The us subprime crisis and stock market integration: evidence from the BRICS

The aim of this study is to examine the level of stock market co-movement in the BRICS countries and three major industrialized countries (Japan, UK and USA). While analyzing the interdependence and integration of markets, two subsets are examined: before (2000 – 2007) and during the global financial crisis (2007-2011). Generally, interdependence across markets is likely to increase during a highly volatile period. This is problematic because if it were true, the main benefit of international diversification would be reduced at times when it is most needed. The results reveal the dominant role of the US financial markets over the examined time period. Empirical studies of this research paper indicate that cross-market linkages have become slightly stronger during the ongoing subprime crisis than before crisis. However, results also show that an investor may obtain some international diversification benefits by investing especially in the BRICS countries despite the fact of unstable economic condition and growing globalization.

Modelling Long-Run Relationship between Spot and Future Prices of Different Commodities

The purpose of this study is to investigate whether there exists any kind of relationship between the spot and future prices of the different commodities or not. Commodities like cocoa, coffee, crude oil, gold, natural gas and silver are considered from January 3, 2000 to December 31, 2012. For this purpose, ADF test and KPSS test are used in testing the stationarity whereas Johansen Cointegration test is used in testing the long-run relationship. Johansen co-integration test exhibits that there at least 5 co-integrating pairs out of 6 except crude oil. Moreover, the result of Granger Causality supports the fact that if two or more than two time series tend to be co-integrated there exists either uni-directional or bi-directional relationship. However, our results reveled that although there exists the co-integration between the variable, one might not granger causes another .VAR model is also used to measure the proportion of effects. These findings will help the derivative market and arbitragers in developing the strategies to gain the maximum profit in the financial market.

Dynamic linkages of real estate and stock markets in Finland

Traditionally real estate has been seen as a good diversification tool for a stock portfolio due to the lower return and volatility characteristics of real estate investments. However, the diversification benefits of a multi-asset portfolio depend on how the different asset classes co-move in the short- and long-run. As the asset classes are affected by the same macroeconomic factors, interrelationships limiting the diversification benefits could exist. This master’s thesis aims to identify such dynamic linkages in the Finnish real estate and stock markets. The results are beneficial for portfolio optimization tasks as well as for policy-making. The real estate industry can be divided into direct and securitized markets. In this thesis the direct market is depicted by the Finnish housing market index. The securitized market is proxied by the Finnish all-sectors securitized real estate index and by a European residential Real Estate Investment Trust index. The stock market is depicted by OMX Helsinki Cap index. Several macroeconomic variables are incorporated as well. The methodology of this thesis is based on the Vector Autoregressive (VAR) models. The long-run dynamic linkages are studied with Johansen’s cointegration tests and the short-run interrelationships are examined with Granger-causality tests. In addition, impulse response functions and forecast error variance decomposition analyses are used for robustness checks. The results show that long-run co-movement, or cointegration, did not exist between the housing and stock markets during the sample period. This indicates diversification benefits in the long-run. However, cointegration between the stock and securitized real estate markets was identified. This indicates limited diversification benefits and shows that the listed real estate market in Finland is not matured enough to be considered a separate market from the general stock market. Moreover, while securitized real estate was shown to cointegrate with the housing market in the long-run, the two markets are still too different in their characteristics to be used as substitutes in a multi-asset portfolio. This implies that the capital intensiveness of housing investments cannot be circumvented by investing in securitized real estate.

Foreign Direct Investment, Clean Development Mechanism, and Environmental Management: A case of Sub-Saharan Africa

This doctoral dissertation explores the contribution of environmental management practices, the so-called clean development mechanism (CDM) projects, and foreign direct investment (FDI) in achieving sustainable development in developing countries, particularly in Sub- Saharan Africa. Because the climate change caused by greenhouse gas emissions is one of the most serious global environmental challenges, the main focus is on the causal links between carbon dioxide (CO2) emissions, energy consumption, and economic development in Sub-Saharan Africa. In addition, the dissertation investigates the factors that have affected the distribution of CDM projects in developing countries and the relationships between FDI and other macroeconomic variables of interest. The main contribution of the dissertation is empirical. One of the publications uses crosssectional data and Tobit and Poisson regressions. Three of the studies use time-series data and vector autoregressive and vector error correction models, while two publications use panel data and panel data estimation methods. One of the publications uses thus both timeseries and panel data. The concept of Granger causality is utilized in four of the publications. The results indicate that there are significant differences in the Granger causality relationships between CO2 emissions, energy consumption, economic growth, and FDI in different countries. It appears also that the causality relationships change over time. Furthermore, the results support the environmental Kuznets curve hypothesis but only for some of the countries. As to CDM activities, past emission levels, institutional quality, and the size of the host country appear to be among the significant determinants of the distribution of CDM projects. FDI and exports are also found to be significant determinants of economic growth.

