In this study we apply recent advances in time‐series analysis to examine the intertemporal relat... more In this study we apply recent advances in time‐series analysis to examine the intertemporal relation between stock indices and exchange rates for a sample of eight advanced economies. An error correction model (ECM) of the two variables is employed to simultaneously estimate the short‐run and long‐run dynamics of the variables. The ECM results reveal significant short‐run and long‐run feedback relations between the two financial markets. Specifically, the results show that an increase in aggregate domestic stock price has a negative short‐run effect on domestic currency value. In the long run, however, increases in stock prices have a positive effect on domestic currency value. On the other hand, currency depreciation has a negative short‐run and long‐run effect on the stock market.
Extant literature on price-volume relation of stock markets relies mainly on standard linear Gran... more Extant literature on price-volume relation of stock markets relies mainly on standard linear Granger causal-ity tests and draws evidence mostly from individual or aggregate US stock markets and those of other major industrial economies. This paper employs linear and nonlinear Granger causality tests to examine the price-volume relation of 10 relatively small European stock markets. Because these markets present a broader range of institutional, organizational, and structural factors than the major industrial markets, their analyses will enrich the literature on price-volume relation of stock markets. The empirical results using the tradi-tional Granger causality tests indicate, in general, a mild causal relation between stock returns and trading volumes. In contrast, the nonlinear Granger causality tests indicate a stronger causal relation between the two variables. These results demonstrate the largely untapped capacity of nonlinear techniques to unravel financial asset price dynam...
This paper presents a comprehensive analysis of reorganization provisions available to financiall... more This paper presents a comprehensive analysis of reorganization provisions available to financially distressed firms in three major economies – the U.S. the U.K., and Japan. The paper addresses a central question of the relative effectiveness of the various bankruptcy laws in resolving corporate financial distress and providing opportunities for efficient and timely reorganization.The results indicate that in each of the three economies included in this study available opportunities seem to focus on improving the odds of rehabilitating viable but distressed firms.In the U.S. Chapter 11 provision, debtor in control feature is beneficiary to equity holders of the firm, since management’s goal is to maximize shareholder value. Under the U.K. bankruptcy code, creditors have complete control of the firm and the sole objective of creditors is to liquidate the firm and secure their claims. Majority of the firms which enter insolvency process are liquidated even if they could have benefitted...
Just after the agreed Phase One trade deal between the US and China, the world becomes gripped in... more Just after the agreed Phase One trade deal between the US and China, the world becomes gripped ina major pandemic of coronavirus infection. The coronavirus has affected almost all sectors of life, including all sides of the economy and financial markets. It has caused sharp decreases in demand and greatly slowed down economic activities. The virus outbreak has become one of the biggest threats to the global economy and financial markets. Companies in the age of globalizationare very interdependent through economic integration and global supplychains. Due to attendant lockdowns of the pandemic, global companies experience disruptions in productions, supplies, transportations and sales. These result in sharp decreases in incomes as well as bankruptcies of several firms. Stock prices react to these shocks rapidly. But not all company stocks react the same way. Thus, we separate the impacts into two groups. We analyse the impact of coronavirus on developed and emerging financial markets...
The purpose of this paper is threefold: (1) to examine the operational efficiency of U.S. airline... more The purpose of this paper is threefold: (1) to examine the operational efficiency of U.S. airlines after the deregulation of 1978; (2) to investigate whether operational efficiency is associated with changes in financial position of firms in the industry and (3) to study if there is an observable pattern in the efficiency measures for large and small airlines. The results indicate that small U.S. airlines record higher scores than large U.S. airlines in four out of five efficiency measures examined. The exception is in the category of allocative efficiency where large airlines exhibit more optimal input mix of resources that their smaller counterparts. This superior mix of resources is consistent with cost minimization. In addition, the analysis shows that higher overall efficiency measures are associated with higher net profit margins of the airlines in the sample, while higher allocative efficiency seems to correlate with higher return on equity."
