The Market Timing Power of Moving Averages: Evidence from US REITs and REIT Indexes*
Paskalis Glabadanidis(Finance Discipline, University of Adelaide Business School)

I present evidence that a moving average (MA) trading strategy dominates buying and holding the underlying asset in a mean-variance sense using monthly returns of value-weighted and equal-weighted US REIT indexes over the period January 1980 until December 2010. The abnormal returns are largely insensitive to the four Carhart factors and produce economically and statistically significant alphas of between 10 and 15% per year after transaction costs. This performance is robust to different lags of the MA and in subperiods while investor sentiment, liquidity risks, business cycles, up and down markets, and the default spread cannot fully account for its performance. The MA strategy works just as well with randomly generated returns and bootstrapped returns. The substantial market timing ability of the MA strategy appears to be the main driver of the abnormal returns. The returns to the MA strategy resemble the returns of an imperfect at-the-money protective put strategy relative to the underlying portfolio. The lagged signal to switch has substantial predictive power over the subsequent return of the REIT index. The MA strategy avoids the sharp downturn at the beginning of 2008 and substantially outperforms the cumulative returns of the buy-and-hold strategy using all of the 20 REIT indexes. The results from applying the MA strategy with 274 individual REITs largely corroborate the findings for the REIT indexes.

*I would like to thank Huining Cao, Sudipto Dasgupta, Dogan Tirtiroglu, Takeshi Yamada, and an anonymous referee for their helpful comments and suggestions. Any remaining errors are my own.

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IMF Conditionality and the Intertemporal Allocation of Resources
Hassan Naqvi(Graduate School of Business, Sungkyunkwan University)

This article analyzes the impact of IMF (International Monetary Fund) conditionality on the intertemporal allocation of resources in an emerging market economy. The study identifies a principal-agent problem between the government of the emerging market and its citizens and shows that conditionality has the potential to mitigate the resulting misallocation of resources. Nevertheless, the analysis indicates that if IMF lending were influenced by geopolitical motives then the suboptimal allocation of resources would remain notwithstanding IMF conditionality.

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Foreign Ownership Restriction and Momentum ? Evidence from Emerging Markets
Yafeng Qin(School of Economics and Finance (Albany), Massey University)
Min Bai(Finance Department, Auckland University of Technology)

This study investigates the impact of foreign investors on stock price efficiency and return predictability in emerging markets. It finds that stocks fully investible for foreign investors exhibit stronger price momentum than non-investible stocks. The difference in momentum effects between stocks with different levels of investibility cannot be fully explained by world market risk, size, turnover, or country-specific factors. Further tests show that fully investible stocks have no post-earnings-announcement drift (PEAD), and their short-term momentum reverses over a longer horizon. These results show that the stronger momentum of highly investible stocks does not appear to be driven by foreign investors’ underreaction to firm-specific information, but is more likely to be generated by their positive feedback trading.

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Effects of Foreign Institutional Ownership on Foreign Bank Lending: Some Evidence for Emerging Markets*
Liangliang Jiang(Department of Economics, Lingnan University)
Yi Zhu(Hong Kong Monetary Authority)

Despite the large literature on developed countries, little is known about the interactions between corporate governance, foreign ownership, and foreign bank lending in developing countries. Using data from five Latin American countries from 2001 to 2008, we provide one of the first pieces of evidence of how foreign ownership affects the loan cost of borrowers in emerging markets. We find that in terms of foreign bank lending, the cost of debt financing is significantly higher for firms whose largest shareholder is a foreign institutional one. The results support the hypothesis that because of potential agency conflicts between shareholders and creditors, having block institutional shareholders tend to increase the borrowers’ debt burden. There is further evidence supporting this agency conflict hypothesis as we find that the effects of large institutional shareholders on borrowing costs become larger (smaller) when the conflicts are aggravated (mitigated).

*We would like to thank an anonymous referee, the associate editor, Chen Lin, Yue Ma, and seminar participants at the World Finance Conference 2013 for very helpful comments, and Pennie Wong and Arbitor Ma for research assistance. Liangliang Jiang gratefully acknowledges financial support from Lingnan University, Hong Kong.

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Frequency and Motives for Stock Dividends in a Unique Environment
Khamis H. Al-Yahyaee(Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University)

We investigate the possible differences in the information content of stock dividends between firms that distribute stock dividends frequently (frequent distributors) and firms that distribute stock dividends infrequently (infrequent distributors) using a unique data set from Oman where the market microstructure frictions are either absent or limited. We find that infrequent stock dividend distributors have higher postdistribution operating performance relative to frequent distributors. We also find that the illiquidity measure is significantly related to the announcement effect only for frequent stock dividend distributors, whereas short-term performance is significantly related to the announcement effect only for infrequent distributors. Our findings indicate that infrequent stock dividends are used mainly to convey favorable private information about the firms’ future prospects, and frequent stock dividends are used to reduce stock price to an optimal trading range in order to improve trading liquidity.

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