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1 – 10 of 582Chien-Hung Chen, Nicholas Lee, Fu-Min Chang and Li-Peng Lan
This study aims to examine whether global gold futures returns volatilities and trading activities are threshold cointegrated.
Abstract
Purpose
This study aims to examine whether global gold futures returns volatilities and trading activities are threshold cointegrated.
Design/methodology/approach
This study considers 11 gold futures markets, including 3 developed futures markets and 8 developing futures markets. This study also analyzes futures trading activities for speculators and hedgers. This study uses a nonlinear threshold vector error correction model (TVECM) and a threshold Lagrange multiplier (LM) test proposed by Hansen and Seo (2002).
Findings
The findings show that global gold futures return volatilities (FRV) and trading activities are not always threshold cointegrated. Most developed futures markets exhibit threshold cointegrated of gold FRV and trading activities for speculators and hedgers, whereas some developing futures markets exhibit threshold cointegrated. It suggests that speculators and hedgers trading activity conveys valuable information about changes in market volatility dynamics. On the other hand, responses to error-correction effect among gold FRV and trading activities for speculators and hedgers are dramatically different for developed and developing gold futures markets, respectively, particular in the unusual regime.
Research limitations/implications
Research results show that threshold cointegration between global gold FRV and trading activities matters but not always. Thus, threshold relations have improved the authors’ understanding of global gold futures price discovery process with a threshold. For research limitations, this study uses only near month futures contracts, as it contains more information but not using far month contracts.
Practical implications
The findings may have important trading implications with additional insights in a(n) (un)usual regime further regulation may be detrimental to the price responsiveness in futures markets if increased price volatility and trading volume are attributed to liquid and efficient markets.
Social implications
The findings may have important policy implications with additional insights. For example, in a(n) (un)usual regime greater regulatory restrictions may be warranted to decrease market inefficiencies if increased price fluctuations are caused by increased trading volume. Policymakers could enhance futures trading liquidity or restrict speculating positions.
Originality/value
This study examines whether global gold futures returns volatilities and trading activities are threshold cointegrated by using a nonlinear TVECM. The authors detect that some global gold futures returns volatilities and trading activities are threshold cointegrated but some are not. Hence, the findings determine whether the volatility–volume threshold relation holds across countries and investigate the determinants of cross-country differences in different traders.
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Mark J. Holmes and Nabil Maghrebi
The purpose of this study is to investigate nonlinearities in the behavior of investment expenditure. Conventional wisdom suggests that Tobin’s Q criterion is an important…
Abstract
Purpose
The purpose of this study is to investigate nonlinearities in the behavior of investment expenditure. Conventional wisdom suggests that Tobin’s Q criterion is an important explanation of investment behaviour that bridges the financial and real sides of the economy. However, the empirical evidence in support of Q as a means of explaining aggregate business investment is rather weak. We answer a number of questions about the relationship between investment expenditure and Q. In particular, is the relationship governed by non-linearities? If so, what is the nature of the non-linearities present?
Design/methodology/approach
The rationale for paying closer attention to non-linearities is based on the presence of information asymmetries and possible dependence of adjustments on non-linearities with respect to factors such as fixed costs, threshold effects and irreversibility, which are entertained in the investment literature. Using the non-linear vector error-correction model procedure advocated by Hansen and Seo, we show that in the context of the US economy, investment has a long-run relationship with Q that is based on threshold error correction.
Findings
There are asymmetries present with respect to error correction or the speed of adjustment towards long-run equilibrium. We find that investment expenditure only responds significantly to long-run disequilibrium from Q during a particular regime. Such a regime is characterised by long-run disequilibrium based on high or rising investment expenditure compared with a relatively weak stock market.
Originality/value
The authors provide new insights into the relationship between Tobin’s Q and real investment. In contrast to previous work, they find that error correction based on the adjustment of real investment is regime-specific and function of the size of departures from long-run equilibrium. The tests also allow for the identification of periods when error correction has occurred. Not only are these insights significant for future research on financial crises, market volatility and the impact of debt, but for policymaking purposes as well.
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Haroon Rasool, Mushtaq Ahmad Malik and Md. Tarique
The genesis of Environmental Kuznets curve (EKC) of “grow now clean later” has led to a substantial deterioration of local as well as the global environment. India has not been…
Abstract
Purpose
The genesis of Environmental Kuznets curve (EKC) of “grow now clean later” has led to a substantial deterioration of local as well as the global environment. India has not been spared of this malaise and accounts for the third-largest carbon dioxide emitter in the world. Thus, the present study revisits the curvilinear relationship between economic growth and environmental pollution in case of India over the period of 1971-2014.
