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The purpose of this study is to introduce a matching function approach to analyze matching in financial reporting.
Abstract
Purpose
The purpose of this study is to introduce a matching function approach to analyze matching in financial reporting.
Design/methodology/approach
The matching function is first analyzed analytically. It is specified as a multiplicative Cobb-Douglas-type function of three categories of expenses (labor expense, material expense and depreciation). The specified matching function is solved by the generalized reduced gradient method (GRG) for 10-year time series from 8,226 Finnish firms. The coefficient of determination of the logarithmic model (CODL) is compared with the linear revenue-expense correlation coefficient (REC) that is generally used in previous studies.
Findings
Empirical evidence showed that REC is outperformed by CODL. CODL was found independent of or weakly negatively dependent on the matching elasticity of labor expense, positively dependent on the material expense elasticity and negatively dependent on depreciation elasticity. Therefore, the differences in matching accuracy between industries emphasizing different expense categories are significant.
Research limitations/implications
The matching function is a general approach to assess the matching accuracy but it is in this study specified multiplicatively for three categories of expenses. Moreover, only one algorithm is tested in the empirical estimation of the function. The analysis is concentrated on ten-year time-series of a limited sample of Finnish firms.
Practical implications
The matching function approach provides a large set of important information for considering the matching process in practice. It can prove a useful method also to accounting standard-setters and other specialists such as managers, consultants and auditors.
Originality/value
This study is the first study to apply the new matching function approach.
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This study demonstrates the contemporaneous correlation between return and the change of trading volume (CCRV) in the Korean stock market and analyzes the effect of trading volume…
Abstract
This study demonstrates the contemporaneous correlation between return and the change of trading volume (CCRV) in the Korean stock market and analyzes the effect of trading volume change on the return and its volatility of individual stocks. Also, we examine the underlying reasons for CCRV in the Korean stock market. The empirical analysis covers individual stocks listed in KOSPI and KOSDAQ and their portfolios from 1989 to 2015. The main results are as follows. First, the CCRV in the Korean stock market dominantly appears positive. Second, at the individual stock level, the daily return volatility induced by CCRV accounts for 4.22% of the total daily return volatility. Third, the return volatility induced by CCRV is largely offset by well-diversified portfolios. Lastly, the ratio of positive CCRV decreases in stocks with very high or very low liquidity. The above result suggests that the illiquidity premium hypothesis is appropriate in explaining CCRV in the Korean stock market. In addition, the above results also indicate that the changes of trading volume can act as an idiosyncratic risk factor that can additionally intensify or weaken the response of the return toward the news. Furthermore, these results suggest that a strategy with sufficient consideration for CCRV is essential for the stock price prediction, the valuation of derivatives, and portfolio management.
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This study aims to analyze the effect of change in trading volume on the short-term mean reversion of the stock price in the Korean stock market. Through the variance ratio test…
Abstract
This study aims to analyze the effect of change in trading volume on the short-term mean reversion of the stock price in the Korean stock market. Through the variance ratio test, this paper finds that the market shows the mean reversion pattern after 2000, but not before. This study also confirms that the mean reversion property is significantly reduced if the effect of change in trading volume is excluded from the return of a stock with a significant contemporaneous correlation between return and change in trading volume in the post-2000 market. The results appear in both the Korea Composite Stock Price Index and Korea Securities Dealers Automated Quotation. This phenomenon stems from the significance of the return response to change in trading volume per se and not the sign of the response. Additionally, the findings imply that the trading volume has a term structure because of the mean reversion of the trading volume and the return also has a partial term structure because of the contemporaneous correlation between return and change in trading volume. This conclusion suggests that considering the short-term impact of change in trading volume enables a more efficient observation of the market and avoidance of asset misallocation.
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This study investigates the impact of financial development, measured by the ratio of broad money to gross domestic products, on de jure central bank (CB) independence (CBI) in 17…
Abstract
Purpose
This study investigates the impact of financial development, measured by the ratio of broad money to gross domestic products, on de jure central bank (CB) independence (CBI) in 17 countries in the Asia–Pacific region from 1995 to 2014.
