MELBOURNE CENTRE FOR FINANCIAL STUDIES

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The Melbourne CenTre for finanCial STudieS

level 12, 330 Collins St

Melbourne

Victoria

australia 3000

Ph: (+61) 03 9613 0930

fax: (+61) 03 9613 0900

http://www.melbournecentre.com.au

The Melbourne Centre was established as an initiative of the Victorian

State Government. at the opening of the Centre, the Minister for financial

Services, andré haermeyer MP, noted:

“The Melbourne Centre for financial Studies is the Victorian

Government’s centrepiece initiative of the industry action Plan:

investing in Victoria’s future. The Melbourne Centre brings together

Victoria’s key financial services research organisations and through

their strong links to financial services industry, the Centre will help

promote Melbourne as a leader in financial research.”

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MeSSaGe froM The ChairMan

On behalf of the Board of the Melbourne Centre for Financial Studies, I am

delighted to present this report on the Centre’s activities for the first �� months of

its operations.

The Melbourne Centre has, in this short space of time, established itself as a

valuable interface between industry and academic researchers in the finance

sector, and has initiated a substantial program of research and events.

I would like to congratulate the Victorian Government on its foresight in facilitating

and providing seed funding for the Melbourne Centre. The financial and strategic

support of the founding consortium members (Melbourne, Monash and RMIT

Universities, and Finsia) has enabled the Centre to develop its activities and profile

more rapidly than any of us expected.

I would especially like to record my thanks to AAMI, as the first corporate sponsor

of the Melbourne Centre for their financial support, and to Mr Michael Kay (Chief

Operating Officer, AAMI) for his participation in, and contribution to, the Centre’s

Board of Management.

I would also like to record my thanks to the Commonwealth Bank of Australia

for its support of the Melbourne Centre through its sponsorship of the

Commonwealth Bank Chair of Finance at the University of Melbourne which is

held by the Centre’s Director.

John unkles

Chairman

Melbourne Centre for financial Studies

11 September 2006

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The Melbourne Centre for financial Studies was launched by the Minister for

financial Services, andré haermeyer MP on august 18, 2005. The Minister and

inaugural members of the Centre’s board are shown above.

PiCTure

from l to r: Professor robert brown, Professor Tony naughton, Mr John

unkles, Professor Jayne Godfrey, The Minister for financial Services andré

haermeyer MP, Professor Kevin davis

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baCKGround

The Melbourne Centre for Financial Studies is a partnership between public and private sectors, and between industry and academe. The mission of the Centre is to enhance Melbourne’s national and international reputation for excellence in financial practice, research and education.

The importance of the finance sector as the backbone of economic and social

development is continually increasing. The range of financial services activities,

risks and opportunities are becoming ever broader and more complex. The

intersection of academic and practitioner interests and expertise continues to

expand, creating significant growth opportunities for communities possessing the

necessary skills and infrastructure. The Melbourne Centre is based on a vision

that its partnership model will deliver benefits for Melbourne as a whole, as well

as for its participating institutions.

The Centre undertakes finance research, provides consulting services, and organizes

conferences, workshops, public lectures and other educational activities.

The Melbourne Centre is an initiative of the Victorian State Government. The

founding members of the Centre are Melbourne, Monash and RMIT Universities

and Finsia (the Financial Services Institute of Australasia). The Centre commenced

activities in July �00�. Financial support from industry is one of the key ingredients

for its long run success and the Melbourne Centre has benefited from the support

of AAMI Insurance as its first Industry member and the CBA which is the sponsor

of the Commonwealth Bank Chair of Finance held by the Centre’s Director.

The Centre has an Industry Advisory Committee comprising prominent individuals

from the Melbourne business and finance communities who provide guidance and

advice.

The Melbourne Centre conducts its research program primarily through academic

associates at its founding members.

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baCKGround (ConT)

Key areas of specialisation are:

• financial regulation

• funds management

• new financial markets and instruments.

These are areas of particular interest to the financial community with substantial

opportunities for synergies between industry and academic researchers, and

opportunities for research which contributes to the development of the Melbourne

financial sector.

Competitive research grants have been made to support a number of projects in

these and other areas and are listed on the following pages.

