Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection

Both practitioners and academicians demand a linkage model across financial markets, particularly among regional capital markets, for both risk management and portfolio selection purposes. Researchers frequently use co-integration and causality analysis in investigating the dependence or co-movement of three or more stock markets in different countries. However, they conducted the causality in mean tests but not the causality in variance tests. This study assesses the co-integration and causal relations among seven developed Asian markets, i.e Tokyo, Hongkong, Korea, Taiwan, Shanghai, Singapore, and Kuala Lumpur stock exchanges, using more frequent time series data. It employs the recently developed techniques for investigating unit roots, co-integration, time-varying volatility, and causality in variance. For estimating portfolio market risk, this study employs Value-at-Risk with delta-normal approach. The results show whether fund managers would be able to diversify their portfolio in these developed stock markets either in long run or short run

Liquidity Measurement Based on Bid-Ask Spread, Trading Frequency, and Liquidity Ratio: The Use of GARCH Model on Jakarta Stock Exchange (JSX)

This paper attempts to investigate and clarify previous studies on market liquidity measurement, which involve Bid-Ask Spread, Trading Frequency, and Liquidity Ratio variables. To strengthen our findings, we employ Volatility Models of ARCH and GARCH, as well as JSX daily, weekly, and monthly time series data. Our findings reveal that the observed variables are able to explain volatility magnitude of JSX in terms of liquidity. Volatility model incorporating Trading Frequency variable with monthly data is found the most suitable model for measuring liquidity of JSX.Bid-Ask Spread, Trading Frequency, Liquidity Ratio, and ARCH/GARCH

Volatility Forecasting Models and Market Co-Integration: A Study on South-East Asian Markets

Volatility forecasting is an imperative research field in financial markets and crucial component in most financial decisions. Nevertheless, which model should be used to assess volatility remains a complex issue as different volatility models result in different volatility approximations. The concern becomes more complicated when one tries to use the forecasting for asset distribution and risk management purposes in the linked regional markets. This paper aims at observing the effectiveness of the contending models of statistical and econometric volatility forecasting in the three South-east Asian prominent capital markets, i.e. STI, KLSE, and JKSE. In this paper, we evaluate eleven different models based on two classes of evaluation measures, i.e. symmetric and asymmetric error statistics, following Kumar’s (2006) framework. We employ 10-year data as in sample and 6-month data as out of sample to construct and test the models, consecutively. The resulting superior methods, which are selected based on the out of sample forecasts and some evaluation measures in the respective markets, are then used to assess the markets cointegration. We find that the best volatility forecasting models for JKSE, KLSE, and STI are GARCH (2,1), GARCH(3,1), and GARCH (1,1), respectively. We also find that international portfolio investors cannot benefit from diversification among these three equity markets as they are cointegrated.Volatility Forecasting, Capital Market, Risk Management

Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection

Both practitioners and academicians demand a linkage model across financial markets, particularly among regional capital markets, for both risk management and portfolio selection purposes. Researchers frequently use co-integration and causality analysis in investigating the dependence or co-movement of three or more stock markets in different countries. However, they conducted the causality in mean tests but not the causality in variance tests. This study assesses the co-integration and causal relations among seven developed Asian markets, i.e Tokyo, Hongkong, Korea, Taiwan, Shanghai, Singapore, and Kuala Lumpur stock exchanges, using more frequent time series data. It employs the recently developed techniques for investigating unit roots, co-integration, time-varying volatility, and causality in variance. For estimating portfolio market risk, this study employs Value-at-Risk with delta-normal approach. The results show whether fund managers would be able to diversify their portfolio in these developed stock markets either in long run or short run.Risk Management, Causality, Co-integration, Asian Stock Markets

Volatility Model for Financial Market Risk Management : An Analysis on JSX Index Return Covariance Matrix

In measuring risk, practitioners have practiced one of the two extreme approaches for so long, i.e. historical simulation or risk metrics. Meanwhile, academicians tend to apply methods based on the latest development in financial econometrics. In this study, we try to assess one of important issues in financial econometric development that focuses on market risk measurement and management employing asset-based models, i.e. models that apply dimensional covariance matrix, which is relevant to practice world. We compare covariance matrix model with Exponential Smoothing Model and GARCH Derivation and the Associated Derivation Models, using JSX Stock price Index data in 2000-2005. The result of this study shows how applicable the observed financial econometric instrument in Financial Market Risk Management practice.Risk Management, Volatility Model

Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection

Both practitioners and academicians demand a linkage model across financial markets, particularly among regional capital markets, for both risk management and portfolio selection purposes. Researchers frequently use co-integration and causality analysis in investigating the dependence or co-movement of three or more stock markets in different countries. However, they conducted the causality in mean tests but not the causality in variance tests. This study assesses the co-integration and causal relations among seven developed Asian markets, i.e Tokyo, Hongkong, Korea, Taiwan, Shanghai, Singapore, and Kuala Lumpur stock exchanges, using more frequent time series data. It employs the recently developed techniques for investigating unit roots, co-integration, time-varying volatility, and causality in variance. For estimating portfolio market risk, this study employs Value-at-Risk with delta-normal approach. The results show whether fund managers would be able to diversify their portfolio in these developed stock markets either in long run or short run.Risk Management, Causality, Co-integration, Asian Stock Markets

Depositor Response to Risk of Local Development Banks: A Case of Indonesia

There have been some studies carried out to empirically show how depositor respond the magnitude of risk in various types of banks, in different economies. Some studies have also checked the issue when banks are protected by Deposit Insurance. Nevertheless, the aforementioned studies have never adequately covered the issue on local development banks. These financial institutions may not fulfill the necessary conditions of effective Discipline of the market, due to a high degree back up provided by the associated local government. This article is to cover the literature gap, i.e., by studying how depositors reply to risk magnitude of local development banks (known as BPD) in Indonesia. This research employs monthly data of ten BPDs with the largest asset operational in Indonesia, which is attained from the country’s Authority of Financial Service. We run analysis employing Reduced Form Formula. In this approach, the first model is to measure the risk of each bank employing Probit formula and data from 2014.1 to 2015.12. The results of this model are then employed as exogenous element in the second phase model, Multiple Regression Formula. The second model utilizes data from 2016.1 to 2017.3 to show the response of bank customers to the risk of the observed financial institutions

Financial Value Added: Suatu Paradigma Dalam Pengukuran Kinerja Dan Nilai Tambah Perusahaan

One of alternative concept for measuring financial performance is Economic Value Added (EVA). Beside that a value added-based approach that has not regularly been studied empirically is that using Financial Value Added (FVA). This paper tries to explain in detail how to measure business performance and value added based on FVA related to financial management decisions

Formulasi Model Kepemimpinan Selama Pandemi Covid-19 Pada Pimpinan Bank Mandiri Region Bandung Sebagai Upaya Menjaga Profitabilitas Perusahaan

This study aims to formulate a model of leadership in a strategic management framework referring to the leadership model literature in times of crisis with the results of deep interviews with top leaders in the region. This study uses a qualitative descriptive research approach where this research is a research method that utilizes qualitative data and is described descriptively. The type of research used is descriptive qualitative. The source of data in this study is primary data obtained by conducting questionnaire research in order to become the results and conclusions of the study. Using purposive sampling method. Samples were taken as many as 150 branches with the priority of the above criteria. In this study, it was found that the results of deep interviews and FGDs outline the strategy carried out during the pandemic is a survival strategy or profit strategy where companies seek to find sources of income that can still experience growth such as transactional digital transactions, e-commerce, investment transactions. and minimize the formation of costs arising from the decline in credit quality

Greece Financial Crises and Sukuk Markets: Experience From Gulf Countries

Many studies have been carried out to investigate the impact of recent European financial crises on the performance of financial instruments in other regions. Nevertheless, there have been insufficient studies explaining such impact on Islamic financial instrument. In particular, whether Greece Financial crises have affected performance of Sukuk traded in Gulf Markets needs to be answered. This study is aimed at empirically investigating the causality of credit and liquidity risk on Sukuk Markets in Gulf economies in the period of Greece Financial Crises. We analyzed the Sukuk data by employing Granger casuality test, with all the associated vector autoregression model procedures. Our findings show that Bahrain sukuk market is cointegrated with those of Qatar and UAE in the full period observation. Meanwhile, during the crisis, Qatar Sukuk market is cointegrated with those of UAE Bahrain. We also find that Bahrain Sukuk triggers market shock in both Qatar and UAE Sukuk markets. Bahrain consistently causes changes in price and spread of UAE Sukuk, both in the context of the full period and the during-crisis period.DOI: 10.15408/aiq.v9i1.373