Designing Markets for Developing Countries
Maureen O’Hara (Johnson Graduate School of Management, Cornell University)

This paper highlights what we know from market microstructure and how this should guide the design of equity markets in developing countries. I first consider the basic economic functions of capital markets and of exchanges. I develop more fully the importance of price discovery and liquidity, and how these are affected by the market environment and by characteristics of firms themselves. I then consider the particular implications of this for capital markets in emerging countries. Research has suggested various links between market designs and performance, and I review the implications of these for exchange structure. I conclude with some thoughts on how best to structure markets for newly listing companies.
*I would like to thank Richard Levitch and Pongsak Hoontrakul for helpful comments on this research.

keywords:

Capital Structure Choices and Taxes: Evidence from the Australian Dividend Imputation Tax System
Garry Twite (Australian Graduate School of Management, Universities of New South Wales and Sydney)

The introduction in 1987 of a dividend imputation tax system in Australia represented a significant change to the tax framework. To the extent that tax incentives influence the use of debt financing, changes in tax laws that alter these incentives will lead to changes in corporate capital structures. This paper examines the changes in corporate capital structure around the introduction of a dividend imputation tax system. The introduction of dividend imputation provides an incentive for firms to (a) reduce the level of debt financing utilized where this incentive varies across firms depending on the firm’s effective corporate tax rate, and (b) increase the level of external equity financing. The results present evidence consistent with these incentives.
*The author wishes to thank Matt Benge, Bhagwan Chowdhry, Kerry Pattenden, Tom Smith, Sheridan Titman, Justin Wood and an anonymous referee for their helpful discussion and comments on this paper. This paper has benefited from the useful comments and suggestions provided by seminar participants at Monash University, the University of Adelaide, the University of New South Wales and the Asia Pacific Finance Association Conference.

keywords:

The Short- and Long-run Performance of New Listings in Tunisia
DSamy Ben Naceur (Unite de Recherche en Ecoonmetrie Appliquee (URECA), Department of Finance, Universite Libre de Tunis)
Hatem Ghanem (Department of Finance, ISG, Universite de Tunis Ⅲ)

This study examines abnormal stock market returns of new listings on the Tunisian Stock Exchange. Substantial positive abnormal returns are found on the first listing day and this finding is similar to that obtained in other countries. Subsequent performance is poor and investors who bought shares at the close of trading on the first day would have lost about 22% against the Tunis Stock Exchange index over a three-year period. The possible causes of this are investigated. Among the factors found in the literature that possibly affect the level of long-term performance, only the state of the IPO market, the initial return, the delay in reaching the ‘first market price’ and the size of the firms have significant coefficients. This result is supportive of the traditional fad’s interpretation of long-term underperformance.

keywords:

Simple Trading Rules and the Market for Internet Stocks
Wai Mun Fong (Department of Finance and Accounting, National University of Singapore)
Yat Wai Ho (Department of Finance and Accounting, National University of Singapore)

We investigate the profitability of moving average trading rules for Internet stocks based on the Dow Jones Internet Composite Index. Consistent with previous studies e.g. Brock et al. (1992), returns after buy signals exceed returns after sell signals. The average buy-sell spread is large and significant even after accounting for transaction costs. Bootstrap simulations based on a version of the dynamic CAPM show that the model is able to replicate the pattern of buy and sell returns. Simulated buy-sell spreads amount on average to more than 39% of the actual spread. However, actual profits are still too large to be explained in terms of risk compensation.
*We wish to thank K. C. Chan, Lilian Ng and Sheridan Titman, the Managing Editor, for providing helpful comments, and Weijin Lin for research assistance. As usual, all errors and omissions are ours.

keywords: