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Book part
Publication date: 6 January 2016

Laura E. Jackson, M. Ayhan Kose, Christopher Otrok and Michael T. Owyang

We compare methods to measure comovement in business cycle data using multi-level dynamic factor models. To do so, we employ a Monte Carlo procedure to evaluate model…

Abstract

We compare methods to measure comovement in business cycle data using multi-level dynamic factor models. To do so, we employ a Monte Carlo procedure to evaluate model performance for different specifications of factor models across three different estimation procedures. We consider three general factor model specifications used in applied work. The first is a single-factor model, the second a two-level factor model, and the third a three-level factor model. Our estimation procedures are the Bayesian approach of Otrok and Whiteman (1998), the Bayesian state-space approach of Kim and Nelson (1998) and a frequentist principal components approach. The latter serves as a benchmark to measure any potential gains from the more computationally intensive Bayesian procedures. We then apply the three methods to a novel new dataset on house prices in advanced and emerging markets from Cesa-Bianchi, Cespedes, and Rebucci (2015) and interpret the empirical results in light of the Monte Carlo results.

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Dynamic Factor Models
Type: Book
ISBN: 978-1-78560-353-2

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Article
Publication date: 29 January 2020

Siew-Peng Lee, Mansor Isa and Noor Azryani Auzairy

The purpose of this paper is to investigate the influence of the real interest rates, inflation and risk premium on the time deposit rates of banks in the dual banking…

Abstract

Purpose

The purpose of this paper is to investigate the influence of the real interest rates, inflation and risk premium on the time deposit rates of banks in the dual banking system in Malaysia.

Design/methodology/approach

The data consists of 1-, 6- and 12-month average time deposit rates of conventional and Islamic banks over the period of January 2000 to June 2017. The cointegration methodologies are used to explore links between the time deposit rates, real rates, inflation and risk premium. The causality tests to test causality linkages between pairs of variables are also applied. The generalised forecast error variance decomposition based on the error correction model is conducted to analyse the impact of variables variation on the deposit rates.

Findings

The results show the presence of two cointegration vectors in the deposit rates, real rates, inflation and risk premium, for both conventional and Islamic bank rates. Causality tests reveal that deposit rates are caused by inflation and risk premium in a one-way causality. The results of variance decomposition highlight the importance of inflation and risk premium in explaining the variations in the bank deposit rates. For the conventional bank, inflation shocks play the most important role in explaining the movements of the deposit rates. In Islamic banks, the major determinant’s largest influence is the risk premium. Between the two bank rates, Islamic bank rates receive more influence from the explanatory variables in the long-run compared to conventional bank rates. The real rates have no noticeable effect on the variance of time deposit rates for both banks.

Originality/value

This study presents new evidence on the relationship between time deposit rates and the three explanatory variables, which are the real interest rates, inflation and risk premium, for both conventional and Islamic banks in Malaysia. The dual banking system allows exploring the similarities and differences between conventional and Islamic banks in Malaysia in terms of the linkages between the variables.

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Journal of Islamic Accounting and Business Research, vol. 11 no. 5
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 3 April 2017

Curdin Pfister, Simone N. Tuor Sartore and Uschi Backes-Gellner

The purpose of this paper is to provide empirical evidence for individual educational investment decisions and to investigate the relative importance of two factors, the…

Abstract

Purpose

The purpose of this paper is to provide empirical evidence for individual educational investment decisions and to investigate the relative importance of two factors, the type of education (vocational vs academic) and subject area (e.g. commercial or health), in determining variance in earnings.

Design/methodology/approach

Using a sample of 1,200 individuals based on the 2011 Swiss Adult Education Survey, Mincer-type earnings equations are estimated. The variance in earnings is decomposed with respect to the two factors mentioned above, which allows to quantify the relative contributions of type of education and subject area to variance in earnings.

Findings

The results of the variance decomposition show that subject area explains nearly twice the variance in earnings compared with that explained by type of education.

