252 research outputs found

    Integration Of Smaller European Equity Markets : A Time-Varying Integration Score Analysis

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    The objective of this paper is to study capital market integration in smaller european countries and its implications for an international portfolio investment allocation. A time-varying analysis based on Barari (2004) suggests that the markets have recently started moving towards international financial integration. Results vary from country to country and sample countries can be broken down into distinctive groups according to their recent integration score performance: a) countries which are becoming increasingly integrated with both regional European and international equity markets (Estonia, Hungary, Czech Republic, Lithuania, Poland) b) countries which have becoming increasingly integrated with the regional market, while growing segmented with the world market (Latvia, Slovakia, Slovenia). This is an encouraging indicator in that none of the countries have been growing segmented from the European equity markets since the EU accession.Stock Market Integration, Portfolio Diversification, Smaller European markets, Time-varying methods.

    Portfolio management implications of volatility shifts: Evidence from simulated data

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    Based on weekly data of the Dow Jones Country Titans, the CBT-municipal bond, spot and futures prices of commodities for the period 1992-2005, we analyze the implications for portfolio management of accounting for conditional heteroskedasticity and structural breaks in long-term volatility. In doing so, we first proceed to utilize the ICSS algorithm to detect volatility shifts, and incorporate that information into PGARCH models fitted to the returns series. At the next stage, we simulate returns series and compute a wavelet-based value at risk, which takes into consideration the investor’s time horizon. We repeat the same procedure for artificial data generated from distribution functions fitted to the returns by a semi-parametric procedure, which accounts for fat tails. Our estimation results show that neglecting GARCH effects and volatility shifts may lead us to overestimate financial risk at different time horizons. In addition, we conclude that investors benefit from holding commodities as their low or even negative correlation with stock indices contribute to portfolio diversification.volatility shifts, wavelets, value at risk

    Robust Global Stock Market Interdependencies

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    In this paper, we examine the scope for international stock portfolio diversification, from the viewpoint of a United States representative investor, in regard to both the Asian and theEuropean stock markets. Our findings indicate that despite correlation style evidence to thecontrary, the European stock markets provide a superior long-term diversification opportunity relative to that provided by the Asian stock markets. Hence, a short-term measurement of interdependence appears to be uninformative with respect to the diversification opportunities of investors with longer term investment horizons. In terms of methodology, we adopt common stochastic trend tests, including a common stochastic trend test which accounts for generalised autoregressive conditional heteroskedasticity effects in conjunction with the recursive estimation of these tests to estimate the development of longterm stock market interdependence linkages. Recursively estimated robust correlations between the international stock markets are utilised to reveal the nature of short-term stock market interdependence linkages.Stock Market Linkages, Portfolio Diversification, Correlation, Cointegration

    Russian equity market linkages before and after the 1998 crisis: Evidence from time-varying and stochastic cointegration tests

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    This paper examines the relationships between the Russian and other Central European (CE) and developed countries’ equity markets over the 1995-2004 period. Along with the traditional Johansen and Juselius (1990) multivariate cointegration tests, we apply novel cointegration approaches, including Gregory-Hansen (1996) test, which allows for a structural break in the relationships, as well as the newly developed stochastic cointegration test by Harris, McCabe and Leybourne (2002) and the non-parametric cointegration method of Breitung (2002). The latter tests point to a significant agreement that in the aftermath of the Russian crisis of 1998 there was an increasing degree of comovements of the Russian market with other developed markets, but not with CE developing markets. This result is further confirmed by dynamic conditional correlation modeling, which allows us to investigate graphically the evolution of comovements in the system. The results of detailed cointegration analysis suggest a. that the time-varying nature of equity markets comovements should be explicitly accounted for while modeling long run relationships b. that there is a decline in diversification benefits for foreign investors seeking to invest in Russian equities over the long horizon.Stock Market Integration; CEE Stock markets; Russian Stock Market; Cointegration

    Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold

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    This paper addresses two questions. First, we investigate whether gold is a hedge against stocks and/or bonds and second, we investigate whether gold is a safe haven for investors if either stocks or bonds fall. A safe haven is defined as a security that loses none of its value in case of a market crash. This is counterpoised against a hedge, defined as a security that does not co-move with stocks or bonds on average. We study constant and time-varying relationships between stocks, bonds and gold in order to investigate the existence of a hedge and a safe haven. The empirical analysis examines US, UK and German stock and bond prices and returns and their relationship with the Gold price. We find that (i) Gold is a hedge against stocks, (ii) Gold is a safe haven in extreme stock market conditions and (iii) Gold is a safe haven for stocks only for 15 trading days after an extreme shock occurred.Safe haven, gold, stock-bond correlation, flight-to-quality

    Situating Middle East and North Africa (MENA) capital markets within the emerging markets universe

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    The objective of this paper is to situate the MENA area within the emerging markets universe. We first discuss the various components of market emergence and generate four bootstrapped indexes reflecting market size, market activity, market pricing and transparency. We then draw inter-regional and country-level comparisons using a probit model and a hierarchical cluster analysis. Our results suggest that in spite of intra-regional heterogeneity, the MENA region ranks favorably by comparison to Latin America and Eastern Europe. We can therefore expect greater international financial integration of the MENA region in the near future.Common Agricultural Policy, World Trade Organizations, Trade Negotiations.

