Showing papers by "Indira Gandhi Institute of Development Research published in 2003"

Random walk versus breaking trend in stock prices: Evidence from emerging markets

Abstract: This paper investigates whether stock-price indexes of seventeen emerging markets can be characterized as random walk (unit root) or mean reversion processes. We implement a test that can account for structural breaks in the underlying series and is more powerful than standard tests. We find that for fourteen countries, stock prices exhibit structural breaks. Furthermore, for ten countries, the null hypothesis of a random walk can be rejected at the one or 5% significance level. Our results indicate that ignoring structural breaks that arise from the liberalization of emerging markets can lead to incorrect inference that these indices are characterized by random walks, and are consistent with the points made by Bekaert et al. [J. Int. Money Finan. 21 (2002) 295]. Our findings hold true regardless of whether stock indexes are denominated in US dollar terms, in local currencies terms, or in real terms. 2002 Elsevier Science B.V. All rights reserved.

Selection of Value‐at‐Risk models

Abstract: Value-at-Risk (VaR) is widely used as a tool for measuring the market risk of asset portfolios. However, alternative VaR implementations are known to yield fairly different VaR forecasts. Hence, every use of VaR requires choosing among alternative forecasting models. This paper undertakes two case studies in model selection, for the S&P 500 index and India's NSE-50 index, at the 95% and 99% levels. We employ a two-stage model selection procedure. In the first stage we test a class of models for statistical accuracy. If multiple models survive rejection with the tests, we perform a second stage filtering of the surviving models using subjective loss functions. This two-stage model selection procedure does prove to be useful in choosing a VaR model, while only incompletely addressing the problem. These case studies give us some evidence about the strengths and limitations of present knowledge on estimation and testing for VaR. Copyright © 2003 John Wiley & Sons, Ltd.

Mean reversion in stock prices: evidence from emerging markets

Abstract: This paper investigates whether stock‐price indexes of emerging markets can be characterized as random walk (unit root) or mean reversion processes. We implement a panelbased test that exploits cross‐sectional information from seventeen emerging equity markets during the period January 1985 to April 2002. The gain in power allows us to reject the null hypothesis of random walk in favor of mean reversion at the 5 percent significance level. We find a positive speed of reversion with a half‐life of about 30 months. These results are similar to those documented for developed markets. Our findings provide an interesting comparison to existing studies on more matured markets and reduce the likelihood of earlier mean reversion findings as attributable to data mining.

Trade Reforms, Labor Regulations and Labor-Demand Elasticities: Empirical Evidence from India

Abstract: Using industry-level data disaggregated by states, this paper finds a positive impact of trade liberalization on labor-demand elasticities in the Indian manufacturing sector. These elasticities turn out to be negatively related to protection levels that vary across industries and over time. Furthermore, we find that these elasticities are not only higher for Indian states with more flexible labor regulations, they are also impacted to a larger degree by trade reforms. Finally, we find that after the reforms, volatility in productivity and output gets translated into larger wage and employment volatility, theoretically a possible consequence of larger labor-demand elasticities.

Efficiency of Indian Stock Market

Abstract: Market efficiency has an influence on the investment strategy of an investor because if market is efficient, trying to pickup winners will be a waste of time. In an efficient market there will be no undervalued securities offering higher than deserved expected returns, given their risk. On the other hand if markets are not efficient, excess returns can be made by correctly picking the winners. In this paper, an analysis of three popular stock indices is carried out to test the efficiency level in Indian Stock market and the random walk nature of the stock market by using the run test and the autocorrelation function ACF (k) for the period from January 1996 to June 2002. The study carried out in this paper has presented the evidence of the inefficient form of the Indian Stock Market. From autocorrelation analyses and runs test we are able to conclude that the series of stock indices in the India Stock Market are biased random time series. The auto correlation analysis indicates that the behavior of share prices does not confirm the applicability of the random walk model in the India stock market. Thus there are undervalued securities in the market and the investors can always excess returns by correctly picking them.