Design/methodology/approach
Dickey–Fuller generalised least square (DF-GLS) test developed by Elliott et al. is used to ensure that none of the variables is I(2). The study applies the autoregressive distributed lag (ARDL) bounds estimation technique to test for the existence of cointegration among variables and estimate long-run and short-run parameters. The study also applies the Bai–Perron structural break test with unknown break date to determine the threshold point. The study further uses the vector error correction model (VECM) Granger causality test to check the direction of causality between variables.
Findings
The ARDL bounds estimation technique confirms the cointegration among variables. The long-run coefficients of energy consumption, economic growth and financial development are found to have an adverse impact on environmental quality. The results also validate the existence of conventional EKC hypothesis. Bai–Perron structural break test, along with t-test and scatter graph, shows that inverted U-shaped relationship between environmental pollution and economic growth holds true. The VECM-based causality results support “growth hypothesis” both in the long run and short run.
Research limitations/implications
This study refrained from considering a variety of variables, as the main intention of the study is to investigate whether any threshold or turnaround point exists for India. The future studies should consider a new set of variables (e.g. population, corruption index, social indicators, political scenario, energy research and development expenditures, foreign capital inflows, public investment towards alternate energy exploration, etc.) in the estimation of EKC hypothesis.
Practical implications
The results validate the existence of conventional EKC hypothesis. Thereby the study argues that instead of being a threat to environmental quality, economic growth is observed to generate a sustainable environment to live in. Further, bi-directional causality is found between carbon emissions and economic growth. Thus, any effort to mitigate CO2 or environment conservation policy will impede economic growth. Consequently, controlling primary energy consumption and supply and replacing it with renewable and clean energy could be desirable for climate change mitigation.
Originality/value
The data set has been refined so that the EKC estimation issues raised by Stern (2004) are addressed. In particular, statistical properties of the data set such as serial correlation, presence of a stochastic or deterministic trend, has been adequately taken care of to remove any spurious correlation. Finally, various control variables have been included to provide consideration to issues of model adequacy, such as the possibility of omitted variables bias. To the authors’ best knowledge, there is no India-specific study which has taken care of data-related issues, as suggested by Stern, in the estimation of a curvilinear relationship between environmental degradation and economic growth in India. Further, this is the first study which has used Bai–Perron structural break test with unknown break date to identify the threshold point while estimating EKC in India.
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Christos Floros and Dimitrios V. Vougas
The paper's objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999‐2001; to…
Abstract
Purpose
The paper's objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999‐2001; to investigate the short‐run and long‐run efficiency of the FTSE/ASE‐20 stock index futures contract and FTSE/ASE Mid 40 stock index futures contract traded on the Athens Derivatives Exchange (ADEX).
Design/methodology/approach
This paper examines efficiency of the Greek stock index futures market from 1999 to 2001. A variety of econometric models are employed to test for cointegration between prices. The paper uses daily data from the Athens Stock Exchanges (ASEs) and the ADEX. A more detailed discussion on the causal relationship between spot and futures price in ADEX is obtained by using the impulse response functions of the vector error‐correction model (to study the behaviour of series from real shocks).
Findings
The results show that the Greek futures and spot prices form a stable long‐run relationship. For both FTSE/ASE‐20 and FTSE/ASE Mid 40, futures markets play a price discovery role, implying that futures prices contain useful information about spot prices. Futures markets are informationally more efficient than underlying stock markets in Greece.
Practical implications
The results have important implications for both traders and speculators. The findings are strongly recommended to financial managers dealing with Greek stock index futures.
Originality/value
The contribution of this paper is to provide evidence using data from the early stage of the ADEX (started its official operation on 27 August 1999). It also investigates whether the hypotheses exist after the dramatic rise of ASE stock prices.
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Yadawananda Neog and Achal Kumar Gaur
In the academic debate, the tax–growth relationship is always a controversial one. This paper aims to investigate the relationship between tax structure and economic growth in…
Abstract
Purpose
In the academic debate, the tax–growth relationship is always a controversial one. This paper aims to investigate the relationship between tax structure and economic growth in India for the period 1980-2016. After controlling for total tax revenue share to GDP in the estimation model, the authors examine the long-run and short-run relationship between tax structure and growth in India.
Design/methodology/approach
Auto-regressive distributed lag (ARDL) model has been used in this study. This bound cointegration model has certain advantages to the traditional cointegration model. This study also applies the threshold cointegration test of Hansen and Seo (2002) for examining non-linearity in tax–growth nexus.
Findings
The analysis shows that income tax share, corporation tax share and excise tax share are harmful to growth in the long-run. While the custom share is enlarging the growth performance. Corporation tax share is also reducing growth in the short-run. Following the Pesaran et al. (2001) approach of ARDL bound testing, the authors find the existence of a long-run relationship between studied variables. However, this study does not find any existence of threshold effect in the tax–growth relationship for India.
