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1 – 10 of over 5000In this chapter we provide analytical and Monte Carlo evidence that Chow and Predictive tests can be consistent against alternatives that allow structural change to occur at…
Abstract
In this chapter we provide analytical and Monte Carlo evidence that Chow and Predictive tests can be consistent against alternatives that allow structural change to occur at either end of the sample. Attention is restricted to linear regression models that may have a break in the intercept. The results are based on a novel reparameterization of the actual and potential break point locations. Standard methods parameterize both of these locations as fixed fractions of the sample size. We parameterize these locations as more general integer-valued functions. Power at the ends of the sample is evaluated by letting both locations, as a percentage of the sample size, converge to 0 or 1. We find that for a potential break point function, the tests are consistent against alternatives that converge to 0 or 1 at sufficiently slow rates and are inconsistent against alternatives that converge sufficiently quickly. Monte Carlo evidence supports the theory though large samples are sometimes needed for reasonable power.
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Bassem M. Hijazi and James A. Conover
We examine the empirical relationship between direct equity agency costs measures and corporate governance control mechanisms to control equity agency costs. We measure the three…
Abstract
We examine the empirical relationship between direct equity agency costs measures and corporate governance control mechanisms to control equity agency costs. We measure the three direct agency cost proxies commonly used in the literature: the operating expense; asset turnover; and selling, general, and administrative (SGA) ratios. Internal corporate governance control mechanisms examined are inside ownership (IO), outside ownership concentration (OC), the size of the board of directors (BODs), and the composition of the BODs (proportion of nonexecutive (NE) directors and separation of chief executive officer (CEO) and board chair). The external corporate governance control mechanism examined is the size of bank debt (short-term debt). Univariate and multivariate tests reveal that the only statistically significant relationship between corporate governance control mechanisms and direct equity agency cost measures is the negative relationship between the proportion of IO and direct agency costs. The asset utilization ratio (asset turnover) ratio is the best proxy for direct equity agency costs and can be useful for event studies of announcement period excess returns.
Estimates of the UK demand for money function are obtained utilising the Box‐Cox family of power transformations based on a Bank of England adjusted data set for the period 1963I…
Abstract
Estimates of the UK demand for money function are obtained utilising the Box‐Cox family of power transformations based on a Bank of England adjusted data set for the period 1963I — 1979IV. The functions are subjected to functional and structural stability testing with careful consideration of the resulting error structure. First‐order autocorrelation problems are encountered in the narrow money series Ml and attempts to consider a more flexible dynamic structure are investigated.
Omid Sabbaghi and Navid Sabbaghi
This study aims to provide one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis.
Abstract
Purpose
This study aims to provide one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis.
Design/methodology/approach
Using the Morgan Stanley Capital International (MSCI) country indices as proxies for national stock markets, the study conducts a battery of econometric tests in assessing weak-form market efficiency for the developed markets.
Findings
The inferential outcomes are consistent among the different tests. Specifically, the study finds that the majority of developed markets are weak-form efficient while the USA is the sole equity market to be commonly diagnosed as weak-form inefficient across the different tests when using full period data spanning the January 2008-November 2011 period. However, when basing the analysis on one-year subsamples over the identical time period, this study fails to reject weak-form market efficiency for all of the developed markets and presents evidence consistent with the Adaptive Market Hypothesis as described by Urquhart and Hudson (2013). When applying technical analysis for the case of the USA over the full study period, the results indicate that the return predictabilities can be exploited for some horizon of variable length moving average (VMA) trading rules.
Originality/value
This study provides one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis using an extended set of econometric tests. The study contributes to the existing body of empirical research that formally assesses the impact of a financial crisis on stock market efficiency and underlines the significance and relevance of examining market efficiency through subsample analysis.
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Trupti Upadhyay and Subhankar Parbat
Vietnam is a land that has seen turbulent past and has faced huge damage as being a land for proxy war between the USA and the USSR, but yet it has risen and liberated itself out…
Abstract
Vietnam is a land that has seen turbulent past and has faced huge damage as being a land for proxy war between the USA and the USSR, but yet it has risen and liberated itself out by adapting renovation or Doi-Moi as it is formally called in Vietnam. The purpose of this chapter is to identify the major impact of trade liberalization and trade integration on the Vietnamese economy. Through this chapter we have tried to bring out the changes that took place in the Vietnamese economy post liberalization. The structural change that took place in the Vietnamese economy due to liberalization is analyzed in this chapter. We have used paired sample T-test and Chow Test (F-Test) to observe the change as Vietnam joined the WTO. The effect that the various policy and FTA that Vietnam had after joining the WTO will be analyzed through this chapter.
