Monetary models of exchange rates and the random walk

Three alternative monetary models of exchange rate are tested using data on the Italian lira - US doIIar exchange rate. II is shown that up to the early 1990s these economic models perform better than the random walk model in out-of-sample forecasts.

A model of the Australia-US exchange rate

This paper develops a model of exchange rate determination within an error correction framework. The intention is to identify both long and short term determinants that can be used to forecast the AUD/US exchange rate. The paper identifies a set of significant variables associated with exchange rate movements over a twenty year period from 1984 to 2004. Specifically, the overnight interest rate differential, Australia's foreign trade-weighted exposure to commodity prices as well as exchange rate volatility are variables identified that are able explain movements in the AUDIUS dollar relationship. An error correction model is subsequently constructed that incorporates an equilibrium correction term, a short-term interest rate differential variable, a commodity price variable and a proxy for exchange rate volatility. The model is then used to forecast out of sample and is found to dominate a naIve random walk model based on three different metrics.

Trading activities and cross-sectional variation in stock expected return : evidence from Kuala Lumpur stock exchange

Trading activity has been considered as one of the possible factor that explains the cross-sectional variation in stock returns. In this study I use trading volume as a possible measure to proxy for liquidity as part of the trading activity. Monthly observations were used over a period 1995 to 2005 to examine the liquidity effect on stock expected returns. Based on findings it is appeared that level of liquidity does matter in explaining the expected stock returns in Malaysian capital market. While Fama-french factors also provide important explanation for stock returns. But none of the second moment variables proxying liquidity appeared to be statistically significant. However, momentum effect apprearently explain ing the cross-sectional variation in stock returns. 

The information content of directors' trades: empirical analysis of the Australian market

We examine the trading activities of directors in shares of their own companies on the Australian Stock Exchange during the July-December 2005 period. We find that directors of small companies in particular earn abnormal return after both their 'Purchase' and as well as their 'Sale' trade. Directors of these companies have an uncanny ability to time the market by trading when mispricing is greatest, and are able to predict the future performance of their firms in short run. For directors of medium and large companies, we find evidence that 'Sale' trades are the ones which work as loss avoiders. Outsiders recognise to some extent that directors' trades are informative, however they are slow to incorporate the new information into prices, refuting much of the market efficiency literature.

Doing business in China : how Australian companies make their decisions when entering the Chinese market

This report describes and analyses the experiences of Australian businesses which have established operations or conduct business in China, both successfully and unsuccessfully. The information was collected over the period from August to November in 2007. It involved interviews with 43 respondents from 40 different Australian businesses across both manufacturing and service industries. The project was motivated by the increasing significance of China to Australia’s economy (such as the demand for Australian iron and coal exports and the transfer of much of Australia’s manufacturing operations there) and its extraordinary growth and development over the past 10 years. Using the contemporary modes of international expansion as a framework, the research considered companies which had entered China through Wholly Owned Foreign Enterprises (WOFEs), Joint Ventures, exporting and other forms such as licensing and agents. Most of the participants had located their operations in China in the eastern region, including Shanghai, Beijing, Guanzhou, Shenzhen and Tianjin.

Reaching and influencing consumers in the prescription medicine market

Purpose – Celebrex became the first of a new class of drugs known as COX-2 selective non-steroidal anti-inflammatory drugs. It improves treatment for arthritis sufferers without compromising the protective lining of the stomach. The purpose of this paper is to illustrate how direct-to-consumer advertising (DTCA) of prescription medicines can be used to rebuild faith in the cyclooxygenase-2 (COX-2) product category.

Design/methodology/approach – The case is developed using published sources and no input is required from company representatives. The presentation style follows the classic comprehensive case format used in postgraduate teaching programmes.

Findings – Business executives and strategic marketing students would benefit from a discussion on how external environmental factors can suddenly impose a review of marketing strategy. The reader learns how management addresses the business dilemma using DTCA.

Research limitations/implications – A blockbuster rival drug Vioxx is withdrawn due to cardiovascular (CV) health safety concerns. A resulting dominant market situation soon becomes a business dilemma. The Federal Drug Administration calls for a “black box” warning label on Celebrex, the most serious type of warning.

