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Showing papers in "Applied Financial Economics in 2009"


Journal ArticleDOI
TL;DR: In this article, a cointegration analysis is applied to model the long-term relationship between industrial production, the consumer price index, money supply, longterm interest rates and stock prices in the US and Japan.
Abstract: Within the framework of a standard discounted value model, we examine whether a number of macroeconomic variables influence stock prices in the US and Japan. A cointegration analysis is applied in order to model the long-term relationship between industrial production, the consumer price index, money supply, long-term interest rates and stock prices in the US and Japan. For the US, we find the data are consistent with a single cointegrating vector, where stock prices are positively related to industrial production and negatively related to both the consumer price index and the long-term interest rate. We also find an insignificant (although positive) relationship between the US stock prices and the money supply. However, for the Japanese data, we find two cointegrating vectors. We find for one vector that stock prices are influenced positively by industrial production and negatively by the money supply. For the second cointegrating vector, we find industrial production to be negatively influenced by the c...

226 citations


Journal ArticleDOI
TL;DR: In this article, the authors evaluate the performance of the Arab Gulf Cooperation Council (GCC) banking industry in the context of the Structure-Conduct-Performance (SCP) hypothesis in the period 1993 to 2002.
Abstract: This article evaluates the performance of the Arab Gulf Cooperation Council (GCC) banking industry in the context of the Structure-Conduct-Performance (SCP) hypothesis in the period 1993 to 2002. This article uses panel estimation differentiating between bank fixed effects and country fixed effects. It examines the Relative-Market-Power (RMP) and the Efficient-Structure (ES) hypotheses differentiating between the two by employing a nonparametric measure of technical efficiency, and finds that the banking industry in the Arab GCC countries is best explained by the mainstream SCP hypothesis. The empirical results do not find any support for the Hicks’ (1935) ‘Quiet Life’ (QL) version of the market power hypothesis.

97 citations


Journal ArticleDOI
TL;DR: In this paper, the impact of the introduction of the euro on the interactions across the New York, London, Frankfurt and Paris stock markets is investigated using the framework of dynamic conditional correlations.
Abstract: This article investigates the impact of the introduction of the euro on the interactions across the New York, London, Frankfurt and Paris stock markets. After controlling for possible returns and volatility spillovers, we focus on the correlations of shocks using the framework of Dynamic Conditional Correlations (DCC). Daily pseudo-closing prices (recorded at 16:00 London time) are used to avoid conflating correlation and spillover effects. Statistical break tests confirm that the introduction of the euro significantly affects the cross-market correlations. Although dynamic correlations of shocks between all market pairs increase, the correlation in the post-euro period is highest between Frankfurt and Paris, indicating increased integration of these markets. Other findings include the presence of spillover effects from foreign markets for both returns and volatilities, with asymmetries in volatilities and conditional correlations such that negative shocks have larger effects than positive ones.

96 citations


Journal ArticleDOI
TL;DR: In this article, the authors examined the interrelations among five ownership and board characteristics in a sample of 260 banks and Savings-and-Loan Holding Companies (SLHCs) and found statistically significant relationships between performance and insider ownership and blockholder ownership when using OLS regressions.
Abstract: This article examines the interrelations among five ownership and board characteristics in a sample of 260 banks and Savings-and-Loan Holding Companies (SLHCs). These governance characteristics, designed to reduce agency problems between shareholders and managers are insider ownership, blockholder ownership, the proportion of outside directors, board leadership structure and board size. Using Two-Stage Least Squares (2SLS) regressions, we present the evidence of interdependencies between the board and ownership structures. The results suggest that the banks substitute between governance mechanisms that align the interests of managers and shareholders. These findings suggest that cross-sectional Ordinary Least Square (OLS) regressions of bank performance on single governance mechanisms may be misleading. Indeed, we find statistically significant relationships between performance and insider ownership and blockholder ownership when using OLS regressions. However, these statistically significant relationship...

