Economics and Information Theory

Globalization, Corporate Finance, and the Cost of Capital

The main purpose of the study is: (i) to examine the long- and short-term dynamic linkages among international and Asian emerging stock markets and then (ii) try to quantify the extent of the Asian stock market fluctuations which are explained by intra-regional contagion effect. The study, therefore, proceeds first by examining the dynamic causal linkages among eight national daily stock price indices (four major established markets and four Asian emerging markets) and then quantifying the extent of their dynamic interdependencies through the application of recent time-series econometric techniques (a) vector error-correction model (Toda and Phillips, 1993) and (b) level VAR model containing integrated and cointegrated processes of arbitrary orders (Toda and Yamamoto, 1995). At the global level, the findings tend to confirm the widely-held view of the leadership of the US over both the short- and long-term and the existence of a significant short- and long-term relationship between the established OECD and the emerging Asian markets. At the regional level in Southeast Asia, the results tend to confirm, as expected, the leading role of Hong Kong. And consistent with the `contagion effect' hypothesis, the results tend to lend strong support to the view that the stock market fluctuations in all these Asian markets are explained mostly by their regional markets (rather than the advanced markets). Finally, at a methodological level, this analysis also provides a primer for the wealth of applied financial econometric research focusing on dynamic causal inference which involves systems containing possibly integrated and cointegrated processes.

Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets

This paper investigates the dynamic causal linkages amongst nine major international stock price indexes. In order to gauge the causal transmission patterns we employ very recent methods of: (i) vector error-correction modeling and (ii) level VAR modeling with possibly integrated and cointegrated processes, advocated by: (i) Toda and Phillips (Econometrica, 61 (1993) 1367) and (ii) Toda and Yamamoto (J. Econometrics, 66 (1995) 225), respectively. The paper illustrates how such methods may be appropriately augmented in a compatible fashion to unearth previously unfounded linkage properties inherent amongst a system of stock price indexes. In particular, we demonstrate that previous research, by using ordinary difference VARs, ignored an important component of linkages displayed purely over the long run. This untapped evidence essentially provides robust and very useful information to international financial analysts and investors. At a substantive level, results of this study tend to support the contention offered by several studies in the literature of significant interdependencies between the established OECD and the Asian markets, and also the leadership of the US and UK markets over the short and long run. The levels VAR, however, illustrate the Japanese market's influence as an additional long run leader. Findings seem to be plausible given that these three markets (US, UK and Japan) have consistently contributed over 75% of global stock market capitalization over the major part of the sample under consideration. At a methodological level, this analysis also provides a primer for the wealth of applied financial econometric research focusing on dynamic causal inference which involve systems containing possibly integrated and cointegrated processes.

Long and short term dynamic causal transmission amongst international stock markets

https://isiarticles.com/bundles/Article/pre/pdf/19048.pdf

The Engle and Granger cointegration analysis and Granger causality tests are applied to monthly time series of nine major stock market indices over the period January 1982 to February 1991 to examine for causal linkages. The empirical results indicate that there is adequate evidence to refute the notion of informationally efficient stock markets.

The causal relationships between equity indices on world exchanges

Share price volatility with the introduction of individual share futures on the Sydney Futures Exchange

In light of the growing significance of trade in financial services, and the emphasis placed on trade in financial services during the Uruguay round of trade negotiations, this article is the first study of the determinants of intraindustry trade (IIT) in insurance services. The article analyzes and measures the magnitude of IIT in insurance services for the United States. The empirical results of the determinants of IIT indicate that foreign direct investment in insurance services (FDI) is a significant contributor to the volume of trade in insurance services. These empirical findings confirm the new theoretical trade models that, unlike the traditional trade theory that considered trade and foreign direct investment in insurance services as substitutes, trade and FDI complement each other and hence multinational insurance companies are contributing to an increase in the volume of trade in insurance services. Furthermore, this study shows that trade intensity between the United States and its trading partners leads to product differentiation in insurance services and hence an increase in consumer welfare.

The Determinants of Intra‐Industry Trade in Insurance Services

This study uses international asset pricing models to investigate the link between the quality of government institutions and the performance of global stock markets. The results demonstrate a significant positive association between stock market performance measures and the quality of the institutional environment. Performance measures examined for the cross-section of countries were the average monthly stock index excess returns and the Sharpe ratio. All measures of performance were adjusted for global and local risk factors known to explain their international variation. The quality of governance is also found to be negatively associated with stock market total risk and idiosyncratic risk, consistent with the notion that stable institutions are linked to reduced variations in equity returns. These findings suggest countries with better-developed governance systems have stock markets with higher returns on equity and lower levels of risk. The results lend support for the view that a precondition for financial market development is the improvement of the institutions which govern the process of exchange.

Governance and Stock Market Performance

https://isiarticles.com/bundles/Article/pre/pdf/15399.pdf

Ah Boon Sim

Papers

The causal relationships between equity indices on world exchanges

Share price volatility with the introduction of individual share futures on the Sydney Futures Exchange

The Determinants of Intra‐Industry Trade in Insurance Services

Governance and Stock Market Performance

Governance and stock market performance