Practical implications – The implications are that having a product in a class of its own is not enough. It highlights the need to communicate to different audiences, to both the medical profession and the end-user. Getting doctors to recommend the medicine and pulling the product through the channel by stimulating patient demand after a health scare are paramount.

Originality/value – This is the first pharmaceutical business case where the withdrawal of a rival product leaves the dominant competitor in a monopoly situation. Contrary to expectation, market share plummets despite the absence of competition.

Bridging the gap between anecdotal and empirical evidence in the international education market : insights from the US and UK

Education is an industry which has seen rapid growth in its trade over a short period of time. From the import and export of textbooks to international examinations such as the British Advanced and Ordinary levels and the American GMAT, GRE, LSAT, TOEFL and others, international trade in education has truly become a multidimensional phenomenon (Liston and Reeves, 1985). While all these aspects have largely contributed to the development of the so called “academic trade” (McMahon, 1988), it is the cross-border migration of international students which however remains the most visible aspect of this trade (Bourke, 2000). Indeed, recent estimates by the Organisation for Economic Cooperation and Development (OECD) suggest that nearly 1.9 million students were abroad in 2002 (OECD, 2004). There are probably thousands more foreign students involved in lower level education, language training and the like, but at the time of writing, no comprehensive statistics is yet available on international students enrolled in non-tertiary level institutions (Knight, 2002). As a result, it is vital to stress at the outset that this paper focuses exclusively on cross-border tertiary education but parallels can be drawn for lower level education.

On the relationship between stock prices and exchange rates for India

In this paper, we apply several variants of the EGARCH model to examine the role of depreciation of the Indian rupee on India's stock market returns using daily data. Our findings suggest that volatility persistence has been high; depreciation of the rupee has increased volatility; and asymmetric volatility confirms that negative shocks generate more volatility than positive shocks. We also find that an appreciation of the Indian rupee over the 2002 to 2006 has generated more returns and less volatility.

Solving the halloween indictor puzzle : market efficiency still reigns

Prior research by Bouman and Jacobsen (2002) document unusually high monthly returns over the period November-April for both United States (U.S.) and foreign stock markets and label this phenomenon the Halloween effect. The implication is that the Halloween effect represents an exploitable anomaly, which has negative implications for stock market efficiency. We extend this research to the S&P 500 futures contract and find no evidence of an exploitable Halloween effect over the period April 1982 through April 2003. Re-examining Bouman and Jacobsen’s empirical results for the U.S., we find that two outliers drive their results. These two outliers are associated with the “Crash” in October 1987 and collapse of the hedge fund Long-Term Capital Management in August 1998. After inserting a dummy variable to account for the impact of the two identified outliers, the Halloween effect disappears.

Stock market efficiency withstands another challenge : solving the “sell in May/buy after Halloween” puzzle

Examining the years 1970 to 1998, Bouman and Jacobsen (2002) document unusually high monthly returns during the November-April periods for both United States (U.S.) and foreign stock markets and label this phenomenon the Halloween effect. Their research suggests that the Halloween effect represents an exploitable anomaly and has negative implications for claims of stock market efficiency.

Re-examining Bouman and Jacobsen’s empirical results for the U.S. reveals that their results are driven by two outliers, the “Crash” of October 1987 and the collapse of the hedge fund Long-Term Capital Management in August 1998. After inserting a dummy variable to account for the impact of the two identified outliers, the Halloween effect becomes statistically insignificant. This anomaly is not economically exploitable for U.S. equity markets. We extend the research to the S&P 500 futures contract and find no evidence of an exploitable Halloween effect over the period April 1982-April 2003.

Portfolio diversification and share price behavior : some evidence from the Taiwan Stock Exchange

This dissertation consists of four separate but closely related studies which investigate different aspects of share price behavior on the Taiwan Stock Exchange over the period 1980-89: 1.The benefits of diversification available to investors using the Markowitz model and the Single Model Index. 2. The applicability of the CAPM to the TSE over the decade. 3. Regularities in proce sequences. 4. Market reaction to the announcements of stock dividends, right issues and combinations of both.

