SCHUMPETER DISCUSSION PAPERS Interdependence between Foreign Exchange Markets and Stock Markets in Selected European Countries

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "SCHUMPETER DISCUSSION PAPERS Interdependence between Foreign Exchange Markets and Stock Markets in Selected European Countries"

Transcription

1 SCHUMPETER DISCUSSION PAPERS Inerdependence beween Foreign Exchange Markes and Sock Markes in Seleced European Counries Mevlud Islami SDP ISSN by he auor

2 Inerdependence Beween Foreign Exchange Markes and Sock Markes in Seleced European Counries * Mevlud Islami Universiy of Wupperal/ European Insiue for Inernaional Economic Relaions (EIIW) Absrac In his analysis he inerdependence beween foreign exchange markes and sock markes for seleced accession and cohesion counries is discussed. This includes basic heoreical approaches. Monhly daa for he nominal sock marke indices and nominal exchange raes are used, where Ireland, Porugal, Spain, Greece, Poland, Czech Republic, Slovenia, and Hungary are included in he analysis. From he coinegraion analysis and VAR analysis boh long-erm links and shor-erm links for Poland are idenified. Conversely, for Slovenia, Hungary, Ireland, Spain, and Greece merely shorerm links resuled. Surprisingly, he direcion of causaion is unambiguously from he sock marke index o he exchange rae for all six counries considered. JEL classificaions: G15, F31, E44 Key words: Exchange Rae, Sock Markes, Coinegraion, VAR, European Inegraion * An earlier version of he paper was presened a he Jean-Monne workshop (DG2, Brussels, April 28, 2008) Financial Marke Inegraion, Srucural Change, Foreign Direc Invesmen and Economic Growh in he EU25 in he projec Conrac Agreemen No /001-00: Jean-Monne Projec. The auhor is solely responsible for he conens; his view does no represen he opinion of he Communiy. 1

3 I. Inroducion Since he 1970s he discussion abou he inerdependence beween foreign exchange markes and sock markes has been he subjec of many sudies. In he lae 1990s, i even experienced a furher inensificaion due o he financial and currency crisis in Asia, wih fas and massive adjusmens in boh foreign exchange markes and sock markes being observed. The more radiional perspecive was o assume ha he exchange rae could influence boh sock prices and sock marke indices. An increasing significance of capial movemens and is influence on exchange raes has already been aken ino accoun in various heoreical approaches, e.g. in he heory of uncovered ineres rae pariy. Dominance of capial movemens of financial ransacions relaive o rade is obvious in many counries, and as invesmen in socks is a key elemen of inernaional capial movemens i is crucial o consider he poenial inerdependence beween sock prices and he exchange rae. Sock marke capialisaion experienced a huge increase over he pas decade, paricularly in Easern European counries due o high porfolio capial inflows and in paricular due o high Foreign Direc Invesmens (FDI). The impac of sock markes on foreign exchange markes could be relaively srong in Easern European emerging counries as hese capial markes are relaively underdeveloped and srong capial inflows due o reduced capial flow barriers or favourable changes in expecaions could emporarily have a significan influence on nominal and real exchange rae movemens. If porfolio invesmens or Foreign Direc Invesmens concerns firms lised in sock markes, hen capial inflows will have an impac on sock markes. In like manner, capial inflows will have an indirec effec o he exen ha ineres raes fall and hence sock marke prices will rise (in line wih CAPM). An analysis of cohesion counries and accession counries offers an ineresing opporuniy o explore he links beween he wo markes in he conex of EU easern enlargemen. Furhermore, he EU financial marke is probably more inegraed han, for example, he Asian financial markes. The impac of he EU single marke in general and of financial marke inegraion in paricular implies a reducion of barriers o capial flows; hence sronger links beween he foreign exchange marke and he sock marke could resul. As regards comparable newly indusrialised Asian counries, significan resuls for such ype of linkages were found in many sudies (e.g. GRANGER e al., 2000; AMARE/MOHSIN, 2000; AJAYI e al., 1998). Agains his background i is 2

4 ineresing o analyze easern European EU counries whose capial markes are sill in a caching up process. Sronger links imply ha cenral banks mus also ake his aspec ino accoun when making decisions in erms of ineres rae and money supply, as hese decisions can have undesired impacs on he whole financial marke. The links beween he foreign exchange rae and sock marke prices are paricularly imporan in he conex of he growing openness of easern European counries and also because capial accumulaion and caching-up will be refleced in he dynamics of large and medium firms quoed on he sock marke. In he following analysis he focus is on EU cohesion counries and seleced possocialis ransiion economies. The resuls of he subsequen analysis show ha significan links exis for six counries (Ireland, Spain, Greece, Poland, Slovenia, and Hungary) in he shor-erm, where he sock marke index Granger-causes he exchange rae. Thus he main channel for he eigh counries considered is an impulse which runs from he sock marke o he foreign exchange marke. For Poland, addiional long-erm links exis wih he same direcion of causaion. The subsequen analysis is divided as follows: Afer he inroducion a selecive review of imporan lieraure is given in secion wo before heoreical foundaions and mehods employed are discussed in secions hree and four, respecively. In he fifh secion, empirical resuls are presened wih respec o he analysis of long-erm and shor-erm links beween foreign exchange markes and sock markes in seleced cohesion and accession counries. Finally, he paper ends wih a summary and some concluding remarks. II Previous Lieraure Mos of he analyses on he links beween foreign exchange markes and sock markes have focussed eiher on he US during he 1980s and 1990s, he mos developed capial marke, or on Souh Easern and Souh Asian counries (especially afer he Eas-Asian crisis in 1997). During his ime, boh foreign exchange markes and sock markes experienced huge volailiy. The firs sudy on he inerdependence beween foreign exchange markes and sock markes was carried ou by FRANCK/YOUNG (1972) who based heir sudy on a simple correlaion and regression analysis. They examined he repercussion of srong exchange rae volailiy of foreign currencies wih respec o he US dollar on sock 3

5 prices of seleced US mulinaional firms included in he S&P 500 and Dow-Jones index. No significan resuls could be found. Afer he collapse of he Breon Woods Sysem and herefore he correspondingly more volaile exchange raes, research on his opic advanced in various ways e.g., he noeworhy sudy of AGGARWAL (1981). The inuiion for a link beween he exchange rae and he sock marke assumes ha a devaluaion or depreciaion of he currency makes expors more profiable and as mos major exporers are quoed on he sock marke, one will see a rise in sock marke prices. For he period beween January 1974 and December 1978, posiive long erm and shor erm links were found. These links, however, were sronger in he shor erm. SOENNEN/HENNIGAR (1988) used he real effecive exchange rae of he US dollar and sock prices. They found srong negaive links beween he changes of he US dollar and he changes of sock prices of US enerprises for he period BAHMANI-OSKOOEE/SOHRABIAN (1992) applied he coinegraion concep and Granger causaliy ess in order o sudy any poenial links beween foreign exchange raes and sock prices. They were also he firs o research for a reverse relaion. They applied monhly daa for he period beween July 1973 and December 1988 for he S&P 500 index and he effecive exchange rae of he dollar, finding ha boh variables have an influence on each oher. However, hey were unable o find any long-erm links. Afer he Asian crisis, here were also various sudies abou he inerdependence beween foreign exchange and sock markes for Asian counries. Paricularly imporan sudies include ha of ABDALLA/MURINDE (1997), who considered in heir analysis Souh Korea, Pakisan, India and he Philippines by looking a he real effecive exchange raes of hese counries for he period from January 1985 o July Longerm links were esed using coinegraion concep and shor-erm links wih Granger causaliy ess. Only for India and he Philippines could long erm links be found. Using an error correcion model (ECM) for India and he Philippines implied for he former ha he exchange rae indeed influences he sock marke index; for he laer he reverse relaion resuled. For Souh Korea and Pakisan, posiive shor erm links have been found, where he exchange rae is causal in he Granger sense o he sock marke index. AMARE/MOHSIN (2000) included nine Asian counries (Hong Kong, Indonesia, Japan, Malaysia, he Philippines, Singapore, Souh Korea, Taiwan and Thailand) in heir sudy. They employed he coinegraion concep o examine poenial long-erm links beween he wo markes. Long-erm links could be confirmed only for he Philippines and Singapore. The inclusion of he addiional variable ineres rae led o 4

6 he resul ha for six of nine counries, long erm links could be confirmed. GRANGER e al. (2000) considered Hong Kong, Indonesia, Japan, Malaysia, he Philippines, Singapore, Souh Korea, Taiwan and Thailand by employing he coinegraion concep and Granger causaliy ess. In order o filer ou he shocks of he 1987 crash and he avian flu crisis in Asia, he ime series were divided ino hree pars. They herefore used daily daa of differen ime series lengh (alogeher from 3 January 1987 o 14 November 1997, i.e. 3,097 observaions). Excep for Japan, Singapore and Thailand significan links were found. These resuls effecively demonsrae ha bi-direcional links do exis. However, during he currency crisis i.e., in he shor-run i holds ha in mos cases sock prices have an influence on exchange raes. MUHAMMAD/RASHEED (2003) considered Bangladesh, India, Pakisan and Sri Lanka for he period from 1994 o 2000, also employing he coinegraion concep and Granger causaliy ess. For India and Pakisan hey could find neiher shor-erm nor long-erm links. However, for Bangladesh and Sri Lanka, bi-direcional (posiive) links could be confirmed. STAVÁREK (2004) examined he inerdependence beween he sock marke index and he real effecive exchange raes of four veeran EU members Germany, France, Ausria and he UK, four new EU members Poland, Slovakia, Czech Republic and Hungary as well as he USA for he periods 1970 o 1992 and 1993 o 2003; he employed he coinegraion concep, Vecor ECM (VECM) and he Granger causaliy es. For he veeran EU member counries and he US, boh longerm and shor-erm links were found, bu he direcion of causaliy is no uniform for all counries. Conversely, for he new members merely shor erm links resuled. III Theoreical Foundaion In he lieraure here are no many aemps o incorporae he sock marke and foreign exchange marke in a single model; he links beween he wo markes cerainly exis, bu hey are no as obvious and unambigous as, for example, he link beween he ineres rae and he exchange rae. JARCHOW (1999) incorporaes he sock marke in a modified Mundell-Fleming model based on he idea of represening he sock price in he sense of Tobin s q and a variable price level. The raio q consiss of exising real capial p A and newly produced real capial p. Hence, q can be inerpreed as he real sock price. 5

