Critical Analysis of a Business Focused Research Paper Finance Essay

This report is a critical analysis of a peer-reviewed business focused research paper. The chosen article is "Can the US stock market be Shanghaied?" published in 2009 in the Management Research News. Two authors contributed to the production of this paper: Yi-Jer Huang and Frank W. Bacon. This particular research paper is intended to examine the relationship between the US and China stock markets. The purpose of this short report is to assess the relative merit of the journal article to critically evaluate and decide how useful and worthwhile the work, methodology and the arguments presented in the paper are; deciding how much the work has contributed to the world's understanding, of this very significant topic. As well as question the information and opinions in it and present an evaluation and judgment of the report.

The critical analysis of the named paper is undertaken, with special attention given to each individual section presented throughout the paper. For this critique to be effective and balanced, both strengths and weaknesses of the research are discussed, together with recommendations for improvement and future study in the concluding part of this report. The propositions are backed up by literature to strengthen the quality of the analysis. This shot report is broken down into several parts; every part is representing a crucial aspect of this critical analysis. Every aspects of the research will be discussed in great detail from several points of view. Overall the review is summaries and assesses the paper and demonstrates a reasonable and fair assessment of the chosen research.

Purpose

This rigorously carried out purposive study was done with the intention of making an important and valuable input to the field of knowledge (Bryman and Bell 2007). The purpose of the research paper is to examine the relationship between the United States and China stock markets between 2000 and 2007. The authors attempt to categorize the event occurred on the 27th of February, 2007 to find the link between the 9 per cent plunge in the Shanghai stock market followed by the $1.5 trillion global market shake out.

Authors

While executing this peer reviewed article, the authors had an outstanding theoretical knowledge especially Frank W. Bacon who is a well know established author with over 30 years of experience in the financial industry. He has also authored and co-authored over 40 articles published in professional academic journals, and currently he is the professor of finance at Longwood University in Farmville, Virginia. Yi-Jer Huang on the other hand has similar length of experience but in the IT industry which might not be as useful regarding the research topic (Sekaran and Bougie, 2010).

Abstract

The research paper begins with a very clear and concise abstract. The abstract is informative in nature, it is less than 10% of the length of the original piece but includes all major points that they want to get across such as the key themes and purpose of the paper, major facts bearing on the conclusion, a summary of key findings methods. As well as the scope of the article, results, and recommendations thereby it follows White (2000) ideal form of an abstract. It follows strictly the chronology of the article and provides logical connections between the information, adds no new information, but simply summarizes the the whole paper.

Problem Statement

The researchers have chosen a question that is neither too broad nor too narrow (Ryan, Scapens, Theobald and Beattie, 2002) as a result the main research question is "Can the US stock market be Shanghaied?" which practically means "Will Shanghai stock market have strong influence over US stock market in the future?" this question has been selected do to its significance. Since the Chinese economy is at the moment in the centre of attention due to its hidden investment possibilities as it has been pointed out in several journals such as the Management Decision, that China has a great influence on the global market in general and as several academic and professional figures has stated this influence will heavily increase in the future, therefore the importance of this matter is crucial. The researchers also provide a good argument regarding its potential value to portfolio managers worldwide (Huang and Bacon, 2009). The problem statement is a clear, precise, and concise statement of the issue to be researched, it offers a focus and direction to the study which can be clearly seen in the paper. The authors also have chosen this topic, since it can actually be researched.

Literature review

The research is reasonably current as well as the references it used, it has been published in 2009 in the journal of Management Research News therefore it must have gone through a series of evaluations by professionals before it could have been published. The references the authors used have been published / created between 2005 and 2008. There are over 16077 journal articles and 1442 books on the stock market only in the Emerald database, even though the topic might be unique because the events it review is quite recent. The authors should have examined a wider range of literature so they could have a more solid theoretical framework. The authors mostly used primary sources (also called original source or evidence) to avoid the problem inherent in secondary sources, where each new author may distort and put their own twist on the findings of prior cited authors (Hair, Wolfinbarger, Money, Samouel and Page, 2011). The researchers have reviewed three websites, one research paper and three journals (Huang and Bacon, 2009) although one of the website's reliability is arguable. That website is Wikipedia, Philip Bradley librarian said that the use of Wikipedia is not appropriate since "it lacks of authority, with printed publications, the publishers have to ensure that their data is reliable, as their livelihood depends on it. But with something like this, all that goes out the window." However an article in the journal Nature (Giles, 2005) suggests that, Wikipedia scientific articles came close to the level of accuracy in Encyclopaedia Britannica and had a similar rate of "serious errors", this study was disputed by Encyclopaedia Britannica. Wikipedia also has been used as evidence in legal cases such as the trademark of Formula One racing decision (trademark act 1994 in class 41 under number 940), addition to this the UK Intellectual Property Office considered Wikipedia both reliable, and useful as a source of evidence. Even though the overall number of used references is low, they have reviewed and taken into consideration several aspects of the subject and explored many possibilities therefore due to the relation and quality of these sources the amount of literature should be sufficient. The authors' have used both supporting literature for their final conclusion such as Beach, S.L. and Clarence, C.R. (2005), ''Does portfolio rebalancing help investors avoid common mistakes?'', Journal of Financial Planning, May, pp. 56-61. and differing literature such as Cha, A.E. (2007), ''China's quirky stock market finally matters. Its problems become the world's'', Washington Post, 4 March, p. A01.

