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Indian
Sensitive Index (Sensex) and Assets Pricing Literature in
Financial Economics
-- A
Peer Mohamed
Capital
Asset Pricing Model (CAPM) relies heavily on the stock market
index as it is practically impossible to collect the entire
data from the complex stock market. Though beta value is
derived by applying such indices, empirical findings and
conclusions vary from one finding to another. This paper
briefly presents such findings under four broad headings.
The first one gives a concise view of early development
of CAPM when beta is consideredbefore 1980sthe messiah to
pricing of an asset. In the 1980s and 1990s, some researchers
concluded that many other variables also influence the asset
pricing model and declared beta dead. The second heading
presents the anomalies or puzzles in CAPM. After the 1990s,
some researchers asserted that asset pricing is primarily
based on behavioral attitude of investors. This is dealt
with under the third heading CAPM, the sui generis. The
collaged Indian empirical findings on CAPM are presented
under the last part.
©
2006 IUP . All Rights Reserved.
Discount
Rates in Emerging Capital Markets
--
Samuel Mongrut Montalván
and Dídac Ramírez
Sarrió
The
estimation of the discount rate for an investment project
in conditions of risk relies upon two crucial assumptions:
market completeness and well-diversified investors. Although,
these two assumptions are tenable in developed capital markets,
they are not suitable in emerging markets. In emerging markets,
there are not enough twin securities to obtain a unique
stochastic discount factor and therefore one project market
value. Hence, investors usually face short selling and borrowing
restrictions. Furthermore, these markets are plagued with
non-diversified entrepreneurs that invest all their capital
to undertake entrepreneurial adventures. In this research,
one derives expressions for the project discount rate, using
the fundamental pricing equation under incomplete capital
markets in two extreme situations: when investors hold a
well-diversified portfolio, and when they are not diversified
at all. Although both situations may apply in developed
and emerging capital markets, they apply especially to emerging
markets. In fact, well-diversified investors, such as foreign
mutual funds, increasingly invest in emerging markets, while
the bulk of firms involves either small or medium enterprises
owned by a single or a group of non-diversified entrepreneurs.
The study concludes that although the Capital Asset Pricing
Model (CAPM) cannot hold under incomplete markets, it is
still a good approximation for well-diversified investors
in emerging markets. At the same time, it is necessary to
use a hurdle rate, based on the project total risk for the
case of non-diversified entrepreneurs.
©
2006 IUP . All Rights Reserved.
Bank
Concentration and Financial Development: The Cross-country
Evidence
-- Siong Hook
Law and
Ahmad Zainuddin Abdullah
Concentration
on banking industry may have long-lasting implication on
financial market development. Some argue that concentration
in the credit market introduces inefficiencies that would
harm a firm's access to credit, thus hindering growth. On
the other hand, some recent studies point out that some
degree of monopoly power in banking is natural and beneficial.
This study examines the effect of bank concentration on
financial development, using a cross-country analysis on
68 economies during the period 1990-2001. The empirical
results indicate that bank concentration is not a statistically
significant determinant of financial development. Among
the determinants of financial development, real income and
institutional quality are the most prominent ones. The results
suggest that concentration in the banking industry is positively
associated with financial development in the lower middle-income
and low-income countries. However, no such association is
reported for upper-middle income countries. Therefore, the
effect of bank concentration on financial development is
subject to the level of economic development.
©
2006 IUP . All Rights Reserved.
Current
Account Dynamics and Capital Mobility in Small Asian Economies
-- Sheikh Tareq Selim
This
paper explores the current account dynamics in eight small
economies of Asia to examine whether or not capital flows
have been excessive in these countries. Standard assumptions
of perfect capital mobility and small open economies are
jointly instrumental in simplifying theoretical tractability
of many open economy models. In empirical estimations, however,
the identification of a small open economy is often oversimplified,
which makes celebrated results, such as excessive or too
low capital flows in OECD economies, questionable. This
paper establishes that the actual extent of capital mobility
in small open economies generally cannot be too high or
too low. This, in turn, implies that the general idea of
excessive capital flows in small open economies requires
revision.
©
2006 IUP . All Rights Reserved. |