7 The porfolio balance approach is a model which, besides he foreign exchange marke, also incorporaes he money marke and he marke of domesic and foreign securiies (BRANSON, 1977). Marke paricipans possess a wealh sock wih given socks of nominal money, domesic bonds and foreign bonds for which invesors choose he preferred porfolio srucure, namely based on (expeced) reurns of he alernaive asses. The demand for domesic money, foreign securiies or domesic securiies depend boh on domesic ineres rae i and he yield on foreign bonds (i f which is he foreign ineres rae plus he expeced devaluaion rae. The asse markes included in his model are represened by he equaions M É w B É w 2 1 Ç f (W, i, i ) ( Å) ( Ä) ( Ä) Ç f (W, i, i ) ( Å) ( Å) ( Ä) e Ç F É w Ç f (W, i, i ), 3 ( Å) ( Ä) ( Å) where W = M + B + ef Toal wealh W is he sum of money M, domesic bonds B, and foreign bonds ef (F is he sock of foreign bonds denominaed in foreign currency in he counry considered; e is he exchange rae in price noaion). The signs given below he equaions indicae he influence of he corresponding variables on he demand of M, B and ef, respecively. In an e-i-space, he equilibrium loci for foreign bonds (FF) and domesic bonds (BB) are boh negaively sloped. The slope of he MM curve porraying equilibrium in he money marke is posiive. The securiies considered in his model represen bonds wih very shor mauriies. In a modified version of he porfolio balance approach, WELFENS (2007) includes he sock marke insead of he domesic bonds marke (for furher Branson-ype models, where beside he sock marke also he oil marke is incorporaed as an addiional asse marke, see WELFENS (2008)). In his model, he supply side of he sock marke is given as he produc of he real sock marke index P /P and capial sock K. The demand for socks (also for foreign bonds and money) depends on marginal uiliy of money, capial produciviy, expeced growh rae of he sock marke price, and he sum of foreign bonds ineres rae and expeced depreciaion rae of he exchange rae. In an e-p space, he KK curve and FF curve are boh posiively sloped and he MM curve is negaively sloped. These approaches emphasize socks while flows are considered by REITZ e al. (2007). This flow-approach considers he aggregaion of end-user order flows, which conain 6

8 differen informaion from differen ypes of cusomers wih respec o he expeced fundamenal value of he exchange rae. (A financial cusomer is much more engaged in exchange rae research han a commercial cusomer, as he laer only inends o hedge is money amouns resuling from expors or impors.) In paricular, shor-erm deviaions of he exchange rae from is fundamenal value should be explained wih his approach as radiional models do no offer saisfacory resuls. ADLER/DUMAS (1984) capure he link beween enerprise reurn and is exposure vis-à-vis relaive exchange rae change in a single facor model which is given by he equaion r i É a i Å b d Å Ñ i i The slope coefficien b i expresses he exchange rae exposure of enerprise i (i = 1,..., n), a i denoes he consan and e i he error erm (where E(e i ) = 0 and Var(e i ) = s 2 ). The variable d represens exchange rae reurn and r i he reurn of enerprise i. BODNAR/WONG (2003) proposed an augmened marke model (a wo-facor model) which subdivides he risk exposure of enerprises ino wo componens (facors): he overall marke exposure i.e., he risk an enerprise is exposed o he oal sock marke and exchange rae exposure. The modified equaion ri É a i Å bid Å Öirm Å Ñi (2) can be esimaed as usual by OLS. ß i now represens he sock marke risk, i.e. he bea-facor known from he sandard Capial Asse Pricing Model (CAPM), wih r m expressing he sock marke reurn and b i represening he exchange rae exposure (see also ENTORF/JAMIN, 2007). The facor models presened above presume ha he variable exchange rae is he explanaory variable, and he variable sock price (a enerprise level) is he explained variable. Making some reflecions abou he linkage beween he wo variables lead o he realizaion ha boh variables can acually have an impac on each oher a he macro level, as BAHMANI-OSKOOEE/SOHRABIAN (1992) for example have emphasized. Two possible channels will be explained hrough which links beween he wo markes can resul. The exchange rae has an impac on sock prices paricularly on expor-oriened enerprises. An increase of he exchange rae, i.e. a depreciaion of he domesic currency, favours expors, herefore sock prices of enerprises should increase. Moreover, FROOT/STEIN (1991) emphasized paricularly ha foreign direc invesmens (FDI`s) are also influenced by real exchange rae as real devaluaion of (1) 7

9 domesic currency simulaes ne inflows he laer in urn will affec rade balance in he medium erm. The Froo-Sein model emphasizes he role of imperfec capial markes. The influence of he sock (marke) price on exchange rae can be aken ino accoun hrough including ransacions in he sock marke in he money demand funcion. Referring o he 1920s onse of he Grea Depression in he Unied Saes, FIELD (1984) emphasizes he imporance of considering he significan impac of sock rading s value on he demand o hold cash balances. He assers ha he fac of having no recognized sock rading as a relevan argumen in he demand for money (an expansion of he money supply could be misjudged as expansionary while i migh be neural or even resricive, namely if rising urnover figures in asse markes fully absorb he addiional liquidiy) led indirecly o he Grea Depression, as he naure of moneary policy was misjudged i was less expensive han he FED hough. Hence, he incorporaes he sock marke in his augmened money demand funcion namely, he ransacion volume of sock markes muliplied by he sock price. In a modern version of he Field argumen, one may argue wih respec o FDI ha he demand for domesic money increases if foreign invesors inves in domesic enerprises and raise he nominal amoun of sock marke ransacions. On he one hand, sock price increases, on he oher hand he ineres rae increases as a consequence of increased money demand. Therefore capial inflows are addiionally favoured, and domesic currency will appreciae under flexible exchange rae. In case of fixed exchange rae, sock marke prices should consequenly have no influence on exchange raes bu may have an impac on foreign exchange reserves of he cenral bank, which is commied o preserving he curren value of he exchange rae. If domesic currency appreciaes, he cenral bank is obliged o perform foreign exchange inervenions. Obviously he exchange rae can have a srong impac on he sock price a he micro level. However, a he macro level he impac could be weaker or even non-exisen, as a sock marke index acually measures he performance of a diversified porfolio. In oher words, enerprises weighed by heir capial sock of several indusries are incorporaed in a sock marke index. The exchange rae should have a greaer impac on a sock marke index when more expor-oriened enerprises are represened in he sock marke index. Hence, he composiion of a sock marke index is a crucial hin when i comes o he quesion as o wheher he exchange rae does indeed have a significan impac on he sock marke index. 8

10 A he macro level, capial (in)flows (e.g., due o invesmens in securiies) can have a srong impac on he exchange rae as well. Invesmens in securiies can be made eiher in bonds or in shares. Hence exchange raes are no only affeced hrough foreign invesmens on domesic bonds bu also hrough foreign invesmens on lised domesic enerprises. As he equiy markes in emerging counries are relaively underdeveloped he effec of sock markes can be much higher han in highly developed capial markes. Moreover, emerging markes are quie ineresing for invesors, as high reurns can ofen be obained even hough he risk is higher. According o he Capial Asse Pricing Model (CAPM), however, he invesor is willing o bear a higher risk if he or she expecs an enerprise reurn which is a leas as high as is corresponding bea (SHARPE e al., 1995). Hence, he securiy marke line (SML) can be used o assess shares and is hus quie a useful insrumen in making decisions on invesmens. Anoher reason for invesmens in hese counries is ha emerging markes do no srongly correlae wih highly developed sock markes. Hence, porfolios can furher be diversified. IV Daa and Mehods Employed 1 Daa and Counries In he subsequen analysis, four accession counries (Poland, Czech Republic, Slovenia, and Hungary) and four cohesion counries (Ireland, Porugal, Spain, and Greece) are included in he analysis. Monhly (average) daa (from Eurosa.; Index, 1995=100) of nominal sock marke indices and nominal bilaeral exchange raes (denominaed as domesic currency per US dollar uni (for which ime series daa had o firs be ransformed) will be used. The ime series applied o he accession counries are considered unil June 2008, bu he iniial values of he ime series vary for boh counry groups due o a lack of daa (iniial values depend on he counries included in he analysis, i.e. iniial values correspond o he iniial values available a he daa source menioned above). The inroducion of he Euro poses an addiionally srong resricion for he applied daa of he cohesion counries concerning he daa lengh. For his reason, cohesion counries are considered unil December 1998 (Greece unil December 2000). The iniial values of he cohesion counries are given as follows: Greece: ; Ireland: ; Porugal: ; Spain: , and hose of he accession 9

11 counries: Poland: ; Slovenia: ; Czech Republic: ; Hungary: Mehods Employed For he furher analysis, i is imporan o examine wheher he ime series applied fulfil he propery of saionariy. An appropriae uni roo es mus be carried ou, as his propery decides wheher long-erm or shor-erm links beween variables can be examined. The Augmened Dickey Fuller (ADF) es is a quie powerful es, and i will herefore be employed in his analysis. This es is based on he following regression: áy É ây Å Ü à áy Å u, (3) Ä1 m jé1 j Ä j where Ä represen he difference operaor. The null hypohesis, y conains a uni roo (i.e. Å = 0), will be rejeced if he -value is less han he criical ADF value. Since auocorrelaion of Äy is aken ino accoun, he u mus now fulfil he propery of whienoise, oherwise he lag-lengh mus be opimized unil i does. The equaion can adequaely be esimaed by OLS. The links beween disinc variables can be explored eiher in he shor-erm or in he long-erm. The laer can be carried ou by using he coinegraion concep. The precondiion for he employmen of his approach is ha all considered ime series mus be nonsaionary and inegraed of he same order. Coinegraion means ha ime series have a leas one common sochasic rend excep for some emporarily deviaions. According o ENGLE/GRANGER (1987), coinegraion is defined as follows: Le Y be a vecor of k variables which are all inegraed of order d. The componens of Y are hen coinegraed of order (d, c) in case of he exisence of a leas one linear combinaion z of hese variables. The variable z is hen inegraed of order d-c (d Ç c > 0), i.e. ÉÑY = z ~ I(d-c) (4) In oher words, if he variables are inegraed of order 1 Ö for economic variables his is ofen he case Ö hen he residuals (resuling from he regression equaions) mus be of minor order, i.e. I(0) (ENGLE/GRANGER, 1987). The vecor É is denoed as coinegraing vecor. The number of linear independen coinegraing vecors represens he coinegraion rank r. In case of r = k he sysem consiss of k saionary variables Ö i.e., he coinegraion concep canno be employed. If 10

