The temporal price relationship between the stock index futures and the underlying stock index : evidence from Malaysia

The stock index futures was introduced in Malaysia in December 1995 with the launching of the futures contract on the Kuala Lumpur Stock Exchange Composite Index. Due to its recentness in the country, many issues pertaining to this equity derivatives instrument have not been explored. Thus, the development of stock index futures opens many opportunities for research in this area. This study examines the temporal relationship between the price of the Kuala Lumpur Stock Exchange Composite Index futures contract (FKLI) and its underlying stock index, the Kuala Lumpur Stock Exchange Composite Index (KLSE CI). The five-year period under study is split into three subperiods to observe the price co-movement pattern under different volatility levels. The study finds that futures market tends to lead the spot market by one day during the periods of stable market, and there is a mixed lead-lag relationship between the two markets during the period of highly volatile market.

Are the Australian and New Zealand stock prices nonlinear with a unit root?

Whether or not stock prices are characterized by a unit root has important implications for policy. For instance, by applying unit root tests one can deduce whether stock returns can be predicted from previous changes in prices. A finding of a unit root implies that stock returns cannot be predicted. This paper investigates whether or not stock prices for Australia and New Zealand can be characterized by a unit root process. An unrestricted two-regime threshold autoregressive model is used with an autoregressive unit root. Among the main results, it is found that the stock prices of both countries are nonlinear processes that are characterized by a unit root process, consistent with the efficient market hypothesis.

Interdependence and dynamic linkages between the emerging stock markets of South Asia

The present article examines the dynamic linkages between the stock markets
of Bangladesh, India, Pakistan and Sri Lanka using a temporal Granger causality
approach by binding the relationship among the stock price indices within a
multivariate cointegration framework. We also examine the impulse response
functions. Our main finding is that in the long run, stock prices in Bangladesh,
India and Sri Lanka Granger-cause stock prices in Pakistan. In the short run
there is unidirectional Granger causality running from stock prices in Pakistan
to India, stock prices in Sri Lanka to India and from stock prices in Pakistan to
Sri Lanka. Bangladesh is the most exogenous of the four markets, reflecting its
small size and modest market capitalization.

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.

Stock-in-trade valuation in the United Kingdom 1840 to 1959

Commentators have made a number of unsubstantiated claims about why the lower of cost and market rule had become the accepted method of valuation. It is demonstrated that none of these explanations can be substantiated. Leon Festinger's theory of "dissonance reduction" is used to explain why the significant criticisms of the rule have been ignored.

Optimal hedge ration with moving least squares - an empirical study using Indian single stock futures data

The use of commodity, currency and stock index futures to hedge risky exposures in the underlying assets is well documented in financial literature. However single stock futures are a relatively new addition to the family of futures and as such, academic research on its use as a hedging tool is relatively thin. In this study we have explored the efficacy of two different methodological approaches that may be applied when hedging a long position in the underlying stock with a single stock future. We use daily trading data covering years 2002 to 2007 from the Indian market, where single stock futures have been really thriving in terms of volume of trade, to extract the optimal hedge ratios using both static OLS as well as 30-day, 60-day and 90-day moving least squares. The method of moving least squares has been in use by market practitioners for some time primarily as a trend analysis and charting tool. Our results indicate that the moving least squares approach outperforms the static OLS in terms of the hedging efficiency, which has been measured by the root mean square hedging error.

Volatility transmission between stock and bond markets : evidence from US and Australia

This paper investigates the cross-market informational dependence between these assets under disparate interest rate conditions of the U.S and Australia. With conditional variance as a proxy for volatility, we use the BEKK – a matricular decomposition of the bivariate GARCH (1,1) model to examine the cross-market contemporaneous effect of information arrival. Applying the model to the stock and bond indices of both countries, we find evidence of volatility spillover, thereby supporting the notion of informational dependence between each market

Inter-firm knowledge diffusion, market power, and welfare

We propose an infinite-horizon quantity-setting differential game with learning spillovers and organizational forgetting to analyze the optimal management decisions affecting the evolution of the stock of know-how, and, in turn, the dynamics of productive efficiency. Specifically, we study the long run impact of inter-firm knowledge diffusion on market power, i.e. the ability of a firm to raise the price above the marginal cost, and welfare. We consider two types of processes through which knowledge is acquired: (i) passive learning, or learning-by-doing, where managers do not actively invest in information and (ii) active learning, or learning-by-investing, where managers acquire new and additional information through specific investments in human capital. We show that: under (i), knowledge diffusion reduces market power; under (ii), knowledge diffusion reduces market power as long as learning spillovers are sufficiently important. From a welfare viewpoint, we also show that: under (i), knowledge diffusion is always welfare-enhancing; under (ii), weak spillovers are required in order for knowledge diffusion to be welfare-enhancing.

