Welcome to the second issue of third volume of the Journal of Capital Markets Studies with a diverse range of papers focusing on the trends in capital markets, the market microstructure, corporate governance (CG) and behavioral attitudes.
This issue begins with the paper by Can İnci and Rachel Lagasse, titled “Cryptocurrencies: applications and investment opportunities.” This paper investigates the role of cryptocurrencies in enhancing the performance of portfolios constructed from traditional asset classes during the 2010s. The results reveal that Ripple has had the highest return and volatility, followed by Litecoin and Bitcoin. The paper documents adding a cryptocurrency, especially Bitcoin, has consistently helped the optimal portfolio achieve a better return-and-risk combination. The study is one of the first studies that examine the role of popular cryptocurrencies; however, it is significant to note that these results have no guarantee for continuation in an exact manner in the future.
The following paper addresses board diversity and its effectiveness. Rita Goyal, Nada Kakabadse and Andrew Kakabadse make a unique and significant contribution to praxis by presenting the perspective of practitioners of CG – board members in their paper titled “Improving corporate governance with functional diversity on FTSE 350 boards: directors’ perspective.” Conducting elite interview with board members of FTSE 350 companies, the authors state that functionally diverse boards manage external dependencies more effectively and challenge assumptions of the executive more efficiently, thus improving CG.
The third paper by Senarathne Chamil, “Do Fama–French common risk-factor portfolio investors herd on a daily basis? Herding on fundamental information,” examines whether the Fama–French common risk-factor portfolio investors herd on a daily basis for five developed markets, namely Europe, Japan, Asia Pacific ex Japan, North America and global. Overall findings of the study suggest that the common risk factors recognized by Fama–French (1993, 2015) provide a more prudent basisfor explaining common stock return variations under normal market conditions. The paper provides a behavioral interpretation for the ability of Fama–French common risk-factor regressions to explain asset returns.
The fourth paper by Bilal İlhan, “Stock market liberalization: implications on cost of capital in emerging Islamic countries,” concerns the implications of stock market liberalization on cost of capital, which is one of the important factors contributing to stock market development and physical investment growth in emerging Islamic countries (EIC). The author employs static panel data techniques on the sample of seven EIC and the evidence suggests that stock market liberalization significantly reduces cost of capital in the stock markets of sample countries.
The paper titled “A longitudinal analysis for informativeness of earnings announcements in Borsa Istanbul,” co-authored by Aykut Ahlatçıoğlu and Nesrin Okay, provides an in-depth analysis of informativeness of earnings announcements and its time trend in Borsa Istanbul using abnormal volume and abnormal absolute return as measures for information content. The findings indicate that earnings announcements are significant information events with both measures being significantly positive around the three-day window surrounding the earnings announcement. The analysis also reveals a positive time trend in informativeness which is most pronounced in growth companies and announcements with high absolute surprise.
The sixth and the last paper titled “An investigation on impacts of structural changes in stocks’ past returns on financial analysts’ earnings forecasting rationality” by Zhixin Kang is an empirical attempt to test whether financial analysts’ rationality in making stocks’ earnings forecasts is homogenous or not across different information regimes in stocks’ past returns. The study identifies the different return information regimes where the rationality of financial analysts would change in making earnings forecasts. The results reveal that three significant structural breaks and four respective information regimes are identified in stocks’ past returns. Across the four different information regimes, financial analysts react to past returns quite differently when making one-quarter ahead earning forecasts. Kang underlines that depending on the length of past time horizon, financial analysts react quite differently to stocks’ past return information. It appears that financial analysts tend to be rational in a larger range of returns when more recent information of past returns is used.
