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Book part
Publication date: 13 May 2017

Otávio Bartalotti, Gray Calhoun and Yang He

This chapter develops a novel bootstrap procedure to obtain robust bias-corrected confidence intervals in regression discontinuity (RD) designs. The procedure uses a wild

Abstract

This chapter develops a novel bootstrap procedure to obtain robust bias-corrected confidence intervals in regression discontinuity (RD) designs. The procedure uses a wild bootstrap from a second-order local polynomial to estimate the bias of the local linear RD estimator; the bias is then subtracted from the original estimator. The bias-corrected estimator is then bootstrapped itself to generate valid confidence intervals (CIs). The CIs generated by this procedure are valid under conditions similar to Calonico, Cattaneo, and Titiunik’s (2014) analytical correction – that is, when the bias of the naive RD estimator would otherwise prevent valid inference. This chapter also provides simulation evidence that our method is as accurate as the analytical corrections and we demonstrate its use through a reanalysis of Ludwig and Miller’s (2007) Head Start dataset.

Details

Regression Discontinuity Designs
Type: Book
ISBN: 978-1-78714-390-6

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Article
Publication date: 7 June 2018

Omid Sabbaghi and Navid Sabbaghi

This study aims to provide one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis.

Abstract

Purpose

This study aims to provide one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis.

Design/methodology/approach

Using the Morgan Stanley Capital International (MSCI) country indices as proxies for national stock markets, the study conducts a battery of econometric tests in assessing weak-form market efficiency for the developed markets.

Findings

The inferential outcomes are consistent among the different tests. Specifically, the study finds that the majority of developed markets are weak-form efficient while the USA is the sole equity market to be commonly diagnosed as weak-form inefficient across the different tests when using full period data spanning the January 2008-November 2011 period. However, when basing the analysis on one-year subsamples over the identical time period, this study fails to reject weak-form market efficiency for all of the developed markets and presents evidence consistent with the Adaptive Market Hypothesis as described by Urquhart and Hudson (2013). When applying technical analysis for the case of the USA over the full study period, the results indicate that the return predictabilities can be exploited for some horizon of variable length moving average (VMA) trading rules.

Originality/value

This study provides one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis using an extended set of econometric tests. The study contributes to the existing body of empirical research that formally assesses the impact of a financial crisis on stock market efficiency and underlines the significance and relevance of examining market efficiency through subsample analysis.

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Studies in Economics and Finance, vol. 35 no. 3
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 26 July 2013

Dilip Kumar

This paper aims to test the finite sample properties of the automatic variance ratio (AVR) test and suggest suitable measure to improve its small sample properties under…

Abstract

Purpose

This paper aims to test the finite sample properties of the automatic variance ratio (AVR) test and suggest suitable measure to improve its small sample properties under conditional heteroskedasticity and apply it to test the martingale hypothesis in the stock prices of the Portugal, Ireland, Italy, Greece and Spain (PIIGS economies) markets. This paper also seeks to investigate that “If the time series is not martingale, then what else?”

Design/methodology/approach

Monte Carlo experiments have been undertaken to test the small sample properties of automatic variance ratio (AVR) test. The study uses AVR test on daily and weekly data of the indices to investigate their martingale behaviour. It uses detrended fluctuation analysis (DFA) and BDS test statistics to answer, “If not martingale, then what else?”. The study also applies moving subsample approach to examine the dynamic behavior of stock prices and to obtain inferential findings robust to possible structural changes and presence of influential outliers.

Findings

The author finds that weighted bootstrap procedure significantly improves the small sample properties of AVR tests under conditional heteroskedasticity. The results provide evidence in support of the weak‐form efficiency of Italy and Spain. But Portugal, Ireland and Greece exhibit signs of long memory in the stock prices. All indices also exhibit chaotic characteristics.

Originality/value

This paper has both methodological and empirical originality. On the methodological aspect, the author proposes weighted bootstrap procedure on AVR test to improve its small sample properties. On the empirical side, the study finds that all stocks exhibit dynamic behavioral characteristics which change over time.

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Article
Publication date: 12 June 2017

Lynn K. Kendall and Nina Rogers

The purpose of this paper is to examine how major changes in an industry may differentially affect firms based on their organizational structure. The authors examine…

Abstract

Purpose

The purpose of this paper is to examine how major changes in an industry may differentially affect firms based on their organizational structure. The authors examine midstream oil and gas firms, comparing master limited partnerships (MLPs or uncorporates) with more traditional midstream corporate firms when the industry changed from one that was considered mature to a more rapid growth industry.

Design/methodology/approach

Non-parametric comparisons of returns, distributions, and operating ratios are presented across the two organizational forms and across two distinct industry activity periods. The risk-adjusted return analysis, including Fama and French factors, incorporates a wild bootstrap to address heteroscedasticity in the data.

