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Size and liquidity effects in Australasian and South East Asian equity markets

Size and liquidity effects in Australasian and South East Asian equity markets
Size and liquidity effects in Australasian and South East Asian equity markets
The emerging equity markets of Asia-Pacific region and the developed Australian and New Zealand equity markets play a significant role in attracting foreign direct investment (FDI) and portfolio investment as well as facilitating local economic development and enforcing high standards of governance. The markets within the region are extremely diverse in nature ranging from those that are heavily influenced and controlled by the state to those that have strong corporate governance regimes enforced by stringent well designed regulation. This paper estimates the costs of equity across major industry sectors in the equity markets of Australia, New Zealand, Indonesia, Malaysia, Singapore, Thailand, Hong Kong and China’s Shenzen and Shanghai. The Fama and French (1993) three-factor model Capital Asset Pricing Model is augmented to take account of stock size and illiquidity factors that are prominent in emerging markets. Results show that premia associated with liquidity are important for the majority of Asia-Pacific markets although in striking contrast size premia are overwhelmingly important in the two Chinese exchanges of Shenzen and Shanghai reflecting the unique level of state control exerted over these markets. Costs of equity are found to be lowest in Australia and New Zealand and considerably higher in Indonesia and Thailand where regulation concerning information disclosure and corporate governance are weaker. However the costs of equity associated across all industries for the two Chinese exchanges of Shenzen and Shanghai are the highest owing primarily to a considerable size premium driving returns and arising from state restrictions placed on listed firms and investors alike. This would provide evidence that burdensome state control exerted on markets leads to a burden of costs falling on firms seeking a listing and rendering these markets less competitive than regional neighbours.
Academy of International Business
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Piesse, Jenifer
b85393d2-b4ae-49f2-87cd-8b5007c99e97
Strange, Roger
6f7b0a47-0014-4242-ad02-f3476a75322f
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Piesse, Jenifer
b85393d2-b4ae-49f2-87cd-8b5007c99e97
Strange, Roger
6f7b0a47-0014-4242-ad02-f3476a75322f

Hearn, Bruce, Piesse, Jenifer and Strange, Roger (2010) Size and liquidity effects in Australasian and South East Asian equity markets. In Academy of International Business: UK and Ireland Chapter, Dublin, Ireland. Academy of International Business. 34 pp .

Record type: Conference or Workshop Item (Paper)

Abstract

The emerging equity markets of Asia-Pacific region and the developed Australian and New Zealand equity markets play a significant role in attracting foreign direct investment (FDI) and portfolio investment as well as facilitating local economic development and enforcing high standards of governance. The markets within the region are extremely diverse in nature ranging from those that are heavily influenced and controlled by the state to those that have strong corporate governance regimes enforced by stringent well designed regulation. This paper estimates the costs of equity across major industry sectors in the equity markets of Australia, New Zealand, Indonesia, Malaysia, Singapore, Thailand, Hong Kong and China’s Shenzen and Shanghai. The Fama and French (1993) three-factor model Capital Asset Pricing Model is augmented to take account of stock size and illiquidity factors that are prominent in emerging markets. Results show that premia associated with liquidity are important for the majority of Asia-Pacific markets although in striking contrast size premia are overwhelmingly important in the two Chinese exchanges of Shenzen and Shanghai reflecting the unique level of state control exerted over these markets. Costs of equity are found to be lowest in Australia and New Zealand and considerably higher in Indonesia and Thailand where regulation concerning information disclosure and corporate governance are weaker. However the costs of equity associated across all industries for the two Chinese exchanges of Shenzen and Shanghai are the highest owing primarily to a considerable size premium driving returns and arising from state restrictions placed on listed firms and investors alike. This would provide evidence that burdensome state control exerted on markets leads to a burden of costs falling on firms seeking a listing and rendering these markets less competitive than regional neighbours.

Text
Australia-SE Asia Liq-CAPM AJM BH - Accepted Manuscript
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More information

Published date: 10 March 2010
Venue - Dates: Academy of International Business: UK and Ireland Chapter, Trinity College Dublin, Dublin, Ireland, 2010-03-08 - 2010-03-12

Identifiers

Local EPrints ID: 423399
URI: http://eprints.soton.ac.uk/id/eprint/423399
PURE UUID: 20aa2c04-09d8-4d36-a68c-00ffbb0be1b0
ORCID for Bruce Hearn: ORCID iD orcid.org/0000-0001-9767-0198

Catalogue record

Date deposited: 21 Sep 2018 16:30
Last modified: 13 Aug 2022 02:00

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Contributors

Author: Bruce Hearn ORCID iD
Author: Jenifer Piesse
Author: Roger Strange

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