95 citations


Journal ArticleDOI
TL;DR: In this article, the authors provide an empirical assessment of the cost and profit stochastic frontiers based on a panel dataset of Greek commercial banks over the period 1993 to 2005, and compare the most widely used parametric and nonparametric techniques to cost efficiency measurement.
Abstract: The objective of this article is 2-fold. First, it provides an empirical assessment of the cost and profit stochastic frontiers based on a panel dataset of Greek commercial banks over the period 1993 to 2005. Second, on the basis of the same sample, it also compares the most widely used parametric and nonparametric techniques to cost efficiency measurement, namely, the Stochastic Frontier Approach and Data Envelopment Analysis. The results suggest greater similarities between the predictions of cost and profit efficiency methods than between parametric and nonparametric techniques. Such evidence is new in the literature and calls for a more technically level playing field for estimating bank efficiency.

67 citations


Journal ArticleDOI
TL;DR: This article analyzed the performance of a large sample of SR stocks relative to a control sample of equivalent size for 14 years and found that individual SR stocks have on average significantly lower returns and unconditional variance than control sample stocks when controlling for industry eects.
Abstract: We analyze the performance of a large sample of SR stocks relative to a control sample of equivalent size for 14 years. We find that individual SR stocks have on average significantly lower returns and unconditional variance than control sample stocks when controlling for industry eects. This result is paralleled by descriptive evidence on the lower (daily return) mean and variance of the buy-and-hold strategies on the SR portfolio with respect to those on the control portfolio. Beyond this first evidence we discover that: i) individual SR stocks are significantly less risky when controlling for conditional heteroskedasticity; ii) there are no significant dierences in risk adjusted returns between the two buy and hold strategies on (SR and control sample) portfolios; iii) the buy-and-hold strategies on the SR portfolio exhibits significantly lower exposition to systematic nondiversifiable risk. These last findings are robust to dierent - market model, GARCH(1,1), APARCH(1,1) - model specifications.

65 citations


Journal ArticleDOI
TL;DR: This article examined the impact of ownership structure on the likelihood of financial distress of Dutch firms listed on the Amsterdam Stock Exchange (Euronext) from 1992 to 2002 and found that firms with higher levels of managerial shareholdings are less likely to experience financial distress.
Abstract: This article examines the impact of ownership structure on the likelihood of financial distress of Dutch firms listed on the Amsterdam Stock Exchange (Euronext) from 1992 to 2002. We find that firms with higher levels of managerial shareholdings are less likely to experience financial distress. This finding is consistent with the alignment hypothesis that managers with higher ownership stakes are more likely to avoid financial distress. We also find empirical evidence that large outside shareholders reduce the probability of financial distress. Monitoring incumbent management by large outside shareholders might prevent sub optimal managerial behaviour and reduce the likelihood of financial distress. Finally, we find no evidence that high levels of institutional shareholdings are associated with a lower probability of financial distress.

59 citations


Journal ArticleDOI
TL;DR: In this paper, the authors consider the risk information hypothesis, whereby management provides the market with new information about the risk of the firm's earnings variability through their dividend policy, and find that positive changes in dividends are associated with positive future changes in mean real Earnings Per Share (EPS).
Abstract: It is generally accepted that a firm's dividend policy can provide information about its future financial performance. Most studies link dividend policy with firm valuation; however, other signals involving dividend policy are also observed. The focus of this article is not to continue the examination of the return (valuation) information contained in dividend announcements, but rather to consider the information about risk that the announcements provide. We consider the ‘risk information hypothesis’, whereby management provides the market with new information about the risk of the firm's earnings variability through their dividend policy. The results of our study provide evidence that positive changes in dividends are associated with positive future changes in mean real Earnings Per Share (EPS). Furthermore, a significant increase in EPS variance (risk) after a dividend change is observed for all dividend change classifications except for dividend omissions. The strongest signal of future variance shifts...