Conferences, workshops and seminars are an integral part of the Centre’s

activities with a particular focus on structuring events which bring together

academics and practitioners for sharing of ideas. The program of events held to

date and currently planned for �00� is listed on the following pages.

Enquiries regarding the Centre’s activities should be directed to any of the staff of

the Centre as listed at the the end of this report.

Following a significant initial grant from the Victorian Government, the funding of

the Melbourne Centre is based on contributions, cash and in-kind support from its

founding Universities and FINSIA. FINSIA provides financial and in-kind support,

the latter including office space and secretarial/administrative functions.

The business plan of the Melbourne Centre envisages that ongoing funding will be

obtained from a variety of additional sources.

These include:

• Contributions from new industry members wishing to support the

activities of the Centre

• Funds raised from contract research and consulting

• Profits generated from conferences, seminars and training activities.

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The firST TWelVe MonThS: a ProGreSS rePorT

Professor Kevin DavisDirector, Melbourne Centre for Financial Studies

In its first year of activities, the Melbourne Centre has focused upon building

linkages between the academic and business communities through: hosting

conferences and workshops; initiating a research program of relevance to

industry; consulting work; and participation in public debate and discussion.

Consulting clients have included: the Federal Treasury; the Finance Sector Union;

WAW Credit Union. In addition, the Melbourne Centre was heavily involved in

assisting FINSIA in conducting the �9th International Banking Summer School

for over �00 international bankers, held in Melbourne from August ��th to

Septermber �th.

The Melbourne Centre has been involved in presentations at conferences and

events including, in recent months,

• Finance and Treasury Association National Congress, Melbourne,

September �00�

• �nd ABAC Public - Private Dialogue on Basel � and Banking Regulation,

Kuala Lumpur, August �00�

• Asian Finance Association Conference, Auckland, July �00�

• Finance Industry Consultative Council – June �00�

• Union Network International – �nd Finance Conference, Geneva, May �00�

Over the coming year, the main thrust of the Centre’s activities will be:

• To further develop its research program, building particularly on

initiatives already underway in the areas of funds management and

financial regulation.

• To develop a reputation for thought leadership in the finance sector

through publication and distribution of articles by its academic

associates targeted at practitioners.

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The firST TWelVe MonThS: a ProGreSS rePorT (ConT)

• To build closer relationships with industry researchers through

development of partnerships with a range of companies, government

authorities, and industry associations.

• To secure financial commitment from key stakeholders in the finance

sector to support the work of the Melbourne Centre in enhancing the

reputation of the Melbourne financial services sector as a centre of

expertise in research, education, and practice.

I would like to take this opportunity to thank the staff of the Melbourne Centre,

Carmel Romano of Finsia for administrative support, the Industry Advisory

Committee, and the Centre’s Board of Management for support and guidance.

Kevin davis

Commonwealth bank Chair of finance

director, Melbourne Centre for financial Studies

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eVenTS ProGraM

2005September 28, 2005

Basel 2 Symposium (conducted jointly with the Economics Society of Australia and New Zealand and the Department of Economics, University of Melbourne),

Speakers: Professor Anthony Saunders (New York University); Dr John Laker (CEO, APRA); Dr Bob Edgar (COO, ANZ Bank); Mr Ranjit Singh (Research Director, SEC Malaysia). Attended by 45 practitioners and academics

September 29-30, 2005

10th AIBF – Melbourne Centre Banking and Finance Conference

Presenters: Practitioners and Academics, Attendance 80 Practitioners and Academics

October 3 -7, 2005 Training programs on “Basel 2, Credit Risk and Operational Risk Measurement and Management”

(conducted jointly in Melbourne and Sydney with Finsia. Presenter: Professor Anthony Saunders (New York University))

24 November 2005 Seminar Prof Stewart Myers (MIT)

28 November 2005 Finance Forum: Funds Management Research Opportunities

Syd Bone (CEO, Victorian Funds Management Corporation)

2006 January – June

February 15, 2006 Corporate Finance Workshop Five research papers by Centre Associates and Visitor presented to audience of (approx) 20 academics and 5 practitioners (Held in J P Morgan Board Room)

