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on Corporate Finance |
| By: | Ip-wing Yu (Research Department, Hong Kong Monetary Authority); Chi-sang Tam (Research Department, Hong Kong Monetary Authority) |
| Abstract: | Market sentiment is increasingly seen as a key factor driving the movement of asset prices. This paper develops two indicators to measure investors' attitude towards risk in the Hong Kong stock market: a) a risk appetite index and b) an investment sentiment index. We find that although the risk appetite index based on the work of Gai and Vause (2006) is able to capture episodes of extreme optimism and pessimism between 1996 and 2006, it is volatile and in some cases gives spurious signals. Our results also show that the investment sentiment indicator, a sentiment measure derived by combining the current realised return and the expected short-term return of the stock market, has adequate power to predict the subsequent return of the stock market over a period of 6 to 12 months. |
| Keywords: | risk appetite, risk aversion, market sentiment, Hong Kong stock market |
| JEL: | G10 G12 G13 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0705&r=cfn |
| By: | Jim Wong (Research Department, Hong Kong Monetary Authority); Tom Fong (Research Department, Hong Kong Monetary Authority); Eric Wong (Research Department, Hong Kong Monetary Authority); Ka-fai Choi (Research Department, Hong Kong Monetary Authority) |
| Abstract: | This paper develops a model to identify the major determinants of a bank's profit, and the general level of profitability of a banking market. It found that in Hong Kong's case, market structure, such as market concentration and market shares of banks, is not a major contributory factor. Cost efficiency of banks, which measures the ability of banks to optimise their input mix for producing outputs, is a major determinant of banks' profitability. Since larger banks are found to be in general more cost efficient than smaller banks in our previous study on banks' efficiency, larger banks can offer services at lower prices to compete with smaller banks, yet attaining a similar or even higher level of profits. Smaller banks may, therefore, be more vulnerable to intense competitions in the loan market than larger banks, particularly in cut-throat price wars. |
| Keywords: | Profitability, price, Hong Kong banking, bank efficiency, market structure |
| JEL: | G14 G21 G28 L11 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0706&r=cfn |