12 r = 0, a long-erm relaionship does no exis due o a lack of a leas one saionary linear combinaion for hese variables Ö i.e., coinegraion exiss only in he case of 0 < r < k (ENDERS, 1995; KIRCHGÜSSNER/WOLTERS, 2007). Boh long-erm and shor-erm links can also be explored simulaneously in case of he exisence of a coinegraing relaionship beween he considered variables. In his case, an Error Correcion Model (ECM) can be employed. In a wo-variable case, a very simple wo-sep procedure could be carried ou. The firs sep would be o regress each variable on he oher if he propery of nonsaionariy for boh variables is given, i.e.: y 0 0 y É a Å b x Å z (5) x 1 1 x É a Å b y Å z (6) In he second sep, he ransformaion ino an ECM follows. According o he Granger represenaion heorem, an exising coinegraion relaionship always conains an equivalen ECM (and he reverse), and his can be expressed wih he following equaions: áy É ä y 0 Ä ä (y Ä a y ÉÄ Ä1 ÄÄ Ç0 y É z -1 nx b0x 1) Å Üa xjáx ÄÄÄÅ jé1 Ä j ny Å Ü a áy jé1 yj Äj Å u y (7) áx É ä x 0 Å ä (y Ä a x ÉÄ Ä1 ÄÄ Ç1 É z x Ä 1 n x b1x 1) Å Ü bxjáx ÄÄÄÅ jé1 Ä j ny Å Ü b áy The parameers á y and á x give informaion abou long-erm links (speed of adjusmen oward he long-erm equilibrium) beween he variables y and x. If a leas one of hese parameers is significanly differen from zero, a long-erm link hen exiss beween he considered variables. The parameers a xj, a yj, b xj and b yj represen shor-erm links. Furhermore, if he parameer á y (á x ), and a leas one a xj (b yj ) is significanly differen from zero Ö b yj (a xj ) is no significanly differen from zero Ö he variable x (y ) is said o Granger cause y (x ). The advanage of his approach is ha he informaion los hrough differeniaing he daa in level can be aken ino accoun in differenced daa. A problem arises in his conex wih esing he propery of saionariy of he residuals, as he common uni roo ess are hough o be employed for realised bu no generaed ime series. The criical values of he ADF es are herefore no valid, and oher criical values mus be considered (MACKINNON, 1991). Furhermore, in case of more variables, wo problems can emerge. On he one hand, muliple coinegraion relaions jé1 yj Ä j Å u x (8) 11

13 can exis, and on he oher hand, he endogenous variable canno be fixed a priori. If a coinegraing relaion for he considered n variables exiss, each variable should be exchangeable as an endogenous and exogenous variable and also be significanly differen from zero. Ofen, however, exacly his anomalous feaure emerges. Therefore a more powerful es is needed. The Johansen approach, based on a VAR, can overcome hese problems. The saring-poin is he following VAR wihou a deerminisic rend (JOHANSEN, 1988): Y É A 1 Y Ä 1 Å A 2YÄ2 Å... Å A pyäp Å U (9) The variables are I(1), and hey may be coinegraed. Subracion of boh sides wih Y -1 and rearrangemen of (9) leads o he Vecor Error Correcion Model (VECM) wih áy É ÄãY * * * Ä 1 Å A1áYÄ1 Å A2áYÄ2 Å... Å A pä1áy ÄpÅ1 Å U, (10) p A j jé1 * j ã É I Ä Ü and A É Ä Ü A, j É 1, 2,..., p Ä1 p i ié jå1 The marix I denoes he ideniy marix and à conains he long-erm links beween he included variables. Tess for coinegraion can be carried ou hrough examining he rank of he marix à (i.e., esing wheher he eigenvalues â i are significan differen from zero). The number of significan eigenvalues is equivalen o he rank of he marix à (LäTKEPOHL/KRÜTZIG, 2004). The idea is he same as in he case of he ADF es. The difference is ha uni roo is esed in a muli-equaion case. Considering he eigenvalues, wo ess can be generaed: Ä Tr (r) É Ü ln(1 Ä åã k iérå1 i ) (race-es) wih he hypohesis H 0 : he number of posiive eigenvalues is a mos r vs. H 1 : here are more han r (r < k) posiive eigenvalues. Ä å r, r Å1) É ÄT ln(1 Ä åã ) (â max -es) max ( rå1 However, he hypoheses of he â max -es are consruced as follows: H 0 : he number of posiive eigenvalues is exacly r vs. H 1 : here are exacly r + 1 posiive eigenvalues. The sequences of ess sar wih r = 0 and end when he null hypohesis canno be rejeced any more. The coinegraion rank is hen equivalen o he value a which he null hypohesis could no be rejeced (BROOKS, 2003). The null hypohesis will be rejeced if he value of he es saisic is larger hen he criical value. 12

14 If he aemp of deecion of any long-erm links beween variables fails, an alernaive would be o ascerain wheher a leas shor-erm links can be found. Shor-erm links can be explored by employing VAR models for variables, which has been induced o saionariy. In a VAR model, he dependence of a variable o iself is considered up o he lag p and o oher variables as well (SIMS, 1980). A VAR wihou deerminisic rend is given in (9), where in his case Ö shor-erm links are explored Ö all variables mus be saionary. These models can easily be esimaed by OLS. The correc specificaion of he model can be checked wih he usual insrumens, i.e. checking wheher he residuals fulfil he propery of whie-noise or may be serially auocorrelaed (e.g., using he Q saisics for each single equaion). Finally, he inerdependencies should adequaely be specified. The VAR process is no able o specify which variable is exogenous and which one is endogenous. Hence, Granger-causaliy ess will be employed. A variable, say x, is said o Granger-cause he oher variable, say y, if he inclusion of x improves he forecas of y and vice versa. If boh variables Granger cause each oher, a feedback relaionship is given. Considering í x ê ë y è p í à ç É Üê é ié1ë à 11,i 21,i à à 12,i 22, i í x ç è ê éë y Äi Äi è ç Å u é hen in a bivariae VAR x Granger causes y if å 21,i ç 0 for a leas one i (i = 1, 2,..., p) and å 12,i = 0 ( ì i É 1,..., p ) and y Granger causes x if å 12,i ç 0 for a leas one i (i = 1,.., p) and å 21,i = 0 ( ì i É 1,..., p ). In his es he significance of lags of he considered variables is examined by using F- ess in order o ascerain wheher he whole parameers of he lags are insignifican or a leas one parameer is significanly differen from zero. Therefore variables mus fulfil he propery of saionariy. (11) V Empirical Resuls 1 Uni Roo Tes The firs sep in he analysis consiss of esing ime series o deermine wheher hey fulfil he propery of non-saionariy as i is a requiremen for he employmen of he coinegraion concep. Therefore, he ADF es will be employed in level and in firs 13

15 differences. For he sake of clariy, he presenaion of he resuls will be divided ino wo groups, he group of cohesion counries, and he group of accession counries. The ADF es criical values depend on seleced lag lengh; for his reason, he opimal lag lengh mus be deermined somehow. In a univariae auoregressive process, he number of lag p is chosen, for example, by he Akaike Informaion Crierion (AIC) or Schwarz Bayesian Crierion (SBC). Furhermore, he lag lengh is augmened if significan serial auocorrelaion for he residuals is indicaed (esed by Q saisics). In his analysis, boh he mulivariae AIC (MAIC) and he mulivariae SBC (MSBC) are employed. The variable SP expresses he nominal sock marke index and EXR he nominal exchange rae. DSP and DEXR express he differenced variables of SP and EXR, respecively. Cohesion Counries The resuls show ha excep for he exchange rae in case of Ireland, boh sock marke indices and exchange raes are nonsaionary for all considered ime series. Hence, he requiremen of employing he coinegraion concep is no fulfilled for Ireland. A VAR in firs differences mus herefore be employed. Counry Variable -Sa. Tes criical values Ireland SP % DSP % EXR % DEXR Porugal SP % DSP % EXR % DEXR Spain SP % DSP % EXR % DEXR Greece SP % DSP % EXR % DEXR Null Hypohesis: has a uni roo Tab. 1a: Resuls of ADF es. 14

16 Accession Counries Obviously all ime series are I(1) according o he ADF es, i.e. saionariy will be induced afer firs differences. All accession counries included in he analysis can herefore be aken ino accoun for esing long-erm links beween he wo variables. Counry Variable -Sa. Tes criical values Poland SP % DSP % EXR % DEXR Slovenia SP % DSP % EXR % DEXR Czech Rep. SP % DSP % EXR % DEXR Hungary SP % DSP % EXR % DEXR Null Hypohesis: has a uni roo Tab. 1b: Resuls of ADF es. 2 Long Term Links In he second par of he analysis, he coinegraion concep is employed. In a wovariable case he Engle-Granger wo-sep approach could be employed. Obviously, he Johansen approach is a more sophisicaed approach and a he same ime i is more pleasan in implemenaion even in a wo-variable case. The ransformaion ino a Vecor Error Correcion Model (VECM) leads o a quasi VAR anyway. As he resuls of he Johansen approach depend on seleced lag order of he VAR, he opimal lag has o be deermined by an appropriae informaion crierion. In his analysis, he mulivariae AIC will be employed. Neverheless, he lag lengh may need o be augmened if serial correlaion does no disappear. Tab. 2a and 2b show ha excep for Poland, sock marke indices and exchange raes are no coinegraed for any of he counries, as he criical values are no exceeded by he 15

17 es saisic values; in oher words, here are no long erm links for seven of he eigh counries under consideraion. Counry Ireland Lags None A mos 1 Porugal Lags 5 None A mos 1 Spain Lags 6 None A mos 1 Saisic Saisic Saisic Criical Value Prob.** Criical Value Prob.** Criical Value Prob.** Greece Lags 2 None A mos 1 Saisic **MacKinnon-Haugh-Michelis (1999) p-values Tab. 2a: Resuls of he Coinegraion es (cohesion counries) Criical Value Prob.** Counry Poland Lags 4 None A mos 1 Czech Rep. Lags 2 None A mos Slovenia Lags 2 None A mos Saisic Saisic Saisic Criical Value Prob.** Criical Value Prob.** Criical Value Prob.** Hungary Lags 3 None A mos 1 Saisic **MacKinnon-Haugh-Michelis (1999) p-values Tab. 2b: Resuls of he Coinegraion es (accession counries) Criical Value Prob.** Shor erm links In he nex sep shor erm links are explored. An appropriae approach for his purpose is a bivariae VAR(p). A VAR process presumes ha all variables depend on each oher, i.e. here is no exogenous variable given. A suiable propery of his approach is ha, on 16

