Stock market interdependence between Australia and its trading partners: does trade intensity matter?

We investigate the extent and manner of stock market interdependence between Australia and its trading partners and examine whether this is affected by trade intensity. Based on trade intensity, we classify Australia’s trading partners into major, medium and minor partners. We hypothesize that markets with greater (lower) trade intensity will be more (less) interdependent with Australia. We perform correlation (unconditional and conditional) analyses between Australia and its trading partners. Our results indicate that most of the markets that are highly correlated with Australia are its major trading partners. We conduct panel regression analysis to investigate whether trade intensity has any impact on the stock market correlations between Australia and its trading partners. The results show that trade intensity significantly and positively affect the correlations of Australia with its major trading partners. Thus, the results confirm our hypothesis that trade intensity drives stock market interdependence between Australia and its trading partners.     

Trade and Investment Linkages and Stock Market Long‐Run Relationship

This paper aims to examine whether the intensity of trade and investment linkages among the countries matter for their stock market long‐run relationship. To achieve this, we classify Australia's bilateral trade and investment partners into major, medium and minor. Empirical findings of an asymmetric generalised dynamic conditional correlation generalised autoregressive conditional heteroskedasticity model show that correlations are time varying and increased significantly during the global financial crisis (GFC). Results of multivariate cointegration test confirm the long‐run equilibrium relationship between the stock markets of Australia and its major partners in the pre‐GFC and during GFC. Based on the full‐sample results, it indicates that the GFC has segmented the stock markets from the long‐run equilibrium relationship. Granger non‐causality test results on full sample show that Australian stock market causes only the New Zealand market while the USA, the UK, Germany, Canada, Switzerland and Italy drives the Australian market. Our results therefore suggest that the intensity of bilateral trade and investment linkages among the countries matter for their stock markets' long‐term relationship.     

Does oil price variability affect ASEAN exchange rates? Evidence from panel cointegration test

Using panel data, this article investigates the long-run relationship between real oil prices and real exchange rates for selected ASEAN countries by utilizing quarterly data from 1973:Q1 to 2013:Q4. The modelling implementation starts with the determination of the stationarity condition of the variables which are found to be integrated of order one. Using Maddala and Wu’s (1999) panel cointegration test, the article finds evidence of cointegration among the variables. The fully modified OLS (FMOLS) and dynamic OLS (DOLS) are then used to estimate the long-run relationship between the variables, followed by applying Toda–Yamamoto causality test. The findings exhibit bidirectional causality between real oil prices and real exchange rates in the long run, where it is highly significant.     

Economic integration and stock market dynamic linkages: evidence in the context of Australia and Asia

Countries are becoming economically integrated and it is contended that this will also lead to their financial markets becoming integrated. This contention is important since international financial market integration diminishes portfolio diversification benefits and creates contagion risk. We test this contention in this article in the context of the Australasian region. Australia and Asia have experienced very significant economic integration through a rapid growth in their bilateral trade. We utilize a battery of econometric techniques – cointegration, asymmetric generalized dynamic conditional correlations and panel regression models. As expected, we find that trade intensity significantly drives the interdependence between their stock markets in both the short run and the long run. Thus, given the ever increasing economic integration in this region, this finding implies that their stock markets face the risk of contagion, and that investors in these markets would also be confronted with the prospect of lower diversification benefits.     

The precise form of uncovered interest parity: A heterogeneous panel application in ASEAN-5 countries

A notable feature of the empirical studies on uncovered interest parity (UIP) is that almost all published papers rely on the approximate form of UIP using substantially the same database of developed economies. It can, therefore, not be ruled out that the refusal of UIP condition is simply the outcome of a misspecification of a commonly used model and an elaborate data snooping process. In order to overcome this specification problem, this paper uses the precise form of UIP and examines its empirical validity based on a sample of ASEAN-5 member countries. Using the heterogeneous panel cointegration tests, our empirical results indicate that the gross domestic return and the uncovered gross foreign return are cointegrated in the long run. The long-run cointegrating coefficients are then estimated using the fully modified OLS (FMOLS) and the dynamic OLS (DOLS) proposed by Pedroni. The estimated long-run coefficients suggest that UIP only holds for Singapore. These results indicate that the Singapore financial market is highly integrated with the US market. As for the other four countries, the precise UIP hypothesis is strongly rejected suggesting that the financial markets in these emerging economies have not fully liberalized and, therefore, limited the international financial market integration. By examining international finance market linkages between ASEAN-5 and the US economy, we provide some policy implications that can be used as guiding tools for financing and investment decisions in ASEAN-5.     

