| Past Journals 2 of 4 |
 |
Volume 7 Number 1 Spring 1996Founding Editor CONTENTS / CONTRIBUTORS Volume 7 Number 2 Fall 1996Founding Editor Published in collaboration with Craig School of Business Volume 8 Number 1 Spring/ Summer 1997 Published in collaboration with Craig School of Business California State University, Fresno, by Volume 8 Number 2 Fall/Winter 1997 (Index Issue) Published in collaboration with Craig School of Business CONTENTS
Global Financial Challenges for the New Millennium…………………………………… The paper highlights contemporary challenges in financial-economics globally and outlines new challenges that the global financial community is faced with as the 20th Century comes to an end. Such challenges include global debt crises of Latin America, East Asia, and Russia. Other challenges include the EMU and EURO, the impact of technology such as the Internet and E-Commerce, global consolidations; mergers and acquisitions and strategic alliances, regionalization, trading blocs and globalization of markets and instruments especially derivatives and various forms of financial engineering, global distribution of income, and other ecological issues with financial implication for the global community. Combining Foreign Exchange Rate Forecasts Using Neural Networks . . . . . . . . . . . . . . . Thomas H. Lubecke, Kyung Doo Nam, Robert E. Markland, and Chuck C.Y. KwokThis study applies the neural network approach, a new methodology modeling living nervous systems, to composite foreign exchange forecasting. Using this methodology, econometric, judgmental, technical and forward rate forecasts are combined to form composite forecasts, which are evaluated against the forecasts of seven other forecasting models. The results indicate that, in terms of accuracy, the neural network model performs the best. However, in terms of correctness, it is second to the regression model. Nonetheless, in three out of five currency cases, its forecasts have percentages of correctness significantly better than the 50% of random guessing. An Empirical Examination of Currency Futures Options Under Stochastic Interest Rates The objectives of the study are to empirically examine the impact of stochastic interest rates on currency futures option valuation and to compare the pricing accuracy of a stochastic interest-rate model with a constant interest-rate model in currency futures option valuation. First, the price estimates from the Black (1976) futures option pricing model and from the Hilliard, Madura and Tucker (1991) stochastic interest-rate model (HMT) are compared with the actual observed currency futures option values provided by the Records Retention Department of the Chicago Mercantile Exchange (CME) during the period January 1, 1991 to December 31, 1992 by paired-comparison t-tests. T-test results indicate significant pricing errors of both the stochastic and constant interest-rate models in estimating option values during the sample period. Second, regressions of pricing errors on selected state variables are conducted to investigate the nature of bias. Regression results suggest the moneyness bias, maturity bias, and volatility bias in both models. The results of the study show that the stochastic interest-rate model does not out-perform the constant interest-rate model in valuing call options for the overall sample. However, supporting Hilliard et al. (1991) and Bailey (1987), the stochastic-rate model performs better than the constant-rate alternative for long maturity calls and when the interest rate fluctuates significantly or when the underlying asset correlates with the interest rate as in the case of the British Pound. Gautam Goswami and Milind M. ShrikhandeThe interest rate swap market has grown rapidly. Since the inception of the swap market in 1981, the outstanding notional principal of interest rate swaps has reached a level of $ 12.81 trillion in 1995. Recent surveys indicate that interest rate swaps are the most commonly used interest rate derivative by nonfinancial firms and that nonfinancial firms are major users of interest rate swaps. In this paper, we provide an economic rationale for the use of interest rate swaps by such nonfinancial firms. In a global economy, given the floating exchange rate regime, nonfinancial firms face economic exposure in the presence of foreign competition. Asymmetric information about economic exposure leads to mispricing of the firms' debt, and the firm chooses either short-term or long-term debt to minimize the cost of debt. We show that when there is a favorable (unfavorable) exchange rate shock, an exposed firm chooses short-term (long-term) debt together with fixed-for-floating (floating-for-fixed) interest rate swaps. Given interest rate expectations, interest rate swaps enable the firm to minimize the cost of fixed or floating rate debt. Causal Relations Among Stock Returns, Inflation, Real Activity, and Interest Rates: Evidence From Japan . