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The assessment of interdependence between stock markets is an important aspect of international portfolio management. The purpose of this paper is to examine and highlight…
The assessment of interdependence between stock markets is an important aspect of international portfolio management. The purpose of this paper is to examine and highlight the diversification potential of South Asian stock markets vis-à-vis developed and European stock markets.
The developed stocks markets include USA and UK, and South Asian stock markets include India, Pakistan and Sri Lanka while DJ STOXX 600 index is used to represent the European stock markets. Monthly data are used to examine long-run relationship through ARDL bound testing approach and estimates are obtained using DLOS. Short-term dynamics are captured through vector error correction-based Granger causality.
South Asian stock markets are closely linked with each other; similarly, developed/European markets are interlinked. US stock market not only impacts European stock markets, it also Granger cause South Asian stock markets. The findings suggest increase in comovement of South Asian stock markets with the global markets after financial crises of 2007-2008.
The diversification benefits of South Asian stock markets for international investors are still evident due to their low relationship (in both long and short run) with developed/European stock markets.
Given the emergence of South Asian stock markets, new insight on their relationship with developed stock markets can provide interesting findings for international portfolio diversification. The South Asian equity markets are an important source of investment because of their immense growth and weak correlation with international markets.
This study aims to examine the impact of terrorism on return and systematic risk of Pakistan’s equity industries. Daily data from 1 January 2000 to 31 December 2014 for 12…
This study aims to examine the impact of terrorism on return and systematic risk of Pakistan’s equity industries. Daily data from 1 January 2000 to 31 December 2014 for 12 industries based on the specific types of companies listed on Karachi Stock Exchange are used for the empirical analysis.
A multiplicative (additive) term is introduced in the standard capital asset pricing model to examine the change in systematic risk (industry returns) in response to the terrorist activities. The authors use the multiscale beta approach (Yamada, 2005) and the maximal overlap discrete wavelet transform (MODWT) to test the heterogeneous market hypothesis.
Terrorism activities increase the systematic risk for most of the industries and the negative impact on returns of banks and the financial industry. It is noted that terrorism positively impacts (increases) the industrial systematic risk mainly in short-run (between two and four days-time horizon).
The paper examines the impact of terrorism on a broad list of industries’ (banks, basic materials, chemicals, construction, consumer goods, consumer services, financials, industrials, minerals, oil and gas, textile and utilities) risk and return in Pakistan, using the multiscale beta approach (Yamada, 2005) and the MODWT methods.
The purpose of this paper is to identify the arbitrage opportunities between US industry-level credit and stock markets with a focus on dynamic lead-lag relationships…
The purpose of this paper is to identify the arbitrage opportunities between US industry-level credit and stock markets with a focus on dynamic lead-lag relationships given that these markets involve heterogeneous agents operating over various time horizons.
The authors use daily data of 11 US industries stock markets and their credit counterparts to model the dynamic dependence and casual nexuses using time-frequency approach, namely, wavelet squared coherence (WTC).
The WTC estimation results show that credit and stock markets are out of phase (counter cyclical) and stock markets lead their credit counterparts. The coherence between two markets increases during financial crises. The banks (utilities) industry credit and stock markets have relatively high (low) dependence.
The casual nexuses between stock and credit markets have multilateral dimensions. Greater interest in examining the relationship between stock markets and credit default swap (CDS) spreads emerged as an important albeit a complex area of research, and gained prominence especially at the onset and following the global financial crises of 2007-2008 which clearly showed that the positive views of CDSs contribution in creating a resilient and efficient financial sector was nothing further from the truth.
The arbitrage and hedging opportunities between stock and credit markets are industry dependent and vary over investment time horizons. The utilities industry seems attractive for the investment with the objective to exploit arbitrage, but not for hedging.
The paper, for the first time, employs time-frequency approach to assess the arbitrage opportunities between US industry-level credit and stock markets.