Findings

In the industry’s mature market period, partnerships provided a significantly greater payout, return, return on equity (ROE), cash flow, and lower leverage, while exhibiting lower levels of systematic risk than corporations. In the later growth period, midstream corporations and partnerships are no longer significantly different in their returns, ROE or margins. MLPs now have significantly higher leverage levels, while continuing to provide significantly higher dividend payouts.

Originality/value

The paper contributes to the literature with an analysis of the effects of a changing industry environment on two different organizational types across a common industry. The authors find that the optimal organizational structure may be dependent on the environment. The findings during the initial period are consistent with prior research comparing publicly traded partnerships and corporations. During the growth phase, the findings lend support to the seminal literature with respect to corporations potentially best-suited to “growth” industries, while highlighting specific results by organizational form.

Details

Managerial Finance, vol. 43 no. 6
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 5 April 2021

Lindokuhle Talent Zungu, Lorraine Greyling and Nkanyiso Mbatha

The authors investigate the growth–inequality relationship, using panel data from 13 Southern African Development Community (SADC) countries over the period 1990–2015, to…

Abstract

Purpose

The authors investigate the growth–inequality relationship, using panel data from 13 Southern African Development Community (SADC) countries over the period 1990–2015, to test the validity of the Kuznets and Tribble theories. Furthermore, the authors seek to determine the threshold level at which excessive growth hampers inequality.

Design/methodology/approach

The panel smooth transition regression (PSTR) model has several stages. The authors applied the Lagrange multiplier (LM) test to find the appropriate transition variable amongst all candidate variables, to assess the linearity between economic growth and income inequality and to find the sequence for selecting the order m of the transition function. The authors then estimated the PSTR model, but before facilitating the results, the authors first used the wild cluster bootstrap (WCB)–LM-type test to assess the appropriateness of the selected transition.

Findings

The authors found that at lower growth, income inequality tends to be lower, while if growth increases above US$8,969, inequality tends to increase in the SADC region. The findings combine into a U-shaped relationship, contradicting the Kuznets and Tribble theories.

Originality/value

The contribution of this paper is that it becomes the first to provide the threshold level at which excessive growth increases inequality in the selected countries. This study proposes that policymakers should focus on activities aimed at stimulating growth, in other words, activities such as spending more on infrastructure, drawing up a suitable investment portfolio and spending on technological investment for countries that are below US$8,969. An improvement in these activities will create job opportunities, which in turn will add to economic growth and thus lead to lower income inequality and better social cohesion.

Details

African Journal of Economic and Management Studies, vol. 12 no. 2
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 30 July 2020

Arcade Ndoricimpa

This study reexamines the sustainability of fiscal policy in Sweden.

Abstract

Purpose

This study reexamines the sustainability of fiscal policy in Sweden.

Design/methodology/approach

To test the sustainability of fiscal policy, two approaches are used; the methodology of Kejriwal and Perron (2010), testing for multiple structural changes in a cointegrated regression model and time-varying cointegration test of Bierens and Martins (2010), and Martins (2015).

Findings

Using the first approach of testing for multiple structural changes in a cointegrated regression model, the results indicate that government spending and revenue are cointegrated with two breaks. An estimation of a two-break long-run model shows that the slope coefficient increases from 0.678 to 0.892 from the first to the second regime, implying that fiscal deficits were weakly sustainable in the first two regimes, from 1800 to 1943, and from 1944 to 1974. Further, results from time-varying cointegration test indicate that cointegration between spending and revenue in Sweden is time-varying. Fiscal deficits were found to be unsustainable for the periods 1801–1811, 1831–1838, 1853–1860 , 1872–1882, 1897–1902, 1929–1940 and 1976–1982 and weakly sustainable over the rest of the study period.

Research limitations/implications

A number of implications arise from this study: (1) Accounting for breaks in cointegration analysis and in the estimation of the level relationship between spending and revenue is very important because ignoring breaks may lead to an overestimated slope coefficient and hence a bias on the magnitude of fiscal deficit sustainability. (2) In testing for cointegration between spending and revenue, assuming a constant cointegrating slope when it is actually time-varying can also be misleading because deficits can be sustainable for a period of time and unsustainable over another period.

Originality/value

The contribution of this study is three-fold; first, the study uses a long series of annual data spanning over a period of two centuries, from 1800 to 2011. Second, because of the importance of structural change in economics, to examine the existence of a level relationship between spending and revenue, the study uses the methodology of Kejriwal and Perron (2010) to test for multiple structural changes in a cointegrated regression model, as well as time-varying cointegration of Bierens and Martins (2010) and Martins (2015).

Details

Journal of Economics and Development, vol. 23 no. 1
Type: Research Article
ISSN: 1859-0020

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Article
Publication date: 6 May 2020

Zaghum Umar, Dimitrios Kenourgios, Muhammad Naeem, Khadija Abdulrahman and Salma Al Hazaa

This study analyzes the inflation hedging of Islamic and conventional equities by employing 26 indices for the period ranging from January 1996 till August 2018. The…

Abstract

Purpose

This study analyzes the inflation hedging of Islamic and conventional equities by employing 26 indices for the period ranging from January 1996 till August 2018. The authors investigate the decoupling hypothesis for Islamic versus conventional equities across various investment horizons.

