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1 – 10 of 117Gerrio Barbosa, Daniel Sousa, Cássio da Nóbrega Besarria, Robson Lima and Diego Pitta de Jesus
The aim of this study was to determine if there are asymmetries in the pass-through of West Texas Intermediate (WTI) crude oil prices to its derivatives (diesel and gasoline) in…
Abstract
Purpose
The aim of this study was to determine if there are asymmetries in the pass-through of West Texas Intermediate (WTI) crude oil prices to its derivatives (diesel and gasoline) in the Brazilian market.
Design/methodology/approach
Initially, the future WTI oil price series was analyzed using the self-exciting threshold autoregressive (SETAR) and logistic smooth transition autoregressive (LSTAR) non-linear models. Subsequently, the threshold autoregressive error-correction model (TAR-ECM) and Markov-switching model were used.
Findings
The findings indicated high prices throughout 2008 due to the subprime crisis. The findings indicated high prices throughout 2008 due to the subprime crisis. The results indicated that there is long-term pass-through of oil prices in both methods, suggesting an equilibrium adjustment in the prices of diesel and gasoline in the analyzed period. Regarding the short term, the variations in contemporary crude oil prices have positive effects on the variations in fuel prices. Lastly, this behavior can partly be explained by the internal price management structure adopted during almost all of the analyzed period.
Originality/value
This paper contributes to the literature at some points. The first contribution is the modeling of the oil price series through non-linear models, further enriching the literature on the recent behavior of this time series. The second is the simultaneous use of the TAR-ECM and Markov-switching model to capture possible short- and long-term asymmetries in the pass-through of prices, as few studies have applied these methods to the future price of oil. The third and main contribution is the investigation of whether there are asymmetries in the transfer of oil prices to the price of derivatives in Brazil. So far, no work has investigated this issue, which is very relevant to the country.
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Florens Odendahl, Barbara Rossi and Tatevik Sekhposyan
The authors propose novel tests for the detection of Markov switching deviations from forecast rationality. Existing forecast rationality tests either focus on constant deviations…
Abstract
The authors propose novel tests for the detection of Markov switching deviations from forecast rationality. Existing forecast rationality tests either focus on constant deviations from forecast rationality over the full sample or are constructed to detect smooth deviations based on non-parametric techniques. In contrast, the proposed tests are parametric and have an advantage in detecting abrupt departures from unbiasedness and efficiency, which the authors demonstrate with Monte Carlo simulations. Using the proposed tests, the authors investigate whether Blue Chip Financial Forecasts (BCFF) for the Federal Funds Rate (FFR) are unbiased. The tests find evidence of a state-dependent bias: forecasters tend to systematically overpredict interest rates during periods of monetary easing, while the forecasts are unbiased otherwise. The authors show that a similar state-dependent bias is also present in market-based forecasts of interest rates, but not in the forecasts of real GDP growth and GDP deflator-based inflation. The results emphasize the special role played by monetary policy in shaping interest rate expectations above and beyond macroeconomic fundamentals.
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Dejan Živkov, Marina Gajić-Glamočlija and Jasmina Đurašković
This paper researches a bidirectional volatility transmission effect between stocks and exchange rate markets in the six East European and Eurasian countries.
Abstract
Purpose
This paper researches a bidirectional volatility transmission effect between stocks and exchange rate markets in the six East European and Eurasian countries.
Design/methodology/approach
Research process involves creation of transitory and permanent volatilities via optimal component generalized autoregressive heteroscedasticity (CGARCH) model, while these volatilities are subsequently embedded in Markov switching model.
Findings
This study’s results indicate that bidirectional volatility transmission exists between the markets in the selected countries, whereas the effect from exchange rate to stocks is stronger than the other way around in both short-term and long-term. In particular, the authors find that long-term spillover effect from exchange rate to stocks is stronger than the short-term counterpart in all countries, which could suggest that flow-oriented model better explains the nexus between the markets than portfolio-balance approach. On the other hand, short-term volatility transfer from stock to exchange rate is stronger than its long-term equivalent.
Practical implications
This suggests that portfolio-balance theory also has a role in explaining the transmission effect from stock to exchange rate market, but a decisive fact is from which direction spillover effect is observed.
Originality/value
This paper is the first one that analyses the volatility nexus between stocks and exchange rate in short and long term in the four East European and two Eurasian countries.
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Start-ups are successful in receiving valuation in billions of US dollars prior to initial public offering (IPO). However, to sustain higher valuation, the stocks need to perform…
Abstract
Purpose
Start-ups are successful in receiving valuation in billions of US dollars prior to initial public offering (IPO). However, to sustain higher valuation, the stocks need to perform consistently after the IPO. Short-run stock performance of India-based start-ups during the first year of IPO listing from March 2021 to March 2022 is analysed.
Design/methodology/approach
The paper deals with the new generation start-ups' stock performance in emerging market in terms of total and abnormal return generated in comparison to the market (NIFTY-200). Further, the volatility of returns during bear and bull regimes is analysed through a family of Markov-switching GARCH models using both normal and skewed distributions.
