New Regionalism in Global Order: Regional Trade Integration and Its Links with Financial Sector

This dissertation evaluates the linkages of regional trade integration with regional financial integration and financial development in the EU and the ASEAN. The research utilizes quantitative and qualitative data to analyze development of banking sector and capital markets in these two regions, reviews related integration initiatives in the EU and ASEAN banking sectors and capital markets and their possible links with regional trade. The results mainly indicate that banking sector and capital markets perform important functions to provide financing to firms and infrastructure projects, to hedge trade and project risks and to support macro-financial stability, all of which can support regional trade. However, there are significant differences in the EU and ASEAN both in trade and financial sectors and being a member in a region with developed institutional structures and large trade networks -such as the EU- is the biggest advantage to intra-regional trade

Sources of cross-sectional variations in stock returns and risk: an empirical analysis of emerging markets

It is well established in the financial economics literature that potential gains from international diversification are generated from the imperfect correlation between national stock market returns. This empirical study explores the factors that impede perfect integration among national equity markets by examining emerging markets data. The first major topic of the dissertation is to re-visit the debate on the relative importance of country and industry effects in the cross-sectional variation of stock returns. By applying the standard Heston and Rouwenhorst (1994) dummy variable decomposition method to $U. S. nominal returns from 11 industry sectors of 13 emerging markets from 1984 to 2004, this work confirms that country effects do play a dominant role in determining the cross-sectional variation in stock returns in emerging markets but since late 1990s, the industry effects have become increasingly important. This conclusion is robust even after the removal of three potential biases: inflation rate, exchange rate and interest rate effects, all of which may amplify the country effects. The second topic is to investigate the debate from the perspective of stock risk. Stock risk is modeled and calculated independently from a return model with ARCH type errors. By applying the standard dummy variable decomposition method to stock risks, the empirical evidence is found to support the conclusions drawn on stock return decompositions. Finally, in order to find the fundamental sources of the country and industry factors, pure country and industry effects are then regressed on fundamental characteristics of country and industry. The findings show that the change in the variables representing the exchange rate can explain a substantial amount of the country effect variations, while at the same time, banking and stock markets development also contribute to the variations. The regressions also find evidence that the legal origin of the market does matter to stock returns. Regressions on industry effects are not as promising as the results of the country effects regression. Only the geographical concentration of industries is found to explain a small amount of the industry effects

Chapter 8: Information Technology and the New Capitalism

Harnessing Digitalization for Sustainable Economic Development: Insights for Asia describes digitalization’s role in raising the productive capacities of economies. It examines how digital transformation can enhance trade, financial inclusion, and firm competitiveness, as well as how greater digital infrastructure investment, internet connectivity, and financial and digital education in the region can maximize digitalization’s economic benefits. It also explains the importance of striking the right balance between the regulation and supervision of financial technology to enable innovation and safeguarding financial stability and consumer protection. Part I of the book seeks to build an understanding of digitalization’s effects on macroeconomic performance, including through trade channels and financial inclusion. Part II examines automation and the impact advancements in digital technology can have on firms via technology spillovers and the labor market. Finally, Part III highlights onward policy challenges for achieving sustainable and inclusive economic development outcomes amid accelerating technological change and demand for a more digitalized economy

The macroeconimic determinants of stock market development : experience from two Asian countries

This study examined the relationship between a set of macroeconomic variables and stock market development in Hong Kong and the Philippines for the periods of 1992Q4-2016Q3 and 2001Q4-2016Q4 respectively. In recent decades, the stock markets in Hong Kong and the Philippines have experienced remarkable growth. While the literature has produced diverse views on the relationship between each determinant and the stock market, there are no relevant studies on the determinants of stock market development on these two countries. Against this background, this study enriched the literature by investigating the macroeconomic determinants of stock market development in these two countries using the autoregressive distributed lag bounds testing approach. The empirical results of this study revealed a number of interesting findings. In the case of Hong Kong, the results showed that banking sector development and economic growth exerted positive impacts, whereas the inflation rate and exchange rate exerted negative impacts on stock market development both in the long and short run. In addition, the results showed that trade openness had a positive long-run impact, but a negative short-run impact on stock market development. Therefore, policymakers should pursue policies that foster banking sector development, enhance economic growth and maintain trade openness in order to foster the development of the stock market. In addition, monetary authority should strive to maintain a low level of inflation rate and the value of the domestic currency so as to further promote stock market development. In the case of the Philippines, the study found that trade openness had a negative impact on the development of the stock market in the long run, whereas banking sector development, and the exchange rate had positive impacts in the short run. Based on these findings, policymakers should consider policies that promote the use of equity financing in the production of main exports, enhance banking sector development, and maintain the stability of the domestic currency in order to promote the development of the stock market.EconomicsD. Phil. (Economics

Asset Price Bubbles and Challenges to Central Banks

The experience from the 2007 - 2009 global financial crisis was a wake-up call for central bankers. In the past decade, central bankers around the world have become more confident that they can control economic fluctuations including inflation. Many countries have adopted inflation targeting as their monetary policy framework. The success of inflation targeting in combating inflation led central bankers to believe not only that they have conquered inflation but also that they can even flatten business cycles, ups and downs of economic activities such as consumption and investment. Inflation was well managed around what many believe as a level close to price stability, business cycles were mitigated, and a few isolated incidences of financial crises responded well to active interventions undertaken by central banks and governments.

