Current Issue

Capital Markets Review Vol. 29, No. 2, pp. 1-11 (2021)

Stock Market Reaction to Political Regime Change in Malaysia

Fareiny Morni1 & Erimalida Yazi1
1Faculty of Business Management, Universiti Teknologi MARA, Malaysia.

Abstract: Research Question: How does a change in the ruling party impact the value of actively traded stocks in Malaysia? Motivation: The 2018 general election results is a never seen before phenomenon that can be classified as a political risk that affects the value of actively traded stocks in the Malaysian stock market. Idea: This study aims to investigate the impact of a change in government on share price and length of time needed for market adjustment. Data: The sample is based on 656 listed stocks on 9th May 2018 which was the election date in Malaysia. Data is obtained from Thomson Reuters Datastream. Method/Tools: Event methodology is used to identify abnormal returns (AR) and cumulative average abnormal returns (CAAR) as a measure on the impact of the election on stock prices. AR is averaged across firms to minimize other event effects, thus providing a better measure of the effect of the announcement event. The CAAR represent the average total effect of the event across all firms. Findings: This paper provide evidence that a significant political announcement such as election results which is followed by a government change would affect the value of actively traded stocks. The impact is found to be significantly positive CAAR on the selected event windows for both pre and post-event day. This study also finds 67 active trading days is insufficient for the market to recover from a political regime change as the stock market appears to be experiencing volatility during the observation period. Contributions: This study is different from other studies in two ways: (1) To our knowledge, there is no study that has yet to investigate the impact of a change in the ruling government on the Malaysian stock market; and (2) This study uses event methodology which would neatly capture specific political events such as dissolution of parliament, election results and delivery of 10 key promises by the newly elected ruling coalition and provide insight of not only the impact a change in ruling party but also immediate reforms made by the new government on the stock market.


Capital Markets Review Vol. 29, No. 2, pp. 13-28 (2021)

Effects of Venture Capital, R&D, and Technology on IPO Underpricing: Evidence from China

Md. Jahidur Rahman1 & Mingyang Yang1
1College of Business and Public Management, Wenzhou-Kean University, China

Abstract: Research Question: This study is a preliminary attempt to investigate the effects of technology and R&D expenditure and the moderating effect of venture capital through the interaction of technology and R&D on the underpricing of IPOs in China’s A-share market. Motivation: The role of technology in IPO underpricing and the moderating influence of venture capital, R&D, and technology on underpricing of IPO have not been studied; thus, this research aims to fill this gap. Idea: High-tech firms experience higher IPO underpricing. Venture capital can help to reduce the high-technology IPOs’ underpricing by reducing the uncertainty associated with tech-IPOs. IPOs with higher R&D expenditure experience higher IPO underpricing. Venture capital can help release the uncertainty faced by IPOs with high R&D and reduce the underpricing of such IPOs. Data: The data represent all IPOs in China’s A-share market from SSE and SZSE for the 2013–2018 period. Our sample includes a total of 997 IPOs, excluding financial company IPOs and IPOs without integrated data. Method/Tools: We apply a cross-product residual centering approach to explore the relationships among factors. Findings: We find that venture-backing IPOs experience less underpricing, technology requirement increases IPO underpricing, and R&D expenditure helps to reduce tech-IPO underpricing. The striking observation that has emerged from the data is that IPO underpricing caused by technology requirement can be moderated by the participation of venture capital. The finding highlights that strengthening the supervision role of venture capital in the invested company and improving the R&D information disclosure level in a technology company can effectively reduce the degree of IPO underpricing. Contributions: Our research focuses on all IPOs from China’s A-share market, indicating an expanded sample size. More importantly, this study offers new insights by illustrating the interaction effect between R&D and technology on IPO underpricing as a means of explaining the moderation influence of venture capitalists on IPO underpricing.


Capital Markets Review Vol. 29, No. 2, pp. 29-41 (2021)

Effect of Minimum Tick Size Policy on Price Efficiency and Execution Cost

Syamsul Idul Adha1 & A. Sakir2
1Faculty of Islamic Economics and Business, UIN Ar-Raniry, Indonesia.
2Faculty of Economics and Business, University of Syiah Kuala, Indonesia.