Asymmetric information and market decline: evidence from the Chinese market

In this paper, we show that aggregate illiquidity is a priced risk factor on the Shanghai Stock Exchange (SHSE). We develop the relationship between the illiquidity factor, asymmetric information, and market decline. Our empirical results show that while the illiquidity factor is a source of asymmetric information on the SHSE, asymmetric information does not trigger market decline.

Reviving the role of regulators in Bangladesh capital market

The capital market is visualised as a tool for economic development through mobilisation of scattered resources and their allocation to appropriate areas. The liquidity, solvency and efficiency of the economic system of a country can be better accomplished by capital market, when the banks and financial institutions of the country are reluctant to provide long-term and medium term resources for industrialisation and privatisation.

Banks have been traditionally major sources of all types of credits particularly industrial credits. Not only the banks these days are restricted to finance long-term credits due to short-term nature of the deposit- base of these banks, but also are struggling to overcome their liquidity problems. On the other hand, the development of financial institutions, the traditional suppliers of the long-term funds for private industry, is lying dormant due to the problems of profitability, liquidity and solvency of these institutions. Under this circumstances, the capital market beckons as the only major source of finance for industrialisation and privatisation. But the existing state of the capital market is hardly in a position to play as the mobiliser of resources for economic development.

Therefore, the country`s capital market needs structural change as well as proper regulation which are likely to improve the confidence of investors-both local and foreign and to boost the functions of capital market as well. The major regulators in Bangladesh capital market are Securities and Exchange Commission (SEC), Stock Exchanges, Registrar of Joint Stock Companies (RJSC) and ICB. In addition, the government has recently given permission to set up merchant banks to provide their support towards the growth, development and consolidation of capital market.

Unchecked manipulations, price–volume relationship and market efficiency: evidence from emerging markets

This paper investigates how unchecked manipulations could cause frequent trade-induced manipulations and weak-form market inefficiency in South Asian stock markets [Bombay Stock Exchange (BSE), Dhaka Stock Exchange (DSE) and Karachi Stock Exchange (KSE)]. Specifically, the paper analyses the price–volume relationship as one of the many cases of market inefficiency. By employing various econometric tests, this paper first provides conclusive evidence of market inefficiency in these markets. It then extracts evidence of manipulation periods from legal cases and analyses price–volume relationship during these periods. The paper finds that there exists market-wide trading-induced manipulations, where excessive buying and selling causes prices to inflate artificially before crashing down. The paper concludes that South-Asian markets are inefficient in the weak-form.

Investor heterogeneity and the cross-sectional stock returns in China

We examine the relationship between divergence of opinion and the cross-sectional stock returns in Chinese A share market where short-selling of stocks is prohibited by law. Using a proxy for divergence of opinion among the entire investor base, we document a positive relationship between divergent beliefs and future stock returns. This is in sharp contrast to Miller's (1977) prediction of a negative relationship between the two. The result is likely to be driven by the dominance of individual investors and their speculative trading behaviors in China. Miller's prediction is confirmed when divergence of opinion is measured using data on mutual fund holdings. Our results are robust to a number of common return predictors. We also find a significantly negative relationship between the fraction of tradable shares in listed Chinese companies and future stock returns. Increase in the fraction of tradable shares tends to reduce the predictability of stock returns using divergence of opinion.

International housing market analysis based on housing commencements

Additions to the aggregate housing stock are a broad measure of the state of an economy and overall level of confidence in a particular region over a designated period. This is due to the direct and indirect effect (e.g. employment in the housing construction industry) upon on the local economy and is linked to the confidence of local households in the future direction of housing investment, the level of housing affordability by households as related to employment levels and the relationship between supply and demand in each region. Another consideration is the ability of the government to monitor and successfully intervene in the operation of the household market (e.g. mortgage interest rates) with the intent of restricting an over-supply situation which may take years to fully recover. The analysis in this section examines new housing commencements for Scotland, Australia, USA and Canada over an extended time period with the specific focus placed on the periods before, during and after the high profile global financial crisis in 2007-2008. The graph in Figure 1 was adapted from data sourced from The Scottish Government (2013) and covers the 15-year period between 1998 and 2012. With the exception of 1999 there were been relatively few years with substantial additions to the housing market. However, the effect of the GFC can clearly be observed post 2007 although by 2012 there was relatively change from the previous year.