Sovereign credit risk spillover

This thesis examines cross-market correlations between means and variances in sovereign credit markets and captures the presence of any contagion effect by focusing on parallel movements between markets in the wake of the recent crisis. Furthermore, it focuses on the effect of policy interventions on the dynamics of these correlations. First, to look at the correlation between markets, we investigate the interaction between sovereign spreads and creditworthiness. Our results suggest that there are stable long-term cointegration relationships and significant short-term reactions between government CDS spreads to rating and outlook changes, with rating and outlook leading CDS spreads. After confirming the leading role of credit ratings, we further investigate the spillover effect from ratings to CDS spreads across markets and countries. We are concerned with the spillover effect of a change in the sovereign credit rating and outlook of one country on the sovereign CDS spreads of other countries. We find that rating and outlook announcements originating from different countries have a strong spillover effect across countries but not across regions, while countries’ initial credit status has limited effect on such spillover. Moreover, the US market is a strong source of global spillover to all the countries. After controlling for US factors, the international spillover effects are found to be stronger during crisis periods than in tranquil periods. In addition, credit outlook changes have a greater impact on sovereign CDS spread responses than rating change announcements, suggesting that outlook changes carry more new information. Furthermore, we are also concerned with the influences of rescue plans by the European Union (EU) and the International Monetary Fund (IMF) on the interdependence of sovereign credit risk, measured by CDS spreads, in the Eurozone. The study focuses on the interaction between two groups of nations, ‘cores’ (Austria, Belgium, France, Germany and the UK) and ‘PIIGS’ (Portugal, Ireland, Italy, Greece and Spain), before and after these bailouts. We are able to control for the rating and other external influences affecting sovereign CDS spreads. There are three principal findings. (1) Before the EU interventions, the spreads of the rescued countries – Greece, Ireland, Portugal and Spain (PIGS) – had a strong influence on rating changes in Austria, Belgium, France, Germany and the UK (core European countries). (2) After bailout, our results underline increased interdependencies between sovereign credit risk in the EU area, especially between the rescued country and the core countries. This suggests that these bailout plans not only increase the influence of the rescued country on the development of the core nations, but also amplify the sensitivity of PIIGS to changes in the cores. (3) Different countries will vary in their financial stability and their fundamentals will differ, so they will be expected to respond differently to a bailout. Indeed, distinctive interaction behaviours across countries, related to country-specific characteristics (fiscal outlook), is found for each of the financial policy interventions. Second, to look at the correlation between variances, this study investigated correlation between 9 major EMU countries’ CDS markets during the sovereign debt crisis, and hence examined the impacts of policy interventions on these markets, using the DCC-GARCH model. The main purpose was to assess the extent to which the policy interventions influenced the dynamics of correlations in sovereign CDS markets, after controlling for international influence (US VIX), and both domestic and foreign sovereign credit rating and outlook. Our results suggest that correlations are time-varying for all the sample countries. Most of the policy interventions led to a significant increase in the pairwise correlations. Our interpretation is that the “two-way feedback” between the healthy country and the bailed-out country causes the public-to-public risk transfer. The increased debt and deficit partly result from assisting other troubled nations. Through policy interventions, any deterioration in the sovereign creditworthiness of the healthy countries could transmit back to the bailed-out countries. Moreover, the estimation result suggests that policy interventions, rather than VIX and credit rating/outlook, play the most direct and significant role in shaping the structure of dynamic correlation in the EMU markets

Sources of cross-sectional variations in stock returns and risk : an empirical analysis of emerging markets