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . Mohammad Najand and Gregory NoronhaThe negative relationship between common stock returns and inflation in several countries is well documented. However, the specific relationship between stock returns and inflation as well as the direction of causality is still an unresolved issue. Attempts to resolve this issue have included factors such as real activity and interest rates. Utilizing state space modeling, this paper examines causal relations among stock returns, inflation, real activity, and interest rates for Japan during 1977-1991. Major findings are (1) inflation appears Granger-causally prior and helps explain negative stock returns, (2) consistent with Fama's proxy hypothesis, inflation anticipates real activity, and (3) inflation predicts interest rates. Lender Identity and Borrower Returns: The Evidence From Foreign Bank Loans to U.S. Corporations . . . . . . . . . . . . . . . . . . . . . . We confirm and extend prior research which indicates that lender identity, particularly the credit rating of the lender, affects borrower returns from loan agreement announcements. We find that loans to U.S. corporations by foreign lenders result in significant increases in the value of the borrower’s equity; contrary to prior research, however, loans by domestic lenders do not. These results are robust to the syndication characteristics of the loans. Market responses also appear to be a function of the terms of the loan. Capital Market and Political Factors Affecting Hong Kong Mergers and Acquisitions in the U.S.: 1975-1994 . . . . . . . . . . . . . . . . . . . . . . . Chandra S. Mishra, Daniel L. McConaughy, and Alice D. ClementsThis article examines capital market and political factors affecting the level of acquisitions in the U.S. by firms in a much smaller country, Hong Kong. The analysis suggests that capital market factors which can affect the cost of capital for Hong Kong-based MNCs, are related to their acquisitions of U.S. assets: A weaker U.S. dollar is associated with more acquisitions by Hong Kong firms; a rising U.S. stock market encourages Hong Kong investors; and lower interest rates in the U.S. are associated with more acquisitions in the U.S. because of the lower costs of raising funds. Further, increased political risk in Hong Kong is associated with increased FDI activity in the U.S. Finally, lagged variables are significantly associated with foreign takeover activity, reflecting the length of the planning and negotiations that are associated with acquiring foreign assets. Corporate Governance and the Fragility of Banking Systems in Developing Countries: An Analysis of a Credit Market in Ghana . . . . . . . . . . . . . . . . . The authors examine the relationship between governance structure and credit risk at rural banks in Ghana. The results show that loan default rates vary according to the type of manager. Loan officers with ties to the local community have higher default rates than outside advisors who are divorced from the local information network. Hence, less informed managers have higher quality loan portfolios. This result suggests that agency costs that arise from familiarity dominate any benefits associated with higher quality information. The management team should include at least one outside, objective manager, who is closely linked to the Central Bank. Another Look at Corporate Ownership in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Richard L. Constand and R. Daniel PaceThis paper reexamines the structure of corporate ownership in Japan and provides additional information beyond that provided in past research. While past research provides valuable insight into understanding the Japanese market, the keiretsu structure is more complex than typically presented. Past studies usually classify firms as either independent or keiretsu affiliated. There are, however, different types of keiretsu structures. This study classifies Japanese firms into either horizontal keiretsu, vertical keiretsu, or an independent firm classification. Statistical tests presented provide evidence of different ownership and corporate governance structures across different shareholder groups and across keiretsu group affiliation status. The paper also extends previous work through the inclusion of a "Japanese corporate amenity potential" proxy that has not been examined in other empirical studies and examines broader measures of shareholder control then past research, such as aggregate affiliate ownership by both corporate and financial institution shareholder classes.
