|
Are Sovereign Credit Ratings
Objective and Transparent?
-- Shreekant Iyengar
Sovereign credit ratings provided by international rating agencies to different countries have a
definite impact on their access to the international credit market. These ratings help to develop
lenders' perception about the level of credit risk of the national governments. However, the reliability of
the ratings has been a matter of debate due to the methodology followed by the agencies. The present
paper attempts to check the reliability of these ratings, by considering the ratings assigned by two of the
major international rating agenciesMoody's and Standard and Poor's. This is done through comparison
of the ratings assigned by them and checking whether the difference is significant and responsive for
the countries rated by both. A regression analysis of the ratings and some of the commonly used
indicators by the two agencies to determine the ratings, is also done. The results indicate an increase in the
average rating difference of the two agencies over time and that the difference is statistically
significant. Moreover, the rating methodology followed by these agencies involves several common
indicators, except the external balances indicator. The differences in the ratings, however, are also caused due
to subjective assessments of the countries by the rating agencies.
© 2010 IUP. All Rights Reserved.
Bounds Testing Approaches to the Analysis of
Finance-Growth Nexus in the Philippines
-- M Shabri Abd. Majid and Hafasnudin
By employing a battery of time series techniques including Autoregressive Distributed Lag
(ARDL), Vector Error Correction Model (VECM), Impulse Response Function (IRF) and Variance
Decomposition (VDC), the paper empirically assesses the short and long-run finance-growth nexus during the
post-1997 financial crisis period in the Philippines. The study discovers a long-run equilibrium among
growth, financial depth, investment and price level. Granger causality tests based on VECM further reveal
that there is a unidirectional causality running from growth to financial depth; the finding echoes
the `growth-led finance hypothesis' or Robinson's (1952) `demand-following view'. The findings
suggest that in order to further promote economic growth, priority should be given to long-run economic
growth policies rather than financial reform. Economic growth causes financial institutions to change
and develop, and banking sector as well as stock market to grow.
© 2010 IUP. All Rights Reserved.
Empirical Evidence on Capital Mobility
in Four ASEAN Countries
-- Goh Soo Khoon and Kong Seow Shin
This paper examines the degree of capital mobility in four ASEAN countries, namely,
Malaysia, Singapore, Thailand and the Philippines. The model of Shibata and Shintani (1998) and the
extension model by Cooray (2005) are used to examine the degree of international capital mobility in
these countries. The results show that capital seems to be mobile in Malaysia and Thailand, but not in
the Philippines and Singapore. Nevertheless, the results suggest that the interest rate differential is
not related to changes in consumption in all the four countries. This paper also highlights the
importance of incorporating strong instrumental variables in any GMM estimation.
© 2010 IUP. All Rights Reserved.
Informational Role of Options Open
Interests and Volume in Forecasting
Future Prices: A Study on Indian Market
-- Rajesh Pathak and Nikhil Rastogi
This study investigates the informational role of options open interests and volume in predicting
the future stock prices in Indian market. Most of the time, the uninformed traders lose to informed
traders because they neither have private information nor the sophisticated knowledge to process the
publicly available information. The most closely watched data are also the least informative. This study is
an attempt to find out if the daily published and publicly available options data are informative and
can be used to forecast the future stock price at maturity. Then the retail traders and investors will be
able to minimize their loss to informed traders and enhance their portfolio performance. The sample of
this study is 17 highly traded Nifty 50 index stocks from different sectors having significant share in
the index. Predictors based on options price and options volume have been estimated, following
Bhuyan and Williams (2004), and then used in the regression model as predictor variables of price at
maturity both jointly and in isolation. The period of study covers stock options contract of three months
(July-September 2009). Only near month contract is considered for the study because of liquidity
concern. The coefficients of predictors are found to be significant and not statistically different across the
study period. Consistent with the results of the previous studies, the results show that options open
interest and volume are relevant in forecasting future prices.
© 2010 IUP. All Rights Reserved.
| 