Is social protection a necessity or a luxury good? New multivariate cointegration panel data results

The aim of this paper is to test the claim that social protection is a luxury good. Therefore, GDP elasticity of selected social protection expenditure is estimated using a new econometric approach developed first by Kao and Chiang (Advances in Econometrics, 15, 179–222, 2000). Time series properties of selected social expenditure in 18 OECD countries from 1981 to 1998 are examined. Using panel data cointegration tests and OLS, FMOLS and DOLS estimators, results were found which differ from previous analyses reporting substantially higher income elasticities. With the FMOLS, selected social expenditure has income elasticities smaller than one but greater than one with the DOLS. It is noteworthy that whether selected social expenditure is stationary or nonstationary may have critical implications for researchers and policy makers desiring to model and explain the impact of this expenditure on a country economic system.     

COINTEGRATION OF STOCK MARKETS BETWEEN NEW ZEALAND, AUSTRALIA AND THE G7 ECONOMIES: SEARCHING FOR CO-MOVEMENT UNDER STRUCTURAL CHANGE

This paper examines whether the New Zealand equity market is integrated with the equity markets of Australia and the G7 economies by applying both the Johansen (1988 ) and Gregory and Hansen (1996 ) approaches to cointegration. The Johansen (1988 ) test suggests that there is no long-run relationship between the New Zealand stock market and any of the other stock markets considered in the study. The Gregory and Hansen (1996 ) test finds that the New Zealand and United States stock market is cointegrated, but the New Zealand stock market is not cointegrated with the other stock markets in the study. This suggests that in order to avoid some of the risk through international portfolio diversification there is potential for investors to purchase shares in the New Zealand market and either the Australian market or most of the world's leading equity markets.     

Non-linear causality between the stock and real estate markets of Western European countries: Evidence from rank tests

Using the non-parametric rank tests proposed by Breitung (2001), we set out in this study to determine whether any non-linear long-run equilibrium relationship exists between the stock and real estate markets of Western European countries. We go on to adopt the threshold error-correction model (TECM) to determine whether a similar relationship is discernible possibly non-linear functions of the log-price of these two markets. The findings clearly point to the existence of long-run unidirectional and bidirectional causality between the real estate market and the stock market in regions both above and below the threshold level. Finally, we find the existence of both wealth and credit price effects in the real estate markets and stock markets of Western European countries, which thereby offer financial institutions and individual investors in their construction of long-term investment portfolios within these two asset markets.     

Stock market integration of emerging Asian economies: Patterns and causes

In this study, we examine the patterns and causes of stock market integration of selected emerging Asian nations against the US, Australia, China, and India for the period 1 January 2001 to 31 March 2012. We compare patterns of market integration for countries on a daily, weekly, or monthly basis using the time-varying correlation technique, namely, GARCH-dynamic conditional correlations (DCCs). In doing so, we suggest that opportunities in cross border investment vary by frequencies. We also divide daily data into subsamples and find that correlations were strongest during the global financial crisis (GFC) of 2007–09. The time varying bilateral correlations are found to be highly volatile. We also investigate the causes of identified correlations and find that apart from the GFC, the underlying economic and financial conditions have also been responsible for the higher correlations between these stock markets.     

Financial market development and trade openness: evidence from emerging economies

International trade is said to be the engine of economic growth. Despite an enormous effort to explain this phenomenon, the relationship between financial market development and trade openness and integration into the world economy is still an enigma. This article investigates the relationship between financial market development and trade openness. To do this, we develop a long-run and short-run model (a bounds testing approach to cointegration) for 18 emerging economies over the period 1980 to 2011. Estimates from all models show that financial market development, including both the stock market and the banking sector, has significant effect on trade openness in both short-run and long-run phenomena in the majority of countries. Despite many similarities among emerging economies, additional evidence suggests that the link between either stock market development or banking sector development with trade openness works via each country’s specific structure.     

