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Article
Publication date: 27 March 2009

Yi‐Jer Huang and Frank W. Bacon

The purpose of this paper is to examine the relationship between the US and China stock markets between 2000 and 2007. This study attempts to categorize the event on…

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1326

Abstract

Purpose

The purpose of this paper is to examine the relationship between the US and China stock markets between 2000 and 2007. This study attempts to categorize the event on February 27, 2007, i.e. 9 per cent plunge in Shanghai stock market followed by the $1.5 trillion global market shake out, as irrational, i.e. herd mentality.

Design/methodology/approach

To test for this relationship, the Morgan Stanley Capital International daily price index data was collected from April 15, 2002 to April 12, 2007. Daily Dow Jones Industrial Average (DJIA), Nikkei 225 (Nikkei), Hang Seng Index, and the Shanghai Stock Exchange Composite Index (SSECI) were collected from finance.yahoo.com from January 1, 2000 until April 3, 2007. The running beta and correlation coefficients, defined as the cumulative coefficients, are used to determine the co‐movement of the SSECI and DJIA.

Findings

The strength of the relationship between the US and China stock markets has significantly increased since 2005, maybe attributed to China's policy change in 2005 to move toward a more free market economy. Because of the unique characteristics of China's stock market, it is hard to conclude that the $1.5 trillion global market shake out was ignited by the 9 per cent plunge in the Shanghai stock market on February 27, 2007.

Research limitations/implications

China's economic reform is unique since the country followed no blue print for the economic institutions to model after and policies were adopted through experimentation. Fueled by its fast growing economy (10.4 per cent in 2005 and 10.7 per cent in 2006), using past patterns or trends to predict the future of China's financial market requires further research as its stock market emerges. Research in this area requires more observations as China's stock market grows and becomes more transparent.

Practical implications

Results here suggest that the strength of the relationship between the US and China stock markets has significantly increased since 2005 and that China's 2005 policy moves toward a more free market economy are most likely responsible.

Originality/value

A better understanding of the influence of China's emerging stock market on the global stock market offers significant value to portfolio managers worldwide.

Details

Management Research News, vol. 32 no. 5
Type: Research Article
ISSN: 0140-9174

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Article
Publication date: 1 February 2000

Raghbendra Jha and Hari K. Nagarajan

This paper examines market structure and efficiency of price transmittals in the two national stock exchanges of India: The Bombay Stock Exchange and the National Stock

Abstract

This paper examines market structure and efficiency of price transmittals in the two national stock exchanges of India: The Bombay Stock Exchange and the National Stock Exchange. Price movements in a large number of important stocks in both markets are considered. The framework used is the Johansen‐Juselius multivariate cointegration technique. It is discovered that price movements within each market are cointegrated. Short‐run ECM analysis shows that no stock in any market is exogenous, thus indicating that there is considerable feedback in short‐run price movements from each stock. Some short‐run price movements are stabilizing. The Bombay Stock Exchange and National Stock Exchange appear to be reasonably efficient markets.

Details

International Journal of Commerce and Management, vol. 10 no. 2
Type: Research Article
ISSN: 1056-9219

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Article
Publication date: 8 November 2011

Tho Nguyen

The purpose of this paper is to investigate the spillover effect of the US macroeconomic news on the first two moments of the Vietnamese stock market returns.

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1583

Abstract

Purpose

The purpose of this paper is to investigate the spillover effect of the US macroeconomic news on the first two moments of the Vietnamese stock market returns.

Design/methodology/approach

The author collected market expectation and actual announcements data for 12 key US macroeconomic announcements for the period from August 2000 to September 2009 from Bloomberg. The dataset consists of monthly Non‐farm payroll (NFPM), Unemployment level (UNEMP), Gross Domestic Product percentage level (GDP), Housing statistics (HOMEST), Industrial production (INDP), Leading Indicator (LEAD), Retail Sales (SALES), Consumer Price Index (CPI), Producer Index (PPI), Current Account (CA, quarterly), Trade Balance (BOT), and the Federal Reserve's target rates (FOMC, 8 times a year and ad hoc meetings if needed). The MA‐EGARCH (1,1) model is used for the empirical test of the US macroeconomic news spillover effects on the VNI index.

