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21 – 30 of over 6000Amanjot Singh and Manjit Singh
This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global…
Abstract
Purpose
This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global financial crisis (2007-2009), i.e. during a relative calm period. There has been a significant increase in advanced economies’ equity allocations to the emerging markets ever since the financial crisis. So, the present study is an attempt to account for the said relationship, thereby justifying investments made by the international investors.
Methodology
The study uses non-linear models comprising asymmetric component generalised autoregressive conditional heteroskedastic model in mean (CGARCH-M) (1,1) model, generalised impulse response functions under vector autoregressive framework and Markov regime switching in mean and standard deviation model. The span of data ranges from 1 July 2009 to 31 December 2014.
Findings
The ACGARCH-M (1,1) model reports a positive and significant risk-return relationship in the Russian and Chinese equity markets only. There is leverage and volatility feedback effect in the Russian market because falling returns further increase conditional variance making the investors to expect a risk premium in the expected returns. The impulse responses indicate that for all of the BRIC markets, the ex-ante returns respond positively to a shock in the long-term risk component, whereas the response is negative to a shock in the short-term risk component. Finally, the Markov regime switching model confirms the existence of two regimes in all of the BRIC markets, namely, Bull and Bear regimes. Both the regimes exhibit negative relationship between risk and return.
Practical implications
It is an imperative task to comprehend the relationship shared between risk and returns for an investor. The investors in the emerging economies should understand the risk-return dynamics well ahead of time so that the returns justify the investments made under riskier environment.
Originality/value
The present study contributes to the literature in three senses. First, the data relate to a period especially after the global financial crisis (2007-2009). Second, the study has used a relatively newer version of GARCH based model [ACGARCH-M (1,1) model], generalised impulse response functions and Markov regime switching model to account for the relationship between risk and return. Finally, the study provides an insightful understanding of the risk–return relationship in the most promising emerging markets group “BRIC nations”, making the study first of its kind in all the perspectives.
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Yahuza Abdul Rahman, Anthony Kofi Osei-Fosu and Daniel Sakyi
This paper examines correlations of the underlying structural shocks and the degree of synchronization in the impulse responses of output, inflation and trade to a one standard…
Abstract
Purpose
This paper examines correlations of the underlying structural shocks and the degree of synchronization in the impulse responses of output, inflation and trade to a one standard deviation shock to non-oil commodities price index and exchange rates within the West African Monetary Zone (WAMZ) countries from 1990q1 to 2020q1.
Design/methodology/approach
This paper uses the structural vector autoregressive model to isolate the underlying structural shocks and compares them with the West African Monetary Union (WAEMU) countries.
Findings
Findings from the study suggest that correlations of underlying structural shocks are more profound in the WAEMU than in the WAMZ. Impulse responses of output to price and exchange rate shocks are more symmetric in the WAEMU than in the WAMZ. However, impulse responses of inflation to price and exchange rate shocks are symmetric in the WAMZ than in the WAEMU and responses of trade in both sub-groups are not uniform.
Practical implications
The paper concludes that the WAMZ does not constitute an Optimum Currency Area concerning the correlations of the structural shocks and output. However, it has achieved convergence in inflation and there are adequate adjustment mechanisms to shocks in the WAMZ than in the WAEMU. Therefore, the WAMZ may not suffer from joining the monetary union. Thus, economic Community of West African States may take steps to roll out the monetary union.
Originality/value
The paper examines correlations of the underlying structural shocks, impulse responses of output and inflation to shocks to commodities price and exchange rates in the WAMZ and compares them with the WAEMU.
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Gökçe Soydemir, Rahul Verma and Andrew Wagner
Investors’ fear can be rational, emanating from the natural dynamics of economic fundamentals, or it can be quasi rational and not attributable to any known risk factors. Using…
Abstract
Purpose
Investors’ fear can be rational, emanating from the natural dynamics of economic fundamentals, or it can be quasi rational and not attributable to any known risk factors. Using VIX from Chicago Board Options Exchange as a proxy for investors’ fear, the purpose of this paper is to consider the following research questions: to what extent does noise play a role in the formation of investors’ fear? To what extent is the impact of fear on S&P 500 index returns driven by rational reactions to new information vs fear induced by noise in stock market returns? To what extent do S&P 500 index returns display asymmetric behavior in response to investor’s rational and quasi rational fear?
Design/methodology/approach
In a two-step process, the authors first decompose investors’ fear into its rational and irrational components by generating two additional variables representing fear induced by rational expectations and fear due to noise. The authors then estimate a three-vector autoregression (VAR) model to examine their relative impact on S&P 500 returns.
