A Refutation of the Existence of the Other January Effect*
Stephen A. Easton(School of Business and Management, University of Newcastle, Callaghan, Australia)
Sean M. Pinder(Department of Finance, University of Melbourne, Victoria, Australia)

Cooper et al. report US evidence of the ‘other January effect,’ where returns in January are shown to have predictive power for returns over the subsequent 11 months. We re-examine the latest sub-period that they examine and find that the results using excess returns are not unique to January and that the effect for January is not apparent for raw returns. Further, using excess (raw) return data for 38 (44) other countries, limited support is found for the other January effect, with eight (five) of the remaining 11 months demonstrating a statistically significant effect in at least as many countries as exhibited the ‘other January effect.’ Further, there is no evidence to suggest that different tax-year ends across countries can explain the result.

*We thank Bruce Grundy, Richard Heaney, seminar participants at the University of Melbourne and conference participants at the 12th Finsia–Melbourne Centre for Financial Studies Banking and Finance Conference for helpful comments, and acknowledge the financial support provided by a Melbourne Centre for Financial Studies research grant.

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Are Feedback Factors Important in Modeling Financial Data?
Helena Veiga(Department of Statistics, Universidad Carlos Ⅲ Madrid, Getafe, Spain)

This paper provides empirical evidence that continuous time models with one factor of volatility are, under some circumstances, able to fit the main characteristics of financial data and reports insights about the importance of introducing feedback factors to capture the strong persistence caused by the presence of changes in the variance. We use the Efficient Method of Moments (EMM) by Gallant and Tauchen (1996) to estimate logarithmic models with one and two stochastic volatility factors (with and without feedback) and to select among them.

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Stock Index Futures Prices and the Asian Financial Crisis*
Taufiq Hassan(Department of Accounting and Finance, Universiti Putra Malaysia, Malaysia)
Shamsher Mohamad(Monash University, Australia)
Mohamad Ariff(Monash University, Australia)
Annuar Md Nassir(Department of Accounting and Finance, Universiti Putra Malaysia, Malaysia)

This study reports new findings on the behavior of index futures (FKLI: code name of Kuala Lumpur Index Futures contract) prices and also records the effect of a major financial crisis on the prices. Since the inception of trading in 1995, the FKLI has been selling at a discount, which gradually increased till early 1997; further, at the onset of the financial crisis in July 1997, FKLI prices were at a high premium relative to its theoretical values. This significant mispricing of the contract declined after the initial overreaction to the crisis. Herding behavior during crisis, liquidity constraint and imposition of trading restrictions are some plausible explanations for the mispricing. This study also investigates whether trades by foreign investors had any impact when compared with prices by domestic investors. We find that foreign investors had a negative influence on permanent price changes while the domestic investors had a positive effect.

*The authors wish to thank the reviewer (s) of the International Review of Finance for selecting this paper at the FMA-AFA Conference 2005 to be invited to be submitted for consideration by the Journal. For errors, the authors take full responsibility.

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Competition and Market Structure of National Association of Securities Dealers Automated Quotations
Youngsoo Kim(University of Regina, Regina, Saskatchewan, Canada)
Vikas Mehrotra(University of Alberta, Edomonton, Alberta, Canada)

In this paper, we study the relation among market structure, trading costs, and competition in National Association of Securities Dealers Automated Quotations (NASDAQ). In particular, we address the following questions: Do NASDAQ dealers exercise market power and extract economic rents in setting bid-ask spread? How persistent is the market power of dominant dealers? Our estimate of the rent is approximately ¢8.76, or 0.54% of stock price. The half-life of the persistence of this rent is approximately 20 months for the entire sample, while the half-life of younger stocks tend to be shorter than those of more mature stocks. Our result supports Schultz: NASDAQ dealers make markets only for stocks where they have competitive advantages in accessing order flow and in information. It might take a while before a market maker poses effective competition to existing dominant market makers. In the meantime, incumbent market makers are able to exercise market power and appear to earn abnormally large profits.

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