Search results
1 – 10 of over 1000Hiroyuki Kawakatsu and Mikiko Oliver
This study aims to examine the relation between population composition and financial market variables in post-war Japan.
Abstract
Purpose
This study aims to examine the relation between population composition and financial market variables in post-war Japan.
Design/methodology/approach
Cointegration and Granger causality tests are applied to annual data for the period 1948-2015.
Findings
Accounting for nonstationarity, this study finds long-run equilibrium relations between real financial price (stock and house) indices and the proportion of population in the prime earning (45-64) or retirement (65+) age. Granger causality tests that account for possibly nonstationary variables find some evidence of dynamic causation running from the 45-64 cohort to the real financial price indices. No such evidence is found for the 65+ cohort.
Originality/value
This study complements the existing literature primarily based on US data with analysis of Japanese data that has some unique population composition features.
Details
Keywords
Kathryn A. Wilkens, Jean L. Heck and Steven J. Cochran
The purpose of this study is to investigate the relationship between predictability in return and investment strategy performance. Two measures that characterize investment…
Abstract
Purpose
The purpose of this study is to investigate the relationship between predictability in return and investment strategy performance. Two measures that characterize investment strategies within a mean‐variance framework, an activity measure and a style measure, are developed and the performance of alternative strategies (e.g. contrarian, momentum, etc.) is examined when risky asset returns are mean reverting.
Design/methodology/approach
Returns are assumed to follow a multivariate Ornstein‐Uhlenbeck process, where reversion to a time‐varying mean is governed by an additional variable set, similar to that proposed by Lo and Wang (1995). Depending on its parameterization, this process is capable of producing an autocorrelation pattern consistent with empirical evidence, that is, positive autocorrelation in short‐horizon returns and negative autocorrelation in long‐horizon returns.
Findings
The results, for four uninformed investment strategies and assuming that returns are generated by a simple univariate Ornstein‐Uhlenbeck process, show that the unadjusted returns from the contrarian (momentum) strategy are greater than those from the other strategies when the mean reversion parameter, α, is greater than (less than) one. The results are expected, given the relationship between α and the first‐order autocorrelation in returns. The risk level (measured by either the standard deviation of returns or beta) of the contrarian strategy is the lowest at essentially all levels of mean reversion and the risk‐adjusted returns from the contrarian strategy, measured by the both the Sharpe and Treynor ratios, dominate those from the other strategies.
Research limitations/implications
In future research, a number of issues not considered in this study may be investigated. The style measure developed here can be used to determine whether the results obtained hold when an informed, mean‐variance efficient active strategy is employed. In addition, the performance of both the informed and uninformed strategies may be examined under the assumption that the risky return process follows a multivariate Ornstein‐Uhlenbeck process. This work should provide findings that facilitate the separation of fund risk due to dynamic strategies from that due to time‐varying expected returns.
Practical implications
The methodology used here may be easily extended to consider a number of important issues, such as the frequency of portfolio rebalancing, transactions costs, and multiple asset portfolios, that are encountered in practice.
Originality/value
The approach used here provides insight into how predictability affects the relative performance of tactical investment strategies and, thus, may serve as a basis for determining the magnitude and persistence in autocorrelation required for active investment strategies to yield profits significantly different from those of passive strategies. In this sense, this study may have appeal for both academics and investment professionals.
Details
Keywords
Hassan Shirvani and Natalya V. Delcoure
The purpose of this paper is to examine the presence of unit roots in the stock prices of 16 OECD countries.
Abstract
Purpose
The purpose of this paper is to examine the presence of unit roots in the stock prices of 16 OECD countries.
Design/methodology/approach
Heterogeneous panel unit root tests developed by Im et al. (1997/2003) and Pesaran (2007).
Findings
Under the assumption of cross-sectional independence across the panel, the authors find no evidence of unit roots, thus failing to reject mean reversion in the stock prices for all the countries in the sample. However, under the assumption of cross-sectional dependence, an assumption borne out by the diagnostic test results, the authors find support for the presence of unit roots in the stock prices.
Practical implications
Thus, the use of more robust panel unit root tests seems to raise questions about the long-run predictability of the stock market, at least in the context of the OECD countries.
