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The Finanser's Week: 7th December - 13th December 2015


Twitter warns of government 'hacking'

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Twitter has sent warnings to a number of users that their accounts may have been hacked by "state-sponsored actors".

China football revolution hits Europe

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Why the people's state is buying up the people's game

The real-life couple behind Mr & Mrs Smith

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The real-life couple behind hotels website Mr & Mrs Smith

Zuma hires third finance chief in a week

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South African President Jacob Zuma fires newly appointed Finance Minister David van Rooyen and names Pravin Gordhan as his successor in a surprise announcement.

Do investors trade too much? A laboratory experiment. (arXiv:1512.03743v1 [q-fin.GN])

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We run experimental asset markets to investigate the emergence of excess trading and the occurrence of synchronised trading activity leading to crashes in the artificial markets. The market environment favours early investment in the risky asset and no posterior trading, i.e. a buy-and-hold strategy with a most probable return of over 600%. We observe that subjects trade too much, and due to the market impact that we explicitly implement, this is detrimental to their wealth. The asset market experiment was followed by risk aversion measurement. We find that preference for risk systematically leads to higher activity rates (and lower final wealth). We also measure subjects' expectations of future prices and find that their actions are fully consistent with their expectations. In particular, trading subjects try to beat the market and make profits by playing a buy low, sell high strategy. Finally, we have not detected any major market crash driven by collective panic modes, but rather a weaker but significant tendency of traders to synchronise their entry and exit points in the market.

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Option pricing in affine generalized Merton models. (arXiv:1512.03677v1 [q-fin.CP])

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In this article we consider affine generalizations of the Merton jump diffusion model [Merton, J. Fin. Econ., 1976] and the respective pricing of European options. On the one hand, the Brownian motion part in the Merton model may be generalized to a log-Heston model, and on the other hand, the jump part may be generalized to an affine process with possibly state dependent jumps. While the characteristic function of the log-Heston component is known in closed form, the characteristic function of the second component may be unknown explicitly. For the latter component we propose an approximation procedure based on the method introduced in [Belomestny et al., J. Func. Anal., 2009]. We conclude with some numerical examples.

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Time-consistency of cash-subadditive risk measures. (arXiv:1512.03641v1 [q-fin.RM])

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The main goal of this paper is to investigate under which conditions cash-subadditive convex dynamic risk measures are time-consistent. Proceeding as in Detlefsen and Scandolo \cite{detlef-scandolo} and inspired by their result, we give a dual representation of dynamic cash-subadditive convex risk measures (that can also be seen as particular case of the dual quasiconvex representation). The main result of the paper consists in providing, in the cash-subadditive case, a sufficient condition for strong time-consistency (or recursivity) in terms of a generalized cocycle condition. On one hand, our result can be seen as an extension to cash-subadditive convex dynamic risk measures of Theorem 2.5 in Bion-Nadal \cite{bion-nadal-FS}; on the other hand, it is weaker since strong time-consistency is not fully characterized. Finally, we exploit the relation between different notions of time-consistency.

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Macroeconomic Dynamics of Assets, Leverage and Trust. (arXiv:1512.03618v1 [q-fin.EC])

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A macroeconomic model based on the economic variables (i) assets, (ii) leverage (defined as debt over asset) and (iii) trust (defined as the maximum sustainable leverage) is proposed to investigate the role of credit in the dynamics of economic growth, and how credit may be associated with both economic performance and confidence. Our first notable finding is the mechanism of reward/penalty associated with patience, as quantified by the return on assets. In regular economies where the EBITA/Assets ratio is larger than the cost of debt, starting with a trust higher than leverage results in the highest long-term return on assets (which can be seen as a proxy for economic growth). Our second main finding concerns a recommendation for the reaction of a central bank to an external shock that affects negatively the economic growth. We find that late policy intervention in the model economy results in the highest long-term return on assets and largest asset value. But this comes at the cost of suffering longer from the crisis until the intervention occurs. The phenomenon can be ascribed to the fact that postponing intervention allows trust to increase first, and it is most effective to intervene when trust is high. These results derive from two fundamental assumptions underlying our model: (a) trust tends to increase when it is above leverage; (b) economic agents learn optimally to adjust debt for a given level of trust and amount of assets. Using a Markov Switching Model for the EBITA/Assets ratio, we have successfully calibrated our model to the empirical data of the return on equity of the EURO STOXX 50 for the time period 2000-2013. We find that dynamics of leverage and trust can be highly non-monotonous with curved trajectories, as a result of the nonlinear coupling between the variables.

