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A fractional cointegration analysis of the long-run relationship between black and official foreign exchange rates: the case of the Brazilian cruzeiro
No full textThis paper applies a relatively new but generalized concept of fractional cointegration to shed some light on the validity of a long-run relationship between monthly black and official US dollar rates ofthe Brazilian cruzeiro. An investigation ofthe stochastic properties of these rates reveals that, while the relationship is not cointegrated in their logs, they appear to be fractionally cointegrated if we allow for mean reverting processes that are C/(l, d) with Q < d <\. The paper demonstrates that relaxing the condition that the residual from the cointegration equation must be a 1(0) process, captures a much wider class of mean-reversion behaviour. Furthermore, an analysis of the short-run dynamics propelling the long-run relationship tends to imply that although the official rate influences the changes in the black rate, this is purely over the short-run. In the longer term, the black rate is found to be the initial receptor of any exogenous shock to the equilibrium and it is the official exchange rate that bears the brunt of short-run adjustment to re-establish the long-run equilibrium relationship. The approach illustrated in this paper is shown to hold enormous potential for tests of mean reversion involving hypotheses popular to economic and financial research in general, where the dynamics of time-series data are under constant scrutiny
Stock pricing in Malaysia: corporate financial & investment management
No full textThis book is meant for both professionals and students of capital markets in an emerging economy. It is about financial behaviour of the Kuala Lumpur Stock Exchange. It provides for the first time care-fully-researched findings about the structure of pricing in this reasonably-well-organised emerging stock market in Malaysia, which is an attractive Asian location for portfolio investment. The findings reports in this book should provide useful benchmarks for practice by professionals in accounting, finance, financial economics, regulations, etc
The influence of firms' financial policy on tax reform
No full textThe effectiveness of proposed reforms to the tax system intended to stimulate investment depends on how capital structure affects corporate behaviour. A dynamic general equilibrium model, calibrated for the UK, is used to investigate the difference between three models of financial structure, including one of endogenous structure motivated by agency theory. It is shown that the difference in predicted effects can be significant, and that the impact of the reform on the marginal source of funds is crucial
A multivariate cointegrated modelling approach in testing temporal causality between energy consumption, real income and prices with an application to two Asian LDCs
No full textUnlike previous studies on the casual relationship between energy consumption and economic growth, this paper illustrates how the finding of cointegration (i.e. long-term equilibrium relationship) between these variables, may be used in testing Granger causality. Based on the most recent Johansen's multiple cointegration tests preceded by various unit root or nonstationarity tests, we test for cointegration between total energy consumption, real income and price level of two Asian LDCs: Thailand and Sri Lanka. Nonrejection of cointegration between variables rules out Granger noncausality and implies at least one way of Granger-causality either unidirectional or bidirectional. Secondly, by using a dynamic vector error-correction model, we then analyse the direction of Granger-causation and hence the within-sample Granger-exogeneity or endogeneity of each of the variables. Thirdly, the relative strength of the causality is gauged (through the dynamic variance decomposition technique) by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period, into proportions attributable to shocks in the other variables including its own, in the multivariate system. Finally, these response paths of shocks to the system are traced out using impulse response graphs. Results based on these four tools of methodology, broadly indicate that all three variables are cointegrated and exhibit two common trends within each system. Energy consumption seems to be relatively exogenous as neither income nor prices seems to Granger cause this variable via any of the channels where potential casuality may occur. Though, energy consumption itself plays an important role in influencing income and prices by varying degrees of significance for each country. Overall, shocks to the system seemed to have had a more sustained if not pronounced effect in Thailand than in Sri Lanka
A fractional cointegration approach to testing mean reversion between spot and forward exchange rates: a case of high frequency data with low frequency dynamics
No full textThe issue of whether foreign exchange markets process information efficiently (at least in a speculative, weak sense) has been a topic of renewed attention by empirical analysts in the fields of international finance, international economics and futures markets (see, inter alia, Hakkio and Rush, 1989; Macdonald and Taylor, 1989; Copeland, 1991; Lai and Lai, 1991; Tronzano, 1992; and Karfakis and Moschos, 1994) in a bivariate context, and Coleman, 1990; Alexander and Johnson, 1992; Baillie and Bollerslev, 1989; and Karfakis and Parikh, 1994; in a multivariate context). One of the reasons underlying the regeneration of interest in testing the efficient markets hypothesis (EMH) has, to a large extent, been fuelled by the development of sophisticated and practical time-series techniques which essentially aim to uncover important insights into the mechanics of how and to what extent asset prices fully reflect available information or otherwise whether there are untapped profitable opportunities that still remain
A comparative analysis of the propagation of stock market fluctuations in alternative models of dynamic causal linkages