It is well established in the financial economics literature that potential gains from international diversification are generated from the imperfect correlation between national stock market returns. This empirical study explores the factors that impede perfect integration among national equity markets by examining emerging markets data. The first major topic of the dissertation is to re-visit the debate on the relative importance of country and industry effects in the cross-sectional variation of stock returns. By applying the standard Heston and Rouwenhorst (1994) dummy variable decomposition method to $U. S. nominal returns from 11 industry sectors of 13 emerging markets from 1984 to 2004, this work confirms that country effects do play a dominant role in determining the cross-sectional variation in stock returns in emerging markets but since late 1990s, the industry effects have become increasingly important. This conclusion is robust even after the removal of three potential biases: inflation rate, exchange rate and interest rate effects, all of which may amplify the country effects. The second topic is to investigate the debate from the perspective of stock risk. Stock risk is modeled and calculated independently from a return model with ARCH type errors. By applying the standard dummy variable decomposition method to stock risks, the empirical evidence is found to support the conclusions drawn on stock return decompositions. Finally, in order to find the fundamental sources of the country and industry factors, pure country and industry effects are then regressed on fundamental characteristics of country and industry. The findings show that the change in the variables representing the exchange rate can explain a substantial amount of the country effect variations, while at the same time, banking and stock markets development also contribute to the variations. The regressions also find evidence that the legal origin of the market does matter to stock returns. Regressions on industry effects are not as promising as the results of the country effects regression. Only the geographical concentration of industries is found to explain a small amount of the industry effects.EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Estimating Dependences and Risk between Gold Prices and S&P500: New Evidences from ARCH,GARCH, Copula and ES-VaR models

This thesis examines the correlations and linkages between the stock and commodity in order to quantify the risk present for investors in financial market (stock and commodity) using the Value at Risk measure. The risk assessed in this thesis is losses on investments in stock (S&P500) and commodity (gold prices). The structure of this thesis is based on three empirical chapters. We emphasise the focus by acknowledging the risk factor which is the non-stop fluctuation in the prices of commodity and stock prices. The thesis starts by measuring volatility, then dependence which is the correlation and lastly measure the expected shortfalls and Value at risk (VaR). The research focuses on mitigating the risk using VaR measures and assessing the use of the volatility measures such as ARCH and GARCH and basic VaR calculations, we also measured the correlation using the Copula method. Since, the measures of volatility methods have limitations that they can measure single security at a time, the second empirical chapter measures the interdependence of stock and commodity (S&P500 and Gold Price Index) by investigating the risk transmission involved in investing in any of them and whether the ups and downs in the prices of one effect the prices of the other using the Time Varying copula method. Lastly, the third empirical chapter which is the last chapter, investigates the expected shortfalls and Value at Risk (VaR) between the S&P500 and Gold prices Index using the ES-VaR method proposed by Patton, Ziegel and Chen (2018). Volatility is considered to be the most popular and traditional measure of risk. For which we have used ARCH and GARCH model in our first empirical chapter. However, the problem with volatility is that it does not take into account the direction of an investments’ movement: volatility of stocks is that they suddenly jump higher and investors are not distressed with gains. When we talk about investors for them the risk is about the odds of losing money, after my research and findings VaR is based on the common-sense fact. Hence, investors care about the odds of big losses, VaR answers the question, what is my worst-case scenario? Or simply how much I could lose in a really bad month? The results of the thesis demonstrated that measuring volatility (ARCH GARCH) alone was not sufficient in measuring the risk involved in an investment therefore methodologies such as correlation and VAR demonstrates better results. In terms of measuring the interdependence, the Time Varying Copula is used since the dynamic structure of the de- pendence between the data can be modelled by allowing either the copula function or the dependence parameter to be time varying. Lastly, hybrid model further demonstrates the average return on a risky asset for which Expected Shortfall (ES) along with some quantile dependence and VaR (Value at risk) is utilised. Basel III Accord which is applied in coming years till 2019 focuses more on ES unlike VaR, hence there is little existing work on modelling ES. The thesis focused on the results from the model of Patton, Ziegel and Chen (2018) which is based on the statistical decision theory. Patton, Ziegel and Chen (2018), overcame the problem of elicitability for ES by using ES and VaR jointly and propose the new dynamic model of risk measure. This research adds to the contribution of knowledge that measuring risk by using volatility is not enough for measuring risk, interdependence helps in measuring the dependency of one variable over the other and estimations and inference methods proposed by Patton, Ziegel and Chen (2018) using simulations proposed in ES-VaR model further concludes that ARCH and GARCH or other rolling window models are not enough for determining the risk forecasts. The results suggest, in first empirical chapter we see volatility between Gold prices and S&P500. The second empirical chapter results suggest conditional dependence of the two indexes is strongly time varying. The correlation between the stock is high before 2008. The results further displayed slight stronger bivariate upper tail, which signifies that the conditional dependence of the indexes is influence by positive shocks. The last empirical chapter findings proposed that measuring forecasts using ES-Var model proposed by Patton, Ziegel and Chen (2018) does outer perform forecasts based on univariate GARCH model. Investors want to 10 protect themselves from high losses and ES-VaR model discussed in last chapter would certainly help them to manage their funds properly