58 citations


Journal ArticleDOI
TL;DR: In this paper, the authors examined the static and dynamic effects of managerial insiders and large shareholders' ownership on the capital structure of Jordanian industrial firms and found no significant relationship between debt ratio and institutional ownership.
Abstract: This article examines empirically the effect of ownership structure on the corporate financing decision from the agency theory perspective. This article contributes to the literature by examining the static and the dynamic effects of managerial insiders and large shareholders' ownership on the capital structure. Based on panel data analysis for a sample of Jordanian industrial firms during the period 2001 to 2005, the study provides empirical evidence indicating that the debt ratio is negatively related to managerial ownership and inconclusively related to individual block-holders' ownership. Moreover, the study finds no significant relationship between debt ratio and institutional ownership. These results are consistent with the entrenchment behaviour of managers and passive monitoring by institutions. Finally, supporting the results of previous literature, this study reveals that the capital structure is affected by firm's profitability, size and growth.

52 citations


Journal ArticleDOI
TL;DR: In this paper, the authors used a 34 years' standardized balance sheet data of the manufacturing firms in Pakistan to know the leverage behavior of these firms over time and found that leverage has two pervasive and significant relationships: one, negative relationship with current and past profitability; and two, positive relationship with past dividends.
Abstract: This study uses a 34 years' standardized balance sheet data of the manufacturing firms in Pakistan to know the leverage behaviour of these firms over time. The results indicate that leverage has two pervasive and significant relationships: one, negative relationship with current and past profitability; and two, positive relationship with past dividends. This provides empirical evidence to put forward strong support to Pecking Order Theory (POT) in context of profitability and dividends. Moreover, it provides empirical evidence to present a reasonable support to POT regarding growth. However, apropos size POT gets nominal empirical support from Pakistan.

47 citations


Journal ArticleDOI
TL;DR: This article analyzed the effects of financial intermediation on the growth of real GDP by employing data for 27 countries over the period of 1989 to 2004 and found that there is a robust positive link between financial development and economic growth in transition economies.
Abstract: The hypothesis that financial development promotes economic growth enjoys significant support from empirical evidence drawn from both developed and developing countries alike. However, analogous empirical evidence is still lacking for economies in transition. This article analyses the effects of financial intermediation on the growth of real GDP by employing data for 27 countries over the period of 1989 to 2004. Using an endogenous growth model and panel data analysis techniques, we estimate regressions with various proxies for financial sector development. We find that in contrast to some recent empirical work, there is a robust positive link between financial development and economic growth in transition economies.

Journal ArticleDOI
TL;DR: In this article, the authors provide a characterization of the Greek banking system's efficiency and productivity under the new environment that the Economic and Monetary Union (EMU) participation implies, and they consider cost and profit efficiency as well as productivity change of commercial banks using the nonparametric Data Envelopment Analysis (DEA) and the Total Factor Productivity (TFP) Malmquist Index.
Abstract: We provide a characterization of the Greek banking system's efficiency and productivity under the new environment that the Economic and Monetary Union (EMU) participation implies. We consider cost and profit efficiency as well as productivity change of commercial banks using the nonparametric Data Envelopment Analysis (DEA) and the Total Factor Productivity (TFP) Malmquist Index. The period under study is 1998-2003 covering Greece's entry into the euro area in 2001 and the run-up to it. Moreover, enhanced competition along with lower inflation and interest rates has further motivated financial innovation and Off-Balance Sheet (OBS) business. Our findings suggest that cost efficiency has risen by 4.3% over the 6 years under study. Moreover, Greek banks seem to enjoy relatively high profit efficiency (on average 75%) showing an increase by 93% over 1998-2003. Similarly, productivity seems to have risen by 15% and this was mainly driven by the improvements in the performance of best-practice institutions. Our results do not show any role for OBS activities in Greek banks' efficiency. Finally, while the impact of profitability and size on efficiency and productivity yields mixed results, our empirical findings seem to corroborate previous studies in that controlling for risk preferences is important in determining bank efficiency.