GLOBAL FINANCE JOURNAL Founding Editor, Manuchehr Shahrokhi CONTENTS International Ownership Structure and the Firm Value The Latin American Foreign Debt Revisited Cointegration, Forecasting and International Stock Prices Model Selection for Causal Models: The Global Procedure with AICs and AICu Causal Relations Among Stock Returns and Inflation: Persistence of International Mutual Fund Performance On The Relationship Between Stock Returns and Exchange Rates: Tests of Granger Causality A Global Perspective of P/E Ratio Determinants: The Case of ADRs A Note on Accounting Exposure and the Value of Multinational Corporations GLOBAL FINANCE JOURNAL CONTENTS
Nonlinear Dynamics In Foreign Exchange Rates…… . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Arvind Mahajan and Andrew J. WagnerThis paper investigates whether the behavior of real and nominal foreign exchange rates as well as interest rates are governed by nonlinear dynamics; it also explores whether observed deviations from parity conditions exhibit nonlinear dependence. Standard statistical tests for randomness such as autocorrelation tests, have low power against a large class of deterministic, nonlinear processes. Discerning non-randomness of innovations in exchange rates is important for a variety of reasons. For example, many models of international asset pricing assume exchange rates to follow a random walk. Furthermore, nonlinear patterns in deviations from various exchange rate parities have implications for the existence of a time varying foreign exchange risk premium. Using the BDS statistic and a correlation dimension analysis, this paper’s primary findings are that a) foreign exchange markets have become increasingly complex and therefore less amenable to forecasting over time; b) while forward exchange risk premia are statistically significant and display a deterministic structure, this structure is complex and therefore, not easily discernible; and c) innovations in real exchange rates are consistent with a PPP equilibrium. Interest Parity, Fractional Differencing, and the Strength of Attraction: This article discusses the strength of attraction in the cointegration of foreign exchange futures prices and their own cash prices under a cost-of-carry futures pricing model. The memories of the residuals in cointegration regression are analyzed using fractional cointegration of Cheung and Lai (1993) and the data-tapered method of Hurvich and Ray (1995) with fractional-difference time series models. The investigation includes the foreign exchange futures and cash prices of Swiss franc, Japanese yen, Deutsche mark, and British pound. Although the empirical results indicate the existence of cointegration for the foreign exchange futures and cash prices, the strength of attraction is relatively weak. An Empirical Examination Of The Effect Of Dividend Taxation On Asset Pricing And Returns In Germany. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . ……………………………. This research finds evidence that required pretax returns on German stocks are unchanged as a result of the enactment of a law in Germany providing shareholders with tax credits for dividends received. In the most recent time interval, higher risk‑adjusted pretax returns are discovered on high‑yielding German stocks. These findings imply that the effect of the tax credits has been more than offset by other factors. Cross-Border Transmission of Stock Price Volatility: Jin-Gil JeongUsing high frequency (five-minute returns) data, we investigate the transmission pattern of intraday volatility among three international stock markets, i.e., the U.S., U.K., and Canada, during their overlapping trading hours (9:30-11:30 a.m. New York time). The major findings are as follows. First, the conditional variance of a domestic market is affected not only by the volatility surprises of its own market, but also by those of foreign markets. This finding holds for the U.S. as well as for Canada and the U.K., implying that the information contained in the volatility surprises of each national market is clearly transmitted to other national markets. The volatility spillover is not unidirectional. Second, the magnitude of volatility spillover does not decrease monotonically as the lag length increases, indicating that the impact of a foreign volatility shock on the conditional variance of the domestic market tends to persist. Cointegration And Causality Between Macroeconomic VariablesAnd Stock Market Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .Chung S. Kwon and Tai S. Shin