No full textThe patterns of dynamic linkages are examined among national stock prices of four Asian Newly Industrializing Countries stock markets - Taiwan, South Korea, Singapore and Hong Kong - in models incorporating the established markets of Japan, USA, UK and Germany. Recent time-series techniques are employed, including unit root testing, multivariate cointegration, vector error-correction modelling (VECM), forecast error variance decomposition (VDC) and impulse response functions (IRFs). The results consistently appear to suggest the relatively leading role of all established markets in driving fluctuations in the NIC stock markets. In other words, all established markets and Hong Kong, consistently were the initial receptors of exogenous shocks to the (long-term) equilibrium relationships and the other NIC markets, particularly the Singaporean and Taiwanese markets had to bearmost of the burden of short-run adjustment to re-establish the long-termequilibriumrelationship. In comparison to all other NIC markets, Taiwan and Singapore appear as the most endogenous, with Taiwan providing evidence of its short-term vulnerability to shocks from the established markets
Can family-planning programs "cause" a significant fertility decline in countries characterized by very low levels of socioeconomic development? New evidence from Bangladesh based on dynamic multivariate and cointegrated time-series techniques, 1965-1991
No full textUnlike most empirical works on fertility analysis, this study investigates the question as to whether family-planning programs can "cause" a significant fertility decline in a country characterized by very low levels of socioeconomic development. The analysis is based on the application of the following dynamic time-series techniques in a multivariate context: cointegration, vector error-correction modeling, variance decompositions, and impulse response functions. These four dynamic tools are recently developed and hitherto untried in fertility analysis in the context of a poor developing economy such as Bangladesh. Our findings appear to be consistent with the new theoretical view that holds that fertility decline may result from either of two distinct developmental phases, one short-term and the other long-term. According to this view, the second phase (comprising the "sufficient" condition for fertility decline) incorporates the conventional view that in the long term, fertility decline may result from a complex dynamic interaction with organized family planning and significant socioeconomic structural change
On the temporal causal relationship between energy consumption, real income, and prices: some new evidence from Asian-energy dependent NICs based on a multivariate cointegration vector error-correction approach
No full textDeparting from previous studies on the causal relationship between energy consumption and economic growth, this paper illustrates how the finding of cointegration (i.e., longterm equilibrium relationship) between these variables, may be used in testing Granger causality. Based on the most recent Johansen's multiple cointegration tests preceded by various unit root or nonstationarity tests, we test for cointegration between total energy consumption, real income, and price level of two highly energy dependent East-Asian NICs: Korea and Taiwan. Nonrejection of cointegration between variables rules out Granger noncausality and implies at least one way of Granger causality, either unidirectional or bidirectional. Secondly, by using a dynamic vector error-correction model, we then analyze the direction of Granger causation and hence the within-sample Granger exogeneity or endogeneity of each of the variables. Thirdly, the relative strength of the causality is gauged (through the dynamic variance decomposition technique) by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period, into proportions attributable to shocks in the other variables, including its own, in the multivariate system. Finally, these response paths of shocks to the system are traced out using impulse response graphs
Bivariate and multivariate tests of money-price causality: robust evidence from a small developing country
No full textThis paper is an attempt at re-examining the question of causality between money and prices both in the bivariate and multivariate context of a small developing economy, based on an improved methodology. Pakistan is used as a case study. The study tends to suggest rather strongly that in the case of Pakistan during the period under consideration (1970/71 to 1993/94), contrary to earlier findings, it was price that was the leading variable as the structuralist maintain and not the other way around as the monetarist maintai
New evidence from an alternative methodological approach to the defence spending-economic growth causality issue in the case of mainland China
No full textProposes to re-examine empirically the causal relationship between defence spending and economic growth in mainland China. First, using a VAR modelling technique with suitable diagnostics, e.g. Akaike's FPE statistics and a likelihood ratio test for over and under-fitting the causal model, the results indicate a positive unidirectional causality flowing from defence spending to economic growth. Second, by evaluating a dynamic vector error correction model, variance decomposition and impulse response functions, then analyses the direction, duration and strength of Granger-causality between defence spending and economic growth. The results broadly indicate that defence spending and economic growth did share a common trend over the sample period under analysis, but it was the former which stimulated the latter. Moreover, it is defence spending that has a much more perceptible and prolonged effect on economic growth, giving rise to implications that although expenditure on defence may have been politically motivated, over the long?run this spending did play a significant indirect role in enhancing the growth potential of this, for many years, closed?door economy