The Feldstein-Horioka puzzle in African countries: A panel cointegration analysis

This paper investigates the Feldstein-Horioka coefficients for 37 African countries using the recently developed Pooled Mean Group (PMG), Fully Modified OLS (FMOLS), and Dynamic OLS (DOLS) panel cointegration techniques. The empirical findings reported in this paper reveal that savings and investment are non-stationary and cointegrated series. The estimated coefficients using FMOLS, DOLS, and PMG are 0.38, 0.58, and 0.36, respectively, for the sample as a whole for the period from 1970 to 2006. These results confirm previous studies' findings that capital was relatively mobile in African countries compared to OECD countries. In addition, our study shows that there are marked differences in savings retention coefficients for different country groups in Africa (CFA franc zone and non-CFA franc zone countries, oil-producing and non-oil-producing countries, civil law and common law countries). These results have some policy implications.     

Predicting long-run risk factors of stock returns: Evidence from Australia

This study utilises the stock market data provided by the Australian Equity Database to analyse the long-run relationship between Australian stock returns and key macroeconomic variables over the period 1926–2017. To measure the diverse risk factors in the stock market, we examine the possible determinants in four main categories: real, financial, domestic and international. Our results reveal that historical stock returns are strongly connected to financial and international factors as compared to real and domestic factors. Both the 1973–1974 OPEC Oil Price Crisis and 2007–2008 Global Financial Crisis had dampening effects on stock returns. There is a positive association between the US and Australian stock markets in the long-run. These findings on stock market dynamics and their linkages with domestic and international macroeconomic policy changes in the long-run have important implications for traders and practitioners.     

人民币汇率与股价动态相关性的研究——基于次贷危机前后的比较分析

本文基于2005年8月至2010年6月的月度数据,利用协整检验和向量误差修正模型研究了次贷危机发生前后人民币名义有效汇率与股票价格之间的联动关系。实证结果表明,次贷危机发生前中国股市与汇率之间存在正向的长期均衡关系,且两者之间在长期互为因果关系;在次贷危机发生后两者之间则是反向的长期均衡关系,股价波动在长期内是人民币名义有效汇率变动的单向Granger原因。最后本文基于人民币名义有效汇率的计算方法及其影响因素,利用资产组合平衡模型、国际贸易等相关理论对实证结果进行了分析。     

The relationship between the Vietnam stock market and its major trading partners – TECM with bivariate asymmetric GARCH model

This study employs threshold error-correction model with bivariate Glosten–Jagannathan–Runkle-generalized autoregressive conditional heteroscedasticity model to examine the relationship between the Vietnam stock market and its major trading partners, the United States, Japan, Singapore and China. The results indicate that the Vietnam stock market and return risks are influenced by Japan and Singapore stock markets. We also find that the volatility of stock market in Vietnam and its trading countries have an asymmetrical effect. These findings could be valuable to individual investors and financial institutions holding long-run investment portfolios in the Vietnam stock market.     

FINANCIAL CRISES AND INTERNATIONAL STOCK MARKET VOLATILITY TRANSMISSION

This paper examines the interplay between stock market returns and their volatility, focusing on the Asian and global financial crises of 1997–98 and 2008–09 for Australia, Singapore, the UK, and the US. We use a multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model and weekly data (January 1992–June 2009). Based on the results obtained from the mean return equations, we could not find any significant impact on returns arising from the Asian crisis and more recent global financial crises across these four markets. However, both crises significantly increased the stock return volatilities across all of the four markets. Not surprisingly, it is also found that the US stock market is the most crucial market impacting on the volatilities of smaller economies such as Australia. Our results provide evidence of own and cross ARCH and GARCH effects among all four markets, suggesting the existence of significant volatility and cross volatility spillovers across all four markets. A high degree of time‐varying co‐volatility among these markets indicates that investors will be highly unlikely to benefit from diversifying their financial portfolio by acquiring stocks within these four countries only.     