Social implications

As results show that earnings variance – and thereby risk – relate more to subject area than to type of education, this study suggests that for individuals caring about the risk of their educational decision the selection of a specific subject area is more relevant than the choice between vocational and academic tracks; in addition, educational policies as part of HRM policies should devote as much attention to the choice of subject areas as to vocational or academic education. This is especially important for companies or countries planning to introduce or to extend vocational education as part of their human resources strategies.

Originality/value

This study is the first to show whether earnings vary more by type of education or by subject area.

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Evidence-based HRM: a Global Forum for Empirical Scholarship, vol. 5 no. 1
Type: Research Article
ISSN: 2049-3983

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Article
Publication date: 3 May 2016

Clemens Ohlert

The purpose of this paper is to examine the role wage dispersion across establishments has played in recent increases in total wage inequality in Germany and compares it…

Abstract

Purpose

The purpose of this paper is to examine the role wage dispersion across establishments has played in recent increases in total wage inequality in Germany and compares it to inequality changes at the individual level. It is queried whether the contribution of establishment heterogeneity to the rise of wage inequality stems from changes of institutional settings or from structures such as establishment size and the composition of the workforce.

Design/methodology/approach

Applying regression-based decompositions of variance to German linked employer-employee panel data for the years 2000-2010 it is analysed to what extent changes associated to firm structures contribute to the rise of total wage inequality.

Findings

Results show that the rise in wage inequality in Germany to a great extent is associated to rising wage variance across establishments, implying that establishment specific wage premiums have grown. By further decomposing across firm components of wage inequality, it is found that changes in across establishment wage inequality related to collective bargaining, worker co-determination and internal labour markets together account for about 3 per cent of the rise in total inequality. Inequality changes related to establishments’ skill and occupational composition account for about 11 per cent and establishment size alone accounts for about 18 per cent of the rise in total inequality.

Originality/value

The main contribution is to quantify the relation of specific establishment characteristics to the rise in total wage inequality over time. Conclusions are drawn about the importance of mechanisms of rent sharing at the firm level in comparison to the determination of wages by individual qualification.

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International Journal of Manpower, vol. 37 no. 2
Type: Research Article
ISSN: 0143-7720

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Article
Publication date: 21 September 2021

Ahamed Lebbe Mohamed Aslam and Selliah Sivarajasingham

This study investigates the long-run relationship between workers' remittances and human capital formation in Sri Lanka by using the macro-level time series data during…

Abstract

Purpose

This study investigates the long-run relationship between workers' remittances and human capital formation in Sri Lanka by using the macro-level time series data during the period of 1975–2020.

Design/methodology/approach

In this study, the augmented Dickey–Fuller (ADF) and Philips–Perron (PP) unit root tests, the autoregressive distributed lag (ARDL) bounds cointegration technique, the Granger causality test, the forecast error variance decomposition technique and impulse response function analysis were employed as the analytical techniques.

Findings

In accordance with the results of unit root tests, the variables used in this study are mixed order. Results of cointegration confirm that workers' remittances in Sri Lanka have both long-run and short-run beneficial relationship with human capital formation. The Granger causality test results indicate that there is a two-way causal relationship between workers' remittances and human capital formation. The results of forecast error variance decomposition expose that innovation of workers' remittances contributes to the forecast error variance in human capital in bell shape. Further, the empirical evidence of impulse response function analysis reveals that a positive standard deviation shock to workers' remittances has an immediate significant positive impact on human capital formation in Sri Lanka for a period of up to ten years.

Practical implications

This research provides insights into the workers' remittances in human capital formation in Sri Lanka. The findings of this study provides evidence that workers' remittances help to produce human capital formation.