18 one hand, he own endogenous srucure of a variable is considered; on he oher hand, inerdependence o he oher variables is also aken ino accoun up o he lag p. Cohesion Counries The resuls show ha for Ireland significan links beween he nominal sock marke index and he nominal exchange rae can be confirmed unil he second lag. Obviously he direcion of causaion is from sock marke index (DSP) o exchange rae (DEXR). For Spain and Greece, significan links can be confirmed, while for Greece a feedback relaionship seems o exis. Conversely, he sock marke index and he exchange rae for Porugal do no depend on each oher. An explanaion for his could be he small number of observaions included in he analysis (73 observaions). I would be desirable o have a ime series lengh of a leas en years as monhly daa are used. The daa lengh may be one explanaion for he lack of significance inerdependence beween he exchange rae and sock marke index in Porugal. From he VAR analysis, we can conclude ha for he cohesion counries, hree of he four counries considered are inerrelaed where he foreign exchange marke seems o be influenced by he sock marke. For Greece, a bi-direcional link seems o exis. In order o ensure wheher DSP or DEXR can be regarded as he exogenous variable especially for Greece, as a lack of clariy remains Granger causaliy ess mus be employed. 17

19 Ireland DEXR DSP Consan [0.8697] [1.6816] DEXR(-1) [3.2927] [0.5909] DEXR(-2) [ ] [1.7043] DEXR(-3) [1.8360] [ ] DEXR(-4) [ ] [0.3939] DEXR(-5) [0.3072] [1.1229] DEXR(-6) [ ] [0.0608] DEXR(-7) [ ] [1.4422] DEXR(-8) [0.4273] [ ] DEXR(-9) [1.3706] [1.0890] DSP(-1) [2.2058] [5.1217] DSP(-2) [ ] [ ] DSP(-3) [1.2503] [2.0259] DSP(-4) [ ] [ ] DSP(-5) [0.6911] [ ] DSP(-6) [ ] [ ] DSP(-7) [0.6217] [0.4106] DSP(-8) [ ] [ ] DSP(-9) [ ] [3.1613] R-squared Adj. R-squared saisics in [ ] Tab. 3a.1: Resuls of VAR esimaion for Ireland 18

20 Porugal DEXR DSP Consan [0.4104] [1.1943] DEXR(-1) [2.1891] [0.1210] DSP(-1) [0.6321] [3.0263] R-squared Adj. R-squared Tab. 3a.2: Resuls of VAR esimaion for Porugal Spain DEXR DSP Consan [2.6694] [1.8770] DEXR(-1) [3.9449] [0.0918] DEXR(-2) [ ] [ ] DSP(-1) [0.4172] [5.9731] DSP(-2) [ ] [ ] R-squared Adj. R-squared Tab. 3a.3: Resuls of VAR esimaion for Spain 19

21 Greece DEXR DSP Consan [1.3522] [2.0124] DEXR(-1) [3.0411] [ ] DEXR(-2) [ ] [ ] DEXR(-3) [0.9593] [0.6761] DEXR(-4) [ ] [ ] DEXR(-5) [0.2794] [0.2805] DEXR(-6) [0.1281] [ ] DEXR(-7) [ ] [0.1045] DEXR(-8) [1.4721] [ ] DEXR(-9) [ ] [ ] DEXR(-10) [1.1226] [0.5357] DEXR(-11) [ ] [ ] DEXR(-12) [1.1849] [ ] DSP(-1) [0.2575] [3.4354] DSP(-2) [ ] [0.4629] DSP(-3) [0.9971] [ ] DSP(-4) [ ] [2.1688] DSP(-5) [ ] [ ] DSP(-6) [1.2173] [ ] DSP(-7) [ ] [1.6784] DSP(-8) [1.8345] [0.2871] DSP(-9) [ ] [0.7760] DSP(-10) [0.8544] [ ] DSP(-11) [1.9270] [ ] DSP(-12) [2.8277] [1.6028] R-squared Adj. R-squared Tab. 3a.4: Resuls of VAR esimaion for Greece 20

22 Granger causaliy ess show ha he hypohesis édsp does no Granger cause DEXRè can be rejeced for hree of four counries, i.e. Ireland (can be rejeced a 5.7% significance level), Spain, and Greece. The reverse direcion canno be confirmed for any of he cohesion counries. The seleced lag lengh is equivalen o he lag lengh of he VAR model as i is inended o ascerain wheher he inerdependen links confirmed wih he VAR approach can be specified wih respec o he direcion of causaion. Counry Ireland Lags: 2 Null Hypohesis: F-Saisic Probabiliy DSP does no Granger Cause DEXR DEXR does no Granger Cause DSP Porugal Lags: 1 DSP does no Granger Cause DEXR DEXR does no Granger Cause DSP Spain Lags: 2 DSP does no Granger Cause DEXR DEXR does no Granger Cause DSP Greece Lags: 12 DSP does no Granger Cause DEXR DEXR does no Granger Cause DSP Tab. 3a.5: Resuls of Granger causaliy ess for he cohesion counries Accession Counries The resuls of he VAR model for he accession counries are similar o hose of he cohesion counries. Absolue changes of exchange raes and sock marke indices show significan inerdependence for Hungary and Slovenia. For he Czech Republic, exchange rae and sock marke indices seem o be independen. For Poland, a VECM is employed as long-erm links could be confirmed. From he VECM, shor-erm links become obvious. As in he equaion of DEXR, boh he adjusmen parameer and he parameer of DSP in -2 are significan. I can hus be concluded ha he sock marke index Granger causes he exchange rae (i.e. SPêEXR). In case of he oher counries, Granger causaliy ess confirm ha here is a significan link beween sock marke and foreign exchange marke for Slovenia, where SPêEXR. 21

23 Poland Coinegraing Eq.: EXR(-1) 1 SP(-1) [3.7432] Consan Error Correcion: DEXR DSP CoinEq [ ] [0.5642] DEXR(-1) [4.1702] [1.4679] DEXR(-2) [ ] [0.8019] DEXR(-3) [0.4557] [ ] DEXR(-4) [ ] [1.4831] DSP(-1) [0.3559] [2.2964] DSP(-2) [2.6010] [1.3830] DSP(-3) [0.9069] [ ] DSP(-4) [0.6378] C [0.3153] R-squared Adj. R-squared saisics in [ ] [ ] [1.2214] Tab. 3b.1: Resuls of VECM esimaion for Poland For Hungary a significan impac of sock marke on he foreign exchange marke can only be confirmed a 10% (exacly a 7%) significance level. The reason for he weaker links beween he wo markes in comparison o he cohesion counries may be based upon he fac ha financial markes (especially sock markes) in Easern Europe are sill underdeveloped as confirmed in he analysis of KÖKE/SCHRÖDER (2003). Moreover, HOLTEMÖLLER (2005) confirmed ha many accession counries iner alia he accession counries considered in his analysis exhibi a very low moneary inegraion. As a measuremen of moneary inegraion, he ineres rae spreads of he counries considered vis-à-vis he Euro ineres rae and counry specific risk premium volailiy were used. An imporan reason in his conex could also be he fac ha he currencies of hese counries excep for Poland do no floa freely bu wihin currency bands (managed floaing). For his reason, rue links may become blurred. 22

24 Slovenia DEXR DSP Consan [1.1182] [2.5173] DEXR(-1) [4.7664] [ ] DSP(-1) [ ] [3.8168] R-squared Adj. R-squared Tab. 3b.2: Resuls of VAR esimaion for Slovenia Czech Rep. DEXR DSP Consan [ ] [0.9616] DEXR(-1) [3.8422] [0.1588] DSP(-1) [0.2875] [4.3665] R-squared Adj. R-squared Tab. 3b.3: Resuls of VAR esimaion for Czech Rep. Hungary DEXR DSP Consan [0.6080] [1.6571] DEXR(-1) [3.7638] [1.8062] DEXR(-2) [ ] [ ] DSP(-1) [0.5008] [2.4706] DSP(-2) [2.1595] [ ] R-squared Adj. R-squared Tab. 3b.3: Resuls of VAR esimaion for Hungary. Counry Czech Rep. Lags: 1 Null Hypohesis: F-Saisic Probabiliy DSP does no Granger Cause DEXR DEXR does no Granger Cause DSP Slovenia Lags: 1 DSP does no Granger Cause DEXR DEXR does no Granger Cause DSP Hungary Lags: 2 DSP does no Granger Cause DEXR DEXR does no Granger Cause DSP Tab. 3b.4: Resuls of Granger causaliy ess for he accession counries

25 Neverheless, he resuls of boh counry groups are quie surprising in comparison wih previous research on his aspec. Moreover, he resuls are no in consensus wih par of radiional heory as exchange rae is assumed o influence sock price. I is also asonishing ha he resuls do no show bi-direcional links bu an unambigous direcion of causaion from sock marke o foreign exchange marke. The arising quesion is now how o explain his resul. The unusual and a priori unexpeced resuls of unidirecional causaliy link from SP o EXR could be explained wih high capial inflows (i.e., porfolio invesmens and FDI) in hese counries during heir caching up process. For invesors, i is quie aracive o inves in hese counries as high marginal produc of capial can be expeced. Anoher explanaion could be based upon capial marke liberalizaion. I cerainly faciliaes cross border invesmens, and his can lead o an increasing movemen of capial across counries. Hence, financial marke inegraion could be one reason wih respec o faciliaion of cross border invesmens. Under hese circumsances, a unidirecional causaion from sock marke o foreign exchange marke is possible. Indeed, hese counries experienced much FDI during his ime, bu no simulaneously. (Hungary and he Czech Republic, for insance, araced high FDI inflows relaive o GDP in early 1990s, bu Poland laer.) This could also be a reason for he differen resuls wihin he accession counries. If here are srong porfolio adjusmens, he exchange rae could also be affeced. Furhermore, capial marke liberalizaion could induce increasing speculaions on sock markes and foreign exchange markes, which also may have an impac on he inerdependence beween hese wo markes. The resuls suppor he assumpions made in he Dornbusch model, for example, ha shor-erm deviaions from he long-erm equilibrium are mainly caused by he fac ha financial marke prices are flexible and prices of goods are sicky in he shor-erm (DORNBUSCH, 1976). VI Concluding Remarks In his analysis, four cohesion counries (Ireland, Porugal, Spain, Greece) and four accession counries (Poland, Czech Rep., Slovenia, Hungary) have been considered in order o examine any poenial links beween nominal sock marke index and nominal exchange rae. For his purpose, monhly daa were used, where he cohesion counries were aken ino accoun unil he inroducion of he Euro. The coinegraion concep 24