    Equity Markets and Economic Development: What Do We Know

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    The objective of this paper is to review the transmission mechanisms uniting equity market development and economic growth in developing countries. We find that the theoretical impact of equity markets is ambiguous. At the domestic level, the allocation function of equity markets appears conditioned by the extent of informational efficiency. Turning to international linkages, theoretical models suggest that equity market integration lowers the cost of capital, increases financial vulnerability and has a mixed impact on capital flows. Taking this into account, two conclusions arise. First, equity market development policies should focus on reaching and maintaining adequate levels of institutional transparency. Second, the optimal degree of international integration depends on the society’s preference between international accessibility and domestic stability.Equity Markets, Economic Development.

    Portfolio allocations in the Middle East and North Africa

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    We examine the issue of possible portfolio diversification benefits into seven Middle-Eastern and North African (MENA) stock markets. We construct international portfolios in dollars and local currencies. We compute the ex-ante weights by plugging five optimization models and two risk measures into a rolling block-bootstrap methodology. This allows us to derive 48 monthly rebalanced ex-post portfolio returns. We analyze the out-of-sample performance based on Sharpe and Sortino ratios and the Jobson-Korkie statistic. Our results highlight outstanding diversification benefits in the MENA region, both in dollar and local currencies. Overall, we show that these under-estimated, under-investigated markets could attract more portfolio flows in the future.Portfolio Allocation, Emerging Markets, Middle East and North Africa.

    Calendar seasonality in the Irish equity market : 1988-1998

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    Detection of 'anomalies', empirical regularities that are inexplicable within a preeminent or accepted paradigm, is a key aspect of the operation of scientific endeavour. The dominant theories of financial economics, those deriving from the CAPM/APT literature, hold that there should not exist persistent differences in the returns to assets across calendar frequencies. An extensive review of the literature reveals that in a wide variety of assets and markets there is evidence that returns differ according to the calendar frequency, in particular across days of the week and months of the year and around recurrent holidays. However, this review also reveals considerable room for increased methodological and statistical sophistication. In particular, the nature and extent of the data indicate that techniques based on robust regression, non-parametric statistics and Bayesian inference are more appropriate than the predominantly OLS based approaches displayed in the literature. Papers that adopt these more sophisticated approaches generally find much weaker evidence for such calendar anomalies. In essence, the Irish Stock Exchange operated free from exchange controls and in a broadly homogenous monetary and economic environment from 1988 to 1998. Daily returns from 1988 to 1998, on official equity indices, and from 1993 to 1998 on equal and value weighted equity indices, are examined. The evidence is that even when more sophisticated and appropriate techniques are used there is still some evidence for a daily pattern in the returns to these indices. However this pattern is dissimilar to that found elsewhere, consisting of a midweek positive peak as opposed to the more commonly found low returns at the start of the week and higher returns on Friday. This pattern is not a function of the settlement system, does not appear to be related to the pattern of either microeconomic (firm-specific) or macroeconomic information releases, nor does it appear to be a function of endogenous news generation. Previous international research indicates a January peak in returns, while previous research on the Irish market had also found an April peak. While the investigation here of the monthly pattern of returns confirms, in a statistically and methodologically robust manner, the January peak no evidence is found of an April peak. Examination of the return pattern around exchange holidays indicates that, in common with other markets referenced in the literature, there is a rise in returns before a holiday. However, on decomposition into local and international components we find that although the local effect is strong this effect is negative, which is a major point of departure from previous research findings

    Volatility in the Gold Futures Market

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    We investigate the volatility structure of gold, trading as a futures contract on the Chicago Board of Trade (CBOT) using intraday (high frequency) data from January 1999 to December 2005. Apart from investigating the now familiar GARCH properties we also utilize a rarely used measure of volatility–the Garman Klass estimator – to provide new insights in intraday and interday volatility. This nonparametric measure incorporates the open, close, high and low price within a particular time interval. Both sets of results suggest significant variation across the trading day and week consistent with microstructure theories, although volatility is only slightly positively correlated with volume when measured by tick-count.Garman Klass estimator; volatility; gold; intraday patterns; futures
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