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Emerging Markets Finance March 9–11, 2005 Emerging Markets Finance March 9–11, 2005 Thursday, March 10, 2005 7:00 a.m. Breakfast Abbott Center Dining Room 8:00 a.m. Welcome Classroom 50 Robert S. Harris, Dean, The Darden School Are Emerging Markets Cheap? C. Hayes Miller, Senior Vice President—Global Equities, Baring Asset Management, Inc. Hayes Miller is a member of both the Global Equity Group and the Strategic Policy Group at Baring Asset Management, and is the portfolio manager responsible for North American clients. He has developed quantitative models for Global and EAFE equity products and has been instrumental in creating a successful Active/Passive EAFE Equity product. Miller joined Baring Asset Management in 1994 as a portfolio manager with responsibility for global equities. In 2000 he became a member of the Strategic Policy Group, a five-member team which forms country, sector, asset, and currency strategy for Baring’s global client base. Miller has a B.A. in economics and political science from Vanderbilt University, and received his C.F.A. designation in 1989. He has spoken at numerous conferences, and has written numerous research pieces, including co- authoring a manuscript on the relative importance of country, sector, and company factors for the CFA Institute Research Foundation. 8:45 a.m. Refreshment Break 9:15 a.m. Market Synchronicity Classroom 50 Moderator: Campbell Harvey, Fuqua School of Business, Duke University Campbell Harvey is the J. Paul Sticht Professor of International Business at the Fuqua School of Business, Duke University. He is also a research associate of the National Bureau of Economic Research in Cambridge, Massachusetts. Harvey obtained his doctorate at the University of Chicago in business finance. His undergraduate studies in economics were conducted at the University of Toronto. He has served on the faculties of the Stockholm School of Economics, the Helsinki School of Economics, and the Graduate School of Business at the University of Chicago. He has also been a visiting scholar at the Board of Governors of the Federal Reserve System. He was recently awarded an honorary doctorate from Svenska Handelshögskolan in Helsinki. Harvey is an internationally recognized expert in portfolio management and global risk management. Stock Price Synchronicity and Analyst Coverage in Emerging Markets Allaudeen Hameed, National University of Singapore Allaudeen Hameed is an associate professor of finance at the Business School of the National University of Singapore (NUS). He is currently the head of department of finance and accounting. Hameed received his Ph.D. in finance from the University of North Carolina at Chapel Hill (UNC). He has taught in the undergraduate and graduate programs at NUS and UNC as well as in executive education programs. His research interests include return-based trading strategies, role of financial analysts, and emerging stock markets. He has published papers in leading finance journals such as The Journal of Finance, The Journal of Financial and Quantitative Analysis, and The Journal of Business. He is an editorial board member of the Pacific-Basin Finance Journal and serves on the executive board of the Asian Finance Association. Abstract: This paper examines the relationship between the stock price synchronicity and analyst activity in emerging markets. Contrary to the conventional wisdom that security analysts specialize in the production of firm-specific information, we find that securities which are covered by more analysts incorporate greater (lesser) market-wide (firm-specific) information. Using the R-square statistics of the market model as a measure of the synchronicity of stock price movements, we find that more analyst coverage leads to an increase in stock price synchronicity. Furthermore, after controlling for the influence of firm size on the lead-lag relation, we find that the returns on a high analyst-following portfolio lead returns on a low analyst-following portfolio more than vice versa. We also find that the aggregate changes in the earnings forecast of the high analyst-following portfolio affect the aggregate returns of the portfolio itself as well as those of the low analyst-following portfolio, whereas the aggregate changes in the earnings forecasts of the low analyst-following portfolio have no predictive ability. Finally, when the forecast dispersion is high, the effect of analyst coverage on stock price synchronicity is reduced. R-Squared around the World: New Theory and New Tests Li Jin, Harvard Business School Li Jin is an assistant professor in the finance area at the Harvard Business School. He currently teaches the required finance course in the first year M.B.A. program. His primary research interest is in empirical and theoretical corporate finance and asset pricing. His research studies the efficiency of stock markets in aggregating firm information, the compensation policy of chief executive officers, the trading behavior of institutional investors and their price impacts, and the impact of taxation on investor trading behaviors, asset pricing, and corporate finance. Jin received his Ph.D. in finance from the MIT Sloan School of Management in 2001, and a bachelor's degree in economics from Fudan University in 1992. He has been a full time faculty member at Fudan University, and has worked as a part time consultant in the Investment Banking Division of Shanghai International Securities Co. Ltd. Li Jin (continued) Abstract: Morck, Yeung, and Yu (2000) show that R2 and other measures of stock market synchronicity are higher in countries with less developed financial systems and poorer corporate governance. We develop a model that explains these results and generates additional testable hypotheses. The model shows how control rights and information affect the division of risk bearing between inside managers and outside investors. Insiders capture part of the firm’s operating cash flows. The limits to capture are based on outside investors’ perception of the value of the firm. The firm is not completely transparent, however. Lack of transparency shifts firm- specific risk to insiders and reduces the amount of firm-specific risk absorbed by outside investors. Our model also predicts that “opaque” stocks are more likely to crash, that is, to deliver large negative returns. Crashes occur when insiders have to absorb too much firm-specific bad news and decide to give up. We test these predictions using stock returns from 40 stock markets from 1990 to 2001. We find strong positive relations between R2 and several measures of opaqueness. These measures also explain the frequency and magnitude of large negative returns. 11:00 a.m. Market Efficiency Classroom 50 Moderator: Darius Miller, Kelley School of Business, Indiana University Darius Miller is an assistant professor of finance and Daimler-Chrysler Faculty Fellow at the Kelley School of Business, Indiana University. He holds a B.S. in electrical engineering from Tulane University, an M.B.A. from Loyola University, and a Ph.D. in finance from the University of California, Irvine. His research focuses on the effects of international security offerings on investors and corporations. Miller's research has been published in journals such as the Journal of Financial Economics, Journal of Accounting Research, and the Journal of Financial and Quantitative Analysis. He has taught courses in international finance, investments, and financial engineering at the undergraduate, M.B.A., executive M.B.A., and Ph.D. level, and has received the Kelly School M.B.A. teaching excellence award. He also has developed finance courses for international professional programs. Liquidity and Expected Returns: Lessons from Emerging Markets Christian Lundblad, Indiana University Christian Lundblad is an assistant professor of finance at Indiana University's Kelley School of Business. He joined Indiana University in 2001 after serving as a financial economist at the Federal Reserve Board in Washington, D.C., where he advised the Board of Governors on international financial market developments. Lundblad completed his Ph.D. at Duke University. His research focuses on empirical asset pricing issues, with particular attention to the determination of fundamental values, asset volatility and correlation, and cross-sectional variation in risk premia. Recent research in international finance has investigated the relationships between equity market liberalization and economic growth. Abstract: Given the cross-sectional and temporal variation in their liquidity, emerging equity markets provide an ideal setting to examine the Christian Lundblad impact of liquidity on expected returns. Our measure of liquidity is the (continued) proportion of zero daily firm returns, averaged over the month. We find that this liquidity measure significantly predicts future returns, whereas alternative measures such as turnover do not. Consistent with liquidity being a priced factor, unexpected liquidity shocks are positively correlated with return shocks and negatively correlated with shocks to the dividend yield. Equity market liberalization significantly improves the level of liquidity, but has no significant effect on the relationship between liquidity and future returns. We consider a simple asset pricing model with liquidity and the market portfolio as risk factors, differentiating between integrated and segmented countries and periods. Models with local liquidity risks outperform all others models. Uninformed Trading and Asset Prices Mark Seasholes, Haas School of Business,
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