Interdependence of international equity market volatility

This paper investigates whether equity market volatility in one major market is related to volatility elsewhere. This paper models the daily conditional volatility of equity market wide returns as a GARCH-(1,1) process. Such a model will capture the changing nature of the conditional variance through time. It is found that the correlation between the conditional variances of major equity markets has increased substantially over the last two decades. This supports work which has been undertaken on conditional mean returns which indicates there has been an increase in equity market integration.

Portfolio diversification and filter rule profits

Previously, it has been shown that the profits from a simple market timing trading rule applied to a portfolio of shares can be affected by the inter-relationships between the returns of the component securities. In this short letter, the results from applying a more sophisticated 'filter' rule to the same data are reported. Unlike the simple trading rule, the filter rule does produce some evidence of economic profits.

The Generalized Malmquist index and capacity utilization change: an application to the Italian manufacturing, 1989-1994

Several indices of plant capacity utilization based on the concept of best practice frontier have been proposed in the literature (Fare et al. 1992; De Borger and Kerstens, 1998). This paper suggests an alternative measure of capacity utilization change based on Generalized Malmquist index, proposed by Grifell-Tatje' and Lovell in 1998. The advantage of this specification is that it allows the measurement of productivity growth ignoring the nature of scale economies. Afterwards, this index is used to measure capacity change of a panel of Italian firms over the period 1989-94 using Data Envelopment Analysis and then its abilities of explaining the short-run movements of output are assessed.

German outward FDI and firm performance

This paper extends the limited literature on the link between productivity effects and outward FDI. By presenting German productivity growth effects across low and high cost locations over the period 1997 – 2006, our results show that the evidence relating outward FDI to productivity growth at home is generally positive but quite small. A 10 per cent increase in outward FDI is associated with an increase in parent TFP growth of between 0.1 to 0.9 per cent. The positive findings can be shown for parent firms operating in the manufacturing sector as well as the services sector. Our results show some evidence that home country performance is enhanced for firms which endeavour to invest abroad.

Whither human capital? The woeful tale of transition to tertiary education in India

In this article, we examine the issue of high dropout rates in India which has adverse implications for human capital formation and hence for the country's long-term growth potential. Using the 2004–2005 National Sample Survey (NSS) employment–unemployment data, we estimate transition probabilities of moving from a number of different educational levels to higher educational levels using a sequential logit model. Our results suggest that the overall probability of reaching tertiary education is very low. Further, even by the woeful overall standards, women are significantly worse off, particularly in rural areas.

Real options and demographic decisions:empirical evidence from East and West Germany

Iyer and Velu (2006) have convincingly argued that contemporary analyses of fertility behaviour fail to explain why a woman (or a couple) will choose to postpone childbirth, and in particular to consider the role of uncertainty in this regard. They have addressed this lacuna in the literature by using a real options approach to model fertility decisions by relating uncertainty experienced by individuals to the likelihood of childbirth. However, they did not present empirical evidence. Since the theory implies the existence of two offsetting effects of uncertainty on fertility decisions, a positive insurance effect and a negative option value effect, it is not easy to reject the theory on the basis of empirical analysis, when one of these effects offsets the other. We construct such a test for East (and also West) Germany during that country's reunification, which takes advantage of the fact that because of the country's strong welfare system, the insurance effect should be dominated by the option value effect, thereby suggesting that the net relationship should be negative. The results provide rather strong support for the real options link, especially for Eastern Germany.

Economic reforms as a tool to attract foreign direct investment:is it a chimera?

The policy implication of the existing literature on foreign direct investment (FDI) inflows is that countries that require FDI can attract it by adopting policy measures that facilitate the emergence of appropriate regulatory and institutional environment, greater integration with the global economy and the development of resources like human capital. We test the plausible hypothesis that, on the contrary, FDI flows are largely path dependent, and our empirical exercise finds prima facie support in favour of this hypothesis. This has obvious implications for FDI flows to poor countries.

Interaction between formal and informal sector credit:new evidence from India

Using a new pan-Indian data set, we examine the factors that potentially influence joint access to formal and informal credit markets. Our results are consistent with the literature and bring some new factors influencing access to credit to the fore.