Design/methodology/approach
This study uses the feasible generalized least squares (FGLS) approach, which is suitable since the CBI equation suffers from contemporaneous correlation, serial correlation and heteroscedasticity.
Findings
The FGLS results suggest a positive association between CBI and financial market development (FMD). This relationship is confirmed when estimating different indicators of de jure CBI and adopting the panel-corrected standard error estimate. However, the statistical significance of FMD is not supported when the ratio of domestic credit to the private sector to GDP is measured.
Research limitations/implications
It is significant to have a developed financial system to foster a better CBI. Moreover, it is important to measure the influence of financial market players on the operations of a CB.
Originality/value
The financial market in the Asia–Pacific has improved over the years. Hence, the results show the determinants of CBI in the Asia–Pacific, especially the role of FMD.
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Innovation has become the engine of economic growth, especially with the Fourth Industrial Revolution. This paper aims at studying the association between innovation – measured by…
Abstract
Purpose
Innovation has become the engine of economic growth, especially with the Fourth Industrial Revolution. This paper aims at studying the association between innovation – measured by gross expenditure on research and development (GERD) – and economic performance – represented by real gross domestic product (GDP) – in MENA region over the period 1996-2016.
Design/methodology/approach
The paper uses the panel corrected standard error method to account for heteroskedacity and possible contemporaneous correlation across panels, and the first order autocorrelation within panel for unbalanced datasets.
Findings
The study concludes that R&D expenditure is positive and statistically significant in explaining GDP, but their relationship is weak. Specifically, a 10 per cent increase in R&D expenditure raises GDP by 4 per cent. In addition, human capital, labor force and fixed capital accumulation are found positive and statistically significant. These findings highlight on the importance of innovation and education on fostering economic growth, urging MENA governments to further invest in R&D and innovation sector.
Originality/value
To the best of the author’s knowledge, this paper is the first to investigate the relationship between GERD and GDP in MENA region within the endogenous-growth model framework.
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The author augments an otherwise standard business-cycle model with a rich government sector and adds monopolistic competition in the product market and rigid prices, as well as…
Abstract
Purpose
The author augments an otherwise standard business-cycle model with a rich government sector and adds monopolistic competition in the product market and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market.
Design/methodology/approach
This specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999–2018), allows the framework to reproduce better observed variability and correlations among model variables and those characterizing the labor market in particular.
Findings
As nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which help the model match data better, as compared to a setup without rigidities.
Practical implications
The findings suggest that technology shocks seem to be the dominant source of economic fluctuations, but nominal wage rigidities as well as the monopolistic competition in the product market, might be important factors of relevance to the labor market dynamics in Bulgaria, and such imperfections should be incorporated in any model that studies cyclical movements in employment and wages.
Originality/value
The computational experiments performed in this paper suggest that wage rigidities are a quantitatively important model ingredient, which should be taken into consideration when analyzing the effects of different policies in Bulgaria, which is a novel result.
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Jung Taik Hyun and Moon Joong Tcha
China has been the most important economic partner to Korea since the resurrection of their diplomatic relationship and economic interaction. It has been suggested that China…
Abstract
China has been the most important economic partner to Korea since the resurrection of their diplomatic relationship and economic interaction. It has been suggested that China simultaneously presents challenges and opportunities to the Korean economy. This paper investigates changes in trade specialization patterns and comparative advantage of Korea and China, and analyzes the effect of market expansion of Chinese industries on market shares of Korean industries. It is found that since the early 1990s, the industries that lost market share as China’s share increased include those in which Korea has maintained a comparative advantage or improved the level of disadvantage, such as IT equipment and other transport equipments. Considering growth of trade flows and emergence of China, it is critical for Korea to actively participate in international production chains, create competitive edges and extend complementary relationship with trading partners.