Design/methodology/approach

The authors employ a vector autoregressive framework coupled with bootstrapping procedure to compute inflation hedging measures. The hedging measures employed account for the inflation hedging capacity in terms of hedging effectiveness as well as the cost of hedging (efficiency). The authors account for various investment horizons ranging from one month to ten years.

Findings

Although, the authors do not find consistent evidence for the decoupling hypothesis of Islamic and conventional equities in terms of their inflation hedging capacity. However, the authors document that certain Islamic equity indices can be employed to effectively hedge against the risk of inflation.

Originality/value

The main contribution of this study is that the existing literature on the comparative performance of Islamic versus conventional equities against inflation risk is sparse. The purpose of this study is to analyze the inflation hedging attributes of Islamic versus conventional equities, that is, whether Islamic equities render better real returns than their conventional counterparts. It will contribute to the growing literature on the comparison between Islamic and conventional equities by documenting the real return attributes of these two, apparently different, assets. A further contribution is that in order to account for the different investment horizons for different types of investors, this study will quantify the real return attributes of Islamic and conventional equities for short-, medium- and long-term investors.

Details

Journal of Economic Studies, vol. 47 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 6 May 2020

Arcade Ndoricimpa

The purpose of this study is to seek to re-examine the threshold effects of public debt on economic growth in Africa.

Abstract

Purpose

The purpose of this study is to seek to re-examine the threshold effects of public debt on economic growth in Africa.

Design/methodology/approach

This study applies panel smooth transition regression approach advanced by González et al. (2017). The method allows for both heterogeneity as well as a smooth change of regression coefficients from one regime to another.

Findings

A debt threshold in the range of 62–66% is estimated for the whole sample. Low debt is found to be growth neutral but higher public debt is growth detrimental. For middle-income and resource-intensive countries, a debt threshold in the range of 58–63% is estimated. As part of robustness checks, a dynamic panel threshold model was also applied to deal with the endogeneity of debt, and a much higher debt threshold was estimated, at 74.3%. While low public debt is found to be either growth neutral or growth enhancing, high public debt is consistently detrimental to growth.

Research limitations/implications

The findings of this study show that there is no single debt threshold applicable to all African countries, and confirm that the debt threshold level is sensitive to modeling choices. While further analysis is still needed to suggest a policy, the findings of this study show that high debt is detrimental to growth.

Originality/value

The novelty of this study is twofold. Contrary to previous studies on Africa, this study applies a different estimation technique which allows for heterogeneity and a smooth change of regression coefficients from one regime to another. Another novelty distinct from the previous studies is that, for robustness checks, this study divides the sample into low- and middle-income countries, and into resource- and nonresource intensive countries, as debt experience can differ among country groups. Further, as part of robustness checks, another estimation method is also applied in which the threshold variable (debt) is allowed to be endogenous.

Details

Journal of Economics and Development, vol. 22 no. 2
Type: Research Article
ISSN: 1859-0020

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Book part
Publication date: 16 December 2009

Zongwu Cai and Yongmiao Hong

This paper gives a selective review on some recent developments of nonparametric methods in both continuous and discrete time finance, particularly in the areas of…

Abstract

This paper gives a selective review on some recent developments of nonparametric methods in both continuous and discrete time finance, particularly in the areas of nonparametric estimation and testing of diffusion processes, nonparametric testing of parametric diffusion models, nonparametric pricing of derivatives, nonparametric estimation and hypothesis testing for nonlinear pricing kernel, and nonparametric predictability of asset returns. For each financial context, the paper discusses the suitable statistical concepts, models, and modeling procedures, as well as some of their applications to financial data. Their relative strengths and weaknesses are discussed. Much theoretical and empirical research is needed in this area, and more importantly, the paper points to several aspects that deserve further investigation.

Details

Nonparametric Econometric Methods
Type: Book
ISBN: 978-1-84950-624-3

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Book part
Publication date: 10 April 2019

James G. MacKinnon and Matthew D. Webb

When there are few treated clusters in a pure treatment or difference-in-differences setting, t tests based on a cluster-robust variance estimator can severely…

Abstract

When there are few treated clusters in a pure treatment or difference-in-differences setting, t tests based on a cluster-robust variance estimator can severely over-reject. Although procedures based on the wild cluster bootstrap often work well when the number of treated clusters is not too small, they can either over-reject or under-reject seriously when it is. In a previous paper, we showed that procedures based on randomization inference (RI) can work well in such cases. However, RI can be impractical when the number of possible randomizations is small. We propose a bootstrap-based alternative to RI, which mitigates the discrete nature of RI p values in the few-clusters case. We also compare it to two other procedures. None of them works perfectly when the number of clusters is very small, but they can work surprisingly well.

Details

The Econometrics of Complex Survey Data
Type: Book
ISBN: 978-1-78756-726-9

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