26 was employed for esing on long-erm links and he VAR approach for shor-erm links. Finally, Granger causaliy ess were employed for deerminaion of he exogenous and endogenous variable. The resuls show ha for five counries, significan links exis beween he sock marke index and foreign exchange rae, where for Poland boh longerm and shor-erm links exis. An unambigous resul wih respec o he direcion of causaion, from sock marke index o he foreign exchange marke is a surprise. I could be parly explained by high incipien capial inflows. Comparable analyses for emerging Asian counries showed differen resuls. The resuls of he analysis presened could largely be explained by high capial inflows hrough FDI inflows and porfolio invesmens in hese counries. Increased financial marke inegraion in Europe could be anoher reason, as i implies free rade and free movemen of capial wih higher capial inflows anicipaed, markes will reac. This fac could have srenghened he laen links beween he wo markes. 25

27 References ABDALLA, I.; MURINDE, V. (1997), Exchange Rae and Sock Price Ineracions in Emerging Financial Markes: Evidence on India, Korea, Pakisan and he Philippines, Applied Financial Economics, 7, ADLER, M.; DUMAS, B. (1984), Exposure o Currency Risk: Definiion and Measuremen, Financial Managemen 13, AGGARWAL, R. (1981), Exchange Raes and Sock Prices: A Sudy of U.S. Capial Marke under Floaing Exchange Raes, Akron Business and Economic Review, 12, AJAYI, R.A.; FRIEDMAN, J.; MEHDIAN, S.M. (1998) On he Relaionship Beween Sock Reurns and Exchange Raes: Tes of Granger Causaliy, Global Finance Journal, 9 (2), AMARE, T.; MOHSIN, M. (2000), Sock Prices and Exchange Raes in Leading Asian economies: Shor Run versus Long Run Dynamics, Singapore Economic Review, 45: 2, BODNAR, G.M.; WONG, M.H.F. (2003), Esimaing Exchange Rae Exposure: Issue in Model Srucure, Financial Managemen, BAHMANI-OSKOOEE, M.; SOHRABIAN, A. (1992), Sock Prices and he Effecive Exchange Rae of he Dollar, Applied Economics, 24, BRANSON, W. H. (1977), Asse Markes and Relaive Prices in Exchange Rae Deerminaion, Sozialwissenschafliche Annalen, 1, BROOKS, C. (2003), Inroducory Economerics for Finance, Cambridge: Cambridge Universiy Press. DORNBUSCH, R. (1976), Expecaions and Exchange Rae Dynamics, Journal of Poliical Economy, 84, ENDERS, W. (1995), Applied Economeric Time Series, New York: Wiley. ENGLE, R. F.; GRANGER, C.W.J. (1987), Co-Inegraion and Error Correcion: Represeaion, Esimaion, and Tesing, Economerica, 55, ENTORF, H.; JAMIN, G. (2007), German Exchange Rae Exposure a DAX and Aggregae Level, Inernaional Trade, and he Role of Exchange Rae Adjusmen Coss, German Economic Review, 8 (3), FIELD, A. J. (1984), A New Inerpreaion of he Onse of he Grea Depression, Journal of Economic Hisory, 44, FRANCK, P.; YOUNG, A. (1972), Sock Price Reacion of Mulinaional Firms o Exchange Realignmens, Financial Managemen 1,

28 FROOT, K.A.; STEIN, J.C. (1991), Exchange Raes and Foreign Direc Invesmen: An Imperfec Capial Markes Approach, Quarerly Journal of Economics, November, GRANGER, C.; HUANG, B-N.; YANG, C-W. (2000), A bivariae causaliy beween sock prices and exchange raes: evidence from recen Asian flu, The Quarerly Journal of Economics and Finance, 40, GRANGER, C. (1969), Invesigaing Causal Relaions by Economeric Models and Cross Specral Mehods, Economerica, 37, HOLTEMÖLLER, O. (2005), Uncovered ineres rae pariy and analysis of moneary convergence of poenial EMU accession counries, Inernaional Economics and Economic Policy, 2, JARCHOW, H.-J. (1999), Eine offene Volkswirschaf uner Berücksichigung des Akienmarks, CeGE-Discussion Paper No. 2. JOHANSEN, S. (1988), Saisical analysis of coinegraion vecors, Journal of Economic Dynamics and Conrol, 12, KIRCHGÄSSNER, G.; WOLTERS, J. (2007), Inroducion o modern ime series analysis, Heidelberg and New York: Springer. KÖKE, J.;SCHRÖDER, M. (2003), The Prospec of Capial Markes in Cenral and Easern Europe, Easern European Economics, 41, No. 4, LÜTKEPOHL, H.; KRÄTZIG, M. (2004), Applied Time Series Economerics, Cambridge, Cambridge Universiy Press. MACKINNON, J. G. (1991), Criical Values for Co-Inegraion Tess, in: R. F. Engle; C.W.J Granger (eds.), Long-Run Economic Relaionships, Oxford, Oxford Universiy Press, MUHAMMAD, N., RASHEED, A. (2003), Sock Prices and Exchange Raes: Are hey Relaed? Evidence from Souh Asian Counries, The Pakisan Developmen Review, 41(4), REITZ, S.; SCHMIDT, M.A., TAYLOR, M.P. (2007), End-User Flow and Exchange Rae Dynamics, Deusche Bundesbank, Discussion Paper, 5/2007, Frankfur/M. SHARPE, W. ; GORDON, A. ; BAILEY, J. V. (1995), Invesmens, 5.ediion, Englewood Cliffs: Prenice Hall. SIMS, C. A. (1980), Macroeconomics and Realiy, Economerica, 48, SOENNEN, L.; HENNIGAR, E. (1988), An Analysis of Exchange Rae and Sock Prices The U.S. Experience Beween 1980 and 1986, Akron Business and Economic Review, 19,

29 STAVÁREK, D. (2005), Sock Prices and Exchange Raes in he EU and he Unied Saes: Evidence on heir Muual Ineracions, Czech Journal of Economics and Finance, 55, issue 3-4, WELFENS, P.J.J. (2008), Porfolio Modelling and Growh, EIIW Discussion Papers 159, mimeo (forhcoming). WELFENS, P.J.J. (2007), Innovaions in Macroeconomics, Heidelberg and New York: Springer. 28

Cointegration: The Engle and Granger approach

Cointegration: The Engle and Granger approach Coinegraion: The Engle and Granger approach Inroducion Generally one would find mos of he economic variables o be non-saionary I(1) variables. Hence, any equilibrium heories ha involve hese variables require

More information

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas The Greek financial crisis: growing imbalances and sovereign spreads Heaher D. Gibson, Sephan G. Hall and George S. Tavlas The enry The enry of Greece ino he Eurozone in 2001 produced a dividend in he

More information

Chapter 8: Regression with Lagged Explanatory Variables

Chapter 8: Regression with Lagged Explanatory Variables Chaper 8: Regression wih Lagged Explanaory Variables Time series daa: Y for =1,..,T End goal: Regression model relaing a dependen variable o explanaory variables. Wih ime series new issues arise: 1. One

More information

Usefulness of the Forward Curve in Forecasting Oil Prices

Usefulness of the Forward Curve in Forecasting Oil Prices Usefulness of he Forward Curve in Forecasing Oil Prices Akira Yanagisawa Leader Energy Demand, Supply and Forecas Analysis Group The Energy Daa and Modelling Cener Summary When people analyse oil prices,

More information

Cointegration Analysis of Exchange Rate in Foreign Exchange Market

Cointegration Analysis of Exchange Rate in Foreign Exchange Market Coinegraion Analysis of Exchange Rae in Foreign Exchange Marke Wang Jian, Wang Shu-li School of Economics, Wuhan Universiy of Technology, P.R.China, 430074 Absrac: This paper educed ha he series of exchange

More information

4. International Parity Conditions

4. International Parity Conditions 4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency

More information

Price elasticity of demand for crude oil: estimates for 23 countries

Price elasticity of demand for crude oil: estimates for 23 countries Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh

More information

Morningstar Investor Return

Morningstar Investor Return Morningsar Invesor Reurn Morningsar Mehodology Paper Augus 31, 2010 2010 Morningsar, Inc. All righs reserved. The informaion in his documen is he propery of Morningsar, Inc. Reproducion or ranscripion

More information

CAUSAL RELATIONSHIP BETWEEN STOCK MARKET AND EXCHANGE RATE, FOREIGN EXCHANGE RESERVES AND VALUE OF TRADE BALANCE: A CASE STUDY FOR INDIA

CAUSAL RELATIONSHIP BETWEEN STOCK MARKET AND EXCHANGE RATE, FOREIGN EXCHANGE RESERVES AND VALUE OF TRADE BALANCE: A CASE STUDY FOR INDIA CAUSAL RELATIONSHIP BETWEEN STOCK MARKET AND EXCHANGE RATE, FOREIGN EXCHANGE RESERVES AND VALUE OF TRADE BALANCE: A CASE STUDY FOR INDIA BASABI BHATTACHARYA & JAYDEEP MUKHERJEE Reader, Deparmen of Economics,

More information

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios

More information

Vector Autoregressions (VARs): Operational Perspectives

Vector Autoregressions (VARs): Operational Perspectives Vecor Auoregressions (VARs): Operaional Perspecives Primary Source: Sock, James H., and Mark W. Wason, Vecor Auoregressions, Journal of Economic Perspecives, Vol. 15 No. 4 (Fall 2001), 101-115. Macroeconomericians

More information

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments BALANCE OF PAYMENTS DATE: 2008-05-30 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se