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Sándor Erdős and Patrik László Várkonyi
The purpose of this study is to examine herd behaviour under different market conditions, examine the potential impact of the firm size and stock characteristics on this…
Abstract
Purpose
The purpose of this study is to examine herd behaviour under different market conditions, examine the potential impact of the firm size and stock characteristics on this relationship, and explore how herding affects market prices in the German market.
Design/methodology/approach
The authors apply a method that does not rely on theoretical models, thus eliminating the biases inherent in their application. This technique is based on the assumption that macro herding manifests itself in the synchronicity (comovement) of stock returns.
Findings
The study’s findings show that herding is more pronounced in down markets and is more pronounced when market returns reach extreme levels. Additionally, the authors have found that there is stronger herding among large companies compared to small companies, and that stock characteristics considered have no effect on the degree of macro herding. Results also suggest that the contemporaneous market-wide information drives macro herding and that macro herding facilitates the incorporation of market-wide information into prices.
Practical implications
The study’s results strongly support the idea of directional asymmetry, which holds that stocks react quickly to negative macroeconomic news while small stocks react slowly to positive macroeconomic news. Additionally, the study’s results suggest that the contemporaneous market-wide information drives macro herding and that macro herding facilitates the rapid incorporation of market-wide information into prices.
Originality/value
To the best of the researchers’ knowledge, this is the first study that examines macro herding for a major financial market using a herding measure based on the co-movement of returns that does not rely on theoretical models.
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This paper aims to assess the long-run drivers and short-term dynamics of real house prices in Sweden for 1986Q1 to 2016Q4. More specifically, the author examines the extent to…
Abstract
Purpose
This paper aims to assess the long-run drivers and short-term dynamics of real house prices in Sweden for 1986Q1 to 2016Q4. More specifically, the author examines the extent to which real house prices are determined by affordability, demographics and asset price factors.
Design/methodology/approach
The author conducts a cointegration analysis and applies a vector autoregression model to examine the long- and short-run responsiveness of Swedish real house prices to a number of key categories of fundamental variables.
Findings
The empirical results indicate that house prices will increase in the long run by 1.04 per cent in response to a 1 per cent increase in household real disposable income, whereas real after-tax mortgage interest and real effective exchange rates show average long-term effects of approximately – 8 and – 0.7 per cent, respectively. In addition, the results show that the growth of real house prices is affected by growth in mortgage credit, real after-tax mortgage interest rates and disposable incomes in the short run, whereas the real effective exchange rate is the most significant determinant of Swedish real house appreciation.
Originality/value
The impact of the two lending restrictions been implemented after the financial crisis – the mortgage cap in October 2010 and the amortization requirement in June 2016 – are ineffective to stabilize the housing market. This suggests that macroprudential measures designed to ease pressure on housing prices and reduce risks to financial stability need to focus on these fundamentals and address the issues of tax deductibility on mortgage rates and the gradual implementation of debt-to-income limits to contain mortgage demand and improve households’ resilience to shocks.
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The authors introduce non-Ricardian (“hand-to-mouth”) myopic agents into an otherwise standard real-business-cycle (RBC) setup augmented with a detailed government sector. The…
Abstract
Purpose
The authors introduce non-Ricardian (“hand-to-mouth”) myopic agents into an otherwise standard real-business-cycle (RBC) setup augmented with a detailed government sector. The authors investigate the quantitative importance of the presence of nonoptimizing households for cyclical fluctuations in Bulgaria.
Design/methodology/approach
The authors calibrate the RBC model to Bulgarian data for the period following the introduction of the currency board arrangement (1999–2018).
Findings
The authors find that the inclusion of such non-Ricardian households improves model performance along several dimensions and generally provides a better match vis-a-vis data, as compared to the standard model populated with Ricardian agents only.
Originality/value
This is a novel finding in the macroeconomic studies on Bulgaria using modern quantitative methods.
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