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Abdinur Ali Mohamed and Ahmed Ibrahim Nageye
The purpose of this study is to measure the effect of land degradation and the environmental changes on agricultural productivity in Somalia, as well as the other factors that…
Abstract
Purpose
The purpose of this study is to measure the effect of land degradation and the environmental changes on agricultural productivity in Somalia, as well as the other factors that affect crop production in Somalia.
Design/methodology/approach
Cobb-Douglas production function assumes crop production as a dependent variable and land degradation, labor, capital, fertilizer and climate change as the explanatory variables. In this study time-series data (1962–2017) collected from the Food and Agriculture Organization and World Development Indicators were used. The unit root of the data was examined using Ng-Perron and the Lee-Strazicich methods to explore the unit root property of the breaks. Structural breaks are observed using the Chow test, and the long-run relationship between the variables is examined using Gregory and Hanssen's approach.
Findings
This study found that land degradation and climate change have a negative relationship with agriculture production in Somalia. Land degradation leads to the decline in agricultural production as the loss of one hectare of land due the depletion causes agriculture production of Somalia to fall by about five percent. Climate changes and warming of the environment lead to the reduction of agriculture production. One degree Celsius rise in the temperature leads to a three percent decline in agricultural production. Capital contributes immensely to agricultural production as one unit of additional capital raises production by seven percent. The contribution of labor to agricultural production is limited because of land contraction
Practical implications
Land degradation is a significant contributor to the decline of agricultural production. As land degradation continues to worsen, rural poverty increases, which in turn causes the rural migration and the social conflict. The government should develop land improvement programs such as increasing market orientation of the farmers, encourage private sector engagement in agribusiness and establish a regulatory framework of the land uses.
Originality/value
This study examines the structure of the time-series and specifies the break periods to determine when and where significant and sudden changes occurred within land degradation and agricultural production. The study employs advanced econometric methods, namely, Ng-Perron method and the Lee-Strazicich method to test the unit root property of the breaks. It also examines the long-run relationship between the variables using Gregory and Hanssen's approach.
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Abu Taher Mollik and M. Khokan Bepari
The purpose of this paper is to examine the nature and extent of instability of capital asset pricing model (CAPM) beta in a small emerging capital market.
Abstract
Purpose
The purpose of this paper is to examine the nature and extent of instability of capital asset pricing model (CAPM) beta in a small emerging capital market.
Design/methodology/approach
Inter‐period as well as intra beta instability are examined. Inter‐period instability is examined by Mann‐Whitney z‐scores and Blume's regressions. Intra‐period beta instability is examined using Bruesch‐Pagan LM test and Chow break point test. Robustness tests are performed applying time‐varying parameter models.
Findings
Beta instability increases with increase in holding (sample) periods. There is evidence of inter‐period as well as intra‐period beta instability. Analysis of the full eight‐year interval reveals a very high incidence of beta instability, namely, about 26 per cent of the individual stocks tested and about 31 per cent of individual stocks have structural break. The extent of beta instability does not significantly decline when corrected for non‐synchronous trading and thin trading as represented by Dimson beta. However, the extent of beta instability is similar to that of developed market. Time‐varying parameter model under Kalman filter approach using AR(1) specification performs better than any other models in terms of in‐sample forecast errors. Dominance of AR(1) approach suggests that stock betas in DSE are time varying, and shocks to the conditional beta have some degree of persistence which ultimately reverts to a mean. This result is in contrast to the findings of Faff et al. revealing the dominance of Random Walk specification in Australian market, suggesting that shocks to stock beta in Australian market persist indefinitely into the future. These contrasting findings may indicate that beta instability in different markets and for different stocks in the same market are of different nature and different models may be suitable for different markets and different stocks in the same market in capturing the time‐varying nature of beta coefficients.
Research limitations/implications
This study covers only 110 stocks of Dhaka Stock Exchange. It can be extended to include more stocks. The study can also be done in other developing markets.
Originality/value
While the issues of beta instability have been extensively explored for developed markets, evidence for emerging markets is less readily available. The present study contributes to the emerging market literature on beta instability by investigating the extent of beta instability and its time‐varying properties in Dhaka Stock Exchange (DSE), Bangladesh. Understanding the systematic risk behaviour of individual stocks in DSE is important for both local and international investors. With the saturation of investment opportunities in developed markets due to their high integration, and with the enhanced deregulation and liberalization of emerging economies, emerging financial markets like DSE provide suitable and a relatively safe investment environment for international investors and fund managers seeking global diversification for better risk‐return trade‐offs. When most of the world markets declined during the recent global financial crisis, stock prices in DSE experienced a continuous rise. This makes it more interesting as an emerging market to study beta instability.