Abstract: Research Question: Whether the minimum tick size has effect on small caps price efficiency and execution cost on the Indonesia Stock Exchange (IDX). Motivation: The market microstructure of the Indonesia Stock Exchange (IDX) is based on the emerging market-order driven system which is different than developed market and identified by the problem of inefficiency market. The previous related literatures to minimum tick size policy are only limited to the concept of liquidity and the bid-ask spreads (Bessembinder, 1999; Goldstein and Kavajecz, 2000; Ekaputra and Ahmad, 2007). We propose a new empirical model using Market Efficiency Coefficient (MEC) approach as the only proxy of the price efficiency, Price Inefficiency (PINE) to measure the level of price inefficiency level, and Execution Cost (COST) to measure the probability of error pricing in stock trading. This empirical model is applied to the testing of the effectiveness of minimum tick size policy and its impact on stock trading efficiency. Idea: Based on the empirical research literature, the minimum tick size policy will increase the price efficiency and reducing the execution cost for some of the securities transactions, then the execution cost can also be minimalized to create a beneficial transaction. Data: We collect the daily stock price trading, intraday price trading, and trading volume from Regular Board (RG) and RTI data recording. Method/Tools: We run the Ordinary Least Square (OLS), Quintile Regression as robust test, and General Linear Model to test the empirical model. Findings: We find that the minimum tick size insignificantly effects price efficiency and partially affects execution cost. The minimum tick size significantly affects mean of execution cost, but insignificantly affects median of execution cost. We also find that insignificant difference of small caps price efficiency level between pre-implementation of the minimum tick size and post-implementation of the minimum tick size and significant difference of execution cost level between pre-implementation of the minimum tick size and post implementation of the minimum tick size. Contributions: Our research contributes to develop a robust empirical model to analyse the impact of market microstructure policy.


Capital Markets Review Vol. 29, No. 2, pp. 43-54 (2021)

Exchange Rate Dependency Between Emerging Countries-Case of Black Sea Countries

Muhammad Mar’i1 & Turgut Tursoy1
1Department of Banking and Finance, Near East University, Turkey

Abstract: Research Question: This study tries to answer the following question, Does exchange rate shocks on one of the Black Sea countries affect the neighbour’s countries’ currencies. Motivation: Many different financial crises that afflicted the countries of the Black Sea region over different periods and thus affected their exchange rate. Idea: Hence, this study examines the existence of currency dependency in the form of a geographical pattern in the Black Sea countries and tests. The study measures the cross-market dependency by looking for significant dependency in the tails; any significant dependency reflects the co-movement in the market during the depreciation or appreciation period. Data: The study sample consists of daily observations of bilateral exchange rates against the US dollar for the countries of the Black Sea region (Russia, Romania, Ukraine, Turkey, Georgia, and Bulgaria); the total number of observations reached 7842, with 1307 views for each country during the period from 1st of Jan 2015 to the 26th of Feb 2020. Method/Tools: we employ the Regular Vine copula approach, which is multivariate copula functions; this approach deal with dependency between variables by using tail dependence coefficients to assess the interdependency of both positive and negative extreme cases. Findings: The results of the study indicate the existence of a strong geographical pattern of currency dependency between Black Sea countries as follow: First, The Russian Ruble affect all the countries of the Black Sea region in the of appreciation and depreciation periods except on Turkey, just in depreciation periods, there’s no dependency in appreciation periods between Turkey and Russia. Second, the Turkish Lira effects on both Ukrainian Hryvnia and Bulgarian Leva in appreciation and depreciation periods. Third, Bulgarian Leva affects Ukrainian Hryvnia in appreciation and depreciation periods, and finally, Georgian Lari affects only Ukrainian Hryvnia in depreciation periods. Contributions: This study is considered the first study that discusses regional contagion in Black Sea countries, providing insight into how the exchange rate in one of these countries reacts to exchange rate crises in the others.

Updated on 27 September 2021