Value-at-Risk in Emerging Equity Markets: Comparative Evidence for Symmetric, Asymmetric, and Long-Memory GARCH Models
David G. McMillan(School of Management, University of St Andrews, Fife, Scotland)
Alan E. H. Speight(School of Business & Economics, Swansea University, Swansea, UK)

This paper extends research concerned with the evaluation of alternative volatility forecasting methods under value at risk (VaR) modeling in the context of the Basle Committee adequacy criteria by broadening the class of generalized autoregressive conditional heteroscedasticity models, to include both asymmetric models and long memory models, in addition to the statistical methods commonly used in financial institutions. In the analysis of daily index data for eight emerging stock markets in the Asia – Pacific region, in addition to US and UK benchmark comparators, we find both asymmetric and long memory features to be important considerations in providing improved VaR estimates that minimize occasions when the minimum capital requirement identified by the VaR methodology would have fallen short of actual trading losses. More generally, our results illustrate the importance of adopting the stringent probability level stipulated in the regulatory framework, and of using fully out-of-sample forecast evaluation methods for the identification of forecasting models that mitigate the likelihood of inappropriately small VaRs and consequent regulatory intervention.

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Emerging Market Efficiencies: New Zealand’s Maturation Experience in the Presence of Non-Linearity, Thin Trading and Asymmetric Information
Charles Rayhorn(College of Business, Northern Michigan University, Marquette, MI, USA)
M. Kabir Hassan(Department of Economics and Finance, University of New Orleans, New Orleans, LA, USA)
Jung-Suk Yu(Macroeconomic Research Department, Samsung Economic Research Institute, Seoul, Korea)
Kenneth R. Janson(College of Business, Northern Michigan University, Presque Isle, Marquette, MI, USA)

This paper examines the efficiency of New Zealand’s stock market by assessing the prevalence of thin trading, non-linearity and information asymmetry. We find that the efficiency of this emerging market has been enhanced over time due to regulatory changes and the transition of the New Zealand economy to a free market orientation. During the 1970s and 1980s, the stock market appears to have been inefficient with thin trading and non-linearity as leading causative agents. Our evaluation of non-linear models, adjusted for thin trading effects, however, strongly suggests that the New Zealand stock market has become more efficient since 1990.

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Cost Efficiency in South Asian Banking: The Impact of Bank Size, State Ownership and Stock Exchange Listings*
Shrimal Perera(Department of Accounting and Finance, Monash University, Caulfield East, Vic., Australia)
Michael Skully(Department of Accounting and Finance, Monash University, Caulfield East, Vic., Australia)
J. Wickramanayake(Department of Accounting and Finance, Monash University, Caulfield East, Vic., Australia)

This study examines the cost efficiency performance of 111 commercial banks in Bangladesh, India, Pakistan and Sri Lanka over 1997–2004. The primary focus is to assess whether bank size, state ownership and stock exchange listing have significant effects on South Asian banks’ efficiency performance. To this end, a translog-form composite-error cost efficiency model, which allows for exogenous environmental influences, is estimated. The results indicate that the overall efficiency of South Asian banks declined over 1997–2004. Larger banks and banks with widespread ownership through stock exchange listings were found to be relatively more cost efficient. In contrast, state-owned banks were less efficient.

*The authors would like to thank the participants at the 18th Australasian Finance and Banking Conference 2005, Sydney, Australia, for their helpful comments.

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Profitability of Contrarian Strategies: Evidence from the Istanbul Stock Exchange*
Recep Bildik(Istanbul Stock Exchange Emirgan, Istanbul, Turkey)
Guzhan Gulay(Istanbul Menkul Kiymetler Borsasi, Tuncay Artun Cad. Emirgan, Istanbul, Turkey)

This study examines the momentum and contrarian effects on stock returns in one of the leading emerging markets, which has a unique market structure, with record-high inflation, high volatility, high turnover, low correlation of returns with other exchanges and myopic investors: the Istanbul Stock Exchange (ISE). It also investigates the weak-form efficiency of the stock market by examining the profitability of a number of contrarian strategies based on past returns, size, price, book-to-market and earnings-to-price ratios of stocks in various lengths of formation and holding periods. Our findings show that a self-financing trading strategy, buying past loser stocks and selling past winner stocks generate significant abnormal returns (approximately 15% annually) in ISE. However, these large contrarian profits are for bearing the extra risk of loser stocks similar to the US results. We also find significant price, size, and B/M effects in stock returns. Finally, our results show the continous profitability of contrarian strategies both in very short (starting from 1 month) and in long holding periods (up to 36 months), which appears to be related to country-specific factors.

*Bildik (Ph.D.) is Assistant Director of the Stock Market Department at the Istanbul Stock Exchange. Part of this paper was written while he was visiting Graduate School of Business of University of Chicago and Finance Department of DePaul University in the 2003–2004 academic year. The opinions expressed do not necessarily represent those of the Istanbul Stock Exchange. Valuable comments of an anonymous referee, Sheridan Titman, George Constantinides, Tobin Moskowitz, Nejat Seyhun and participants in the Annual Meeting of European Financial Management Association, which was held in London in June 28–30, 2002, and the computational support of Zihni Enli are gratefully acknowledged. Gulay (Ph.D.) is a market supervisor at the Stock Market Department of the Istanbul Stock Exchange and Istanbul.

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