Short-run and long-run dynamic linkages among international stock markets

This paper investigates the dynamic linkages among the U.S., Japan, U.K. and German stock market indices using daily data for the April 1, 1984 to May 31,91 period. In contrast to previous studies, a vector error correction model of cointegrated variables as developed by Johansen (1988, 1991) and Johansen and Juselius (1990) is employed to examine both short-run and long-run intermarket relationships among these four stock markets. Significant evidence is found in support of both short-run and long-run relationships among these four stock market indices. The U.S. stock market leads other stock markets in short-run in the pre and post October 1987 crash, but leads all other markets in the long-run in all periods examined. The presence of a one long-run cointegrating equilibrium relationship among the four stock market indices implies a limited role of international diversification for investors with long holding periods. However, because the US-Japan-Germany stock market indices, and Japan-UK-Germany indices are not cointegrated with each other, these indices may yield international portfolio diversification in the long-run. Finally, the conflicting results from multivariate cointegration tests found in this study can not be used to provide conclusive evidence on international stock market efficiency.     

The political economy of public investment when population is aging: A panel cointegration analysis

Time preferences vary by age. Notably, according to experimental studies, senior citizens tend to discount future payoffs more heavily than working-age individuals. Based on these findings, we hypothesize that demographic change has contributed to the cut-back in government-financed investment that many advanced economies experienced over the last four decades. We demonstrate for a panel of 19 OECD countries between 1971 and 2007 that the share of elderly people and public investment rates are cointegrated, indicating a long-run relationship between them. Estimating this cointegration relationship via dynamic OLS (DOLS) we find a negative and significant effect of population aging on public investment. Moreover, the estimation of an error correction model reveals long-run Granger causality running exclusively from aging to investment. Our results are robust to the inclusion of additional control variables typically considered in the literature on the determinants of public investment.     

中国高技术产业垂直专业化影响因素研究——基于各行业和各地区面板协整的实证检验

文章选取中国高技术产业1995-2008年行业和地区两个层面的面板数据,运用面板单位根检验、面板协整检验、面板FMOLS估计方法和面板DOLS估计方法对高技术产业垂直专业化的影响因素进行了经验分析。研究表明,外向度和资本密集度对高技术产业垂直专业化有着显著的正向影响,但对各行业和各地区垂直专业化的影响程度存在一定差异。为此,政府应采取相关政策措施,促进高技术产业垂直专业化趋势的不断深化。     

股指期货限制交易对定价效率影响研究*——基于跨市场信息传递视角的实证

从跨国金融市场信息传递的视角对中国2015年股灾中股指期货限制交易政策实施前后的中美市场实证分析表明：股指期货的限制交易政策极大地增强了美国市场对中国市场的影响，尤其是在下跌行情中的影响更大。分位数回归显示美国市场的交易活动对中国市场开盘价的影响呈“V”型特征，美国市场的微小波动都会引起中国市场的巨大波动，限制交易措施实施后，在下跌行情中来自美国市场的负冲击对中国市场的影响变得更大。这一实证研究的政策含义在于：为了增强股指期货市场的定价效率，金融监管层在市场稳定后应放开股指期货的限制交易，并通过降低准入门槛和合约大小等措施提高市场的开放程度。此外，监管层和国内投资者不能忽视美国股指期货对国内市场的影响。     

Volatility and dynamic conditional correlations of worldwide emerging and frontier markets

This study examines the relationship between time-varying correlations and conditional volatility among 32 worldwide emerging and frontier stock markets and the MSCI World stock market index from January 2000 to December 2012. Correlations are estimated in the standard and asymmetric dynamic conditional correlation model frameworks. The results can be summarized by three main findings: (1) asymmetry in volatility is not a common phenomenon in emerging and frontier markets; (2) asymmetry in correlations is found only with respect to the Hungarian stock market; and (3) the relationship between volatility and correlations is positive and significant in most countries. Thus, diversification benefits decrease during periods of higher volatility.