More information

Time Series Analysis Using SAS R Part I The Augmented Dickey-Fuller (ADF) Test

Time Series Analysis Using SAS R Part I The Augmented Dickey-Fuller (ADF) Test ABSTRACT Time Series Analysis Using SAS R Par I The Augmened Dickey-Fuller (ADF) Tes By Ismail E. Mohamed The purpose of his series of aricles is o discuss SAS programming echniques specifically designed

More information

Title: Who Influences Latin American Stock Market Returns? China versus USA

Title: Who Influences Latin American Stock Market Returns? China versus USA Cenre for Global Finance Working Paper Series (ISSN 2041-1596) Paper Number: 05/10 Tile: Who Influences Lain American Sock Marke Reurns? China versus USA Auhor(s): J.G. Garza-García; M.E. Vera-Juárez Cenre

More information

Impact of Debt on Primary Deficit and GSDP Gap in Odisha: Empirical Evidences

Impact of Debt on Primary Deficit and GSDP Gap in Odisha: Empirical Evidences S.R. No. 002 10/2015/CEFT Impac of Deb on Primary Defici and GSDP Gap in Odisha: Empirical Evidences 1. Inroducion The excessive pressure of public expendiure over is revenue receip is financed hrough

More information

MALAYSIAN FOREIGN DIRECT INVESTMENT AND GROWTH: DOES STABILITY MATTER? Jarita Duasa 1

MALAYSIAN FOREIGN DIRECT INVESTMENT AND GROWTH: DOES STABILITY MATTER? Jarita Duasa 1 Journal of Economic Cooperaion, 8, (007), 83-98 MALAYSIAN FOREIGN DIRECT INVESTMENT AND GROWTH: DOES STABILITY MATTER? Jaria Duasa 1 The objecive of he paper is wofold. Firs, is o examine causal relaionship

More information

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012 Norhfield Asia Research Seminar Hong Kong, November 19, 2013 Esimaing Time-Varying Equiy Risk Premium The Japanese Sock Marke 1980-2012 Ibboson Associaes Japan Presiden Kasunari Yamaguchi, PhD/CFA/CMA

More information

INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS

INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS Ilona Tregub, Olga Filina, Irina Kondakova Financial Universiy under he Governmen of he Russian Federaion 1. Phillips curve In economics,

More information

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements Inroducion Chaper 14: Dynamic D-S dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuing-edge

More information

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees

More information

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613. Graduae School of Business Adminisraion Universiy of Virginia UVA-F-38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised

More information

Measuring macroeconomic volatility Applications to export revenue data, 1970-2005

Measuring macroeconomic volatility Applications to export revenue data, 1970-2005 FONDATION POUR LES ETUDES ET RERS LE DEVELOPPEMENT INTERNATIONAL Measuring macroeconomic volailiy Applicaions o expor revenue daa, 1970-005 by Joël Cariolle Policy brief no. 47 March 01 The FERDI is a

More information

Why Did the Demand for Cash Decrease Recently in Korea?

Why Did the Demand for Cash Decrease Recently in Korea? Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in

More information

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand 36 Invesmen Managemen and Financial Innovaions, 4/4 Marke Liquidiy and he Impacs of he Compuerized Trading Sysem: Evidence from he Sock Exchange of Thailand Sorasar Sukcharoensin 1, Pariyada Srisopisawa,

More information

THE RELATIONSHIPS AMONG PETROLEUM PRICES. Abstract

THE RELATIONSHIPS AMONG PETROLEUM PRICES. Abstract Inernaional Conference On Applied Economics ICOAE 2010 459 THE RELATIONSHIPS AMONG PETROLEUM PRICES RAYMOND LI 1 Absrac This paper evaluaes in a mulivariae framework he relaionship among he spo prices

More information

Hedging with Forwards and Futures

Hedging with Forwards and Futures Hedging wih orwards and uures Hedging in mos cases is sraighforward. You plan o buy 10,000 barrels of oil in six monhs and you wish o eliminae he price risk. If you ake he buy-side of a forward/fuures

More information

Journal Of Business & Economics Research September 2005 Volume 3, Number 9

Journal Of Business & Economics Research September 2005 Volume 3, Number 9 Opion Pricing And Mone Carlo Simulaions George M. Jabbour, (Email: jabbour@gwu.edu), George Washingon Universiy Yi-Kang Liu, (yikang@gwu.edu), George Washingon Universiy ABSTRACT The advanage of Mone Carlo

More information

Purchasing Power Parity (PPP), Sweden before and after EURO times

Purchasing Power Parity (PPP), Sweden before and after EURO times School of Economics and Managemen Purchasing Power Pariy (PPP), Sweden before and afer EURO imes - Uni Roo Tes - Coinegraion Tes Masers hesis in Saisics - Spring 2008 Auhors: Mansoor, Rashid Smora, Ami

More information

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets?

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets? Can Individual Invesors Use Technical Trading Rules o Bea he Asian Markes? INTRODUCTION In radiional ess of he weak-form of he Efficien Markes Hypohesis, price reurn differences are found o be insufficien

More information

Lead Lag Relationships between Futures and Spot Prices

Lead Lag Relationships between Futures and Spot Prices Working Paper No. 2/02 Lead Lag Relaionships beween Fuures and Spo Prices by Frank Asche Ale G. Guormsen SNF-projec No. 7220: Gassmarkeder, menneskelig kapial og selskapssraegier The projec is financed

More information

Causal Relationship between Macro-Economic Indicators and Stock Market in India

Causal Relationship between Macro-Economic Indicators and Stock Market in India Asian Journal of Finance & Accouning Causal Relaionship beween Macro-Economic Indicaors and Sock Marke in India Dr. Naliniprava ripahy Associae Professor (Finance), Indian Insiue of Managemen Shillong

More information

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction.

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction. Applied Economerics and Inernaional Developmen. AEID.Vol. 5-3 (5) EFFECT OF OIL PRICE SHOCKS IN THE U.S. FOR 1985-4 USING VAR, MIXED DYNAMIC AND GRANGER CAUSALITY APPROACHES AL-RJOUB, Samer AM * Absrac

More information

The Relation between Price Changes and Trading Volume: A Study in Indian Stock Market

The Relation between Price Changes and Trading Volume: A Study in Indian Stock Market Inerdisciplinary Journal of esearch in Business ol. 1, Issue. 7, July 011(pp.81-95) The elaion beween Price Changes and Trading olume: A Sudy in Indian Sock Marke Dr. Naliniprava Tripahy Associae Professor

More information

Issues Using OLS with Time Series Data. Time series data NOT randomly sampled in same way as cross sectional each obs not i.i.d

Issues Using OLS with Time Series Data. Time series data NOT randomly sampled in same way as cross sectional each obs not i.i.d These noes largely concern auocorrelaion Issues Using OLS wih Time Series Daa Recall main poins from Chaper 10: Time series daa NOT randomly sampled in same way as cross secional each obs no i.i.d Why?

More information

Principal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya.

Principal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya. Principal componens of sock marke dynamics Mehodology and applicaions in brief o be updaed Andrei Bouzaev, bouzaev@ya.ru Why principal componens are needed Objecives undersand he evidence of more han one

More information

The Interest Rate Risk of Mortgage Loan Portfolio of Banks

The Interest Rate Risk of Mortgage Loan Portfolio of Banks The Ineres Rae Risk of Morgage Loan Porfolio of Banks A Case Sudy of he Hong Kong Marke Jim Wong Hong Kong Moneary Auhoriy Paper presened a he Exper Forum on Advanced Techniques on Sress Tesing: Applicaions

More information

GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA

GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA Journal of Applied Economics, Vol. IV, No. (Nov 001), 313-37 GOOD NEWS, BAD NEWS AND GARCH EFFECTS 313 GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA CRAIG A. DEPKEN II * The Universiy of Texas

More information

BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015. All officiell statistik finns på: www.scb.se Statistikservice: tfn 08-506 948 01

BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015. All officiell statistik finns på: www.scb.se Statistikservice: tfn 08-506 948 01 RKET BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015 All officiell saisik finns på: www.scb.se Saisikservice: fn 08-506 948 01 All official saisics can be found a: www.scb.se Saisics service, phone +46

More information

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith**

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith** Relaionships beween Sock Prices and Accouning Informaion: A Review of he Residual Income and Ohlson Models Sco Pirie* and Malcolm Smih** * Inernaional Graduae School of Managemen, Universiy of Souh Ausralia

More information

TEMPORAL PATTERN IDENTIFICATION OF TIME SERIES DATA USING PATTERN WAVELETS AND GENETIC ALGORITHMS

TEMPORAL PATTERN IDENTIFICATION OF TIME SERIES DATA USING PATTERN WAVELETS AND GENETIC ALGORITHMS TEMPORAL PATTERN IDENTIFICATION OF TIME SERIES DATA USING PATTERN WAVELETS AND GENETIC ALGORITHMS RICHARD J. POVINELLI AND XIN FENG Deparmen of Elecrical and Compuer Engineering Marquee Universiy, P.O.

More information

A DCC Analysis of Two Stock Market Returns Volatility with an Oil Price Factor: An Evidence Study of Singapore and Thailand s Stock Markets

A DCC Analysis of Two Stock Market Returns Volatility with an Oil Price Factor: An Evidence Study of Singapore and Thailand s Stock Markets Journal of Convergence Informaion Technology Volume 4, Number 1, March 9 A DCC Analysis of Two Sock Marke Reurns Volailiy wih an Oil Price Facor: An Evidence Sudy of Singapore and Thailand s Sock Markes

More information

YTM is positively related to default risk. YTM is positively related to liquidity risk. YTM is negatively related to special tax treatment.