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the comovement in stock markets between the emerging economies of Central and Eastern Europe (CEE) and the developed markets of Western Europe (WCE).
Abstract: This article investigates comovement in stock markets between the emerging economies of Central and Eastern Europe (CEE) and the developed markets of Western Europe. Three approaches are employed to examine this issue. The first two approaches, time-varying realized correlation ratios and cointegration statistics, use a two-step technique to derive time-varying estimates of the comovement between returns on CEE and EU stock exchanges. The first step uses common factor analysis to define the factors driving CEE stock exchanges, while the second step evaluates the relationship between the leading principal factor for CEE countries and the Deutsche Aktien Xchange (DAX) and Financial Times Stock Exchange (FTSE) using time-varying realized correlation and rolling cointegration statistics. The third approach employs Multivariate Generalized Autoregressive Conditional Heteroscedasticity (MGARCH) techniques to obtain estimates of mean and variance spillover effects.

Journal ArticleDOI
TL;DR: In this article, the authors extended the research on the improvements to the efficient portfolio frontier in globally diversified portfolios and examined efficient frontiers of regional equity portfolios from developed and undeveloped countries.
Abstract: This article extends the research on the improvements to the efficient portfolio frontier in globally diversified portfolios. We examine efficient frontiers of regional equity portfolios from developed and undeveloped countries. We show that a globally diversified portfolio has higher reward with less risk than individual regional portfolios. We also show that, in the past 8 years, a US investor would have achieved higher returns for the same risk if diversified in emerging and frontier markets. These results have implications for practical portfolio selection as well as empirical applications of Capital Asset Pricing Model (CAPM).

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the pricing of subprime mortgage risk using data for the ABX.HE indices, which have become a key barometer of market conditions during the recent financial crisis.
Abstract: This article investigates the pricing of subprime mortgage risk using data for the ABX.HE indices, which have become a key barometer of market conditions during the recent financial crisis. After a discussion of ABX index mechanics and observed pricing patterns, we use regression analysis to establish the relationship between observed index returns and macroeconomic news as well as market-based proxies of various pricing factors. The results imply that declining risk appetite and heightened concerns about market illiquidity–likely due in part to significant short positioning–have provided a sizeable contribution to the observed collapse in ABX prices. In particular, while fundamental factors, such as housing market activity, have continued to exert an important influence on the subordinated indices, those backed by senior exposures have tended to react more to the general deterioration of the financial market environment. This provides further support for the inappropriateness of pricing models that do no...

Journal ArticleDOI
TL;DR: In this paper, the authors examined the earnings management practices of growth versus value firms and found that growth firms have more incentive to "manage their earnings" and that they do so more aggressively as compared to value firms.
Abstract: This research examines the earnings management practices of growth versus value firms. We predict that growth firms have more incentive to ‘manage their earnings’ and that they do so more aggressively as compared to value firms. The primary reason for this behaviour is that information asymmetries are more severe for growth firms. Using a sample of firms over the period from 1997 through 2001, this study finds that growth firms tend to manage their earnings upward and downward more aggressively than value firms. These results are robust to using different components of discretionary total accruals as a measure for earnings management and after controlling for other factors.

Journal ArticleDOI
TL;DR: In this article, the authors investigated the trend of X-(in) efficiencies across Eastern European 2004-accession countries' banking industries over the period 1999 to 2003, using Data Envelopment Analysis (DEA) estimators.
Abstract: This study investigates the trend of X-(in) efficiencies across Eastern European 2004-accession countries’ banking industries over the period 1999 to 2003. We use Data Envelopment Analysis (DEA) estimators to obtain proxies for X-(in)efficiencies and we then analyse the inter-country industry differences using the methodology of Simar and Zelenyuk (2007) and the impact of country-specific environmental conditions, following Simar and Wilson's (2007) truncated regression with bootstrap methodology. Overall, the results suggest that Eastern European banking had considerable scope for X-efficiency improvements. However, the results also demonstrate that the efficiency gap between the sample countries declined over the period, and fewer environmental factors contributed to the difference in the banking efficiency levels.

