Domenico Gasbarro

This study examines the possibility of using widely known implied volatility (IV), realized volatility (RV) and GARCH volatility (GV) as input for Merton (1973) version Black-Scholes (1973) (M-BS) options pricing model. Since the construction method, information obtaining procedure, information containing characteristic and prediction capability of IV, RV, GV are distinct, the purpose of this study is to analyse which volatility information content is appropriate for pricing currency options correctly and which one incorporate relevant market information for the accurate currency options price forecast. The accuracy of options price is crucial for managing financial risk, speculative purposes and preventing the abnormal arbitrage profit.

This paper finds the predictive power of currency smirk to forecast foreign exchange (FX) return to be convincing. Although the steeper currency smirk appears in the middle of the trading day, the conclusive currency smirks' predictability lasts over the next trading day, as the FX market is highly adept at incorporating the information embedded in the currency smirk. The implication of these fmdings is that the currency smirk is distinctive for forecasting very short-term FX fluctuations, and that day- or overnight FX traders can apply its uniqueness to profit from quick price swings in the 24-hour globalFX market.

This paper examines the relation between financial development, energy consumption and economic growth in the United States (U.S) for the period 1966-2011. We use a vector error correction model (VECM) to investigate the effect of financial development and energy consumption on economic growth in the U.S. In addition to examining the relation in the long run of the aforementioned variables using Johansen co-integration analysis, we also examine the short-run and long-run causalities between them. In addition to economic growth, financial development and energy consumption variables, we also examine the impact of real interest rate, gross fixed capital formation and trade openness on economic growth. We find that there is at least one co-integrating relation among the variables. There is some evidence that in the long run financial development causes economic growth; however, there is no evidence that economic growth causes financial development. Neither do we find evidence that financial development positively affects energy consumption either in the short- or long-run. However, in the short run, we find some evidence of two-way causality between economic growth and financial development.

Asset securitizations increase audit complexity and audit risks, which are expected to increase audit fees. Using US bank holding company data from 2003 to 2011, we find significant and positive associations between asset securitization risks and audit fees. After the commencement of the global financial crisis (GFC), there was an increased focus on the role of audits on asset securitization risks resulting from the crisis in the banking industry. Therefore, we expect that auditors would become more sensitive to banks’ asset securitization risks after the commencement of the global financial crisis. We find that auditors appear to focus on different aspects of asset securitization risks after the onset of the crisis and that auditors appear to charge a GFC premium for banks.

This study focuses on using the partial least squares (PLS) path modelling methodology in archival auditing research by replicating the data and research questions from prior bank audit fee studies. PLS path modelling allows for inter-correlations among audit fee determinants by establishing latent constructs and multiple relationship paths in one simultaneous PLS path model. Endogeneity concerns about auditor choice can also be addressed with PLS path modelling. With a sample of US bank holding companies for the period 2003-2009, we examine the associations among on-balance sheet financial risks, off-balance sheet risks and audit fees, and also address the pervasive client size effect, and the effect of the self-selection of auditors. The results endorse the dominating effect of size on audit fees, both directly and indirectly via its impacts on other audit fee determinants. By simultaneously considering the self-selection of auditors, we still find audit fee premiums on Big N auditors, which is the second important factor on audit fee determination. On-balance-sheet financial risk measures in terms of capital adequacy, loan composition, earnings and asset quality performance have positive impacts on audit fees. After allowing for the positive influence of on-balance sheet financial risks and entity size on off-balance sheet risk, the off-balance sheet risk measure, SECRISK, is still positively associated with bank audit fees, both before and after the onset of the financial crisis. The consistent results from this study compared with prior literature provide supporting evidence and enhance confidence on the application of this new research technique in archival accounting studies.

We develop a method that can statistically identify fund managers that exhibit selectivity in their trades, and find that occurrences of good and bad selectivity exceed random expectation. Mutual funds exhibit selectivity by tilting their portfolios towards the better performing stocks when they buy (sell) stocks with high sentiment betas preceding an increase (decrease) in investor sentiment. Conversely, funds that incorrectly time investor sentiment exhibit bad stock selection, explaining the above random incidence of this behavior. Our method can distinguish skill from fortuitous stock selection, and provides a practical tool for evaluating the performance of fund managers.

In this study, we develop a method that can statistically identify fund managers that exhibit selectivity in their trades and find that occurrences of good and bad selectivity exceed random expectation. Mutual fund managers exhibit selectivity by tilting their portfolios toward better performing stocks when they buy (sell) stocks with high sentiment betas preceding an increase (decrease) in investor sentiment. Conversely, funds that incorrectly time investor sentiment exhibit bad stock selection, explaining the above random incidence of this behavior. Our method distinguishes skill from fortuitous stock selection and provides a practical tool for evaluating the performance of fund managers.

This study examines the impact the global financial crisis had on the value relevance of GAAP and non-GAAP earnings. We adopt the Ohlson (1995) valuation and CAR models to test the value relevance and information content of alternative earnings measures. We use six different earnings measures comprising IBES earnings, Standard & Poor’s (S&P) core earnings, cash earnings, cash flows from operations, earnings from operations adjusted to exclude special items under GAAP and income before extraordinary items under GAAP. We draw our sample from US publicly traded firms between 2002 and 2010. Our sample is partitioned into Financial and non-Financial firms, and S&P 500 and non-S&P 500 firms. The results show that investors place greater value relevance on GAAP earnings during the GFC period relative to the pre-GFC period.

Effects of loan loss provisioning on lending behaviour of banks remain a major concern in policy circles in order to strengthen both bank stability and financial intermediation. A sample of 686 commercial banks in Asian countries over the 1992 - 2009 period is used to identify factors contributing to the occurrence of a procyclical effect of loan loss provisions on loan growth. Our empirical results highlight that non-discretionary provisions have a procyclical effect, as higher non-discretionary provisions reduce loan growth of banks. This procyclical effect holds for large banks but not small banks. A closer investigation shows that bank market structure, economic development and institutional quality also affect the link between non-discretionary provisions and loan growth of banks. More specifically, higher bank competition, higher per capita income and higher rule of law mitigate the procyclical effect of non-discretionary provisions on loan growth regardless of whether banks are large or small. These findings have policy implications concerning the adoption of the dynamic provisioning system for Asian banks.