Volatility and Long-Term Relations in Equity Markets: Empirical Evidence from Germany, Switzerland, and the UK

-- Francesco Guidi

This paper has two main objectives. First, it compares several Generalized Autoregressive Conditional Heteroskedasticity (GARCH) family models in order to model and forecast the conditional variance of German, Swiss and UK stock market indexes. Results obtained reveal that all GARCH family models show evidence of asymmetric effects. Based on the `out-of-sample' forecasts, the paper finds the model that gives better volatility forecasts for each market index considered in this study. Second, it investigates a long-run relation between these markets using the cointegration methodology. Cointegration test results show that DAX 30, FTSE 100 and SMI indexes move together in the long run. The Vector Error Correction Model (VECM) indicates a positive long-run relation among these indexes, while the error correction terms indicate that the Swiss market is the initial receptor of external shocks. One of the main findings of this study is that although the UK, Switzerland and Germany do not share a common currency, diversification benefits of investing in these countries could be very low given that their stock markets seem to move together in the long run.

© 2009 IUP. All Rights Reserved.

A Sufficient Condition for Synchronization Risk and Delayed Arbitrage

-- Hideaki Sakawa and Naoki Watanabel

This paper examines the sufficient condition for the existence of synchronization risk as defined in Abreu and Brunnermeier (2003). Using a numerical example, it shows that there is an upper bound to the selling threshold for bubble bursting. This implies that the selling threshold stipulated as an exogenous variable in Abreu and Brunnermeier (2003) should instead be treated endogenously.

© 2009 IUP. All Rights Reserved.

Analyzing Mutual Funds Performance: The Case of Emerging Mauritian Economy

-- Beehary Nitish, Rojid Sawkut, Seetanah Boopen, Sannassee Vinesh and Fowdur Suraj

This paper analyzes the performance of Mauritian mutual funds by initially investigating the performance of the mutual funds on a risk-adjusted basis and then on an individual basis with respect to their respective benchmark performances. The results show that the rankings obtained by applying both the Sharpe and Treynor rules are almost the same, implying that the funds appear to be well-diversified. Moreover, the majority of funds selected are reported to have a relatively high Sharpe ratio, thus indicating a pretty good performance. However, the positive Jensen's alpha indicates that fund managers through their stock picking skills, privileged information or intuition have `beaten the market'. Individual analysis revealed that funds are heavily dependent on the performance of the local stock market, that is, they move in line with the market index. Interestingly, those mutual funds investing heavily in the local stock market are reported to `beat the market'.

© 2009 IUP. All Rights Reserved.

The Role of Community Banking System in Nigeria's Development Process: An Appraisal

-- Risikat Oladoyin S Dauda

This paper assesses the role, size and contribution of the community banking system in Nigeria's development process from 1992 to 2004. An attempt is made to evaluate the extent to which community banks have been efficient in performing their developmental roles at the grassroots using five primary criteria, namely: the inculcation of good banking habits, deposit generation and savings mobilization, granting of loans and advances, development of real sector, and development of non-productive activities. These were analyzed using standard mathematical and descriptive statistical techniques. The findings indicate that though the Nigerian community banking system is growing in terms of size it is still unable to create sustainable livelihoods that are productive enough to afford poor households an escape route from poverty.

© 2009 IUP. All Rights Reserved.

The Linkages of Asian and the US Stock Markets

-- R C Royfaizal, C Lee and M Azali

The issues of international stock market linkages have already been investigated over the time. Many researchers and economists are concerned about the relationship between the Asian stock markets and others after the Asian Financial Crisis. This paper aims to examine the interrelationship between the Asian stock markets namely, Malaysia, Singapore, the Philippines, Thailand, Indonesia, China, Japan, Korea, and the US stock markets. The data consists of weekly stock indexes. The total samples are separated into three subperiods. First period is pre-crisis period spanning from January 1990 to June 1997. Second period is during-crisis period spanning from July 1997 to June 1998. Third period is post-crisis period spanning from July 1998 to February 2009. The empirical results show that the number of significant cointegrating vector is higher during the crisis periods compared to other periods. Granger-causality based on Vector Error Correction Model (VECM) showed that stock markets of Thailand, Japan and China are exogenous before, during and after the crisis respectively. This paper concludes that the linkages between the Asian and the US stock markets are stronger in the post-crisis period.

© 2009 IUP. All Rights Reserved.

Small-Scale Industries in Indian Economy: A Quantitative Appraisal

-- Annapurna Dixit and Alok Kumar Pandey

The major thrust of the present paper is to evaluate the performance of the Small-Scale Industries (SSI) as well as productivity of labor and capital in this sector, for the period 1973-2006. The average annual growth rates of total production, exports, employment and investment in the SSI and the number of SSI units during the period 1973-2006 are estimated using the OLS method on the time series data. The average annual growth rates for the subperiods, 1973-80, 1981-90, 1991-2000 and 2001-2006, are estimated by incorporating slope and intercept dummy variables. The paper also estimates the marginal productivity of labor and capital in the SSI sector. The findings of the present study are quite interesting. Results reveal that marginal productivity of labor in SSI is positive and highly significant during the study period.

© 2009 IUP. All Rights Reserved.