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Article
Publication date: 2 November 2015

Muhammad Umar and Gang Sun

– The purpose of this study is to analyze the relationship between country risk, stock prices and the exchange rate of the renminbi (RMB) compared to that of the US dollar.

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Abstract

Purpose

The purpose of this study is to analyze the relationship between country risk, stock prices and the exchange rate of the renminbi (RMB) compared to that of the US dollar.

Design/methodology/approach

An extended open macroeconomic model with investment–saving, liquidity preference–money supply and aggregate supply functions was used by applying comparative static analysis. After checking the series for stationarity and cointegration, a vector autoregressive model was applied. Lag length was selected based on the Akaike information criterion, and the coefficients were calculated for the overall sample and for pre- and post-July 2005 periods.

Findings

The stock market index is a significant determinant of variation in the exchange rate: when the Chinese stock market performs well, the RMB appreciates and vice versa. Country risk is not a significant determinant of the exchange rate, but the exchange rate of the RMB is a highly significant determinant of the country risk of China: depreciation of the RMB results in higher country risk and vice versa.

Research limitations/implications

Linear interpolation was used to calculate the monthly values of some of the variables for which only annual data were available.

Practical implications

The authorities should revalue the exchange rate of the RMB against the US dollar, which will result in lower country risk for China. One way to achieve this is to strengthen the performance of stock markets.

Originality/value

To the best of the authors’ knowledge, this is the first study to explore the relationship between the country risk of China and the exchange rate of the RMB. Using an open macroeconomic model, this novel research analyzes the relationships between country risk, stock prices and the exchange rate of the RMB from a different perspective.

Details

Journal of Financial Economic Policy, vol. 7 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

Book part
Publication date: 19 March 2018

Lentina Simbolon and Purwanto

This research essentially aims to examine the extent to which macroeconomic factors (including interest rate, inflation rate, exchange rate, and GDP growth rate) have a…

Abstract

This research essentially aims to examine the extent to which macroeconomic factors (including interest rate, inflation rate, exchange rate, and GDP growth rate) have a positive influence on stock price and the level of significance for that influence. The researchers focused more on real estate and property companies that are listed on the Indonesian Stock Exchange, with consideration for the stock price of real estate and property companies listed on the Indonesia Stock Exchange (IDX) as the most volatile stock during those years (and its market capitalization was the largest during 2012). This study finds that interest rate, inflation rate, exchange rate, and GDP growth rate, as composite variables, have a significant influence on stock price. A partial test revealed that interest rate, inflation rate, and exchange rate have significance on stock price, while GDP growth rate is found to be nonsignificant.

Details

Global Tensions in Financial Markets
Type: Book
ISBN: 978-1-78714-839-0

Keywords

Article
Publication date: 1 January 1995

Nidal Rashid Sabri

A new environment has evolved in the international stock markets, as expressed by the occurrence of market crises and high swings of stock prices. The stock prices are…

Abstract

A new environment has evolved in the international stock markets, as expressed by the occurrence of market crises and high swings of stock prices. The stock prices are supposed to respond to real data under the market efficiency hypothesis. However, in some cases, price fluctuation is influenced by other conditions which may lead to a crisis. This paper discusses the issue based on the opinions of the stock market experts. The Amsterdam Stock Exchange (ASE) has been selected as a case for this research. The study indicates there is no significant difference among the perceptions of the three groups of ASE stock market experts concerning nine stated conditions which may lead to a stock market crisis, while significant differences exist among the ASE brokers, bankers and specialists concerning six stated elements that minimize the probability of evolving a stock market crises. There is a positive association among the groups of Amsterdam stock market experts about the total conditions that may lead to a stock market crisis, but there is no association concerning the total elements that minimize the probability of evolving a stock market crisis.

Details

International Journal of Commerce and Management, vol. 5 no. 1/2
Type: Research Article
ISSN: 1056-9219

Article
Publication date: 23 January 2009

Sylvia Maxfield

The purpose of this paper is to describe and critique the swing in international policy from encouraging lower income countries to erect local stock exchanges in the 1990s…

1934

Abstract

Purpose

The purpose of this paper is to describe and critique the swing in international policy from encouraging lower income countries to erect local stock exchanges in the 1990s to discouraging them on efficiency grounds after the US securities markets collapsed in 2001.

Design/methodology/approach

Surveys existing literature and data about stock exchanges in emerging market countries for evidence justifying a supportive policy approach to local exchanges in lower income countries.