Journal ArticleDOI
TL;DR: In this article, the authors investigated the relationship between wind speed and daily stock market returns across 18 European countries from 1994 to 2004, and found that wind might exert a stronger impact on mood than sunshine and hence be a better proxy for mood rather than sunshine.
Abstract: Environmental psychology studies have found evidence that wind speed has a strong influence on mood and comfort. This study investigated the relationship between wind speed and daily stock market returns across 18 European countries from 1994 to 2004. A significant and pervasive wind effect was found on stock returns. This finding was supported by psychological literature claiming that mood affects judgement and decision-making in situations involving uncertainty and risk, and coincides with the argument of misattribution. This investigation also found strong seasonality effect and temperature effect in European stock markets. Specifically, the influence of wind on stock returns is demonstrated to be more significant than that of sunlight, indicating that wind might exert a stronger impact on mood than sunshine and hence be a better proxy for mood than sunshine. Above all, our findings contradict the rational asset-pricing hypothesis and contribute to the behavioural finance literature.

Journal ArticleDOI
TL;DR: In this article, the authors analyse if and to what extent fundamental macroeconomic factors, temporary influences or more structural factors have contributed to the low levels of US bond yields over the last few years, and find that the behaviour of bond yields, even during the last years, can be well explained by macroeconomic and structural factors.
Abstract: We analyse if and to what extent fundamental macroeconomic factors, temporary influences or more structural factors have contributed to the low levels of US bond yields over the last few years. For that purpose, we start with a general model of interest rate determination. The empirical part consists of a cointegration analysis with an error-correction mechanism. We are able to establish a stable long-run relationship and find that the behaviour of bond yields, even during the last years, can be well explained by macroeconomic and structural factors. Alongside the more traditional determinants like core inflation, monetary policy and the business cycle, we also include foreign holdings of US Treasuries. The latter should capture the frequently mentioned structural effects on long-term interest rates. Finally, our bond yield equation outperforms a random walk model in different forecasting exercises.

Journal ArticleDOI
TL;DR: In this article, the authors examined the efficiency of the A-and B-shares markets in Shanghai and Shenzhen Stock Exchanges (SHSE and SZSE) using a battery of nonlinearity tests.
Abstract: Given that the efficiency of the Chinese stock markets was empirically examined in extant literature using statistical tests that are designed to uncover linear correlations of price changes, the obtained statistical inferences of efficiency/inefficiency are on very shaky grounds as highlighted in a recent article by Saadi et al. (2006). Motivated by this concern, the present article re-examines the efficiency of the A- and B-shares markets in Shanghai and Shenzhen Stock Exchanges (SHSE and SZSE) using a battery of nonlinearity tests. The empirical investigation reveals strong evidence of nonlinear serial dependence in the underlying returns generating processes for all indices even after removing linear serial correlations from the data, hence, contradicting the unpredictable criterion of weak-form efficient market hypothesis. Theoretically, these results are not surprising given the fact that investors in the Chinese stock markets trade like noise traders, who purely speculate and treat the market like a casino.

Journal ArticleDOI
TL;DR: In this article, the influence of ownership structure on the information content of earnings in Polish-listed companies is investigated based on the notion that expropriation of private benefits of control is pervasive and manipulation of financial disclosure is a way to conceal those benefits to avoid disciplinary action.
Abstract: In this article we test the influence of ownership structure on the information content of earnings in Polish-listed companies. Our investigation is based on the notion that in a weak corporate governance environment expropriation of private benefits of control is pervasive and manipulation of financial disclosure is a way to conceal those benefits to avoid disciplinary action. Concentrated ownership can act as a substitute for missing country-level corporate governance mechanisms to limit acquisition of private benefits of control, reducing incentives to mispresent financial situation and thus improving the quality of public accounting information. We find that weak country-level corporate governance mechanisms in the transition environment are best substituted by concentrated holdings of several investors rather than a single large shareholder. The information content of earnings increases when a few blockowners jointly hold between 25 and 50% of voting rights. We argue that the overall beneficial effec...

