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Stock Prices and Exchange Rate
Interactions in Nigeria: A Maiden
Intra-Global Financial Crisis Investigation
-- Shehu Usman Rano Aliyu
This paper examines the long and short-run interactions between stock prices and exchange rates
in Nigeria, based on a sample, from February 1, 2001 to December 31, 2008. Three models were
derived from the sample—the pre-crisis, crisis and basic models. The paper tests the time series properties of
the series using the Augmented Dickey Fuller (ADF) and the Philips and Perron (PP) tests. In addition,
the Engle and Granger two-step and the Johansen and Juselius cointegration procedures are also
applied. The empirical results show that all the series are I(1) and evidence of cointegration is established
using the Johansen and Juselius methodology. Furthermore, causality tests reveal strong evidence of
long-run bidirectional relationships between stock prices and exchange rates in the models. Policy-wise,
the findings imply that the monetary authorities in Nigeria are not constrained to take stock
market developments into account in achieving their exchange rate policy objectives, as established in
the paper. It, therefore, recommends putting measures in place that would promote greater stability
and efficiency of Nigeria's foreign exchange market.
© 2009 IUP. All Rights Reserved.
Relevance of Financial Markets
for Exchange Rate Modeling in Ghana
-- George Tweneboah
This paper employs the cointegration and Vector Error Correction (VEC) methodology to
explore exchange rate modeling in Ghana, by considering the interactions between the goods and capital
assets market, using monthly data spanning from January 1997 to December 2007. The empirical
evidence supports a long-run relationship between prices, interest rates and exchange rates in which the
signs are consistent with the joint validity of the unrestricted Purchasing Power Parity (PPP) and
Uncovered Interest Parity (UIP) conditions. Further, Likelihood Ratio (LR) tests based on the cointegration
vector show that the strict forms of the PPP and UIP conditions between Ghana and the USA do not hold
as stationary relations. The findings suggest that the interactions between the goods and capital
assets market matter for the conduct of monetary policy and exchange rate modeling in Ghana.
© 2009 IUP. All Rights Reserved.
Cross-Market Causal Linkages
of ASEAN-5
-- Swee-Ling Oh and Evan Lau
This study seeks to understand the nature of international stock markets and the extent to which
the ASEAN-5 markets causally relate with each other before and after the 1997-98 turmoil. The data
series of the Composite Index (CI) in logarithm form and the volatility series of GARCH were adopted for
this study. The econometric approach of Toda and Yamamoto (1995) disclosed separate findings for
both the series. Generally, markets deemed to be more causally related in the post-crisis period, than
prior to it. Conclusively, lesser opportunities for international portfolio diversification were made
available within the regional scope as markets possess long-run predictability measures.
© 2009 IUP. All Rights Reserved.
Modeling the Long-Run Determinants
of Private Investment in Nigeria
-- Abu Nurudeen
The paper examines the long-run determinants of private investment in Nigeria by using the
error correction method. The econometric results indicate that growth of real income, increase in
public investment and exchange rate, openness of the economy, and higher savings have a positive effect
on private investment. On the other hand, credit to private sector, rising inflation, and high lending
rates impede private investment. It is recommended that government and relevant authorities adopt
policies that would facilitate the growth of national income, increase public investment and savings,
increase the exchange rate, and enhance foreign trade. Moreover, the government should employ policies
that would check the rising inflation and lending rates, try to strengthen the democratic institutions in
order to sustain the current political stability, and increase the funding of the anticorruption agencies
to check the massive corruption that is found in almost all facets of the economy.
© 2009 IUP. All Rights Reserved.
