Segal Graduate School of Business Final Projects

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DOES PUBLIC LISTING AFFECT BANK PROFITABILITY? EVIDENCE FROM US BANKS

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

The purpose of this paper is to investigate the determinants of US bank profitability between 2002 and 2015. Specifically, we divide banks into three size groups, and focus on the impact of public listing on bank profitability. We find that small- and medium-sized public banks are less profitable than private banks of corresponding size. However, large public banks are more profitable than large private banks. Moreover, regression results indicate that loans and diversification have a positive impact on bank profitability in all size groups.

File(s): 
Supervisor(s): 
Jijun Niu
Department: 
Beedie School of Business-Segal Graduate School

THE EFFECTS OF EXCHANGE RATE CHANGES ON THE CO-MOVEMENT OF EQUITY MARKETS

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

This paper analyzes the co-movement of the US equity market and 10 markets in Asia and Oceania (i.e., referred to as domestic markets). We find that the daily returns of the ten emerging markets are significantly correlated with the performance of US market in the previous trading day. Also, we analyze the contemporaneous change in the US/domestic market exchange rate, and how it affects this co-movement. We find that the correlation between the US market and domestic markets is positively related to the net-trade balance that exists between these countries. Countries that tend to net-export to the US are affected more positively by the strengthening of the US dollar compared to the domestic currency.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Amir Rubin
Department: 
Beedie School of Business-Segal Graduate School

Economic Fluctuations and Corporate Bond Spreads: Evidence from Canadian Bond Markets

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

This paper attempts to address the question whether the signaling properties of credit spreads in Canada are useful for predicting future economic activity. This It extents Gilchrist, et al. (2009) paper “Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets” by examining the predictive power of credit spreads on corporate debt for future economic activity in Canada. In this paper, the credit spreads were constructed using monthly data on prices corporate bond traded over the 2002 -2017 period issued by 60 Canadian corporations. Overall the results suggest that movements specific to credit markers account for a considerable fraction of volatility in Canadian economic activity during the period under study.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Christina Atanasova
Department: 
Beedie School of Business-Segal Graduate School

PORTFOLIO CONSTRUCTION IN TURBULENT MARKETS

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

We conducted the portfolio optimization on the selected benchmarks for nine asset classes with a time range starting from January 2007 to December 2016 in Canadian Currency, to prove whether the mean-variance approach by Markowitz (1952) combined with a covariance matrix blended from a quiet time and a turbulent time as introduced by Chow, G., Jacquier, E., Kritzman, M., and Lowry, K. (1999) is still valid with recent years’ data.As a result, the optimal portfolios with different covariance matrices blended from turbulent and quiet periods have shown sensitivity of optimal weights to both possibilities of occurrence for the turbulent and quiet periods, and different risk aversion to turbulent and quiet periods. The outlier-sample optimal portfolio is the most conservative one and provides a lowest expected return. Besides, the optimal weights of Cash are much higher due to the higher volatilities of ours benchmarks for US equity, emerging market equity, US bonds, high-yield bonds, and commodities.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Peter Klein
Department: 
Beedie School of Business-Segal Graduate School

DETERMINANTS OF BANK PROFITABILITY AND RISK-TAKING IN CHINA

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

By using the ordinary lease squares estimation technique, this paper examines the relationship between bank-specific characteristics together with macroeconomic factors, and profitability in Chinese banking sector. Therefore, to find out the how each factor affects the bank’s profitability. Moreover, this paper also uses three risk measures to analyze the banks’ business condition. The regression analysis is based on a panel data set consisting of 152 observations of 30Chinese banks over a 6-year period from 2011 to 2016.We found that for profitability, capital ratio and GDP growth rate have significant positive impacts and inflation rate has significant negative impact. Other independent variables do not have significant relationship with bank’s profitability. For risk, none of the independent variable has significant impact on Z-score and non-performing ratio; however, total deposits to total assets ratio and bank size have significant impact on non-interest income ratio.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Christina Atanasova
Department: 
Beedie School of Business-Segal Graduate School

