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Economics

The IUP Journal of Financial Economics



March' 07
Articles

Stock Prices, Exchange Rates and Causality in Malaysia: A Note

-- W N W Azman-Saini, M S Habibullah, Siong Hook Law and A M Dayang-Affizzah

This article contributes to the debate on stock prices and exchange rates in Malaysia. It examines the causal relations using a new Granger non-causality test proposed by Toda and Yamamoto (1995). The study indicates a feedback interaction between exchange rates and stock prices during the pre-crisis period. The results also reveal that exchange rates lead stock prices for the crisis period. In a financially liberalized environment, exchange rates stability is important for stock market well-being.

© 2007 IUP . All Rights Reserved.

Financial Development and Economic Growth in Uganda

-- Nicholas Kilimani

This study provides the empirical findings on the relationship between financial development and economic growth in Uganda from 1970 to 2002. The results support the McKinnon-Shaw hypothesis, which suggests that removal of distortions in the financial sector stimulates economic growth. In Uganda, there have been financial sector reforms since 1992. These factors help to explain the positive relationship between financial development and economic growth in the country. The study uses a dummy variable to examine the effect of financial sector reforms. The coefficient of the dummy variable is positive and significant, implying that the changes induced by the liberalization of the economy had a positive impact on real economic growth in Uganda.

© 2007 IUP . All Rights Reserved.

Are the Asian FDI Inflows Cointegrated with the Indian FDI Inflows? Empirical Research Findings

-- Rudra Prakash Pradhan

The paper investigates the linkage of Foreign Direct Investment (FDI) inflows between India and four other Asian countries, viz., Japan, Hong Kong, Singapore and Malaysia. The empirical investigation follows annual data of FDI inflows during 1970-71 to 2004-05. The technique employed for the same is cointegration test, which is followed by the unit root test. The empirical results clarify that FDI inflows of four Asian countries along with India, have a unit root at the level data, but found to be stationary at the first difference level. The cointegration test finally confirmed that the FDI inflows of four Asian countries are cointegrated with India's FDI inflows. The implication of this finding is that the FDI inflows of India can be used to predict the FDI inflows of Japan, Singapore, Hong Kong and Malaysia.

© 2007 IUP . All Rights Reserved.

Savings Behavior of Rural Farm Households: A Case Study of Coastal Andhra Pradesh

-- CH Paramaiah and S K V S Raju

This paper examines the determinants of rural farm households' savings behavior in the coastal districts of Andhra Pradesh. This study divides the formulation of models into two groups: an analysis of household saving behavior mainly based on the formulations using the Absolute Income Hypothesis; and testing of the Permanent Income Hypothesis and Normal Wealth Hypothesis. The results show that among different farm size groups, the big farm households saved 81% of their transitory income, while the marginal farm households saved only 64% of their transitory income. The results indicate that there is no direct relationship between the size of the farm and the proportion of savings out of the transitory income. A comparison of the estimated results for the study area—of the developed West Godavari district, moderately developed Srikakulam district, and the developing Prakasam district—indicate that the normal wealth formulation is neither superior nor inferior to the current wealth formulation in terms of predicting the saving behavior of the households.

© 2007 IUP . All Rights Reserved.

Premium Income of Indian Life Insurance Industry: A Total Factor Productivity Approach

-- Ram Pratap Sinha

Subsequent to the passage of the Insurance Regulatory and Development Authority (IRDA) Act, 1999, the life insurance market in India underwent major structural changes in recent years. Between end-March 2000 and end-March 2005, the number of life insurance companies operating in India has increased from 1 to 15. As on March 31, 2005, the private sector life insurers enjoyed nearly 10% of the premium income and nearly 25% of the new business. In view of the changing scenario of competition in the life insurance sector, the paper compares 13 life insurance companies for the financial years 2002-03, 2003-04 and 2004-05 in respect of technical efficiency and changes in total factor productivity. For the purpose of computation of technical efficiency and total factor productivity, the net premium income of the observed life insurance companies has been taken as the output, and equity capital and the number of agents of insurance industries have been taken as the inputs. The results suggest that all the life insurers exhibit positive total factor productivity growth during the period.

© 2007 IUP . All Rights Reserved.

Comparing Short-term, Medium-term and Long-term Moving Averages to Get Bull or Bear Signals in Stock Market

-- J Gopu and L Aravindh Kumaran

Broadly, the two key approaches—Fundamental Approach and Technical Approach—analyze the shares and securities price movements. The fundamental approach emphasizes more on the growth prospects of economy, stability of government, and the prospects of the specific industry and the specific company, whereas the technical approach emphasizes more on the price and volume movement of the stock. Buying and selling decisions are taken based on the price and volume movements of stock. The technical approach is the oldest approach to equity investment, dating back to the late 19th century. The technical analysis continues to flourish in modern times as well. It is widely used by institutional investors, operators and a large number of retail investors.

© 2007 IUP . All Rights Reserved.

Inflation and Growth Dilemma: An Econometric Analysis of the Indian Economy

-- L Krishna Veni and Pradeep Kumar Choudhury

This study examines the relationship between inflation and growth of the Indian economy during 1981-2004. The results of the causality test prove that the variables, viz., growth and inflation are independent of each other in India. The results of the cointegration test confirm the fact that the two variables—inflation and growth—are not cointegrated. Therefore, it is evident that there is no long run relationship between these two variables in India. Based on the findings, this study suggests that the government has to focus on the acceleration of economic growth and to take timely measures to control inflation to maintain economic stability.

© 2007 IUP . All Rights Reserved.

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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