Evaluating the Impact Of Foreign Exchange Rate Risk On The Capital Budgeting For Multinational Firms

Capital budgeting analysis has evolved to the point where large firms universally use sophisticated capital budgeting techniques.[1]  However, small firms are less likely to use sophisticated capital budgeting techniques.[2]  Even large firms do not generally use simulation for risk analysis in multinational project capital budgeting analysis.[3]  This paper provides a discussion and example of the use of simulation in evaluating the impact of foreign exchange rate volatility on multinational project capital budgeting analysis.[1] Bierman, Harold, Jr. “Capital Budgeting in 1991:  A Survey,” Financial Management, Autumn 1993, pp. 21-29.[2]  See, for example, Block, Stanley. “Integrating Traditional Capital Budgeting Concepts into an International Decision-Making Environment,” The Engineering Economist, 45(4), 2000, pp. 309-325 or Graham, John R. and Campbell R. Harvey.  “The Theory and Practice of Corporate Finance:  Evidence from the Field,” Journal of Financial Economics, 60, 2001, pp. 187-243.[3] See, for example, Farragher, Edward, Robert Kleiman, and Anandi, Sahu.  “The Association Between the Use of Sophisticated Capital Budgeting Practices and Corporate Performance,” The Engineering Economist, 46(4), 2001, pp. 300-31, Ho, Simon S. M. and Richard H. Pike.  “Risk Analysis in Capital Budgeting Contexts:  Simple or Sophisticated?,” Accounting and Business Research, 21(83), 1991, pp. 227-238, Klammer, T. “Empirical Evidence of the Adoption of Sophisticated Capital Budgeting Techniques,” The Journal of Business, July 1972, pp. 387-397, and Klammer, T., B. Koch, and N. Wilner.  “Post-auditing Capital Assets and Firm Performance:  An Empirical Investigation,” Managerial and Decisions Economics, (12), 1991, pp. 317-327

A Study Of The Relationship Between Stock Market Development And Economic Growth And Development For 1994 To 2003

In this paper, we discuss the relationship between the level of economic development and the size of the stock market relative to the total economic output.  We find a positive relationship and statistically significant regression coefficients between gross national income per capita and total stock market capitalization to gross national income for each year from 1994 to 2003 for between seventy-eight and one hundred and two countries.  A well developed stock market facilitates capital allocation in an economy which is necessary for economic growth and development and provides the large pools of funds to successful entrepreneurs needed for corporate growth

An Analysis Of The Technical Efficiency Of The Russian Stock Market

In this paper, we evaluate the weak form efficiency of the Russian Stock Market using the Russian Trading System Index for the period from when the market opened, September 4, 1995 to June 1, 2007. There does appear to have been a speculative bubble in the run-up to the market peak in late 1997/early 1998 that burst when the government defaulted on debt. However, based on the empirical results of this paper, it appears that the RTSI is generally weak form efficient, particularly in the last eight periods of the study. This weak form efficiency is not surprising given the international interest in the Russian Stock Market and because the RTSI is denominated in US dollars

The theoretical impact of the listing of syariah-approved stocks on stock price and trading volume.

The stock price and trading volume reactions of companies to single events, such as public announcements on mergers, dividend payments, or security issue announcements have been studied extensively. The impact of news about a continuing event such as the news on the inclusion in and exclusion of stocks from the KLSE Syariah Index that occurs twice yearly affects security prices and trading volume. This paper examines reasons that price and trading volume of Syariah-approved stocks might react to the inclusion-exclusion exercise. The selection criteria set by the Syariah Advisory Council of Securities Commission of Malaysia in updating the list of the Syariah-approved stocks is not based on the financial soundness alone. Views from Syariah perspective and from financial theories are discussed to support the behavior of the included and excluded stocks from the Kuala Lumpur Syariah Index

Demonstrating The Use Of Vector Error Correction Models Using Simulated Data

In this paper, we demonstrate the use of time series analysis, including unit roots tests, Granger causality tests, cointergation tests and vector error correction models. We generate four time series using simulation such that the data has both a random component and a growth trend. The data are analyzed to demonstrate the use of time series analysis procedures

The Relationship Between Stock Market Development And The Opacity Index

In this paper, we investigate the relationship between stock market development and the Opacity Index for 2005/2006, 2007/2008, and 2009. The role of financial institutions in promoting economic growth and development is well established. The specific role of the stock market in economic growth and development is to provide capital to entrepreneurs and growing companies and to direct capital to companies that provide the highest rate of return. The Opacity Index is a measure of transparency for an economy and measures the degree of transparency in an economy. We find a statistically significant relationship between the Opacity Index and the ratio of stock market capitalization divided by GDP for a sample of 45 countries for which the Opacity Index is provided

An Analysis Of The Day-Of-The-Week Effect In The Russian Stock Market

In this paper, we evaluate the weak form efficiency of the Russian Stock market using the Russian trading System Index for the period when the market opened in 1995 to August 2003 by testing for a day-of-the-week effect using ARCH/GARCH analysis.  There does appear to have been a speculative bubble in the run-up to the market peak in late 1997 to early 1998 that burst when the government defaulted on debt.  However, based on the empirical results of this paper, it appears that the RTSI does have a day-of-the-week effect.  However, returns are lowest on Wednesday and highest on Friday and returns are positive on every day except Wednesday.  Thus, we posit a three day “weekend” effect from Thursday to Monday

A Note On The Effect Of M&A Announcements On Stock Price Behavior And Financial Performance Changes: The Case Of Arab Malaysian Bank Berhad And Hong Leong Bank Berhad

This study examines the effect of M&A completion announcements on the stock price behavior for two anchor banks in Malaysia: Hong Leong Bank Berhad and Arab Malaysian Bank Berhad. The analysis uses the event study technique, the Naïve Model, a model that is based on Market Model with constrained ? = 0 and ? = 1 to compute the abnormal returns surrounding the M&A completion announcement date and to evaluate the effect of M&A completion announcement on the banks’ return. The results from event study show that the M&A completion announcements are treated as positive information by the market

The Theoretical Impact Of The Listing Of Syariah-Approved Stocks On Stock Price And Trading Volume

The stock price and trading volume reactions of companies to single events, such as public announcements on mergers, dividend payments, or security issue announcements have been studied extensively.  The impact of news about a continuing event such as the news on the inclusion in and exclusion of stocks from the KLSE Syariah Index that occurs twice yearly affects security prices and trading volume.  This paper examines reasons that price and trading volume of Syariah-approved stocks might react to the inclusion-exclusion exercise.  The selection criteria set by the Syariah Advisory Council of Securities Commission of Malaysia in updating the list of the Syariah-approved stocks is not based on the financial soundness alone.  Views from Syariah perspective and from financial theories are discussed to support the behavior of the included and excluded stocks from the Kuala Lumpur Syariah Index

The Relationship Between Price And Volume For The Russian Trading System

The objective of this study is to analyze the relationship between the Russian Trading System Index and trading volume for the Russian Trading System Index. We use daily closing price and trading volume for the data for the RTS Index from September 4, 1995 to November 8, 2011. We find a positive statistically significant relationship between the natural logarithm of price volume changes and changes in the RTS Index and for the natural logarithm of price volume changes relative to a five-day average of price volume changes; thus the impact of trading volume is persistent