Findings
Impulse responses generated from a 13-variable VAR model show that investors’ fear is driven by risk factors to some extent, and this extent is well captured by the Fama and French three-factor and the Carhart four-factor models. Specifically, investors’ fear is negatively related to the market risk premium, negatively related to the premium between value and growth stocks, and positively related to momentum. The magnitude and duration of the impact of the market risk premium is almost twice that of the impact of the premium on value stocks and the momentum of investors’ fear. However, almost 90 percent of the movement in investors’ fear is not attributable to the 12 risk factors chosen in this study and thus may be largely irrational in nature. The impulse responses suggest that both rational and irrational fear have significant negative effects on market returns. Moreover, the effects are asymmetric on S&P 500 index returns wherein irrational upturns in fear have a greater impact than downturns. In addition, the component of investors’ fear driven by irrationality or noise has more than twice the impact on market returns in terms of magnitude and duration than the impact of the rational component of investors’ fear.
Originality/value
The results are consistent with the view that one of the most important drivers of stock market returns is irrational fear that is not rooted in economic fundamentals.
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This paper aims to suggest the preferred mode of financing for major sub-sectors of infrastructure: roads, seaports, telecommunication and energy by examining which mode of…
Abstract
Purpose
This paper aims to suggest the preferred mode of financing for major sub-sectors of infrastructure: roads, seaports, telecommunication and energy by examining which mode of infrastructure financing – public, private or public–private partnership (PPP) – has the maximum positive impact on the overall GDP of India. The same exercise was carried out for the overall infrastructure sector by integrating data from all the four sub-sectors.
Design/methodology/approach
The structural vector autoregressive approach was used with the period of analysis taken from 1995 to 2014. The stationary properties of the variables were checked by the Phillips–Perron unit root.
Findings
The PPP mode of financing was found to make the maximum positive impact on the GDP of India. Considering the four sub-sectors individually, it was concluded that the private mode of financing in roads, energy and telecom sectors has the maximum positive impact on the GDP, while the PPP gives optimal benefit to the seaports sector.
Practical implications
Results will aid the Indian Government and policymakers to efficiently design and develop their economic policies accordingly.
Originality/value
The study is novel in a sense that it helps to address the lack of research into the area of infrastructure financing in India.
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The purpose of this paper is to analyse the effects of a declining birth rate and an increasing old age‐population ratio on Ireland's economic output.
Abstract
Purpose
The purpose of this paper is to analyse the effects of a declining birth rate and an increasing old age‐population ratio on Ireland's economic output.
Design/methodology/approach
This paper utilises data on the birth rate, old‐age population ratio, economic output and labour effort of the Irish economy to estimate a vector‐autoregressive model. The results of this model are then analysed to test for the presence of Granger causality among these variables. In doing so it is possible to assess whether there are statistically significant causal relationships existing among these factors. Subsequently, impulse response functions are derived from this model in order to assess the magnitude of the causal relationships.
Findings
The results suggest that declining fertility rates and increases in the old‐age dependency ratio have a significant impact on labour effort and economic output. Labour effort is also found to explain variation in the fertility rate and economic output. Economic output is found to effect labour effort and the fertility rate.
Social implications
The results derived in this paper raise interesting policy implications. It is evident that Ireland's declining birth rate and increasing old‐age population ratio are creating a demographic situation which will have implications for future economic growth. Policies need to be put in place to mitigate the negative effects these factors will have on Irish growth.
Originality/value
This paper adopts modern econometric techniques to assess the causal relationships which exist between the demographic and economic factors considered. These have not previously been applied to the Irish situation. In doing this, this paper provides an important insight into the changing dynamics of the Irish economy.
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Anna Kormilitsina and Denis Nekipelov
The Laplace-type estimator (LTE) is a simulation-based alternative to the classical extremum estimator that has gained popularity in applied research. We show that even though the…
Abstract
The Laplace-type estimator (LTE) is a simulation-based alternative to the classical extremum estimator that has gained popularity in applied research. We show that even though the estimator has desirable asymptotic properties, in small samples the point estimate provided by LTE may not necessarily converge to the extremum of the sample objective function. Furthermore, we suggest a simple test to verify if the estimator converges. We illustrate these results by estimating a prototype dynamic stochastic general equilibrium model widely used in macroeconomics research.
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Abdulrahman Al-Shayeb and Abdulnasser Hatemi-J
The purpose of this paper is to offer a review of the trade policy in the UAE. It also investigates the dynamic interaction between trade openness and GDP per capita in this…
Abstract
Purpose
The purpose of this paper is to offer a review of the trade policy in the UAE. It also investigates the dynamic interaction between trade openness and GDP per capita in this emerging economy.