Economic insight into municipal solid waste management in Mumbai: a critical analysis

Abstract: Mumbai generates 6256 tonnes of waste every day, of which 17.20% is recyclable, but only a fraction of this is retrieved by rag-pickers. The economic value of the retrieved material is not considered by the Municipal Corporation of Greater Mumbai in valuing the waste management system as there is no retrieval mechanism except the informal rag-picking activity. Moreover, the cost of land used for the dumping of waste is also not accounted for. In the present paper, a comprehensive cost-benefit analysis for the present system of municipal solid waste management in Mumbai is carried out, with due consideration for implicit or hidden costs and benefits. Accounting for the implicit costs and benefits showed a difference of $6 per every tonne of waste disposal. This could show a considerable difference in policy development at the municipality level. Demand supply analysis proved that the present system of waste management would not yield a feasible market solution without private sector participation. With the increasing demand for improved waste management, private sector participation is essential and a Pigouvian tax is a necessary tool to make the private sector participation in solid waste management a success.

Energy Intensity: A Quantitative Exploration for Indian Manufacturing

Abstract: An econometric analysis of industry energy intensity is presented in this paper. The overall purpose of this study is to increase the understanding of the factors that are influencing industrial energy intensity. In this paper we have attempted to identify and measures the factors behind the firm level energy efficiency. Using an econometric approach that identifies source of variation in energy intensity we find an inverse relationship between energy intensity and firm size - this may be due to economies of scale - bigger firm size need not be associated with higher energy intensity. The analysis also brings out the finding that ownership type is also an important determinant of energy intensity. We find that foreign owned firms exhibit a higher level of technical efficiency and so are less energy intensive. Results do confirmed that state owned enterprises are more energy intensive in all industries during the period of the study. We find that R&D activities are important contributors to the decline in firm-level energy intensity. We also identified that different industries exhibit different levels of energy intensity.

Deregulation, Ownership and Efficiency in Indian Banking

Abstract: Absh·act This paper uses a Stochastic Cost Frontier Approach to evaluate the efficiency of the Indian banking system using panel data on public and private sector banks for the period 1986-2000. Efficiency variations in terms of exogenous factors are used to analyze the time behavior of the banking system, especially the changes in etliciency since the initiation of the reforms program in 1992. Ownership characteristics of banks are also incorporated into the analysis to examine if efficiency as well as etliciency changes have differed across ownership groups. Empirical results indicate the presence of cost inefficiency in the Indian banking system, but there is a tendency for inefliciencies to decline over time. The results also indicate that cost inefliciency of banks has increased since the initiation of the reforms, though the reduction in inefliciencies over time continues albeit at a slower rate compared to that observed in the pre-deregulation period. We also find that the private banks are generally more cost-eflicient than public banks, but there are no significant differences in the impact of deregulation on the cost etliciency of these two bank groups. At the individual level, we find marked differences in the elliciency behaviour of different banks with private banks exhibiting much more intra-group volatility in relative efficiency changes between the pre and post deregulation periods compared to that of public banks. JEL Classification : C23, G2 I.

Inflation in India: An Analysis Using Post-Liberalisation Data

Abstract: Using the post liberalization data on monetary aggregates and nominal effective exchange rates this paper tries to see if there still exists causality between these variables. With an unrestricted Vector Auto Regression framework we check for the granger causality existing among these variables. An attempt is also made to see which one of the three monetary aggregate, among reserve money, narrow money and broad money, explain the inflation in a better way. The granger causality tests and the analysis of unrestricted VAR models suggests strong linkage between both growth in all the three monetary aggregates and changes in nominal exchange rate on inflation in India. Even though no clear evidence is found as to which of the monetary aggregates best explains inflation, from the VAR model there is sufficient reason to believe that the broad money measure (M3) is better. It has also been observed that the explanatory power of these variables in explaining inflation is not high any more.