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Identifying Highly Correlated Stocks Using the Last Few Principal Components. (arXiv:1512.03537v1 [q-fin.PM])

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We show that the last few components in principal component analysis of the correlation matrix of a group of stocks may contain useful financial information by identifying highly correlated pairs or larger groups of stocks. The results of this type of analysis can easily be included in the information an investor uses to manage their portfolio.

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Queue Imbalance as a One-Tick-Ahead Price Predictor in a Limit Order Book. (arXiv:1512.03492v1 [q-fin.TR])

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We investigate whether the bid/ask queue imbalance in a limit order book (LOB) provides significant predictive power for the direction of the next mid-price movement. We consider this question both in the context of a simple binary classifier, which seeks to predict the direction of the next mid-price movement, and a probabilistic classifier, which seeks to predict the probability that the next mid-price movement will be upwards. To implement these classifiers, we fit logistic regressions between the queue imbalance and the direction of the subsequent mid-price movement for each of 10 liquid stocks on Nasdaq. In each case, we find a strongly statistically significant relationship between these variables. Compared to a simple null model, which assumes that the direction of mid-price changes is uncorrelated with the queue imbalance, we find that our logistic regression fits provide a considerable improvement in binary and probabilistic classification for large-tick stocks, and provide a moderate improvement in binary and probabilistic classification for small-tick stocks. We also perform local logistic regression fits on the same data, and find that this semi-parametric approach slightly outperform our logistic regression fits, at the expense of being more computationally intensive to implement.

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Fosun founder makes public appearance

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Guo Guangchang, the high-profile Chinese tycoon detained by police late last week, appears in public at his company's annual meeting on Monday.

Alibaba to pay $266m for SCMP

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Chinese internet giant Alibaba will pay HK$2.06bn ($266m; £175m) to acquire Hong Kong newspaper South China Morning Post.

Relevant Regulations Of Shanghai Stock Exchange, Shenzhen Stock Exchange And China Financial Futures Exchange On Circuit Breakers

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With the approval of China Securities Regulatory Commission, Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE) and China Financial Futures Exchange (CFFE) issued the relevant regulations on circuit breakers on December 4, 2015, which will be effective as of January 1, 2016. The introduction of the circuit breaker mechanism is an important institutional arrangement to further enhance the trading mechanisms of China securities and futures markets, maintain market order, protect investors’ interests and promote the long-term, steady and sound development of the capital market.

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ASIC Implements Clearing Regime In Australia For OTC Derivatives

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ASIC has today released rules implementing Australia's mandatory central clearing regime for over-the-counter (OTC) derivatives of financial institutions – the ASIC Derivative Transaction Rules (Clearing) 2015 (derivative transaction rules (clearing)) and explanatory statement.

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China Exchanges Services Company: ChiNext Stock Enters CES 120

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China Exchanges Services Company Limited (CESC) today (Monday) announced adjustments to the constituents of the CES China 120 Index (CES120). For the first time, a company listed on Shenzhen’s ChiNext, Leshi Internet Information & Technology (stock code: 300104, Leshi Internet), has been included in the index.

In the latest adjustment (for details, please refer to the announcement about constituents of CES China Cross Border Index Series http://www.cesc.com/Content/docpool/Index%20announcement_20151130_eng.pdf), eight stocks have been added to the index. They are Leshi Internet (stock code: 300104), Guotai Junan (stock code: 601211), China National Nuclear Power (stock code: 601985), Orient Securities (stock code: 600958), Everbright Securities (stock code: 601788), Avic Aviation Engine (stock code: 600893), Wanda Cinema Line (stock code: 002739) and China Taiping (stock code: 0966). Leshi Internet is the first stock listed on Shenzhen’s ChiNext that is included in CES120.

“Although CES120 mainly tracks cross-border large-cap stocks, we believe that as the Mainland’s new economy develops, stocks from a more diversified range of industries will attract market attention and become constituents of the CES 120 in the not too distant future,” said CESC Chief Executive Mao Zhirong. “CES 120 fully reflects the overall performance of Mainland stocks listed in the Mainland and Hong Kong, and covers increasingly diversified industries in line with the economic development of the different regions.”