YTM is positively related to default risk. YTM is positively related to liquidity risk. YTM is negatively related to special tax treatment. . Two quesions for oday. A. Why do bonds wih he same ime o mauriy have differen YTM s? B. Why do bonds wih differen imes o mauriy have differen YTM s? 2. To answer he firs quesion les look a he risk srucure

More information

Chapter 6: Business Valuation (Income Approach)

Chapter 6: Business Valuation (Income Approach) Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he

More information

Bid-ask Spread and Order Size in the Foreign Exchange Market: An Empirical Investigation

Bid-ask Spread and Order Size in the Foreign Exchange Market: An Empirical Investigation Bid-ask Spread and Order Size in he Foreign Exchange Marke: An Empirical Invesigaion Liang Ding* Deparmen of Economics, Macaleser College, 1600 Grand Avenue, S. Paul, MN55105, U.S.A. Shor Tile: Bid-ask

More information

Dynamic co-movement and correlations in fixed income markets: Evidence from selected emerging market bond yields

Dynamic co-movement and correlations in fixed income markets: Evidence from selected emerging market bond yields P Thupayagale* and I Molalapaa Dynamic co-movemen and correlaions in fixed income markes: Evidence from seleced emerging marke bond yield Dynamic co-movemen and correlaions in fixed income markes: Evidence

More information

Risk Modelling of Collateralised Lending

Risk Modelling of Collateralised Lending Risk Modelling of Collaeralised Lending Dae: 4-11-2008 Number: 8/18 Inroducion This noe explains how i is possible o handle collaeralised lending wihin Risk Conroller. The approach draws on he faciliies

More information

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation A Noe on Using he Svensson procedure o esimae he risk free rae in corporae valuaion By Sven Arnold, Alexander Lahmann and Bernhard Schwezler Ocober 2011 1. The risk free ineres rae in corporae valuaion

More information

ElectricityConsumptionandEconomicGrowthinBangladeshCo-IntegrationandCausalityAnalysis

ElectricityConsumptionandEconomicGrowthinBangladeshCo-IntegrationandCausalityAnalysis Global Journal of Managemen and Business Research Volume 12 Issue 11 Version 1.0 July 2012 Type: Double Blind Peer Reviewed Inernaional Research Journal Publisher: Global Journals Inc. (US) Online ISSN:

More information

Chapter 9 Bond Prices and Yield

Chapter 9 Bond Prices and Yield Chaper 9 Bond Prices and Yield Deb Classes: Paymen ype A securiy obligaing issuer o pay ineress and principal o he holder on specified daes, Coupon rae or ineres rae, e.g. 4%, 5 3/4%, ec. Face, par value

More information

Investigation of the effect of the degree of openness of the economy on real effective exchange rate Volatility: case study (the Iran economy)

Investigation of the effect of the degree of openness of the economy on real effective exchange rate Volatility: case study (the Iran economy) saqartvelos mecnierebata erovnuli akademiis moambe,. 9, #2, 2015 BULLETIN OF THE GEORGIAN NATIONAL ACADEMY OF SCIENCES, vols. 9, no. 2, 2015 Economy Invesigaion of he effec of he degree of openness of

More information

ANALYSIS AND COMPARISONS OF SOME SOLUTION CONCEPTS FOR STOCHASTIC PROGRAMMING PROBLEMS

ANALYSIS AND COMPARISONS OF SOME SOLUTION CONCEPTS FOR STOCHASTIC PROGRAMMING PROBLEMS ANALYSIS AND COMPARISONS OF SOME SOLUTION CONCEPTS FOR STOCHASTIC PROGRAMMING PROBLEMS R. Caballero, E. Cerdá, M. M. Muñoz and L. Rey () Deparmen of Applied Economics (Mahemaics), Universiy of Málaga,

More information

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR The firs experimenal publicaion, which summarised pas and expeced fuure developmen of basic economic indicaors, was published by he Minisry

More information

Exploring the Causality Relationship between Trade Liberalization, Human Capital and Economic Growth: Empirical Evidence from Pakistan

Exploring the Causality Relationship between Trade Liberalization, Human Capital and Economic Growth: Empirical Evidence from Pakistan Exploring he Causaliy Relaionship beween Trade Liberalizaion, Human Capial and Economic Growh: Empirical Evidence from Pakisan Dr. Imran Sharif Chaudhry Associae Professor of Economics a Bahauddin Zakariya

More information

Investor sentiment of lottery stock evidence from the Taiwan stock market

Investor sentiment of lottery stock evidence from the Taiwan stock market Invesmen Managemen and Financial Innovaions Volume 9 Issue 1 Yu-Min Wang (Taiwan) Chun-An Li (Taiwan) Chia-Fei Lin (Taiwan) Invesor senimen of loery sock evidence from he Taiwan sock marke Absrac This

More information

Stock Market and Real Interest Rate of ASEAN Countries: Are they Cointegrated?

Stock Market and Real Interest Rate of ASEAN Countries: Are they Cointegrated? American Inernaional Journal of Conemporary Research Vol. 2 No. 11; November 2012 Sock Marke and Real Ineres Rae of ASEAN Counries: Are hey Coinegraed? Suhal Kusairi; Nur Azura Sanusi Faculy of Managemen

More information

A Brief Introduction to the Consumption Based Asset Pricing Model (CCAPM)

A Brief Introduction to the Consumption Based Asset Pricing Model (CCAPM) A Brief Inroducion o he Consumpion Based Asse Pricing Model (CCAPM We have seen ha CAPM idenifies he risk of any securiy as he covariance beween he securiy's rae of reurn and he rae of reurn on he marke

More information

Sensitivity of Stock Market Indices to Oil Prices: Evidence from Manufacturing Sub-Sectors in Turkey

Sensitivity of Stock Market Indices to Oil Prices: Evidence from Manufacturing Sub-Sectors in Turkey Received: 21 May 2011; Acceped: 05 May 2012. UDC 338.516:665,6 (560) DOI: 10.2298/PAN1204463E Original scienific paper Ibrahim Halil Eksi Faculy of Economics and Adminisraive Sciences, Kilis 7 Aralik Universiy,

More information

A Note on the Impact of Options on Stock Return Volatility. Nicolas P.B. Bollen

A Note on the Impact of Options on Stock Return Volatility. Nicolas P.B. Bollen A Noe on he Impac of Opions on Sock Reurn Volailiy Nicolas P.B. Bollen ABSTRACT This paper measures he impac of opion inroducions on he reurn variance of underlying socks. Pas research generally finds

More information

Option Put-Call Parity Relations When the Underlying Security Pays Dividends

Option Put-Call Parity Relations When the Underlying Security Pays Dividends Inernaional Journal of Business and conomics, 26, Vol. 5, No. 3, 225-23 Opion Pu-all Pariy Relaions When he Underlying Securiy Pays Dividends Weiyu Guo Deparmen of Finance, Universiy of Nebraska Omaha,

More information

Does informed trading occur in the options market? Some revealing clues

Does informed trading occur in the options market? Some revealing clues Does informed rading occur in he opions marke? Some revealing clues Blasco N.(1), Corredor P.(2) and Sanamaría R. (2) (1) Universiy of Zaragoza (2) Public Universiy of Navarre Absrac This paper analyses

More information

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.

More information

Determinants of Capital Structure: Comparison of Empirical Evidence from the Use of Different Estimators

Determinants of Capital Structure: Comparison of Empirical Evidence from the Use of Different Estimators Serrasqueiro and Nunes, Inernaional Journal of Applied Economics, 5(1), 14-29 14 Deerminans of Capial Srucure: Comparison of Empirical Evidence from he Use of Differen Esimaors Zélia Serrasqueiro * and

More information

Supplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?

Supplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking? Supplemenary Appendix for Depression Babies: Do Macroeconomic Experiences Affec Risk-Taking? Ulrike Malmendier UC Berkeley and NBER Sefan Nagel Sanford Universiy and NBER Sepember 2009 A. Deails on SCF

More information

What is a swap? A swap is a contract between two counter-parties who agree to exchange a stream of payments over an agreed period of several years.

What is a swap? A swap is a contract between two counter-parties who agree to exchange a stream of payments over an agreed period of several years. Currency swaps Wha is a swap? A swap is a conrac beween wo couner-paries who agree o exchange a sream of paymens over an agreed period of several years. Types of swap equiy swaps (or equiy-index-linked

More information

Evidence from the Stock Market

Evidence from the Stock Market UK Fund Manager Cascading and Herding Behaviour: New Evidence from he Sock Marke Yang-Cheng Lu Deparmen of Finance, Ming Chuan Universiy 250 Sec.5., Zhong-Shan Norh Rd., Taipe Taiwan E-Mail ralphyclu1@gmail.com,

More information

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world

More information

PRICE VOLATILITY ON THE USD/JPY MARKET AS A MEASURE OF INVESTORS ATTITUDE TOWARDS RISK

PRICE VOLATILITY ON THE USD/JPY MARKET AS A MEASURE OF INVESTORS ATTITUDE TOWARDS RISK QUANTITATIVE METHODS IN ECONOMICS Vol. XI, No. 1, 010, pp. 37-44 PRICE VOLATILITY ON THE USD/JPY MARKET AS A MEASURE OF INVESTORS ATTITUDE TOWARDS RISK Kaarzyna Banasiak Deparmen of Economics of Agriculure

More information

The Relationship Between Commercial Energy Consumption and Gross Domestic Income in Kenya

The Relationship Between Commercial Energy Consumption and Gross Domestic Income in Kenya The Relaionship Beween Commercial Energy Consumpion and Gross Domesic Income in Kenya Susan M. Onuonga The Journal of Developing Areas, Volume 46, Number 1, Spring 2012, pp. 305-314 (Aricle) Published

More information

The US Term Structure and Central Bank Policy

The US Term Structure and Central Bank Policy Regensburger DISKUSSIONSBEITRÄGE zur Wirschafswissenschaf Universiy of Regensburg Working Papers in Business, Economics and Managemen Informaion Sysems The US Term Srucure and Cenral Bank Policy Enzo Weber,

More information

Why does the correlation between stock and bond returns vary over time?

Why does the correlation between stock and bond returns vary over time? Why does he correlaion beween sock and bond reurns vary over ime? Magnus Andersson a,*, Elizavea Krylova b,**, Sami Vähämaa c,*** a European Cenral Bank, Capial Markes and Financial Srucure Division b

More information

The Influence of Iran's Entrance into the WTO on Major Indexes of Tehran Stock Exchange

The Influence of Iran's Entrance into the WTO on Major Indexes of Tehran Stock Exchange 2013, TexRoad Publicaion ISSN: 2090-4274 Journal of Applied Environmenal and Biological Sciences www.exroad.com The Influence of Iran's Enrance ino he WTO on Major Indexes of Tehran Sock Exchange Darush

More information

Does International Trade Stabilize Exchange Rate Volatility?

