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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.

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

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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

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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

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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…

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

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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

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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

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Abstract

Details

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

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Article
Publication date: 2 December 2020

Anshi Goel, Vanita Tripathi and Megha Agarwal

The present study seeks to investigate the relative edge between the market microstructure of the two leading stock exchanges of the Indian capital market, that is BSE and…

Abstract

Purpose

The present study seeks to investigate the relative edge between the market microstructure of the two leading stock exchanges of the Indian capital market, that is BSE and NSE with a focus on analysing their trading mechanism, efficiency, liquidity and volatility.

Design/methodology/approach

We analyse the microstructure of BSE and NSE on the basis of: (1) trading mechanism – ownership structure, listing of securities, trading system and settlement and clearing process; (2) information efficiency using unit root test, serial correlation, runs test, variance ratio and the ARIMA model; (3) liquidity using trading statistics no. of listed Companies, market capitalisation, no. of trades etc. and (4) volatility using standard deviation and GARCH(1,1) model.

Findings

A comprehensive scrutiny on microstructure of BSE and NSE makes it evident that the two leading stock exchanges of India are mostly similar and leave no scope to choose between them. Both the exchanges are demutualised corporate entities with a fully automated trading system in an order-driven market, informationally inefficient as evidenced by the predictability of returns, have shown tremendously growing trading statistics and by and large a declining trend in volatility over the years.

Practical implications

Understanding the components of the microstructure black-box will provide the regulatory bodies with an intellectual framework to strengthen the market architecture. Both the exchanges will get aware of the dynamics of trading, can grow to be more competitive and attract more firms for listing and investors for trading of securities. Also, investors, portfolio managers and equity analysts will be able to make better investment strategies by understanding how the market works.

Originality/value

Research in the area of market microstructure has been severely neglected, especially in the context of the Indian market. India is the world's fastest growing economies and we have witnessed tremendous reforms in the capital market. The past two and a half decades have brought about several innovations via demutualisation, screen-based trading, emergence of clearing corporations, innovative financial products and intense use of IT in the Indian stock market. A spurt of reforms and the emerging environment make it crucial to deeply analyse the market structure and design of two premier stock exchanges of India – BSE and NSE.

Details

Journal of Advances in Management Research, vol. 18 no. 3
Type: Research Article
ISSN: 0972-7981

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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

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Article
Publication date: 17 January 2020

Walid M.A. Ahmed

This study focuses on Egypt’s recent experience with exchange rate policies, examining the existence of spillover effects of exchange rate variations on stock prices…

Abstract

Purpose

This study focuses on Egypt’s recent experience with exchange rate policies, examining the existence of spillover effects of exchange rate variations on stock prices across two different de facto regimes and whether these effects, if any, are asymmetric.

Design/methodology/approach

The empirical analysis is carried out using a nonlinear autoregressive distributed lag modeling framework, which permits testing for the presence of short- and long-run asymmetries. Relevant local and global factors are also included in the analysis as control variables. The authors divide the entire sample into a soft peg period and a free float one.

Findings

Over the soft peg regime period, both positive and negative changes in EGP/USD exchange rates seem to have a significant impact on stock returns, whether in the short or long run. Short-term asymmetric effects vanish in the free float period, while long-term asymmetries continue to exist. By and large, the authors find that currency depreciation tends to exercise a stronger influence on stock returns than does currency appreciation.

Practical implications

The results offer important insights for investors, regulators and policymakers. With the domestic currency depreciation having a negative impact on stock prices, investors should contemplate implementing appropriate currency hedging strategies to abate depreciation risks and, hence, preserve their expected rate of return on the Egyptian pound-denominated investments. In the current post-flotation era, the government could pursue a flexible inflation targeting monetary policy framework, with a view to both lowering the soaring inflation toward an announced target rate and stabilizing economic growth. The Central Bank of Egypt (CBE) could adopt indirect monetary policy instruments to secure tightened liquidity conditions. Besides, the CBE could raise policy rates to incentivize people to keep their money in local currency-denominated instruments, instead of dollarizing their savings, thereby relieving banks of foreign currency demand pressures. Nevertheless, while being beneficial to the country’s real economy on several aspects, such contractionary monetary measures may temporarily impinge on stock market performance. Accordingly, policymakers should consider precautionary measures that reduce the potential for price distortions and unnecessary volatility in the stock market.

Originality/value

To the best of the authors’ knowledge, the current study represents the first attempt to explore the potential impact of exchange rate changes under different regimes on Egypt’s stock market, thus contributing to the relevant research in this area.

Details

Review of Accounting and Finance, vol. 19 no. 2
Type: Research Article
ISSN: 1475-7702

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