Dynamic Relationship Between Futures Trading and Spot Price Volatility: Evidence from Indian Commodity Market

--Ranajit Chakraborty and Rahuldeb Das

In this study, an attempt has been made to identify the relationship between the spot price and the level of futures trading in the Indian commodity market using Granger causality test. For a better explanation of causality, the procedure of forecast error variance decomposition has been used. The study indicates that for most of the commodities there is a causal relationship between unexpected futures trading volume and spot price volatility. Furthermore, there is a weak form of causality between spot price volatility and unexpected futures open interest.

© 2013 IUP. All Rights Reserved.

Shocks and Herding Contagion in the Oil and Stock Markets

--Achraf Ghorbel, Mouna Boujelbene and Younes Boujelbene

This paper presents empirical evidence of herding contagion between oil market and stock markets, during the oil shock and the US financial crisis period of 2008-2009, after controlling fundamentals-driven comovements. We estimate the forecasting errors of time-varying parameters using the Kalman filter for oil market and 23 stock markets of oil importing and oil exporting countries, which are independent of macroeconomic fundamental factors. A sharp increase in conditional volatility of the forecasting errors is observed in oil market and stock markets during the turmoil period. To capture the pure contagion effects between oil market and stock markets, we analyze the dynamic correlation between forecasting errors of oil price returns and stock indices returns. The empirical results show a significant increase in time-varying correlation coefficients during the oil crisis and the US financial crisis period of 2008-09, which indicates a strong evidence of herding contagion between oil market and stock markets.

© 2013 IUP. All Rights Reserved.

Factors Influencing Abnormal Returns Around Bonus and Rights Issue Announcement

--Madhuri Malhotra, M Thenmozhi and Arun Kumar Gopalaswamy

This paper examines the factors influencing abnormal returns around bonus and rights issue announcements. The results of the study indicate that market condition and type of industry have significant influence on abnormal returns and the bonus ratio does not have any significant effect on abnormal returns. For rights announcement, issue size and market conditions have a significant impact on returns. Firm size, operating leverage, debt-equity ratio and volatility of stock returns are the other firm-related factors that have a significant impact on stock returns around bonus announcement. But for rights issue, only firm size is the significant firm-related factor which has a positive impact on the returns.

© 2013 IUP. All Rights Reserved.

Did the Great East Japan Earthquake Have an Impact on the Market for Long-Term Interest Rates in Japan?

--Takayasu Ito

This paper focuses on the structural change in the market for long-term interest rates in Japan before and after the Great East Japan Earthquake (Earthquake) by analyzing co-movement and transmission. Before the Earthquake, Japanese interest rate swaps and Tokyo Electric Power Company bonds moved together. On the other hand, Japanese government bonds and Japanese interest rate swaps moved together after it. There was no transmission among the three interest rates before the Earthquake. But after the Earthquake, there was transmission between Japanese government bonds and Japanese interest rate swaps. Therefore, it can be concluded that the market for long-term interest rates in Japan changed structurally after the Earthquake.

© 2013 IUP. All Rights Reserved.

Forecasting Daily Stock Volatility Using GARCH Model: A Comparison Between BSE and SSE

--Sasikanta Tripathy and Abdul Rahman

Modeling and forecasting the volatility of stock markets has been one of the major topics in financial econometrics in recent years. Based on the daily closing value of 23 years data, an average of 5,605 observations, for both Sensex and Shanghai Stock Exchange Composite Index, this paper makes an attempt to fit appropriate GARCH model to estimate the conditional market volatility for both Bombay Stock Exchange (BSE) and Shanghai Stock Exchange (SSE), respectively. The empirical results demonstrate that there are significant ARCH effects in both the stock markets, and it is appropriate to use the GARCH model to estimate the process.

© 2013 IUP. All Rights Reserved.

The Performance of Initial Public Offerings Based on Their Size: An Empirical Analysis of the Indian Scenario

--L Ganesamoorthy and H Shankar

The study focuses on the performance of Initial Public Offerings (IPOs) made by the Indian companies on the basis of the IPO size. A sample of 219 IPOs made by the Indian companies during the period 2001 to 2010 was considered for the study. Using standard event study methodology, an event window was constructed for a period of 75 days from the date of listing of securities in the stock market. To eliminate market factors, market-adjusted return was calculated by deducting the market return from the actual return of shares. The size of issues was classified as small, medium and large. The results revealed that the performance of large-size IPOs was better than that of small and medium-size IPOs. The results further revealed that small-size IPOs were overpriced than medium and large-size IPOs.

© 2013 IUP. All Rights Reserved.