ABSTRACT : We employ three econometric models to examine the relative influence of the stock mark... more ABSTRACT : We employ three econometric models to examine the relative influence of the stock markets of the United States, the United Kingdom, France, and Germany on the stock markets of the Nordic-Baltic states. The results show that the Nordic-Baltic markets respond to price innovations from the United States, the United Kingdom, France, and Germany in diverse ways in the period 2001–2013. Response patterns for Finland, Norway, Sweden, Iceland, and Denmark are more significant to market innovations from the United States, the United Kingdom, and France, and less significant to those from Germany. German influence is more significant over Latvia, Lithuania, and Estonia than the rest of the advanced markets. While the dynamics of the Nordic-Baltic markets exhibit a dominance of own price innovation, the influence of the United States is stronger than that of France, the United Kingdom, and Germany. These results imply that investors from the Nordic States may derive greater benefits by diversifying into Germany and vice versa, rather than diversifying into the United States, the United Kingdom, or France. Investors from the Baltic States may obtain greater advantages by adopting portfolio strategies that take advantage of potentially better diversification benefits obtainable from the United States, the United Kingdom, and France rather than from Germany, and the reverse will also be in order.
ABSTRACT Despite the publicity surrounding the external debts of the less developed countries (LD... more ABSTRACT Despite the publicity surrounding the external debts of the less developed countries (LDCs), the effects of those debts on the exchange rates has not received much attention in the literature. This paper proposes a structural model that is a synthesis of an asset and a monetary model of exchange rates along the line of a Frankel (1983), and modified to include external debt. Estimating this model for a sample of 18 LDCs show that debt, in addition to the usual variables such as money supply and interest rates, has a largely significant and negative impact on the external values of most of the countries' currencies.
ABSTRACT This article employs linear Granger causality tests and the nonlinear causality test of ... more ABSTRACT This article employs linear Granger causality tests and the nonlinear causality test of Baek and Brock (1992) and Hiemstra and Jones (1994), as recently modified by Diks and Panchenko (2005b), to re-examine the dynamic relation between daily Eurodollar and US certificate of deposit interest rates during the period 4 January 1971 to 15 July 2005. Although we find significant linear causality only from the US certificate of deposit interest rates to the Eurodollar interest rates, we find significant bidirectional nonlinear causality between Eurodollar and US certificate of deposit interest rates.
ABSTRACT This paper documents investors' reactions in international equity markets to maj... more ABSTRACT This paper documents investors' reactions in international equity markets to major events in the US market. The results provide evidence that investors in advanced equity markets overreact to market surprises originating from the USA. In the case of emerging markets, however, the results indicate that investors' reactions are consistent with the predictions of the uncertain information hypothesis. The implication of these findings for international investors is that a contrarian strategy in the advanced markets and a strategy of buying current losers and holding on to current winners in the emerging markets may generate abnormal returns.
This paper examines the reaction of investors to the arrival of unexpected information in the Chi... more This paper examines the reaction of investors to the arrival of unexpected information in the Chinese equity market. Market surprises are identified using a strictly quantitative approach, and cumulative abnormal returns are calculated and tracked for a period of 30 days after each favorable or unfavorable event. The empirical results provide evidence to show that investors' reactions are consistent with the prediction of the Uncertain Information Hypothesis in the Chinese equity markets. Following market surprises, both the risk and the expected return of the affected market increase systematically. Rational investors, attempting err on the side of caution, set security prices below their fundamental values. Further clarifications of the uncertainty results in positive, or at least non-negative, price adjustments. One of the major implications of these results for investors is that implementing a contrarian strategy of buying current losers and selling current winners may not g...
ABSTRACT Recent methodological advances in testing the random walk hypothesis (RWH) in exchange r... more ABSTRACT Recent methodological advances in testing the random walk hypothesis (RWH) in exchange rates have been applied only to currencies of industrial economies. This paper employs one of such advances, the variance ratio tests first proposed by Cochrane (1988), to examine the RWH for the currencies of eight economies of the Pacific Basin. The results show that, in general, the random walk model is not consistent with the dynamics of daily or weekly exchange rate innovations in the majority of these markets.
