Exploring issues in empirical finance : international evidence on payout ratio, returns, earnings and dividends ; Investigating duration dependence in bull and bear markets ; Using survival analysis approach to model the duration of sovereign debt default

Abstract

This study focuses on three areas of empirical finance where additional research could be undertaken to explore the financial markets sector and where new methodologies could be investigated.  The first paper deals with the relationship between payout ratios, earnings, dividends, and returns in an international context.  We examine whether, contrary to popular belief, a positive relationship exists between expected future earnings growth and current payout ratios in eleven international markets.  The findings suggest that higher payout ratios do indeed lead to higher real earnings growth, although not to higher real dividend growth.

The second paper proposes a new approach to studying time series dependence in stock prices by modelling the probability that a bull or bear market terminates as a function of its age.  One distinctive aspect of this paper is using survival analysis as the methodological technique on the identical eleven international markets used in the first paper.  Several parametric models, namely, lognormal, loglogistic, Weibull and exponential models are used to study duration dependence in daily stock prices.  The findings demonstrate that our models depict predominantly negative duration dependence for both bull and bear markets.

We chose for our third paper to study how well the application of survival analysis in the sovereign debt default sector would work.  The third paper uses the Cox Proportional Hazards Model to assess the relation between the distribution of the survival time and the independent variables.  This paper adds a new dimension to the existing literature in that it focuses on the length, or more specifically, the duration of a default period.  Findings indicate that both macroeconomic and balance sheet variables contribute to some extent in predicting the length of default of the three types of debt.

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