The purpose of this study is to investigate whether current economic activities in Korea can explain stock market returns using a cointegration test, and a Granger causality test from a vector error correction model. This study finds that the Korean stock market reflects macroeconomic variables on stock price indices. The co-integration test and the vector error correction model illustrate that stock price indices are cointegrated with a set of macroeconomic variables, i.e., the production index, exchange rate, trade balance, and money supply, which provides a direct long-run equilibrium relationship with each stock price index. However, the stock price indices are not a leading indicator for economic variables which is inconsistent with the previous findings that the stock market rationally signals changes in real activities. The No-Arbitrage Condition and Financial Markets with Transaction Costs and Heterogeneous Information: The Bid-Ask Spread . . . . . . . . . . . . . . . . . This paper investigates the implications of the no-arbitrage (NA) condition in markets with transaction costs and heterogeneous information. Dermody and Prisman (1993) have shown that in financial markets with increasing marginal transaction costs the NA condition is equivalent to the existence of a valuation operator. They explore the exact dependence of this operator on the structure of transaction costs. They show that equilibrium prices in the “corresponding” perfect markets plus a certain factor determine the valuation operator in markets with increasing marginal transaction costs. This paper emphasizes that their result is applicable to financial markets with decreasing marginal transaction costs. Furthermore, this paper shows that in financial markets with transaction costs and heterogeneous information, the NA condition imposes a constraint on the bid-ask spread. Seasonality In Returns On The Chinese Stock Markets: Rajen Mookerjee and Qiao YuThis paper investigates seasonal patterns in stock returns on the Shanghai and Shenzhen stock markets. The paper documents several interesting findings. First, unlike studies for other stock markets the highest daily returns on both exchanges occur on Thursday rather than Friday. Second, price change limits exert an effect on the observed daily pattern of returns. Third, daily stock returns appear to be positively correlated with risk. This result is at odds with the majority of findings for other stock exchanges around the world. Finally, the paper documents other differences in seasonal patterns on the two exchanges. Competitiveness and The Convergence of International Business Practice: North American Evidence After NAFTA…………………………… . . . . . . . . . . . . . . . . . . One of the economic implications of globalization is increased competition. As competition in product markets increases, inefficient strategies are eliminated and successful practices are imitated by competitors. A source of globalization pressure is the reduction of trade barriers which previously protected some domestic sectors. In addition, globalization has also coincided with investors becoming more aware of foreign investment opportunities which directly compete with domestic demands for capital used in production. The increased global competition in both product and financial markets thus has the effect of defining “good” business practices as those that survive and prosper in the global economy. The hypothesis of a trend toward commonality of business practices is tested. As international competition in both product and financial markets increases, business practices should converge in the sense that acceptable deviations from the (unobservable) optimum decrease. Empirically, operating ratios, such as total asset turnover and inventory turnover, profitability ratios such as return on equity, and growth opportunities should converge to a common level. Using a sample of North American firms over the 1990 to 1995 period, evidence of convergence in real asset management is presented. In addition there is no difference in profitability by country which supports capital market integration. This result suggests that 1) the NAFTA accord has economic substance, and 2) gains to corporate international diversification within North America are decreasing.
GLOBAL FINANCE JOURNAL CONTENTS
The Market-Adjusted Investment Performance of ADR IPOs and SEOs. . . . . . . . . . . . . .Anandi P. Sahu, Joseph H. Callaghan and Robert T. Kleiman Initial public and seasoned equity offerings of ADRs yield significantly positive market-adjusted returns both in early trading and over the longer run. This is in sharp contrast with the long-term performance of IPOs and SEOs of common stocks in general. In addition, ADRs from emerging markets outperform those originating from developed countries, and those listed on the New York Stock Exchange generate higher after market returns than those trading on the AMEX or NASDAQ. The Impact of Listing Latin American ADRs on the Risk and Return of the Underlying Shares This paper examines the risks and returns of Latin American stocks following American Depository Receipt (ADR) listings in US equity markets, and finds no systematic change in their volatility. This finding differs from previous results for ADR introduction on European and Asian stocks, although it is consistent with several prior findings on international stock listings. Importantly, it supports the predictions of Domowitz, Glen and Madhavan's (1998) model of international cross-listings. This model predicts that the effects of such listings will differ across stocks because the net effect reflects the specific trade-off for each individual stock between benefits of enhanced inter-market competition and costs stemming from diversion of information-linked orders out of the domestic market. Common stochastic Trends and Volatility in Asian Pacific Equity Markets . . . . . . . . . . . Ming- Shiun Pan, Y. Angela Liu, Herbert J. RothThis paper uses Johansen's cointegration