Effect of scanner acoustic background noise on strict resting-state fMRI

Functional MRI (fMRI) resting-state experiments are aimed at identifying brain networks that support basal brain function. Although most investigators consider a ‘resting-state’ fMRI experiment with no specific external stimulation, subjects are unavoidably under heavy acoustic noise produced by the equipment. In the present study, we evaluated the influence of auditory input on the resting-state networks (RSNs). Twenty-two healthy subjects were scanned using two similar echo-planar imaging sequences in the same 3T MRI scanner: a default pulse sequence and a reduced “silent” pulse sequence. Experimental sessions consisted of two consecutive 7-min runs with noise conditions (default or silent) counterbalanced across subjects. A self-organizing group independent component analysis was applied to fMRI data in order to recognize the RSNs. The insula, left middle frontal gyrus and right precentral and left inferior parietal lobules showed significant differences in the voxel-wise comparison between RSNs depending on noise condition. In the presence of low-level noise, these areas Granger-cause oscillations in RSNs with cognitive implications (dorsal attention and entorhinal), while during high noise acquisition, these connectivities are reduced or inverted. Applying low noise MR acquisitions in research may allow the detection of subtle differences of the RSNs, with implications in experimental planning for resting-state studies, data analysis, and ergonomic factors.

The Dynamic Relationship between Finnish Stock Market and Commodities

Since different stock markets have become more integrated during 2000s, investors need new asset classes in order to gain diversification benefits. Commodities have become popular to invest in and thus it is important to examine whether the investors should use commodities as a part for portfolio diversification. This master’s thesis examines the dynamic relationship between Finnish stock market and commodities. The methodology is based on Vector Autoregressive models (VAR). The long-run relationship between Finnish stock market and commodities is examined with Johansen cointegration while short-run relationship is examined with VAR models and Granger causality test. In addition, impulse response test and forecast error variance decomposition are employed to strengthen the results of short-run relationship. The dynamic relationships might change under different market conditions. Thus, the sample period is divided into two sub-samples in order to reveal whether the dynamic relationship varies under different market conditions. The results show that Finnish stock market has stable long-run relationship with industrial metals, indicating that there would not be diversification benefits among the industrial metals. The long-run relationship between Finnish stock market and energy commodities is not as stable as the long-run relationship between Finnish stock market and industrial metals. Long-run relationship was found in the full sample period and first sub-sample which indicate less room for diversification. However, the long-run relationship disappeared in the second sub-sample which indicates diversification benefits. Long-run relationship between Finnish stock market and agricultural commodities was not found in the full sample period which indicates diversification benefits between the variables. However, long-run relationship was found from both sub-samples. The best diversification benefits would be achieved if investor invested in precious metals. No long-run relationship was found from either sample. In the full sample period OMX Helsinki had short-run relationship with most of the energy commodities and industrial metals and the causality was mostly running from equities to commodities. During the first sub period the number of short-run relationships and causality shrunk but during the crisis period the number of short-run relationships and causality increased. The most notable result found was unidirectional causality from gold to OMX Helsinki during the crisis period.

Política fiscal anticíclica, crise financeira internacional e crescimento econômico no Brasil

This study analyzes the long run equilibrium relationship and causality between economic growth and public expenditure in Brazil covering the period 1980-2008. The empirical results of the Granger causality test in a multivariate framework have shown up the importance of public investments not only to face the adverse effects of the international financial crisis, but also in stimulating the economic growth. Also, the results indicate the need of controlling the growing path of other current expenditure, social security and public debt.

