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The IUP Journal of Financial Economics

September' 07

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Articles

Statistical Evaluation of Market Barometer in Malaysian Stock Market

-- Chin Wen Cheong

This paper investigates how the Kuala Lumpur Composite Index (KLCI) serves as the common indicator for the Malaysian stock market. The author hypothesizes that KLCI should perform significant interrelationship with all the multi-sector indices not only in the price series, but also the return, and volatility series. The logarithm prices, continuous compounded return and Autoregressive Conditional Heteroskedastic (ARCH)-type estimated asymmetric long memory volatility are used to examine this hypothesis. The co-movement among the price indices is tested using the Johansen cointegration methodology. Meanwhile, the linkages between the return and volatility of KLCI and multi-sectors are determined by the Granger causality tests. The author finds that the KLCI symbolizes the overall performance of Malaysian stock market, especially for the Main Board listed companies and partially for the Second Board index.

Estimating Portfolio Risk with Conditional Joe-Clayton Copula: An Empirical Analysis with Asian Equity Markets

-- Alper Ozun and Atilla Cifter

Financial modeling in developing markets requires dynamic and complex algorithms, which enable investors to estimate extremes in the returns arising from the chaotic characteristics of those markets. In this research paper, the value-at-risk (VaR) of a portfolio consists of Bombay Stock Exchange Index and Hang Seng Stock Exchange Index from January 02, 2002 to April 19, 2007 estimated by conditional Joe-Clayton copula. The performance of the model is compared with those of EWMA and Delta-Normal by using three different back-testing algorithms: Kupiec test (1995), Christoffersen test (1998) and Berkowitz test (2001). The empirical results show that conditional copula captures the extremes in return distribution of the portfolio more successfully by providing flexible joint distributions and splitting the marginality from the dependencies between the assets in the portfolio.

Excess Liquidity in Guyana: Theoretical and Policy Implications

--Tarron Khemraj

The paper argues that banks demand non-remunerative excess reserves because of: (i) markup interest rates in the loan market and the government Treasury bill market; and (ii) a foreign currency constraint in the market of foreign exchange. The minimum markup interest rates are consistent with an oligopolistic banking sector. The non-competitive nature of the government security market implies (i) there is no exogenous domestic interest rate to pin down the domestic term structure; and (ii) the theory of the banking firm when applied to underdeveloped economies has to be implemented in an open economy context. An indirect monetary policy which aims at managing excess bank reserves have very limited influence on the loan market.

Hedge Funds and Exchange Rates Interactions in Indonesia: A Note

-- W N W Azman-Saini,
Siong-Hook Law,
Abd Halim Ahmad,
Rosmila Senik and Wan Zulqurnain Wan Ismail

This article contributes to the debate on hedge funds and exchange rates in Indonesia. It examines causal relations using a new Granger noncausality procedure proposed by Toda and Yamamoto (1995). It utilizes monthly observations during January 1994 - April 2002. In order to better understand the issue, two sub-sample periods are considered. The pre-crisis period is from January 1994 to December 1996. The crisis period continues from January 1997 to April 2002. The findings show that the hedge funds Granger-cause rupiah for both periods. However, the causal effect is stronger for the crisis period.

Export-Led Growth Hypothesis in Developing Countries

-- Zulkornain Yusop,
Shahrun Nizam bin Abdul Aziz and Chee-Keong Choong

The relationship between exports and economic growth has been fully analyzed by a large number of recent empirical papers. Nevertheless, the evidence is rather mixed. This study re-examines the Export-Led Growth hypothesis (ELG) in four developing countries, namely India, Malaysia, Nigeria and the Philippines using Johansen Multivariate cointegration approach and Vector Error Correction Model (VECM). The results suggest that the ELG hypothesis is valid for Indian and Malaysian economies in both short and long-run. Besides, our results indicate that the growth rate of imports and government expenditure have a positive impact on economic growth for both countries.

Effects of Volatility of Exports in the Philippines and Thailand

--Dipendra Sinha

There have been numerous studies on the relationship between volatility of exports and economic growth. Most of these studies have used cross-section data. Recently, some studies have used time series data to study the relationship. However, there have been no studies which have used the Generalized Auto Regressive Conditional Heteroscedasticity (GARCH) methodology to study export volatility. This paper fills the void and uses quarterly data for the Philippines and Thailand to study the effects of export volatility. We find that for both countries, the shock to volatility of growth of exports is permanent. Also, past volatility is significant in predicting future volatility.

An Empirical Analysis of Determinants of Foreign Debt: The Case of Sri Lanka

-- V Krishna Chaitanya

The foreign debt burden of Sri Lankan economy has assumed utmost importance as the volume of debt has reached alarming proportions in the recent past. The debt crisis was triggered by the heavy increase in fiscal deficit. The increase in fiscal deficit was due to massive spending by the government on defence and military because of the escalation of the internal war with the LTTE rebels. At present, Sri Lanka belongs to the category of moderately indebted to low indebted nation. However, this is not due to effective debt management, but due to the waiver and writes-offs of a large amount of debt by international donors due to the Tsunami incident in 2004. Using an econometric model, this paper investigates the determining factors of foreign debt of Sri Lanka from 1980 to 2004. The paper uses an empirical model using some macroeconomic variables, which would allow obtaining some general characterization of growth of foreign debt in Sri Lanka.