Journal ArticleDOI
TL;DR: In this paper, the authors investigate the international information transmission between the US and the rest of the G-7 countries using daily stock market return data covering the last 20 years and find that the linkages between the markets have changed substantially in the recent era (i.e. post-1995 period), suggesting increased interdependence in the volatility of the markets under scrutiny.
Abstract: We investigate the international information transmission between the US and the rest of the G-7 countries using daily stock market return data covering the last 20 years. A split-sample analysis reveals that the linkages between the markets have changed substantially in the recent era (i.e. post-1995 period), suggesting increased interdependence in the volatility of the markets under scrutiny. Our findings based on a volatility impulse response analysis suggest that this interdependence combined with increased persistence in the volatility of all markets make volatility shocks perpetuate for a significantly longer period nowadays compared to the pre-1995 era.

Journal ArticleDOI
TL;DR: In this paper, the authors show that the nonlinear relationship often found between crop yields and weather creates a specific hedging role for options and suggest that weather derivative instruments with nonlinear pay-offs, such as options, be used solely or in combination with linear payoff instruments such as swaps or futures.
Abstract: Weather derivatives represent an important financial innovation for risk management. As with the use of any derivatives contract, the behaviour of the basis ultimately determines the net-hedged outcome. However, when using weather derivatives to hedge volumetric risks, risk managers often face unique basis risks arising from both the choice of weather station where a derivatives contract is written, as well as the relationship between the hedged volume and the underlying weather index. Using the encompassing principle, this research shows that the nonlinear relationship often found between crop yields and weather creates a specific hedging role for options. The results suggest that weather derivative instruments with nonlinear pay-offs, such as options, be used solely or in combination with linear payoff instruments, such as swaps or futures, to minimize basis risk associated with the nonlinear relationship between yields and weather. This research also suggests that the choice of weather station may be l...

Journal ArticleDOI
TL;DR: This article examined whether nonlinear crude oil effect observed in aggregate US stock return can be explained by unexpected shocks from the crude oil market and found that unexpected crude oil shocks have nonlinear effect on excess US stock market return.
Abstract: This article examines whether nonlinear crude oil effect observed in aggregate US stock return can be explained by unexpected shocks from the crude oil market. I separate the distribution of aggregate US stock return into variance component driven by smoothly arriving news information and discrete Poisson news arriving from the crude oil market. I find that unexpected crude oil shocks have nonlinear effect on excess US stock market return. Contemporaneous and lagged returns on crude oil futures have significant negative effect on jump distribution in US stock market returns. I also investigate if the volatility of aggregate US stock return is in any way related to information released at the Organization of Petroleum Exporting Countries (OPEC) meetings. The empirical result reveals no significant feedback effect from OPEC meetings to the US stock markets.

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the day-of-the-week effect in 12 major Arab stock markets using Arab Monetary Fund (AMF) daily index returns from May 2002 to December 2005.
Abstract: While seasonal effects for both advanced and emerging markets have been investigated extensively in mean and variance equations, Arab region asset markets have received much less attention. The objective of this article is to fill this gap in the literature by investigating the day-of-the-week effect in 12 major Arab stock markets using Arab Monetary Fund (AMF) daily index returns from May 2002 to December 2005. Our estimation strategy utilizes Autoregressive (AR) and Generalized Autoregressive Conditional Heteroscedastic (GARCH)-type specifications to allow for a time-varying variance. Among the most important results of this article are, first, is one-third of these markets exhibit significant day-of-the-week effect in returns. Second, two-third of these markets exhibit significant day-of-the-week effect on volatility. Third, most of these day-of-the-week effects are focused within the beginning and the end of the trading week. Finally, the existence of a significant risk premium was confirmed in five o...

Journal ArticleDOI
TL;DR: In this paper, the authors distinguish between herding asset managers who try to be good, and nonherding managers who attempt to be better than their competitors, based on a questionnaire survey.
Abstract: Based on a questionnaire survey this article distinguishes between herding asset managers who try to be good, and nonherding asset managers who try to be better than their competitors. It provides evidence for reputational herding and discusses herding managers’ working effort, preferred sources of information and investment horizon. Additionally, their risk-taking behaviour, including their investment behaviour in short-term tournament scenarios, is analysed. It is found that herding managers assess themselves as generally more risk averse than nonherding managers, but in the tournament they are willing to take more risk. This finding is ascribable to their fear of falling out of the herd.