Volume-Synchronized Probability of Informed Trading (VPIN), Market Volatility, and High-Frequency Liquidity

We assess the predictive ability of three VPIN metrics on the basis of two highly volatile market events of China, and examine the association between VPIN and toxic-induced volatility through conditional probability analysis and multiple regression. We examine the dynamic relationship on VPIN and high-frequency liquidity using Vector Auto-Regression models, Granger Causality tests, and impulse response analysis. Our results suggest that Bulk Volume VPIN has the best risk-warning effect among major VPIN metrics. VPIN has a positive association with market volatility induced by toxic information flow. Most importantly, we document a positive feedback effect between VPIN and high-frequency liquidity, where a negative liquidity shock boosts up VPIN, which, in turn, leads to further liquidity drain. Our study provides empirical evidence that reflects an intrinsic game between informed traders and market makers when facing toxic information in the high-frequency trading world.

A Study on Futures Trading in Commodities With Special Reference to Rubber

Futures trading in Commodities has three specific economic functions viz. price discovery, hedging and reduction in volatility. Natural rubber possesses all the specifications required for futures trading. Commodity futures trading in India attained momentum after the starting of national level commodity exchanges in 2003. The success of futures trading depends upon effective price risk management, price discovery and reduced volatility which in turn depends upon the volume of trading. In the case of rubber futures market, the volume of trading depends upon the extent of participation by market players like growers, dealers, manufacturers, rubber marketing co-operative societies and Rubber Producer’s Societies (RPS). The extent of participation by market players has a direct bearing on their awareness level and their perception about futures trading. In the light of the above facts and the review of literature available on rubber futures market, it is felt that a study on rubber futures market is necessary to fill the research gap, with specific focus on (1) the awareness and perception of rubber futures market participants viz. (i) rubber growers, (ii) dealers, (iii) rubber product manufacturers, (iv) rubber marketing co-operative societies and Rubber Producer’s Societies (RPS) about futures trading and (2) whether the rubber futures market is fulfilling the economic functions of futures market viz. hedging, reduction in volatility and price discovery or not. The study is confined to growers, dealers, rubber goods manufacturers, rubber marketing co-operative societies and RPS in Kerala. In order to achieve the stated objectives, the study utilized secondary data for the period from 2003 to 2013 from different published sources like bulletins, newsletters, circulars from NMCE, Reserve Bank of India (RBI), Warehousing Corporation and traders. The primary data required for this study were collected from rubber growers, rubber dealers, RPS & Rubber Marketing Co-operative Societies and rubber goods manufacturers in Kerala. Data pertaining to the awareness and perception of futures trading, participation in the futures trading, use of spot and futures prices and source of price information by dealers, farmers, manufacturers and cooperative societies also were collected. Statistical tools used for analysis include percentage, standard deviation, Chi-square test, Mann – Whitney U test, Kruskal Wallis test, Augmented Dickey – Fuller test statistic, t- statistic, Granger causality test, F- statistic, Johansen co – integration test, Trace statistic and Max –Eigen statistic. The study found that 71.5 per cent of the total hedges are effective and 28.5 per cent are ineffective for the period under study. It implies that futures market in rubber reduced the impact of price risks by approximately 71.5 per cent. Further, it is observed that, on 54.4 per cent occasions, the futures market exercised a stabilizing effect on the spot market, and on 45.6 per cent occasions futures trading exercised a destabilizing effect on the spot market. It implies that elasticity of expectation of futures market in rubber has a predominant stabilizing effect on spot prices. The market, as a whole, exhibits a bias in favour of long hedges. Spot price volatility of rubber during futures suspension period is more than that of the pre suspension period and post suspension period. There is a bi-directional association-ship or bi-directional causality or pair- wise causality between spot price and futures price of rubber. From the results of the hedging efficiency, spot price volatility, and price discovery, it can be concluded that rubber futures market fulfils all the economic functions expected from a commodity futures market. Thus in India, the future of rubber futures is Bright…!!!

Análisis de la relación entre el precio de la acción de Ecopetrol y los precios internacionales del petróleo

Este documento analiza mediante la metodología de cointegración de Johansen, la relación de largo plazo entre el precio de la acción de Ecopetrol en la Bolsa de Valores de Colombia y los precios del petróleo WTI y Brent. Los resultados del modelo indican que aunque no existe una relación de largo plazo entre cada uno de los precios de referencia y la acción, hay evidencia de una relación en el corto plazo entre el precio del crudo Brent y la acción, demostrada por una prueba de causalidad de Granger. Este resultado puede ser útil para el Gobierno y otros accionistas.

