Behavioral finance studies reveal that investor sentiment affects investment decisions and may therefore affect stock pricing. This paper examines whether the geographic proximity of information disseminated by the 2014–2016 Ebola outbreak events combined with intense media coverage affected stock prices in the U.S. We find that the Ebola outbreak event effect is the strongest for the stocks of companies with exposure of their operations to the West African countries (WAC) and the U.S. and for the events located in the WAC and the U.S. This result suggests that the information about Ebola outbreak events is more relevant for companies that are geographically closer to both the birthplace of the Ebola outbreak events and the financial markets. The results also show that the effect is more pronounced for small and more volatile stocks, stocks of specific industry, and for the stocks exposed to the intense media coverage. The event effect is also followed by the elevated perceived risk; that is, the implied volatility increases after the Ebola outbreak events.
COBISS.SI-ID: 24281574
The Kamay and Hill insider trading conviction in Australia highlights many of the issues and problems involved in the prevention, detection and prosecution of insider trading. The case uniquely hightlights how ethical behavior is instilled at home, in school and in society, adnt the need for ethical responsibility at the personal and organisational level to complement legal rules and enforcement. We use the Kamay and Hill case to explore the reasons behind the failure of the traditional top-down approach to insider trading prevention, where institutional ethical codes of conduct largely reflect and rely upon national rules, norms and regulation. We propose a bottom-up approach to ensure that individual and organisational behavior is ethical, where emphasis is not on compliance but on a set of core thical values that allow individual and corporate expressions. It is our strong belief that compliance cannot replace ethics.
COBISS.SI-ID: 23559910
Fama and French (2015) recently proposed a five-factor model which adds investment and profitability terms to their seminal three-factor model. Motivated by the accounting-based nature of the new factors, we test of variants of the models in Indonesia – a country previous researchers have characterized by an idiosyncratic financial reporting environment and low earnings quality. Although multi-factor spanning tests imply these factors contribute to the explanation of average returns, tests using sets of LHS portfolios reveal all competing models produce large intercepts and the five-factor model offers at best only a trivial improvement to the description of average LHS returns.
COBISS.SI-ID: 25220582
We examine external auditors’ decisions to use the evidence or direct assistance of internal auditors when those auditors engage in consulting on enterprise risk management. Although such consulting provides value to an organization, it can also put the objectivity and independence of internal auditors at risk. We hypothesize that external auditors’ reliance on the internal audit function depends on the effectiveness of the audit committee monitoring the internal auditors’ activities. We also hypothesize that external auditors’ perception of the objectivity and independence of internal auditors mediates the reliance decision. We analyze these hypotheses using a 2x2 between-subjects design with 92 certified external auditors. Confirming the hypotheses, we find that external auditors’ reliance on the internal audit function is highest when the latter provides risk management consulting under the supervision of a strong audit committee. It is lower if the internal audit function provides only assurance (under either a weak or strong audit committee) and lowest if it provides consulting under a weak audit committee. The mediation analysis shows that the effect of audit committee effectiveness on the reliance decision is mediated by external auditors’ perception of internal auditors’ objectivity.
COBISS.SI-ID: 25559782
We introduce the eight-factor asset pricing model as an extension of the Fama and French (2016b) five-factor model. In addition to capturing market premium, size, value, profitability and investment pricing factors, we propose three additional factors that represent momentum, liquidity and default risk. Albeit these factors are not new to the literature, our aim is to comprehensively and jointly test the performance of the model which accounts for all the suggested factors simultaneously. We find that the incorporation of additional factors improves the model's explanatory power. In addition to market, size and value factors, the profitability and momentum pricing factors exhibit higher explanatory power compared to investment, default risk, and liquidity pricing factors. The use of different stock allocation (number of sorting portfolios) and portfolio sorting approaches to factor construction has some, albeit statistically limited, effect.
COBISS.SI-ID: 24432358