Findings
The results suggest that start-up stocks are more volatile during bear regime than in the bull run in market-based economies where price limit policy does not apply. Besides, the cumulative abnormal return over the market return was lower for majority of start-up IPO stocks.
Social implications
Though negative returns of the start-up stocks during the first year of IPO need not be surprising, higher volatility during bear regime is a matter of concern as it could severely impact retail investors and founders. The results hold implication for IPO regulation in emerging markets and for retail investors desirous of investing in start-up stocks.
Originality/value
Volatility of return is examined using a state-space model during the first year of the start-up IPO listing. The study contributes to the emerging market IPO literature by examining IPO performance in market-based economy. Previous IPO performance studies in emerging markets are predominantly based on ecosystems where start-ups are subjected to price limit policy, and it does not reflect the true nature of IPO performance across emerging markets.
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Zaheer Anwer, Ahmed Sabit, M. Kabir Hassan and Andrea Paltrinieri
This study akims to investigate the effectiveness of expansionary monetary policy for Islamic capital markets by studying the impact of decrease in policy rates on seven Islamic…
Abstract
Purpose
This study akims to investigate the effectiveness of expansionary monetary policy for Islamic capital markets by studying the impact of decrease in policy rates on seven Islamic equity indices for the period 1996–2019. The transmission mechanism may be different for sampled indices, as they are exposed to Shariah screening that discards certain business sectors and puts limit on debt in capital structure.
Design/methodology/approach
This study uses Markov Switching dynamic regression approach of Hamilton (1988).
Findings
The results show little effectiveness of expansionary monetary policy in both Bear and Bull states, for most of the sample indices.
Originality/value
To the best of the authors’ knowledge, no study has made use of dynamic models to assess the association between monetary policy rate and Islamic index prices. Similarly, the authors found no work exploring the effectiveness of expansionary monetary policy actions in different regime for Islamic Indices. This investigation is important in unraveling whether, in the presence of limitations on selection of business activity and choice of capital structure, monetary policy can change the market sentiment, or it will be ineffective. The present study fills this gap.
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Meysam Rafei, Siab Mamipour and Nasim Bahari
The main purpose of this paper is to investigate the dynamic effects of the oil price shocks on Iran’s inflation in the period 1993:2–2018:2
Abstract
Purpose
The main purpose of this paper is to investigate the dynamic effects of the oil price shocks on Iran’s inflation in the period 1993:2–2018:2
Design/methodology/approach
The main purpose of this paper is to investigate the dynamic effects of the oil price shocks on Iran’s inflation in the period 1993:2–2018:2 using the time-varying parameter vector autoregressive (TVP-VAR) model. The dynamics of the results enable us to study the amount and severity of the impact of the oil price shocks on inflation with the distinction of the sanctioned and non-sanctioned periods. The volume of oil export is used to identify the effective oil sanctions. The period is divided into sanctioned and non-sanctioned periods by Markov switching model.
Findings
The results show that the pass-through of oil price shocks into Iran’s inflation are time-varying, and there are significant differences at sanction period from other time horizons. An increase in oil price has a positive effect on inflation and its effects are stronger during the sanctions period. It is also observed that the producer price index is more sensitive to changes in the oil price than the consumer price index. The necessity of the government’s earnest efforts to improve international relations to lift the sanctions, along with diversification of exports, and making the economy of Iran independent of oil revenues is obvious.
Originality/value
In addition to the exogenous oil price shocks, Iran’s economy faces numerous restrictions for its oil exports due to the sanctions. The main purpose of this paper is to investigate the dynamics effects of the oil price shocks on Iran’s inflation in the period 1993:2–2018:2 using the time-varying parameter vector autoregressive (TVP-VAR) model. The dynamics of the results enable us to study the amount and severity of the impact of the oil price shocks on inflation with the distinction of the sanctioned and non-sanctioned periods. The volume of oil export is used to identify the effective oil sanctions.
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Mondher Bouattour and Anthony Miloudi
The purpose of this paper is to bridge the gap between the existing theoretical and empirical studies by examining the asymmetric return–volume relationship. Indeed, the authors…
Abstract
Purpose
The purpose of this paper is to bridge the gap between the existing theoretical and empirical studies by examining the asymmetric return–volume relationship. Indeed, the authors aim to shed light on the return–volume linkages for French-listed small and medium-sized enterprises (SMEs) compared to blue chips across different market regimes.
Design/methodology/approach
This study includes both large capitalizations included in the CAC 40 index and listed SMEs included in the Euronext Growth All Share index. The Markov-switching (MS) approach is applied to understand the asymmetric relationship between trading volume and stock returns. The study investigates also the causal impact between stock returns and trading volume using regime-dependent Granger causality tests.
Findings
Asymmetric contemporaneous and lagged relationships between stock returns and trading volume are found for both large capitalizations and listed SMEs. However, the causality investigation reveals some differences between large capitalizations and SMEs. Indeed, causal relationships depend on market conditions and the size of the market.
Research limitations/implications
This paper explains the asymmetric return–volume relationship for both large capitalizations and listed SMEs by incorporating several psychological biases, such as the disposition effect, investor overconfidence and self-attribution bias. Future research needs to deepen the analysis especially for SMEs as most of the literature focuses on large capitalizations.