March 1, 2006 Operational Risk Seminar (in conjunction with FIRN)

Presented by Prof Paul Embrechts to audience of (approx) 40 practitioners and academics

March 29, 2006 Credit Risk Workshop Four research papers presented by Centre Associates and practitioners to audience of (approx) 45

April 19, 2006 Finance Forum “Energy Policy and the Development of New Financial Markets”

Presentation by Wayne Read and Peter Ebens (KPMG) to audience of (approx) 20 academics and practitioners

May 17, 2006 Finance Forum “Corporate Social Responsibility”

Presentation by Philip Cohn (Reputex) to audience of 15 academics and practitioners

May 19-20, 2006 Melbourne Money & Finance Conference (The Future of Australian Banking)

12 papers presented to audience of 60 practitioners, academics and public sector delegates

June 5, 2006 Finance Forum (Hedge Funds) Presentation by Andrew Crawford, LCA

June 13, 2006 Regulatory Review Forum (jointly with FICC)

Presentations (and discussion) on four regulatory issues including presentation by Gary Banks (Chair of Regulation Review Task Force)

June 19, 2006 Finance Forum (Commercial Property Risk and Returns)

Presentation by John Garimort, IPD Australia

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eVenTS ProGraM (ConT)

2006 July - december

July 17 Seminar “Major Investments, Firm Financing Decisions, and Long-run Performance”

Professor Mark Flannery

July 17, 2006 Symposium: Basel 2 and Bank Regulation: International and Australian Perspectives (Sponsored by ANZ)

Speakers: Prof Mark Flannery (Bank of America Eminent Scholar in Finance, University of Florida, and co-director of the FDIC Finance Research Centre)Prof Benton Gup (Robert Hunt Cochrane Banking Chair, Uni. of Alabama)Prof Harald Benink (Erasmus University, The Netherlands, and founder of the European Shadow Financial Regulatory Committee)Mr Bernie Egan (Program Director – Basel 2, APRA)Mr Morris Batty (Basel 2 Program Executive – ANZ)

July 20, 2006 Financial Literacy Workshop: Analysis of Design and Impact

Presenters: Tim Fry (RMIT), Roslyn Russell (RMIT) Sandra Mihajilo (RMIT) and Rob Brooks (Monash)

August 8, 2006 Finance Forum: “Global Alpha”,

Alison Hamilton, Portfolio Manager for Martin Currie

August 25, 2006 Seminar “Basel 2: Is the Game worth the Candle”

Professor Richard Herring, Wharton School of Business

September 25-26, 2006

Finsia – Melbourne Centre Finance and Banking Conference

Contributed academic research papers and plenary sessions.Dinner speaker: Mr David Murray, Chairman of the Future Fund

October 26 2006 (Sydney),October 302006 (Melbourne)

Symposia on “Share Buybacks”

Joint Australian Financial Review – Melbourne Centre and supported by UBS

October 27, 2006 Workshop “Cost of Capital for Regulated Industries”

Joint with ACCC (tbc) Prof Glenn Boyle (NZ) and other speakers

December 21, 2006 International Distinguished Lecture

Mr Mervyn King, Governor of the Bank of England

Feb-Mar 2007 tbc Symposium on Regulation of Islamic Financial Services

(jointly with Monash University)

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reSearCh ProGraMresearch Projects Supported by Competitive Grants financial regulation

2006

director Share Trading: disclosure and Market integrity

Robert Faff, Dept. of Accounting and Finance, Monash University

Steve Easton, School of Business, University of Newcastle

Corporate Governance and risk-Taking of uS banks

Michael Skully, J. Wickramanayake, Dept. of Accounting and Finance,

Monash University

alternative Methods of issuing equity in australia: effects of rights

issues and Private Placements on Shareholder Wealth and ownership

Structure

Chander Shekhar, University of Melbourne

Vladimir Atanasov, College of William & Mary, USA.