Originality/value

By using the ARDL Bounds cointegration and other techniques in Sri Lanka, this study fills an important gap in academic literature.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

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Article
Publication date: 6 November 2018

Shalini Aggarwal and Abhay Raja

This paper aims to study the co-integration among the stock markets of BRIC nations of Brazil, Russia, Indian and China to analyze if the series move apart or they move…

Abstract

Purpose

This paper aims to study the co-integration among the stock markets of BRIC nations of Brazil, Russia, Indian and China to analyze if the series move apart or they move together in the long term. and to examine the implied volatility transmission between the Indian implied volatility index and three international indices and vice-versa by using synchronized daily data by using techniques such as generalized impulse response functions and variance decompositions. More specifically, the authors investigate how shock to one volatility index affects another volatility index and what is the magnitude and sign of affect and how long does the effect persist?

Design/methodology/approach

Unit root tests are conducted to determine the order of integration for each index. The cointegration analysis is used to evaluate the co-movement of a long-term equilibrium relationship among the four stock market indices. Variance decomposition test helps to explain that how much movement in the dependent variable is explained due to its own shock vis-a-vis to the shock of other variables under the study. Impulse response function is used to find out the impact of the standard deviation of shock given to one variable on the impact on the other variable.

Findings

There exists one long-run cointegrating relationship between the four stock markets under study. The coefficient of VECM is −0.00031 which is negative and highly significant at 1 per cent. This confirms the existence of a stable long-run causal relationship between the variables. Variance decomposition shows that indices of Brazil, China and Russia can explain on average 4, 0.5 and 5 per cent, respectively, of the forecast error variance of Indian index. On the other hand, Indian market can explain on an average 6.7, 5 and 3 per cent of the forecast error of Brazilian, Chinese and Russian markets, respectively.

Originality/value

The research paper is an original work of the author.

Details

International Journal of Ethics and Systems, vol. 35 no. 1
Type: Research Article
ISSN: 0828-8666

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Article
Publication date: 8 April 2020

Spyros Spyrou

This paper examines the impact of macroeconomic and risk factors on the profitability and volatility of professional momentum portfolios for the US, the UK, Japan and…

Abstract

Purpose

This paper examines the impact of macroeconomic and risk factors on the profitability and volatility of professional momentum portfolios for the US, the UK, Japan and Germany, for the period 1998–2018. Many of the factors employed, such as energy price changes and economic policy uncertainty, have been largely neglected in the relevant literature.

Design/methodology/approach

Regression analysis, VECTOR AUTOREGRESSION (VAR), Panel-VAR, Variance Decomposition Analysis

Findings

The results indicate that, since the financial crises in the US and the EU, energy prices and economic-policy uncertainty have become important return determinants, along with market-related uncertainty that seems to have a stable impact over time, especially for the U.S. and U.K. portfolios.

Research limitations/implications

Economic policy uncertainty significantly affects contemporaneous momentum returns in the US, UK and Japan, mainly between 2007 and 2018, while market-related uncertainty affects all markets during all subperiods. In addition, the variance of market-related uncertainty (VIX) explains a large percentage of the variance in the momentum returns for the US, UK and Germany.

Practical implications

The main implication of the findings for portfolio managers is that a manager may increase (decrease) exposure to the momentum factor during optimistic (pessimistic) periods and during periods of rising energy prices (high economic policy and market-related uncertainty).

Originality/value

The paper examines the impact of factors, such as energy prices and economic policy uncertainty, which have been largely neglected in the relevant literature on the possible drivers of the momentum strategies. It employs professional portfolios that are often used in practice as benchmark indexes.

Details

Review of Behavioral Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 2 August 2011

Guneratne Wickremasinghe

The purpose of this paper is to examine the causal relationships between stock prices and macroeconomic variables in Sri Lanka, in order to examine the validity of the…

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2553

Abstract

Purpose

The purpose of this paper is to examine the causal relationships between stock prices and macroeconomic variables in Sri Lanka, in order to examine the validity of the semi‐strong form of the efficient market hypothesis.

Design/methodology/approach

The paper adopts unit roots and cointegration, error‐correction modelling, variance decomposition analysis, and impulse responses analysis to examine the causal relationship between six macroeconomic variables.

