On Volatility Spillovers and Dominant Effects in East Asian: Before and After the 911

The present paper examines the dynamic effects of volatility spillovers and dominant role (the second-moment) of the US, Japan and Hong Kong in the East Asian equity markets. To evaluate the recent September 11 (911) impact, two sub periods – before and after the tragedy, are being considered based on daily market returns. The upshots of our findings are five-fold. First, for all markets the constant risk components, as well as the ARCH and GARCH effects are significantly detected, implying the persistency of volatility in East Asian equity markets. Nevertheless, not all indexes show asymmetrical news effects. Though all indexes show leverage effects, they are significant only for certain countries including the US and Japan, which is consistent with empirical literature. Second, the volatilities of these equity markets are bounded in common stochastic trends, at least in the long run. Third, the Hong Kong long run coefficients are more significant than that of US or Japan before the 911 calamity. Nonetheless, there is sufficient evidence showing that the US spillovers were transmitted via Hong Kong. After the 911, the Hong Kong’s spillovers trim down while Japanese influence enhance as in Malaysia, Philippines, Thailand and Singapore. Taken as a whole (1998-2002), Japanese spillovers are relatively small and nonsignificant in some East Asian equity markets. Fourth, the ECT coefficients are significant but small (except for Hong Kong). The East Asian equity markets are thereby endogenously determined and the volatility adjustments to the long run equilibrium are slow, once being shocked. The ECT coefficients slightly improved after 911. Fifth, volatilities in the East Asian equity markets are attributed mainly to the shocks of local and regional factors rather than the world factor. In a nutshell, the volatility spillovers and the Hong Kong- and US-dominant effects have been confirmed. Hitherto, the 911 impact is relatively small and somewhat inconclusive.East Asian; Spillover Effect; Dominant Effect; EGARCH-M; ARDL Bounds Testing Approach

China-Malaysia’s Trading and Exchange Rate: Complementary or Conflicting Features?

Over the last decade, China and Malaysia have committed to export-led growth policy based on maintenance of their undervalued currencies. While both nations have recorded current account surplus and devoted for regional trade integration, it was lately claimed that the Chinese foreign exchange regime poses her as a formidable export competitor and offers further threat to the crowding out of other developing Asian, including Malaysia. Such scenario motivated us to examine the dynamic nexus of exchange rate impact on bilateral export and import flows between China and Malaysia. Our analysis contributed in using high frequency monthly data for the recent period from January 1990 to January 2008, based on the Autoregressive Distributed Lag (ARDL) bound testing procedure and generalised impulse response analysis. Our empirical findings reveal that the Marshall-Lerner condition holds in the long run but only the short run import demands adhere to the potential J-curve pattern. In brief, the study supports for the complementary role of China instead of conflicting (competing) features in the China-Malaysia bilateral trading.Exchange rates, J-curve, Marshall-Lerner Condition, ARDL Bound Test

The Impact of Yuan/Ringgit on Bilateral Trade Balance of China and Malaysia

The exposure to exchange rates remains an unresolved issue in international trade literature. The issue is particularly relevant to China and Malaysia, whom relaxed their USD pegging the same day in the mid of 2005. Our paper investigates the exchange rate exposure of China-Malaysian bilateral trade balance over the last 20 years using a standard trade balance equation which is a function of local income, foreign income, and the bilateral real exchange rates of yuan/ringgit. Our modeling is somewhat different with the literature where we take into account the structural breaks of the 1997 Asian currency crisis as well as the fixed-exchange rate regime adopted by the Malaysia. With high frequency monthly sample (Jan1990-Jan2008), we documented GARCH effect in the trade model. Taking that into consideration, our result shows that real exchange rates do play a role in the bilateral trade of China-Malaysia. The long run exchange rate elasticity is consistent with the Marshall-Lerner condition. However, the short run J-curve phenomenon is somewhat inconclusive.Exports, Imports, exchange rates exposure, J-curve, structural breaks, GARCH

The delay of stock price adjustment to information: A country-level analysis

This study measures the speed with which the aggregate stock market in 49 countries responds to global market-wide public information. Our empirical results show that there are wide variations in the aggregate price delay values over time and across countries. Subsequent panel analysis confirms previous firm-level evidence that market size, trading volume, short sales restrictions and the degree of investability are significant determinants of price delay even at the country level.Informational efficiency, speed of adjustment, price delay, aggregate stock market

