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Book part
Publication date: 10 April 2023

A. A. Obalade, T. Moodley, N. Ncama, N. Mkhize, M. Pillay and T. Singh

The establishment of a currency union is a topical issue in the West African Monetary Zone (WAMZ). The subject of currency union formation needs to be reassessed in light of the…

Abstract

The establishment of a currency union is a topical issue in the West African Monetary Zone (WAMZ). The subject of currency union formation needs to be reassessed in light of the recent efforts towards the economic integration of west African countries. This study employs the Markov Switching Model (MSM) to determine whether a currency union in WAMZ is feasible. The study analyzes the regime switching behavior in WAMZ countries’ foreign exchange markets before and after the formation of the union. The contribution of this study is two-fold. First, the study accounts for the success or otherwise of the latest efforts to integrate the fiscal and monetary strategies in the zone. Secondly, the study contributes to the literature on the currency union literature in WAMZ by using Markov Switching Model (MSM) to generate novel results. The results of the study revealed that prior to the WAMZ formation, the real exchange rates of member states were more divergent. In contrast, a growing but marginal, convergence was observed after the formation of the zone amongst four (Nigeria, Sierra Leone, Gambia, and Liberia) of the six countries. The authors conclude that while WAMZ is on course for establishing a currency union, their monetary authorities must work together, particularly with Ghana and Liberia, to synchronize their policy efforts, and policy makers must implement policies to strengthen harmonious trade interactions.

Details

Comparative Analysis of Trade and Finance in Emerging Economies
Type: Book
ISBN: 978-1-80455-758-7

Keywords

Article
Publication date: 16 July 2020

Saeid Tajdini, Mohsen Mehrara and Reza Tehrani

Risk and return are the most important components in the financial and investment world and the existence of a better balance between them with the goal of the best solution for…

Abstract

Purpose

Risk and return are the most important components in the financial and investment world and the existence of a better balance between them with the goal of the best solution for investing in different assets has always been studied and discussed by researchers. For this purpose in this study introduced the Hybrid Balanced Justified Treynor ratio (HBJTR) criterion.

Design/methodology/approach

This study introduced the HBJTR criterion, which has three major attributes, including combination of both the frequency and severity of the risk using Markov regime switching model which was modeled on the Justified Beta (Jßi). The second is the merger of data of both the cycles of boom and recession, which was modeled on the Hybrid Justified Treynor Ratio (HJTR). The third was the balancing act in two periods of boom and recession, which was introduced on the HBJTR model.

Findings

Based on a weighted averaging of the Justified Treynor ratio of both the cycles of boom and recession, which was introduced by the HJTR term in this study, the superiority in the first grade related to the two indexes were sugar index (0.0096) and insurance index (0.0053). Finally, using the final model in this study, namely HBJTR, the overall advantage was the defensive index, i.e. the insurance index of 1.23.

Originality/value

In other words, the HBJTRi criterion consists of three steps: first, the Justified Beta (Jßi) and Justified Treynor ratio of each index using two regimes of Markov switching model were calculated for each of the cycles of boom and recession separately according to formulas 8 and 9. In the second step, the weighted average was taken from both Justified Treynor ratios of boom and recession cycles, which was called the HJTR. In the third step, to calculate the HBJTR criterion

Details

Managerial Finance, vol. 47 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 12 December 2007

Suk-Joong Kim and Michael D. McKenzie

This chapter considers the relationship between stock market autocorrelation and (i) the presence of international investors which is proxied by the level of capital market…

Abstract

This chapter considers the relationship between stock market autocorrelation and (i) the presence of international investors which is proxied by the level of capital market integration and (ii) stock market volatility. Drawing from a sample of nine Asia-Pacific stock indices, significant evidence of a relationship between the presence of international investors and the level of stock market autocorrelation is found. This evidence is consistent with the view that international investors are positive feedback traders. Robustness testing of this model suggests that the trading strategy of international investors changed as a result of the Asian currency crisis. The evidence for the role of volatility in explaining autocorrelation is, however, is generally weak and varies across the sample countries.

Details

Asia-Pacific Financial Markets: Integration, Innovation and Challenges
Type: Book
ISBN: 978-0-7623-1471-3

Article
Publication date: 7 January 2020

MeiChi Huang

The purpose of this paper is to investigate linkages between households’ expectations and credit markets in the housing crisis.

