A non-linear approach for predicting stock returns and volatility with the use of investor sentiment indices

The popular sentiment-based investor index S^BW introduced by Baker and Wurgler (2006, 2007) is shown to have no predictive ability for stock returns. However, Huang et al. (2015) developed a new investor sentiment index, S^PLS, which can predict monthly stock returns based on a linear framework. However, the linear model may lead to misspecification and lack of robustness. We provide statistical evidence that the relationship between stock returns, S^BW and S^PLS is characterized by structural instability and inherent nonlinearity. Given this, using a nonparametric causality approach, we show that neither S^BW nor S^PLS predicts stock market returns or even its volatility, as opposed to previous empirical evidence.     

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.     

The causal relationship between natural gas consumption and economic growth: evidence from the G7 countries

This article re-examines the nature of the causality between natural gas consumption and economic growth in G7 countries over the period from 1965 to 2011. We employ the Granger causality procedure proposed by Emirmahmutoglu and Kose (2011) which takes into account cross-sectional dependency and heterogeneity across countries. Our overall empirical results support the neutrality hypothesis for the panel while the individual country results confirm the same result with the exception of the case of UK, where the conservation hypothesis is confirmed, showing that GDP causes natural gas consumption in the country. These results make policies that promote the consumption of natural gas risk-free with regard to their effects to the economic growth and development levels.     

Corruption Via Media Capture: The Effect of Competition

In this article, we compare a government's optimal choice of whether to engage in corruption by capturing the media outlets through bribery in two alternative media market structures: monopoly versus duopoly. While there is an extra bribe claimant in a media duopoly relative to monopoly, it may also be harder for each firm to individually expose corruption when the rival co‐opts with the government. We find that when the latter effect is stronger than the former, media is captured at lower bribes under duopoly relative to monopoly and in such instances media competition facilitates rather than hindering corruption.     

Does Economic Policy Uncertainty Predict Exchange Rate Returns and Volatility? Evidence from a Nonparametric Causality-in-Quantiles Test

Recent studies have analysed the ability of measures of uncertainty to predict movements in macroeconomic and financial variables. The objective of this paper is to employ the recently proposed nonparametric causality-in-quantiles test to analyse the predictability of returns and volatility of sixteen U.S. dollar-based exchange rates (for both developed and developing countries) over the monthly period of 1999:01–2012:03, based on information provided by a news-based measure of relative uncertainty, i.e., the differential between domestic and U.S. uncertainties. The causality-in-quantile approach allows us to test for not only causality-in-mean (1st moment), but also causality that may exist in the tails of the joint distribution of the variables. In addition, we are also able to investigate causality-in-variance (volatility spillovers) when causality in the conditional-mean may not exist, yet higher order interdependencies might emerge. We motivate our analysis by employing tests for nonlinearity. These tests detect nonlinearity, as well as the existence of structural breaks in the exchange rate returns, and in its relationship with the EPU differential, implying that the Granger causality tests based on a linear framework is likely to suffer from misspecification. The results of our nonparametric causality-in-quantiles test indicate that for seven exchange rates EPU differentials have a causal impact on the variance of exchange rate returns but not on the returns themselves at all parts of the conditional distribution. We also find that EPU differentials have predictive ability for both exchange rate returns as well as the return variance over the entire conditional distribution for four exchange rates.     

Knowledge flows within multinational corporations

Pursuing a nodal (i.e., subsidiary) level of analysis, this paper advances and tests an overarching theoretical framework pertaining to intracorporate knowledge transfers within multinational corporations (MNCs). We predicted that (i) knowledge outflows from a subsidiary would be positively associated with value of the subsidiary’s knowledge stock, its motivational disposition to share knowledge, and the richness of transmission channels; and (ii) knowledge inflows into a subsidiary would be positively associated with richness of transmission channels, motivational disposition to acquire knowledge, and the capacity to absorb the incoming knowledge. These predictions were tested empirically with data from 374 subsidiaries within 75 MNCs headquartered in the U.S., Europe, and Japan. Except for our predictions regarding the impact of source unit's motivational disposition on knowledge outflows, the data provide either full or partial support to all of the other elements of our theoretical framework. Copyright © 2000 John Wiley & Sons, Ltd.     

The impact of external forces on cartel network dynamics: Direct research in the diamond industry

This paper describes the impact of external environmental forces on cartel networks. Using a case research approach, this report examines two leading business networks within one industry, over time. The results suggest that (a) bargaining power of intermediaries increases with the advent of new and powerful actors, (b) process activities that cartels previously controlled are being outsourced to new actors sometimes based in developing countries, (c) other actors are acquiring resources once dominated by a cartel, (d) external forces triggered by the illegal diamond trade, such as international regulatory constraints, no longer favour cartels like De Beers, and (e) over time, these and additional environment factors are forcing actors like De Beers who perform rigid process activities to become more flexible. For example, forces are moving cartels which relied previously on hand-picked intermediaries in highly controlled networks to market their products to adopt a flexible market-focused expansion of operations in retail contexts.     

Keeping up with the Vaishyas? Caste and relative standing in India

People care about relative, and not only absolute, income. Thispaper investigates the importance of relative income withinand between castes in the Indian caste system, using a choiceexperimental approach. The results indicate that slightly morethan half of the marginal utility of income comes from somekind of relative income effects, on average. This is comparableto the results from previous studies in other countries. Belongingto a low caste and having a low family income are associatedwith higher concern for relative income. Moreover, an increasein the mean income of the caste to which the individual belongs,everything else held constant, reduces utility for the individual.Thus, the negative welfare effect of having a reduced relativeincome compared to the own caste average income dominates thepositive welfare effect due to increased relative income ofthe own caste compared to the income of other castes.     

Causal effects of the United States and Japan on Pacific-Rim stock markets: nonparametric quantile causality approach

This article adopts a nonparametric quantile causality approach to examine the causal effects of the U.S. and Japan stock markets on the stock markets of the Pacific-Rim region. This approach allows us to detect not only nonlinear causalities in conditional return (mean) and conditional volatility (variance) but also the asymmetries of causalities under extreme market conditions (bullish vs. bearish states). Our results provide significant evidence of causality in return and volatility at different points of the conditional distributions of returns, with the greater effects from the U.S. than from Japan. Asymmetric quantile causality patterns are particularly pronounced in the case of Japan.     

Spillovers between Bitcoin and other assets during bear and bull markets

This article contributes to the embryonic literature on the relations between Bitcoin and conventional investments by studying return and volatility spillovers between this largest cryptocurrency and four asset classes (equities, stocks, commodities, currencies and bonds) in bear and bull market conditions. We conducted empirical analyses based on a smooth transition VAR GARCH-in-mean model covering daily data from 19 July 2010 to 31 October 2017. We found significant evidence that Bitcoin returns are related quite closely to those of most of the other assets studies, particularly commodities, and therefore, the Bitcoin market is not isolated completely. The significance and sign of the spillovers exhibited some differences in the two market conditions and in the direction of the spillovers, with greater evidence that Bitcoin receives more volatility than it transmits. Our findings have implications for investors and fund managers who are considering Bitcoin as part of their investment strategies and for policymakers concerned about the vulnerability that Bitcoin represents to the stability of the global financial system.