Development of techno-economic integrated models: LFSGR and aerobic composting for municipal waste management

Abstract: In the present study, integrated models have been developed to find out the most appropriate cost of municipal solid waste (MSW) disposal using two potential and widely used methodologies, viz. landfill system with gas recovery (LFSGR) and aerobic composting (AC). Objective functions with important costs and benefits including externalities were developed to find out the net unit cost of disposal. Multivariate functional models have been developed for each activity of the objective functions. These integrated techno-economic models can be used not only to determine the most appropriate cost of waste disposal, but also to explain the interparametric linkages and even to compare the potentiality and suitability of a particular methodology for a set of conditions. This can give valuable information that can enhance environmental management leading to sustainable development.In the simulation studies carried out, LFSGR with its proven energy generating potential from MSW in the form of landfill gas, was found to perform better than aerobic composting (AC) for rates of waste generation greater than 1,000–2,000 t/d (tons per day). LFSGR showed a better performance irrespective of the landfill collection system installation and operation costs. For both methodologies, unit cost of disposal was most sensitive to land rent followed by, in the case of LFSGR, the organic content.

Financial Liberalization in India and the Bank Lending Channel of Monetary Transmission

Abstract: The financial reform process has given banks in India a great deal of freedom on both the assets and liabilities (or sources and uses of funds) sides of their balance sheets. To the extent that, financial liberalization has opened up new non-reservable and non-insured sources of funds (like Certificates of Deposits and new issue of equity), any attempts by the central bank to influence bank lending by withdrawing reserves (leading to a fall in deposits) from the banking system could be countered by raising money from these alternate sources leaving bank lending unchanged. It is in this liberalized regime that the 'bank lending channel', which emphasizes the presence of asymmetric information in the financial markets, becomes particularly relevant. In this article we attempt to verify if bank lending is constrained by the availability of insured deposits and whether there exist subgroups of banks that are less constrained. We find that banks in general are constrained in their lending by the availability o...

Tourist Arrivals in India: How Important are Domestic Disorders

Abstract: The Indian Tourism Industry has flourished in the past few years, significantly contributing to the nation's Gross Domestic Product, foreign exchange earning and employment. India with her enriched natural beauty is unambiguously one of the most viable candidates for promoting tourism. Since the past few years, Government of India has undertaken various measures to promote tourism; but its' benefits has not attained the maximum. This paper is an attempt to analyse empirically the determinants of international tourist arrivals in India using annual data from 1966 to 2000. The results document that socio-political factors, viz. communalism, terrorism and Indo-Pak tensions place serious threats to the tourism industry putting limits on the gains that could have been potentially realized.

IPRs and Agriculture: South Asian Concerns

Abstract: Important concerns face South Asian countries in formulating their IPR policies in agriculture. The major issues include: the implications of IPRs on the price of seeds, the rise of bio-piracy; acc...

Training, Unemployment and Fiscal Subsidy: A Harris Todaro Approach

Abstract: We deviate from the Harris and Todaro (1970) model by assuming that the urban firms provide training to the workers. But whether to train or not and how many workers should be trained is decided under imperfectly competitive market conditions. On the other hand, in the rural sector perfect competition prevails. Under these circumstances the urban firms start training at a wage rate less than but very close to the unit cost incurred due to training. The urban employment falls and the rural employment rises. Therefore, the overall unemployment due to training may rise or fall at this wage rate. If the unemployment rises then it is certainly due to the existence of imperfectly competitive firms in the urban sector as well as productivity gain from training. Provision of training subsidy allows firms to start training at a lower wage rate. When turnover is allowed,the training firms start training at a wage rate even higher than that in case of no turnover, as these firms have to offer a higher wage rate in order to prevent poaching by the non-training firms. The social welfare is higher under no-turnover situation as opposed to turnover when the wage rate is fixed at the unit cost of training. An imposition of training subsidy by the government raises the social welfare when turnover is allowed provided the productivity of trained workforce is higher.

Liquidity: Persistence and Forecast in Open Electronic Limit Order Book Market

Abstract: This paper investigates the relationship between serial correlation in liquidity which is measured by impact cost from limit order book datasets, rate of information flow and trading activity. Hourly absolute return acts as the rate of information flow whereas hourly mean trade duration and hourly mean rupees traded volume are measures for trading activity. The paper finds that persistence of impact cost is negatively related with the information flow and positively affected by trading activity. We document the empirical evidence that trading period which is characterised by high volatility and high mean rupees traded volume has a negative impact on the persistence of liquidity. We provide the support for the hypothesis that liquidity of one side of limit order book leads to the other side. Finally, the paper shows that time series model of impact cost performs better than the naive model in a one step ahead prediction.