Findings

The results indicate that there are both short and long‐run causal relationships between stock prices and macroeconomic variables. These findings refute the validity of the semi‐strong version of the efficient market hypothesis for the Sri Lankan share market and have implications for investors, both domestic and international.

Originality/value

The paper addresses several methodological weaknesses in relation to unit root and cointegration tests which previous studies in the area of the paper have overlooked. Further, it uses more variables than those used in a previous study using Sri Lankan data.

Details

Studies in Economics and Finance, vol. 28 no. 3
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 22 June 2018

Sumit K. Majumdar and Arnab Bhattacharjee

Literature, spanning industrial organization and strategic management disciplines, uses variance decomposition to understand the relative importance of firm, industry and…

Abstract

Purpose

Literature, spanning industrial organization and strategic management disciplines, uses variance decomposition to understand the relative importance of firm, industry and business group effects in shaping profitability variations. Some literature analyzes firm profitability under transition to liberalization. Previous research has taken a static before-and-after view on institutional change. This paper aims to focus on the dynamic process of liberalization in India, analyzing how different institutional regime changes alter firm behavior leading to changes in profitability patterns.

Design/methodology/approach

Based on a panel data set of several thousand Indian firms, spanning the 26-year period between 1980-1981 and 2005-2006, the authors determine the relative importance of firm, industry and business group effects in explaining manufacturing firms’ profitability variances across different institutional phases. The authors evaluate three propositions that help assess transition dynamics between phases. They determine the quantum of catch-up or falling behind by firms.

Findings

Different industries emerge as profitability leaders, as the economy progresses through different liberalization phases. Business groups that have been more effective in resource appropriation, rent-seeking, politician management and non-market activities in a controlled regime are replaced as profit leaders by those that, in a free-market economy, can be capable of intra-business resource allocation tasks and leveraging corporate capabilities.

Originality/value

The approach demonstrates how to analyze the underlying detailed structure of firm-level data, and performance outcomes, to derive nuanced interpretation of factors giving rise to the effects that explain profitability variances, and how to assess the way these effects behave over time. The dynamic evidence-based approach highlights what factors matter, where, when and why, in influencing profitability variances, which are a key dimension of industrial and economic performance.

Details

Indian Growth and Development Review, vol. 11 no. 2
Type: Research Article
ISSN: 1753-8254

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Article
Publication date: 1 May 2006

Plamen Patev, Nigokhos Kanaryan and Katerina Lyroudi

To investigate the Central and Eastern European (CEE) equity market co‐movements before, during and after major emerging market crises. To examine the impact of the crisis…

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3213

Abstract

Purpose

To investigate the Central and Eastern European (CEE) equity market co‐movements before, during and after major emerging market crises. To examine the impact of the crisis on the gains of international portfolio diversification in CEE.

Design/methodology/approach

The study is based on the concept of co‐integration. The daily US dollar returns are analyzed for the period August 28, 1996 to August 2, 2001. The whole period is split into three sample periods. The first one is the pre‐crisis period from August 28, 1996 to May 30, 1997. The crisis period is from June 2, 1997 to January 31, 1999. The third period is the post‐crisis from February 1, 1999 to August 31, 2001.

Findings

Indicates no long‐run relationship between the US and the four Central European stock markets. Demonstrates a feedback effect and causality in one direction during and after the crisis period. Confirms a decrease of portfolio benefits in the crisis period and an increase of portfolio benefits in the post‐crisis period.

Research limitations/implications

It is based on econometrics tests that quantify market integration and measure opportunities for international portfolio diversification. Employment of asset pricing models is viewed as a future research.

Practical implications

A very useful source of information for investors in Central and Eastern Europe.

Originality/value

One of the first papers investigated the benefits from portfolio investments in Central and Eastern Europe stock markets during financial crises.

Details

Managerial Finance, vol. 32 no. 5
Type: Research Article
ISSN: 0307-4358

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