Journal ArticleDOI
TL;DR: This paper used exponential generalized autoregressive conditional heteroscedasticity (EGARCH) to estimate conditional idiosyncratic volatility of individual stocks across 36 countries from 1973 to 2007, and found that idiosyncratic risk is priced on a significantly positive risk premium for stock returns.
Abstract: Empirical evidences regarding the association of idiosyncratic volatility and stock returns are inconsistent with the Capital Asset Pricing Model (CAPM), which implies that idiosyncratic risk should not be priced because it would be fully eliminated through diversification. Using Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH) estimated conditional idiosyncratic volatility of individual stocks across 36 countries from 1973 to 2007, we find that idiosyncratic risk is priced on a significantly positive risk premium for stock returns. The evidence is statistically and economically significant. It overwhelmingly supports the prediction of existing theories that idiosyncratic risk is positively related to expected returns.

Journal ArticleDOI
TL;DR: In this paper, the weak-form Efficient Market Hypothesis (EMH) is supported for large-cap stock indices, but rejected for small-cap ones, using a rolling multiple VR test.
Abstract: This article uses parametric and nonparametric Variance Ratio (VR) tests of Lo and Mackinlay (1988) and Wright (2000) to re-examine the weak-form Efficient Market Hypothesis (EMH) for the large- and small-capitalization stock indices of TOPIX (Tokyo Stock Price Index) and FTSE (Financial Times Stock Exchange). Unlike the previous studies, the multiple VR test of Chow and Denning (1993) is the first extended to the nonparametric VR test of Wright (2000) as suggested by Luger (2003). The empirical results show that the weak-form EMH is supported for large-cap stock indices, but rejected for small-cap ones. This conclusion is further confirmed by using a rolling multiple VR tests.

Journal ArticleDOI
TL;DR: In this article, the authors apply dynamic panel estimation techniques to investigate the macroeconomic and market determinants of banking sector IRS in low and middle-income countries, and find that only one market specific factor, the banking sector reserve requirement, significantly and positively affects IRS.
Abstract: Numerous variables exogenous to the operations of commercial banks have been widely touted in academic literature and popular discourse to be important factors causing the typically high Interest Rate Spreads (IRS) in developing countries. Using data for a group of 33 countries, this article applies dynamic panel estimation techniques to investigate the macroeconomic and market determinants of banking sector IRS in low- and middle-income countries. The empirical results suggest that only one market specific factor, the banking sector reserve requirement, significantly and positively affects IRS. Conversely, several macroeconomic and macro-policy variables such as inflation, government crowding-out and the discount rate are important determinants of IRS. Results are also examined to ascertain whether the determinants of spreads vary across regional groupings of countries.

Journal ArticleDOI
TL;DR: In this article, the authors analyzed the demand for cash from a point of view based on a simple spatial transactions model and showed that monopoly banks have an incentive to restrict the number of ATMs to a minimum.
Abstract: This article deals with the issue of how the market structure in banking affects the choice of the means of payment. In particular, the demand for cash is analysed from this point of view. The analysis is based on a simple spatial transactions model in which banks’ optimization problem is solved. The solution quite clearly shows that monopoly banks have an incentive to restrict the number of ATMs to a minimum. More generally, the number of ATMs depends on competitiveness in the banking sector. The predictions of the theoretical analysis are tested using a panel data from 20 Organization for Economic Co-operation and Development (OECD) countries for the period 1988 to 2003. Empirical analysis shows that there is a strong and robust relationship between the number of ATM networks and the number of ATMs (in relation to populations). Moreover, it can be shown that the demand for cash depends on the number of ATMs, ATM networks and the popularity of other means of payment. Thus, the use of cash can be pretty w...