Abstract

Purpose

The purpose of this paper is to investigate linkages between households’ expectations and credit markets in the housing crisis.

Design/methodology/approach

In the Markov-switching framework, the sample period is classified into high- and low-impact regimes based on impacts of expectations on default rates, and the good-time-to-buy (GTTB) index is chosen to proxy for expectations toward the housing-market dynamics.

Findings

The results suggest that in high-impact regimes, optimistic expectations are substantially associated with lower defaults for all default rates analyzed, and second mortgage defaults are more sensitive to households’ expectations than first mortgage defaults. In low-impact regimes, the GTTB index significantly influences composite and first-mortgage default rates, but its impact is insignificant for second mortgage and bankcard default rates.

Originality/value

The results provide compelling evidence that households’ expectations play more important roles in credit markets in turmoil periods.

Details

Managerial Finance, vol. 46 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 3 October 2016

Wei Chi, Robert Brooks, Emawtee Bissoondoyal-Bheenick and Xueli Tang

This paper aims to investigate Chinese bull and bear markets. The Chinese stock market has experienced a long period of bear cycle from early 2000 until 2006, and then it…

Abstract

Purpose

This paper aims to investigate Chinese bull and bear markets. The Chinese stock market has experienced a long period of bear cycle from early 2000 until 2006, and then it fluctuated greatly until 2010. However, the cyclical behaviour of stock markets during this period is less well established. This paper aims to answer the question why the Chinese stock market experienced a long duration of bear market and what factors would have impacted this cyclical behaviour.

Design/methodology/approach

By comparing the intervals of bull and bear markets between stocks and indices based on a Markov switching model, this paper examines whether different industries or A- and B-share markets could lead to different stock market cyclical behaviour and whether firm size can determine the relationship between the firm stock cycles on the market cycles.

Findings

This paper finds a high degree of overlapping of bear cycles between stocks and indices and a high level of overlapping between the bear market and a fraction of stock with increasing stock prices. This leads to the conclusion that the stock performance and trading behaviour are widely diversified. Furthermore, the paper finds that the same industry may have different overlapping intervals of bull or bear cycles in the Shanghai and Shenzhen stock markets. Firms with different sizes could have different overlapping intervals with bull or bear cycles.

Originality/value

This paper fills the literature gap by establishing the cyclical behaviour of stock markets.

Details

Studies in Economics and Finance, vol. 33 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

Abstract

Identification of shocks of interest is a central problem in structural vector autoregressive (SVAR) modeling. Identification is often achieved by imposing restrictions on the impact or long-run effects of shocks or by considering sign restrictions for the impulse responses. In a number of articles changes in the volatility of the shocks have also been used for identification. The present study focuses on the latter device. Some possible setups for identification via heteroskedasticity are reviewed and their potential and limitations are discussed. Two detailed examples are considered to illustrate the approach.

Details

VAR Models in Macroeconomics – New Developments and Applications: Essays in Honor of Christopher A. Sims
Type: Book
ISBN: 978-1-78190-752-8

Keywords

Article
Publication date: 4 January 2019

Marinês Taffarel, Wesley Vieira da Silva, Claudimar Pereira da Veiga, Ademir Clemente and Julio Cezar Mairesse Siluk

The purpose of this study is to determine if the Brazilian electricity sector is differently affected by the characteristics of the content in the regulatory legislation.

Abstract

Purpose

The purpose of this study is to determine if the Brazilian electricity sector is differently affected by the characteristics of the content in the regulatory legislation.

Design/methodology/approach

For better robustness of the research, the authors analyzed the period from 1995 to 2013, totaling 4,510 observations. To this end, the selection of regulatory legislation was conducted through Markov regime switching. To identify the characteristics of profile and intensity of regulatory content in each legislation, we applied the content analysis technique.

Findings

The main findings of this study position this research in the vanguard regarding other research in the area by showing that all regulatory measures whose characteristics denote market profile of strong and medium intensity affect the risk of electric utilities in Brazil. As contribution from this research, it can be hypothesized that for provisional measures/laws events, the profile and intensity of regulatory content are relevant and have different impact on the risk of stocks and, therefore, should be considered in the design and development of public policies.