Structure of Financial Savings During Indian Economic Reforms

Abstract: In an economy undergoing structural reforms the composition of savings goes through considerable change. It is important to understand such changes both for increasing the volume of aggregate savings (to garner resources for higher economic growth) as well as affecting their composition (towards more productive instruments) through an understanding of inter-asset substitutability. We conduct nonparametric tests to examine whether data on financial savings in India can be rationalized in terms of a utility function of a representative economic agent. The parametric test has the disadvantage that in some cases it is not possible to distinguish between rejections of the functional form from a rejection of weak separability. We establish that data on financial savings in India are consistent with the existence of a utility function for a representative individual with a sub-preference where contractual savings (insurance and provident funds) can be separated out. This would facilitate construction of a suitable financial aggregate using these assets.

Estimating Default Probability of Firms: An Indian Perspective

Abstract: This paper aims to estimate the probability that a firm is unable or unwilling to service its bank debt. Using a Probit Model we outline the relation between financial health and the probability of first default in the case of the Indian firms - interestingly the study finds that past debt servicing and firm size are not very important as indicators of debt repayment.

A Study of the Temporal Aggregation of GARCH Model

Abstract: Beginning with the mean variance analysis of portfolio and asset returns, volatility has become central to much of modern finance theory. In recent times, empirical work involving high frequency financial time series data has focused on volatility of asset return. It has been observed that the asset returns exhibit changes, which are not independent over time. Rather, large changes tend to followed by large changes of either sign - small changes tend to be followed by small changes. That is, big shocks are clustered together. GARCH models are used to parameterize conditional heteroskedasticity. It is little known about the impact of temporal aggregation upon GARCH process that conditional heteroskedasticity disappears if the sampling time interval increases to infinity (Drost and Nijman (July 1993). Important applications for persistence variance in GARCH (1,1) model are represented by sum of the coefficients lagged squared disturbance and that of past variance coefficients b1.

A Divisia Type Saving Aggregate for India

Abstract: In India, the pace of financial innovation was relatively slow until the initiation of the financial liberalization program in 1991-92. The subsequent financial reforms have had important implications for the user costs of assets and resulted in significant substitution among them. Hence there is a need to develop an aggregate measure of savings that would more accurately reflect household choice over various assets than the simple sum. As user costs of assets change so does the composition of the financial savings aggregate. An advantage of monetary aggregates that are derived from such microeconomic models is that no a priori assumptions about the substitutability of assets need to be imposed. A Divisia aggregate has some theoretical advantages in this regard but since the estimation of this aggregate is computationally difficult, the extent of its superiority over the simple sum becomes an empirical question. In this paper we construct Divisia subaggregates of the financial assets of the household savings based on results from weak separability parametric and non-parametric tests. From these subaggregates we construct an overall aggregate of financial savings in India.

Poverty Reduction in 1990s: A Comparison of India and China

Abstract: This paper tries to make a comparative study of poverty reduction in India and China during 1990s. This study could find that there are many factors in common between these two countries in their road to poverty reduction. It has been observed that in both India and China the absolute poverty levels have fallen ever since the liberalization process has started. But the poverty in both these countries have taken different dimensions. Inequality has increased and poverty started getting concentrated in few regions and among few casts. As both the countries were undergoing economic reforms during this period the common behavior that is observed could be something that is worth investigating further.