test and a modified cointegration test with GARCH effects to examine linkages between the U.S. and five Asian-Pacific stock markets (Australia, Hong Kong, Japan, Malaysia, and Singapore) during 1988-1994. The modified cointegration test with GARCH effects is used to assess whether these stock price series share common time-varying volatility. The results indicate that the six stock markets are highly integrated through the second moments of stock returns, but not the first moments. The Determinants of Secondary Market Prices For Developing Country Loans: The Impact of Country Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Harri RamcharranWith better-defined variables based on the Euromoney country risk data as explanatory variables, we estimate the determinants of the prices of LDCs’ debts in the secondary market. Using cross section data on 27 countries for the years 1992, 1993 and 1994, the regression results indicate that sovereign credit ratings is the most important variable influencing prices; other significant variables include the level of external indebtedness and the amount of debt in default. Separate results have been obtained for each of the two categories of countries grouped according to the level of economic development. These results are more meaningful than those of the previous studies because the model includes, in addition to debt servicing capacity, other variables that best explain the prices of LDCs’ debt within the context of a risky debt instrument Empirical Analysis of Real and Financial Volatilities on Stock Excess Returns: Evidence from Taiwan Industrial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . This paper tests the relationship between stock excess returns and risk factors measured by volatility. The sources of the volatility are based on the volatility of macroeconomic factors and time series volatility. To modeling the macroeconomic fundamentals, we divide the risk into real and financial volatilities pertinent to Taiwan’s economic environment. By examining the data of industry excess returns and market excess returns, we find evidence to reject the hypothesis that the stock excess returns are independent of the real and financial volatilities Re-examining the Small-Cap Myth: Problems in the Portfolio Formation & Liquidation Mark D. Griffiths, D. Alasdair S. Turnbull and Robert W. WhiteThis study investigates the realizable returns on portfolios at the turn-of-the-year. Using an intra-day simulation that accounts for the volumes offered/wanted at market bid-ask prices, large‑capitalization securities significantly outperform small-capitalization securities by 2.4 percent and 6.5 percent, depending on whether the portfolios were formed on the last day of the taxation year or were formed over the last month of the trading year. In no one year, could the small-capitalization portfolio be completely divested by the end of the holding period suggesting that investors are not remunerated for the illiquidity in this portfolio. Results based upon returns calculated using the mean of the bid‑ask spread show that the results are not derived solely from transaction costs. Overreaction in the Hong Kong Stock Market. . . . . . . . . . . . . . . . . . . . . . . . . . . Overreaction reported in the equity markets of the U.S., Spain and Brazil is also observed in the Hong Kong stock market. The “loser” portfolios of the 33 stocks in the Hang Seng Index (HSI), on average, outperform the “winner” portfolios by 9.9% one year after the formation periods. Besides the importance of the Hong Kong market in international investment, this paper is unique in some special features related to the overreaction study. Hong Kong has markets for index futures and stock futures. Only three stocks are used in the portfolios. All the stocks in the HSI have large market capitalization, liquidity, and can be shorted with no up-tick rule. Unlike other studies in international stock markets, the “arbitrage” portfolio of buying the loser portfolio and shorting the winner portfolio can actually be formed with minimum cost and easy execution. These make the overreaction phenomena in this study very powerful. Mean Reversion and the Forecasting of Country Betas: A Note . . . . . . . . . . . . . . . . . . . . . Michael Gangemi, Robert Brooks, and Robert FaffBlume (1971 & 1975) found individual equity betas to have a “regression” tendency towards the grand mean of unity. His original results have been widely accepted to the extent that a literature has developed on applying Bayesian techniques to beta estimation so as to adjust for mean reversion. The more recent literature has focused on risk estimation and the applicability of asset pricing models in the international finance setting where the focus has been on the aggregate country level risk. Given the increasing popularity of country beta models an interesting but, as yet, unexplored issue is whether aggregate country betas display mean reversion tendencies similar to that found for individual company betas. The examination of this issue is the central aim of the current paper. In short, this analysis reveals strong evidence of mean reversion of country betas, similar to that documented in the single country setting in the existing literature.