Theoretical framework

The theoretical framework is specified and it identifies and defines the important variables that are relevant to the problem, it is also detailed and well-thought out. The dependent variable is the impact of China's emerging stock market. Predictor or explanatory variables, just to mention a couple are the herd mentality and strength of the relationship between the US and China which explains the variation in the dependent variable. Moderating and mediating variables are also important to the problem. The article identifies on several occasions the questionable factors that could be related to the overall outcome of the hypotheses. The framework provides appropriate amount of information regarding the problem in forms of tablets and graphs as well as background data. However they do not state or suggest the reason behind the increase and decrease of correlation in the graphs. Therefore the movements could due to other unrelated external factors which would mean that the strengthening of the China's market influence is unknown and might be temporary (Ma, 2004).

Method of study

Hypotheses testing were used to explain the nature of certain relationships between variables and independence of variables in the research; it also explains the variance in the dependent variable for any change in the independent variables. The method of study is quantitative in nature (Teall & Hasan, 2002); therefore it is very appropriate to answer the research question. The researchers have used quantitative methods as a technique to gather measurable quantitative data, as well as carrying out a systematic empirical investigation of quantitative properties and phenomena and their relationships (Ryan, Scapens, Theobald and Beattie, 2002). Tables and graphs are therefore used to present the results of these methods in the research paper. One concern with the graphs (Figure 1 & 2) is not about the content but the format; it can be very confusing for readers with no previous knowledge regarding this sort of chart. Quantitative research in this case made by using scientific methods, which include the generation of hypotheses; collection of empirical data; modeling and analysis of data; evaluation of results (Teall and Hasan, 2002).

Data collection

The data collection methods are very appropriate; the researchers could not have affected the results of the study in any way through to the collection of data. The authors' findings are close to reality in terms of the data bases they have used, as it has been based on several reliable and factual tablets and figures from finance.yahoo.com which is a widely accepted and reliable source. The findings that have been concluded from indexes such as The Morgan Stanley Capital International index are very suitable to display the true movements of the market although there is always a probability that the data may not reflect the reality. At this point it must be highlighted that China was the only emerging stock market they have examined since Hong Kong and Japan are already developed markets consequently the authors only examined the Asian markets which would not create a realistic picture of the situation therefore it is not completely sufficient. However if other emerging markets would have been examined such as Brazil or especially India which are in a very similar condition, not only more precise but perhaps different hypothesis would have emerged (Ma, 2004).

Investigation

The overall method of the investigation is cause and effect since the researchers' main goal is to determine whether or not the Shanghai stock market caused the global market shake out in 2007. On the other hand the research itself is very much focused on the correlation of variables to determine the multiple factors that influence one another; as a result the authors also identified the crucial factors associated with the problem. In this case measurement is a means by which observations are expressed numerically in order to investigate associations (Israel, 2009). This type of data analysis is the most suitable for this sort of research problem. On a related subject the authors argue that Shanghai stock market is widely blamed as a cause of the February 2007 event, however they fail to state the origin of this accusation, this might not be a significant information regarding the research investigation and measurement however it would increase the reliability of the outcome since it would shed a light on whether or not the authors are emotionally influenced by the country which has raised these accusation. Consequently the research design would have ensured that the findings are as close to reality as possible so that one can have full confidence in the findings.

Hallmarks

The confidence level is low because of the unique characteristics of China stock market therefore it is hard to conclude that the global market shake out was ignited by the 9 per cent plunge in the Shanghai stock market (Ma, 2004). In addition the level of probability that the estimations in the research findings are correct is not stated in the research paper. The conclusions drawn from the interpretation of the results of data analysis is objective, they are purely based on facts of the findings derived from actual quantitative data, and not on their subjective or emotional values (Israel, 2009).