Genetically Modified Crops in India - Role of Asymmetric Information

Abstract: Today the debate about the Genetically Modified Crops is very active and highly inflammable due to its inherent political nature. Any policy, which neglects political factors by giving only weight to scientific factors, will end up in market failure for these products. The intense debate about this food is mainly due to its lack of proper information. Though asymmetric information is playing a vital role in penetration of these crops, very few studies have gone into studying this aspect. It seems that India's policies towards GM crops are at crossroads and they are not able to view this problem in a particular way. They are not able to understand the crux of the whole problem. They are simply saying whatever is good for the US is good for India. This lack of visionary towards these crops are plunging the country into not to take any decision of their own. For Biotech companies success in the world's largest democracy will be seen as public acceptance and increases MNC credibility. If we analyze the problem prevailing in India we can see that it is more of asymmetrical information rather than any other problem. This asymmetry is prevailing as there is many actors are involved on these issues and they pass on asymmetric information to the beneficiaries (farmers/consumers). The whole issue related to these crops is fully asymmetrical through out the supply chain. So in this article talk of asymmetric information problem and we see how it is affecting outcomes. If the asymmetric information as talked by classical Akerlof model is existent then the problem will be persistent. The silence to the most of the genuine questions posed by these GM Foods would postpone a sustainable development and the judicious application of the biotechnology.

Energy Efficiency and Environmental Implications in India's Household Sector

Abstract: Publisher Summary This chapter provides a methodological framework for estimating the costs and benefits to the household sector through the replacement of the existing inefficient technologies with efficient ones, and suggests policy measures. Energy efficiency improvements have multiple advantages, such as the efficiency of utilization of natural resources, reducing air pollution levels, and reduced spending by the consumer on energy related expenditure. Annualized Life Cycle Costs (ALCC) are calculated taking into consideration the capital cost of the device, its life, operating cost, energy carrier price, etc., using a 12% discount rate. The results show that the average discounted payback period for many of these technologies, at the current capital costs, is less than two years, which usually considered warranting the investment. It is seen from the results that, on an average, for every hundred rupees of capital invested on efficient lighting systems, the consumer gets an annual return of about 60 Rupees. This shows that the rate of return on investment is very high. The chapter identifies the barriers that prevent the government from achieving its energy efficiency goals, analyzes programs that address these barriers, and explores the creation of an institutional mechanism.

Growth and the Role of Sales-Tax Systems: A Study of Indian States

Abstract: This paper attempts to model the role of productive expenditure on growth using a panel data from fourteen major Indian states covering the time-period 1974-75 to 1996-97. It focuses on the role of indirect taxes as a source of financing of productive expenditure by the government, which acts as a complement to the private capital and labor in production of goods. Such an expenditure itself enhances growth, a phenomenon known as productivity effect. Indirect tax can be of several types. It can be imposed either on consumption or on intermediate goods or on capital goods. This study has assumed away the presence of the intermediate goods. Taxes imposed on consumption have no effect on growth in the absence of labor-leisure choice. However, taxing the manufacturer for the purchase of capital goods is likely to have a negative effect on growth. The same can be said about taxing the sales of capital goods. This is in line with the result obtained in Barro (1990), where the tax is imposed on interest income. This empirical exercise, in terms of a simultaneous equation panel data model of growth that takes into account the possible endogeneity of the fiscal policy variables reveals that productive expenditure has a positive significant impact on growth. This indicates the possible domination of productivity effect of the expenditure over the distortionary effect of indirect capital taxation. The impact of productive expenditure on growth rises by 3.6%, when we allow for the presence of last point taxation regime versus first or multiple point taxation systems. This indicates the importance of VAT as an instrument in furthering the Indian states' growth objectives.

Identities and Inequalities for Coherent Life Functions and Continuum Structure Functions

Abstract: A number of identities and inequalities are derived for coherent life functions and continuum structure functions of the Barlow-Wu type based on the coefficients of the simple form representation of the underlying binary structure function. These naturally lead to identities and inequalities for the mean time to failure and stochastic performance of these systems.

Parental Preference Over Child Education: Empirical Evidence from Two Indian States

Abstract: This paper tries to investigate educational preferences of parents over their child's education using survey data from two Indian States. Based on the natural ordering of the preferences, an ordered probit framework is being used. We also examine the presence of gender bias in preference pattern of parents. Our results document that in addition to educational and income status of parents' autonomy enjoyed by female in the family and dowry being exchanged at the time of parents' own marriage played an important role in parental decision-making process regarding their child's education. The old age security variable also exerts some influence in parental decision. Even after controlling for individual and household level characteristics, we are able to provide some evidence in favor of increased need of public facility like the presence of schools in the community.