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Giacomo Morri and Federico Romito
Listed real estate securities have historically been used to achieve an exposure to the real estate asset class and to obtain a broad spectrum of other specific features such as…
Abstract
Purpose
Listed real estate securities have historically been used to achieve an exposure to the real estate asset class and to obtain a broad spectrum of other specific features such as return enhancement, but whether they must be associated to the direct property or to the broad stock market is deceptive on a merely theoretical basis. Moreover, the global financial crisis (GFC) has questioned their risk/return characteristics. The purpose of this paper is to asses if listed real estate securities are still enough dissimilar from the broad stock market to provide remarkable diversification benefits for a long term investor.
Design/methodology/approach
The analysis has been developed on the FTSE EPRA/NAREIT Developed Index and at country level (USA, UK, France, Japan, Singapore, Hong Kong and Australia) from November 2001 to October 2013. The authors analysed the real estate index over a broad market index and adjusted for a possible bias related to heteroskedasticity and autocorrelation, using a least squared regression with Newey-West HAC Correction. A Recursive Least Squares (RLS) was also used to test the stability of the parameters with the CUSUM squared test and the Chow test. Finally the authors tested for cointegration with the Augmented Dickey Fuller and the Engle Granger tests.
Findings
The authors found that after the GFC the Beta-risk related to the stock market has witnessed a sharp increase, but with differences among country. While the USA, the UK and France have experienced a trend similar to the one described for the FTSE EPRA/NAREIT Developed Index, Asian Markets depict a quite stable Beta over the full sample (gradual increase for the Australian market). Evidence of a structural break in conjunction with 2008 crisis has been found only in USA, UK and France.
Practical implications
Listed real estate securities, even if characterised by time varying Beta-risk and partially reduced diversification benefits, are still worth to be included in long term horizon portfolios. However, more wary considerations should be drafted before investing in the Asian markets where evidence of cointegration was found only for the Japanese market.
Originality/value
Analysis of post GFC effect on direct property investment vs indirect listed investment worldwide.
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To examine the existence of underwriting cycles for the property‐liability insurance industry as a whole, and by line of business. Specifically to consider whether the combined…
Abstract
Purpose
To examine the existence of underwriting cycles for the property‐liability insurance industry as a whole, and by line of business. Specifically to consider whether the combined ratio is stationary and stable.
Design/methodology/approach
The augmented Dickey‐Fuller (ADF) test is employed for unit roots, while dummy variable methods, the Chow test, and switching regression are used for stability.
Findings
Underwriting profits of most lines of business and all lines combined are not stationary and have structural changes. For the whole property‐liability industry, a structural change occurred in 1981. Before the change, underwriting cycles existed since combined ratios followed an AR(2) process. After the change, combined ratios are non‐stationary.
Practical implications
Without clear underwriting cycles, there is more difficulty for the insurance industry in pricing and reserving, for regulators in monitoring the financial strength of insurers, and for customers in terms of the affordability and availability of insurance.
Originality/value
The paper recognizes the non‐stationarity of combined‐ratio series, years of structural changes in the insurance industry and specific lines of business, and the possibility that underwriting profit is cointegrated with investment income.
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Mike Fletcher, Paul Gallimore and Jean Mangan
This paper is concerned as to whether it is more appropriate to use aggregate or disaggregate models in forecasting house prices using hedonic modelling. It is accepted that the…
Abstract
This paper is concerned as to whether it is more appropriate to use aggregate or disaggregate models in forecasting house prices using hedonic modelling. It is accepted that the implicit pricing of some of the attributes is not stable between locations, property types and ages but it is argued that this can be effectively modelled with an aggregate method. The models are developed using a dataset of nearly 18,000 transactions in the UK Midlands region in 1994. The comparative performance of these models is then considered using two approaches. Chow tests of the error differences between actual price and the price predicted by the models suggest that the submarket models lead to statistically significant, though small, improvements. A second approach, using comparison of the root mean square errors, is conducted on the models’ forecasts for a 10 per cent sample of nearly 2,000 transactions excluded from the modelling process. This shows little practical difference in the forecasting ability between the two approaches. Great care needs to be taken over sample size if a disaggregate model is used.
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