This research can be used again if similar conditions occur for example when a stock market presumably violently has an impact on another or even on the global market. The research findings in this setting are also applicability to other settings. By this means other corporation and especially broker firms around the world can get a good use out of these findings and solution. The authors used simplicity in explaining the problems and generalizing these solutions for the problems rather than a complex research framework. Therefore the research is conducted in a parsimonious that is simple and economical manner. They have used more number of variables leading to less variance to achieve economy in the research model. They display clear understanding regarding the problem which has led to parsimony in research activities even though some of the influencing factors are not completely clear (Sekaran and Bougie, 2010). This research might not meet all characteristics of the scientific research, to the extent possible it seems however that the research activities were pursued in scientific manner.

Alternative Hypothesises

The authors considered alternatives to the final hypothesis. They have studied Beta of China's stock market with world stock market, SSECI Correlation with the DJIA, correlation and beta coefficients of DJIA against the SSECI relationship between the SSECI and the DJIA. However since SSECI's beta is very small, which means regardless of which way the DJIA moves, SSECI almost remains unchanged therefore, it would appear from the data that the impact of the Shanghai stock market should be insignificant with respect to Wall Street (Huang & Bacon, 2009). This means that there is no relationship between the variables that they are investigating. The researchers have used null hypothesis because they are unable to prove that their hypothesis regarding herald mentality is true, but what they are able to state is that the null hypothesises are incorrect, and by excluding these there should be a relationship of some sort.

Main Hypothesis

The final and core hypothesizes is that the 27th of February, 2007 phenomenon between Shanghai and Wall Street may be attributed to herd mentality (Beach and Clarence, 2005). Although the authors do not provide the reader with any previously occurred examples regarding herald mentality. Huang and Bacon's findings have commanded more faith and credibility when in the recent past the same results were evolved in several other occasions but on different set of data which has ensure the scientific nature of the research and therefore more confidence can be placed in the research findings. This also eliminates the doubt that the hypothesis is supported by chance and ensures that the findings reflect the true state of affairs. Therefore they have proposed a logical explanation for an observable phenomenon and as a scientific hypothesis it can be tested because there is some real hope of deciding whether it is true or false of real experience. This hypothesis, involves two components: first the logical property that is counterexamples to the hypothesis are logically possible, and secondly the practical feasibility of observing a reproducible series of such counterexamples (Hair, Wolfinbarger, Money, Samouel and Page, 2011).

Limitations

The researchers identified the limitations of the study, they have pointed out that since china's economic reform is unique. Fueled by its fast growing economy, using past patterns or trends to predict the future of China's financial market requires further research as its stock market emerges. The authors also discuss the appropriate practical implications.

Conclusion of the Research

Even though the data is rich it does not answer to the research question, in terms of what could have caused the event in 2005, the alternative hypotheses have been ruled out by the results as it has been established before. However by out ruling these alternative scenarios they narrowed down to presumably the actual reason that stood behind the research problem thereby suggesting a clear and defensible answer to the research question. The findings are presented in a graph and tablets, to make it easier for the readers to understand what has been found and how these outcomes link together. As it has been mentioned in the alternative hypotheses section of this critical report the conclusion is built upon the interpretation of the data and it fit very well with the discussion and final hypotheses (Connors and Hayward, 1995). Although the structure of the paper is uneven since the authors spend a lot of time explaining what hypothesizes are not working and not much time on actually explaining why the hypothesis regarding the herald mentality might do work.

Conclusion

In conclusion the article "Can the US stock market be Shanghaied?" by Yi-Jer Huang, Frank W. Bacon published in 2009 in the Management Research News is mainly intended for professionals in the investment industry however it is easy to understand as the report does not require a strong professional knowledge base to understand the content. Although they have briefly explained the background of the Chinese stock market which is an essential knowledge for non-expert readers to understand the circumstances, some prior knowledge of the subject would be beneficial and help the reader gain a better understanding of the article. As they state in the research paper that clearly, a better understanding of the influence of China's emerging stock market on the global stock market offers significant value to portfolio managers worldwide. The writing style suits the non-expert, non- academic audiences however it can be very beneficial as mentioned before for both experts and academics.

The discussion was relevant, stayed related to the main topic of the conversation. They avoided being obscurity of expression, ambiguity and last but not least they were brief to complexity. It should be noted that this research article is an 'applied research" reference on the subject of management and stock market. It offers, a good and in most cases a clear insight on the subject, it does not cover all relevant issues and the reader would be advised to explore other areas mentioned within the article to further their knowledge. Recommendations for how the text can be improved in terms of ideas, research approach have been discussed in the main body. Although future researches should be validate and expand on the original research to deliver an even more precise hypothesis.

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