Practical implications
Based on the empirical findings, the author suggests that the prime tax change, which has the potential to impact both long-run growth and short-run economic recovery is the reduction of corporate tax rate with sustainable revenue generation. It will definitely enlarge the foreign direct investment, saving and investment in India.
Originality/value
This study will be a contribution to the empirical literature by investigating “tax–growth” relationship in the Indian case. To the knowledge, this will be the first study to examine this relationship for India with a recent data set.
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Monsurat Ayojimi Salami and Razali Haron
The purpose of this paper is to examine the pricing efficiency of the Malaysian crude palm oil (CPO) market before and after the structural break. This study uses the daily…
Abstract
Purpose
The purpose of this paper is to examine the pricing efficiency of the Malaysian crude palm oil (CPO) market before and after the structural break. This study uses the daily closing price of CPO and CPO futures (CPO-F) for the period ranging from June 2009 to August 2016 while taking structural breaks into account.
Design/methodology/approach
In this study, symmetric and asymmetric long-run relationship model are employed, such as the Johansen cointegration, VECM, TAR and M-TAR models, to examine the impact of structural breaks on the pricing efficiency of the Malaysian CPO market.
Findings
This finding establish that Malaysian CPO price is efficient before and after the structural break. The consistent efficiency of the Malaysian CPO market supports the trading of the CPO-F in Globex and the use of Malaysian CPO pricing as the reference price. This study establishes that a structural break in the Malaysian CPO price series does not affect the pricing efficiency of the market.
Research limitations/implications
This study shows that using Malaysian CPO price as a reference price is sustainable even in the event of a structural break. Therefore, market participants in the Malaysian CPO market have less to worry about the CPO price as it supports the weak form of efficiency. Price deviation in the short run may not lead to arbitrage profit as transaction cost may not be covered.
Practical implications
This study implies that if there is distortion in the price due to shocks, both manufacturers and producers need to hedge their positions in the futures market (subject to their positions in the underlying market). By entering into the futures market, pricing is locked in advance; hence, price risk is eliminated. Such a distortion could also affect the efficiency of the CPO price, therefore this study also addresses the issue of efficiency of the local CPO market.
Originality/value
Previous studies on Malaysian CPO pricing efficiency did not take the effect of structural break into consideration, making it difficult for these studies to show consistency in the efficiency of the Malaysian CPO market.
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Moses Nzuki Nyangu, Freshia Wangari Waweru and Nyankomo Marwa
This paper examines the sluggish adjustment of deposit interest rate categories with response to policy rate changes in a developing economy.
Abstract
Purpose
This paper examines the sluggish adjustment of deposit interest rate categories with response to policy rate changes in a developing economy.
Design/methodology/approach
Symmetric and asymmetric error correction models (ECMs) are employed to test the pass-through effect and adjustment speed of deposit rates when above or below their equilibrium levels.
Findings
The findings reveal an incomplete pass-through effect in both the short run and long run while mixed results of symmetric and asymmetric adjustment speed across the different deposit rate categories are observed. Collusive pricing arrangement behavior is supported by deposit rate categories that adjust more rigidly upwards than downwards, while negative customer reaction behavior is supported by deposit rate categories that adjust more rigidly downwards than upwards.
Practical implications
Even though the findings indicate an aspect of increased responsiveness over the period, the sluggish adjustment of deposit rates imply that monetary policy is still ineffective and not uniform across the different deposit rate categories.
Originality/value
To the best of the authors' knowledge, this is the first study to empirically examine both symmetric and asymmetric adjustment behavior of deposit interest rate categories in Kenya. The findings are key to policy makers as they provide insights on how long it takes to adjust different deposit rate categories to monetary policy decisions. In addition, the behavior of deposit rates partly explains why interest rates capping was imposed in Kenya in 2016.
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Javed Ahmad Bhat and Naresh Kumar Sharma
This paper aims to scrutinize the asymmetric interactions between current account deficit and gross fiscal deficit in case of a growing and dynamically integrated economy, namely…
Abstract
Purpose
This paper aims to scrutinize the asymmetric interactions between current account deficit and gross fiscal deficit in case of a growing and dynamically integrated economy, namely, India featured with high inequality and liquidity constraints. Two additional variables, trade-openness and output growth, are also incorporated into the analysis to assess their likely impact on the current account balance.
Design/methodology/approach
The study uses a recently developed non-linear autoregressive distributed lag model given by Shin et al. (2014) in its empirical examination. In addition, non-linear cumulative dynamic multipliers are used to understand the route between disequilibrium position of short-run and subsequent long-run equilibrium of the system.