Does move to market have an impact on earnings gap across gender? Some evidence from India

We use Indian National Sample Survey employment–unemployment data for the urban sector for the years 1987 and 1999. Our results indicate that the gender wage gap had narrowed considerably between these two years, for all earnings deciles and for all education cohorts. The narrowing of the earnings gap can be attributed largely to a sharp increase in the returns to the labour market experience of women.

The impact of Islamic banking on the cost efficiency and productivity change of Malaysian commercial banks

This study employs Stochastic Frontier Analysis (SFA) to analyse Malaysian commercial banks during 1996–2002, and particularly focuses on determining the impact of Islamic banking on performance. We derive both net and gross efficiency estimates, thereby demonstrating that differences in operating characteristics explain much of the difference in costs between Malaysian banks. We also decompose productivity change into efficiency, technical, and scale change using a generalized Malmquist productivity index. On average, Malaysian banks experience moderate scale economies and annual productivity change of 2.68%, with the latter driven primarily by Technical Change (TC), which has declined over time. Our gross efficiency estimates suggest that Islamic banking is associated with higher input requirements. However, our productivity estimates indicate that full-fledged Islamic banks have overcome some of these cost disadvantages with rapid TC, although this is not the case for conventional banks operating Islamic windows. Merged banks are found to have higher input usage and lower productivity change, suggesting that bank mergers have not contributed positively to bank performance. Finally, our results suggest that while the East Asian financial crisis had a short-term costreducing effect in 1998, the crisis triggered a long-lasting negative impact by increasing the volume of nonperforming loans.

Firm growth and firm size

This article analyses the growth rates of the complete population of UK-registered firms for the period 2001 to 2005. We estimate Gibrat's law – that growth rates are independent of firm size – by deciles of the firm size distribution. Whether we are able to reject Gibrat's law varies across deciles. We also show how estimates vary according to the measure of firm size, time period and sample selection.

Modelling firm innovation using panel probit estimators

Firm-level innovation is investigated using three probit panel estimators, which control for unobserved heterogeneity, and a standard probit estimator. Results indicate the standard probit model is misspecified and that inter-firm networks are important for innovation.

Causality in crude oil prices

Crude oil markets witness growing disparity between the quality of crudes supplied and demanded in the market. The market share of low-quality crudes is increasing due to the depletion of old fields and increasing demand. This is unnerving the practitioners and affecting the relevance of the traditional benchmark crudes due to the lack of lower quality benchmarks (Montepeque, 2005). In this article, we apply Granger causality tests to study the price dependence of 32 crudes in order to establish which crudes drive other prices and which ones simply follow general market trends. Our results indicate that some of the old benchmarks are still relevant while others can be disregarded. Our results also interestingly show that the low-quality Mediterranean Russian Urals crude, introduced in the late 1990s, has emerged recently as a significant driver of global prices. © 2011 Taylor & Francis.

Inflation convergence in Europe

Convergence has been a popular theme in applied economics since the seminal papers of Barro (1991) and Barro and Sala-i-Martin (1992). The very notion of convergence quickly becomes problematic from an academic viewpoint however when we try and formalise a framework to think about these issues. In the light of the abundance of available convergence concepts, it would be useful to have a more universal framework that encompassed existing concepts as special cases. Moreover, much of the convergence literature has treated the issue as a zero-one outcome. We argue that it is more sensible and useful for policy decision makers and academic researchers to consider also ongoing convergence over time. Assessing the progress of ongoing convergence is one interesting and important means of evaluating whether the Eastern European New Member Countries (NMC) of the European Union (EU) are getting closer to being deemed “ready” to join the European Monetary Union (EMU), that is, fulfilling the Maastricht convergence criteria.

Inflation forecasting, relative price variability and skewness

This article presents out-of-sample inflation forecasting results based on relative price variability and skewness. It is demonstrated that forecasts on long horizons of 1.5-2 years are significantly improved if the forecast equation is augmented with skewness. © 2010 Taylor & Francis.