GLOBAL FINANCE JOURNAL Founding Editor MANUCHEHR SHAHROKHI California State University, Fresno CONTENTSPacific Basin Stock Markets and International Capital Asset Pricing ModelYin-Ching Jan, Peter Shyan-Rong Chou, Mao-Wei Hung Integration of Libor and Treasury Bill Yields Over Different Monetary Regimes The Determination and International Transmission of Stock Market Volatility The Contrarian/Overreaction Hypothesis: An Analysis Of The U.S. And Canadian Stock MarketsJohnathan C. Mun, Geraldo M. Vasconcellos, Richard Kish Market Efficiency, the Mexican Peso Crisis and U.S. Bank Stock Returns: An Application of the Event Parameter Method Long-Run Purchasing Power Parity, Prices and Exchange Rates in Transition: The Case of Six Central and East European Countries Atanas Christev, Abbas NoorbakhshCurrency Futures, News Releases, And Uncertainty ResolutionRohan Christie-David, Mukesh Chaudhry The Interaction and Volatility Asymmetry of Unexpected Returns in the Greater China Stock MarketYin-Hua Yeh, Tsun-Siou Lee Published in cooperation with Craig School of Business California State University-Fresno by ELSEVIER SCIENCE B.V. CONTENTSPacific Basin Stock Markets and International Capital Asset Pricing Model ……………Yin-Ching Jan, Peter Shyan-Rong Chou, Mao-Wei Hung
In this paper, we follow Harvey (1991) to investigate whether rates of return on Pacific Basin stock markets can be explained by conditional version of International Capital Asset Pricing Model (ICAPM), which allows for time-varying expected returns, variances and covariances. The results show that most individual Pacific Basin markets can be described by the conditional ICAPM. However, the multiple markets’ tests do support the conditional ICAPM formulation, and the estimates of world reward to risk ratio are not the same across these markets. Furthermore, the Ghysels and Hall (1990a, b) test shows that the estimates of parameter are also unstable in the conditional ICAPM formulation. This implies that it is difficult to use world return to describe the relationship between expected return and risk for the Pacific Basin stock markets. Integration of Libor and Treasury Bill Yields Over Different Monetary Regimes……….. John M. Clinebell, Douglas R. Kahl, Jerry L. StevensIn this paper tests are conducted for cointegration and Granger’s causalilty relationships between monthly yields on 90-day maturities for LIBOR and Treasury bills. Unlike prior studies, there is no evidence of increased integration between LIBOR and Treasury bill yields over time. Findings in this study suggest that tests of integration of global dollar markets are sensitive to sample periods and different monetary regimes. Integration relationships are strongest under interest rate target regimes and weakest under non-borrowed reserve regimes, as predicted. Under the current regime of borrowed reserve targets, a hybrid of money supply and interest rate targeting, LIBOR and Treasury bill yields are integrated to a lesser extent than under the interest rate target regime prior to 1979. The Determination and International Transmission of Stock Market Volatility……… Colm KearneyThis paper extends the literature on low-frequency analysis of the causes and transmission of stock market volatility. It uses end-monthly data on stock market returns, interest rates, exchange rates, inflation and industrial production for 5 countries (Britain, France, Germany, Japan and the United States) from July 1973 to December 1994. Efficient portfolios of world, European, and Japanese / US equity are first constructed, the existence of multivariate cointegrating relationships between them is demonstrated, and the transmission of conditional volatility between them is described. The transmission of conditional volatility from world equity markets and national business cycle variables to national stock markets is then modeled. Amongst the main findings are; first, world equity market volatility is caused mostly by volatility in Japanese / US markets and transmitted to European markets, and second, changes in the volatility of inflation are associated with changes of the opposite sign in stock market volatility in all markets where a significant effect is found to exist. To the extent that the volatility of inflation is positively related to its level, this implies that low inflation tends to be associated with high stock market volatility. The Contrarian/Overreaction Hypothesis: An Analysis of the U.S. and Canadian Stock Markets……………………………Johnathan C. Mun, Geraldo M. Vasconcellos, Richard Kish
