WP-95-01 Title

Hedging and Cross-hedging : Index Futures of Japan Versus Hong Kong Author(s)

Dr. W. L. CHOU , Dr. Dennis K. K. FAN and Dr. Cheng F. LEE

This study uses both the conventional and the error correction modeling approaches to estimate simple hedge and crosshedge equations. Daily, weekly, biweekly and more aggregated time series for Hong Kong and Japan stock markets are used to evaluate the effects of temporal aggregation on hedge ratios. Comparisons between these two approaches reveal that the conventional approach tends to produce biased estimates in the short as well as long run. It is found that temporal aggregation has important effects on the hedge ratio estimates. In addition, tests for ARCH indicate that time aggregation also has impacts on the error structure of the hedge models.

WP-95-02 Title

Long-Run Real Exchange Rates of the Asian NIEs Author(s)

Dr. W. L. CHOU and Dr. Y. C. SHIH

This paper analyzes changes in the exchange rate arrangements and policy and their impact on the long-run real exchange rates of the Asian Four Little Dragons (FLDs). It is found that purchasing power parity is a basic guide in formulating the exchange rate policy of the FLDs and that exchange rate regimes are very responsive to the effect of major external disturbances on prices. Thus, the exchange rate policy and arrangements are important factors in shaping the behavior of the real exchange rates of the FLDs, which tend to return to the long-run average value. To test the null hypothesis that purchasing power parity does not hold between the FLDs and the United States, three approaches are applied. They are (1) the augmented Dickey-Fuller (ADF) test (2) the Johansen test and (3) the Geweke and Porter-Hudak fractional integration test. The results are not conclusive : "Little Dragons" that are found to have PPP failures in one test are supported by others. Overall, tests (2) and (3) out perform test (1).

WP-95-03 Title

New York Stock Exchange Trading Halts and Volatility Author(s)

Dr. Wai Ming FONG

This study compares the volatility after NYSE's trading halts with the volatility after pseudo-halts. Every pseudo-halt is a period of continuous trading matching the corresponding trading halt in stock, sign of excess (or net-of-market) return, duration, and time of day. No pseudo-halt can be within 10 trading days before or after a trading halt of the same stock. Each pseudo-halt slightly over-matches or slightly under-matches in absolute excess return the corresponding trading halt. The average absolute during-pseudo-halt excess return is insignificantly different from the average absolute during-halt excess return, so that the during-pseudo-halt volatility should be, on average, similar to the during-halt volatility. The main result of this study is that the post-halt volatility (measured as the absolute excess returns of 30-trading-minute intervals) is significantly larger than the post-pseudo-halt volatility for less than two trading hours after the market re-opens.

WP-95-04 Title

A Survey on Capital Structure Decision of Hong Kong Listed Firms Author(s)

Dr. Dennis K. K. FAN, Dr. Polly W. Y. CHEUNG, Dr. David T. LEUNG and Dr. Sophia B. WONG

This paper reports results of a survey on capital structure decisions of 185 firms listed on the Stock Exchange of Hong Kong. It is found that an overwhelming majority of the firms conformed more to the "pecking order" principle than maintaining a long-term debt-equity mix when making capital structure decisions. Financial managers' preference over alternative capital-raising instruments were investigated. The degree of information asymmetry and firm size were found to have impact on the ranking of some factors governing capital structure decisions. However, no signaling motivation on the part of the managers was found. There was evidence that capital structure policy of Hong Kong firms was more flexible relative to dividend policy. Wherever appropriate, comparisons were made with the findings of the paper of Pinegar and Wilbricht (1989).

WP-95-05 Title

Analysis of Strategic Issues for International Joint Ventures : Case Studies of Hong Kong-China Joint Venture Manufacturing Firms Author(s)

Dr. Seung Chul KIM

International joint ventures (IJV) are gaining importance in East Asia as many countries in the region, such as China, rely on IJV to acquire advanced technology and capital. The typical form of IJV in developing countries is a cooperation between a multinational firm from a developed country and a local firm. These IJV's often have different characteristics from the JV's in developed countries, and to analyze them requires a different framework to define the various stages the IJV's go through. This paper proposes a typology as a conceptual framework for analysis and appraisal of the IJV in developing countries. The typology uses two dimensions, JV partner status and JV content, to identify 4 types of IJV and 4 patterns of IJV development. Three cases of Hong Kong-China joint ventures are used to illustrate the proposed typology of IJV.

WP-95-06 Title

Factors Affecting the Adoption of Market Orientation by Employees : An Empirical Investigation Author(s)

Dr. Samart POWPAKA

Recently, there has been a renewed interest in market orientation or the implementation of marketing concept by marketing academicians and practitioners. This study addresses this issue from the employee's perspective. Specifically, factors affecting the employee's decision to adopt the orientation were identified and empirically tested. Findings show that the employees' decision to adopt the orientation was affected by three sets of factors : (1) their perceptions about various aspects of the orientation (i.e., advantages, disadvantages, trialability, observability), (2) their personal characteristics (i.e., innovativeness, opinion leadership), and (3) situational factors (i.e., market turbulence, competitive intensity).

WP-95-07 Title

The Role of Outcome Quality as A Determinant of Overall Service Quality in Different Categories of Service Industries : An Empirical Investigation Author(s)

Dr. Samart POWPAKA

This study examines the role of outcome quality as a determinant of overall service quality in three different categories of services. The result indicates that outcome quality is significant in determining the overall service quality of services with search and experience outcome quality but not of those with credence outcome quality. The study offers practitioners managerial implications, illustrating how to use the approach used in the study to understand the customer's evaluation of service quality.

WP-95-08 Title

A Dynamic Model of International Stock Market Equilibrium With Short Selling Author(s)

Dr. James A. BENNETT and Prof. Leslie YOUNG

We consider a dynamic, multi-commodity, multi-country, general equilibrium model of international trade in commodities and equities, each equity being a claim on the (random) supplies of a commodity which arrive at each future date. Given "generalized Cobb-Douglas" intra-period tastes which differ across countries, short sales of equities allow the international economy to replicate the outcome of complete risk markets. Each country's equilibrium portfolio depends only on the international pattern of expenditure on commodities, shorts at least one equity, and typically includes more than the world supply of at least one equity.