Corporate Ownership
and Stock Returns: An Explanation
to the Capital Asset Pricing Model
-- Santanu Das
Stock markets and their functioning are affected by many factors, both financial as well as
behavioral. This paper studies the behavioral aspect of firms and its impact on corporate stock returns. The
Capital Asset Pricing Model (CAPM) establishes a relationship between a stock return and the beta of the
stock and the risk premium. This paper takes all these into account, except the nature of ownership. It is
found that the higher a firm is diversified, the higher is the stock return, other things remaining
constant. However, as the study focuses only on the S&P CNX Nifty stock, evidences from other portfolio
need to be found so that the findings are fully corroborated.
© 2009 IUP. All Rights Reserved.
Stock Prices and Exchange Rates: Empirical
Evidence from Kuwait's Financial Markets
-- Ahmed Alhayky and Ndambendia Houdou
This paper uses the Error Correction Model (ECM) and the Granger causality test to examine the
long-run and short-run relationship between Kuwait's stock prices and exchange rate, and determines
the causal relationship between them for the period June 2001-December 2008. Under the
cointegration test, it is found that there is long-run equilibrium relationship between Kuwait Stock Price Index
(STIDX) and exchange rates for United States Dollar (USD), Japanese Yen (YEN), and British Pound (GBP),
while there is no long-run linkage relationship between STIDX and EURO. Next, based on the
Granger causality test, it is found that in the long run, there is a bilateral causality between STIDX and
GBP, STIDX and exchange rate YEN, and STIDX and USD. Moreover, it is observed that in the short
run, STIDX has no unidirectional or bidirectional causality with exchange rate GBP. However, there
is evidence of only unidirectional causality from stock prices to exchange rate, which is significant
for YEN and USD.
© 2009 IUP. All Rights Reserved.
The Savings-Growth Nexus in Malaysia: Evidence from Nonparametric Analysis
-- Chor Foon Tang and Soo Y Chua
This study re-examines the savings-growth nexus in Malaysia by using the nonparametric
methodology. Using quarterly data from March 1991 to September 2006, the result of the Bierens
(1997) nonparametric cointegration test shows that savings and economic growth are cointegrated.
Moreover, the multiple rank F-test (Holmes and Hutton, 1990) indicates a bilateral causality between savings
and economic growth. In this study, Dynamic OLS is adopted and the estimated result implies that
savings and economic growth are positively related in the long run. This result highlights that policies
which encourage savings should be implemented as the causality test shows that savings is an engine
to economic growth through its impact on capital formation. Thus, high savings carry the meaning
of `boosting economy', rather than `freezing economy'.
© 2009 IUP. All Rights Reserved.
On Stock Market Illiquidity
of the NSE of India
-- Som Sankar Sen
Liquidity is one of the key ingredients of any stock market. Lack of liquidity or illiquidity is a
concern to the investing community. This paper, using impact cost as a proxy to illiquidity, addresses a few
key areas of stock market illiquidity of the National Stock Exchange (NSE) of India. Using
autoregressive models, illiquidity shocks have been computed. Moreover, applying the GARCH model to
illiquidity shocks, a series of conditional variances have also been calculated. Furthermore, a negative
correlation has been found between illiquidity shocks and monthly market returns.
© 2009 IUP. All Rights Reserved.
Microcredit and a Macro Leap:
An Impact Analysis of Annapurna
Mahila Mandal (AMM), an Urban Microfinance Institution in India
-- Prema Basargekar
Annapurna Mahila Mandal (AMM) is a microfinance institution working for women empowerment
in the urban areas of Maharashtra, India. It was founded in the early 1970s with the background of
labor unrest in Mumbai. The first part of this paper deals with the factors responsible for the inception
of AMM, the role of a social entrepreneur in its development, its objectives, its strategies, and its
growth over the years. The second part deals with the assessment of economic and social empowerment
of member beneficiaries due to this movement, by using the survey method. The survey reveals that
while economic empowerment of members, in terms of income generation, asset creation and
monthly expenditure, were marginal, it is significant in terms of savings. The survey also reveals that the
members of AMM experienced a significant rise in self-esteem, self-respect and leadership qualities.
© 2009 IUP. All Rights Reserved.
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