Segal Graduate School of Business Final Projects

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Relationship Between Noninterest Income and Bank Valuation: Evidence from the U.S. Bank Holding Companies

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

This paper investigates the impact of noninterest income on bank valuation using 625 U.S. Bank Holding Companies over the period 2003-2015. We use two measures of valuation: Tobin’s q and the market-to-book ratio. Using the whole sample, we find a positive relation between noninterest income and valuation. We then divide banks in our sample into three groups based on size, and the sample period into three sub-periods. We find that noninterest income is positively related to valuation (1) for large banks in each sub-period, (2) for medium-sized banks during and after the financial crisis of 2007-2009, and (3) for small banks after the financial crisis.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Jijun Niu
Department: 
Beedie School of Business - Segal Graduate School

Mortgage Insurance and Real Estate Returns: A North American Perspective

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

This article explains the link between mortgages insured by government agencies and the underlying house price, in both Canada and the United States of America (USA). Overall, American states with fewer insured mortgages relative to all mortgages originated experience a larger real estate price decline during an economic downturn despite a lower concentration of risky consumers in those areas. Canadian mortgage insurance data is virtually unavailable although over 50 percent of all residential mortgages are insured in Canada. Canadian insurance data, provided by the Canadian Mortgage and Housing Corporation (CMHC), is sparse and does not allow for as in-depth of an analysis of mortgage insurance in the Canadian market versus that of the USA. Proposed regulations will make mortgage insurance harder to obtain and may actually strengthen the Canadian real estate market. Unfortunately, the CMHC has refused to release valuable mortgage insurance data and a thorough analysis cannot be conducted.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Andrey Pavlov
Department: 
Beedie School of Business - Segal Graduate School

Is the Market Smart Enough to Identify Superior Analysts and Follow their Recommendations?

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

In this article we investigate whether there is persistency in analysts forecasting ability and if it exists, whether the market has the ability to identify these differences in abilities. Our results reveal that the forecasting ability of analysts is persistent. We then investigate whether investors identify superior analysts’ ability by analyzing market reaction to their recommendations compared to the reaction to other analysts. Our findings suggest that the twoday returns after the analysts’ reports’ are strongly positively correlated with analysts’ recommendations and there is a significant difference in reaction between high and low quality analysts. We conclude that the market is smart enough to identify different types of analysts and follow their recommendations respectively.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Amir Rubin
Department: 
Beedie School of Business - Segal Graduate School

The Market Reaction to Interest Rate Change: The Effect of Financial Leverage

Author: 
Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

This research project examines the relationship between the financial leverage of firms with total book assets above $50M and the Target Federal Fund Rate changes during 1990 to 2015. We do not find that the value-weighted index is affected by change in interest rates. We find that increases in interest rate tends to hurt firms with higher book leverage (debt divided by total assets) than firms with low leverage. Unfortunately, these results do not seem to be robust, and we believe that the major reasons for that is that we use the full interest rate change, rather than the unanticipated component of interest rate change, which is unobservable.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Amir Rubin
Department: 
Beedie School of Business - Segal Graduate School

Hedge Fund Performance: The Canadian Market Case

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

With the growth of hedge fund industry, investors are interested in the possibility of replicating hedge funds returns by using market indexes. Most papers on the hedge fund performance are based on data prior the 2007-2008 financial crisis. This study uses monthly returns data for 59 Canadian hedge funds in Bloomberg database from January 2009 to September 2016 to investigate the hedge funds performance and possibility of replication in the post-crisis period. We follow Hzsanhodzic’s (2006) linear factor model to determine the significance of expected returns can be explained by six common risk exposures. We find that “clone” hedge funds returns would be hard to realize under Canadian market conditions by using current post-crisis data.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Christina Atanasova
Department: 
Beedie School of Business - Segal Graduate School

The Lead-Lag Relation Between Stock Exchanges: The Interesting Case of Israel and New Zealand

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

Based on the background of stock market integration, studying the diffusion process of stock prices around the world has become attractive. Different from much of the literature focusing on the case of overlapping trading time in different stock markets, our paper pays attention to the case of non-overlapping trading time in global stock markets. We have selected the US, New Zealand and Israel stock market as a case study. As we conjecture, we find that Israel index’s performance on Sunday has a significant correlation on New Zealand index’s performance on Monday, while no significant relation is found on other weekdays.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Amir Rubin
Department: 
Beedie School of Business - Segal Graduate School