Practical implications
This empirical study has fundamental implications for portfolio management. The findings provide a deeper understanding of how trading activity impact current returns and vice versa. The authors’ results constitute an important input to build and control trading strategies.
Originality/value
This paper fills the literature gap on the asymmetric return–volume relationship across different regimes. To the best of the authors’ knowledge, the present study is the first empirical attempt to test the asymmetric return–volume relationship for listed SMEs by using an accurate MS framework.
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Isiaka Akande Raifu and Sebil Olalekan Oshota
It has been said that oil price shocks affect stock market returns. However, empirical studies remain inconclusive regarding the nexus between oil price shocks and stock market…
Abstract
Purpose
It has been said that oil price shocks affect stock market returns. However, empirical studies remain inconclusive regarding the nexus between oil price shocks and stock market returns. Consequently, the purpose of this study is to investigate the asymmetric impact of oil price shocks on stock returns in Nigeria.
Design/methodology/approach
A two-stage Markov regime-switching approach is used to examine the asymmetric effects of three different structural oil shocks on stock returns. The oil shocks, which include oil supply shock, aggregate demand shock and oil-specific demand shock, are derived using structural vector autoregressive. Monthly data that spans the period between January 1990 and December 2018 are deployed for estimation.
Findings
The linear estimation results show that only oil demand shock negatively and significantly affects the stock market returns. The Markov-switching regime results reveal that oil supply shock has a significant positive impact on the stock returns in a low-volatility state, whereas oil-specific demand shock negatively impacts the stock returns in a high-volatility state.
Practical implications
There is a need for policymakers and investors to take cognizance of not only the positive outcomes of a relatively stable state of oil price but also the negative consequences of a high-volatility state when formulating policy and making investment decisions, respectively.
Originality/value
This study differs from other similar studies in Nigeria that have examined the asymmetric relationship between oil price shocks and stock market return by using a two-stage Markov regime-switching approach. To the best of the authors’ knowledge, this is the first attempt at using this methodology.
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Honoré Sèwanoundé Houngbédji and Nassibou Bassongui
This paper aims to examine the response of monetary policy to financial instability in the West African Economic and Monetary Union.
Abstract
Purpose
This paper aims to examine the response of monetary policy to financial instability in the West African Economic and Monetary Union.
Design/methodology/approach
Through annual aggregated data from 1970 to 2019, the empirical strategy is based on the Markov regime-switching model with fixed probabilities.
Findings
The results revealed that the monetary policy of the central bank of the West African Economic and Monetary Union is characterized by two regimes (calm and distress) with respect to the trend of financial stability. The authors also found that the occurrence of the calm regime was likely greater than that of the distress regime. In addition, the calm regime is longer than the distress regime. The authors finally revealed that the central bank reacts to financial instability risk by increasing its short-term interest rate when financial instability reaches a threshold.
Research limitations/implications
The limitation of this study is the unavailability of monthly or quarterly data that are more suitable for the methodological approach adopted.
Originality/value
This study is the one to estimate the response of the Central Bank of West African Countries to financial stress using a novel approach based on the Markov-Switching regression.
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Isaac Kimunio and Shem Wambugu Maingi
The COVID-19 pandemic has had a catastrophic impact on the tourist activity in Kenya. Global lockdown has limited travel resulting to losses in the tourism sector. This paper…
Abstract
Purpose
The COVID-19 pandemic has had a catastrophic impact on the tourist activity in Kenya. Global lockdown has limited travel resulting to losses in the tourism sector. This paper discusses the specific role that fiscal policy plays to improve tourism competitiveness in Kenya. Specifically, the study examines how Kenyan government can revive the tourism economy to improve its competitiveness.
Design/methodology/approach
A tourism demand model to explore relationship between fiscal policies and inbound tourism in Kenya is developed. This study uses a Markov regime-switching (MS) regression model to establish the relationships that exist between COVID-19 pandemic, fiscal policies and tourism revenue in Kenya.
Findings
The estimation results of the Markov-switching dynamic regression showed that the coefficients of international tourists arrivals, domestic bed occupancy and international bed occupancy are positive and significant with p-values of 0.000 during the pandemic period. The findings show that the transitioning periods during the fiscal policy shifts had an effect on the international arrivals. Therefore, fiscal incentives were key in influencing tourism arrivals and bednights occupancies.
Research limitations/implications
The theoretical implications show that to promote the state of high international and domestic tourist arrivals, the government should encourage more fiscal spending initiatives that encourage the increase in tourist arrivals and occupancies such as vaccinations against COVID-19 and promoting safe spaces for visitors within the destination is key towards reviving the sector. In order to curb the hysteresis effects of COVID-19 related depression and resultant impacts on GDP, there is a need to review the national fiscal policies and target fiscal policies on the cyclical effects of the COVID-19 impacts on international tourism market.
Originality/value
This research develops an economic model that builds accurate relationships between fiscal policies, pandemics and tourism destination competitiveness as a means of informing competitive tourism management strategies and governance.
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