dividend Strip and information revelation

Qi Zeng, Dept. of Finance, University of Melbourne

2005

Corporate Governance: asian boards of directors

Richard Heaney, School of Econ, Fin. & Marketing, RMIT

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reSearCh ProGraM (ConT)

funds Management

2006

Validating the characteristics based asset pricing approach using a

statistical clustering asset pricing model

Steven Brown, New York University

Robert Faff, Dept. of Accounting and Finance, Monash University

Paul Lajbcygier, Faculty of Information Technology, Monash University

Madhu Veeraraghavan, Dept. of Accounting and Finance, Monash

University

a new approach to the evaluation of mutual fund performance: the

case study of australia and uS mutual funds

Francis In, Dept. of Accounting and Finance, Monash University

optimal fund Size, funds flows and fund Performance in the

Presence of Structural breaks

Petko S. Kalev, Dept. of Accounting and Finance, Monash University

Mark Harris, Dept. of Econometrics and Business Statistics, Monash

University

alternative risk indices for the Mutual fund industry

Mike Dempsey, Mohammad Ariff. Dept of Accounting and Finance,

Monash University

Towards a reconciliation of Portfolio Theory and empirical outcomes

in Stock Price behaviour: australian evidence

Mike Dempsey, Madhu Veeraraghavan, Dept of Accounting and Finance,

Monash University

an investigation into the Smart Money effect in australian

Superannuation funds

Madhu Veeraraghavan, Philip Gharghori, Dept of Accounting and

Finance, Monash University

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reSearCh ProGraM (ConT)

foreign entry into the australian funds management industry through

investment advisory alliances

Robert Faff, Dept. of Accounting and Finance, Monash University;

Jerry Parwada, School of Banking and Finance, University of New South

Wales

dynamic hedge funds allocation – an adaptive neuro-fuzzy inference

System (anfiS) approach

Victor Fang, Dept. of Accounting and Finance, Monash University;

Vincent Lee, Clayton School of IT, Monash University

K. F. Phoon, Dept. of Accounting and Finance, Monash University

2005

rating Transitions: how do They Vary With the business Cycle?

Guay Lim, Michael Chua and Penny Smith, Melbourne Institution of

Applied Econ. & Soc. Research, University of Melbourne

analyst incentive and Signals: The role of the institutional and

disclosure environment

Howard Chan and Rob Brown, Dep. Of Finance, University of Melbourne

Robert Faff, Dept. of Accounting & Finance, Monash University

Modelling Time-Varying asymmetric foreign exchange exposures

Robert Faff and Robert Brooks, Dept. of Accounting & Finance, Monash

University

Jonathan Dark, Dep. of Econometrics & Bus Stats, Monash University

Amalia Di Iorio and Tim Fry School of Econ, Fin and Marketing, RMIT

The Systematic risk effect of hybrid Securities Classifications

Jayne Godfrey, Farshid Navissi and Keryn Chalmers, Dept. of Accounting

& Finance, Monash University

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reSearCh ProGraM (ConT)

are actively Managed funds really that bad?

Terry Hallahan, Richard Heaney, Tom Josev and Heather Mitchell, School

of Econ, Fin. & Marketing, RMIT

Price discovery in Spot and derivative equity Markets

Petko Kalev, Dept. of Accounting & Finance, Monash University

Sugato Chakravarty, Dept. of Consumer Sciences & Management,

Purdue University

new financial Markets and instruments

2005

integrated framework for financial Ship risk

Harald Scheule, Dept. of Finance, University of Melbourne

The price formation of substitute markets: Theory and empirical

applications

Michael T Chng, Dept. of Accounting and Finance, Monash University

Aihua Xia, Dept. of Maths & Stats, University of Melbourne

electricity Pricing

Richard Heaney, Heather Mitchell, Vikash Ramiah, and Stuart Thomas,

Sch of Econ, Fin. & Marketing, RMIT

The end of non-tradable shares in China: Modeling the impact on

existing shareholders

Tony Naughton, Dept. of Econ, Fin. And Marketing, RMIT

Madhu Veeraraghavan, Dept. of Acc. & Fin., Monash University

Charles Corrado, Dept. of Commerce, Massey University

Larry Li, Dept. of Econ & Fin., School of Business, LaTrobe University

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reSearCh ProGraM (ConT)

other areas

2006

do australian firms have a lower propensity to undertake r&d?