Design/methodology/approach
The asymmetric generalized impulse response functions and the asymmetric causality tests developed by Hatemi-J are used.
Findings
The results from asymmetric generalized impulse response functions indicate that a positive permanent shock in the trade openness results in a significant positive response in the cumulative sum of the positive component of the GDP per capita. Such a response is not found for the negative shocks in the trade openness. Furthermore, neither a positive nor a negative shock in the GPD per capita results in any significant response in the trade openness. These empirical findings are also supported by the implemented asymmetric causality tests.
Originality/value
This is the first attempt that investigates the impact of trade openness on economic performance in the UAE. Unlike previous literature on the topic, this paper allows for asymmetric impacts in the empirical model.
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Christos Floros and Dimitrios V. Vougas
The paper's objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999‐2001; to…
Abstract
Purpose
The paper's objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999‐2001; to investigate the short‐run and long‐run efficiency of the FTSE/ASE‐20 stock index futures contract and FTSE/ASE Mid 40 stock index futures contract traded on the Athens Derivatives Exchange (ADEX).
Design/methodology/approach
This paper examines efficiency of the Greek stock index futures market from 1999 to 2001. A variety of econometric models are employed to test for cointegration between prices. The paper uses daily data from the Athens Stock Exchanges (ASEs) and the ADEX. A more detailed discussion on the causal relationship between spot and futures price in ADEX is obtained by using the impulse response functions of the vector error‐correction model (to study the behaviour of series from real shocks).
Findings
The results show that the Greek futures and spot prices form a stable long‐run relationship. For both FTSE/ASE‐20 and FTSE/ASE Mid 40, futures markets play a price discovery role, implying that futures prices contain useful information about spot prices. Futures markets are informationally more efficient than underlying stock markets in Greece.
Practical implications
The results have important implications for both traders and speculators. The findings are strongly recommended to financial managers dealing with Greek stock index futures.
Originality/value
The contribution of this paper is to provide evidence using data from the early stage of the ADEX (started its official operation on 27 August 1999). It also investigates whether the hypotheses exist after the dramatic rise of ASE stock prices.
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A non‐structural model is used to analyze the dynamic effects of fiscal and exchange rate policies on Ghana's economy. In particular, the paper sheds light on how these two key…
Abstract
A non‐structural model is used to analyze the dynamic effects of fiscal and exchange rate policies on Ghana's economy. In particular, the paper sheds light on how these two key structural adjustment policy variables affect the short‐run and long‐run dynamics of inflation, output and exports. The general conclusion is that exchange rate changes have a moderate dynamic effect on inflation, output and exports. In contrast, government expenditures are less effective in influencing any of the above macroeconomic variables, either in the short‐run or in the long‐run. The impulse response functions derived from the VAR suggest that the impact of devaluation is strongly felt in either the third or the fourth year. The variance decompositions indicate that exchange rate changes account for about 30 percent, 7 percent and 27 percent in the variation of ouput, inflation and exports, respectively, in the ninth year. However, the percentage of the variation in the above variables owing to changes in government expenditures is very small. The implication of these results is that the structural adjustment policies in relation to changes in exchange rate and government expenditures may not be very effective as previously envisaged.
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This study examines the dynamic responses of five different daily energy prices to a pulse shock affecting the daily price of oil.
Abstract
Purpose
This study examines the dynamic responses of five different daily energy prices to a pulse shock affecting the daily price of oil.
Design/methodology/approach
Daily data for energy prices from the Federal Reserve Economic Data (FRED) database for January 7, 1997, through February 8, 2021, are analyzed. A bivariate structural vector error correction model and generalized autoregressive conditionally heteroscedastic model are combined and extended by adding the volatility of the growth rate of daily oil prices as an explanatory variable for the growth rates of energy prices. This model is estimated and used to generate impulse responses for energy prices.
Findings
The empirical results show that the levels of the daily energy prices examined have unit roots, are integrated of order one, are cointegrated, and generally revert slowly to their long-term equilibrium relationships with the price of oil. The growth rates for the daily energy prices have autoregressive conditional heteroscedasticity, generally are positively related to the volatility of daily oil prices, respond quickly to a pulse shock to daily oil prices, and have cumulative responses that last at least one month.
Originality/value
This paper allows for simultaneous estimation of extended bivariate structural vector error correction and generalized autoregressive conditionally heteroscedastic models that include the volatility of oil as an explanatory variable and uses these models to generated cumulative impulse responses for the growth rates of daily energy prices to oil price shocks.
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