargo, student on the locational choice of FDI have a positive impact, while thewastewater of the locational choice of FDI have a negative impact. Conclusions of this study has an important revelation to local governments,especially in the economically backward central and western local government, toimprove the location factors to attract FDI to improve the ability to accelerate localeconomic development and narrow the gap between the regions.