Bank Stock Returns And Financial Volatility: A MGARCH-M Modeling

This study examines the sensitivity of commercial bank stock excess returns to the volatility level and financial risk factors, measured by interest rate risk and exchange rate risk across the recent Asian financial crisis horizon, via Multivariate GARCH in Mean (MGARCH-M) model. Application of time varying risk model into bank's stocks is of special importance as both the financial risk factors and the stock returns volatility varied substantially in the Asian recent financial crisis. Generally, MGARCH (p, q)-M process captures almost all of the linear dependence in both the returns' mean, and the residual's variance of the fitted model. The results of this study further show that in Malaysia, the pattern of risk sensitivity is about the same for both large and small banks during the crisis period. Unlike studies from developed markets, the portfolio partition in the case of Malaysia did not provide significant difference on bank stocks risk exposures. Before the crisis, the excess returns generally followed white noise process and the residual variances have strong GARCH effects, indicating that the current volatility of bank's stocks persisted from past periods. The banks equity returns and its volatility fails to show a pricing relationship with its volatility level and financial risk factors, due to close regulatory framework set by government on the economy system. During the crisis period, commercial banks' hedging activities, and government interventions in both the financial factors, had stabilized the bank stocks' volatility. This can be explained because during crisis, bank stocks' returns followed a white noise process while the GARCH effects in the variances equation are very weak. Furthermore, when the market is in disorder, bank's stocks performance could be better explained by the overall market's performance and the annoyances in the market. After the financial control, due to the unexpected interest rate policy and the merger announcement, large bank's returns are increasingly sensitive to its own volatility. The stock's prices of small banks are only exposed to interest rate volatility but its magnitude is relatively larger than large banks'. The forced consolidation program has stongly affected the confidence of investors on the performance of small banks as the small bank's volatility is significantly driven by the interest rate volatility.It seems that the recent crisis had affected the exposure of bank's stocks to risk. Investors seem to be more actively engaged as reflected by the significant risks concern in bank's stocks pricing. The control and announced consolidation program fail to regain investors' full confidence in bank's stocks. Nevertheless, in view of long run welfare, the increasing risk concern in bank's stocks will contribute to the development of the domestic banks. When the market prices the stocks, the prices will reflect the true value and the performance of the banks. This will further enhance the market efficiency on banking stocks and contribute to future expansion, by ensuring an effective intermediation of fund to the efficient banks

Examining Exchange Rates Exposure, J-Curve and the Marshall-Lerner Condition for High Frequency Trade Series between China and Malaysia

Over the last decade, China and Malaysia have committed to export-led growth policy based on maintenance of their undervalued currencies. Both nations had succumbed to pressure of revaluation to de-peg their currency against the USD, the same day in July 2005. This unique scenario motivated us to examine the dynamic nexus of exchange rate impact on bilateral export and import flows between China and Malaysia. Our analysis contributed in using high frequency monthly data for the recent period from January 1990 to January 2008, based on the Autoregressive Distributed Lag (ARDL) bound testing procedure and generalised impulse response analysis. Our empirical findings reveal that the Marshall-Lerner condition holds that real depreciation accelerates trade expansion in the long run but only the short run import demands adhere to the potential J-curve pattern. Domestic and foreign incomes are significant and correctly signed, suggesting that the China-Malaysia exports and imports are determined by demand side effects. In brief, the study supports for the complementary role of China instead of conflicting (competing) features in the China-Malaysia bilateral tradingExchange rates, Trade, J-curve, Marshall-Lerner Condition, ARDL Bounds test

China-Malaysia’s long run trading and exchange rate: complementary or conflicting?

This paper examines the long run dynamics of exchange rate and bilateral export-import flows between China and Malaysia. Our analysis contributed in using high frequency monthly data for the recent period from January 1990 to January 2008, based on the Autoregressive Distributed Lag bound testing procedure, the fully modified OLS, dynamic OLS and rolling estimations, as well as the generalised impulse response (IRF) and variance decomposition (VDC) analyses. Our empirical findings reveal that the Marshall-Lerner condition holds in the long run but the export-import demands do not adhere to the J-curve pattern. And, expansionary effect is of greater evidence for Malaysia due to real exchange shocks but inconclusive for China. More important, the VDC results imply that China-Malaysia trade is along the sustainable path. In brief, the study supports for the complementary role of China instead of conflicting (competing) features in the China-Malaysia bilateral tradingExchange rates, J-curve, Marshall-Lerner Condition, ARDL Bound Test, Rolling, FMOLS, DOLS

Integrasi pasaran-pasaran saham di rantau APEC : Satu kajian empirikal

This paper investigates the process of asset pricing in stock markets of APEC countries while considering the impact of trading-bloc factor. Among the main findings were; firstly, the trading-bloc factor is significant and increases the explanatory power of the international asset pricing model; secondly, using APEC as a platform, we documented evidence that emerging markets are more sensitive to the trading-bloc factor, while integration towards the world market is more significant for developed markets and; thirdly, less significant cross-bloc pricing were found. In general, our research offers a possible explanation to why emerging stock markets is generally segmented from the world market. We found significant evidence that they are more integrated with their trading bloc members

A structural VARX modelling of international parities between China and Japan in the liberalization era

This study systemically investigates the international parity conditions for China and Japan in the liberalization era (1990:Q1-2010:Q2). Advanced econometric procedures including the structural VARX and persistent profiles are utilized in the empirical analysis. The finding upholds support for both purchasing power (PPP) and uncovered interest parity (UIP) conditions, when structural breaks due to the Asian and subprime crises were taken into accounts. By comparing the persistent profiles, we find shocks to real sector are more likely to lead to the establishment of parity at faster rate than capital market. This seems to suggest sequencing problem in market integration is not an issue.International Parity Conditions, Market Integration, Structural VARX Modelling, Bootstrapping

Nonlinear prediction of Malaysian exchange rate with monetary fundamentals

This paper compares one-step-ahead out-of-sample predictions on Malaysian Ringgit-US Dollar exchange rate using the generalized regression neural network for a range of forecasting horizons from 1991M3 to 2008M8. We find that the monetary fundamentals are significant in explaining the dynamics of Malaysian exchange rate in a longer forecast horizon as the performance of monetary exchange rate models outperformed the random walk benchmark model. The results also revealed that Malaysian exchange rate market provides profitable short-term arbitrage opportunities with lagged observations, and the integration of autoregressive terms into the monetary exchange rate models enhanced the out-of-sample forecasting performance.Autoregressive, monetary model, neural network, random walk