Findings
The study confirms the long-run co-movements of current account deficit and gross fiscal deficit and therefore refutes the Ricardian Equivalence proposition and validates the twin-deficit hypothesis. But instead of a linear relationship of the kind examined in the previous studies, the two variables share asymmetric linkages – both in the short run and in the long run. The asymmetry indicates that positive changes are more influential than their negative counterparts in the short run, whereas in the long run, only the positive changes are found to alter the external balance statistically. The asymmetric impact of fiscal deficits on the current account balance of a country may arise due to its asymmetric impact on aggregate demand through consumption inflexibility (ratchet effect) and the existence of liquidity constraints. The other control variables used in the study are also found to have cointegration with the current account deficit, but the relationship is symmetrical in the long run, even though it is asymmetrical in the short run. The study finally uses the asymmetric cumulative dynamic multipliers to examine the route of asymmetries and adjustments over the course of time. The dynamic multipliers also confirm the results documented in the earlier part and therefore demonstrate their robustness.
Practical implications
The asymmetric results obtained in the study provide strong grounds to devise the policies adaptive to changing arenas in domestic and external sectors. Output growth, export promotion and import substitution, increasing integration and fiscal austerity are seen as helpful in achieving a desired (and growth conducive) external balance together with macroeconomic stability. The need for a prudent fiscal policy and avoidance of profligacy is indicated based on the asymmetric results to ward off any unfavorable impact of fiscal deficits on external account. To conduct a sound fiscal policy, the government needs to cut down unproductive consumption expenditure, raise tax revenues and should pay attention to distribution and trickle-down effects to avoid the adversity of high inequality and liquidity constraints in the economy. Moreover, to ameliorate the current account balance, policies aimed at increasing the real competitiveness through control of domestic price fluctuations and improvement in the quality of tradable goods and services (such as productive investments and technological advancements) should be adopted.
Originality/value
Work reported in the present paper is motivated by the fact that there is no study conducted so far in the Indian context which has analyzed the two deficits in a nonlinear framework. The authors have used a well-articulated nonlinear asymmetric technique to examine the relationship between two deficits when asymmetry is incorporated. This paper will, therefore, enrich the existing literature along the lines of asymmetric linkages. Moreover, the traverse of asymmetries and adjustments over the course of time highlights the inherent dynamism of the relationship.
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Sartaj Rasool Rather and Salah Abosedra
The study investigates the impact of inflation on the variability of relative prices in the context of Lebanon.
Abstract
Purpose
The study investigates the impact of inflation on the variability of relative prices in the context of Lebanon.
Design/methodology/approach
Unlike the traditional method, which relies on the variance of cross-sectional price changes measured at specific points in time to gauge the variability in relative prices, we employ a more appropriate approach. Under this approach, we capture the dispersion in relative prices by estimating how widely (or closely) a set of commodity prices drift apart over a span of time, offering a more comprehensive assessment. Firstly, we employ Johansen’s cointegration test on rolling subsamples to determine the number of statistically significant cointegrating vectors among the prices of 12 major commodity groups. Under this approach, an increase in the number of significant cointegrating vectors indicates a reduction in relative price variability, while a decrease suggests the opposite. Subsequently, we employ ordinary least squares regression to analyze how the fluctuations in inflation affect the variability in relative prices. The sample period ranges from December 2007 to April 2021.
Findings
The empirical results indicate that there exists a certain threshold inflation rate corresponding to which the variability in relative prices is minimized. More importantly, consistent with the theoretical predictions, the results suggest that it is not inflation per se, but the deviation of inflation from the 3% threshold level in either direction that causes higher dispersion in relative prices.
Research limitations/implications
The empirical findings from this study have crucial implications for the operation of monetary and fiscal policy. In particular, these findings suggest that stabilizing long-term inflation around a certain threshold rate will not only help to anchor inflation expectations effectively but will also minimize the welfare costs associated with inflation.
Originality/value
Given the rising inflationary pressure in the recent past and its welfare costs, the study assumes crucial importance in understating how fluctuations in inflation distort the relative price structure and eventually cause resource misallocations and economic inefficiency.
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Kirstin Hubrich and Timo Teräsvirta
This survey focuses on two families of nonlinear vector time series models, the family of vector threshold regression (VTR) models and that of vector smooth transition regression…
Abstract
This survey focuses on two families of nonlinear vector time series models, the family of vector threshold regression (VTR) models and that of vector smooth transition regression (VSTR) models. These two model classes contain incomplete models in the sense that strongly exogeneous variables are allowed in the equations. The emphasis is on stationary models, but the considerations also include nonstationary VTR and VSTR models with cointegrated variables. Model specification, estimation and evaluation is considered, and the use of the models illustrated by macroeconomic examples from the literature.
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