Findings

In general, the US real economic news has the strongest effect on the first two moments of the Vietnamese stock returns. This can be interpreted as evidence that Vietnamese market participants believe that the USA is targeting real economic activities other than other variables. It is also shown that even though the US stock market (proxied by S&P500 index) significantly affects the Vietnamese stock market returns, the spillover effect of the US macroeconomic news is still significant.

Research limitations/implications

The author does not explore further on the transmission channels of the spillover effects of the US news on the Vietnamese stock market, reserving this task for future research.

Originality/value

The paper contributes to the extant literature in several ways. First, to the author's knowledge, the current literature lacks empirical evidence for the impact of the US macroeconomic news on the first two moments of the Vietnamese stock markets. Given the growing integration between the two economies, evidenced by the fact that the USA is Vietnam's largest foreign direct investor and importer, the US macroeconomic news is very important, not only for Vietnamese policy makers but also for market participants. Furthermore, the choice of a small and open market with increasing exposure to the world economy and vulnerable to the US news (i.e. Vietnam) would help in reducing the problem of endogeneity bias in previous studies employing large economy pairs, as the US news might affect the Vietnamese stock market but not the reverse. Finally, previous studies tend to investigate the impact of macro news only on conditional returns. In this study, both conditional returns and the conditional variance of returns are modelled simultaneously in a time‐varying framework (MA‐GARCH) to better capture the impact of macroeconomic news on stock returns and stock market volatility.

Details

The Journal of Risk Finance, vol. 12 no. 5
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 5 June 2009

N. Rajiv Menon, M.V. Subha and S. Sagaran

One of the anxieties of stock market investors is whether the markets operate efficiently, independently and with sound fundamentals. This concern is also held by…

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2154

Abstract

Purpose

One of the anxieties of stock market investors is whether the markets operate efficiently, independently and with sound fundamentals. This concern is also held by academics and practitioners for quite some time. However, real market situation tends to exhibit a link as is evident from recent market movements across the world. The purpose of this paper is to examine whether the stock markets in the Indian subcontinent have any link with the major stock markets from China, Singapore, America, and Hong Kong.

Design/methodology/approach

The paper uses Engle Granger test of cointegration.

Findings

The paper finds that the Indian markets are related to some of the markets around the world.

Originality/value

The paper offers insight into the cointegration of Indian stock markets with other leading stock markets.

Details

Studies in Economics and Finance, vol. 26 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 8 November 2011

Bakri Abdul Karim, Mohamad Jais and Samsul Ariffin Abdul Karim

The purpose of this paper is to examine the effects of the current global crisis on the integration and co‐movements of selected stock index futures markets.

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1831

Abstract

Purpose

The purpose of this paper is to examine the effects of the current global crisis on the integration and co‐movements of selected stock index futures markets.

Design/methodology/approach

Time series techniques of cointegration and weekly data covering the period from January 2001 to December 2009 were used in this study. The period of analysis was divided into two periods, namely the pre‐crisis period (January 2001‐July 2007) and during crisis period (August 2007‐December 2009).

Findings

No evidence was found of cointegration among the stock index futures markets in both periods. Accordingly, the 2007 subprime crisis does not seem to affect the long‐run co‐movements among the stock index futures markets.

Practical implications

The stock index futures markets provide opportunity for the potential benefits from international portfolio diversification and hedging strategies even after the subprime crisis. The stock index futures significantly extended the variety of investment and risk management strategies available to investors.

Originality/value

Examining the effects of the US subprime crisis on the stock index futures markets integration, to the best of the authors' knowledge, goes clearly beyond the existing literature on the subject matter.

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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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Article
Publication date: 23 November 2010

Bakri Abdul Karim, Nor Akila Mohd. Kassim and Mohammad Affendy Arip

The purpose of this paper is to examine the effects of the current global crisis on the integration and co‐movements of selected Islamic stock markets.

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2335

Abstract

Purpose

The purpose of this paper is to examine the effects of the current global crisis on the integration and co‐movements of selected Islamic stock markets.

