Narrow Results

This study examines the correlation between oil price fluctuation and absolute business development in Pakistan. Our study focusses on three economic sectors, agriculture and livestock, manufacturing and electricity production and transportation from 1980 to 2018 using the autoregressive distributed lag, with linear regression to evaluate the (time series or panel) data (please elaborate the frequency of data as well either it is daily, weekly, monthly, quarterly or yearly data). Our findings reveal negative impact of oil price on the economic development overall, and manufacturing, electricity production and livestock sectors individually; while, there is positive relationship observed with communication and transport sectors. There is need for policymaker’s attention on highly oil-dependent sectors to run their operations. Empirical findings suggest a 30% shortage of oil supply responsible for the highest fluctuated structure of oil pricing, which suddenly increases the projected welfare loss through a 40% reduction in gross domestic product. This study suggests that the country should maintain a minimum 100-day strategic petroleum reserves to hedge any adverse effect of oil price fluctuation on economic and social welfare losses.

This paper analyzes the effects of U.S. monetary policy on sovereign credit default swap (CDS) markets in a total of 66 countries including both advanced and emerging market economies at the monthly time horizon from 2001 to 2016. We employ a four-variable vector autoregression (VAR) model to estimate the monetary policy shock and examine the pass-through of U.S. monetary policy shocks to sovereign CDS markets. We find that the effect of monetary policy shocks on CDS markets is strong, especially during the European sovereign debt crisis and the period the U.S. monetary policy rate was near zero. Our analysis indicates that expansionary U.S. monetary policy leads to the widening of the sovereign credit spreads and the heightening of the CDS market volatility.

In the folklore of emerging markets, there is a popular belief that bubbles are inevitable. In this paper, our objective is to estimate a state-space model for rational bubbles in selected Asian economies with the aid of the Kalman Filter. For each economy, we derive a possible picture of the bubble formation process that is implied by the state-space formulation. The estimation is based on the rational valuation formula for stock prices. Our results provide a possible way of defining the presence of rational bubbles in the stock markets of Taiwan, Singapore, Korea, and Malaysia.

This paper examines the key characteristics of Singapore's exchange rate-centered monetary policy; in particular, its managed float regime which incorporates key features of the basket, band and crawl system popularized by Williamson (1998, 1999). We assess how the flexibility accorded by this framework has been advantageous in facilitating adjustment to various shocks to the economy. A characterization of the countercyclical nature of Singapore's exchange rate policy is also offered, with reference to recent work on the monetary policy reaction function and estimates of Singapore's behavioral equilibrium exchange rate. We also review previous econometric analysis which provides evidence that Singapore's managed float system may have helped to mitigate the spillover effects of such increased volatility into the real economy. The track record of Singapore's managed float regime over the past two decades suggests that intermediate regimes are a viable alternative to the so-called "corner solutions", especially when supported by consistent macroeconomic and microeconomic policies as well as strong institutions.

Trading in commodity derivatives on exchange platforms is an instrument to achieve price discovery and better price-risk management besides helping the macroeconomy with better resource allocation. In the 2008–2009 budget, the Indian government proposed to impose a commodity transaction tax (CTT) amounting to 0.017% of trading value. In this context, we examine the relationship between trading activity, volatility and transaction cost for five most traded commodities in India. Results suggest that there exists a negative relationship between transaction cost and liquidity and a positive relationship between transaction cost and volatility. Further, the results of structural model support the results of VAR analysis. Therefore, if the government imposes CTT, it would lead to higher volatility and lower trading activity affecting market efficiency and liquidity.

This study applies the panel smooth transition regression (PSTR) model to investigate the non-linear dynamic relationship between bond fund flows and investment volatility in Taiwan. Our empirical results are as follows. (1) A bond fund's net flow and volatility present a non-linear relationship, (2) Investors' behavior is different under the volatility threshold value and the control variables of asset of funds, management fees and the Sharpe indicator, (3) The different risk attributes of bond funds produce completely different investor behavior. In sum, the threshold of volatility is an important index to look at when investing in bond funds.