Findings

Basic indicators of stock exchange performance in lower income countries from the World Development Indicators database reveal positive trends alongside the less auspicious indicators emphasized by international organizations opposed to stock exchange development in lower income countries. A survey of finance and development literature generally, and work on capital markets specifically, provides evidence of and rationale for the public benefits of stock exchange development, particularly in emerging market countries. Review of governance structures of stock exchanges in low and middle income countries finds the public interest reflected in government participation in stock exchange boards and in their predominantly non‐profit status. Existing research on stock exchange trading systems provides a rationale for specific policy choices to encourage stock market performance and also highlights areas for further policy‐relevant research.

Originality/value

Provides evidence and rationale to bolster the case for public support of local stock exchange development in low and middle income countries in the face of opposition to such efforts from international development agencies like the World Bank.

Details

International Journal of Emerging Markets, vol. 4 no. 1
Type: Research Article
ISSN: 1746-8809

Keywords

Book part
Publication date: 21 July 2004

Hemantha S.B. Herath and John S. Jahera

The flexibility of managers to respond to risk and uncertainty inherent in business decisions is clearly of value. This value has historically been recognized in an ad hoc…

Abstract

The flexibility of managers to respond to risk and uncertainty inherent in business decisions is clearly of value. This value has historically been recognized in an ad hoc manner in the absence of a methodology for more rigorous assessment of value. The application of real option methodology represents a more objective mechanism that allows managers to hedge against adverse effects and exploit upside potential. Of particular interest to managers in the merger and acquisition (M&A) process is the value of such flexibility related to the particular terms of a transaction. Typically, stock for stock transactions take more time to complete as compared to cash given the time lapse between announcement and completion. Over this period, if stock prices are volatile, stock for stock exchanges may result in adverse selection through the dilution of shareholder wealth of an acquiring firm or a target firm.

The paper develops a real option collar model that may be employed by managers to measure the market price risk involved to their shareholders in offering or accepting stock. We further discuss accounting issues related to this contingency pricing effect. Using an acquisition example from U.S. banking industry we illustrate how the collar arrangement may be used to hedge market price risk through flexibility to renegotiate the deal by exercising managerial options.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-0-76231-118-7

Book part
Publication date: 1 October 2015

Bill B. Francis, Iftekhar Hasan and Eric Ofori

This paper investigates the impact of the development of capital markets on economic growth in Africa and reports a significant increase in real GDP per capita after stock

Abstract

This paper investigates the impact of the development of capital markets on economic growth in Africa and reports a significant increase in real GDP per capita after stock exchanges are established. This paper also reveals that there are significant improvements in the level of private investments in the post stock market launch era. The results also indicate that stock markets play a complementary role to the banking sector by contributing to the availability of private credit. Although African capital markets are relatively less advanced when compared to capital markets on other continents (particularly in terms of technology, structure, and liquidity), we find that their establishment has been crucial in helping African countries catch up with the rest of the world.

Details

International Corporate Governance
Type: Book
ISBN: 978-1-78560-355-6

Keywords

Abstract

Details

Dynamic Linkages and Volatility Spillover
Type: Book
ISBN: 978-1-78635-554-6

Book part
Publication date: 30 April 2008

Rebecca Abraham and Charles W. Harrington

We propose a novel method of forecasting equity option spreads using the degree of multiple listing as a proxy for expectations of future spreads. Spreads are a…

Abstract

We propose a novel method of forecasting equity option spreads using the degree of multiple listing as a proxy for expectations of future spreads. Spreads are a transactions fee for traders. To determine the future spreads on options being considered for purchase, traders must take current market trends affecting spreads into account. One such trend is the continued decline in spreads due to the multiple listing of options. Options listed on 4–6 exchanges compete more intensely than those listed on fewer exchanges, so that they may be expected to experience greater future declines in spreads. This study identifies the listing dates and number of listed exchanges for options listed on up to six exchanges as of May 2005. Listing criteria for multiple listing are defined with short- and long-term volumes, market capitalization, net income, and total assets being significant determinants of multiple listing. Short- and long-term volumes were found to have no explanatory power for multiple listing. Ranges of listing criteria are specified so that traders may locate the options of their choice.

Details

Advances in Business and Management Forecasting
Type: Book
ISBN: 978-0-85724-787-2

Article
Publication date: 31 August 2021

Rakesh Kumar Verma and Rohit Bansal

This paper aims to identify various macroeconomic variables that affect the stock market performance of developed and emerging economies. It also investigates the effect…

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Abstract

Purpose

This paper aims to identify various macroeconomic variables that affect the stock market performance of developed and emerging economies. It also investigates the effect of these factors on the stock markets of both economies. The impact of these variables on broad market indices and sectoral indices is investigated and compared too.