The CES120 is comprised of the 80 most liquid and largest stocks in terms of market value trading on the Shanghai and Shenzhen stock exchanges as well as the 40 most liquid and largest Mainland companies in terms of market value listed on HKEx. The index has been disseminated via information vendors in the Mainland and Hong Kong, and been available
on the CESC, CSI and HKEx websites since10 December 2012.

Products linked to CES 120 include E Fund CES China 120 Index ETF and the CES 120 futures (http://www.hkex.com.hk/eng/prod/drprod/ces/c120fut.htm). CES 120 futures are the only A-share futures product listed outside the Mainland that is jointly licensed by the Shanghai, Shenzhen and Hong Kong stock exchanges. It is also the world’s only index futures with underlying stocks listed in both the Mainland and Hong Kong. The CES 120 futures contract not only provides investors with an effective risk management tool to hedge their Mainland stock positions, but also a primary tool by liquidity providers of Exchange Traded Funds (ETF) to hedge their ETF-related investments.

Since 15 December 2014, CESC has included Shenzhen ChiNext A-shares with a listing history of more than three years for selection as constituents of its indices covering A-shares. Currently, CESC indices that cover A-shares include CES China 120 Index, CES China A80 Index and CES China 280 Index.

Background information:

First cross-border large-cap blue chip—— CES 120

CES 120 is compiled by China Exchanges Services, a joint venture formed by theShanghai, Shenzhen and Hong Kong stock exchanges. It is the flagship index of thecompany’s cross-border index series and the first authoritative Mainland stock index that tracks the stock markets of Shanghai, Shenzhen and Hong Kong. It is comprised of 120 most liquid and largest stocks in terms of market value, including 80 A shares listed on the Mainland and 40 H shares, red chips and private Mainland enterprises listed in Hong Kong. It fully reflects the economic growth of China and provides exposure to a comprehensive China investment universe.

CES 120 is more balanced than other benchmark big-cap stock indices in terms of industry distribution, as cross-boundary investment embraces rare industries in the Mainland and Hong Kong and reduces the over-concentration of financial stocks in big-cap stock indices. Moreover, the index also covers leading enterprises of all industries in the Mainland and Hong Kong, including Tencent (stock code: 0700) of the information technology sector, China Mobile (stock code: 941) of the telecommunications sector and CRRC (stock code: 601766) of the industrial sector.

CES 120 constituents are diversified, covering all types of Mainland stocks listed across the boundary, such as A shares, H shares, red chips and private Mainland enterprises. Their weightings are also more balanced. Greater stock diversification offered by CES 120 as compared to mere A shares or H shares ensures there will be no missing out on the
potential of China’s new economy due to investing in large-cap stocks alone.

First overseas A-share futures product approved by Shanghai, Shenzhen and Hong Kong stock exchanges—— CES 120 futures

CES 120 futures are the only A-share futures product listed outside the Mainland that is jointly licensed by the Shanghai, Shenzhen and Hong Kong stock exchanges. It is also the world’s only index futures with underlying stocks listed in both the Mainland and Hong Kong. The CES 120 futures contract not only serves as an effective risk management tool for investors to hedge their Mainland stock positions, but it is also a primary tool by liquidity providers of Exchange Traded Funds (ETFs) to hedge their ETF-related investments. According to HKEx information, CES 120 futures have an index multiplier of HK$50 per index point, and a minimum fluctuation of 0.5 index point. Each board lot has a contract value of about HK$246,000. A basic deposit of HK$16,000 is payable by clients. Contract months, trading hours and last trading days are largely the same as those for futures on the HSI and H-share index. The final settlement price is the average of the values of CES 120 taken at five minute intervals from 1:00 p.m. up to 3:00 p.m. on the last trading day.

First Mainland ChiNext stock—Leshi Internet formally enters CES 120

Shenzhen ChiNext is an independent board set up in 2009 positioned as that of Nasdaq in the US. Unlike Hong Kong’s GEM, it is not designed to have a mechanism for listed companies to switch board. At present, Mainland stocks from emerging sectors such as information technology, media, high-end manufacturing and medical and health are mostly
listed on Shenzhen ChiNext. In the past two years (November 2013 to November 2015), the total market capitalisation of ChiNext has more than doubled leading to the creation of many large-cap blue chips. In the latest index adjustment, a ChiNext blue-chip, Leshi Internet (stock code: 300104), has been included in CES 120 for the first time with a weighting of 0.5 per cent. The entry of a ChiNext stock has made CES 120 a more comprehensive indicator of China’s economic development.