Sinclair Davidson, RMIT University

2005

dynamic Capital Structure Choice

Xin Chang, Dep. Of Finance, University of Melbourne

Sudipto Dasgupta, Dep. Of Finance, Hong Kong University of Science and

Technology

does the diversification penalty crowd out r&d value?

Sinclair Davidson, School of Econ, Fin. & Markets, RMIT

Robert Brooks, Dept. of Econometrics & Bus. Stats, Monash University

improving Techniques for evaluating financial literacy and inclusion

Programs

Tim Fry, School of Eco, Finance & Mark, RMIT

Roslyn Russell, Research Dev. Unit Bus, RMIT

Robert Brooks, Dept. of Econometrics & Bus. Stats, Monash University

Succession financing in Small and Medium Sized enterprises in

australia

Asjeet Lamba and Andre Gygax, Dept. of Finance, University of

Melbourne

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board of ManaGeMenT

The Centre is a consortium of The University of Melbourne The University of

Melbourne, Monash University and and RMIT University in conjunction with the

Australasian Institute of Banking and FinanceFINSIA.

The Melbourne Centre is governed by a Board appointed by its contributing

members. The Board of Management has membership drawn from the founding

members, and will be expanded as appropriate by decision of the Board.

The Board is supported by an Industry Advisory Committee comprising (IAC)will

be, comprising senior members of the Melbourne finance, business and public

sectors. Members of the Committee act in an honorary capacity. The

Committee provides strategic advice to the Board and the Centre Director on a

range of issues.

Chairman

Mr John Unkles (Executive General Manager, Finsia)

Members (at 30 June 2006)

Professor Paul Kofman (The University of Melbourne)

Professor Kim Langfield-Smith (Monash University)

Professor Tony Naughton (RMIT University)

Mr Michael Kay (AAMI)

other Members of the board during 2005-6

Professor Robert Brown (The University of Melbourne)

Professor Jayne Godfrey (Monash University)

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induSTry adViSory CoMMiTTee

Steve Bartholomeusz (The Age)

Syd Bone (CEO, VFMC)

Jeremy Cooper (Deputy Chairman, ASIC)

Andrew Dexter (Managing Director, JPMorgan)

Jeremy Duffield (Managing Director, Vanguard Investments)

Vince Fitzgerald (Chairman, Allen Consulting)

Elmer Funke Kupper (Group Managing Director, Tabcorp)

Les Hosking (Managing Director, NEMMCO)

Michael Kay (Chief Operating Officer, AAMI)

Stephen King (Commissioner, ACCC)

David Knox (Principal, Mercer)

Geoff MacFarlane (Principal, Alitum Partnership)

Rod Maddock (Executive General Manager, Strategy, CBA)

Bob Officer (Chairman, VFMC)

Ruth Picker (Partner, Ernst & Young)

Graham Reeve (CEO, Myer Family Office)

Bob Stribling (Chief Risk Officer, Australia, NAB)

Ian Thompson, (Head of Research & Training Asia-Pacific Ratings

Services, S&P)

Fran Thorn (Secretary, Department of Innovation Industry and Regional

Development)

John Wilson (Managing Director, Tollhurst Noall)

Peter Yates (Managing Director, Allco Equity Partners)

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CenTre STaffinG

Director Professor Kevin Davis 0� 9��� 09�0

0�09 9�0 ��9kevin.davis@melbournecentre.com.au

Business Development

Manager

Mr David Michell 0� 9��� 090�

0��� ��9 0��david.michell@melbournecentre.com.au

Research Fellow Mr John Fowler 0� 9��� 09��john.fowler@melbournecentre.com.au

Senior Consultant:

Funds Management

Mr Graham Cocks 0� 9��9 9��9

grahamcocks@bigpond.com

Research Assistant Mr Patrick Zhang 0� 9��� 09��patrick.zhang@melbournecentre.com.au

Fax: +�� � 9��� 0900

Web site: http://www.melbournecentre.com.au

Email: info@melbournecentre.com.au

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MELBOURNE CENTRE FOR FINANCIAL STUDIES

MAn

nual

Rev

iew

200

5-20

06