Post global financial crisis international business strategies

International business strategies are affected by economic conditions, although the resource-based view would suggest that company resources are a more significant factor. This paper identifies differences in the international strategy behaviours of companies located in countries which, as a result of the GFC, entered either a deep recession, a shallow recession or no recession at all. Empirical evidence is provided for companies with home country markets with each of these conditions. The ability of international strategy theories to explain these behaviours is considered. Based on observations of international businesses with home country markets in each of these categories, it is suggested that determinants of international strategy during financial crises (and immediately after) are influenced by the strength of the home country market, foreign market government protectionist behaviour, international exchange rate variations and local levels of rivalry.

Market based performance : do ownership structures, or firm policy choice matter?

This study examines whether the structure of share ownership or firm's dividend and debt policies provide explanation for firm performances in Malaysia. Firm performance, measured as Tobin's Q is modelled in a dynamic panel framework to estimate effects of director ownership, family ownership, foreign ownership, and firm's dividend and debt policy. The generalised methods of moments (GMM) method is used to estimated the models for 80 CI components companies listed on Main Board of Malaysia observed from 1999 to 2002. The findings reveal strong evidence of positive impact of firm's dividend and debt policy on firm performance. However, ownership structure seems to be less important for market based performance of Malaysian firms: These results are expected to provide guidelines to the investors regarding the significance of firm dividend policy, leverage policy and market to book value ratio as some of the key sources of value creation for Malaysian listed firms.

Multi-market industrial organizational economic models for the internationalization process by small and medium enterprise construction design service firms

Small and medium enterprises (SMEs) are critical to strategic initiatives in an economy; however, their contribution to foreign trade is not as significant. SMEs are one of the principal driving forces in economic development. One of the greatest challenges is the internationalization process for longevity rather than seeing the process as initial market entry. The internationalization process research has typically involved four key constructs: market selection, decision to enter, entry modes and factors affecting entry modes. Past research has focused on large manufacturing firms. The export of architectural, engineering and construction (AEC) firms has undergone growth, yet there is still significant opportunity for further growth. The majority of AEC firms are SMEs. Notwithstanding assistance provided through international trade missions, organized export firm support networks and information packages by a burgeoning number of government agencies, there are still perceived barriers to market entry and long-term economic sustainability for SMEs. There are a number of problems faced by SMEs acting in foreign trade. This investigation explores the successful initial internationalization process constructs and identifies unique project-oriented sector characteristics. The study identified similarities and differences between two firms that have been exporting to various localities, including Eastern Europe, Africa, Middle East, UK, Asia and South America, for more than two decades. The similarities and differences were identified within eight major constructs: purpose, firm type, market image and design philosophy, entry mode strategy, institutional arrangement, factors affecting mode of entry, market selection and firm strategy in relation to project selection. The primary reasons for internationalization were associated with the firms' motivations related to growth and financial viability. This article discusses the various internationalization processes and strategies intrinsic to each case study and establishes a detailed set of empirical observations from which to develop further a grounded theoretical model of reflexive capability for the internationalization process. This study contributes to the body of knowledge around the SME AEC design service firm's internationalization process, as a dynamic, evolving and continuously adaptable construct for project-based sectors.

Impacts of currency fluctuations on Japanese foreign direct investment

The Japanese currency has appreciated substantially against most other currencies over the last two decades. During the same time Japan has become one of the world's largest providers of FDI. Japan's share of total FDI outflows increased from about 6 percent during the late 70's to 21 percent in 1990 while its share of the total stock of FDI in the world increased from less than 1 percent in 1960 to more than 13 percent in 1993. Not surprisingly, Japan's role in international business in general and its FDI activities, in particular, have attracted considerable attention from researchers world wide. However, much of this attention has been directed towards the patterns and determinants of Japanese foreign direct investment, in particular to the United States. The impact of changes in the value of the Yen on Japanese FDI has been largely overlooked. Thus, this paper fills an important gap in the literature by focusing on the influence of changes of the exchange rate on Japanese foreign direct investment. A comprehensive simultaneous equa-tion model of Japanese FDI is developed on a regional level to gauge the extent to which currency fluctuations affect Japanese FDI activities. The results suggest that the exchange rate is an effective mechanism through which to influence FDI. Thus, the exchange rate should not be overlooked by the World Trade Organisation in its efforts to further liberalise investment through the Multilateral Agreement on Investment.