Environmental, Social and Corporate Governance Factors and the Investor's Efficient Frontier

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

Socially responsible investing (SRI) has been a common practice since the late 1980s. At the beginning, academics, practitioners and the public have asked if the ESG integration process hurt investment returns. The answer to this question depends on the future growth of ESG screening process and rating data. If research shows that there is no significant difference in returns between a portfolio without ESG constraint and a portfolio with ESG constraint, SRI will be appealing to investors who allow peace of mind knowing that they are invested in socially responsible companies. If it is shown that ESG portfolios produce superior returns, SRI will become mainstream and traditional investors will begin integrating ESG factor. Our research paper suggests that ESG investors are not efficient or rational investors based on the modern portfolio theory, and there is no evidence confirming that the benefit of ESG integration outweighs the loss of portfolio efficiency.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Andrey Pavlov
Department: 
Beedie School of Business - Segal Graduate School

Liquidity Effects on REIT Market Value: Evidence from 2007-2015 U.S. REIT Market

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

This study examines the effects of liquidity factors of equity Real Estate Investment Trusts (REITs) on their market values over 2007-2015 period. Theoretically, liquidity factors, such as cash holdings, operating cash flows, cash dividends, and interest payments should not affect firm’s market value. However, many former studies find that liquidity is actually influential to firm’s value. In our research, the results suggest that cash holdings, cash dividends, and funds from operations (FFO) are positively related to REIT market value, which is consistent with previous empirical studies. Although some studies argue that interest expense contributespositively to the market value, we find that excessive interest and related expense could harm the firm’s value by constraining its liquidity. In addition, we also perform the Chow test and discover that there is significant structural break in the value of liquidity after the financialcrisis. Then we split the panel into crisis period (2007-2010) and post-crisis period (2011-2015). The sub-panel regression results enable us to thoroughly analyze the structural break in liquidity effects.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Andrey Pavlov
Department: 
Beedie School of Business - Segal Graduate School

CEO Compensation and Disclosure Policy

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

This paper examines the relationship between CEO compensation and disclosure policy related to corporate governance information within S&P 500 index. Our sample consists of 456 companies for the period from 2005 to 2015. Most previous researchers mainly put their attention on various corporate governance characteristics such as board size, board independence, and executive ownership when analysing CEO compensation. Our paper extends the previous study by dividing corporate governance into two aspects: governance transparency and governance characteristics. We find a significant relationship between CEO total compensation and governance transparency. In addition, a significant positive relationship exists between CEO salary and governance transparency with year and industry fixed effect. The higher transparency, the less option compensation the CEO receives. As for governance characteristic measure, we choose CEO ownership and board independence as independent variables. We find that more CEO ownership leads to less total compensation, salary, and more option awards. However, no significant evidence shows the impact of board independence. The results show that governance with higher transparency can serve as an alternative mechanism for pay-for-performance. When governance transparency is relatively high, the board is able to monitor the CEO better and hence is able to tilt the compensation towards fixed-salary and less pay-for-performance.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Amir Rubin
Department: 
Beedie School of Business - Segal Graduate School

The Impact of Inflation Hedge Assets on Portfolio Optimizations for US and Canadian Investors

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2016-10
Abstract: 

The research is based on “Gold: Inflation Hedge and Long-Term Strategic Asset.” paper by Dempster and Artigas (2010). Authors used basic portfolio for the US investor, which includes Corporate Bonds, US Treasuries, Equity US and Equity Ex-US. By adding, alternatively, the four potential inflation-hedges, researchers showed Gold as the most appropriate Long-Term Strategic Asset. In our research, we constructed basic investment portfolio for US and Canadian investors. For each case, alternatively, four potential Inflation Hedges, which are Gold, S&P GSCI Index, REITs and TIPS, were added to the basic portfolio. The optimization results are based on the post-crisis period from 2009 to 2016. The final results for the US suggest that Gold should be considered as a strong long-term strategic asset. For the Canadian case, Gold, and S&P GSCI tend to be appropriate long-term strategic assets, which should be added to the basic portfolio. Canadian REITs get allocation under base case assumptions but sensitivity analysis indicates that the results are not robust.

Document type: 
Graduating extended essay / Research project
Senior supervisor: 
Peter Klein
Department: 
Beedie School of Business - Segal Graduate School