Originality/value
Thus, it seems that in the long run, an investment policy of buy and hold has still much to offer.
Details
Keywords
Panayiotis F. Diamandis, Anastassios A. Drakos and Georgios P. Kouretas
The purpose of this paper is to provide an extensive review of the monetary model of exchange rate determination which is the main theoretical framework on analyzing exchange rate…
Abstract
Purpose
The purpose of this paper is to provide an extensive review of the monetary model of exchange rate determination which is the main theoretical framework on analyzing exchange rate behavior over the last 40 years. Furthermore, we test the flexible price monetarist variant and the sticky price Keynesian variant of the monetary model. We conduct our analysis employing a sample of 14 advanced economies using annual data spanning the period 1880–2012.
Design/methodology/approach
The theoretical background of the paper relies on the monetary model to the exchange rate determination. We provide a thorough econometric analysis using a battery of unit root and cointegration testing techniques. We test the price-flexible monetarist version and the sticky-price version of the model using annual data from 1880 to 2012 for a group of industrialized countries.
Findings
We provide strong evidence of the existence of a nonlinear relationship between exchange rates and fundamentals. Therefore, we model the time-varying nature of this relationship by allowing for Markov regime switches for the exchange rate regimes. Modeling exchange rates within this context can be motivated by the fact that the change in regime should be considered as a random event and not predictable. These results show that linearity is rejected in favor of an MS-VECM specification which forms statistically an adequate representation of the data. Two regimes are implied by the model; the one of the estimated regimes describes the monetary model whereas the other matches in most cases the constant coefficient model with wrong signs. Furthermore it is shown that depending on the nominal exchange rate regime in operation, the adjustment to the long run implied by the monetary model of the exchange rate determination came either from the exchange rate or from the monetary fundamentals. Moreover, based on a Regime Classification Measure, we showed that our chosen Markov-switching specification performed well in distinguishing between the two regimes for all cases. Finally, it is shown that fundamentals are not only significant within each regime but are also significant for the switches between the two regimes.
Practical implications
The results are of interest to practitioners and policy makers since understanding the evolution and determination of exchange rates is of crucial importance. Furthermore, our results are linked to forecasting performance of exchange rate models.
Originality/value
The present analysis extends previous analyses on exchange rate determination and it provides further support in favor of the monetary model as a long-run framework to understand the evolution of exchange rates.
Details
Keywords
Mansor H. Ibrahim and Hassanuddeen Aziz
Analyzes dynamic linkages between stock prices and four macroeconomic variables for the case of Malaysia using standard and well‐accepted methods of cointegration and vector…
Abstract
Analyzes dynamic linkages between stock prices and four macroeconomic variables for the case of Malaysia using standard and well‐accepted methods of cointegration and vector autoregression. Empirical results suggest the presence of a long‐run relationship between these variables and the stock prices and substantial short‐run interactions among them. In particular, documents positive short‐run and long‐run relationships between the stock prices and two macroeconomic variables. The exchange rate, however, is negatively associated with the stock prices. For the money supply, documents immediate positive liquidity effects and negative long‐run effects of money supply expansion on the stock prices. Also notes the predictive role of the stock prices for the macroeconomic variables. However, there seems to be irregularity in the data when observations from the recent crisis are included. Finally, documents the disappearance of the immediate positive liquidity effects of the money supply shocks and unstable interactions between the stock prices and the exchange rate over time.
Details
Keywords
Masudul Alam Choudhury and Mohammad Ziaul Hoque
The theme of micro‐foundation of economic theory has not been adequately addressed. This is true even of those who pioneered the area of micro‐foundation of macro‐economics. The…
Abstract
The theme of micro‐foundation of economic theory has not been adequately addressed. This is true even of those who pioneered the area of micro‐foundation of macro‐economics. The great missing link in economic theory, both of micro‐economics and macro‐economics, is the inability to methodologically integrate ethical and moral values through preference mapping. This missing methodology disables the study of institutions, policy formulation and normative statements of structural transformation. On the other hand, such issues are once again haunting the human race in the murky and troubled global relations today – from capitalism to war to governance. This paper addresses the preference mapping and embedding of ethical and moral issues as endogenous dynamics in economic theory. The approach is rigorous and methodological.
