Measuring the Effects of Interest Rate Volatility. Interest rate changes have important implications for highly influential macroeconomic variables and, for the investor, have direct implications for asset prices, net worth and future wealth. By considering unresearched areas concerning the behaviour and influence of interest rates our research will be of interest to an academic audience, government, regulators and market practitioners. Attention to Australia, the US and Asia means that the rese ....Measuring the Effects of Interest Rate Volatility. Interest rate changes have important implications for highly influential macroeconomic variables and, for the investor, have direct implications for asset prices, net worth and future wealth. By considering unresearched areas concerning the behaviour and influence of interest rates our research will be of interest to an academic audience, government, regulators and market practitioners. Attention to Australia, the US and Asia means that the research will be directly relevant to Australian decision-makers. Further, the project will yield papers for publication in top international journals, reinforcing Australia's reputation as a leading centre for financial research and enhance it's reputation for cutting-edge work.Read moreRead less
Asset Pricing, Signal Type and Overconfident Investors. Recent bubbles in financial markets and other anxieties with regard to whether financial assets are correctly valued have led to a reduction in the confidence in financial markets. This study, by focussing upon potential biases in the price formation process, will provide strong insights into this important topic. In covering three major equity markets, the project will provide important guidance for the design of regulatory policies on c ....Asset Pricing, Signal Type and Overconfident Investors. Recent bubbles in financial markets and other anxieties with regard to whether financial assets are correctly valued have led to a reduction in the confidence in financial markets. This study, by focussing upon potential biases in the price formation process, will provide strong insights into this important topic. In covering three major equity markets, the project will provide important guidance for the design of regulatory policies on corporate disclosure by both Governments and Stock Exchanges. Given the increased need for funded superannuation/pension schemes, an increase in the confidence in capital market processes will benefit the development of successful funded schemes.Read moreRead less
A Complex Systems Approach to Modelling Time-Varying Risk in the Presence of Market Frictions. Risk and return are two fundamental variables underlying all business decisions. Risk is difficult to measure - potentially leading to sub-optimal outcomes needlessly wasting $millions. This project focuses on two important data problems in risk measurement - thin trading and price limits - applying a complex systems approach. Specifically, we develop a new time varying risk estimator from the clas ....A Complex Systems Approach to Modelling Time-Varying Risk in the Presence of Market Frictions. Risk and return are two fundamental variables underlying all business decisions. Risk is difficult to measure - potentially leading to sub-optimal outcomes needlessly wasting $millions. This project focuses on two important data problems in risk measurement - thin trading and price limits - applying a complex systems approach. Specifically, we develop a new time varying risk estimator from the class of generalised Tobit models - popular in other areas of economics. Using data across several markets, the new risk measure will be developed, applied and compared to existing approaches. This will improve future decision-making - delivering considerable long-term economic benefits.Read moreRead less
Causes and Consequences of Short Selling for Equity Returns. Short selling involves holding negative quantities of an asset. As prices fall, the short position makes profit. Short selling is thought to reflect the market's expectation of future underperformance. This study aims to explore the determinants and consequences of short selling. In particular we aim to address the following:
1. Do short sales create excessive volatility?
2. Can we price the volatility associated with short selling i ....Causes and Consequences of Short Selling for Equity Returns. Short selling involves holding negative quantities of an asset. As prices fall, the short position makes profit. Short selling is thought to reflect the market's expectation of future underperformance. This study aims to explore the determinants and consequences of short selling. In particular we aim to address the following:
1. Do short sales create excessive volatility?
2. Can we price the volatility associated with short selling in a modern risk management framework?
3. What factors underlie the volume of short sales?
4. Should we distinguish between long and short transactions, or is gross traded volume a sufficient measure of turnover?