In this study we apply recent advances in time‐series analysis to examine the intertemporal relat... more In this study we apply recent advances in time‐series analysis to examine the intertemporal relation between stock indices and exchange rates for a sample of eight advanced economies. An error correction model (ECM) of the two variables is employed to simultaneously estimate the short‐run and long‐run dynamics of the variables. The ECM results reveal significant short‐run and long‐run feedback relations between the two financial markets. Specifically, the results show that an increase in aggregate domestic stock price has a negative short‐run effect on domestic currency value. In the long run, however, increases in stock prices have a positive effect on domestic currency value. On the other hand, currency depreciation has a negative short‐run and long‐run effect on the stock market.
Extant literature on price-volume relation of stock markets relies mainly on standard linear Gran... more Extant literature on price-volume relation of stock markets relies mainly on standard linear Granger causal-ity tests and draws evidence mostly from individual or aggregate US stock markets and those of other major industrial economies. This paper employs linear and nonlinear Granger causality tests to examine the price-volume relation of 10 relatively small European stock markets. Because these markets present a broader range of institutional, organizational, and structural factors than the major industrial markets, their analyses will enrich the literature on price-volume relation of stock markets. The empirical results using the tradi-tional Granger causality tests indicate, in general, a mild causal relation between stock returns and trading volumes. In contrast, the nonlinear Granger causality tests indicate a stronger causal relation between the two variables. These results demonstrate the largely untapped capacity of nonlinear techniques to unravel financial asset price dynam...
This paper presents a comprehensive analysis of reorganization provisions available to financiall... more This paper presents a comprehensive analysis of reorganization provisions available to financially distressed firms in three major economies – the U.S. the U.K., and Japan. The paper addresses a central question of the relative effectiveness of the various bankruptcy laws in resolving corporate financial distress and providing opportunities for efficient and timely reorganization.The results indicate that in each of the three economies included in this study available opportunities seem to focus on improving the odds of rehabilitating viable but distressed firms.In the U.S. Chapter 11 provision, debtor in control feature is beneficiary to equity holders of the firm, since management’s goal is to maximize shareholder value. Under the U.K. bankruptcy code, creditors have complete control of the firm and the sole objective of creditors is to liquidate the firm and secure their claims. Majority of the firms which enter insolvency process are liquidated even if they could have benefitted...
Just after the agreed Phase One trade deal between the US and China, the world becomes gripped in... more Just after the agreed Phase One trade deal between the US and China, the world becomes gripped ina major pandemic of coronavirus infection. The coronavirus has affected almost all sectors of life, including all sides of the economy and financial markets. It has caused sharp decreases in demand and greatly slowed down economic activities. The virus outbreak has become one of the biggest threats to the global economy and financial markets. Companies in the age of globalizationare very interdependent through economic integration and global supplychains. Due to attendant lockdowns of the pandemic, global companies experience disruptions in productions, supplies, transportations and sales. These result in sharp decreases in incomes as well as bankruptcies of several firms. Stock prices react to these shocks rapidly. But not all company stocks react the same way. Thus, we separate the impacts into two groups. We analyse the impact of coronavirus on developed and emerging financial markets...
The purpose of this paper is threefold: (1) to examine the operational efficiency of U.S. airline... more The purpose of this paper is threefold: (1) to examine the operational efficiency of U.S. airlines after the deregulation of 1978; (2) to investigate whether operational efficiency is associated with changes in financial position of firms in the industry and (3) to study if there is an observable pattern in the efficiency measures for large and small airlines. The results indicate that small U.S. airlines record higher scores than large U.S. airlines in four out of five efficiency measures examined. The exception is in the category of allocative efficiency where large airlines exhibit more optimal input mix of resources that their smaller counterparts. This superior mix of resources is consistent with cost minimization. In addition, the analysis shows that higher overall efficiency measures are associated with higher net profit margins of the airlines in the sample, while higher allocative efficiency seems to correlate with higher return on equity."