Along with the international trade and economic ties, international stock markets are performing increasingly closely. This paper investigates the volatilities and the return co-movements among three stock markets in mainland China, Hong Kong, and the United States, from January 1, 2007, to July 5, 2019. We use the MIDAS framework to separately characterize short-term and long-term features. The results reveal that different market volatilities have different sensitivities to the same events. After the second half of 2016, the volatility of China’s stock market gradually dropped below that of the other two markets. As for market co-movements, the return correlation between China and Hong Kong rose sharply after 2007. Although the co-movements for return rates among these three stock markets possess mutual dynamic synchronization features, deviations exist occasionally due to the emotional transfer of funds in the international market when a significant economic or financial event occurs. The analysis suggests that countries should stabilize the financial investment environment and guard against hot money activities.

By utilizing vector error correction model (VECM) and EGARCH model, this article uses 5-minute intraday data to examine the interaction of return and volatility between Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) and the newly introduced TAIEX futures. VECM model shows that there exists bi-directional Granger causality between index spot and index futures markets, but spot market plays a more important role in price discovery. The results of impulse response function and information share indicate that most of the price discovery happens in index spot market. The evidence of EGRACH shows that the impacts of spot and futures innovations are asymmetrical, and the volatility spillovers between spot and futures markets are bi-directional. However, the information flow from spot to futures is stronger. These results suggest that the TAIEX spot market dominates the TAIEX futures market in terms of return and volatility.

This paper examines mispricing, volatility and parity on the Hang Seng Index (HSI) options and futures market. Most of the previous research has focused on futures contracts; we update this research and extend it by considering also option contracts. It is also important to examine these issues post 1997 Asian crisis. We find mispricing of HSI futures and option contracts if no transaction costs were considered. However, by incorporating transaction costs, the HSI futures are bounded within the arbitrage free region and most of the mispricing of the HSI options disappears. Additional tests on the mispricing series reveals that most of the derivative HSI contracts are positively autocorrelated and that the mispricing series for both derivative contracts are not identical among the different contract months. From our results we cannot conclude that there is causal relationship between the mispricing and the spot index volatility. Finally, our empirical results show that for HSI derivative contracts future and option parity holds, supporting our mispricing test that the HSI derivative market is efficient and has not been adversely affected by the Asian economic crisis.

This paper reports an empirical analysis of the relationship between return autocorrelation, trading volume and volatility, following the seminal paper by Campbell, Grossman and Wang (1992) using data for A shares traded on the Shanghai and Shenzhen stock exchanges for the period 1992–2002. Campbell et al. argue that autocorrelation of returns will be negatively related to trading volume given that market makers will need to be rewarded with higher returns for accommodating noise traders. For our full sample we find remarkably consistent support for the CGW hypothesis and results — return autocorrelations are negatively but non-linearly related to lagged trading volume and less strongly to volatility. These results are quite robust with respect to different messures of volume and volatility. We argue that this is a striking result in view of the substantial differences between the US market in the 1960s, 1970s and 1980s and the Chinese market of the 1990s. The relationship proves to be unstable over short sub-periods although whether this is due to the relatively short sample we use or to the inherent instability of the Chinese market in its first decade of operation will not be clear until much longer data sets are available for Chinese stock prices.

This paper uses ARCH models to examine if there is a leverage effect and also to test if A- and B-share holdings have different risks in Chinese stock markets before and after B-share markets open to domestic investors in February 2001. The empirical results suggest that leverage effect was not present and shocks have symmetric impact on the volatility of Chinese B-share stock returns in both periods and A-share returns in Period I. Thus GARCH model would be a better model to fit the Chinese B-share stock returns than EGARCH or GJR-GARCH model. But EGARCH or GJR-GARCH model fits recent (Period II) A-share markets data better than GARCH model. Another finding of this paper is that holding A- or B-share bears different risk in returns in the two Chinese markets. Furthermore, news or shocks have a larger impact on volatility of B-share returns in Period I than in Period II.

Using data from the Taiwanese stock market, an emerging market, this paper documents positive changes in liquidity and volatility around seasoned equity offerings (SEOs). These findings are consistent with the uncertain signal hypothesis that investors with diverse views on the information content of SEOs are likely to induce larger trading activity and subsequent higher stock return volatility. We also provide direct evidence that changes in liquidity is positively associated with stock price adjustment. However, the relations among liquidity, volatility and price movements appear to rely on how SEOs are conducted. A practical implication is that managers may influence liquidity and stock price movement through their choice of SEOs issuing methods.