Does International Trade Stabilize Exchange Rate Volatility? Does Inernaional Trade Sabilize Exchange Rae Volailiy? Hui-Kuan Tseng, Kun-Ming Chen, and Chia-Ching Lin * Absrac Since he early 980s, major indusrial counries have been suffering severe muli-laeral rade

More information

The Influence of Positive Feedback Trading on Return Autocorrelation: Evidence for the German Stock Market

The Influence of Positive Feedback Trading on Return Autocorrelation: Evidence for the German Stock Market The Influence of Posiive Feedback Trading on Reurn Auocorrelaion: Evidence for he German Sock Marke Absrac: In his paper we provide empirical findings on he significance of posiive feedback rading for

More information

Measuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry

Measuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry Measuring he Effecs of Exchange Rae Changes on Invesmen in Ausralian Manufacuring Indusry Robyn Swif Economics and Business Saisics Deparmen of Accouning, Finance and Economics Griffih Universiy Nahan

More information

Why Do Real and Nominal. Inventory-Sales Ratios Have Different Trends?

Why Do Real and Nominal. Inventory-Sales Ratios Have Different Trends? Why Do Real and Nominal Invenory-Sales Raios Have Differen Trends? By Valerie A. Ramey Professor of Economics Deparmen of Economics Universiy of California, San Diego and Research Associae Naional Bureau

More information

GRANGER CAUSALITY RELATION BETWEEN INTEREST RATES AND STOCK MARKETS: EVIDENCE FROM EMERGING MARKETS

GRANGER CAUSALITY RELATION BETWEEN INTEREST RATES AND STOCK MARKETS: EVIDENCE FROM EMERGING MARKETS GRANGER CAUSALITY RELATION BETWEEN INTEREST RATES AND STOCK MARKETS: EVIDENCE FROM EMERGING MARKETS Assoc. Prof. Dilek Leblebici Teker (Corresponding Auhor) Isık Universiy Deparmen of Managemen dilek.eker@isikun.edu.r

More information

NATIONAL BANK OF POLAND WORKING PAPER No. 120

NATIONAL BANK OF POLAND WORKING PAPER No. 120 NATIONAL BANK OF POLAND WORKING PAPER No. 120 Large capial inflows and sock reurns in a hin marke Janusz Brzeszczyński, Marin T. Bohl, Dobromił Serwa Warsaw 2012 Acknowledgemens: We would like o hank Ludwig

More information

Links between the Indian, U.S. and Chinese Stock Markets

Links between the Indian, U.S. and Chinese Stock Markets Deparmen of Economics Working Paper No. 0602 hp://n2.fas.nus.edu.sg/ecs/pub/wp/wp0602.pdf Links beween he Indian, U.S. and Chinese Sock Markes by Heng Chen, Beno J. Lobo and Wing-Keung Wong 2005 Heng Chen,

More information

SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES

SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES Inernaional Journal of Accouning Research Vol., No. 7, 4 SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES Mohammad Ebrahimi Erdi, Dr. Azim Aslani,

More information

SPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S.

SPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S. Paul Ferley Assisan Chief Economis 416-974-7231 paul.ferley@rbc.com Nahan Janzen Economis 416-974-0579 nahan.janzen@rbc.com SPECIAL REPORT May 4, 2010 Shifing Drivers of Inflaion Canada versus he U.S.

More information

A Dollar or Yen Currency Union in East Asia. Lee K. Lim. School of Accounting, Finance and Economics Edith Cowan University

A Dollar or Yen Currency Union in East Asia. Lee K. Lim. School of Accounting, Finance and Economics Edith Cowan University A Dollar or Yen Currency Union in Eas Asia By Lee K. Lim School of Accouning, Finance and Economics Edih Cowan Universiy School of Accouning, Finance and Economics & FIMARC Working Paper Series Edih Cowan

More information

An empirical analysis about forecasting Tmall air-conditioning sales using time series model Yan Xia

An empirical analysis about forecasting Tmall air-conditioning sales using time series model Yan Xia An empirical analysis abou forecasing Tmall air-condiioning sales using ime series model Yan Xia Deparmen of Mahemaics, Ocean Universiy of China, China Absrac Time series model is a hospo in he research

More information

How much depreciation of the US dollar for sustainability of the current accounts?

How much depreciation of the US dollar for sustainability of the current accounts? How much depreciaion of he US dollar for susainabiliy of he curren accouns? Eiji Ogawa and Taeshi Kudo Firs version: May 27, 2004 This version: June 6, 2004 This paper is prepared for a conference of he

More information

INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES

INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES OPENGAMMA QUANTITATIVE RESEARCH Absrac. Exchange-raded ineres rae fuures and heir opions are described. The fuure opions include hose paying

More information

CRISES AND THE FLEXIBLE PRICE MONETARY MODEL. Sarantis Kalyvitis

CRISES AND THE FLEXIBLE PRICE MONETARY MODEL. Sarantis Kalyvitis CRISES AND THE FLEXIBLE PRICE MONETARY MODEL Saranis Kalyviis Currency Crises In fixed exchange rae regimes, counries rarely abandon he regime volunarily. In mos cases, raders (or speculaors) exchange

More information

1. Explain why the theory of purchasing power parity is often referred to as the law of one price.

1. Explain why the theory of purchasing power parity is often referred to as the law of one price. Chaper Review Quesions. xplain why he heory of purchasing power pariy is ofen referred o as he law of one price. urchasing ower ariy () is referred o as he law of one price because he deerminaion of he

More information

Explaining the NZ-Australian exchange rate occasional paper

Explaining the NZ-Australian exchange rate occasional paper Wespac $ Insiuional Bank April 2002 Explaining he NZ-Ausralian exchange rae occasional paper Paul Conway and Richard Franulovich Wespac Insiuional Bank PO Box 691 Wellingon New Zealand Phone (644) 381-1414

More information

Do Property-Casualty Insurance Underwriting Margins Have Unit Roots?

Do Property-Casualty Insurance Underwriting Margins Have Unit Roots? Do Propery-Casualy Insurance Underwriing Margins Have Uni Roos? Sco E. Harringon* Moore School of Business Universiy of Souh Carolina Columbia, SC 98 harringon@moore.sc.edu (83) 777-495 Tong Yu College

More information

Dynamic linkages between Thai and international stock markets

Dynamic linkages between Thai and international stock markets Universiy of Wollongong Research Online Faculy of Commerce - Papers (Archive) Faculy of Business 2007 Dynamic linkages beween Thai and inernaional sock markes Abbas Valadkhani Universiy of Wollongong,

More information

Discussion Papers. Joscha Beckmann Ansgar Belke Michael Kühl

Discussion Papers. Joscha Beckmann Ansgar Belke Michael Kühl Deusches Insiu für Wirschafsforschung www.diw.de Discussion Papers 944 Joscha Beckmann Ansgar Belke Michael Kühl How Sable Are Moneary Models of he Dollar-Euro Exchange Rae? A Time-varying Coefficien Approach

More information

Lecture 18. Serial correlation: testing and estimation. Testing for serial correlation

Lecture 18. Serial correlation: testing and estimation. Testing for serial correlation Lecure 8. Serial correlaion: esing and esimaion Tesing for serial correlaion In lecure 6 we used graphical mehods o look for serial/auocorrelaion in he random error erm u. Because we canno observe he u

More information

The Relationship between Stock Return Volatility and. Trading Volume: The case of The Philippines*

The Relationship between Stock Return Volatility and. Trading Volume: The case of The Philippines* The Relaionship beween Sock Reurn Volailiy and Trading Volume: The case of The Philippines* Manabu Asai Faculy of Economics Soka Universiy Angelo Unie Economics Deparmen De La Salle Universiy Manila May

More information

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs Journal of Finance and Accounancy Conrarian insider rading and earnings managemen around seasoned equiy offerings; SEOs ABSTRACT Lorea Baryeh Towson Universiy This sudy aemps o resolve he differences in

More information

WORKING PAPER SERIES STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MEASURING INTERNATIONAL FINANCIAL TRANSMISSION NO.

WORKING PAPER SERIES STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MEASURING INTERNATIONAL FINANCIAL TRANSMISSION NO. WORKING PAPER SERIES NO. 452 / MARCH 25 STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MSURING INTERNATIONAL FINANCIAL TRANSMISSION by Michael Ehrmann, Marcel Frazscher and Robero Rigobon WORKING PAPER

More information

The Maturity Structure of Volatility and Trading Activity in the KOSPI200 Futures Market

The Maturity Structure of Volatility and Trading Activity in the KOSPI200 Futures Market The Mauriy Srucure of Volailiy and Trading Aciviy in he KOSPI200 Fuures Marke Jong In Yoon Division of Business and Commerce Baekseok Univerisy Republic of Korea Email: jiyoon@bu.ac.kr Received Sepember

More information

Part 1: White Noise and Moving Average Models

Part 1: White Noise and Moving Average Models Chaper 3: Forecasing From Time Series Models Par 1: Whie Noise and Moving Average Models Saionariy In his chaper, we sudy models for saionary ime series. A ime series is saionary if is underlying saisical

More information

INTERNATIONAL REAL ESTATE REVIEW 2003 Vol. 6 No. 1: pp. 43-62. Banking System, Real Estate Markets, and Nonperforming Loans

INTERNATIONAL REAL ESTATE REVIEW 2003 Vol. 6 No. 1: pp. 43-62. Banking System, Real Estate Markets, and Nonperforming Loans Banking Sysem, Real Esae Markes, and Nonperforming Loans 43 INTERNATIONAL REAL ESTATE REVIEW 2003 Vol. 6 No. 1: pp. 43-62 Banking Sysem, Real Esae Markes, and Nonperforming Loans Wen-Chieh Wu Deparmen

More information

ARCH 2013.1 Proceedings

ARCH 2013.1 Proceedings Aricle from: ARCH 213.1 Proceedings Augus 1-4, 212 Ghislain Leveille, Emmanuel Hamel A renewal model for medical malpracice Ghislain Léveillé École d acuaria Universié Laval, Québec, Canada 47h ARC Conference

More information

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART TWO

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART TWO Profi Tes Modelling in Life Assurance Using Spreadshees, par wo PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART TWO Erik Alm Peer Millingon Profi Tes Modelling in Life Assurance Using Spreadshees,

More information

Inflation and Economic Growth: Inflation Threshold Level Analysis for Ethiopia

Inflation and Economic Growth: Inflation Threshold Level Analysis for Ethiopia Inernaional Journal of Ehics in Engineering & Managemen Educaion Websie: www.ijeee.in (ISSN: 2348-4748, Volume 2, Issue 5, May 2015) Inflaion and Economic Growh: Inflaion Threshold Level Analysis for Ehiopia

More information