ASSESSING THE MODIFIED MERTON DISTANCE TO THE DEFAULT MODEL WITH CDS PRICE

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

This paper provides a way that a Merton-model approach can be modified to develop measures of the probability of default of companies indexed in Standard & Poor’s 500 Index (S&P 500) after a financial crisis. It also examines the accuracy and contribution of the modified Merton Distance to default model based on Merton’s (1974) bond pricing model. Credit Default Swap (CDS) spreads as a plausible indicator of default risk are used in the assessment. The tests are implemented by modeling results’ correlation with data obtained from 2008 to 2017. The sample is based on 112 firms indexed in S&P 500 and is selected according to the availability of outstanding CDS contracts between the test periods.It is found that the results generated by the modified Merton-style approach is consistent with the spreads of credit default swaps. Then it can be concluded that although the modified KMV Merton model fails to generate a sufficient result for the probability of default, it still can be used as a reference for default estimate.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Christina Atanasova
Department: 
Beedie School of Business-Segal Graduate School

HOW CAPITAL STRUCTURE AND PRICE RATIOS AFFECT THE MARKET CAPITALIZATION AFTER FINANCIAL CRISIS

Author: 
Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

In this paper, we applied the Ohlson (1995) valuation model to evaluate the marketcapitalization of Toronto Stock Exchange-listed companies. The project focused on therelationship within the period after the financial crisis in 2007. Therefore, data werelimited from 2010 to 2016. We split the enterprise value into assets and liabilities basedon the theory proposed by Giner & Reverte (2001). With assuming different assetsclasses could influence a company’s market capitalization to different extents, weconducted our stage two analysis by breaking assets into current and non-current assets.We also attempted to use price-to-book ratios as a replacement for market capitalizationand formulated a multi-factor regression model using ratios in our stage three analysis.The results turned out that the Ohlson valuation model has the highest power ofexplanation, and some further research could be done to improve the model.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Christina Atanasova
Department: 
Beedie School of Business-Segal Graduate School

ANALYST CHARACTERISTICS AND EARNINGS FORECAST ERRORS

Author: 
Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

In this article, we investigate the association between analysts’ earnings forecast errors and analyst characteristics. These characteristics include working experience, company experience, brokerage house size, and boldness in making recommendations. We use t-tests and time-series regressions to examine the relationship. Our results reveal that analysts’ years of experience is the most important factor. The more experience analysts have, the more accurate their forecasts tend to be, which is consistent with the learning-by-doing theory. For the brokerage house size, analysts from larger brokerage houses are more likely to provide accurate forecasts. For boldness, when an analyst’s recommendation is far away from mean recommendation, the earnings forecast tends to be less accurate. Company-specific experience has no robust relation with forecast errors. We conclude that experience of analysts, brokerage size, and analysts’ recommendation dispersion are correlated with forecast accuracy.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Amir Rubin
Department: 
Beedie School of Business-Segal Graduate School

THE IMPACT OF CREDIT RATING CHANGE ON NORTH AMERICAN COMPANIES' CORPORATE DECISION AND STOCK PERFORMANCE

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

This paper analyses the impact of credit rating changes from two aspects. Firstly,credit rating will impact company capital structure decisions. It is found thatcompanies generally issue more debt when forecasting a credit downgrade totake the advantage of the relatively low cost of capital, while a small number offirms keep corporate structure unchanged due to flexibility concerns. Secondly,there is an offset pattern in daily abnormal returns and volatility of stock returnsincreases after a credit rating change event. Specifically, downgrade has abigger impact on stock performance.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Christina Atanasova
Department: 
Beedie School of Business-Segal Graduate School

INCORPORATION OF CONDITIONAL VALUE-AT-RISK INTO MEAN-VARIANCE OPTIMIZATION FOR PORTFOLIOS OF HEDGE FUNDS

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2017-12
Abstract: 

In this paper we aim to search for a systematic optimization model that can properlymeasure hedge fund risks and can optimize capital across Canadian hedge fund portfolios thatcan cater to investors’ risk appetites. As the characteristics of hedge funds returns imposedifferent layers of risk from traditional equity and bond investments, the conventional meanvarianceoptimization would not accurately capture the risk associated with non-normaldistributions and negative skewness. The process requires a different approach that modifiesthe drawback of a mean-variance optimization to take non-normal and asymmetricdistributions into consideration. The research of this process leads to a Mean-ConditionalValue-at-Risk (CVaR) optimization. CVaR measures the mean expected short fall betweenvalue-at-risk and excess losses that reflect the risks of kurtosis and negative skewness.Combining the cluster analysis to overcome variation of correlation issue and Mean-CVaRoptimization, we found the Mean-CVaR optimization model that will serve the requirementsof guiding investors’ capital allocation among hedge fund strategies.

Document type: 
Graduating extended essay / Research project
File(s): 
Supervisor(s): 
Peter Klein
Department: 
Beedie School of Business-Segal Graduate School