Design/methodology/approach

Time series techniques of cointegration were used over the period spanning from February 15, 2006 to December 31, 2008. In order to explore changes in the stock market integration and co‐movement, following Majid and Kassim, we divide the period of analysis into two periods, namely the pre‐crisis period (February 15, 2006‐July 25, 2007) and during crisis period (July 26, 2007‐December 31, 2008).

Findings

No evidence was found of cointegration among the Islamic stock markets in both periods. Accordingly, the 2007 subprime crisis does not seem to affect the long‐run co‐movements among the Islamic stock markets.

Practical implications

The Islamic stock markets provide opportunity for the potential benefits from international portfolio diversification, even after the subprime crisis. The prohibition of riba, gharar and maysir is one of the plausible reasons of no cointegration in the Islamic stock markets.

Originality/value

Using the Islamic stock indices, to the best of the authors' knowledge, goes clearly beyond the existing literature on the subject matter.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 3 no. 4
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 10 April 2007

Jeff Madura and Nivine Richie

The purpose of this article is to assess the pricing of stocks that are traded on both a US stock exchange and a non‐US stock exchange to determine whether interaction…

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1178

Abstract

Purpose

The purpose of this article is to assess the pricing of stocks that are traded on both a US stock exchange and a non‐US stock exchange to determine whether interaction exists between the two exchanges.

Design/methodology/approach

This article identifies extreme price movements of stocks (winners and losers) in the non‐US stock exchanges that also trade as American depository receipts (ADRs) in the US market, and measure the US market response. Also identifies extreme price movements of stocks (winners and losers) in the US stock exchanges that also trade in the non‐US markets, and measure the non‐US market response.

Findings

Finds a significant reversal of winners and losers in the US market, which suggests that the US market attempts to correct the pricing in non‐US markets. Also finds that extreme ADR price movements in the US markets are followed by corrections in the non‐US market.

Research limitations/implications

Market participants appear to monitor unusual stock price movements that just occurred in other markets, and correct for unusual price movements that cannot be rationalized. Such activity in global markets expedites the process by which price discrepancies are corrected. The evidence also suggests that the cost of equity in one market can be influenced by the actions of investors in another market.

Originality/value

This study of non‐US stocks that are cross‐listed in the US in the form of ADRs allows us to examine the interaction of pricing in a stock's local market with pricing in the US market.

Details

International Journal of Managerial Finance, vol. 3 no. 2
Type: Research Article
ISSN: 1743-9132

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Abstract

Details

Dynamics of Financial Stress and Economic Performance
Type: Book
ISBN: 978-1-78754-783-4

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Article
Publication date: 19 April 2011

Ingyu Chiou

The purpose of this paper is to investigate the lead‐lag relationships between three major stock markets (Tokyo, London, and New York) over the period 1997‐2007, using the…

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980

Abstract

Purpose

The purpose of this paper is to investigate the lead‐lag relationships between three major stock markets (Tokyo, London, and New York) over the period 1997‐2007, using the return‐volatility variable. The study aims to use new data to test how one national stock market affects another national stock market, which is one focus of the market integration literature.

Design/methodology/approach

The paper employs the traditional regression model because three stock markets (Tokyo, London, and New York) are in different time zones and trading takes place sequentially. Specifically, the intraday return is calculated from the daily open and close prices.

Findings

This paper finds strong evidence that three stock markets are significantly interdependent: Tokyo leads London and New York; London leads New York and Tokyo; and New York leads Tokyo and London. In particular, the tie between London and New York is the strongest. Most of the author's results are consistent with those of previous studies.

Practical implications

First, there may exist profitable investment strategies in one market by observing the performance of another market that was just closed. Second, regulators should pay close attention to not only the domestic market but also the foreign markets and be ready to deal with adverse situations accordingly. Third, achieving international diversification in portfolio management may become more challenging because of high correlations between markets.

Originality/value

This paper extends the existing literature in market integration by using return volatility to test how one market affects another market. Our new evidence confirms that there are high degrees of linkages between Tokyo, London, and New York.

Details

Managerial Finance, vol. 37 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

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