According to public information, Leshi Internet is a Mainland funded large internet company set up in November 2004. Leshi Internet is a Mainland leading original video site and a firm supporter of original videos with abundant internet video resources and sports copyrights.

Leshi Internet was listed on ChiNext on 12 August 2010 as the Mainland’s first listed video site. Leshi Internet, as a leading ChiNext listed company, has seen its market capitalisation increase from RMB3 billion at the time of its listing debut to more than RMB100 billion today, setting new records in market capitalisation at ChiNext.

The latest adjustments to CES 120 were decided after voting by the CESC expert team at a regular review meeting according to the compilation methodology for CESC China Cross Border Index Series. A-share constituents of CES 120 are selected based on financial conditions, liquidity and market capitalisation. Leshi Internet (stock code: 300104) ranked
73th in the latest selection exercise. Another ChiNext stock East Money Information (stock code: 300059) was on the reserve list of constituents, a sign that more Shenzhen ChiNext stocks will become A-share blue chips.

ASIC Welcomes Release Of IOSCO Custody Principles

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ASIC has welcomed the recent release of the International Organization of Securities Commissions' (IOSCO) Custody Standards as further recognition of the importance of strong custodial arrangements. Their release follows the strengthening of domestic requirements for custodians in Australia in recent years.

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ETFs/ETPs Listed In Asia Pacific Ex Japan Suffered Net Outflows Of 1.2 Billion US Dollars In November 2015, According To ETFGI

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ETFs/ETPs listed in Asia Pacific ex Japan suffered net outflows of US$1.2 billion in November 2015. The Asia Pacific (ex-Japan) ETF/ETP industry had 772 ETFs/ETPs, with 916 listings, assets of US$116 Bn, from 115 providers on 17 exchanges in 13 countries at the end of November 2015, according to ETFGI’s Global ETF and ETP insights report for November 2015 (click here to see ETFGI’s chart for trends in assets invested in ETFs/ETPs listed in Asia Pacific ex Japan).
 
In the first eleven months of 2015 record levels of net new assets have been gathered by ETFs/ETPs listed globally with net inflows of US$319.3 Bn marking a 15% increase over the prior record set during the first eleven months of 2014. In the United States net inflows reached US$201.7Bn, which is 5% higher than the prior record set last year, in Canada net inflows at US$11.4 Bn are up 10.7% over the prior record set in 2012, while in Europe year to date (YTD) net inflows climbed to US$72.6 Bn, representing a 18% increase on the record set YTD through end of November 2014.  In Japan, YTD net inflows were up 210% on the prior record set in 2013, standing at US$33.7 Bn at the end of November 2015.
 
“Global markets were mostly down in November, developed markets outside the US declined 1%, emerging markets ended down 3% while the Dow Jones Industrial Average and the S&P 500 ended up less than 1%.”  according to Deborah Fuhr, managing partner at ETFGI.
 
In November 2015, ETFs/ETPs listed in Asia Pacific ex Japan suffered net outflows of US$1.2 Bn.  Equity ETFs/ETPs experienced the largest net outflows with US$1.4 Bn, followed by fixed income ETFs/ETPs with US$120 Mn, while commodity ETFs/ETPs gathered net inflows of US$76 Mn.
 
YTD through end of November 2015, ETFs/ETPs have seen net inflows of US$1.9 Bn.  Fixed income ETFs/ETPs gathered the largest net inflows YTD with US$4.1 Bn, followed by commodity ETFs/ETPs with US$540 Mn, while equity ETFs/ETPs experienced net outflows of US$4.7 Bn YTD.
 
Smartshares gathered the largest net ETF/ETP inflows in November with US$315 Mn, followed by HSBC/Hang Seng with US$280 Mn and SPDR ETFs with US$273 Mn net inflows.
 
HSBC/Hang Seng gathered the largest net ETF/ETP inflows YTD with US$6.0 Bn, followed by SPDR ETFs with US$2.8 Bn and Mirae Horizons with US$1.6 Bn net inflows.

VIDEO: What will US rate rise mean for India?

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The BBC's Sameer Hashmi reports on what a rise in US interest rates. will mean for India's economic growth.

VIDEO: Supporting India's women-led start-ups

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The former Goldman Sachs director who is now helping other women to succeed in business.
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