Details
Keywords
Abdul-Rasheed Amidu, Alirat Olayinka Agboola and Mahmud Musa
The paper aims to provide a better understanding of the interactions between housing investment and economic growth. In particular, the paper emphasizes the separate effects of…
Abstract
Purpose
The paper aims to provide a better understanding of the interactions between housing investment and economic growth. In particular, the paper emphasizes the separate effects of private housing investment (PHI) on the aggregate economy using quarterly data in the UK from 1974 to 2015. This is important due to the relatively growing interest around the world, including the UK, in encouraging greater private housing investment as a way of boosting economic growth.
Design/methodology/approach
The paper used the widely accepted and recognized econometric concepts of unit root, Granger causality and co-integration and provides tentative quantitative evidence of the causal and predictive effect of PHI and economic growth.
Findings
The key finding is that the level of investment directed by individual and institution into the private housing sector is key to future development, and will strongly reduce economic performance volatility.
Research limitations/implications
Given that this is a bivariate time series analysis of PHI and economic growth (proxy by gross domestic product), the conclusions of this paper need to treated with caution, as there are other potential variables that might be omitted to make the model more robust so as to reach a more conclusive result.
Originality/value
This study complements existing literature, not only by providing new empirical evidence on the nexus between housing markets and the business cycle but also by being the pioneering attempt at examining the impact of PHI on the economy in the UK.
Details
Keywords
The paper aims to offer a new perspective on the strictly microeconomic nature of all of Islamic economics. Writers in this field continue to work in the mainstream tradition…
Abstract
Purpose
The paper aims to offer a new perspective on the strictly microeconomic nature of all of Islamic economics. Writers in this field continue to work in the mainstream tradition without noticing the micro‐interface of the theoretical nature of Islamic economics. This paper aims to address this issue.
Design/methodology/approach
The paper provides a comparative study of received literature in the history of economic thought and contrasts the ethical foundations of Islamic economics from the mainstream dichotomy between microeconomic and macroeconomic parts.
Findings
There is a cogent microeconomic foundation of Islamic economics for the economy‐wide treatment of ethical economic issues and problems including the policy framework.
Research limitations/implications
This is a theoretical exploration. The empirical part is yet to be expanded upon.
Practical implications
The paper has practical implications for graduate students on policy formulation and economic theorizing, by making them analytically aware on the extensive relevance of microeconomics in the building block of ethical content of economic theory, policy and institutions.
Originality/value
The paper presents original thinking along lines of microeconomic foundations of macroeconomic theory from the social and ethical vantage points of Islamic economics and finance that writers in this field should not ignore. The paper is meant for serious students and academics of economic theory and ethical social policy embedded in the economic treatment.
Details
Keywords
Nikolay Gospodinov, Alex Maynard and Elena Pesavento
It is widely documented that while contemporaneous spot and forward financial prices trace each other extremely closely, their difference is often highly persistent and the…
Abstract
It is widely documented that while contemporaneous spot and forward financial prices trace each other extremely closely, their difference is often highly persistent and the conventional cointegration tests may suggest lack of cointegration. This chapter studies the possibility of having cointegrated errors that are characterized simultaneously by high persistence (near-unit root behavior) and very small (near zero) variance. The proposed dual parameterization induces the cointegration error process to be stochastically bounded which prevents the variables in the cointegrating system from drifting apart over a reasonably long horizon. More specifically, this chapter develops the appropriate asymptotic theory (rate of convergence and asymptotic distribution) for the estimators in unconditional and conditional vector error correction models (VECM) when the error correction term is parameterized as a dampened near-unit root process (local-to-unity process with local-to-zero variance). The important differences in the limiting behavior of the estimators and their implications for empirical analysis are discussed. Simulation results and an empirical analysis of the forward premium regressions are also provided.
Details
Keywords
The literature concerning the subject of inflation and relative prices has been growing so fast in the last few years that a review in chronological order allows for a greater…
Abstract
The literature concerning the subject of inflation and relative prices has been growing so fast in the last few years that a review in chronological order allows for a greater understanding of the subject. This approach is taken here.