Design/methodology/approach

The publications for the study were retrieved from databases such as Emerald Insight, EBSCO, ScienceDirect and JSTOR using the keywords “Macroeconomic variables” and “Stock market” or “Stock market performance.” The result demonstrated a growing corpus of scholarly work in the domain of stock market. The study was carried out separately for each macroeconomic indicator. Given a large number of articles under consideration, the authors began by reading the titles and abstracts of all publications to identify those that were relevant. The papers are evaluated in Excel and the articles for review range from 1972 to 2021.

Findings

The authors found that gross domestic product (GDP), FDI (Foreign Direct Investment) and FII (Foreign Institutional Investment) have a positive effect on both emerging and developed economies’ stock market while gold price has a negative effect. Interest rates had a negative impact on both economies except for a few developing countries. The relationship with oil prices was positive for oil exporting countries while negative for oil importing countries. Inflation, money supply and GDP are the macroeconomic variables that have the same effect on sectoral indices as they do on broad market indices. The impact was sector-specific for the remaining variables.

Research limitations/implications

This paper gives an overview of relation and effect covering variety of macroeconomic variables and stock market indices. Still, there is a scope for further research to analyze the effect on thematic, strategy and sectoral indices. A longer time horizon with new variables, such as bank deposit growth rate, nonperforming assets of banks, consumer confidence index and investor sentiment, can be studied using high-frequency data. This research may help stakeholders adopt and manage their policies during a crisis or economic slump.

Practical implications

This study will assist investors, researchers and educators in the fields of economics and finance in understanding how macroeconomic factors affect the stock market. Furthermore, this study can guide in portfolio diversification strategy across multiple sectors by examining the impact of macroeconomic factors specific to sectoral indices. This paper provides insight into society and researchers since it integrates a number of macroeconomic variables and their interaction with the stock market. It may also help pension funds and mutual fund firms to hedge their funds and allocate equity portfolios.

Originality/value

With respect to India, this study looked at new macroeconomic variables and sectors. It contrasted the impact of these variables in developed and developing economies. The effect of broad and sectoral stock indexes was also investigated and compared. The authors examined how these variables responded during crisis and economic downturns by using articles from a longer time frame. This research also looked into how changing the frequency of data for the variables altered stock performance. This paper emphasized the need for more research into thematic, strategy and broad market indices, such as small-cap and mid-cap indices.

Details

International Journal of Emerging Markets, vol. 16 no. 7
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 4 July 2016

Wanida Jarungkitkul and Sorasart Sukcharoensin

The purpose of this paper is to study the competitiveness of the stock markets in ASEAN 5, which are the Stock Exchange of Thailand (SET), the Singapore Exchange (SGX)…

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Abstract

Purpose

The purpose of this paper is to study the competitiveness of the stock markets in ASEAN 5, which are the Stock Exchange of Thailand (SET), the Singapore Exchange (SGX), Bursa Malaysia (BM), the Indonesia Stock Exchange (IDX), and the Philippine Stock Exchange (PSE).

Design/methodology/approach

This research applies Porter’s (1990) diamond model to analyze the competitiveness and the data were collected from World Economic Forum, International Institute for Management Development, the World Federation of Exchanges database, and DataStream.

Findings

The results show that SGX is the most competitive exchange in ASEAN 5 region. It dominates other exchanges in every dimension. It gains its reputation for being the region’s most prominent exchange, followed by BM, SET, IDX, and the PSE, respectively.

Practical implications

The results of this investigation provide rank for competitiveness of stock exchanges among ASEAN 5 and identify the way to improve its competitive position.

Social implications

It is useful for public and private sectors involved in the development and policy making to promote funding and investment efficiency of the exchanges. It will be benefit to establish the well-planned development strategy and policy to build up the competitive advantage of the nations.

Originality/value

Identifying and benchmarking the competitiveness of the stock markets in ASEAN economies. By using Diamond Model, the authors propose indicators to assess the competitiveness of the stock markets in ASEAN 5 countries. Assessing the competitiveness of the ASEAN stock markets in this paper will lead us to better understand about each country’s strengths and weaknesses and to promote a mutual collaboration among the region toward ASEAN Economic Community.

Details

Benchmarking: An International Journal, vol. 23 no. 5
Type: Research Article
ISSN: 1463-5771

Keywords

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