This paper examines autocorrelation and cross-autocorrelation patterns for selected Asian stock returns. Special attention is given to examination of Asian stock returns and the impact on them of the past information. By employing a class of asymmetric specification of conditional mean and conditional variance models, we find the autocorrelation coefficient to be negative for the Japanese market and positive for the rest of the Asian markets studied. Our findings suggest that the Asian markets respond sensitively to the US market, especially on the down side. The asymmetric effects are found to be present in both mean and variance equations. The evidence is consistent with behavior in which investors in Asian markets tend to react more significantly to negative stock news originating from US sources than they do to positive news.

This paper investigates whether the introduction of trading by qualified foreign institutional investors (QFIIs) has impacted the lead and volatility behavior of the futures market when the macroeconomic effects and some major economic events are controlled. First, we detect that some market inefficiency exists in Taiwan index futures market. Second, the evidence shows a strengthening in the lead of index futures over index spot markets following the introduction of trading by QFIIs. Third, we find evidence of an increase in the level of futures market volatility, implying that the quantity of information flowing into the futures market increases following the onset of trading by QFIIs. Finally, the asymmetries do not reduce after the opening up of the futures market to QFIIs. This finding is inconsistent with the view that the introduction of informed foreign investors may improve the reliability and quality of information and mitigate the effect of noise traders on market volatility.

We reexamine the effects of price limits on stock volatility of Taiwan Stock Exchange using a new methodology based on the Extreme-Value technique. Consistent with the advocates of price limits, we find that stock market volatility is sharply moderated under more restrictive price limits.

Previous evidence suggests that the implied volatility from equity index options, as a measure of stock market uncertainty, can provide "forward-looking information" about the stock–bond return correlation. This paper uses an alternative regime-switching autoregressive model to characterize state-dependent stock–bond return comovement and to evaluate the contribution of implied volatility in understanding transition dynamics. We confirm that implied volatility provides information about transition dynamics which is not inherent in the stock and bond returns, notwithstanding several different features of our data set and methodological approach.

Returns of the same companies' common stocks, both non-market-adjusted and market-adjusted, exhibit greater volatility, on the Stock Exchange of Hong Kong where short selling is allowed than on the Shanghai Stock Exchange and Shenzhen Stock Exchange where short selling is restrained. This unique evidence indicates that short selling increases stock price volatility for the Chinese stocks in the Chinese stock markets.

In this paper, we apply several variants of the EGARCH model to examine the role of depreciation of the Indian rupee on India's stock market returns using daily data. Our findings suggest that volatility persistence has been high; depreciation of the rupee has increased volatility; and asymmetric volatility confirms that negative shocks generate more volatility than positive shocks. We also find that an appreciation of the Indian rupee over the 2002 to 2006 has generated more returns and less volatility.

This paper investigates the behavior of stock returns and volatility in 10 emerging markets and compares them with those of developed markets under different measures of frequency (daily, weekly, monthly and annual) over the period January 1, 2002 to December 31, 2006. The ratios of mean return to volatility for emerging markets are found to be higher than those of developed markets. Sample statistics for stock returns of all emerging and developed markets indicate that return distributions are not normal and return volatility shows clustering. In most cases, GARCH (1, 1) specification is adequate to describe the stock return volatility. The significant lag terms in the mean equation of GARCH specification depend on the frequency of the return data. The presence of leverage effect in volatility behavior is examined using the TAR-GARCH model and the evidence indicates that is not present across all markets under all measures of frequency. Its presence in different markets depends on the measure of frequency of stock return data.

Simultaneous volatility models are developed and shown to be separate from multivariate GARCH estimators. An example is provided that allows for simultaneous and unidirectional volatility and volume of trade effects. These effects are tested using intraday data from the Australian cash index and index futures markets. Overnight volatility spillover effects from the United States S&P500 index futures markets are tested using alternative estimates of this US market volatility. The simultaneous volatility model proves to be robust to alternative specifications of returns equations and to misspecification of the direction of volatility causality.