The Contrarian/Overreaction Hypothesis implies simultaneously buying (long) previous losers and selling (short) previous winners in order to realize excess returns. The conventional wisdom is that extreme previous losers are undervalued due to investor overreaction possibly instigated by some adverse news and events. Given adequate time, previous losers will outperform the market. Conversely, the overvalued previous extreme winners will underperform the market in subsequent periods. This paper investigates the Contrarian/Overreaction Hypothesis as proposed by DeBondt and Thaler (1985, 1987) using a nonparametric methodology with a multifactor asset pricing model, within both the U.S. and the Canadian stock markets. Results from risk-adjusted, nonparametric, multifactor bootstrap-simulated estimates show that, for the U.S., short term and intermediate term contrarian portfolios yield significant excess returns above the market. For the Canadian market, the intermediate term contrarian portfolio works best.Market Efficiency, the Mexican Peso Crisis & U.S. Bank Stock Returns: An Application Osman Kilic, M.Kabir Hassan, David R. Tufte Long-Run Purchasing Power Parity, Prices and Exchange Rates in Transition: This paper presents empirical results on the hypothesis of long-run purchasing power parity (PPP) with respect to the exchange-rate regimes in six Central and East European countries. The analysis employs cointegration theory to examine the movements of prices and exchange rates in transition to a market economy. Our results are based on system estimation procedures developed by Stock and Watson (1993) and Johansen (1991). We find moderate evidence to support long-run equilibria, however, the cointegrating vector values do not yield to easy interpretation and violate the symmetry and proportionality conditions suggested by PPP. We provide an explanation for such behavior and find that it is consistent with the existing literature on transition and foreign exchange markets.
The Impact Of Industrial Structure On The Exchange-Rate Exposure Of Industry Portfolio ReturnsAnand krishnamoorthy The purpose of this paper is to demonstrate that industrial structure is an important determinant of the exchange-rate exposure of industry portfolio returns. A time series regression is conducted on the sample of industries by regressing the rate of change of a trade-weighted U.S. dollar index on the industry portfolio return while controlling for the U.S. market. The regression was conducted using monthly data over a three year period (1995-1997). The results indicate that industries that are classified as being globally competitive and those that primarily serve the consumer sector of the economy have significant levels of exposure. The paper also provides some evidence on market efficiency as it pertains to changes in the value of the dollar. The Interaction and Volatility Asymmetry of Unexpected Returns in the Greater China Stock MarketYin-Hua Yeh, Tsun-Siou Lee The response of investors to unexpected returns and the information transmission in the stock markets of the Greater China area are investigated in this study. Firstly, we analyze the asymmetric reaction of return volatility to good and bad news by utilizing GARCH model. We find that the impact of bad news (negative unexpected return) on future volatility is greater than the impact of good news (positive unexpected return) of the same magnitude in Taiwan and Hong Kong, consistent with the previous literature. However, just the opposite is found in the Shanghai and Shenzhen markets, implying good news chasing behavior of the investors. This phenomenon also indicates the behaviors of the investors in Mainland China may be inclined to support the trading noise hypothesis. Further, this study examines information transmission of contemporaneous and cross period by exploring the interaction of unexpected return among these four markets. The results of a near-VAR model reveal that the Hong Kong stock market plays a most influential role (regional force) among the Taiwan, Shanghai and Shenzhen B-Share stock markets. Finally, the stock returns in the Taiwan market, which has been quite independent of the Mainland China stock markets, became negatively correlated with the Shanghai B-Share market during the Taiwan Strait Crisis period. The interaction between financial markets seems to be strengthened by political incidents. |
Quick Links
Related Links
|