Originality/value

The paper investigates by means of content analysis, the profile and intensity characteristics of the content present in the regulatory legislation and to present the impact of these characteristics on the risk of the electric energy Sector in Brazil. The research results showed that it is not all regulatory events that impact the stock market. Therefore, regulatory risk estimates must consider the intensity and scope of each legislation, given that legislation with a higher regulatory content that seeks to modify the sector’s operating rules more deeply tends to have a greater impact on the risk of companies that operate in regulated sectors. Therefore, the paper shows originality and evolution for the researchers in the area, with new and significant information.

Details

International Journal of Energy Sector Management, vol. 13 no. 3
Type: Research Article
ISSN: 1750-6220

Keywords

Open Access
Article
Publication date: 7 July 2020

Juho Valtiala

This study analyses agricultural land price dynamics in order to better understand price development and to improve forecast accuracy. Understanding the evolution of agricultural…

Abstract

Purpose

This study analyses agricultural land price dynamics in order to better understand price development and to improve forecast accuracy. Understanding the evolution of agricultural land prices is important when considering sound investment decisions.

Design/methodology/approach

This study applies threshold autoregression to model agricultural land prices. The data includes quarterly observations on Finnish agricultural land prices.

Findings

The study shows that Finnish agricultural land prices exhibit regime-switching behaviour when using past changes in prices as a threshold variable. The threshold autoregressive model not only fits the data better but also improves the accuracy of price forecasts compared to the linear autoregressive model.

Originality/value

The results show that a sharp fall in agricultural land prices temporarily changes the regular development of prices. This information significantly improves the accuracy of price predictions.

Details

Agricultural Finance Review, vol. 81 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 30 August 2022

Kai Li and Chenjie Xu

This paper aims to study the asset pricing implications for stock and bond markets in a long-run risks (LRR) model with regime shifts. This general equilibrium framework can not…

Abstract

Purpose

This paper aims to study the asset pricing implications for stock and bond markets in a long-run risks (LRR) model with regime shifts. This general equilibrium framework can not only generate sign-switching stock-bond correlations and bond risk premium, but also quantitatively reproduce various other salient empirical features in stock and bond markets, including time-varying equity and bond return premia, regime shifts in real and nominal yield curves, the violation of the expectations hypothesis of bond returns.

Design/methodology/approach

The researchers study the joint determinants of stock and bond returns in a LRR model framework with regime shifts in consumption and inflation dynamics. In particular, the means, volatilities, and the correlation structure between consumption growth and inflation are regime-dependent.

Findings

The model shows that the term structure of interest rates and stock-bond correlation are intimately related to business cycles, while LRR play a more important role in accounting for high equity premium than do business cycle risks.

Originality/value

This paper studies the joint determinants of stock and bond returns in a Bansal and Yaron (2004) type of LRR framework. This rational expectations general equilibrium framework can (1) jointly match the dynamics of consumption, inflation and cash flow; (2) generate time-varying and sign-switching stock and bond correlations, as well as generating sign-switching bond risk premium; and (3) coherently explain another long list of salient empirical features in stock and bond markets, including time-varying equity and bond return premia, regime shifts in real and nominal yield curves, the violation of the expectations hypothesis of bond returns.

Details

China Finance Review International, vol. 12 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

Book part
Publication date: 18 April 2022

Nadia Abaoub Ouertani and Hela Ghabara

The latest financial crisis marks a milestone in the development of financial markets. It was a period when it was possible to observe a booming development in the stock…

Abstract

The latest financial crisis marks a milestone in the development of financial markets. It was a period when it was possible to observe a booming development in the stock markets.

Faced with such a phenomenon, theorists have agreed on the need to resume the debate on the validity of the predictability of stock market returns, which is considered to be the cornerstone of all financial theories. The purpose of this article is to examine the predictability of the bearish stock market using a number of variables widely used in forecasting stock returns. In particular, we focus on variables related to imperfect credit markets.

We revisit the predictability of the bearish market using variables that measure the External Funding Premium (EFP), such as the Default Yield Spread.As the EFP is the key indicator of the extent of credit market imperfections, it should therefore be linked to stock market dynamics and provide useful predictive content.

21 – 30 of 840