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A New Approach to Information-Based Securities Trading. This project develops and tests a new approach to information-based securities trading, which can effectively describe trading dynamics and accurately measure the effects of information impounded in price and trading activities. It aims to provide a novel and practical framework for studying information asymmetry, belief heterogeneity and asset pricing, and apply the new approach to address a series of financial issues. The project will mak ....A New Approach to Information-Based Securities Trading. This project develops and tests a new approach to information-based securities trading, which can effectively describe trading dynamics and accurately measure the effects of information impounded in price and trading activities. It aims to provide a novel and practical framework for studying information asymmetry, belief heterogeneity and asset pricing, and apply the new approach to address a series of financial issues. The project will make significant contributions to finance research by shedding new insights on market dynamics and creating a new stream of models and modelling techniques. Academics, practitioners and regulators can use the new approach to better analyse the Australian financial market and improve its efficiency.Read moreRead less
Does Australian Corporate Taxation Matter? On a GDP-weighted basis the average OECD corporate rate has fallen from 44 percent in 1985 to 31 percent in 2004. Australia operates a flat thirty percent corporate tax rate and this compares well with the current OECD average. Yet, the Business Council of Australia argues that the Australian corporate tax rate is 'uncompetitive'. Certainly, the corporate tax burden (i.e. corporate tax revenue as a proportion of GDP) is very high in Australia, the thi ....Does Australian Corporate Taxation Matter? On a GDP-weighted basis the average OECD corporate rate has fallen from 44 percent in 1985 to 31 percent in 2004. Australia operates a flat thirty percent corporate tax rate and this compares well with the current OECD average. Yet, the Business Council of Australia argues that the Australian corporate tax rate is 'uncompetitive'. Certainly, the corporate tax burden (i.e. corporate tax revenue as a proportion of GDP) is very high in Australia, the third highest in the OECD, and the highest in the Asia-Pacific region. This project will evaluate the extent that the corporate tax burden is a hinderance to Australian firms and economic behaviour. Read moreRead less
Modelling multivariate financial time series using copulas. What are the chances that the losses in the market value of investments exceed the anticipated levels? Given that one country's financial market collapsed, what are the chances that it would lead to financial crises in other countries? These questions often arise in risk management and international finance. This project takes a significant step forward from the existing literature to develop new flexible and innovative methods to an ....Modelling multivariate financial time series using copulas. What are the chances that the losses in the market value of investments exceed the anticipated levels? Given that one country's financial market collapsed, what are the chances that it would lead to financial crises in other countries? These questions often arise in risk management and international finance. This project takes a significant step forward from the existing literature to develop new flexible and innovative methods to answer the foregoing type of questions. Further, this project proposes new measures of market risks that are suitable for communicating to the broader public as well as the experts.Read moreRead less
When Markets Fail: A Comparative Assessment of Costs and Benefits of Trade Interruption. Stock exchanges worldwide provide the opportunity to instantaneously and continuously trade securities. The introduction of automated trading systems has considerably enhanced this opportunity. Surprisingly, exchanges still have (and use) the discretion to occasionally suspend trading in certain stocks. These trading halts are used to prevent a disorderly or uninformed response to pertinent company informati ....When Markets Fail: A Comparative Assessment of Costs and Benefits of Trade Interruption. Stock exchanges worldwide provide the opportunity to instantaneously and continuously trade securities. The introduction of automated trading systems has considerably enhanced this opportunity. Surprisingly, exchanges still have (and use) the discretion to occasionally suspend trading in certain stocks. These trading halts are used to prevent a disorderly or uninformed response to pertinent company information releases. Practitioners and academics tend to believe that trading halts do not serve this role well. We propose a new methodology to more accurately measure the costs and benefits of trade suspensions. We compare their impact on different trading systems, and evaluate their intertemporal performance.Read moreRead less
Risk and Prudential Regulation and Supervision of Australian Financial Institutions. The project seeks to enhance the effectiveness of prudential regulation and supervision of financial institutions (FIs) by examining the risk of FIs, as reflected in default risk premiums on FI international debt issues and variability of revenue/profitability measures, and the effect of broadening FI activities and the shift towards fee/commission income on FI risk. This forms the basis for the development and ....Risk and Prudential Regulation and Supervision of Australian Financial Institutions. The project seeks to enhance the effectiveness of prudential regulation and supervision of financial institutions (FIs) by examining the risk of FIs, as reflected in default risk premiums on FI international debt issues and variability of revenue/profitability measures, and the effect of broadening FI activities and the shift towards fee/commission income on FI risk. This forms the basis for the development and testing of statistical early warning systems of impending financial problems in Australian FIs. The models are compared with examiner rating systems currently used in prudential supervision.Read moreRead less
Religion, Finance and Ethics: Islamic and conventional perspectives on shared principles, practices, and financial institutions and instruments. By linking together specialists in finance, banking and religious history, with the Muslim Community Cooperative (Australia), this project explores communication and mutual benefit between international Islamic finance and conventional Western finance. It will propose new financial structures and instruments to expand the scope of Islamic finance, to m ....Religion, Finance and Ethics: Islamic and conventional perspectives on shared principles, practices, and financial institutions and instruments. By linking together specialists in finance, banking and religious history, with the Muslim Community Cooperative (Australia), this project explores communication and mutual benefit between international Islamic finance and conventional Western finance. It will propose new financial structures and instruments to expand the scope of Islamic finance, to maximise lending and investment opportunities in Australia, and to promote interaction between the Islamic and conventional financial sectors. The project will enable Australian researchers to work with international authorities in Islamic finance, promoting dialogue between Islamic and other groups, and increase investment and development within the Australian financial market.Read moreRead less