Is agriculture the engine of growth?

We seek to address formally the question raised by Gardner (2003) in his Elmhirst lecture as to the direction of causality between agricultural value added per worker and Gross Domestic Product (GDP) per capita. Using the Granger causality test in the panel data analyzed by Gardner for 85 countries, we find overwhelming evidence that supports the conclusion that agricultural value added is the causal variable in developing countries, while the direction of causality in developed countries is unclear. We also examine further the use of the Granger causality test in integrated data and provide evidence that the performance of the test can be increased in small samples through the use of the bootstrap.

Rational expectations? Developer behaviour and development cycles in the central London office market

Purpose – Expectations of future market conditions are acknowledged to be crucial for the development decision and hence for shaping the built environment. The purpose of this paper is to study the central London office market from 1987 to 2009 and test for evidence of rational, adaptive and naive expectations. Design/methodology/approach – Two parallel approaches are applied to test for either rational or adaptive/naive expectations: vector auto-regressive (VAR) approach with Granger causality tests and recursive OLS regression with one-step forecasts. Findings – Applying VAR models and a recursive OLS regression with one-step forecasts, the authors do not find evidence of adaptive and naïve expectations of developers. Although the magnitude of the errors and the length of time lags between market signal and construction starts vary over time and development cycles, the results confirm that developer decisions are explained, to a large extent, by contemporaneous and historic conditions in both the City and the West End, but this is more likely to stem from the lengthy design, financing and planning permission processes rather than adaptive or naive expectations. Research limitations/implications – More generally, the results of this study suggest that real estate cycles are largely generated endogenously rather than being the result of large demand shocks and/or irrational behaviour. Practical implications – Developers may be able to generate excess profits by exploiting market inefficiencies but this may be hindered in practice by the long periods necessary for planning and construction of the asset. Originality/value – This paper focuses the scholarly debate of real estate cycles on the role of expectations. It is also one of very few spatially disaggregate studies of the subject matter.

Linkages between property asset returns and interest rates: evidence for the UK

This paper considers the effect of short- and long-term interest rates, and interest rate spreads upon real estate index returns in the UK. Using Johansen's vector autoregressive framework, it is found that the real estate index cointegrates with the term spread, but not with the short or long rates themselves. Granger causality tests indicate that movements in short term interest rates and the spread cause movements in the returns series. However, decomposition of the forecast error variances from VAR models indicate that changes in these variables can only explain a small proportion of the overall variability of the returns, and that the effect has fully worked through after two months. The results suggest that these financial variables could potentially be used as leading indicators for real estate markets, with corresponding implications for return predictability.

Predicting stock index volatility: can market volume help?

This paper explores a number of statistical models for predicting the daily stock return volatility of an aggregate of all stocks traded on the NYSE. An application of linear and non-linear Granger causality tests highlights evidence of bidirectional causality, although the relationship is stronger from volatility to volume than the other way around. The out-of-sample forecasting performance of various linear, GARCH, EGARCH, GJR and neural network models of volatility are evaluated and compared. The models are also augmented by the addition of a measure of lagged volume to form more general ex-ante forecasting models. The results indicate that augmenting models of volatility with measures of lagged volume leads only to very modest improvements, if any, in forecasting performance.

House price dynamics and bank herding: European empirical evidence

This paper investigates the behavior of residential property and examines the linkages between house price dynamics and bank herding behavior. The analysis presents evidence that irrational behaviour may have played a significant role in several countries, including; United Kingdom, Spain, Denmark, Sweden and Ireland. In addition, we also provide evidence indicative of herding behaviour in the European residential mortgage loan market. Granger Causality tests indicate that non-fundamentally justified prices dynamics contributed to herding by lenders and that this behaviour was a response by the banks as a group to common information on residential property assets. In contrast, in Germany, Portugal and Austria, residential property prices were largely explained by fundamentals. Furthermore, these countries show no evidence of either irrational price bubbles or herd behaviour in the mortgage market. Granger Causality tests indicate that both variables are independent.