506 research outputs found
Accessing International Capital: Pakistan’s Experience, Prospects, and Policy Implications
In the 1990s accessing international capital markets has become a major source of external financing for many developing countries. The paper reviews Pakistan’s experience in tapping the global financial markets. We conduct a cross-sectional econometric analysis of the factors influencing the access to international equity and debt capital. Results indicate that the factors as suggested in the earlier literature do appear to be influential in determining the access to international capital. The study finds that the role of credit rating in attracting debt flows and of the local capital markets in attracting equity flows is prominent. The rate of economic growth is a major determinant of the access to foreign debt and equity funds. It also appears that the country rating which is based on a comprehensive set of variables indicating the financial health of the country subsumes the other proxies of economic stability and debt management. This study underscores the importance of institutional factors. Areas where improvement is possible to facilitate access to the international capital markets are identified as (1) political and legal environment, including improvements in the quality of the system of civil laws and its enforcement (2) private sector development through sustaining economic liberalisation and privatisation programmes (3) improvement in macro-economic management through a prudent internal and external debt management (4) development of capital markets through, improvements in market operations, enforcement of market regulations, strengthening of financial institutions and effective dissemination of market information.
Market Volatility, Manipulation, and Regulatory Response: A Comparative Study of Bombay and Karachi Stock Markets
Risk Management in the Financial Services Sector—Applicability and Performance of VaR Models in Pakistan
Financial services sector has become a major driver of
economic growth in the developing countries through innovation in
response to the forces of globalisation and technology. Sound risk
management practices by financial institution are critical to the
stability of the institutions and to the sustainability of economic
growth. Therefore, measurement of market risk is important to all market
participants for devising risk management strategies. Value-at-Risk
(VaR) is the most widely used measure of market risk, which is defined
as the maximum possible loss to the value of financial assets with a
given probability over a certain time horizon. However, the task of
implementing the VaR approach still remains a challenge as the empirical
return distributions are found to be fat tailed and skewed in contrast
to the normal distribution as assumed in the theoretical models. An
extensive literature in finance (e.g., Nassim Taleb’s The Black Swan)
underscores the importance of rare events in asset pricing and portfolio
choice. These rare events may materialise in the shape of a large
positive or negative investment returns, a stock market crash, major
defaults, or the collapse of risky asset prices
Macro-economic Policies and Energy Security—Implications for a Chronic Energy Deficit Country
The paper assesses the energy sector’s foreign exchange
requirements for meeting energy consumption and for capital
expenditures, and identifies its implications for the country’s
macroeconomic policy and management. We develop a conceptual model for
projecting the energy sector’s long-term requirements for foreign
exchange. The model indicates that the country’s chronic dependence on
oil imports is likely to expose the economy to high and volatile oil
prices. A fundamental issue for Pakistan is how the energy projects
requiring large inflows of foreign capital and technology will be
financed. The main implication of our analysis is that there will be
continuing pressure on the country’s foreign exchange resources. The
demand for foreign exchange by the year 2024-25 is projected to be US 23- 24 billion. An
implication of the country’s chronic energy deficiency is that the
macroeconomic policies, particularly the foreign exchange rate policy,
need to be redefined to reflect the projected demands on hard currencies
and their expected scarcity value. It is likely that Pakistan will
remain dependent on foreign imports to meet its energy requirements for
a long time and will need to generate commensurate foreign exchange
resources to ensure longterm energy security. JEL classification: E66,
F37, Q43 Keywords: Macroeconomic Policy, Exchange Rate Policy, Energy
Securit
Mitigating Vulnerability to Oil Price Risk— Applicability of Risk Models to Pakistan’s Energy Problem
The paper examines the prospects of reducing the price risk of
Pakistan’s oil imports through hedging in the oil futures market. The
paper evaluates the ex-ante cross hedge strategies over the 1990–2013
period using 1–4 months futures NYMEX in order to see how to reduce
price risk? Our results indicate that in all cases except one, ex-ante
hedging would have been effective in reducing price risk. We provide
quantitative estimates of the return/risk tradeoffs from hedging
Pakistan’s oil imports, and find that futures hedging offers the country
significant risk-reduction potential. Keywords: Risk-return Trade-off,
Hedging, Oil Prices JEL Classification: G100, G13
Modelling Foreign Exchange Risk in a Managed Float Regime: Evidence from Pakistan
We study the implications of the exchange rate regimes
(managed vs. floating) for implementing risk assessment models using
Pakistan data; the country seems to manage its currency mainly against
the US dollar, but to a lesser extent against other hard currencies. We
test five variations of the Value-at-Risk (VaR) model, including models
based on the Extreme Value Theory (EVT). Our results indicate that these
models do not perform as well for the currency pairs with the managed
float (USD/PKR and JPY/PKR). It implies that the managed float regime
imposes additional risk and cost on economic agents. The findings of
this paper provide additional support for following a free float policy,
and underscore the importance of the role the exchange rate regime plays
in facilitating management of risk by economic agents. Keywords: Value
at Risk, Risk Management, Managed Float, Extreme Value
Theory
Accessing International Capital: Pakistan’s Experience, Prospects, and Policy Implications
In the 1990s accessing international capital markets has
become a major source of external financing for many developing
countries. The paper reviews Pakistan’s experience in tapping the global
financial markets. We conduct a cross-sectional econometric analysis of
the factors influencing the access to international equity and debt
capital. Results indicate that the factors as suggested in the earlier
literature do appear to be influential in determining the access to
international capital. The study finds that the role of credit rating in
attracting debt flows and of the local capital markets in attracting
equity flows is prominent. The rate of economic growth is a major
determinant of the access to foreign debt and equity funds. It also
appears that the country rating which is based on a comprehensive set of
variables indicating the financial health of the country subsumes the
other proxies of economic stability and debt management. This study
underscores the importance of institutional factors. Areas where
improvement is possible to facilitate access to the international
capital markets are identified as (1) political and legal environment,
including improvements in the quality of the system of civil laws and
its enforcement (2) private sector development through sustaining
economic liberalisation and privatisation programmes (3) improvement in
macro-economic management through a prudent internal and external debt
management (4) development of capital markets through, improvements in
market operations, enforcement of market regulations, strengthening of
financial institutions and effective dissemination of market
information
Financialization and Speculative Bubbles – International Evidence
This paper tests the possible presence of nonlinear speculative bubbles in 23 international markets using daily data from January 1993-March 2015, and its possible link to the financialization phenomenon. To estimate fundamental values, we estimate VAR. Residuals from these VAR are tested for significant movements away from the fundamentals using Hamilton regime switching and Hurst rescaled range tests. We also test the data for nonlinearities using BDS statistics. Our results indicate the presence of speculative bubbles in all 23 of these markets with increasing incidence over time, which suggest a linkage with the phenomenon of financialization in these economies
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