ABSTRACT : We employ three econometric models to examine the relative influence of the stock mark... more ABSTRACT : We employ three econometric models to examine the relative influence of the stock markets of the United States, the United Kingdom, France, and Germany on the stock markets of the Nordic-Baltic states. The results show that the Nordic-Baltic markets respond to price innovations from the United States, the United Kingdom, France, and Germany in diverse ways in the period 2001–2013. Response patterns for Finland, Norway, Sweden, Iceland, and Denmark are more significant to market innovations from the United States, the United Kingdom, and France, and less significant to those from Germany. German influence is more significant over Latvia, Lithuania, and Estonia than the rest of the advanced markets. While the dynamics of the Nordic-Baltic markets exhibit a dominance of own price innovation, the influence of the United States is stronger than that of France, the United Kingdom, and Germany. These results imply that investors from the Nordic States may derive greater benefits by diversifying into Germany and vice versa, rather than diversifying into the United States, the United Kingdom, or France. Investors from the Baltic States may obtain greater advantages by adopting portfolio strategies that take advantage of potentially better diversification benefits obtainable from the United States, the United Kingdom, and France rather than from Germany, and the reverse will also be in order.
ABSTRACT Despite the publicity surrounding the external debts of the less developed countries (LD... more ABSTRACT Despite the publicity surrounding the external debts of the less developed countries (LDCs), the effects of those debts on the exchange rates has not received much attention in the literature. This paper proposes a structural model that is a synthesis of an asset and a monetary model of exchange rates along the line of a Frankel (1983), and modified to include external debt. Estimating this model for a sample of 18 LDCs show that debt, in addition to the usual variables such as money supply and interest rates, has a largely significant and negative impact on the external values of most of the countries' currencies.
ABSTRACT This article employs linear Granger causality tests and the nonlinear causality test of ... more ABSTRACT This article employs linear Granger causality tests and the nonlinear causality test of Baek and Brock (1992) and Hiemstra and Jones (1994), as recently modified by Diks and Panchenko (2005b), to re-examine the dynamic relation between daily Eurodollar and US certificate of deposit interest rates during the period 4 January 1971 to 15 July 2005. Although we find significant linear causality only from the US certificate of deposit interest rates to the Eurodollar interest rates, we find significant bidirectional nonlinear causality between Eurodollar and US certificate of deposit interest rates.
ABSTRACT This paper documents investors' reactions in international equity markets to maj... more ABSTRACT This paper documents investors' reactions in international equity markets to major events in the US market. The results provide evidence that investors in advanced equity markets overreact to market surprises originating from the USA. In the case of emerging markets, however, the results indicate that investors' reactions are consistent with the predictions of the uncertain information hypothesis. The implication of these findings for international investors is that a contrarian strategy in the advanced markets and a strategy of buying current losers and holding on to current winners in the emerging markets may generate abnormal returns.
This paper examines the reaction of investors to the arrival of unexpected information in the Chi... more This paper examines the reaction of investors to the arrival of unexpected information in the Chinese equity market. Market surprises are identified using a strictly quantitative approach, and cumulative abnormal returns are calculated and tracked for a period of 30 days after each favorable or unfavorable event. The empirical results provide evidence to show that investors' reactions are consistent with the prediction of the Uncertain Information Hypothesis in the Chinese equity markets. Following market surprises, both the risk and the expected return of the affected market increase systematically. Rational investors, attempting err on the side of caution, set security prices below their fundamental values. Further clarifications of the uncertainty results in positive, or at least non-negative, price adjustments. One of the major implications of these results for investors is that implementing a contrarian strategy of buying current losers and selling current winners may not g...
ABSTRACT Recent methodological advances in testing the random walk hypothesis (RWH) in exchange r... more ABSTRACT Recent methodological advances in testing the random walk hypothesis (RWH) in exchange rates have been applied only to currencies of industrial economies. This paper employs one of such advances, the variance ratio tests first proposed by Cochrane (1988), to examine the RWH for the currencies of eight economies of the Pacific Basin. The results show that, in general, the random walk model is not consistent with the dynamics of daily or weekly exchange rate innovations in the majority of these markets.
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