Applying approximate entropy (ApEn) to speculative bubble in the stock market

In contrast to the traditional duration dependence test, the paper introduces an order statistic known as Approximate Entropy to investigate the presence of speculative bubbles for a cross country sample. Using Approximate Entropy, the article examines four major crash in the US, Japan, Hong Kong and India. In addition, the paper also investigate the 1997 Asian crisis using weekly data for seven major Asian indices which includes Hong Kong, Malaysia, Singapore, Korea, Taiwan, Indonesia and Japan. The results confirm that there are strong “tale-tell” signs characterized by low Approximate Entropy (ApEn) level during many of these crash events. All the evidences using yearly as well as time series data (both discrete and rolling window analysis) point to a substantially lower level of ApEn during the crash

A note on the empirical test of herding: a threshold regression approach

The paper aims at investigating herding behaviour in equity market by applying an alternative econometric methodology. The paper applies the threshold test developed by Hansen [2000] to standard herding model in order to capture a non-linear effect of extreme market movement on the trading behaviour of the participants. Using the econometric model with threshold effect, the paper finds little evidence for market-wide herding for the Indian equity market. Even in the extreme market conditions, participants appear to discriminate between different securities, as predicted by the rational asset pricing paradigm

Why do firms issue equity? Some evidence from an emerging economy, India

In contrast to the existing empirical research on the pecking order hypothesis which has been largely confined to the United States and a few other advanced countries, this paper attempts to test the hypothesis for an emerging economy through a case study of the Indian Corporate sector. A well diverse sample of 556 manufacturing firms over the period 1997-2007 is used in the paper to test the pecking order hypothesis. The study finds strong evidence in favour of the pecking order hypothesis – a result that stands startlingly odd to the most recent evidences against pecking order theory in developed countries (Fama and French, (2005), Frank And Goyal (2003, Lemmon and Zender (2004), Leary and Roberts (2004))

Applying approximate entropy (ApEn) to speculative bubble in the stock market

In contrast to the traditional duration dependence test, the paper introduces an order statistic known as Approximate Entropy to investigate the presence of speculative bubbles for a cross country sample. Using Approximate Entropy, the article examines four major crash in the US, Japan, Hong Kong and India. In addition, the paper also investigate the 1997 Asian crisis using weekly data for seven major Asian indices which includes Hong Kong, Malaysia, Singapore, Korea, Taiwan, Indonesia and Japan. The results confirm that there are strong “tale-tell” signs characterized by low Approximate Entropy (ApEn) level during many of these crash events. All the evidences using yearly as well as time series data (both discrete and rolling window analysis) point to a substantially lower level of ApEn during the crash

Revisiting the growth-inflation nexus: a wavelet analysis

Motivated by the concern that the recent surge in inflation could retard growth, the paper revisits the nexus between inflation and growth from the perspective of an emerging economy, India. Examining this relationship using a wavelet multi resolution analysis with varying time scale decomposition suggests a strong and persistent negative relationship between growth and inflation for a short time scale, while it is not significant for a longer time scale

A note on the empirical test of herding: a threshold regression approach

The paper aims at investigating herding behaviour in equity market by applying an alternative econometric methodology. The paper applies the threshold test developed by Hansen [2000] to standard herding model in order to capture a non-linear effect of extreme market movement on the trading behaviour of the participants. Using the econometric model with threshold effect, the paper finds little evidence for market-wide herding for the Indian equity market. Even in the extreme market conditions, participants appear to discriminate between different securities, as predicted by the rational asset pricing paradigm

Bank firm nexus and its impact on firm performance: an Indian case study

The paper examines the role of banking relationships on firm performance for a sample of Indian manufacturing firms. The two variables used to portray banking relationships are: the extent of bank borrowing and the number of banking relationships maintained by a firm. Analysis suggests that while the extent of bank borrowing has a negative impact on firm performance, the multiple banking relationships maintained by a firm positively enhances firm performance. In addition, firm performance plays an important role in influencing bank borrowing and the number banking relationships a firm maintains. While banking relationships are positively impacted by firm performance, results suggest nonlinearity between bank financing and firm performance, suggesting the possibility of a potential debt overhang concern. This implies that firms with low growth opportunities tend to borrow more from banks due to lack of other opportunities to finance their investments. However, firms beyond a certain threshold of profitability tend to employ lesser debt to finance their investments in order to prevent the wealth transfer from shareholders to creditors

Non-Linear Taylor Rule through Threshold Estimation

This paper tries to identify non-linearity in the estimation of Taylor type reaction function for Reserve Bank of India using a threshold estimation technique of Hansen (2000). For the monthly data from March 2001 to October 2009 with Repo rate as the policy rate the estimation significantly identifies two thresholds with inflation and one threshold with output gap as threshold variables. We compared this model with that of a naïve univariate model and the typical Taylor type reaction function, the results are in support of the non-linear model in predicting the repo rate at turning points with more accuracy than the other two competing models

Allocation of capital in the post liberalized regime: a case study of the Indian corporate sector

The paper investigates the prevalent trends in the allocation of capital in an emerging economy, India, during the post financial liberalization regime. In contrast to the conventional wisdom that financial liberalization leads to better allocation of funds, the study could not find any obvious evidence of increase in the efficiency over the reform period, especially during the early years of reform. Further, the study highlights the disturbing trend of convergence of efficiencies across various strata of firms towards a lower level over the reform period. The paper rationalizes the decline as a result of excessive capacity creation in certain industries, financed by cheap external sources of finance, without any consideration of return or demand conditions. The paper, as a policy recommendation, highlights the importance of creating appropriate institutions prior to pursuing financial liberalization in developing countries like India

A note on excess money growth and inflation dynamics: evidence from threshold regression

We test the effect of excess money growth on inflation using Threshold Regression technique developed by Hansen (2000). The empirical test is conducted using annual data from India for the period from 1953-54 to 2007-08. The results clearly exhibits that the relationship is not linear and without a strong credit growth, excess money growth has lesser inflationary effects